EPA Proposes New Clean Air Transport Rule, Utilities Seek "Regulatory Relief"

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The United States Environmental Protection Agency (EPA) (Washington, D.C.) issued the long-awaited Transport Rule on July 6, the first step in replacing its Clean Air Interstate Rule (CAIR), which was issued in 2005 but struck down by a federal court in 2008. As drafted, the Transport Rule would sharply reduce emissions of sulfur dioxide and nitrogen oxide from power plants located in 31 states and the District of Columbia that contribute to ozone formation and fine-particle pollution.

Once the 1,361-page draft rule is published in the Federal Register, public comments will be taken for 60 days. The rule has a docket number of EPA-HQ-OAR-2009-0491. The EPA also plans to hold three public meetings at which public comments will be taken.

The EPA acknowledged that it plans to have these rules take effect "very quickly, in 2012--within one year after the rule is finalized. By 2014, the rule and other state and EPA actions would reduce power plant SO2 emissions by 71% over 2005 levels. Power plant NOx emissions would drop by 52%."

The EPA estimates that the proposed rule would produce between $120 billion to $290 billion in annual health and welfare benefits in 2014, including the value of avoiding 14,000 to 36,000 premature deaths, 21,000 cases of acute bronchitis, 23,000 non-fatal heart attacks, and 26,000 hospital and emergency room visits tied to power plant emissions. This investment "far outweighs the estimated annual costs of $2.8 billion," the agency said, noting that power plants could comply with the new rule by installing pollution-control equipment or switching boiler fuels.

The EPA's top air-quality official, Gina McCarthy, was quoted as saying that the draft rule is "a large and important step in EPA's effort to protect public health." The agency claimed that the proposed rule "would not disrupt a reliable flow of affordable electricity for American consumers and businesses."

The proposed rule would affect a total of 369 coal-fired power plant units in 31 states and the District of Columbia, representing 2.75 terawatts of generating capacity, according to Brock Ramey, a senior Power Industry specialist for Industrial Info. More than 50% of these units already have flue-gas desulfurization (FGD) or selective catalytic reduction (SCR) equipment installed, but the emissions reductions proposed in the EPA transport rule may require some of this equipment to be upgraded, overhauled or replaced, he said.

Industrial Info is tracking 115 active FGD and SCR pollution-reduction projects that are in the planning, engineering or construction phases, Ramey said in an interview. But he added that about 160 other power plant emissions-reduction projects have been placed on hold in recent years because operators didn't want to install pollution-reduction equipment until new regulatory or legislative standards were in place. Once emissions standards are clarified, Ramey said, it will be easier for operators to calculate the costs and benefits of retrofitting, repowering, or closing older, less-efficient, higher-emitting coal-fired power plants.

Whatever its final form--and litigation from some disaffected party is a virtual certainty--the proposed EPA Transport Rule would significantly affect the operations and business prospects of electric utilities, fuel companies, and providers of pollution-control equipment and services. Those businesses also are expected to be meaningfully affected next March, when the EPA is scheduled to issue what is expected to be a strict rule on power-plant mercury emissions.

But, like almost everything else involving energy policy in Washington, the EPA's proposed Transport Rule quickly became enmeshed in negotiations utilities held with members of congress and environmental groups over energy and climate change legislation. According to news reports, the utilities were seeking "regulatory relief" from federal initiatives aimed at reducing smog, soot, and power-plant mercury emissions, as well as favorable climate-change allowance allocations, in exchange for their support for an energy and climate change bill that included caps on utility greenhouse gas emissions.

Late last week a group of utilities, including representatives from Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina); Exelon Corporation (NYSE:EXC) (Chicago, Illinois); Pacific Gas & Electric, a unit of PG&E Corporation (NYSE:PCG) (San Francisco, California); PNM Resources Incorporated (NYSE:PNM) (Albuquerque, New Mexico); and Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia), held two days of closed-door meetings with representatives of environmental groups, including the Environmental Defense Fund, the Natural Resources Defense Council, and the Pew Center for Global Climate Change. Though participants would not disclose exactly what they were negotiating, they confirmed that they were wrestling with the utility industry's insistence that it receive "regulatory relief" from several existing Clean Air Act provisions in return for agreeing to support climate-change legislation that includes carbon dioxide emissions reduction.

On a related front, top officials from the Edison Electric Institute (EEI) (Washington, D.C.) last week met with Sen. John Kerry (D-Mass.) on proposed energy and climate change legislation. The negotiations are heating up because Senate Majority Leader Harry Reid (D-Nevada) has said he wants to schedule Senate floor action on an energy and climate change bill during the week of July 26. But Reid would not specify which proposed legislation would be considered, or whether the proposal he intends to debate is a mix of various other proposals that have been introduced over the past year.

Since the Waxman-Markey bill was passed by the House of Representatives in the summer of 2009, a variety of competing energy and climate change bills have been introduced in the Senate, including bills spearheaded by:

• Kerry and Joseph Lieberman (I-Conn.)
• Jeff Bingaman (D-N.M.)
• Jay Rockefeller (D-W. Va.)
• Lisa Murkowski (R-Alaska)
• Tom Carper (D.-Del.) and Lamar Alexander (R-Tenn.).

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