Dallas-based Luminant, Texas’ largest power generator, on Friday filed a legal challenge against the Environmental Protection Agency’s (EPA’s) Cross State Air Pollution Rule (CSAPR) but said the newly finalized rule that will require generators to dramatically reduce sulfur dioxide and nitrogen oxide emissions from power plants had forced it to idle two coal-fired units and reduce capacity at three other units. The decision follows talks between the company and the EPA, in which the agency suggested the closures are not the “only path forward.”

The company would be forced to idle its Monticello Units 1 and 2 and implement derates resulting from switching to 100% Powder River Basin coal at Monticello 3 and Big Brown Units 1 and 2 to meet the rules’ “unrealistic deadline and requirements,” Luminant said. These actions would reduce the company’s generating capacity by about 1,300 MW—about 9% of the company’s total. Luminant would also cease mining Texas lignite at three mines and implement several other actions to reduce emissions, including making substantial investments in its facilities, it said.

The legal challenge against the rule filed on Friday would serve “to protect facilities and employees, and to minimize the harm this rule will cause to electric reliability in Texas,” the company said in statement.

Luminant is committed to complying fully with EPA regulations, but it had spent the last two months “identifying all possible options to meet the requirements of this new rule, and we are launching a significant investment program to reduce emissions across our facilities. However, meeting this unrealistic deadline also forces us to take steps that will idle facilities and result in the loss of jobs,” said David Campbell, Luminant’s chief executive officer.

“At every step of this process, we have tried to minimize these impacts, and it truly saddens me that we are being compelled to take the actions we’ve announced today. We have filed suit to try to avoid these consequences.”

Luminant: “Rule’s Mandates for Texas Are Unlawful”

The EPA finalized the CSAPR rule this July, requiring 27 states—including, for the first time, Texas—to significantly reduce power plant emissions that contribute to ozone and fine particle pollution in other states starting on Jan. 1, 2012. A December 2008 court ruling had directed the EPA to issue a new rule to replace its court-vacated 2005 Clean Air Interstate Rule.

The EPA has estimated CSAPR could cost $800 million a year in 2014, along with roughly $1.6 billion in capital investments a year to comply with the rule—but the agency has maintained that the final rule could yield $120 billion to $280 billion in annual health and environmental benefits. “This rule will not disrupt a reliable flow of affordable electricity for American consumers and businesses,” it says on its website. “Health benefits will be achieved at a very low cost, and while the effect on prices for specific regions or states may vary, they are well within the range of normal electricity price fluctuations. Any such costs will be greatly outweighed by the benefits.”

But Luminant, backed by other companies and the state of Texas, has said it believes the rule’s mandates for Texas are “unlawful.” “A year ago, the EPA’s proposed rule did not include Texas in the annual SO2 and NOx reductions programs. Now, one year later, the CSAPR imposes a 47 percent SO2 reduction and substantial NOx reductions by Texas sources beginning in January 2012. And notably, the rule requires a 64 percent reduction of SO2 emissions to Luminant’s fossil fuel generating units.”

The company’s suit filed in the U.S. Court of Appeals for the District of Columbia Circuit seeks to invalidate the CSAPR in Texas. It also seeks a judicial stay of the rule, citing the “immediate and irreparable harm that it will inflict.” Among key points that Luminant plans to demonstrate is that “The standard time frame for permitting, constructing, and installing new emission controls is several years, yet the rule allowed less than six months.” It will also argue that Texas would bear 25% of the SO2 reduction burden imposed under CSAPR—more than twice the state’s contribution to the total SO2 emissions of all states included in the rule. “Before these mandates go into effect, current SO2 emissions rates for the state’s power generation plants are already lower than the average of the other states included in the rule.”

“Idling Plants Will Be Necessary”

Compliance in the “extremely compressed time frame” will force implementation of production and operational changes, including idling of Units 1 and 2 (a total capacity of about 1,200 MW) at the three-unit 1,980-MW Monticello Power Plant in Titus County, Texas, and switching Monticello Unit 3 from Texas lignite to 100% Powder River Basin (PRB) coal. The Thermo and Winfield mines will cease mining Texas lignite with the idling of Monticello Units 1 and 2 and the fuel switching at Monticello Unit 3, but Luminant will continue reclamation activities at these sites, the company said.

At the 1,150-MW Big Brown power plant—PRB Coal Users’ Group (PRBCUG) Plant of the Year—and its supporting mine in Freestone County, Texas, Units 1 and 2 will cease using Texas lignite and operate on 100% PRB coal. POWER had previously reported that that plant, which burned a mix of 42% PRB coal and 58% lignite, would eventually increase its share of PRB fuel to 60% in the coming years.

Luminant also said it would begin a “substantial investment program” at Monticello Unit 3 and two other generation facilities, the Martin Lake Power Plant in Rusk County and the Sandow 4 Power Plant in Milam County. Actions include upgrading existing environmental control equipment and installing new environmental control equipment—though these won’t occur before the CSAPR deadline. The upgrades and new controls are expected to cost about $280 million by the end of 2012 and more than $1.5 billion before the end of the decade, Luminant said.

EPA to Luminant: Consider Other Compliance Options

But in a letter dated Sept. 11, EPA Deputy Administrator Bob Perciasepe told Campbell that while he understood that the business decision to close the two mines to the generation units may be one of “several cost-effective ways” to comply with this rule, the agency did “not believe it is the only path forward, particularly given the nation’s difficult economic situation.”

Perciasepe added that during discussions with Luminant over the past two weeks, the EPA had discussed a “variety of scenarios, consistent with the flexibilities inherent in the Clean Air Act and the CSAPR” that could bring Luminant into compliance with the rule. “Given the opportunity that still remains to work through a number of options we feel are available to you, we trust you will continue those discussions before making any final decisions that may result in the unnecessary loss of jobs for your workers,” he wrote.

Those options included taking up the EPA on its offer to make “technical adjustments” that would give Texas and Luminant thousands of additional tons of pollution allowances to reduce required emission reductions. Other compliance approaches included relying on existing pollution controls and “on the powerful market-based mechanisms in the CSAPR that would not require you to idle any facility or shut down these mines,” he added.

Sources: POWERnews, DOE, EPA, Luminant, POWER