The Bush administration is considering plans that would ease environmental restrictions on upgraded existing coal-fired power plants and potentially force the delay or cancellation of a significant amount of new gas-fired power generation. Some industry observers estimate the potential impact at about 40,000 MW of generation capacity or roughly about 8 Bcf/d of gas demand.

However, gas industry representatives say it’s too early to become alarmed because significant discussion on the issue still needs to take place prior to implementation, and many court battles likely would follow any changes. Lisa Beal, director of environmental affairs at the Interstate Natural Gas Association of America (INGAA), doesn’t think the administration will be able to move forward rapidly with changes that will significantly impact proposed gas-fired generation.

“This is just an administration report, and it hasn’t even come out yet,” she said. “This is not a rulemaking. They haven’t even started that process. They would have to recall the old proposal, and I don’t think they are going to do that without first having some significant discussions and consultations on the reactions to the report — and that’s not just with industry, it’s with all stakeholders involved because this is a huge issue.”

She said the industry would wage a battle in the courts and on Capitol Hill over this. The Bush administration announced in August that it was going to produce a report on potential changes to the New Source Review (NSR) program of the Clean Air Act. The issue really goes back to the original Clean Air Act in the 1970s. Power generation infrastructure was put into two categories under the act: one included existing plants, which were grandfathered, and the other included all new generating capacity, which would be placed under new stricter emissions standards. The federal government tightened the restrictions in 1978 and again in the mid-1980s.

With the 1990 Clean Air Act amendments, the government said the grandfathering of older plants was a bad idea because the old capacity was emitting tons of pollution and would continue to do so until the plants were removed from service. At that point, the government decided any new capacity from grandfathered power plants would have to meet tougher standards. However, totally new power plants still had a higher standard to meet than new capacity from existing grandfathered plants.

As a result, the Clinton administration decided to revise what was considered “new capacity” to include not only new plants but also any significant increase in output from an old plant. Many utilities were sued to comply with this new interpretation of “new capacity” and the change had the effect of placing a cap on coal-fired generation.

The Bush administration appears to be moving to wipe away the Clinton administration’s changes so that an increase in utilization from existing plants due to maintenance-related activities won’t fall under the stricter emissions standards.

“Coal generators still will have to spend money to meet [state implementation plan emission restrictions], which are increasing every five to seven years,” said Mary Novak, an energy consultant with Wefa Inc. “But they won’t have to go that extra step any more, and they are going to be able to increase output kind of willy-nilly.”

Novak believes existing coal-fired power plants might be able to ramp up their capacity by as much as 10-20% through routine maintenance without the high cost of meeting the emissions standards for new power plants. “This means you could see a lot more coal-fired power production,” she said. “Our initial estimates were that it could increase coal production by somewhere between 15 and 20% and that’s the equivalent of somewhere between 20,000 and 40,000 MW of capacity; it’s huge. Just about every plant out there could produce somewhere between 10 and 20% more than they are currently producing. That’s new gas-fired generation that you no longer need. It’s basically saying you only need gas-fired power for peaking for the next couple of years. All that new gas capacity is going to get delayed.

“NSR is huge,” she said. “And the whole thing is simply administrative policy. This swamps everything in the Bush energy plan. We have so much coal capacity out there.”

Novak believes EPA can move forward with these changes immediately because this isn’t a new rule; it’s simply a change in interpretation of the New Source Review program. “All they are saying now is ‘we won’t wrap fines on you utilities and pull you into court for not meeting the standards of new plants with your small maintenance related expansions. There were six lawsuits [against utilities] outstanding, and I think in four of them the government already has dropped the cases,” she said.

However, other observers aren’t so sure the administration will decide to move forward on such changes. It’s already under significant pressure from the states and from some members of Congress not to make changes, and the report hasn’t even come out yet.

The New England states don’t like the idea at all because they think it will cause more emissions to be blown over from the dirty Midwest coal plants. The attorneys general of nine northeastern states on Tuesday warned the Bush administration not to attempt to weaken the Clean Air Act, thereby subjecting the citizens of their states to continued acid rain and snow, smog that triggers respiratory diseases such as asthma, and particulates that contribute to premature death (see Power Market Today, Jan. 9 ). New York, Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island and Vermont will suffer devastating health consequences from a rollback in air quality protections, the state representatives told a Washington, DC, news conference.

“The Bush Administration is preparing the most dangerous attack on air quality since the Clean Air Act was adopted,” said New York State Attorney General Eliot Spitzer. “The environmental and public health impacts of the changes administration officials are preparing will be devastating if this misguided action occurs. The only beneficiaries of this indefensible policy would be the operators of dirty power plants, coal companies and the oil industry.”

“In secret meetings, power plant owners seem to be ghost writing their own air pollution standards,” Connecticut Attorney General Richard Blumenthal said. “Senior administration officials have shut us out — denying access and information to state enforcement officials who seek clean, healthy air for our citizens to breathe.”

INGAA’s Beal admitted EPA has been given discretion to interpret the “routine maintenance” provisions of NSR on its own without input from industry, environmental groups or the states. The courts already have sided with EPA on this. But she noted that many states are not happy about the changes proposed and there are rumblings from Congress already about it.

“We’re not alarmed about it at this point,” said Beal. “This is one moment in the battle. This is not the be-all and end all. I think there’s a lot more discussion and a lot more work that has to be done before they can do something that we would say it’s time to lay down our arms because we’ve lost on this issue. It is a huge issue for the gas industry,” she admitted.

But there probably will be congressional hearings on the matter. “Sen. Jim Jeffords (I-VT) has even asked that the administration postpone issuing this report until after they have had a chance to hold hearings on the multi pollutant issue,” Beal said. “I think there’s a lot of congressional attention being placed on this as well. This thing is not going to move expeditiously. I think they will have to tread carefully, and I think there are a lot of industries that are going to weigh in on this. It’s not going to be something that turns around in 30 days.

“I’m an optimist. That’s not to say I’m not concerned. I think the gas industry has got to weigh in on the issue. I think the industry has been attacked in some cases in terms of its ability to respond to increased demand, and I think that the gas industry has got to respond to those criticisms appropriately. I don’t think resigning ourselves to a defeat at this time is practical.”

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