The EPA’s risky Clean Power Plant rule

It’s a rare day that the Environmental Protection Agency (EPA) is not in the news as its tentacles reach far and wide, its issues span the policy grid and its rule-making can be relentless. One of its most recent scuffles involves the EPA’s Clean Power Plant rule. It has struck a nerve in part because it fails to take into account the many risk factors involved. It’s worth spending a minute on what the rule does, what’s at stake and why it matters.

{mosads}First, it’s important to understand what happens at a carbon sequestration facility: Coal is heated and turned into gas at which point the carbon is stripped out and the gas burned. The gasification process, called Integrated Gasification Combined Cycle (IGCC), and the carbon capture process are considered advanced technology. When these commercially unproven technologies are used together, the risk is multiplied. As well, there is the challenge of how to dispose of the captured carbon, which can be done either through underground sequestration or by selling the carbon for enhanced oil recovery.

It’s also extremely expensive, which leads to my second point. Building an advanced technology plant, commonly referred to as a “big metal” project, is both extremely difficult and costly. I was reminded of these facts when briefing then-Secretary of Energy Sam Bodman about the FutureGen Carbon Capture and Sequestration Project. With a background in both finance and engineering, Bodman was not only smart but realistic about timelines and budgets. He interrupted my budget presentation and predicted that any number I had should be doubled and teased that he would gladly entertain a bet of my choosing. He was right, of course. When the Department of Energy (DOE) canceled FutureGen, cost estimates had escalated 50 percent and not one speck of dirt had been moved.

The following examples underscore the secretary’s assessment.

Regarding the challenge of building an advanced plant on time and on budget is Southern Company’s Kemper Plant in Mississippi. This high profile effort, which in full disclosure received a grant from DOE’s Fossil Energy Program when I headed the program, has ballooned from $2.2 billion to $6.1 billion and its startup date has been pushed back repeatedly. This spring, the Mississippi Power subsidiary of Southern Company filed for a 41 percent rate increase to offset ballooning construction costs.

A second example is the Duke Edwardsport plant in Indiana. The costs of this stand-alone IGCC project have risen from $1.9 billion to $3.5 billion. While technically up and running, it has been operating well below capacity. Like Mississippi, the Indiana regulators are trying to figure out an equitable solution as to who pays for the cost overruns — consumers or Duke.

Expanding beyond coal, the experience of Georgia Power building an expansion at its nuclear site is another example of the risks of big metal construction projects. Currently, construction is 39 months behind schedule and cost overruns are approaching $2 billion.

With this kind of track record, it’s not hard to see why a utility management team would be resistant to taking on the risk and the financing challenges. If entities like Duke and Southern Company, which pride themselves — for good reason — on their engineering excellence, cannot deliver a project on time and on budget, one can only imagine the skepticism of investors in reviewing upcoming projects.

The industry joke is that companies want to build “a fifth of a kind, not the first of a kind” — a sentiment, not surprisingly, that is shared by state public service commissions that are responsible for protecting ratepayers and want to keep rates low. There have been multiple states that have rejected IGCC plants — Ohio and Wisconsin to name just two — because the costs were simply unpredictable.

Which brings us back to the EPA and its push for advanced technology. To be deployable, a new power plant has to have a reasonable technology risk, be financially viable and have the regulatory support of the appropriate state regulatory commission. The EPA’s rule, which is dependent on the deployment of carbon sequestration plants, fails these critical criteria.

And that is the fatal flaw in the EPA’s plan. There is simply no path forward to deploying the technology it envisions in its rule. The agency would be better advised to revise its rule to phase in forward-leaning technology that is proven in the marketplace and which has a measurable amount of risk.

Maddox has held several senior positions at the Department of Energy and is a consultant to the Livingston Group.