Why Power Suppliers Most Affected by EPA Plan Don’t Hate It

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Utility Emission Cuts

Opponents of President Barack Obama’s plan to cut power-plant emissions say utilities will be among the casualties.

You wouldn’t know it to hear from the power providers themselves.

For a group that must dramatically alter the way it does business to comply with the proposal, utilities don’t sound very annoyed. In fact, the industry’s main trade group said the Obama administration “seems to have responded to some of our key concerns.” The new rules will even boost profits for some.

“The final guidelines appear to contain a range of tools to maintain reliability and better reflect how the interconnected power system operates,” said Tom Kuhn, president of the Edison Electric Institute, which represents U.S. investor-owned electric companies.

And while the coal industry is the undisputed loser in the U.S. Environmental Protection Agency’s plan, utilities walked away with some nice concessions.

The EPA, for example, delayed the first compliance date by two years to 2022, included a “safety valve” provision that allows the rules to be lifted if reliability issues emerge, and instituted a carbon trading system that provides an option to comply with the mandates.

The agency also adjusted the way it calculates reductions each state must achieve, backing off an earlier formula that would have required massive changes for states such as Arizona and Florida.

The final rule “appears less onerous for the U.S. power sector,” Fitch Ratings said Tuesday. The S&P 500 utilities index gained 0.6 percent on Monday, when the final plan was released.

‘Flawed and Illegal’

West Virginia Attorney General Patrick Morrisey is among those with a different view. The regulations are “fundamentally flawed and illegal,” and will lead to fewer jobs, higher electricity rates and a less reliable power grid, Morrisey said in a statement Monday. He is part of a group of state attorneys general preparing a legal challenge to Obama’s proposal on behalf of a coalition Morrisey said includes utilities.

The rules aim for a 32 percent reduction in carbon emissions from the nation’s power plants by 2030, compared with 2005 levels. To meet the target, it gives states credit for solar or wind projects that break ground in the next few years. It will also force utilities to run natural-gas plants more or encourage customers to use less electricity.

Utility owners including Dominion Resources Inc. and NextEra Energy Inc. may profit from building gas pipelines, solar plants and other infrastructure upgrades needed to comply with the rules in states that allow them to recoup the costs, UBS AG said in a research note on Monday.

Coal Suffers

“It appears the EPA was quite responsive to concerns raised by NRG, among others,” NRG Energy Inc., the largest U.S. independent power producer, said on Tuesday. “We appreciate that.”

Still, not everyone is happy. Southern Co., one of the nation’s biggest coal-burning utilities, said the proposal amounted to an overreach that “impede states’ authority to act in the best interest of customers.” Companies that own coal plants in competitive markets where costs can’t be recovered may also suffer.

And the final version of the rule doesn’t give credit for existing nuclear plants that are threatened with extinction from cheaper natural gas and renewables, a negative for big reactor owners such as Exelon Corp.

“Even in the face of damning analyses and scathing opposition from across the country, EPA’s final carbon rule reveals what we’ve said for months –- this agency is pursuing an illegal plan that will drive up electricity costs and put people out of work,” Mike Duncan, president of the American Coalition for Clean Coal Electricity, a industry lobbying group, said in a statement.

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