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Arizona Initial Concerns and Questions Regarding EPA’s Proposal Under 111(d)

August 1, 2014

Priority Concern #1: Timing - EPA’s proposed emission rate goals for the State of Arizona would require the State to 

achieve at least 77 percent of the 2030 goal by 2020.

I. Did EPA’s goal for AZ capture unique, state-specific conditions?

a. The remaining useful life for many existing units is still long, cost recovery just starting, but interim goal would 

have these units shut down by 2020.

i. Oldest coal unit commissioned in 1961; average age of the AZ fleet is 33 years, 5

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youngest in the country.

ii. TEP Springerville Unit 4 is less than 6-years old.

b. Several utilities have recently invested money to comply with other Clean Air Act requirements such as New

Source Review (NSR), Regional Haze, and the Mercury and Air Toxics Standards (MATS). EPA’s proposed

goal could result in stranding these assets.

i. SRP Coronado Unit 2 completed $500 million of investments in air pollution controls in April 2014.

c. Existing energy infrastructure does not support a swift conversion to new gas generation. Complex terrain and 

ambient temperature changes limit ability to use existing energy infrastructure.

d. Existing natural gas pipeline might not allow for the re-dispatching levels contemplated in the interim and final 

goals.

II. Did EPA’s goal consider the time and cost impacts of existing regulations on new infrastructure?

a. AZ likely to need new natural gas plants and associated infrastructure by 2020 to comply with interim goals. 

b. Siting, permitting, and constructing this new infrastructure will be difficult over such a short timeframe.

c. New gas pipeline and transmission line infrastructure will be subject to requirements like NSR or the National

Environmental Policy Act (NEPA).

III. Would EPA consider setting a 2030 end goal with States making reasonable progress demonstrations, ratcheted steps 

or milestones that trigger regulatory action rather than EPA prescribing the interim glidepath for individual States 

during the period between 2020 and 2030?

a. If not, is EPA open to alternative “interim” target goals for the 2020-2029 period?

b. Has EPA received any proposed alternatives to date through its discussions with others that are being actively 

considered?

IV. Has EPA identified the coal plants that EPA projects will close if the proposed 111(d) rule were approved?

V. Can AZ’s plan include credit for the retirement of a coal unit located in a different state, yet which serves AZ, without 

entering into a full multi-state plan, provided the state where the retiring unit is located does not also account for that 

retirement (no double counting).

Priority Concern #2: Achievability - The assumptions used to develop EPA’s proposed emission rate goals for Arizona 

would require a substantial shift in generation from coal-fired generation to gas-fired generation.

I. In applying Building Block 2 (BB2), EPA shifted all existing coal generation to “available” natural gas combined 

cycle (NGCC) generation. Did EPA’s modeling consider both the interstate gas transportation requirements as well as 

the peak generation capacity available to displace existing coal generation?

a. Given the relationship between AZ’s winter gas requirements (usage weighted by residential/commercial heating)

and summer gas requirements (usage weighted by power generation), did EPA’s modeling consider the pipeline

infrastructure impacts of base loaded combined cycle generators during the winter gas season?

b. Did EPA’s modeling factor in summer derates on nameplate capacity to account for AZ high summer 

temperatures?

c. Did EPA’s modeling factor in any federally enforceable emission permit limits on allowable usage?

d. Did EPA’s modeling factor in existing purchase power agreements that are tied to existing AZ merchant owned 

combined cycle units? (Thus reducing the available capacity to displace existing coal fired generation).

e. Utilities cannot count on these units when contemplating “available” NGCC capacity to dispatch in place of coal 

generation because the utilities do not own or operate them. Federal laws require fossil-fuel fired capacity to be
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held in reserve to ensure reliability of the grid when renewable energy like solar and wind is unavailable, or if

there is catastrophic failure of a base load unit.

f. Are EPA’s calculations based on annual utilized capacity or annual contracted capacity? Unused capacity may 

already be contracted for peaking, reserve or other uses.

g. If a State can demonstrate that certain NGCC capacity is not available, can that reduced capacity be accounted for 

under BB2 in setting the state goal?

h. Did EPA’s modeling consider intrastate transmission limitations, including load serving entities’ existing

transmission scheduling rights in its coal redispatch assumptions. If so, how?

i. Did EPA consider reliability impacts from coal-fired unit retirements associated with increasing NGCC annual 

capacity utilization? Coal units would be unavailable to assist with peak capacity needs as these units are not

designed to operate in a peaking fashion.

II. How does EPA contemplate treating new generation resources that are built to displace existing coal capacity? Will 

they fall under the New Source Performance Standard (NSPS) and will these new resources be regulated on a standalone basis? Or will these new resources fall into the Existing Source Performance Standard (ESPS) category with 

their output being included along with the existing state generation resources?

III. Does EPA believe it has legal authority to allow states to include new/modified/reconstructed units subject to 111(b)

in the plans developed under 111(d)?

IV. Has EPA considered how a presently non-affected unit that becomes subject to the rule (e.g., due to an increase in 

utilization above the capacity factor threshold) will affect compliance with the State goal?

V. If a utility has a Power Purchase Agreement (PPA), can it use the carbon intensity from this unit to meet its goals? Or 

is the utility limited in any of the following ways:

a. A utility can only average across those units that it “owns” in fee?

b. A utility can use a PPA, but only PPAs that are tied to “existing units” subject to the ESPS can be counted?

c. A utility can use a PPA, but only PPAs that are tied to “existing units” in the same state can be counted?

d. Other?

Priority Concern #3: The EPA proposal does not appear to give the State of Arizona full credit for existing in-state, 

carbon-free generation resources.

I. How did EPA calculate credit for nuclear energy production?

a. Western nuclear generating stations have longer remaining useful lives. Palo Verde has an operating license that 

expires in 2046, and water contracts that expire in 2050.

b. EPA calculations appear to only credit 6% of the “at risk” nuclear production. States may not get credit for the

remaining 94% of nuclear production.

II. Has EPA contemplated how to give credit for hydro-electric power considering its broad use in AZ and the Western

United States?

Priority Concern #4: The EPA proposal does not appear to provide clear direction on the measurement, verification 

and enforceability of building blocks 3 and 4.

I. In establishing the goals, it appears that EPA accepted state renewable and energy efficiency goals, although it 

“regionalized” them for some purposes. Did EPA conduct an “enforceability” review of these state goals before 

accepting them in establishing EPA’s proposed goals?

a. If not, will EPA do so prior to the final rule and commit to only including those measures that are deemed 

acceptable in establishing the state goals?

b. If EPA does not feel it can commit, what assurance does the state have that its programs used to establish the goal

– and hence the binding state target – will be accepted?
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II. Is EPA considering applying Clean Air Act §110 requirements for surplus, enforceable, creditable and permanent

emissions reductions?

a. Existing renewable energy (including distributed generation) and energy efficiency standards may not meet 

standards.

b. Existing local ordinances are unlikely to meet standards.

c. Existing energy efficiency programs may not be creditable, even though the actual benefits are real.

d. Energy efficiency improvements could be offset by consumer’s life style changes rather than reducing total

electricity consumption.

i. Example: When replacing an old air conditioning unit, family uses cost savings to lower thermostat a few 

degrees.

III. Is participation in a multi-state plan the only way to get credit for reductions attributable to out-of-state resources?

a. Would EPA allow for a hybrid plan that incorporates state agreements to handle specific issues, such as 

renewable energy credits (RECs)?

b. If not, which State gets credit if an AZ utility-portfolio based plan results in reductions at a unit in another State?

c. The renewable portfolio standards that EPA relies upon in setting the state targets currently allows for utilities to 

count renewable generation located in another State if the RECs are owned by a utility and its customers.

d. If EPA does not allow for out-of-state RECs to be applied in determining compliance with AZ’s emission goal,

will the EPA revise the target to likewise remove these RECs from the goal determination under BB3?

General Comments

I. Will EPA consider population shifts in setting the interim and final goals?

a. States with declining population (Northeast) can comply with the goals while shifting burden to growing states. 

b. States with growing population will have to achieve greater reductions to accommodate growing population.

c. Exclusion of growth precludes the availability of a mass-based approach for growing states.

II. EPA’s proposal contemplates States making changes to plans. What are EPA’s procedures for processing these

changes? Will these procedures include time requirements for EPA review and approval?

a. How will the state credit new renewable generation or energy efficiency measures in the state plan if they are not 

included in the original plan?

BB1 Increase efficiency of existing fossil fuel power plants through equipment upgrades and process improvements.

I. EPA’s methodology assumes that a 6% efficiency gain is universally available but does not appear to consider 

improvements completed at each unit. If provided with specific information about the percent of efficiency gain that 

is actually possible considering improvements that have already taken place, would EPA consider modifying a State’s 

goal?

II. Did EPA determine whether 111(d) will subject efficiency improvement changes to NSR permitting?

a. NSR permits will delay implementation of efficiency gains.

b. Additional air pollution controls required for criteria pollutants absorb energy savings gained from efficiency 

projects.

c. Were costs associated with additional air pollution controls required as a result of NSR permitting considered in 

the economic analysis?

III. How did EPA consider remaining useful life when applying this building block?

a. Facilities with a short remaining useful life would not be able to invest in these improvements given an inability 

to recuperate that investment.

IV. How did EPA consider transmission loss, and would EPA give credit for efficiency improvements in transmission?
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BB2 Expand use of low-emitting power sources, such as natural gas

I. Why did EPA use the name plate capacity instead of net capacity for each affected unit?

a. Name plate can be as much as 20% higher than actual capacity, overstating available reductions.

II. Did EPA consider existing energy policies and regulations when setting the goal?

a. States have independently elected bodies that have constitutional authority to regulate electricity generation, such 

as the AZ Corporation Commission.

b. Regional organizations such as the WECC are responsible for ensuring grid reliability. Did EPA complete any

reliability analyses to ensure grid reliability?

c. States with existing diverse energy portfolios are penalized for early incorporation of low-emitting power sources. 

d. Would a State Plan take priority over bilateral contracts between a buyer of power in one State and a seller of

power in another? If so, how and under what authority?

III. Would EPA consider putting capacity factor limitations on coal plants in conjunction with NGCC/Coal re-dispatch 

(e.g., limit re-dispatch such that it does not reduce existing coal generation by more than 75% of historical values)? 

a. Option could mitigate potential reliability, infrastructure and cost impacts associated with retirement of coal.

IV. Would EPA consider a phased approach to re-dispatch similar to the phased approaches of renewable generation and 

energy efficiency implementation?

a. Option would allow more time to adjust for otherwise drastic changes to the generation and transmission systems.

BB3 Use more zero- and low-emitting power sources, such as solar, wind and nuclear power

I. Did EPA consider existing energy policies and regulations when setting the goal?

a. States with renewable energy portfolios and energy efficiency standards may not receive credit for early and 

continued implementation of the existing standards.

b. Hydro-electric generation may not be creditable under this or any other building block.

c. How do EPA’s assumptions comport with the assumptions used by regulating entities, such as the AZ 

Corporation Commission?

II. It appears that EPA’s goal is to preserve the 6% of nuclear energy that is “at risk,” what”. What methods does EPA

anticipate States must use to demonstrate compliance?

III. Has EPA considered including a force majeure provision to accommodate the sudden and unavoidable shut down of a 

low- or zero-carbon emitting electric generating unit?

a. Grid reliability requirements will mandate nearly immediate replacement electricity to prevent brown/black-outs.

b. The most reliable reserve electric generating units burn fossil fuel resulting in increasing and unexpected carbon 

emissions.

BB4 Increase energy efficiency and energy demand

I. Will there be a standardized Measurement and Verification (M&V) approach for counting savings?

a. Different approaches for reporting under State energy efficiency standards and under 111(d) State Plans could be 

duplicative and costly.

b. How will persistence and variables such as the life of measures be considered and determined if current State

M&V standards on this issue differ from EPA standards?

II. What ‘discount rates’ or other adjustments does EPA expect to be applied to savings?

a. Net to gross issues to account for free riders and program spillover?

b. Discount rates for take-back effects?