(UtiliPoint - Mar. 19)

By Ken Silverstein Director, Energy Industry Analysis

Some high-powered utilities have promised to install new technologies to clean up their power production. American Electric Power, Duke Energy and Cinergy Corp. are expected to install “scrubbers” in existing or newer coal-fired power plants as a way to reduce harmful emissions.

The moves are all to comply with or exceed the requirements of the Clean Air Act, which requires utilities to implement anti-pollution equipment on all new construction or if they upgrade their older facilities to produce more power or to extend their lives. But such moves may lose momentum among coal-fired power plants if the Bush administration modifies the laws that require such improvements—a proposition that would save utilities billions but could slow the reduction in contaminants emitted. The scrubbers that AEP has planned, for example, would reduce sulfur dioxide emissions by 95 percent.

At issue is the Clean Air Act's New Source Review (NSR) provision. When older power facilities make "major modifications," the law says that they must also install modern technologies. That's something required of all newer plants. The difference between "routine maintenance'' and "upgrades" is vague, which led the Bush administration's Environmental Protection Agency to try to clarify the rules.

While certain facilities may end up increasing their emissions under the new regulation, the EPA expects the revised NSR to be environmentally neutral. If it survives upcoming challenges, a utility may repair, replace or upgrade production equipment as long as similar parts are used and the cost of the new equipment doesn't exceed 20 percent of the replacement value of the unit being fixed. When the 1970 Clean Air Act passed, it was thought older coal plants would be phased out in favor of facilities that would utilize modern technologies and cleaner burning fuel sources. As such, those plants were granted “routine maintenance” exemptions from the act. But the older plants have lived on.

“Enforcement of the existing Clean Air Act will create research and afterwards, the technical jobs and associated equipment we very much need if we are to remain stewards of a planet rapidly going to hell along with the people that inhabit its surface,” says Herman Dorsey, president and CEO of One World Energy in Boston. “We only did it because we were required to do so. More than 30 years has gone by and I certainly can see the difference,” he says in reference to a power plant he once managed.

The Clean Air Act is credited with reducing harmful emissions from power plants by 29 percent since 1970. Requiring scrubbers would do even better. But, they cost about $100 million each and millions more to operate. That said, about 140 scrubbers function at about 540 coal plants. Right now there are approximately 3,000 plants. More are planned, particular since about 10,000 new megawatts of coal-fired power plants are in the works. Industry, meanwhile, says it has spent $350 billion to clean the air since the 1970s—costs that it says account for 40 percent of all new construction and 35 percent of all operational costs.

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Power plants are among the biggest polluters, releasing 11.4 million tons of sulfur dioxide, or 62 percent of the acid rain emitted. They also spew 5.2 million tons of nitrogen oxides, or 21 percent of the smog, all according to the EPA. Scrubbers remove sulfur dioxide by injecting a mixture of limestone and water into the emissions stream after it leaves the boilers. According to analysts Hugh Wynee and Eric Selmon at Sanford C. Bernstein & Co., the 13 utilities that have been sued for NSR violations by the EPA would have to spend a total of $10 billion in environmental capital expenditures if the Bush initiative is overturned by the courts.

AEP says that it will spend $1.2 billion over three years to install scrubbers that will reduce its sulfur dioxide emissions. Meanwhile, Duke is retrofitting an existing coal-fired facility that will reduce such emissions by 90 percent. Altogether, the company will spend $1.5 billion to update its technologies and all to comply with state and federal regulations. Phase one of its endeavor is expected to be completed by 2006.

Cinergy's pursuit is more problematic. It came to terms with the EPA in December 2000 to spend $1.4 billion installing pollution control equipment at its existing coal-fired plants. It would install four scrubbers, with the first to be operational by year-end 2007. To settle its dispute over NSR violations, the company also would close some coal-fired boilers at three plants as well as pay millions in penalties. Now, however, EPA is insisting that the utility spend $400 million more on two additional scrubbers—something which Cinergy refuses to do at this point.

Under any circumstance, the investments in new scrubbers will pay off in terms of the environment and new job opportunity. And, all are in response to suits filed by EPA. “These projects create hundreds of jobs and will be a tremendous boost to our economy,” says Gov. Mike Easley of North Carolina, in a formal statement. The state enacted tough clean air legislation in 2002—moves that will allow Duke to recover their costs through higher rates to consumers.

President Bush's plan to modify the rules that affect plant upgrades under the NSR has met fierce opposition. Already, 14 states have teamed up to have the decision overthrown in court. The National Academy of Public Administration, which is independent and chartered by Congress, was asked to investigate whether NSR has been working properly. It concluded that the current system gives an unfair advantage to older coal-fired plants that have not had to upgrade. Congress did not envision that NSR would have the effect of endlessly maintaining the lives of outdated facilities, it adds; rather, it thought those plants would be retired and replaced by those using the most current technologies.

"The oldest and dirtiest facilities (should) be given a firm deadline to install cleaner equipment or close down," says the report. "The panel further recommends that Congress continue requiring NSR permits for new plants, but also replace NSR as it applies to existing facilities with a simpler, more effective, performance-based program."

The country is now grappling with whether the added capacity provided by keeping older coal-fired plants running for a longer period is a prudent public policy decision. Pressure is building for those generators to be cleaned up and as a result, industry analysts expect that most such facilities will add scrubbing equipment by the end of the decade or they will shut down. While the costs will be passed on to ratepayers, the plants would produce cleaner energy and the investments in technology would spawn new jobs.

©2004, UtiliPoint International, Inc. All rights reserved. This article is protected by United States copyright and other intellectual property laws and may not be reproduced, rewritten, distributed, redisseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of UtiliPoint International, Inc.