Environment & Energy Report

Small, Rural Coal Utilities Could Benefit From Climate Proposal (1)

Aug. 22, 2018, 8:30 PMUpdated: Aug. 22, 2018, 9:03 PM

Rural electric cooperatives and publicly owned utilities that own coal plants in the Midwest and Rocky Mountain West could see a boost from the EPA’s Clean Power Plan replacement proposal.

Those plants are mostly smaller enterprises in rural areas where they just don’t have the same access to capital as larger, investor-owned utilities, James Lucier, managing director at energy policy analyst Capital Alpha Partners LLC, told Bloomberg Environment.

He cited Nebraska, Montana, Iowa, and farm states in the Rocky Mountain region as the states with utilities that could benefit most from the proposal.

“These particular utilities are both small, but in some cases 100 percent coal dependent,” Lucier said.

These coal-dependent plants don’t have the option to quickly switch to other resources if a regulation like the Obama-era Clean Power Plan went into effect putting more stringent carbon-emission requirements in place.

The Trump administration’s Aug. 21 proposal is based on improving efficiency at power plants and would allow states to design their own plans for cutting carbon dioxide emissions.

Passing Along Costs

By contrast, power plants owned by investor-owned utilities, state power authorities, or public power utilities can pass higher costs along to their customers, which insulates them from the ups and downs of the market, David Schlissel, a director at the Institute for Energy Economics and Financial Analysis, a sustainable-energy research group, told Bloomberg Environment.

But the biggest beneficiaries of the Trump plan would be old, dirty, inefficient coal plants that have lots of room to improve efficiency, and there aren’t many of those in the nation’s coal fleet anymore, said Devin Hartman, electricity policy manager and senior fellow with the R Street Institute, a free-market think tank.

“A lot of those old dogs are off the system,” Hartman told Bloomberg Environment. “The surviving plants, because of all the prior regulations and the forces of natural gas that have pushed the bad ones out—they tend to be higher-efficiency plants. They already have pretty impressive efficiency numbers compared to the legacy coal plants of the early 2010s.”

Because each state’s plan under the Clean Power Plan would have been different, it’s “really difficult to say” which power plants are relatively better off under the Trump plan, Vince Brisini, former deputy secretary at the Pennsylvania Department of Environmental Protection’s Office of Waste, Air, Radiation, and Remediation, told Bloomberg Environment.

“Without those state plans, the beneficiaries can’t be determined,” said Brisini, now director of environmental affairs at Olympus Power LLC. “Maybe the real questions are not who benefits, but rather who is no longer injured because certain sources aren’t part of the Clean Power Plan state measures mandates.”

Rural Coops Welcome Plan

The National Rural Electric Cooperative Association, which represents 900 co-ops across the country, was strongly in favor of the EPA’s newest plan to give states more leeway to set limits on greenhouse gas emissions from their power sectors.

The new plan “is necessary to provide electric co-ops the certainty and flexibility they need to meet their consumer-members’ local energy needs,” association CEO Jim Matheson said in an Aug. 21 statement.

Still, the broad diagnosis for coal plants remains largely negative, thanks to powerful economic forces that have been pummeling the sector for years.

“This may delay some coal retirements marginally and could boost coal’s operating returns modestly,” Hartman said. “Ultimately, market forces will determine coal’s reckoning.”

Some coal plants are in so much immediate trouble that the Trump proposal—which won’t take effect for years, because it must go through a notice and comment period and survive inevitable court challenges—isn’t likely to kick in fast enough to help.

One example is the Navajo Generating Station, the biggest coal plant west of the Mississippi. Navajo is slated for closure in December 2019 unless another buyer steps forward almost immediately. Middle River Power, a private equity company based in Chicago, says it is in talks to buy the plant.

Another case in point is the Colstrip power plant in Montana, one of the biggest generators in the Northwest. Colstrip is already struggling with maintenance problems, and two of the 2,100-megawatt behemoth’s four units are slated for closure in 2022. The plant’s other two units could also be mothballed soon because two of the plant’s six owners—Puget Sound Energy and Avista Corp.—want to walk away by 2027.

New Investment Discouraged?

The Trump plan also could discourage regulated utilities from building new non-coal plants, which were planned on the expectation that carbon emissions would be expensive, according to Hartman.

“However, power investments span a horizon that overwhelmingly exceeds the potential duration of this administration,” Hartman said. “Even with two terms this administration may only see two years of rule implementation. Thus, economic forces and state policies will continue to be the primary determinants of coal.”

American Electric Power has retired 7,200 megawatts of coal-fired generation since 2011, and the Trump proposal isn’t changing those plans—at least not yet.

“Our strategy going forward is really focused on investment in renewables, natural gas, and other advanced technologies, including battery technology and modernizing the grid, and that strategy doesn’t really change,” AEP spokeswoman Melissa McHenry told Bloomberg Environment. “There may be some plants that end up having a longer life, but it’s really too soon to say. A lot will depend on what each state does.”

(Updates throughout with additional comments starting in eighth paragraph)

To contact the reporters on this story: Rebecca Kern in Washington at rkern@bloombergenvironment.com; Stephen Lee in Washington at stephenlee@bloombergenvironment.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bloombergenvironment.com

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