WSJ: Impact of EPA’s Emissions Rule on Industry to Vary

A sweeping federal rule intended to slash carbon-dioxide emissions from power plants will have an uneven impact on the energy industry, boosting the outlook for some regions and companies while biting others.

Companies that produce coal and electric generators that rely on it for their main fuel will suffer, as will the areas that produce it, analysts said Monday as the plan was formally released by the Environmental Protection Agency. The regulation appears likely to burnish the earnings of companies that own nuclear-power plants and modern natural-gas generators, which emit far less greenhouse gases than coal-fired plants.

The rule calls for the nation to get 28% of its electricity from renewable resources by 2030, versus 13% last year. States will have to submit plans to cut their carbon output by 2018 and meet their first targets for reductions by 2022.

EPA is targeting coal-fired electric generation as it produces about 80% of the industry’s carbon-dioxide pollution. But coal producers and users have already been under stress because many power producers have shifted to inexpensive natural gas and there has been little growth in demand for electricity.

The coal giant Alpha Natural Resources filed for bankruptcy protection Monday, having lost money in 14 straight quarters. Its stock market value has fallen from $20 billion in 2011 to under $8 million on Monday. Rivals Patriot Coal Corp, Xinergy Ltd. andWalter Energy Inc. have also sought bankruptcy protection.

“The timing is coincidental, but it does represent ill-advised regulation that will create greater challenges for our industry, and America’s energy consumers,” a spokesman for Alpha said of the filing. Walter Energy declined to comment. Xinergy and Patriot didn’t return calls seeking comment.

Analysts said coal firms that operate in Appalachia, such as Alpha, with mostly underground mines have a bigger disadvantage than companies like St. Louis-based Peabody Energy Corp. with its open-pit mines in Wyoming’s Powder River Basin.

“Companies with lower-cost assets out West will do better, but as far as the coal companies go, nobody wins,” said Bob Hodge, an analyst with IHS Global Energy. “You can’t put a smiley face on this. As far as industry goes, it’s who becomes the smallest loser.”

The effect on utilities will vary in part by which states they operate in—and under what kind of regulatory structure. In states that still tightly regulate electric companies, even big coal-burning utilities could come out all right if regulators permit them to continue to charge customers for the costs of power plants that have been idled under the rule.

Companies that sell electricity into the nation’s deregulated markets—California, Texas, New York, New England and several states in the Midwest and mid-Atlantic regions—face the biggest challenge, in part because they cannot recoup costs through regulatory rulings.

Some states may impose a price on carbon emissions, raising the cost of power from the most-polluting fossil-fuel plants. Instead of running most of the time, older coal plants would operate less often, making it hard to cover their costs.

Setting a price on carbon “would unambiguously benefit nuclear generators and renewable generators whose costs would not rise,” said Hugh Wynne, senior analyst at Sanford C. Bernstein & Co. in New York. “It would raise the cost of coal power more than gas power.”

Sanford Bernstein called NRG Energy Inc. the biggest potential loser, saying that in some scenarios, the New Jersey company’s profits could tumble by half because most of its electricity comes from coal plants that are in EPA’s cross hairs.

David Crane, chief executive of NRG, said the profit analysis is premature. Impacts will ultimately depend on “what the states actually include in their individual implementation plans,” he said. “It may be several years before final state plans need to be filed, so it’s way too early to say what the impact on us or any company will be.”

The company has been focused on renewable energy for the last five years, he added.

Among the winners, according to Sanford Bernstein, are companies that own a lot of natural-gas plants that could produce more power than they do today, including Dynegy Inc. and Calpine Corp., both of Houston. Dynegy said it is sifting through details of plan.

Calpine chief executive Thad Hill said he thinks the plan will help his company though he noted, “with a lot of coal plants retiring, our generation already is running more.”

Most nuclear plants are generating as much electricity now as they can, but may benefit from higher prices for power, analysts said, citing Exelon Corp. of Chicago as a likely winner. Exelon said it still was reviewing the plan Monday.

By Rebecca Smith and John W. Miller