EPA's "Clean Power Plan"

... Greenhouse

Gas Proposed

Rule
for Existing
Units Background On June

2, 2014,

the Environmental Protection Agency
(EPA) released

a proposed

rule for the regulation

of greenhouse

gas (GHG) emissions

from existing electric generation

units. The "Clean Power Plan"

has two main components:

1) state specific emission

rate goals

to lower carbon dioxide (C02) emissions

from power plants using

a 2012 baseline;

and

2) guidelines

to help states develop

their plans

for meeting interim
goals starting

in 2020
and final goals

by 2030 using

a series

of "building blocks".

The building blocks (which collectively represent

the "best system

of emission reductions", according

to EPA) include

coal power plant efficiency improvements, re-dispatch

from coal

to gas, expanded

use

of low- and zero-carbon generating capacity,

and expanded

use

of demand-side

energy efficiency. Impact

to Wisconsin
Energy Corporation While

we give EPA credit

for creativity

and believe

EPA tried

to give states some flexibility,

we are very concerned

about

the proposed

rule, primarily because

EPA failed

to adequately account

for the emissions improvements

we've made thus
far. While

we believe

that
we are well positioned because

of the efficiency

of our new plants,

here
are our initial concerns

with the EPA proposed

rule: No Credit

for Early Action Since 2003,

we have invested approximately

$9 billion

to increase

the efficiency

at our plants

and increase the use

of renewable
energy sources

by adding

new generation

and state-of-the-art

emission control technology

to new and existing
units; repowering

older,

Jess efficient

coal plants

to combined

cycle natural gas plants; adding

two

of the largest wind farms

in Wisconsin

and

a biomass
plant; increasing efficiency;

and investing

in distribution upgrades. Our actions resulted

in

a 50% increase

in capacity,

more than

an 80% reduction

in 502, NOx, mercury

and particulate
matter,

and

a reduction

in C02 emissions- bringing

our GHG emissions

level below

our 2000 level. EPA's proposed

rule does

not account

for any

of the major initiatives

we undertook

prior

to 2012.
This could result

in

. stranded

costs

for our customers

for some

of our power plant investments. 2012
Not

a Representative

Baseline

Year EPA used 2012

as the baseline

year

to calculate

state specific emission

rate goals. However,

2012

is not

a representative

baseline

year

... the economy

was still recovering

and natural

gas prices were unusually

low which resulted

in

a significant reduction

in the use

of coal generation. Re-dispatch

from Coal

to Gas One ofthe "building blocks" included

in EPA's guidelines

for states

is

a re-dispatch

from coal

to gas units

. This re-dispatch fundamentally

changes

the operation

of our nation's energy markets-

from
the current practice

of dispatching

energy based

on least cost

to what
will result

in energy based

on gas dispatch, possibly increasing

costs

for our customers.EPAalsoassumesa70%capacityfactorforexistingcombined-cyclenaturalgasunits.Thiscapacityfactordoesnotappeartobebasedonactualoperationsanddoesnotmatchwiththerealityoftoday'senergymarkets.OurPortWashingtonGeneratingStationisan1,150megawattnaturalgaspoweredgenerationstationthatreplaceda1930scoal-fueledplant.ThetwounitsatPortWashington(placedinservicein2005and2008)arethemostthermallyefficientgeneratingunitsinWisconsin.Thispastyear,theveryefficientunitsatPortWashingtonoperatedatjusthalfoftheproposedcapacityfactor...35%in2013.Increasingthecapacityfactorwillcertainlyimpactnaturalgassupplyandincreasecostsforourcustomers.ImpacttoStateofWisconsin$175-$350millionisthehighlevelannualcostestimateforWisconsintoimplementEPA'sfourbuildingblocksin2020.Thisestimateincreasesto$300-600millionby2030.Wisconsin's34%GoalIsAbovethe30%NationalAverageEPAsetstatespecificemissionrategoalstolowerC02emissionsfrompowerplants.Thisgoalamountstoanationwideaverageofabouta30%massreductionfrom2005emissionlevelsby2030.ThegoalthatEPAsetforWisconsinis4%higherthanthenationwideaverage...at34%.BuildingBlocksCouldCostWisconsinResidentsNearly$300Millionin2020BuildingBlock1callsforunitspecificefficiencyimprovements,whichEPAestimateswillsaveanaverageof6%acrossthefleet.MuchoftheefficiencyimprovementthatEPAproposesisalreadyoccurring.Instead,a1%-2%efficiencyimprovementcouldbetechnicallyfeasible.EPAalsoassumesthata6%efficiencyimprovementcanbeachievedatacostof$6-12pertonne,bututilityanalysisshowsamuchhighercosttoachieveandmaintainthislevel.ThehighlevelannualcostestimateforBuildingBlock1forWisconsinis$25-75million.A2%orlowertargetwouldbemoretechnicallyfeasible.BuildingBlock2callsforare-dispatchfromcoaltocombinedcyclenaturalgaswitha70%capacityfactor.BuildingBlocks1and2areinconflict...ifcompaniesincreasegasplantoperationstoachievea70%capacityfactor,thenpresumablythecompanieswoulddecreasecoalplantoperations.Coalefficiencyimprovements(BuildingBlock1)arenegatedbecausecoalplantsarelessefficientwhentheyoperateless.ThehighlevelannualcostestimateforBuildingBlock2forWisconsinis$80-170millionfor2020-2029.BuildingBlock3callsforincreaseduseoflow-andzero-carbongeneratingcapacity.Itisnotclearhowpowerpurchaseagreementsforout-of-stateprojects,includingcontractuallyobligatedrenewableenergycredits,willbeconsidered.ThehighlevelannualcostestimateforBuildingBlock3forWisconsinis$15-30millionin2020,increasingto$150-300millionby2029,overandabovethecurrentWisconsinenergyrequirement,andassumingtheProductionTaxCreditisextended.BuildingBlock4callsforexpandeduseofdemand-sideenergyefficiency.Asrequiredbystatelaw,Wisconsin'sutilitiescontributetoFocusonEnergy,thestatewideenergyefficiencyandrenewableresourceprogram.ThehighlevelannualcostestimateforBuildingBlock4forWisconsinis$60-65millionfor2020-2029,overandabovethecurrentcontributionstoFocusonEnergy.August2014