As Sunflower battle goes to court, future of coal plant is hazy

A six-year fight to block the construction of a coal-fired power plant heats up in the Kansas Supreme Court today amid growing speculation it might never be built.

Today’s legal argument centers on a permit issued by the state to Sunflower Electric Power Corporation in 2010 to build an 895-megawatt coal plant. The Sierra Club says the plant would violate the federal Clean Air Act and pose a threat to human health.

The Holcomb plant in western Kansas has been one of the most debated coal-burning projects in the country, and its permit is among the most controversial ever issued by the state.

Even as the conflict moves to the high court, industry experts said this week they doubt the plant will be constructed. Radical changes in the industry — particularly a move away from coal in favor of natural gas and its lower prices — and strict regulations on coal plant pollution likely will doom the Sunflower project, they said.

Indeed, utilities this year have announced plans to close nine or 10 plants, bringing the number of closures to 120 since 2010, according to the Sierra Club. Since 2008, no utility has broken ground for a new coal plant.

“The world has changed,” said Andy Weissman, an attorney who represents the industry and a power and gas analyst. “There are very few changes this significant.

“It is understandable that (Sunflower) would not be quick to understand this. But this should not be a difficult decision.”

A recent national survey of industry leaders — executives who had been reluctant to abandon coal as their most economical option — showed their support for coal plummeting. And the U.S. Energy Information Administration reports that while coal was a leader in energy production for 60 years, its annual share of power generation declined from 49 percent in 2007 to 42 percent in 2011.

One industry expert said the rapid change doesn’t mean “sudden death” for the coal industry.

“But it says the future of coal is limited and probably isn’t going to grow more than it is now,” David Pumphrey, a senior fellow at the Center for Strategic and International Studies, told Nation of Change this week.

Still, Sunflower officials and their partner in the plant, Tri-State Generation and Transmission in Colorado, are standing by plans to build the coal generator in western Kansas.

“Yes, we are certainly hopeful that it will come to fruition,” said Cindy Hertel, Sunflower spokeswoman.

She acknowledged hurdles ahead, but said they were not insurmountable.

Jim Van Sommeren, a spokesman for Tri-State, which plans to buy a majority of the electricity from Holcomb, was more circumspect.

“Regulations are making it harder and harder and less and less likely to construct a coal plant and less likely that is going to happen,” said Van Sommeren, whose co-op recently purchased a coal mine. “But we certainly support (Sunflower) in those efforts.”

Bruce Nilles, who heads the Sierra Club’s Beyond Coal program, said ignoring the changes could be fatal for utilities.

“We are going through a profound transformation in the electric sector,” Nilles said. “Sunflower is one of the very, very last coal plant projects in the country. It is really one of the last dinosaurs being proposed.”

The conflict garnered national attention in 2008 when the state health department’s secretary became the first to reject a coal plant permit based on health concerns because of emissions.

The decision was supported by Gov. Kathleen Sebelius. But when Mark Parkinson succeeded her, his administration reached an agreement with Sunflower to allow a plant to be built.

This week, Kansas health and environment officials declined to comment.

The state attorney general’s spokesman, Jeff Wagaman, said the Sunflower permit was lawful.

When Sunflower originally proposed the plant about eight years ago, said industry analyst Weissman, it made sense. Natural gas prices were considered extremely volatile and wider use of renewable energy was in its infancy. Weissman said he even advised the industry then to stay with coal.

Today, though, key factors have changed:

• Economics: About the time the Sunflower plant was proposed, technology was refined to extract natural gas trapped in shale formations. The United States quickly emerged as a leader in natural gas production. Shale gas formations have been discovered in Kansas.

As an energy source, natural gas is cleaner to burn. And natural gas prices have plummeted relative to the cost of coal.

Consequently, natural gas plants are being built across the country, and this week Sunflower’s sister company announced that it plans to build a natural gas plant about 45 miles from the planned Holcomb generator.

• Regulations and lawsuits: The Environmental Protection Agency this year issued the Mercury and Air Toxic Rules that require all new power plants to limit emissions so they meet or exceed the cleanest plants in the nation.

Secondly, if a plant is not in construction by April 2013, federal regulations require technology that captures and stores carbon emissions. Only one plant in the nation is using that technology and it’s still experimental, said Christine Tezak, managing director of Clear View Energy Partners LLC, a research and consulting firm for industry and its money managers.

Sunflower and a handful of other utilities have sued the federal government over those rules. A decision is expected early next year.

But even if Sunflower wins both its state and federal cases, it still must find financing. The cost of complying with new regulations could add significantly to the cost. In 2009, the estimated cost to build the Sunflower plant was $2.2 billion to $3 billion.

“They have a big row to hoe,” Tezak said.

In the high court arguments over Sunflower’s permit today, the Sierra Club argues that the state health and environment department’s permit doesn’t meet the minimum requirements of federal clean air laws.

The lawsuit also alleges that the department also allowed inadequate limits on hazardous toxic air pollutants to help Sunflower save costs.

Finally, the lawsuit said, the department failed to provide the public with a “fair opportunity” to participate in the process as is required by law by rushing through a review of comments.

At the time the permit was issued, then-acting secretary John Mitchell said the health of Kansans would be protected.

“I am confident that this is the best permit possible for Kansas,” he said.

But the EPA said the permit was not strict enough to protect human health.