Blog Summary

The Environmental Protection Agency’s Clean Power Plan was first introduced in June 2014. Our findings indicate that the impacts for coal and natural gas are important especially for the state of Arizona. For natural gas the impacts will be on infrastructure, transmission and reliability. There are great implications for the natural gas industry, as the option that offers the most reductions of GHG emissions in Arizona is switching from coal to natural gas. This option creates a heavy burden on the natural gas industry because natural gas-fired plants are not located in convenient areas for dispatch while there is also a lack of pipelines for distribution. This lack of infrastructure presents a challenge as it may cause reliability issues for consumers.

In addition to the lack of infrastructure, these compliance costs are of particular importance due to the aging infrastructure. A majority (63%) of coal-fired power plants in the U.S. are over 40 years old, and the average age is 42 years, with many over half a century old. As such, it is safe to assume that there is room for efficiency improvements, among other things.

Of course, this is not a recent thing, as “progress” has been in motion for the past few years. Since October 2012, at least five of Arizona’s eight coal-fired power plants have either shut down a unit (or two!) or entirely. These plants are: Abitibi Snowflake Power Plant, Apache Generating Station, Cholla Power Plant, Four Corners Generating Station, and Navajo Generating Station. In the face of changing EPA regulations, it is certain that these trends will continue into the future.

On the whole, the EPA’s new regulations projections of economic impacts differ depending on the source. According to the Chamber of Commerce, these regulations could cost businesses around $28 billion per year in compliance costs through 2030, as well as around 450,000 jobs by 2020. Compare this to the EPA’s estimates of annual business costs of $7.3 to $8.8 billion per year in compliance costs through 2030, as well as a loss of up to 78,000 jobs through 2025. The loss, however, is estimated to amount to around $65 per household per year, with the addition of up to 112,000 jobs.

There is also an expected impact on electricity costs. For Arizona (specifically the American Southwest), it is suggested that prices may rise up by 6.5% of current costs. Yet, these estimates should not be used as the end. A study has found evidence that the actual costs of all environmental regulations from the 1970s through the early 1990s were below even the low-end estimates. Of course, this is not the only issue, particularly with the switching from coal to natural gas.

A major issue with switching from coal to natural gas is the way Arizona currently uses natural gas. Natural gas is used more in the summer to make up for peak demand for cooling needs, and used less in the winter months causing natural gas-fired plants to become idle. These shifts in demand are cause for concern for the reliability of natural gas-fired plants to provide continuous demand all year long since coal provides the base load. Lastly, natural gas is consumed more than it is produced in Arizona causing Arizona to import most of its natural gas. There are two major pipelines that supply natural gas for not only Arizona but California as well. If there is a national approach to states using more natural gas, then there may be a supply issue. Additionally, Arizona does not have a storage facility in the state for natural gas.

These challenges are great for the state of Arizona in its compliance with EPA’s Clean Power Plan, and it will be interesting to see what the state implementation plan will be in June 2016.