A new rule from the United States Environmental Protection Agency, effective January 2012, will have an impact on Nebraska’s electric generation due to its significant compliance costs.

In July of this year, the United States Environmental Protection Agency issued its final Cross-State Air Pollution Rule (CSAPR), which is designed to reduce the inter-state transportation of pollutants from fossil-fueled generating plants. CSAPR will impact 28 states and hundreds of utilities with coal-fired power plants by mandating stringent reduction levels of sulfur dioxide (SO2) and nitrogen oxides (NOx). The EPA regulates the amount of SO2 and NOx emitted by utilities through an allowance system.

Compliance with reduced emission levels will come with a significant price tag for Nebraska Public Power District and the 75 wholesale utility customers throughout the state of Nebraska who buy power from NPPD. In fact, every utility in the state operating a coal-fired generation facility is facing similar challenges.

“In October of 2010, NPPD commented on what was – at that time – the EPA’s proposed rule for lowering emission levels. We felt NPPD had reasonable options to meet the emission limits as proposed at that time,” said NPPD’s Corporate Environmental Manager Joe Citta. “However, the EPA announced much lower emission levels than indicated previously when it published its final rule in July.”

To help meet these new and even lower limits, NPPD’s Board of Directors approved an emergency resolution in August of this year to purchase and install $35.5 million in emission reduction equipment at Gerald Gentleman Station (GGS), located near Sutherland, Neb. Forty-eight, low-NOx burners will be installed on Unit 2 at GGS. Unit 1 already has low NOx burners in operation. The new low-NOx burners should reduce the NOx emissions released from Unit 2 by approximately 40 percent.

NPPD was planning to purchase this equipment for GGS anyway to meet a different EPA regulation; however, the installation was not scheduled until 2014. The implementation date for the CSAPR regulation is Jan. 1, 2012 – thus the catalyst for NPPD’s Board to act quickly and install the new equipment on Unit 2 by the second quarter of 2012.

Another of NPPD’s power plants affected by the CSAPR is NPPD’s Sheldon Station, a coal-fueled generation facility near Hallam, Neb. The EPA’s initial proposal required a 40 percent reduction at Sheldon; however, the EPA’s final rule requires the facility to reduce its NOx emissions by 80 percent—a level difficult to achieve. NPPD’s Board authorized $810,000 to install equipment at Sheldon’s Unit 2 that will enhance compliance with the rule, but it will not be enough to help the station completely meet the EPA’s new limits.

Are there other options?

In addition to equipment investments, NPPD will also utilize other options, including combustion optimization initiatives, increased generation from natural gas, purchasing allowances, reduced generation from its coal-fired plants, or a combination of the above.

NPPD generates power for its in-state customers first; then sells its excess power to other in-state and out-of-state entities. Reducing its coal-fired generation will lessen the amount of energy available to sell into the market to other utilities. The less excess generation NPPD has to sell “off-system” means there is less revenue returned to NPPD to benefit its in-state customers. NPPD currently projects that reduced off-system energy sales in 2012 will decrease revenues by approximately $6 million.

If a utility is unable to comply with the emission limits, it can purchase additional emission allowances from other utilities, if available. Utilities that cannot meet the limits and do not have adequate emissions allowances could face substantial fines from the EPA.

In early October, the EPA granted certain states, including Nebraska, additional allowances due to certain technical errors and miscalculations. These errors included the EPA assuming pollution control equipment in their model that was not actually present at some facilities. The recalculation means NPPD received a 15 percent increase in its NOx emission allowances.

“That will help,” said Citta, “but it will not get us to the limits that EPA has established and, as a result, it will not change the actions NPPD will need to take in order to comply with the CSAPR,” Citta added.

State joins the effort

On the state level, Nebraska Attorney General Jon Bruning has filed a federal lawsuit to challenge the rule, citing the regulation could cost energy consumers and utilities millions of dollars. Several other states have joined Nebraska in the legal challenge filed in the U.S. Circuit Court of Appeals in the District of Columbia.

In turn, NPPD recently filed a petition with the EPA for reconsideration and stay of the new rule. The petition requests that EPA grant partial reconsideration and delay the CSAPR compliance deadlines for Nebraska and NPPD.

How much could compliance cost?

NPPD could install additional emission equipment, such as scrubbers and selective catalytic reduction (SCRs) at GGS, at a cost of $1.5 billion. Similar equipment at Sheldon Station would cost about $300 million. NPPD projects it would need to increase its electric rates 25 percent to cover the capital costs of such equipment. These control technologies would also help address other EPA regulations coming in the future.

No decision has been made to add scrubbers or SCRs; however, NPPD is conducting a generation options analysis that will determine recommendations for NPPD’s board to consider regarding the right generation mix that will:

• ensure the safe, reliable and cost effective delivery of energy to NPPD customers;
• reduce NPPD’s operational, regulatory and financial risks;
• produce stable, affordable electric rates for its Nebraska customers; and
• meet future power supply requirements, while addressing environmental stewardship and fuel diversity.

NPPD expects to complete the analysis by the end of this year.