Is AEP Exaggerating Impact of Air Rules?

Weighing in on American Electric Power’s recent announcement that it plans to retire some 6,000 MW of coal-fired generation in response to two looming Environmental Protection Agency air quality regulations, Sen. Sheldon Whitehouse said on June 15, after the announcement, that the Columbus, Ohio-based utility was overstating the impact of the two rules, saying AEP was obligated to shutter as much as 4,500 MW of coal plants under the terms of a 2007 consent decree settling a massive Clean Air Act lawsuit against the company.

At a Senate Environment and Public Works Committee hearing on EPA proposals to regulate utility hazardous air pollution (HAP) and establish a Clean Air Transport Rule to slash sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions in 31 states, Whitehouse (D-R.I.) suggested AEP was exaggerating the impact of the EPA rules because AEP already is obligated to shut down much of the coal-fired generation under the 2007 settlement that the utility claimed it was forced to shutter because of the EPA rules.

Lawmakers at the hearing exchanged familiar arguments on the EPA rules, with Republicans charging they would sharply drive up power costs by forcing utilities to close down low-cost power plants because their age or size made installing new pollution controls uneconomic. Democrats countered that Republicans continue to focus only on the costs of the rules while ignoring their health and other benefits.

Sen. James Inhofe (R-Okla.) lamented AEP’s June 9 announcement that it would comply with the rules by shutting down 6,000 MW of coal, repowering some coal plants to burn natural gas and adding new gas-fired generation, all at a cost the company pegged at $6 billion to $8 billion. The company said these moves would lead to the loss of 600 AEP jobs with annual wages totaling approximately $40 million.

But Whitehouse countered that Inhofe and other Republicans are ignoring the health and other benefits that would flow from the rules, noting that a variety of federal analyses have concluded that the costs of Clean Air Act compliance since the law was enacted in 1970 have been outstripped by benefits by at least 8 to 1 and that benefits from the 1990 Clean Air Act Amendments alone outstripped costs by 30-1. EPA has estimated the two coming rules would have even more impressive cost-benefit ratios, he noted. [Ed.: Since then, on July 6, the Environmental Protection Agency (EPA) finalized the Cross-State Air Pollution Rule (CSAPR), which requires 27 states in the eastern U.S. to significantly improve air quality by reducing power plant emissions that contribute to ozone and/or fine particle pollution in other states. This rule replaces the EPA’s 2005 Clean Air Interstate Rule (CAIR).]

"The transport rule alone has a benefit to cost ratio ranging from 55 to 1 to 145 to 1," Whitehouse said. "What we hear about more than anything else around here is the ‘1’."

Whitehouse asserted that AEP was overstating the two rules’ impact on its system and that much of AEP’s compliance plan involved elements of the 2007 settlement.

The settlement resolved a lawsuit brought by EPA alleging various AEP violations of the Clean Air Act’s new source review (NSR) provisions, which bar utilities from significantly modifying their power plants without also installing controls to capture pollution increases resulting from the modifications.

Nine northeastern states, including Rhode Island, intervened in the case, claiming that pollution from the targeted plants was preventing them from attaining federal ambient air quality standards.

Whitehouse was Rhode Island’s attorney general at the time AEP, EPA, and the states settled the lawsuit.

While EPA in 2007 said the size of the settlement was $4.6 billion—an estimate disputed by AEP at the time—the agency also said when fully implemented the deal would lead to annual health and other benefits of $30 billion.

"The vast majority of the megawatts they are shutting down is in response to the settlement with the northeastern states," Whitehouse said. "Under that settlement they would have to pay $4.6 billion…and the benefits are not just $30 billion, they are $30 billion annually."

AEP spokeswoman Melissa McHenry told The Energy Daily that Whitehouse is partly right. McHenry said the 4,500 MW cited by the senator is too high, and that Whitehouse neglected to mention that the settlement requires full compliance by AEP by 2018, while the two EPA rules have compliance deadlines of 2014.

"Only 2,855 MW of the generation slated for retirement in our compliance plan falls under what we agreed to retire, refuel or retrofit under our NSR consent decree," McHenry said in an email. "But the consent decree does not require retirement of all that generation by the end of 2014 as we would have to do to be in compliance with EPA’s proposed air rules."

McHenry said the compliance plan accelerates or changes actions AEP is obligated to take under the NSR settlement for some plants, while other plants slated for early retirement or other emission-reducing changes would be retired under the compliance plan.

For example, the settlement calls on AEP to install an SO2 scrubber on its 600 MW Muskingum River Unit 5 plant by the end of 2015. Under the compliance plan, AEP instead will repower the plant to burn natural gas by the end of 2014.

In another example, some 2,195 MW of coal generation would have been retrofitted with controls, repowered to burn gas or shuttered by 2018 under the settlement. Under the compliance plan, that generation will all be retired by the end of 2014, McHenry said.

Chris Holly is a reporter for The Energy Daily, where this article first appeared. It has been edited, and links added, for this publication.

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