As a result of these changing prices, among other things,  the use of natural gas to produce electricity has increased and is  expected to continue to increase. Power Companies Are Expected to Retrofit Many Generating Units, Retire Others, and Take Additional Actions

According to available information, power companies are projected to  retrofit many coal-fueled generating units with environmental controls and  retire some other units, as well as take additional actions to respond to  the four key EPA regulations. Actions Taken by Power Companies Will Likely Increase Electricity Prices and May Contribute to Reliability Challenges in Some Regions

Available information suggests the actions power companies take to  respond to the four key regulations will have costs, and some may be  challenging to complete by the regulations’ compliance deadlines. In  addition, these actions may have varied implications across the country—  increasing electricity prices in some regions and contributing to some  potential reliability challenges. Actions Would Likely Increase Electricity Prices in Some Regions

The actions power companies may take in response to the four key EPA  regulations would likely increase electricity prices in some regions. According to EPA officials, the projected price increases  associated with CSAPR and MATS are within the historical range of price  fluctuations, and projected future prices overall may be below historic  electricity prices. Two aspects of retrofits can cause potential reliability  challenges. First, in certain cases, generating units will need to be  temporarily shut down to connect new controls, and some  stakeholders said that scheduling these shutdowns while maintaining  reliability could be challenging in certain areas. Retirements. It is not certain what portion of the 2 to 12 percent of  coal-fueled generating units expected to retire could cause reliability  challenges that would need to be addressed. Several stakeholders  said it could be difficult to resolve all potential reliability challenges  that may arise because of retirements before the 3-year MATS  compliance deadline established by statute. PJM has identified reliability concerns with 101 of these  retirement requests because they may cause violations of reliability  standards. Available Tools May Help Mitigate Some, but Not All, Price Increases

Various tools available to industry and regulators could help mitigate  some, but not all, potential increases in the prices consumers pay for  electricity. Although these planning, market, and operational tools could address  many potential reliability challenges, challenges may still arise if  generating units needed for reliability are not in compliance with the EPA  regulations by the deadlines. Agencies Have Begun Taking Steps to Monitor Industry’s Progress but Have Not Documented Their Process, and FERC Has Not Proactively Reviewed RTO Rules

FERC, DOE, and EPA have begun taking steps to monitor industry’s  progress in responding to the regulations but have not established a  formal, documented process for joint and routine monitoring, and FERC  has not taken steps to proactively assess RTO rules in the context of the  regulations. Aspects of these regulations remain  uncertain, but they, along with other industry trends such as the aging of  coal-fueled generating units and lower prices for natural gas, are  expected to contribute to significant changes in electricity systems in  some parts of the United States in the near future. However, these tools may not fully address all potential  adverse implications in some regions, for example, some reliability  challenges that arise after the compliance deadlines. FERC, DOE, and EPA have taken important first steps to coordinate with  RTOs, other system planners, and state regulators, among others, to  better understand these issues. Recommendations for Executive Action

We are making the following two recommendations:
To further strengthen agency efforts to understand whether existing  tools are adequate, or additional tools are needed, we recommend  that the Chairman of FERC, the Secretary of Energy, and the  Administrator of the EPA develop and document a formal, joint  process consistent with each agencies’ respective statutory  authorities to monitor industry’s progress in responding to the EPA  regulations until at least 2017. Regarding our first recommendation that FERC, DOE, and EPA develop  and document a formal process to monitor industry's progress in  responding to the EPA regulations, DOE and EPA generally agreed. However, we do not believe  it is a substitute for an assessment by FERC of the adequacy of rules. Appendix I: Scope and Methodology

This report provides information on the implications associated with four  key recently proposed or finalized regulations from the Environmental  Protection Agency (EPA): (1) the Cross-State Air Pollution Rule (CSAPR);  (2) the Mercury and Air Toxics Standards (MATS); (3) the proposed  Cooling Water Intake Structures at Existing and Phase I Facilities  regulation, also known as 316(b), and (4) the proposed Disposal of Coal  Combustion Residuals from Electric Utilities regulation (CCR). Specifically, this report addresses: (1) what available information  indicates about actions power companies may take at coal-fueled  generating units in response to the four key EPA regulations; (2) what  available information indicates about these regulations’ potential  implications on the electricity market and reliability; and (3) the extent to  which EPA, FERC, DOE, and other stakeholders can mitigate adverse  electricity market and reliability implications, if any, associated with  requirements in these regulations. Midwest Independent Transmission System Operator. Appendix V: Comments from the Federal Energy Regulatory Commission

	GAO Comments

1. 5.
Why GAO Did This Study

EPA recently proposed or finalized four regulations affecting coal-fueled electricity generating units, which provide almost half of the electricity in the United States: (1) the Cross-State Air Pollution Rule; (2) the Mercury and Air Toxics Standards; (3) the proposed Cooling Water Intake Structures regulation; and (4) the proposed Disposal of Coal Combustion Residuals regulation. Power companies may retrofit or retire some units in response to the regulations. EPA estimated two of the regulations would prevent thousands of premature deaths and generate $160-$405 billion in annual benefits. Some stakeholders have expressed concerns that these regulations could increase electricity prices and compromise reliabilitythe ability to meet consumers' demand. FERC and others have oversight over electricity prices and reliability. DOE can order a generating unit to run in certain emergencies. GAO was asked to examine: (1) actions power companies may take in response to these regulations; (2) their potential electricity market and reliability implications; and (3) the extent to which these implications can be mitigated. GAO reviewed agency documents, selected studies, and interviewed stakeholders.

What GAO Found

It is uncertain how power companies may respond to four key Environmental Protection Agency (EPA) regulations, but available information suggests companies may retrofit most coal-fueled generating units with controls to reduce pollution, and that 2 to 12 percent of coal-fueled capacity may be retired. Some regions may see more significant levels of retirements. For example, one study examined 11 states in the Midwest and projected that 18 percent of coal-fueled capacity in that region could retire. EPA and some stakeholders GAO interviewed stated that some such retirements could occur as a result of other factors such as lower natural gas prices, regardless of the regulations. Power companies may also build new generating units, upgrade transmission systems to maintain reliability, and increasingly use natural gas to produce electricity as coal units retire and remaining coal units become somewhat more expensive to operate.
Available information suggests these actions would likely increase electricity prices in some regions. Furthermore, while these actions may not cause widespread reliability concerns, they may contribute to reliability challenges in some regions. Regarding prices, the studies GAO reviewed estimated that increases could vary across the country, with one study projecting a range of increases from 0.1 percent in the Northwest to an increase of 13.5 percent in parts of the South more dependent on electricity generated from coal. According to EPA officials, the agencys estimates of price increases would be within the historical range of price fluctuations, and projected future prices may be below historic prices. Regarding reliability, these actions are not expected to pose widespread concerns but may contribute to challenges in some regions. EPA and some stakeholders GAO interviewed indicated that these actions should not affect reliability given existing tools. Some other stakeholders GAO interviewed identified potential reliability challenges. Among other things, it may be difficult to schedule and complete all retrofits to install controls and to resolve all potential reliability concerns associated with retirements within compliance deadlines.
Existing tools could help mitigate many, though not all, of the potential adverse implications associated with the four EPA regulations, but the Federal Energy Regulatory Commission (FERC), Department of Energy (DOE), and EPA do not have a joint, formal process to monitor industrys progress in responding to the regulations. Some tools, such as state regulatory reviews to evaluate the prudence of power company investments, may address some potential price increases. Furthermore, tools available to industry and regulators, as well as certain regulatory provisions, may address many potential reliability challenges. However, because of certain limitations, these tools may not fully address all challenges where generating units needed for reliability are not in compliance by the deadlines. FERC, DOE, and EPA have responsibilities concerning the electricity industry, and they have taken important first steps to understand these potential challenges by, for example, informally coordinating with power companies and others about industrys actions to respond to the regulations. However, they have not established a formal, documented process for jointly and routinely monitoring industrys progress and, absent such a process, the complexity and extent of potential reliability challenges may not be clear to these agencies. This may make it more difficult to assess whether existing tools are adequate or whether additional tools are needed.

What GAO Recommends

GAO recommends, among other things, that FERC, DOE, and EPA take additional steps to monitor industrys progress in responding to the regulations. DOE and EPA agreed with this recommendation, and FERC disagreed with this and another recommendation. GAO continues to believe that it is important for FERC to take the recommended actions.