The Illinois Environmental Protection Agency has taken a neutral stance on a petition by Dynegy Midwest Generation LLC to the Illinois Pollution Control Board for permission to sell excess SO2 credits created under a special state air pollution rule into the open market.
Dynegy Midwest Generation (DMG), a unit of Dynegy Inc. (NYSE: DYN), wants a variance from certain provisions of the Illinois Multi-Pollutant Standard (MPS) from the date of any board approval order until April 1, 2015. The Illinois EPA said in a July 23 filing at the board that it neither supports nor objects to the board granting DMG’s petition.
On June 8, DMG filed its petition with the board, requesting a variance from provisions in the MPS that prohibit owners or operators of Electric Generating Units (EGUs) in an MPS Group from selling, trading to, or otherwise exchanging with any person SO2 allowances that would otherwise be available for sale or trade as a result of actions taken to comply with the SO2 emission standards. Specifically, DMG requests a variance for vintage year 2013 and 2014 SO2 allowances allocated to EGUs under the U.S. EPA’s Cross-State Air Pollution Rule (CSAPR). DMG also requests a variance from the requirement that it surrender excess SO2 allowances to the Illinois EPA instead of selling them.
DMG is requesting the variance for its entire MPS Group, consisting of coal-fired EGUs at the Baldwin Energy Complex in Randolph County, the Havana Power Station in Mason County, the Hennepin Power Station in Putnam County, the Wood River Power Station in Madison County and the recently-retired Vermilion Power Station in Vermilion County. The retirement of Vermilion and its emissions, by the way, is a key factor in why DMG has so many SO2 credits it wants to sell.
“DMG indicates that it controls SO2 emissions at its coal-fired power plants through the use of low sulfur, Powder River Basin coal,” the Illinois EPA noted. “DMG also operates spray dryer absorbers (dry scrubbers) with fabric filter systems on two Baldwin units and is constructing similar control devices on the third Baldwin unit, which will be operational by December 31, 2012. DMG has installed a dry scrubber on Havana Unit 6, which will also be operational by December 31, 2012.”
The agency added: “In summary, DMG argues that the aggregate of DMG’s one-time actual and projected actual SO2 emission reductions (13,071 tons) and its ongoing emission reductions from unit retirements and emissions below permitted emission rates used in the Illinois EPA’s modeling (up to approximately 32,722 tons annually) exceeds the number of SO2 emission allowances affected by the granting of the variance (approximately 20,000 SO2 allowances/tons in 2013 and possibly again in 2014, assuming those are the first two years of the CSAPR). The Illinois EPA believes that there is assurance that air quality will not be detrimentally impacted if the variance is granted, as a result of creditable emission reduction measures taken by DMG and the fact that the CSAPR is by design more stringent than the CAIR [Clean Air Interstate Rule] and will impose sufficient trading restrictions.’
The agency added: “The CSAPR is generally considered more stringent than the CAIR due to tighter timing and a greater amount of required emission reductions; further, the CSAPR does not allow the use of allowances from other trading programs, and contains trading restrictions for CSAPR allowances. The Illinois EPA recognizes that such trading restrictions were developed based on modeling performed by the USEPA to ensure that a sufficient level of emission reductions occur in Illinois and in other states impacting regional air quality. Therefore, the Illinois EPA believes that sufficient trading restrictions will continue to apply through the CSAPR in the event this variance is granted.”
The Illinois EPA said it has no evidence that the MPS trading restrictions will or will not “interfere” with the robust SO2 allowance trading market intended by the CSAPR, or that any such restrictions will damage the ability of DMG and Illinois industry to stay competitive with other states. The Illinois EPA did, however, agree that EGUs face the possibility of incurring substantial additional costs in complying with other new rules, while at the same time having to compete with near-historic low natural gas prices.