While the Environmental Protection Agency appears to have initially proposed to regulate power plant coal ash as hazardous waste, there are indications the Obama administration is preparing new federal rules that will at a minimum require utilities to convert coal ash impoundments from wet to dry storage to prevent leaks—a change that would cost tens of millions of dollars but also potentially increase regulated utilities’ rate base and earnings, a Wall Street firm says.

Those assertions by Bernstein Research come as the Tennessee Valley Authority (TVA) in March released a draft environmental assessment of its proposal to convert wet ash facilities at its Kingston, Tenn., plant to a dry system that it says would reduce leaks of water-borne toxic metals by about 80 percent.

The environmental assessment (EA) follows the adoption by the TVA board in August of a 10-year plan for similar conversion of wet ash impoundments throughout its fleet of coal-fired power plants—an initiative that the federal utility believes will cost between $1.5 billion and $2 billion.

The move to dry storage was prompted by the catastrophic failure of an ash pond at the Kingston plant in late 2008 that spread vast amounts of toxic-laced sludge into nearby waterways and across 300 acres of local land.

The massive spill spurred the EPA to make a detailed assessment of utility ash ponds and develop a proposed rule for their management, which was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review and approval in October 2009.

However, the rulemaking—initially due out in December and now scheduled for release in April—has been held up at OIRA amid allegations by environmentalists that the White House has been watering down the new regulatory requirements at the behest of utilities and other affected industries.

In increasingly bitter attacks, the environmentalists have accused OIRA Director Cass Sunstein of making a mockery of the Obama administration’s pledge of open government that would not be beholden to special interests. One particularly cheeky Web campaign, which pictures Sunstein soiled with coal ash and emerging from a trash can, charges the official with using “Bush administration-style bureaucratic maneuver[s]” to block or weaken impending environmental protections.

While no one knows what EPA initially proposed doing, a new report by Bernstein Research asserts that the agency “apparently” sought to classify coal ash as hazardous waste under the Resource Conservation and Recovery Act (RCRA), which would subject coal ash to management and disposal requirements that are more stringent than those currently applied by states.

Such an EPA proposal would contradict actions taken on coal ash by Carol Browner, Obama’s top environmental aide, when she was EPA administrator in 2000. In that role, she rejected classifying coal ash as hazardous under RCRA, agreeing with industry that levels of toxic metals in coal ash were too small to warrant such sweeping regulation.

Despite Browner’s past position on the issue, the Bernstein report says EPA under current Administrator Lisa Jackson has advocated within the administration to regulate coal ash as a hazardous waste—an action that the report appears to question.

“While the details of the EPA’s proposed rule are not publicly available, the agency has apparently sought to classify coal ash as a hazardous waste under Subtitle C of the Resource Conservation and Recovery Act,” said Bernstein Research Senior Analyst Hugh Wynne, author of the new report.

“The EPA’s principal objective in doing so is to facilitate federal permitting of coal ash storage facilities; the storage of non-hazardous wastes is subject to a state permitting system which the EPA believes has been proved inadequate by the Kingston spill.”

Echoing concerns raised by those opposed to classifying coal ash as hazardous, Wynne said such a designation would make ash handling much more expensive as well as possibly “trigger violations of local zoning requirements, limit the willingness of communities to permit new coal-fired power plants, and curtail the beneficial use of coal ash” for cement.

“Whether or not the EPA succeeds in designating coal ash a hazardous waste, the future regulation of coal ash storage facilities is likely to be significantly more stringent,” said Wynne, adding that “it is probable that forthcoming EPA regulations may prohibit the operation of wet coal ash storage ponds, requiring the use of dry ash handling….”

Wynne noted that EPA has identified approximately 100 coal plants, or about a third of the nation’s coal-fired capacity, that have wet ash handling or storage systems.

Environmentalists say an ash management system that employs drying coal combustion waste with blowers and hauling the dried ash offsite is preferable to a wet system, which creates more opportunities for heavy metals and other contaminants to leach out from impoundments and into groundwater.

In its new EA on converting its Kingston plant to a dry ash system, TVA said under current permitting its proposed conversion plan would cut the plant’s water use by some 25 million gallons per day “with an approximate 80 percent reduction in the discharge of arsenic, boron, chloride, fluoride, sulfur, and selenium from the ash pond.”

While acknowledging that cost estimates for wet-to-dry conversion of ash storage systems are scant, Wynne said estimates provided by the Edison Electric Institute, which represents investor-owned electric utilities, and Washington-based consulting firm EOP Group Inc. show the average cost per plant of converting bottom ash handling systems to be some $20 million, the average cost per unit of converting fly ash handling systems to be $10 to $15 million, and the cost of new landfills for the dry ash to be $30 to $50 million.

Interestingly, Wynne says such investments “could represent a material opportunity for rate base growth” for some investor-owned utilities, noting that the capital cost of conversion to dry ash handling is likely to be incorporated in utilities’ regulated rate base.

“For these companies, not only is this capital expenditure likely to be recovered, but it may accelerate growth in rate base and thus in regulated earnings,” said Wynne, though he noted that capital outlays associated with conversion to dry ash handling would represent a small percentage of regulated rate base for most utilities.

—Johnathan Rickman (jrickman@accessintel.com) is a reporter for COAL POWER’s sister publication, The Energy Daily, where this article was originally published.