EPA Regulation Threatens Electrical-Grid Reliability

January 5, 2012

During a Monday Night Football game last month in San Francisco, the power went out not once but twice, causing the game to be delayed. This is significant for two reasons. First, we live in a country with such a reliable electrical system that it’s news when the power goes out. Second, this reliability may soon come to an end with the Environmental Protection Agency’s (EPA) latest mercury and air toxic standards regulation (Utility MACT) and other rules in the regulatory pipeline.

On December 21, EPA unveiled their final Utility MACT regulation to regulate mercury emissions from power plants. According to the analysis EPA released earlier this year, the regulation of mercury will cost nearly $11 billion a year while producing between $500,000 and $6 million in benefits. Sadly, EPA’s estimates of the benefits almost certainly overstate the actual benefits because EPA “systematically ignored evidence and clinical studies” in creating the regulations, according to experts Willie Soon and Paul Driessen.

Besides large costs and small benefits, these regulations could impact the reliability of the electrical grid. In November, the North American Electric Reliability Corp. (NERC) published a report which stated that EPA regulations, including Utility MACT, will cause reliability problems unless prompt action is taken. While it is indeed troubling that EPA would endanger the reliability of the electrical grid, what is worse is that, according to a study by the Institute for Energy Research (IER), NERC is likely underestimating the scope of the problem.

NERC estimates that EPA air regulations will shutter between 7.5 and 17.8 gigawatts of electric generation capacity. IER’s analysis, however, shows that 30 gigawatts of electrical generation capacity is at risk from the Utility MACT rule and the Cross-State Air Pollution Rule. If NERC is concerned about 17.8 gigawatts going offline, losing an additional 12 gigawatts could be truly catastrophic for the reliability of the electrical grid.

Unlike NERC, IER did not do its own modeling. Instead, we took EPA’s modeling for these rules and added announced power plant closures. In October, when we first produced the analysis, we found that EPA’s upcoming regulations would shutter almost 28 gigawatts of electricity generation capacity. At the time, we warned that “this number will grow as plant operators continue to release their EPA compliance plans.” A mere two months later, our updated analysis indicated last month that the amount of generation set to close because of EPA’s regulations has grown to almost 30 gigawatts.

Unfortunately, numerous generators across the country are warning of further retirement announcements. EPA’s announcement that it has finalized the Utility MACT regulations will surely be met with a further wave of plant closure announcements in the coming weeks and months as utilities struggle to comply with these burdensome regulations.

Operators in Michigan, Wisconsin, and Georgia have announced new closures since we first published our closure list in October. Additionally, operators in Minnesota announced they would cease plans to convert a coal plant to natural gas, letting the plant retire due to EPA regulations. In just two short months, retirements related to EPA regulations have grown by 1.5 gigawatts, over 10 percent of the total retirements predicted by EPA.

These regulations may have an impact in Oklahoma. According to EPA’s modeling, the nearby chart shows the electrical generating units that will close in Oklahoma as a result of these regulations.

The economic damage from EPA regulations could have been avoided. But now it will literally take an act of Congress to force EPA to consider the economic downsides of its regulations. The American people, especially those already suffering in these difficult economic times, deserve better from the Obama administration.

Daniel Simmons (J.D., George Mason University) is director of state and regulatory affairs at the Institute for Energy Research (IER). Before joining IER, Simmons served as director of the Natural Resources Task Force at the American Legislative Exchange Council (ALEC). Prior to working for ALEC, he was a research fellow at the Mercatus Center at George Mason University.