Trump Coal Obsession Largely Irrelevant To Electric Utility CEOs
- May 15, 2017 2:00 pm GMT
- 624 views
The Trump administration’s obsession with the coal industry has driven many of its early energy and environmental policy initiatives—with the Energy Department’s thinly veiled baseload power plant review just the latest in a string of efforts to buttress the troubled sector. But none of these policies are going to change coal’s central problem: The utility industry, far and away its largest customer, is steadily moving away from the black rock. This transition won’t happen overnight, but the direction is clear, as a close review of recent utility executive statements and company publications clearly demonstrates.
Consider the message delivered by Allen Leverett, president and CEO of Milwaukee-based WEC Energy Group, in the company’s latest annual report:
“I also believe that some form of carbon emission regulation is ultimately inevitable. As the regulation of carbon emissions takes shape, our plan is to work with our industry partners, environmental groups and the state of Wisconsin to reduce carbon dioxide emissions by approximately 40 percent below 2005 levels by 2030.
“In 2016, about half of the electricity we delivered to our customers was derived from low- or no-carbon sources such as natural gas, nuclear fuel, wind farms and hydroelectric facilities. However, we want to continue to make progress in this area. Relatively flat electricity demand growth, coupled with natural gas and coal economics, has driven us to re-evaluate our generation portfolio. Taken as a group, I want any changes that we make to reduce costs, preserve fuel diversity and keep us on a path to reducing our carbon emissions.”
In other words, there will be no new coal generation in the WEC fleet, and the company’s reliance on the fuel, currently around 50 percent of its needs, is going to drop. In particular, the company has plans to build new natural gas-fired generation in the Upper Peninsula of Michigan and close its five-unit, 359 megawatt Presque Isle facility there, which now burns roughly 1.2 million tons of coal annually according to the company, whose two electric utility subsidiaries serve more than 1.5 million customers in Wisconsin and the UP of Michigan.
Or consider the comments made by Lynn Good, chairman, president and CEO of Duke Energy, during the Charlotte, N.C.-based company’s annual meeting earlier this month:
“By retiring coal plants and bringing on more natural gas and renewables, we have already reduced our carbon emissions by nearly 30 percent since 2005. Today, we are among the top five companies in terms of renewable capacity, and we are committed to doing more.
“We have set a new goal to reduce our carbon emissions by 40 percent from the 2005 level by 2030.”
To get to that point, the company, one of the nation’s largest electric utilities serving roughly 7.4 million electric customers across six states and controlling approximately 52,000 MW of generating capacity, plans to boost natural gas-fired generation to 35 percent of its generation portfolio during the next 10 years and raise renewable output to about 10 percent, Good told the meeting.
Earlier, in releasing the company’s 2016 sustainability report, Good discussed another point that is driving many utility leaders (but that has been totally absent from any Trump administration talk)—customer expectations. “As technology and customers’ expectations evolve, Duke Energy is responding by investing in innovative new solutions to power the lives of our customers with reliable, affordable and increasingly clean energy,” Good said. “How we generate energy is more important than ever before and we’re making long-term investments that will deliver a lower-carbon future.”
(Information about Duke and its sustainability reports can be found here; a great graphic about the utility’s changing generation portfolio is below.)
And then there is this nugget offered up by Nicholas Akins, chairman, president and CEO of American Electric Power, at the company’s annual meeting in late April:
“We are making investments to create a smarter, more resilient and efficient grid that supports the integration of new technologies and cleaner resources to meet the energy needs of our customers. Over the next three years, we plan to invest $17.3 billion in capital, including $13 billion in our transmission and distribution systems and $1.5 billion in new renewable energy, to help develop the grid of the future.”
The chart below from the Columbus, Ohio-based company’s April investor meeting makes Akins’ point crystal clear—coal is certainly still a part of the mix, but the growth at AEP, which serves some 5.4 million electric customers across 11 states, will be in natural gas and renewables, just like at every other utility in the country.
Looking to the South, the picture is the same. In its just-released 2016 sustainability report, New Orleans-based Entergy points out that the amount of coal on its system, small by comparison to AEP and other Midwest utilities, has dropped from 11 percent to 7 percent in just two years, while the amount of lower-emitting natural gas-fired generation has jumped from 28 percent to 41 percent of its system needs. In addition, while not yet a major part of its generation, renewables are gaining ground.
“Technology advances are making renewable energy as well as certain distributed energy resources increasingly cost-competitive,” the company, which has 2.9 million electric customers in four states, wrote in its report (which is available here either for online reading or as a downloadable pdf). “Entergy is exploring utility-scale renewable opportunities as well as potential applications for distributed energy resources as part of our ongoing modernization efforts.”
Asked directly about the administration’s coal rescue efforts, Entergy CEO Leo Denault told Arkansas Online’s David Smith that they didn’t matter. “Our desire is to be an environmentally responsible company,” Denault said. “Whatever the administration does, that doesn’t change our point of view.”
Head west and you hear exactly the same refrain. In its draft 2017 integrated resources plan, submitted in late April, Albuquerque-based PNM Resources outlined a future that would close its remaining coal-fired generating units by 2031. Echoing the customer-centered comments made by Duke’s Good, Pat Vincent-Collawn, chairman, president and CEO of PNM Resources, said:
“Our number-one responsibility is to act in the best interests of our customers, and this plan outlines the most effective way to deliver reliable, affordable and environmentally sustainable energy going forward. Market forces are driving a rapid evolution of energy resources, and the current data clearly shows that replacing the coal in our current portfolio with a cleaner energy mix that includes more renewables and natural gas is the best, most economical path to a strong energy future for New Mexico.”
Under the terms of the plan, PNM, which serves roughly 510,000 customers throughout New Mexico, would close Units 1 and 4 of the coal-fired San Juan generating station by the end of 2022, instead of 2036 as in the utility’s previous IRP. The four-unit station has a total generating capacity of 1,684 MW; PNM owns 783 MW of the total and operates all four units. Units 2 and 3 have a capacity of 837 MW of which PNM owns 418 MW; they are being closed at the end of this year to comply with regional haze requirements under the Clean Air Act.
A bulwark of the utility’s generation fleet since it was completed in the 1970s, San Juan is no longer economically competitive the company’s draft IRP concludes: “The most significant finding of the IRP is that retiring PNM’s…share of SJGS [San Juan Generating Station] in 2022 would provide long-term cost savings for PNM’s customers…. The results of the IRP illustrate that energy needs are changing and replacing coal supply with renewable energy and more flexible generators will save money in the long run.”
The draft IRP (which is available here) also indicates that it would be economic for the utility to “exit” its 13 percent stake in the 1,540 MW Four Corners coal-fired plant when its existing coal supply agreement expires in 2031; PNM’s previous IRP included a post-2036 date for closing/exiting from this facility. “This action would eliminate coal from PNM’s generating fleet,” PNM wrote.
And much like its larger neighbors to the east, regardless of the Trump triumph, PNM is planning for the eventual imposition of carbon controls. “The near-term outlook for explicit carbon costs has been altered by the 2016 presidential election,” the utility noted in the draft IRP. “Implementation of the Clean Power Plan is on hold for judicial review and the key provisions are being unwound by the EPA under a new executive order. Nonetheless, PNM is continuing to model a cost for each ton of CO2 emitted in each portfolio’s projected operation. PNM expects that a replacement for the CPP is likely to be implemented at some point in response to continued international calls that carbon emissions should be addressed.”
Finally, even in deep-red Idaho to the north, Boise-based Idaho Power is steadily trimming its reliance on coal-fired electric generation. Just two years ago, coal accounted for 35.7 percent of its generation mix, today it is less than 25 percent—and about to fall even further. Earlier this month the utility, which serves approximately 535,000 customers in Idaho and parts of eastern Oregon, filed a settlement agreement with the Idaho Public Utilities Commission under which it would seek to close the 522 MW, two-unit North Valmy coal-fired generating station by 2025. Under the terms of Idaho Power’s proposal Unit 1, totaling 254 MW, would be shut in 2019 while Unit 2, totaling 268 MW, would be closed no later than 2025; earlier the utility had planned to run the units to 2031 and 2035, respectively. Idaho Power co-owns the facility with Nevada Energy and now must reach an agreement with its utility neighbor, but since NV Energy had previously said it hoped to close the units by 2025 as well the two companies should be able to hammer out a plan for shuttering the coal plant by that date. The specifics may remain up in the air at the moment, but the end result is clear—the plant is going to close, likely sooner than later.
No matter where you look, the picture is the same: Electric utilities are taking a close look at coal and finding that it no longer makes economic sense. The Trump administration may not be willing (or able) to admit this, but it is obvious to everyone else—particularly those making the investments decisions in the electric utility industry
In a post 18 months ago about nuclear power (read it here), I wrote that believing in the economics of large nuclear requires utilities to believe in impossible things; the same can be said today of the Trump administration and its promise to restore coal’s lost luster.