(The following story by Rebecca Smith of the Wall Street Journal appeared on the Virginian-Pilot website on April 2.)
NEW YORK — Two years ago, lobbyist Steve Miller delivered some disquieting news to coal-industry executives gathered at an association meeting.
Half of the 2,600 people he had recently polled blamed coal-fired power plants for fouling the air and water. Only 17 percent strongly favored the continued use of coal to make electricity. The fuel of the future, most Americans believed, was cleaner-burning natural gas.
But these days coal is making an unexpected comeback. A few years ago, it would have been hard to find a dozen coal-fired plants on the drawing board.
As other types of plants were built, coal’s share of the electricity market drooped to 51 percent last year from a peak of 57 percent in the mid-1980s. Now, more than 100 coal-fired plants are in the works, though the vast majority are in the early planning stages.
At a total cost of as much as $72 billion, the plants could supply enough power for the equivalent of 60 million homes.
Environmentalists say the heightened interest in coal partly reflects the power industry’s success in convincing the Bush administration to push back deadlines for installing expensive pollution-control equipment.
“The Bush administration is giving the industry a protective shield,” says David Hawkins, an attorney with the Natural Resources Defense Council, a Washington-based environmental group. The administration says it is simply taking a more pragmatic approach to curbing pollution.
Other developments in the electricity industry have bolstered the coal business, too. Owners of coal-fired plants have been getting top dollar for power they sell to utilities and other buyers, thanks to quirks in the system for setting prices.
Worries about shortages of natural-gas supplies and price volatility also have improved coal’s once-sagging profile. And even industry critics say that still-evolving “clean coal” technology is nearly ripe for broad deployment.
Plants with the new technology could cost 50 percent more to build than conventional coal-fired ones, but the cost of operating them over a plant’s 30-to-50-year life span is expected to be lower. That means consumers, who foot the bills, could benefit in the long run.
For now, the industry is enjoying a bonanza from energy deregulation. Before deregulation, which got rolling in the mid-1990s, utilities that owned coal-fired plants were reimbursed for their costs and allowed to earn a limited profit on their invested capital. Nearly all of the power they produced went to their own local customers.
Since deregulation, these utilities and other owners of coal-fired plants also have been able to sell electricity to wholesale purchasers, such as other utilities, in daily auctions conducted by independent “grid operators,” who are regulated by the Federal Energy Regulatory Commission.
The coal-fired plant owners often end up collecting prices far above their costs.
Under federal rules, a grid operator calls on power companies to submit the price for electricity they can supply. The operator then lists these prices from cheapest to most expensive.
Starting with the cheapest, this operator accepts offers until it has enough to cover demand. The last price accepted is what is then paid to all of the suppliers, with certain exceptions intended to prevent market manipulation such as occurred in California in 2000 and 2001.
Last year, the final price accepted frequently was that of a gas-fired power plant, not a coal-fired plant. As natural-gas prices rose, so did power prices for everyone else. Coal-plant owners were able to sit back and collect big profits for their open-market sales, though their costs for buying coal, based on long-term contracts, had barely budged.
These favorable economics are likely to be around for a while. In the upper Midwest, coal plants, on average, will earn double what gas plants will earn through the middle of the next decade, predicts a study by Cambridge Energy Research Associates, a consulting firm in Cambridge, Mass.
Coal has gained momentum as doubts have emerged about the affordability and dependability of natural-gas supplies.
Some energy companies, most notably Royal Dutch/Shell Group and El Paso Corp., recently reduced their estimates of proven reserves of oil and natural gas. New finds of natural gas have tailed off in recent years, and existing fields are becoming depleted more rapidly than previously expected.
To meet rising demand, the U.S. is faced with the prospect of transporting natural gas long distances – such as from Alaska’s North Slope – or on ships from other nations in super-cooled liquefied form.
While the U.S. holds only 3 percent to 4 percent of the world’s supply of natural gas, its coal supply is undeniably plentiful; the U.S. is the source of about one-quarter of the world’s known supply.
Coal’s renaissance also can be traced to the White House and other high-profile Republican supporters. Under the Bush administration, the Environmental Protection Agency has eased deadlines set by earlier administrations for most coal-fired power plants to reduce toxic emissions.
The administration also has backed away from a 2000 campaign promise to tighten regulations on carbon dioxide, a coal-plant by-product that is associated with greenhouse gas es and global warming.
Some environmentalists have accused the EPA of undermining the Clean Air Act, the landmark 1970 legislation subsequently amended to tackle acid rain, smog and other forms of pollution blamed in part on emissions from coal-fired power plants.
Instead of being required to accomplish certain pollutant reductions by 2010, the EPA has signaled it more readily will grant utilities five-year extensions, pushing the effective date to 2015. The agency says that by 2015 it will have obtained deep cuts in emissions of sulfur dioxide and nitrogen oxides.
“We’re focused on what we think is achievable by the industry,” says Cynthia Bergman, spokeswoman for the EPA. The administration argues that fuel diversity is good for the nation, and increased use of coal for power generation could free up natural gas for other purposes, such as chemical production.
The EPA also has relaxed a Clean Air Act rule that requires companies to install expensive pollution-control equipment whenever they make major investments in older power plants or factories. And it has loosened a formula that determines the baseline pollution level that, over time, must be reduced.
Beneficiaries of the government’s approach include big coal burners such as AEP, Southern Co., Duke Energy Corp., Cinergy Corp. and FirstEnergy Corp.
A White House spokesman says the bottom line is that “coal is an important part of our future. …We’re trying to make coal work better and cleaner.”
Given the energy-industry background of President Bush and Vice President Dick Cheney, coal-industry executives have been optimistic about their business prospects under the Republican administration.
Together, the energy and mining industries contributed $25 million to Bush in the 2000 and 2004 election cycles, according to Public Citizen, a nonprofit public-interest organization.