Power Plants Facing Millions To Comply With EPA Rule

Power plant owners may not have liked the Supreme Court’s ruling on Tuesday, but they’ve had a long time to prepare for it and it won’t be as disruptive to their bottom line as they initially feared.

The Court voted 6–2 to uphold the Cross-State Air Pollution Rule, an Environmental Protection Agency regulation initiated in August 2011 that would force about 1,000 power plants to reduce operations or adopt pollution controls in order to reduce sulfur dioxide and nitrogen oxide emissions linked to respiratory diseases and heart attacks. A 2012 Appeals Court decision sided with industry groups and states that opposed the rule, putting it on hold. With the high court’s ruling, the EPA now has the authority to require 28 Midwest, southeastern and East Coast states to reduce power-plant emissions.

But the D.C. Circuit and other courts must first address a slew of related lawsuits. And the EPA may have to update data on air pollution that was used to craft the rule, as well as reschedule deadlines that were missed while the case was being litigated. This will give power plant owners more time to update their facilities or shut down.

“Essentially, it’s turned out that the delays that have occurred are beneficial to many owners of power plants -- because if the rule had gone into effect when it was initially scheduled [on Jan. 1, 2012], it would have had a major disruptive effect on the utilities,” Andrew Weissman, senior energy adviser for law firm Haynes and Boone, said.

In the years since the EPA’s original rule was announced, many plants have closed. Plant owners and operators reported to the U.S. Energy Information Administration in 2011 that they expect to retire about 8.5 percent of coal-fired capacity through 2016, mostly in the eastern half of the country and more than four times the retirements of the preceding five-year period. A record high of 10GW of coal-fired capacity is expected to retire in 2015.

The Edison Electric Institute, an association of shareholder-owned electric companies, forecasts that 15 percent of nationwide coal-fired capacity will have retired from 2010 to 2022, not including potential retirements from future regulations.

American Electric Power Co. (NYSE: AEP), one of the nation’s largest electric utilities, which delivers electricity to more than 5 million customers in 11 states, spent $415 million on environmental investments last year and expects that amount to grow to $588 million this year and $644 million in 2015. Some of the potential investments include retrofitting plants in Virginia and Kentucky with natural gas capacity. Natural gas plants emit about half the air pollution of coal-fired plants.

The EPA estimated in 2011 that the Cross-State Air Pollution Rule would cost utility companies $800 million annually in 2014, in addition to the $1.6 billion per year power plant operators spend to comply with the Clean Air Interstate Rule, mandated in 2005. The EPA claims the costs will be outweighed by the health benefits, estimated at up to $280 billion annually starting this year.

When asked Wednesday if EPA would recalculate those costs for more up-to-date accuracy, an EPA spokesperson said the agency is “reviewing the decision and deciding on next steps.”

The EPA is preparing to release another regulation in June to reduce carbon pollution from existing power plants.

“There’s definitely a lot of uncertainty right now,” Philip Wallach, a fellow at the nonpartisan Brookings Institution, a Washington public policy center. “All this time the rule has been in place, even though it was struck down in lower courts. It’s been a slow-moving battle.”

The utility industry’s fight against environmental regulations dates back to a provision on interstate pollution in the 1976 Clean Air Act.

“This has been fought at for my entire professional lifetime, and it’s still not over,” Weissman said.