Thursday, December 22, 2011

Gaming The System

Fortunately, I was able to read the EPA news release yesterday about new standards for coal-fired plants before I read some of the reactions in news reports, many of them knee-jerk.

In North Carolina, about 67% of our electricity is still generated from coal-fired plants. One plant located in another county an hour’s drive north of Durham where I live and operated by a company based in nearby Raleigh is fed by about 150-200 train cars of coal brought to that one plant from West Virginia each day.

There are approximately 600 coal-fired plants across the nation.

The new and long overdue EPA standards brought to mind two reports I read earlier this year, with interviews with two retiring utility executives. In one interview in the Wall Street Journal with John Rowe, who headed the third-largest utility in the nation caught my attention with this quote about coal-fired plants gaming the system:

“…people with the old coal plants are gaming the system."

Mr. Rowe likens these plants to a "'49 Chevy" and explains that "there's been a big game of chicken in the industry because utilities have known these rules were coming for more than a decade" under the Clean Air Act, "and most of the utilities actually spent the money to get their plants somewhere close to compliance. We think about 60% of the coal fleet is. But some just decided to gamble. They just made one very big bet that these rules weren't gonna ever happen."

Mr. Rowe continues that "We object to their continuing to keep the market price down with plants that they're not going to clean up at all. We object to people running the plants just so they can trade shutting them down to some politician for building a new plant somewhere else."

The "real enemy here," Mr. Rowe continues, “isn't the EPA.”

Another interview a few months earlier on with Dick Kelly as he retired as CEO of Xcel, another large utility was equally insightful, especially when he said something the interviewer noted “would get him booted from the utility country club:”

"I'd be OK if there were never any more coal."

Both utility execs are optimistic about short-term and long-term alternatives to coal. As we bring now obsolete-coal to an end, we need to learn from two pivotal mistakes the Reagan Administration made in the 1980s and the ramifications of which we are still living with today.

They eliminated energy research, which had been implemented during the energy crisis of the 1970s and would by now have yielded energy independence.  In their zeal to downsize government they also failed to grasp at the dawn of globalization, the crucial importance of increasing government funding to reeducate people working in declining industries.

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