NRG's Texas coal plants able to meet new air rule

* Texas fighting latest EPA air pollution rule in court

* Operating impact seen at Luminant, San Miguel coal units

HOUSTON, Sept 27 (Reuters) - NRG Energy Inc, (NRG.N), the
second-largest electric power producer in Texas, does not expect
to shut units at its coal-fired plants to comply with the latest
federal mandate to cut air pollution, a spokesman said.

Texas is challenging the U.S. Environmental Protection
Agency over its last-minute inclusion of Texas coal plants under
the final Cross-State Air Pollution Rule (CSAPR).

The rule mandates much stricter limits on emissions of
sulfur dioxide (SO2) and nitrogen oxide from coal and natural
gas-fired power plants beginning in January. [ID:nS1E78K24V]

"Complying with these caps will be difficult, but we
anticipate from our early analysis that NRG can comply through
an integrated strategy," said NRG spokesman David Knox.

Texas and Kansas have asked a federal court to impose a stay
of the new regulations. Both states dispute the EPA's view of
the downwind damage from power-plant emissions and argue that
utilities have not been given sufficient time to meet stricter
standards.

In addition, Texas regulators argue that the EPA process to
include Texas under the annual SO2 limit in the final rule was
improper.

The Texas grid agency has warned that the required 47
percent reduction in SO2 emissions under CSAPR will result in
increased rolling blackouts as coal-fired plants are forced to
run fewer hours to avoid exceeding annual emission limits.
[ID:nN1E78014K]

"Because of the EPA's drastic demands -- and the mere five
months notice the EPA provided to the state's electricity
generators-the State's electrical grid operator has expressed
concerns that Texas "will face a shortage of generation
necessary to 'keep the lights on,'" Texas Attorney General Greg
Abbott said in a statement.

NRG has 4,200 megawatts of coal and lignite-fired generation
in Texas.

At its 1,690-MW Limestone facility which burns a mix of
Texas lignite and lower-sulfur coal from the Powder River Basin
(PRB), NRG plans to increase scrubber efficiency and to burn
more low sulfur coal.

NRG's 2,490-MW Parish coal plant, which already burns PRB
coal, may use other coal with even lower sulfur content.

NRG also cited other compliance options, such as adjusting
how it runs coal plants during low demand periods.

"We do not anticipate any plant closures nor layoffs," Knox
said.

In contrast, Dallas-based Luminant said CSAPR compliance
will force it to idle two coal-fired units totaling 1,200 MW by
Jan. 1 and to stop mining lignite at three sites.

Luminant, the state's largest power producer, has also filed
suit seeking to delay the rule's implementation.

Timely compliance at another 400-MW lignite plant, owned by
the San Miguel Electric Cooperative, is also questionable, the
coop's general manager told a legislative hearing last week.

"Our only real option is to purchase allowances or reduce
output," said Mike Kezar, San Miguel general manager.

Firms contacted by the coop do not expect an allowance
market for Texas to emerge, given civil and criminal penalties
for companies that exceed emission limits.

So the coop has leased truck-mounted equipment to help cut
plant emissions for a period of time until allowances become
available, Kezar said.

Donna Nelson, chairman of the Texas Public Utility
Commission, told lawmakers that meetings this month with EPA
officials "were cordial, but not all that productive."

Some EPA conclusions were based on incorrect information
about the state's generating fleet, Nelson said.

"In some ways, the EPA was almost flip about about the
challenges we face in Texas," Nelson told legislators.

The EPA was invited, but did not participate in the
legislative hearing, said Texas Rep. Byron Cook, chairman of the
Texas House State Affairs Committee.
(Reporting by Eileen O'Grady in Houston;editing by Sofina Mirza-Reid)