The United States Supreme Court on June 29, 2015, saved electric utilities, and ultimately electric customers, billions of dollars a year when it struck down an Environmental Protection Agency (“EPA”) decision to regulate emissions of hazardous air pollutants from power plants under the Clean Air Act. But natural gas economics may do more to move the country away from coal than the EPA.
The central issue for the Court was whether it was reasonable for the EPA to refuse to consider cost when making its findings. Justice Scalia’s 5:4 majority opinion found that the “appropriate and necessary” standard Congress wrote into the 1990 Act “requires at least some consideration of cost.” Here, consideration of cost was even more compelling since the EPA was proposing to “impose billions of dollars in environmental costs in return for a few dollars in health or environmental benefits.” In 1998 the EPA found $9.6 billion a year in power plant compliance costs with only $4 to $6 million a year in benefits from reducing power plant emissions of hazardous air pollutants.
If the EPA regulations had not been invalidated, the impact on Florida utilities and customers could have been significant, especially in the short term. Florida is the second highest net electric generation state in the United States, second only to California. All Florida utilities to some degree rely upon coal to produce electricity. While Florida’s statewide average reliance on coal to produce20% of the state’s electricity is less than the national average of 30%, for some Florida utilities, coal is a significant component of their electric generation. According to Florida Public Service Commission documents, the Orlando Utilities Commission’s net capability is approximately 50% coal-based and Tampa Electric is about 34% coal.
While the Supreme Court decision puts off any EPA-mandated move away from coal, the changing energy market in the United States has been driving utilities from coal to cleaner and cheaper natural gas. Florida Power and Light (“FPL”), the largest electric utility in Florida, has essentially abandoned coal as a fuel source with 70% of its generating capacity being fueled by natural gas. Statewide, approximately 60% of Florida’s electric generation is by natural gas, which may be the highest percentage in the United States. Nationally, natural gas and coal each fuel about a third of the nation’s net electric generation.
In the current economic environment, moving to natural gas as an electric generating fuel is a win-win for utilities and customers. The combined cycle natural gas power plants are a proven technology, with relatively short construction times, they can run on a third less fuel per megawatt-hour as the oil and coal plants they replace, and they can significantly reduce air emissions and cut carbon dioxide emissions by half. For customers, this translates into cheaper and cleaner electricity. FPL, with the highest percentage of natural gas power production in Florida, generally has had the lowest per kilowatt hour rates of any utility in the state.
The road to the Supreme Court’s decision to invalidate the EPA’s power plant rules has been a long one. How quickly the EPA can restart its process and develop and promulgate new power plant rules is unknown, but it can certainly be expected to take several more years. In the meantime, the economics of natural gas are expected to remain favorable and electric utilities are expected to continue to move power generation to natural gas. By the time the EPA may issue new regulations impacting coal plants, the number of coal plants being affected will certainly be less, meaning the marketplace may well ultimately accomplish what the EPA sought. That can only be good for electric customers.
The case: Michigan v. Environmental Protection Agency, 576 U.S. ___ (2015), reversing White Stallion Energy Center, LLC v. Environmental Protection Agency, 748 F.3d 1222 (D.C. Cir. 2014).