Electric co-ops brace for costs in new EPA rules

Chris Hamon: New rule doesn’t credit the state for pre-existing renewable power resources.

New regulations issued Aug. 3 by the Environmental Protection Agency are aimed at reducing carbon emissions produced by the nation’s power sector.

Electric utility officials say the rules bring an increased cost.

Electric cooperatives, municipal utilities and the Show-Me State’s government agencies are working through the EPA’s final rule to determine how high the cost will be.

Under the landmark Clean Power Plan supported by President Barack Obama, emissions would be cut by 32 percent to pre-2005 levels.

Each state has its own federally required goal, and Missouri’s is to decrease carbon pollution by 37 percent from 2012 levels by 2030. In a state where 80 percent of electric energy is produced from cost-conscience coal, significant changes to methods of generation and the cost of power are on the horizon.

“It’s going to drive rates up for us. We just don’t know how much yet,” said Joe Wilkinson, spokesman for Springfield-based Associated Electric Cooperative Inc., which produces power for 39 of Missouri’s 40 electric co-ops, as well as nine in Oklahoma and three in Iowa.

Since 1990, members of Missouri’s co-ops spent roughly $1.1 billion to make the state’s coal-fired plants more efficient, which Wilkinson said resulted in a 90 percent reduction in emission levels. AECI currently is reviewing new methods of generating power, but new construction won’t come without passing the cost along.

Wilkinson said higher rates won’t come easy for the 50 percent of its membership – roughly 1 million customers – whose family income is less than $50,000 a year.

“When you look at what percentage of their disposable income goes to paying their utility bill, the last thing they need is to have that increased,” said Tom Houston, general manager of Webster Electric Cooperative, which serves around 16,000 members and manages 19,000 meters in seven counties around its Marshfield headquarters.

City Utilities spokesman Joel Alexander said it’s too soon to tell the financial impact of the new regulations on Springfield customers, but CU faces the same challenges as co-ops.

“It’s going to take a degree of conversation to see what changes we need to make as a state,” Alexander said.

Stakeholders plan to meet Sept. 23 with the Missouri Department of Natural Resources, which is tasked with submitting the initial state plan to the EPA next September.

Pre-emptive steps
Chris Hamon, CEO of Branson-based White River Valley Electric Cooperative, said DNR created a state plan based on the draft rule released in mid-2014 when the goal was 21 percent reduction.

Officials now will have to start over.

Hamon said the rule doesn’t take into account coal efficiency modifications and renewable resource generation applied before 2013.

“That’s a little frustrating,” he said. “It’s almost like they said, ‘Because you didn’t wait to do it until we told you, we’re not going to count the benefit of it.’”

Ted Zeugin, spokesman for Bolivar-based Southwest Electric Cooperative, said the co-ops are doing their part to utilize renewable energy through AECI from six wind farms brought online in Missouri, Oklahoma and Kansas, and hydroelectric power purchased from Southwestern Power Administration. They also ditched high-sulfur coal – plentiful across the state – for low-sulfur alternatives purchased from Wyoming.

“We’ve done this way before it was politically correct,” Zeugin said, adding those steps along with energy efficiency incentives in the form of customer rebates – estimated at $40 million across the state since 2008 – were implemented before the EPA’s cut-off date.

For Southwest, Webster and White River Valley co-ops, the percentage of 2014 gross revenues spent purchasing power was between 50 percent and 63 percent, and an increase to those costs could affect operations.

A study released in July by the National Rural Electric Cooperative Association found even a 10-25 percent increase to electricity prices between 2020 and 2040 could result in average job losses of 1.2 million to 1.5 million across the nation. In rural areas, co-ops are projected to lose between 493,000 and 839,000 jobs.

“Any sort of price pressure decreases your competitiveness,” Webster Electric’s Houston said.

“Any money they have to spend into the business may be money they can’t spend to expand, pay salaries or hire more positions.”

Seeking solutions
One phase of the EPA’s rule is a move to low-emission plants and zero-emission renewable sources.

CU’s Alexander said plans under consideration include converting James River Power Plant back to its original design as a natural gas facility and expanding renewable options.

Currently, solar, wind and hydroelectric accounts for between 8 and 10 percent of CU’s power portfolio.

“All the renewables are where they want to go,” Wilkinson said of the EPA rule, adding while AECI is considering additional investments, power dependent on natural elements is unreliable and unpredictable.

Peak production of wind and solar doesn’t line up with peak usage and has to be supported by baseload power, typically from natural gas.

“We have a lot of natural gas capacity, but we run our coal units first because they’re cheaper,” Wilkinson said, adding renewables will make up close to 20 percent of AECI’s energy resources by the end of 2016, up from 15 percent in 2014. “Under this regulation, it’s very likely we’re going to be running those gas units more and just using the coal units as backup.”

Floyd Gizlow, spokesman for the Missouri Public Utility Alliance, said the timeline for coal to natural gas conversion is between three and five years, assuming both the resource and a pipeline with sufficient capacity are nearby.

“What we’re focusing on is what’s affordable and what maintains reliability,” Gizlow said. “That’s not just installing 50 megawatts of solar panels – that’s a drop in the bucket.”

Zeugin pointed to the use of solar, wind and hydroelectricity, along with CU’s methane conversion generator at the Noble Hill Landfill north of Springfield, as viable energy resources, taken in tandem with natural gas and greater emphasis on efficiency programs.

“It’s not a silver bullet; it’s silver buckshot,” Zeugin said. “The cleanest, most efficient kilowatt is the one we don’t have to produce.”