Up in smoke: Future of 3 proposed Nevada coal plants in jeopardy

By Phoebe Sweet

Saturday, Nov. 15, 2008 | 2 a.m.

The Environmental Protection Agency’s rejection of a permit for a Utah coal plant this week spells trouble for three coal-fired power plants proposed in Nevada.

Environmentalists are hailing the decision, released Thursday by the EPA’s Environmental Appeals Board, as the final straw for new traditional coal plants. Utah’s permit was denied because it did not limit greenhouse gas emissions — and every new coal plant will emit millions of tons of the climate-change-causing carbon dioxide each year for 50 to 75 years.

The three Nevada plants, including one proposed by the state’s major utility company, Sierra Pacific Resources, are all waiting for final permits similar to the one denied this week by the EPA. Executives of two of the three developers said they expect those permits to be issued by state regulators by the end of the year.

Environmental attorneys say even if that happens, they expect the permits would subsequently be squelched by the national board.

This is only the latest bad news for the coal power industry, which has endured delays in permitting and environmental reviews, an uncertain economy, fluctuating prices of steel and other commodities and a constricting credit market.

To top it off, with Barack Obama headed for the White House and Democratic majorities in both houses of Congress, carbon legislation that would increase costs for heavy emitters such as coal plants is likely to be near the top of the legislative agenda in 2009.

This week’s EPA decision was the result of a Sierra Club lawsuit challenging the air permit for a 110-megawatt Utah plant that would burn waste coal.

The EPA’s position had been that the agency didn’t need to, and in fact didn’t have the authority to, set carbon emissions limits despite a Supreme Court ruling that the greenhouse gas is a pollutant. Environmentalists say the appeals board’s decision contradicts that.

“These three (proposed) Nevada plants and the rest of the plants around the country ... ignore carbon dioxide emissions and claim they can’t do anything about it,” said Sanjay Narayan, a senior staff attorney with the Sierra Club.

Local permitting agencies, such as the Nevada Environmental Protection Division, which issues permits on behalf of the EPA, have taken the same stance.

They said “they didn’t have the authority to impose carbon dioxide limits. The review board said they do have the authority. It’s on the table,” Narayan said. So Thursday’s decision means “if they are going to refuse to regulate carbon dioxide, they need to come up with a better reason” for that refusal.

However, the board also said the decision to limit greenhouse gas emission from new power plants shouldn’t be made on a permit-by-permit or region-by-region basis, but rather on a national scale.

Guidance from the EPA isn’t likely to come until the new administration is in the White House, observers say. That means the fate of Nevada’s three permits is unclear.

Narayan said it would be prudent for the state environmental agency to wait for clarification from the EPA before issuing final permits, which do not regulate carbon, for any of the plants.

“Right now if they issue the permits they’re operating in the dark,” he said, adding that if Nevada does issue the permits, the Sierra Club is sure to sue, likely with the same effect.

“The reality is that the permits in Nevada ... rely on the same legal rationale that the appeals board found deficient in reviewing the permit for the Utah coal plant,” said Vickie Patton, an senior attorney with Environmental Defense. “This is really quite important because the EPA Environmental Appeals Board is headed by very experienced, long-standing environmental law and policy experts ... who are not looking at these issues through a political lens.”

Dante Pistone, Nevada Division of Environmental Protection spokesman, said his agency doesn’t know what the effect will be and is continuing to work on the three final permits while reviewing the board’s decision.

“We will certainly factor this decision into our process before any final decision is made on the permits,” Pistone said.

He said Nevada Division of Environmental Protection administrator Leo Druzdoff doesn’t know whether the state agency will have to wait for guidance from the national EPA on the issue before issuing permits, but that it is analyzing the ruling.

Starla Lacy, a Sierra Pacific environmental health and safety executive, said it is too early for the utility company, too, to tell what effect the decision might have.

Delays and cost increases

This week’s ruling from EPA’s Environmental Review Board is the latest issue in the long permitting process for all three Nevada proposals.

LS Power’s 1,590-megawatt White Pine Energy Station, which would be located outside Ely, is the only one of the three proposed plants that has received a final environmental review from the Bureau of Land Management. The plant, however, is still waiting for a “record of decision” from the BLM. The official decision has yet to be published in the Federal Register.

And, like all three proposed plants, White Pine is awaiting a final permit from the Nevada Division of Environmental Protection.

Sithe Global’s 750-megawatt Toquop power plant proposed outside Mesquite, just over the Lincoln County line, however, let a contract with its water supplier lapse and without a water source, the plant cannot get a final air permit because its pollution controls use water. Even if the plant finds a new water source, environmentalists say Sithe will have to start its environmental review over, which could take years.

Spokesman Frank Maisano said permitting for the plant is moving forward as expected and that the plant will “have water when we need it.”

Both the LS and Sithe plants must also get the approval of Nevada’s Public Utilities Commission, which will rule on whether the environmental harm the plants would cause is balanced out by the need for the electricity.

But Charles Benjamin, Nevada director for Western Resource Advocates, said because LS and Toquop are likely to sell the power from their plants to out-of-state utilities, the commission will have to decide whether environmental harm to Nevada is worth providing California or other neighboring states with power.

Sierra Pacific Resources, which owns the northern and southern branches of NV Energy and has proposed a 1,500-megawatt coal plant outside Ely, was originally behind LS and Sithe in line for all its permits. But its Ely Energy Center may now actually receive a final permit before Toquop because of that plant’s water troubles.

Sierra Pacific spokesman Mark Severts said Thursday the company expects its permit by the end of this year.

The company is also still awaiting its preliminary environmental review from the BLM. That review was expected to be released last week. No one at BLM was available this week to comment on why the agency did not release the draft review.

Sierra Pacific has told the state utilities commission its time line is at least 18 months behind, and it accelerated construction of one gas-fired power plant and purchase of another to meet demand in the meantime. Next year the company is set to release a fresh analysis of the project – including an updated price tag that could top $5 billion – by the end of June.

Environmentalists and the state’s consumer advocate, Eric Witkoski, have said the plant will be so expensive it will mean much higher electric rates for customers, because the cost of the plant is passed on to consumers. The company has already been authorized by the PUC to spend $130 million on permitting and early stages of development.

“It could have a substantial impact on rates,” Witkoski said, adding that the company only owns $8 billion in total assets right now, including several power plants. The $5 billion coal plant would be much more expensive than any other single plant the company owns.

Utility executives say that continuing to rely on natural gas for so much of the state’s power could actually cost ratepayers more, since its price is so volatile.

The national landscape affects all three plants

The high price of new coal plants has proved to be environmentalists’ most effective argument against them. That high price is passed on to consumers, whether the plant is owned by a utility company like Sierra Pacific or private power producers like LS and Sithe.

Still, since the economy slumped commodity prices have, too, which could bring down the overall cost of all three projects. But along with demand for steel and concrete, demand for energy has also declined with the economy, which could erode developers’ arguments that the region badly needs the power from these plants.

And no matter where final price estimates land, all three developers may have trouble borrowing the money to build them thanks to a tight credit market, says Tim Hay, an environmental consultant and former utilities commissioner and consumer advocate.

But it’s not only the price of construction that’s making coal-fired power look so expensive. Looming legislation to carbon cap emissions from all sources will hit the power industry hard, since it’s one of the largest sources of greenhouse gas emissions. And coal plants, which produce half the nation’s electricity, emit more carbon than any other type.

Coal industry lobbyist Joe Lucas, of the American Coalition for Clean Coal Energy, said the uncertainty over carbon regulation may be harming the industry more than the regulation itself would. His group supports limiting carbon emissions, although he supports lowering the limits very gradually.

“Assuming we can adopt the right policy, the sooner we do that the better,” he said.

And most power developers say new coal plants are coming wether carbon legislation passes or not, especially in the Southwest.

“We see an increasing demand for electricity and a shortage of resources to supply (it),” said Mark Mulburn, director of project development for LS Power’s White Pine Energy Station project. “The long-term need is there.”

But even if developers clear the hurdles of cost and regulation, they are still likely to face lawsuits challenging their air permits and environmental reviews like the one from the Sierra Club that prompted this week’s EPA ruling.