AEP's View of the EPA's Clean Power Plan Proposed Rule

The U.S. EPA’s proposed guidelines to reduce carbon dioxide emissions from existing power plants are vastly different from any previous EPA emission reduction program. Instead of setting an emission limit for electricity generating units, the rule sets individual state emission rate goals and suggests building blocks for achieving those goals, which makes the proposed guidelines incredibly complex and difficult to evaluate since the impact will vary state by state.

As proposed, the guidelines include flawed assumptions and requirements that result in overly aggressive emission rate reductions in many states that will raise electricity costs for customers.  In their current form, these guidelines could force premature retirement of additional efficient, low-cost coal-fueled generation; lead to the potential loss of billions of dollars in investments made over the last decade to make coal plants cleaner; require construction of higher-cost replacement generation; and increase natural gas prices. The guidelines also usurp energy policy and regulatory roles that have traditionally been held by the states, without any clear Congressional authorization.

The timeline for the guidelines is very aggressive. Although the ultimate reduction targets are set in 2030, the bulk of the reductions in the proposal must occur by Jan. 1, 2020. State implementation plans likely won’t be finalized and approved until 2018 or 2019. This tight timeframe limits the actions that can be taken to achieve the 2020 goals, and while there is some flexibility in meeting the targets between 2020 and 2030, significant action will be necessary by 2020 in many states.

The proposal provides no credit for the significant carbon dioxide emission reductions that have already been made by the electricity sector nor the additional reductions that will result when nearly 25 percent of existing coal-fueled power plants are retired in the next few years. AEP’s carbon dioxide emissions have been cut more than 21 percent since 2005 and will be even lower after we retire more than one-fourth of our existing coal-fueled power plant fleet by 2016 to comply with other EPA regulations. The coal-fueled plants that will remain are the most efficient in our fleet and are equipped with more than $10 billion worth of emission controls that were installed to meet other EPA requirements. The investments that our customers made in these plants should not be prematurely lost when ultimately, it will have only a negligible impact on growing global greenhouse gas concentrations.

AEP is working with key stakeholders in the states where we operate, including environmental and utility regulatory agencies, to evaluate EPA's proposal, to provide constructive comments to EPA and to provide input on state implementation plans to protect our customers and ensure continued reliability of the electric system.

AEP’s concerns with the building blocks in the proposed 111(d) Guidelines:

U.S. EPA’s own analysis of the proposed guidelines predicts that 46,000 to 49,000 megawatts of coal-fueled generation will be shut down no later than 2020 as a result of this proposal. That’s in addition to approximately 73,000 megawatts of coal-fueled generation that EPA concludes has retired or will retire between 2010 and 2020. That means about one-third of all existing coal-fueled power plants, enough generation to power 60 million homes, would be gone in just five years. EPA estimates that most of these combined retirements (about 120,000 megawatts) occur by 2016. The additional retirements will happen at plants that have made, or are just completing, significant environmental investments to comply with other EPA regulations.

Closing this much generation in such a short timeframe raises serious concerns about the ability to maintain reliability and meet peak demand, particularly in periods of extreme weather. Higher-cost replacement generation will need to be built and significant investment in transmission and other mitigation will be necessary to maintain the reliability of the electricity grid – all of which will take time and ultimately, will increase the cost of electricity. 

The proposed state emission rate requirements were calculated by U.S. EPA assuming that natural gas combined cycle plants will run 70 percent of the time, far above current operating levels in most states, which is unrealistic. Most existing natural gas plants were not designed, built or permitted to run at those levels. And, in many areas, the natural gas pipeline infrastructure does not exist to support those levels of operation. The U.S. fleet of natural gas combined cycle power plants has never averaged a 70 percent capacity factor. Even in 2012, when natural gas prices were very low, the natural gas combined cycle fleet only achieved a 51 percent annual capacity factor. Significantly higher use of natural gas for electricity generation will increase natural gas prices and result in higher electricity costs and higher home heating costs in many states. It also will increase overall energy costs in the United States. Historically low natural gas prices have been bolstering the still tenuous U.S. economy.

The proposed emission rate guidelines also assume that remaining coal units can achieve a 6 percent efficiency (heat rate) improvement. AEP already has made significant efficiency improvements to its fleet of coal-fueled power plants, and based on our experience, the potential for additional coal unit efficiency improvements is less than 2 percent. Many efficiency improvements have already been made to offset the auxiliary electricity requirements at power plants with environmental retrofits.

In the proposed building blocks, overall consumer energy efficiency increases by 1.5 percent each year, which is unrealistic considering that the most cost-effective efficiency improvement – lighting – is already occurring through newly adopted federal lighting standards. A recent Electric Power Research Institute study shows realistically achievable energy efficiency gains of about 0.5 to 0.6 percent per year, well below the EPA assumptions. (U.S. Energy Efficiency Potential through 2035, EPRI, April 2014).

The renewable energy targets in the proposal are significant in many states and will be costly for utility customers. Solar and wind energy also cannot be called upon whenever needed to help meet load, and they do not provide important grid supporting attributes like “reactive power” that are critical to maintaining the stability of the transmission grid. Additional generation will be necessary to support the grid stability and provide “back up” for renewable resources.

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