AEP says major job and generation loss from EPA regulations

American Electric Power (NYSE: AEP) released the company’s plan for complying with proposed regulations from the U.S. Environmental Protection Agency (EPA) that would impact coal-fired power plants. Based on the regulations as proposed, AEP’s compliance plan would retire nearly 6,000 MW of coal-fired generation; upgrade or install new emissions reduction equipment on another 10,100 MW; refuel 1,070 MW of coal generation as 932 MW of natural gas capacity; and build an additional 1,220 MW of natural gas-fired generation.

The cost of AEP’s compliance plan could range from $6 billion to $8 billion in capital investment through the end of the decade. High demand for labor and materials due to a constrained compliance time frame could drive actual costs higher than these estimates. The plan, including retirements, could change significantly depending on the final form of the EPA regulations and regulatory approvals from state commissions.

“We support regulations that achieve long-term environmental benefits while protecting customers, the economy and the reliability of the electric grid, but the cumulative impacts of the EPA’s current regulatory path have been vastly underestimated, particularly in Midwest states dependent on coal to fuel their economies,” said Michael G. Morris, chariman and CEO of AEP. “We have worked for months to develop a compliance plan that will mitigate the impact of these rules for our customers and preserve jobs, but because of the unrealistic compliance timelines in the EPA proposals, we will have to prematurely shut down nearly 25 percent of our current coal-fueled generating capacity, cut hundreds of good power plant jobs, and invest billions of dollars in capital to retire, retrofit and replace coal-fueled power plants. The sudden increase in electricity rates and impacts on state economies will be significant at a time when people and states are still struggling.”

Although some jobs would be created from the installation of emissions reduction equipment, AEP expects a net loss of approximately 600 power plant jobs with annual wages totaling approximately $40 million as a result of compliance with the proposed EPA rules.

“Although discounted by some, the potential impacts on the reliability of the transmission system, particularly in the Midwest, are significant. The proposed timelines for compliance aren’t adequate for construction of significant retrofits or replacement generation, so many coal-fueled plants would be prematurely retired or idled in just a few years. AEP’s compliance plan alone would abruptly cut generation capacity in the Midwest by more than 5,400 MW. Depending on the year, another 1,500 MW to 5,200 MW of AEP generation would be idled or curtailed for extended periods as pollution control equipment is installed,” Morris said.

AEP’s current includes permanently retiring the following coal-fired power plants:

Glen Lyn Plant, Glen Lyn, Va. – 335 MW (retired by Dec. 31, 2014);
Kammer Plant, Moundsville, W.Va. – 630 MW (retired by Dec. 31, 2014);
Kanawha River Plant, Glasgow, W.Va. – 400 MW (retired by Dec. 31, 2014);
Phillip Sporn Plant, New Haven, W.Va. – 1,050 MW (450 MW expected to retire in 2011, 600 MW retired by Dec. 31, 2014); and
Picway Plant, Lockbourne, Ohio – 100 MW (retired by Dec. 31, 2014).

AEP would retire generating units at the following locations but continue operating some generation at the sites:

Big Sandy Plant, Louisa, Ky. – Units 1 and 2 (1,078 MW) retired by Dec. 31, 2014; Big Sandy Unit 1 would be rebuilt as a 640 MW natural gas plant by Dec. 31, 2015;
Clinch River Plant, Cleveland, Va. – Unit 3 (235 MW) retired by Dec. 31, 2014; Units 1 and 2 (470 MW total) would be refueled with natural gas with a capacity of 422 MW by Dec. 31, 2014;
Conesville Plant, Conesville, Ohio – Unit 3 (165 MW) retired by Dec. 31, 2012; Units 5 and 6 (800 MW total) would continue operating with retrofits;
Muskingum River Plant, Beverly, Ohio – Units 1-4 (840 MW) retired by Dec. 31, 2014; Muskingum River Unit 5 (600 MW) may be refueled with natural gas with a capacity of 510 MW by Dec. 31, 2014, depending on regulatory treatment in Ohio;
Tanners Creek Plant, Lawrenceburg, Ind. – Units 1, 2 and 3 (495 MW) retired by Dec. 31, 2014; Unit 4 (500 MW) would continue to operate with retrofits; and
Welsh Plant, Pittsburg, Texas – Unit 2 (528 MW) retired by Dec. 31, 2014; Units 1 and 3 (1,056 MW) would continue to operate with retrofits.

The two coal-fueled generating units at the Northeastern Plant (935 MW) in Oolagah, Okla., would be idled for a year or more while emission reduction equipment is installed. Both units would be idled beginning Jan. 1, 2016. One unit would return to service by Dec. 31, 2016. The other unit would return to service by Dec. 31, 2017.

AEP will complete construction of the 580 MW Dresden natural gas-fired power plant in Dresden, Ohio, in 2012.

In addition to the retrofits, AEP would install or upgrade emissions reduction equipment at seven other coal-fired power plants in Arkansas, Indiana, Louisiana, Ohio and Texas.

AEP has shared its compliance plan with PJM Interconnection, Southwest Power Pool and North American Electric Reliability Corp. for use in their evaluation of the impacts of EPA’s proposed rules.

“We will continue to work through the EPA process with the hope that the agency will recognize the cumulative impact of the proposed rules and develop a more reasonable compliance schedule. We also will continue talking with lawmakers in Washington about a legislative approach that would achieve the same long-term environmental goals with less negative impact on jobs and the U.S. economy,” Morris said. “With more time and flexibility, we will get to the same level of emission reductions, but it will cost our customers less and will prevent premature job losses, extend the construction job benefits, and ensure the ongoing reliability of the electric system.”

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