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When it comes to the Clean Power Plan, many utilities are already ahead of the curve because they are not sure exactly what’s around the corner.
Executives with numerous power companies spoke about the CPP Final Rule last month at the Wolfe Power Research and Gas Leaders Conference in New York. Most touted their companies’ strengths as investment choices and financial entities, and many of those laid out their aggressive moves toward renewable, low-emission power generation and energy-efficiency projects, according to webcasts from the event.
The Clean Power Plan calls on states to lower carbon dioxide emissions at least 30 percent from 2005 levels by 2030. The final rule released in early August was the culmination of years’ worth of back and forth between energy firms, states and the U.S. Environmental Protection Agency.
“You can’t say the EPA didn’t provide access to the industry,” Warner Baxter, CEO of Ameren Corp., said during a Wolfe panel discussion which included executives from WEC Energy Group, PPL Corp., American Electric Power and others. Baxter applauded that the EPA made some requested changes in the CPP from its proposed rule to the final release. A big question is whether utilities and states can meet all of those reduction goals in the time allowed.
“The jury is still out,” Baxter said, but adding that “there was a great deal of dialogue. It wasn’t done blindly, that’s for sure.”
Capital budgets at most, if not all, utilities already reflect the pressures building behind the CPP and previous federal edicts on regional haze and other air emissions. Brian Tierney, chief financial officer at AEP, noted that his company had reduced the coal-fired portion of its generation mix from 74 percent to 51 percent, largely through retirement of longtime units. AEP also has raised its natural gas-fired share from 17 to 28 percent while also making 7,500 MW worth of wind power through purchase agreements.
Tierney defended AEP’s practice of buying wind generation from outside producers rather than building its own farms. “You hear other companies talk about what they own, but if they’re not buying it nothing happens,” he said. “Across our system we’re buying significant amounts of wind.”
Other utilities may be taking different routes, but most are headed in the same direction as AEP, judging from the Wolfe presentations. Dominion Resources plans to build 400 MW in solar power capacity by the end of 2020 at a cost of close to $700 million. “Solar will be a major part of our compliance,” Dominion Chief Financial Officer Mark McGettrick said.
PPL has planned $18 billion in capital expenditures over the next four years to strengthen the safety and reliability of the transmission system while also installing close to 500 MW in wind and solar projects.
The key with all these clean-power renewables, of course, is the challenge of their intermittency upon the power grid, PPL’s CEO William Spence pointed out. “You’ll need larger transmission projects to get from Point A to B,” he said. “You might see some of these transmission projects in the next five years at least begin.”
The target date of the Clean Power Plan rule is 2030, but at least some utility CEOs are concerned about the first round of requirements set for 2022. WEC Energy CEO Gale Klappa said the “one little wrinkle” in the CPP is the near-term milestone. If utilities are reading the rule correctly, he added, the EPA is expecting states to get two-thirds of the way to their ultimate goal in only seven years.
“That is a tall order,” Klappa said. As CEO of Wisconsin Energy’s parent company, he noted that state is required to reduce C02 by 41 percent from 2005 levels by 2030. Getting two-thirds there would require more than a 30-percent reduction by 2022.
“We’d have to build seven wind farms by 2022 that are the largest of the wind farms in Wisconsin,” Klappa predicted. “These times take a little time. There’s going to be some interesting challenges.”
All of this uncertainty is complicated even further by the legal fight against the CPP waged by more than a dozen states and companies. Even so, utilities must respond to the CPP regardless of whether it survives in part, as a whole or not at all.
“If the litigation does not result in a stay, we’re all going to have to do significant planning and significant capital investment,” Klappa said. “You can’t just wait until 2021 ” for the Supreme Court to decide the rule stands or it gets modified or gets pushed to another court.
“You can’t run the risk of not meeting what may be the 2022 goal,” he warned.
Utilities will need to invest in clean energy generation, but might also mitigate the impact of the CPP with energy storage technologies and even carbon trading to mitigate the price impact.
Because, ultimately, the biggest impact of this cost-wise will be on the customers, Klappa pointed out.
“We have to find a way that doesn’t cause a consumer revolt,” he said. “In Wisconsin we have 500,000 manufacturing jobs. We have a moral duty to keep rates as low as we can.”