Members present: Senators Fraser (Chair), Estes (Vice-Chair), Duncan, Eltife, Hegar, Hinojosa, Jackson, Nichols and Uresti
The Committee met to hear invited testimony on Interim Charges 3, 5 and 6 from
- Bryan Shaw, Chairman, Texas Commission on Environmental Quality (TCEQ)
- Rich Walsh, Assistant General Counsel and VP of Environmental Affairs, Valero
- Tom Smith, Director, Public Citizen Texas
- Barry Smitherman, Chairman, Public Utility Commission of Texas (PUC)
- Tripp Doggett, President and CEO, Electric Reliability Council of Texas (ERCOT)
Interim Charges:
#3 – Monitor and review the implementation of the Environmental Protection Agency’s rules on carbon dioxide and federal legislation on greenhouse gases. Review the participation of the TCEQ, the Railroad Commission of Texas, the Department of Agriculture and the Public Utility Commission in working collaboratively to comply with the federal mandates and in meeting federal clean air standards.
#5 – Determine whether the TCEQ should identify and evaluate cumulative effects on public health and the environment due to air toxics and ozone precursor emissions proposed in applications for new air permits, air permit amendments, and air permit renewals. Make recommendations, if needed.
#6 – Monitor the implementation of legislation addressed by the Senate Committee on Natural Resources, 81st legislature, regular and called sessions and make recs for any leg needed to improve, enhance, and/or complete implementation.
- Monitor implementation of SB 16, relating to air quality
- Monitor the implementation of the New Technology Implementation Grant program and assess the program’s effectiveness. Receive progress reports regarding the collaborative review of grant applications by the TCEQ, the Comptroller of Public Accounts, the Railroad Commission of TX, and the Public Utility Commission as established by H.B. 1796;
- Monitor the use of Texas Emissions Reduction Plan funds for the development of new strategies to reduce emissions; and
- Monitor the environmental impacts, including water usage, and role of the TCEQ and other agencies in oil and natural gas development in areas of the state such as the Barnett Shale.
Chairman Fraser opened the hearing by discussing Lieutenant Governor Dewhurst’s request for a statewide energy plan. The environmental impacts of the challenges discussed during the hearing will have an impact on the plan.
INVITED TESTIMONY
Bryan Shaw, TCEQ Chairman, was called first. He was accompanied by TCEQ’s Mark Vickery, executive director, and Richard Hyde, deputy director office of permitting and registration, to add comments and answer questions.
Texas has made great progress in air quality with TCEQ’s air permit program. According to Shaw, Texas air is cleaner today than in 2000, even with a population growth of 3.5 million people since 2000. Between 2000 and 2008, Texas’ NOx levels reduced by 46%, compared to the national 27%, and ozone levels by 22%, compared to the national 8%. When compared to the 20 eastern states that are most comparable to us based on location and types of facilities, Texas is second only to Georgia with its 25% ozone level reduction. Every major metropolitan area, with the exception of Dallas/Fort Worth, has made improvement and meets the 1997 federal standard for ozone levels. Even so, the trend in DFW is downward; the area is at 86ppb when the standard is 85ppb. Despite being the nation’s energy capitol, Texas has the 11th lowest NOx emission, one of the primary cursors for ozone formation, for power plants among all the states. With regard to CO2, although Texas does not have a greenhouse gas regulation program in order to require reductions, TCEQ does incentivize and encourage efficient use and production of energy, which has led to CO2 reductions in Texas being larger than almost every other state and every other country except Germany.
EPA does not approve of TCEQ’s air permit program, although they have neither approved nor denied it. EPA was sued by members of industry because they felt they were in legal limbo, as EPA had not made a decision on several rules that TCEQ had promulgated. The courts required EPA to make a decision and TCEQ received their official notice of disapproval in November 2009. EPA stated their reasons for denying the program, laying out the issues they felt didn’t meet with the Clean Air Act. In meeting with them the discussion shifted from these are the federal requirements and we do not think you are meeting them, to we are not interested in pursuing a flexible permits program.
The flex program was developed in 1994 and followed EPA’s project XL. It was designed to gain reductions from grandfathered facilities that were not required by any federal or state statute to ever make changes to reduce emissions because they were in existence before the Clean Air Act and encourage more stringent controls on new facilities than would not have been required otherwise. Most flex permit holders brought in their grandfathered facilities when the program was first created, however, not all grandfathered facilities are flex permit holders and not all flex permit holders have grandfathered facilities. The program puts a virtual cap over a facility and they can operate however they choose so long as they stay below the total emissions for the facility; new facilities are built next to grandfathered ones to reduce the amount of time the older ones operate. The idling of the older facilities allows investment in cleaner, more efficient, technologies. There are approximately 140 flexible permit holders in the state.
De-flexing would cause each facility to have individual permits that would allow them to operate at capacity, 24/7, meaning additional emissions would occur. The grandfathered facilities would not have to operate under the new EPA standards if they have not lost their grandfather status, which happens if improvements are made to the old facility. However, EPA would either shut the facility down, which they do not wish to do, or allow it to emit at a higher rate than permitted. Some of the facilities that would be affected are the larger ones that have a dramatic impact on our economics and fuel supplies.
Texas is not the only state with a flex permit program. There are still existing permits from EPA’s project XL. There may be as many as 28 other programs throughout the US. As recently as 2006, EPA has approved renewal of permits in Virginia’s program that applies to major, not just minor sources such as ours. According to Shaw, “Texas is either being singled out or we are the first ones to be targeted. EPA thinks Texas has not been playing by the same rules, and they feel Texas needs to be brought down instead of bringing other states up to a successful program.” EPA has yet to find a flexible permit that fails to meet federal standards or demonstrate how a flex permit led to a facility failing to meet federal requirements. EPA sent objection letters to facilities operating with flex permits. Jobs are on the line and billions in investments are on hold. TCEQ is working with facilities and encouraging negotiations with EPA to allow them to get to a permit to allow them to continue to operate. Some facilities can de-flex without increasing emissions but then there are those who cannot. Companies are in legal limbo because they are operating without a federally enforceable permit, which exposes them to EPA enforcement action and citizen suit for failure to comply.
EPA is also trying to force the regulation of greenhouse gases using the Clean Air Act. They took the Massachusetts decision and have interpreted it as a mandate that they must regulate greenhouse gases. EPA went forward with the “tailoring” rule for regulation of greenhouse gas emissions with the Clean Air Act. This causes problems because the Clean Air Act specifically lays out thresholds, 100 tons and 250 tons/year, that if used for what would require permits would lead to millions of new permits across the US and absurd results. Therefore, EPA developed the “tailoring” rule where they would raise the thresholds up to 75,100 tons/year in order to require a permit.
The problem is Congress did not delegate EPA the authority to change the threshold. This tailoring is one of the areas the Attorney General, among numerous other states, have filed suit. Shaw explained that with the tailoring rule EPA has tried to paint states into a corner. In going forth with it, EPA gave states roughly one month, an August 2, 2010 deadline, to reply and indicate willingness to participate, or EPA would begin issuing federal greenhouse gas permits for the state starting January 2011. This violates federal laws/statues and EPA rules/regulations. If EPA wants to make a change to the standard, as they’re trying to do to the ozone standard, states typically have 18 months at least to evaluate and contest the decision-making and develop a plan for how to implement the changes. Additionally, EPA published a definition of what it means to have a regulated pollutant that was not public notice until they went final with their tailoring rule. They believed the definition would trigger our state rules when we refer to regulated pollutants, and allow EPA to piggyback greenhouse gases within that definition and go forth with regulation on January 1, 2011.
TCEQ felt agreeing to EPA’s tailoring rule would eliminate any opportunity TCEQ had to contest the legality of those decisions, which they believe to be in direct contradiction to state and federal constitution and/or the Clean Air Act. Thus, TCEQ sent a letter to EPA indicating they would not be following that guidance come January 2, 2011. It is yet to be seen what EPA will do.
Mark Vickory gave TCEQ’s update on charge 6. HB 1796 tweaked grant programs awarded for emissions reductions. Today there are 7,348 Texas Emissions Reductions Plan (TERP) projects approved, which represents over 12,600 pieces of equipment that have been replaced and a total amount of 775 million dollars grants. This has resulted in 158,000 tons of NOx reductions at an average cost of 4,800 dollars/ton. TCEQ can accommodate all that apply and meet the criteria. They are expecting the new ozone standard to be finalized at the end of the month, which will expand or broaden the areas of the state that are in nonattainment for ozone. This may bring in a larger part of the state that could become eligible for TERP programs. EPA proposed 60ppb-70ppb for the new ozone level. At 60%, generally the entire eastern part of IH-35 will be in noncompliance. Any part of the state that has a monitor would be in nonattainment.
The drive a clean machine program was the model for the federal cash for clunkers program. $115 million on vehicle repair and replacement has resulted in 36,000 older, dirtier vehicles being replaced and over 13,000 repairs. Program continues to be very successful. The clean school bus program retrofitted over 4,900 school buses and reimbursed districts over 13 million dollars for an estimated 90% emissions reduction within the cabin and 35% reduction at the tailpipe. Another round of grants will be in October for $10 million. The new tech grant program has an offer out for energy storage projects and will be accepting those for the next month. TCEQ awarded $6 million to eight diff projects starting this fall for new tech and research development grants.
Update on Barnett shale – DFW area has seven ambient air monitors total; two from 2002-2003, plus two added this spring and the three being added now. Data from monitors can be seen online in real-time.
Rich Walsh, Assistant General Counsel and VP of Environmental Affairs, Valero was called for the second testimony.
Walsh testified regarding permitting from an industry perspective and Valero’s perception of the flex permit program.
Valero is the largest refiner in Texas with 600 retail stations and 7 refineries, 6 of which have flex permits. The permitting process is very complicated and difficult. Because of this, the regulatory department is the largest group in Valero’s legal department. Valero supports Texas’ permitting program and does not believe it fails to meet federal standards. The Texas air quality program and flex program can be just as stringent as anything on the federal side. Flex reduces the administrative and permitting burden on the state and industrial facilities while still assuring the same level of emission control and emission reduction. Valero strongly favors the flex program.
Texas is one of the largest industrial bases in US with a huge population and unfavorable climate for emission controls. Many elements of the Texas air quality programs are more stringent than Federal. Federal only requires regulation of major sources, but in Texas all sources are permitted. Texas also does health effects screening to look at health effects of permits issued, which is not required by federal requirements. TCEQ gets permits for hundreds of facilities, and to make reductions needed small, big and grandfathered sources.
From 1994 to approximately 2004 there was a lot of flex permit activity. For these years industry was operating under the assumption that the flex program was federally approvable and environmentally beneficial. It was a model program in the early days and even as late as 2002 regional administrators from EPA were complementing companies entering into flex permits to make reductions. While the program has not changed at all, there has been a downgrading of the perception of the program in the last two years.
Flex permit numbers give a more accurate reflection of what the emissions are coming off the facilities; in de-flex you can look like you have an increase in emissions at a facility when in fact there is not. A change in the method of calculating emissions will have consequences for major modification in triggering new pollution control requirements, which could cost millions of dollars. The invalidation of the flex permit program puts ambiguity in the permitting process severely impedes progress. Everything gets put on hold because the program is unclear of its status under the federal system. Valero is holding off on some applications until they can figure out and clarify what is going on.
Valero wants the state to consider all mechanisms in which facilities that want to de-flex can use and to make them all available; everyone’s situation is different and the situation is very complex. A standard permit that would go through and get subject to a contested case hearing could take 1-2-3 years for a permit. Some can be gotten relatively quickly; depends on the complexity.
Hyde of TCEQ offered information regarding TCEQ’s efforts to find a mechanism of de-flexing without it being a 6-month to year process. One is the two-step process. The first step is alteration, which takes place in 45 days or less, then moving them over into SIP approved rules. So long as the company can demonstrate they meet the rules, this can be done rather quickly. EPA is provided with a federally enforceable permit and individual emission limits for each facility. The second step is an amendment to clarify what EPA has concerns about. This step takes longer, one year to 18 months to do the look back, but the permit is already grounded in enforceable territory for EPA. This was proposed and turned down.
Tom “Smitty” Smith Director, Public Citizen Texas, was called to testify third.
Smith explained how Texas has made matters worse and far better for itself. The improvements Texas has made are not as large as TCEQ would like to believe. Texas allows twice the emissions federal law does. The permits issued recently will make air quality worse because of the sheer volume of new pollution, including that in the Barnett shale area. And while they do not think they do, TCEQ has the authority to cancel permits after some time.
The federal limits for air pollution are going to decrease because of the scientific review process established in the 90s under President Bush. Every five years scientists reassess and determine the appropriate limits. Texas’ programs must be at least as good as what the federal standards are, which is the controversy we are facing with TCEQ’s flex program. While it is true in some areas Texas clearly goes much further than required, there are some where it does not and that is what is being contested. The data does not indicate, as TCEQ said, that our state is doing more than other states. Both TCEQ and Public Citizen Texas are using the same EPA national emissions inventory, but the difference in numbers is dependant upon which states they compare. Public Citizen Texas is looking at the nation as a whole, not just the 20 eastern industrial states like TCEQ. Senator Jackson made the point that you can make the numbers come out however you want to depending on your viewpoints and what you use.
Our emissions have reduced by 8%, second only to NY in the US. The bad thing is all the power plants we have permitted will cause our total emissions to go up from 1990 to 2010 by 25%. Texas has made enormous reductions, but we are actually up in NOx emissions from industrial sources from 1996 to 2008. Our total emissions have increased, and that takes into account the number of power plants added. It is the same in other states, but their NOx controls have been tougher. Our fight with EPA is about emission reductions and if what we are requiring is as tough as EPA would like.
Texas needs to look at the cumulative impacts of what it has done. Since 2006 there have been 22 coal plant permits; 11 have gone through permitting process and many are to the south and east of cities having clean air attainment problems. TCEQ provided that DFW was close to meeting attainment, but that figure was with numbers that pre-existed the operation of all the new coal plants. We are adding an additional 77 million tons of CO2, 56,000 tons of NOx, 29,000 tons nitrogen oxide, 15,000 tons particular matter and 3,800lbs of mercury to the air. When you are in a zone of contribution like east Texas and data shows it is going to affect air quality in non-attainment areas, TCEQ must reconsider whether it is appropriate or not to permit a large industrial facility. Smith suggested the committee put special limits on what can be permitted in east Texas and consider implementing the 1999 solution used; create an east Texas district for power plant purposes where special emission reductions have to occur. This will reduce emissions from plants that are affecting air quality and causing problems in the DFW area. Another cumulative impact to consider is that regarding the 13,000 Barnett shale well emissions. Potentially 53,000 wells could be drilled to build up pollution even more. Smith suggests putting a cap on total emissions for the area or implementing a special version of the Texas Emission Reduction program to decrease emissions from diesel and other equipment used.
Barry Smitherman, Chairman, Public Utility Commission of Texas testified fourth.
SB 7 broke the value chain into pieces with generation companies being de-regulated by the commission, wires and poles being fully regulated, and retail electric providers minimally regulated since January 1, 2002. A provision in SB 7 encouraged utilities to accelerate environmental improvements.
Competitive Renewable Energy Zones (CREZ) builds high capacity transmission to facilitate the transfer of power by 18 ½ gigawatts of wind from west Texas and the panhandle to more populous areas. It also helps diversify the portfolio of fuel mix, as Texas is primarily a natural gas dependent market. 20-25 % of energy on some days may come from wind generation. 8 or 9 CREZ cases have been processed, with that number in house, 8 still pending, and one rejected. There has been economic development in the panhandle and west Texas as a result of CREZ efforts.
The Advanced Meter Employment Effort—the ERCOT market is employing 6 million meters to residential and small business customers. The meters are 99.96% accurate; vastly more accurate than the electromechanical meters they are replacing. Pilot projects indicate customers save $10-20 off their bill. The change provides future opportunity to shift peak consumption from afternoon to other periods of time as well. From 2004-2007 Texas reduced CO2 more than any other state except NY. This can be attributed to the introduction of wind and use of more natural gas. There was increased wind and increased nuclear contribution in the ERCOT fuel mix from 2007-2010.
The five new coal plants coming online are operational; Spruce, Sandow 5, Oak Grove 1 and 2, and the unit in McLennan County under construction. According to Mr. Smitherman, “Spruce sets the standard in San Antonio for capturing almost everything that comes out except carbon, and the Oak Groves are probably cleaner than anything in the country. Without the new coal plants coming online Texas would probably not be at the reserve margin levels (12 ½ %) it needs to be for reliability purposes.”
PUC is trying to build at least two new nuclear units, four in total; two in south Texas and two in Comanche Peak. They hope the projects go forward for the clean coal efforts of Tenaska and Summit power. PUC has strengthened energy efficiency rules; taken 20% of reduction demand to 25% in 2012 and 30% in 2013. The coal plants being brought online are state of the art nationally, with the exception of greenhouse gas capture. There is a global challenge Texas faces; we cannot stop a plant from being deconstructed, sent somewhere else and reconstructed to operate. They are not as clean as the ones Texas is bringing online.
Tripp Doggett, President and CEO, Electric Reliability Council of Texas gave the final testimony.
Natural gas prices have a significant impact on the price of electricity in Texas. 62% of installed capacity is gas generation, but we have had a growth in nuclear coal and wind. Electricity is generated from 32%, 37% coal, 14% nuclear and 6% wind. ERCOT runs a spot market every 15 minutes to make the decision on the least cost of production for generation; they generate from the least expensive resources each day. Once the nuclear plants are added the numbers for nuclear will double, but they expect only one of the four to be completed by 2015. ERCOT forecasts staying above the 12.5% target for reserve margins through 2015.
A significant amount of transmission has been built in the state since 1999. There are 40,327 miles of transmission lines in Texas. However, there is no high capacity transmission in the panhandle or IH-20 to IH-35 corridor. CREZ will close the open areas. The current installed wind capacity is 9,317 megawatts, making Texas the largest wind power producer in the US and fifth or sixth in the world. There will be over 41,000 megawatts in addition wind in the future. We need more lines with the capacity that exists today, even with CREZ anticipating to be 18,000, because we are curtailing wind generation on certain days. ERCOT is looking at making enhancements and expansions to existing infrastructures, the Gillespie Newton line and a private line from McCamey, to eliminate delay time. CREZ is designed to pick up the wind that is already there as well as go into the panhandle where there is not much development. There was dramatic growth of wind generation between 2005 and 2009, however, we are seeing a flattening of the growth as a result of anticipating the build out of the CREZ transmission lines.
ERCOT is transforming their control systems from zonal to nodal. It provides more granularity on controlling generation and more granularity of pricing. The transparency of pricing may increase the growth of future generation or create retirements in the zonal mode. ERCOT has run trials with market participants and the technology and operated the grid on it repeatedly over the past three months. The nodal kickoff is scheduled for December 1, 2010.