Monday, March 20, 2006

Cleaning up Coal Plants-Increasing Power Costs?

The DC Court of Appeals overturned a Bush EPA regulation that allow certain facilities, including coal plants, to delay the installation of new pollution control technology when making significant modifications to these plants. The Court found that the "plain language" of the Clean Air Act required a stricter approach. During the Clinton adminstration, these modifications clearly required pollution control installation, though there was much debate about what constituted a significant enough change to trigger the modification requirement. Clearly, the decision will result in cleaner coal facilities, and end the practice of continual incremental updgrades to avoid triggering the law.

Industry folks are crying that the decision will result in higher prices to consumers. And the foxes are crying that locking the henhouse at night is bad for the hens. In those jurisdictions with competitive electricity pricing, that price is generally set by the marginal cost of gas, and this decision wont change that. Power companies' costs will increase andprofits will be reduced, but consumers wont see any impact. In regulated jurisdictions, there will be some small incremental price increases, but these will be passed through over an extended period of time.

The decision also points to a weakness in the Clean Air Act. If we want to clean up coal plants, we should simply legislate that requirement and get it done, and not allow the timing of these decisions to rest with the private sector. I'll be writing a longer commentary shortly on the different ways to achieve this goal.

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