COAL CAUCUS MEETS TO DISCUSS EPA’S FINAL CLEAN POWER PLAN
By Elly Henry
The Coal Caucus held a meeting to discuss the final clean power plan issued by the Environmental Protection Agency (EPA).
Sen. Gene Yaw (R-Lycoming) opened the meeting by explaining that the caucus would be hearing testimony regarding the impact of the EPA’s Final Clean Power Plan on Pennsylvania’s coal industries and the individuals involved therein. Rep. Jeff Pyle (R-Armstrong) also expressed his appreciation in the attendance of the caucus members.
Emily Medine, Principal, Energy Ventures Analysis, introduced herself by explaining that, while EVA, Inc., is a consulting firm from Arlington, Virginia, she is in fact based in Pittsburgh. She said that since 1981, EVA has provided a number of “boutique” analyses for an array of energy-related clients: utilities, producers, transporters, traders, regulators and financial institutions. Their primary focus is on market analysis, and, in the case of coal, on electric utility demand. According to Medine, electronic utilities account for approximately 80 percent of coal production in the United States. As a result of the introduction of “shale” gas, and its impact on gas pricing, EVA’s analysis as it relates to electricity and demand for coal has shifted, she remarked, explaining they use tools such as dispatch models to mimic how utilities perform, more accurately taking into account both individual power plants and competing fuels and how they operate. Medine reported EVA has been engaged to do a number of environmental studies, including those looking into MATS (Mercury & Air Toxic Standards), cooling tower intake structures, coal combustion residual rule, regional haze, and others. Since the EPA announcement of the Clean Power Plan in June 2014, EVA has provided analyses to organizations, including Duke Energy, Southern Power, Peabody Energy, North American Electric Reliability Corporation, and the American coalition for Clean Coal Electricity, focusing on the new rules’ impact, she said.
Medine then produced data as to the US coal supply from 2014 moving forward, along with a short-term estimate of 2018’s production estimates. She reminded members that, in viewing her numbers, “Northern Appalachia” is the region that represents all of Pennsylvania’s non-anthracite coal production. She called current climates the “perfect nightmare” for coal. Low natural gas prices have resulted in utility switching from coal to gas usage. Medine made clear that gas prices have fallen because there is currently no place other than the utility sector to house the gas, leading to the displacement of coal as a fuel source. The trend will continue, she advised, until alternative markets or other means of balance are found.
In addition, compliance with MATS, Medine contended, is causing significant retirements of coal-fired plants. The strength of the US dollar is also making coal uneconomical in the global market. Chief among American competitors is Australia, she told members, as they are receiving $30-40 more per ton than the US, simply because the US Dollar is as strong as it is. She also mentioned China’s “economic woes” as playing into the market.
It is in this context, Medine said, that the EPA announced final rules in August and published them “under duress” in October. Under the Clean Power Rule, section 111(d) allows states two options for compliance: rate-based or mass-based targets. In theory, the two numbers should be similar, but they are not identical in practice. The rule applies to more than 3,000 fossil-fired generating units based on the following:
§ Commenced construction prior to January 8, 2014
§ Design power boiler hear input is greater than 205 MMBtu/hour
§ Delivers more than 1/3 of potential power output to grid
§ These qualification criteria exe3mpt over 17,400 other existing generating units from the EPA Clean Power Plan
Medine explained states must develop SIPs (State Implementation Plans) that meet CO2 emission limitations and are enforceable. Initial plans are due in September 2016, final plans by September 2018, and states will otherwise be subjected to the Federal Implementation Plan (FIP). For various reasons, she went on, EVA believes that most states are likely to adopt mass-based strategies to compliance.
Continuing, Medine said the EPA has constructed what they call the Best System of Emission Reduction (BSER) to allow them to utilize Section 111(d). There are three “building blocks” to BSER:
§ Coal unit process efficiency improvements reduced from 6 percent to 4.3 percent, 2.1 percent and 2.3 percent for the East, West and Texas
§ Regional interconnect gas re-dispatching based upon 75 percent capacity of summer capacity
§ Additional clean energy production allowed from new nuclear
Medine explained one change is the removal of a fourth “building block” – energy efficiency – which can still be a part of a compliance strategy. Compliance was placed on a delay from 2020 to 2022. Another change involved updating methodology in calculating source-specific emission performance rates among states. Pennsylvania was not affected as much as others. States may also build new plants, subject to Section 111(b) rules – versus Section 111(d) – which would help to ensure leakage prevention, she added.
Emission reduction is the basis for EPA’s generation of state targets: it does not tell states how to comply, nor mandate compliance strategy. Medine called the target “disingenuous,” in that states cannot comply without reducing coal generation. She also spoke to EPA’s baseline, saying that it has radically changed its assumptions regarding future generation of coal versus renewable forms of energy. Medine also acknowledged that fifty coal power plants would be “retired” by 2016, although their owners have not yet announced their closing. According to EVA’s Summary of Findings, nationwide, they contend that the rate-based method is a better option for states, versus a mass-based strategy of compliance. She said that there would be an increase in wholesale energy prices of 12-20 percent, varying state to state. Medine also pointed out the significant number of plant closings due to MATS compliance costs and PJM capacity payments. This capacity represents 10 to 15 million tons per year of lost Pennsylvania coal demand potential.
Beyond the “big numbers,” Medine pointed out that the real problem with closing down a coal power plant, is that it is virtually impossible to rebuild or replace it.
Sen. Yaw called the coal situation in Pennsylvania “a tragedy” and sought additional information regarding “rate-based” and “mass-based” approaches to compliance strategies. Medine verified that, according to EVA’s analysis, emission standards cannot be met using either methodology without reducing coal generation.
Sen. Scott Wagner (R-York) asked after the anticipated 10 to 15 million tons of coal demand lost in Pennsylvania and the dollar impact that would have. Medine responded that 10 million tons would approximate $600 million. Cliff Forrest, President, Rosebud Mining, added that they used to export four million tons of coal each year, which has now dwindled to zero. The combined worth of that and the $600 million comes to roughly an $800 million hit to the state, he said
Rep. Chris Dush (R-Jefferson) asked about the legal challenge surrounding the EPA’s final ruling, and questioned whether the mandate came as a result of Texas challenging the federal government’s authority over their energy practices. He said that states should govern their own emissions, and asked if Pennsylvania was actively pursuing a lawsuit. Medine responded that the situation surrounding MATS ultimately demonstrates that there are flaws within the law. However, she said, the reality is that the goals have been set, and once states decide the methodology of their compliance strategies, they are going to stay with them.
Rep. Tim Krieger (R-Westmoreland) asked if, hypothetically, a more “pro-coal” EPA is in place come January 2017, how much of the damage done can be reversed. John Pippy, Chief Executive Officer, Pennsylvania Coal Alliance, responded that if Pennsylvania prematurely enacts regulations based on a rule that is then overturned in the courts, the damage has already been done.
Sen. Camera Bartolotta (R-Washington) mentioned that a plant in her district spent $750 million in order to comply with EPA standards, was 85 percent clean, and asked for verification as to why their efforts were not enough. Medine confirmed that it was an issue of capacity payments.
Forrest noted that the capacity payment issue was particularly impactful upon the big coal plants, in that PJM plan allowed renewables to bid in auctions that then drove down the capacity payment.
Rep. Brandon Neuman (D-Washington) spoke to the volatility of Pennsylvania’s grid, and asked about the exchange of coal plants with those of natural gas plants. He said that there was an issue in not getting a guaranteed rate of delivery. Medine said that it would place a limitation on coal as an energy option. By 2018, exports of LNG are going to balance gas markets, and would cause significant cast increases for rate payers, she remarked.
Cliff Forrest, President and founder, Rosebud Mining, said that he is a Pittsburgh resident, and employs more than 1,000 workers. Rosebud operates 23 underground coal mines, seven surface mines and seven preparation plants, which add up to $3 billion in economic activity. Calling the new rules “technically unachievable,” Forrest said that the new standards place his investments, and those of his customers, in jeopardy. “The new rule known as the Clean Power Plan would force power plants to reduce carbon emissions to a level that is technically unachievable and would force the closure of coal fired power plants across our country and our state if implemented.” Only two of the seven plants currently in operations would survive, he said. Forrest noted the impact of the loss of reliability of the region’s power grid.
Forrest also commented on the small fraction of manmade impact on “greenhouse gasses.” In speaking further upon his hopes for Pennsylvania’s actions towards the EPA, he expressed his hopes that “a MATs scenario does not occur again. Pennsylvania should enact legislation, pledging that it will not implement the Clean Power Plan if the rule is invalidated by the Courts. We need real science, not political science, and real engineering, not social engineering.”
Sen. Don White (R-Indiana) called the hearing ‘illuminating,” adding that the Rosebud plant is in his district, along with those of Representatives Pyle and Dush, and that their constituents all feel the impact of the new EPA regulations. He said he would like to take the media offensive – to “make war” on the EPA, calling them uncontrollable and unregulated. He voiced his opinion that this was one of the most critical moments in the energy business in his lifetime.
Sen. Patrick Stefano (R-Fayette) mentioned a co-sponsorship memo he plans to distribute, requesting the state take a two-year pause before adopting the Clean Power Plan.
Sen. Bartolotta spoke to the hundreds of jobs lost due to the new regulations, and referenced the danger in being held vulnerable by those with power over energy resources the state might no longer have.
Sen. Wagner asked Pippy about overall job loss statistics and the net negative wage impact thereof. Pippy gave some basic statistics, stating that he would share greater detail to the caucus as he updated his information. He said he currently can compare the $7.5 billion industry from 2012 with a $4.5 billion industry in 2014. Jobs are down significantly, and are projected to decrease moving forward, he advised
Sen. Kim Ward (R-Westmoreland) emphasized her support of “marketing” the industry in a brighter light.
Pippy spoke to the legal issues affecting the industry, stating that 27 of the 47 states affected by the Clean Power Plan have filed suit against the EPA, along with 24 trade associations, 37 rural energy cooperatives, ten major companies and three unions. He also took time to contradict the notion that the prevalence of asthma has a direct and immediate relationship with coal mines. Pippy emphasized that the state needs to take the full three years to assess its energy needs before making a decision the EPA’s ruling.
Rep. Pam Snyder (D-Greene) agreed that time needs to be taken in making this decision. However, she said she is also fearful of the mines that are “mined out” and will be closing and leaving her constituents impoverished. Rep. Snyder remarked she wants to help in any way she can to ensure coal is part of the energy portfolio.
Pippy made the point that energy experts are anticipating an increase in coal need and usage in the future, and that Pennsylvania could be a leader in providing that energy source.
Rep. Krieger asked after the legal situation between the state and the EPA. Pippy said that there is no set timeline; however, a request for a “stay” has been issued. Medine added that the earliest they could anticipate a response would be the first quarter of 2016.
Sen. Wagner expressed his appreciation for the coal industry, and encouraged testifiers to motivate their employees and hometown supporters. Forrest said that their employees are fully engaged.
Rep. Dush reasserted that the states should rise up to reclaim their authority over the regulation of energy rites.
Walter Schroth, Owner of Schroth Industries Inc., said that he felt the fact that he is the third generation owner of his company is an example of the way in which supporting the coal industry helps to perpetuate the community. Despite the fact that sales in mine timbers are down 80 percent from last year, he still has ten employees, and six sawmills, which employ eight to ten employees each. But, he questioned if there is plausibility in passing along his sawmill to the next generation, considering the new EPA regulations.
Kevin Moore with Alpha Natural Resources, emphasized the industry’s positive impact on communities, particularly in enabling workers to live and invest in their hometowns. He noted that even “a whisper” of a regulatory change has drastic effects on investment in the industry, and said that he has seen on several occasions lengthy rule changes be introduced without time for review or comment. He thanked the caucus for its continued support of the coal industry.