Supplemental Finding That It Is Appropriate and Necessary To Regulate Hazardous Air Pollutants From Coal- and Oil-Fired Electric Utility Steam Generating Units

Federal RegisterApr 25, 2016

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 63

[EPA-HQ-OAR-2009-0234; FRL-9945-33-OAR]

RIN 2060-AS76

Supplemental Finding That It Is Appropriate and Necessary To Regulate Hazardous Air Pollutants From Coal- and Oil-Fired Electric Utility Steam Generating Units

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Final supplemental finding.

SUMMARY:

This action responds to the U.S. Supreme Court decision in

Michigan

EPA,

135 S. Ct. 2699 (2015), and explains how the Environmental Protection Agency (EPA) has taken cost into account in evaluating whether it is appropriate and necessary to regulate coal- and oil-fired electric utility steam generating units (EGUs) under section 112 of the Clean Air Act (CAA). The EPA requested comment on all aspects of its approach to considering cost through a proposed supplemental finding and on a companion Legal Memorandum available in the rulemaking docket. After consideration of public comments, the EPA, in this final supplemental finding, concludes that a consideration of cost does not cause us to change our determination that regulation of hazardous air pollutant (HAP) emissions from coal- and oil-fired EGUs is appropriate and necessary and that EGUs are, therefore, properly included on the CAA section 112(c) list of sources that must be regulated under CAA section 112(d).

DATES:

This final supplemental finding is effective on April 25, 2016.

ADDRESSES:

The EPA has an established docket for this action under Docket ID No. EPA-HQ-OAR-2009-0234 (National Emission Standards for Hazardous Air Pollutants for Coal- and Oil-fired Electric Utility Steam Generating Units). All documents in the docket are listed on the

www.regulations.gov

Web site. Although listed in the index, some information is not publicly available,

e.g.,

Confidential Business Information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in

www.regulations.gov

or in hard copy at the EPA Docket Center (EPA/DC), Room 3334, EPA WJC West Building, 1301 Constitution Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT:

Dr. Nick Hutson, Energy Strategies Group, Sector Policies and Programs Division (D243-01), U.S. EPA, Research Triangle Park, NC 27711; telephone number (919) 541-2968, facsimile number (919) 541-5450; email address:

hutson.nick@epa.gov

SUPPLEMENTARY INFORMATION:

Organization of This Document.

The information presented in this notice is organized as follows:

I. General Information

A. Executive Summary

B. Does this action apply to me?

C. Where can I get a copy of this document?

D. Judicial Review

II. Overview and Background on the Proposed Supplemental Finding

A. Overview

B. 2000 Finding and 2012 Affirmation

C. Proposed Supplemental Finding

III. Final Supplemental Finding and Affirmation

A. Supplemental Analyses Conducted in Response to Comments

B. Basis for the Final Supplemental Finding

C. Affirmation of the Appropriate and Necessary Finding

IV. Public Comments on the Proposed Supplemental Finding

A. Comments on Considerations of Cost

B. Comments on Consideration of Benefit-Cost Analysis in the MATS RIA

C. Comments on the Legal Interpretation of CAA Section 112(n)(1)

D. Comments on Topics that are Beyond the Limited Scope of the Supplemental Finding

V. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

B. Paperwork Reduction Act (PRA)

C. Regulatory Flexibility Act (RFA)

D. Unfunded Mandates Reform Act (UMRA)

E. Executive Order 13132: Federalism

F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments

G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks

H. Executive Order 13211: Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use

I. National Technology Transfer and Advancement Act (NTTAA)

J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

K. Congressional Review Act (CRA)

L. Determination under CAA Section 307(d)

VI. Statutory Authority

I. General Information

A. Executive Summary

The EPA is taking this final action in response to (1) the U.S. Supreme Court (Supreme Court) decision in

Michigan

EPA,

135 S. Ct. 2699 (2015), which held that the EPA must consider cost in evaluating whether it is appropriate and necessary to regulate coal- and oil-fired EGUs under CAA section 112, and (2) the comments received on the agency's proposal.

After evaluating cost reasonableness using several different metrics, the Administrator has, in accordance with her statutory duty under CAA section 112(n)(1)(A), weighed cost against the previously identified advantages of regulating HAP emissions from EGUs—including the agency's prior conclusions about the significant hazards to public health and the environment associated with such emissions and the volume of HAP that would be reduced by regulation of EGUs under CAA section 112.

In evaluating the costs of the Mercury and Air Toxics Standards (MATS), the EPA uses several cost metrics specific to the power sector to determine whether the costs of MATS are reasonable. The evaluations across each of the different metrics reveal that the cost of complying with MATS—compared to historical annual revenues, annual capital expenditures, and impacts on retail electricity prices—is well within the range of historical variability. The EPA further finds that the power sector is able to comply with the rule's requirements while maintaining its ability to perform its primary and unique function—the generation, transmission, and distribution of reliable electricity at reasonable cost to consumers. The EPA thus concludes that under every metric examined, the cost of MATS is reasonable and that no new information provided during the public comment period demonstrates otherwise.

In exercising the discretion granted to her under CAA section 112(n)(1)(A), the Administrator has taken numerous factors into account, in addition to the consideration of the cost of regulation, including Congress's concern about the hazardous nature of these pollutants, the wealth of public health and environmental effects research examined under the agency's prior findings showing substantial risks from

the emission of HAP from EGUs, and the fact that the power sector is the largest remaining anthropogenic source of many HAP in the U.S. The Administrator finds in this final action that, in her judgment, after determining under each metric examined that the cost of MATS is reasonable, and weighing this consideration against the many identified advantages to regulation, it clearly remains appropriate and necessary to regulate HAP emissions from EGUs.

The Administrator's approach to making her determination is fully consistent with the dictates of the statute and with the

Michigan

decision because it reflects her consideration of the full range of factors relevant to making a decision under CAA section 112(n)(1)(A) regarding whether it is appropriate to regulate HAP emissions from EGUs under CAA section 112. She prefers—and the CAA supports—this approach because, in addition to cost, it places value on the statutory goals of achieving prompt, permanent, and ongoing reductions in significant volumes of HAP emissions and on the important, and, in many cases, unquantifiable advantages of reducing the significant hazards to public health posed by such emissions, including addressing the risk to the most exposed and most sensitive members of society.

The EPA also presents in this action a second independent approach that supports the appropriate and necessary determination as informed by consideration of the cost of MATS: consideration of a formal benefit-cost analysis. Although the EPA does not view formal benefit-cost analysis as required to support the appropriate finding, the agency had performed such an analysis for the regulatory impacts analysis (RIA )

for the final MATS rule. In this final action—as in the proposal—the EPA finds that the analysis demonstrates that the benefits (monetized and non-monetized) of the rule are substantial and far outweigh the costs. The benefit-cost analysis, thus, fully and independently supports the finding that it is appropriate to regulate HAP emissions from EGUs.

U.S. EPA. 2011.

Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards.

EPA-452/R-11-011. Docket ID No. EPA-HQ-OAR-2009-0234-20131.

The EPA provided an opportunity for public comment on both approaches through a proposed supplemental finding

published on December 1, 2015 and on a supporting Legal Memorandum.

The EPA received numerous comments both supporting and opposing the proposed approaches and the agency has considered all of these comments.

80 FR 75025.

“Legal Memorandum Accompanying the Proposed Supplemental Finding that it is Appropriate and Necessary to Regulate Hazardous Air Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating Units (EGUs)” (Legal Memorandum). Docket ID No. EPA-HQ-OAR-2009-0234-20519.

Based on all of these considerations, the Administrator finds that both approaches—the preferred approach and the alternative benefit-cost analysis in the MATS RIA—support her determination that consideration of cost does not cause her to alter the previous conclusion that regulation of HAP emissions from EGUs is appropriate and necessary. Therefore, in this final notice, the Administrator affirms that it is appropriate and necessary to regulate coal- and oil-fired EGUs under CAA section 112 and that these sources are properly listed as an affected source category under CAA section 112(c).

B. Does this Action Apply to Me?

The regulated categories and entities potentially affected by this final supplemental finding are shown below in Table 1.

Table 1—Potentially Affected Regulated Categories and Entities

Category

NAICS Code

Examples of potentially affected entities

Industry

221112

Fossil fuel-fired electric utility steam generating units.

Federal government

221122

Fossil fuel-fired electric utility steam generating units owned by the federal government.

State/local/tribal government

221122

921150

Fossil fuel-fired electric utility steam generating units owned by municipalities.

Fossil fuel-fired electric utility steam generating units in Indian country.

North American Industry Classification System (NAICS).

Federal, state, or local government-owned and operated establishments are classified according to the activity in which they are engaged.

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities that may be affected by this action. If you have any questions regarding the applicability of this action to a particular entity, consult either the air permitting authority for the entity or your EPA Regional representative as listed in 40 CFR 60.4 or 40 CFR 63.13 (General Provisions).

C. Where can I get a copy of this document?

In addition to being available in the docket, an electronic copy of this final action will also be available on the World Wide Web (WWW). Following signature, a copy of this final action will be posted at the following address:

http://www3.epa.gov/mats/.

D. Judicial Review

Under section 307(b)(1) of the CAA, judicial review of this final supplemental finding is available only by filing a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) by June 24, 2016. Moreover, under section 307(b)(2) of the CAA, the requirements established by this final supplemental finding may not be challenged separately in any civil or criminal proceedings brought by the EPA to enforce these requirements.

In the proposal, the EPA provided notice that CAA section 307(d) was applicable to this action and has followed the requirements of that subsection. 80 FR 75042. CAA section 307(d) establishes procedural requirements specific to certain enumerated rulemakings under the CAA, and CAA section 307(d)(1)(V) provides for the extension of these procedural requirements to “such other actions as the Administrator may determine.” Section 307(d)(7)(B) of the CAA further provides that “[o]nly an objection to a rule or procedure which was raised with reasonable specificity during the period for public comment (including any public hearing) may be raised during judicial review.” This section also provides a mechanism mandating the EPA to convene a proceeding for reconsideration “[i]f the person raising an objection can demonstrate to the EPA that it was impracticable to raise such objection within [the period for public comment] or if the grounds for such objection arose after the period for public

comment (but within the time specified for judicial review) and if such objection is of central relevance to the outcome of the rule.” Any person seeking to make such a demonstration should submit a Petition for Reconsideration to the Office of the Administrator, U.S. EPA, Room 3000, EPA WJC North Building, 1200 Pennsylvania Ave. NW., Washington, DC 20460, with a copy to both the person(s) listed in the preceding

FOR FURTHER INFORMATION CONTACT

section, and the Associate General Counsel for the Air and Radiation Law Office, Office of General Counsel (Mail Code 2344A), U.S. EPA, 1200 Pennsylvania Ave. NW., Washington, DC 20460.

II. Overview and Background on the Proposed Supplemental Finding

A. Overview

On June 29, 2015, the Supreme Court ruled in

Michigan

EPA

that the agency had erred when it failed to take cost into account in evaluating whether it is appropriate to regulate HAP emissions from coal- and oil-fired EGUs. On December 1, 2015, in response to the

Michigan

ruling, the EPA published the proposed supplemental finding and companion Legal Memorandum. In the proposed supplemental finding, the EPA proposed to determine that including a consideration of cost does not cause the agency to alter its previous conclusion that regulation of HAP emissions from EGUs is appropriate and necessary.

In Section II.B of this final supplemental finding, the EPA provides background information regarding the 2000 appropriate and necessary finding and the 2012 affirmation. Section II.C provides a summary of the proposed consideration of cost, explaining that, in the preferred approach, the EPA evaluated the cost of MATS and compared those costs to other metrics relevant to the power sector. In evaluating those cost metrics, the EPA proposed to determine that the MATS compliance costs are reasonable and that the power sector is able to comply with the rule's requirements while retaining its ability to perform its primary and unique function—the generation, transmission, and distribution of reliable electricity at a reasonable cost to consumers. The Administrator then weighed this evaluation of cost against previously identified advantages of regulation—such as addressing the significant hazards to public health and the environment posed by HAP emissions from EGUs. The EPA also considered the formal benefit-cost analysis from the final MATS RIA that showed the benefits (monetized and non-monetized) of the rule are substantial and far outweigh the costs. The EPA then proposed to find that consideration of such costs does not cause the agency to alter its previous finding that regulation of HAP emissions from EGUs is appropriate and necessary.

The EPA received numerous public comments on the proposed supplemental finding. In Section III.A below, the EPA explains how consideration of the public comments resulted in the addition of a limited analysis that reinforces the final supplemental finding. In Section III.B, we explain the basis for the final action, and, in Section III.C we affirm the proposed finding that a consideration of cost does not cause the EPA to change its conclusion that regulation of HAP emissions from coal- and oil-fired EGUs is appropriate and necessary and that EGUs are, therefore, properly included on the CAA section 112(c) list of sources that must be regulated under CAA section 112(d).

In Section IV below, the EPA provides a summary of selected significant comments and the agency's response to those comments. The Response to Comments (RTC) document

for this action summarizes all comments the EPA received. The RTC document also presents responses to significant comments or citations to Section IV below in the instances where relevant comment responses are presented in the preamble.

Response to Comments (RTC) for Supplemental Finding that it is Appropriate and Necessary to Regulate Hazardous Air Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating Units. Available in the rulemaking docket. Docket ID EPA-HQ-OAR-2009-0234.

B. 2000 Finding and 2012 Affirmation

On December 20, 2000, the EPA determined, pursuant to CAA section 112(n)(1)(A), that it was appropriate and necessary to regulate coal- and oil-fired EGUs under CAA section 112 and added such units to the CAA section 112(c) list of sources that must be regulated under CAA section 112(d). December 2000 Finding; 65 FR 79825. The appropriate and necessary finding was based primarily on consideration of the

Utility Study Report to Congress

(Utility Study),

the

Mercury Study Report to Congress

(Mercury Study),

the National Academy of Sciences'

Toxicological Effects of Methylmercury

(NAS Study),

and mercury data collected from coal-fired EGUs after completion of the studies. 65 FR 79826. The EPA found that mercury is a significant hazard to public health, and EGUs are the largest domestic source of mercury emissions. The EPA also identified control strategies that would effectively reduce HAP emissions from U.S. EGUs. The EPA found that implementation of other requirements under the CAA would not adequately address the significant public health and environmental hazards arising from HAP emissions from U.S. EGUs. After consideration of this information, the EPA found that it was appropriate to regulate HAP emissions from EGUs because such emissions pose significant hazards to public health and the environment and also because there were available controls to effectively reduce mercury and other HAP emissions from EGUs. 64 FR 79825, 79830. The EPA found that it was necessary to regulate HAP emissions from EGUs because implementation of the other requirements of the CAA would not adequately address the serious hazards to public health and the environment posed by HAP emissions from EGUs and because CAA section 112 is the authority intended to regulate HAP emissions from stationary sources.

Id.

See also 76 FR 24984-20985 (for further discussion of conclusions supporting the 2000 finding).

U.S. EPA. 1998.

Study of Hazardous Air Pollutant Emissions from Electric Utility Steam Generating Units—Final Report to Congress.

EPA-453/R-98-004a. February. Docket ID No. EPA-HQ-OAR-2009-0234-3052.

U.S. EPA. 1997.

Mercury Study Report to Congress.

EPA-452/R-97-003. December. Docket ID No. EPA-HQ-OAR-2009-0234-3054.

National Research Council. 2000.

Toxicological Effects of Methylmercury.

Committee on the Toxicological Effects of Methylmercury, National Academy Press, Washington, DC. Docket ID No. EPA-HQ-OAR-2009-0234-3055.

In 2005, the EPA issued the Section 112(n) Revision Rule (70 FR 15994) that revised the agency's December 2000 appropriate and necessary finding and removed coal- and oil-fired EGUs from the CAA section 112(c) source category list. The agency also promulgated the Clean Air Mercury Rule (CAMR) which established CAA section 111 standards of performance for mercury emissions from EGUs. Several groups challenged these actions and on February 8, 2008, the D.C. Circuit Court vacated both the Section 112(n) Revision Rule and CAMR holding that the EPA had failed to comply with the requirements of CAA section 112(c)(9) for delisting source categories.

New Jersey

EPA,

517 F.3d 574 (D.C. Cir. 2008).

In May 2011, in conjunction with the proposed MATS, the EPA conducted additional technical analyses to reaffirm the appropriate and necessary finding, including peer-reviewed risk assessments on human health effects

associated with mercury and non-mercury HAP emissions from EGUs, focusing on risks to the most exposed and sensitive individuals in the population. These analyses found that mercury and non-mercury HAP emissions from EGUs remain a significant public health hazard and that EGUs are by far the largest U.S. anthropogenic source of mercury, selenium, hydrogen chloride, and hydrogen fluoride emissions, and a significant source of other metallic HAP emissions including arsenic, chromium, and nickel.

Specifically, the EPA estimated that in 2005 (the most recent inventory year available during the MATS rulemaking), U.S. EGUs emitted approximately 50 percent of total domestic anthropogenic mercury emissions, 62 percent of total arsenic emissions, 39 percent of total cadmium emissions, 22 percent of total chromium emissions, 82 percent of total hydrogen chloride emissions, 62 percent of total hydrogen fluoride emissions, 28 percent of total nickel emissions, and 83 percent of total selenium emissions. Docket ID No. EPA-HQ-OAR-2009-0234-19914.

Between the proposed and final MATS rule, the EPA conducted peer reviews of the Mercury Risk Assessment

and the approach for estimating inhalation cancer risk from two non-mercury metal HAP, and the agency also changed the input data for the non-mercury HAP risk assessment based on new data and information obtained during the public comment period. The revised Mercury Risk Assessment

estimated that up to 29 percent of modeled watersheds potentially have sensitive populations at risk from exposure to mercury from U.S. EGUs, including up to 10 percent of modeled watersheds where deposition from U.S. EGUs alone leads to potential exposures that exceed the level above which there is increased risk of adverse health effects (

i.e.,

the reference dose).

See, e.g.,

77 FR 9310-6. In addition, the revised inhalation risk assessment for non-mercury HAP

of 16 facilities estimated a lifetime cancer risk

for an oil-fired EGU facility of 20-in-1 million, five coal-fired EGU facilities with cancer risks greater than 1-in-1 million, and one coal-fired facility with cancer risks of 5-in-1 million.

See, e.g.,

77 FR 9317-9. Further, qualitative analyses on ecosystem effects found that mercury emissions from U.S. EGUs contribute to adverse impacts on fish-eating birds and mammals and that acid gases contribute to environmental acidification and chronic non-cancer (respiratory) toxicity.

See, e.g.,

77 FR 9362-3.

U.S. EPA. 2011.

National-Scale Assessment of Mercury Risk to Populations with High Consumption of Self-caught Freshwater Fish In Support of the Appropriate and Necessary Finding for Coal- and Oil-Fired Electric Generating Units.

Office of Air Quality Planning and Standards. November. EPA-452/R-11-009. Docket ID. EPA-HQ-OAR-2009-0234-3057.

U.S. EPA. 2011.

Revised Technical Support Document: National-Scale Assessment of Mercury Risk to Populations with High Consumption of Self-caught Freshwater Fish In Support of the Appropriate and Necessary Finding for Coal- and Oil-Fired Electric Generating Units.

Office of Air Quality Planning and Standards. November. EPA-452/R-11-009. Docket ID No. EPA-HQ-OAR-2009-0234-19913.

U.S. EPA. 2011.

Supplement to Non-mercury Case Study Chronic Inhalation Risk Assessment for the Utility MACT Appropriate and Necessary Analysis.

Office of Air Quality Planning and Standards. November. Docket ID No. EPA-HQ-OAR-2009-0234-19912.

As described in the preamble to the proposed MATS (76 FR 25011), the non-mercury risk assessments calculated the maximum individual risk (MIR) for each facility as the cancer risk associated with a continuous lifetime (24 hours per day, 7 days per week, and 52 weeks per year for a 70-year period) exposure to the maximum concentration at the centroid of an inhabited census block.

Moreover, the EPA concluded that in 2016, after implementation of other provisions of the CAA, HAP emissions from U.S. EGUs would still reasonably be anticipated to pose hazards to public health.

See, e.g.,

77 FR 9362-3. Finally, the EPA stated that the only way to ensure permanent reductions in HAP emissions from U.S. EGUs and the associated risks to public health and the environment is through standards set under CAA section 112. 77 FR 9363.

Based on the agency's updated analyses, a consideration of the peer reviews of the analyses, and public comments, the EPA affirmed the findings in the February 2012 final rule (77 FR 9304) that mercury and non-mercury HAP emissions from U.S. EGUs pose hazards to public health and found that it remains appropriate to regulate U.S. EGUs under CAA section 112. The EPA also concluded, at that time, that it remains appropriate to regulate U.S. EGUs under CAA section 112 because of the magnitude of mercury and non-mercury HAP emissions, environmental effects of mercury and certain non-mercury HAP emissions, and the availability of controls to reduce HAP emissions from EGUs. In addition, the EPA concluded that the hazards to public health from mercury and non-mercury HAP emissions from U.S. EGUs are reasonably anticipated to remain after imposition of the requirements of the CAA. The same is true for hazards to the environment. Thus, the agency confirmed that it is necessary to regulate U.S. EGUs under CAA section 112. 77 FR 9311.

After MATS was promulgated, industry, states, environmental organizations, and public health organizations challenged many aspects of the EPA's appropriate and necessary finding and the final MATS rule in the D.C. Circuit Court, and the Court denied all challenges.

White Stallion Energy Center

EPA,

748 F.3d 1222 (D.C. Cir. 2014). Some industry and state petitioners sought further review of the final MATS rule, and the Supreme Court granted

certiorari

to determine whether the EPA erred when it concluded that the appropriate and necessary finding under CAA section 112(n)(1)(A) could be made without consideration of cost. On June 29, 2015, the Supreme Court ruled that the EPA acted unreasonably when it determined cost was irrelevant to the appropriate and necessary finding.

Michigan

EPA,

135 S. Ct. 2699 (2015). Specifically, the Supreme Court held that the agency must consider cost before deciding whether regulation under CAA section 112 is appropriate and necessary, noting also that it will be up to the agency “to decide, within the limits of reasonable interpretation, how to account for cost.”

Michigan,

135 S. Ct. at 2711.

C. Proposed Supplemental Finding

In response to the Supreme Court's direction, the EPA proposed two different approaches to incorporate cost into the appropriate and necessary finding. 80 FR 75025. The first—which the EPA identified as its preferred approach—evaluated the cost estimates in the RIA for the final MATS rule using several different metrics and weighed these costs against the previously identified advantages of regulating HAP emissions from EGUs—including the agency's prior conclusions about the significant hazards to public health and the environment associated with such emissions and the volume of HAP that would be reduced by regulation of EGUs under CAA section 112. In a second independent approach, the EPA proposed consideration of the formal benefit-cost analysis

in the RIA for the

final MATS rule, which demonstrates that the benefits (monetized and non-monetized) of the rule are substantial and far outweigh the costs. Each of these approaches is discussed further below.

In this supplemental finding, we use the term “formal benefit-cost analysis” to refer to an economic analysis that attempts to quantify all significant consequences of an action in monetary terms in order to determine whether an action increases economic efficiency. In other words, it is a determination of whether the willingness to pay for an action by those advantaged by it exceeds the willingness to pay to avoid the action by those disadvantaged by it. Measuring willingness to pay in a common metric of economic value, like dollars, is called monetization, and it allows for such comparisons across individuals. Assuming that all consequences can be monetized, actions with positive net benefits (

i.e.,

benefits exceed costs) improve economic efficiency. When there are technical limitations that prevent certain benefits or costs that may be of significant magnitude from being quantified or monetized, then information is provided describing those potentially important non-monetized benefits or costs. This usage is consistent with the definition of a benefit-cost

analysis used in the economics literature and the EPA's

Guidelines for Preparing Economic Analyses

(“

Guidelines”

).”

U.S. EPA. 2010.

Guidelines for Preparing Economic Analyses.

EPA-240-R-10-001. National Center for Environmental Economics, Office of Policy. Washington, DC. December. Available at

http://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/EE-0568-50.pdf/$file/EE-0568-50.pdf

. Docket ID No. EPA-HQ-OAR-2009-0234-20503.

In the preferred approach, the EPA considered whether the cost of compliance with MATS is reasonable, and whether a consideration of such costs, when weighed against, among other things, the substantial hazards to public health and the environment posed by HAP emissions from power plants, causes the agency to alter its conclusion that regulation is appropriate and necessary. The EPA explained that it preferred this approach to a formal benefit-cost analysis given the statutory objectives of CAA section 112, in particular Congress' determination that HAP emissions are inherently harmful, and the instruction from Congress to protect the most sensitive populations from those harms. See Legal Memorandum at 6-20. The EPA found that CAA section 112(n)(1)(A)'s emphasis on the required studies supported its interpretation that while cost is an important factor that it must consider in making the appropriate and necessary finding, it is one of several factors that must be considered and the statutory text does not support a conclusion that cost should be the predominant or overriding factor.

See id.

at 11-15. The EPA's preferred approach to considering cost allows the Administrator to weigh the full range of factors relevant to making a determination under CAA section 112(n)(1)(A) of whether it is appropriate and necessary to regulate HAP emissions from EGUs. Moreover, because the Supreme Court's holding did not disturb the scientific assessments and conclusions made in the original appropriate and necessary finding, many of which were challenged and upheld by the D.C. Circuit in

White Stallion,

the Administrator concluded that the task on remand was to determine whether a consideration of cost caused her to alter her prior conclusion that it was appropriate to regulate HAP emissions from EGUs under CAA section 112. See 80 FR 75038; Legal Memorandum at 20.

The agency further explained that, as a check on the conclusion that the cost of MATS is reasonable, the EPA considered the power industry's ability to comply with MATS and still perform its primary and unique function—to provide a reliable source of electricity at a reasonable cost to consumers.

Specifically, the EPA considered several metrics to evaluate whether the estimated cost of compliance with MATS is reasonable for the power sector.

First, the EPA evaluated the annual compliance costs as a percent of the revenue from the power sector's annual retail electricity sales.

The EPA found that the $9.6 billion annual cost of MATS is a small fraction of the revenue from the sector's annual retail sales, which ranged from $277.2 billion in 2000 to a peak of $356.6 billion in 2008.

See

80 FR 75033, Table 2. Thus, the projected annual cost for MATS represents between 2.7 and 3.5 percent of annual revenues from electricity sales from 2000 to 2011—a small fraction of the value of overall sales.

As explained in the proposed Supplemental Finding and described in the final MATS RIA and supporting materials for the RIA, the $9.6 billion compliance cost is an estimate of the change in electricity power generation costs between a base case without MATS and a policy case with MATS. These compliance costs represent a projection of the increase in expenditures by EGUs required to serve a particular level of electricity demand as a result of MATS. The compliance cost includes capital, fuel, and other variable and operating costs and was projected in the final MATS RIA to be $9.6 billion (2007 dollars) in 2015. The costs may be borne by electricity producers, or passed along to electricity consumers in the form of higher electricity prices.

In the proposed supplemental finding, the analysis of annual compliance costs as a percent of the revenue from the power sector's annual retail electricity sales was referred to as a “sales test.”

Unless otherwise noted, all dollar amounts reported in this section and elsewhere in this notice are expressed in 2007-dollar equivalents to be directly comparable to the estimates in the 2011 final MATS RIA, which were expressed in 2007 dollars.

A second way the EPA evaluated cost was to compare the annual capital expenditures due to MATS compliance to the range of variation in the power sector's annual capital expenditures between 2000 and 2011. As noted in the proposed supplemental finding, this comparison is a relevant metric because capital costs represent largely irreversible investments that must be paid off regardless of future economic conditions. Moreover, additional capital expenditures needed to comply with MATS represented about 26 percent of the total annual compliance cost projected for 2015, further emphasizing the importance of considering capital expenditures. Based on two different sources of data, capital expenditures for the electric power sector generally increased from 2000 to 2011.

See

80 FR 75034, Table 3. Despite the generally increasing trend, the data show substantial year-to-year variability in industry capital expenditures. The EPA found that the incremental capital expenditures of $2.4 billion estimated to be required for MATS compliance in 2015 represent a small fraction—about 3.0 percent—of the power sector's overall capital expenditures in recent years and are well within the range of annual variability between 2000 and 2011. Even if power sector-level capital expenditures were to decline to 2004 levels, the lowest level observed during the 2000 to 2011 period, the incremental capital expenditures estimated for MATS would represent about 5.9 percent, a level we also find to be reasonable for this sector.

The third metric the EPA evaluated was the impact of MATS compliance cost on the retail price of electricity. Potential changes in retail electricity prices can be indicative of the “cost” of MATS, in this instance to consumers specifically, as opposed to the compliance cost to the power sector, which is borne collectively by EGU owners and electricity consumers. The MATS RIA estimated that relatively small changes in the average price of electricity would result from MATS compliance. The projected impact of MATS on electricity rates was 0.3 cents/kWh or 3.1 percent. Meanwhile, between 2000 and 2011, changes in national average retail prices ranged from −0.13 cents/kWh to as high as 0.52 cents/kWh.

See

80 FR 75035, Table 4. Based on this analysis, the EPA found that the estimated MATS retail price impact is well within the range of price fluctuations in recent years.

The agency then proposed that each of these three metrics independently demonstrates that the MATS compliance costs are reasonable, and that each metric supports the EPA's proposed determination that weighing this consideration of cost against the prior conclusions reached by the agency does not alter the previous finding that it is appropriate to regulate HAP emissions from EGUs.

In addition to the analysis summarized above, the EPA recognized it was important to consider the ability of the power sector to comply with MATS and maintain a reliable supply of electricity. The agency's compliance modeling indicated that additional coal-fired capacity projected to retire as a result of MATS represented EGUs that are, on average, older and smaller units that are less frequently used.

See

80 FR 75036, Table 6. The analysis indicated that the vast majority of the generation capacity directly affected by MATS requirements would be able to absorb

the anticipated compliance costs and remain operational. In addition, an analysis of the impacts of expected retirements on electric reliability found that reserve margins could be maintained over a 3-year MATS compliance period, indicating that the power sector would be able to comply with MATS while maintaining the capacity necessary to meet projected electricity demands. This determination that reliability and resource adequacy would not be adversely affected provided further support for the EPA's proposed determination that the cost of MATS is reasonable.

The EPA then weighed the reasonable cost of the rule against a number of other factors, including the agency's prior conclusions about the significant hazards to public health and the environment, as discussed above in Section II.B, and the volume of HAP that would be reduced by regulation of EGUs under CAA section 112. Keeping in mind Congress' statutory goals in enacting CAA section 112, the EPA proposed to find that a consideration of the cost of compliance with MATS did not outweigh the rule's many advantages and, therefore, does not cause the EPA to alter the prior determination that it is appropriate and necessary to regulate EGUs under CAA section 112.

In the proposed supplemental finding, the EPA also presented a second independent basis for concluding that consideration of cost supports affirmation of the finding that it is appropriate and necessary to regulate HAP emissions from coal- and oil-fired EGUs. The EPA explained that the formal benefit-cost analysis in the RIA for the final MATS rule, although not required to support the appropriate finding, also demonstrates that the benefits (monetized and non-monetized) of MATS are substantial and far outweigh the costs. Specifically, the EPA estimated that the final MATS would yield total annual monetized benefits (in 2007 dollars) of between $37 billion to $90 billion using a 3-percent discount rate and $33 billion to $81 billion using a 7-percent discount rate in addition to many categories of unquantified benefits in comparison to the projected $9.6 billion in annual costs. The benefit-cost analysis thus supports the finding that it is appropriate to regulate HAP emissions from EGUs.

Using both of these independent approaches, the EPA proposed to find that it remains appropriate to regulate HAP emissions from EGUs after considering costs. As such, the EPA proposed to find that including a consideration of cost does not alter the agency's previous determination that it is appropriate to regulate HAP emissions from EGUs under CAA section 112 and that coal- and oil-fired EGUs are properly listed pursuant to CAA section 112(c).

III. Final Supplemental Finding and Affirmation

A. Supplemental Analyses Conducted in Response to Comments

A number of groups representing states, tribes, industries, environmental organizations, health organizations, and others submitted comments on the proposed supplemental finding. The EPA has considered the comments and provided detailed responses to the significant comments either below in Section IV of this final notice or in the RTC document for this action.

The EPA has taken all the submitted comments into consideration in the preparation of this final supplemental finding. The EPA received comments that were both supportive and critical of both proposed approaches to considering cost. The EPA has carefully evaluated these comments and responded to them, as outlined in detail in Section IV below.

The EPA did not receive any public comments that caused the agency to conclude that the interpretation of the statute or the approaches for consideration of cost that were detailed in the proposed action were in error. Therefore, in this final action, the EPA continues to rely on the analyses contained in the proposed supplemental finding and in the companion Legal Memorandum. Specifically, in this final consideration of cost, the EPA continues to rely on the “Consideration of Cost to the Power Sector” metrics discussed in Section IV.A of the proposed supplemental finding. 80 FR 75032. These metrics are summarized above in Section II.C. The metrics include an evaluation of the cost of MATS compliance in comparison to the power sector's revenues from retail sales of electricity. In addition, the EPA continues to rely on the metric comparing the impact of MATS on the retail price of electricity to historical fluctuations of the average retail price of electricity. The EPA also stands by the evaluation of resource adequacy that was presented in the final MATS rulemaking and in the proposed supplemental finding. We explain here in this final notice—and in the RTC document—the decision not to alter these analyses for this final action.

While the agency has not changed its approaches to consideration of cost, the EPA has, in response to comments, supplemented the proposed metrics by incorporating additional information considering annual operating expenses to this industry. Specifically, the EPA added information on historical total production expenditures to the historical total capital expenditures in order to estimate total capital and production expenditures for the power sector from 2000 to 2011. The agency conducted this analysis to provide additional perspective to the projected cost information by looking at a broader range of power industry costs beyond the capital cost comparison conducted at proposal. The additional analysis reinforces the EPA's conclusion that the cost of compliance with MATS is reasonable.

Consistent with the proposal's focus on sector-level analysis, the EPA obtained historical information on power sector production costs. These production costs, which include operation and maintenance costs, fuel costs, and fixed costs were obtained from ABB Velocity Suite, a private sector firm that provides data and analytical services for the energy sector. The production costs were added to the two separate estimates of annual capital expenditures that were provided in the proposed supplemental finding (

See

Table 3, 80 FR 75034) in order to provide an estimate of historical trends in total capital and production costs faced by the power sector.

The EPA then, as it had done in the proposal, compared year-to-year changes in the total cost estimates to the projected total compliance cost estimate for the final MATS rule in 2015. The total production costs along with the electric power sector's capital expenditures are provided below in Table 2.

For power sector-level capital expenditures, the EPA relies on two sets of information: The U.S. Census Bureau's Annual Capital Expenditures Survey and SNL, a private sector firm that provides data and analytical services. As noted in the proposed supplemental finding, while each dataset has limitations, the estimates from each correspond to one another reasonably well. However, we present both sets of information to better depict capital expenditures in the power sector.

Table 2—Total Capital and Production Expenditures for the Electric Power Sector, 2000 to 2011

[Billions 2007 dollars]

Year

Capital

expenditures (SNL-based)

Capital

expenditures (U.S. census-based)

Total production expenditures (velocity suite-based)

Total expenditures (with SNL-based capital expenditures)

Change from previous year

Total expenditures (with U.S. census-based capital expenditures)

Change from previous year

2000

51.8

62.5

102.3

154.2

164.9

2001

70.1

85.9

106.9

177.0

22.8

192.9

28.0

2002

56.4

66.4

93.7

150.1

−26.9

160.0

−32.9

2003

43.8

52.7

105.2

149.0

−1.1

157.9

−2.2

2004

40.4

45.0

111.6

152.0

3.0

156.6

−1.3

2005

46.7

50.0

133.6

180.2

28.2

183.5

27.0

2006

57.6

61.6

127.5

185.0

4.8

189.1

5.6

2007

66.9

73.9

133.5

200.4

15.3

207.4

18.3

2008

78.1

83.5

147.6

225.7

25.4

231.1

23.7

2009

76.6

87.9

117.3

193.9

−31.8

205.2

−25.9

2010

75.1

79.8

126.1

201.2

7.3

205.9

0.7

2011

79.6

79.2

121.3

200.9

−0.3

200.5

−5.4

Source: SNL, accessed 10/14/15.

Source: U.S. Census Bureau, Annual Capital Expenditures Survey,

http://www.census.gov/econ/aces/index.html

, accessed 10/14/15.

Source: Velocity Suite “Total Production Costs” dataset. This dataset compiles operations and maintenance costs, fuel costs, and fixed costs reported in the FERC Form 1, RUS 12, and EIA 412. For plants that do not report cost information, production costs are estimated by Velocity Suite.

Note:

Dollar figures adjusted to 2007 dollars using the Gross Domestic Product—Implicit Price Deflator,

https://research.stlouisfed.org/fred2/series/GDPDEF

, accessed 10/14/15. Changes may not sum due to independent rounding.

The estimated $9.6 billion total annual cost of the rule represents the total incremental annual capital and production costs to the sector for 2015. This incremental cost due to MATS requirements represents a small fraction of the power sector's annual capital and production expenditures in recent years, as illustrated in Table 2. For example, when compared to historical total expenditures that rely upon SNL-based estimates of capital expenditures, the total 2015 MATS cost represents about 4.3 percent of total expenditures in 2008 to 6.4 percent of total expenditures in both 2002 and 2003. With respect to historical total expenditures that rely upon Census Bureau-based estimates of capital expenditures, the total 2015 MATS cost represents about 4.2 percent of total expenditures in 2008 to 6.1 percent of total expenditures in 2004.

Additionally, the EPA notes that, similar to the capital expenditures analysis set forth in the proposed supplemental finding, the projected $9.6 billion in incremental capital plus production costs is well within the range of annual variability in costs in general over the 2000 to 2011 period. For example, during this period, the largest year-to-year decrease in power sector-level capital and production expenditures ranged from $31.8 billion (from 2008 to 2009, according to the sum of SNL-based capital expenditure and Velocity Suite-based production expenditure estimates) to $32.9 billion (from 2001 to 2002, according to the sum of U.S. Census-based capital expenditure and Velocity Suite-based production expenditure estimates). The largest year-to-year increase in power sector-level capital and production expenditures in this period ranged from $28.0 billion (from 2000 to 2001, according to the sum of U.S. Census-based capital expenditure and Velocity Suite-based production expenditure estimates) to $28.2 billion (from 2004 to 2005, according to the sum of SNL-based capital expenditure and Velocity Suite-based production expenditure estimates).

This wide range indicates substantial year-to-year variability in industry expenditures, and the projected $9.6 billion increase in total expenditures in 2015 attributable to MATS falls well within this variability. Therefore, the supplemental analysis that is responsive to commenters' suggestion provides additional support for the conclusion that the cost of MATS is reasonable when weighed against historical metrics.

B. Basis for the Final Supplemental Finding

As directed by the Supreme Court, the EPA has now considered cost in its evaluation of whether or not it is appropriate to regulate coal- and oil-fired EGUs under CAA section 112. The EPA's approach to considering cost under CAA section 112(n)(1)(A) is based on the interpretation of the relevant CAA provisions as described in the Legal Memorandum accompanying the proposed supplemental finding. As explained below in Section IV.C, the EPA stands by the interpretations presented in that document in this final action.

As previously mentioned in Section III.A, the EPA, in this final action, is continuing to rely on the same cost metrics that were presented in the proposed supplemental finding—supplemented by an additional evaluation of MATS compliance cost estimates in the context of total capital and production costs from the 2000 to 2011 period that simply confirms the proposed findings. No commenter provided any evidence or information that convinced the EPA that the preferred approach to consideration of cost is inadequate or unreasonable. Thus, the EPA concludes in this final action that the preferred approach to considering cost in the appropriate and necessary finding is to weigh the cost of compliance with section 112(d) standards against, among other things, the volume of HAP emitted by EGUs and the associated hazards to public health and the environment.

See e.g.,

77 FR 9310-9364 (Section III. Appropriate and Necessary Finding). Specifically, the EPA has evaluated several metrics that are relevant to the power sector to determine whether the estimated cost of compliance with MATS is reasonable. The EPA has also considered the impact of the cost of MATS compliance on the power sector's ability to continue to reliably generate, transmit and distribute electricity, at a reasonable cost to consumers. These analyses and the conclusions the EPA draws from the analyses were summarized above in Sections II.C and III.A and were

described in detail in the proposed supplemental finding.

See

80 FR 75031-39 (Section IV. Consideration of Cost). The EPA concludes, after considering all significant comments, that these technical analyses are reasonable evaluations of cost and that each supports a conclusion that the cost of MATS is reasonable.

Id.

The agency also finds that the power industry is able to comply with MATS while continuing to perform its primary and unique function—to provide consumers with a reliable source of electricity at a reasonable price—which further confirms that the cost of MATS is reasonable.

Id.

The supplemental analysis conducted in response to comments further confirms that the cost of MATS is reasonable based on historical fluctuations.

See

Section III.A above.

The EPA also continues to rely on the results of the formal benefit-cost analysis contained in the RIA for MATS as we received no public comments that convinced us that this analysis is an insufficient approach to considering costs. Although the EPA does not view formal benefit-cost analysis as required to support the appropriate finding, the final RIA demonstrates that the benefits (monetized and non-monetized) of MATS are substantial and far outweigh the costs. In fact, the monetized benefits exceed the cost by 3 to 9 times. Thus, for this final action, the EPA finds that the formal benefit-cost analysis in the final MATS RIA provides an independent basis to support the finding that a consideration of cost does not cause the agency to alter its determination that it is appropriate and necessary to regulate HAP emissions from EGUs. This conclusion is explained in greater detail in the proposed supplemental finding.

See

80 FR 75039-41 (Section V. Consideration of Benefit-Cost Analysis in the MATS RIA).

The EPA further notes that the Supreme Court's decision in

Michigan

neither called into question nor reversed the portions of the D.C. Circuit Court's opinion in

White Stallion

that unanimously rejected all other challenges to the appropriate and necessary interpretation and finding (the lone dissenting opinion addressed only the issue of cost on which the Supreme Court granted

certiorari

). Per the Supreme Court's instruction, the EPA has reversed its prior determination that cost need not be considered in deciding whether regulation is appropriate and has taken steps to add cost considerations to its analysis under CAA section 112(n)(1)(A). Aside from the considerations of cost described above, the EPA is not revisiting, in this final action, any other aspects of the final MATS rule or legal interpretations established therein. Many other challenges to the final MATS rule were unanimously rejected in

White Stallion

and left undisturbed by the Supreme Court's decision in

Michigan.

This action does not provide an opportunity for stakeholders to re-litigate issues previously decided in

White Stallion

or to raise new objections to the MATS rule that could have been, but were not, raised in that case.

C. Affirmation of the Appropriate and Necessary Finding

The Administrator has weighed the cost of MATS against other relevant considerations in determining that it remains appropriate and necessary to regulate HAP emissions from EGUs. These other considerations include prior conclusions reached regarding the significant hazards to public health and the environment from HAP emissions from EGUs, and the agency's prior determination that these hazards will not be addressed through imposition of the requirements of the CAA. The Administrator's conclusion that, on balance, these factors support the appropriate finding is presented in the proposed supplemental finding,

see

80 FR 75038-39 (Section IV.D. Incorporating Cost Into the Appropriate Finding). The supplemental analysis presented in this final notice and conducted in response to comments further supports the conclusion that the cost of compliance with MATS is reasonable and, thus, the Administrator determines that the supplemental analysis supports and does not alter the results of the proposed finding. Based on these conclusions, the EPA confirms that the preferred cost approach provides an independent basis to support the determination that a consideration of cost does not cause the agency to alter its previous conclusion that regulation of HAP emissions from EGUs is appropriate and necessary.

The EPA also concludes that the formal benefit-cost analysis contained in the RIA for MATS provides an independent basis to support the finding that a consideration of cost does not cause us to alter our determination that it is appropriate and necessary to regulate HAP emissions from EGUs. This conclusion is explained in detail in the proposed supplemental finding.

See

80 FR 75039-41 (Section V. Consideration of Benefit-Cost Analysis in the MATS RIA). Although the EPA does not view formal benefit-cost analysis as required to support the appropriate finding, the final RIA demonstrates that the benefits (monetized and non-monetized) of MATS are substantial and far outweigh the costs.

Id.

In fact, the monetized benefits exceed the cost by 3 to 9 times.

Based on all of these considerations, the Administrator finds that the preferred approach and the benefit-cost analysis in the RIA for MATS each provide alternative independent bases to support the conclusion that a consideration of cost does not cause the agency to alter its previous determination that it is appropriate to regulate HAP emissions from EGUs. For all these reasons, the Administrator affirms that it is appropriate and necessary to regulate coal- and oil-fired EGUs under CAA section 112 and that these sources are properly listed as an affected source category under CAA section 112(c).

IV. Public Comments on the Proposed Supplemental Finding

This final action is in response to the Supreme Court's ruling that the agency erred by not considering cost in the initial determination that regulation of HAP emissions from EGUs is appropriate under CAA section 112. In the proposed supplemental finding, the EPA provided detailed information on how the agency has added such a consideration of cost and further explained why including such consideration does not alter the agency's previous determination. The EPA specifically requested comment on the proposed supplemental finding and on the companion Legal Memorandum.

The EPA received a number of comment submissions from groups representing states, tribes, industries, environmental organizations, health organizations, and others. The EPA has taken all the submitted comments into consideration in preparing this final supplemental finding. All of the comments have been summarized and the EPA has provided detailed responses to the significant comments either here in this final notice or in the RTC document for the supplemental finding available in the rulemaking docket.

A. Comments on Considerations of Cost

This Section of the notice addresses comments and responses to the EPA's preferred approach to consideration and incorporation of costs, analytical issues such as the use of compliance costs for the entire power sector, the use of the compliance cost and impact estimates from the final MATS RIA, and responses to comments on the cost metrics used to

evaluate the reasonableness of the MATS compliance costs.

1. The EPA's Preferred Approach to Considering and Incorporating Costs in Its Appropriate and Necessary Finding

Comment:

Numerous commenters supported the EPA's preferred approach to considering cost and asserted that the approach is “well-suited” to fulfilling the agency's obligation under the statute and the

Michigan

decision. These commenters also approved of the four cost metrics selected by the agency to evaluate the cost reasonableness of the compliance costs—revenues, capital expenditures, retail electricity rates, and impact on reliability. Many commenters stated that these are relevant measures for evaluating costs to the utility sector, and another pointed out that these are the types of metrics that are taken into consideration by electric companies.

Moreover, many commenters strongly supported the EPA's preferred approach of weighing a consideration of cost against the many advantages of regulating HAP emissions from EGUs already identified by the agency. Several federally-recognized Indian tribes and inter-tribal organizations commented in support of the agency's methodology of weighing the hazards of HAP emissions from EGUs to public health and the environment against the costs of compliance. These commenters emphasized that this method of analysis would allow for consideration of important tribal interests and threats to longstanding Indian cultural traditions and critical social practices of fishing and fish consumption. Moreover, the tribal commenters also added that a benefit-cost analysis would not fully account for the MATS rule's impact on the tribes and pointed to the United States' treaty obligations to protect tribal rights and the resources of American Indians and tribes as an important consideration supporting the finding. Commenters supporting the EPA's preferred cost approach pointed out that the statute and the

Michigan

decision do not require the Administrator to perform a benefit-cost analysis in order to adequately consider cost and make a determination that it is appropriate and necessary to regulate EGUs for HAP emissions. These commenters cited the lack of statutory text requiring such an analysis or monetization of benefits before those benefits may be considered by the Administrator, as well as the fact that limiting the agency's appropriate determination to this framework would thwart goals clearly identified by Congress—such as limiting grave harms associated with pollutants that Congress had already deemed hazardous.

Other commenters, however, claimed that the EPA's preferred approach to considering cost for purposes of CAA section 112(n)(1)(A) does not rationally balance the costs of the rule against the public health and environmental harms previously identified. Those commenters acknowledged that the Supreme Court's decision in

Michigan

did not require the EPA to perform a “formal cost-benefit analysis,” in order to satisfy the agency's obligation to consider cost as part of its CAA section 112(n)(1)(A) appropriate and necessary finding, but they argue that any rational balancing necessarily requires the EPA to compare the costs of compliance with the rule to the quantified and monetized benefits of the rule. One commenter claimed that because it was the EPA's position in the proposed supplemental finding that “the significant hazards to public health and the environment from HAP emitted by EGUs (and the substantial reductions in HAP emissions achieved by MATS. . .) should be weighed against the costs of compliance,” 80 FR 75028, that EPA had “acknowledge[d]” that its task was to assess whether the rule's benefits outweigh the costs. Another commenter argued that

Michigan

required such a comparison, based on the portion of the decision which stated that “[o]ne would not say that it is even rational, never mind `appropriate,' to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.” 135 S. Ct. 2699, 2707 (U.S. 2015). The commenter alleged that the Supreme Court therefore required the EPA to weigh the rule's annual compliance costs of $9.6 billion against the monetized benefits from reducing HAP alone (not other pollutants) and determine whether the rule has positive net benefits (

i.e.,

benefits exceed costs), in order to satisfy its obligation to consider cost under CAA section 112(n)(1)(A). Similarly, another commenter noted that the EPA's

Guidelines

(U.S. EPA, 2010) provide that the “foundation” for a benefit-cost analysis is “that a policy's net benefits to society be positive.”

Response:

The EPA maintains that its preferred approach, where costs are considered in light of the significant hazards to public health and the environment posed by HAP emissions from EGUs, is consistent with the statute and the

Michigan

decision. CAA section 112(n)(1)(A) states that “the Administrator shall regulate [EGUs] . . . if the Administrator finds such regulation is appropriate and necessary.” The Supreme Court's directive to the agency was to consider cost when making this initial decision, but the Court explicitly stated that “[i]t will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.” 135 S. Ct. at 2711. Given the broad discretion afforded the Administrator by both the statute and the Supreme Court's decision in

Michigan,

the agency reasonably interpreted CAA section 112(n)(1)(A) to require the Administrator to apply her expert judgment in weighing several considerations in order to determine whether it is appropriate and necessary to regulate HAP emissions from EGUs.

As discussed above in Section II.C and III.A, the agency evaluated the reasonableness of the regulation's cost of compliance by comparing that cost to metrics relevant to the utility sector: revenues, expenditures (including capital and production costs), and retail electricity rates, and also the impact that compliance with the CAA section 112(d) standards would have on the power sector's ability to provide a reliable source of electricity. After concluding the costs of MATS are reasonable based on these metrics, the agency confirmed that the industry could comply with MATS without unreasonably increasing electricity prices or undermining the reliability of the electric grid.

The Administrator has taken this consideration of cost and weighed it against the other findings that were part of the EPA's prior evaluation of whether regulation of HAP emissions from EGUs is appropriate and necessary. See Section II.B above. The prior record supporting the original appropriate and necessary finding includes the agency's prior conclusions, based on the scientific evidence, that HAP emissions from EGUs pose significant hazards to public health and the environment and the conclusion that those emissions will not be addressed through imposition of other requirements of the CAA. The EPA also previously concluded that EGUs are by far the largest remaining source of mercury, selenium, hydrogen chloride, and hydrogen fluoride emissions, accounting for half or more of all U.S. anthropogenic emissions of such HAP, and that EGUs contribute a considerable percentage of all U.S. anthropogenic emissions of arsenic, chromium, nickel, and other metallic HAP emissions. The agency also confirmed the availability of controls to reduce these HAP emissions from EGUs. In addition, the agency found that MATS would achieve significant reductions of EGU emissions of HAP and a failure to regulate would result in continued emissions of significant

volumes of HAP emissions without any requirement to reduce or monitor those emissions. The finding also documented the persistent nature of HAP such as mercury, which, once emitted, can be re-emitted in the future, thereby resulting in continued contribution to mercury deposition and associated health and environmental hazards. In making the finding, the EPA noted the statutory goal of reducing the inherent hazards associated with HAP emissions and reducing the risks posed by such emissions, including risks to the most exposed and sensitive members of the population. 80 FR 75038. Based on all of these factors, the Administrator finds that, after considering cost, it remains appropriate and necessary to regulate HAP emissions from EGUs.

Not only does the agency's preferred approach comport with the statute and the

Michigan

decision, it also has the advantage of allowing the Administrator to consider the full range of factors relevant to the appropriate and necessary determination. Nothing in the statute or in

Michigan

requires the EPA to ignore advantages of regulation that cannot be represented by monetary values. The agency's preferred approach permits the Administrator to weigh impacts to society that are not easy, or in some cases are impossible, to quantify or monetize, but are no less real than any other advantage of regulation.

For example, the Administrator has taken into account distributional concerns (established as part of the agency's risk assessments performed for the prior affirmation of the appropriate and necessary finding) that found more severe risks from EGU HAP emissions to the most sensitive individuals, particularly subsistence fishers. Indeed, the EPA's

Guidelines

(U.S. EPA, 2010), cited by commenters who insist a benefit-cost analysis or some showing of economic “net positive benefit” of regulation is required under CAA section 112(n)(1)(A), explicitly acknowledges the limitations of purely economic analyses. “It is important to note that economic analysis is but one component in the decision-making process . . . Other factors that may influence decision makers include enforceability, technical feasibility, affordability, political concerns, and ethics, to name but a few.”

Though not explicitly addressed at proposal, the interests raised by the federally-recognized Indian tribes and inter-tribal organizations—such as the cultural impacts to tribes and the furtherance of the United States' treaty obligations to tribes—are an example of the type of societal value that cannot be monetized. The Administrator recognizes the importance of such interests and, though they are not necessary in affirming the finding here, only weigh in favor of the Administrator's conclusion that it remains appropriate and necessary to regulate EGUs for HAP emissions.

See Guidelines

at p. 1-2.

Moreover, the EPA notes that most commenters opposed to the EPA's preferred approach appear to dismiss outright the advantages of regulating HAP emissions, including the EPA's assessment, as articulated in the Legal Memorandum, that such regulation furthers the goal of CAA section 112 to obtain prompt, permanent, and ongoing reductions in significant volumes of HAP emissions that pose hazards to public health and/or the environment. No commenter has demonstrated that any of the HAP that are emitted from EGUs are chemically different than HAP emitted from other stationary sources or provided any other support for a conclusion that the inherent risks associated with HAP emissions that were acknowledged by Congress are somehow inapplicable to HAP emissions from EGUs.

Instead, these commenters dismiss the agency's preferred approach without much analysis and conclude that the only rational consideration of cost is a bare comparison of the rule's costs of compliance with its monetized HAP-specific benefits, and the only way the EPA may find regulation to be appropriate and necessary under CAA section 112(n)(1)(A) is if that comparison results in a “positive net benefit.” The EPA disagrees that a benefit-cost analysis, particularly one that only accounts for monetized HAP specific benefits, or a finding of an economic positive net benefit, is required by CAA section 112(n)(1)(A) to determine whether regulation of HAP emissions from EGUs is appropriate and necessary, nor does the agency agree that such an analysis is the better approach.

The Supreme Court explicitly declined to mandate that the Administrator perform a benefit-cost analysis to satisfy her obligation to consider cost under CAA section 112(n)(1)(A). Specifically, the Court stated, “We . . . do not hold that the law unambiguously required the Agency, when making this preliminary estimate, to conduct a formal cost-benefit analysis

in which each advantage and disadvantage is assigned a monetary value.”

135 S. Ct. at 2711 (emphasis added). Some commenters nonetheless insist that the Supreme Court intended the EPA's consideration of cost to be circumscribed to a comparison with monetized benefits, and specifically HAP-specific monetized benefits, because the Court proffered one scenario of when regulation would not be appropriate, where a rule would impose “billions of dollars in economic cost in return for a few dollars in health or environmental benefits.” 135 S. Ct. at 2707. The Court's identification in dicta of one hypothetical, portrayed in the extreme for emphasis, does not establish a statutorily required formula by which the EPA must consider cost, particularly when the Court explicitly held, “[i]t will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.” 135 S. Ct. at 2711. There is, thus, no basis for commenters' assertion that a formal benefit-cost test is the only permissible way for the agency to consider cost.

We note that, in insisting that the Administrator is required to perform a benefit-cost analysis to satisfy her obligation to consider cost, the commenters also assert that the EPA may not rely on co-benefits associated with reductions in non-HAP emissions in weighing the advantages and disadvantages of regulation under CAA section 112(n)(1)(A).

Under the agency's preferred approach, however, the EPA did not consider co-benefit impacts at all. As summarized above in Section II.B, the public health and environmental risks from mercury and non-mercury HAP emissions from EGUs are significant, and it is

these

risks, not co-benefits associated with reductions in ancillary emissions, that inform the Administrator's finding that it is appropriate to regulate under the preferred approach.

We disagree with commenters' position regarding the proper way to conduct a formal benefit-cost analysis and address the comments on this issue below in Section IV.B.

Finally, while the EPA disagrees that section 112(n)(1)(A) in any way requires the Administrator to determine that regulation will have monetized positive “net benefits” to society, the record amply demonstrates that the advantages of MATS for society do in fact outweigh the disadvantages. The Administrator found that regulation of HAP emissions from EGUs has many advantages, chief among them is furthering Congress' goal of protecting the public, including sensitive populations, from risks posed by HAP emissions by reducing the volume of, and thus, the exposure to, those harmful pollutants. In light of the risk findings and the determination that the regulations are cost reasonable and will not impair the power sector's primary function of providing reliable electricity at a reasonable cost to consumers, the Administrator concludes that “the significant advantages of

regulating these emissions outweigh the costs of regulation.” See 80 FR 75039. We agree that the appropriate and necessary finding requires the Administrator to determine that regulating HAP emissions from EGUs will, on the whole, be beneficial as opposed to detrimental to society. But the agency does not agree that whether a regulation is beneficial must be determined by weighing only those considerations that can be monetized. There are many societal values—such as protecting the most vulnerable among us—that could never be reduced to a monetary value. In sum, there is no basis to conclude that the finding requires the EPA to show that regulation of EGUs under CAA section 112 provides greater monetized benefits, much less HAP-specific monetized benefits, than costs.

Comment:

Several commenters stated that the EPA's finding that regulation of EGUs is “appropriate and necessary” after consideration of a number of factors is arbitrary and capricious because the EPA's alleged balancing of several factors is “indecipherable,” and because commenters assert that the agency lists the factors it considered without explaining the relative weight of each factor, and how that weighing supports the agency's finding.

The commenters alleged that, in the proposed supplemental finding, the EPA sets out the factors that it has considered and then declares “by fiat” that the regulation is appropriate, without comparing the significance of the factors on either side or explaining how the different factors relate to one another. One commenter stated that, even if the EPA had discretion to use an approach like the multi-factor balancing one, the agency “must cogently explain why it has exercised its discretion in a given manner,” citing

Motor Vehicle Mfrs. Ass'n

State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 48-49 (U.S. 1983). Similarly, another commenter alleged that, by failing to articulate and explain its decision, the agency makes meaningful comment on its conclusion impossible, citing

Appalachian Power Co.

EPA,

249 F.3d 1032, 1055 (D.C. Cir. 2001).

Response:

It is well within the bounds of the EPA's authority to interpret CAA section 112(n)(1)(A) as directing the Administrator to exercise her discretion in making a determination based on the consideration of a number of factors, including cost, as to whether it is appropriate and necessary to regulate HAP emissions from EGUs. Commenters took issue with the use of the EPA's method of analysis, but the approach the agency has taken here, which sets out the many relevant factors, including cost, the Administrator weighed and considered, is a reasonable and fitting response to Congress' open-ended instruction to the Administrator to determine whether a regulation of EGUs is “appropriate and necessary.”

As noted by the D.C. Circuit Court, “[a]gencies routinely employ multi-factor standards when discharging their statutory duties, and we have never hesitated to uphold their decisions when adequately explained.”

PDK Labs.

DEA,

438 F.3d 1184, 1194 (D.C. Cir. 2006). Moreover, a totality-of-the-circumstances approach can be particularly appropriate when a statute confers broad discretionary authority.

See, e.g., Catawba Cty.

EPA,

571 F.3d 20, 39 (D.C. Cir. 2009);

Chippewa & Flambeau Improvement Co.

FERC,

325 F.3d 353, 358 (D.C. Cir. 2003) (noting, “[b]y enacting the “necessary or appropriate” standard [in section 309 of the Federal Power Act, 16 U.S.C. 825h], the Congress invested the Commission with significant discretion,” and affirming FERC's use of a balancing of relevant factors as reasoned decision making). Here, CAA section 112(n)(1)(A) provides the broad directive that the Administrator shall regulate HAP emissions from EGUs under section 112 if she finds that such regulation is appropriate and necessary after considering the results of the CAA section 112(n)(1)(A) study.

Michigan

establishes that the Administrator must also consider the costs of regulation as part of her determination, but the Court's directive to “pay[] attention to the advantages and disadvantages” of regulation supports the EPA's choice to employ an approach that weighs a number of factors before reaching a conclusion.

We also disagree with the commenters who suggest the proposed notice failed to explain and articulate the basis for the finding. The Supreme Court has said that a rule will be found to be arbitrary and capricious “if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”

State Farm,

463 U.S. at 43 (U.S. 1983). Further, an agency is required to give “some definitional content” to vague statutory terms by “defining the criteria it is applying,” because a refusal to do so is equivalent to “simply saying no without explanation.”

Pearson

Shalala,

164 F.3d 650, 660 (D.C. Cir. 1999). And finally, as cited by commenters, the courts have also held that the judicial branch cannot “be compelled to guess at the theory underlying the agency's action.”

Appalachian Power Co.

EPA,

249 F.3d 1032, 1055 (D.C. Cir. 2001).

But here, the EPA has not relied on factors that Congress has prohibited it to consider, nor have commenters demonstrated that there is an aspect to the problem that the EPA has ignored. There is no question as to the theory underlying the agency's action; the agency has given meaning to its understanding of the appropriate and necessary determination by laying out all of the many factors and criteria that it considered based on a thorough examination of the statute in light of the

Michigan

decision.

See

80 FR 75038-39 and Legal Memorandum. In choosing how to consider cost, the EPA took note of section 112(n)(1)(A)'s silence on the question, and the Supreme Court's direction that on remand the agency was to reasonably interpret the statute to decide how to account for cost. 135 S.Ct. at 2711. Furthermore, the agency heeded the D.C. Circuit's previous decisions holding that in other statutory provisions where the EPA is required to consider cost, the agency is prohibited from adopting a standard where the cost of doing so would be “exorbitant,” “excessive,” or “unreasonable.”

See

Legal Memorandum at 19 (citations omitted). The EPA also considered Congress' statement issued with the 1990 CAA Amendments that its goal “has been to promote the public health and welfare and the productive capacity of our nation.” 80 FR 75031 (citing “A Legislative History of the Clean Air Act Amendments of 1990,” Vol. II., p. 3187). Based on these considerations and consistent with the Supreme Court's direction in

Michigan,

the EPA developed an approach to considering cost that acknowledges the unique function of EGUs and their importance to the power grid. Specifically, the EPA looked to whether the cost of potential section 112(d) standards is reasonable and whether the standards can be implemented without impairing the industry's ability to provide reliable electricity at a reasonable cost to consumers.

The EPA used four metrics to evaluate the cost reasonableness of MATS and concluded that the costs associated with MATS are consistent with historical costs incurred in the power sector. 80 FR 75033-36. The EPA also confirmed that the power sector can reasonably absorb the compliance costs associated with MATS without impairing its ability to perform its primary and unique function —the generation, transmission,

and distribution of reliable electricity at a reasonable cost,

i.e.,

its “productive capacity.” 80 FR 75038. In addition, given Congress' directive in section 112(n)(1)(B) to examine the cost of mercury controls as part of the Mercury Study, and the

Michigan

court's implication of the relevance of section 112(n)(1)(B)'s reference to cost, the EPA also considered the declining cost of technologies available to control mercury, as well as the cost of controls for other HAP emissions from EGUs. 80 FR 75036-38. All of these cost metrics support a conclusion that the costs of MATS are reasonable.

The commenters are also incorrect that the Administrator failed to provide any sense of the relative weight or importance of the different factors considered under the agency's preferred approach. Commenters complain that the Administrator's balancing of the factors against each other is “indecipherable,” but it seems instead that they simply disagree that the costs are reasonable, that HAP emissions from EGUs pose hazards to public health and the environment, that the finding can consider harms to the environment, and that there is any benefit to regulating HAP emissions. As explained above, we disagree with the commenters' interpretations and further note that the bright line tests and thresholds they appear to prefer are not required under the statute or the case law. The D.C. Circuit Court has found that “[a]n agency is free to adopt a totality-of-the-circumstances test to implement a statute that confers broad authority, even if that test lacks a definite “threshold” or “clear line of demarcation to define an open-ended term.” ”

Catawba Cty.

EPA,

571 F.3d at 37 (citation omitted) (noting that “EPA's use of a multi-factor analysis is not in and of itself unreasonable just because it lacks quantitative standards”). Rather than requiring a quantification of the weight of each factor, courts have affirmed balancing tests where the agency provides an explanation of the relative significance of its considerations.

See PDK Labs.

U.S. DEA,

438 F.3d at 1194 (finding that the Deputy Administrator's explanation that one piece of evidence was by itself sufficient to induce action was enough of an explanation of the relative importance of that evidence to her decision);

Chippewa

FERC,

325 F.3d at 357-359 (deferring to FERC's “expert judgment” in determining on a case-by-case basis whether a reservoir is “necessary or appropriate,” where the Commission has made clear the emphasis it places on the positive impact on downstream generation).

In its proposed supplemental finding and the Legal Memorandum, the EPA pointed out section 112(n)(1)(A)'s silence regarding the weight to be given to the relevant factors in determining whether it is “appropriate” to regulate HAP emissions from EGUs. 80 FR 75030; Legal Memorandum at 19. Given this statutory silence, the EPA concluded that it was reasonable to consider the objectives of section 112 in deciding how to assign relative weight to the factors under consideration.

See

Legal Memorandum at 20. Taking note of Congress' determination in section 112 that HAP emissions are inherently harmful and the statutory goal of protecting the most sensitive populations from that harm, the agency interpreted “section 112(n)(1) . . . not [to] support a conclusion that cost should be the predominant or overriding factor.” 80 FR 75030. Cost, as the agency explained, is one of the factors to be considered. The EPA further emphasized the relative importance of its consideration of the public health and environmental risks in its analysis by noting that “[i]f EPA were to conclude, prior to considering costs, that [HAP emissions from EGUs] posed no risk or that such risks had already been addressed by other provisions of the CAA (most notably the Acid Rain Program), a decision that regulation is not appropriate could be made without considering cost. Yet, the statutory focus on protecting public health and the environment suggests that the EPA could not make a finding under CAA section 112(n)(1)(A) solely on the basis of cost.” Legal Memorandum at 25-26. The relative weight given to the EPA's consideration of cost is also tied, in this case, to its finding that maximum achievable control technology (MACT) standards in MATS can be implemented at a cost that will not impair the utility sector's ability to provide reliable electricity at a reasonable cost. As a 7th Circuit Court case cited by commenters acknowledges, “one factor of great weight may offset several which lean slightly in the other direction.”

Volkman

Ryker,

736 F.3d 1084, 1092 (7th Cir. 2013). Not all considerations are required to be given equal weight, and here, given the statutory goals of CAA section 112 and the EPA's finding that the cost of MATS is reasonable, it was correct for the EPA to place importance on reducing the significant hazards to public health and environment posed by HAP emissions from EGUs.

Finally, the Administrator must exercise her judgment in deciding whether the costs of regulation justify its advantages and the agency need not demonstrate that her decision is the same decision that would be made by another Administrator or a reviewing court. An agency action need not be the only approach or even the approach that a reviewing court might find most reasonable. Instead, the test is “whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.”

Citizens to Preserve Overton Park, Inc.

Volpe,

401 U.S. 402, 416 (U.S. 1971);

see also ExxonMobil Gas Mktg. Co.

FERC,

297 F.3d 1071, 1083-1084 (D.C. Cir. 2002) (“Accordingly, we will uphold the Commission's application of the test as long as it gives “reasoned consideration to each of the pertinent factors” and articulates factual conclusions that are supported by substantial evidence in the record.” (citation omitted)). Reasonable people, and different decision-makers, can arrive at different conclusions under the same statutory provision, but those conclusions must be reasonable under the statutory structure. The agency does not agree with the commenters' positions that HAP emissions from EGUs do not pose significant hazards to public health and the environment and that the cost of compliance with MATS is unreasonable. This factual disagreement with the commenters does not render the agency's statutory interpretation of how to consider cost and the Administrator's weighing of the relevant factors arbitrary. Absent clear direction from the statute and a demonstration that the Administrator has made a “clear error of judgment,” the EPA's interpretation and analysis should govern.

Comment:

Several commenters stated that the EPA's cost analysis is unlawful and does not meet the Supreme Court's directive because it focuses mainly on whether the power sector can absorb the cost of compliance. The commenters argued that the EPA's focus on the “affordability” of controls compared to revenues, capital expenditures, and impacts on electricity rates does not satisfy the statutory prerequisite to engage in some meaningful balancing analysis of costs and benefits. Rather, the commenters alleged that the EPA's consideration of cost in this manner is a “cost-only” approach, and does not meet the Supreme Court's instruction to consider both advantages and disadvantages of regulation. One commenter posited that by arbitrarily placing emphasis on the economic well-

being of the power industry rather than on whether the costs of compliance are appropriate when comparing them to the benefits achieved from reducing HAP, “an industry that was financially strained would not be subject to regulation, regardless of the human health and environmental risks posed from HAP emissions from those sources, merely because the costs of compliance would constitute too high a percentage of the industry's revenue.” Such an outcome, the commenter argued, would be inconsistent with CAA section 112's objective to protect the public from the risks posed by HAP.

Response:

The EPA disagrees that its consideration of cost in the proposed supplemental finding was confined to an analysis of whether the power sector could absorb the cost of compliance. The agency did not

only

consider whether the cost of regulation under CAA section 112 was reasonable, but also weighed the costs of compliance with MATS against previously established conclusions about the significant risk and harm to public health and the environment attributable to HAP emissions from EGUs.

See

80 FR 75038-39; Legal Memorandum at 20, 25-26. It was this latter step that met the Supreme Court's directive to consider both the advantages and disadvantages of regulation.

Commenters' preference for a different approach that would have compared cost of compliance to monetized benefits of reducing HAP does not undermine the validity of the EPA's interpretation of CAA section 112(n)(1)(A) and

Michigan'

s requirement to consider cost. As the EPA explained in the Legal Memorandum, and as explained below in response to comments, the agency concluded that commenters' preferred cost approach of comparing costs to monetized HAP-specific benefits is not required by CAA section 112 or CAA section 112(n)(1), nor does the statute provide the tools to quantify and monetize benefits attributable to reductions in HAP emissions from EGUs or any other source category. Legal Memorandum at 24. In addition, given the known scientific limitations on the ability to quantify and/or monetize HAP-specific benefits, there is no statutory basis for the assertion that the agency must decline to regulate HAP emissions from EGUs based on a comparison of costs to any HAP-specific benefits that could be monetized, and indeed it might not even be reasonable to do so.

Id.

The hypothetical scenario posed by commenters regarding how the EPA's approach would apply to a financially strained industry is neither realistic nor relevant. The hypothetical they pose could never occur as cost considerations are not relevant to listing decisions for any source category besides EGUs. Moreover, nothing in the EPA's preferred approach would require the EPA to ignore the potential benefits (

e.g.,

reduced risk of cancer) of regulating a financially strapped industry based

solely

on a determination regarding the reasonableness of compliance costs for that industry.

2. Use of 2011 final MATS RIA costs and impacts

Comment:

Some commenters supported the EPA's reliance upon the final MATS RIA for compliance cost estimates used in the proposed notice. One commenter noted that RIA cost estimates incorporated the actual MATS regulations as the compliance target, so they are much more reliable than the type of pre-regulatory estimate anticipated by the statute. In particular, one commenter expressed confidence in the estimates because the EPA derived those estimates using the Integrated Planning Model (IPM), which the agency has relied on for over 20 years to forecast the cost and emissions impacts of environmental policy. Some commenters noted that the EPA's use of the first compliance year, 2015, to estimate costs ensures that its cost consideration in this action is based on the highest cost year, and therefore is a “representation of the maximum impact.”

Several commenters stated that some estimates of industry compliance costs have been much lower than those projected by the EPA in the final MATS RIA. One study cited by commenters found that the costs of control technologies have been less expensive and more effective than assumed in the RIA, and therefore the actual cost of complying with MATS has been significantly less than estimated by the EPA. This analysis was based on existing contracts for the installation of air pollution control systems, experience with the performance of emissions control technologies, and assessments of the amount of pollution control capacity installed by the power sector to comply with MATS. This analysis estimated that industry's actual annual compliance costs are currently approximately $2 billion, which is less than one-quarter of the $9.6 billion annual cost that the EPA estimated for MATS.

The commenters stated that the apparent dramatic cost reductions are the result of three key factors: (1) Improvements in the materials (sorbents) used to control acid gases and mercury have resulted in reduced operating costs and increased efficiency; (2) far fewer power plants than the EPA estimated have required installation of high-cost pollution controls, such as fabric filters and flue gas desulfurization systems (“FGD” or “scrubbers”) or system upgrades; and (3) natural gas prices have been significantly lower than the EPA projected, reducing the cost of gas conversion and related compliance strategies.

White Stallion Energy Center, LLC

EPA,

D.C. Circuit Case No. 12-1100, Motion of Industry Respondent Intervenors to Govern Future Proceedings, filed September 24, 2015 (see Declaration of James E. Staudt and accompanying exhibits).

Other commenters contended that the EPA's use of the MATS RIA cost estimates does not accurately reflect costs of compliance. One commenter said the EPA significantly overestimated the capability of dry sorbent injection (DSI) by assuming that it could be used to meet the acid gas emission standards regardless of the size of the unit. The commenter also alleged that the EPA incorrectly projected that wet scrubbers would not be widely required to meet the proposed emission limits, and that the MATS RIA estimates therefore underestimated compliance costs and the number of retirements. Other commenters asserted that the EPA's alleged underestimate of retirements generally demonstrates that the costs of the rule are not reasonable and that the agency's assessment was based on flawed assumptions. Commenters disagreed with the EPA's focus on projected compliance costs and generation capacity estimated at the time of MATS promulgation and suggested that the EPA should consider actual costs and retirements that have occurred since the promulgation of MATS to update the assumptions made in the RIA instead of using assumptions that the commenters argue are unrepresentative. The commenters alleged that the EPA's continued use of those assumptions when actual, new data are available is arbitrary and capricious.

Response:

The EPA maintains that its use of compliance cost and impact estimates from the MATS RIA for the year of 2015 is a reasonable way to assess expected costs of MATS for purposes of analyzing the cost reasonableness of the rule as part of its consideration of cost for the appropriate and necessary finding. As noted in the proposed supplemental finding and the Legal Memorandum, under the statutory

structure of CAA section 112, the CAA section 112(n)(1)(A) finding is a preliminary determination that is made significantly before the CAA section 112(d) standards would be promulgated. The suggestion by some commenters that the EPA is required to conduct a new analysis that attempts to estimate the actual costs incurred through compliance with the final CAA section 112(d) standards is thus not consistent with the statute. Moreover, the independent analysis cited by several commenters suggests that the actual costs of compliance have been much lower than the cost estimates contained in the MATS RIA.

Both the statute and the

Michigan

decision support the EPA's reliance on the cost estimates from the RIA. First, any cost analysis included in an “initial decision to regulate,”

Michigan,

135 S. Ct. at 2709, must precede any regulations flowing out of that decision. Therefore, in considering the costs of compliance as part of its appropriate and necessary finding, it is reasonable for the EPA to look at what types of cost information, such as the MATS RIA cost estimates, would be available at this threshold stage. 80 FR 75030; Legal Memorandum at 19-21. In addition, nothing in the

Michigan

decision precludes the EPA's use of the existing cost information in the record in addressing the agency's obligation on remand to consider cost as part of the appropriate and necessary finding. In

Michigan,

the Court rejected arguments that it could conclude that the agency had properly considered cost based on the agency's consideration of costs in other stages of the rulemaking (

e.g.,

in setting the emission standards or in the RIA). The Court emphasized that the agency itself had not relied upon these rationales at the finding stage. 135 S. Ct. 2710-11 (citing

SEC

Chenery Corp.,

318 U.S. 80, 87 (1943)). However, the Court left open the possibility that the economic analyses the agency had already conducted could suffice to satisfy its obligation to consider costs as part of the appropriate finding.

Id.

at 2711.

We also disagree with the suggestion by commenters that the entire economic analysis that the EPA performed in the MATS RIA is invalid simply because of a discrepancy between modeling projections and actual outcomes.

See, e.g., EME Homer City Generation, L.P.

EPA,

795 F.3d 118, 135-36 (D.C. Cir. 2015) (“We will not invalidate EPA's predictions solely because there might be discrepancies between those predictions and the real world. That possibility is inherent in the enterprise of prediction. The best model might predict that the Nationals will win the World Series in 2015. If that does not happen, you can't necessarily fault the model.”). The EPA used the best available data and modeling information, in accordance with Office of Management and Budget (OMB)

and EPA guidance (U.S. EPA, 2010), and provided the public with the opportunity to comment on all aspects of its analysis in developing the final MATS RIA.

Office of Management and Budget. 2003.

Circular A-4: Regulatory Analysis.

Washington, DC. Available at:

http://www.whitehouse.gov/omb/circulars/a004/a-4.html

. Docket ID No. EPA-HQ-OAR-2009-0234-20507.

The EPA disagrees with commenters who assert that the EPA underestimated the costs of particular control technologies. In response to comments received on the proposed MATS rule, the EPA reviewed control technology cost and performance assumptions and updated some of these assumptions in the final RIA. Additionally, in the response to comment section of the final MATS preamble, the EPA responds to a series of comments on the cost and performance assumptions of the control technologies in the RIA. For example, in Section VII.G.1 of the final MATS preamble, the EPA responds to comments regarding the technical applicability, cost, and performance of DSI, explaining that the “representation of DSI in MATS compliance modeling is reasonable, is properly limited to applications that are technically feasible, and reflects a conservative approach to modeling future use of this technology.”

Furthermore, the EPA does not agree and the record does not support the assertion that the total costs projected in the RIA are underestimated as a result of the EPA's assumptions regarding the cost and performance of DSI and wet scrubber retrofits.

77 FR 9330, 9411.

The EPA also disagrees with commenters that the number of retirements of coal- and oil-fired power plants that have occurred since the rule's promulgation indicates that the EPA's assumptions in the MATS RIA were flawed. Commenters argue that because there have been more retirements in recent years than the EPA predicted in the RIA would be attributable to MATS, that the EPA's assumptions are necessarily flawed. However, commenters fail to show that the additional retirements they cite are attributable to MATS. Coal-fired power plants shut down for reasons other than MATS. Numerous publications have pointed out that recent trends in the electric power industry, such as low natural gas prices and slow demand growth, have placed significant economic pressure on coal-fired power plants, even those that are compliant with MATS.

Lower natural gas prices have made natural gas generation increasingly more competitive as compared to coal. Moreover, lower natural gas prices result in a reduction in wholesale electricity prices, leading to a reduction in the revenues received by some coal-fired generators. These and other factors lead to EGUs retiring, and they are unrelated to MATS.

See, e.g.,

“FirstEnergy's Largest Coal Plant Idled Due to Low Power Prices.” March 11, 2016.

Power Engineering News.

Available at:

http://www.power-eng.com/articles/2016/03/firstenergy-s-largest-coal-plant-idled-due-to-low-power-prices.8.leftinheritedbottom_standard_8.html.

Mooney, Chris. 2015. “How super low natural gas prices are reshaping how we get our power.”

The Washington Post.

October 28. Available at:

https://www.washingtonpost.com/news/energy-environment/wp/2015/10/28/how-super-low-natural-gas-prices-are-reshaping-how-we-get-our-power/

Larson, Aaron. 2016. “Power Generation Industry Faces Fundamental Changes.”

POWER Magazine.

January 19. Available at:

http://www.powermag.com/power-generation-industry-faces-fundamental-changes/?printmode=1.

Cassell, Barry. 2015. “Luminant switches a second unit at the Martin Lake coal plant into seasonal operations.”

Generation Hub.

July 24. Available at:

http://generationhub.com/2015/07/24/luminant-switches-a-second-unit-at-the-martin-lake.

Smith, Rebecca. 2014. “How Shale-Gas Boom Led to Demise of Energy Future Holdings.” The Wall Street Journal. April 29. Available at:

http://www.wsj.com/articles/SB10001424052702304163604579531644232506988.

U.S. EIA. 2016. “Natural gas expected to surpass coal in mix of fuel used for U.S. power generation in 2016.”

Today in Energy.

March 16. Available at:

http://www.eia.gov/todayinenergy/detail.cfm?id=25392#

The EPA's cost analysis, summarized in the MATS RIA, was based on reasonable assumptions at the time of promulgation for important factors such as fuel supply, fuel prices, and electricity demand. More importantly, retirements that are not attributable to MATS cannot reasonably be considered a cost of compliance for MATS. Commenters have not demonstrated that any recent retirements not accounted for in the MATS RIA are solely or disproportionately a result of MATS and would not have occurred in the absence of MATS. For these reasons, in making the initial appropriate finding, it is reasonable for the EPA to use the final MATS RIA cost estimates, which were developed at the time the rule was finalized and are based on high quality economic, technical, and regulatory assumptions.

Moreover, in its consideration of cost here, the agency elected to focus on the 2015 impacts presented in the RIA because, as some commenters note, the modeling the agency conducted

indicated that compliance costs would be highest in that first compliance year under the rule. By using the estimate from the year when compliance costs are highest to compare against the various cost metrics, the EPA ensured that its assessment of cost reasonableness was, if anything, conservative, and that these comparisons would, therefore, be applicable for other future years.

The independent analysis cited by several commenters, which was the only retrospective analysis of MATS costs submitted to the EPA in comments, finds that a variety of control technology costs have shown to be lower than the EPA's projection from the final MATS RIA. These results further contradict the assertions of some commenters that the assumptions in the RIA led to an underestimate of costs. The EPA recognizes it is possible, and has historically been the case for other regulations, that the regulated industry develops ways to comply with regulations at lower cost than what the agency projects at the time of rule promulgation. However, the suggestion by the retrospective analysis that important components of the actual compliance cost of MATS are lower than the agency's projections does not alter the agency's determination that the analysis in the final MATS RIA represents the best and most comprehensive estimate of the cost of compliance with MATS available to the EPA for use in this finding, because it was developed at the time the agency reaffirmed the appropriate and necessary finding and established CAA section 112(d) standards for EGUs.

3. Consideration of Costs at the Sector Level

Comment:

Some commenters questioned whether the EPA's consideration of cost at the sector level was reasonable. These commenters argued that because MATS regulated only coal- and oil-fired power plants, that it was incorrect for the EPA to use sector-level data when comparing the costs of the rule to the array of metrics that the EPA used to assess the reasonableness of the rule.

Another commenter stated that the EPA's framing of the cost inquiry—whether the power sector can reasonably absorb the cost of the MATS Rule, 80 FR 75030—is reasonable, and well within its discretion, citing

Michigan

135 S. Ct. at 2711 (“It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.”

Response:

As explained here and below, the EPA's estimate of the MATS compliance costs reflects the cost to the entire power sector. MATS is an economically consequential rulemaking that is expected to induce changes in both electricity and fuel markets. To focus on the projected impact of MATS on only affected coal- and oil-fired EGUs would produce an incomplete estimate of the entire cost of complying with the rule and, thus, lead to an inappropriate consideration of the costs of the final MATS rule. The costs associated with installation and operation of pollution controls (or fuel switching) at some affected EGUs can influence the generation decisions of both EGUs that are regulated by MATS and those that are not regulated by MATS. As the EPA noted in the proposal, the U.S. electric power system is complex and interconnected and the generation decisions of a single affected EGU can influence the dispatch of other EGUs, wholesale power prices, and fuel prices. Therefore, for a rule with the scope and projected impacts of MATS it is necessary for the EPA to consider the full cost of the rule by capturing costs expended at all electric generators, not just those subject to emissions requirements under MATS. For example, the EPA's analysis estimated a small increase in generation from natural gas-fired sources as a result of the rule. This increase in generation results in increased demand for natural gas and, thus, a small increase in the price of natural gas. This results in additional costs for EGUs that utilize natural gas, which the EPA appropriately captured in the analysis for the RIA. Furthermore, an evaluation of the costs borne solely by EGUs subject to MATS would need to account for the potential ability of owners of these EGUs to recoup their increased expenditures through higher electricity prices, or else an estimate of the costs of MATS borne by the owners of those EGUs (

i.e.,

their economic incidence) would be an overestimate. However, in doing so, the costs borne by the consumers of electricity from these higher prices would be ignored, which the EPA finds inappropriate. This is especially true given that the demand for electricity is not particularly price-responsive and many firms in the industry are assured cost-recovery, and, therefore, there is considerable potential for producers to pass through their expenditures to consumers. Therefore, the EPA determined it was appropriate to account for all of the costs that may be expended as a result of the rule that could be reasonably estimated, recognizing that these expenditures would ultimately be borne either by electricity consumers or electricity producers, and not limiting our consideration of costs to just those borne by a subset of producers or consumers. Again, even non-regulated EGUs can be affected by the rule through changes in prices as a result of MATS, such as the example of a gas generator just provided. Another example is that of a generator that benefits from higher electricity prices induced by MATS without incurring costs, such as a renewable generator owned by a highly diversified firm. Ultimately, consumers and producers bear the costs of a regulation, not specific pieces of machinery. Therefore, a consideration of cost incurred by only directly regulated EGUs would not fully capture the impacts on the owners of those directly regulated EGUs.

Finally, many commenters in MATS and in this supplemental finding agree that cost reasonableness can be determined in part by increases in electricity prices, which reflect increased expenditures by EGUs resulting from MATS. By advocating for the consideration of electricity price impacts, these commenters further support EPA's determination that it is appropriate to consider other cost metrics at the sector level as well. The EPA's estimate of the cost of MATS is an appropriately complete accounting of the costs incurred by the sector, and the agency's comparison of these costs to the sector-wide metrics is reasonable.

4. Power Sector Sales

Comment:

Commenters supporting the consideration of compliance costs as a percentage of power sector sales noted that the EPA has routinely used this type of analysis as a means of evaluating whether compliance costs for HAP regulations are reasonable. These commenters believe the comparison of compliance costs to power sector sales produces a useful metric to help the EPA determine whether the power sector can reasonably absorb the cost of compliance with MATS. These commenters also agree that this analysis supports the agency's conclusion and demonstrates that the costs of the standards are low, as compared to annual revenues of the electric utility sector.

Commenters disagreeing with the agency's analysis of compliance costs as a percentage of power sector sales argue it is misleading because it ignores the relationship between revenues and expenses and, therefore, in their view, provides no indication of cost reasonableness. The commenters suggested that given the high operating costs for EGUs, a comparison of

compliance costs to affected facilities' net operating income (

i.e.,

revenues from retail sales minus operating expenses) would more appropriately highlight the cost impacts on the marginal operations of affected sources.

One commenter stated that the EPA does not explain why the analysis of compliance costs as a percentage of power sector sales is appropriate for the utility sector. The commenter noted that this type of analysis is generally used for measuring economic impacts to small entities under the Regulatory Flexibility Act (RFA) and, in that context, sales are generally measured per company or on another more granular level.

Response:

The EPA maintains that it is reasonable to employ an analysis of compliance costs as a percentage of power sector sales, a frequently used indicator of economic impact, to evaluate the cost of MATS. A comparison of revenues to costs is informative and relevant to an evaluation of whether the costs associated with a rule are reasonable.

While the EPA recognizes that alternative metrics could also be useful, the application of such alternative metrics would not invalidate the use of compliance costs as a percentage of power sector sales as demonstrating cost-reasonableness. The level of sales in the industry is, over time, representative of the costs incurred by the industry to generate, transmit, and distribute electricity, as the firms that operate in the electricity sector usually do so with the expectation that they will recover their costs (

i.e.,

expenditures) in addition to a profit. Therefore, total sales provides a sense of scope of economic activity in the industry, and annual changes in those sales provide a sense of the scope of fluctuations in that industry.

The EPA disagrees that a comparison of the costs of complying with MATS and the power sector's sales is an unreasonable way to evaluate costs simply because this type of comparison is often made in the context of evaluating economic impacts on small businesses. While commenters point out that the analysis is often used for smaller entities, they do not demonstrate why the metric holds no value for examining economic impacts on the power sector.

Further, with regard to the specific metric suggested by commenters opposed to using compliance costs as a percentage of power sector sales to consider costs, we note that while net operating income is an important indicator for utilities and other operating entities, as discussed in this section above, a significant share of operating expenditures may ultimately be borne by consumers. Therefore, comparing the costs borne by electricity producers to their net operating income (

i.e.,

a measure of profits that does not account for payments on costs that have been committed to previously, like financing of existing capital) would be an incomplete assessment of the cost of MATS. Thus, it would be unreasonable to compare the total expenditures incurred as a result of MATS to historical net operating income in the sector without accounting for the ability of firms to pass through these costs through higher electricity prices.

Additionally, there are difficulties associated with estimating changes in firm-level net-operating income or other measures of firm profits with the data and tools available to the agency. For example, many firms in the industry are not publicly traded, so historical profit data for many of these firms are not readily available; therefore, a comparison of an estimate of the change in profits to historical data on profits in the industry would be limited by data availability. Furthermore, there are accounting and tax practices that affect the timing of when profits are reported, and therefore measures of profits may fluctuate on an annual basis for reasons not directly related to coincident annual changes in revenues and expenditures. In addition, the fact that a large proportion of affected EGUs in the power sector operate within regulated markets and are able to pass regulatory costs to electricity consumers, yet often face different specific requirements for how and when they may recover those costs, presents challenges to the use of a change in net operating income as a metric for evaluating costs.

Commenters advocating changes in net operating income as a more appropriate metric than a metric based on compliance costs as a percentage of power sector sales for measuring cost reasonableness do not supply any analysis in their comment, nor do they provide a source of historical data to use for this analysis, nor a way to address these technical challenges with estimating historical profits, nor do they assert that a different metric would result in a conclusion that contradicts the EPA's findings. However, in response to comments highlighting the importance of considering annual operating expenses to this industry, the EPA considered additional information on operating expenses in order to ensure that our analysis of retrospective and projected cost information is robust and complete. This supplemental analysis was discussed earlier in Section III.A. In sum, the EPA continues to find that it is reasonable, when evaluating the reasonableness of the costs of MATS, to compare those costs to utility sector sales.

5. Capital Expenditures

Comment:

Several commenters supported the EPA's use of the metric comparing MATS compliance costs to capital expenditures as one way to evaluate whether MATS compliance costs are reasonable. One commenter stated that projected compliance expenditures are small in relation to both the typical capital expenditures undertaken each year by the utility industry, as well as typical year-to-year changes in such expenditures. One commenter particularly approved of the focus of this metric on comparing the precise impact of a particular category of the rule's compliance costs to industry spending on that category of costs. The commenter stated that this metric provides a clear understanding of whether the rule's capital expenditure costs could readily be absorbed by industry.

Other commenters took issue with the EPA's comparison of annual capital expenditures required by MATS to overall power-sector capital expenditures as a way to assess whether the rule's compliance costs are reasonable. These commenters stated that the power sector's historical annual capital expenditures are broad, all-encompassing statistics that do not provide an adequate basis to judge whether compliance expenditures are reasonable. Specifically, this commenter suggested that the EPA's analysis should instead focus on the historical annual capital expenditures of only the entities that own affected sources. One commenter argued that the EPA did not explain the benefits of this approach over any other approach, or why it is a good measure of the reasonableness of the costs of a regulation.

Response:

As an initial matter, the EPA notes that while a number of commenters disagreed with the agency's use of historical annual capital expenditure data for the power sector in its analysis, no commenter objected more generally to the agency's examination of the rule's capital expenditures as one way to consider whether the rule's costs are reasonable. In demonstrating that an analysis is reasonable, particularly in the absence of any statutory guidance, the EPA is not required to show that its chosen approach is better than “any other approach.” Instead, the agency is required to show that there is a “rational connection between the facts found and

the choice made.”

State Farm,

463 U.S. at 52. As discussed in the proposed supplemental finding, capital costs are one aspect of total compliance costs that can be evaluated against historical levels. As the EPA explained in the proposed supplemental finding, capital costs represent largely irreversible investments for firms that must be paid off regardless of future economic conditions, as opposed to other important variable costs, such as fuel costs, that may vary according to economic conditions and generation needs. For an action that was projected to result in a large number of pollution control retrofits nationwide for multiple HAP, the EPA determined it was reasonable to consider projected capital costs as one component of a comprehensive evaluation of overall compliance costs. This is further supported by the EPA's projection that the annual projected capital costs represented about 26 percent of the total annual compliance cost projected for 2015. For this rulemaking, the EPA was able to access reliable historical data from multiple sources over a sufficient time horizon, which enabled comparisons of the EPA's projections of incremental capital expenditures under MATS to sector-level historical trends in capital expenditures.

We disagree with the comment alleging that the EPA's analysis of this metric is “too broad”. Specifically, we do not agree with the commenter's suggestion that we should restrict our analysis of capital expenditures to focus on only the entities directly regulated by MATS (

i.e.,

“the entities that own the affected sources”). As discussed in Section IV.A.3, the EPA views a sector-level assessment of costs, including capital expenditure requirements, to be the correct scale of analysis for this notice, in part because analyzing cost at the sector-level better captures impacts on entities, many of which own complex holdings that include units that are not regulated by MATS. Further, adopting the commenter's methodology for analyzing capital expenditures more narrowly would force the agency to ignore costs associated with installing additional new generating technologies that would be attributable to MATS (because those new units that are installed are not directly regulated by MATS and are not necessarily owned by entities that own units regulated by MATS), and those costs are not insignificant and increase over time. We also note that although the commenter urges the EPA to analyze historical annual capital expenditures by a subset of units, the commenter provides no information regarding that metric, nor is the agency aware of data to reliably analyze that metric. Therefore, for all of the reasons above, we decline to confine our analysis of capital expenditures to only those units that are directly regulated by MATS.

Moreover, we disagree with the commenter's implied premise that an estimate of the capital expenditure costs associated with installing controls to comply with MATS actually reflects capital expenditure impacts on entities owning “affected sources”. As noted in Section IV.A.3, many of these sources are able to pass-through compliance costs to ratepayers, and, thus the cost of compliance, including capital expenditure costs, are in many cases ultimately borne by consumers. The EPA's sector-level approach to analyzing cost for this metric, as for others, takes into account all costs whether they are borne by producers or consumers, and is therefore the most comprehensive and well-suited to evaluating whether such costs are reasonable.

Additionally, in response to comments, the EPA supplemented its analysis of annual capital costs with annual production costs, the sum of which provides a more comprehensive metric to use to compare against total projected compliance costs (see Section IV.A.4 above). This addition confirmed the EPA's earlier finding that the compliance costs of this rule are projected to be well within historical variability, and continues to demonstrate that the agency's projected costs are reasonable when weighed against historical metrics.

6. Retail Electricity Prices

Comment:

A commenter supporting the EPA's retail price of electricity metric stated that in evaluating the economic impacts of CAA regulation, the EPA has often considered the projected costs of regulation to electricity consumers. Additionally one commenter noted that recent data show that the EPA's estimate for 2015 was conservative and that actual electricity prices have been lower than the EPA projected. Commenters supporting the metric concluded that the agency's analysis demonstrates that on a regional and national basis, the increases in the retail price are reasonable in light of the benefits afforded, and well within the range of variability.

A commenter stated that the EPA's retail price of electricity metric masks the true effects of the rule because the commenter believes that the EPA failed to acknowledge that, of the 11 years examined, only 3 years saw greater average price increases than would be caused by the rule. The commenter added that the EPA did not acknowledge that the MATS rule causes average retail price of electricity increases that are almost double that of an average of the 11 examined years and that the EPA did not recognize that the price increases caused by the rule are additive.

Response:

The EPA reviewed changes in average retail price of electricity over the 2000-2011 period and compared the projected impact of MATS on the average retail price of electricity to annual variability over this period. The EPA believes that the estimated increase in electricity price is reasonable because it falls well within the range of historical variation. The EPA does not believe that comparing the projected impact to an average or percentile of historical fluctuation is the appropriate approach for examining this particular impact. This is because the context of whether MATS incurs a disproportionate change is relevant in the context of positive changes in price, not simply the average trend in price changes, which includes both net-positive and net-negative changes. MATS will impact electricity prices; what is relevant is whether that change is disproportionate to the differences in electricity prices that happen for various different reasons, and that reveal themselves in year-to-year fluctuations. To compare the effect of MATS to an average of those variations over time, essentially dampening those variations to an average growth rate in electricity prices, would prove misleading when trying to compare the effect of MATS on retail electricity price with other influences.

Additionally, the EPA notes that the commenters' point regarding additive impacts is incorrect. The 0.3 cents per kilowatt-hour is incremental to the EPA's estimated average retail electricity price in the absence of the rule, not historical levels (which are actually higher in 2006-2011, on average, than the EPA's base case estimates for 2015). As the EPA explains in the preamble to the final MATS rule, “Even with this rule in effect, electricity prices are projected to be lower in 2015 and 2020 than they were in 2010.” In the EPA's consideration of the potential impacts of MATS on retail electricity prices, the agency appropriately considered the estimated increase in prices projected to occur as a result of MATS in the context of historical variability.

7. Reliability of Electricity Supply

Comment:

Several commenters took issue with the EPA's analysis of the impacts of MATS on power sector generation capacity and stated that impacts on reliability alone are not a measure of the reasonableness of costs. Commenters stated that the EPA vastly underestimated the number of retirements that have occurred as a result of MATS and presented several estimates of retirements and facility closures. Several commenters alleged that the EPA arbitrarily compares its projection of MATS-related coal-fired capacity retirements to the nation's total generation capacity and the nation's coal-fired generation capacity.

Other commenters stated that the analysis of the impact on the sector's generating capacity supports the agency's finding. Commenters noted that retirement decisions are based on consideration of numerous factors (

e.g.,

age of the unit, capacity factors, fuel prices, etc.) making it difficult to determine whether a given coal- or oil-fired unit retired due to MATS compliance obligations or due to other unrelated factors that make operation uneconomic.

One commenter noted that the EPA's modeling and analysis in the MATS RIA provides the best estimate of the impact of MATS on retirements and stated that the fact that retirements have been higher than projected does not suggest that they were a result of MATS, much less that the EPA erred in concluding that the retirement of 4.7 gigawatts (GW) of generation capacity would be a reasonable burden for the electric power industry to bear. Commenters stated that the EPA's resource adequacy analyses showed that reserve margins can be maintained while the power sector complies with MATS and supports the agency's determination that MATS compliance costs are reasonable.

Response:

In Section III.A.2 above, the EPA explains why commenters' assertions that the EPA underestimated the retirements due to MATS are unsupported and do not demonstrate that the EPA's assumptions and modeling for the MATS RIA are flawed. In fact, numerous factors unrelated to MATS have affected the rate of retirements in this sector (see Section III.A.2). Moreover, the EPA notes that, even while commenters argued that the EPA underestimated the total number of retirements that would occur, they do not provide any examples, nor could they, that the retirements that have occurred since promulgation of MATS have actually caused reliability problems.

We note that, when promulgating MATS, the EPA recognized the statutory concern for meeting environmental goals without jeopardizing electric reliability, and consequently took steps to ensure that sources would be able to comply with the rule while maintaining a reliable supply of electricity. The rule set a 3-year compliance deadline for existing sources, which is the longest time period allowed by the statute.

See

77 FR 9407. The rule also provided EGU specific guidance addressing how sources could obtain an extension for a fourth year from the relevant permitting authorities under CAA section 112(i)(3)(B) if such time is needed for the installation of controls.

See id.

at 9409-10. Finally, the EPA separately issued an enforcement response policy concurrently with MATS to provide additional flexibility for certain reliability-critical power plants. Memorandum from Cynthia Giles, Assistant Administrator of the Office of Enforcement and Compliance Assurance,

The Environmental Protection Agency's Enforcement Response Policy for Use of Clean Air Act Section 113(a) Administrative Orders in Relation to Electric Reliability and The Mercury and Air Toxics Standard

(Dec. 16, 2011);