Burning Issue

Pros, cons of proposed coal plant discussed

By Sean Ryan
Daily Reporter Staff

Wisconsin's business and political leaders are waging a heated debate on educated prophecies as they gauge the risks of burning coal or gas in the state's next generation of power plants.

The final assessment of these risks, which ultimately the three-member Public Service Commission of Wisconsin must determine, will be built on predictions of what the energy industry will be like during the next 40 years.

It is universally recognized that lights will start going out if Wisconsin doesn't increase its power generation within the next 15 years. There are two options on the table to meet that need.

We Energies is seeking PSC approval for a $4.2 billion, 1,830-megawatt baseload coal-burning Elm Road power plant in Oak Creek to replace the one it currently operates there as part of its Power the Future plan. California-based power generator Calpine Corporation has offered to sell the utility the required power by adding generation units to two PSC-approved natural gas-fired plants - the Fox Energy Center and the Fond du Lac Energy Center.

Because of the gravity of this issue - for both the state's construction industry and the region's economic future - The Daily Reporter on June 27 held a round table to allow representatives from Wisconsin Energy Corp., Responsible Energy for Southeastern Wisconsin's Tomorrow, Calpine and the Alliance for Power and Jobs to discuss the issues face to face.

We Energies sent Kris McKinney, manager of environmental policy, and Barry McNulty, Power the Future public affairs director; the alliance sent Lyle Balistreri, president of the Milwaukee Building and Construction Trades Council, and Jim Reynolds, president of Racine-based Cast Tools Inc.; RESET sent S.C. Johnson and Son Inc. spokeswoman Cynthia Georgeson and Dona Wininsky, public policy director for the American Lung Association of Wisconsin; and Calpine sent Director of Government and Public Affairs John Flumerfelt and Bill McClenahan, government affairs consultant for Madison-based Martin Schreiber and Associates Inc.

We Energies’ rendering of the Elm Road plant

The ifs and buts

Representatives on all sides of the table agreed that a coal-fired power plant has capital and construction costs that are significantly higher than those for gas-fired units.

Due to that higher up-front cost, it is a riskier proposition from the start than a gas-fired plant.

Although gas-fired plants are cheaper to build, the market price of gas is more volatile and carries a greater risk of increasing plant operating costs than the more plentiful and stable coal. If the cost of coal remains stable through the plant's life, the plant could make up the difference of capital costs.

At the same time, gas produces fewer emissions than coal. Because of that, gas has less risk of increasing operations costs if environmental laws and regulations become stricter and would be better for the region's environment.

Next Step The PSC's technical hearings on the Elm Road plant in Madison will be held from Aug. 25 to Sept. 5. Public hearings are scheduled for Sept. 8, 9 and 10, but the PSC hasn't chosen a location.

Southeastern Wisconsin's economic future relies upon having both cheap energy and a clean environment. While higher electric bills hurt the economic attractiveness of a region, so does having the Environmental Protection Agency's stamp of being a severe nonattainment area and higher emissions associated with burning coal.

We Energies' plan would decrease its emissions in Oak Creek and, therefore, contribute to greater environmental health in the nonattainment area. However, the new plant would not decrease emissions as much as Calpine's gas-fired power plants would.

Capital costs

A study We Energies commissioned and Alliance for Power and Jobs released last month predicted the eight-year Elm Road plant project would create $860 million in construction wages and benefits and produce an average of 906 construction jobs a year, 713 for Wisconsin workers.

"It's $860 million in wages and fringes for Wisconsin construction workers," Balistreri said. "These are people that buy homes. They buy consumer goods. They pay taxes. They make the world go round. They also build all of the other buildings for all of the other businesses that would benefit from Power the Future."

Although it is not a strict comparison, Flumerfelt said Calpine's 600-megawatt gas-fired Riverside Energy Center in Beloit, being built by Oscar J. Boldt Construction, Appleton, will have about 400 workers on site during peak construction. We Energies' gas-fired Port Washington plant, which broke ground two weeks ago, will cost $640 million to build and employ 500 workers during peak construction.

"From Calpine's perspective, we think the construction trade industry should strongly support the development of new power plants in Wisconsin," Flumerfelt said. "We have 400 union guys on site at Riverside. We like them. We think they like us. We've got some labor folks and politicians up in Fox Valley that would like to see a piece of this construction come their way."

Operating costs

While coal's higher capital costs benefit the construction industry up front, they also increase the risk of the plant losing money in the long run, Flumerfelt said. He said that while coal is cheaper to purchase than gas, there is no long-term guarantee that the price difference will be enough to offset the additional hundreds of millions in capital costs.

"It takes a lot of running time to make up the cost savings from fuel prices that gas plants just get off the bat from being cheaper," Flumerfelt said. "The huge capital costs associated with coal and the long construction time which you accrue interest during construction time tend to offset the fact that on a btu basis, coal is a less expensive fuel."

However, McNulty said there is also no long-term guarantee that the price difference between coal and gas, which has a scarcer supply and more volatile pricing (see Graphs A and B), won't wipe out the preliminary savings of building a gas plant.

"The proven reserves have not been keeping pace with the demand, and that's our big concern when it comes to natural gas," McNulty said. "All of the new generation proposed and built in Wisconsin has been extremely heavy on natural gas. And as a result of that, we are putting our consumers at great risk as well in terms of price volatility that is a huge concern for natural gas."

Environmental impacts

RESET's representatives stressed that cost comparisons for the two fuels must go beyond their basic market price to cover the added costs from coal's additional emissions. These costs include pollutant credit fee increases from state and federal governments, the plant's impact on the area's nonattainment status and potential health impacts on local residents.

Power plant emissions will decrease under both Calpine's and We Energies' proposals. However, compared to gas, coal produces eight times more nitrogen dioxide, two times more carbon dioxide and mercury, which gas doesn't emit (see Graph C).

We Energies could take a hit if environmental regulations shift, Georgeson warned, and the government decides to charge generators for carbon dioxide emissions or up the cost of environmental credits that the plants would need to operate.

"I can't imagine how (Elm Road) is designed in CO2 monetization, which (We Energies) has declared is not an 'if' scenario but a 'when' scenario," Georgeson said.
(CO2 monetization was mentioned several times in the round table and is, essentially, the government putting a fee on emissions.)

"How in the world, I wonder, can you then want to create in this area one of the largest emitters of CO2," Georgeson said. "That's what it would become, if you build the seventh-largest coal plant in the country."

Going beyond the plant itself, Georgeson warned that in the first 10 years of the Clean Air Act, which established the EPA's ozone nonattainment area program, severe nonattainment areas lost 590,000 jobs, more than $30 billion in revenue and $70 billion in lost manufacturing investment.

"The case is clear that in severe nonattainment areas, where we are here in southeastern Wisconsin, everyone -- that means people, the public, it means companies, it means our public utilities - needs to be doing everything they can to help us achieve attainment status," Georgeson said.

McNulty said the Elm Road plant would help the region's air by cutting precursor ozone emissions by more than 65 percent, and it would help the water by using the best mercury control technology available. He said it was unfair to pin all the blame for the nonattainment area, which stretches into Indiana and Illinois, on We Energies alone.

"When we're comparing new coal to new gas, we're talking about very low emissions in both cases for the precursors of ozone compared to other contributors to the issue," McNulty said. "We want to achieve emissions reductions. What is critical is the increasing, relentless opposition by groups that don't want to see us reduce emissions through Power the Future."

Wininsky, who has met with We Energies officials twice to discuss the new plant, said she wasn't convinced the emission controls would eliminate the adverse health impacts she was concerned about. She said that electrical utilities contribute about one-third of nitrogen dioxide emissions, a primary component of ozone.

"We've heard a lot of very sincere sounding promises that Power the Future will not increase air pollution and lung disease in southeastern Wisconsin and, in fact, that air quality will improve," Wininsky said. "What we have not heard unfortunately is the hard scientific evidence ... We've learned a lot about best available control technologies but nothing to document how these technologies will actually translate into the kind of pollution reductions claimed."

Until the PSC makes its determination of whether to approve, modify or reject the Elm Road plant, there's no black-and-white way to settle the stalemate.

The PSC will hold its technical hearings on the Elm Road plant in Madison from Aug. 25 to Sept. 5. Public hearings are scheduled for September 8, 9 and 10 but the PSC hasn't chosen a location.

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