Utilities Blowing Smoke on Coal-Plant Retirements
When the Environmental Protection Agency (EPA) released its Mercury and Air Toxics Rule (MATS) in December, a handful of utility companies that rely heavily on coal-fired power plants claimed the rule would lead to power plant retirements. Yesterday’s publication of the final rule in the Federal Register has set off a new round of criticism as the clock starts ticking on any last-minute legal or legislative actions to undermine the rule.
Take, for instance, FirstEnergy’s recent announcements that it will retire nine of its older coal-fired power plants by September 1, 2012. In its statements, FirstEnergy blamed the EPA’s Mercury rule for forcing the retirements. Not only is the company blaming the EPA for the retirements, it is also placing potential layoffs and grid reliability issues at the EPA’s door. This decision poses an important question: if these retirements are because of the EPA rule, why is FirstEnergy retiring the nine plants which are located in Ohio, Pennsylvania, West Virginia and Maryland in 2012, rather than waiting until 2014, when these older plants would actually have to come into compliance?
In their news release, FirstEnergy states:
"We recently completed a comprehensive review of our coal-fired generating plants and determined that additional investments to implement MATS and other environmental rules would make these older plants even less likely to be dispatched under market rules. As a result, it was necessary to retire the plants rather than continue operations."
Upon closer inspection, however, it’s fairly easy to see that this decision wasn’t based primarily on EPA rules; it was based on current economics, including the following:
- These Eisenhower-era plants are on average 58 years old and have rarely been used since 2010. (They have an average capacity factor of 36.5%.)
- A slower economy, energy-efficiency programs and mild weather have reduced demand for power.
- Today’s historically low natural gas prices, which are not expected to increase much any time soon, mean it is more expensive to produce power using coal-fired plants than natural gas plants. (The process of converting a coal plant to natural gas is complex, but is also a project that is fully achievable within the EPA’s timelines.)
So when a plant is already over half a century old, underutilized and inefficient during those occasions when it is used – it probably makes better business sense to retire it rather than making the investments to convert it to natural gas or retrofit it with pollution controls to comply with EPA clean air rules. Sure, the MATS rule may have played some role in the decision-making process, but these plants were on a clear path toward retirement in the near future.
In contrast, my previous blog post discussed a report that details positive statements made by 30 power companies indicating that early investments in their power plants have put them in a good position to comply with EPA’s new air pollution rules.
The report notes that these companies represent 50% of the nation’s coal-fired power plants, and eleven of the 15 largest coal-based electric power companies. Across the fleet, about 50% of coal plants are very well controlled with scrubbers and other pollution control systems. So, let’s do the math:
- 70% of the nation’s electric generating facilities are not affected by EPA’s MATS rule because they rely on natural gas, nuclear, or other non-emitting energy sources.
- 15% of the nation’s electric generating facilities are coal plants that are already complying or well on their way to comply with the MATS rule.
- This means that 85% of the nation’s electric generating fleet is unaffected by the rule or ready to comply.
The fact is that coal-fired electricity imposes significant costs on society and these costs need to be incorporated into the cost of doing business. This is precisely what the EPA rule aims to accomplish.
With yesterday’s inclusion of the EPA’s final MATS rule in the Federal Register, we are close to the culmination of a rule that has been anticipated for decades. Petitioners have already begun to file suit against the law, and members of Congress have threatened to force a vote under the Congressional Review Act that would vacate or delay the rule.
But these stall tactics don’t change the basic facts: those companies that have anticipated and prepared for the rules are ready to comply with the rules in a timely fashion. Those companies that instead choose to close older plants, are evaluating a host of factors, and ought not to use EPA as a scapegoat for decisions that have been informed by many different economic drivers.
A recent analysis by Susan F. Tierney, Why Coal Plants Retire: Power Market Fundamentals as of 2012, takes a closer look at these market drivers. Tierney, managing principal of the Analysis Group, is a power industry expert who has conducted numerous studies on electricity reliability. I’ve put Tierney’s white paper on the top of my weekend reading pile and look forward to having more to say about her findings in my next post.
Dan Bakal is director of Ceres’ Electric Power Program.