Fitch sees small coal plants in five states most likely to retire
New York (Platts)--28Feb2011/529 pm EST/2229 GMT
Smaller coal plants concentrated in five contiguous states in the US
Midwest are the most likely to be retired if tougher environmental rules are
adopted, Fitch Ratings said Monday in a special report.
For plant owners, a key driver on credit impact will be the time between
adoption of the rule and the compliance deadline, assuming there is no court
intervention, the ratings agency said.
But Fitch also noted in the report, "Time to Retire? US Coal Plants in
Environmental Crosshairs" that "it is likely federal legislation and [US
Environmental Protection Agency] regulations may be held up by political
uncertainty and judicial challenges."
The credit impact of plant retirements on particular entities will depend
on several issuer-specific factors, including: certainty of environmental
regulation; the power-supply mix relative to the region; state environmental
initiatives; the flexibility to adjust rates; recourse to regulated cost
recovery; and the entity's debt, leverage, and capital structure, the Fitch
While lead author Director Bhala Mehendale is in the public power group,
the report deals with the entire industry and did not focus on specific
"There have not been any instances over the decades since the initial
passage of the Clean Air Act and Clean Water Act in which utilities have been
denied cost recovery and capital recovery of such expenditures," Fitch noted.
Most at risk for retirement are about 16,700 MW of plants concentrated in
Indiana, Illinois, Michigan, Ohio, and Pennsylvania. Most of the plants are
below 200 MW and average nearly 50 years old, Fitch said.
Tennessee is the state with the most such capacity (3,985 MW, or 40.7% of
total state coal capacity), followed by Ohio (3,762 MW, or 16.2%), Indiana
(3,744 MW, or 17.8%), Michigan (3,715 MW, or 29.9%) and Kentucky (3,450 MW, or
Smaller plants are generally older and less likely to have gotten the
investment necessary to comply with evolving environmental rules. Thus the
required investment per kilowatt and percentage increase in operating costs --
and therefore impact on cash flow -- would be greater, Fitch said.
"There is not an economic case for owners of old and small power plants
to incur the high capital investments and increased operating costs to
retrofit such units to comply with multiple rules affecting various
pollutants. It is therefore likely that the combination of older and smaller
coal units will result in this region seeing the most retirements," the
author, Mehendale, added.
The large amount of potential retirements in this region may affect
reliability enough to require new generation, transmission upgrades, temporary
reliability must-run contracts, or a combination, Fitch said.
--Paul Carlsen, email@example.com
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