The U.S. Environmental Protection Agency will publish in the April 25 Federal Register it’s final assessment of the costs of its Mercury and Air Toxics Standards (MATS) – something that was prompted by a June 2015 U.S. Supreme Court ruling against the agency.
With this final supplemental finding, EPA responds to the U.S. Supreme Court decision in Michigan v. EPA and explains how it has taken cost into account in evaluating whether it is appropriate and necessary to regulate coal- and oil-fired electric utility steam generating units (EGUs) under section 112 of the Clean Air Act (CAA). The EPA previously requested comment on all aspects of its approach to considering cost through a proposed supplemental finding and on a companion Legal Memorandum.
After consideration of public comments, the EPA, in this final supplemental finding, concludes that a consideration of cost does not cause it to change its determination that regulation of hazardous air pollutant (HAP) emissions from coal- and oil-fired EGUs is appropriate and necessary and that EGUs are, therefore, properly included on the CAA section 112(c) list of sources that must be regulated under CAA section 112(d).
Under section 307(b)(1) of the CAA, judicial review of this final supplemental finding is available only by filing a petition for review in the U.S. Court of Appeals for the D.C. Circuit Court within 60 days after date of publication in the Federal Register. Moreover, under section 307(b)(2) of the CAA, the requirements established by this final supplemental finding may not be challenged separately in any civil or criminal proceedings brought by the EPA to enforce these requirements.
On June 29, 2015, the Supreme Court ruled in Michigan v. EPA that the agency had erred when it failed to take cost into account in evaluating whether it is appropriate to regulate HAP emissions from coal- and oil-fired EGUs. On Dec. 1, 2015, the EPA published the proposed supplemental finding and companion Legal Memorandum. In the proposed supplemental finding, the EPA proposed to determine that including a consideration of cost does not cause the agency to alter its previous conclusion that regulation of HAP emissions from EGUs is appropriate and necessary.
Specifically, the EPA considered several metrics to evaluate whether the estimated cost of compliance with MATS is reasonable for the power sector.
- First, the EPA evaluated the annual compliance costs as a percent of the revenue from the power sector’s annual retail electricity sales. The EPA found that the $9.6 billion annual cost of MATS is a small fraction of the revenue from the sector’s annual retail sales, which ranged from $277.2 billion in 2000 to a peak of $356.6 billion in 2008. Thus, the projected annual cost for MATS represents between 2.7% and 3.5% of annual revenues from electricity sales from 2000 to 2011 – a small fraction of the value of overall sales.
- A second way the EPA evaluated cost was to compare the annual capital expenditures due to MATS compliance to the range of variation in the power sector’s annual capital expenditures between 2000 and 2011. This comparison is a relevant metric because capital costs represent largely irreversible investments that must be paid off regardless of future economic conditions. Moreover, additional capital expenditures needed to comply with MATS represented about 26% of the total annual compliance cost projected for 2015, further emphasizing the importance of considering capital expenditures. Based on two different sources of data, capital expenditures for the electric power sector generally increased from 2000 to 2011. Despite the generally increasing trend, the data show substantial year-to-year variability in industry capital expenditures. The EPA found that the incremental capital expenditures of $2.4 billion estimated to be required for MATS compliance in 2015 represent a small fraction – about 3% – of the power sector’s overall capital expenditures in recent years and are well within the range of annual variability between 2000 and 2011.
- The third metric the EPA evaluated was the impact of MATS compliance cost on the retail price of electricity. Potential changes in retail electricity prices can be indicative of the “cost” of MATS, in this instance to consumers specifically, as opposed to the compliance cost to the power sector, which is borne collectively by EGU owners and electricity consumers. EPA estimated that relatively small changes in the average price of electricity would result from MATS compliance. The projected impact of MATS on electricity rates was 0.3 cents/kWh or 3.1%. Meanwhile, between 2000 and 2011, changes in national average retail prices ranged from -0.13 cents/kWh to as high as 0.52 cents/kWh. Based on this analysis, the EPA found that the estimated MATS retail price impact is well within the range of price fluctuations in recent years.
The EPA said it did not receive any public comments that caused the agency to conclude that the interpretation of the statute or the approaches for consideration of cost that were detailed in the proposed action were in error. Therefore, in this final action, the EPA continues to rely on the analyses contained in the proposed supplemental finding and in the companion Legal Memorandum.