Coal Unit Retirements
Transformation of AEP’s generating fleet through unit retirements, environmental retrofits and refueling of units with different fuel sources is being driven by changing environmental regulations, changing fuel supply opportunities and changing customer demand. The age of our plants is also a factor in unit retirements, as they near the end of their useful life. As the operating environment has changed, so too has our generation planning.
By continuing to explore more cost-effective alternatives for compliance with current, pending and proposed regulations, we reduced our original compliance estimate. More than $7 billion was spent on compliance from 1990 through 2011 to reduce emissions from coal-fueled plants. We estimate that the cost of complying with new regulations will be an additional $3 billion to $3.5 billion between 2013 and 2020. Our plan is designed to meet the needs of our customers, maintain grid reliability, further diversify our fuel sources and comply with new regulations. And by reducing our estimated capital investment for environmental compliance, we are able to redeploy resources to growth areas of the company, such as our transmission business.
We plan to retire 4,063 megawatts of regulated power generation in 2015 and 2016 and retrofit or refuel another 6,100 MW. Additionally, 2,523 MW of competitive generation is scheduled to be retired in 2015 and 1,155 MW is earmarked for retrofitting with environmental controls.
The changes to our fleet will naturally result in CO2 reductions as natural gas and renewables account for a larger portion of our fuel mix. We also are continually seeking opportunities to improve the overall efficiency of our generating units, which will improve the CO2 emission rate of these units.
Risks related to the plant retirements include service reliability and the loss of those units during periods of extreme demand. We are concerned about what will take the place of those units during extreme events once they are retired next year. We saw how critical those units are to the system during severe cold events in January 2014, when prolonged periods of sub-zero temperatures led to a sharp ramp-up of coal-fueled generation in the PJM Interconnection’s 13-state mid-Atlantic and Midwestern territory.
During that time, most of AEP’s coal units slated for retirement operated, keeping people warm and safe during dangerous weather events. By mid-2015, those units will no longer be available to fill that demand and once they are retired, they are gone forever. Unfortunately, regulations have not given proper consideration to the resilience and reliability that are required of the electric system during extreme times.
We have always been concerned about this prospect, and the winter of 2014 was an early warning sign of serious issues ahead with electricity supply and reliability if we don’t take action now. We must ensure there are adequate power plant capacity, fuel diversity and grid investments after the retirement of significant amounts of coal-fueled generation in mid-2015.
As coal units are taken off line, a new chapter in plant decommissioning begins. A plant decommissioning team within our Generation business unit will manage the process of retiring coal units and will assure that they are done safely and in a manner that complies with environmental requirements. In addition to the environmental monitoring that will be required at the plant sites well into the future, and the demolition of buildings and equipment, there will be social and community impacts.
Hundreds of AEP employees will be affected by the unit retirements. Some will retire while others will move to new jobs within AEP. But a significant number of employees will be displaced. We’re working to help these employees find jobs at other AEP plants or elsewhere in the company. It is unlikely all displaced employees will secure positions, and we are providing resources to help them prepare for that transition. Despite the impending job losses, we are proud of the unwavering commitment by those working at affected plants to operating them safely and efficiently, every day.
Our plants also make up a large part of the tax base in the communities where they’re located, and the loss of tax revenue will be felt in those communities. Learn more about how our Economic & Business Development team is working and investing in communities to promote economic growth.
There also are financial ramifications for AEP resulting from coal unit retirements. We expect to recover the remaining book value of our retired regulated generating assets through the normal regulatory process. However, we will not be able to recover the full cost of the retiring units in our competitive generation business and took pretax impairment charges totaling $441 million for 2012 and 2013.