Major utility questions Biden’s signature climate plan

By Benjamin Storrow | 09/15/2021 05:57 AM EST

American Electric Power Chairman, President and CEO Nick Akins discusses power grid stability and environmental regulation in 2014. His company is raising concerns with President Biden's climate program. AP Photo/Pat Sullivan

One of America’s largest power companies is raising concerns that the president’s signature climate proposal would force utilities to develop clean energy “too rapidly.”

American Electric Power asserted in a letter to other utilities and congressional offices that the Clean Electricity Performance Program would “adversely impact the reliability and resilience of the electric grid.”

AEP’s letter comes as investor-owned utilities, which provide about 70% of the country’s electricity, are offering qualified support for the CEPP, a program designed to spur utilities to generate more renewable energy through grants and fees. But details of the proposal released last week sent many companies scrambling to determine if they could meet the measure’s annual threshold for clean electricity sales, industry representatives said.

AEP is entering the political debate at a critical juncture for President Biden and congressional Democrats, who are banking on the clean energy proposal to meet their goal of slashing power sector emissions 80% by 2030. The House Energy and Commerce Committee passed the CEPP yesterday in an incremental victory toward providing $150 billion in grants over seven years to help utilities buy or build increasing amounts of zero-carbon electricity (E&E News PM, Sept. 14).

But the program faces a treacherous path in the Senate. Sen. Joe Manchin, the conservative Democrat from West Virginia, raised doubts about the proposal this week by questioning whether utilities should receive federal funding to accelerate the transition to clean energy, which he says is already happening (Climatewire, Sept 13).

AEP operates two large coal plants in West Virginia. The Columbus, Ohio-based utility is one of America’s biggest power companies, serving 5.5 million customers in 11 states. And it is illustrative of the uneven nature of the clean energy transition.

The company has been one of the country’s largest coal burners, but in recent years it has announced plans to pivot away from the fuel. It plans on installing 16 gigawatts of renewable energy by 2030, amounting to about half its fleet, and it announced plans to cut carbon dioxide emissions 80% of 2000 levels by the end of the decade.

Even so, the company is expected to run three of its largest coal plants until 2040. In 2019, it ranked fourth among U.S. utilities for emissions when it released nearly 70 million tons of CO2, according to an analysis by M.J. Bradley & Associates, a consultancy. Most decarbonization studies show that coal will need to be virtually eliminated in the U.S. by 2030 to keep global temperature rise below 2 degrees Celsius.

Industry representatives said AEP’s letter reflected a debate in utility circles whether the CEPP’s requirements are achievable. Under the proposal, utilities would be eligible to receive a federal grant if they grow clean electricity sales 4 percent annually between 2023 and 2030. The grant would be worth $150 per megawatt-hour on 2.5 percent of a power company’s new clean electricity sales. Nuclear qualifies under the proposal, as do wind and solar.

Utilities that fail to meet the 4 percent threshold would have to pay a $40 per MWh fine.

“I think uniformly across the members we see the 4 percent as pretty aggressive,” said Emily Fisher, a senior vice president at the Edison Electric Institute, a trade association representing investor-owned utilities.

Edison has offered qualified support for the CEPP, arguing that the plan should be technology neutral and provide flexibility for companies to meet its targets. Fisher said she did not see AEP’s letter as a signal that the company would oppose the plan, but as an attempt to improve the legislation.

“We would like to have a program that we can achieve. That is what we are focused on,” she said.

AEP, for its part, expressed concern the CEPP would jeopardize reliability if it’s not accompanied by similar investments in dispatchable resources like energy storage and supporting infrastructure like transmission. And it raised the prospect of rising costs for renewable projects as a result of the government’s programs.

“We expect that the market would not have the ability to correct this in a timely fashion, given that the demand for projects is likely to exceed the supply of projects for years to come,” Anthony Kavanagh, AEP vice president for government relations, wrote in the letter.

The letter also raised concerns about the requirement that any fine be paid by shareholders and it expressed worry that developers could be penalized if their plans to obtain clean electricity are rejected by state utility regulators.

Tammy Ridout, an AEP spokeswoman, said the CEPP aligned with the company’s plans to advance clean energy.

“The key will be to ensure that the timeline and incentives will allow us to maintain a reliable, resilient and affordable energy system for customers during the transition to cleaner resources.”

Not all utilities have balked at the requirements. Exelon Corp., a large nuclear generator, has thrown its support behind the plan, saying the CEPP can support the country’s build-out of clean electricity. Including penalties can help ensure the program is successful, said David Brown, Exelon senior vice president for government.

But a compromise might be had on the annual requirement for new clean electricity sales, he said. The CEPP is part of a wider $3.5 trillion budget reconciliation plan. CEPP grants could be extended until 2032, the last year allowed under reconciliation. That would enable Congress to lower the annual threshold for new clean energy sales, making the program more palatable for some companies, Brown said.

“I think the industry is interested in long-term certainty, and hopefully we won’t let the perfect be the enemy of the very good,” he said.

The CEPP represents the main thrust of Biden’s climate agenda. Most climate analyses show the U.S. will not meet the president’s goal of reducing emissions 50% of 2005 levels by 2030 without major legislative action, and look to the electric power sector to deliver much of the cuts (Climatewire, July 12).

The Rhodium Group, an economic consulting firm, reckons the U.S. needs to cut emissions by 1.7 billion to 2.3 billion tons to meet Biden’s goal. The six major climate provisions in the reconciliation package would deliver a cut of 830 million to 936 million tons, with the CEPP and tax incentives for renewables providing a reduction of 715 million tons.

Supporters of the plan point to modeling by the University of California, Berkeley, which shows that it is possible for utilities to increase clean electricity sales by 4% annually. And they argue it’s important to include penalties to ensure utilities meet their commitments.

“You wouldn’t want consumers to pay for utilities’ malfeasance, or for their failure to achieve a goal that is feasible,” said Mike O’Boyle, director of electricity policy at Energy Innovation, a think tank supportive of the plan.

Correction: An earlier version of this story misquoted Mike O’Boyle.