EPA proposes to replace Clean Power Plan with new rule

The Environmental Protection Agency in August proposed to replace the Clean Power Plan with a new rule that would let states decide how to make existing coal-fired power plants more efficient to lower their greenhouse gas emissions. 

The Obama administration’s Clean Power Plan exceeded the EPA’s legal authority and would in some areas lead to double digit rate hikes, Andrew Wheeler, the EPA’s acting administrator, told reporters in a conference call after the proposal was unveiled. 

The Clean Power Plan aimed to cut greenhouse gas emissions from the U.S. power plant fleet by 32% below 2005 levels by 2030. The plan, which was stayed by the U.S. Supreme Court while litigation was ongoing, would have required states to meet emissions reduction targets using various options such as energy efficiency, renewable resources, and carbon dioxide trading programs. 

The EPA contends its proposed rule will roughly lower greenhouse gas emissions as much as the Clean Power Plan would have, partly because the power sector has been shifting away from coal-fired generation towards low and non-emitting generation resources since the Clean Power Plan was drafted, according to Bill Wehrum, EPA assistant administrator for the Office of Air and Radiation. According to the U.S. Energy Information Administration, U.S. energy-related CO2 emissions have declined in 7 of the past 10 years, and they are now 14% lower than in 2005. 

The EPA is proposing that heat rate improvement measures are the “best system of emission reduction” (BSER) for the roughly 600 existing coal-fired units that will be affected by the rule. 

“EPA believes that a BSER focused on making these plants as efficient as possible is the best way to ensure GHG emission reductions regardless of other factors such as technology changes for other types of generation, changes in fuel price, changes in electricity demand, or changes in energy policy that neither environmental regulators nor power companies have the power to control,” the agency said in the draft rule. 

Under the proposed Affordable Clean Energy rule, states will have three years to develop state plans. States would have flexibility in determining which heat rate improvement measures and processes they put in place for affected power plants to meet their compliance obligations using guidelines issued by the agency. The EPA would then have a year to act on the state plans. 

The proposed heat rate improvement guidelines are a set of technologies and operations and maintenance practices. They include neural networks, intelligent sootblowers, boiler feed pumps, air heater and duct leakage control, variable frequency drives, blade path upgrades, redesign or replacement of economizers, improved steam surface condenser cleaning, and improved operation and maintenance practices. 

The EPA decided not to include switching a coal-fired unit to natural gas as a BSER option because it would fundamentally redefine the source, the agency said in the proposed rule.  

The EPA’s proposal would allow states to set performance standards, based on a power plant’s age, location, and design. 

The EPA is also proposing an hourly “preliminary applicability test” that would allow operators to make changes to coal-fired units without triggering New Source Review permitting requirements. 

“This change will allow states, in establishing standards of performance, to consider [heat rate improvements] that would otherwise not be cost-effective due to the burdens incurred from triggering NSR,” the EPA said. 

The American Public Power Association said the proposed plan respects the legal limits of the Clean Air Act while comporting with prior Supreme Court precedent on CO2 and gives states needed flexibility when it comes to setting performance standards for electric generating units. 

Additionally, the rule provides a framework that recognizes each state’s unique conditions and avoids interfering with established state energy policies. 

“We look forward to participating in EPA’s rulemaking to finalize its proposal so that our members — community-owned, not-for-profit electric utilities — can make long-term planning decisions and investments to best serve their customers with reliable, affordable, and environmentally responsible power,” said Sue Kelly, president and CEO of the Association. 

Moody’s weighs in 

In an Aug. 27 report on the EPA proposal, Moody’s Investors Service said it views the proposed approach as a less stringent form of regulation and much more moderate than the CPP. “As a result, we do not expect it to have much of an adverse effect, if any, on the operation or the economics of coal plants,” Moody’s said. 

Compared with the CPP, the Affordable Clean Energy rule should slow the decline of coal usage, a credit positive for coal producers, the rating agency went on to say. 

“Coal producers and coal power plants have been under tremendous economic pressure because the price of natural gas – a competing fuel for generating electricity – has fallen dramatically in the past few years,” Moody’s said. “Renewable generation could also be a major challenge to coal in the longer term.”  

The report noted that coal-fired generation as a percentage of total electricity generation in the US was 30% in 2017, down from about 48% a decade ago, “and we expect coal-fired generation to decline further over the next several years.” 

Advancements in shale gas development using fracking technology was the primary contributor to the fall in gas prices and Moody’s expects that shale development will keep prices low and they could possibly decline further. “The cost of renewable generation (mainly solar and wind) has also declined precipitously, and in some locations is currently the cheapest form of generation. We expect that renewable generation's contribution to electricity generation will grow, both because of economics and state-based green energy initiatives, and that it will crowd out other forms of generation such as coal and nuclear.” 

EPA estimates replacing CPP could save $400 mil per year 

The EPA estimates replacing the Clean Power Plan could save $400 million a year. 

The EPA said replacing the Clean Power Plan could ease grid reliability issues that are driven by trends in the industry. 

“This shift is creating tremendous strain on the power infrastructure even without the added pressures of an EPA mandate to further shift away from additional coal-fired generation,” the EPA said. 

The EPA said it will take comments on the proposal for 60 days after it is published in the Federal Register. 

On Sept. 10, the EPA said that it would hold a public hearing in Chicago on the proposed Affordable Clean Energy proposal. 

The proposed rule will likely face court challenges.