Analysis: Mercury rule case may have muted effect

OREANDA-NEWS. Coal- and oil-fired power plants planning to retire to comply with Environmental Protection Agency (EPA) limits on mercury emissions are unlikely to keep operating even if the Supreme Court overturns the regulation, industry experts expect.

The high court is expected to rule in June on the legality of EPA's mercury and air toxics standards, but that ruling would likely come "too late" for power plants that retire before the rule's 16 April 2015 compliance deadline, analysts at the investment firm UBS said today in a research note. Some coal plants have decided to retire to comply with the rule rather than install costly pollution scrubbers.

The analysts expect "little in immediate, practical implications on power markets" if the US Supreme Court decided to overturn the mercury rule, because of the sustained pressure from low-cost gas, the loss of capacity payments and the difficulty for companies to reverse decisions premised on retirements.

Even coal industry groups concede that a Supreme Court ruling in their favor is unlikely to save assets that have already retired. The court this week held oral arguments on whether EPA should have considered compliance costs when it decided to regulate air toxics and mercury emissions from coal- and oil-fired plants.

"True enough that even with the [mercury] rule overturned, much of the carnage it would do would still be done," the National Mining Association's Luke Popovich said after reading the report. The coal group is among the industry groups that have sued to block the rule.

Unfavorable market conditions for coal plants are "immeasurably aggravated by an administration determined to destroy as much of the industry as it can," Popovich said. Market conditions may cause a plant to idle, while regulations cause a plant to retire and be "lost for good," he said.

Bringing a power plant on line is difficult in part because grid planners often treat a retired plant as an entirely new resource, which adds years of review and could require investments in transmission. Owners of retiring power plants also frequently defer equipment maintenance, making it difficult and costly to restart operations later.

"For the most part, if a unit is retired, it is probably not coming back," the PJM Interconnection's Ray Dotter said.

Not all power plants are required to comply with the mercury rule next month. States have given some power plants that were needed for reliability a one-year waiver to operate until 16 April 2016, though those plants will also face the same pressures of plants retiring this year.

EPA noted the mercury rule does not require power plants to close, but instead that power companies were making retirement decisions based on many factors.

"The UBS report reinforces what EPA has been saying all along: that power companies make business decisions based on a broad range of factors that affect the economics of individual power plants, including low natural gas prices and little demand growth," EPA said.

The UBS report said even if retiring units decide to extend their operations, this would likely only last through summer. The exception might be retiring plants in vertically integrated states, but the researchers expect few changes because utilities already have resource adequacy plans in place.