Give the President what He wants and Give it to Him Hard!

AEO 2011 Electric Generation by Fuel

That was the message from American Electric Power in announcing that it will retire 6,000 MW of coal fired power generation to comply with new US EPA regulations.  The stunning announcement by AEP on June 9th rattled power markets and sent politicians running for cover.  The decision will cost more than 600 jobs and $40 million per year in payrolls.

On June 10th US EPA spokesman Roy Seneca said:

“These long-overdue Clean Air Act standards will slash hazardous emissions of mercury and other acid gases, preventing thousands of asthma and heart attacks and premature deaths. Utilities have known for decades that these standards — which are still in the proposal stage and have a built-in 3-year-compliance timeline, have been coming for decades. They also know that they are free to approach EPA with serious, fact-based compliance plans, and that state governments also have the ability under the law to seek more time for the plants in their jurisdictions.”

AEP Chairman and CEO Mike Morris said the utility will take other actions in its proposed compliance plan including adding advanced emissions reduction equipment on 10,100 MW of remaining coal capacity, converting 1,070 MW of coal generation to 932 MW of natural gas, and adding 1,220 MW of new natural gas-fueled generation to restructure its power portfolio.

AEP to Replace coal with Natural Gas Generation

AEP said in a press release that the cost of the EPA compliance plan was between $6 billion to $8 billion in capital investment over the next 8 years but could go higher because of the high demand for labor and materials caused by EPA’s aggressive 3-year compliance time frame which AEP has called unreasonable. The costs of the compliance plan could also change based on the final form of the EPA regulations and the actions by state regulatory commissions that must approve the plan and fund it likely through higher rates.

48,000 MW of Coal Power Plants Affected by EPA Rules

AEP’s announcement is the first of what likely will be a string of bad news stories resulting from the proposed EPA’s Clean Air Transport Rule (CATR) and Utility Maximum Achievable Control Technology (MACT) rulemaking to limit nitrogen oxides, sulfur dioxide and mercury emissions by the electric power industry.

EPA Rules Cost the Economy $184 Billion

A economic impact study of the proposed EPA rules done by NERA, a nationally recognized economic analysis consultant, hired by a power industry trade group, the American Coalition for Clean Coal Electricity said the rules will force 48,000MW of coal fired generation to shut down at a cost of about $18 billion per year or $184 billion total to consumers for added coal unit compliance costs, fuel price impacts, and the costs of replacement energy and capacity including the stranded cost of power plants that still have substantial remaining useful life and thus revenue requirements that will also have to be recovered in higher rates.  NERA estimated average U.S. retail electricity prices in 2016 would increase by about 12%, making the CATR and MACT rules the most expensive EPA regulations ever imposed on power plants.

So what?

So stumping for votes for reelection in West Virginia, Ohio, Virginia, Kentucky and Indiana just got a lot tougher for President Obama who must not only defend these new EPA rules but also the economic impacts they cause on industry, job creation and economic recovery in Midwest, South and Texas where coal is important.


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