April 15 (Bloomberg) -- Duke Energy Corp., Southern Co. and other energy companies must abide by federal limits on mercury and additional power-plant pollutants, a U.S. court said, upholding a rule regulators say will save lives and the industry claims was illegally drafted.
Although the Environmental Protection Agency estimated in 2007 that the rule would cost the power-production industry $9.6 billion, its impact is likely to be less because companies are shifting away from coal-fired plants and have budgeted for compliance expenses, according to Paula DuPont-Kidd, a spokeswoman for PJM Interconnection LLC, which coordinates wholesale power markets in 13 states from Maryland to Illinois.
“It probably wouldn’t change much because decisions about plant retirements have been made already,” DuPont-Kidd said in an interview before the decision.
Cheap natural gas, low power demand, pending federal greenhouse-gas regulation and state initiatives to curb pollution are driving the turn away from the coal-powered plants targeted by the rule, she said.
The U.S. Court of Appeals in Washington today concluded the EPA followed Congress’s instructions in issuing a regulation that’s “appropriate and necessary” based on a study of emissions’ hazards to public health. The agency’s approach in crafting the rules “is entitled to deference and must by upheld,” according to the decision for a majority of three-judge panel written mostly by U.S. Circuit Judge Judith Rogers.
Opponents of the regulation, including Peabody Energy Corp., several states and energy trade groups, argued that the agency didn’t properly consider costs in drafting the standards, which apply to about 1,400 coal- and oil-fired generating units at 600 power plants.
Rogers said the agency wasn’t required to give the weight to costs sought by the utilities.
“For EPA to focus its ‘appropriate and necessary’ determination on factors relating to public health hazards, and not industry’s objections that emission controls are costly, properly puts the horse before the cart,” Rogers wrote.
Shares of Peabody, the largest U.S. coal producer, dropped as much as 1.5 percent on news of the ruling. The stock declined 0.1 percent to $16.86 in New York trading. Frederick Palmer, senior vice president of government relations for St. Louis-based Peabody, didn’t immediately respond to a phone message requesting comment on the ruling.
Nancy Gravatt, a spokeswoman with the Washington-based National Mining Association, which represents Peabody and other coal producers, said the decision could undermine the reliability of the electric grid by forcing some coal-fired power plants off line.
“We’re reviewing all of the legal options available to industry,” Gravatt said in an interview.
Tom Williams, a spokesman for Duke, the largest U.S. utility, said Duke has “been moving ahead with our compliance implementation plans” since the rule was unveiled in early 2012. “These efforts include plant retirements, additional upgrades on emissions controls and fuel switching,” Williams said in an e-mailed statement.
Duke shares initially fell almost 0.5 percent on news of the decision before rising 0.7 percent to $72.81.
U.S. Circuit Judge Brett Kavanaugh dissented from parts of the ruling, including the sections pertaining to cost.
“In my view, it is unreasonable for EPA to exclude consideration of costs in determining whether it is ‘appropriate’ to impose significant new regulations on electric utilities,” Kavanaugh wrote.
EPA “is very pleased with the ruling,” Liz Purchia, an agency spokeswoman, said in an e-mailed statement. “These practical and cost-effective standards will save thousands of lives each year, prevent heart attacks and asthma attacks, while slashing emissions of neurotoxin mercury, which can impair children’s ability to learn.”
John Walke, an attorney for the Natural Resources Defense Council, which intervened in the case on behalf of the EPA, said power plants have fended off regulation of hazardous pollutants “since the beginning of the Clean Air Act in 1970.”
“This removes any cloud of uncertainty about what utilities will have to do to comply with the law,” Walke said.
Mercury emitted by power plants accumulates in fish as methylmercury, which can cause neurologic and kidney disorders when consumed by people. The regulation also applies to other toxic metals, such as chromium, and acid gases including hydrogen chloride.
The rule would create 8,000 more jobs than would be lost, as power plants invest billions of dollars to install pollution scrubbing systems or build cleaner natural gas plants, and would prevent as many as 11,000 premature deaths from toxic emissions, according to the EPA.
American Electric Power Co., the fourth-largest utility by generation and capacity, expects to spend $4 billion from 2012 to 2020 on environmental compliance, mostly to meet requirements of the mercury rule, according to Melissa McHenry, a spokeswoman for the Columbus, Ohio-based company.
That’s down from $6 billion to $8 billion projected in 2011, because of last-minute changes in the mercury rule that offered cheaper compliance options and AEP’s decisions to retire some plants instead of outfitting them with emission-control equipment, McHenry said in an e-mail sent before today’s ruling.
AEP opted for the closings because “low natural gas and power prices, combined with lower electricity demand, make it difficult to make the case to regulators to invest billions in these plants,” McHenry said.
The case is White Stallion Energy Ctr. LLC v. EPA, 12-1100, U.S. Court of Appeals for the District of Columbia Circuit (Washington).
With assistance from Jim Efstathiou Jr. in New York and Jim Snyder in Washington.
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