Compliance Spending to Increase as Power Industry Gradually Obtains Regulatory Clarity from EPA, a "Navigating the Currents of Change" Webcast on Industrialinfo.com

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Researched by Industrial Info Resources (Sugar Land, Texas)--Electric generation utilities began 2012 with continued uncertainty about compliance standards for the Cross-State Air Pollution Rule (CSAPR) issued by the EPA, although there was more clarity in the agency's Mercury and Air Toxics Standards (MATS) rule.

"We are tracking about $30 billion of compliance-related project spending annually for the next several years to meet the requirements of CSAPR and MATS," Brock Ramey, Industrial Info's manager of North American Power Industry Research, said in an exclusive "Navigating the Currents of Change" webcast. Ramey noted that environmental regulations like CSAPR, MATS and other proposed rules will be a featured topic of discussion at this year's Electric Power Conference and Exhibition, May 15-17 at the Baltimore Convention Center. Industrial Info will be exhibiting at Booth 1313.

Ramey noted that CSAPR was temporarily stayed at the end of 2011 by the U.S. Court of Appeals in Washington, D.C. The December 30 ruling caught most people by surprise as it came two days before the regulation was scheduled to go into effect.

Implementation of CSAPR was delayed until arguments could be held on April 13 of this year. On February 21, the EPA again revised the regulation. This most recent revision will still affect all of the states impacted by the original rule, but only 17 to 20 states are expected to see major impacts. For more on the EPA's prior revision to its finalized CSAPR rule, see October 13, 2011, article - EPA Proposes Technical Changes to Finalized Cross-State Air Pollution Rule.

EPA's February 21 finalized regulation calls for an emissions budget increase for Florida, Louisiana, Michigan, Mississippi, Nebraska, New Jersey, New York, Texas and Wisconsin. New unit guidelines were set for Arkansas and Texas. Emissions budget changes had already been made for Iowa, Michigan, Missouri, Oklahoma and Wisconsin during the previous budget proposal. The new revision also calls for moving the implementation date for the assurance portion of CSAPR from 2012 to 2014.

Other modifications were made to ensure that CSAPR does not interfere with judicial actions in place for certain states such as Alabama, Indiana, Kansas, Kentucky, Ohio, and Tennessee. EPA is still looking at budget adjustments and allocations for other states as well, as the agency prepares for oral arguments at the D.C. Circuit Court in the coming weeks. Earlier this month, EPA once again tried to get the court to lift the stay and to uphold the regulation in a filing in which the agency asserted that CSAPR "gave a clear and concise outlook of what areas of the country needed to be included in this rule." The regulation still is projected to effect approximately 880 electric generating units across 27 states.

In his "Navigating" interview, Ramey noted that the EPA took a totally different turn on December 16, 2011, when it finalized MATS, the first national standard on emissions of mercury and other air toxics. The changes that had been made to the regulation from the prior proposal were quite significant. MATS still calls for the reduction of mercury, arsenic, acid gases and particulates on any coal-or oil-fired electric generation unit that is 25 megawatts (MW) or larger and sells power to the nation's electrical grid. For more on the MATS rule, see December 27, 2011, article - Environmental Protection Agency Finalizes Mercury and Air Toxics Standards.

The December changes to MATS differed significantly from what the agency originally proposed earlier in 2011, including the following:

• Better definitions of coal and oil categories and sub-categories, bringing a total change in the ruling concerning the regulation on gasified coal units and technologies.
• Better explanations of which emissions would be regulated for coal- and oil-fired units and the differences between the two.
• Additional technology suggestions or combinations of technology that have the best chance to reduce the emissions outlined in the regulation.
• Better workplace guidelines and standards for oil-fired units and some smaller coal-fired units.
• Changes on the particulates matter portion to cover a filterable particulate range, a significant change from the first regulation.
• Better averaging and reporting practices to meet emissions requirements.

This regulation is due to be on the national registry no later than the end of this month, with implementation going into effect as soon as next month for new units only. Existing assets still have approximately four years to become compliant, with a possible one-year extension given by the agency on a case-by-case basis. Industrial Info forecasts that MATS will apply to approximately 1,400 electric generating units at 660 power plants across the nation.

Ramey predicts that these two regulations will result in the premature retirement of 33 to 50 gigawatts (GW) of power plants--a bit different than the 25 to 30 GW forecast by the EPA. Several large utilities, including The Southern Company (NYSE:SO) (Atlanta, Georgia); American Electric Power Company (NYSE:AEP) (Columbus, Ohio); Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina); FirstEnergy Corporation (NYSE:FE) (Akron, Ohio); and the Tennessee Valley Authority (NYSE:TVE) (TVA) (Knoxville, Tennessee) have announced that they will retire some coal-fired generators rather than invest in compliance projects. For additional information, see February 10, 2012, article - Utilities Evaluate Best Course of Action in Regard to Coal- and Oil-Fired Fleets; February 2, 2012, article - MATS Forces FirstEnergy to Close Six Coal-Fired Plants This Year; and October 7, 2011, article - Announced Closures, Lawsuits Continue in Wake of CSAPR.

"We see environmental compliance spending increasing at a steady pace in 2012 and continuing at an increased pace for several years as EGUs (electric generating utilities) comply with these two regulations," Ramey said.

Some compliance projects could use certain technologies such as a pulse jet fabric filter baghouse to bring a unit into compliance with both the mercury aspect of MATS and the particulate aspect of CSAPR.

EGUs are hard at work calculating optimal solutions with respect to cost, compliance and reliability. Some EGUs are looking not only at the environmental projects, but also the cost of upgrading the existing boiler systems to handle these pieces of equipment. Several EGUs are projecting the implementation of "mega-projects," which will incorporate emissions reduction; unit upgrades; and other items such as wastewater treatment upgrades; gypsum and limestone storage and handling areas; and ash handling upgrades and conversions. Such projects would cost hundreds of millions, if not billions, of dollars to complete. Owners are looking at what is needed in these projects to address the New Source Performance Standards that were proposed in July 2011 and are scheduled to be finalized at the earliest in November 2012.

The increased industry spending on environmental compliance projects is expected to continue for the next four to five years to meet the requirements of CSAPR and MATS. Several EGU owners have already started front-end engineering and design (FEED) for projects that may not begin construction for another 18 months or more. Companies such as Sargent & Lundy LLC (Chicago, Illinois), Black & Veatch Corporation (Overland Park, Kansas), Bechtel (San Francisco, California), WorelyParsons (Sydney, Australia), and URS Corporation (NYSE:URS) (San Francisco) are only some of the engineering and construction firms that are assisting EGU owners with design engineering and practical studies to meet the mountain of requirements set out before them and navigate the uncertainties surrounding these regulations.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.