July 25, 2012 / 10:20 PM / 5 years ago

Southern Co pares coal-plant compliance cost to $2.3 bln

July 25 (Reuters) - Southern Co, one of the largest utility consumers of coal, cut the amount it plans to spend to keep its coal generating fleet in compliance with stricter federal environmental rules to about $2.3 billion, officials said Wednesday, down from estimates exceeding $4 billion.

Last week, the U.S. Environmental Protection Agency said it would review its final rule on mercury emissions from power plants, known as the Mercury and Air Toxics Standards, or MATS, to add more flexibility.

The changes will reduce the number of baghouses, or particle filtration units, that Southern's utilities will need to install, said Art Beattie, Southern's chief financial officer. That may pare the cost of MATS compliance to $1.8 billion, down $900 million from Southern's previous estimate.

Southern, which operates utilities in Georgia, Alabama, Mississippi and Florida serving 4.4 million customers, has already shut 500 MW of coal-fired generation in Georgia and plans to shut another 600 MW next year.

"Our strategy now calls for approximately 13,000 of coal-fired generation to be preserved for the long term," said Beattie.

Between 3,000 and 4,000 MW of Southern's remaining 7,000 MW of coal generation may be retired and the rest will be repowered or replaced to burn other fuel, primarily natural gas, Beattie said.

Southern also lowered its environmental compliance budget to reflect additional time allowed to deal with new coal waste and water regulation.

Environmental spending over the next three years will account for 14 percent of Southern's total capital spending of $16.3 billion over the 2012-2014 period, officials told analysts on a conference call.

While the EPA changes "have resulted in a lower expected cost for MATS compliance, this is still a very expensive rule that will be difficult to comply with on a continuing basis," Southern Chief Executive Tom Fanning told analysts.

Fanning called the latest EPA regulations part of a set of "well-intentioned but overreaching rules ... that will eliminate a significant portion of America's current coal generation fleet, and effectively prohibit new coal plants from being built."

Fanning said the EPA, an agency not accountable to voters, is now setting U.S. energy policy.

Southern's four utility units have reduced their reliance on coal so far this year to 38 percent of the generation mix, from 54 percent in the first half of 2011. Use of cheaper natural gas has risen to 45 percent, from 29 percent in the first half of last year.

Southern's unregulated generating unit, Southern Power, recently completed a 100-MW biomass plant in East Texas for about $500 million, but Fanning told Reuters that other EPA regulations have "chilled" development of biomass in the U.S. Southeast for now. (Reporting By Eileen O'Grady)

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