Last Sunday, Texass chief environmental regulator, Dr. Bryan Shaw, published an excellent op-ed in the Washington Examiner, on the EPAs new cross-state pollution rule. The title says it all: Is EPAs True Purpose Protecting the Environment or Shutting Down Industry? As head of the Texas Commission on Environmental Quality, the worlds second largest environmental protection agency, he may well ask. Despite Texass years of success in cleaning and protecting the environment, EPA decided at the last minute to include Texas in its new Cross State Air Pollution Rule, because of the mere possibility that Texas might in the future increase emissions enough to impact ozone levels in other states. Dr. Shaw writes:

Like the others, this new rule will have little impact on the environment. Rather, its chief effect will be to kill jobs, put the brakes on economic growth, increase energy costs and impair our energy security. And in keeping with an emerging pattern of EPA behavior, the new rule was adopted in flagrant violation of due-process rights.This rule will impose onerous new costs on coal-fired power plants, causing many to shut down, and threaten electrical generation reserve capacity all over the country. These reserve margins are needed to avoid power disruption during times of peak demand. Even temporary loss of reserve capacity risks dangerous blackouts.For example, American Electric Power announced that, because of the unrealistic compliance timelines in the EPA proposals, we will have to prematurely shut down nearly 25 percent of our current coal-fired generating capacity, cut hundreds of good power plant jobs, and invest billions of dollars in capital to retire, retrofit and replace coal-fueled power plants.Given the rules strict January 2012 compliance deadline, it will be physically impossible to replace the lost capacity with alternative sources such as natural gas, wind or solar. The new rule will not lead to cleaner energy, but rather only to significantly less energy.

On July 13, Kathleen White — a former Chairman of TCEQ and now director of the Armstrong Center for Energy and the Environment at TPPF — wrote about the new EPA rule at National Review Online. According to Ms. White, the new rule promises to shut down a huge amount of electrical generating capacity by the January2012 effective date.

In Texas, [the Cross-State Air Pollution Rule] could eliminate the use of lignite coal that now fuels critical base-load electricity generation. According to the National Electric Reliability Council (NERC), the new EPA rules could so abruptly suppress coal-fired generators that basic electric reliability in the U.S. could suffer a loss of up to 100 gigawatts (GW) by 2014 – 10 percent of the nation’s total electric capacity.With compliance beginning January 2012, the new air-pollution rule leaves many coal-fired power plants with no alternative but to reduce output or shutter entirely. Congress provided almost a decade to implement the acid-rain rules of the 1990s. EPA’s national program to reduce nitrogen oxides allowed almost five years before initial compliance. But the industry will have only a few months to comply with the first phase of this new rule[….] an impossible task.

Ms. White goes on to warn of the dangers for Texas of such an abrupt reduction in electrical capacity:

The abrupt elimination of lignite in the Texas fuel mix could mean the loss of 7,000-13,000 MW of generation capacity in Texas. This could reduce the generating capacity of Texas to as much as 3.8 percent below demand, as projected by the Electric Reliability Council of Texas (ERCOT) for the next two years. This is a sobering statistic for Texas this hot summer: ERCOT has already issued energy-emergency alerts when electric demand threatens to exceed available generation. Under the new rule, power outages could become routine.

On July 19, the CEO of ERCOT (the utility that runs the electrical grid in Texas) released a unprecedented statement warning of the danger of imminent loss of electrical reliability in Texas as a result of the inclusion of Texas in the new EPA rule at the last minute, with woefully little time to comply before the January 2012 deadline:

ERCOT’s May 11 report to the Public Utility Commission on the impact of the proposed environmental regulations did not address the impact of SO2 restrictions on coal plants in ERCOT because these restrictions on Texas were not included as part of the EPA’s earlier rule proposal. We have not had time to fully analyze the entire 1,323-page Cross-State Rule released July 7 or to communicate with the generation owners regarding what their intentions will be. However, initial implications are that the SO2 requirements for Texas added at the last stage of the rule development will have a significant impact on coal generation, which provided 40 percent of the electricity consumed in ERCOT in 2010.

Our concern is that the timing of the new requirements – effective Jan. 1, 2012 – is unreasonable because it does not allow enough time to implement operational responses to ensure reliability. We fear that many of the coal plants in ERCOT will be forced to limit or shut down operations in order to maintain compliance with the new rule, possibly leading to inadequate operating reserve margins with insufficient time to reliably retrofit existing generation or build new, replacement generation.

In the state’s deregulated electric market, the generation owner bears the risk of investment and decides when and where to build new generation, and whether to retire or mothball existing generation, based on market conditions. ERCOT’s role in the competitive market is to provide an outlook for future peak demand and how much generation will be needed to maintain long-term reliability of the electric grid. At this time, it is not clear that ERCOT operations has adequate tools to maintain long-term reliability in the face of the possible loss of a large amount of existing baseload generation in such a short period of time.

-Mario Loyola