Last month, when FirstEnergy Corp. decided to close six coal-fired power plants in its home state of Ohio and two other states, the moves became instant political ammunition for Republicans, who blamed the Obama administration's environmental regulations for the closures.
Because of the regulations on toxic power plant emissions announced last month by U.S. EPA, "500 hardworking Americans in three states will lose their jobs -- not to mention the countless indirect jobs," asserted Rep. Bill Johnson (R-Ohio).
But the causes for the closures were not quite as simple or as immediate as that. Other forces helped push the FirstEnergy plants to the brink, according to energy experts. They include an underperforming U.S. economy, which is suppressing growth of electricity demand, and the lowest natural gas prices in a dozen years, which have made new gas-fired generation a compelling choice for utilities.
Plus, there are offsetting benefits. They begin with the potential for many more jobs in drilling, pipelines, steel, tools, chemicals and related industries -- employment that will be created thanks to the surge in development of natural gas from the Utica and Marcellus shale deposits running underneath the state's east side. The benefits also include a substantial reduction in health threats caused by the toxic emissions, EPA says.
The long, tangled history of the six plants doesn't really lend itself to a political whodunit, according to energy experts. "These decisions combine numerous factors, including future environmental regulations, power prices, gas prices, regulatory treatment of proposed expenditures, the company's financial condition, their appetite for putting in capital expenditures, and how risk-averse the companies are," said Metin Celebi, a principal with the Brattle Group consulting firm.
"There are multiple factors, and they include expected future market prices of power and gas as well as capital costs of retrofit equipment. A good portion of the coal plants facing closure are the old ones," Celebi pointed out.
"They tend to be less efficient to run, with higher heat rates, and tend to require further costs to maintain them, just to keep them operating. In addition to the age factor, most are lacking the major environmental controls. That makes them more at risk of retirement because of the costs of adding controls."
So was it declining energy prices or environmental regulation? "Clearly it is both," said Ira Shavel, a vice president of the Charles River Associates consulting firm. "Market prices are very low. A lot of coal plants can't compete with natural gas" generation, he said.
"Some of the units are fairly old, too. They are small -- all of which makes them more challenged. The small units have relatively high fixed operation and maintenance costs," Shavel said.
EPA's limits for airborne mercury and other toxic emissions, announced in December, affect 1,100 coal-fired plants across the country, 40 percent of which do not have advanced pollution controls. In response to concerns about the impact of the rule on the nation's power plants, the administration encouraged states to add a fourth year to the rule's three-year compliance timetable.
Further extensions could be granted on a case-by-case basis to meet pressing grid reliability issues, the administration said.
A corporate focus on saving larger plants
FirstEnergy spokesman Mark Durbin said the EPA requirements were the critical factor in the decision to close the plants. "It's definitely related to the new rules. ... Each of the units has to have something done to it. We couldn't justify that cost," he said.
At the same time, FirstEnergy faces substantial costs for installing added environmental controls on other coal plants that it will keep online. "Absolutely our focus is on the larger plants and what we have to do to meet the requirements," Durbin said.
FirstEnergy spent $1.8 billion installing scrubbers at its largest coal plant, the W.H. Sammis unit on the Ohio River. "It took us five years to do that. That's just one project. Multiply that by the plants that need to have work," Durbin explained. "It could reach into billions of dollars."
The Ohio plants FirstEnergy's generation subsidiaries will close are Bay Shore plant's Units 2 and 4 near the city of Oregon, plants in Eastlake and Ashtabula, and the Lake Shore plant in Cleveland. Also on the list are the Armstrong plant in Adrian, Pa., and the R. Paul Smith plant in Williamsport, Md.
These are old, relatively small, relatively inefficient compared to newer units, and dirty, having been granted a grandfathered exemption from initial Clean Air Act requirements, say the power company's critics. One was idled in 2010 because of the recession. Others run only when demand peaks.
Living on 'grandfathered' time?
"Make no mistake, these plants were operating well-beyond their intended lifespan for a reason: it has been cheap to be dirty," said Henry Henderson, Midwest director of the Natural Resources Defense Council, in a recent blog post. "And utilities have taken advantage, holding off on modernizations so that the Clean Air Act's provisions would not kick in to force older plants like these to be retrofitted with modern pollution controls to protect the surrounding communities," he said.
"These are rules that have been coming down the pike for more than a decade," said NRDC's John Mogerman. "Most of the nation's utilities long ago put themselves in a position to deal with these requirements," he said -- and that includes FirstEnergy's investments in its more modern plants. "Those that are left are the smallest, most inefficient plants. The company is simply making a business decision that they don't want to invest in modern pollution controls, or in protecting the communities around them," he asserted.
If the pressures of low natural gas prices contributed to the coal plants' closing, it also has a big upside for the Ohio economy. Ohio leaders and officials from Gov. John Kasich (R) down are counting on the natural gas boom to create direct jobs from exploration and production and also to lead a revitalization of the state's manufacturing sector.
The Ohio Oil & Gas Energy Education Program, a shale gas drilling advocate, estimates that more than 200,000 new jobs could be created over the next four years from shale gas development, if developers are able to safely maximize production.
Employment in Ohio's primary metals industries plunged from 82,400 in December of 2000 to 34,900 in December 2009, continuing the jobs hemorrhage in that sector that began in the late 1970s. By the end of 2010, employment was headed upward. Ohio's unemployment rate had dropped to 8.1 percent last December from 9.5 percent in December 2010, and remarkably for Ohioans, the state jobless rate at the end of last year had dropped below the U.S. average.
Politics drones on, but so does new employment
"We talk to companies that provide equipment into the steel industry and other manufacturing industries. They are hiring people as quickly as they can find qualified people, because their demand is up tremendously," said Martin Abraham, dean of Youngstown State University's College of Science, Technology, Engineering and Mathematics.
An alliance of Youngstown-area companies has formed, called the Mahoning Valley Manufacturers Coalition, he added. "They are trying to identify new opportunities to get people educated so they can take the jobs they are trying to fill."
For its part, FirstEnergy is contributing to job growth in the wind energy, as well, committing to buy power from the Blue Creek Wind Farm in northwestern Ohio, an expansion that provides more jobs for Ohio.
The complex costs and benefits of EPA's power plant regulation ignited verbal fireworks at a September hearing of a House Energy and Commerce subcommittee, with tempers fraying.
"So you know, people make comments that we're going to have all these jobs because of the new green energy," Rep. Ed Whitfield (R-Ky.) said. "Yeah, there's going to be new jobs, but there's going to be lost jobs, as well. ... For the people who lose their jobs, they are gone. It has an impact on them and their families. So some may pick up a new job in one part of the country, but these people lose their jobs."
"I'm entirely sensitive to that," replied John Norris, a commissioner of the Federal Energy Regulatory Commission. "The impacts on the grid of power plant closing are local, and the remedies will be, too."
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