Update on President Obama’s Announcement Regarding the Clean Air Act

By September 12, 2011 News

President Obama announced on September 2nd that he was directing the EPA to withdraw new restrictions on the emission of ozone by manufacturers, oil and natural gas companies, and a host of other commercial entities. He did leave open the possibility of implementing the new restrictions in 2013, but it’s not clear what conditions would need to be met for that to happen. From an energy perspective, this change certainly has an impact on oil & natural gas production activities, however it is important to note that it does not affect the new Cross State Air Pollution Rule (“CSAPR”) that was announced by the EPA in early July. The CSAPR sets new limits on emissions from power plants and is set to go into effect on 1/1/2012. This rule and the short implementation timeline have raised alarms in several states, particularly states that were not previously covered by the rule such as Texas, that the new restrictions may lead to reliability concerns for the electricity grid. President Obama’s announcement Friday did not change anything with respect to the CSAPR, and it’s implementation remains on track for 1/1/2012.

Separately, ERCOT, the electricity grid operator for much of Texas, issued a report detailing the expected impacts of the EPA’s Cross State Air Pollution Rule on generation facilities in Texas. Based on their analysis, the ERCOT region is likely to lose between 1,200 and 6,000 MW of base load coal generation. ERCOT concluded that the reduction in generation would be closer to 1,200 MW during peak summer months and closer to 3,000 to 6,000 MW during the off peak months. Both of these outcomes are troubling given the February winter freeze in ERCOT that led to rolling blackouts and the 2 week period in August that saw record temperatures and the risk of rolling blackouts every day. The ERCOT report concludes that because of the immediate nature of implementation of the new rule, generation plants will not have time to install equipment to comply with the rules and will be forced to reduce output as noted above, thus increasing substantially the risk of rolling blackouts next year and beyond. The full report can be accessed at http://ercot.com/content/news/presentations/2011/ERCOT_CSAPR_Study.pdf.