Cross-State Air Pollution Rule looms
Utility customers in the Rio Grande Valley could end up paying more for electricity if a new rule from the U.S. Environmental Protection Agency goes into effect as scheduled Jan. 1, though estimates vary widely on how much more they might pay.
The EPA’s new Cross-State Air Pollution Rule is aimed at reducing smokestack pollution in Texas and 26 other states because of the impact on downwind states. Pollutants such as sulfur dioxide and nitrogen oxide from coal-fired power plants in Texas mingle with contaminants in downwind states, creating acid rain, soot and smog, and making it difficult or impossible for metropolitan areas in those states to satisfy federal air quality standards, says the EPA.
Dallas-based Luminant, the state’s largest power generator, has filed two suits against the EPA, one to exempt Texas from the rule, the other to stop it all together. Luminant has said it will be forced to idle much of its generating capacity and lay off hundreds of workers if the new rule goes through. According to the Sierra Club, the company’s "big three" lignite-burning power plants are responsible for 25 percent of all Texas industrial emissions. Lignite, also called brown coal, is considered the dirtiest burning fossil fuel. In contrast to Luminant, NRG Energy Inc., the state’s second largest power producer, said it should be able to meet the EPA mandate without idling any units.
The State of Texas is also suing to stay the rule, which the state’s grid operator, the Electric Reliability Council of Texas, argues could lead to electricity shortages if generating units go offline. Among Texas’ 19 coal-fired power plants is the Oklaunion plant near Vernon, which generates much of the electricity Brownsville’s utility customers use. Rep. Rene Oliveira, D-Brownsville, said the plant’s operator estimates it will cost $60 million in upgrades to come into compliance with the EPA rule. The Brownsville Public Utilities Board gets most of its power from Oklaunion and also has an 18 percent ownership stake in the plant. As such, PUB would be responsible for $10.8 million of the cost of upgrading it — if the $60 million figure holds true. That’s big money for a small municipal utility, Oliveira said, and it’s one way Valley customers could be impacted by the EPA rule.
PUB customers aren’t the only utility customers who stand to be affected. Customers of Magic Valley Electric Cooperative, which gets most of its power from the San Miguel Power Plant south of San Antonio, could see their rates rise as well. Oliveira said the plant’s operators expect to spend $10 million to $20 million on upgrades under the EPA rule, though how much of that could fall on Magic Valley and its customers isn’t clear. One economic analysis puts the cost increase at 12 percent in the competitive market, where utility customers choose their electric company. That figure is only an average, however, and actual rate increases would vary across markets.
Oliveira said that at a Sept. 22 hearing of the House State Affairs Committee he tried to pin down Public Utility Commission and ERCOT officials on how much they expected rates to rise, though the best estimate anybody could come up with was between 5 percent and 30 percent. What’s not in doubt is that ratepayers will get stuck with the tab to one degree or another, no matter where they get their power, Oliveira said.
"They’re all going to have higher costs," he said. "In this business, whether we like it or not, everything is passed through. It’s a pass-through expenditure to consumers."
Oliveira describes himself as an "ardent environmentalist" but thinks that EPA’s timetable is unfair and unrealistic. He’d like to see the rule delayed, he said, to avoid penalizing consumers and industry and running the risk of power shortages during peak demand.
"If we can make these changes in an orderly way, that minimizes that impact but it still accomplishes the goal of cleaner air, I’m for that," Oliveira said. "I don’t know of anybody that doesn’t want clean air, but there’s an orderly way to get there."
While power plants and state officials express anxiety about Jan. 1, Gina McCarthy, head of air quality for the EPA, said plants actually have until March 2013 to come into compliance without penalty. In testimony before the House Science and Technology panel on Sept. 8 in Washington D.C., McCarthy said Jan. 1 is the start date for the Cross-State Air Pollution Rule, not the deadline for compliance. In testimony before the panel, McCarthy insisted the EPA "will not in any way force the lights to go out or the air conditioning to not be available within the state of Texas or anywhere else as a result of these rules."
The Sierra Club’s Lone Star chapter, in response to ERCOT’s claim that the new rule could create a power shortage by forcing older coal-fired facilities offline, said the grid operator had failed to note that a number of large-scale, renewable energy assets (solar and wind) will come online in 2012. Also, the EPA rule allows facilities that can’t meet the new standard to buy pollution credits from companies that pollute less and therefore don’t need all theirs — known in the industry as "pay to play."
"ERCOT and the PUC have multiple tools in their pockets to help meet any reliability concerns," said Sierra Club spokesman Cyrus Reed.
He said the new rule would force utilities to "look long and hard" at whether continued investment in coal power is worth it when better options exist. Oliveira said he’d prefer all the state’s coal-dependent power producers switch to natural gas, which is abundant in Texas, cheaper than coal, and "cleaner and better in every way." He concedes it would require substantial investment on the part of power providers.
"The price (of natural gas) is low," he said. "That makes it interesting for utility companies to consider, but it requires a completely different kind of plant. It’s not like you could just switch from coal to natural gas. We’re slowly making that move, but not as fast as we should. It’s not going to happen overnight."
