by Jennifer Van Burkleo, associate editor
Clean energy legislation is challenging the electricity industry while the industry tries to meet increasing demand.
Many utilities are expanding their energy portfolios, but as older coal-fired plants retire, utilities are deciding what must replace them. Some are considering retrofits. Others, finding it too costly, will be forced to shut down. Carbon legislation and Environmental Protection Agency (EPA) regulations are only a couple of the challenges.
Electric Light & Power asked utility executives from American Electric Power Co. Inc. (AEP), Duke Energy, Southern Co., Kansas City Power & Light (KCP&L) and NV Energy to discuss their challenges, diversifying portfolios and future predictions.
Mark McCullough is executive vice president of generation for AEP, where he has worked his entire 32-year career. In 1997, he was named manager of strategic planning for power generation. McCullough was named a region director for wholesale generation in 2000. In 2003 he became vice president of fossil and hydro generation, and in 2008 he was named senior vice president. McCullough has a Bachelor of Science in Mechanical Engineering from Rose Hulman Institute of Technology and serves as vice chairman for the Coal Utilization Research Council.
AEP, headquartered in Columbus, Ohio, owns nearly 38,000 MW of generating capacity and provides power to 5.3 million customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.
Keith Trent is executive vice president and chief operating officer of regulated utilities for Duke Energy. Trent leads the transmission, distribution, customer services, gas operations and grid modernization functions. In addition, he is responsible for regulated fossil and hydro generation; health and safety; environmental services; fuels and system optimization; and central engineering and services.
Duke Energy, headquartered in Charlotte, N.C., is the largest U.S. electric power holding company and provides energy to some 7.2 million electric customers and 500,000 gas customers. In operation for more than 150 years, Duke Energy has more than 57,700 MW of generating capacity covering the Midwest, the Carolinas, Florida, Kentucky and Ohio. Duke Energy’s generation portfolio includes coal, nuclear, natural gas, oil, hydroelectric and renewable energy sources. The utility also owns and operates an expanded generation portfolio in North America and Latin America. Duke Energy is expanding its generation portfolio by licensing additional nuclear power plants in the Carolinas and Florida; constructing cleaner coal plants in the Carolinas and Midwest; and constructing natural gas-fired combined-cycle units at the Carolinas facilities.
Mark Crosswhite is executive vice president and chief operating officer for Southern Co. Crosswhite joined the company in 2004 as senior vice president and general counsel for generation. In 2010, he was elected president and CEO at Gulf Power. He is vice chairman of the Electricity Committee of the Public Utility, Communications and Transportation section of the American Bar Association and a member of the Edison Electric Institute Legal Committee. He earned a bachelor’s degree from The University of Alabama and a J.D. from The University of Alabama School of Law.
Southern Co., headquartered in Atlanta, is one of the largest producers of electricity in the nation. It operates more than 280 coal, oil, gas and hydro generating units at 73 plants. Southern Co. serves 4.4 million customers throughout Alabama, Georgia, Mississippi and Florida.
Scott Heidtbrink was appointed executive vice president and chief operating officer of KCP&L in June 2012. Heidtbrink is responsible for utility operations, including generation, transmission and delivery operations, customer service and supply chain. A 23-year energy industry veteran, he previously served KCP&L as senior vice president of supply. He received a Bachelor of Science in Electrical Engineering from Kansas State University.
KCP&L, founded in 1882, is a subsidiary of Great Plains Energy Inc. KCP&L serves more than 800,000 customers in Missouri and Kansas and has a generation portfolio that includes 15 generating facilities. The utility has 6,100 MW in operation or under construction.
Kevin C. Geraghty was named vice president of power generation at NV Energy in February 2009. He joined NV Energy in June 2008 as a generation executive.
Prior to joining NV Energy, Geraghty was employed by Allegheny Energy, where he worked in various areas of the generation business for more than 20 years, most recently having served as regional director for Allegheny’s Harrison Power Region in West Virginia. He has a Bachelor of Science in Electrical Engineering from the University of Pittsburgh. Geraghty and his wife, Daniela, live in the Las Vegas area. They are the parents of four children.
NV Energy meets the electricity needs of more than 2.4 million customers throughout Nevada and more than 40 million tourists annually. NV Energy has a generation portfolio of more than 6,200 MW. Recently NV Energy added more efficient plants that use less fuel and water, which therefore produce lower emissions.
ELP: How is your utility complying with EPA rules, including the ones already passed and those in the pipeline, and the necessary upgrades? Do you have options besides retiring or retrofitting your coal plants?
McCullough: AEP plans to retire about 6,000 MW of coal-fueled generating capacity to comply with the new EPA rules. Most of the retirements will occur in the 2015 time frame. We’ll also be retrofitting more than 10,000 MW of coal-fueled capacity to make further emissions reductions. The cost of our compliance plan is estimated at $4 billion to $5 billion.
In addition to retirements and retrofits, we will be refueling a few units to run on natural gas instead of coal. This is probably not a long-term solution, but it will keep the capacity available for peaking purposes.
Over the next 10-15 years, we likely will need to add high-efficiency baseload capacity to meet future energy needs. We are always looking for new technologies that will help lower the cost and emissions profile of the next generation of power plants.
Trent: Duke Energy carefully monitors developments related to expected, proposed and final rules so we can make informed decisions about control technologies, unit retirements and new generation needs. In recent years, we have invested $8.9 billion in new natural gas and coal plants with high-efficiency and state-of-the-art emissions controls. By the end of this year we will have retired 3,800 MW of older coal and large oil-fired units. That number will grow to 6,800 MW by 2015.
Since 1999, we’ve invested another $7.5 billion for upgrades at other facilities to enhance air-quality controls. The coal units that will continue to operate into the future are well-controlled for sulfur dioxide and nitrogen oxides.
We expect to invest another $5 billion to $6 billion in the next decade as we prepare for expected new environmental regulations.
|NV Energy’s Harry Allen Station|
Crosswhite: Southern Company is committed to acting in the best interest of the individuals, families and businesses that we serve. We are taking the same approach with regard to EPA compliance and considering an array of options to comply with the new EPA rules, including retiring or retrofitting existing generation, investing in transmission, and adding new generation.
We currently have approximately 20,000 MW of coal-based generation. Based on our continuing analysis of the final MATS rule, Southern Company’s strategy now calls for approximately 13,000 MW to be highly controlled and preserved for the long term. Of the remaining 7,000 MW, up to 3,000 MW are expected to retire by 2016, and the other 4,000 MW will continue to be evaluated for retirement or fuel switching to natural gas or other fuel sources.
It bears emphasizing that we are making strategic infrastructure investments today to deliver benefits to our customers in the years to come.
Since 1990, Southern Company has invested approximately $9 billion to put our own environmental technologies to work for customers. In that time frame, the Southern Company system has reduced SO2 and NOx emissions by 70 percent while increasing electricity generation by around 40 percent to meet customers’ growing energy needs.
The company plans to invest more than $3.5 billion over the next three years to comply with existing environmental statutes and regulations–including compliance costs associated with the MATS rule–and anticipates removing an even higher percentage of emissions.
We will consider all alternatives for future generation needs to most effectively serve our customers.
Heidtbrink: At KCP&L, we approach compliance with EPA rules by having a long-term focus. Advanced scenario planning and business analysis to prepare for the potential rules, rather than waiting for the final rulemaking, has proved to be critically important; however, even after analyzing market conditions and scenario planning, we wait to make decisions in order to understand the final outcome of the rulemaking process.
There are several options besides retiring or retrofitting coal plants. We have enhanced the efficiency of our current units, resulting in improved unit performance. We have invested in renewables and energy efficiency, which has added emissions-free generation resources to our portfolio.
We will consider partial retrofits, which would allow us to consider each unit at one station separately as we make decisions to comply with EPA rules.
Geraghty: NV Energy has natural gas and coal-fueled units affected by EPA’s regional haze Best Available Retrofit Technology (BART) rules and the Mercury and Air Toxics Standards (MATS). For our gas-fueled BART units, we will be installing low-NOX burners and over-fired air systems, as well as eliminating fuel oil as a backup fuel source. All of NV Energy’s coal units have baghouses for particulate control, and all but one have sulfur dioxide removal.
For our coal-fueled BART units, compliance will require low-NOX burners and selective noncatalytic reduction (SNCR) installation. Only one NVE coal unit will need additional controls for MATS compliance, and we anticipate installing a dry sorbent injection system on that unit.
|NV Energy’s Reid Gardner|
Besides retirement and retrofitting for compliance, NV Energy also considers a conversion to gas as an alternative.
ELP: The EPA wants utilities to focus on emissions while state regulators focus on reliability and costs. How do you find a balance?
McCullough: We think it’s critical that all of those factors–the needs of electricity customers, costs, reliability and the desire for a cleaner environment–be considered as we transform the way we produce and deliver electricity in this country.
As always, we are committed to finding the solution that provides affordable, reliable electricity for our customers, whether that is a retirement, retrofit, refueling or some other solution.
Trent: In serving our customers, we work hard to strike a balance between affordable, reliable and increasingly clean energy.
As EPA rules are being developed, for example, we provide data and input to recommend the rules incorporate enough flexibility to allow us to comply without putting undue burden on our customers.
We also work hard to keep our state regulators well informed. For example, our long-term integrated resource planning process, which is discussed at the state level, includes a comprehensive overview of all current and expected EPA regulations, which informs unit retirement and capital investment decisions.
Crosswhite: Southern Company’s responsibility is to provide our customers with clean, safe, reliable and affordable energy. Our state regulators clearly expect us to balance all of these considerations. We will continue to work to provide exceptional service at a low cost while minimizing our environmental impact.
Heidtbrink: The primary objective of our planning process is doing exactly this: finding balance. We look for long-term solutions that meet current and projected environmental regulations while at the same time reliably meeting our customers’ needs at the lowest reasonable cost. We routinely evaluate many alternative resource plans under a wide range of future scenarios, looking for that low-cost solution for our customers. It is a challenging puzzle to solve given the ever-changing regulatory environment.
Timing is the biggest gap. While the EPA would prefer utilities to take action on emissions-related issues sooner rather than later, state regulatory commissions don’t want utilities’ taking action that would unnecessarily increase retail rates.
One mechanism that has helped us find balance is the preapproval process. By giving us the option to present our recommended plan to comply with environmental rules, we obtain feedback, opinions and, ultimately, preapproval before ever executing and spending money on a project. This preapproval process we have in Kansas is the best path forward for all parties involved, from the utility to the customer to the shareholder.
Geraghty: The Public Utilities Commission of Nevada requires NV Energy to use a Life Span Analysis Process to determine its options when faced with new environmental rules or when an asset is within 10 years of its planned retirement date. Our commission has been active in examining this issue for our customers.
NV Energy is required to file a triennial integrated resource plan, and it is through that process where balance between policy, regulation, costs and reliability is addressed.
ELP: What are the pros and cons of the coal-to-gas shift? How does this impact your customers?
McCullough: The shift to natural gas from coal for electricity generation can be good for customers, who get the benefit of lower fuel costs as long as gas prices remain low. The development of shale gas resources also has provided economic benefits in the states and communities where we operate. We’ve seen significant increased electricity load in our service territory associated with shale gas processing, and we would expect to see more increases as the natural gas boom progresses.
The con for electricity generators is that the shift has created a downward pressure on energy prices. We also run the risk as a nation of becoming over-dependent on natural gas–a fuel with a historically volatile cost profile–for electricity production. This could ultimately hurt customers, the economy and the reliability of the system, which is why we believe we need to maintain fuel diversity.
Trent: Natural gas-fired combined-cycle plants offer a variety of benefits to the environment, the electric system and our customers. Combined with the retirement of older, less efficient coal-fired units, new natural gas units increase our fuel supply diversity in many areas, reduce environmental emissions, and allow our customers to benefit from today’s low natural gas prices.
There are a number of uncertainties, including fluctuating fuel prices and potential carbon regulation, and our diverse generation portfolio allows us to respond to market changes while meeting our obligation to provide affordable, reliable, increasingly cleaner power. We should avoid an all-gas, all-the-time future. Maintaining fuel diversity is crucial.
Crosswhite: Like many other utilities, Southern Company is generating more energy from natural gas than ever before. Historically, we have generated about 70 percent of our power from coal and 11 percent from natural gas. Last year, our generation mix included 36 percent coal and 45 percent natural gas.
Although we have shifted away from coal, we will avoid a generation mix that is too dependent upon any one fuel source. Natural gas is important, but it’s not a comprehensive cure-all.
Southern Company delivers value to our customers by leveraging the diversity of our generation fleet. By 2020, we anticipate being able to generate approximately 35 to 55 percent of our electricity from natural gas and 25 to 45 percent from coal, enabling our company to minimize costs to customers by utilizing the lowest-cost fuel source.
Combined with investments in new nuclear and other generation resources, our increasingly diverse portfolio will enhance Southern Company’s ability to deliver value to our customers over time.
Geraghty: The coal-to-gas shift has been beneficial to our customers. Our total cost to provide the energy needs of our customers has reduced over time, and that reduction in cost is a direct pass-through to our customers.
Some of the pros include reduced emissions, including CO2; reduced energy and capacity prices; and advancement in combustion turbine technologies and maintenance practices.
The cons include the reduced employment in coal plants and mines, coal supply and inventory management for the plants and the sudden change in operating profiles.
|The heavy lift derrick moves the 460-ton CR10 cradle, the first major lift at Vogtle 3 and 4 construction site.|
ELP: Do you think low-cost natural gas will last to 2040 and beyond as many energy experts predict? Is your utility planning accordingly?
McCullough: Gas prices likely will remain relatively low for the foreseeable future, but no one can guarantee how long that will be and what forces could cause the same price swings we have seen with natural gas and other commodities in the past.
By 2040, most of the existing coal plants in this country will be retired, and the existing nuclear plants will be past their license extensions. If we continue to rush to gas and exclude other fuels from our long-term generation plans, we could be looking at a single-fuel electricity economy in the future.
Overdependence on one fuel is a dangerous place to find ourselves as a nation. We need a balanced energy portfolio. To get there, we believe we need a national energy policy that will serve as a road map for how we will generate electricity and maintain a diverse fuel mix while meeting the energy needs of tomorrow.
Natural gas should be a strong part of that balance.
Trent: Increased domestic reserves, largely due to the increasing yield of shale fracturing, “fracking,” are promising. We’ve recently brought new natural gas plants online to pass on the cost benefit on to our customers.
Having said that, we know two things. First, no one is very good at forecasting 15 years ahead. Second, natural gas prices will be volatile. We need a well-balanced approach to our generation mix to ensure continued reliability and cost control.
|Southern Co.’s Plant Barry CC Units|
Crosswhite: We certainly hope that natural gas will remain a low-cost generation option well into the future.
While we cannot predict long-term fuel price trends, there are clearly some unanswered questions that could affect the price of natural gas over time. These uncertainties include the future regulation of fracking, demand impact of new gas generation and fuel switching, development of an export market, adequacy of pipeline and storage infrastructure, and credit quality of certain producers.
Southern Company is addressing this uncertainty and delivering customer value by developing the full portfolio of energy resources: new nuclear, 21st-century coal, renewables, energy efficiency, as well as natural gas.
Heidtbrink: “Low” is a relative term. By 2040 we will probably see a new standard of what is considered high and low. Historically, natural gas prices have been very volatile. We also know that baseload generation is the gravity that keeps gas prices in check. The less coal is utilized as a fuel source, the higher gas prices will be; and less coal means less downward pressure on natural gas prices.
Despite all of that, unfortunately, this isn’t something that can be predicted that easily. For us, the best answer, given the amount of uncertainty, is to have a balance. We’ve diversified our portfolio with coal, nuclear, natural gas, energy efficiency and renewable sources of fuel.
Geraghty: We use a forward gas curve that is scrutinized internally and through filings made with our regulatory commission. Those plans are required to be filed every three years, and some elements of our planning require annual updates.
Our current forward-looking view of natural gas prices has been coming down over the past few years, but we do not have a curve that shows gas prices’ staying at current levels until 2040.
With regard to planning, the supply or demand-side resources that NV Energy may deploy in the future are very dependent on that forward view of natural gas prices, as well as the unknown potential for greenhouse gas (GHG) costs. As that view of natural gas and GHG costs has changed over the last few years, so have our resource plans changed.
ELP: For gas-fired power plants, is pipeline service becoming a challenge? How so?
McCullough: Pipeline service is a challenge and concern because many gas plants in the Midwest are on interruptible pipeline capacity. This means on a peak-demand day, the fuel supply to the gas-fired plant may get cut.
There are efforts under way to align the natural gas and electricity markets to address issues like pipeline capacity and location, pricing and scheduling protocols, which need to be coordinated to prevent reliability concerns. FERC (Federal Energy Regulatory Commission), AEP and many other industry players are engaged in trying to develop a plan to resolve these issues, which needs to happen by the winter of 2015-2016 when nearly 50,000 MW of coal-fueled generation is scheduled to be retired in the United States.
Crosswhite: Companies across our industry are turning to low-cost natural gas to provide for customers’ energy needs, and Southern Company is no exception; however, as the industry shifts toward this resource, there is a growing need to build out the infrastructure–both pipelines and storage–to support the new natural gas finds’ being developed across America.
Our ability to deliver adequate supply to where it’s needed most will directly impact the U.S. electric utility industry’s ability to leverage this resource for the benefit of customers.
The need for infrastructure development is one of many reasons why Southern Company remains measured in increasing its dependence on natural gas. Today we are investing in building the full portfolio that will enable us to best serve our customers over time.
Heidtbrink: Gas pipeline infrastructure isn’t becoming a challenge; it already is a challenge. Capacity especially becomes an issue during the winter months when utilities experience peak usage and must compete with residential gas heating to utilize natural gas generation.
As the country becomes increasingly dependent on natural gas generation, this challenge is increasing. Having multiple generating resources in an area that are tied to the same pipeline presents new risks for that area as multiple plant failures could occur simultaneously due to the loss of fuel supply.
Geraghty: Not for NV Energy’s generating assets. NVE and our regulatory commission have adopted a strategy that provides for firm pipeline capacity associated with our expected natural gas usage.
A new pipeline came into service in Nevada within the past 18 months, and another pipeline recently raised its capability. We are always looking at future needs, however, and there will be a need for more pipeline capacity in the future.
To read the interview in its entirety, please visit http://elp.com.