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Why You Should Care About CAIR

New provisions nearly eliminate the financial impacts of the rule’s ozone regulations.

Fortnightly Magazine - January 2007

as shown in Table 2. These generators are likely to face low allowance prices that may not justify retrofitting SCRs or SNCRs. Of course, for some of these plants, the states may require generators to retrofit NOx controls or impose other requirements irrespective of federal regulations and economic forces. But short of being forced to take some action, it appears owners of plants subject only to CAIR Ozone should follow a wait-and-see strategy.

Generators with plants in states subject to both CAIR Ozone and CAIR PM2.5 will have the greatest incentive to retrofit controls, since they will face the greatest potential allowance costs. Owners of these plants undoubtedly have spent much time and effort evaluating the economics of installing retrofit controls and will continue to do so.

Then there are the generators in states where plants will be regulated only under CAIR PM2.5 (Georgia, Minnesota, and Texas). They are in much the same boat as generators with plants subject to both sets of CAIR provisions, but will have greater operational flexibility without the seasonal ozone constraint.

Our key finding is that CAIR PM2.5 effectively will eliminate most of the financial impact of CAIR Ozone because CAIR PM2.5 is so restrictive. The model upon which this analysis is based, EPMM, is a long-run model of the electric industry and assumes perfect foresight. In the real world, a summer heat wave for example, would tend to drive up CAIR Ozone allowance prices, and the increases could be substantial. Under such circumstances, CAIR Ozone allowances could be very valuable. With proper planning and operation, however, we would expect that CAIR Ozone allowance prices on average will be very low.

 

Endnotes:

1. U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2006 With Projections to 2030, p. 28.

2. Among the states east of the Mississippi River, plants in Georgia will be regulated only under the CAIR PM2.5 rule, plants in New Jersey, Delaware, Connecticut and Massachusetts will be regulated only under the CAIR Ozone rule, and plants in Rhode Island, Vermont, New Hampshire, and Maine will not be regulated under either of the CAIR rules. The plants in the rest of the states east of the Mississippi River will be regulated under both CAIR rules. Plants in six states west of the Mississippi River will be regulated under either or both of the CAIR rules—those in Arkansas will be regulated only under the CAIR Ozone rule, those in Minnesota and Texas will be regulated only under the CAIR PM2.5 rule, and plants in Iowa, Missouri, and Louisiana will be regulated under both of the CAIR NOx rules.

3. In some cases, states and federal settlements limit the extent to which NBP allowances can be used by generators, which we reflect in our analysis.

4. We assumed the state holdbacks under CAIR Ozone and CAIR PM2.5 would be the same as those under the NBP.

5. The 301,700 MW is the sum of the 284,500 and the 17,200 from Table 2.

6. The 323,600 MW is the sum of the 284,500 and the 39,100