By Rich Heidorn Jr.

HOLLYWOOD, Fla. — New carbon emission regulations may face an uncertain future in the courts, but investors and utility executives said last week it won’t upset the long-term shift away from coal-fired generation and toward increased efficiency.

Twenty-six states have joined legal challenges to the Environmental Protection Agency’s Clean Power Plan.

“I don’t think it matters [to utility capital spending plans],” said Stuart Zimmer, general partner with Zimmer Partners, which manages energy-focused hedge funds. “You have to comply. You don’t know if you’re going to win or lose [in court]. You have to have a plan in place,” he said during a panel discussion at the Edison Electric Institute’s 50th annual Financial Conference.

James Hempstead, associate managing director for Moody’s Investors Service, agreed.

With the legal challenges, “there will be some starts and stops and some lurching over the next couple of years … but utilities can see the writing on the wall. They know that they need to shift their generation supply mix and it needs to be a cleaner mix and they need to be more efficient … and that’s where they’re heading.

“To the extent that you have the CPP that is a federal mandate that helps you get your state regulators to get those costs approved, that’s a good thing,” he added. “Whether its MATS [Mercury and Air Toxics Standards] or CSAPR [Cross-State Air Pollution Rule] or CAIR [Clean Air Interstate Rule] or the CPP or whatever the next version of that is going to be, [the regulations are] going to keep coming. That is what’s incorporated into our long-term view.”

American Electric Power CEO Nick Akins said his company has urged officials in the 11 states in which it operates to file implementation plans even as nine of them fight the rule in court.

“Clearly [it’s] a great investment opportunity for AEP moving forward,” he said, referring to grid upgrades to support renewables and distributed generation. “I don’t think there’s any question that customers in the future are focused on a cleaner energy economy.”

Moody’s Toby Shea agreed that the CPP is an opportunity for utilities to increase their rate bases. “In the near term we see it as more positive than negative,” he said, adding, “There’s a risk that you keep making all these investments and pushing up the rates — at some point you’re going to get some pushback” from regulators.

Overruns, Waste Issue Cloud Nuclear’s Future

Although the CPP encourages emissions trading — which would benefit non-emitting generation — few utilities are likely to include nuclear plants in their capital spending plans, speakers said.

“It seems to me that the only place we are going to see nuclear generation construction is going to be in fully regulated, vertically integrated utility states like you’re seeing in South Carolina and Georgia,” said Kenneth Adams, managing director of global public markets for TIAA-CREF, which manages retirement and other investment funds.

Zimmer said nuclear power will be a tough sell even to utilities in such states because of the cost overruns plaguing Southern Co.’s two new Vogtle units in Georgia, which are more than three years behind schedule, and SCANA’s two new Summer units in South Carolina, now projected to cost more than $12 billion, a 20% increase over the original price tag.

“Southern Co. has seen what was once the best premium in the group get destroyed by the risk and overhang of building a nuclear plant and cost overruns. It now trades at a much lower price relative to its history,” he said. “SCANA … has seen its stock trade at a 10 to 15% discount. [Nuclear plants] are really risky investments. You don’t have real clarity on what they’re going to cost.”

Zimmer said he had discussed with Dominion Resources CEO Thomas Farrell and CFO Mark McGettrick the possibility of adding a third unit to their North Anna nuclear complex. “[They said] ‘it’s our second-to-last option.’”

Policymakers will have to make “a big-boy decision” about nuclear waste to improve nuclear power’s prospects, said Michael E. Webber, deputy director of the Energy Institute at the University of Texas at Austin.

“Either we store it or we process it,” he said. “I’d like to see us process it because that is the better environmental solution and the better economic solution.”