Report: Electric sector can handle tighter environmental standards

Concord, Mass., October 26, 2010 — The Clean Energy Group’s Clean Air Policy Initiative, a coalition of electric power companies, released the following statement regarding the North American Electric Reliability Corporation‘s new report on the reliability impacts of complying with U.S. Environmental Protection Agency clean air rules:

“The NERC assessment affirms that the electric power industry can maintain electric system reliability while improving our air quality and protecting public health,” said Michael Bradley, Executive Director of the Clean Energy Group. “NERC highlights the many industry and regulatory tools available to ensure reliability while the nation transitions to a cleaner generating fleet, including: careful timing of outages to install pollution control equipment, bringing new resources online, increased utilization of existing clean generation capacity, transmission system upgrades, and investing in demand-side management and energy efficiency.”

The NERC report supports many of the themes raised in a recent reliability report by M.J. Bradley & Associates LLC (MJB&A) and Sue Tierney and Paul Hibbard from the Analysis Group, which found that the electric power industry has a range of tools available to ensure that the human health benefits of EPA’s air pollution regulations are achieved without affecting electric system reliability.

“The industry and its regulators welcome the release of NERC’s reliability assessment,” said Sue Tierney, former Massachusetts state regulator, Department of Energy official, and a lead author of the previous reliability report. “Understanding the potential implications of EPA’s forthcoming rulemakings is critical for developing good public policy and a coordinated response by federal agencies and state regulators. The industry has a strong track record of dealing with upcoming changes in ways that avoid reliability issues. Such proactive steps, including vibrant market responses, are not baked into the NERC outlook and can do the job in avoiding the concerns that NERC identifies.”

The NERC report evaluates a series of electric sector regulations proposed under the Clean Water Act, the Clean Air Act, and the Resource Conservation and Recovery Act, which will control cooling water intake, emissions of toxic air pollutants, sulfur dioxide and nitrogen oxides and coal ash disposal. To assess the range of electric system impacts, NERC analyzed a “Moderate Case”, which models the most plausible outcome of the new regulations, and a “Strict Case” representing more stringent and far less likely outcomes and higher compliance costs.

Of the four selected EPA rules, NERC finds that the Section 316(b) cooling water intake structures rule has the greatest potential impact on generation reserve margins.

This is also the rule for which EPA has the most discretion in timing and scope of implementation. EPA’s air pollution rules — the utility MACT rule and the Transport Rule — are projected to have relatively modest impacts on projected retirements.

For example, NERC projects that the EPA Transport Rule may result in the retirement of 5 coal-fired units (538 MW) by 2013 and 18 coal-fired units (2,740 MW) by 2015, assuming that EPA allows the flexibility of emissions trading.

This is a moderate level of retirements given the industry’s demonstrated ability to bring new capacity resources on-line in a compressed period, having added more than 160,000 MW of new capacity between 2001 and 2003.

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