Peabody, Ameren raise issues with EPA’s Clean Power Plan

Peabody Energy (NYSE: BTU), the nation’s largest coal producer and a major supplier of Wyoming coal into the Missouri market, told the Missouri Public Service Commission that EPA’s proposed CO2 plan for existing plants will explode Missouri’s electricity costs.

Peabody filed Aug. 25 comments as part of the commission’s ongoing review of the EPA proposal, called the Clean Power Act, which mandates each state to come up with a plan to comply, or EPA will do it for each state. On June 2, EPA issued these proposed guidelines for existing fossil fuel-fired plants under section 111(d) of the Clean Air Act.

“The proposed guidelines would not only impose unreasonable standards on the electric industry in Missouri and beyond, but would also place the State of Missouri in the impossible predicament of attempting to meet this unrealistic standard while maintaining just and equitable rates,” said Peabody. “While the Missouri PSC does not necessarily hold proceedings to make resource planning determinations, it should do so for resource planning decisions related to EPA’s CO2 Emission Guidelines.”

The consequences of the EPA’s proposed rule to utility customers, reliability of the electric system, and jobs and the economy in Missouri are “severe,” Peabody said. “Premature implementation of the proposed rule would result in decisions that would irrevocably reverse Missouri’s lost-cost electricity advantage. For this reason, pursuant to its resource planning authority the Missouri PSC should open a proceeding to examine regulated utilities’ contemplated resource plans concerning Section 111(d) compliance. Such proceeding should analyze whether any such implementation plans provide safe, reliable and adequate service at just and reasonable rates; whether utilities are justified in taking any irrevocable actions prior to the EPA proposed rule becoming final and prior to the Missouri Department of Natural Resources determination of a reasonable carbon reduction standard under Missouri House Bill 1631; and whether such plans otherwise comply with Missouri law and the best interests of Missouri residential and business customers.”

EPA’s proposal would require Missouri to cut its existing fossil fuel-fired electric generating unit (EGU) carbon emissions nearly 21% from the state’s 2012 “baseline” emissions rate by 2030. Though couched in terms of providing states with the utmost “flexibility,” EPA suggests Missouri can meet its goal by the following “Building Blocks”:

  • Improving the efficiency of existing coal-fired units by 6%;
  • Increasing current natural gas combined cycle (NGCC) capacity factors by over 40%;
  • Including existing nuclear capacity that EPA assumes is at risk of retiring;
  • Increasing electricity from renewable energy sources by 300%; and
  • Reducing consumers’ use of electricity 1.5% year over year until demand is reduced by almost 10%.

“To understand the feasibility of these assumptions, the Commission can look no further than the regulated entities that would shoulder the lion’s share of the compliance obligation under any Section 111(d) state plan,” said Peabody. “On August 18, 2014, the two largest utilities in the state, Ameren Corporation (Ameren) and Kansas City Power & Light (KCP&L) provided comments to the Commission challenging the feasibility of most or all of these Building Blocks, and indicating the likelihood of substantial increased customer rates as a result of EPA’s proposed rule – in Ameren’s case, a $4 billion increase in costs that will result in increased rates four times that of its baseline case.”

Beyond rate increases, the Southwest Power Pool (SPP), a regional transmission organization (RTO) that covers portions of Missouri, predicts severe reliability issues in 2020 and beyond in its footprint based on EPA-assumed baseload plant retirements. In turn, this will require “massive” investment in new generation and infrastructure that cannot be completed in the short time frame allotted by EPA, Peabody noted.

“The proposed rule will significantly impact Missouri’s ability to use coal as a low-cost electricity generation option, even though the state relies on coal for more than 80% of its electricity needs,” Peabody added. “The proposed rule improperly overrides the resource planning prerogatives of the Commission by determining the best system of emission reduction (BSER) under the Clean Air Act, and in turn, each state’s CO2 performance standard vis-à-vis outside-the-fence measures, i.e., non source-based compliance activities. This effectively mandates state action outside-the-fence of the EGU in a manner never before seen under the Clean Air Act.”

Ameren provides answers on plan impacts

Also on Aug. 25, Ameren Missouri filed a series of answers to commission questions related to the Clean Power Plan.

For example, it was asked if Missouri could grow its renewable generation from 1.3 million MWh to 2.8 million MWh as EPA has said. Ameren Missouri said on top of 458 MW of existing wind resources in the state, this would mean a need for 500 MW to 600 MW of new wind capacity. Adding excess wind capacity of 200 MW to 300 MW above current plans to meet the state’s existing renewable energy standard would likely cost an extra $400m to $750m, it said. There is also an issue with locating this much wind capacity in the state.

Another question was whether EPA’s proposal gives rise to any concerns about reliability? “Yes. EPA estimates that its rule would result in 30-50 GW of additional coal plant retirements,” said Ameren Missouri. “The loss of such a significant amount of base load capacity, in combination with the significant amount of retirements already announced due to other regulations and market conditions, can, and most likely will impact reliability of the transmission system and lead to generation capacity shortages. Moreover, some of these plants will almost certainly be needed to support the transmission system and may be designated as a system support resource unit by MISO and forced to continue operating. Thus a utility may attempt to achieve compliance via plant retirements, but not be able to do so due to the need to run the unit for reliability. In addition, forcing unneeded generation where it is not required to meet customer load or congestion relief can cause reliability issues. Lastly, to the extent compliance with meeting EPA’s stringent interim targets diverts investment from distribution and transmission infrastructure into unnecessary generation infrastructure, this can cause reliability concerns as well.”

Ameren Missouri also pointed out how air emissions controls it is already adding to coal units to meet other EPA standards is putting those units in a bad position to comply with the Clean Power Plan. “Ameren Missouri has installed FGD systems on both Sioux units and a new ESP on Labadie 2 which have reduced SO2 and particulate emissions to comply with a variety of regulatory programs such as the CAIR, CSAPR and MATS. A new ESP will go into service on Labadie 1 later this year. However, these installations have increased station service and resulted in lower unit efficiency (higher Btu/net kWh). Ameren Missouri should be provided credit for the heat rate inefficiency caused by the installation of this equipment to comply with environmental regulations. For example, the increased auxiliary load at Sioux due to the installation of the FGDs has increased heat rate on those units by 1 to 2% depending on the number of spray levels in service. Therefore, the potential heat rate improvements are, at best, small and would not contribute in any significant way to achieving the 6% efficiency improvement targeted by the EPA for building block 1.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.