SOUTHERN OFFICIAL: MATS COMPLIANCE COULD CAUSE 10-20% RATE HIKE

Tamar Hallerman
GHG Monitor
11/16/12

BALTIMORE—A Southern Company executive said this week that bringing the utility’s coal fleet into compliance with the Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS) could translate into a 10 to 20 percent rate increase for its customers. In remarks here at the National Association of Regulatory Utility Commissioners’ annual meeting, Southern Company Vice President of Operations Jeff Burleson said that the $13 billion to $18 billion the utility is spending on technology retrofits to comply with the standards would likely hit its 4.3 million ratepayers hard. “Cost is still a very key concern for us related to these rules,” Burleson said. Southern announced earlier this year that it plans to install environmental controls on 13 GW of its coal capacity while shuttering up to 4 GW of capacity and switching another 3 to 4 GW to natural gas.

Southern Company is one of the country’s most coal-reliant utilities and has subsequently been hit hard by the slew of EPA rulemakings meant to cut down on pollutants from coal plants. MATS has quickly become one of the most controversial, requiring the operators of coal and oil-fired units nationwide to install pollution-control equipment such as scrubbers, baghouses, dry sorbent injection technology or electrostatic precipitators within a three-year timeframe. When EPA finalized the rulemaking late last year, it said states could extend the compliance timeline for projects by one year on a case-by-case basis, while the Administration can greenlight an extra fifth year to individual units if the local reliability of the power grid is threatened. At the conference this week, Burleson echoed the utility’s previous recommendation that EPA extend the compliance period for MATS to at least six years, arguing that the extra time would help lessen the rate impact on its customers. “If that time horizon could be extended it could certainly help lessen the impact,” Burleson said.

Generators Worry About Planning Outages

Several coal stakeholders here raised concerns about maintaining the reliability of the power grid as electricity generators temporarily take units offline to retrofit them for MATS under a condensed time period. Burleson said the reliability outlook for Southern’s fleet in 2015 and 2016—MATS’ compliance deadline for most units—could be particularly “dire.” “Currently, if all goes as planned, we anticipate being able to comply with the requirements of the rule within the four-year window, but if we have problems with outage coordination—we’re going to have something done on every one of our main coal facilities—there are going to have to be modifications made,” Burleson said.

Others agreed that planning for outages is also of prime concern. “Coordinating these outage windows will be biggest challenge for us,” said John Bear, president and CEO of the regional transmission organization the Midwest Independent Transmission System Operator (MISO). Bear said he expects 70 percent of the region’s 66 GW of coal capacity to be affected by the rulemaking. His remarks echoed a May report from the Brattle Group, which warned that MATS compliance for the region could be a “major challenge” and that massive coordination of outages is necessary in order to keep the lights on for area households. “It all comes down to planning and scheduling,” Jim Dougherty, president of the technology supplier Babcock Power Environmental Inc., said.

McCarthy Says Timelines are Achievable

Shortly before the remarks by Southern Company and Babcock executives, though, EPA Assistant Administrator for Air and Radiation Gina McCarthy said she believes that the compliance timelines finalized by EPA are achievable. “We knew it would be challenging simply because of its breadth, but we also knew that it was doable in terms of the technology,” McCarthy said of EPA’s planning process for MATS. She added: “We knew that the timing was really everything… but what we’ve seen is that three years, for many of these technologies, is a very sufficient period of time in which you could upgrade plants.” McCarthy highlighted particular pollution control technologies approved by EPA, such as activated carbon injection and dry sorbent injection technologies, as quicker fixes than some technologies like wet scrubber systems.

McCarthy told reporters on the sidelines of the event that the 10 to 20 percent rate hike figure cited by Burleson was “clearly not what our rules were anticipating” in terms of electricity bill increases as a result of the standards. “We did look at the issue when we put the rule out and looked at both the costs and benefits… associated with the reduced pollution,” she said. “We looked at how that might impact individual rates, and we did see that there may be some impact, but it was moderate… and was in the range for what we’ve been paying for electricity relative to natural gas prices.”