Coal:

NMA's Quinn discusses coal's market stability as utilities diversify

How is the coal industry handling pressures stemming from changing market dynamics and proposed power plant regulations? During today's OnPoint, Hal Quinn, president and CEO of the National Mining Association, explains how the diversification of the electric power sector is affecting the coal industry. He weighs in on the potential for litigation stemming from U.S. EPA's new source power plant proposal and talks about the impact enhanced oil recovery could have on his industry if applied to carbon capture and storage.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Hal Quinn, president and CEO of the National Mining Association. Hal, thank you for joining me.

Hal Quinn: Thank you for the opportunity, Monica.

Monica Trauzzi: Hal, a lot of debate here in Washington about the viability of carbon capture and storage technology. Does EPA's new source rule incentivize the industry to move towards that technology?

Hal Quinn: No, it doesn't. It probably has the opposite effect. I mean, when you're looking at the way they set this standard for natural gas, they set it at probably 20 percent above what the best natural gas combined-cycle plants could do, which is probably the proper way since they're taking all operating conditions into account. For coal they set it 40 percent below what the best, most efficient supercritical plants can do. So right now under the current circumstances there's really no incentive for somebody to build a supercritical plant with CCS. I'll just build a natural gas plant.

Monica Trauzzi: But if one of your primary responsibilities is to ensure the future of coal in the United States, doesn't it make sense to put all efforts behind getting that CCS technology online, and is that what you're doing?

Hal Quinn: Absolutely, and there's a pathway there, and we think the platforms of supercritical coal along with IGCC are the platforms where you're going to eventually put on CCS. But at the same time, just arbitrarily declaring this technology adequately demonstrated and basically ... on it is not going to help move that along. It's really going to depress interest in doing that as we move forward.

Monica Trauzzi: But we've heard from folks in the industry that they're saying 15 to 20 years before we have commercially viable CCS technology. If the industry waits that much time won't coal sort of lose some of its push?

Hal Quinn: Sure, but it's not meant necessarily a 20-, 30-year proposition. We have a road map from the DOE that says that we'd like to have this commercially deployed in some limited fashion so we can see how it works by 2020. Now we have EPA saying, "No, it's adequately demonstrated now, so if you want to build a plant between now and 2020 you have to use it." It just doesn't synch up. I mean, even the former Assistant Secretary of Energy Charles McConnell last week was testifying and found disingenuous EPA's claim that this was ready to go.

Monica Trauzzi: You talked about DOE, but DOE is touting the Kemper project and Energy Secretary Moniz recently visited the Southern Company facility. So from your perspective as the trade organization, what role should this project play in creating policy, and also how quickly should industry be following behind Southern Company?

Hal Quinn: Well, Kemper is a great opportunity and we're full shoulder behind it. Anybody interested in climate change ought to put their shoulder behind CCS and its demonstration. The fact of the matter is Kemper shows great leadership, Southern Company, Tom Fanning is the chief executive demonstrating great leadership. It's under construction. It hasn't demonstrated anything yet, and when it does we're hoping it's successful. But the fact of the matter is you're going to need a couple more Kempers to know whether this technology is deployable on a widespread basis.

Monica Trauzzi: Sections 111 and 111(d) of the Clean Air Act are written pretty broadly. EPA is being innovative with their approach, but are they stretching beyond what is legally allowable, and what are your plans in court?

Hal Quinn: Well, we'll see what we do if we have to go to court. We're hoping that perhaps we can persuade EPA to step back, look at the traditional way of setting these standards. For instance in the past for scrubbing technology, EPA determined back in the '80s that while wet scrubbers were adequately demonstrated, dry scrubbers were not. And the reason there was because wet scrubbers had already been deployed for 10 years, tested, and everybody felt comfortable deploying those. But dry scrubbers needed more time, and then it took 10 more years or so before it was declared adequately demonstrated. That's the pathway here we think. Allow this to develop. EPA can come back and revisit this standard in eight years under the law or before if it wishes and see where the technology is. In the meantime set the standard on the traditional basis. What is the best available technology today? Supercritical, if you replace an older plant, a low-pressure subcritical plant you're going to get 25 to 30 percent emissions reduction right there, so it's a win-win.

Monica Trauzzi: The Tennessee Valley Authority recently announced it will close eight coal-fired units. TVA has led the way in many respects in diversifying its portfolio and understanding the changing dynamics of energy markets here in the United States. Do you consider them a good leader for the rest of the industry?

Hal Quinn: Well, I think every utility's going to have to look at its generation mix and decide in terms of what's in the best interest of their customers and their service territory, what's economical to do. On the TVA point at least there's a couple units there that were announced that I think take a number of people by surprise because they hadn't been on a lot of lists that, when we ran our assessments about which plants were vulnerable. So it does raise a question to many of us about what's behind all the retirement decisions with TVA at that point in time.

Monica Trauzzi: Is coal even still a stable investment for utilities to be making? And is that perhaps one of the reasons why TVA moved in this direction?

Hal Quinn: Well, I think many utilities do prize diversity in their portfolio mix. Here it wasn't too long ago gas was $9 per million BTU. That was in 2008. It dropped to below $2.00 in 2012 but we're already twice, it's already doubled already within a period of two years. So we know natural gas is going to go up in price. The question is if you want to keep the diversity in your portfolio. As a practical matter there are only two fuels competing head to head in the grid right now. It's natural gas and coal.

Monica Trauzzi: So what's more damaging to the coal industry, EPA's regulations or low natural gas prices?

Hal Quinn: EPA regulations, and the reason why is when natural gas is low and gas prices are high, then you ramp down your coal plants, but when the opposite occurs you go the other way and coal ramps up. And we're already seeing that, and that benefits American business and consumers. When you have a policy that forces a company to make a premature decision to retire an asset, then that is gone and they no longer can rely upon that. And that's a lose-lose for everybody.

Monica Trauzzi: Right, but plants are being retired and utilities are making more and more investments in natural gas. So how do you stay competitive against natural gas?

Hal Quinn: Because our pricing will be competitive over time, and we see actually despite the retirements we're going to be with a fleet, and many of these retirements are going to be caused by the mercury rule that came out in 2012. We see quite a few, probably five to six times more retirements than EPA forecasted. But in the end of the day, the remaining units are going to be larger, more efficient on average, and they'll be running at higher capacity factors. So we see coal climbing probably 7 to 8 percent above last year in terms of generation, 13 percent off 2012, the next year drop again when these other retirements take place, and then we'll climb back to 15 percent over 2012. ...

Monica Trauzzi: But are those numbers based on EPA standards not being implemented?

Hal Quinn: They are based on the mercury rule coming into effect, but it doesn't take into account what will happen if EPA makes a poor policy choice when it comes to greenhouse gas standards for existing plants.

Monica Trauzzi: Enhanced oil recovery is considered by many as an effective economic tool for advancing CCS. What's your view on the role that EOR could play in the future of your industry?

Hal Quinn: Well, I think EOR is going to be the first pathway for commercialization of CCS with respect to coal and eventually natural gas and perhaps other sources of carbon dioxide. But right now the technology has a 30 percent penalty, and the revenue side of EOR is not going to close the gap sufficiently. Hopefully that's the gap, when we get the costs down, that will come into play and hopefully supply some more of the margin that makes this a sensible economic investment.

Monica Trauzzi: A key factor in this debate is that Congress has not provided an alternative to EPA's regulations. When you're on the Hill is that something you ask for, a legislative alternative to these regulations?

Hal Quinn: We have talked to people on Capitol Hill about an alternative which talks about setting the standard on the way it's traditionally been set, what's the best system available that's been adequately demonstrated, and that's not CCS, and preserving the ability of EPA later to come back and revisit these questions as they do constantly under the law.

Monica Trauzzi: And does it seem to you like that may actually be a possibility in Congress?

Hal Quinn: Well, I think in the House of Representatives it's a possibility, and Senator Manchin has a piece of legislation with Congressman Whitfield that needs to have discussion around that whole area about what's the proper way to set the standard.

Monica Trauzzi: But that legislation more seeks to remove some of EPA's authority rather than address the climate change issue.

Hal Quinn: Oh, I'm sorry, that's correct. It's more about the issue about how to set the NSPS for power plants at this point in time. In terms of larger legislation, you know, it's just hard to see a bunch of appetite up there right now to take that on with everything else that Congress is facing.

Monica Trauzzi: All right, we're going to end it right there. Thank you for coming on the show. Nice to see you.

Hal Quinn: Thank you, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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