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Empire District Electric Company Coal Risk 2012

Whereas: Coal‐dependent electric utilities face numerous challenges and uncertainty from coal price volatility, competition from alternative generating sources, and the costs of environmental compliance and carbon capture and storage. The Empire District Electric Company (Empire) generated 4,304,220 mwh of electricity in 2010, 62.3% of which was from coal.
Industry analysts predict coal prices are increasing and price swings will become more erratic. Empire sources approximately 92% of its coal from Western Powder River Basin. Between December 2009 and October 2011, the price of Powder River Basin Coal increased 78%.
This makes coal less competitive an energy source. Deutsche Bank calculates that it is more economical to burn natural gas than coal to generate electricity when natural gas costs $4‐6/mmBtu. The Henry Hub price for natural gas is $6 in 2025. Lazard Ltd. calculated the levelized cost of electricity for wind, in most cases, as less than that for coal and thin‐film solar, biomass, and geothermal are, in many cases, less than that for coal. The International Energy Agency predicted in September 2011 that solar could provide nearly half of all global energy needs by 2060.
Coal dependent utilities face increased capital cost for emissions controls for coal plants. While U.S. EPA has agreed to ease or delay some of the new regulations for power plant pollution, it is moving, pursuant to court order, to adopt new rules that will reduce mercury emissions from coal by 91%. Analysts estimate that the cost of compliance with mercury regulations could cause the retirement of 61‐ 75 GW of U.S. coal‐fired generation capacity.
Utility analysts agree that older, smaller, plants without control technology are uneconomical. Empire’s Riverton plant, built in 1910, upgraded in 1947, and the Asbury plant built in 1970 may pose financial risk.
Empire has budgeted $122.5 million by 2013 to upgrade Asbury and Iatan to comply with environmental laws and regulations. “Absent a successful legal challenge or changes to applicable legislation, we expect EGU MACT regulation of HAPS to ultimately require a scrubber, baghouse and powder activated carbon injection system to be added to our Asbury facility at a cost ranging from $120 million to $180 million and to force retirement of our Riverton coal‐fired assets or conversion to natural gas.” (2010 Annual Report, 125)
Carbon Capture and Storage puts Empire at further financial risk. Empire’s partnership in the Missouri Carbon Sequestration Pilot Project costs $590,587. The General Accounting Office found that CCS technology within the United States is 10‐15 years away from wide scale commercial deployment and will increase the cost of coal‐fired electricity by 30% to 80% above current levels.
RESOLVED Shareowners request that The Empire District Electric Board of Directors report to shareholders by November 2012, at reasonable cost and omitting proprietary information, on plans to reduce our company’s exposure to coal‐related costs and risks, including progress toward achieving specific goals to minimize commodity risks, emissions other than greenhouse gases, costs of environmental compliance, and construction risks.