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Clouds Of Uncertainty

Forecasting the future has always been a full-time job for electric utilities. Population trends, business activity cycles, summer and winter weather patterns—planners keep an eye on many things to figure out how much electricity people will want today, next year, even 10 and 20 years from now.

Electric utilities use these short- and long-term predictions to set operating schedules for their existing power plants, buy fuels, decide when they’ll need to build new power plants—and work out what everything will cost. It’s a tough job.

A flurry of new rules from the U.S. Environmental Protection Agency is making the job even harder. These new rules add another level of expenses that will dramatically increase the cost of electricity.

Throughout the United States, electric utilities have made huge investments to reduce six kinds of emissions since the Clean Air Act of 1970 set a new direction for public policy with many laws and regulations.

“Train wreck” timeline: derailing utilities’ plans
During those four decades, utilities could count on an orderly regulatory process. As proposals for new rules came along, there’d be ample time for the EPA to talk with industry pros about the kinds of technology available or what still needed to be developed to do the things required by new rules. Then the EPA would set long-range timelines, often spread out over 10- and 15-year chunks, to reach a series of goals for each item.

Typically, as stricter rules came into effect for one item, there wasn’t much new action concerning the other five going on at the same time. Big changes were staggered over long intervals to allow utilities time to find the best technology, line up the money to pay for new equipment, and then install it.

Electric utilities planned accordingly, with new rules and expenses spread out over long periods of time.

Today, things are very different.

A colorful new slide showing up in talks at energy conferences highlights the EPA’s new, faster approach. Dates march across a timeline with dots and arrows pointing to events through the year 2017. Each mark notes proposed rule changes, plus the starting point for each phase of new regulations, all on top of old existing rule dates. Events are crowded so close together that folks in the electric utility industry call this “the train wreck slide.”

The coming collision of so many overlapping rules is derailing electric utility companies’ previous plans, plans that were made in good faith according to laws then in effect and based on careful forecasts.

This new timeline includes new rules regulating old items, plus rules about many new substances. All these new rules mean refiguring budgets for a lot of different possibilities. Planning how to deal with each item must be done separately, and then all the different things put into a utility’s master plan.

Utilities’ costs may rise to meet new guidelines
A look at just one item, the Clean Air Transport Rule, shows how the new rules change previous predictions and plans. The Clean Air Transport Rule adds new limits for certain already-regulated emissions from power plants.

In 2002 leaders at one Kentucky power generating co-op, Big Rivers Electric Corporation based in Henderson, decided to add new equipment at a coal-based power plant to meet the regulations timetable then in effect. The special new scrubber began operating in 2006.

Mark Bailey, president and CEO of Big Rivers, says, “We took a proactive role back then to install this technology to reduce sulfur-dioxide emissions by 50,000 tons (about 60 percent system-wide). Now (under the Clean Air Transport Rule), the EPA wants us to reduce emissions by another 12 percent company-wide starting in 2012. Even if we could find some newer technology to do that, there is no way to get all the permits in time to comply, much less have enough time to design, engineer, order, and erect it.”

Other utilities that rely on coal to produce electricity face similar problems as they examine the effect of new regulations. East Kentucky Power Cooperative (EKPC), based in Winchester, uses coal and natural gas at separate plants to generate about 2,900 megawatts of electricity. EKPC has already spent $666 million on a variety of emissions-control technologies and devices at its coal-based Spurlock Station.

Tony Campbell, CEO of EKPC, discussed the effect of new EPA rules at a recent Kentucky Public Service Commission meeting. Campbell noted that under one EPA proposal, the electric utility may not get credit for much of its previous investments and the reductions in emissions it has already accomplished.

Proposed new EPA computer modeling techniques also seem likely to produce data far different from the actual physical measurements that have been the rulebook standard for many years.

As utility companies revise their operating plans to play by a different and much thicker rulebook, they expect their expenses to rise as they make changes to meet the new guidelines. In turn, Kentucky electricity consumers will continue to see the rates on their monthly electric bills go higher.


UTILITIES ARE “STARVING FOR PREDICTABILITY”

As electric utilities consider how best to change their operations to meet new rules, they must answer many questions:

• When will energy-efficiency programs reduce demand?

• When will an economic recovery increase demand?

• What will happen to the price of coal or the price of natural gas?

• Will large amounts of energy from sun and wind be widely available in Kentucky? What will each cost?

In an uncertain world, Tony Campbell, CEO of East Kentucky Power Cooperative, says, “The whole industry is starving for predictability.” So today’s electric utilities are preparing best- and worst-case estimates to help guide decisions about the future.

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