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By Nushin Huq
The EPA is giving Texas a chance to rework a proposed multibillion-dollar air pollution regulation for utilities, but that likely won’t be enough to save some coal-fired power plants from shutting down, energy analysts told Bloomberg BNA.
The proposal, issued in the final days of the Obama administration, would require Texas power plants to install new pollution controls in order to improve visibility in nearby national parks, including the Big Bend and Guadalupe Mountains national parks. Luminant Generation Co. LLC, a subsidiary of Vistra Energy, which owns several power plants that would be covered by the regulation, projected the proposal would require utilities to spend more than $3 billion dollars on emissions controls.
Several Texas utilities voiced support for the successful negotiations between the EPA and Texas, but more flexible regulations may not be enough to save some coal plants from retirement. Market pressure from renewables will still likely force some Texas plants to shutter, according to Rob Whaley, an analyst with the consulting firm Wood Mackenzie who focuses on the Electricity Reliability Council of Texas, the state’s electricity grid operator.
“The ERCOT market, with all the wind generation coming on, is really suppressing prices and making it really hard for these baseload units to make money,” Whaley said.
The EPA is under a Sept. 9 deadline to issue final visibility regulations for Texas, but the Trump administration recently asked a federal judge to extend that deadline until the end of 2018, citing a breakthrough in talks with state regulators.
“Circumstances have changed significantly over the past several months and weeks as EPA and Texas have engaged in a productive level of dialogue that has not occurred in many years,” the agency said.
The Texas Commission on Environmental Quality declined Bloomberg BNA’s request to comment on those talks, but the state regulatory agency said in an Aug. 24 court filing that it intends to spend the next six months developing a proposed emissions trading program in order to meet its “best available retrofit technology” obligations under the EPA’s regional haze program.
The Obama administration’s proposal didn’t opt for an emissions trading approach, something that utilities hoped it would have done, according to Eric Groten, an environmental attorney with Vinson & Elkins LLP in Austin.
“That’s the most significant change in what the EPA is saying it would like to do now,” Groten said. “It’s no great leap of faith to say it’s planning not to impose specific limitations on specific plants that must be met by those plants. What it will do instead is impose emission limitations on those plants but then allow trading.”
The EPA’s decision to give Texas a chance to develop a more flexible set of requirements marks the second possible reprieve on regional haze rules for the state’s utilities since Inauguration Day: In March a federal appeals court gave the EPA a chance to reconsider a different regional haze regulation that would have required seven Texas coal plants to install about $2 billion in pollution controls.
The cost of complying with the regional haze requirements, combined with Texas’ recent significant gains in wind energy product, could have led to the retirement of Luminant’s Big Brown, Martin Lake, Monticello and Sandow power plants by 2024, according to Whaley.
If the emissions targets for the plants are scaled back by the Trump administration, some of those Luminant plants projected to retire may become economical, Whaley said. But it is possible that price pressure might still take half of that generating capacity offline, he said.
“I think of the 3.5 gigawatts of generation we predict will retire under current rules, about half may survive, but I still don’t think all of it will,” Whaley said.
Wind generation accounted for nearly 23 percent of ERCOT’s power generation in the first quarter of 2017. That level marked the highest quarterly wind penetration in ERCOT’s history and highlighted the market challenges facing the coal industry in Texas.
At present, some of the coal plants “are running only seasonally,” Matt Preston, a coal analyst for Wood Mackenzie, told Bloomberg BNA.
Some utilities already have taken action to comply with the EPA’s regional haze regulations for Texas. For example, NRG Energy decided to switch the fuel used at its Limestone power plant from lignite to a coal that has a lower sulfur content, according to company spokesman David Knox.
Knox told Bloomberg BNA that given the “environmental co-benefit of the fuel switch” and the expected level of operation of the Limestone plant, NRG expects to meet its regional haze obligations.
Luminant declined to comment on the regional haze rule and the pending litigation, but in comments filed in March, the utility said it would support an extension of the deadline to allow for the EPA to “work cooperatively” with Texas on an alternative plan.
Several other utilities that operate in Texas openly welcomed the fruitful negotiations between the EPA and Texas regulators.
“We are pleased that EPA and the State of Texas have been working so closely together, and look forward to participating in the state’s efforts to develop its plan,” Wes Reeves, Xcel Energy spokesman, told Bloomberg BNA in a statement.
Dynegy, which operates the Coleto Creek coal plant in Texas, also supports giving Texas regulators enough time to develop a suitable state plan for regional haze, company spokeswoman Meredith Moore told Bloomberg BNA.
“We support TCEQ and EPA working collaboratively to reach agreement on a Texas state implementation plan that meets the statutory requirements of the regional haze rule, protects the environment, and treats all in-state generators equitably,” Moore said.
Regional haze regulations have been an industry target for the past decade, Gloria Smith, managing attorney for the Sierra Club’s Environmental Law Program, told Bloomberg BNA. The Sierra Club has received funding from Bloomberg Philanthropies, the charitable organization founded by Michael Bloomberg, the majority owner of Bloomberg L.P., parent of Bloomberg BNA.
On a national level, the EPA will likely take action on a regional haze regulation issued in January, according to Smith. The regulation drew criticism from states and industry over its handling of requirements that states develop long-term strategies for making reasonable progress toward national visibility goals.
EPA Administrator Scott Pruitt is likely not a fan of that regulation. During his time as Oklahoma attorney general, he joined with seven other state attorneys general in comments that identified various alleged legal flaws in the agency’s approach.
“We’re certain that EPA will be asked to pull that rule back and to revisit it, similarly like in Texas,” Smith said. “We’re really frustrated because we thought everyone had come together…and now we’re going to throw things into chaos again.”
The reasonable progress regulation clarifies the four statutory factors under the Clean Air Act that industry has to comply with, Smith said. Those statutory factors will remain unless Congress changes the law, she said.
“There’s actually a lot of momentum right now for reducing emissions, curbing coal-fired generation,” Smith said. “The regional haze rule was instrumental for a number of years for cleaning up our national parks, and I don’t see that momentum stopping.”
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