State environmental policy innovations: North Carolina's Clean Smokestacks Act.

• Author: Andrews, Richard N.L.
• Position: IV. Implementation: N.C. Utilities B. Plant Retirements and Replacements through VII. Conclusions and Lessons, with footnotes, p. 910-939

2. Plant Retirements and Replacements

   Between 2002 and 2007, both utilities concentrated on constructing their highest priority N[O.sub.x] control technologies and beginning their major investments in S[O.sub.2] scrubbers to meet the 2007 cap and amortization deadlines. (178) As early as 2005, Duke expressed concern about the cost of SNCR technology and the narrowness of its compliance margin to meet the initial 2007 N[O.sub.x] cap, and suggested that it might therefore consider using SCR rather than SNCR or even perhaps retire some plants to assure compliance. (179) It also accelerated construction of scrubbers on its Allen units to assure compliance with the new federal CAIR promulgated by EPA in 2005 and the anticipated federal mercury rule. (180) Progress reported in 2004 that it was able to attain higher rates of S[O.sub.2] removal from its scrubbed units, thereby enabling it to cancel a scrubber it had proposed for one of its smaller units (Lee 3). (181)

   In 2005, Duke took a major step further, requesting permission from the Utilities Commission to build two new 800-megawatt pulverized-coal units at its Cliffside site, both equipped with state of the art control technology, and at the same time to retire rather than retrofit the four oldest Cliffside units (Cliffside 1-4) by 2013. The Utilities Commission approved one of these two new units (Cliffside 6) coupled with requirements for the retirements of Cliffside 1-4 and for additional programs promoting energy efficiency. (182)

   Beginning in 2005, both utilities began to report somewhat higher costs than initially anticipated: 18-31% higher in various years for Duke, 10% higher for Progress in 2005 but increasing to as much as 67% higher in 2006 and 90% higher in 2008, before ultimately finalizing in 2011 at 23% higher for Duke and 30% higher for Progress than their original estimates. (183) Both utilities therefore began documenting their possible intent to request additional cost amortization in 2008 and 2009. Progress also declared that it did not intend to request amortization of more than its initial $813 million cost estimate: any costs above that amount it proposed to request adding to its rate base and charging to its customers instead. (184)

   In 2007, both utilities met their first N[O.sub.x] caps and achieved significant reductions in S[O.sub.2] emissions: Duke had reduced its N[O.sub.x] emissions to 33,000 tons (versus a cap of 35,000, a 60% reduction since 2002), and its S[O.sub.2] emissions by 15%, while Progress had reduced its N[O.sub.x] emissions to 24,383 tons (versus a cap of 25,000, a 59% reduction since 2002) and its S[O.sub.2] emissions by 25%. (185) Both also met their financial mandates for amortization of 70% of compliance costs by 2007, and Progress sought authorization to amortize an additional $243.9 million (the balance of its initially estimated $813 million) in 2008 and 2009. (186) Duke, however, negotiated a new stipulation that it would not seek any further accelerated amortization--leaving $225.2 million of its originally estimated compliance costs unamortized--but would seek instead to have them added to its rate base. (187) Progress subsequently also requested that all compliance costs beyond its initial $813 million be included in its rate base, and in 2008 followed Duke's lead in asking to terminate its accelerated amortization program and add all additional costs to its rate base instead. (188)

   In 2008, Progress also began reconsidering the costs of additional control technology at several of its smaller plants (for instance, Cape Fear 5 and 6), to determine which technology would ultimately be most cost effective. (189) Then in 2009, it went a major step further and announced its intention to retire all three units of its Lee facility (397 megawatts total), and instead to build a 950-megawatt, state of the art combined cycle natural gas plant at that site. (190) This major natural gas substitution would dramatically reduce its S[O.sub.2], mercury, and C[O.sub.2] emissions as well as N[O.sub.x]. It would thus be a more cost effective option especially in light of North Carolina's tough new regulations of mercury emissions, and the anticipation of possibly tighter federal regulations including the CAIR, mercury, and possibly C[O.sub.2] rules as well as the tighter 2013 cap on S[O.sub.2] under CSA--than adding end of pipe Control technology at the Lee and Sutton 3 units.

   In December 2009, Progress went even further, announcing plans to retire all its remaining unscrubbed coal plants--eleven units totaling 1,485 megawatts, including Cape Fear 5 and 6, Sutton 1-3, Weatherspoon 1-3, and Lee 1-3--by 2017, rather than invest more than $500 million of capital costs in additional control technology--as well as some $580 million in operating and maintenance costs--on these old coal plants. (191)

   In short, from an initial plan aimed at installing N[O.sub.x] controls on all its units and scrubbers on all its large units, Progress's compliance strategy had shifted to maintaining only its seven largest units and adding a major new natural gas plant. It would then retire its other eleven units, representing nearly one-third of its total 1,533-megawatt coal-fired capacity.

   With these facility retirements and the completion of scrubbers and N[O.sub.x] control technologies at most of their other units, both Duke and Progress easily met their compliance mandates under the tighter 2009 caps, with emissions that were well below the required levels: Duke emitted only 20,474 tons of N[O.sub.x] (versus a cap of 31,000 tons) and 22,038 tons of S[O.sub.2] (versus a cap of 150,000 tons, a dramatic reduction from its 2002 levels as eleven of its twelve scrubbers came on line); Progress emitted only 18,810 tons of N[O.sub.x] (versus a cap of 25,000 tons) and 51,416 tons of S[O.sub.2] (versus a cap of 100,000 tons). (192) Duke's S[O.sub.2] emissions in 2009, in fact, were even well below their 80,000-ton cap for 2013, and Progress's were well on their way to achieving its 50,000 ton 2013 cap for 2013. (193)

   By 2011, Duke had completed the installation of S[O.sub.2] scrubbers and N[O.sub.x] control technologies at all generating units that it planned to continue operating, and Progress expected to complete the rest by the end of 2011. Progress also had scheduled the retirements of all its older and smaller nonscrubbed units, and Duke in its 2010 Integrated Resource Plan announced plans to retire all of its nonscrubbed units; six of these units had already been idled by 2011. (194) Even before all these retirements had been completed, the utilities' combined annual emissions of N[O.sub.x] had been reduced by more than 80% since 1998, and their emissions of S[O.sub.2] by more than 76%. Both continued to meet their 2009 caps for both N[O.sub.x] and S[O.sub.2], and with Progress's planned retirements of its Lee units in 2013, both confidently expected to meet or exceed their S[O.sub.2] cap requirements for 2013; Duke, in fact, had already far more than met its 2013 S[O.sub.2] cap. (195) In 2011, Duke for the first time acquired and surrendered to the State 28,492 S[O.sub.2] allowances and 1,958 annual N[O.sub.x] allowances, both for compliance year 2009; Progress surrendered 41,259 tons of S[O.sub.2] allowances for 2009 (it had no N[O.sub.x] allowances to surrender).

   Both utilities thus used the law's combination of firm time-dated caps with flexibility as to how they could achieve them to make unprecedented 70-80% reductions in their emissions of both N[O.sub.x] and S[O.sub.2], initially by planning to install scrubbers and N[O.sub.x] control technologies at most or all of their facilities but then substituting retirements of their older, smaller and least efficient units. (196) The shift to retirements of older units indicated a shift in strategy by both utilities to shut down their older, smaller, and least efficient coal-fired power plants because of a combination of inefficient operating costs, the expenses that would be required to bring them into compliance with CSA and with anticipated new federal regulations, and undoubtedly also the rapidly falling cost of natural gas as an alternative fuel. (197) Each also used the CSA compliance process as an opportunity to propose new and larger generating units--the Cliffside 6 pulverized-coal plant by Duke, and the Wayne combined-cycle natural gas plant by Progress--that would not only be cleaner and more efficient but also significantly larger, to provide for additional anticipated demand growth.

   The costs of achieving these results were higher than originally estimated, but still well below the estimated benefits of the air pollution damage that was avoided. Duke's 2012 estimate of its total compliance costs was $1.84 billion, which was $340 million (23%) higher than its original 2002 estimate of $1.5 billion; Progress's was $1.055 billion, which was $242 million (30%) higher than its $813 million estimate in 2002. (198) In comparison, Hoppock et al. estimated the median cumulative mortality benefits to North Carolina in the range of $6 billion to $16 billion, not including other benefits such as to health effects other than mortality and to tourism. (199) Based on the Utility Commission's audit, the total annual impact of each utility's compliance with CSA on its cost of service to its residential customers was $2.64 per 1,000 kilowatt hours per month for Duke, and $1.97 per 1,000 kilowatt hours per month for Progress. (200)

3. Enforceability Confirmed

   In September 2011, the U.S. EPA formally accepted the Clean Smokestacks emission caps as an integral element of North Carolina's SIP for meeting the 1997 [PM.sub.2.5] and eight-hour ozone NAAQS, among other federal standards; for improving visibility in the mountains and other scenic vistas; and for reducing acid rain. (201) In doing so, EPA noted that all areas in the State that were designated as nonattainment for the 1997 [PM.sub.2.5]...