By Mitchell Schnurman
mschnurman@star-telegram.com
Texas' grudge match with the Environmental Protection Agency is getting nastier and riskier, with the fallout threatening to reach the state's power grid.
Want another reason to worry about the lights staying on? Or how about another hit to the economy?
You've heard lots of political posturing about Texas' way of life being threatened by an overreaching federal government. This time, Gov. Rick Perry has a point.
Last month, the EPA included Texas in a new rule on cross-state pollution, catching many by surprise. Coal plants must reduce some emissions by half by Jan. 1, a deadline that has some operators saying they'll cut production or shutter facilities.
That means the state may not have enough electricity to meet spiking demand. The risk became painfully obvious last week after the heat wave set records for electricity usage and emergency measures were taken to prevent outages.
Texas doesn't have much extra capacity when temperatures hit extreme highs or lows, as we've seen this year. Even before the latest EPA rule, regulators worried about attracting more power generation for the fast-growing state.
Yet the EPA says the grid's reliability won't be jeopardized by the pollution controls or the deadline.
"Nearly half of the emissions of soot-forming sulfur dioxide covered by the rule are produced by just three plants, which in turn account for only about one-tenth of the state's electricity generation," EPA Assistant Administrator Gina McCarthy said in a statement.
But regulators, power generators and elected officials see a potential crisis.
"If we're short even three old coal plants, even if they're only [reduced by] 50 percent, we'd have rolling blackouts," Commissioner Kenneth Anderson said at a Texas Public Utility Commission meeting last week.
"I don't know what the EPA administrator is smoking in Washington," he said, "but they're flat-out wrong. It will have a reliability impact."
The company that operates the three coal plants, Dallas-based Luminant, part of Energy Future Holdings, on Friday asked the agency to reconsider the rule. It called the five-month timetable "unprecedented and impossible" and said curtailing operations would be its only option.
If the request fails, the company plans to sue.
Don't be surprised if the attorney general jumps in after Perry slammed the rule for threatening Texas jobs and families and putting reliable, affordable electricity at risk. Late last week, 31 members of Congress from Texas, including eight Democrats, signed a letter to the White House asking for relief. The utility commission also filed objections with the EPA.
Texas officials and the EPA have been clashing over air pollution and environmental issues for the past decade. The conflict has deepened under the Obama administration as the EPA turned more aggressive and Perry sharpened his attacks on Washington.
Everyone knows that Texas has to do more to clean up its air (and apparently reduce emissions into neighboring states). No argument there. The trick is to make progress while limiting the damage to the economy and the state's experiment with electric deregulation.
When one side says there's nothing to it and the other predicts disaster, it sounds like one more government stalemate in need of a middle ground.
I'm persuaded by the Electric Reliability Council of Texas, which manages the state power grid. The council usually avoids controversy and never advocates for policy -- "except in cases where electric grid reliability may be affected," CEO Tripp Doggett said. "This is one of those cases."
If the EPA rule is implemented as written, he said, within a few years, "Texas could face a shortage of generation necessary to keep the lights on."
Deregulation adds a twist. The state can't order power plants to be retrofitted and then automatically wrap those costs into a regulated rate base. Private companies, such as Energy Future Holdings, have to absorb the expense -- or cut production.
During a call with analysts July 29, EFH officials were asked repeatedly about dealing with the EPA rule. Options include running scrubbers longer, switching to low-sulfur coal, injecting dry sorbent to remove sulfur dioxide -- and cutting generation, either temporarily or for good.
"There's going to be a production impact in the near term under any scenario," CEO John Young said.
His team is studying options and must outline next year's production plans to the council by Oct. 1.
"We're trying to get back to maximizing production, but in none of those areas do we see that," Young said.
Since investment firms bought TXU Corp. in 2007, Energy Future Holdings has reported net losses of nearly $15 billion. Running coal plants full out as long as possible helps the company's economics, and one critic says that's one reason to fight the EPA rule in Washington and the courts.
"It's cheaper to invest in politics than in pollution controls," said Tom Smith, director of Public Citizen in Austin, an environmental group.
In a 19-page report, the EPA says Texas coal plants could respond quickly and cost-effectively and cites examples in other states. A report by Bernstein Research also says Texas could comply with the rule by having scrubbers run continuously and by switching to low-sulfur coal.
However, not all providers face the same impact. Emissions at Luminant plants would still be 20,000 tons over the cap, Bernstein estimates, so the company would have to buy pollution credits. Except that executives say that there aren't enough such credits available and that its scrubbers won't produce the results that are forecast.
More shocks to the power supply are coming. The EPA is developing rules to reduce ozone, protect water and capture mercury. Those changes, however necessary, may force generators to reassess the entire fleet in Texas.
More retrofits won't make economic sense, so plants will be mothballed. And more incentives may be needed to attract a wave of new generation.
If the EPA and state would talk to each other, they could push for a coordinated response. Imagine adding capacity, improving the air and minimizing the hit on the economy.
Or we could just keep fighting one another.
Mitchell Schnurman's column appears Sundays and Wednesdays. 817-390-7821
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