Magazine | December 19, 2011, Issue

Regulated Unto Death

How the EPA is killing America’s energy industry

Energy is a factor in everything we do, an input in everything made in the modern economy. When energy prices rise, so in tandem does the cost of virtually everything; and if energy prices rise only for America or a particular state, as is the case when cost is tied to a new environmental regulation rather than anything fundamental in an energy resource’s supply, the difference between the cost of production in our nation or a state and the cost for an economic rival elsewhere grows.

So at a moment when national competitiveness, middle-class wages, and the U.S. economy in general are points of worry, the extravaganza of rules lately unleashed against electric utilities by the Environmental Protection Agency is profoundly inopportune. Among the regulations the EPA has decreed during the Obama administration, there are rules to address mercury, sulfur, and particulate emissions, the intake of water, and the disposal of coal ash, as well as vaguer matters such as “visibility.” The rules overlap with one another and, with implementation dates clustered in the next few years, they will unleash a cascade effect leading to the decommissioning of many low-cost power plants, the spendy retrofitting of around a hundred more, and a crunch on utilities, which will struggle to get all of this done at roughly the same time with the little specialist labor that exists to do it.

The cost of complying with this panoply of rules is considerable. A paper by FBR Capital Markets predicts an all-in cost potentially exceeding $80 billion, most of it hitting the electric-utility industry. That number does not count the cost in stranded or impaired investments for plants that will be shut down before they have reached the end of their useful life — which in total are estimated to have around 45 gigawatts of generating capacity, enough to power between 20 and 30 million homes. When Montana-Dakota Utilities, which serves four states, released its biennial planning forecast this year, its business-as-usual case projected a plant-in-the-ground value of $3.723 billion, which will be recovered over time in electric rates. But add the retrofitting or plant replacements required by mercury and coal-ash rules, as well as a carbon tax, to the mix, and that value soars to $5.317 billion — over 40 percent more than the status quo, all of which will have to be recovered in rates.

Pres. Barack Obama in the past two months has been sending mixed signals about the EPA’s rules bonanza. The administration suspended an EPA ozone rule, equivocated about the Cross-State Air Pollution Rule, which affects 31 states and has led Texas regulators to forecast blackouts, and delayed the release of greenhouse-gas rules to next year. Yet there are plenty of varyingly ineffectual, grandiose, and economically damaging regulations President Obama could walk back were he serious about convincing America that his love affair with the regulatory state was all just a thoughtless swoon.

Were there an award for the regulation most laughably out of whack with the moment’s national economic priorities, the winner would be the Regional Haze Rule, often called the Visibility Rule. Resurrected from rulemaking purgatory in 2009, after the financial crisis, it requires that visibility in “national airsheds” such as national parks, wildernesses, and certain Indian reservations be improved on bad days and not deteriorate on the days with the greatest visibility.

#page#Why is there a visibility rule in the first place? As the EPA’s website explains, the rule was necessary because “visual range has decreased from 140 miles to 35–90 miles” in the West, meaning that “many visitors aren’t able to see the spectacular vistas they expect.” This is pretty rich to those living in the West, whose “spectacular vistas” are more likely to be obstructed by wildfires of natural origin than by man’s emissions. Does a norm that the EPA has proclaimed cease to be meaningful if Mother Nature routinely negates it?

The rule neatly demarcates what’s important to the EPA, with “spectacular vistas” on one side and, on the other, the usual culprit: manufacturing and power plants, in this case those that emit particulate matter that blows willy-nilly into parklands. On balance, one would think — one would hope — this would be a clear victory for what is called in EPA parlance “the emitter.” But don’t hold your breath. Rather than treating matters like this as a balancing act of environment versus economy, the rote assertion of green-jobs ideology has become that the environment is the economy. That a generator or engine or boiler will always be to some degree at odds with nature seems a concept lost on this administration. The EPA is scheduled to take action this or next year to force recalcitrant states into compliance with the Visibility Rule.

An even more harmful rule that is ripe for revision and delay is the mercury regulation effected by the Utility Maximum Achievable Control Technology (MACT) standards. This, at least, is a rule intended to mitigate a real pollutant, and is in part being implemented by federal court order. But the Utility MACT is overzealous. Modern coal-burning technology produces a small amount of mercury. If you filled up the Astrodome with 30 billion ping-pong balls, representing the parts emitted when low-sulfur subbituminous coal is burned, and painted black those balls that represented mercury, then you would have only 27 black balls. Many states have already adopted stringent controls, so that, at Montana’s large Colstrip facility, which hosts four power plants that supply the northwestern United States, you would have only three black ping-pong balls. Put in a more scientific way, the cleaner varieties of coal produce less than one pound of mercury for every trillion BTUs. At this rate of occurrence, it is difficult even to measure mercury emissions — let alone control them. Yet the EPA says it will finalize the rule by the middle of December.

The EPA is also steaming ahead with the Coal Combustion Residuals rule, another pillar of the agency’s regulatory overkill. This rule has been written and awaiting the EPA go-ahead for a year. It threatens to treat the ash produced when coal is burned as a hazardous material that may be deposited only in certified hazmat landfills. Coal ash does not meet any existing EPA definition of a hazardous material, and hazmat landfills are in short supply (and in some coal-burning states, such as Montana, they are nonexistent). Coal plants produce a lot of ash — 10 million tons of coal produce 1 million tons of ash when burned. If ash is to be treated as a hazardous waste on par with battery acid, there is simply no way coal plants, which still account for half of America’s electrical generation, can remain online. The rule was issued this spring, but Obama, if he chose to, could save ratepayers billions by withholding final approval.

#page#The Visibility, the Utility MACT, the Coal Combustion Residuals, and other rules in the EPA’s regulatory bouquet are ostensibly about public health, but their coalescence at this particular moment is enough to inspire justified suspicion that, really, they are a subterfuge to take coal-fired generators offline or, at least, make it much more expensive to use coal to produce electricity. Indeed, Steven Chu, before he became energy secretary, declared that “coal is my worst nightmare.”

Greens have long been annoyed that coal and coal-fired electricity are so cheap, and that renewable forms of energy are so expensive. Renewables already are made artificially cheaper through mandates to buy green energy such as the Renewable Portfolio Standards, which 29 states have adopted, as well as direct subsidies such as the federal Production Tax Credit for Renewable Energy, which pays producers $22 per megawatt-hour of green energy (regardless of whether it is delivered at a peak-demand time on a hot summer afternoon, or in the dead of night).

Even with the mandates and subsidies, renewables in many places are not competitive. So has come a push to make conventional forms of generation more expensive. Greens have long argued that coal-generated electricity would not be cheap if only all of the negative externalities were reflected in the price the end-user pays for electricity or manufactured products. That’s a difficult thing to bring about, of course, because when you push up prices of electricity, a particular energy-using process merely will migrate to locales where externalities are still external and energy is cheaper. These rules certainly will certainly abet that trend.

The fate of the rules is unclear. There is reason to believe some will be delayed, or never implemented, because of fierce political opposition in swing states such as Ohio, Indiana, and Pennsylvania, home to large coal fleets. But more than being a sword of Damocles hanging over the heads of utilities with existing coal plants, the rules are an embodiment of regulatory uncertainty, rightly a watchword of our ailing economy. The mere threat of the rules has rendered nearly impossible the construction of new coal plants in the United States. Ironically, this keeps older and dirtier coal plants online and suspends many investments. Society is kept in limbo, courtesy of the EPA.

If the EPA is going to kill off the industry, then it ought to dispense with the tortuous waiting game and just get it over with. The status quo is the worst of both worlds. Industry is paralyzed and, meanwhile, plans for what to do with the clean, low-sulfur coal deposits of the Powder River Basin, America’s most promising coal play, now revolve around exports to China, a nation every bit as determined as our EPA is ambivalent. In effect, the EPA is not lessening pollution in the world; it is merely exporting it, and our economy along with it.

– Mr. Kavulla, a former associate editor of National Review, is chairman of the Montana Public Service Commission, the state’s utility-regulating body.

Travis Kavulla — Travis Kavulla, a former associate editor of National Review, is a writer in Montana and the Republican nominee for public service commissioner for the state. He currently edits National Review ...

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