I hope everyone’s having a wonderful holiday catching up with families and recharging batteries for the upcoming New Year. Come January 2nd we’ll be collectively rolling up our sleeves and figuring out how to best navigate the complex and uncertain issues currently affecting the US power generation industry. Looking forward, here are a few of the issues that will play out over the coming year.

Re-worked CAIR Rule
While the US EPA is still working on the court-ordered redesign of CAIR Phase 2, several states have filed their CAIR State Implementation Plans (SIPs) based on the same assumptions embedded in the original rule.  I suspect this approach is based on the fact that most states were relying on the original CAIR rule to meet current National Ambient Air Quality Standards (NAAQS) and PM 2.5 requirements; as well as the likelihood that whatever the current EPA comes up with as a replacement rule is going to be at least as stringent as what it will be replacing.

EPA Endangerment Finding
Either some form of cap & trade legislation will be enacted for greenhouse gasses or the EPA and generators alike will have to wrestle with the onerous command and control requirements associated with the current EPA rule-making in response to the Endangerment Findings.  Unless this rule is superseded by legislation, it will take effect in March 2010.

The EPA expects the new rule to initiate litigation affecting about 400 facilities per year across fossil power generation, refineries and cement kilns. The respective numbers of total facilities in each of these three industries indicate that the majority of these cases will be with fossil generation plants. While improvements in the efficiency of affected facilities (i.e. heat rate for generating units) are explicitly cited among the "Best Available Control Technology" components, I must say that the command and control approach embodied in the EPA rule represents an extremely inefficient way to promote efficiency improvements.

Economic Outlook
The US economy appears to be on track for two consecutive quarters of growth – as economist's formal definition of the end of the worst recession in decades concur.  As a result, industrial demand is picking up briskly in areas such as the Midwest with large loads from industries now re-hiring employees and running normal three-shift operations as inventories across the nation are replenished.

Two big questions are 1).  the strength and pace of the recovery as it affects overall electricity demand; and 2).  how quickly generators respond to the recovery and begin resuming capital and O&M activities, many of which have been on hold for more than a year.

In any case, the one thing that is clear is that maintaining reliability for the existing US generation fleet is going to become more important than ever, given a) the expectation of a return to growth in electricity demand; b) the recent decisions to retire some older coal-fired plants due to the expected costs of complying with the new CAIR regulations still being revised by the US EPA; and c) the cancellation of many new coal-fired plants needed to meet current demand projections but unable to obtain permitting or financing in the face of uncertainty around impending CO2 regulations. 

So now’s the time to rest up and enjoy the remaining holiday with your family and friends.  NeuCo looks forward to working with you in the coming year to address these and the myriad additional challenges ahead.  Happy New Year!