(November 2009)Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this year...
Why You Should Care About CAIR
New provisions nearly eliminate the financial impacts of the rule’s ozone regulations.
regulations? With the implementation of the CAIR PM2.5 annual cap on NOx emissions, we project a 2009 allowance price of $8,830 per ton of NOx emissions under the annual cap, and a price of $22 per ton under CAIR Ozone. Thus, with proper emission control strategies, CAIR PM2.5 effectively eliminates the financial impact of CAIR Ozone. These prices are shown in columns 8 and 9 of Table 3.
To understand these results, consider the implications if, along with the CAIR PM2.5 2009 allowance price of $8,830 per ton, the CAIR Ozone price was the $2,070 per ton discussed earlier and not the $22 per ton shown in column 8 of Table 3. These prices imply that a plant regulated under CAIR Ozone and CAIR PM2.5 would pay $10,900 ($2,070 plus $8,830) for every ton of NOx it emitted during the ozone season and $8,830 for every ton emitted in the rest of the year.
In competitive markets, this $2,070 per ton differential could not be sustained if plant operators could modify the operation of their emission controls devices. This differential would provide a very strong incentive for the generators with plants regulated under both provisions of CAIR to reduce NOx emissions during the ozone season. We would expect the generators would take the additional steps necessary to reduce this $2,070 differential by further controlling emissions during the ozone season.
The magnitude of the CAIR PM2.5 allowance prices in the first few years after the provisions are implemented stands out. The reason for these very high prices stems from the assumption in our analysis reflecting limits on the extent to which retrofit SCRs and SNCRs can be installed through 2010. We estimate that it would be economic to retrofit more than 35,000 MW of generating capacity with SCRs by 2009. It is not clear, however, that pollution-control vendors could accommodate this level of demand. Based on our assessment of committed retrofits of NOx control equipment, we concluded that about 5,200 MW of SCR capacity would enter service over the 2006 through 2008 period, another 1,100 MW in both 2009 and 2010, and an additional 1,800 MW between 2011 and 2012. So by 2009, there would be about an additional 6,300 MW of SCR capacity in place—far less than the 35,000 MW that appears to be economic over that time frame.
Based on our assessment of planned SCR announcements, we assumed for this analysis that 6,000 MW of SCRs per year could be brought online in 2009 and 2010 and 3,000 MW per year of SNCR capacity over the same period, in addition to our estimates of planned NOx control retrofits.
In the absence of these limits on NOx control retrofits through 2010, we project that CAIR PM2.5 allowance prices through 2010 would be about 70 percent less than the prices reflecting limits on NOx control retrofits. This is shown in Table 4. To facilitate comparisons, columns (1) through (3) in Table 4 are from columns (7) through (9) in Table 3. Columns (4) through (6) in Table 4 reflect the results from the