A Victory Near for Utilities in Kansas Coal Battle

Meanwhile, Rep. Henry A. Waxman (D-Calif.), has challenged Sunflower Electric, which receives federal loan support. He said its plans could put taxpayers at risk and undermine future federal climate policy.

Although half of the nation's electricity comes from coal-fired plants, environmental groups and many lawmakers want to stop the construction of new coal plants. They say utilities should rely on energy-efficiency measures to keep demand from outstripping generation capacity while research is done on how to capture and store carbon dioxide emissions.

All three remaining major presidential candidates -- Sens. John McCain (R-Ariz.), Barack Obama (D-Ill.) and Hillary Rodham Clinton (D-N.Y.) -- favor climate-change legislation. But whether Congress will tax carbon or choose among various cap-and-trade proposals is uncertain.

"Coal is facing a tremendous backlash regardless of where it rears its head," said Richard W. Cortright, managing director for utilities, power and project finance at Standard & Poor's. "The big mystery is . . . how much it's going to cost. Until we have an idea of how much carbon is going to cost, it's going to be very, very hard for anyone to move ahead with coal."

Shareholder-owned utilities canceled 3,702 megawatts of new generation projects in the third quarter of 2007, 82 percent of them coal-fired, according to the Edison Electric Institute. Although power plants' construction plans are frequently shelved, it was an unusually high amount of coal-fired project cancellations.

"The utility world has been watching this and waiting. In the meantime, we need power," said David Khani, a coal analyst at Friedman, Billings, Ramsey Group. He predicted that 14,000 to 17,000 megawatts of coal plants will be built by 2012; those plants are mostly under construction already, he said. But for anything after 2012, he said, "No investor nor Wall Street will expect them to get built until you get clarity on carbon."

But carbon-capture technology is at least a decade away, and the coal industry says new plants are needed sooner to meet rising demand and replace aging, less-efficient plants. According to a paper by Vinod Khosla, a venture capitalist, 90 percent of U.S. coal plants are more than 20 years old.

A slowdown in coal-plant construction could lead to a surge in natural gas use. "We will rely very heavily on natural gas in the United States for the next 10 years, frankly more than we probably should, and that will have an upward pressure on electricity prices," Joseph Kelliher, chairman of the Federal Energy Regulatory Commission, said at a Cambridge Energy Research Associates conference last week.

That in turn could drive up gas prices and strain the U.S. infrastructure for handling imports of liquefied natural gas.

Ralph Izzo, chief executive of PSEG, New Jersey's biggest utility, said his company is building new natural gas plants because nuclear plants are so expensive and coal plants carry unknown costs because of carbon dioxide emissions. Because New Jersey lacks structures suitable for storing carbon dioxide -- old oil wells or saline aquifers -- PSEG would need a new pipeline to carry the greenhouse gas to another part of the country.

"People kid themselves when they say, 'Never again coal,' " Izzo said. But he added that uncertainty about carbon costs as well as electricity prices has "paralyzed investment" in coal.

In Kansas, Sebelius has stood her ground, saying all the coal plants blocked in other states "would be knocking at our door" if the legislature prevails in allowing the disputed project to proceed. While acknowledging economic challenges, she said, "Our operating principles include a growing concern about carbon and its impact on the environment of our state and the health of our citizens."