The energy industry has known for decades that federal regulators eventually would set rules under the Clean Air Act to govern emissions of mercury and other air toxics from coal-fired power...
Clean Air by 2015: The Billion-Dollar Compliance Race
Which utilities and states will be most affected by the new rules?
Which Companies Are Affected?
To better understand the impacts of the new EPA rules on companies, consider the 25 largest electric generators in the United States (see Table 2) . The group as a whole accounted for 71 percent of all electric generating unit SO2 emissions and 59 percent of all NO X emissions in 2004. The top three companies, American Electric Power, Southern Co., and the Tennessee Valley Authority account-ed for more than 23 percent of the annual SO 2 emissions and 20 percent of the NO X emissions nationally. Rounding out the top 5 in terms of emissions score (the combined SO 2 and NO X ranking) are Cinergy and Progress Energy.
At the other end of the spectrum is the merchant power company Calpine, with a predominately new gas-fueled fleet. Calpine ranked fifth in fossil generation in 2004, but 198th and 100th respectively in SO 2 and NO X emissions. Along with Calpine, Texas Genco LLC and Dynegy Inc. represent the largest fossil-fuel generators with the least amount of emissions.
The recently proposed merger be-tween Cinergy and Duke Energy will move the new holding company to third place nationally, while the proposed merger of Exelon and PSEG would create the 20th largest emitter nationally.
Which Generating Units Are Most Affected?
To better understand the benefits of emission-control investment, consider the 25 largest SO 2 emitting generating units (see Table 2) . The group consists of coal units built during the 1960s and 1970s. In 2004, the group accounted for 14 percent of the nation's electric plant SO 2 emitted, and represented nearly 19 percent of the CAIR rule clean-up necessary to meet 2015 standards. The average size of each unit is more than 760 MW, and during 2004, the group ran at nearly 71 percent of capacity. Based on those parameters, their allocated 2015 emission budgets, and assuming the addition of new emissions controls, the group could generate nearly 50,000 surplus emission allowances annually by the first year of phase II compliance in 2015.
Nationally, based on 2004 annual emissions, older units (more than 35 years old) emitted 423 times more SO 2 and 33 times more NO X than newer units built since 1999, yet at the same time, these older plants generated only 1.8 times more electricity (see Figure 2) . The newer units are predominately cleaner gas-fired units with state- of-the-art emissions-control equipment. Most of the units operating prior to 1980 are not scrubbed; 86.4 percent of the nation's SO 2 emissions are generated by fossil units currently without emissions-control devices. This is about to change as many of the largest emitters in the country are in the process of announcing, or have recently announced, plans to invest in control technologies.
To comply with the CAIR rules, generating companies will need to carefully weigh the costs and benefits of adding emissions controls, expanding their renewable generating portfolio, building new clean-coal generating plants, or securing and banking enough emission credits to comply with the stringent EPA caps.
The cost of complying with CAIR is estimated