December 26, 2011

Westar and CURB agree: New EPA rules will raise rates

New federal rules to clean up coal-fired power plants are so voluminous that Westar Energy hasn’t even read them all yet.

New federal rules to clean up coal-fired power plants are so voluminous that Westar Energy hasn’t even read them all yet.

But one thing is certain: The cost of improving air quality will find its way to your utility bill in the form of higher prices for electricity.

As of late last week, Westar, the state’s dominant power company with 687,000 customers, was evaluating the impact of rules issued by the Environmental Protection Agency on Wednesday.

“It will add to the cost of electricity,” said Bill Eastman, director of Environmental Services for Westar. “It’s just a trade-off between environmental improvement and electric prices.”

Asked how the rules will affect rates, Niki Christopher, an attorney for the Citizens’ Utility Ratepayer Board, answered: “Raise them. Considerably.”

Neither Westar nor CURB, the state’s utility consumer protection agency, is able to estimate how much rates will rise as a result of the rules.

But it is clear that Westar will have to retrofit older coal-fired generation units to comply with the requirements, which the EPA characterized as “historic.”

The new rules, called the Mercury and Air Toxics Standards, are designed to slash power plant emissions including mercury, arsenic, acid gas, nickel, selenium, and cyanide. For some pollutants, the reductions are as much as 90 percent.

The EPA estimates it will cost U.S. utilities about $10 billion a year to comply, making it one of the most expensive environmental rules ever. But the agency expects to see about a 9-to-1 payoff.

“The total health and economic benefits of this standard are estimated to be as much as $90 billion annually,” the agency said in a written statement.

Improvement of power plants will result in 46,000 temporary construction jobs and 8,000 long-term utility jobs, the EPA estimates. In addition, the equipment to be installed at the power plants is primarily manufactured in U.S. factories, the agency said.

The rule has been in the works for months and utilities, including Westar, have been lobbying the EPA for changes that would make it less expensive to comply.

Eastman said he and others at Westar are in the process of sifting through the 1,100-page rule to determine what, if any, of those recommendations the EPA has adopted.

Meanwhile, Westar has undertaken research on how to reduce emissions from its coal plants. Bag houses are being installed to catch larger particulates and the company has been experimenting with running emissions through activated carbon — the medium used in home water filters — to catch gaseous metals and acids, Eastman said.

“We’ve been doing testing on our units trying to understand what it’s going to take to remove some of these emissions that they’re talking about,” Eastman said. “We’ve gone through that process. We have a pretty good idea of what can be done, what can’t be done. We kind of have a fairly good idea of how long it’s going to take, so obviously we haven’t just been sitting still waiting on the rule.”

One of the utilities’ biggest objections is the time frame to implement improvements under the new rules — three years with a potential option for a fourth year in certain circumstances.

Westar is allowed to automatically recover virtually all of its environmental costs from ratepayers.

The company had already outlined $1.5 billion in environmental improvements before the new rule came out. Some of those improvements under way will help the company meet the new rules, as well as the earlier regulations that they were designed to address, Eastman said.

CURB, usually at odds with Westar over rates, is worried that the power companies may be right about the costs.

“We want clean air like everybody else,” Christopher said. “I understand the concerns of the environmentalists who have been fighting for these rules for a long time.”

But, she added, the implementation period may be too short given the scope of the challenge to be met, which will add to the cost and could hurt reliability.

“If what the local utilities are telling us is true, it may get to the point where we have rolling blackouts” on hot summer days when usage peaks, she said.

The EPA says that should not be a problem because the rules contain “a well-defined pathway to address any localized reliability problems should they arise.”

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