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* EPA, Texas agency holding talks on permit changes
* Dispute over "flexible permit" program most contentious
* TCEQ to act on "flexible permit" draft rules in June
By Eileen O'Grady
HOUSTON, May 14 (Reuters) - The Environmental Protection Agency is working to bring a Texas regulatory agency into compliance with federal law, which could affect dozens of major refiners, power plants and chemical facilities in the state that cannot meet current emission standards.
The Environmental Protection Agency has disapproved a number of key modifications made over the years by the Texas Commission on Environmental Quality (TCEQ) to its clean-air permitting programs.
Changes made in key Texas programs under which dozens of oil refineries, chemical and power plants operate mean some permits may no longer comply with the federal Clean Air Act, the EPA said.
"We will have federally consistent permits issued in Texas soon," Al Armendariz, administrator of the U.S. Environmental Protection Agency's Region 6, told a Gulf Coast Power Association utility conference last month.
Texas has about 1,500 facilities classified as major air pollution sources under the Clean Air Act. Texas refineries account for 26 percent of the nation's refining capacity.
The EPA has begun filing objections to some recent TCEQ-issued operating permits, an action that puts those companies "between a rock and a hard place," said the state's top environmental regulator.
Bryan Shaw, TCEQ chairman, said he remains optimistic that the two agencies can settle many of the disputes. However, he warned that TCEQ is limited by Texas law on some issues.
"I'm encouraged that through our discussions we have been able to clarify some misperceptions EPA had about our program," Shaw said.
Tom "Smitty" Smith, executive director of Public Citizen in Texas, said environmental groups welcomed the EPA's crackdown on the Texas agency.
"For more than a decade, TCEQ has been ignoring federal law in the permitting process," Smith said. "The regional office is making clear that substantial changes are going to have to be made or there will be some changes in who's issuing permits in Texas."
The EPA dispute over TCEQ's "flexible permit" program will be the most difficult of the remaining issues to resolve, said TCEQ's Shaw.
"Our program is not broken, it's just misunderstood," he said.
The "flexible permit" program allows companies to lump emissions from multiple sources under a single "cap" rather than individually by equipment source, which complicates the inspection process and has raised complaints from environmental groups, the EPA said.
While there are only 150 or so flexible permits issued, they include large refiners, a liquefied natural gas plant, chemical plants, some coal-fired power plants and companies that manufacture plastic, soup, glass and air conditioners.
The Texas program brought older plants that were "grandfathered" by state law -- and not subject to emission controls -- into the permit world, significantly reducing dangerous emissions, Shaw said.
"To undo the program now could allow emissions to rise, Shaw said. "I don't want to lose the environmental benefits associated with the flexible program."
Shaw said new TCEQ draft rules will be put out for public comment soon, with board action set for June.