Power executives facing big investments, reluctant state commissions

PG&E (NYSE: PCG) CEO Anthony Earley says the energy industry must spend tens of billions of dollars to update aging infrastructure in coming years but will face a tough time convincing state regulators to grant full rate recovery.

There could be a big rate shock and resulting pushback unless consumers and state commissions are educated now, Earley said. PG&E owns nuclear power capacity in California and Earley warned there could be a repeat of the situation decades ago when some utilities were not allowed full recovery for building nuclear plants.

Earley was one of many utility executives to address the EnergyBiz Leadership Forum March 20 just outside of Washington, D.C. EnergyBiz magazine, which sponsors the event, is owned by Energy Central.

Sadly, PG&E is dealing with the aftermath of an accident involving aging infrastructure, Earley said. The utility is dealing with investigations and roughly 100 lawsuits stemming from the 2010 San Bruno gas pipeline explosion.

The explosion claimed several lives and destroyed several homes. Since the blast, Earley was brought in to head PG&E. Since the explosion there has been some public opposition to allowing PG&E to recover in rates the expense of replacing aging pipelines.

Meanwhile, an executive with a Duke Energy (NYSE: DUK) subsidiary said his company has already been forced to “eat” some costs associated with newer technology – the Edwardsport coal gasification power plant in Indiana. The Edwardsport integrated gasification combined-cycle (IGCC) power plant ended up costing far more than originally envisioned said Duke Energy Indiana President Douglas Esamann.

Despite the cost overruns, Duke will bring the 620-MW IGCC online later this year. Esamann hopes that other states don’t start seeking “cost caps” like the one being employed by the Indiana Utility Regulatory Commission (IURC), although he can’t discount that possibility.

Duke is currently looking at a cost ceiling of $2.72bn plus financing costs, a spokesperson said.

Duke isn’t the only generator bringing online coal plants this year. American Municipal Power (AMP) is one of several entities that own a stake in the Prairie State coal station in Illinois. AMP President and CEO Marc Gerken said the facility should start commercial operation later this year. The same goes for Dominion Resources (NYSE: D) and its Virginia City Hybrid coal plant in Virginia, said Dominion CEO Thomas Farrell II.

As for nuclear power, Farrell and other executives doubted that Fukushima-related regulations will have a big impact on nuclear power operations in the United States. NRC and the industry are working on decreasing the chances of any extended “station blackout” conditions at nuclear plants following natural disasters.

Farrell says that last year’s 5.8 magnitude earthquake helped further NRC knowledge of seismic activity.

The epicenter of the quake was just a few miles from Dominion’s North Anna nuclear complex in central Virginia. Earthquakes don’t normally occur where there are so many seismic monitors.

American Electric Power (NYSE: AEP) CEO Nick Akins said building a new nuclear plant would be too expensive and risky for most companies, like AEP. But AEP would definitely look at power uprate at its D.C. Cook nuclear plant. Also, longer term AEP might consider small modular reactors.

Within the past couple of years AEP gave up plans to further commercialize carbon capture and storage technology. The cost is high, rate recovery is uncertain and there is no national carbon fee driving coal-fired utilities to do it, Akins said. Look for China to drive CCS research and development in the near future, Akins said.


About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.