Texas Utilities Preparing for New EPA Regulations
Texas lawmakers have not minced words when addressing the Obama administration’s plan to slash emissions from coal-fired power plants in the coming decades. Gov. Rick Perry, for instance, called the plan, overseen by the U.S. Environmental Protection Agency, “the most direct assault yet on the energy providers that employ thousands of Americans, and fuel both our homes and our nation’s economic growth.”
But Texas utilities — companies that would be tasked with helping Texas comply with the regulations — have been less vocal on the subject, and some say their investments in natural gas and renewable energy sources have left them well-positioned to meet the potential carbon target.
“With all the things we’ve done, we’ll be ready by the compliance dates,” said Doyle Beneby, the president of CPS Energy, San Antonio’s municipally owned utility. Beneby, whose company supports curbing greenhouse gas emissions but is agnostic about specific regulations, said there is an “inevitability to where the EPA is going, and it behooves a utility to prepare for that.”
The proposal, which will undergo a public comment period in the coming months, will almost certainly face legal challenges from Texas and other states.
Under the plan, Texas would have would need to slash carbon emissions from its power plants by as much as 195 billion pounds of carbon dioxide in the next 18 years, according to a Texas Tribune analysis. That 43 percent reduction is among the larger percentage cuts required among states. The EPA suggests that Texas could meet its goal though a combination of actions: making coal plants more efficient, switching to cleaner-burning natural gas, adding more renewable resources and bolstering energy efficiency. Texas would have until 2016 to submit a plan to meet its carbon target.
As is often the case with policies related to the electric grid, the impacts of the latest proposal are difficult to forecast, and it will probably produce winners and losers throughout the utility sector. Those who could fare best include major municipal providers such as CPS and Austin Energy, which are investing heavily in renewable resources, and investor-owned companies that are shifting from coal. Investor-owned Calpine, which has a large Texas presence, has gone so far as endorsing the EPA proposal.
“Each company has got to make an independent analysis of what their position is,” said John Fainter, president and CEO of the Association of Electric Companies of Texas. “It’s a very complex analysis that has to be made about what the impact would be, what can be done, how each company on each plant would react to that impact and what the economics will be.”
Perhaps the biggest consideration for utilities is how much they depend on coal-fired power plants, which the proposal largely targets. In 2012, coal made up nearly one-third of Texas’ electric portfolio, though utilities do not depend on coal equally.
That could mean trouble for Luminant, Texas’ largest investor-owned power provider. In 2013, coal made up 71 percent of the power it produced. The company already faces major challenges as a subsidiary of Energy Future Holdings, which filed for Chapter 11 bankruptcy in April.
Shortly after the EPA announced its proposal, a company statement said it looked “forward to reviewing the rule given its significant impact. Ultimately, this rule must fit within the legal framework of the Clean Air Act, which includes setting achievable emission requirements using proven, real world technologies.”
A Luminant spokeswoman said the company could not comment further.
CPS Energy still depends heavily on coal — it accounted for more than 40 percent of its generation in 2013 — but it has been weaning itself from the energy source, and recent moves have left it on better footing for the looming regulations.
Four years ago, CPS decided to retire one of its oldest coal plants by 2018 — 15 years ahead of schedule. Meanwhile, it has made big investments in renewable energy such as solar power (it offers rebates for rooftop solar, and it plans to add to its portfolio by 2016 a 400-megawatt series of solar plants that promises to be the Texas’ largest), and it has built up voluntary efficiency programs such as “demand response,” which relies on high-tech thermostats and meters that allow utilities to power down air conditioners, heaters or pool pumps when demand peaks.
CPS is far from the only utility that says it is well-positioned for the federal proposal — however Texas might implement it. Austin Energy, another municipal power provider, said it is feeling comfortable with its trajectory. Coal currently makes up about 32 percent of its electric portfolio, while nuclear power, renewables and natural gas make up the remainder.
In May, Austin Energy signed a 20-year deal with a company to build a 150-megawatt solar farm that would be Texas’ largest single solar site. Assuming that other contracts don’t change, the solar plant’s completion would bring Austin Energy to its goal of getting 35 percent of its energy from renewable sources by 2020, including 200 megawatts from solar power.
Robert Cullick, Austin Energy’s spokesman, said that city policy – including the renewable energy goal its council members set — has positioned the company well to meet a potential state carbon target, and that municipal utilities generally have built-in advantages over companies on Texas’ deregulated market when it comes to preparing for such policies.
“Our approach doesn’t look to the next quarter, but looks at what’s most beneficial to the citizens and the ratepayers,” he said about municipal utilities. “We take the long-run view.”
Calpine, whose primarily gas-fueled power plants make up about 12 percent of installed capacity on Texas’ electric grid, embraces the EPA plan. Thad Hill, the company’s CEO, says he believes the plan “will ensure continued progress toward cleaner energy in a way that supports ongoing grid reliability while allowing market forces to work to deliver the lowest-cost solution for reducing GHG emissions.”
El Paso Electric has stopped short of endorsing the proposed regulations, but says it too is ready to meet them. It is rapidly expanding its solar power portfolio and says it will completely wean itself from coal by 2016. That’s when it plans to drop its small share of an aging New Mexico coal plant that represents 6 percent of its total electric generation. Over the past year, El Paso Electric, whose service area covers parts of Texas and New Mexico, has doubled its investment in its solar portfolio, and it is building a massive natural gas plant.
Still, the utility says it is eagerly waiting to see how Texas might choose to meet the proposed targets.
“I don’t think any of us relish not having clean air. I think we all our anxious about, do the regulations go so far enough to have a negative impact on the price,” said Tom Shockley, the company’s CEO. “A competitive environment is going to see quite a few more challenges in making sure the economics are right.”