Split Among Power Companies On Air Rules Could Insulate EPA

As the Obama administration moves closer to finalizing new air pollution standards for coal-fired power plants, a rift between power companies could complicate efforts to lobby for a less stringent rule.

The split -- on display at an industry conference here this week -- pits generators that rely heavily on coal fuel against companies that rely primarily on nuclear power or natural gas. Some chief executives in the first group insist the rules as proposed by the Environmental Protection Agency will be impossible to comply with in time. Others in the industry say the proposed timeline -- three years with the possibility of a one-year extension -- is tight but achievable.

"I think three years is doable," Jim Rogers, chief executive of Duke Energy Corp. (DUK), said in an interview, referring to Duke's compliance schedule for the EPA rules. Sitting in a chair next to him, Bill Johnson, chief executive of Progress Energy, Inc. (PGN), seemed skeptical. "It's a push," he said. The two companies are close to completing a merger.

Others said EPA's proposal couldn't be implemented. Asked whether Southern Co. (SO) could meet a three-year timeline, Chief Executive Thomas Fanning said flatly, "No. And no one else can either."

The divide may make it easier for the Obama administration to finalize these rules, which govern mercury and other pollutants emitted by coal-fired power plants. In September, President Barack Obama decided to delay a rule on smog-forming ozone pollution, but that rule faced widespread opposition from the business community.

"The fact that the utility industry is not unanimous on this issue makes it easier for EPA to stick to its guns," said Christine Tezak, senior energy and environmental policy analyst at Robert W. Baird & Co.

The differences of opinion among power companies are explained partly by economics. Exelon Corp. (EXC), for example, stands to benefit if older coal facilities close because it could gain market share for its natural gas-fired and nuclear power plant fleet. The company supports the EPA rules and Chris Crane, the company's chief operating officer, said Tuesday in an interview that he believes complying with the EPA's proposed timeline is possible.

Both Crane and Rogers of Duke Energy say their firms can comply because of investments they've made in pollution controls and new, cleaner plants. Companies with large coal fleets, including Southern and American Electric Power Co. (AEP) say they also have invested billions of dollars to upgrade plants, but the EPA rules will still force the companies to close older facilities before they are ready to replace them, putting the reliability of the electricity grid at risk.

The industry agrees there should be exceptions made to ensure the grid is reliable. The Edison Electric Institute, a trade group for investor-owned utilities, has crafted a proposal that the whole industry backs. It asks the EPA to allow for a compliance timeline as long as six years in order to ensure reliability on a case-by-base basis. Crane, of Exelon, said he believes regulators will make exceptions for plants that are needed for that purpose.

"If for whatever reason these companies don't think they can comply, give them some extra time, but make them justify it," he said.

EPA has already said it would grant one-year extensions. The emissions standards for mercury and other pollutants were sent to the White House for review Tuesday and are expected to be finalized by mid-December.

-By Ryan Tracy, Dow Jones Newswires; 202-862-9245; [e-mail]