1 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

_____________________________ _______ INTHE MATTER OF: ) ) ) TENNESSEE VALLEY AUTHORITY ) Federal Facilities Compliance Agreement ) Between the United States Environmental 400 West Summit Hill Drive ) Protection Agency and the Tennessee Knoxville, Tennessee 37902 ) Valley Authority ) Allen, Bull Run, Colbert, ) Cumberland, Gallatin, Johnsonville, ) Docket No

. CAA

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- 2010

- 1760 John Sevier, Kingston, Paradise, ) Shawnee, and Widows Cre ek ) Fossil Plants ) )

__________________________ ______ ___ _ Background On April 20, 2011 , the United States Environmental Protection Agency (EPA) published a notice in the Federal Register announcing a federal facilities compliance agreement (Compliance Agreement) between EPA and the Tennessee Valley Authority (TVA) to resolve alleged violations of the Clean Air Act (CAA) and its implementing regulations at the coal

- fired facilities that TVA owns and o perates in Alabama, Kentucky, and Tennessee. EPA’s notice requested comment s on the Compliance Agreeme nt and required that public input be submitted by May 20, 2011, in the TVA docket established at www.regulations.gov. During the 30

- day public comment p eriod, EPA received approximately 125 separate sets of comments. On June 14, 2011, EPA published a notice in the TVA docket at www.regulations.gov , as well as on its coal

- fired power plant initiative website at http://www.epa.gov/Compliance/resources/cases/civil/caa/tvacoal

- fired.html , announcing, in part, that EPA would respond to comments it received by July 8, 2011. This document is EPA’s response to the comments. EPA has identified a number of common concer ns in the c omments, and responds to each of these concerns below. Comment 1 - Economic/Social Impacts of Retirements A majority

of the comments received b y EPA reference the potential economic and/or social impacts on local communities surrounding the plants at which TVA has committed to retire coal

- fired units. These commenters generally express an expectation that the effects of coal unit retirements on these communities will be detrimental, and several portray the expected2

impacts as devastating. In p articular, the comments seem to focus on the Johnsonville Plant, which will have all ten of its coal

- fired units retired under the Compliance Agreement. Many commenters point out that the retirements will result in the future loss of employ ment for severa l hundred emplo yees that currentl y work at the affected plants. With respect to the local communities surrounding the Johnsonville facility, they highlight the rural nature of the area and say that TVA is among the largest employers in the region. They c ite the current levels of unemploy ment in this area as being extremel y high, which will not be helped by the loss of more jobs. They

also state that layoffs may require many

families to be displaced or result in increased foreclosures. Numerous commenter s also express a belief that the coal unit retirements will have further implications for the local communities. They state that the loss of jobs at TVA plants will cause businesses in the area to see reduced revenues, resulting in additional job losses and potential shutdown of some businesses. Some commenters also state that this will result in diminished local government services as the tax base shrinks, while others claim that schools and local organizations will be impacted b y the lack of support that TVA and its employees have traditionally

provided. A few commenters express a belief that the Compliance Agreement will not be helpful to the struggling U.S. econom y, and at least one commenter requests that this decision be placed on hold until the eco nomy improves. Response 1

- Economic/Social Impacts of Retirements The Compliance Agreement between EPA and TVA is similar to settlements that EPA has reached with more than 20 other electric utilities over the last decade to address alleged noncompliance with CAA requirements. As in each of these previous cases, EPA has alleged that TVA failed to comply with requirements applicable to new or modified sources of air pollution for a number of its coal

- fired units, including the requirement to apply appropriate technology

that reduces the emissions of harmful air pollutants. The Compliance Agreement addresses the alleged violations and will significantly reduce the emissions from its coal

- fired fleet through a mix of pollution control additions, unit retire ments, temporary unit idling, and renewable biomass repowering. The Compliance Agreement is prescriptive regarding the exact actions that will be required for some of the TVA coal

- fired units, but also allows for future decisions regarding the specific op tions that will be implemented at other units. Through this approach, TVA has committed to a number of emission reducing actions pursuant to its current business plan and existing infrastructure, while retaining the ability to make decisions regarding the best options for the necessary emissions reductions as its business plan evolves in the future. The 18 coal

- fired units, comprising the over 2,700 MW of generating capacity that TVA has committed to permanently retire pursuant to the Compliance Agreement, were selected b y TVA. EPA is not aware of what factors TVA may have considered in determining which units to retire. EPA also notes that the Compliance Agreement does not prohibit TVA from constructing new lower emitting sources of power at the plants where units will be retired , and in fact contemplates that new natural gas power will be built at some of the locations.3

When fully

implemented, EPA anticipates that the Compliance Agreement will result in a combined total of over 341,000 tons per year of reduced sulfur dioxide and nitrogen oxides emissions. These pollutants lead to a number of adverse environmental and health effects when emitted to the air. EPA est imates that the monetized health benefits of these emission reductions range from $11 to $27 billion (in 2010 dollars), per y ear, including avoiding 1,200 to 3,000 premature deaths, 2,000 non

- fatal heart attacks, 800 cases of chronic bronchitis, 960 hospit al admissions, 1,200 emergency department visits for asthma, 1,900 cases of acute bronchitis, 21,000 asthma attacks, 39,000 cases of upper or lower respiratory s ymptoms, 150,000 day s when people miss work, and 880,000 day s when people must restrict their a ctivities per ye ar. While these health benefits will occur throughout TVA’s service area and in downwind locations, EPA expects that a portion of these health benefits will also be realized in the communities surrounding the retired coal

- fired units. In addition, the Compliance Agreement also requires TVA to spend $350 million on environmental mitigation projects to address the impacts of past emissions. Communities near TVA’s facilities will directly benefit from $350 million in environmental projects de signed to reduce harmful air pollution and advance EPA’s goals in addressing environmental justice issues

. TVA estimates that the Energy Efficiency

Projects and the Clean/Renewable Energy Projects will achieve the following reductions: CO 2 wil l be reduced by 30,000,000 tons; SO 2 will be reduced b y 96,000 tons; NO x will be reduced by 25,000 tons; and m ercury will be reduced b y 800 pounds. Comment 2 - Legality of the Compliance Agreement & EPA’s Authority to Require Retirements A number of the comments rece ived b y EPA call into question the legal basis for the Compliance Agreement. Several of these comments generall y express a belief that that the Compliance Agreement is illegal, unethical or improper. Some commenters believe that EPA lacks the authorit y t o require unit retirements. A few commenters question why the dispute between EPA and TVA was not settled in the courts, while others indicate the agreement should be approved b y Congress. Some of these commenters also question two federal agencies entering into such an agreement, and particularl y one that involves required retirements of coal

fired electric generating units. One commenter asserts that EPA exceeded its authority under Executive Order 12088. This commenter also states that EPA violated i ts own policy regarding supplemental environmental projects, because the mitigation projects do not satisfy nexus requirements. Furthermore, the commenter states that North Carolina is statutorily prohibited from being allocated environmental mitigation p roject funds in excess of $100,000, based on its only stated cause of action under the CAA citizen suit provision. Response 2

- Legality

of the Compliance Agreement & EPA’s Authorit y to Require Retirements4

Section 118 of the CAA requires all federal enti ties that own or operate emissions sources regulated b y the CAA to comply with all federal, state or local requirements applicable to such emissions sources. Section 113 of the CAA authorizes EPA to pursue enforcement for violations of the Act. Pursuant to Executive Order 12088, Federal Compliance with Pollution Control Standards, 43 Fed. Reg. 47707, executive branch agencies are to cooperate with the Administrator of EPA in the prevention, control and abatement of environmental pollution, and the EPA Adm inistrator is to make every effort to resolve conflicts between federal agencies regarding the violation of pollution control standards. To this end, EPA has a longstanding history of using federal facility

compliance agreements to implement the required measures to address noncompliance at federal facilities. EPA alleges in the Compliance Agreement and the companion Consent Agreement and Final Order (Docket No. CAA

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- 1528(b)) that TVA failed to comply with several elements of the CAA , including the Prevention of Significant Deterioration , Nonattainment New Source Review, New Source Performance Standard , and Title V provisions , as well as the associated federal and state implementing regulations. EPA and TVA have reached agreement on appropriate measures to address the alleged noncompliance and mitigate the harmful effects resulting from substantial quantities of air pollutants that have been emitted. EPA and TVA are implementing this resolution through the subject Compliance Agreement. The envi ronmental mitigation projects that TVA is required to complete pursuant to Section V.F of the Compliance Agreement are not supplemental environmental projects and are not subject to the EPA Supplemental Environmental Projects Policy . Instead, the environm ental mitigation projects are designed to address the impacts of past emissions. United States, et. al., v. Cinergy Corp. , 582 F.Supp.2d 1055 (S.D. Ind. 2008)(“This Court therefore concludes that its equitable authorit y granted by Section 113(b) includes the authorit y to order relief aimed at redressing the harms caused by Defendants’ established violations of the CAA”). The Compliance Agreement requires TVA to pay no less than $60 million in funds to Alabama, Kentucky, North Carolina and Tennessee to fund environmental mitigation projects described in Section III.F of the Consent Decree ( Alabama et al. v. Tennessee Valley Auth., No. 3:11

- cv 00170 [E.D. Tenn. entered June 30, 2011 ] ). The Compliance Agreement does not include any provision regarding the al location of such funds to the respective states. The allocation of funds for environmental mitigation projects is controlled by the Consent Decree, which is not subject to the notice seeking public comment. Comment 3 - Transparency A significant number o f the comments received b y EPA express a belief that the Compliance Agreement was not developed through a transparent process. Several commenters described the Compliance Agreement as a secret or backdoor deal. Others indicate that the Compliance Agreeme nt is far reaching and affects many lives, but those affected were not involved in its development or did not have an opportunity to comment. Some commenters express a belief that it is inappropriate for two federal agencies to enter into an agreements su ch5

as this without any

kind of public hearing or prior notification. Meanwhile, some of the commenters indicate that the TVA emplo yees have not been provided with accurate information. Response 3

- Transparency The Compliance Agreement arises from a legal dispute between EPA and TVA, regarding the compliance status of a number of TVA’s coal

- fired units with respect to CAA requirements. EPA initiated enforcement in the late 1990s regarding the allegations. EPA and TVA attempted to resolve their diffe rences through a series of settlement discussions involving EPA and TVA. Through the discussions, it became apparent that similar allegations of noncompliance had also been made b y other parties in the civil judicial federal court setting. In this circum stance, it was appropriate for EPA, TVA, and others (environmental groups representing interested citizens and the State of North Carolina) making similar allegations of noncompliance to work together and achieve settlement to ensure consistency in the ultimate resolution. Settlement discussions are not t ypically public for a number of reasons. As a general matter, maintaining the confidentiality of such discussions helps foster an open dialogue between the parties. EPA is not required to seek public inp ut for a federal facilities compliance agreement. However, EPA recognized that the settlement with TVA was a significant action that will have impacts for numerous people and entities over a large geographical area. Therefore, EPA chose to go beyond its obligations in this case and provide d an opportunity for the public to comment on the Compliance Agreement. EPA disagrees with those comments that indicate the public was not provided an opportunity to comment, because EPA clearl y did provide such an oppo rtunity

. Comment 4 - Em ission Controls Rather Than Retirements A number of commenters generall y advocate for emissions controls at the coal

- fired units scheduled for retirement. These commenters indicate that it would be better to install emissions controls at the units rather than to shut those units down. Some commenters express a belief that adding emissions controls to the existing units will be cheaper than investing in new sources of power, such as nuclear energy and its associated issues. Other s point out that the adverse environmental impacts of the coal

- fired units can be reduced through retrofitting with appropriate emissions controls. Some commenters express frustration that TVA has provided funding for controls at some plants but not for o thers. Meanwhile, others advocate investing in the existing infrastructure to create further job opportunities in the Tennessee Valley

. Response 4

- Emission Controls Rather Than Retirements As is discussed above with respect to the economic and social i mpacts of TVA’s retirement plans, the 18 coal

- fired units that will actually be retired pursuant to the Compliance Agreement was determined by TVA . However, for the majority of TVA’s coal

- fired s ys tem, it will be making the decisions regarding whether to install emissions controls or implement the6

other available compliance options in the future. Comment 5 - Concerns about Generating System Reliability, Loss of Johnsonville and John Sevier plants, & Increased Rates from Retirements Several commenters voiced concerns regarding TVA’s ability to reliably

provide power to its customers following the retirement of coal units. Multiple commenters suggest that alternative energy

sources will not be capable of meeting the existing or future demand on TVA’s s ys tem. Some commenters say that renewable sources of energy such as solar and wind are not reliable. Other commenters assert that the coal unit retirements are an unnecessary reduction in generating capacity when the replacement capacity has not been identified or built. Meanwhile, others point out that TVA already purchases some of the power that is supplied to its customers. A number of the comments received b y EPA include statements regarding the historical performance of the John sonville and John Sevier plants and indicate that retirement of units at these facilities is not warranted. Several of these commenters maintain that the Johnsonville facility provides dependable and low cost power for TVA’s customers. Others indicate th at TVA can count on the Johnsonville plant in situations where other units are not available for service. Several commenters point out that the John Sevier plant is one of TVA’s best performing plants and was recently recognized for its high performance b y an industry group. A small number of the comments received b y EPA raise concerns regarding the impacts of TVA’s retirements at the Johnsonville plant on the DuPont facility that is located nearb y. These commenters point out that TVA has a contract to p rovide steam and electricity to the DuPont plant and they

feel that DuPont may

not be able to continue to operate once the Johnsonville coal

- fired units are no longer in service. They also indicate that the DuPont facility is one of the largest emplo yers in the area and the additional loss of jobs would have significant economic impacts locally

. In addition, a number of the commenters expressed concerns regarding the potential for increased costs associated with power derived from alternative sources of energy . Several commenters believe that gas

- fired generation is expensive and will result in increased electric rates. Others say

that relyingon natural gas generation reduces flexibility and will result in more expensive power if natural gas prices ris e. Meanwhile, commenters also say that nuclear plants are expensive to build, renewable sources of energy cost more to operate and purchasing of power can be expensive, which will result in increased rates for customers. A few commenters also point out that TVA provides power in relatively poor areas of the country that are already hindered b y the recession, and which depend on stable and affordable electric rates. Response 5

- Concerns about Generating S ys tem Reliability , L oss of Johnsonville and John Se vier plants, & Increased Rates from Retirements As mentioned in response to comments discussed above, TVA either has made or will7

make decisions regarding how best to comply with the Clean Air Act at its coal

- fired units. EPA is not aware of the specific factors TVA may have considered in determining which units to retire. However, EPA notes that in discussing the recentl y completed Integrated Resource Plan (a strategic planning document developed b y TVA with TVA partners and stakeholders) on its website , TVA indicates that the strategic planning document supports the principles of providing its customers with electric power in a reliable, affordable and sustainable manner. The Compliance Agreement also does not address other sources of power in the area that may be able to provide steam and electricity to nearby

businesses, such as the Dupont facility . In addition, the Compliance Agreement itself allows for a potential force majeure claim by TVA in the event that TVA is directed b y a government agency o r regional transmission organization, to supply electricit y in response to a system

- wide, state, or regional emergency

. Comment 6 - Replacement of Coal with Nuclear Generation & Nuclear Safety Concerns Several commenters feel that the retirement of TVA’ s coal

- fired units will lead to an expansion of TVA’s nuclear capacity . These commenters are concerned about possible nuclear accidents causing environmental disaster, and they highlight the recent events in Japan. Some point out that a nuclear accident can be caused b y factors other than natural disaster, including human error. Others say

that coal

- fired emissions are not as harmful as the potential exposure to nuclear radiation, and the impacts don’t last as long. Some also point out that there are iss ues with the handling and disposal of the spent nuclear fuel. Response 6

- Replacement of Coal with Nuclear Generation & Nuclear Safety Concerns The Compliance Agreement does not include an y elements regarding the e xpansion of nuclear power within TVA’s electrical generating sy stem. Any plan that TVA may have for future expansion of its nuclear fleet is a TVA decision made independent of the Compliance Agreement and its requirements. Additional information regarding nuclear radiation may be available through the United States Nuclear Regulatory Commission ( www.nrc.gov ). Comment 7 - Relationship b etween the Kingston Ash Spill & the Compliance Agreement A few of the comments received b y EPA reflect a sense that there is so me relationship between the Compliance Agreement and the ash spill that occurred at TVA’s Kingston plant in December of 2008. Commenters say that the Compliance Agreement seems to be a result of the ash spill and that the Johnsonville plant should not be retired as a result of what happened at Kingston. Some feel that the Johnsonville facility is being closed in order to save the Kingston facility

. Response 7

- Relationship between the Kingston Ash Spill & the Compliance Agreement The Compliance Agreement is not related to the fly ash release that occurred at the Kingston plant in late 2008. The Compliance Agreement addresses alleged CAA noncompliance8

at several of TVA’s coal

- fired plants. As is detailed further in the Compliance Agreement and the assoc iated Consent Agreement and Final Order (Docket No. CAA

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- 1528(b)), EPA alleges that TVA modified a number of its coal

- fired units without complying with applicable CAA requirements, including requirements that permits be obtained prior to constructi on and appropriate pollution controls be installed to reduce emissions of air pollutants. EPA initiated enforcement related to these violations in the late 1990s and has now reached agreement with TVA on appropriate measures to address the alleged noncomp liance. Comment 8 - Em phasis on Clean Coal Technology Rather Than Retirements and Objection to Reducing Coal - based Power Production A few of the commenters made statements advocating for the use of clean coal technology

to keep TVA’s coal

- fired units operating. Some of these commenters question what will happen to the coal that is no longer needed at TVA’s retired units, while others assert that less developed countries with little or no environmental standards will continue to expand the use of coal and increase emissions worldwide. They speculate that the development of clean coal technology

in the United States can have a beneficial impact on global emissions. In addition, a small number of commenters suggest that it is bad policy to reduce coal

based power production in the United States. Multiple commenters say that the Unites States has a great quantity

of coal and we should be using more coal for power production rather than less. Others question contraction of coal

- based electric gener ation. In addition, one commenter suggests that the government should expand coal mines and coal

- fired power plants in an effort to generate more jobs and provide for energy independence. Response 8

- Emphasis on Clean Coal Technology Rather Than Retireme nts EPA is not aware of the specific factors TVA may have considered in determining which units to retire versus continuing to operate. However, the Compliance Agreement allows for a substantial portion of TVA’s coal fleet to remain in operat ion and cont inue utilizing coal for power production. In addition, this continued operation of coal at much of TVA’s fleet could include use of clean coal technologies in the future. Comment 9 - Involvement of the Environmental Groups EPA received a few comments r elating to the involvement of environmental groups. One commenter questioned the relationship between EPA and Sierra Club, while another appeared to suggest that Sierra Club is making decisions for EPA. Another commenter stated a belief that the Complian ce Agreement was driven b y a “radical environmental group.” Another commenter asserted that it is a misuse of taxpayer money to allow any

pay ments to be made to entities such as Sierra Club. Response 9

- Involvement of the Environmental Groups9

While there are three nongovernmental environmental organizations, including Sierra Club, and four states that have joined with EPA to resolve alleged CAA noncompliance at TVA’s coal

- fired power plants, none of these entities are a party to the Compliance Agreement. The environmental organizations and states have entered into a Consent Decree ( Alabama et al. v. Tennessee Valley

Auth. , No. 3:11

- cv - 00170 [E.D. Tenn. entered June 30, 2011 ] ) with TVA that, for the most part, contains the same requirements as the Compliance Agreement. The states and environmental organizations had raised their own allegations regarding TVA’s CAA compliance that were similar in nature to EPA’s allegations. EPA’s Compliance Agreement stemmed from EPA’s own allegations of violat ions at the TVA facilities and the decisions EPA made regarding the requirements of the Compliance Agreement were EPA’s and EPA’s alone. We would point out that many of the provisions of the Compliance Agreement with TVA are identical or substantially

sim ilar to provisions of agreements that EPA negotiated with other coal

- fired power plant owners and operators and were negotiated without the involvement of nongovernmental environmental organizations. However, in resolving these claims, TVA has entered into separate agreements with EPA and the state and environmental organizations.