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Federal environmental regulators have proposed four sets of rules that together act as kind of a quadruple whammy on the coal-fired power generation industry.

The rules address air-pollution emissions from power plants, how they store and dispose of coal ash, and the technology they use to continue sucking water to cool their plant equipment.

The rules aim to improve the environment, but they also would answer years of power-industry uncertainty about how environmental regulators intend to crack down on them.

If the EPA ultimately finalizes and adopts the rules over the next decade, they likely would cost the industry billions and pull the plug on many gigawatts of coal-fired electricity generators. In particular, older generators with relatively light pollution controls would be doomed.

Not surprisingly, the power industry and others find the rules less than appetizing. Also, some disagreement exists about how big of a financial hit the power industry would bear, how many coal-fired generators would be closed and how much more consumers would pay for electricity. It's also unclear how much gain the natural gas industry could achieve - although the consensus is that gas wouldn't capture 100 percent of coal's loss.

A panel at the U.S. Energy Information Administration April 26-27 conference discussed the rules and their implications. Panelists were:

• Sam Napolitano, director of the U.S. Environmental Protection Agency's Clean Air Markets Division. The EPA is proposing the new rules. Click here for his presentation.
• Bruce Braine, vice president for strategic policy analysis with American Electric Power. Ohio-based AEP provides electricity to 5 million customers in 11 midwestern and southern states. Click here for his presentation.
• Dan Eggers, managing director in the investment banking division of Credit Suisse. He leads the U.S. electric utilities team. Click here for his presentation.

Below is an outline of the four rules and their implications. But first a little context.

Making electricity from coal

Coal is the nation's dominant fuel for generating electricity.

Coal accounts for about 45 percent of electrical generation, almost double the 24 percent share of natural gas, electricity's No. 2 fuel. Nuclear has about a 20 percent share, followed by hydro at 6 percent, and wind, oil and biomass with about 1 to 2 percent each.

But coal has been in decline. A decade ago, coal generated 51 percent of the nation's electricity and natural gas accounted for 17 percent.

Most coal generators came on line 30 or more years ago. Eggers said of the nation's 340-gigawatt coal-fired generation capacity:

• 70 percent of the generators (238 gigawatts) are older than 30 years, and one-third (114 gigawatts) are over 40 years old.
• Many of the older plants (168 gigawatts) lack scrubbers to intercept harmful sulfur dioxide emissions, and 30 percent (103 gigawatts) lack any pollution controls at all. 

Almost all of the new generating capacity since 2000 has been gas-fired.

Coal was priced lower than natural gas for making electricity for many years - until last summer. Now gas is cheaper.

Air emissions in the Midwest and East

The EPA rule that's moving fastest is known as the Air Transport Rule. It targets emissions of sulfur dioxide and nitrogen oxides in the eastern United States.

SO₂ and NO_X are linked to respiratory illnesses. Over the years, the EPA has targeted control of SO₂ and NO_X, along with ozone, lead, carbon monoxide and particulate matter, as the path toward better public health.

Using the Clean Air Act, the EPA proposed the Air Transport Rule language last July and hopes to finalize the rule in June. Actual compliance with the rule for the power industry would be phased in, with full compliance possibly in 2014.

The new rule targets coal-fired generators greater than 25 megawatts in the Midwest and East. A  25-megawatt unit is relatively small. For example, the Anchorage Municipal Light & Power gas-fired combined-cycle plant along the Glenn Highway just east of Muldoon Road has four units totaling 220 megawatts of capacity.

The EPA estimates the annual cost of the new rule to utilities at about $3.1 billion in 2011 dollars, with a 2 percent bump up in electricity prices as of 2014.

About 1.2 gigawatts of coal-fired generators would stop producing electricity due to the rule, mostly smaller and less-efficient units, the EPA says.

Mercury and air toxins

A second rule on a fast track addresses emissions of mercury, lead, acid gases, arsenic and other air pollutants nationwide. Mercury is the key target.

Since 1990, the EPA has acted to cut mercury emissions from other industries. Now it's time for power plants, with the EPA aiming to keep 91 percent of the mercury in coal from being released to the air. At present, the U.S. has no national limits on how much mercury can waft out of power-plant smokestacks.

Under the Clean Air Act, the EPA proposed the rule in March and hopes to finalize it in November. The EPA would expect power plants to meet the rule by 2015 or 2016. The agency is under a court order to write rules addressing these pollutants.

The rule targets coal-fired generators 25 megawatts or greater in size nationwide.

Mercury is a nasty chemical element that pollutes waterways and gets into the food chain. The EPA says mercury "can harm children's developing brains, including effects on memory, attention, language, and fine motor and visual spatial skills." Some of the other toxic metals such as arsenic can cause cancer, the EPA says.

The technology to control these emissions is well-developed and in use at some power plants, the EPA says.

The agency estimates the annual cost of the new rule at about $11.7 billion in 2011 dollars. But it also quantifies the improvements to the health of Americans at $59 billion to $140 billion in 2016, by preventing heart attacks, asthma attacks, bronchitis and premature deaths.

Coal-fired generator shutdowns: 10 gigawatts in 2015 or 2016, mostly smaller, less-efficient units. Other coal-fired units would be upgraded, the EPA predicts.

Electricity prices would rise 3.7 percent in 2015, the EPA says.

Coal ash disposal

The third rule addresses coal-ash storage and disposal nationwide.

The EPA proposed the two options last June and put them out for public comment. It's unclear when the agency hopes to finalize them.

The agency's goal is to prevent contaminants in disposed coal ash from leaching into groundwater and drinking water.

Coal ash contains mercury, cadmium, arsenic and other contaminants. If in liquid form, the waste typically is disposed of at large surface impoundments. In solid form, the coal ash goes to landfills, the EPA says. Ash disposal made headlines in December 2008 when an impoundment retaining wall near Kingston, Tenn., collapsed. An estimated 5.4 million cubic yards of ash waste poured into the Emory River.

The EPA is proposing the coal-ash rule under the Resource Conservation and Recovery Act, which regulates solid waste. This would be the first national rule specifically intended to manage coal-ash disposal.

One option would involve joint state and federal enforcement via permitting, so the states would need to adopt the rule, and that could take five to 15 years to occur, Napolitano said. Older ash impoundment sites would need to be retrofitted with liners or close, and new impoundment sites would need to be built with liners. New landfills would need liners, and old ones would need to monitor groundwater.

The other option is milder. Existing disposal sites would need to remove solids and retrofit or stop taking waste within five years. It would be enforced via lawsuits by citizens or the states.

Although the rule would apply to about 500 coal-fired power plants, the EPA anticipates none would shut down due to the rule. But consumers would pay 0.2 to 0.8 percent more for electricity due to the roughly $1 billion annual cost of the rule, the EPA says.

Power plant cooling water

The fourth rule would apply to power or industrial plants nationwide that can draw more than 2 million gallons of water and use at least one-quarter of the water for cooling. The intent is to make sure these plants cause minimal harm to aquatic life when they draw their water. Of the 1,260 plants involved, 670 make electricity.

The rule stems from a lawsuit settlement with environmental groups. Under the Clean Water Act, the EPA proposed the rule in March and hopes to finalize it next year.

The rule would limit how many fish can be pinned against the intake screens and killed. Alternatively, plants could lower the velocity of their intake. The biggest plants would conduct studies so their regulators would have information on whether site-specific controls would be needed. New power generators would need cooling towers to recycle and cool water, limiting the amount drawn from a nearby water body.

The EPA says the rule would involve $400 million in annual cost, lift electricity prices less than 1 percent and cause 9 gigawatts of generator retirements, mostly oil and gas steam units.

Power industry responds

Braine from American Electric Power said the electricity industry is reeling.

If all four rules go ahead, it would be the first time the industry would have more than two major rules smacking it at once.

Some of these rules would kick in within the next few years, he said. But it can take five years to install a major piece of pollution control equipment, from design and engineering through permitting and construction, he said. And it could take longer than five years if power plants across the country all are trying to meet the rules at the same time.

Braine's company would have to retire 5 to 7 gigawatts of power units by 2015, he estimated, and mothball more because the company couldn't meet the EPA's timelines.

That would prompt American Electric to buy power from other utilities, and electricity rates for its customers would leap 20 to 30 percent, he said.

Nationally, the power industry estimates 46 to 101 gigawatts of power generation would shut down, Braine said. That's 14 to 30 percent of the nation's coal-fired capacity. All that shutting down could strain the reliability of the nation's electricity grid if the right amount of electricity isn't in the right place at the right time.

At a minimum, the power industry wants more flexibility in the rules, including longer phase-in times.

Higher demand, prices for natural gas

Not all the lost coal-fired power would need to be replaced.

That's because the power industry can make a lot more electricity than is demanded today.

The U.S. Energy Information Agency estimates coal-fired plants produced at 63 percent of capacity last year, and gas-fired combined-cycle plants worked at 42 percent of capacity on average.

The industry will always need excess capacity to meet electricity needs during peak times. But it has far more than required now. Gas plants have more untapped capacity in part because they're easier to shut down and restart in reaction to economic conditions.

Eggers with Credit Suisse said that if the rules prompted retirements of 60 gigawatts of coal-fired generation, the industry would need to replace only about 24 gigawatts of that. If the industry retired 35 gigawatts of units, just 6 gigawatts of new plants would be needed. The existing gas-fired plants would burn more fuel, however.

Eggers estimated natural gas demand could grow by 8 to 15 percent in the next five or six years due to coal-fired generation retirements. That represents 5 billion to 10 billion cubic feet a day of demand, he said.

Braine with American Electric Power said the rules would raise natural gas prices about $0.50 per million Btus. That would be a more than 10 percent increase over current prices.

-By Bill White, Researcher/Writer for the OFC. bwhite@arcticgas.gov

Bill White, researcher/writer for the Office of the Federal Coordinator, attended the two-day U.S. Energy Information Administration conference last week in Washington, D.C. This is the last of his three reports from the conference, supplemented by additional reporting. The earlier reports mainly looked at aspects of the rise of U.S. shale gas production.

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