Coal losing its luster

By JUDY PASTERNAK

(c) 2008, Los Angeles Times

WASHINGTON --- America's headlong rush to tap its coal reserves for electricity has slowed abruptly, with more than 50 proposed coal-fired power plants in 20 states canceled or delayed in 2007 because of concerns about climate change, construction costs and transportation problems.

Coal, touted as inexpensive and plentiful, has been a cornerstone of President Bush's plans to meet America's energy needs with dozens of new power plants. Burned in about 600 facilities, coal produces more than half of the nation's electricity.

But urgent questions are emerging about a fuel once thought to be the most reliable of all. Utilities are confronting rising costs and a lack of transportation routes from coal fields to generators, opposition from state regulators and environmental groups and uncertainty over climate change policies in Washington, D.C.

"Coal projects need more regulatory certainty before any new ones are going to get built in the near future," said David Eskelsen, a spokesman for PacifiCorp, which serves 1.6 million customers in six Western states. "The current situation does make utility planning very challenging."

Just a few weeks ago, PacifiCorp dropped plans for two coal-fired power plants in Utah, citing the many unknowns in assessing the costs and objections on global warming grounds from a major customer: the city of Los Angeles.

PacifiCorp said in filings with the state of Utah that it hadn't found a substitute for production that it will need to bring online in 2012 and 2014.

In the Cedar Valley, New Jersey-headquartered LS Power is still attempting to get regulatory approvals for a $1.3 billion, 750-megawatt coal-fired power plant proposed in northeast Waterloo. More than two years after the project first was announced, the plan has faced roadblocks.

On Jan 16, the Black Hawk County Health Board, citing serious health concerns, voted to urge the state to issue a moratorium on coal power plant permits until it enacts tougher air pollution standards.

The board voted unanimously to recommend the state adopt tougher air quality standards, and voted 3-2 to recommend restricting coal power plant building in the state. The recommendations were made in a study commissioned by the health board on the potential health effects of the plant.

The City Development Board of the state of Iowa in October turned down a proposal for the site to be annexed into the city of Waterloo. The city has appealed that ruling

The plant still needs approvals from the Iowa Utilities Board and the Iowa Department of Natural Resources.

Most recently the company and a principal property owner on the plant site reached agreement on the extension of a three-year real estate option for LS Power to buy the land for the plant site when it is ready to proceed.

Setbacks across the nation have energy regulators jittery about the prospects for meeting America's hunger for electricity. They say that any delays in building capacity --- coal-fired or otherwise --- add pressure to a strained electricity infrastructure, raising the prospect of shortages or sharply higher prices.

Energy planners say coal needs to be in the mix because the other mainstay fuels for generating electricity also have serious drawbacks. Natural gas has proved volatile in both price and supply. Nuclear power plants are costly and take much longer to build --- and the problem of radioactive-waste disposal remains unsolved.

"We're very close to the edge," said Rick Sergel, chief executive of the quasi-governmental North American Electric Reliability Corp. "We operate under tight conditions more often than ever. We need action in the next year or two to start on the path to having enough electricity 10 years from now."

This fall, regulators in Kansas and Washington state denied applications for coal-plant permits because of concerns about carbon dioxide emissions.

After Republican Florida Gov. Charlie Crist said in October that he wasn't a "fan" of coal, utilities postponed plans to build coal plants in Tampa and Orlando.

Xcel Energy has told Colorado officials that it plans to close two coal plants and add 1,000 megawatts of wind and solar power, in addition to a new natural-gas plant. The company wants to cut its carbon dioxide emissions 10 percent by 2015.

In Nevada, Sierra Pacific Resources delayed construction of a coal plant and moved up the schedule for a natural-gas-powered plant instead.

The Tennessee Valley Authority decided in August to add a $2.5 billion unit to a nuclear power plant rather than construct a coal facility --- the other main option --- because of the uncertain economics.

Altogether, 53 coal-fired plants were canceled or delayed in 2007, according Global Energy Decisions, a private consulting company that tracks power plants for the Department of Energy.

In the near term, coal clearly will remain a part of the American energy picture. Even as the postponements and terminations pile up, plans for coal-fired power plants continue to advance in New Mexico, Mississippi and Indiana.

Although TXU Energy canceled eight coal-fired power plants it had proposed in Texas, the utility is going ahead with three others.

Last month, an energy industry consortium announced plans to build a government-subsidized power plant in southern Illinois to demonstrate low-emissions coal technology. But the ballooning cost of the FutureGen plant --- now projected to be about $1.8 billion, nearly double its original estimated cost --- has drawn criticism from the Department of Energy, which could delay or kill the project by withholding funds.

The growing push in Washington, D.C., to do something about global warming is a major factor that affects the cost of burning chunks of solid carbon, by far the dirtiest way to manufacture power.

A recent study by the industry-funded Electric Power Research Institute projects that coal power will cost more than nuclear power or natural gas by 2030 if coal's carbon dioxide problem is solved the way most experts envision. Still unproven, that method involves separating carbon dioxide from the gas stream before it heads out of the stacks, collecting the vapors and then storing them underground. That also would require a new network of pipelines to move carbon dioxide from the power plant to a geologically sound site.

Another industry analysis predicts that wholesale electricity prices will rise 35 percent to 65 percent by 2015 if the Warner-Lieberman climate change bill --- one of the more conservative plans put forward in the Senate --- is enacted.

A more immediate challenge is transportation, from missing links in the rail routes to silted-up Great Lakes shipping channels, which raise concerns that coal might not be so simple to get at after all.

"Can coal deliver?" asked Gary Hunt, president of Global Energy Advisors, a Sacramento, Calif.-based unit of Global Energy Decisions. "The answer is no," he said, not without "billions and billions" spent on improvements for mining capacity, railroads and shipping.

About 40 percent of the coal that America burns for power comes from the Powder River Basin in Wyoming and Montana. Sought after for its low sulfur content, the product is sent on trains more than 100 cars long. But only two rail companies serve the basin, and for 100 miles they share one set of tracks.

That caused trouble in spring 2005, when coal dust built up between the ties, snow and rain fell on the tracks, and the resulting slush caused two derailments. The ensuing bottleneck kept coal and power plants apart for months. Utilities started hoarding the coal they had on hand and ran their more expensive natural-gas plants more often. They filed for rate hikes, and at least two sued their rail carriers.

Railroads are investing about $200 million to improve and expand the tracks leading out of the Powder River Basin, and they point to record cargoes this year. But the National Mining Association still has concerns about the future, spokesman Luke Popovich said. "Capacity is adequate now, but it’s close to being inadequate," he said.

In the coal fields of southern Illinois and Indiana, a mining renaissance is hoped for, but no north-south rail line connects them with Chicago and the Great Lakes. Purdue University recommends building a 300-mile "Indiana coal corridor" at a cost of about $1 million a mile.

Overall, the Association of American Railroads estimates that $148 billion needs to be invested in freight infrastructure over the next 28 years. The industry says it needs federal assistance to help it cover about $39 billion of that cost.

We Energies, which provides electricity in Wisconsin and Michigan, said it had faced at least $45 million in higher fuel costs as a result of rail disruptions. Like other producers in the Upper Midwest, the company tried to find relief by shipping coal across the Great Lakes. But lake channels have silted up, creating a "dredging crisis," in the words of James H.I. Weakley, president of the Lake Carriers’ Association.

The Lake Erie port of Dunkirk, N.Y. --- site of a coal-fired power plant --- closed to shipping in 2005. A freighter ran aground at the Lake Huron port of Saginaw, Mich., last year. With ships loading 6,000 to 9,000 tons less than their capacity in order to stay afloat, in the shallower channels, coal-cargo totals on the lakes this year are down 8 percent from a year ago, the carriers’ group said.

The domestic transport problem has led some coal customers to look overseas for supplies. Despite the promotion of coal as crucial to energy independence, imports have been rising since 2003. For example, Southern Co., the largest power supplier in the Southeast, brings in nearly 19 percent of its supply through East Coast ports from Colombia, Venezuela and Russia, said W. Paul Bowers, president of generation and energy marketing.

Coal's advocates say they remain optimistic, because America has 200 years' worth of reserves, and growing electricity needs. "If you don't want to use coal," asks Janet Gellici, executive director of the American Coal Council, "which 12 hours of the day don't you want electricity?"

In any case, coal producers say, surging worldwide demand, especially from China and India, indicates there will be a healthy global market for their product. Indeed, that demand has helped drive up the cost of coal, which was at record levels for much of 2007, which in turn drives up the potential cost of coal-fired energy.

The changing coal picture is making it hard for America's energy planners. Decisions about where power plants are located and when they are built also can determine where --- and whether --- transmission corridors are built. And that could create spillover effects that hurt the availability of cleaner sources, including wind, that would use the same lines.

With power plant decisions up in the air, there has been a lag in seeking new transmission lines, said Suedeen Kelly, who sits on the Federal Energy Regulatory Commission. And because the transmission lines --- like power plants --- take years to move from the proposal stage to operations, "Ideally, you should be starting to build these transmissions lines today," Kelly said.

It's tough for investors that would build power plants to make billion-dollar commitments that will last for the next 50 years while trying to guess what's going to happen in Washington, D.C. The White House, the Senate and the House of Representatives are sharply divided over versions of global warming legislation that could provide answers.

The president's threat to veto the energy bill forced congressional Democrats to drop a requirement for utilities to meet targets for use of renewable energy, such as solar and wind power.

Bush also has signaled that he’ll reject any global warming legislation that includes mandatory carbon limits. The proposals are controversial in Congress as well.

This could mean at least another year of jousting --- and another year of indecision.

For environmentalists, a pause in the rush to coal is a good thing.

"It's the silver lining" in an otherwise clouded energy picture, said Bruce Nilles, who heads the Sierra Club's National Coal Campaign.

More important is which energy sources utilities turn to in its place, he said.

"That's what this is all about: whether they stick with the old way or we transition to a new, clean way of making energy."