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The cost of compliance really does matter

July 08, 2015   By Jay Hudson in Energy Matters

On June 29, the Supreme Court of the United States found the Environmental Protection Agency should have considered the costs of compliance when it issued the Mercury and Air Toxins Standards (MATS for short) rule in late 2011.

In its official opinion, the Court stated: "The Agency refused to consider cost when making its decision. It estimated, however, that the cost of its regulations to power plants would be $9.6 billion a year, but the quantifiable benefits from the resulting reduction in hazardous-air-pollutant emissions would be $4 to $6 million a year. Petitioners (including 23 States) sought review of EPA's rule in the D.C. Circuit, which upheld the Agency's refusal to consider costs in its decision to regulate."

What this means is EPA had estimated the MATS rule would cost electric utilities almost $10 billion annually to comply while only producing $4 million to  $6 million per year in benefits from removing the targeted pollutants (mostly mercury and other trace metals). Note that the costs are 1,600-2,400 times the potential benefits.

EPA justified the MATS rule as "appropriate and necessary" because the Clean Air Act didn't sufficiently regulate the emissions of mercury and other hazardous air pollutants (HAP) from electric generating units (EGUs) and also because, "The availability of controls to reduce HAP emissions from EGUs only further supports the appropriate finding." But they failed to consider the costs of compliance.

Writing for the majority, Justice Scalia stated: "By EPA's logic, some­one could decide whether it is 'appropriate' to buy a Fer­rari without thinking about cost, because he plans to think about cost later when deciding whether to upgrade the sound system." Since the costs imposed by regulating utilities are borne by the ratepayers, it's comforting to know EPA must now take another look at this rule and consider its costs.

The rule has been sent back to the lower courts to either vacate or have EPA appropriately rework it. In the meantime, many utilities have already taken measures to meet the new MATS standards. Among the steps we've taken at Santee Cooper are the retirements of our oldest units at the Jefferies and Grainger generating stations.