With a new name, final SO2 and NOx rules will likely create additional challenges for AEP

(Story by Rachel Hammer)

It was a very busy weekend for a group of AEP employees who are reviewing the 1,300-plus pages of the new Cross-State Air Pollution Rule (CSAPR). The U.S. Environmental Protection Agency (US EPA) on July 7 issued its final rules regulating annual sulfur dioxide (SO2) and nitrogen oxide (NOx) and seasonal NOx emissions that cross state lines.

CSAPR had been known as the Clean Air Transport Rule until it recently was renamed. CSAPR replaces the Clean Air Interstate Rule, which the D.C. District Court of Appeals sent back to the EPA for revision in 2008 because it had significant flaws.

A high level summary of the new rule appears below. It will be several days yet before AEP has a full understanding of the rule and what it may mean for the company. It will be even longer before the company can determine its best plan for compliance.

States covered by the new rule

All states in which AEP owns and/or operates power plants are included under at least one of the rule’s programs as follows:

• All programs (annual SO2, annual NOx, seasonal NOx) – Indiana, Kentucky, Michigan, Ohio, Texas, Virginia and West Virginia.
• Seasonal NOx only – Arkansas, Louisiana and Oklahoma.

HAPs rule comment period open until August 4

In addition to its new Cross-State Air Pollution Rule, US EPA is considering several other rules that will have major impacts on electricity generators. AEP and others believe that US EPA needs to consider the total impacts of these rules.

The public comment period for one of the rules – the Hazardous Air Pollutants or HAPs Rule – currently is open.

If you have not already done so, you can send a message to US EPA that greater flexibility is needed in complying with this rule, by going to http://www.capitolconnect.com/aep.

 For AEP there are two significant differences from the proposed rule. Texas now is included the annual SO2 and NOx programs. It previously had been included in the seasonal NOx program only. And Louisiana, which initially was included in the annual SO2 and NOx programs, has been excluded from those programs and is included in the seasonal NOx program only.

Timing for compliance

The rule confirms compliance deadlines beginning in 2012, a mere six months from now. A second, more stringent compliance deadline will occur in 2014.

“In comments on EPA’s proposed rules, AEP and others presented the argument that 2014 does not provide enough time to install controls. We are extremely disappointed that EPA did not take these comments into account and appears to have actually accelerated the more significant compliance requirements to the beginning of 2012,” said John McManus, vice president – Environmental Services. AEP has built nine systems in the past decade to address SO2 emissions and knows from experience that it takes close to five years to design, permit, construct and commission such a system.

Allocations changes

Complicating the lack of flexibility on compliance time frames is the fact that U.S. EPA reduced SO2 and NOx allocation budgets from the levels it originally had proposed. U.S. EPA has established the allocation budgets at the state level which, in turn, are allocated to individual generating units. AEP has not yet had the time to analyze potential impacts at the operating company level, let alone at the generating unit level.

The new rule allows for limited emissions trading between states; however, each state can go no more than 18 percent to 21 percent over its budget using out-of-state allowances before penalties would be enforced. Also, US EPA divided the states impacted by the rule into groups and the rule does not allow SO2 trading between groups. This means that the states in AEP’s eastern area, as part of Group 1, cannot trade SO2 allowances with Texas, which is in Group 2.

What it could mean for AEP

Developing and implementing a new compliance plan within six months to address the significant SO2 reductions in the East and NOx reductions in the West is a problem.

AEP’s compliance plan will be based largely on internal emissions reductions. In the coming weeks, the company will run new models to evaluate many options for unit curtailments, fuel switches, control retrofits, etc.

“The transition plan we announced last month will have negative impacts on reliability, local economies and customer rates. The final Clean Air Transport Rule, now known as the Cross-State Rule, will increase and accelerate these impacts,” said Mark McCullough, executive vice president – Generation. “AEP is not opposed to environmental regulation, but we want to see a reasonable, phased-in approach that will get us to the same environmental benefits but in a way that helps utilities and other stakeholders manage these impacts. We are disappointed to see that the final rule did not move in the direction of a more reasonable approach.”

What happens next

The rule automatically goes into effect unless U.S. EPA takes administrative action to reconsider it or a Court of Appeals issues a stay. Appeals and petitions for reconsideration must be filed within 60 days from the date the rule is published in the Federal Register.

AEP has not yet determined what action it may take.