Impact of EPA’s Regulatory Assault on Power Plants–February 7 Update

Impact of EPA’s Regulatory Assault on Power Plants:
New Regulations to Take 33 GW of Electricity Generation Offline and the Plant Closing Announcements Keep Coming…

“So if somebody wants to build a coal-fired plant they can. It’s just that it will bankrupt them…”
– Barack Obama speaking to San Francisco Chronicle, January 2008

February 7, 2012—Update

More than 33 gigawatts (GW) of electrical generating capacity are now set to retire because of the Environmental Protection Agency’s (EPA) Mercury and Air Toxics Rule (colloquially called Utility MACT)[1] and the Cross State Air Pollution Rule (CSAPR)[2] regulations. Most of these retirements will come from coal-fired power plants, shuttering nearly 10 percent of the U.S.’s coal-fired generating capacity.

This report is an update of a report the Institute for Energy Research (IER) issued in October 2011.[3] In the original report, we calculated that 28 GW of generating capacity would close as a result of EPA’s regulations. At the time, we warned that “this number will grow as plant operators continue to release their EPA compliance plans.” Unfortunately, this statement has proven to be true. This update, a mere four months later, shows that over 33 GW of electrical generating capacity will close—nearly a 5 GW increase.

According to EPA, their modeling of Utility MACT and CSAPR indicates that these regulations will only shutter 14.5 GW of electricity generation capacity. But events in the real world already show that EPA’s modeling is a gross underestimate.

To calculate the impact of EPA’s rules, we first assumed that EPA’s modeling was correct. Then, we looked at statements, filings, and announcements from electrical generators where the generators were closing power plants and citing EPA’s regulations as the precipitating cause of the plant closures. We then compared EPA’s modeling outputs with the announcements and created a master list of plant closures as the result of EPA regulations (the master list is below).

Combining actual announcements with EPA’s modeling shows that EPA’s modeling grossly underestimates the actual number of closures. As noted above, EPA calculated that only 14.5 GW of electrical generating capacity would close as a result of its rules. But the reality is that over 33 GW of power generating capacity will close—over twice as much as EPA’s modeling predicted. Worse, as utilities continue to assess how to comply with EPA’s finalized Utility MACT rule and CSAPR, there will likely be further plant closure announcements in the coming weeks and months.

Since Our First Report was Released in October, an Additional 5 GW of Retirements Due to EPA Regulations Have Been Announced

Operators in Georgia, Maryland, Michigan, New Mexico, Ohio, Pennsylvania, and Wisconsin   have announced new closures since we first published our closure list four months ago.  Additionally, operators in Minnesota announced they would cease plans to convert a coal plant to natural gas, letting the plant retire due to EPA regulations.[4]  In just two short months, retirements related to EPA regulations have grown by 5 GW, over one third of the total retirements predicted by EPA.

NERC is Concerned about Reliability even though It Underestimates the Amount of Closures

It should be further noted that the North American Reliability Corporation’s (NERC) modeling of the MACT rule and CSAPR estimate that under the worst case, or “strict” scenarios, 16.3 GW of electricity capacity will be closed due to the regulations, and the Department of Energy’s (DOE) “stringent” test shows that only 21 GW of generating capacity will be closed. Even though NERC’s estimate is much lower than what our analysis shows, NERC is concerned that the closures will cause electricity reliability problems.[5] How much greater will the reliability problems be, given that retirements appears to be twice as great as NERC estimates?

Announced and EPA Projected Retirements Are Significantly Higher than DOE’s Worst Case Scenarios

The Obama administration’s DOE recently released a study claiming that even under a theoretical “stringent” test, EPA regulations would only close 21 GW of generation.  EPA has since claimed this study proves regulations will not threaten reliability. Our analysis, however, shows that between EPA projections and operator announcements, over 33 GW of generation will close—almost 12 GW more than DOE’s supposedly ultra-strict test scenario.

Michigan and Ohio Hit Worst By Latest Announcements

In our updated analysis, the vast majority of new announced retirements will occur in Michigan and Ohio. Operators in Michigan have announced more than 1 GW of closures due to EPA regulations.[6] Michigan, already reeling from record high unemployment, has warned that further closures due to the regulations could threaten reliability in both the Upper and Lower Peninsulas. The situation is not better in Ohio. FirstEnergy has announced more than 2.3 GW of closures due to EPA regulations in Ohio.[7]

Updated List of Powerplant Closures

Here is our updated list of powerplants set to close according to EPA’s modeling and public announcements. The methodology is described in detail in the Appendix of the PDF.