June 16, 2011 - will EPA rules increase electric rates?

The EPA is charged with balancing environmental protections against their costs -- and is now drawing fire for how it balanced costs versus benefits in its tighter regulation of emissions from fossil-fired electric generation.

Earlier this year, the U.S. Environmental Protection Agency proposed a new set of rules limiting emissions from power plants.  These regulations, called the Mercury and Air Toxics Standards, create new standards for emissions from coal- and oil-fired electricity generation.  Under the new EPA standards, these plants must meet emission requirements; some plants need expensive retrofitting to comply, while others may not be able to upgrade their emissions controls in a cost-effective manner.  For example, American Electric Power (AEP), responded to the proposed rule by accelerating its plans to retire 5 large coal-burning power plants, and to retrofit other plans to meet emissions thresholds or switch to natural gas as a fuel.

As for the benefit side of the equation, in a factsheet about the standards, EPA estimates the health benefits associated with these emissions reductions are $59 billion to $140 billion in 2016 (in 2007 $), with total national annual costs of $10.9 billion in 2016.

This calculation of costs is challenged by pro-coal interests.  The American Coalition for Clean Coal Electricity commissioned a study suggesting that EPA's new rules will make electricity costs increase by $184 billion, or $17.8 billion per year.  If this happens, the coal lobby's study suggests that average U.S retail electricity prices in 2016 will increase by about 12 percent, with some regions facing 24 percent price hikes.  For example, the Chicago Tribune projects consumer rate impacts of an increase of from 40 to 60% over current electric bills.  AEP reportedly thinks that retooling its operations to comply with the new EPA rules will require $6 billion and $8 billion in capital investments over the next ten years, resulting in the loss of 600 jobs and an increase in electricity prices of 10 to 35%.

EPA is considering public comments on these proposed rules through July 5, but that period may be extended.  Last week, a coalition of House Democrats sent a letter to EPA Administrator Lisa Jackson asking for a 60-day extension of the public comment period.