UBS Americas Electric Utilities Analyst Julien Dumoulin-Smith sees a limited immediate impact from the U.S. Supreme Court voting six-to-two on April 29 to uphold EPA’s Cross-State Air Pollution Rule (CSAPR).
“We caution that much of the impact of CSAPR has been blunted due to the combination of recent coal retirements as well as EPA’s implementation of the [Mercury and Air Toxics Standards] MATS rules, slated for April 2015. Altogether, there is no immediate impact,” Dumoulin-Smith said in a same-day analysis of the ruling.
The rules are largely a victory for EPA, which saw the structure of much of its interstate “˜transport’ rules largely at risk, said the UBS analyst.
“Immediately, we have yet to hear back from the EPA about its next moves, but at the earliest would imagine the courts would allow for a ~2-year delay in implementation seeing that the rules were vacated for a 2-year period,” according to the UBS analysis.
UBS continues to believe that EPA will opt to put in place more stringent standards, rather than the 1997 standards under which CSAPR was implemented.
“As such, there are only a few regions that have yet to meet the 1997 standards, including Baltimore, Dallas, and the St. Louis metro areas,” said Dumoulin-Smith.
Implementation of any new standards would seem to be a 2016 issue at the very earliest, the analyst said. “Meanwhile, the Court also upheld an expedited timeline under a “˜FIP’ [Federal Implementation Plan], suggesting any new CSAPR did not need to go through the usual state-level implementation review,” according to UBS.
Texas could remain at the heart of future EPA litigation. Expect the Texas Council on Environmental Quality (TCEQ) and other parties to litigate whether Texas is contributing more than 1 percent to out-of-state attainment (a threshold was upheld in the decision), UBS said.
Meanwhile, on the question of a “˜disproportionate’ burden on Texas, the court upheld the EPA’s ability to use a cost-benefit test.
While the decision is negative for a decisive negative for Energy Future Holdings (EFH), it could eventually prove positive for Powder River Basin (PRB) coal demand. There could be more fuel switching from existing higher-sulfur local lignite coal to PRB coal, UBS said.
Outside of Texas, the focus beyond MATS next year will increasingly shift towards NOx emissions- and requirements for many more coal units to install either selective non-catalytic reduction (SNCR) or selective catalytic reduction (SCR) controls. SNCRs represent less of a financial investment than SCRs, UBS noted.
The situation could hasten the retirement of some coal units in Mid-Atlantic, the analyst suggested.
The high court case involving Cross-State had been argued before the Supreme Court on Dec. 10, 2013. The majority decision in the case was drafted by Justice Ruth Bader Ginsburg. The dissenting opinion was drafted by Justice Antonin Scalia, who was joined by Justice Clarence Thomas.
Justice Samuel Alito recused himself from the case.