A federal appeals court may have handed the Obama administration a New Year’s election gift, ensuring the President won’t be forced to choose between electricity price spikes and his environmental constituency this summer.

The US Court of Appeals in Washington stayed the Environmental Protection Agency rule tightening caps on sulfur and nitrogen oxides, the Cross-State Air Pollution Rule (CSAPR), late on Dec. 30. The court told EPA to keep using the Clean Air Interstate Rule temporarily.
CAIR was written in 2005 by the Bush administration, invalidated by the court in 2008, and left it in effect until a new rule could be written. So 2012 will be the fourth year governed by CAIR standards.

CSAPR attempts to protect downwind states from being held accountable for pollution originating upwind. Both CAIR and CSAPR have ended up with states pitted against states and coal-dependent utilities against those invested in other fuels. Forty-five petitioners including 27 states sued over the final version this time, and the stay indicates at least some of the legal arguments are likely to stick.

Rule opponents predicted plant shutdowns, power price spikes, and possible summer blackouts if CSAPR took effect in 2012. Texas was especially vocal, as CSAPR was amended only last summer to include that coal-heavy state for the first time.

ClearView Energy Partners analyst Kevin Book said the CSAPR stay averts the potential for spikes and blackouts in the middle of the president’s re-election campaign.

Book said it spares the administration “the difficult task of administratively intervening to protect power prices or grid reliability” in the face of environmentalists wanting strict enforcement.
EPA had estimated the stricter caps would mean billions in health benefits to Americans. John Walke, clean air director for the Natural Resources Defense Council called the stay “disappointing” but “temporary.”

He said: “For now, Americans in 27 states unfortunately must continue breathing dangerous pollution generated by power plants in neighboring states, but we’re confident these cross-state pollution standards will be upheld on their merits.”

The stay indicates arguments on CSAPR could come in April and a decision in late summer, said Christine Tezak, senior energy and environment policy analyst at R.W. Baird & Co. But with many parties demanding more compliance time, and the wide range of complaints, Tezak says it could be several years before a legally durable replacement is finalized.

Utilities Focus On Mercury

On the business side, analysts say, the stay will let utilities focus on complying with another administration rule that looks less vulnerable to court delay: the mercury rule — known Utility MACT but just renamed the Mercury and Air Toxics Standard, MATS, by EPA.

Issued in mid-December, analysts agree that MATS by itself will mean plentiful business in retrofitting pollution controls, fuel switching to natural gas, replacement generators, and coal type switching.

Susan Tierney, a former assistant energy secretary now with Analysis Group, said some changes to meet CSAPR’s immediate demands will be postponed. “This will allow companies to focus their attention” on planning compliance with MATS’ expected early 2015 deadline, she said, “including leading to equipment orders and pollution control installations.”

Spending Acceleration?

That’s still a tight deadline and companies will have to get their orders in early, she said.
Tezak sees the investment cycle beginning to move in 2012, with both regulated and independent utilities taking their plans to Wall Street. She expects construction and upgrades to “gain pace” in 2013-24.

Book said coal retirements or fuel-switching to natural gas that are driven by MATS will show up in 2014-15. CSAPR would have gone into effect this year, accelerating those coal reduction decisions.

He said the CSAPR stay also ends anticipation that 2012 would see a spurt in demand for low-sulfur Powder River Basin (Wyoming) coal and for natural gas.

Book and Tezak both see business growing for companies making or installing pollution control systems, as well as for providers of improved transmission management, demand response and efficiency systems.

The CSAPR delay “takes a very big car out of the ‘train wreck’ scenario of environmental regulations,” said Tezak, adding that meeting MATS requirements also may mean meeting some CSAPR limits.

Some in industry have been using “train wreck” to predict shutdown of up to 30% of US coal capacity as a half-dozen Obama-era environmental rules all hit in the same few years. They included: MATS, CSAPR, lower ozone standards, greenhouse gas restrictions, new cooling water rules, and coal ash regulation. But ozone and coal ash have been pushed back, cooling water rules look to be more flexible, and now CSAPR is stayed.

Book foresaw 17.4 gigawatts of uncontrolled coal being retired due to MATS alone, and another 9 GW if CSAPR had to be simultaneously met. Those latter retirements are now likely delayed. Trading markets in CSAPR have not developed, Tezak noted, so a return to CAIR will not be costly for the industry.

Photo Caption: EPA Administrator Lisa Jackson.