Despite the Supreme Court ruling against the Environmental Protection Agency's (EPA) plans to curb toxic gas emissions from power plants, analysts believe utilities are still compelled to retire coal-fired units, and see the high court's ruling as a positive development for the natural gas industry.
Meanwhile, an EPA official said the agency’s Mercury and Air Toxics Standard (MATS) remains in effect, and that it is addressing the issues raised by the high court. The agency also moved toward settling a 16-year legal battle with an Alabama utility over emissions at three power plants in the state.
On Monday, the Supreme Court ruled 5-4 that the EPA failed to adequately consider the costs to industry for its compliance with MATS (see Daily GPI, June 29). It reversed a decision by the U.S. Court of Appeals for the District of Columbia Circuit, and sent the rule back to the EPA for further consideration. The circuit court was also instructed to determine whether MATS should remain in effect while EPA conducts its analysis.
"Given the Supreme Court's decision, we expect the circuit court to vacate MATS," analysts with Sanford C. Bernstein & Co. LLC said Tuesday, but added that the rule's vacature would "have only a limited impact on the first set of plants...whose retirements have already been announced.
"These plants were slated for retirement because their advanced age, small size and low capacity, factors that render it uneconomic to upgrade the units to comply with MATS. The owners of these units determined that the high cost of these emissions controls was unlikely to be recovered over the short remaining useful life and limited hours of operation of these units, particularly at the very low gas and hence power prices prevailing today."
The Bernstein analysts said that while a vacature of MATS may provide temporary relief, a host of additional regulations were waiting in the wings.
"These plants will soon face the cost of complying with numerous other EPA regulations," they said. "[That includes] the Cross State Air Pollution Rule, which requires similar air emissions controls as MATS; the EPA's recently promulgated coal ash rule; its soon to be released regulations governing wastewater disposal and emissions of nitrogen oxides (NOx); and finally and most importantly, the EPA's Clean Power Plan, which will regulate emissions of CO2."
Although none of their industry sources said the retirement of coal-fired units would be significantly delayed, the Bernstein analysts said they now assume some coal-fired units -- whose retirement had not yet been announced, but lack the emissions controls to comply with MATS -- could now survive.
Consequently, Bernstein revised its base case analysis and now projects that 39 GW of coal-fired capacity (135 million MWh/year) will be retired from 2015 to 2020, down from its previous projection of 46 GW (155 million MWh/year). The firm added that should the loss of 135 million MWh be entirely offset by increased generation from natural gas-fired units, utilities would need an additional 2.5 Bcf/d, down from 3.0 Bcf/d in the prior forecast.
Rick Gechter, a natural gas analyst based in Virginia Beach, VA, told NGI his initial reaction to the Supreme Court's ruling was that it was a positive development for the natural gas industry. But many questions remain.
"The timetable that [EPA] had set to meet those [MATS] goals was very tight and put on a lot of pressure, particularly on the utilities," Gechter said Tuesday. "I think the utilities are divided on this whole issue, and it really depends on the culture, the plans and the region they serve.
"Some utilities are very much oriented to alternative sources no matter what the EPA says or does. Other utilities are less positive and it's all going to come to dollars and cents for a lot of them. It's hard to say what they're going to do. Politics has just gotten into energy, and that's unfortunate because then it starts to not make sense to anybody."
In a blog post Tuesday, Janet McCabe, EPA Acting Assistant Administrator for the Office of Air and Radiation, said the Supreme Court's ruling was "disappointing," but she said the agency was still moving forward. She emphasized that the ruling has no effect on the EPA's Clean Power Plan, which the agency is finalizing this summer.
"This decision is very narrow. It did not invalidate the rule, which remains in effect today," McCabe said. She added that "from the moment we learned of this decision, we were committed to ensuring that [MATS] standards remain in place to protect the public from toxic emissions from coal and oil-fired electric utilities.
"We will continue to work to make that happen. There are questions that will need to be answered over the next several weeks and months as we review the decision and determine the appropriate next steps once that review is complete."
Last Thursday, EPA said both it and the Department of Justice had lodged in U.S. District Court for the Northern District of Alabama a proposal to modify a 2006 agreement with Alabama Power Co., under which the utility has agreed to make further emissions reductions at three power plants in the state.
According to EPA, Alabama Power has agreed to pay a $100,000 penalty and will spend at least $1.5 million on providing electric vehicle (EV) charging infrastructure for electric airport service vehicles and passenger cars. But Alabama Power spokesman Michael Sznajderman told NGI the agreement is still being "fleshed out."
"The plan isn't fully developed yet," Sznajderman said Tuesday. "We anticipate that there will be some work potentially at Birmingham International Airport, but we have also been looking at expanding the EV infrastructure around the state. We are determining what the best places are to place for public charging [stations]."
Sznajderman said the utility, which is owned by Southern Co., has agreed to permanently retire two coal-fired units (Nos. 6 and 7) at its Plant Gorgas in Walker County, and one coal-fired unit (No. 3) at its Plant Barry in Mobile County. Two coal-fired units (Nos. 1 and 2) at Plant Barry will be converted to natural gas-fired units. The utility will also convert both existing coal-fired units (Nos. 1 and 2) at Plant Greene County to natural gas.
Plant Barry and Plant Greene County already have connections to natural gas lines, but they could be expanded, Sznajderman said.
"The case was originally filed in 1999. It's been a long-standing case, partially settled in 2006. From our perspective, this case has gone on for a long time because we've always maintained that we always had complied with the Clean Air Act. We defended the case pretty vigorously over time, and we've now come to what we believe is a reasonable settlement."