States Already Seek To Delay Clean Power Plan

Fifteen states led by coal-rich West Virginia asked a federal court to stall Obama administration rules intended to cut the use of fossil fuel for power plants and slow climate change.

The request on Thursday is the first move by states to block President Barack Obama’s landmark initiative. It would freeze current regulations as they work to undo the new rules.

The Clean Power Plan aims to reduce carbon dioxide emissions from U.S. power plants by 32 percent by 2030, based on 2005 emission levels, by requiring states and utilities to emit less carbon by using less coal and more solar power, wind power and natural gas.

The regulations could reduce coal demand by 20 percent, Ted O’Brien, chief executive officer at coal market researcher Doyle Trading Consultants in New York, said in an interview.

“This rule is the most far-reaching energy regulation in the nation’s history,” West Virginia Attorney General Patrick Morrisey, a Republican, said in a statement announcing the court filing. The federal Environmental Protection Agency “simply does not have the legal authority to carry it out.”

Joining West Virginia, the second-biggest coal producing state, are neighboring Kentucky, the third largest, and Wyoming, the top state with almost 40 percent of U.S. production according to the National Mining Association. The other states bringing the include Alabama, Arkansas, Florida, Indiana, Kansas, Louisiana, Michigan, Nebraska, Ohio, Oklahoma, South Dakota and Wisconsin.

Under the Obama initiative, states have until September 2016 to submit initial emissions plans to the EPA unless they file an extension, which would allow them to file by 2018. The agency will impose its own plan on states that fail to comply.

Sound, Legal

The agency will fight the states’ lawsuit, said EPA spokeswoman Liz Purchia.

“To ensure that the Clean Power Plan’s significant health benefits and progress against climate change are delivered to all Americans, EPA and the Department of Justice will vigorously defend it in court,” Purchia said in an e-mail. “The Clean Power Plan is based on a sound legal and technical foundation.”

Even if the court grants the states’ request, the shift away from coal will probably continue because of the availability of cheap, cleaner-burning natural gas as a result of the fracking boom.

“Everything hurts,” said Jeremy Sussman, an analyst at Clarksons Platou Securities Inc. in New York. “While regulations are probably the fourth or fifth most important factor in the recent depressed state of U.S. coal producers in general, it’s still nevertheless impactful.”

Coal Bankruptcies

More than three dozen coal companies have filed for bankruptcy since 2011 amid the industry’s worst downturn in decades, according to research firm SNL Energy. Alpha Natural Resources Inc., once the second-largest coal company, sought protection on Aug. 3, the day Obama announced the new regulations.

The EPA plan is actually a set of carbon-reduction standards for coal and natural-gas electricity plants that individual states must meet. Critics say cutting the use of coal, the most carbon-intensive fuel, will mean that electricity rates will rise and the grid will become less reliable.

While the first actual emission cuts don’t hit until 2022, state officials say they need to start planning now.

Of the states that filed the suit, at least six are already on track to meet or come close to their 2022 goals, according to an analysis published today by the Union of Concerned Scientists, a group that supports the EPA rule.

‘Polluter-Backed’ Politicians

“This frivolous lawsuit makes it clear just how desperate these polluter-backed politicians are to do the bidding of the fossil fuel industry rather than serve the families in their states,” said Joanne Spalding, an attorney with the Sierra Club.

The states filed their stay request in the U.S. Court of Appeals in Washington after the EPA failed to act on a demand to put the regulations on hold. A formal complaint can’t be filed until the rules are published in the Federal Register, the EPA said in an Aug. 7 letter. After publication, challengers have 60 days to file petitions seeking judicial review, the EPA said. The agency gave no timeframe for publishing the rules.

While typically states delay their legal challenges until rules are published in the register, Morrisey said his coalition sued now because the plan contains firm deadlines for submitting initial and final compliance plans.

Can’t Wait

“If we were to wait on the EPA to get this rule published, it could be well into 2016 before the states complete arguments and receive a ruling on a request to stay this rule,” he said. “By that time, many states will already be in the middle of drafting their compliance plans,” to meet next year’s deadline.

Before the new rules were announced, Murray Energy Corp., the biggest privately owned operator of underground mines, filed a lawsuit that was deemed premature by a court in Washington. The company has said it will file new lawsuits.

The combined market value of U.S. coal company shares shrank to about $12 billion in late July from $78 billion 2011, according to data compiled by Bloomberg.

Coal accounted for more than 50 percent of U.S. electricity generation in 2006. In April, natural gas use surpassed coal for power generation, with each accounting for about 30 percent of the total, according to U.S. Energy Information Administration data.

Coal Bankruptcies

While most coal bankruptcies have so far involved small, closely held companies operating in Appalachia, now the country’s largest coal producers are joining their ranks. Alpha filed for bankruptcy after losing almost all of its value since 2011.

Patriot Coal Corp. and James River Coal Co. have both filed for bankruptcy twice and another, Arch Coal Inc., the country’s second-largest coal miner by tonnage, is grappling with debt costs and creditors.

Some bankrupt coal companies had been laboring under too much balance-sheet debt due to failed acquisitions in better times, Clarksons’s Sussman said.

The fate of the rules “is a legal toss-up that will take years to litigate,” Mark Levin, an analyst with BB&T Capital Markets in Richmond, Virginia, said in an Aug. 3 report. “That uncertainty can only lead to less, not more coal consumption.”

The case is In re State of West Virginia v. EPA, 15-1277, U.S. Court of Appeals, District of Columbia Circuit (Washington).

©2015 Bloomberg News

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