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Managing Environmental Regulations in Uncertain Times
New EPA Rules are Fundamentally Changing the Game for Coal GenerationCoa Ge e at o
February 2011February 2011
Contact: [email protected]@ tt [email protected]
Copyright © 2011 by ScottMadden. All rights reserved.
IntroductionIntroductionBusiness is highly uncertain about the future in a way which I have never seen it before and a way in which the data suggestshas never, in fact, been so depressed...Unless or until we are able to lift the pall of regulatory uncertainty, it is very difficult to see people reaching out into the longer term. (Alan Greenspan, Meet the Press, 11/14/2010)
Though some rules are still taking shape, the EPA goal is to drive more stringent operating requirements and impose greater stringency on environmental regulations
— Environmental constraints are increasing and accelerating— Generation owning utilities will face new and unprecedented challenges in attaining (and maintaining) compliance— The window is very short for considering alternatives, making decisions, and implementing changes; waiting until all the
uncertainty clears is not wise
As expected in a climate with significant uncertainty, there is a wide variety of macroeconomic projections regarding the outcomes of the EPA program implementation
Economic forecasting models are used to examine alternative scenarios, including mothballing, sale, permanent retirement, repowering with different fuels, and continued operations of the units in various combinations
Regardless of varying opinions about projections and timelines for specific rules, there is an emerging consensus of inevitability— The facts are facts; the regulatory environment for coal-fired generation is shifting dramatically— There will be winners and losers in the aftermath of the EPA program implementation— The existing company portfolio of assets will certainly influence the company financial position after the EPA program is
implemented, BUT strategic decisions that companies make will govern the company’s financial position given the constraints imposed by EPA program implementation
Copyright © 2011 by ScottMadden. All rights reserved. 1
The Situation: Environmental Regulatory Timeline for Coal UnitsThe Situation: Environmental Regulatory Timeline for Coal Units
OzoneBeginning SO2 Primary
SO2/NO2 CAIR WaterBeginning CAIR Phase I Seasonal NOx Cap
Revised Ozone NAAQS Next Ozone
NAAQS Revision
SO2 Primary NAAQS
SO2/NO2Secondary
NAAQS
Proposed CAIR Replacement
Rule ExpectedCAIR Vacated
Effluent GuidelinesFinal Rule Expected Effluent Guidelines
Compliance 3-5 yrs After Final RuleFinal CAIR
Replacement Rule Expected
Reconsidered Ozone NAAQS
NAAQS
NO2 Primary NAAQS
Vacated
CAIR Remanded
316(b) Final RuleExpected
316(b) Compliance3-4 yrs After Final RuleEffluent Guidelines
Proposed RuleExpected
Rule Expected
CO2Regulation
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Begin CAIR Beginning CAIR Next PM-
PM-2.5SIPs Due Begin
PM-2.5 SIPs due
HAPs MACT Proposed
Beginning CAIR Phase II Seasonal NOx Cap
CAIR Phase I Annual
SO2 Cap
g gPhase II Annual
SO2 & NOx Caps2.5
NAAQS Revision
New PM-2.5 NAAQS Designations
CAMR & Delisting Rule Vacated
SIPs Due (‘06)
HAPS MACT Final Rule Expected
HAPS MACT Compliance 3 yrs After Final Rule
Begin CAIR
Phase I Annual
NOx Cap
SIPs due (‘97)
Begin Compliance Requirements
Under Final CCB R l ( d t
Proposed R le for CCBs
Final Rule for CCBs Mgmt
Compliance With CAIR
R l t
PM2.5
pRule
Hg/HAPS
Final EPA Nonattainment Designations316(b) Proposed
Rule Expected
Rule (ground water monitoring, double monitors, closure,
dry ash conversion)
Ash
Rule for CCBs Management
Replacement Rule
CO2
Copyright © 2011 by ScottMadden. All rights reserved. 2
-- adapted from Wegman (EPA 2003)
Sources: Edison Electric Institute
Note: Before December 2010 deferrals and recent court rulings
Environmental Trends and PoliciesEnvironmental Trends and Policies
Environmental constraints on coal-fired power plants have been tightening and will continue to tighten
New regulations on SO2 NOx and mercury emissions water usage and coal combustion products will require utilities to makeNew regulations on SO2, NOx, and mercury emissions, water usage, and coal combustion products will require utilities to make decisions on significant additional capital investment vs. retirement or repowering (to gas or biomass) of existing coal units
The EPA’s new Transport Rule will likely require most, if not all, sources to have flue gas desulfurization equipment by 2014
Uncertainty about climate legislation—timing, severity of restriction, impacted sources, pace of reduction—together with the EPA’s endangerment finding and related rulemaking is causing some utilities to scrap and regulators to reject proposed newEPA s endangerment finding and related rulemaking, is causing some utilities to scrap and regulators to reject proposed new coal-fired capacity or deny needed permits
Proposed new coal plants continue to see their construction start dates pushed back or perhaps even cancelled as a result of these challenges
All of these headwinds will likely continue or intensifyAll of these headwinds will likely continue or intensify
Copyright © 2011 by ScottMadden. All rights reserved. 3
Regulatory Cost Impacts − Roughly Equivalent to the Cost of a New CCGT or Two Used CCGTs of a New CCGT or Two Used CCGTs
Many Moving Parts:Many Moving Parts:New Rules Under DevelopmentNew Rules Under Development
Cl Ai Uncertain CAIR replacement rule timeline $1 000
Illustrative Incremental Environmental Costsfor a 500 MW Coal Plant ($/kW)
Clean Air Interstate Rule (CAIR)
Uncertain CAIR replacement rule timelinePhase II SO2 and NOx by 2015
SO2/NO2
One-hour primary National Ambient Air Quality Standards (NAAQS) of 75 parts per billion (PPB) in June 2010 reduced
100 $785$750
$1,000At $785/kW, an additional $12 per MWh is
required to recover investment over 20 years* (compare PJM 2009 average: $55.30/MWh)
CO2?NSR?Hg?Particulates?
per billion (PPB) in June 2010, reduced from 140 PPB
Mercury
Mercury and hazardous air pollutants (HAPs) clampdownMaximum available control technology (MACT) required
$200
$185
$500
(MACT) requiredInformation collection on air toxins
Particulate Matter
Fine PM (≤2.5 microns diameter) NAAQS
Ozone Eight-hour ozone NAAQS
$300$250
AshCoal combustion by-product (dry ash) (CCB) containment, disposal, and lining requirements
Water§316(b) Phase II (power plant cooling water intake rule delayed – fine
$0Flue Gas
DesulfurizatonSelected Catalytic
Reduction
Cooling Tower Retofit
CCB Impoundment
Total
Regulatory Requirement
Retrofit
Water (Clean Water Act)
water intake rule delayed fine screens/cooling towers)Possible closed-loop cooling system requirements
CO
Kerry-Lieberman proposed, but its future uncertain
CAIR SO2/NO2 Mercury Particulates Ozone Ash Water CO2
Copyright © 2011 by ScottMadden. All rights reserved. 4
CO2 EPA endangerment finding triggering rulemaking
Other
Note: *Capital cost only; excludes incremental O&M. Assumes monthly amortization; 55%-45% debt-equity ratio; 12% required ROE, 7% cost of debt (9.25% WACC); 80% capacity factor; estimated $50 million per facility for impoundment enclosuresSources: EEI Environment Executive Advisory Committee; U.S. EPA; PJM
Potential Retirements and Capacity ImpactsPotential Retirements and Capacity ImpactsCoal Retirements
EPA’s new proposed Transport Rule—successor p p pto the Bush Administration’s proposed CAIR—will require generators to ratchet down SO2 and NOx emissions by 2014
Generators will have to make significant retrofit vs. retire decisions, but most expect that many
Timing
2030
2020
2015
2015 retire decisions, but most expect that many smaller units with higher heat rates will be retired
Some estimate that up to 15% of U.S. coal generation is at risk
Other regulations—mercury, water, coal
2015
2015
Not indicated
2020
* PJM only g y, ,combustion products—also loom over existing and new coal-fired generation
New Build
Historically, actual coal capacity coming on line
y**Estimate based upon RFC, MRO, SERC, and WECC regions
y, p y ghas been significantly less than proposed
Further, many jurisdictions have stymied construction of new coal capacity
Uncertainty about climate legislation—timing, y g gseverity of restriction, impacted sources, pace of reduction—together with the EPA’s endangerment finding and related rulemaking, is causing some utilities to scrap, and regulators to reject, proposed new coal-fired capacity or deny needed permits
Copyright © 2011 by ScottMadden. All rights reserved. 5
Sources: NETL; SNL Financial; EEI; investment analysts; PJM; Clean Energy Group; ScottMadden analysis
Some Recent Coal Plant Retirement AnnouncementsSome Recent Coal Plant Retirement Announcements
AmerenReliant Resources• New Castle• Niles• Titus
FirstEnergy• Lake Shore• R.E. Burger
Ameren• About 2,500 MWs between 2022 and 2038
Allegheny Energy• R. Paul Smith
Exelon• Cromby 1‐2• Eddystone 1‐2
NRG• Indian River
Constellation• C.P. Crane• Wagner 2‐3
Mirant• Potomac River
Progress Energy• 1 500 MWs• 1,500 MWs(1/3 of coal fleet)
Copyright © 2011 by ScottMadden. All rights reserved. 6
Sources: Industry news; ScottMadden analysis
EPA Transport Rule Impacts on Coal-Fired GenerationEPA Transport Rule Impacts on Coal Fired GenerationOn July 6, EPA issued a proposed Transport Rule, intended to replace the Bush Administration CAIR which was struck down by the U.S. Court of Appeals in D.C.
States Covered Under the RecentlyProposed EPA Transport Rule
Under the Transport Rule, additional reductions in SO2 and NOx are required in two phases
Less stringent than CAIR in first phase (2012); more stringent than CAIR in second phase
2.5 million ton cap by 2014 (vs. 2.6 million ton cap by 2015 under CAIR)
Phase 2 reductions of 71% in SO2, 52% of NOx over 2005 levels (vs. 57% of SO2 and 61% of NOx over 2003 levels)
The Transport Rule also looks at upwind sources
Some initial analyst comments:
“May give the Administration more near-term leverage over utilities’ fuel choices”utilities fuel choices
“It will be necessary (i) to cease generation at all unscrubbed coal-fired power plants that produce…15% of U.S. coal-fired generation, and (ii) to install SO2 scrubbers that today generate…a further 6%”
Estimated Capital Cost (% of Rate Base) for Selected Estimated Capital Cost (% of Rate Base) for Selected Utilities Where Utilities Where ““Makes SenseMakes Sense”” (source: Sanford C. (source: Sanford C.
Bernstein)Bernstein)“More than three-quarters [of generating units without scrubbers affected by the rule] are of less than 200 MW of capacity…Some 41% are smaller than 50 MWs, the point at which installing SO2 scrubbers becomes comparable to the cost of building a new [gas] combined cycle…”
Bernstein)Bernstein)
AEP $2.17B (8%)
Empire Dist. Electric $154M (12%)
Great Plains Energy $465M (8%)
Copyright © 2011 by ScottMadden. All rights reserved. 7
CMS Energy $351M (4%)Sources: U.S. Environmental Protection Agency; SNL Financial; industry news
EPA Implementation ScenariosEPA Implementation Scenarios
Re-RegulatedAs-Regulated
Scenario 1 “The Train Wreck ”: • Regulatory requirement timeline outstrips ability of many
companies to adequately respond • Coal generation capacity is significantly reduced and
combined-cycle gas generation rushes to replace retired baseload capacity
Scenario 1 “The Moderation ”: • The EPA agenda is curtailed by congressional actions• Existing regulatory mandates are moderated • Retirement of coal plants is much lower than under the
“ Train Wreck ” scenario
Scenario 2 “Bump and Grind ”:
• Alternative energy is deployed to replace retired coal generation
• Energy costs rapidly rise placing pressure on utilities to manage delivered cost to customers
• Many companies are not convinced that the regulatory moderation is permanent and investment is cautious and low
p• There is a proliferation of lawsuits from a variety of
stakeholders• There are many starts and stops to specific facets of the
EPA program, creating a “ wait and see – roll with the flow” environment for utilities
• Utility costs increase due to premature or improper expenditures
Implementation of EPA
Agenda:As-Regulated
Trajectory
Scenario 2 “The Stalemate ”:• Some EPA regulations are moderated, but others
proceed as planned, creating an uneven and uncoordinated advancement of regulations
• Decisions regarding coal plant disposition are not clear and many plants are in “ limbo” and waiting for
Implementation of EPA
Agenda:Re-Regulated
Trajectory expenditures• Capital investments slow down in many utilities as “ wait
and see” attitudes dominate
Scenario 3 “Regret and Correction ”:• Regulatory requirement timeline outstrips ability of many
j y y p gresolution of planned regulation
Scenario 3 “The Confusion ”:• Disappointed by the lack of a federal standard
j y
Regulatory requirement timeline outstrips ability of many companies to adequately respond
• Energy costs rise rapidly coupled with a reconsideration of the validity of “ global warming ” causing a public groundswell against the EPA agenda
• EPA regulations are moderated or rolled back to previous standards
• Disappointed by the lack of a federal standard, environmental groups push hard in states for tough regulations
• Regulations could be more severe in some states than contemplated EPA rules due to pressure from grassroots
• The regulatory patchwork creates winner and loser states
Copyright © 2011 by ScottMadden. All rights reserved. 8
Key Insights in Strategy DevelopmentKey Insights in Strategy DevelopmentThe EPA agenda and the ultimate outcome is not just a generation issue
Markets, as well as wholesale and retail prices of electricity will all be affected
Renewables and alternative energy sources will be affected
Utility strategies will be affected
Distributed generation, smart grid, and behind the grid options will likely be simulated
Copyright © 2011 by ScottMadden. All rights reserved. 9
Options and Approaches to New RegulationsOptions and Approaches to New RegulationsThere are a variety of different approaches a utility can take – each with potential advantages and risks
Least Proactive Selective and Incremental Early and Aggressive
Do Nothing (“Wait and See”) Be Selectively Proactive Move Early and Aggressively
Potential Risks
( )
Labor and material prices for AQCS projects may escalate dramatically if everyone waits for rules to be finalized before taking action
By choosing smaller, incremental options, the risk is that too little action is taken to dd th it d f
Specific decisions based on projected rule making may not result in optimal asset
fi ti h l(-) gIncreasingly harsh penalties could be incurred for non-compliance
address the magnitude of changes in the pipeline
configuration when rules are finalized
By partnering and working closely with regulators utilities
Potential Advantages
(+)
Unneeded projects might be avoided if final rules don’t meet others’ projections and expectations
By focusing on compliance measures in areas of greatest certainty about outcomes, risk of stranded costs is minimized
closely with regulators, utilities can effectively “negotiate for certainty” by making early concessionsLeverages the unique opportunity of the moment to ydifferentiate
An “eyes wide open” approach is needed to avoid taking unnecessary (or unknown) risks with serious consequences. Industry CEOs are already making public statements about insufficient lead times to
Copyright © 2011 by ScottMadden. All rights reserved. 10
q y y g pmeet EPA requirements
Making the Business Case – An Iterative and Ongoing ProcessMaking the Business Case An Iterative and Ongoing Process
Making decisions in the face of significant ambiguity requires diligence and a disciplined process
Highlight areas of regulatory certainty vs. those areas with the least degree of certainty
Run economic forecasting models to examine alternative scenarios, including mothballing, sale, permanent retirement, repowering with different fuels and continued operations of the
‐15 20
NPV
Illustrative Scenario Analysis
Ozonerepowering with different fuels and continued operations of the units in various combinations
Quantify the band of potential business outcomes in light of potential regulations
Stay close to the regulatory process and incorporate new‐10
‐12
‐3
2
0
3SO2/NO2
CAIR
WaterStay close to the regulatory process, and incorporate new information as it becomes available
‐2
‐5
‐1
10
5
7PM 2.5
Ash/CCRs
Hg/HAPS
GHG ‐25 25
‐30 ‐20 ‐10 0 10 20 30
Negative Positive
GHG
More uncertainty
More certainty
Copyright © 2011 by ScottMadden. All rights reserved. 11
How to Prepare For New RegulationsHow to Prepare For New RegulationsManaging the emergent environmental rules will require following a structured approach to strategy development – the abridged ScottMadden methodology is outlined below
Assess Current Assess Current StateState
Prepare Gap Prepare Gap AnalysisAnalysis
Determine Determine Operational, Operational,
O&M, and O&M, and R t I tR t I t
Examine Examine Portfolio Portfolio Options Options
Develop Develop Strategy and Strategy and
Execution Execution T iT i
Identify all facilities impacted by EPA rulings
Rate ImpactsRate Impacts pp TriggersTriggers
Develop compliance gap analysis for each facility
Estimate the operational impacts of installing required compliance technology
Develop an estimate on long-range asset value
Perform a portfolio
Break down strategic asset decisions
Develop implementation plansEstablish pertinent plant operating parameters
Develop existing plant emissions baselines
Prepare variations of compliance implementation and determine appropriate phasing
technology
Estimate the impact to plant O&M
Estimate impact on costs/customer rates
analysis
Analyze regulatory scenarios
Develop contingency plans
For More Information on ScottMadden’s Detailed Methodology, please contact us:
Contact: [email protected]@scottmadden.com
Copyright © 2011 by ScottMadden. All rights reserved. 12
ScottMadden Understands Environmental Regulations…….. ScottMadden Understands Environmental Regulations…….. We know the pending environmental rules and can help you manage them
SO2 d NO2SO2 and NO2The Clean Air Act gives EPA authority to set NAASQ for pollutants considered harmful to public health and the environment. The Clean Air Act established two types of national air quality standards. Primary standards set limits to protect public health, including the health of "sensitive" populations such as asthmatics, children, and the elderly. Secondary standards set limits to protect public welfare, including protection against decreased visibility, damage to animals, crops, vegetation, and buildings.
Primary Standards Secondary StandardsPollutant Level Averaging Times Level Averaging Times
Carbon Monoxide9 ppm (10/mgm3) 8-hour
None35 ppm (40 mg/m3) 1-hour
Lead0.15 μg/m3 Rolling 3-Month Average Same as Primary
1.5 μg/m3 Quarterly Average Same as Primary
Nit Di id53 ppb Annual (Arithmetic
Average)Same as Primary
Clean Air Interstate Rule (CAIR)2005-2010 – EPA proposed CAIR on May 12, 2005 and Federal Implementation Plans on April 26, 2006
2010 – U.S. Court of Appeals for the District of Columbia Circuit remanded CAIR to the EPA. On April 26, 2010, in keeping with the Court’s judgment, the new and stricter Transport Rule regulations are proposed to the Office of Budget and Management for regulatory review. These new guidelines were signed by EPA Administrator Lisa Jackson on July 6, 2010
— Though the Court temporarily upheld the requirements outlined in CAIR, the ruling required the EPA to address
Clean Air Interstate Rule (CAIR)2005-2010 – EPA proposed CAIR on May 12, 2005 and Federal Implementation Plans on April 26, 2006
2010 – U.S. Court of Appeals for the District of Columbia Circuit remanded CAIR to the EPA. On April 26, 2010, in keeping with the Court’s judgment, the new and stricter Transport Rule regulations are proposed to the Office of Budget and Management for regulatory review. These new guidelines were signed by EPA Administrator Lisa Jackson on July 6, 2010
Th h th C t t il h ld th i t tli d i CAIR th li i d th EPA t ddWater
Copyright © 2011 by ScottMadden. All rights reserved. 17
Source: EPA
Nitrogen Dioxide Average)
100 ppb 1-hour None
Particulate Matter (PM10) 150 μg/m3 24-hour Same as Primary
Particulate Matter (PM2.5)15.0 μg/m3 Annual (Arithmetic Average) Same as Primary
35 μg/m3 24-hour Same as Primary
Ozone
0.075 ppm (2008 std) 8-hour Same as Primary
0.08 ppm (1997 std) 8-hour Same as Primary
0.12 ppm 1-hour Same as Primary
Sulfur Dioxide
0.03 ppm Annual (Arithmetic Average)0.5 ppm 3-hour
0.14 ppm 24-hour
75 ppb 1-hour None
Though the Court temporarily upheld the requirements outlined in CAIR, the ruling required the EPA to address Clean Air Act requirements concerning the transport of air pollution across state boundaries. Under the regulations set forth in the Transport Rule, additional reductions are necessary to attain existing ozone standards and upcoming 2010 ozone standards
2011 – The period for public comment on this new set of regulations ended on November 26, 2010. Emissions reductions will begin to take effect very quickly thereafter
— The EPA plans to address existing standards (including those standards changed in the meantime) with the proposed transport rule in the spring/summer of 2011
2014 – Stricter rules taking effect in 2014 and are expected to curb SO2 and NO2 in 31 states and Washington, D.C— At an estimated annual cost of $2.8 billion, the new guidelines in combination with other EPA actions, will cut
SO2 emissions by 71% over 2005 levels and NO2 emissions by 52%— Part of the new emission regulations require that the EPA now evaluate national ambient air quality standards
every time these standards are changed in order to determine whether new emission reductions will be required from upwind states
Key Elements of the Transport Rule: — States that “significantly contribute”— Use of limited trading
— Though the Court temporarily upheld the requirements outlined in CAIR, the ruling required the EPA to address Clean Air Act requirements concerning the transport of air pollution across state boundaries. Under the regulations set forth in the Transport Rule, additional reductions are necessary to attain existing ozone standards and upcoming 2010 ozone standards
2011 – The period for public comment on this new set of regulations ended on November 26, 2010. Emissions reductions will begin to take effect very quickly thereafter
— The EPA plans to address existing standards (including those standards changed in the meantime) with the proposed transport rule in the spring/summer of 2011
2014 – Stricter rules taking effect in 2014 and are expected to curb SO2 and NO2 in 31 states and Washington, D.C— At an estimated annual cost of $2.8 billion, the new guidelines in combination with other EPA actions, will cut
SO2 emissions by 71% over 2005 levels and NO2 emissions by 52%— Part of the new emission regulations require that the EPA now evaluate national ambient air quality standards
every time these standards are changed in order to determine whether new emission reductions will be required from upwind states
Key Elements of the Transport Rule: — States that “significantly contribute”
U f li it d t di
WaterHistory of Regulation
In 2001, the U.S. Environmental Protection Agency (EPA) implemented Section 316(b) of the Clean Water Act— Requires that the location, design, construction, and capacity of cooling water intake structures reflect the
best technology available for minimizing adverse environmental impact— According to the EPA, once-through cooling systems can negatively impact marine life, causing direct kills of
fish and eggs by entrainment and the destruction of aquatic ecosystems, as a result of the elevated water temperatures near plant discharge
Until the new rule (addressing the remanded portions of Phase II) is issued, permit directors continue to issue permits on a case-by-case, Best Professional Judgment basis for Phase II facilities. Public input has been provided and a final ruling is expected 7/2012
Particulate matter (PM) components, defined as particles found in air, has been classified as an air emission by the EPA
— PM is generated when the drift droplets evaporate and leave behind crystallized dissolved solids— PM10 (particles that are 10 micrometers or less) have been determined by the EPA to pose significant health
Hg/Hazardous Air Pollutants (HAPS)2008 – CAMR and Delisting Rule Vacated
— On February 8, 2008, the D.C. Circuit vacated EPA's rule removing power plants from the Clean Air Act list of sources of hazardous air pollutants. At the same time, the Court vacated the Clean Air Mercury Rule
2011 – HAPS MACT Proposed Rule— Proposed rule is intended to set emission standards on any fossil-fuel combustion unit of more than 25
megawatts that serves a generator that produces electricity for saleGreen House Gases (GHGs)
Copyright © 2011 by ScottMadden. All rights reserved. 18
Use of limited trading— Local reductions— Timing
Source: http://www.epa.gov/airtransport/pdfs/WebinarTransportRuleMaterials.pdf
Copyright © 2011 by ScottMadden. All rights reserved. 18
— Use of limited trading— Local reductions— Timing
Source: http://www.epa.gov/airtransport/pdfs/WebinarTransportRuleMaterials.pdf
Copyright © 2011 by ScottMadden. All rights reserved. 19
PM10 (particles that are 10 micrometers or less) have been determined by the EPA to pose significant health risks to humans due to their small size and ability to reach the lower respiratory tract
— Permit requirements in regard to PM10 and other emissions are getting stricter, requiring that lower and lower drift values be achieved from a cooling tower
Existing Technologies
Once-through (open loop) cooling -- cooling water from a large water source (such as an ocean, river, or lake) is “used” to remove heat from the condenser, and then that warmer water is discharged directly back to the source. The cooling takes place naturally in the source
Evaporative (closed loop) cooling – water is “consumed” (via evaporation losses) in the process of cooling condenser water
— Recirculating or closed loop systems, such as wet cooling towers, are likely to become more prevalent should the requirements of Section 316(b) be fully implemented
— In a closed loop configuration, the cooling water used to reject the steam heat is sent from the condenser to the cooling towers, which cool the water primarily through evaporation
Source: Appraising Our Future Cooling Water Options (6/1/2010)
megawatts that serves a generator that produces electricity for sale— No later than March 16, 2011, EPA shall sign for publication a notice of proposed rulemaking and no later than
November 16, 2011, EPA shall sign a notice of final rulemaking setting forth emission standards for coal and oil fired EGUs
2012 – HAPS MACT final rule expected— Because these issues may substantially affect the final rule, EPA is requesting to “repropose” the rules so that
the final rules are logical outgrowths of the proposals— If the Court grants the request, the deadline for the revised proposals will be June 1, 2011 and the deadline for
promulgation of final emissions standards will be April 13, 2012
2014-2016 – HAPS MACT Compliance 3 years after final rule
Green House Gases (GHGs)EPA final rule issued 5/13/2010 – Prevention of Significant Deterioration (PSD) and Title V Greenhouse Gas Tailoring Rule
— “Tailors” the applicability criteria that determine which GHG emission sources become subject to the PSD and Title V programs under the Clean Air Act (CAA)
— Establishes the first two steps of the phase-in for the largest emitters of GHGs
Step 1 (effective 1/2/2011): — Only sources currently subject to the PSD permitting program (i.e., those that are newly-constructed or
modified in a way that significantly increases emissions of a pollutant other than GHGs) would be subject to permitting requirements for their GHG emissions under PSD
— For these projects, only GHG increases of 75,000 tpy or more of total GHG, on a CO2e basis, would need to determine the Best Available Control Technology (BACT) for their GHG emissions
— Similarly for the operating permit program, only sources currently subject to the program (i.e., newly constructed or existing major sources for a pollutant other than GHGs) would be subject to Title V requirements for GHG
PM 2.5EPA final rule issued 6/29/2010 – Prevention of Significant Deterioration (PSD) for Particulate Matter Less Than 2.5 Micrometers (PM2.5) – Increments, Significant Impact Levels (SILs) and Significant Monitoring Concentration (SMC)
— Amends the requirements for particulate matter less than 2.5 micrometers (PM2.5) under the PSD program by adding maximum allowable increases in ambient pollutant concentrations (“increments”) and two screening tools, known as the Significant Impact Levels (SILs) and a Significant Monitoring Concentration (SMC) for
BACT D t i ti t CCCR Regulations
Copyright © 2011 by ScottMadden. All rights reserved. 21
Source: www.epa.gov ,
Copyright © 2011 by ScottMadden. All rights reserved. 22
Step 2 (effective 7/1/2011):— Builds on Step 1. In this phase, PSD permitting requirements will cover for the first time new construction
projects that emit GHG emissions of at least 100,000 tpy, even if they do not exceed the permitting thresholds for any other pollutant. Modifications at existing facilities that increase GHG emissions by at least 75,000 tpy will be subject to permitting requirements, even if they do not significantly increase emissions of any other pollutant
— In Step 2, operating permit requirements will apply to sources based on their GHG emissions, even if they would not apply based on emissions of any other pollutant. Facilities that emit at least 100,000 tpy CO2e will be subject to Title V permitting requirements
— EPA estimates that about 550 sources will need to obtain Title V permits for the first time due to their GHG emissions. The majority of these newly permitted sources will likely be industrial manufacturers. There will be approximately 900 additional PSD permitting actions each year triggered by increases in GHG emissions from new and modified emission sources
On January 12, 2011, EPA announced its plan to defer, for three years, GHG permitting requirements for carbon dioxide (CO2) emissions from biomass-fired and other biogenic sources
Source: www.epa.gov
PM2.5— The SILs for PM2.5 are also being added to two other New Source Review (NSR) rules that regulate the
construction and modification of any major stationary source located in an attainment or unclassifiable area, where the source’s emissions may cause or contribute to a violation of the national ambient air quality standards (NAAQS)
2008 – PM-2.5 SIPs due (‘97)
2011 – Next PM-2.5 NAAQS Revision
2012 – PM-2.5 SIPs Due (’06)
2013-2017 – New PM-2.5 NAAQS Designations
BACT Determinations to ComeContentious aspects of BACT determinations in light of recent EPA guidance on GHG permitting requirements:
— Discretion allowed to states and local permitting agencies— Extent to which permit applicant can be required to change the type of project or switch to a different fuel
• IGCC may be considered BACT for conventional coal plants• Choices about specific coal types may have to be defended (e.g., sub-bituminous vs. bituminous)
— Energy efficiency BACT options which must be considered for coal plants are numerous:• Supercritical and ultra-supercritical boiler designs• Double reheat cycles• Coal drying (to remove moisture from sub-bituminous or other low grade coals)• Oxy-combustion (the use of pure oxygen as combustion air)• Integrated solar thermal energy (for improving feed water heating efficiency)
In May of 2010, the EPA released the two different approaches for regulating coal ash— EPA is currently conducting a public comment period and deliberations on the two options— Industry and environmental groups are intensely divided on which option is best for regulating coal ash
Approach 1:Regulate Coal Ash under Subtitle C of the Resource Conservation and Recovery Act— This revises the rulings EPA made in 1993 and 2000 and rules coal ash as a “special waste” or “hazardous
waste”— This approach would regulate the generation, storage, or treatment of coal ash prior to disposal— Industry analysts believe this approach would require existing coal ash surface impoundments to shut
down within four years of the rule taking effect— Under this approach, the EPA would have authorship of the regulations for controlling the creation,
transportation, storage, and disposal of coal ash— Industry analysts believe “under Subtitle C…what was historically a routine aspect of utility operations
would become the most expensive component of running a facility, a regulatory nightmare with tremendous financial impact for many coal-fired utilities”
Approach 2: Regulate Coal Ash under Subtitle D of the Resource Conservation and Recovery ActThis keeps in place the EPA rulings made in 1993 and 2000
PM 2.5EPA final rule issued 6/29/2010 – Prevention of Significant Deterioration (PSD) for Particulate Matter Less Than 2.5 Micrometers (PM2.5) – Increments, Significant Impact Levels (SILs) and Significant Monitoring Concentration (SMC)
— Amends the requirements for particulate matter less than 2.5 micrometers (PM2.5) under the PSD program by adding maximum allowable increases in ambient pollutant concentrations (“increments”) and two screening tools, known as the Significant Impact Levels (SILs) and a Significant Monitoring Concentration (SMC) for PM2.5
— The SILs for PM2.5 are also being added to two other New Source Review (NSR) rules that regulate the construction and modification of any major stationary source located in an attainment or unclassifiable area, where the source’s emissions may cause or contribute to a violation of the national ambient air quality standards (NAAQS)
IB MACTSmaller sized generators are also not exempt from the emerging EPA rules
On April 29, 2010, the Environmental Protection Agency (EPA) issued a proposed rule regarding emissions of air pollutants from industrial, commercial, and institutional boilers and process heaters
The proposed rule aims to reduce emissions of air pollutants at “major source facilities”A major source facility is defined as a “facility that emits or has the potential to emit 10 or more tons
Copyright © 2011 by ScottMadden. All rights reserved. 20
Source: EPA
C i ht © 2011 b S ttM dd All i ht d
• Combined heat and power alternatives— BACT analysis may inevitably lead states to establish efficiency limits— Beyond energy efficiency, CCS may be the only other control option for reducing GHG emissions
• EPA concedes that CCS has not been demonstrated on a commercial scale and costs are prohibitive• Nearly all sources seeking a GHG permit will need to consider whether or not CCS would be possible• Specifically, EPA notes that CCS must be considered in step 1 of its five step “top down” analysis
Potentially contentious aspects, pending additional clarification from EPA:— Biomass – “Carbon neutrality” of emission can be considered, EPA does little to explain how— “Off-site” of “Lifecycle” Emissions (i.e., GHG emissions of specific mines) – These additional considerations
will likely add further complications (and room for challenges) in future BACT determinations
Source: www.epa.gov; Troutman Sanders, LLP
Copyright © 2011 by ScottMadden. All rights reserved. 25
— This keeps in place the EPA rulings made in 1993 and 2000— This approach would not regulate the generation, storage, or treatment of coal ash prior to disposal— Under this approach, EPA would have an advisory role in regulating coal ash; regulation would mainly
come from the states and citizens— Environmentalists do not believe this approach goes far enough in dealing with coal ash and allows
states to “skirt around regulation in favor of business”
Source: Environmental Protection Agency, www.epa.gov; SNL Interactive, www.snl.com
standards (NAAQS)
2008 – PM-2.5 SIPs due (‘97)
2011 – Next PM-2.5 NAAQS Revision
2012 – PM-2.5 SIPs Due (’06)
2013-2017 – New PM-2.5 NAAQS Designations
— A major source facility is defined as a “facility that emits or has the potential to emit 10 or more tons per year of any single air toxic or 25 tons per year of any combination of air toxics”
— The rule will apply to boilers which burn natural gas, fuel oil, coal, biomass, refinery gas, or other gas to produce steam and process heaters, which heat materials during an industrial process
— These boilers and process heaters are generally used at industrial facilities; EPA will have 11 different subcategories based on the design of the various units; the proposed rule includes specific requirements for each subcategory
— For new and existing units, the proposed rule will establish emission limits on all existing and new boilers and process heaters (minor exceptions) for mercury, dioxin, particulate matter, hydrogen chloride, and carbon monoxide
EPA estimates the total national capital cost for the final rule to be ~$9.5 billion in 2013, and an annual cost of ~$2.9 billion in 2013
Once published, the EPA held a public comment period and was required to issue a final rule by December 16, 2010— During the public comment period, utilities, states, and interest groups pushed back and proposed
that the standards were too stringent— On December 7 2010 EPA formally requested an extension for issuing the final rule from federal
Copyright © 2011 by ScottMadden. All rights reserved. 13
Copyright © 2011 by ScottMadden. All rights reserved. 23
Copyright © 2011 by ScottMadden. All rights reserved. 20
Source: EPA
Copyright © 2011 by ScottMadden. All rights reserved.
On December 7, 2010, EPA formally requested an extension for issuing the final rule from federal District Court of the District of Columbia
— On January 20, the Court denied the EPA's request and ordered that the rules be finalized by February 21, 2011
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Source: www.epa.gov
……As Well As State Implementation Plan (SIPs) Promulgation……As Well As State Implementation Plan (SIPs) PromulgationThe states under section 110 of the Federal Clean Air Act (the Act) must develop air pollution regulations and control strategies to ensure that state air quality meets the National Ambient Air Quality Standards (NAAQS) established by the EPA
Th A t d ti 109 t bli h d bi t t d d hi h tl i it i ll t t b idThe Act under section 109 established ambient standards which currently cover six criteria pollutants: carbon monoxide, nitrogen dioxide, ozone, lead, particulate matter, and sulfur dioxide
Currently, each state has a federally approved SIP which protects air quality and has emission control plans for nonattainment areas. These SIPs can be extensive, containing state regulations or other enforceable documents and supporting information such as emission inventories, monitoring networks, and modeling demonstrations
The contents of a typical SIP fall into several categories:1) State-adopted control measures which consists of either rules/regulations or source-specific requirements (e.g., orders
and consent decrees)2) State-submitted comprehensive air quality plans, such as attainment plans, maintenance plans, rate of progress plans,
and transportation control plans demonstrating ho these state reg lator and so rce specific controls in conj nctionand transportation control plans demonstrating how these state regulatory and source-specific controls, in conjunction with federal programs, will bring and/or keep air quality in compliance with federal air quality standards
3) State- submitted "non-regulatory" requirements, such as emission inventories, small business compliance assistance programs, statutes demonstrating legal authority, monitoring networks, etc.
4) Additional requirements promulgated by EPA (in the absence of a commensurate state provision) to satisfy a mandatory ti 110 t D (Cl Ai A t) i tsection 110 or part D (Clean Air Act) requirement
Specific state plans, revisions, and updates are incorporated by reference in the Code of Federal Regulations (CFR) under Title 40 (Protection of the Environment), Chapter I (Environmental Protection Agency), Subchapter C (Air Programs), Part 52 (Approval and Promulgation of Implementation Plans)
While most states already have authority to permit GHGs under preconstruction permit (PSD) programs EPA has identified 13While most states already have authority to permit GHGs under preconstruction permit (PSD) programs, EPA has identified 13 states that were required to revise their SIPs by 1/2/2011 – or accept a Federal Implementation Plan (FIP) which gives the EPA authority to issue the GHG portion of PSD permits until state rules are revised
— With the exception of Texas, which declined to revise its rules and questioned the legality of the EPA’s ruling, all other states who had not already done so are in the process of revising their rules or accepting an FIP
Copyright © 2011 by ScottMadden. All rights reserved. 14
Source: www.epa.gov ; www.4cleanair.com