Expect Higher Prices for Power

As coal-fired plants close, supply will dwindle

Wheeling Intelligencer
22 May 2014
By Jonathan Fahey, AP Energy Writer

NEW YORK - Electricity prices are probably on their way up across much of the U.S. as coal-fired plants, the dominant source of cheap power, shut down in response to environmental regulations and economic forces.

New and tighter pollution rules and tough competition from cleaner sources such as natural gas, wind and solar will lead to the closings of dozens of coal-burning plants across 20 states over the next three years. And many of those that stay open will need expensive retrofits.

Because of these and other factors, the Energy Department predicts retail power prices will rise 4 percent on average this year, the biggest increase since 2008. By 2020, prices are expected to climb an additional 13 percent, a forecast that does not include the costs of coming environmental rules.

The Obama administration, state governments and industry are struggling to balance this push for a cleaner environment with the need to keep the grid reliable and prevent prices from rocketing too much higher.

"We're facing a set of questions that are new to the industry," says Clair Moeller, who oversees transmission and technology for the Midcontinent Independent System Operator, which coordinates much of the electric grid between Minnesota and Louisiana.

Coal is the workhorse of the U.S. power system. It is used to produce 40 percent of the nation's electricity, more than any other fuel. Because it is cheap and abundant and can be stored on power plant grounds, it helps keep prices stable and power flowing even when demand spikes.

Natural gas, which accounts for 26 percent of the nation's electricity, has dropped in price and become more plentiful because of the fracking boom. But its price is on the rise again, and it is still generally more expensive to produce electricity with gas than with coal. Also, gas isn't stored at power plants because the cost is prohibitive. That means it is subject to shortages and soaring prices.

During the brutally cold and snowy winter that just ended, utilities in several states struggled to secure natural gas because so much was also needed to heat homes. Some utilities couldn't run gas-fired plants at all, and power prices soared 1,000 percent in some regions.

As Indiana has reduced its reliance on coal to 84 percent from 97 percent over the last decade, its power prices rose far faster than those of its neighbors and the rest of the country.

That makes things tough on customers, especially big power users like Rochester Metal Products Corp., in Rochester, Indiana. The hulking furnaces it uses to melt scrap iron consume enough electricity to power 7,000 households.

"As Indiana's price of electricity becomes less and less competitive, so do we," says Doug Smith, the company's maintenance and engineering manager.

Burning coal releases toxic chemicals, soot and smog-forming chemicals, as well as twice the amount of carbon dioxide that natural gas produces. The Supreme Court last month gave an important approval to one Environmental Protection Agency clean-air rule. That cleared the way for a new rule expected to be announced by President Barack Obama early next month.

This rule, the first to govern emissions of carbon dioxide from existing power plants, could accelerate the move away from coal - if it survives the legal and political challenges that are sure to come.

Already, the current rules are expected to force power companies to shut down 68 coal plants across 20 states between 2014 and 2017, according to Bentek Energy, a market analysis firm.

The Energy Department estimates coal plants with the output to supply 33 million homes will close by 2020.

"We haven't operated at those low levels (of generation) for at least 30 years," says MISO's Clair Moeller.

To meet high demand this past winter, American Electric Power, which serves 5 million customers in 11 states, needed to run 89 percent of the coal plants it will soon have to shut down, says AEP CEO Nick Akins.

This raises concerns that the power system soon won't have enough wiggle room to handle extreme weather, making blackouts more likely.

"It's a warning of what may be to come," Moeller says.

EPA administrator Gina McCarthy said pollution also imposes costs on the economy because it harms human health and the environment. And she has also forcefully promised that the coming carbon dioxide rule will keep costs in check and power flowing.

"EPA is not going to threaten electric reliability," she told a gathering of executives in Houston in March.