American Electric Power, one of the nation’s biggest coal utilities, downplayed the impact of EPA regulations to its investors while forecasting a doom-and-gloom outcome for Washington policymakers.
AEP has come under scrutiny after announcing on June 9 that it would have to close five of its coal-fired power plants and post a net loss of 600 jobs because of Clean Air Act regulations.
Other utilities employ this strategy, too. Investors have different concerns than average Americans and lawmakers, after all. But the seemingly contradictory comments are drawing renewed scrutiny as EPA Administrator Lisa Jackson works to finalize a slew of controversial standards for major polluters that could potentially change the economy. EPA plans to regulate everything from mercury to greenhouse gases. Republicans have attacked those regulations and introduced legislation to curb the agency’s power.
“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,” AEP chairman and CEO Mike Morris said in a statement last week. “The sudden increase in electricity rates and impacts on state economies will be significant at a time when people and states are still struggling.”
A week earlier, Morris had sought to allay investors’ concerns about the plant closures and their effect on AEP’s bottom line at a June 1 investors conference.
“On balance, we think that is the appropriate way to go,” Morris said of the closures. “Not only to treat our customers, but also to treat our shareholders, near and long term, with that small amount of the fleet going off-line.”
Most of what AEP said it will have to shutter is spare capacity, used when it’s very hot or cold. (The plants were used, for example, during last week’s Midwestern heat spell.) That fact was not included in the company’s release, but Morris made sure to remind investors.
“As you know, those are high-cost plants and dispatch infrequently,” Morris said. He went on to add that most of them didn’t run at all in 2009 because natural-gas prices were so low.
AEP spokeswoman Melissa McHenry told National Journal Daily that the plants slated for closure haven’t been used much in recent years because of low natural-gas prices, but that having them available for use in times of extreme temperatures seems crucial.
McHenry said costs made closing plants a better alternative than retrofitting them. Consumers would still face surging electricity prices because of the time frame, which AEP and many other coal utilities say is unrealistic. Companies must comply with two of EPA’s major set of rules by 2015. AEP wants the compliance time frame extended to 2020.
Southern Co., another major coal utility, also fights EPA’s regulations and tries to walk a fine line. CEO Tom Fanning told investors in the first-quarter earnings statement that he remains “confident or optimistic perhaps that we’ve been able to work through some tough complex issues in the past.” He also said that extending the compliance timeline to 2018 would make him “feel a lot more comfortable about being able to run our portfolio.”
EPA’s Jackson was not impressed with the AEP announcement last week. She said after a hearing on Wednesday that it was “misleading at best, scare tactics at worst.”
Southern’s Fanning, meanwhile, had positive words to say about the agency’s administrator.
“In my constructive conversations with Lisa Jackson, she, I think, recognizes that the EPA—last thing they want us to create [is] reliability crises,” he said in the earnings statement.
This article appears in the June 16, 2011, edition of National Journal Daily.
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