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US EPA's plan to revisit mercury rule analysis moves forward, but impact unclear

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Power Forecast Briefing: Natural Gas And Coal Dynamics, Pressure On Nuclear, And Southwest Capacity

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US EPA's plan to revisit mercury rule analysis moves forward, but impact unclear

The Trump administration has advanced its plan to reconsider the cost-benefit analysis used by the Obama administration to justify its rule restricting mercury and other toxic pollutants. While some industry advocates are saying the change may have little practical impact, clean air advocacy groups and environmental attorneys are warning the move could spark new attempts to completely overturn the rule.

Announced in December 2011, the U.S. Environmental Protection Agency's Mercury and Air Toxics Standards, or MATS, required coal- and oil-fired power plant operators to install new pollution control equipment or retire non-compliant older generators. Mercury, a powerful neurotoxin, can stunt cognitive thinking and adversely affect the nervous systems of children and adults.

A coalition of states and industry groups challenged the regulation after it was published in the Federal Register February 2012 and the matter was litigated all the way to the U.S. Supreme Court. The high court in June 2015 remanded the rule to the EPA, finding that the agency did not consider the cost of compliance early enough in the rulemaking process. But the rule still went into effect, and utilities spent billions to bring the U.S. coal generation fleet into compliance.

In response to the Supreme Court's remand, the EPA issued a supplemental finding in April 2016 that regulating mercury and certain other pollutants from the nation's power plants was, in fact, "appropriate and necessary" after considering the monetary costs of implementation. Moreover, the EPA has estimated that the MATS each year avoids between 4,200 and 11,000 premature deaths, 4,700 heart attacks, 130,000 asthma attacks, and 5,700 hospital and emergency room visits.

The EPA's supplemental finding was challenged in the U.S. Court of Appeals for the District of Columbia Circuit, but the court in April 2017 put the litigation on hold while the new Trump administration reviewed the supplemental cost finding.

A February 2018 analysis by the White House's Office of Management and Budget appeared to bolster the EPA's supplemental cost finding. OMB analysis of 26 air and radiation regulations issued by the EPA from 2006 to 2016 concluded that the MATS rule was the most expensive of those rules but also provided the most benefits. OMB estimated that the roughly $9.6 billion annualized cost of the MATS rule is more than offset by the annualized benefits ranging from $33 billion to $90 billion.

Nevertheless, the EPA in May announced that it planned to issue a new rulemaking addressing the agency's risk and technology review for the MATS rule. According to The Washington Post, the EPA on Sept. 28 sent that new rulemaking to the White House's Office of Management and Budget, kicking off a roughly 60 to 90 day interagency review process. Once that process is complete the proposal will be published in the Federal Register for public comment.

Co-benefits and costs

Industry and labor groups urged the EPA in July not to modify the basic tenets of the MATS, noting power generators have already spent $18 billion (including operation and maintenance expenses) to comply with the standards. Those investments and the associated impact on electricity rates mean regulatory certainty "is critical," according to a letter signed by the Edison Electric Institute, American Public Power Association and National Rural Electric Cooperative Association power trade associations, as well as groups of electric generating companies and labor unions.

But EPA spokesman John Konkus said in an Oct. 1 email that while the agency recognizes the utility sector has made substantial investments and reduced mercury emission by 90%, the MATS rule is "an egregious example of the Obama administration's indifference" to conducting an appropriate cost-benefit analysis.

Konkus recalled that the Supreme Court criticized the EPA for imposing $9 billion in regulatory costs while the agency's rule impact analysis said the regulation would only produce $4 million in annual benefits directly related to lower mercury emissions. The rest of the estimated benefits are the "co-benefits" associated with a reduction in fine particles that the MATS equipment also helps eliminate, according to the Obama EPA's supplemental finding.

Joseph Goffman, senior legal counsel in the EPA's Office of Air and Radiation under Obama, said in a Sept. 28 email that the Trump EPA previewed the potential issues in play as part of an advanced notice of proposed rulemaking targeting how the agency calculates costs and benefits in the rulemaking process. He recalled that the advanced proposed rule specifically cited the MATS as an example of past actions where the agency justified the stringency of a standard based on the estimated ancillary or co-benefits of cutting pollutants not directly regulated by the action.

Goffman, now executive director of Harvard Law School's environmental and energy law program, predicted that the EPA's new approach to calculating a rule's potential costs and benefits reflects the arguments made in a lawsuit brought by Murray Energy and the Utility Air Regulatory Group in 2016 challenging the Obama EPA's supplemental finding.

There, the plaintiffs argued that benefits related to the MATS rule must be limited to a list of hazardous pollutants detailed in Section 112 of the Clean Air Act that does not include fine particulate matter. They further argued that the EPA must consider "all costs and disadvantages, including the impacts on coal companies, communities and workers, as well as localized impacts" in evaluating the cost of compliance.

Cody Nett, assistant general counsel for Murray, said in a recent email that the EPA's proposal to revisit the "outsized" role that "co-benefits" play in the cost-benefit analyses used to justify costly regulations targeting pollutants such as mercury "is appropriate and long overdue."

Nett asserted that the Clean Air Act already requires the EPA to regulate the impact of fine particulates through enforcement of the applicable National Ambient Air Quality Standards. Thus, their inclusion in the MATS analysis is double-counting, Nett said. "Conversely, to the extent the co-benefits only arise by reducing emissions lower than necessary to achieve the NAAQS, they represent an inappropriate end-run around that standard and the process under which it was set," he added.

But Janet McCabe, the former acting assistant administrator for the EPA's Office of Air and Radiation in the Obama administration, said in a recent interview that the office worked diligently with OMB to avoid such double-counting. "Each time we did a rule we were very careful to not count as benefits things that had been counted in previous rulemakings," she said.

Even if the EPA adopts a new method for calculating the costs and benefits of the MATS, Jeff Holmstead, a former Republican EPA assistant administrator, said in an email that doing so does not mean that the agency will also eliminate the MATS rule.

"EPA would have to go through another separate rulemaking process to eliminate the MATS rule, and I don't think that anyone is talking about doing that," he said. "It would serve no purpose because the power sector has already spent billions of dollars to bring all their plants into compliance."

Conrad Schneider, advocacy director of the Clean Air Task Force, said even if the EPA does not vacate the rule Murray could try to do so through litigation. "The battle is over who's going to have the blood on their hands," he said in an interview. "Is it going to be EPA who repeals the rule, or is it going to be Murray who goes into court and says the underpinning for the rule is gone so get rid of the rule? That's the only intrigue that's left here."

Schneider said his organization would view any attempt to vacate the rule as illegal, recalling that the D.C. Circuit in 2008 overturned the George W. Bush administration's attempt to "delist" utilities from required mercury pollution controls under Section 112 of the Clean Air Act. "The argument is fairly simple," Schneider said. "This industry is listed, and it can't really be delisted under the Clean Air Act."

Annual costs

As environmental groups and the Trump EPA prepare to battle over co-benefits, the cost to run the MATS equipment that has already been installed appears to be lower than anticipated.

A Department of Energy grid study in August 2017 cited an earlier EIA analysis that found that by the end of 2012, 64% of U.S. coal generating capacity already had the appropriate environmental control equipment to comply with the MATS rule and operate past 2016.

As for the rest, about 20 GW of coal capacity retired while another 87 GW of coal-fired capacity installed mostly activated carbon injection systems to comply with MATS. DOE said the cost of those controls "averaged a relatively modest $5.8 million per generator from 2015 to 2016." But EIA also estimated that "operators invested at least $6.1 billion from 2014 to 2016 to comply with MATS or other environmental regulations."

MATS pollution control equipment at the 2,250 MW coal-fired Navajo Generating Station near Page, Ariz., costs about $7 million annually to run, according to Scott Harelson, a spokesman with the Salt River Project electric utility. At the 762-MW coal-fired Coronado Generating Station, which the utility also operates, annual operation and maintenance costs are approximately $1.7 million, Harelson said. "SRP is evaluating the proposed reconsideration to determine its possible impact on our operations," he said in an email.

A spokeswoman for the WEC Energy Group Inc., which serves four states in the Upper Midwest, said the utility is tracking the rulemaking as it proceeds with a string of coal-fired power plant retirements.

"It is difficult to pin down a reliable number specific to (operation and maintenance) costs for compliance as we have retired or are in the midst of retirement plans for many of our coal units," WEC spokeswoman Amy Jahns said. "With those retirements comes less emissions and lower operating costs including costs to comply with environmental regulations."


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Coal Forecast Surging Export Volumes Aid Coal Production As Gas Competition Tightens

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Higher export volumes aid coal production as gas competition tightens domestically

Jul. 20 2017 — Coal production made gains through June as modest electricity demand to open the summer was offset by stronger exports. Weekly shipments for June came in 24% higher than the same period last year, continuing the improved production results for 2017. However, easing natural gas prices during June provided little headroom for thermal coal prices. The NYMEX CAPP eased by $0.25/ton (0.5%) for the month, while the NYMEX PRB gained $0.24/ton (2.2%).

Natural gas prices traded lower during June than in May, with low electricity demand doing little to clear surplus storage. After opening the month at $3.05/mmBtu, Henry Hub spot prices varied during mid-month from $2.85-3.12/mmBtu, before closing at $3.07/mmBtu. Natural gas remains in a moderate surplus, with June injections trailing modestly below historical averages. Storage levels as of June 23 stood at 2,816 Bcf, 182 Bcf above five-year averages. The surplus restrained natural gas markets during the month, with warmer weather the last week of June kicking off the cooling season and providing a boost to prices.

Coal inventories remain in surplus as well, with April stockpiles growing to just over 166 million tons, 9.3% above normal. The growth in inventory corresponds to estimated displacement of coal from natural gas generation resulting from Henry Hub prices declining by 20 cents per mmBtu. Looking ahead to the summer season, robust cooling demand could add 1.5 million tons per week to production, which would drive coal production to levels not seen since the summer of 2015. For the four weeks ending June 24, coal shipments averaged 15.5 million tons, as demand into the summer season picks up. Production levels continue to improve overall, about 24% higher than the same period last year. Inventories remain above normal, and low electricity demand shoulder season may do little to clear them, tending to keep a lid on prices.

Higher natural gas prices have boosted coal demand for the first half of 2017, especially compared to the dramatic loss of demand that occurred during the first half of 2016. However, surpluses linger in both the coal and natural gas markets going in to summer. If electricity demand remains low, growth in coal production could taper during the peak season.

On the improved demand picture for the year, the CAPP and NAPP coal regions are projected to beat 2016 production levels. A firmer natural gas strip, easing coal retirements during the year, and stronger seaborne metallurgical markets all contribute to the improved outlook. The markets for Illinois Basin and Southern PRB are also projected to rebound by 44 million tons this year on improved price competitiveness.

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