BRADENTON, Fla. - The impact of rules proposed by the Environmental Protection Agency on the public power sector "may be material particularly at certain local levels," utility analysts at Bank of America Merrill Lynch said in a report released Monday.
The goal of the proposed rules, released June 2, is to cut carbon dioxide emissions from coal-fired power plants by as much as 30% by 2030. It affects producers and users of coal.
"While the broader political ramifications of a U.S. greenhouse gas emissions rule are meaningful, we do not expect material stock shock to electric utility names if the draft rule is ultimately implemented as written," BofAML analysts said. "The impact on the public sector, however, may be material particularly at certain local levels."
According to the EPA, its "Clean Power Plan" will be a state-federal partnership allowing states to identify the implementation approach using current or new electricity production and pollution control policies to meet the goals of the program.
Each state will have state-specific carbon pollution reduction goals, and the flexibility to design a program for its unique situation or work with other states to develop multi-state plans.
"For producing states like Kentucky, West Virginia, and Wyoming, the greatest concern exists at the city and county level," analysts at BofAML said. "A reduction in coal production would negatively impact tax revenues and employment in these regions."
The proposal is controversial and will have widely varying effects, they added.
West Virginia Gov. Earl Ray Tomblin said June 2 that no power plant in his state would be in compliance if the rules are adopted as proposed.
"We appreciate the EPA is giving our state some flexibility to design an implementation plan, but based on the briefings we have had including a conversation with EPA Administrator Gina McCarthy these proposals appear to realize some of our worst fears," said Tomblin. "The bottom line is the only way we can comply with these rules would be to use less West Virginia coal."
Tomblin said the proposed rules do not allow for technologies like carbon capture to become commercially viable, and he claimed that "electricity rates will skyrocket."
He also said that he would appoint a working group to determine the impacts of the EPA rule, and the challenges it will create for the state's energy industry and economy.
"Based on our initial review of these rules, not a single West Virginia power plant would be in compliance if the rules were in effect today despite the billions of dollars companies have already spent to modernize their facilities and comply with current rules and regulations to make our environment cleaner," said Tomblin.
According to the U.S. Energy Information Administration, West Virginia has the highest amount of total carbon dioxide emissions among states.
Under the proposed rule, municipal utilities and rural cooperatives that own generating asset portfolios would have multiple options for reducing carbon emissions, and could implement unit-specific improvements, employ energy efficiency and renewable energy strategies, and explore longer-term capacity planning strategies, among others.
The rule also assumes that the municipal bond market will be available to those entities needing to finance improvements to reduce emissions from carbon-intensive power plants by substituting electricity from less carbon-intensive sources, also known as re-dispatching.
"Because of the timing flexibility in the guidelines, these owners can use both short-term dispatch strategies and longer-term capacity planning strategies to reduce [greenhouse gas] emissions, and in many cases financing is available at tax-advantaged or subsidized rates," according to the EPA.
