trending Market Intelligence /marketintelligence/en/news-insights/trending/jMn8chEitniDSM4DX31pkw2 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us
In This List

Industry tempers expectations as EPA mulls new source review overhaul

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Industry tempers expectations as EPA mulls new source review overhaul

The U.S. Environmental Protection Agency has announced a plan to review a complex regulation that sets the threshold governing when a facility modification triggers more stringent pollution requirements. But industry stakeholders requesting the reform are not yet jumping for joy.

That is because the regulation, known as new source review, or NSR, is so snarled in contradictory legal decisions and regulatory guidance that industry does not see the problem abating anytime soon, even with an EPA that seems to have taken the issue on as a high priority. Power utilities and the Institute of Clean Air Companies, or ICAC, an industry group representing suppliers of air pollution control equipment, have claimed that the NSR discourages investment in projects that ultimately could reduce a plant's emissions.

"The inconsistency of the way EPA has enforced the rule, and the way the court rulings are, just make the risk too high for a utility to go in and do something," said Anthony Licata of Licata Energy and Environment and an ICAC member. "EPA is at fault, and so are the court rulings."

Block Andrews, an environmental engineer at Burns & McDonnell and a member of ICAC, said the NSR technically is triggered when a physical or operational change made at a power plant will result in an emissions increase on a tons-per-year basis. NSR includes exemptions for routine maintenance and load growth, but even the load growth exemptions have become dated since the power industry turned to wholesale energy markets that dispatch power according to cost, Andrews explained. If a plant triggers the NSR, it will be required to install the latest emissions controls, which could be more costly than the proposed modification. The rule impacts all sources of pollution covered under the Clean Air Act, including natural gas-fired generators, but over the past decade or so most often has been applied to coal-fired generators as they have frequently been targeted for upgrades.

Megan Berge, a partner with Baker Botts LLP's environmental practice, said plant owners must determine whether a proposed project will need a permit under the NSR before construction begins. Such preconstruction analyses essentially are an estimate of how much the facility will emit once the project is complete.

"You're doing your very best to do an accurate emissions analysis based on all the information you have prior to the project, but there's no specific emissions test established under the regulation," Berge said. Moreover, properly singling out the emissions increase that could result specifically from a proposed change is difficult, she added.

Offering an example of the difficulties posed by the existing NSR process, Andrews cited a case in which a power plant had been using an electrostatic precipitator to reduce particulate matter. Because the equipment was faulty, the power plant repeatedly was kicked offline due to its inability to meet emissions requirements. But when the company decided to replace that equipment with a more efficient and reliable baghouse, which would lower particulate matter but bump up emissions of nitrogen oxides and sulfur dioxides, NSR was triggered, Andrews said.

In another example, Licata said California and New Jersey required generators within those states to install equipment to reduce NOx pollution. However, the equipment needed to do so can increase emissions of ammonia, which in turn would trigger the NSR under federal regulation.

Courts have compounded the problem by offering "a confusing web of legal opinions," according to Andrews. Two similar projects can be undertaken at two separate plants, and the courts may find that NSR should apply to one but not the other.

Michael Goo, regulatory counsel for ICAC, said further controversy surrounds what constitutes an actual increase in emissions as well as how such increases are calculated. "The program has become incredibly complicated and incredibly hard to understand, and even lawyers who have spent many years in this field cannot look at any given situation and understand whether or not NSR would be triggered," Goo said.

Confusion aside, the Sierra Club is partial to the NSR, largely because a lawsuit launched by that group created the rule in the first place. Sierra Club Managing Attorney Joanne Spalding said the program is supposed to ensure the latest technologies take over by pressuring older, less efficient generators to retire. The Clean Air Act grandfathers certain facilities under the assumption that they eventually will retire and cease emitting pollution, she noted.

"What they're trying to do is extend the life of these plants for longer than what was ever anticipated under the Clean Air Act and continue to pollute without any limits," Spalding said of industry's attempts to reform the program.

Spalding said the EPA tried to make major reforms to the NSR program during the George W. Bush administration, but those changes were ultimately invalidated by the courts. The reform effort was conducted under the direction of William Wehrum, who at the time was serving as acting assistant administrator of the EPA's Office of Air and Radiation and now has been nominated by President Donald Trump to head that office.

A path forward

EPA Administrator Scott Pruitt has agreed that NSR is flawed, and he has created a task force to review possible reforms. While ICAC certainly sees that move as encouraging, it does not believe radical change is possible. Goo said that even if the EPA were to reform the program, he suspects environmental groups still would tie up power plant modification decisions in legal challenges.

Andrews said environmental attorneys are not "terribly optimistic" that meaningful change will result from the EPA's review. But he ideally would like more clarity about what activities are considered routine maintenance along with the addition of an exemption for power plant efficiency improvements. Moreover, specific projects that would be exempt from triggering NSR need to be clearly defined so utilities know they can make such modifications and "survive a court challenge," Andrews added.

Goo, Andrews and Licata said they do not expect a rush of companies to come forward with upgrade projects if the NSR is reformed, although they believe a few projects could benefit from the regulatory certainty.

Berge suggested the agency could clarify whether projects should be aggregated for the purpose of determining emissions increases. She noted that some legal cases have considered a handful of separate projects to the same facility completed over the span of more than a decade as contributing to a single emissions increase.

"Being able to have certainty about your requirements, and being able to manage your risk is really what industry looks for in any program," Berge said. "I don't know anyone who is saying, 'I just want to not comply with this.'"

Part of the challenge of NSR reform will be ensuring "a path forward for both industry and those that are concerned about the environment to have a clear understanding of what the rules are," Goo said.

Spalding questioned whether the EPA has the authority to undertake major reform of NSR, asserting that the responsibility for doing so ultimately lies with Congress. But the EPA could seek to change the accounting of pollution and allow a higher amount before more stringent requirements are triggered, Spalding said.

Berge agreed that Congress would have to act before any more sweeping changes could be made to the program. But Goo does not anticipate that Congress will be much help, despite the existence of two bills on the matter. Those bills have stalled in the legislative process, Goo noted.