Got Gas... or Coal? The Proposed EPA Regulations

The Environmental Protection Agency (EPA) recently proposed four regulations affecting coal-fueled electricity generating units.  The regulations are the: 1) Cross-State Air Pollution Rule; 2) Mercury and Air Toxics Standards; 3) Cooling Water Intake Structures regulation; and 4) Disposal of Coal Combustion Residuals regulation.

Previously, the Government Accountability Office (GAO) reported that, in response to these regulations and other factors such as low natural gas prices, companies might retire or retrofit some units, which may increase electricity prices and may affect reliability in some regions.  The GAO recommended that the Department of Energy (DOE), the EPA, and the Federal Energy Regulatory Commission (FERC) develop and document a formal, joint process to monitor the industry’s progress responding to these regulations.  Since that time, the DOE, EPA, and FERC have taken initial steps to monitor industry progress responding to the EPA regulations with a primary focus on the Mercury and Air Toxics Standards and the regions with a large amount of capacity that must comply with that regulation.

According to GAO’s analysis, about 13% of coal-fueled generating capacity has either been retired since 2012 or is planned for retirement by 2025.  The units that power companies have retired or plan to retire are generally older, smaller, and more polluting.  In addition, the United States capacity is geographically concentrated in four states:  Ohio (14%), Pennsylvania (11%), Kentucky (7%) and West Virginia (6%).

According to an article on the Fox Business website, coal accounts for approximately 40% of the country’s electricity generation, down from 45% in 2009.  With the proposed regulations from the EPA, it is expected that the share will decrease to 30% by 2030.  With the shale boom causing gas supplies to swell, prices for natural gas sank to record lows and spurred utilities to use more natural gas to generate electricity.  Low gas prices coupled with these new regulations proposed by the EPA are placing more and more pressure on coal-producing companies than ever before.

The news isn’t all bad for the coal industry.  Coal remains the biggest source of fuel for generating electricity in the U.S., and coal production is projected to remain relatively constant over the next three decades, according to the U.S. Energy Information Administration.  Regulators are also reluctant to let utilities become too dependent on natural gas, fearing that a sudden price jump could send electricity prices soaring.

So, if you are a utility company and you are asked the question:  do you have gas…or coal, the answer might be both.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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