Sierra Club files suit over Dynegy Tex coal plant

HOUSTON Aug 29 (Reuters) - In the latest backlash against a spate of plans to build coal-burning power plants, environmental group the Sierra Club this week filed suit to stop a consortium's plans to build a plant in Texas

The lawsuit, filed in a federal court against Sandy Creek Associates, a joint venture of Houston-based Dynegy Inc (DYN.N) and LS Power Group, is the opening salvo in a Sierra Club effort announced in May to stop proposed coal plants in at least six states.

The suit follows a ruling earlier this year by a federal appeals court in Washington that the U.S. Environmental Protection Agency violated the Clean Air Act in not setting mandatory reductions of mercury emissions from power plants.

The environmental group, along with consumer advocate Public Citizen of Texas, wants to halt construction and require that Sandy Creek's developers return to the state agency for a new permit that would meet tougher emission standards.

Dynegy and its partners are not the first to run afoul of environmental groups over coal plants.

As part of a plan to buy Dallas-based TXU Corp, Kohlberg Kravis Roberts & Co [KKR.UL] last year agreed to scale back TXU's plan to build 11 coal-fired units to three in the face of vocal opposition from environmental groups and local politicians.

Now, the Sierra Club wants Sandy Creek to halt construction while it obtains a determination from a Texas environmental agency that it will use so-called "maximum achievable control technology" to reduce emissions at its new plant.

That means the plant would be required to cut emissions of nitrogen oxides, sulfur dioxide and other harmful substances up to the amount allowed by current emission-reduction technology.

Without that determination, Dynegy is "putting the health of Texas at risk," said Laurie Vanhoose of Sierra Club.

Dynegy spokesman David Byford said the Texas agency that issued the air permit "never expressed any concerns to us about the permit or the construction."

After being issued a permit from the Texas Commission on Environmental Quality in mid-2006, the Sandy Creek project withstood a challenge by environmentalists in state court.

Coal-fired power plants are the largest source of mercury emissions in the United States and are responsible for 40 percent of U.S. carbon dioxide (CO2) emissions, the largest contributor to greenhouse gas which is not regulated in the United States.

While coal is used to generate about half of the U.S. electric supply, environmental groups are pushing utilities to switch to cleaner sources like wind and solar.

The 900-megawatt Sandy Creek plant is being built in McLennan County, about 100 miles (160 km) south of Dallas. Dynegy and LS Power own a 64 percent stake in Sandy Creek which is expected to be complete in 2012. Minority owners are the Lower Colorado River Authority and the Brazos Electric Power Cooperative.

Sierra Club also remains opposed to a coal plant proposed by NRG Energy Inc (NRG.N) in neighboring Limestone County, Texas.

Other groups, including the Environmental Defense Fund and the Texas Clean Air Cities Coalition, earlier this month dropped objections to the proposed 800-MW Limestone 3 unit, after NRG agreed to reduce or offset emissions of CO2 and mercury beyond what is required by the state.

The agreement between NRG and the other environmental groups is "still not enough," said Vanhoose of Sierra Club. "We are going to hold the line until we get more controls." (Reporting by Eileen O'Grady, editing by Chris Baltimore and Marguerita Choy)