Peabody CEO Says Greater Use of Coal Can Achieve U.S. Energy, Economic and Environmental Objectives

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Big Coal went to the lion's den last week and asserted that increased use of coal-fired power generation will help the U.S. achieve its critical energy, economic and environmental goals.

Gregory H. Boyce, chairman and chief executive at Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri), gave the keynote address July 18 at the summer meeting of the National Association of Regulatory Utility Commissioners (NARUC) (Washington, D.C.). State utility regulators play a large role in determining utility company capital spending programs, choice of fuels, deployment of advanced technologies and other important matters that have an immediate impact on fuel suppliers like Peabody.

Peabody is the world's largest private-sector coal company, with sales in 2010 of 246 million tons and nearly $7 billion in sales revenue. Coal from Peabody is used to generate 10% of all electricity in the U.S. and 2% of the world's electricity.

In his speech to the regulators, Boyce pressed what he called the "Peabody Plan" to ensure that at least half of new electric generation comes from advanced coal plants that are ultra-efficient and typically have an emissions rate that is one-fifth that of the existing U.S. fleet. These ultra-efficient coal-fired plants emit 15% less carbon dioxide (CO2) than the existing fleet. They're also ready to install carbon capture and sequestration (CCS) equipment. The plan also calls for commercializing CCS technology and deploying coal-conversion technologies.

"Energy, jobs and the economy are the most important global issues that we face," Boyce told the regulators. "Low-cost energy is economic oxygen. It is vital to job creation, healthy industry and gross domestic product (GDP) growth. Affordable energy puts people on the payroll. It keeps jobs at home, powers industry and enables America to compete globally."

"All fuels are needed to create more energy," he continued. "I say let's make jobs and the economy number one by making energy number one."

The Peabody CEO said that the United States must maintain a pro-people, pro-business economy. Greater use of coal creates a path that will allow America to achieve its energy, economic and environmental goals, which he labeled the "Three Es."

"The United States faces critical decisions that will chart the course for our energy future for the coming decades," said Boyce. "Our energy policy must promote a balanced portfolio of fuels so that we maintain a competitive economy that creates jobs."

Boyce opined that achieving U.S. energy, economic and environmental goals requires regulatory and public-policy strategies and tactics that:

• Create a pro-electricity regulatory environment that keeps energy affordable for job creation and economic growth
• Encourage new coal and nuclear units for base-load electricity and use gas and renewables for variable power
• Advocate for continual upgrades of the existing generation fleet, but especially coal-fired generators that produce about 50% of U.S. electricity

Boyce also addressed overseas energy and economic needs, but these matters may not resonate with regulators, whose purview is limited to regulating utilities that operate within their states.

But regulatory support for coal will be critical as it faces tough new federal environmental regulation, growing public opposition and increasing price pressures from natural gas. The U.S. gas resource base has grown sizably over the last decade, driven in large part by advanced technology that makes it economic to produce gas from shale formations. Most analysts see shale gas as a "game changing" development that will eat into coal's share of the electricity market. For more on that issue, see the May 3, 2011, article - U.S. Natural Gas Resource Base Grows, Keeping Prices Low. Building coal-fired power plants with ultra-supercritical boilers costs more than building plants using sub-critical or supercritical boilers, although some of that cost differential can be offset by lower fuel costs and reduced emissions from the more advanced plants. Regulators will be the ones to decide if the added costs are outweighed by the benefits of the advanced combustion technology.

State utility regulators must approve a utility's plan to build new generators of any kind, and then set electric rates that allow a utility to recover its costs and earn a profit on its investment. They have wide latitude in determining which utility expenses are "prudent," as well as deciding what "just and reasonable" is--two critical regulatory yardsticks used to assess the wisdom and effectiveness of utility-company capital outlays on power plants, fuel and environmental technology.

Building commercial-scale CCS projects can cost nearly as much as a power plant itself. American Electric Power Company Incorporated (NYSE:AEP) (Columbus, Ohio) had planned about $668 million to build a CCS project that would capture carbon from 235 MW of its Mountaineer Power Station in West Virginia. However, AEP recently abandoned the project, citing lack of federal policy limiting CO2 emissions. Without a federal law or policy limiting CO2 emissions, state utility regulators are reluctant to make customers pay for a CCS project through their electric rates.

Indeed, AEP abandoned the Mountaineer commercial-scale CCS project after regulators in Virginia and West Virginia refused to allow the utility to charge customers for the cost of building and operating the project. For more on that issue, see the July 18, 2011, article - AEP Terminates Commercial-Scale CCS Project in West Virginia.

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