GAO report urges EPA, DOE, FERC cooperation on coal retirements

Toughened U.S. EPA standards won’t force enough retirements of coal-fired power plants to cripple the nation’s power grid but it could cause major headaches, including big rate increases for some parts of the country, according to a new study by the Government Accountability Office.

The GAO study calls on the Federal Energy Regulatory Commission (FERC), EPA and the Department of Energy to take a more coordinated approach to monitoring the impact of coal plant retirements across the nation.

The three biggest federal players “do not have a joint, formal process to monitor industry’s progress in responding to the regulations,” according to the GAO report, released Aug. 17.

While the agencies have taken “important first steps,” there remains no formal documented process, GAO said. Some state regulatory reviews are being used as are studies by regional transmission organizations, but GAO urges greater coordination.

The GAO report suggests that most U.S. coal plants will get retrofitted and 2% to 12% of coal power capacity could be retired. That could amount to more coal power retirements than have occurred in the past two decades, GAO said.

The roughly 100-page report was done by Senate Committee on Science and Transportation Chairman Jay Rockefeller, D-W. Va.

In an Aug. 16 statement, Rockefeller praised the GAO report. “We must address the health and environmental concerns related to the power sector, and this report shows that we can do it responsibly. This report also makes clear that if federal agencies – such as the Department of Energy, EPA, and FERC – coordinate their efforts, it could help ease the process of implementing the standards on states and communities,” Rockefeller said.

EPA recently proposed or finalized four regulations affecting coal-fueled electricity generating units, which traditionally provide almost half of the electricity in the United States although coal has been losing some market share to natural gas of late. The EPA standards at issue include the Cross-State Air Pollution Rule (CSAPR); the Mercury and Air Toxics Standards (MATS); the proposed Cooling Water Intake Structures regulation under Section 316(b) of the Clean Water Act; and the proposed Disposal of Coal Combustion Residuals regulation.

Coal-heavy South could be hit hard

The report also says that some coal-dependent regions, like the Southeast, could see double-digit rate increases.

Regarding prices, the studies GAO reviewed estimated that increases could vary across the country, with one study projecting a range of increases from 0.1% in the Northwest to an increase of 13.5% in parts of the South more dependent on electricity generated from coal.

The report also says coal retirements in some areas could eliminate power generation in some regions.

Areas including the Midwest, Mid-Atlantic, and South, rely heavily on coal and, on the whole, have lagged behind other regions in installing environmental control equipment needed to respond to the four key regulations, GAO said.

At the same time, EPA has said many of these same coal-heavy regions tend to already have lower-than-average electric prices and could still remain below the national average post-implementation, GAO said.

“Two of the studies we reviewed reported national estimates of the total costs of actions power companies may take in response to the four key EPA regulations, projecting from $16 billion to $21 billion in additional annual costs.53 EPA analyzed each regulation individually and projected annual compliance costs of $10.2 billion for MATS, $853 million for CSAPR, $600 million to $1.5 billion for CCR depending on which option is finalized, and $397 million for 316(b),” GAO said.

Power companies are expected to retrofit or retire some units in response to the regulations, which EPA believes will prevent thousands of premature deaths. Some stakeholders have expressed concerns that these rules could increase power prices and compromise reliability.

The eventual amount of coal generation retired, retrofitted with new environmental controls or replaced with other fuel sources, will depend on many variables. These include plant age and how much it is needed for reliability, the price of natural gas, new transmission construction, electric demand and any potential extensions to EPA compliance deadlines, GAO said.

The GAO noted that it looked at a variety of public and private studies in drafting its own report.

“For example, officials at an investment analysis firm highlighted a financial analysis they had conducted that found that 7 to 11 percent of coal-fueled capacity may not be economic to operate in 2012 to 2014 at expected coal and natural gas prices,” GAO said.

FERC says it’s already on top of things

In a July letter to GAO that was included in the report, FERC Chairman Jon Wellinghoff said FERC has already taken many steps to stay on top of the situation.  “We also publicly committed to working closely with industry, the states and other agencies to address any issues that arise,” the FERC chairman said.

Wellinghoff listed several efforts, joint meetings and forums with other organizations and policy efforts to better coordinate with EPA. FERC routinely communicates with EPA and DOE, Wellinghoff said.

In fact, the trio of federal agencies had already started working on a “more formalized approach” to coal retirements even before GAO had issued its draft report.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.