Looming EPA Regulations to Impact Some U.S. Coal Plants

Pending Environmental Protection Agency (EPA) air emissions rules are driving power plant rationalization that over time may claim the oldest and smallest U.S. coal plants, according to Fitch Ratings in a new report.

The two EPA rules that stand to have the greatest effect are the Mercury and Air Toxics Rule (MATS) and the Cross-State Air Pollution Rule (CSAPR). MATS will regulate emissions of mercury and other toxic substances, while CSAPR applies more stringent limits to the conventional air pollutants such as sulfur oxides and nitrous oxides.

Many at-risk coal plants are owned by independent power producers and captive merchant power subsidiaries of utility holding companies that lack the financial wherewithal and/or willingness to invest in required environmental upgrades. Higher capacity utilization at existing natural gas-fired power plants will likely replace a portion of the generation from the retired coal units. Additionally, decisions to build new power plants, most likely efficient combined cycle natural gas fired units, will depend on plant location and regional reserve margins.

Larger and more efficient coal plants are in a better position of being upgraded with retrofit equipment to comply with new rules and still remain competitive in power production costs and in dispatch.

MATS is expected to go into effect next month with a phase-in period, while the status and final form of CSAPR remains uncertain. Nonetheless, Fitch expects the thrust of the EPA’s agenda will continue to challenge the creditworthiness of issuers in the utility and power sector.

The report titled ‘New EPA Rules: Ready or Not’ is available at ‘www.fitchratings.com’ or by clicking on the above link.

Additional information is available on www.fitchratings.com.

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