FERC To Consider Reliability Impacts On Bulk-Power System That May Result From EPA Regulations

By Eli Hopson and David Pettit

The nation’s coal fleet is getting older and will become subject to a looming suite of regulatory requirements issued by the U.S. Environmental Protection Agency (EPA), such as the Mercury and Air Toxics Standards (a/k/a “Utility Maximum Achievable Control Technology” or Utility MACT) and the Cross-State Air Pollution Rule (CSAPR). Given these EPA rules and the entry of more efficient, lower-cost generation and demand response resource competitors, many coal plants are expected to retire in the next ten to fifteen years. In response to these anticipated developments, the Federal Energy Regulatory Commission (FERC) announced on Friday, October 7, in Docket No. AD12-1 that it will hold a technical conference on November 29-30, 2011 to discuss policy issues related to the reliability of the bulk-power system and identify potential reliability concerns stemming from compliance with EPA regulations. The technical conference follows an informal assessment by FERC staff of the reliability impacts of proposed EPA rules prepared this past summer in response to an inquiry by Senator Lisa Murkowski. This informal, preliminary assessment indicated 40 giga-watts (GW) of coal-fired generating capacity “likely” to retire, with another 41 GW “very likely” to retire by 2018.

Precisely how much coal-fired generating capacity will retire has been the subject of much debate and political turmoil, and several studies have produced significantly varied results. Much of the variation is based on which EPA rules the studies consider and how they handle the potential for greenhouse gas regulations, as not all of the studies consider such possibility. Varying stringencies of proposed regulations also create a challenge for the analyses, as do the expected future costs of natural gas, a key fuel-switching option for many utilities considering retiring coal plants. Below is a list of several of these studies and some commentary regarding the potential impacts. In short, anywhere from 17 to 70 GW of coal-fired generation is expected to be retired by 2015 rather than upgraded to meet the newest round of EPA standards.

The studies take different approaches in assessing the impacts of these retirements. For example, according to the North American Electric Reliability Corporation (NERC), retirements could result in reductions in bulk power reliability margins below required levels unless new generation capacity or demand response beyond that already planned is installed. NERC specifically points to the timing of the rules’ implementations as being a crucial factor, as phased-in requirements allow more time for retrofitting and replacement to take place.  However, Charles River Associates (CRA) argues that these retirements are not likely to adversely impact reliability margins in the aggregate because retired coal-fired capacity will be replaced by new generation and demand response resources. A key factor underlying CRA’s conclusion is an expectation that relatively low natural gas prices will remain in the future and will drive a substantial portion of the coal retirements and a significant increase in natural gas-fired generation.

¹While the EPRI report does not provide a date by which the retirements would take place, it suggests that the retirements would commence upon implementation of the more stringent options of the proposed rule for Cooling Water Intake Structures. See also National Pollution Discharge Elimination System—Cooling Water Intake Structures at Existing Facilities and Phase I Facilities, 76 Fed. Reg. 22174, 22183 (Apr. 20, 2011).

²Reflects retirements announced as of June 2011.