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Despite Stay of Clean Power Plan, Utilities Still Abandoning Coal For NatGas, Renewables

Despite the uncertainty created by the U.S. Supreme Court's decision to temporarily block the Obama administration's proposed Clean Power Plan (CPP), some of the nation's largest electric utilities predict their industry will not be dissuaded from retiring coal for power generation, and will continue to embrace natural gas and renewables.

On Tuesday, the U.S. Supreme Court ruled 5-4 that implementation of the CPP must wait until all legal challenges to the rule are resolved in appellate court (see Daily GPI, Feb. 10a). Currently, 27 states have sued the U.S. Environmental Protection Agency (EPA) over the CPP, arguing that it is an overreach by the federal regulatory agency (see Daily GPI, Jan. 22).

Utilities: Customers Still Demand Clean Power

Paul Elsberg, spokesman for Chicago-based Exelon Corp., told NGI that its customers want utilities to provide cleaner sources of energy, and indicated that Tuesday's stay wouldn't have a lasting impact on states or utilities.

"Regardless of this procedural development, the Supreme Court already has ruled that carbon is a pollutant the EPA must regulate," Elsberg said Thursday, in reference to the high court's ruling from 2007 in the Massachusetts v. EPA case, which the Obama administration used as its basis for regulating greenhouse gas emissions.

"Many states, in response to the overwhelming demand from consumers, already have begun efforts to reduce carbon emissions without the EPA rule. Our customers want reliable, clean and affordable electricity, and Exelon remains committed to helping drive the national transition to a low-carbon future while maintaining reliability and affordability for families and businesses."

According to the company's website, Exelon's power generation segment currently has about 35,000 MW of generating capacity. Elsberg said that as of Dec. 31 less than 30% (9,682 MW) of the company's total capacity came from fossil fuels, nearly all of which was natural gas. Only about 26 MW came from waste coal-fired generation, an amount that represents "the entirety of Exelon's coal assets," he said.

DTE Energy Co. spokeswoman Stephanie Beres said it's unclear what impact the stay will have on the energy industry as a whole in the short and long term, but there were sure to be legal challenges. She said the Detroit-based company would continue to monitor the high court's actions to see how it will be affected.

"The current age of DTE's coal plants, the price of natural gas and the continuing reduction in the cost of renewables -- combined with other environmental regulation already in effect -- continue to drive DTE's work to diversify generation and provide clean, affordable energy to its customers," Beres said. "In recent years, DTE has invested more than $2 billion each in emission controls and renewables, and has a goal of 25% less carbon emissions by 2018."

DTE provides electricity to 2.1 million customers in southeastern Michigan and has 11,084 MW of system capacity. According to an earnings presentation on Wednesday for the full-year 2015, 55% of the utility's electric generation in 2015 came from coal, followed by natural gas (20%), renewables (10%) and nuclear/other (15%). By 2030, DTE projects that it will boost natural gas to 30-45% of power generation and renewables to 15-30% -- both at the expense of coal, which will fall to 25%. Nuclear/other will remain unchanged.

According to its 10-Q filing with the U.S. Securities and Exchange Commission (SEC) for 3Q2015, the most recent available, Houston-based Calpine Corp. and its partners own 83 power plants across 18 states in the United States and Canada, with a combined generating capacity of about 27,000 MW. Of those, 67 are natural gas-fired combustion turbine plants, 14 are geothermal steam turbine-based plants, one is a fuel oil-fired steam-based plant and one is a photovoltaic solar plant.

Calpine spokesman Brett Kerr said Tuesday's stay "was unexpected and disappointing." He added that the company, the largest operator of natural gas-fired power plants according to its website, "remains supportive of the CPP as a market-based solution to addressing GHG reduction.

"The Supreme Court ruling was not a decision on the merits of the rule," Kerr said. "We will continue to support this case as it winds through the court proceedings. Existing environmental regulations, such as MATS [Mercury and Air Toxics Standard] and Regional Haze, coupled with the current low natural gas price environment, are already resulting in decreased dispatch of older, less efficient and higher emitting power facilities."

In a briefing Wednesday in New York, Quinlan Shea III -- vice president for environment at Edison Electric Institute (EEI), an association that represents all U.S. investor-owned electric companies -- told Wall Street executives that EEI's member companies have pledged to make 73.5 GW in coal plant retirements or retrofits by 2024.

Tuesday's stay "doesn't really change anything," Shea said, according to reports, adding that utilities would continue to migrate from coal to natural gas and renewables.

Majors Still Believe Carbon Tax Necessary

Despite Tuesday's ruling, two of the world's largest oil and gas companies continue to believe that some form of a worldwide carbon tax will need to be implemented at some point in order to achieve goals to combat climate change.

On Wednesday, BP plc published its annual Energy Outlook, which tracks trends related to fossil fuels, renewables, supply/demand and carbon emissions through 2035 (see Daily GPI, Feb. 10b). As with previous editions, BP again advocated for more regulatory oversight of carbon emissions.

Spencer Dale, chief economist at BP, outlined the major's view that growth in the use of natural gas and renewables for power generation will help the global economy transition to a lower carbon energy system. BP, the largest North American gas marketer, has long held that natural gas is the fastest growing fossil fuel in the world, and will eclipse coal and move into second place behind oil within 20 years.

According the BP's base case, demand for natural gas will grow by 1.8% per year, making it the fastest-growing fossil fuel over the next two decades.

"This robust growth is helped by ample supplies and supportive environmental policies," Dale said.

BP Group CEO Bob Dudley noted that the outlook for carbon emissions "is changing significantly. In particular, the rate of growth of carbon emissions is projected to more than halve over the outlook period relative to the past 20 years" reflecting "both faster gains in energy efficiency and the shift toward lower-carbon fuels.

"Despite this, carbon emissions are likely to continue to increase, indicating the need for further policy action. In BP, we believe carbon pricing has an important part to play as it provides incentives for everyone to play their part."

Like other oil majors and many large U.S. independents, BP already prices carbon into its operations on the expectation of a carbon tax worldwide at some point (see Daily GPI, Dec. 5, 2013).

"Our base case already has global energy intensity declining at an unprecedented pace, and a fall in carbon intensity that matches what the world achieved in 1965-1985, when first cheap oil displaced coal from the fuel mix and then nuclear displaced both oil and coal," Dale said. "A meaningful global price for carbon is likely to be the most efficient mechanism through which to achieve these improvements."

Royal Dutch Shell plc CEO Ben van Beurden concurred. He recently said that "society needs to get beyond just agreeing on emissions reduction targets...There need to be strong policies that are really going to drive behavior toward those targets.

"One of the key measures needed is for governments to put an effective price on carbon emissions, so that both industry and consumers are incentivized to either invest in lower-carbon technologies or change the way they use energy."

The U.S. Court of Appeals for the District of Columbia has ordered all parties in the case against the CPP to file final briefs by April 22, and to prepare for oral arguments beginning on June 2.

The Obama administration unveiled the final version of the CPP last August (see Daily GPI, Aug. 3, 2015). The plan, which embraces renewables, solar and wind power, but not so much natural gas, calls for states to reduce emissions by 32% below 2005 levels by 2030.

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