Luminant sues EPA, says it will shut two coal units, cut 500 jobs

The largest power plant operator in Texas says it is closing two large coal-fired units in order to meet pending environmental rules and has filed suit against the Environmental Protection Agency in an effort to block the rules.

Dallas-based Luminant said today it will close Units 1 and 2 at the Monticello Power Plant in Northeast Texas, taking about 1,200 megawatts of capacity offline, in order to comply with the  Cross-State Air Pollution rules that go into effect on Jan. 1.

Unit 3 at Monticello will switch over to using only coal from Wyoming’s Powder River Basin, meaning operations at two nearby lignite mines will stop.

At the Big Brown power plant in Freestone County, Units 1 and 2 will switch over to Powder River Basin coal and the nearby lignite mines will close.

The moves will lead to about 500 job cuts, the company said.

“While Luminant is making preparations to meet the rule’s compliance deadline, this morning it also filed a legal challenge in an effort to protect facilities and employees, and to minimize the harm this rule will cause to electric reliability in Texas,” the company said in a statement.

The company is asking an appeals court for a stay implementing the Cross-State rule, saying it is illegal because the EPA didn’t include Texas in the draft rules released in 2010. The final rules released in June 2011 included a heavy emissions reduction burden for Texas.

Texas officials quickly seized on the company’s actions as evidence of the need for regulatory reform in a slumping economy. Just a week before, ERCOT, the state’s main power grid operator, warned that the rules could threaten electric reliability with the forced retirement of older coal-fired units.

“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,” Gov. Rick Perry said in a statement.

The Texas Commission on Environmental Quality, which is charged with overseeing the state’s air quality, said the Luminant announcement is “a sad confirmation of the TCEQ’s previous statements” against the regulations.

“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 TCEQ said in a statement.

Environmental groups hailed Luminant’s decision, however.

“The announcement by Luminant today is a victory for all Texans who care about clean air,” said Eva Hernandez with Sierra Club’s Beyond Coal campaign in Texas. “Coal-fired electricity is the primary source of toxic mercury pollution and is a leading trigger of asthma attacks. Children, the elderly, and anyone with respiratory illness are especially vulnerable to air pollution emitted from coal-fired power plants.”

Gina McCarthy, the EPA’s air quality chief, said the agency had worked with Luminant for weeks on a “no-shut down, no-layoff solution,” including greater use of pollution controls already installed.

“It is unfortunate that company leadership rushed to a decision that needlessly puts their workers’ jobs at risk,” she said. “It’s not EPA’s role to tell private companies what business decisions to make, but we firmly believe that there are better alternatives for Luminant.”

Of the major power plant operators in Texas, Luminant has been the most vocal about the rules.

Its parent company — Energy Future Holdings, formerly TXU — has been financially strained ever since a $45 billion private equity leveraged buy-out in 2007. The company has renegotiated extensions on its huge debt burden, but a Sierra Club study says the buyout — combined with lower natural gas prices — has slashed the value of the coal-fired plants and makes further investments in pollution controls highly unlikely.

Amid news of layoffs and closings, Luminant said it will spend about $280 million to upgrade pollution controls at the remaining Monticello unit and its power plants in Rusk and Milam counties by then end of the year. The investment should reach $1.5 billion before the end of the decade, the company said.

“Unfortunately, the rule’s 2012 deadline will not allow for the permitting, construction and installation of new equipment in time to avoid the announced closures,” the company said.

But other operators of coal-fired power plant say the rules are manageable.

Princeton, N.J.-based NRG Energy, the second-largest power generator in Texas, said it will comply by increasing the efficiency of its scrubbers by 10 to 15 percent and using more low sulfur coal.

NRG’s Parish power plant in Fort Bend County uses a low-sulfur coal from Wyoming’s Powder River Basin, while its Limestone plant uses a lignite/Powder River mix. The plants also have installed a full range of new pollution controls.

The Lower Colorado River Authority also said it is in good shape to meet the requirements at its 1,600-megawatt coal fired Fayette Power Project, 90 miles west of Houston. This year, LCRA installed new scrubbers in its two oldest units that remove about 95 percent of sulfur dioxide emissions.

Luminant is asking the federal appeals court for a stay implementing the regulation, claiming it is illegal because the EPA did not include Texas among those states regulated for sulfur dioxide, which forms the tiny particles known as soot, when proposing the rules last year. The initial plan only required Texas to cut nitrogen oxide emissions during the smog season.

The EPA has said Texas was added to the sulfur dioxide list because data shows that the state’s coal plants contribute to soot problems as far away as Illinois.

Ilan Levin, a Texas-based attorney for the Environmental Integrity Project, said Luminant is trying to blame the EPA for its own unwillingness or inability to invest in new pollution controls. The company has lowered emissions of sulfur dioxide by 16 percent over the last decade, while the industry as a whole has cut them in half, he said.

“It’s hard to take this company seriously when other large electric utilities have had no trouble slashing their pollution,” Levin said.

ERCOT, the state’s main power grid operator, said last month the new rule could threaten the reliability of the state’s power grid by forcing operators to take older coal-fired units offline.

Texas’ power grid came close to rolling blackouts twice this summer and had several days of tight reserves as a record-breaking heat wave and drought combined with a large number of unplanned plant outages.