In August, a unit of Energy Future Holdings filed notice with the Electric Reliability Council of Texas (ERCOT) that it intends to suspend operations at two of the three units at the lignite-fired Monticello generation facility due to persistently low wholesale power prices and other market conditions.
“Pending ERCOT approval, beginning December 1, 2012 we intend to suspend operations for approximately six months and not greater than seven months, with both units expected to return to service during the peak demand months in the summer of 2013,” said the company’s Oct. 30 Form 10-Q quarterly report. “Our mines will continue year round operations and there will be no reduction in our full-time work force as a result of this action. Based on cash flow projections and related analysis, no impairment was recorded as a result of the suspension. At current wholesale market prices of electricity, we do not expect the suspension of operations to significantly impact our results of operations, liquidity or financial condition. In September 2012, we received notice from ERCOT that it is evaluating whether the units are needed for reliability-must-run service in order to support transmission reliability in ERCOT. We expect ERCOT will make their final determination in late October 2012.”
Monticello is an 1,880-MW plant fired mostly by lignite from the company’s nearby Thermo and Winfield mines, with some Powder River Basin (PRB) coal railed in to supplement the lignite.
In the environmental compliance area, Energy Future said it has revised its estimates of capital expenditures for environmental control equipment, based on analysis and testing of options to comply with the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS), as well as estimates related to other EPA regulations. That includes expenditures previously incurred related to EPA’s Cross-State Air Pollution Rule (CSAPR).
“Between 2011 and the end of the decade, we estimate that we will incur more than $1 billion in capital expenditures for environmental control equipment, though the ultimate total will depend on the evolution of pending or future regulatory requirements,” the Form 10-Q said. “Based on regulations currently in effect, we estimate that we will incur approximately $500 million of capital expenditures for environmental control equipment between 2013 and 2017, including amounts required to maintain installed environmental control equipment. Our current plan includes the ongoing use of lignite coal as part of the fuel mix at all of our coal facilities, in varying proportions that reflect the economically available fuel supply as well as the configuration of environmental control equipment for each unit.” That last sentence is a reference to the fact that the company has some ability to increase the use of low-sulfur PRB coal at certain units, displacing higher-sulfur lignite from its own mines.
Energy Future appealed both MATS and CSAPR
In July 2011, the EPA issued the CSAPR, which covers SO2 and NOx emissions in various states, including Texas. In September 2011, Energy Future filed a petition for review in the U.S. Court of Appeals for the D.C. Circuit Court challenging the CSAPR as it applies to Texas. If the CSAPR had taken effect, it would have caused Energy Future to, among other actions, idle two lignite/PRB coal-fueled generation units and cease certain lignite mining operations by the end of 2011.
In February 2012, the EPA released a final rule and a proposed rule revising certain aspects of the CSAPR, including increases in the emissions budgets for Texas and the Energy Future generation assets as compared to the July 2011 version of the rule. In March 2012, Energy Future submitted comments to the EPA on the proposed rule requesting additional corrections to the CSAPR budgets for Texas. In April 2012, Energy Future filed in the D.C. Circuit Court a petition for review of the February revisions on the ground, among others, that the rules do not include all of the budget corrections Energy Future requested from the EPA. The parties to the case have agreed that the case should be held in abeyance pending the issuance of the mandate in the CSAPR proceeding. The mandate will issue seven days after the rehearing proceeding is concluded in the D.C. Circuit Court, the Form 10-Q noted. In June 2012, the EPA finalized the proposed rule. As compared to the proposed revisions to the CSAPR issued by the EPA in October 2011, these recent rules finalize emissions budgets for Energy Future generation assets that are approximately 6% lower for SO2, 3% higher for annual NOx and 2% higher for seasonal NOx.
In August 2012, a three-judge panel of the D.C. Circuit Court vacated CSAPR, remanding it to the EPA for further proceedings. As a result, the CSAPR and both sets of revisions don’t impose any immediate requirements on Energy Future, the state of Texas, or other affected parties. The D.C. court’s order stated that the EPA was expected to continue administering the Clean Air Interstate Rule (CAIR) (the predecessor rule to the CSAPR) pending the EPA’s further consideration of the rule. In October 2012, the EPA and other parties that supported the CSAPR filed a petition with the D.C. Circuit Court seeking review by the full court of the panel’s decision to vacate and remand the CSAPR.
In December 2011, the EPA finalized MATS, which regulates emissions of mercury, non-mercury metals, hazardous organic compounds and acid gases. “Any additional control equipment retrofits on our lignite/coal-fueled generation units required to comply with MATS as finalized would need to be installed within three to four years from the April 2012 effective date of the rule,” the Form 10-Q noted. “In April 2012, we filed a petition for review of MATS in the D.C. Circuit Court. Certain states and industry participants have also filed petitions for review in the D.C. Circuit Court.”
Another major Clean Air Act program impacting Energy Future is the Regional Haze rule. SO2 and NOx reductions required under the proposed regional haze/visibility rule (called Best Available Retrofit Technology rule) only apply to units built between 1962 and 1977. The reductions are required on a unit-by-unit basis.
In February 2009, the Texas Commission on Environmental Quality (TCEQ) submitted a State Implementation Plan (SIP) concerning regional haze to the EPA, which Energy Future believes will not have a material impact on its generation facilities. In December 2011, the EPA proposed a limited disapproval of the SIP and a Federal Implementation Plan (FIP) for Texas providing that the inclusion in the CSAPR programs meets the regional haze requirements for SO2 and NOx reductions. In June 2012, the EPA finalized the limited disapproval of the Texas regional haze SIP, but did not finalize a FIP for Texas.
“We cannot predict whether or when the EPA will finalize a Federal Implementation Plan for Texas regarding regional haze or its impact on our results of operations, liquidity or financial condition,” said the Energy Future Form 10-Q. “In August 2012, we filed a petition for review in the Fifth Circuit Court challenging the EPA’s limited disapproval of the Texas regional haze SIP. In September 2012, we filed a petition to intervene in a case filed by industry groups and other states and private parties in the D.C. Circuit Court challenging the EPA’s limited disapproval and issuance of Federal Implementation Plans regarding regional haze. The parties in these cases have mutually agreed that the cases should be held in abeyance pending issuance of the mandate in the CSAPR proceeding. We cannot predict when or how the Fifth Circuit Court or the D.C. Circuit Court will rule on these petitions.”