A Victory Near for Utilities in Kansas Coal Battle

By Steven Mufson
Washington Post Staff Writer
Saturday, February 23, 2008

The Kansas legislature is on the verge of passing a law that would clear the way for two new coal plants just four months after a state agency took the unprecedented step of blocking their construction because of concern about greenhouse-gas emissions.

The struggle over the $3.6 billion project, proposed for a remote town in western Kansas, has become a symbol of the uncertainty over coal's future, caught between rising fears about climate change and powerful coal and utility interests.

The Kansas showdown comes as big banks are growing more reluctant to finance new coal-fired electric plants because they expect Congress and the next president to impose steep costs on carbon dioxide emitters.

Earlier this month, Citigroup, J.P. Morgan Chase and Morgan Stanley issued a set of "carbon principles" that would establish tougher scrutiny for new coal plants. "Due to evolving climate policy, investing in CO2-emitting fossil fuel generation entails uncertain financial, regulatory and environmental liability risks," the three said in a statement. Last week, Bank of America said it would start to factor in a cost for carbon dioxide emissions when it considers financing for new coal plants, using a forecast of $20 to $40 for every ton of CO2.

Kevin Parker, head of Deutsche Bank's asset management division and a member of the bank's group executive committee, said the new principles were "a seminal event" whose "implications are enormous." Pointing out that coal and oil producers have not had to fully pay for environmental costs, he said that "hydrocarbon fuels have gotten a free ride . . . for 60, 70, 80 years, and it's all going to come to an end."

The Kansas dispute also comes as the Environmental Protection Agency continues to mull its response to a Supreme Court decision in April declaring carbon dioxide to be a pollutant subject to regulation under the Clean Air Act. Kansas regulators cited the Supreme Court case in rejecting an air permit for the new coal plants.

Yet the nation's biggest coal-mining company, Peabody Energy, aided by utilities and some labor unions, is making a stand in Kansas. The company has prodded Republican leaders in the state legislature to craft a bill that would strip the state's Department of Health and Environment of the power to deny air permits for projects that meet federal standards. The bill would also order the agency to reconsider the rejected coal-plant application.

In the past week, the state Senate and House passed separate versions of the bill by huge majorities, though the House margin fell short of what would be needed to override the veto promised by Gov. Kathleen Sebelius (D).

Sebelius, a rising star who delivered the Democrats' televised response to President Bush's State of the Union address, has offered a compromise that would allow one plant to go forward in exchange for renewable-energy projects, energy-efficiency measures and the use of more expensive technology capable of capturing CO2emissions. But her overture was rejected by the utilities.

Steve Miller, a spokesman for Sunflower Electric Power, the main utility behind the project, said Sebelius had asked for carbon capture technology that "is not viable at this time." He added that Sunflower, a rural cooperative that already has a small coal-fired plant at the same site, was insisting on building both new plants because of economies of scale. "We've got to get two plants or the deal doesn't work for us," Miller said.

Both sides are campaigning hard. Sunflower has offered to give $2.5 million to Kansas State University over 10 years -- but only if the legislation is adopted. The utility is running TV ads about clean power without mentioning coal.

Opinion polls show that a majority of Kansans oppose the plants.

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