Replacement EPA rule to have less bite on Texas coal-fired units
HOUSTON Aug 22 (Reuters) - Any replacement for the EPA's cross-state air quality rule will likely have much less impact on Texas than the rule thrown out this week by a federal court, industry sources said.
On Tuesday, the U.S. Court of Appeals for the D.C. Circuit overturned a rule aimed at limiting sulfur dioxide and nitrogen oxide emissions from coal-fired power plants in 28 states that affect neighboring states, saying in its 2-1 decision that the Environmental Protection Agency had exceeded its authority.
The court's action against the EPA's Cross-State Air Pollution Rule (CSAPR) was welcomed in Texas, which was joined by more than a dozen other states in challenging the provision.
Texas "still could be included in the eventual replacement rule, but it would certainly have nowhere near the (emission)reduction that CSAPR called for," said Brett Blankenship, a senior analyst for North American power research at Wood Mackenzie.
The majority court opinion said the EPA rule exceeded the agency's statutory authority which only requires upwind states to reduce "significant contributions" to a downwind state's pollution levels.
Under the EPA's complex calculation, Texas exceeded one emission threshold measurement at a single air-quality monitoring station in Illinois, but the CSAPR rule called for emission reductions by Texas and other states to exceed their contributions to neighboring states' pollution.
"EPA has used the good neighbor provision to impose massive emissions reduction requirements on upwind states without regard to the limits imposed by the statutory text," the court said.
"Texas would only have to reduce emissions by the amount they were contributing, not the massive amount that CSAPR called for initially," Blankenship said.
Implementation of a replacement rule could take until 2016, he said, based on the time needed by EPA to develop a new rule and time for states to respond.
UBS analyst Julien Dumoulin-Smith said in a note to clients that he did not expect Texas "to be materially included in future rule revisions.
"The court ruled that EPA may require a state to reduce emissions only by the amount necessary for a downwind state to attain compliance."
A spokeswoman for the Texas attorney general's office said the state will have to "wait and see" what the EPA does with its next rule.
Retirement of coal-fired power plants will continue to be driven by the EPA's Mercury Air Toxics Standard (MATS) and economic factors such as cheaper natural gas, Blankenship said.
MATS will reduce overall emissions but will not address the pollution that crosses state lines, "so there will be a need for a CSAPR rule," Blankenship said.
Without CSAPR, Texas will be better able to meet growing electric demand, the state grid operator said.
CSAPR "had potentially far-reaching reliability impacts for a grid in which electric use is growing far more rapidly than new generation resources are being built to serve that need," said H.B. "Trip" Doggett, chief executive of the Electric Reliability Council of Texas (ERCOT), which oversees power delivery for 85 percent of the state.
Until the last-minute stay before the rule was to go into effect Jan. 1, Luminant said it would suspend operation of two coal-fired units totaling 1,100 megawatts in North Texas, a reduction that ERCOT said would cut power resources in the summer when every megawatt is needed to avoid power outages.
Dallas-based Luminant, the state's largest power producer, said it spent $142 million last year to comply with environmental regulation and will spend $300 million this year.
Luminant and ERCOT said they plan to work with state agencies and the EPA going forward.
"As the EPA revisits these cross-state air quality rules, ERCOT hopes to serve as a resource to help ensure that the long-term solution considers the electric reliability issues," Doggett said.
Companies that operate coal-fired plants in Texas include Luminant, a unit of privately held Energy Future Holdings ; NRG Energy Inc ; Xcel Energy and American Electric Power Co.
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