November 14, 2011

AEP Needs More Time for EPA Regulations

By JP Finlay

After reviewing its generation fleet, American Electric Power Co. Inc. is requesting the U.S. Environmental Protection Agency extend certain deadlines for meeting the requirements of its Cross-State Air Pollution Rule. AEP, the largest consumer of coal in the U.S., had plans to cut its plants’ emissions by 2020 and is now saying it could make those cuts by 2018. The problem is that the CSAPR’s SO2 and NOx reduction mandates begin to kick in on Jan. 1, 2012.

“We’re going to do what we can physically do. That’s all we can do,” AEP Executive Vice President of Generation Mark McCullough said Nov. 12. McCullough, speaking at the National Association of Regulatory Utility Commissioners annual meeting, said his company cannot meet the existing rule deadlines, and that shutting down the coal-fired generation necessary to comply with the rule could threaten grid reliability.

McCullough explained that of AEP’s 25,000 MW of coal generation, 11,000 MW are controlled through scrubbers and other technology. The remaining 14,000 MW pose a problem. The current schedule calls for the retirement of 6,000 MW, though what will occur with the other 8,000 MW remains unresolved.

“There’s a decision of what to do,” he said. “If you look at those 6,000 MW that are retiring, this past July they were connected to the grid 62% of the time. Reliability is a significant risk in our view.”

McCullough said some coal plants can be converted to gas plants, but the process is inefficient and costly. More reliability concerns will arise when other utilities reveal their plans to meet the EPA rule. “We also should consider the downstream impacts,” he said. He listed the impact of increased costs on consumers as a real consequence. “We have to be very concerned with how this plays out and argue for a rational timeframe that addresses reliability and costs.”

Asked if efforts to extend the EPA deadline will succeed, McCullough commended U.S. Sen. Joe Manchin, D-W.Va., for work being done in Washington, D.C., to force the EPA to do just that. “I’m hopeful,” he said about the prospects of those efforts succeeding. As for the EPA, McCullough said he understands the agency’s mission, but insisted that the agency must realize the need to give utilities more time to meet CSAPR’s requirements.

“That’s their job. We’re trying to do our job,” he said, again stressing his reliability concerns. One possible salvo for the immediate needs of the AEP territory could come from carving out specific plants for exclusion from the rule. McCullough spoke of a “safety valve provision, a mechanism to certify units that are needed for reliability,” that will be approved to run past the EPA deadline.

“We think that is helpful but not the overall answer.” The AEP executive spoke at a seminar on how utilities should evaluate risk. He was joined by Sean Riley, director of the energy intelligence group at PowerAdvocate Inc. Reilly explained that utilities with foresight fare far better than utilities that react to regulation. He also said volatility in commodity pricing is a drastically under looked segment of the market.