AEP Ohio Receives 
Approval to Recover IGCC 
Pre-Construction Costs

   An order issued by the Public Utilities Commission of Ohio (PUCO) represents an important step toward construction of a clean-coal power generation plant in Ohio, according to American Electric Power (NYSE: AEP).
    The commission's order allows AEP Ohio to recover the pre-construction costs, including the front-end engineering and design (FEED) study, for the Integrated Gasification Combined Cycle (IGCC) clean-coal plant from its Ohio customers. The order also ruled that the company will incur the costs of the IGCC plant in meeting its provider of last resort (POLR) obligation to all customers in its certified territory and that the existence of these costs makes it reasonable to recover them through a POLR recovery mechanism.
    AEP Ohio will provide more definitive information, including more precise costs, when available to seek approval to recover the costs of building and operating the plant.
    "We are pleased that the Ohio Commissioners have approved the pre-construction costs for the IGCC clean-coal plant and ruled that it is reasonable to recover the costs of this facility through a provider of last resort (POLR) recovery mechanism that applies to all customers," said Michael G. Morris, AEP's chairman, president and chief executive officer. "When we return to the commission with additional information, it will be important that we receive a quick decision. We trust that the PUCO won't allow opponents of this plant to use another set of evidentiary hearings to delay or kill the project. We face an increasingly tight construction timeline if we are to have the plant on line in 2010 to meet our POLR obligation."
    AEP Ohio, a unit of AEP, filed a cost-recovery plan for a 600-megawatt IGCC plant in Meigs County, Ohio, after the PUCO, in its January 2005 Rate Stabilization Plan order, suggested the company build an IGCC plant in the state. 
    AEP also has filed with the West Virginia Public Service Commission for approval of cost recovery for an IGCC plant adjacent to its Mountaineer Plant in New Haven, W.Va. The company has identified a third potential site for an IGCC plant in Lewis County, Ky.
    AEP will need at least two base-load power plants early in the next decade to meet the projected growth in demand for electricity in the company's seven-state eastern operating area. AEP has proposed IGCC generation as this base-load generation.
    IGCC technology converts coal into a gas and moves it through pollutant-removal equipment before the gas is burned in gas turbines that drive electric generators. The heat produced by the gas turbines is recovered in boilers that produce steam to drive a steam turbine also coupled to an electric generator. The integrated process results in fewer emissions of nitrogen oxide, sulfur dioxide, particulates and mercury, in addition to lower carbon dioxide emissions.
    AEP Ohio provides electricity to 1.4 million customers of major AEP subsidiaries Columbus Southern Power Company and Ohio Power Company in Ohio, and Wheeling Power Company in the northern panhandle of West Virginia. AEP Ohio is based in Gahanna, Ohio, and is a unit of American Electric Power. cl

Coal: America's Energy Future

    Secretary of Energy Samuel W. Bodman requested that The National Coal Council compile a report identifying the challenges and opportunities of more fully exploring our

 domestic coal resources to meet the Nation's future energy needs last year.
    Secretary Bodman's request was timely, as recent geopolitical events and hurricane devastation in the Gulf of Mexico have demonstrated that the precarious balance between energy supply and demand leaves our nation's economy vulnerable to supply disruption and volatility in energy prices. 
    President George W. Bush made a number of points in his 2006 State of the Union address that make this study's timing even more compelling: 
    "Keeping America competitive requires affordable energy. And here we have a serious problem." 
    He went on to describe America's addiction to oil and the need to break dependence on the Middle East for energy, and later emphasized the Advanced Energy Initiative: 
    ". . .a 22-percent increase in clean-energy research at the Department of Energy, to push for breakthroughs in two vital areas." 

    This report addresses the Secretary's request in the context of the President's focus, with eight findings and recommendations, which would use technology to leverage this country's extensive coal assets and reduce dependence on imported energy. Volume I outlines these findings and recommendations. Volume II provides technical data and case histories to support the findings and recommendations. 
    This National Coal Council report is based on the following fundamental premises regarding the evolving energy situation in the United States: 
-- Energy demand will increase significantly over the next 25 years. The Energy Information Administration (EIA) has projected that consumption will grow from 100

 quadrillion Btu in 2004 to 127 quadrillion Btu in 2030, a rise of 27%. This 27 quadrillion Btu increase is equivalent to the nation's total energy consumption increase from

 1972 to 2004. But during those years, oil imports were available to meet two-thirds of new demand. Such an international supply cushion no longer exists. Thus, the great bulk of new energy supply for the next generation of Americans will come from coal in its many varied applications. 
    During the same time period, natural gas (NG) production declined over 7%. Unless steps are taken to utilize more of our domestic energy resources, the U.S. will be forced to increasingly rely on the Middle East and other regions for both oil and NG. 
-- Imported energy comes with a staggering cost. At today's prices, oil and NG imports would reach as much as $2.5 trillion over the 2010-2019 decade alone. Further, many of these imports would come from unstable and volatile regions of the world. 
-- Clean coal technologies are commercially available to produce exceptionally clean, reliable and low cost electricity, to convert coal to NG and liquid fuels, to produce hydrogen, to increase enhanced oil recovery, to enhance coalbed methane recovery, and to fuel the production of ethanol in an environmentally acceptable manner. Government support of a portfolio of clean coal technology and environmental systems development will ensure that we continue to protect the environment while greatly expanding coal's long-time role as the cornerstone of low cost, reliable energy in the United States. 
-- Implementation of these technologies could generate unprecedented socioeconomic benefits for the American people for decades to come. An independent scholarly analysis conducted at Penn State University indicates that by 2025 energy prices would be reduced by 33%, more than 1 million new jobs would be created, and the cumulative gain in Gross Domestic Product (GDP) would exceed $3 trillion. If carbon dioxide from these technologies is captured and used to enhance domestic oil production, these benefits would exceed $4 trillion. 
    The study recommends the expanded role of coal in assisting the U. S. to: 
-- meet the substantial increase in demand for energy over the next several decades for the benefit of the American people; 
-- ensure continued economic preeminence of the U.S. in the world arena; 
-- reduce the debilitating and even dangerous impact of our dependence on foreign energy; and 
-- improve the quality of life for all Americans. Coal can do this. 
    Before the 1973 oil embargo, oil was relatively inexpensive and utilized to generate almost 20% of electricity in the United States. When Middle Eastern oil-producing

 nations decided to use oil as a political weapon and embargoed oil shipments to the United States and other Western countries, prices greatly increased. Policy makers quickly recognized the dangers of dependence on foreign sources of energy. 
    In November 1973, President Nixon signed the Emergency Petroleum Allocation Act, implementing government regulation of energy supplies. Project Independence was created to free the United States from reliance on foreign oil by 1980, particularly for electricity generation. By 1978, perceived NG supply problems led to the implementation of the Fuel Use Act, which virtually eliminated the construction of NG power plants until repealed in 1988. 
    Great strides were made in reducing America's dependence on foreign oil and NG for electricity production, and clean coal combustion played a key role in that process. Over 300 GW of coal combustion generation capacity was eventually brought to bear, supplemented by an additional 100 GW of nuclear. The combined effect of new low cost generating capacity from coal combustion and nuclear contributed to lower electricity prices. Electricity consumers in America benefited for decades.
    Coal is the backbone of U.S. power generation, providing more than 50% of electricity production while complying with ever-stringent environmental requirements. Nuclear power provides an additional 20%. Due to steady increases in electricity demand and high oil and NG prices, however, the coal and nuclear fleet is currently operating near full capacity as baseload generation. The time to add new coal generation capacity is now, and upwards of 90 GW are on the boards. 
    History offers an excellent example that growing coal use can also accompany improved emissions. Coal use for electricity generation has tripled since 1970, while criteria emissions have been reduced by one-third. 
    Today, our problems are similar to the oil crisis of the 1970s, but also different. NG is faced with supply and deliverability issues, and is expensive in part due to a massive construction program of NG fueled electricity plants in the past six years and a depleting NG production base in the U.S. The decline of NG domestic production (despite increased exploration and drilling) and the accompanying rise in NG prices have demonstrated that the United States should expand its reliance on coal for future incremental electric demand. 
    America needs to develop new generation based on a portfolio of domestically available resources. Coal, as the nation's most abundant and cost-effective energy resource, is the logical choice to provide the bulk of new generation. 
    Circumstances surrounding imported oil also differ from the 1970s. In that decade, for example, there was abundant but unused oil production capacity; it was political manipulation that limited supply. Today, there is little or no unused capacity; market forces-supply and demand-are driving prices upward. 
    Today, oil produces only 3% of the nation's electricity, mainly in older units in the Northeast. On the other hand, American's thirst for oil has dramatically grown as a transportation fuel. The United States now imports 58% of its oil, as compared to 22% in 1970. A great deal of the imported oil we consume comes from either the same countries that embargoed oil in the 1970s or from countries that are hardly stable U.S. allies. 

    The U. S. must break its addiction to foreign sources of oil. Fortunately, we have the domestic coal reserves and existing technologies to transform coal into transportation fuels to displace energy imports. 
    There is one additional critical difference in today's situation and that of the 1970s-the phenomenal recent and projected economic growth in Asia, especially China and India. Simply put, there is no precedent in human history for the magnitude of change that Asia and its rapid economic growth and industrialization will stimulate. 
    China's emerging energy needs are staggering. China's population today is 1.3 billion people. Notwithstanding the official one child policy, China's population will grow to at least 1.5 billion people by 2020, according to the Chinese themselves. China's auto industry produced 6.5 million vehicles in 2005, up from virtually nothing five years ago. At current growth rates of 13-15%, China's automotive industry will easily surpass that of the U. S. by 2020. 
    In order to meet this massive demand, China plans to center its energy growth in the resource rich but less developed middle and western portions of the country. Annual coal production of 1.7 billion tpy will grow to over 3.2 billion tpy by 2020. Installed generating capacity will roughly double to 1000 GW during the same time frame. Within three years, 50 facilities will be in operation to convert hundreds of millions of tons of coal each year to syngas for industrial and agricultural applications and home heating. China has announced $20 billion of investment in coal to liquid (CTL) facilities and it regards Btu conversion as a strategic imperative. 
    In 2001, China used 4.9 million barrels of oil per day. In 2025, consumption is projected to exceed 14 million barrels per day, an increase of 189% that significantly exceeds the capacity of Saudi Arabia. About 9.3 million barrels per day, or 65% of China's oil needs, will come from imports because Chinese production has peaked. 
    India also has global implications for energy supply and demand. India consumes 2.2 million barrels of oil (MMbd) per day but produces only 0.8. By 2025, India is projected to import about 5 MMbd. The country has extremely limited proved reserves-only 5.6 barrels per person-compared to 14 for China and over 70 for the U. S.. Although the world is focused on the rise of China, the entry of India into the modern age may be of even greater long-term significance. By 2030, the population of India will likely exceed that of China. In fact, the increased use of petroleum has propelled India to the category of one of the world's fastest growing oil consumers with growth at 5.3% in 2005. 
    In addition, the dramatic growth in Asian economies could be replicated in the Middle East itself, which is home to 600 million people. Economic growth is now causing an increase in oil demand that is showing itself for the first time. This increased demand will put even greater pressure on the price and availability of oil for the rest of the world. 
    Liquified Natural Gas (LNG) is expected to be an important component of incremental energy supply for our country. It would be imprudent, however, to simply assume that LNG will be available in abundant amounts at a reasonable price. Moreover, a large part of the source of future LNG supply will be from the same parts of the world where much of our imported oil originates (see Figure ES.4), with the same attendant problems. Most Gas Reserves Are in the Middle East and Asia 
    Further, because LNG pricing could well be benchmarked on oil prices, U.S. residential and commercial consumers may be forced to pay a high price for energy fueled by LNG. The U.S. finds itself competing for LNG supply and is at a competitive disadvantage since the U.S. market is the furthest from the source of incremental supply. 
    Fortunately, there is a certain, secure and cost-effective way to change the U. S. energy model. As we did in the energy crises of the 1970s, the U. S. should increase its use of abundant domestic coal to significantly reduce dependence on foreign energy. 
    Coal can not only be used to generate electricity but also can be converted to the equivalent of oil and NG; coal can fuel ethanol production and serve as the energy base of a hydrogen economy. Finally, CO2, a byproduct of utilizing coal as a fuel, can be utilized for enhanced oil recovery as well as recovery of methane (NG) from coalbeds. And, should the nation choose a policy of CO2 management, the technology to do so is being developed. 
    The coal Btu conversion technologies discussed here will use abundant domestic resources to enhance energy security and build economic prosperity. To attain this vision the following capital expenditures over the next 20 years will be required, which in present value terms is equivalent to $350 billion. 
    While these capital expenditure requirements are significant, the social benefits from these investments are enormous. Research by independent scholars indicates such Btu conversion will generate profound socioeconomic benefits: 
-- After 20 years, coal Btu conversion would position U.S. energy markets with prices nearly 33% below those that would prevail without Btu conversion. 
-- Lower energy prices resulting from coal energy conversion and the stimulus from plant construction and operation would result in Gross Domestic Product that is more than $600 billion higher in 2025 and total employment 1.4 million greater than the EIA base case forecast. 
-- The present discounted value of the cumulative gains in gross domestic product from 2007 to 2025 is $3 trillion. These gains increase to $4 trillion if CO2 from Btu conversion is used to enhance domestic oil production. 
    The National Coal Council recommends that the U. S. Department of Energy and other key government entities address eight National Priority Findings related to coal-fueled energy and Btu conversion technologies. 
No. 1 Coal-To-Liquids To Produce 2.6 MMbd
    The U. S. continues to increase its dependence on foreign oil as domestic production delcined by 11% from 2001 to 2005. Meanwhile, global demand is growing and concerns are mounting that world oil production is depleting reserves at rates fast than replacement reserves can be deployed. 
    Application of coal-to-liquids technologies would move the U. S. toward greater energy security and relieve cost and supply pressures on transportation fules by producing 2.6 MMbbl/d of liquids. These steps would enhance U.S. oil supply by 10% and utilize an additional 475 million tons of coal per year.
No. 2 Coal-To-Natural Gas To Produce 4.0 Tcf Per Year 
    Conventional natural gas (NG) production in the U. S. is in significant decline, leading to supply and deliverability issues, higher prices and increasing dependence on foreign sources. These problems will become far more serious as domestic supplies continue to decline and NG demand increases. LNG presents the same economic cost and national security problems as imported oil. 
    Using coal to produce NG and as replacement for NG in chemical processes would ease supply pressures by providing an alternative to at least 15% of America's annual NG consumption, or the equivalent of 4 trillion cubic feet (Tcf) per year. This additional supply would moderate NG prices and use an additional 340 million tons of coal per year. The NG made available could be used for residential, commercial, industrial and any other application that uses NG. The amount is roughly equal to EIA's projection of LNG imports in 2025. 
No. 3 Coal-To-Clean-Electricity
    The nation's focus on relatively expensive and price volatile NG to meet incremental demand for electricity has not served the public interest. America must develop new coal-fueled generating capacity to avoid additional increases in NG demand that would further strain supplies and lead to much higher prices. 
    Higher NG prices stress the economy, reduce productivity and cause severe economic problems for residential, commercial and industrial consumers. Construction of 100     GW of coal-to-clean-electricity plants by 2025 would mean that coal would satisfy more than 60% of the expected increase in electricity generating capacity by using an additional 375 million tons of coal per year. Increased coal-to-clean-electricity capacity would relieve price pressures on NG and allow it to be used in more cost-efficient and productive ways. A range of advanced combustion and IGCC based technologies which focus on meeting near zero emissions goals at reasonable cost and high reliability are in development and/or commercial demonstration.
No. 4 Coal-To-Produce Ethanol
    The U. S. is committed to expanding the use of ethanol to displace a significant amount of foreign oil as a transportation fuel. Currently, NG, diesel fuel and electricity are used to produce ethanol. But the ethanol industry is ready to embrace coal as a fuel source. Increasing the use of coal for heat and electricity in the production of ethanol would reduce costs and displace oil and NG by significant amounts while utilizing an additional 40 million tons of coal per year, thereby freeing up NG for other uses and relieving price pressures.
No. 5 Coal-To-Hydrogen
    The U. S. has identified the Freedom Fuel and Freedom Car Initiatives as ways to transition the country to a hydrogen economy and use coal-fueled energy to power fuel cells. 
    Development of a fleet of coal-to-hydrogen plants would mean that coal could satisfy at least 10% of the nation's transportation needs with Freedom Car efficiencies. This application would use an additional 70 million tons of coal per year. 
No. 6 Enhanced Oil and Gas (Coalbed Methane) Recovery As Carbon Management Strategies
    The U. S. has identified carbon capture and storage as a promising method of managing carbon after efficiency improvements. 
    Major regional carbon storage projects and partnerships are underway around the country. One promising carbon management opportunity is enhanced oil recovery, which could potentially lead to production of an additional 2-3 million barrels of oil per day, assuming a technically recoverable reserve base of up to 89 billion barrels in 10 basins. Captured CO2 can also be used to produce methane from coalbeds. This increase in domestic production would be an important step toward energy security and help to moderate price pressures on imported oil and natural gas. Other carbon capture and storage technologies should be developed to complement advanced coal utilization technologies.
No. 7 Delineate U. S. Coal Reserves and Transportation Constraints as Part of an Effort to Maximize U. S. Coal Production
    The National Coal Council has conducted an in-depth survey of existing data and finds that the mining industry and U.S. transportation infrastructure can be expanded to accommodate growth in coal production by 1,300 million tons per year by 2025. Coal production at a significantly increased level can be conducted in a safe and environmentally friendly manner, meeting public concern over both mine safety and environmental impacts.
No. 8 Penn State Study, "Economic Benefits of Coal Conversion Investments"
    The National Coal Council finds that the United States could increase coal production by 1,300 million tons per year by 2025 for Btu conversion technologies and still have a supply that would last at least 100 years. Maximizing coal production would reduce dependence on imported energy and the economic benefits for the United States would be enormous. 
    An independent research analysis conducted at Penn State University for this report shows that using 1,300 million tons of additional coal for Btu conversion technologies would result in more than $600 billion in increased annual economic growth and 1.4 million new jobs per year by 2025. To achieve these gains, a capital investment in Btu conversion technologies of some $500 billion will be required, or $350 billion on a present value discounted basis. In return, a present value discounted benefit of cumulative GDP gains of some $3 trillion is expected. Such benefits will allow more Americans to live longer and better as they manufacture the energy needed to sustain a growing U.S. industrial economy. cl

   
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