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June 01, 2016 Feature

Decommissioning Coal Power Plants

Emily Fisher, Joanne Hopkins, Lola Infante, and Karen Obenshain

The electric utility industry relies upon a variety of fuels for power generation, including coal, natural gas, nuclear, and renewable fuels. Coal historically has been the dominant fuel for power generation, although its share of the national fuel mix has been declining in recent years, mostly owing to the improved cost advantage of natural gas-fired generation. Low or no growth in electricity demand and a rapid deployment of renewable sources of electricity also have played a role and have contributed to changing the relative economic attractiveness of coal power plants. Where coal comprised approximately 50 percent of the fuel mix from 1950 through 2010, it made up 33 percent in 2015.

In addition to these market drivers, recent environmental regulations have further affected the economics of coal units and are driving the retirement and decommissioning of as much as a third of the U.S. coal generating fleet.

All electric utilities are subject to many environmental rules, including federal and state air and water quality requirements under the Clean Air Act and Clean Water Act. The increase in the stringency of environmental regulations in recent years has led to a significant increase in planned coal plant retirements because the investment required to retrofit some units could not be justified given existing market and operational conditions. The Clean Power Plan (CPP) of the U.S. Environmental Protection Agency (EPA) requires reductions in carbon dioxide emissions from existing coal and natural gas units and will result in additional retirements before and after compliance is required in 2022. Between January 2010 and December 2015, more than 40,000 megawatts of coal capacity were retired. This represents around 12 percent of the coal fleet. An additional 25,000 megawatts of retirements have been announced to occur between 2016 and 2022, and more are expected to be announced in the next one or two years as CPP compliance plans are developed by the states. (The CPP has been challenged in the D.C. Circuit. See West Virginia v. EPA, Nos.15-1363, et al. (D.C. Cir. Oct. 23, 2015). On February 9, 2016, the U.S. Supreme Court stayed the CPP pending litigation, including potential review by the Supreme Court. As a result, state compliance plans are currently on hold.)

This is an unprecedented level of retirements in such a short period of time, and it warrants an examination of the operational aspects of coal plant retirements and the legal issues that must be considered.

The Decommissioning Process

In general, the decommissioning process can be divided into four main stages:

 

  1. Project planning. Developing an overarching plan and organizational framework to guide the process is essential and can help minimize change orders later in the process. One of the first and most critical decisions to make at the start of the planning process is to determine the ultimate end use of the electric-generating unit (EGU) site. This will drive the rest of the decommissioning process.
  2. Site characterization and contractor selection. Before demolition can begin, surveys should be conducted to assess safety issues; evaluate asset value; determine the presence of asbestos and other regulated materials and review existing and required environmental permitting; review structure issues; and determine community concerns. Demolition work should be bid out, and multiple offers evaluated. It is essential that the contractors be pre-qualified. To minimize injuries and other risks, the EGU owner should consider experience, ownership of equipment, and bonding. Project managers may want to consider limiting the use of subcontractors.
  3. Project execution. At this stage, project management and risk management become increasingly important. Project controls related to safety, environmental and other regulatory requirements, waste management, contract management, and finances should be implemented.
  4. Project closeout. Project closeout should include a final site condition survey. All contracts and permit requirements should be closed out, documented, and archived as appropriate.

The Critical Role of Community Engagement

The closure of an EGU can represent a transition for an entire community. Communication with all stakeholders at every stage of the decommissioning process is critical. It is important to perform early and broad community engagement and include both internal and external stakeholders in outreach efforts, including federal, state, and local regulators. Unit owners should designate a community engagement lead, based on pre-existing relationships if possible, and the approach to decommissioning should address project and community needs in parallel. While there can be tensions between engagement and confidentiality during some stages of the decommissioning process, it is important to keep all parties informed throughout all stages of the process.

Reliability Considerations

A plant scheduled to retire may be required to continue operations for some period of time after the expected closure date to maintain the reliability of electric service while new EGUs or transmission lines are constructed. The simultaneous retirement of multiple units can create complex reliability challenges. As a result, some units could run the risk of violating environmental standards to comply with reliability requirements. For this reason, it is critical to provide timely notice to state regulators and regional reliability organizations as to the decommissioning timelines.

Environmental Remediation

Solid and hazardous wastes found on a power generation site must be addressed properly before an EGU is decommissioned. Environmental remediation considerations should be identified early and factored into decisions about the site end use and the decommissioning plan. A regulated materials disposal plan must be developed before any remediation takes place. This plan must address the requirements of state and local law, as well as the two key federal environmental statutes that govern remediation: the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, also known as “Superfund”). RCRA applies to the disposal of solid and hazardous wastes and imposes obligations on the generators and transporters of these materials, as well as disposal facilities that treat or store them. CERCLA imposes liability for the release of any hazardous substance and can require remediation of past releases. CERCLA liability can continue after a site has changed ownership. Both laws require documentation of certain disposal activities and can require remediation actions, both on- and off-site.

Site owners must consider carefully the potential applicability of RCRA and CERCLA and should review existing permits for any additional retirement obligations. Environmental remediation laws are complicated and have been the subject of significant litigation, including citizen and federal enforcement actions. Local communities likely will be concerned about the appropriate care and disposal of these materials.

Coal Ash Issues

Ash disposal units—landfills, ponds, and basins—should be the last part of the site to be closed. A closure plan should be developed to ensure structural stability and minimize the potential for release of hazardous substances to the local environment. The nature of the disposal unit will dictate the closure method. States have differing requirements as to whether the wastes need to be removed or ponds de-watered. The long-term post-closure care requirements and groundwater monitoring requirements vary by state. EPA recently concluded a lengthy rule making that determined that coal ash is not a hazardous waste under RCRA and spells out care requirements for the 30-year period following decommissioning. These include maintenance of the cover system, groundwater monitoring, and leachate collection and removal.

Asset Management and Permitting Strategy

Materials located on the site of an EGU that is being retired can have value. Valuable assets may include condensate storage tanks, empty clean tanks, transformers, copper, and real estate. The most valuable items should be targeted for removal first to provide income that can be used to offset the costs of decommissioning. Spare transformers also can be included in programs run by the U.S. Department of Energy and the power sector to assist in restoration of electric service after power outages.

Existing permits also can have value. Potentially valuable permits include those addressing water rights and discharge limits, interconnection agreements, and environmental credits. These considerations should be taken into account before any formal retirement announcement.

Managing Risk and Legal and Financial Obligations

Compliance with all environmental requirements is critical but does not protect the unit owner from civil suits. A utility must be prepared to defend all retirement decisions. In addition, owners need to manage financial and other regulatory risks. Retirement announcements can affect market prices and increase the risk of violations of regulations addressing market manipulation, standards of conduct, and corporate accounting and disclosure requirements, including U.S. Securities and Exchange Commission regulations and Sarbanes-Oxley requirements.

Project Monitoring and Control

The project execution phase of a retirement involves monitoring vendors and establishing project controls. Due diligence in selecting contractors is critical. There should be a single point of responsibility and accountability for the project, with required and standardized daily, weekly, and monthly reports and regular audits and inspections. The contractor also should be responsible for maintaining site security. Project controls related to safety, finances, and environmental, regulatory, waste, and contract management should be implemented.

Demolition Methods

Often, several EGUs are co-located, but not all of them are slated for retirement. If shared infrastructure exists—fire and water, cooling pond, natural gas and electric transmission infrastructure, potable water, security, inventory, information technology, phone systems, and other instrumentation—a plan to address the shared infrastructure should be developed early in the process, particularly as some equipment may need to be moved prior to demolition.

There are three common demolition methods: pick-it, managed falls, and implosions. The pick-it method involves dismantling the facility in the reverse order of how it originally was constructed, and the process can be labor intensive, slow, and costly. This method often is chosen when the EGU is adjacent to an operating unit that is not going to be decommissioned. Managed falls involve attaching cables to the structure to pull it down. This method poses the most risks to the demolition crew. Implosions use explosives to take the legs out from under the structure in a controlled fall. This is the fastest, cheapest, and safest demolition option.

Conversion: An Alternative to Retirement

Instead of retiring a coal-based EGU, some owners have opted to convert the unit to burn natural gas. When deciding to convert a unit, key considerations include the value of the existing infrastructure at the site and the proximity to the necessary fuel and water supplies. If the existing coal-based EGU is not near natural gas pipelines, the need to build this infrastructure will be integral to the conversion decision. The costs of construction and the time it takes to permit new pipelines are important considerations, especially as permitting new gas facilities has become increasingly contentious. Converted units also must apply for and receive preconstruction air quality permits that will include emission limits for traditional air pollutants and greenhouse gases.

Conclusions

The electric sector is committed to transitioning to a lower carbon-emitting, cleaner generation fleet, which will result in the retirement and decommissioning of a significant portion of the existing coal-based generating fleet. The decision to retire a coal unit is not simple, nor is the process quick. The impact of a retirement extends beyond the fence line of the unit and requires careful consideration and coordination to address community, customer, environmental, and reliability concerns.