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EPA-imposed federal haze plan for Texas likely unlawful, appeals court finds

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Essential Energy Insights - February 2021

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EPA-imposed federal haze plan for Texas likely unlawful, appeals court finds

In amove heralded as a victory for coal-fired power plants in Texas, a federalappeals court stayed the implementation of the regional haze rule in that stateand slammed the U.S. EPA for causing years of delay and failing to consider thegrid reliability impacts of the rule.

TheU.S. Court of Appeals for the 5th Circuit found that the underlying legal challenge to theregional haze rule, which alleged that the EPA improperly rejected portions of stateimplementation plans submitted by Texas and Oklahoma, is likely to succeed onits merits by showing that the agency was arbitrary and capricious in issuingthe rejection.

Ingranting the stay, the court said the EPA appeared to have ordered Texas to conductan unnecessary source-specific analysis contrary to the Clean Air Act andpunished Oklahoma for disagreeing with an EPA opinion that emissions controlsshould be imposed on some Texas power plants.

TexasAttorney General Ken Paxton's office released a statement applauding the court'sdecision to stay the rule, insisting that it would have imposed $2 billion incosts without achieving any visibility improvements. Paxton, along with severalindustry stakeholders, filed suit in February and asked the 5th Circuit to staythe rule while the litigation proceeds. According to the statement, the courthas now agreed that the rule is likely unlawful, would impose rate increases onTexas energy consumers and could endanger the reliability of the grid.

Years of delay

Theregional haze rule requires states to develop plans to mitigate visibilityconcerns in national parks caused by pollution from power plants and othersources. The EPA may step in and promulgate a plan if a state fails to submitone or if some or all of a submitted plan is deemed insufficient.

Texasand Oklahoma submitted state plans in 2009 and 2010, respectively, both outsidethe prescribed deadline for state plan submissions for the regional haze rule.The EPA approved them in part and moved to promulgate federal requirements tofill in the gaps. But the agency dragged its feet for years, and ultimatelyapproved final plans in January 2016 that required emissions controls on somepower plants in Texas but none in Oklahoma.

"EPAmay not use its own delay as an excuse for imposing burdens on Texas that theRegional Haze Rule does not permit," the court said in its July 15decision.

Thethree-judge panel agreed with petitioners that the agency only rejected partsof the Oklahoma plan because of the effects of emissions traveling to the statefrom Texas. The EPA did so while claiming that the Lonestar state had neverprovided the source-specific analysis to Oklahoma and therefore "deniedOklahoma the knowledge it needed … to properly construct its reasonableprogress goal."

"Essentially,the only flaw in Oklahoma's plan springs from EPA's conclusion that Texas wasrequired to conduct a source-specific analysis and impose restrictions onspecific sources in Texas," the court said.

Thecourt also agreed that the agency had ordered emissions requirements outsidethe scope of the 2009 to 2018 regional haze plan cycle at issue, insteadrequesting the installation of emissions controls on some Texas power plants in2019 and 2021. The EPA argued that the Clean Air Act allows requirementsoutside the designated period because the agency can require revisions to stateplans at 10- and 15-year intervals.

TheEPA has already moved to change a provision of the rule that would allow theagency to impose changes outside the designated period, and the petitioners'argument "would be much less compelling" had that modification beenin effect, the court remarked.

Thecourt also found convincing arguments that the EPA failed to properly considerthe reliability impacts of installing the emissions controls and that theagency failed to demonstrate its expertise in that area.

BesidesPaxton and Texas energy regulators, the challenge was brought by subsidiary Luminant GenerationCo. LLC, Xcel EnergyInc. subsidiary SouthwesternPublic Service Co., the Utility Air Regulatory Group, ,NRG Energy Inc.subsidiary NRG Texas Power LLCand others.

Thecourt also declined a request by the EPA that the case be dismissed or moved tothe U.S. Court of Appeals for the District of Columbia Circuit, which handlesEPA regulatory legal challenges of national significance.