The cost of implementing the federal government's plan to reduce greenhouse gas emissions at power plants is dependent on the future price of natural gas, Andrew Lachowsky, a vice president of the Arkansas Electric Cooperative Corp., told the Arkansas Alternative Energy Commission on Thursday.
That's because utilities are planning to switch from coal to natural gas power plants in order to comply with the federal Environmental Protection Agency's Clean Power Plan, which requires that Arkansas reduce carbon dioxide emissions by 36 percent.
"When we think we have things figured out, they change. That's the one thing I've learned in the 25 years I've been in the electric utility business," said Lachowsky, the cooperative's vice president of planning, rates and market operations. "If anything happens to the natural gas price, there will be huge policy impacts."
Utilities are using more natural gas and less coal to comply with the law because burning coal, which is primarily made of carbon, releases more carbon dioxide. The price of natural gas also has fallen in recent years, making the fuel more competitive with coal.
Renewable energy sources -- like wind and solar -- are generally more expensive and don't produce a constant stream of electricity.
If the cost of natural gas continues to rise incrementally, Lachowsky predicted, electricity rates would increase by roughly 13 percent for the cooperative's wholesale customers in 2026 compared with rates without the Clean Power Plan.
He noted his prediction depends on several large assumptions, including how the state chooses to comply with the Clean Power Plan.
Lachowsky also said rates would rise further if natural gas prices spike unpredictably, which has happened in recent years.
According to the U.S. Energy Information Administration, natural gas currently costs about $2.50 per million British thermal units. As recently as 2008, it cost 420 percent more.
Another factor affecting future rates is the proposed shutdown of the White Bluff coal plant in Redfield, which is operated by Entergy Arkansas but partly owned by the cooperative.
Entergy Arkansas Chief Executive Officer Hugh McDonald said in an interview last Wednesday that the company planned to shutter the plant to comply with the Regional Haze Rule.
That 1999 rule, which is part of the federal Clean Air Act, is intended to reduce sulfur dioxide and nitrogen oxide emissions that contribute to visibility impairment at 156 national parks and certain wilderness areas across the country. Proponents say reducing the emissions reduces respiratory illnesses.
McDonald said the Clean Power Plant rule has also resulted in uncertainty for the company's coal plants.
"It's all about economics," he said. "We're going to operate the plant that is most economic and still meet all environmental compliance requirements."
Lachowsky predicted that if Entergy Arkansas shuts down the White Bluff coal plant in the late 2020s, the cost for the Arkansas Electric Cooperative Corp.'s wholesale customers to comply with the rule by the early 2030s would shrink to 8 percent compared with rates without the rule.
The state Legislature created the commission in 2009 to study the feasibility of creating or expanding alternative energy sources, such as ethanol, solar power, wind power and animal and plant waste, and its effect on economic development.
Business on 10/23/2015