MA Becomes First State to Impose CO2 Controls

MASS. BECOMES FIRST STATE TO IMPOSE CO2 CONTROLS UNDER TOUGH NEW STANDARDS

May. 24, 2001
Utility Environment Report
Page 1
(Copyright 2001 McGraw-Hill, Inc.)

Massachusetts became the first state to issue limits on carbon dioxide
emissions from power plants with the recent release of a major new plan that
requires older plants to meet tougher standards for several pollutants. The
new regulations, which take effect in June, call for the state's six oldest
power plants, which total 4,500 MW, to reduce nitrogen oxide emissions by
50%, sulfur dioxide by as much as 74% and CO2 by 10%. Power plants also must
begin stack testing for mercury, in preparation for mercury emissions
standards that will begin Oct. 1, 2006.

Issued by the state Dept. of Environmental Protection, the regulations apply
to Sithe Energies Mystic Station in Everett; NRG Energy's Montaup Station in
Somerset; PG&E National Energy Group's Salem Harbor in Salem, and Brayton
Point in Somerset; Northeast Utilities' Mount Tom Station; and Mirant's Canal
Electric in Sandwich.

Although Massachusetts has emissions trading and averaging rules, the new
regulations prohibit use of emissions averaging between the plants to meet
the standards. Local citizens, environmental groups and elected officials
protested such averaging because they feared that PG&E National Energy Group
would use reductions from its Salem, Mass., plant to offset emissions at its
Fall River Brayton Point facility, creating what they described as a burden
of air pollution in Fall River.

The rules do, however, allow plants to generate SO2 ``early reduction
credits'' by operating below historical average emission rates. A generating
facility can use the ERCs to meet the new standards, but cannot transfer the
ERCs to another facility.

The DEP also will allow transfer of SO2 allowances under the Federal Acid
Rain program. The DEP noted that the plants will be emitting at rates lower
than what the EPA requires to create allowances. Therefore, the plants are
likely to create a substantial number of unused allowances. If the plants
transfer the allowances to upwind sources, it could harm air quality in
Massachusetts. The DEP plans to monitor the situation, and may limit the
ability of the plants to accumulate the allowances if they are having an
adverse impact on Massachusetts.

The rules allow use of off-site reductions and carbon sequestration to comply
with the CO2 cap. In the future, it also plans to allow CO2 trading and will
set up a Massachusetts Greenhouse Gas Reductions Registry to promote
reductions and create consistency in their creation.

The DEP decided against issuing a standard for fine particulate matter for
the time being, saying there is ``currently insufficient technical
information'' to support a standard and that the NOx and SO2 reductions will
automatically reduce PM concentrations.

While the regulations won praise from several environmental groups, the
Competitive Power Coalition of New England warned that they may jeopardize
reliability, increase consumer costs and reduce fuel diversity.

CPC says that the state went back on its original proposal, announced about a
year ago, which was supported by the plant owners. Plant owners offered
voluntary emissions reductions with the understanding that if they did, the
state would not institute new regulations.

The DEP, however, said that not all of the power plant owners submitted
detailed voluntary plans. And further, the state agency said that it had made
clear that it would incorporate the voluntary proposals in new regulations.

CPC said that the original proposals also did not include CO2 or mercury
limits, and did not prohibit averaging. Moreover, the state originally agreed
to give plant owners several more years to comply, setting deadlines of 2007
and 2010 to meet reductions, according to Neal Costello, CPC general counsel.
Instead, the final rules call for the plants to achieve the standards between
Oct. 1, 2004 and Oct. 1, 2008. Plants that repower are given more time than
those that install emissions pollution control technologies.

Specifically, plants that repower have until Oct. 1, 2006 to reduce NOx by
1.5 lbs/MWh using a 12 month rolling average and SO2 to 6 lbs/MWh. By 2008
they must reduce SO2 to 3 lbs/MWh. Plants that do not repower have until Oct.
1, 2004 to meet the first SO2 and NOx standards, and until Oct. 1, 2006 to
meet the final SO2 standard. For CO2, plants must limit emissions to 1800
lbs/MWh by Oct. 1, 2006, if they install emissions reductions devices, and
two years later if they repower.

The DEP said it is giving plants more time if they repower because it will
take them longer to complete design, permitting and construction. It's worth
the wait, the DEP said, because repowering reduces multiple pollutants.

CPC's Costello said that the regulations will increase power costs at about
the same time that the state is scheduled to end discounted utility standard
offer service, which is taken by about 80% of the state's electricity
consumers. The customers will then buy power at market prices, which are
likely to rise as the generators pass on the cost of the environmental
upgrades.

Power plant owners have also said that the tight time frames could jeopardize
system reliability because it may force plants offline simultaneously.
However, the DEP argued that the region will not be short of supply because
10,000 MW in new capacity will come on line by 2003.