(Reuters) - For big U.S. power companies like FirstEnergy Corp, the Supreme Court’s decision knocking back landmark rules reducing air pollutants from coal-fired plants has arrived too late for them to turn away from a natural gas-fueled future.
Big coal-fired generators said on Monday that they would press ahead with facility upgrades and plant closures even after the court invalidated one of President Barack Obama’s major environmental initiatives, which would set new limits on the amount of mercury and other hazardous pollutants.
In a 5-4 decision, the court found that the U.S. Environmental Protection Agency (EPA) should have considered the compliance cost of the Mercury and Air Toxics Standards (MATS) rule. The EPA has estimated it would cost the power industry $9.6 billion a year to comply with the rule.
While the prospect of a suspension in the rule - and increased demand for coal - cheered some investors on Monday, with stocks such as coal miner Peabody Energy Corp surging more than 9 percent, the power firms who could also benefit from a reduced regulatory burden said they were staying the course.
The durability of cheap natural gas, and the likelihood that other EPA reforms, like the upcoming Clean Power Plan to reduce carbon emissions, will survive legal challenge, are giving few any reason to rethink plans to shut some 22,000 megawatts (MW) of coal-fired power capacity this year - a sum equal to about fourth-fifths of all the closures in the preceding decade.
Ohio-based FirstEnergy, one of the nation’s largest coal plant operators, is not putting any MATS projects on hold, said spokeswoman Stephanie Walton.
At the end of March, FirstEnergy had spent $145 million of an expected total $370 million on MATS-related upgrades. It has already shut coal-fired units in Ohio, Pennsylvania and West Virginia due in part to MATS over the past few years, Walton said.
Officials at others including American Electric Power Co Inc and Duke Energy Inc also said they would make no changes to their ongoing MATS compliance activities.
“Most of the companies’ decisions to retire or upgrade plants will not be undone,” said Rob Patrylak, managing director at Navigant Consulting, a consulting firm.
Now that the Supreme Court has ruled, an appeals court will decide whether to throw out the entire rule.
The gas market has already benefited from the MATS rule because utilities had to make decisions years ago whether to shut or upgrade their coal and other power plants.
With gas at the lowest level in three years, power plant consumption of gas was expected to reach 25.4 billion cubic feet per day in 2015, a record high, up from 20.8 bcfd four years ago, when the MATS rules were first unveiled.
Gas prices are languishing at $2.77 per million British thermal units, down from $4.65 during the same time last year, making gas very competitive with coal.
“Any relief will be muted given utilities have already retired a significant amount of coal-fired generation and this repeal would do little to change course for planned retrofits since billions in investment have been made already,” analysts at FBR & Co, an investment bank, said in a report.
In 2012, there were about 300,000 MW of coal-fired generation in the United States. About two-thirds of that, or about 200,000 MW were already MATS compliant, according to federal energy data.
That means generators had to decide whether to retire or upgrade the remaining 100,000 MW of coal plants by April 2015 or seek a one-year extension to comply.
At least 165 coal units received extensions to continue operating beyond April 2015, according to the National Association of Clean Air Agencies in March.
Generators have been shutting older coal plants for years because relatively cheap gas from booming shale production has made it uneconomical to upgrade the units to meet increasingly strict federal environmental rules.
Over the prior 10 years to 2014 they shut a total of about 28,600 MW of coal power.
Generating companies have said they plan to shut 22,000 MW of coal generation in 2015, with most of those plants already shut by the end of April due to the mercury rule, and another 10,300 MW in 2016, according to Reuters and federal data.
Reporting by Scott DiSavino; Editing by Lisa Shumaker