A Southeastern Snapshot: 111( d) 1 

# A SOUTHEASTERN SNAPSHOT: EPA’S CLEAN POWER PLAN AND SECTION 111(D) OF THE CLEAN AIR ACT
Updated for SESARM, October 2014A Southeastern Snapshot: 111( d) 2 

# A SOUTHEASTERN SNAPS HOT:

EPA'S CLEAN POWER PL AN AND SECTION 111( D ) OF THE CLEAN AIR ACT

OCTOBER 2014
The following document provides an overview of need

- to

- know provisi ons of the U.S. Environmental Protection Agency’s Clean Power Plan, as well as compliance options that focus on end

- use energy efficiency. I t also highlights current themes and perspective surrounding potential implementation of the Clean Power Plan in the Southeast, and is intended to serve as a starting point of conversation.
Additional information and resources, updated regularly, are avai lable on SEEA’s website at http://goo.gl/4vchHd

.



## CONTENTS

I. Overview

................................ ................................ ................................ ................................ .................... 3
II. Framework and Required Reductions

................................ ................................ ................................ ..... 4 Table 1. Clean Power Plan State Targets (Adjusted)

................................ ................................ ................. 5 Figure 1. Southeastern State Emissions Reductions by Building Block (lbs/MWh) U nder the Clean Power Plan

................................ ................................ ................................ ................................ ................ 6 III. Energy Efficiency’s Role Within the Rules

................................ ................................ .............................. 6 Table 2. Clean Power Plan Proposed Cumulative Annual Electricity Savings (Percentage of Annual Sales)

................................ ................................ ................................ ................................ ......................... 7
IV. Implementation

................................ ................................ ................................ ................................ ...... 8
Table 3. Compliance Approaches

................................ ................................ ................................ .............. 8 V. Evaluation, Measurement and Verification (EM&V)

................................ ................................ ............ 10

VI. Conclusion

................................ ................................ ................................ ................................ ............. 10
Appendix A: Southeastern State Emissions Reductions by Building Block (lbs/MWh) U nder the Clean Power Plan

................................ ................................ ................................ ................................ .................. 11
Appendix B: Estimated State

- by

- State Emissions Reductions from Energy Efficiency: Clean Power Plan
P rimary and Alternate Scenarios

................................ ................................ ................................ ................ 12A Southeastern Snapshot: 111( d) 3



## I. OVERVIEW
On June 2, 2014, the U.S. Environmental Protection Agency (EPA) issued draft rules regulating carbon dioxide emissions from the nation’s power sector under Section 111(d) of the Clean Air Act (the “Clean Power Plan”). The proposed plan would cut carbon pollution from the power sector by 30 percent below 2005 levels, using 2012 as a baseline for emissions rate red uctions targets. While much remains to be determined in terms of implementation strategies, emission standards were determined through the application of a variety of best practice emissions reduction mechanisms, including end

- use energy efficiency, and EP A has acknowledged the role of energy efficiency in facilitating least

- cost compliance.

The rules are slated to be implemented according to the following timeline: 1

 June 18, 2014: Rule published in the Federal Register

 Late July: Public listening sessions in four cities

 December 1, 2014: End of comment period 2

 June 2015: Final rules released

 June 2016: All states s ubmit initial or complete plans

 June 2017: Deadline to submit individual state plans eligible for one

- year extension, and progress report for m ulti

- state plans

 June 2018: Deadline to submit multi

- state plans

 2020

- 2029: Interim compliance period

 2030: Start of final goal compliance period

1 Some stakeholders have stated their intent to litigate the EPA rule in court; these proceedings will ramp up when the final rule is released and may impact the proposed implementation timeline. States tak ing legal action will do

so through the ir Attorney General’s Office. Twelve states, including the four southern states of Alabama, Kentucky, Louisiana and South Carolina, filed lawsuits (West Virginia v. EPA, 14

- 1146, U.S. Court of Appeals, District of Columbia) on August 1, 2014 , although some legal schol ars have dismissed this suit as pre

- emptive.

2 The original 120

- day comment deadline was extended from October 16 to December 1.A Southeastern Snapshot: 111( d) 4



## II. FRAMEWORK AND RE QUIRED REDUCTIONS
Regulation under Section 111(d) occurs through a two

- step process: First, EPA sets a level of stringency that constitute s the “best syst em of emission reduction (BSER) ” for a given pollutant, and then states develop compliance plans to meet EPA’s prescribed goals. At its core , BSER is a best practice s olution set used to set the stringency of the required reductions , taking into account key considerations like cost

effectiveness . In the case of CO 2 , EPA has broken the BSER down into four “building blocks” :

 Building Block 1: H eat Ra te I mprovements
— r educing the carbon intensity of generation at individual affected units through heat rate improvements.

 Building Block 2: Re

- dispatching to Natural Gas Combined

- Cycle (NGCC)

— r e

- dispatching generation from higher to lower emitting units

.

 Building Block 3: Renewables and N uclear

— s ubstituting fossil fuel generation with expanded low

- or zero

- carbon generation.

 Building Block 4: Energy Efficiency

— f urther deploying end

- use energy efficiency that reduces the amount of generation.

EPA considere d a full range of options for inclusion in the BSER

. Notable exclusions from the BSER include: fuel

- switching at individual units , carbon capture and storage (CCS), using new natural gas combined cycle capacity to replace existing carbon

- intensive generato rs , and heat rate improvements at affected generators other than coal

- fired steam units

. The proposed rule provides a thorough explanation of EPA’s rationale for excluding th ese strategies from the BSER.
EPA’s prescribed BSER building blocks directly inf orm the stringency of the required emissions reduction; however, states have broad flexibility in determining the mix of strategies they u se to reach the savings targets, and c ompliance strategies are not confined to those used in setting the targets

. Using the four building blocks, EPA has proposed a primary scenario that targets a 30 percent reduction in emission rate over 2005 levels by 2030. EPA is also taking comment on a secondary, less stringent scenario that phases in compliance by 2025. All con tent in this document reflect the primary scenario, and secondary targets are provided in Appendix B.

T argets for southeastern states are provided on the following page

.A Southeastern Snapshot: 111( d) 5



### TABLE 1. CLEAN POWER PLAN S TATE T ARGETS ( A DJUSTED ) 3

State 2012 Emission

Rate (lbs/MWh) Interim Rate

2020

- 2029 Average ( lbs/MWh) Final Rate

2030 and Beyond ( lbs/MWh) Percent Change

Alabama 1,444 1,147 1,059

- 27%

Florida 1,199 794 740

- 38%

Georgia 1,500 891 834

- 48%
Kentucky 2,158 1,844 1,763

- 18%

Mississippi 1,093 732 692

- 39%

North Carolina 1,647 1,077 992

- 40%

South Carolina 1,587 840 772

- 51%

Tennessee 1,903 1,254 1,163

- 42%

Virginia 1,302 884 810

- 38%

West Virginia 2,019 1,748 1,620

- 20%

As demonstrated above, the magnitude of the required reductions varies between states, based on the composition and nature of their power generation sector. For the same reason, each building block impacts states in different ways. For example, some states have significa nt NGCC capacity available for

re

- dispatch, while others have very little, so Building Block 2 has a sizeable impact in the former states with NGCC capacity available and a negligible one in the latter states without NGCC capacity available

. A block

- by

- blo ck breakdown of reductions from southeastern states is provided below , and a table with associated numbers for each building block is available in Appendix A. 4

3 EPA provides the starting 2012 emission rate as both an unadjusted rate from only fossil fuel sources, and as an adjusted ra te, which includes fossil fuel, renewables and six percent (“at

- risk”) nuclear generation and provides a more comprehensive picture of the state’s generation sector.

4 EPA’s targets reflect estimates of the emissions reductions available from each building block. The agency’s AVoided Emissions and genERation Tool (AVERT) is available at http://epa.gov/statelocalclimate/resources/avert/index.html , and can help non

- experts “ballpark” emissions displaced at electric power plants by energy efficiency and renewable policies and programs.A Southeastern Snapshot: 111( d) 6



### FIGURE 1. SOUTHEASTERN S TATE E MISSIONS R EDUCTIONS BY B UILDING B LOCK (LBS/MWH) , AS PROPOSED BY THE CLEAN POWER PLAN



## III. ENERGY EFFICIEN CY’S ROLE WITH IN THE RULES

End

- use energy efficiency is a primary building block used in setting the stringency of the required savings. Reductions were determined based on a “best practice” scenario for demand

- side energy efficiency, drawn from performance that has already been achieved or required by policies of leadin g states. EPA assumes that states will be able to achieve an annual incremental savings rate of 1.5 percent of electricity demand by or before 2030, ramping up at 0.2 percent each year beginning in 2017. EPA’s b est practice electricity savings targets for southeastern states are provided below: 1,059

740

834

1,763

692

992

772

1,163

810

1,620 1,444

1,199

1,500

2,158

1,093

1,647

1,587

1,903

1,302

2,019

600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 Alabama

Florida

Georgia
Kentucky

Mississippi

North Carolina

South Carolina

Tennessee

Virginia

West Virginia

Projected Reductions Over Time

 Block 1: Heat Rate Improvements  Block 2: Re

- D ispatch to NGCC  Block 3: Renewables and Nuclear  Block 4: Energy EfficiencyA Southeastern Snapshot: 111( d) 7



### TABLE 2

. SOUTHEASTERN STATE C UMULATIVE A NNUAL E LECTRICITY S AVINGS , AS PROPOSED BY THE CLEAN POWER P LAN ( P ERCENTAGE OF A NNUAL S ALES )

State Interim Goal

( 2020

- 2029 average) Final Target (2030 and Beyond)

Alabama 1.4% 9.5%

Florida 2.0% 10.0%

Georgia 1.8% 9.8%
Kentucky 1.9% 10.0%

Mississippi 1.4% 9.6%

North Carolina 2.4% 10.3%

South Carolina 2.3% 10.2%

Tennessee 2.2% 10.3%

Virginia 1.2% 9.3%

West Virginia 1.8% 10.1%

As stated above, EPA has not limited the types of energy efficiency programs and measures that can be included in a state plan. In other words, a state can achieve higher or lower savings from each of the four building blocks , as well as other emission reduction measures , as long as the state ultimately reaches its final emission rate reduction goal. All energy efficiency measures in a state plan must be evaluated per EPA’s E valuation, M easurement and V erification (EM&V) guidance (additional information provided in Section V)

. The following i tems are examples of energy efficiency policies that could be incorporated into state plans for a chiev ing the EPA’s emission reduc tions requirement:

 Energy efficiency resource standards (EERS)
,

 Demand

- side energy efficiency programs
,

 Building energy codes
,

 Combined heat and power (CHP),

 Appliance and equipment efficiency standards , and

 Incentives and finance mechanisms for energy efficiency

. Th e broad flexibility that EPA has provided regarding the inclusion of energy efficiency in state compliance plan accommodates for the varying degrees of implementation history and experience,A Southeastern Snapshot: 111( d) 8

existence of applicable EM&V protocols and methods, and nature and type of regulatory oversight in place across the region.



## IV. IMPLEMENTATION

The draft rules allow for the us e of two basic approaches: direct emission limits applied to generation units and a portfolio approach. These two basic approaches provide four distinct state plan “pathways” under S ection 111(d). Each can accommodate energy efficiency as a compliance pat hway, although some are better suited to this than others

. These pathways include:

1. Rate

- based CO 2 emission limits applied to affected Electric Generating Units ( EGUs ) ; 2. Mass

- based CO 2 emission limits applied to affected EGUs;
3. State

- driven portfolio approac h ; and
4. Utility

- driven portfolio approach.



### TABLE 3

. C OMPLIANCE A PPROACHES

Approach Treatment of E nergy E fficiency E nergy E fficiency Enforceability EM&V

Rate

- based CO 2 Emissions Limits Applied to Affected EGUs May include administrative rate

adjustment or tradable credits Enforceable component of state plan Rate reductions due to energy efficiency must be tracked and verified via EM&V

Mass

- based CO 2 Emissions Limits Applied to Affected EGUs Energy efficiency as a strategy for

meeting limit at lesser cost, but complementary to the plan Not enforceable via state plan No need for special EM&V and tracking of these program effects on avoided CO 2 emissions

State

- Driven Portfolio Approach 5 E nergy efficiency requirements

applicable to non

- EGU entities are part of the mix to achieve performance level Enforceable via state plan ; mix of entities have enforceable obligations Mass or rate reductions must be tracked and verified via EM&V

Utility

- Driven Portfolio Approach 6 

### U tilities implement a portfolio of

measures to meet rate

- or mass

based emission performance level for affected EGUs Entire suite of obligations is enforceable against the utility Mass or rate reductions must be tracked and verified via EM&V

To date, much of the dialogue in the Southeast has focused on rate

- based approaches. This is primarily because of two key factors: certainty and concerns regarding growth potential. EPA has provided

5 More likely to be implemented in states with restructured electricity sectors.

6 More likely to be implemented in states with vertically integrated, s tate

- regulated utilities.A Southeastern Snapshot: 111( d) 9

tailored rate

- based goals for each state; however, it is currently unclear what methodology EPA expects states to employ in calculating mass

- based caps, and states are concerned about the stringency of the numbers that will result. In addition, several southeastern states are anticipating significant industrial growth in the years ahead and , accordingly, favor the rate

- based approach because it allows for load growth, as long as overall average rate targets are achieved.
States may achieve compliance individually or on a regional basis. In the Southeast, many st ates have voiced their intent to assess compliance opportunities within their borders before considering regional compliance approaches. Priorities may shift, but g iven the short timeline that states have to submit compliance plans, it currently appears un likely that southeastern states will decide to pursue regional compliance plans. However, it is possible that states with closely interconnected electric systems may sign MOUs with others to establish implementation logistics, or to incorporate pieces of r egional planning for multi

- state utilities , such as Duke Energy or the Tennessee Valley Authority.
Initial responses to the release of the Clean Power Plan tend to align state compliance plans under Section 111(d) with State Implementation Plans, or “SIPs, ” which are required in demonstrating compliance with National Ambient Air Quality Standards under Section 110 of the Clean Air Act

. However, as outlined, compliance plans under Section 111(d) differ from Section 110 in terms of enforceability criteria, deficiency actions and other key components, which means that these plans will likely not directly follow traditional “SIP” approaches, although considerable uncertainty regarding the nature of approvable compliance plans remain

. To outline what is known, a ccording to the requirements set forth in the Clean Power Plan, state compliance plans must include the following elements:

 Identification of affected entities ;

 Description of plan approach and geographic scope ;

 Identification of state emission performan ce level ;

 Demonstration that plan is projected to achieve emission performance level ;

 Identification of emission standards ;

 Demonstration that each emission standard is quantifiable, non

- duplicative, permanent, verifiable, and enforceable ;

 Identification o f monitoring, reporting, and recordkeeping requirements ;

 Description of state reporting ;

 Identification of milestones ;

 Identification of backstop measures ;

 Certification of hearing on state plan ; and

 Supporting material

. Per EPA’s guidance, plans will also be reviewed and approved according to the following criteria:

 Enforceable measures that reduce EGU CO 2 emissions;

 Projected achievement of emission performance equivalent to the goals established by the EPA, on a timeline equivalent to that in the emission guidelines;

 Quantifiable and verifiable emission reductions; andA Southeastern Snapshot: 111( d) 10

 A process for reporting on plan implementation, progress toward achieving CO 2 goals, and implementation of corrective actions, if necessary.



## V. EVALUATION, MEASU REMENT AND VERIFICAT ION (EM&V)

One of the most important elements in developing and implementing a compliance plan that incorporates energy efficiency is EM&V , which guarantees that projected energy savings and their resulting emissions reductions have occurred. Further, unif ormity in measurement techniques is of paramount importance in the context of 111(d), especially for states that are interested in regional compliance options. The Clean Power Plan lays out several options for EM&V, including the following:

 Establishing specific EM& V requirements with a level of defined precision and accuracy for all energy efficiency programs and measures ;

 Establishing specific EM&V requirements for widely used energy efficiency programs and measures, such as those addressed by DOE’s Uni form Methods Project (UMP) or technical reference manuals (TRMs)
, while establishing a generalized EM&V approach that states can apply to programs that are relatively new, innovative, or untested ; and

 Establishing a set of generalized, process

- oriented EM& V requirements that apply to all energy efficiency programs and measures, while providing flexibility to customize EM&V approaches, as appropriate for different types of programs and measures, provided that EM&V meets these minimum requirements

. The genera l consensus from stakeholders impacted by 111(d) is that EPA has not provided sufficient guidance to date surrounding EM&V for energy efficiency measures that may be incorporated into state plans

. Within the proposed rule, EPA states its intent to develop additional guidance regarding EM&V for end

- use energy efficiency measures, in coordination with other federal agencies, and it is likely that the final rule will provide additional guidance and certainty that will help states incorporate energy efficiency into their compliance plans, expanding the role of least

- cost, market

- based solutions for meeting EPA’s targets

.



## VI. CONCLUSION
SEEA is providing information, resources and facilitation within collaborative forums to promote energy efficiency as a pathwa y to compliance if the Clean Power Plan moves forward, while helping states to reap the benefits of energy efficiency such as cutting waste, economic development, energy security and energy productivity. In addition, SEEA has produced a number of targeted materials, including regional 111(d) news, resources and information portals, and a breakdown of 111(d)

- related activity by state, available on the website at http://goo.gl/4vchHd

For more information on the draft rules , please contact Abby Schwimmer, Policy Manager, at aschwimmer@seealliance.org

.A Southeastern Snapshot: 111( d) 11



## APPENDIX A :
S OUTHEASTERN S TATE E MISSIONS R EDUCTIONS BY B UILDING B LOCK (LBS/MWH) UNDER THE C LEAN P OWER P LAN

State Block 1 :

Heat Rate Improvements Block 2 :

Re

- Dispatch to NGCC Block 3 :

Renewables and Nuclear Block 4 :

Energy Efficiency Total Reduction

Alabama

- 59

- 121

- 125

- 80 385

Florida

- 30

- 287

- 70

- 72 459

Georgia

- 67

- 217

- 290

- 92 666
Kentucky

- 130

- 50

- 31

- 184 395

Mississippi

- 22

- 262

- 57

- 60 401

North Carolina

- 87

- 312

- 123

- 133 655

South Carolina

- 81

- 164

- 476

- 94 815

Tennessee

- 106

- 99

- 376

- 159 740

Virginia

- 44

- 211

- 153

- 84 492

West Virginia

- 121

- 0

- 211

- 67 399A Southeastern Snapshot: 111( d) 12



## APPENDIX B :
ESTIMATED STATE

- BY

- STATE EMISSIONS REDU CTIONS FROM ENERGY EFFICIENCY : CLEAN POWER PLAN PRI MARY AND ALTERNATE SCENARIOS

Option 1: 1.5% Annual Savings Option 2: 1.0% Annual Savings

State 2020 2029+ 20 2 0 2024+

Alabama 1.4% 9.5% 1.1% 3.9%

Florida 2.0% 10.0% 1.8% 4.7%

Georgia 1.8% 9.8% 1.5% 4.4%

Kentucky 1.9% 10.0% 1.6% 4.6%

M ississippi 1.4% 9.6% 1.1% 3.9%

N orth
C arolina 2.4% 10.3% 2.1% 5.0%

S outh
C arolina 2.3% 10.2% 2.0% 4.9%

Tennessee 2.2% 10.3% 1.9% 4.9%

V irginia 1.2% 9.3% 1.0% 3.7%

West Virginia 1.8% 10.1% 1.5% 4.4%