The Cliffs Notes version of power plant operator Luminant’s big news this week goes something like this:
The Dallas-based power plant operator has to shut down two power generation units and nearby lignite coal mines and cut 500 jobs by Jan. 1 because of a new EPA rule that the company wasn’t given enough time to comply with. In addition to lost wages and local taxes, Texas’ power grid reliability will be endangered because of the loss of 1,200 megawatts of power capacity.
But just as those quick-study guides are no substitute for reading the full text, there are some missing details in the short-hand Luminant story.
According to the EPA and other power plant operators, Jan. 1, 2012 is not the day companies have to be in compliance. It’s the day the tape starts rolling for the first compliance period under the lower limits of sulfur dioxide and nitrogen oxide emissions.
Companies actually have until December 31, 2012 to install new equipment or make other operational changes (such as switching to lower sulfur coals), moves that Luminant says it is taking with some of its other plants and which just about every other coal plant owner in the state is doing.
Companies then have until March 2013 to either prove they have met the new lower standards or purchase emissions credits on a new SO2 trading system that goes along with the new rules from others who were successful in lowering their emissions.
As EPA officials said in a letter to Luminant and in Congressional testimony, they are willing to give Texas (and thus Luminant as it has the lion’s share of the emissions burden in the state) more allowances in order to meet the standards. The EPA has said “tens of thousands of more allowances” but hasn’t been more specific than that.
I asked Luminant why they couldn’t just choose to run the two Monticello units less frequently during the lower-demand months and then buy the emissions credits (if needed) on the open market afterwards.
“We cannot take a leap of faith that the allowances will be available in the market for our 2012 emissions by the true up date,” company spokesman Allan Koenig said. “The only prudent option is for us to adjust our operations to achieve the 2012 emissions limits that EPA mandated in its rule.”
At least one Wall Street analyst doesn’t believe Luminant needs to turn off the two power generation units in question and doubts they will.
Julien Dumoulin-Smith of UBS said in a research note this week that by his calculations the measures Luminant was taking at its other coal plants meant it really didn’t have to shut down the units.
“While all of the actions announced were predictable responses, we believe [Luminant] will not likely idle its Monticello 1&2 units, opting alternatively to run them fewer hours; this is particularly true in 2013, once many of the associated upgrades have been completed,” Demoulin-Smith said in the note.
“We reiterate our belief Texas reliability is not threatened by CSAPR as we do not believe material capacity will be retired.”
Demoulin-Smith’s notes are similar to what Bernstein Research said in July, that if Luminant were to use its existing emissions control equipment more often it could meet the new requirements by buying SO2 emissions credits at a cost of about $15 million per year based on a SO2 cost of $700 per ton, according to Bernstein.
Demoulin-Smith said he heard from Luminant about his report and understands their arguments, but at the end of the day, he’s sticking by his analysis.
If the EPA and analysts are correct, why is Luminant describing its actions in this do-or-die manner?
The “EPA made us do it” narrative certainly fits in with the idea being promoted by Texas Gov. Rick Perry in his presidential campaign – that federal regulations are killing jobs.
Perry had a statement out about Luminant’s decision to shutter two units within hours of the original announcement on Monday.
“As expected, the only results of this rule will be putting Texans out of work and creating hardships for them and their families, while putting the reliability of Texas’ grid in jeopardy,” Perry said.
Officials with the state’s main energy regulators were sounding more like industry lobbyist than public officials in their statements.
“These rules, imposed on Texas without adequate notice and without adequate scientific justification, will kill jobs, put the brakes on economic growth, increase energy costs and impair our energy security—all with little or no positive environmental effects,” the Texas Commission on Environmental Quality said in a statement.
And Texas Railroad Commissioner Barry Smitherman told a Congressional committee this week that it was “clear that the Obama political appointees in charge of the EPA are pursuing a politically-motivated agenda to try to choke off the Texas economic engine.”
“My message to Congress was clear: if you let the EPA destroy jobs in Texas today through punitive regulations that were hastily-written using flawed modeling, there is nothing to stop this runaway agency from passing additional job-destroying regulations in the future,” Smitherman said.
There’s also a fundamental revenue issue at stake.
The two Monticello units Luminant wants to shut down are profitable for the company because they are baseload plants that they can run pretty much around the clock , and they use a relatively cheap fuel, lignite coal, that is mined on the site.
Complying with the new rules means switching away from the high sulfur lignite coal to Powder River Basin coal from Wyoming, which would be more costly. It would likely mean the units would run less frequently and not make as much of a profit when they do run.
Given the tough financial shape Luminant’s parent, Energy Future Holdings is in, it’s no wonder the company isn’t happy with the idea of tougher standards.
Luminant filed its formal complaint with the EPA earlier this week (the summary is here).
Will the White House back off on this rule as it has with two other rules this month? Stay tuned.
You spelled the analyst’s name wrong. It’s Julien Dumoulin-Smith—a u not an e.
… by buying 20 tons of SO2 emissions…
Did you mean 20 or 20,000? At $700 a ton, it would take 20,000 to get to $14 million.
Another story here at FuelFix says something else:
http://fuelfix.com/blog/2011/09/15/epa-official-we-will-not-in-anyway-force-the-light-to-go-out/
So, which one is it?
Luminant’s General Counsel spoke at yesterday’s Gulf Coast Power Assoc. meeting. He says they have looked at all the alternatives to keep the plants running including buying SO2 credits and nothing was viable. They said the SO2 market was not sufficiently liquid or predictable or something like that. Given the profit margin they are losing, I don’t beleive they are being spiteful.
I don’t know about the SO2 market, but I do know that whenevery the EPA has required signficant changes in the past, they give several (4-6) years for companies to comply. This provides enough time for industry to properly plan and execute the changes needed.
Giving only 6 months smells like political targeting of Texas with the intent to inflict harm on the state. The change by the EPA from the 2010 proposed plan which stated that Texas did not need to make any changes to the 2011 rule that has Texas making 25% of all the SO2 reductions just smells of an attack on Texas by the Obama Administration.
Mike H.
I think the newer post actually includes the points made in the first one. They’re not contradictory, and in a way each expands on ideas within the other.
I think this just part of their positioning for their 2014 bankruptcy plan. They have 16 months left to accomplish cleaning up their plants. Even then they could get extensions. Total fraud on their part.
So what is wrong with a little “fraud”, rts? All of the politicos, commissions and electric companies are quite happy with “deregulation”, the biggest fraud in Texas.
Well, Obama has stated that his goal is to make energy prices skyrocket and bankrupt coal fired power plants. He failed to get cap and trade passed in congress so he is using the EPA to do it anyway. Obama thinks he is a dictator, if congress doesn;t give him what he wants he just rules by decree. He needs to be fired. Lets make that happen in 2012.
has this affected Austin or San Antonio power plants? are they just cleaner? or somehow just became so new?
has the power company in question ever upgraded, previous admins have excluded coal plants from upgrades if they only shutdown for minor reasons. If they shutdown for major reasons then they needed to install scrubbers etc. a nice loophole.
“Well, Obama has stated that his goal is to make energy prices skyrocket and bankrupt coal fired power plants”
And what else did those voices tell you, Capt?
So far everything is “he said” and “she said”. When it gets up over a hundred next summer it will be a little late to find out who was right in this game of chicken. Who’s version do we gamble on? Isn’t this why our economy is dead right now, lack of certainty about the future? ERCOT could force the issue with Luminant and make them declare whether they are in or out of the generating game by date certain. That may not be Luminant’s game plan but I vote for air conditioning next summer and that should be ERCOT’s position too.
At the GCPA luncheon Luninent stated that 500 jobs would be lost and that they would be spending 280 million by year end and 1.3 billion over the next 4 years to come into compliance. By closing the plants and coming into compliance many more than 500 jobs will be created.
1) More jobs mining PRB coal
2) Jobs building and installing the 1.5 billion in equipment to meet EPA standards.
3) Jobs hopefully in Renewable Energy to replace the old dirty generation.
Net/Net creating more jobs and cleaning up the air we all have to breath.
If Texas wasn’t such a haven for those destroying the environment, it wouldn’t be such a big target. No wonder why some feel as though it is. Texas needs to get with the program and become like everyone else.
YOU HAVE TO SHUT DOWN YOUR PLANT DUE TO EPA REGULATIONS….PERIOD. O WAIT IF YOU BUY CREDITS FROM AL GORE YOU DON’T.. Sounds like a money maker for Gore..
we have to take back the Senate and win the presidency.
Same old story, reduce supply and raise prices. Wasn’t this the same company whose generators “froze” during the cold spell?
Unions and EPA are doing their part to ruin this country aren’t they? The irony is that the P in EPA is supposed to stand for protection, not prohibition.
Luminent (TXU) made a business decision years ago not to upgrade their plants. Other companies decided otherwise. Now Luminent want to play politics and claim that they weren’t given enough time. What a load of BS! And predictably Rick Perry’s pals on the TCEQ backed Luminent up. Look up the campaign $$ for Perry from TXU.
Yeah blame the EPA and the federal government for trying to keep the air we breath clean. Next time you fly in a plane over Houston look at the horizon and notice a brownish color. That is the pollution everyone is breathing. It is not getting better, it is getting worse so any reasonable efforts to cut down on pollution from any level of government is welcomed.
You can probably bet the company already had layoffs planned and just took the opportunity to blame regulation as the excuse. There is a lot more to this behind the scenes that the public is not aware of.
Obama and the EPA would be happy to see the lights going off in Texas…
The EPA is but one of many govt. agencies that have run amuk and need to be abolished immediately.
Texas has more natural gas then we know what to do with. It is 5 times cleaner than coal and at 3.90 an mcf dirt cheap. Cleaner, cheap and plentiful, sounds like a no brainer.
Gee, we can’t pollute anymore? Boo freakin hoo. What a bunch of crybabys.
Coal or oil, it’s time to get out of the dinosaur pits in Texas and utilize the God given sunshine. Go solar, Texas; we need new jobs and new industries. Houston has always been futuristic. J
How many power plants does the EPA operate? Who in their right mind thinks that Luminant would close down several plants and mines and give up hundreds of millions of dollars in revenue if they weren’t being forced to by the EPA?
The EPA did not mention Texas in their proposed rule but put Texas into it when they published the rule this July (2011)so if you can’t do the math, that means Luminant has only 5 months to do the impossible to comply. ERCOT has also pointed out that this rule does not give Luminant sufficient time to comply.
Is forcing a Texas employer to get rid of 500 well paying jobs with insurance and retirement benefits going to help the American Economy?
The EPA’s “suggestions” to Luminant to switch to PRB coal or natural gas are unrealistic by January 1 are insane.
A large lignite-coal burning plant can’t just simply switch to natural gas or convert to 100% PRB coal. It would require years or permitting and construction to install additional gas pipelines and cost hundred of millions of $.
PRB coal burns much hotter than lignite coal and the burners in an older lignite plant can’t take the additional heat without expensive and time-consuming retrofits. Also, this new EPA rule will greatly increase the demand for PRB. It will take time for the PRB mines to ramp up production and even when they do, there may not be sufficient rail capacity to transport the PRB.
What the EPA is doing is equivalent to telling someone they have 1 hour to convert their gasoline powered car to natural gas and if they don’t meet the deadline they can’t drive the car or they face huge fines if they do.
This is the same Luminant that wants to build 2 new reactors at Comanche Peak. Let’s see if they consider NRC rules to also be too tough to comply with.