# UN I TED STATES ENVIRONMENTAL PROTECTION AGENCY



# WA S H I N G T O N

, D

. C

. 20460

OFFICE OF

AIR AND RAD I AT IO N



# MEM OR ANDUM

Subject:

From:

To: Summary of Stakeholder Meetings

Carissa Cyran

Dockets EPA-HQ

- OAR-2013-0602, E PA-HQ-OAR-2013-0603

, and EPA-HQOAR-2013-0495

This memorandum summarizes meetings with stakeholders during the week of May 25, 20 1 5.

On May 26. Administrator Gina McCm1hy

, Acting Assistant Administrator Janet McCabe and

Associate Assistant Administrator for Climate and Sen i or Counsel for Air and Radiat i on J oseph

Goffman met with Christophe Crane and other representatives of E xe l on

, and Marv Fertel of the

Nuclear E nergy Institute. Sign-in sheet and presentation are attached.

On May 28, Acting Assistant Administrator Janet McCabe and Associate Assistant

Administrator for C li mate and Senior Counsel for Air and Radiation Joseph Goffma n spoke w i th

Phil Smith of the United Mine Worker s Association.

On May 29

, Associate Assistant Adm i nistrator for Climate and Senior Counsel for Air and

Radiation Joseph Goffman met w i th Tom Lorenzen.

Internet Address (URL)

· http 1/wwwepa gov

Recycled / Recyclab l e • P nn ted w t th Vegetable Otl Based I nks on 100% Postconsumer

. Pr ocess Chlo ro ne Free Re cycled Paper

# D ate: 

# M ay 26, 20 15

Mee t i n g: 

# Meet in g w ith Exe l on and Nuclear Energy I n stitute R eprese ntati ves

Rul e(s) D i sc u sse d : 

# CPP

Writt e n M ate ri a l : 

# Yes

Na m e Titl e a nd Or ga n iza ti o n



# Christopher Crane President and CEO, Exelon

Marv Fertel Pr cs i qcnt and CEO of the Nuclear Energy In s titut e

Jo seph Dominguez Execu ti ve Vice President, Gove nun en t al and Regulatory AJTa ir s and

Publi c Policy, Exelon

Kathleen Barron Senio r Vice Pr esident. Federal R egula t ory Affa ir s & 

# Wholesale Market

Policy. Execlon

Kathl ee n R obertso n, Sen i o r E n v i ronm e nt a l & 

# Fuel s P o li cy Manager, Fede r a l R eg ulator y

Affairs. Execlon

J anet McCabe E P A

Joe Goffman E P A

Administrator Gina McCar1hy E P A

# lll(d) 

# -Summary of Concerns and Solutions

I ssue 1 : Ensuring that the rate-based methodology reduces emissions

Concern :

The proposed rule contains a compliance loophole that could result in higher than status quo carbon emissions if existing zero

- carbon resources are retired and repla ced with fossil fu e l -fired units. This

l oopho l e compromises the effectiveness of the rule and exposes EPA and the United States to legal and political arguments that the rule will be ineffectual.

Solutions 

# (in order of effectiveness):

1. Include the entire generation fleet in the development of the target emission r ate

2. Mass-based check for states that elect rat e

- based compliance

3. Subtract prematurely retired MWs of zero-emission generation from the state's emissions rat e (so

- called denominator

- deduct); effectively requires r ep l acement with othe r zero

- carbon MWh

4. Provide compliance incentives for states to preserve units that have been uprated and produce incremental electricity during a li cense extens ion period that begins post -2 012

I ssue 2: Providing adequate incentives for states to adopt mass

- based compliance systems

Concern:

The proposed rule did not c reat e sufficient incentives to use regional approaches that co

- optimize reliability and GHG reductions.

So l utions:

The Reliability Di spa tch Safe Harbor (ROSH) program that has been endorsed by s tates

, EEl,

envi ronm ental organizations, and grid operators will co-optimize reliability and env iron men tal reductions beginning on or before 2020.

In addition to ROSH

, EPA could incentivize states to choose mass

- based comp lia nce, which also sends the correct market signals, such as :

• Provide a default/presumptive mass number for each state and exp re ss it alongside and equal

to the rat e target

• Conduct st ream lined review of state plan submittals that include participation in a multi

- state mass-based program

• Preparation of a model rule or a national tracking system/platform that would allow for the creation and trading of C0 2 

# emission allowances to further alleviate states' administrative

burdens

• Introduc e detailed administrative requirements, acc ounting rule s, and 'bu rden s of proof in

instances where a st ate builds a plan based on a rate

- ba sed approach and wants to trad e

em ission s

- reduction credits from a state with a mass-ba sed approach, and vice versa

, to prevent emissions leakage

• Allow states that choose a mass

- based approach to adjust the mass-based cap in so me known

way to address load growth

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# >< UJNuclearGenerationisIntegraltoaLow-CarbonPresentandFuture•Nucleargenerationprovides63percentofU.S.zero-carbonelectricity,withunparalleledscaleandreliability.•However,manyunitsareatrisknow.FourofourIllinoisunitsdidnotclearthelastPJMauction,whichmeansthattheircostsofcontinuedoperationarehigherthanthecapacitymarketprice,andourClintonunitisinMISOandthusdoesnotreceiveaforwardcapacitypayment.-Asaresult,theseunits(whichrepresent43%ofthestate'snucleargeneration)donothaveacapacitycommitmentforthe17/18planningyear.-Chiefamongthefactorscausingthisistheabsenceofmarketmechanismstovaluethecarbon-freenatureofnuclearpower.-Wedonotexpectthefactorsdrivingtheseeconomicstochangeinthenear-termabsentEPA'srulemaking.-Weoriginallywereonascheduletomakedecisionsaboutwhetherornottoretireourchallengedunitsbytheendof2014,butattherequestofpolicymakers,haveagreedtodeferthatdecisionuntilthisyeartoaccommodatethelegislativecalendar.•However,theexclusionofnuclearfromthe111(d)rulehasreducedtheLegislature'ssenseofurgencyandwedonotexpectlegislativeactionwithoutastrongfinalrule.Wecannotpostponeindefinitelyifwecontinuetolosemoneyontheseunits.•Iftheseunitsretire,theycannotbemothballedandlaterbroughtbackonline.Togethertheyrepresentnearly40million metrictonsofavoidedC02emissionsannually.-Overtheirlicenselives,theseunitswouldavoidnearly400millionmetrictonsofC02.-TheentirenuclearfleetinIllinoisrepresentsavoidedemissionsof65millionmetrictonsofC02peryear,ormorethanhalfthestate'sprojectedmass-basedlimit.•Inaddition,theNYandNJunitsalreadyscheduledtoclosepresentlyavoidover7millionmetrictonsannuallv.-Exelon1NuclearEconomicsRetirements/At-Risk2•Morethan4,000MWofnucleargenerationhasrecentlyretired:PlantMegawatt(MW)LocationOwnerCrystalRiver3860FloridaDukeEnergyFlorida,Inc.Kewaunee556WisconsinDominionResources,Inc.SanOnofre{SONGS)2,200CaliforniaSouthernCaliforniaEdisonCompanyVermontYankee605VermontEntergyCorporation•RecentclientreportsfromMoody'sandFitchhaveidentifiedover10,000MWofadditionalnucleargenerationisatriskofretirement:PlantMegawatt(MW)LocationOperatorByron2,336IllinoisExelonGenerationCompanyClinton1,065IllinoisExelonGenerationCompanyGinna583NewYorkExelonGenerationCompany*OysterCreek637NewjerseyExelonGenerationCompanyQuadCities1,871IllinoisExelonGenerationCompanyThreeMileIsland852PennsylvaniaExelonGenerationCompanyFitzpatrick838NewYorkEntergyCorporationPilgrim688MassachusettsEntergyCorporationIndianPoint2,069NewYorkEntergyCorporationDavis-Besse900OhioFirstEnergyCorporation*ExelonhaspreviouslyannouncedthatOysterCreekwillretirein2019-Exelon

# Costs of Reducing

or Avoiding C0 2 

# Emissions from Electric

Power Generation

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# ExelonNuclear Retirement Impacts C0 2 Emissions with CPP

4 • OPSI asked PJM to analyze a number of compliance scenarios, including a high nuclear retirement

scenario . C0

2 emissions would be much higher under CPP compliance with 50 % nuc l ear

retirements . As carbon prices grow to $30 and more, new CCGTs ( 111b ) and existing CTs ( with zero

carbon cost) are dispatched ahead of existing coal and CCGT.

500 4 8 5

450 400 397

350 300 250 2020 PJ M Forecast of CPP

C0 2 Emissions (n1n1 Tons)

475 462

2025 2029

- No Nuc Retire

- 50''/ Nuc Retire

- Cap

Source: PJM Ec o n omic A na l ys i s of EPA Cl e an Po w er P l a n P ro p o sal 3/2015, OPS I Cases 2a, 2b

. 4 111b + CT Emissions



# } 111d Em i ssions **Exelon**

# Nuclear Retirement Impacts CPP Compliance Cost

• PJM forecasts that CPP compliance costs would be significantly higher with 50 % nuclear

retirements. The carbon price and total cost will be roughly triple the cost of CPP compliance if all

current nuclear units operate:



# PJ M Forecast of CPP

Carbon Price ($/ton)

45 40 35 30 28

25 I I



## 20 1 I



## 15

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### 2 

# PJM Forecast of CPP Con1pliance Cost ($8)

10

5 4 

## 13

2020 2025 2029 

## 2020 :?025 2029

• No Nuc 

## Retire • 

# so·;, Nuc 

## Retire

• Nc1 Nur RPtirP • 

## 50'! Nuc 

## Retire

Sour ce: PJM Economic Analysis of EPA Clean Po1\er Plan Proposal 

### 3/2015. OPSI Cases 2a. 2b.4

5 

# £!!!:' Exelon

# Nuclear Economics

6 

## • In the preamble, EPA states that "nuclear units may be experiencing up to a $6/MWH shortfall in covering

their operating costs with electricity sales." This can be corroborated by an analysis nuclear cost estimates

and historic/forward e l ectricity prices.

• A relatively modest carbon price ( equivalent to roughly $6/MWH) would preserve many existing merchant

nuclear capacity that are currently unprofitable and at risk of premature retirement



# 2016 Forecast

$70 $60

......... Conting ency*



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**~** ........... tl7 Price adder assurnmg $10/mtC02 Fed eral -eartJorrPnce- 

# ~ .---.

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-- ' ---- !' --; , __ , Capacity

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## $20 201



## $10 $- ,------------ -r-- --'

Large Large Small

Dual Nuc Single Nuc S1ngle Nuc

Source: UBS

, 

### ·us E lectric Utilities and IPPs". Jan 2013

Source:

Cred it S uisse. "Nuclear

... The Middle Age Dilemma·. Feb 2013

*Contingency

does not include return on inves tment MISO Upstat e NY W estern Eastern T exas New

P JM P JM England

A

II·Hours Energy F orwards for 2016 de l ivery as of 9/10/201 4

,

MISO

basis IS assumed (90% of NiHub ). NY capactty forecast equals 2013 rest·of·state.



# £!:' ExelonReliabilityDispatchSafeHarborOverview•Proposaladdressesmanylegitimateconcernswithcomplianceduringtheinterimperiod,includingsendingapricesignaltomaintainexistingnuclearandhydropower(andrenewablesifEPAbasesBSERonlyonincrementalRE).•Numerouscommentersrecommendedtheoptionduringandafterthecommentperiod,includingEEl,EDF,Exelon,Calpine,andThirdWay.•Manymoreexpressedconcernwithpaceandtimingofinterimrequirementswithoutofferingsolutions.•Suchasafeharborwouldeliminatestates'compliancerisk(includingthatwhichstemsfromotherstates'choices),effectivelycapconsumercosts,andprovideamarket-basedincentivetopreserveexistingandinvestinnewzero-carbonresources.•TranslatestherequirementsoftheCleanPowerPlan(CPP/111(d))tothelanguageofleastcostdispatch.•WouldfunctionasanAlternativeCompliancePayment(ACP)forfossilunitsneededforreliability.•Co-optimizesreliabilityandGHGreduction-neitherisattheexpenseoftheother.•Thesafeharboroptionwouldbevoluntary-astatethatoptsintotheprogramwouldbedeemedcompliant.•Inthisway,similartofinal316(b)rulecomplianceoptionsforimpingementmortality.7::'Exelon

# Reliability Dispatch Safe Harbor Mechanics

• Under this option, EPA would develop a single, predetermined cost-per-ton of C0

2 

# and states

wou l d apply it to each unit based upon its emissions, resulting in a unit-specific variable cost

that would be i ncluded in the unit's market bid (for units in RTOs )

.

• If that unit was dispatched, the RTO ( or similar entity ) would retain the C0

2 

# cost and direct it to

load-serving entities. ( Generators would receive the remaining portion of their bid price.)

• LSEs could then refund those carbon fees to their customers, thereby reducing customer bill

impacts, or alternatively, otherwise use the funds to reduce customer costs (e .g., credit

transmission charges or other payments)

.

• Majority of credible regional studies show a carbon adder of between $15 and $20/ton

achieves overall interim goals.

8 

# • This comports with the cost-effectiveness assessment included in the proposed rule

.

•

This is an opportunity for tile Agency to agree that cost-effective reductions are the focus of

the interim period

.

• Th i s is dependent on all states impl ementing something equivalent, not all states

implementing ROSH

. 

# ;:;:' ExelonReliabilityDispatchMerchantRTOExample•AnRTOre-dispatchwithcarbonwillreduceemissionsbyincreasinggasgenerationandreducingcoalgenerationduringcertainhoursoftheyear:WithoutRTORe-Dispatch(C02emissionsduringhour=1,050tons)GeneratorsNuclear1000MWCoal1000MWGas1000MW1)Generatorsbidfuel:Nuclear$7/MWHCoal$32/MWHGas$35/MWH4)GeneratorsthatrunreceiveLMP:Nuclear$32/MWHCoal$32/MWH2)RTOdeterminesLMP=$32/MWHandgasdoesnotrun3)CustomerspayLMP=$32/MWHWithRTORe-DispatchataC02price=$15/ton(C02emissionsduringhour=440tons)GeneratorsNuclear1000MWCoal1000MWGas1000MW1)Generatorsbidfuei+C02:Nuclear$7/MWHCoal$47.8/MWH*Gas$41.6/MWH*4)GeneratorsthatrunreceiveLMPlessgeneratorC02adder:Nuclear$41.6/MWHGas$35/MWHRTO2)RTOdeterminesC02adders(Coal$15.8/MWH*,Gas$6.6/MWH*)andLMP=$41.6/MWHandcoaldoesnotrun3)CustomerspayLMPlessC02credit=$38.3/MWH($41.6LMPlessC02creditof$3.3/MWHbasedonaverageC02adderforallgeneratorsthatrun)CustomersLoad=2000MWCustomersLoad=2000MW-9*Coaladderbasedon1.05tonsjMWH(10HRx210lbs/MMBtu)andgasbasedon0.44tons/MWH(7.5HRx1171bs/MMBtu)ExelonReliability Dispatch Regulated Non-RTO Example

• There-dispatch can be accomplished by regulated utilities that are not in RTOs, but the mechanics

will be slightly different and the price impact is likely to be lower:

Without RTO Re - Dispa t ch ( C0 2 emissions du ring hour= 1 ,0 50 to n s)

Utility Generation

Nuclear 1 000 MW Coal1000 MW

Gas 1000 MW 1) Determine generation

fuel cost: Nuclear $7 /MWH

Coal $32/MWH

Gas $35/MWH _ Utility Disp atch

2) Utility determines

least cost dispatch

4 ) Generation that runs and gas does not run

receives fuel costs:

Nuclear $7 /MWH

Coal $32/MWH 3) Customers pay

$19 . 5/MWH fuel cost+

all fixed costs and return

on ratebase

With RTO Re - D i spatch at a C0 2 pr i c e = $15 /to n (C0 2 em i ss i ons during hour= 440 tons)

Utility Generation

Nuclear 1000 MW Coal1000 MW

Gas 1000 MW 1) Determine generation fuel

cost with C02 adder:

Nuclear $7 / MWH

Coal $47.8/MWH *

Gas $41.6/MWH* Utility Disp atch

2) Util1ty determines

least cost dispatch

with C02 adders

- (Coal $15.8/MWH*,

4) Generation that runs Gas $6.6/MWH*) and

receives fuel costs: coal does not run

Nuclear $7 /MWH

Gas $35/MWH 3) Customers pay

$21/MWH fuel cost+ all

fixed costs and return on

rate base Customers

Load= 2000 MW Customers

Load = 2000 MW

-

1 0 *Coal adder based on 1.05 tons/MWH ( 10 HRx210 lbs/MMBtu ) and gas based on 0.44 tons/MWH ( 7.5HRx1171bs/MMBtu ) **~** Exelon

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**~**Compliance with System Rate

12 • If 100 % of existing nuclear generation is included in the initial goal-setting algorithm and the compliance

formula, the baseline rate (10 00 lbs/MWh) will properly reflect the carbon benefits of continued operation

of the existing nuclear.

• Compliance demonstrations could then utilize 100 % of existing nuclear generation.

225 200 175 150 125 100 75 50 25 Co m p li a n ce Example w i th System Rate

Existing Nuclear I 100 Generation (Million MWH) 200 **~** 100 mm tons * 2000 lbs = 1 .000 lbs / MWh

200 TWh ton

\ 100 100

C02 Emissions

(Million Tons ) £!!:' Exelon

# Compliance Example

- EPA Proposed Rule

• Only 6% of existing nuclear generation is included in the goal-setting algorithm and presumptive

compliance formula, so conti n ued operation of nuclear has li ttle impact on the rate result.

• Consider an example with 100 TWh of Coal and 100 TWh of nuclear in a state:

13 

# Compliance Example Including Nuclear

225 200 175 Excluded

150 9 4% of Nuc

125 100 6% * Nuc

75 50 Coal

25 

# - ------- --- --· 200

94 Generation

(Mi ll io n MVvl-1) 

# 106 

# I 1 00 mm tons * 2.000 lbs 

# = 1887 lbs / MWh

106 TWh ton 

# 100 C02 Emiss i ons

(Million Tons) 

# £!:' Exelon

# Compliance as Proposed with Nuclear Retirement

-

Exclude New NGCC

14 

# • States can choose whet h er or not new NGCC is counted in the existing uni t r u l e compliance.

I f the nuclear units retire and the state e x cl udes new CC generation (or i f re placement power

is generated by out-of-state gas units ) o v era ll emissions can increase by r o u g hly 40 % while

the rate result is unchanged.

• Only 6 % of the nuclear is included in the r at e calc ul ation, so onl y 6 % o f t h e r e tir i ng generation

must be replaced by new clean generatio n i n order to keep the rate resul t le vel.

225 200 175 150 125 75 50 25 

# Compliance Example

200

1 -------- 

### ~ 

### 100 mm tons* 2

. 000 lbs 

## = 1

, 8871bs / MWh

I I 

### Excluded 1 

### NewNGcc :

or Imports 1 

### Coal 

## 94 Generat i on

(M il l i on MWH) 

### ' 106TWh ton 

# ~



# ! 

# I \ 1,887 lb/MWh is

: **139** 

# ~--------~ th e r esulting

1 

## 106 1 

## 39 1 

# em i ssions rate if

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# nuclear is retired



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### C02 Em issions

(Milli on Tons ) 

# and the replacement

NGCC is excluded

fro m calculations



# ::' ExelonComplianceasProposedwithNuclearRetirement-IncludeNewNGCC15•IfthenuclearunitsretireandthestateincludesnewNGCCgenerationinitscomplianceplan,C02emissionscanincreaseby40%andtherateresultactuallydecreases.•AddingNGCCgenerationtothemixcanlowertheaveragerateinthestate(ascalculatedbytheproposal).ComplianceExamplew/NewNGCC225200175150Included125NewNGCC1007550Coal25-Generation(MillionM\fv11)200141mmtons*2,000lbs=1,410lbs/MWh200TWhton""\""'1,410lb/MWhis141theresultingC02Emissions(MillionTons)emissionsrateifnuclearisretiredandthereplacementNGCCisincludedincalculations

# Compliance with Nuclear Retirement -

Denominator Adjustment

16 

# • I f a pre-maturely retiring nuclear unit is fully replaced with new zero-emission generation, then the

rate result is equivalent to continued operation of the nuclear units, and overall emissions do not

increase

. 

# Pr oposed Compliance

225 200 New **20** 

# ~

100 mm tons

175 

# * 2000 lbs 

# = 1887 lbs/MWH

150 

# RE / EE

-

125 

# I 

# '

100

100

75 50 

# I 100 

# I I I 100

25

Coal

(25) (50) 94 % of

(75) Retired

(100) (125) {94)

Generation C02 Emissions

(Million MWH) tMillion Tons)

' 

# - ::' E

x elon