REGULATION:

Utilities prepare for carbon rules on operating power plants

Imposing greenhouse gas regulations on the nation's existing power plants is the main climate priority sought by environmental groups as President Obama begins a second term. But that move has been anticipated in the utility sector, and many of its members are prepared for it, according to industry officials.

The present fleet of coal-fired generating plants is getting smaller as cheap natural gas replaces coal and as older facilities close because of age and the high costs of installing new equipment to meet earlier regulations, including limits on mercury and sulfur emissions. So far, closures amounting to 17 percent of the current coal fleet have been announced to occur by 2022. That amounts to a decrease of 57,000 megawatts of electricity derived from coal, according to the Edison Electric Institute.

"They know what's coming. They know the impacts on the company. These didn't pop up overnight," one industry official said of utility executives, who he asserts are anticipating the regulations for existing plants. "We're already in the middle of this. The ball's already being carried down the field. Remember, you do get carbon reductions just through all the other pollutants that are going to be regulated by 2015."

He added that utility greenhouse gas emissions for 2012 will show a significant drop when the Energy Information Administration releases the data later this year. Last year, the agency predicted that U.S. utility carbon emissions would slowly fall through 2035, after rising from 1980 to 2005. It pointed to the economic recession, increases in renewable energy and more use of natural gas for the decline.

Now that U.S. EPA's final rules for new power plant carbon emissions are nearing completion, climate advocates are pressuring the administration to regulate a much bigger source of greenhouse gases. Existing power plants account for about 40 percent of U.S. emissions.

Yesterday, the World Resources Institute cautioned that the Obama administration might miss its goal of reducing carbon dioxide emissions 17 percent by 2020, unless a series of steps are taken to quickly taper off the gas's release (see related story). The group's No. 1 recommendation is to limit the amount of carbon released by existing plants.

The Natural Resources Defense Council made a similar proposal two months ago. The plan says that regulating carbon at current plants, combined with increased energy efficiency, can slash utility CO2 emissions by 26 percent in 2020 and by 34 percent in 2025. It would cost about $4 billion by 2020. But the benefits in health and avoided climate change would amount to between $26 billion and $60 billion, the group says.

A state mishmash?

Joanne Spalding, a senior attorney with the Sierra Club, says her group was hopeful that the administration would roll out its rules regulating existing plants sooner. The group joined a number of states, cities and other plaintiffs to sue EPA, which settled the dispute in 2010 by agreeing to issue two rules for utilities: One would reduce carbon emissions at new power plants; the other would do the same at existing plants. The settlement included an EPA deadline of July 26, 2011.

"It's taken longer than we had hoped," Spalding said. "Yes, we wish the agency had been able to get this rule out more quickly. But going forward, we think the process will go smoothly with the White House backing."

EPA's process for regulating carbon at more than 1,000 current plants will be messy and challenged in court, in all likelihood. But some industry officials believe it could be less stringent than the rules for new plants, because states can set their own performance standards for existing plants and determine how those facilities are able to meet them.

But that might also create a quilt of confusion for operators. John Shelk, president of the Electric Power Supply Association, a group of merchant power producers with predominantly nuclear, natural gas and renewable energy plants, is concerned that states could create different standards.

"There are power plants in Pennsylvania, for example, that physically supply power to parts of Maryland," he said. "Well, what if Pennsylvania, which has a different interest, shall we say, on climate, because it's a coal producer ... [has] different rules than Maryland? Let's say Maryland had more stringent standards on existing sources. Well, then a power plant that's in Maryland is suddenly disadvantaged, potentially."

His association hasn't taken a position on the looming regulations for existing plants. But he acknowledges that many of his members are anticipating their arrival.

"If you're in the business as we are and you've got billions of dollars invested, and you've got tens of thousands of megawatts collectively, anybody who's just kinda reading the tea leaves would be remiss if they didn't take it seriously and say, 'OK, this may be coming,'" Shelk said.

Rules are OK, but we need more time

The industry source who believes that executives are already planning for the potential rules chided President Obama for preparing to take the credit for steeply reduced greenhouse gas emissions in the utility sector, even though much of those declines is driven by the price of natural gas and the 2007 Supreme Court ruling that gave EPA the ability to regulate emissions.

"You're seeing the administration posture as they do on other issues," he said.

Some utility groups say they won't fight the potential regulations. Others note that they sued EPA for other rules, like the one reducing mercury emissions, only based on timing.

Nicholas Braden, vice president of communications with the American Public Power Association, which represents municipally owned utilities, said his group's members "absolutely" expect existing plants to be regulated.

"And we support efforts to clean up our air," he added. "But our issue has always been you need to give us the time to make the retrofits and do what we need to do without raising rates on our consumers. That's the key point."

Others argue that climate legislation, not regulation, is the best way to address utility emissions. Short of that, said Melissa McHenry, director of external communications at American Electric Power Co. Inc., policymakers should carefully consider the decline in emissions before enacting price-hiking regulations.

"U.S. GHG emissions are expected to total only about 10 percent of worldwide emissions by 2030," she said in an email. "Now is not the time to burden our nation's still tenuous economic recovery with overly stringent regulations that will further impede that recovery."

Reporter Daniel Cusick contributed.