oversight

Electricity Supply: Older Plants' Impact on Reliability and Air Quality

Published by the Government Accountability Office on 1990-09-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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:
    I
Resources, Community, and
Economic Development Division

B-24064 1

September lo,1999

The Honorable John D. Dingell
Chairman, Subcommittee on Oversight
  and Investigations
Committee on Energy and Commerce
House of Representatives

Dear Mr. Chairman:

As you requested, we reviewed electric utilities’ plans for extending the useful life of older
fossil fuel power plants and examined the effects of life extension on the reliability of the
nation’s power supply and on air quality.

Unless you publicly announce its contents earlier, we plan no further distribution of this
report until 30 days from the date of this letter. At that time, we will send copies of this
report to the Secretary of Energy and the Administrator, Environmental Protection Agency.
We will also make copies available to others upon request.

This work was performed under the direction of Victor S. Rezendes, Director, Energy Issues,
(202) 276-1441. Major contributors to this report are listed in appendix III.

Sincerely yours,
Ekecutive Summ~


                 To help meet America’s growing demand for electricity, electric utilities
Purpose          plan to extend the service life of many fossil fuel power plants.
                 Accounting for. some 70 percent of the nation’s generating capacity,
                 such plants, particularly older plants exempted from the Clean Air
                 Amendments of 1970 (commonly referred to as theClean Air Acti are
                 major sources of air pollution. The Chairman, Subdommittee on (>ver-
                 sight and Investigations, House Committee on Energy and Commerce,
                 asked GAOto evaluate

             l   the reliability of plants with an extended service life and their current
                 and projected contributions to electricity supply and
             l   the impact of current and proposed air quality requirements on plant
                 emissions and utilities’ decisions to extend the service life of older
                 plants.


                 Fossil fuel power plants traditionally were expected to have an oper-
Background       ating service life of about 30 to 40 years, after which they would be
                 replaced with new plants. However, in part to avoid the financial risks
                 of constructing new plants, utilities increasingly are looking to extend
                 the service life of older plants well past their assumed retirement age.
                 Utilities’ life extension projects encompass a variety of activities,
                 including maintenance, repair, and replacement of equipment.

                 Fossil fuel power plants are major sources of sulfur dioxide and nitrogen
                 oxides, pollutants that adversely affect health and the environment, the
                 latter by forming acid rain. The Clean Air Amendments of 1970 estab-
                 lished emission standards for these and other pollutants emitted from
                 power plants constructed after 197 1. Plants built before that are exempt
                 so long as they are not (1) modified so that their emissions increase or
                 (2) reconstructed so that the cost exceeds 50 percent of the cost of a new
                 plant. In 1985 these exempt plants emitted 88 percent of the sulfur
                 dioxide and 79 percent of the nitrogen oxides emitted from all fossil fuel
                 plants. The Environmental Protection Agency (EPA) is responsible for
                 enforcing emission requirements, while the Department of Energy (DOE)
                 aims to ensure an adequate national energy supply at reasonable rates.

                 In doing this work, GAOspoke with federal, utility industry organization,
                 state public utility commission, and state environmental officials and
                 reviewed available studies. GAOalso contacted officials at nine utilities
                 that rely on older fossil fuel plants.




                 Page 2              GAO/RCED-90-200   Older Plants’ Impact on Reliability   and Air Quality
                   J3xecutive   Summary




                   Life extension of fossil fuel plants is a relatively recent phenomenon;
Results in Brief   thus, utilities have little experience to demonstrate the longer-term oper-
                   ating reliability of plants with an extended service life. While utility
                   industry officials and government and industry studies express opti-
                   mism that these plants will continue to operate reliably, the officials and
                   the studies also caution that it is too soon to determine how pursuing
                   life extension will affect the reliability of the nation’s electricity supply.
                   According to DOE,the number of fossil fuel generating units’ 30 years old
                   or older is expected to increase from about 2,500 in 1989 to roughly
                   3,700 in 1998, increasing such plants’ share of overall generating
                   capacity from 13 percent in 1989 to 27 percent in 1998.2

                   EPAestimates that with existing air quality requirements, fossil fuel
                   plant emissions will increase steadily during the coming decade. Pro
                   posed acid rain control legislation-which      would affect many plants
                   that may have their service life extended-would       require utilities to sig-
                   nificantly reduce emissions by the year 2000 but would allow utilities
                   flexibility in deciding how and where to achieve the reductions. If such
                   legislation is enacted, utilities generally are expected to find reducing
                   emissions from existing plants more cost-effective than replacing them
                   and to continue extending plants’ service life.

                   Officials of DOEand utility organizations expressed concern, however,
                   that EPAcould decide, as it did for one plant in 1988, that alterations
                   made in extending the service life of plants exempted from the Clean Air
                   Act would result in increased emissions and thus cause the altered
                   plants to lose their exemption, According to the officials, the additional
                   costs of achieving the Clean Air Act’s standards could discourage some
                   life extension projects. However, such decisions by EPAcould also reduce
                   the nation’s total power plant emissions by eliminating an existing
                   incentive to retain exempt plants. Because uncertainty exists about the
                   emission standards applicable to altered plants, EPAis taking steps to
                   clarify the standards.




                   ‘A powerplantmaycontainseveralgenerating
                                                          units.
                   &cause dataonelectricgenerating     capacityandpowerplantemissions   arenotavailablespecifically
                   for plantswith anextendedservicelife, GAOcollecteddataonplants30yearsoldor older.Whena
                   plantis at aboutthis age,utilitiesgenerallydecidewhetherto extendits servicelife.


                   Page 3                  GAO/RCED-W-200      Older Plants’ Impact on Reliability   and Air   Quality
                             Executive   Summary                                                                       ,




GAO's Analysis

Reliability of Plants With   Life extension, a generic term, covers a variety of activities, including
an Extended Service Life     maintaining, restoring, and repairing power plant components. As plants
                             age, critical components degrade because of fatigue, erosion, and corro-
                             sion. For plants over 30 years old, breakdowns are more frequent than
                             for newer plants, and the time needed to repair the older plants
                             increases. The general goal of life extension projects is to keep plants
                             operating at acceptable levels of availability” and, in some cases, to
                             return the plants to their original operating efficiency and maintain that
                             status for an additional 30 years beyond their originally estimated ser-
                             vice life.

                             DOEestimates that plants accounting for about one-third of the current
                             total generating capacity of the nation’s fossil fuel plants may undergo
                             life extension by the year 2000. However, no consensus has emerged
                             among utility industry experts on the degree of reliable performance
                             that can be expected from these renovated plants. While officials at the
                             nine utilities GAOcontacted, as well as government and industry studies,
                             are generally optimistic about the success of life extension, they also are
                             cautious because of the lack of operating experience with these plants.


Effects of Air Quality       Under current air quality requirements, fossil fuel plant emissions will
Requirements                 increase steadily during the next decade, according to EPA'Sestimates.
                             Proposed acid rain control legislation would require utilities to reduce
                             these emissions significantly by the year 2000. This legislation targets
                             many of the same power plants that are candidates for life extension.
                             The legislation would require utilities to reduce their aggregate emis-
                             sions of sulfur dioxide and nitrogen oxides by the year 2000, but would
                             establish an allowance trading system whereby utilities could choose
                             how and where they can achieve the most cost-effective emission reduc-
                             tions. If such legislation is enacted, utilities probably would continue
                             operating existing plants and extending the service life of older plants,
                             rather than build replacement plants.

                             However, officials at DOEand utility organizations expressed concern
                             that power plants currently exempt from the Clean Air Act that have
                             their service life extended would be required to meet the act’s emission

                             3Availabllityrefersto thepercentage
                                                               of timethat a powerplantcouldbeusedto generate
                                                                                                            electricity.


                             Page 4                 GAO/RCED-90-200    Older Plants   Impact on Relhbility   and Air Quallty
                  Executive   Nunmary




                  standards if EPAdecides that the alteration would result in increased
                  emissions. EPA'Sdecisions are made case by caee and usually after a
                  state agency-authorized     by EPAto enforce the Clean Air Act-has
                  determined that a project will result in increased emissions. In 1988 EPA
                  determined that the Wisconsin Electric Power Company’s (wEPCO) pro-
                  posed life extension project would constitute a “modification” under the
                  act, necessitating that the plant meet the act’s standards. WEPCO unsuc-
                  cessfully argued that the project was the routine replacement of existing
                  equipment and thus the plant should remain exempt from the standards.
                  WEPCOalso argued that EPA'Smethod of estimating the resulting increase
                  in emissions was not reasonable.

                  According to officials of DOE and the utility industry, the additional
                  costs for emission control equipment incurred in complying with such a
                  decision by EPAmay cause utilities to defer or abandon some life exten-
                  sion projects. EPApolicy officials maintain that the WEPCO  life extension
                  project is not typical and that many projects do not result in increased
                  emissions and many are routine alterations, which would not make the
                  plants subject to the standards.

                  EPAregulations implementing the act, however, do not explicitly address
                  life extension projects, but rather (1) physical and operational changes
                  made at power plants that result in increased emissions and (2) substan-
                  tial reconstruction, However, EPAplans to develop additional policy gui-
                  dance to address the majority of plant alterations the agency expects
                  will occur in the near future as more plants have their service life
                  extended and/or are altered to achieve emission reductions required
                  under proposed amendments to the Clean Air Act. Also, in May 1990,
                  EPAagreed to draft an amendment clarifying the applicability of current
                  emission standards.


                  As requested, GAOdid not obtain written comments on this report but
Agency Comments   discussed it with officials of DOEand EPA,who generally agreed with its
                  content. Their comments have been incorporated where appropriate.




                  Page 6                GAO/RCED-90-200   Older Plants’ Impact on Reliability   and Air Quality
Conknts


Executive Summary                                                                                                   2

Chapter 1                                                                                                           8
Introduction            Utilities’ Plans for Meeting Future Electricity Demand
                               Are Not Complete
                                                                                                                    8

                        Utilities’ Options Are Subject to Regulatory Constraints                                    9
                        Objectives, Scope, and Methodology                                                          9

Chapter 2                                                                                                      13
Life Extension May Be   Power Plant Life Extension Projects Take Many Forms
                        Uncertainties Temper Optimism Concerning the
                                                                                                               13
                                                                                                               15
Important for Meeting       Reliability of Plants With an Extended Service Life
Future Demand but       Dependence on Older Power Plants Is Expected to                                         16
Reliability Is              Increase
Unproven
Chapter 3                                                                                                      20
Changing Air Quality    Plants Constructed Before August 1971 Produce the Most                                 20
                             Pollutants
Requirements Could      Acid Rain Control Legislation Would Reduce Emissions                                   24
Affect Life Extension        and Could Affect Life Extension Plans
                        Application of the Clean Air Act’s Current Emission                                    27
Plans                        Standards to Plants With an Extended Service Life Is
                             Uncertain
                        Compliance Costs for Acid Rain Control Legislation and                                 32
                             for Clean Air Act Are Independent

Appendixes              Appendix I: Utilities and Other Organizations Contacted                                34
                            During This Review
                        Appendix II: Electric Utility Power Plant Emissions in the                             36
                            Absence of Acid Rain Control Legislation
                        Appendix III: Major Contributors to This Report                                        38

Figures                 Figure 1.1: NERC Region Map for the Contiguous United                                   11
                             States
                        Figure 2.1: The Generating Capacity of Older Fossil Fuel                               18
           Y                 Power Plants as a Percentage of Total Capacity, by
                             NERC Region, 1989 and 1998



                        Page 6             GAO/RCED-W-200   Older Plants’ Impact on Reliability   and Air Quality
.

    Content4




    Figure 3.1: 1986 Sulfur Dioxide Emissions by Exempt and                               21
         Nonexempt Fossil Fuel Power Plants
    Figure 3.2: 1985 Nitrogen Oxide Emissions by Exempt                                   22
         and Nonexempt Fossil Fuel Power Plants
    Figure 3.3: 1986 Sulfur Dioxide Emissions, by NERC                                    23
         Region
    Figure 3.4: 1986 Nitrogen Oxide Emissions, by NERC                                    24
         Region




    Abbreviations

    DOE    Department of Energy
    ECAR   East Central Area Reliability Coordination Agreement
    EEI    Edison Electric Institute
    EPA    Environmental Protection Agency
    EPRI   Electric Power Research Institute
    ERCOI’ Electric Reliability Council of Texas
    FGD    flue gas desulfurization
    MAAC   Mid-Atlantic Area Council
    MAIN   Mid-America Interconnected Network
    MAPP   Mid-Continent Area Power Pool
    MW     megawatt
    NAPAP National Acid Precipitation Assessment Program
    NERC   North American Electric Reliability Council
    NPCC   Northeast Power Coordinating Council
    NSPS   New Source Performance Standards
    PSD    Prevention of Significant Deterioration
    SERC   Southeastern Electric Reliability Council
    SPP    Southwest Power Pool
    UARG   Utility Air Regulatory Group
    WEPCO Wisconsin Electric Power Company
    WSCC   Western Systems Coordinating Council


    Page 7            GAO/RCED-BO-!&OO Older Plants’ Impact on Reliability   and Air Quallty
Chapter 1

Introduction


                       Electric utilities are responsible for supplying the nation with electric
                       power in a reliable and environmentally acceptable manner. To accom-
                       plish their mission, they traditionally have retired older power plants
                       and have replaced them with new plants. In recent years, however,
                       increased financial risks, uncertainties about future demand, and other
                       factors associated with constructing new plants have led utilities away
                       from readily building new plants. Instead, utilities plan to rely increas-
                       ingly on other options to meet demand, including purchasing power from
                       other utilities and nonutility sources, pursuing conservation and demand
                       management programs, and extending the service life of existing fossil
                       fuel power plants beyond the previously anticipated 30 to 40 years.


                       The Department of Energy (DOE) and industry experts predict that
Utilities’ Plans for   demand for electricity will increase through the 199Os, outstripping
Meeting Future         planned additions to generating capacity. In 1989 the nation’s total elec-
Electrici .ty Demand   tric generating capacity was about 684,000 megawatts (MW).* DOE
                       projects a need for an additional 102,000 MW of capacity by the year
Are Not Complete       2000, and utilities have made plans to construct plants that will produce
                       only about one-third of this additional amount. Also, in 1989 the North
                       American Electric Reliability Council (NERC)~projected that utilities’
                       planned additions would be insufficient by 1998. Moreover, according to
                       NERC,some areas of the eastern United States will be at serious risk of
                       supply disruptions in the early 1990s if the demand for electricity
                       reaches the high end of the organization’s forecast.

                       Utilities’ are planning to meet future demand in part by extending the
                       service life of fossil fuel plants beyond their originally anticipated
                       retirement date. Fossil fuel power plants are the nation’s primary elec-
                       tric generating source and, according to NERC,accounted for more than
                       70 percent of U.S. generating capacity in 1989. According to DOE’sand
                       NERC’Sprojections, such plants will continue as the primary source of
                       electricity during the next decade.




                       ‘A megawattis 1 millionwatts,a watt beingthebasicunit of measurement
                                                                                         of electricityproduction.
                       “NERCwasformedby theelectricutility industryin 1968to promotethereliabilityandadequacy
                                                                                                            of
                       theelectricpowersupplyin NorthAmerica.


                       Page 8                 GAO/RCED-90-200    Older Plants’ Impact on Relhbility   and Air Quality
                             Chapter 1
                             Introduction




                             Electric utilities are subject to a variety of federal, state, and local regu-
Utilities’ Options Are       lations that affect the construction and operation of power plants, as
Subject to Regulatory        well as the rates charged to customers. The regulatory focus of DOE and
Constraints                  state public utility commissions is to ensure an adequate energy supply
                             at reasonable rates. DOE's activities include (1) collecting, analyzing, and
                             reporting information regarding energy production, consumption, distri-
                             bution; (2) reporting on related economic issues; and (3) forecasting
                             about these issues. State utility commissions have a regulatory role in
                             ensuring system reliability and in setting rates charged to retail
                             customers.

                             Because burning fossil fuels produces harmful air pollutants, federal,
                             state, and local environmental agencies also regulate utilities. Among
                             the pollutants these plants emit are sulfur dioxide and nitrogen oxides,
                             which can adversely affect human health and the environment, the
                             latter by forming acid rain. The Environmental Protection Agency (EPA)
                             and state environmental agencies are charged with enforcing compliance
                             with environmental laws.

                             One of the most important environmental laws affecting electric utilities
                             is the Clean Air Act, as amended in 1970, which was enacted to promote
                             public health and welfare by protecting the quality of the nation’s air.
                             The act established air quality requirements that limit the quantity of
                             pollutants electric power plants may emit. It was amended in 1977 to
                             further restrict power plant emissions, and Congressional debate has
                             begun on additional amendments. EPA has delegated most of the enforce-
                             ment responsibility under the act to state environmental agencies, but
                             retains an oversight role, which it fulfills by performing various activi-
                             ties, such as auditing state agencies, inspecting power plants periodi-
                             cally, and providing policy guidance.


                             The Chairman, Subcommittee on Oversight and Investigations, House
Objectives, Scope,and        Committee on Energy and Commerce, asked GAO to evaluate
Methodology
                         l the reliability of plants with an extended service life and their current
                           and projected contributions to electricity supply and
                         . the impact of current and proposed air quality requirements on plant
                           emissions and utilities’ decisions to extend the service life of older
                           plants.

                             In studying the reliability of plants with an extended service life, we
                             examined various studies and reports issued by DOE and utility industry


                             Page 9              GAO/RCED-90-200   Older Plants’ Impact on Reliability   and Air Quality
Chapter 1
Introduction




organizations, including the Electric Power Research Institute (EPRI),~
NERC, and the Edison Electric Institute (EEI).~ We discussed the issue with
representatives of utility industry organizations and state public utility
commissions. We also contacted utility companies with experience oper-
ating older plants to obtain details on their life extension activities. The
utilities were selected judgmentally on the basis of their reliance on
older fossil fuel power plants, as reported to DOE. In 1988 these utilities’
plants accounted for roughly 6 percent of the total number of fossil fuel
generating units in the United States and approximately 12 percent of
the total generating capacity of the nation’s fossil fuel plants. Appendix
I provides a complete list of the utilities and the other organizations we
contacted.

Because data on electric generating capacity and air pollution emissions
are not available specifically for plants with an extended service life,
GAO collected data on plants 30 years old or older. When a plant is at
about that age, utilities generally decide whether to extend its service
life. To determine the current and projected contributions of older
power plants to the nation’s electricity supply, we obtained data, both
national and regional, from DOE'S Energy Information Administration on
power plant generating capacity and electricity production. Regional
data are for the nine reliability council areas of NERC, as shown in figure
1.1. DOE compiled this data from annual reports of the nation’s utilities.
The electricity production data reflect electricity generated at fossil fuel
steam plants only; however, these plants accounted for more than 99
percent of the electricity generated by fossil fuel plants during the time
period in which the data were collected. While we did not verify the
data on generating capacity and electricity production, we assured our-
selves that DOE subjected the data to extensive quality control proce-
dures to ensure accuracy.

We also contacted utilities, state public utility commissions, and state
environmental agencies, all within the geographic areas of two of NERC'S
nine regional reliability councils. The two councils-the Mid-America
Interconnected Network (MAIN) and the East Central Area Reliability




“EPRIwasfoundedin 1972by thenation’sekctricutilitiesto developandmanage    a technology
programfor improvingtheproduction,distribution,andutilizationof electricpower.
4EEIis thenationalassociationof America’sinvestor-owned
                                                      electricutilities,whichsupplyabout70
percentof thenation’selectricity.


Page 10                 GAO/RCED-90-200   Older Plants’ Impact on Reliability   and Air Quality
                                                   Chapter 1
                                                   Introduction




Figure 1.1: NEW Region Map for the Contiguous United States




                                                        I         rrl                       Y               /-




                                                                                       --       \--




    Legend
    ECAR     East (:entral Area Rellability Coordination Agreement -1
    ERCOT    Elactrlc Rellablllty Council of Texas
    MAAC     Mid-Atlantic Area Council
    MAIN     Mid-America Interconnected Network
    MAPP     Mid-Continent Area Power Pool
    NPCC     Northeast Power Coordinating Council
    SERC     Southeastern Electric Reliabilty Council
    SPP      Southwest Power Pool
    wssc     Western Systems Coordinating Council

                                                                                                                                                         J

                                                   Source: Prepared by GAO from NERC data.


                                                   Coordination Agreement (EcAR)-covering all or part of 12 states,”
                       Y                           include utilities that are expected to depend increasingly on older fossil

                                                   “Illinois,Indiana,Iowa,Kentucky,Maryland,Michigan,Missouri,Ohio,Pennsylvania,
                                                                                                                              Virginia,West
                                                   Virginia,andWisconsin.


                                                   Page 11                 GAO/RCED-f)O-200      Older Plants’ Impact on Reliability   and Air Quality
                                                                                        J
Chapter 1
Introduction




fuel power plants during the next 10 to 20 years. The two councils pro-
vided us with copies of their 1989 electricity reliability reports to DOE,
which included individual utilities’ forecasts of supply and demand for
the next 10 years. Several utilities provided us with specific information
on how intensively they plan to use their plants during that period.

To address the effects of emission requirements on life extension pro-
grams, we interviewed EPA policy and compliance officials at EPA’Shead-
quarters, in Washington, DC.; Research Triangle Park, in North
Carolina; and Region 6 offices, in Chicago. We also reviewed various reg-
ulations, analyses, and policy memorandums by EPAregarding life exten-
sion and air quality. In addition, we obtained views from officials of
state environmental agencies, environmental advocacy groups, utility
industry organizations, and utility companies. To determine the contri-
bution older plants make to power plant emissions, we obtained from
EPAnational and regional data-contained        in the National Utility Refer-
ence File, developed for the National Acid Precipitation Assessment Pro-
gram-as of 1986 on estimated sulfur dioxide and nitrogen oxide
emissions from utility power plants. Data contained in EPA’Ssystem were
also used to calculate emission restrictions in the acid rain control pro-
posal sponsored by the Bush administration, and, according to EPA,were
the latest, most accurate, and most comprehensive available at the time
of our work. Finally, because proposed Clean Air Act amendments
would impose acid rain control restrictions on existing power plants, we
studied various analyses of the administration’s proposal to determine
the effect on utilities’ life extension plans, electricity supply, and power
plant emissions.” We also discussed these issues with officials from EPA,
DOE,utility companies, state regulatory agencies, environmental groups,
utility industry associations, and other private organizations.

As requested by the Chairman’s office, we did not obtain official agency
comments on this report. However, we discussed the factual information
in this report with officials from EPAand DOE.We conducted our work
between July 1989 and March 1990 in accordance with generally
accepted government auditing standards.




“Althoughourstudyfocusedontheadministration’s
                                            proposedCleanAir ActAmendments    of 1989,
therecentlyapprovedcongressional
                              billscontainmanyfeaturessimilarto those of theadministra-
tion’sproposal.


Page 12                GAO/RCJZD-SO-200 Older Plant.4 Impact on Reliability   and Air Quality
Chapter 2

Life EhtensionMay Be Important for Meeting
F’utureDemandbut Reliability Is Unproven

                     Utilities estimate that extending the service life of their fossil fuel
                     power plants, which entails a variety of activities, including main-
                     taining, repairing, and replacing equipment, will be a cost-effective
                     alternative to constructing new plants. While utility officials and others
                     are generally optimistic about the ability of plants with an extended ser-
                     vice life to provide a reliable electricity supply, such an ability has not
                     been demonstrated. Thus, the long-term success of life extension is
                     uncertain.

                     Due to the increased financial risks of constructing new plants, fewer
                     new plants are being constructed than in the past, and older plants
                     (those 30 years old or older), including those with an extended service
                     life, are expected to provide an increasing share of electricity during the
                     next decade. This probably will be true even if the Clean Air Act is
                     amended to require additional emission reductions from existing plants.
                     Consequently, the operating success of plants with an extended service
                     life may be important to the continued reliability of the nation’s elec-
                     tricity supply.


                     In recent years, electric utilities have initiated programs to extend the
Power Plant Life     service life of their fossil fuel power plants. The nature and extent of
Extension Projects   life extension efforts depend on how the plants were maintained and
Take Many Forms      used since they were put in service and on how they will be used in the
                     future. DOE estimates that plants accounting for about 70 percent of the
                     nation’s 1989 total generating capacity represented by fossil fuel plants
                     may undergo life extension by the year 2010.

                     Historically, older power plants have tended to develop operational
                     problems and require increased maintenance. As plants age, critical
                     components degrade due to factors such as fatigue, erosion, and corro-
                     sion Plants over 30 years old break down more frequently than do
                     newer plants, and the time it takes to repair the older plants increases,
                     According to a DOE official, an ongoing study conducted for the agency
                     shows that generally the efficiency and availability of older plants tend
                     to decrease and the costs for operation and maintenance tend to
                     increase, In addition, according to data compiled by NERC, coal-fired
                     plants with a generating capacity of between 60 MW and 200 MW begin to
                     become less reliable after 20 years of service (fossil fuel generating units
                     range in generating capacity from 1 MW to over 1,000 MW).




                     Page 13             GAO/RCED-9@200   Older Plants   Impact on Reliability   and Air Quality
                                                                                                 r
  Chapter 2
  Life Extexwion May J3e Important for Meeting
  Future Demaud but Reliability   Is Unproven




  The general goal of life extension projects is to keep plants operating at
  acceptable levels of availability,’ and, in some cases, to return the plants
  to their original operating efficiency and maintain that status for an
  additional 30 years beyond the originally estimated service life. Typi-
  cally, extending the life of an existing plant costs considerably less than
  building a new one and does not involve the licensing and permitting
  requirements of constructing a new plant. According to estimates by
  DOE, the cost of extending the service life of a coal-fired plant ranges
  from $89 to $230 per kilowatt2 of generating capacity compared to a
  range of $1,294 to $1,378 per kilowatt of generating capacity for
  building a new coal-fired plant.

  Utilities have taken different approaches to life extension:

* The Cincinnati Gas and Electric Company used a “front-end” approach
  to refurbish several fossil fuel power plants at its Beckjord station. For
  example, refurbishment of Beckjord plant number 3 included replacing
  worn-out turbine-generator components. Using this approach, the com-
  pany performed a major portion of the life extension work during a
  single planned shutdown of 13 weeks. After the renovation, the utility
  estimated that the 32-year-old plant, producing 125 megawatts, could
  operate at an acceptable level of availability for another 25 years. Duke
  Power has also used the “front-end” approach.
l Pennsylvania Power and Light is using a “phased approach” to life
  extension. Under this approach, life extension is done over several
  years, during normal maintenance shutdowns. Pennsylvania Power and
  Light’s program has included rehabilitating boilers, replacing control
  systems, and repairing generators. The program’s goal is to extend the
  service life of the utility’s plants so that they can operate safely, reli-
  ably, and cost-effectively for the indefinite future. Other utilities using
  the “phased approach” include Potomac Electric Power Company and
  Utah Power and Light Company.
. Detroit Edison and Ohio Valley Electric have programs, similar to the
  phased approach, under which they gradually have increased their
  annual operating, maintenance, and capital investment expenditures to
  maintain the performance of their existing plants. Although not nor-
  mally considered life extension, such maintenance practices have the
  same outcome: allowing fossil fuel plants to operate beyond their normal
  30- to 40-year service life. At the time of our review, these two utilities

  ‘Availability refersto thepercentage
                                     of timea powerplantcouldbeusedto generate
                                                                             electricity.
  ‘A kilowattis a thousandwatts.


  Page 14                  GAO/RCED-90-200       Older Plants’ Impact on Reliability   and Air Quality
                          Chapter 2
                          Life Extension May Be Important for Meeting
                          Future Demand but RMablJity    Is Unproven




                          have not set retirement dates for their plants that are more than 30
                          years old.
                        9 Northern States Power replaced a substantial portion of its 32-year-old
                          Black Dog plant, in Minnesota, with a technologically innovative gener-
                          ating unit that is expected to extend the service life of the plant by 26
                          years and to increase capacity from 100 to 126 MW. This technology,
                          known as repowering, is currently being demonstrated by several com-
                          panies under DOE’sClean Coal Technology Demonstration Program. Cos-
                          ponsored by the government and industry, the program is intended to
                          demonstrate technologically innovative equipment and processes.

                          The decision of whether or not to extend the service life of power plants
                          may vary considerably from utility to utility. Those utilities with ade-
                          quate generating capacity and with little growth in demand may decide
                          against renovating their older plants. On the other hand, those utilities
                          facing increasing demand and with many plants nearing retirement are
                          more likely to pursue power plant life extension. In addition, certain
                          plants are more likely to have their service life extended than others.
                          For example, smaller plants (those with less than 50 MW of generating
                          capacity) constructed in the early 1960s using what is now obsolete
                          technology, are less likely to be candidates for life extension than larger
                          plants (those with over 100 MW of generating capacity) constructed in
                          the early 1960s using more current technology.


                          No consensus has emerged among utility industry experts on the degree
Uncertainties Temper      of reliable performance that can be expected from plants with an
Optimism Concerning       extended service life. While the comments that we received from utility
the Reliability of        officials were generally positive, as are those that appear in government
                          and industry publications, the optimism about life extension is tempered
Plants With an            with caution. If life extension does not achieve its goal-to keep plants
Extended Service Life     operating at acceptable levels of availability-the   reliability of the elec-
                          tricity supply could be impaired in some areas of the United States.

                          Because the utilities we contacted do not distinguish between their
                          power plant maintenance programs and life extension activities, com-
                          prehensive operating performance data for plants with an extended ser-
                          vice life are generally unavailable. However, these officials are
                          generally optimistic about the expected performance of their older
                          plants. A representative for American Electric Power stated that consid-
                          ering the maintenance program of the company, he foresees reliable
                          operation of its older plants until they are at least 60 years old. Though
                          all 11 plants in the Ohio Valley Electric system will be at least 34 years


                          Page 15                 GAO/RCED-90-200       Older Plants’ Impact on Reliability   and Air Quality
                       chapter2
                       Llfe Exte~ion May Be Important for Ibketlng
                       Future   Demand but Rehbllity   Ia Unproven




                       old in 1990, a company official stated that their availability remains
                       very high and that the company plans to continue to rely on these plants
                       through 2010. Officials of Pennsylvania Power and Light, Detroit Edison
                       Company, and Central Illinois Public Service Company made similar
                       comments about the life expectancy of older plants in their systems.

                       DOE publications express optimism regarding life extension. Two DOE
                       studies, which use models to predict costs of life extension projects,
                       assume that life extension will return plants to their original generating
                       availability and operating efficiency and will extend their operating life
                       20 years. However, the studies caution that a lack of operating data
                       make these assumptions difficult to confirm.

                       EPRI has funded many projects designed to provide utilities with a sys-
                       tematic approach to planning and implementing life extension programs,
                       but the organization’s studies provide no guarantee that plants with an
                       extended service life will function as reliably as new plants. EPRI publi-
                       cations cite the considerable uncertainty among utilities about the gener-
                       ating availability that can be achieved for plants with an extended
                       service life. Moreover, according to EPRI, the possibility of catastrophic
                       failure from unforeseen deterioration in such plants is probably higher
                       than for newly constructed plants.

                       NERC has expressed concerns regarding the reliability of plants with an
                       extended service life. According to the organization’s annual reliability
                       assessments in 1988 and 1989, the continued operation of existing
                       plants is subject to uncertainty, and the extent to which older plants will
                       be available depends upon several factors, including the success of life
                       extension.


                       Older fossil fuel plants-defined    here as plants 30 years or older-pro-
Dependenceon Older     vided an average of only about 7 percent of U.S. utilities’ electricity gen-
Power Plants Is        eration during the period 1986-88. However, utilities have been
Expected to Increase   constructing fewer new plants and instead have relied increasingly on
                       existing plants, a trend which is expected to continue and result in a
                       significant increase in the percentage of plants 30 years old or older. In
                       addition, because of the need to meet the future demand for electricity,
                       utilities are expected to use older plants more than they do now.




                       Page 16                   GAO/RC~9O-200       Older Plants’ Impact on R.eUability   and Air Quality
                            c%pter2
                            Life Exteneion May Be Important for Bfemthg
                            Future Demand bat Reliability  Ia Unproven




Older Plants Will Account   Utilities’ decisions to construct fewer new plants and instead to extend
                            the service life of existing plants probably will result in an increase of
for an Increasing Portion   the number of older fossil fuel generating units. According to 1989 data
of Capacity                 from DOE,the number of fossil fuel generating units 30 years old or older
                            is expected to increase from about 2,500 in 1989 to roughly 3,700 in
                            1998, increasing the share of generating capacity represented by these
                            plants from 13 percent in 1989 to 27 percent in 1998.

                            This trend of older plants’ comprising a larger portion of generating
                            capacity will probably occur in all regions of the country. According to
                            DOE,by 1998 older plants will account for more generating capacity than
                            they did in 1989 in all nine NERC regions. NERC’SECARand Southeastern
                            Electric Reliability Council (SERC) were the two regions with the most
                            generating capacity represented by older plants in 1989, with 20,103 MW
                            and 18,937 MW, respectively. In 1998 these regions’ older plants are
                            expected to account for an even larger generating capacity, with ECAR’S
                            older plants projected to account for 32,763 MW and SERC’S,38,061 MW.
                            Additionally, according to a recent GAO report, SERCis a NERC region
                            where demand may exceed electricity supply if additions to capacity do
                            not materialize.”

                            As the nation’s utilities defer the retirement of power plants, plants 30
                            years old and older probably will provide an increasing share of the
                            total generating capacity over this same time period. For example, while
                            in 1989 ECARand SERCrelied on older plants for 20 percent and 13 per-
                            cent of their generating capacity, respectively, in 1998 these percent-
                            ages are expected to increase to 33 percent for ECARand 27 percent for
                            SERC,Figure 2.1 shows the expected growth in the shares of generating
                            capacity represented by older plants in each NERCregion.


Older Plants Will Be Used   Not only do utilities plan to continue to rely on older plants and to
More Intensively            extend the service life of some, but also, recent trends indicate, utilities
                            plan to operate some plants more than they do now. According to DOE,
                            utilities are expected to increase the use of existing plants from an
                            average of 60 percent of the time in 1989 to 66 percent of the time in
                            1996. Several utilities we contacted expect to operate their older plants
                            as baseload plants-those used to meet the bulk of electricity demand-



                            “NuclearScience:
                                          U.S.ElectricityNeedsandDOE’sCivilianReactorDevelopment
                                                                                              Program(GAO/
                            EED-90-161,May29,199O).


                            Page 17                 GAO/RCED9O-200    Older Plants' Impact on Beliability   and Air Quality
                                                                                                                                           .
                                         Chapter 2
                                         Life Extension May Re Important for Meeting
                                         Future Demand but Reliability  Is Unproven




Figure 2.1: The Oeneratlng Capaclty of
Older Fossil Fuel Power Plants as a
                                         40     Percent of Total Capacity
Percentage of Total Capacity, by NERC
Region, 1989 and 1998                    --
                                         35

                                         30

                                         25

                                         20

                                         15

                                         10

                                          5

                                          0




                                              NERC Regions




                                         Legend

                                         ECAR East Central Area Reliability Coordination   Agreement
                                         ERCOT Electric Reliability Council of Texas
                                         MAAC Mid-Atlantic Area Council
                                         MAIN Mid-America Interconnected Network
                                         MAPP Mid-Continent Area Power Pool
                                         NPCC Northeast Power Coordinating Council
                                         SERC Southeastern Electric Reliability Council
                                         SPP Southwest Power Pool
                                         WSCC Western Systems Coordinating Council
                                         Source: Prepared by GAO from DOE data.


                                         during the next 10 to 20 years.4 For example, Ohio Valley Electric plans
                                         to operate its plants, which are all fossil fuel plants over 30 years old, as
                                         baseload plants through the year 2009, when the plants will be over 50
                                         years of age.




                                         IlJtilities generallymaintaina mix of largecoal-firedor nuclearplantsandsmallergeneratingfacili-
                                         ties.Thelargebaseload   plantsarerarelyshutdown,andthesmaller,moreflexiblegeneratingfacili-
                                         tiesareoperatedwhendemandpeaks,suchasduringhot summerdays.


                                         Page 18                       GAO/RCED-SO-200     Older Plants’ Impact on Reliability   and Air Quality
clmpter 2
We Extension May Be Important for Meeting
Puture Demand but Reliability Is Unproven




American Electric Power, in Columbus, Ohio, provided us with forecasts
indicating that it will operate its older fossil fuel plants an average of 56
percent of the time during the 1990-99 period. This represents an
increase of nearly 6 percent over their operation during the previous lo-
year period. Further, by 1999 several of the utility’s plants will be 40
years old or older, and the company is planning to use them as baseload
plants. This represents increases in use in some cases of as much as 16
percent over past levels.

Commonwealth Edison, in Chicago, Illinois, also provided us with data
indicating plans to increase the operation of some of its older fossil fuel
plants. The utility was planning to retire five of its older fossil fuel
plants in the 1990s; however, because the company expects demand to
increase, it is now expecting to keep the plants in service. Common-
wealth Edison projects that it will increase the operation of these plants
by 5 to 30 percent over the next 10 years.




Page 19                GAO/RCED-99-290   Older Plants’ Impact on Reliability   and Air Quality
Chapter 3

ChangingAir Quality RequirementsCould                                                                       I
Affect Life Extension Plans

                     Fossil fuel power plants are significant sources of harmful pollutants,
                     particularly sulfur dioxide and nitrogen oxides, and the plants exempted
                     from the Clean Air Act produce a disproportionately large share of
                     these pollutants. Recent legislative and regulatory developments could
                     require significantly reduced emissions from these exempt plants and
                     could cause electric utilities to alter some planned life extensions
                     projects. Enactment of proposed acid rain control legislation probably
                     would not preclude life extension, but this depends on the legislation’s
                     final requirements. Officials of DOEand utility organizations expressed
                     concern, however, that exempt plants altered to extend their service life
                     must meet the act’s emission standards if EPA decides, as it did for one
                     plant in 1988, that the alteration would result in increased emissions.
                     According to the officials, the additional costs of achieving the more
                     stringent standards could discourage some life extension projects. How-
                     ever, such decisions could also reduce the nation’s total power plant
                     emissions by eliminating an existing economic incentive to retain exempt
                     plants.


                     When Congress enacted the Clean Air Amendments of 1970, it exempted
Plants Constructed   power plants constructed prior to the publication of EPA’Sregulations
Before August 1971   (August 17, 1971) from having to meet the legislated emission stan-
Produce the Most     dards. The exempt plants produce a disproportionate share of utilities’
                     sulfur dioxide and nitrogen oxide emissi0ns.l Although these plants that
Pollutants           were exempted from federal regulations are subject to state regulations,
                     the states generally allow emissions at much higher levels than those
                     specified in the Clean Air Act.

                     Emissions of sulfur dioxide and nitrogen oxides have associated health
                     and environmental consequences. Sulfur dioxide, a colorless gas with a
                     pungent and irritating odor, can aggravate symptoms of heart and
                     respiratory diseases. Nitrogen oxides, gaseous air pollutants, can also
                     aggravate respiratory problems. Emissions of sulfur dioxide and
                     nitrogen oxides, which have been linked to the formation of acid rain,
                     also represent a threat to natural resources, ecosystems, materials, and
                     visibility.




                     ‘Burningfossilfuel alsoproducesair pollutantssuchasparticulatematterandcarbondioxide,but
                     becausethecurrentCleanAir Act debaterelatingto utilitiesfocusesonacidrain controls,our anal-
                     ysiswaslimitedto sulfurdioxideandnitrogenoxides.


                     Page20                  GAO/RCED-!I@200
                                                          OlderPlants’Impacton Reliabiity andAir Quality
                                   Chapter 3
                                   Cban&      Air Quality   Requirements   Could
                                   Affect Life Jktension    Plana




                                   According to EPA'S nationwide data for 1985,2 the last year for which
                                   complete data are available, plants built prior to August 1971 contribute
                                   the majority of fossil fuel plants’ emissions of sulfur dioxide and
                                   nitrogen oxides. In 1985 fossil fuel power plants emitted 16 million tons
                                   of sulfur dioxide; plants built prior to August 17, 1971, emitted 88 per-
                                   cent of the total (see fig. 3.1). Of the nearly 7 million tons of nitrogen
                                   oxides emitted in 1985 by fossil fuel plants, approximately 79 percent
                                   was emitted by the exempt plants (see fig. 3.2).


Figure 3.1: 1995 Sulfur Dioxide
Emksions by Exempt and Nonexempt
Fossil Fuel Power Plants
                                                                                             Nonexempt Power Plants




                                                                                    -        Exempt Power Plants




                                   Note: Total 1985 sulfur dioxide emissions from electric utility fossil steam power plants were 16,046,190
                                   tons.
                                   Source: Prepared by GAO from EPA data.




                                   “The data,fromEPA’sAir andEnergyEngineering  Research
                                                                                       Laboratory,arenotmeasurements
                                                                                                                 of
                                   actualpollutantsreleased
                                                          into the atmosphere,
                                                                            but EPA’sbestestimates.


                                   Page 21                     GAO/RCED-W200        Older Plants’ Impact on Reliability     and Air Quality
                                    Chapter 3
                                    Cm         Air Quality   Requirements   Could                                                      .
                                    Affect Life Extension    Planf3




Figure 3.2: 1985 Nltrogen Oxide
Emiaaiono by Exempt and Nonexempt
Fosril Fuel Power Plants


                                                                                             Nonexempt Power Plants




                                                                                     -       Exempt Power Plants




                                    Note: Total 1985 nitrogen oxide emissions from electric utility fossil steam power plants were 6,671,390
                                    tons.
                                    Source: Prepared by GAO from EPA data.


                                    Also according to EPA'S data, the tendency for older plants to be the
                                    largest polluters prevails in almost all NERC regions, as shown in figures
                                    3.3 and 3.4. In 1986 FUR and SERC, which depend heavily on fossil fuel
                                    plants, produced the largest amounts of sulfur dioxide and nitrogen
                                    oxides.




                                    Page 22                     GAO/BCED-W-200       Older Planta’ Impact on Reliability    and Air Quality
                                  Chapter 3
                                  Changing Air Quality         Requirements   Could
                                  Affect Life Extension        Plans




Figure 3.3: 1985 Sulfur Dioxide
Emissions, by NERC Region         Tons in Ylllions
                                  6.0
                                  5.5
                                  5.0
                                  4.5
                                  4.0
                                  3.5
                                  3.0
                                  2.5
                                  2.0
                                  1.5
                                  1 .o
                                  0.5
                                    0




                                         NERC Regions


                                           I         Exempt Plants
                                                     All Fossil Fuel Plants

                                  Legend

                                  ECAR East Central Area Reliability Coordination     Agreement
                                  ERCOT Electric Reliability Council of Texas
                                  MAAC Mid-Atlantic Area Council
                                  MAIN Mid-America Interconnected Network
                                  MAPP Mid-Continent Area Power Pool
                                  NPCC Northeast Power Coordinating Council
                                  SERC Southeastern Electric Reliability Councrl
                                  SPP Southwest Power Pool
                                  WSCC Western Systems Coordinating Council
                                  Source: Prepared by GAO from EPA data.




                                  Page 23                          GAO/RCED-90-200    Older Plants’ Impact on Reliabiity   and Air Quality
                                  Chapter 3
                                  Changing Air Quality       Requirements   Could
                                  Afpect We Extension        Plana




Figure 3.4: 1985 Nltrogen Oxide
Emissions, by NERC Region         2.0     Tons In Millions




                                        NERC Regions


                                          I         Exempt Plants
                                                   All Fossil Fuel Plants

                                  Legend

                                  ECAR East Central Area Reliability Coordination   Agreement
                                  ERCOT Electric Reliability Council of Texas
                                  MAAC Mid-Atlantic Area Council
                                  MAIN Mid-America Interconnected Network
                                  MAPP Mid-Continent Area Power Pool
                                  NPCC Northeast Power Coordinating Council
                                  SERC Southeastern Electric Reliability Council
                                  SPP Southwest Power Pool
                                  WSCC Western Systems Coordinating Council
                                  Source: Prepared by GAO from EPA data.


                                  Enactment of acid rain control legislation similar to amendments pro-
Acid Rain Control                 posed by the Bush administration probably would result in significant
Legislation Would                 reductions in emissions of sulfur dioxide and nitrogen oxides from many
ReduceEmissions and               of the same plants that currently produce the largest share of these
                                  emissions. Because some of these are the same plants that are also can-
Could Affect Life                 didates for life extension, the additional cost of achieving emission
Extension Plans
            ”                     reductions could discourage some life extension projects, but utilities
                                  generally are expected to find reducing emissions from existing plants
                                  more cost-effective than replacing them and to continue with life exten-
                                  sion projects. The extent of the impact on life extension depends on the


                                  Page 24                       GAO/RCRD-90-200     Older Plants’ Impact on Reliability   and Air Quality
                          Chapter 8
                          tl%andM Air QuaUty Requirementa   Could
                          Affect Life Extension Plana




                          specific levels of emission reductions required and the resulting compli-
                          ance strategies that utilities choose.


Acid Rain Control         Under current air quality requirements, fossil fuel plant emissions will
Legislation Has Been      increase steadily during the next decade, according to EPA’S estimates.
                          (App. II provides information on the expected emissions from utility
Proposed                  power plants in the absence of acid rain control legislation.) With the
                          goal of reducing emissions, dozens of acid rain control proposals have
                          been introduced and debated in Congress since the Clean Air Act was
                          last amended in 1977. The proposals have included provisions designed
                          to reduce emissions of both sulfur dioxide and nitrogen oxides. In June
                          1989 the Bush administration proposed Clean Air Act amendments that
                          include a plan to reduce these emissions that cause acid rain.

                          The goals of the acid rain control portion of the administration’s pro-
                          posal is to reduce electric utilities’ emissions of sulfur dioxide by 10 mil-
                          lion tons from the level in 1980 and of nitrogen oxides by 2 million tons
                          from the level predicted for the year 2000. The sulfur dioxide reductions
                          are to be accomplished in two phases, the first to be completed by the
                          end of 1996 and the second by the end of 2000. Nitrogen oxide reduc-
                          tions are required in the second phase. Rather than mandating the
                          manner in which emission reductions should be achieved, the proposal
                          includes an allowance trading system whereby utilities could choose
                          which methods to use on which plants to achieve emission reductions. In
                          addition, the proposals would limit future sulfur dioxide emissions by
                          requiring utilities to obtain emission allowances before increasing gener-
                          ating capacity. The 1Olst Congress is currently debating amendments to
                          the Clean Air Act that contain acid rain control provisions very similar
                          to those in the administration’s proposal.


Effects of Acid Rain      To comply with proposed acid rain control legislation, utilities probably
Controls Depend on        will have to make substantial investments to reduce emissions at many
                          of the same fossil fuel power plants that are currently the largest
 werity of Requirements
SC                        sources of sulfur dioxide and nitrogen oxides and are also candidates for
                          life extension. Such investments could reduce the cost-effectiveness of
                          life extension, although the impact will depend on the severity of the
                          requirements.

                          Two major analyses of the administration’s proposal, conducted for EPA
                          and the Edison Electric Institute, describe expected compliance strate-
                          gies by utilities and suggest that life extension will remain a viable


                          Page 26                GAO/BCED-W200      Older Plants’ Impact on Reliability   and Air Quality
                                                                                           .
Chapter 2
Changing Air Quality Requirements   Could
Affect Life Ext4msion Plank3




option.3 The analyses indicate it will be more economical for utilities to
reduce emissions from their older plants that currently emit pollutants
at a high rate than to retire these plants and replace them with new
plants that would emit pollutants at a lower rate. The most frequently
cited strategies include switching to lower sulfur coal, installing pollu-
tion control equipment, and adopting technologically innovative emis-
sion-reducing equipment. The studies project that few plants will be
retired and that most will operate for about 60 years. A recent GAO
study examining the relationship between acid rain control legislation
and innovative “clean coal” technologies reaches similar conclusions
about utilities’ compliance strategies4

An acid rain control program that requires more stringent reductions or
presents less flexibility in choosing a compliance method than the
administration’s proposal could alter utilities’ plans for life extension,
More prescriptive requirements could force utilities to retire more power
plants than anticipated, which would reduce the number of plants that
would be available for life extension. For example, American Electric
Power concluded that an acid rain control program requiring more strin-
gent nitrogen oxide reductions than those proposed by the administra-
tion would significantly increase the number of power plants the utility
would retire because some of the utility’s plants could not be modified to
install nitrogen oxide control equipment. In our recent study, GAOalso
concludes that stricter nitrogen oxide reduction requirements would
tend to cause more power plants to be retired. According to a NERC
survey analyzing utilities’ responses to acid rain control legislation more
stringent and less flexible than the administration’s proposal, such legis-
lation would cause utilities to retire a number of older plants.




“Sincemostof thedifferencesbetweentheadministration’s   proposalandtheHouseandSenatebills
areminor,our discussionof compliance
                                   strategiesby utilitiesandof theimpactonlife extensionis
alsoapplicableto theHouseandSenatebills.
4FossilFuels:Outlookfor Utilities’PotentialUseof CleanCoalTechnologies
                                                                    (GAO/RCED90-166,
May24,1990).


Page 20                 GAO/RCED-90-200     Older Plants’ Impact on Reliability   and Air Qoality
                            In developing regulations following the 1977 Clean Air Act amendments,
Application of the          EPA assumed that utilities would continue to replace most plants at the
Clean Air Act’s             end of their traditional 30- to 40-year service life; consequently, the reg-
Current Emission            ulations do not explicitly address power plant life extension. In a 1988
                            case, the agency ruled that the Clean Air Act’s emission standards
Standards to Plants         would apply to a previously exempt power plant if the utility would
With an Extended            pursue its life extension project as proposed. This ruling has created
Service Life Is             concern among DOE and electric utility organization officials regarding
                            the potential costs, and therefore the economic viability, of some life
Uncertain                   extension projects.


Clean Air Act Regulations   In enacting the Clean Air Act Amendments of 1977, Congress revised
Do Not Explicitly Address   the New Source Performance Standards (NSPS) and established the Pre-
                            vention of Significant Deterioration (PSD) program. The NSPS,established
Life Extension              by Congress under Clean Air Amendments of 1970, regulate the emis-
                            sions from new sources, including electric utility power plants. The stan-
                            dards were modified in 1977 to further restrict power plant emissions
                            by requiring the use of emission control technology, typically flue gas
                            desulfurization (FGD) equipment for reducing sulfur dioxide emissions,
                            and other types of emission control equipment for reducing emissions of
                            other regulated pollutants. The PSD program was established to preserve
                            air quality in unpolluted areas of the country by regulating power
                            plants’ total annual emissions and, as the NSPSdo, by requiring the use of
                            the “best available” emission control equipment. EPA, in formulating the
                            NSPSand the PSD program, included provisions regulating modifications
                            of power plants, but because it did not anticipate life extension, it did
                            not explicitly address life extension projects.

                            While Congress exempted plants constructed prior to the enactment of
                            the new emission standards, it also instructed EPA to apply the standards
                            where EPA determines a plant has been “modified.” In amending the act
                            in 1970, Congress defined a modification as a physical or operational
                            change to an existing facility resulting in an increase in the emission of
                            any controlled pollutants or of pollutants not previously emitted. The
                            NSPSare triggered by any change that increases the hourly emission rate
                            for any controlled pollutant. The PSD program provisions are triggered
                            by any change that increases the total amount of annual emissions for
                            any controlled pollutant. EPA also applies the new emission standards in
                            cases where it determines a plant has been “reconstructed’‘-a      determi-
                            nation applicable if the cost of the alteration exceeds 50 percent of the
                            cost that would be incurred to construct a comparable new facility.



                            Page 27             GAO/RCED-90-200   Older Plants’ Impact on Reliabiity   and Air Quality
                          Chapter 3
                          Changing Air Quality    Requirements   could
                          Affect Life Rxteneion   Plans




                          The regulations regarding power plant modifications contain exemptions
                          allowing utilities to undertake certain routine activities that could
                          increase emissions without making the plant subject to either the NSPSor
                          the PSDprogram. These activities include routine maintenance, routine
                          repair and replacement of equipment, and certain operational changes,
                          such as increasing the hours of operation in response to a higher
                          demand for electricity.


Life Extension Projects   Power plant life extension projects involve physical or operational
                          changes to power plants that potentially can invoke either the modifica-
May Constitute            tion or reconstruction provisions and thus trigger the NSPSand the PSD
Modifications or          program provisions. In recent years, EPA, DOE,and the utility industry
Reconstructions           recognized the potential for these projects to invoke either the modifica-
                          tion or reconstruction rules.

                          In March 1986 members of EPA’S policy analysis staff noted the trend
                          toward power plant life extension and its adverse effect on attempts to
                          reduce sulfur dioxide emissions6 Explaining ways in which plants
                          undergoing life extension might be required to achieve the NSPSand the
                          PSDprogram provisions, the article suggested, for example, that the
                          reconstruction rule might be revised or that all power plants over 30
                          years of age could be required to achieve the NSPSand the PSDprogram
                          provisions.

                          Various DOEand industry studies of life extension and guidelines for
                          implementing life extension programs also have noted that the modifica-
                          tion or reconstruction rules might be invoked by life extension projects,
                          thus making previously exempt plants subject to the requirements of the
                          NSPSand the PSDprogram. These documents suggested that utilities plan-
                          ning life extension projects should incorporate into their decision pro-
                          cess the possibility of having to meet stricter environmental standards.
                          In 1987 EPRI noted that plant life extension projects involve the risk that
                          the NSF'Scould be applied.6

                          In September 1988, after the Wisconsin Department of Natural
                          Resources asked for EPA’S review of the Wisconsin Electric Power Com-
                          pany’s (WEPCO)proposed life extension project, EPA determined that the
                          project would constitute a “modification” under the act and that the

                          “DeMocker,
                                   Greenwald, andSchwengels,   “ExtendedLifetimesfor Coal-firedPowerPlants:Effect
                          UponAir Quality,”PublicUtilitiesFortnightly(Mar.20,1986).
                          “JohnDouglas,“LongerLife for FossilFuelPlants,”EPRIJournal(July/Aug.1987).           i\


                          Page 28                    GAO/RCRD-96200      Older Plants’ Impact on Reliability   and Air Quality
        ,

    ,
                         Chapter 3
                         Changing Air Quality   Requirements   could
                         Mfixt  We Extexwion    Plans




                         plant, if altered as proposed, would be required to meet the act’s more
                         stringent emission standards. This decision was the first instance of
                         EPA'S requiring a plant undergoing life extension to achieve the NSPSand
                         the PSD program requirements. EPA'S ruling was based on a determina-
                         tion that (1) the proposed changes to the power plant would go beyond
                         “routine repair” and would therefore not be exempt and (2) emissions
                         would increase as a result of the project.

                         The utility challenged EPA'S definition of routine repair and its method
                         for calculating increases in emissions. Following litigation, in January
                          1990 the United States Court of Appeals for the Seventh Circuit
                         affirmed EPA'S application of the NSPS,but remanded the decision to
                         apply the PSDprogram standards back to EPA for further review. Specifi-
                         cally, the Court held that, in this instance, the proposed changes were
                         not routine and thus not exempt from the standards and that an
                         increased emission rate would result; thus, EPA had correctly applied the
                         NSPS.However, the court ruled that EPA had not used an appropriate
                         method for determining the total annual increase in emissions and
                         instructed EPA to reexamine the application of the PSD program provi-
                         sions. The Court added that EPA is entitled to broad discretion in inter-
                         preting the technical provisions of the Clean Air Act and its own
                         regulations.’


Effects of WEPCORuling   Officials of MIE and utility organizations have expressed concern that
Are Uncertain            the WEPCOdecision may result in EPA'S application of the NSPSand the PSD
                         program requirements to other previously exempt power plants and
                         that the additional costs of achieving these standards and requirements
                         could discourage some life extension projects. However, EPA officials do
                         not consider WEPCO’Sproject typical of mOSt utility life eXtenSiOn
                         projects, and they expect that the ruling will not significantly affect util-
                         ities’ decisions to undertake power plant life extension projects.

                         According to NERC, the ruling could seriously threaten the reliability of
                         the nation’s electric system if it were applied to other life extension
                         projects, as the additional cost for emission control equipment could
                         force utilities to remove older plants from service. According to EEI,
                         serious problems with the reliability of the electric system could be
                         encountered, including brownouts, as utilities adjust their plans and



                         7Wisconsin
                                 ElectricPowerCo.v. Reilly,AD.EPA,893F.2d901(7thCii. 1990)


                         Page 29                   GAO/RCED-900        Older Plants’ Impact on Reliability   and Air Quality
Chapter 8
C3mnghg Air Qnality     Requirements   Could
Affect Life Extension   Plane




pursue other sources of new generating capacity. The Utility Air Regula-
tory Group (uARG>B has expressed concern over whether power plants
can be maintained properly without being required to achieve the more
stringent emission standards. DOEhas stated that EPA'S WEPCOruling
could discourage some utilities from extending the service life of their
power plants and that this could aggravate an expected shortfall in elec-
tric generating capacity in the 1990s.

The frequent application of the NSF’Sand the PSD program requirements
to previously exempt power plants or similar legislative action could
improve air quality. During 1986 power plants exempt from the Clean
Air Act’s more stringent emission standards produced sulfur dioxide
emissions at up to nearly 3 times the rate, per unit of electricity pro-
duced, of power plants subject to these standards. Because new power
plants are subject to more stringent emission standards, there is an
incentive to extend the life of existing plants that are not subject to
these costly standards. If decisions similar to the WEPCOdecision were
rendered more often, a decision to build a new plant or extend the ser-
vice life of an existing plant would depend on the relative costs of two
sources emitting pollution at a low rate, and not on a comparison of the
high cost of a new plant emitting pollution at a low rate and the lower
cost of an older plant emitting pollution at a higher rate.

Officials from seven of the nine utilities we contacted indicated that the
WEPCOdecision was not interfering with their plans for the continued
operation of their existing plants8 These officials explained that WEPCO'S
project involves the restoration of generating capacity at a deteriorated
plant and that this situation is unlikely to occur in their systems because
their maintenance programs prevent their plants from deteriorating.
Officials from one of the nine utilities we contacted indicated that the
WEPCOruling has played a role in the utility’s revising its plans. In its
annual submission to its public utility commission, this utility explained
that because of legislative and regulatory uncertainties (including the
uncertainty raised by the WEPCO    decision), it has deferred implementing
a life extension program. However, the utility reported that it will con-
tinue to maintain its plants to ensure their reliable and safe operation.

According to EPA policy officials, WEPCO'Slife extension project is not
typical of the majority of utilities’ life extension projects, and concerns

%ARGis anadhocassociation
                        of utilitiesandtradeassociations
                                                      of theutility industry.
%neutility did not respondto ourquestionsabout thepotentialimpactof theWEPCO
                                                                           rulingon
powerplantprojects.


Page 20                    GAO/RCED-W200       Older Plants’ Impact on Reliability   and Air   Quality
                            Chapter 8
                            Cbun@g Air Cjjualtty Requiremente   Could
                            Affect Life Ext.4mdon Plan13




                            that the agency will broadly apply the ruling it applied to WEFCO’S    pro-
                            ject are unfounded. The officials noted that many life extension projects
                             do not result in increased emissions, while other activities are routine in
                             nature and thus exempt from the modification rule. Lending evidence to
                            the officials’ statements, EPA'S 1989 emission forecast assumed that the
                            WEPCO   decision would not result in a significant number of additional
                            power plants’ having to comply with the NSF% and the PSD program
                            requirements.


Supplying Electricity May   In the sh~&term, utilities may face trade-offs between ensuring the
Result in Short-term and    existence of generating capacity sufficient to meet needs and reducing
                            air pollution. More stringent emission requirements could adversely
Long-term Trade-offs        affect electricity supply in the short term. However, applying more
                            stringent emission requirements to currently exempt plants would have
                            the benefit of eliminating the power plants that pollute the most.

                            A trade-off between sufficient capacity and clean air need not exist in
                            the long term. Requiring exempt power plants to meet the requirements
                            of the NSPSand PSD program would result in emission reductions at
                            existing plants or less-polluting new plants. The cost of reducing emis-
                            sions would be reflected in the cost of producing electricity. The long-
                            term trade-off could be between cleaner air and more expensive elec-
                            tricity rather than between cleaner air and insufficient capacity.


EPA Has Taken Steps to      EPA has taken steps to reduce the uncertainty    over the emission stan-
ReduceUncertainty Over      dards applicable for renovated power plants. According to EPA officials,
                            EPA relies on state environmental agencies to identify power plant reno-
Emission Standards          vation projects and apply the requirements of the NSPSand PSDprogram
                            on a case-by-case basis and provides guidance to the agencies when
                            requested to do so. EPA'S review is required when a state agency deter-
                            mines a modification permit is necessary. Two state environmental
                            agencies we contacted indicated that they have not routinely reviewed
                            utilities’ life extension plans or coordinated with public utility commis-
                            sions and so are generally unaware of utilities’ renovation projects.

                            In 1989 EPA initiated a survey of utilities that was designed to help the
                            agency identify, among other things, the extent to which life extension
                            activities are occurring and the distinction between routine activities
                            and life extension projects. In explaining the need for the survey, EPA
                            noted that (1) the number of utilities requesting EPA to determine
                            whether a proposed project constitutes a modification is expected to


                            Page 31                 GAO/RCED-90-200     Older Plants’ Impact on Relinbillty   and Air Quality
                       Chapter   3
                       CbangSng ASr QuaUty Requirementa   Could
                       Affect LSfe Extenfsion Plan8




                       increase in the future as more plants have their service life extended
                       and the enactment of acid rain control legislation requires further plant
                       alterations and (2) the survey would help EPAdistinguish routine main-
                       tenance from life extension, a central issue of the WEPCO   case. However,
                       the Office of Management and Budget denied EPA’Srequest to circulate
                       the survey, indicating the need for EPA to clarify its objectives in accor-
                       dance with the Paperwork Reduction Act.

                       Citing limited resources and the likelihood that the Clean Air Act will
                       soon be amended, EPAofficials told us that they no longer intend to
                       pursue issuing the survey. EPAinstead plans to develop additional policy
                       guidance to address the expected plant alterations it referred to in its
                       survey justification. For example, EPA plans to issue a ruling that would
                       allow utilities to install or modify power plant pollution control equip-
                       ment without a review for the potential applicability of the PSDprogram
                       provisions. Also, the agency has assured utilities that it will not apply
                       the NSPSor the P!~Dprogram provisions to plants involved in DOE’Stech-
                       nology demonstration program, which requires the alteration of existing
                       power plants to incorporate technologically innovative equipment and
                       processes. In addition, in May 1990 testimony, EPA,in conjunction with
                       DOEand the Bush administration, outlined a proposed amendment to the
                       Clean Air Act designed to clarify the emission standards applicable to
                       power plants that undergo physical or operational changes. The provi-
                       sion would, among other things, require the EPAAdministrator to issue
                       guidance to help state agencies to distinguish between routine and
                       nonroutine power plant maintenance.


                       Utility groups have expressed concern that the application of the posi-
Compliance Costs for   tion taken by EPAin the WEPCO      case could force some utilities, in order to
Acid Rain Control      comply with the requirements of the NSPSand the PSDprogram, to
Legislation and for    choose emission control methods more costly than those they might
                       choose in order to comply with acid rain control legislation. According to
Clean Air Act Are      a November 1989 study by UARG,if EPAdetermines that a life extension
Independent            project constitutes a modification, as the agency determined in the
                       WEPCO   case, a utility is forced to use more expensive emission control
                       technology, such as FGDequipment, to achieve the requirements of the
                       NSPSand the PSDprogram rather than less costly options, such as
                       switching to lower sulfur coal or using technologically innovative
                       processes, to achieve emission reductions required for proposed acid
                       rain control legislation. An analysis conducted by the Clean Air Working
                       Group, a national coalition representing industry groups and trade
                       associations, also concludes that the application of the position EPA took


                       Page 32                 GAO/RCED-90-200    Older Planta’ Impact on ReUabWy   and Air Quality
in the WEPCB ruling would lead utilities to choose compliance options
other than those they might choose to meet proposed acid rain control
requirements,

The application of EPA'S position in the WEPCOdecision, however, does
not increase the cost of complying with an acid rain control program.
The costs of complying with a decision like the one reached about
WEpco’sproject are incurred to achieve the requirements of the NSH and
the PSD program, independent of acid rain control legislation. As noted
by EPA officials, the acid rain control program contained in the Bush
administration’s proposed Clean Air Act amendments was not intended
to replace the current requirements of the NSF%or PSD program, but
rather to be used in addition to the existing regulations. Therefore, in
the absence of acid rain control legislation, any utility that renovates its
plant and is required by EPA to meet the more stringent emission stan-
dards would bear the full cost of achieving these standards. However, if
proposed acid ram control legislation that includes an allowance trading
system is enacted, the same utility could receive allowances for reducing
emissions beyond those required for the acid rain control program.
These allowances could be retained to offset future emissions or sold to
another utility company, thereby lowering the net cost of achieving the
requirements of the NSPSand the PSD program. Also, according to these
officials, utilities should not expect to avoid forever the cost of control-
ling pollution at plants exempted from the Clean Air Act, and utilities
should consider this cost when making an investment in existing plants,
as utilities consider this cost when constructing new plants. These EPA
officials suggest that considering this cost in the planning stages allows
utilities to use the most cost-effective emission control options.




Page 33             GAO/RCEJMO-200   Older Plants’ Impact on Reliability   and Air Quality
Appendix I

Utilities and Other OrganizationsContacted
During This Review

                      American Electric Power Service Corporation
Utilities             Central Illinois Public Service Company
                      Cincinnati Gas and Electric Company
                      Commonwealth Edison Company
                      Detroit Edison Company
                      Ohio Edison System
                      Ohio Valley Electric Corporation
                      Pennsylvania Power and Light Company
                      Public Service Company of Indiana, Incorporated


                      American Public Power Association
Utility Industry      East Central Area Reliability Coordination Agreement
Professional          Edison Electric Institute
Organizations         Electric Power Research Institute
                      Mid-America Interconnected Network
                      North American Electric Reliability Council
                      Ohio Electric Utility Institute
                      Utility Air Regulatory Group


                      Department of Energy
Federal Agencies      Environmental Protection Agency


                      Illinois Commerce Commission
Public Service        Indiana Regulatory Commission
Commissions           Public Utilities Commission of Ohio


                      Illinois Environmental Protection Agency
State Environmental   Indiana Department of Environmental Management
Agencies              Minnesota Pollution Control Agency
                      Pennsylvania Department of Environmental Resources
                      State of Ohio Environmental Protection Agency




                      Page 34            GAO/RCEDBO-200   Older Plants’ Impact on   Reliability and Air Quality
         Utilitler and Other Organhtlona   Contacted
         musngmsRevsew




         Center for Clean Air Policy
Others   Environmental and Energy Study Institute
         Environmental Action
         Izaak Walton League
         MSB Energy Associates
         Natural Resources Defense Council




         Page 86                   GAO/RCED-WZOO       Older Plants’ Impact on ReliabWy   and Air Quality
Appendix II

l3lectric Utility Power Plant Emissionsin the ”
Absenceof Acid Rain Control Legislation

                In the absence of acid rain control legislation, various emission forecasts
                projected utility sulfur dioxide emissions to increase until at least the
                year 2000 and, in some cases, through 2010. This trend is due in part to
                the longer service life of older plants that pollute at a high rate. In the
                absence of the legislation, emissions of nitrogen oxides also are expected
                to increase.

                 In its 1989 forecast, the Environmental Protection Agency (EPA)pro-
                jected in its low-case scenario that utility sulfur dioxide emissions will
                 increase through the year 2000 and then begin to decline. In its high-
                 casescemrio, EPApredicted that these emissions will increase steadily
                through 2010. The increases are due in part to the longer service life of
                power plants. The forecast assumed that most fossil fuel plants will be
                 renovated and operated for an additional 26 to 36 years.’

                The National Acid Precipitation Assessment Program (NAPAP),       adminis-
                tered through an interagency task force, established to evaluate the
                effects of acid deposition on the environment, projected that sulfur
                dioxide emissions between 1986 and 2010 will remain roughly constant
                (with an assumed power plant service life of 46 to 60 years) or will
                increase (with an assumed 60-year service life). After 2010, emissions
                are projected to decline as the older plants that pollute at a high rate are
                replaced with new plants that pollute at a lower rate. NAPAP’S   projec-
                tions were based on studies prepared by organizations including EPRI,
                DOE’sEnergy Information Administration and Argonne National Labora-
                tory, the Congressional Research Service, the Office of Technology
                Assessment, and the Congressional Budget Office.

                Two state studies-from     states with high sulfur dioxide emissions-
                have shown similar trends regarding sulfur dioxide emissions. A 1988
                study performed by the Ohio Office of Consumer’s Counsel indicated
                that, without the enactment of acid rain control legislation, sulfur
                dioxide emissions in Ohio are expected to increase by 14 percent during
                1987-2007. The increase is attributed to expected increases in the use of
                existing plants. Further, a study performed by the Illinois Department
                of Energy and Natural Resources indicated that after a period of
                declining emissions between 1980 and 1990, Illinois utilities’ sulfur

                ‘EPA’sforecastsassumed    that all fossilfuel powerplantswith generatingcapacityof morethan60
                MWwill berefurbishedat age30.In thelow-case      scenario,EPAassumed   anadditional26yearsof
                servicelife, andin thehigh-case  scenario,anadditional36years.Also,EPA’sforecastswerebasedon
                theabsence   of federalacidrain controllegislationandassumed  that applicationof theNewSource
                Performance   Standards (NSPS)  andthePreventionof SignificantDeterioration  (PSD)programprovi-
                sionswill notbewidespread   (seech.3 for moreontheapplicationof theNSPSandthePSDprogram
                provisions).


                Page 36                  GAO/RCELMO-200     Older Plants’ Impact on Reliability   and Air Quality
Appendix II
Elect&  Utility Power Plant Ehiwions     in the
Absence of Acid Rain Control Legielation




dioxide emissions will increase until 2006 and that they should decline
after that as older plants are removed from service.

 Regarding nitrogen oxide emissions, under its two scenarios EPApro-
jected them either to increase until 2006 and then level off or to increase
 steadily through 20 10. NAPAP also projected that nitrogen oxide emis-
 sions will increase through 2010. The studies noted that the retirement
 and replacement of older power plants with newer plants is not as effec-
tive in reducing nitrogen oxide emissions as it is in reducing sulfur
dioxide emissions because the difference in the nitrogen oxide emissions
of plants achieving the NSPS  and of those exempted typically is small.




Page 27                   GAO/RCED-80-200         Older Plants’ Impact on Reliabiltty   and Air Quality
Appendix III

Major Contributors to This &port


                           Judy A. England-Joseph, Associate Director
Resources,                 Charles M. Adams, Assistant Director
Community, and             David G. Wood, Assistant Director
                           Daniel J. Feehan, Staff Evaluator
Economic                   Howard F. Veal, Staff Evaluator
Development    Division,   John H. Skeen, III, Writer-Editor
Washington, D.C.

                           Melvin J. Koenigs, Evaluator-in-Charge
Chicago Regional           David I. Lichtenfeld, Site Senior
Office                     Pauline J. Seretakis, Staff Evaluator




(006336)                   Page 38            GAO/RCED-BO-!&HI Older Plants’ Impact on Reliability   and Air Quality
I1.S. Grm~ral At*count.ing Office
P.O. Box 60 15
(;ait hersburg, MD 20877

Ortlt*rs may also be placed by calling   (202) 2756241.
. _--.   /