When the Arab embargoes of the 1970s threatened the country’s oil supply, the U.S. government issued an edict to the nation’s electricity producers: Start burning coal. So the local utility managers in rural Putnam County, Fla., did just that.
The community-owned utility took out government loans and built its first power plant, using generators that made electricity from cheap Appalachian coal. Things were fine for more than three decades, until Washington delivered a new edict with precisely the opposite instructions: For the sake of the planet, stop burning coal.
Now the little utility faces an uncertain future, and it is hardly alone. As the country’s electricity providers prepare to comply with new federal regulations that restrict the use of coal, dozens of small utilities across rural America say they are bracing for soaring costs and possible plant closures. Some, such as the Tampa-based Seminole Electric Cooperative, went deeply into debt to build the coal-fired power plants U.S. officials demanded years ago, and now they are stuck with facilities that can’t meet the new standards and can’t be easily upgraded or replaced.
“We can’t just run out and invest in some new technology,” said Seminole General Manager Lisa Johnson, who oversees an electric grid that supplies dozens of small towns and farming communities across north-central Florida. “We don’t have multiple plants.”
Obama administration officials say Seminole’s fears are overblown, but much depends on how the White House’s Clean Power Plan is implemented over the months and years to come. The Environmental Protection Agency’s landmark regulation on reducing greenhouse gas pollution was formally promulgated Friday, nearly two months after the EPA announced details of the rule, and it immediately triggered lawsuits from 26 states denouncing the plan as a costly overreach.
The regulation requires electricity providers to significantly lower emissions of greenhouse gases – mostly by cutting back on coal – over the next 15 years. The biggest utility companies are expected to meet the new standards with relative ease, in part by speeding up planned retirements of coal-fired plants and investing in natural gas and renewables, such as wind and solar energy.
If we have to close it down, it becomes a stranded asset that we still have to pay for. We would have to pay to provide electricity to our customers from another source. And meanwhile, the debt service continues on the old one.
Brenda Atkins, manager of a coal-fired generating station in Seminole, Fla.
But rural electric cooperatives – mostly small nonprofit groups owned by the customers themselves – have fewer options. Some, such as Seminole, rely on a single coal-burning plant for most of the electricity they provide. Seminole’s customers will be paying down the debt for the company’s existing generating plant until 2042, and officials with the nonprofit utility say they can’t afford to replace it.
“If we have to close it down, it becomes a stranded asset that we still have to pay for,” said Brenda Atkins, the manager of Seminole’s coal-fired generating station. “We would have to pay to provide electricity to our customers from another source. And meanwhile, the debt service continues on the old one.”
The White House has championed the Clean Power Plan as the centerpiece of its efforts to combat climate change. An administration pledge to cut the nation’s carbon emissions by up to 28 percent over the next 15 years is based largely on reducing pollution from electricity generation, the largest single source of man-made greenhouse gases in the atmosphere.
EPA officials acknowledge that the smallest electricity providers face a very different set of challenges compared with larger utilities. But they say the Clean Power Plan was designed to give states the flexibility to accommodate the concerns of smaller operators.
“The plan really puts the states in the driver’s seat” with multiple options for easing the burden on smaller companies, said Janet McCabe, the EPA’s acting assistant administrator for the office of air and radiation. McCabe said the regulation is “fair, flexible, affordable and designed to reflect the fast-growing trend toward clean American energy.”
Among the options available to states is the creation of cap-and-trade networks, which allow older power plants to stay in business by essentially buying pollution-cutting “credits” from other utility companies that use wind and solar power. Separately, the Obama administration has offered loans to rural utilities to help pay for equipment upgrades that save energy.
Outside experts who have studied the EPA’s regulations say small utilities could survive and even thrive under the new regulations, but only if states take full advantage of the flexibility provisions.
“It is true that small systems have fewer options, but the answer to their dilemma is flexibility,” said Dallas Burtraw, a senior fellow with Resources for the Future, a nonpartisan think tank. “The states can build flexibility within the state and, more importantly, between states, on a regional basis. But whether that flexibility is available hinges on decisions that states will make.”
At the moment, it’s far from clear how rural cooperatives will fare under the state compliance plans. Some states – particularly those with Republican administrations –have shown little interest in developing the plans at all. Seminole’s home state, Florida, is among the 26 states that filed lawsuits Friday to block the regulations.
States that refuse to come up with compliance plans could be subject to a default plan crafted by regulators in Washington, which could make the problems for rural cooperatives even worse, utilities officials say.
In general, if utilities have a set of rules, they will comply and will do a good job of meeting the requirements. Some will go kicking and screaming, but they will do it.
Del Worley, chief executive of Holy Cross Energy in Colorado
“It’s important that states are engaged; they know the unique situations that apply,” said Del Worley, chief executive of Holy Cross Energy, a rural cooperative in western Colorado that has been largely supportive of the EPA’s plan. “In general, if utilities have a set of rules, they will comply and will do a good job of meeting the requirements. Some will go kicking and screaming, but they will do it.”
The irony of Seminole’s predicament is not lost on the utility’s management. The utility was founded in the 1940s as one of hundreds of rural electric cooperatives established with government backing to deliver electric power to underserved rural areas. For decades, Seminole operated only transmission lines, but in the aftermath of the 1973 Arab oil embargo it heeded the U.S. government’s call to help reduce the country’s reliance on foreign oil.
Work was completed in 1984 on its 650-megawatt Seminole Generating Station, with its twin electric turbines fueled by bituminous coal shipped by rail from mines in Kentucky and Illinois. Today, this coal-fired plant, along with a smaller, gas-fired generator opened years later, provides electricity for 1.4 million people, nearly all of them in rural inland counties that are among the state’s poorest, while also providing jobs for 300 people. The 675-foot-high smokestack and twin cooling towers can be seen for miles across the swampy countryside famous for growing potatoes and broccoli.
Because the utility is owned cooperatively by its customers, Seminole maintains strong ties with local communities, sponsoring softball teams and 4-H clubs. For the same reason, the company has sought to maintain a strong environmental record, often adopting standards that exceeded the requirements of the time, said Johnson, the chief executive. More than $500 million has been spent over the decades on controls for such air pollutants as soot and sulfur, which can cause respiratory problems in young children, asthma sufferers and the elderly. Now those investments are at risk of being swept away, she said, because of the one pollutant that its engineers were never able to control: carbon dioxide.
“Over the years, we’ve focused on continual improvement, making sure the facility is operating well,” Johnson said. “Now we could end up facing a premature closing, with all the negative things it would bring for this community and this cooperative.
“Unfortunately,” she added, “there aren’t any easy answers.”