P.1 

OAR Box 1802 

Prepped by Charmelle Mathews 

Document Number: 

35) IV-E-30 

Docket Number: 

A-90-37 

Printed 11/4/200811:57:59 AM Sheet 35 of 117 
P.2 

* 

Date: April 9,1999 A . Q Q ^ 2 "7 

To: Air and Radiation Docket # A-90-37 T\) -* I ? ~ 3 0 

From: EPA's Office of Air Quality Planning and Standards (MD-12) 

Re: October 22,1998 

On 10/22/98 there was a meeting between EPA and various representatives from the 

utility industry. During the meeting issues regarding utility "stranded assets" and major New 

Source Review (NSR) were presented to EPA and discussed in general. The specific NSR items 

discussed included: a claim by industry that the current NSR regulations acted as a barrier to 

promoting physical or operational changes that would otherwise increase energy efficiency and 

reduce emission, EPA citing the need for some specific examples of how the current NSR 

regulations act as a barrier to energy improvements at existing utility units, industry issues in 

regard to the potential NSR consequences that may be associated with the replacement of 

turbine blades at existing units, "district heating" type projects (a centralized unit that provides 

steam to multiple offsite facilities) and the NSR applicability process, and the concept of using a 

"cap" type of approach for determining major NSR applicability for utility units. A copy of the 

meeting attendee list and handouts presented at the meeting are attached. 

cc: Pam Smith, (MD-12) 
P.3 

^OCT.27.1998 12:28PM ISO. 659 P. 2/2 

Sfir Mir Ulftrrs 

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P.4 

PSE&G 

Jric5vens.ojiiJSoge/.5.chwarzi^ 

mmmm 

PSE&G: 10,500 Megawatts of installed generating 

capacity, energy diverse, serving one of the most 

densely populated states in the U.S. 

PSE&G procurs -

25% of its energy needs: 

-1/3 from IPPs&QFs 

As of 1997, PSE&G initiatives resulted in about 650 

Mw of DSM since 1990, 

our target is 1050 Mw 

by 2000. 

PSE&G Generation 

Energy Mix 

coal 

nuctaar 
P.5 

"Old" Electric Utility Business 

Generation 

"Old" Electric Utility Business: IRP Planning 

Inventory of 

Resources: 

Supply & 

Demand 

Projections 

of existing plant 

new plant 

costs & 

DSM alternatives 

Avoided Cost 

Determination 

Buy vs. 

' Build: PUC 

Considerations 

Aft. Suppliers. 

Other Utilities. 

IPPs, etc. 

4 
P.6 

Electric industry has been restructured at 

Wholesale level — Retail restructuring 

happening at state level. 

Monopoly service territories 

Open markets and consumer choice 

• Pre-1992 utilities had monopoly service 

territories. Only competition was from 

cogeneration facilities. 

• Post 1992: 

• Wholesale restructuring mandated 

at federal level 

• Retail restructuring proceeding at 

state-by-state level 

• With restructuring "uncertainty" is a 

"way-of-life". 

"New" Electric Business: Unbundled & Competitive 

^^EansanenHi^e^nannBBBBBHBa&' 

LEGEND-TRANSACTIONS 

• ^ - Third Party 

PSE6 

<33 
P.7 

"New" Electric Business: Planning by Business 

* m 

GENERATION 

WHOLESALE 

• ' • 

•What's the market? 

kKP projection 

- Fuel'"projections] 

Envir.ReqmtsI 

. - Capacity value 

- Ancillary services^ 

Location value 

- Voltage control 

' -Trading value p 

•SWOT 

.-Competitor assets 

- Owned assets*,; 

• H 

TRANSMISSION 

•Loading: 

•'- Existing capacity 

- Demand growth 

.-Location of 

constraints 

'- Loop flows 

• Stability control -

- History 

- Projections 

• Service & pricing 

opportunities 

._ a 

• Loading: 

• Existing capacity 

• Demand growth 

- Location of 

constraints 

- Location of 

growth 

• Reliability goals & 

Cust response 

requirements 

• Right-of-way avail. 

• Community 

concerns 

1 

RETAIL 

MARKETING 

• Market Assessment 

- IRarket segment 

tation (cust. Type, 

energy, services) 

-Size of market 

•SWOT 

-Self-assessment 

-Competitors 

•Obligations: 

-Universal service? 

• Wholesale'energy'. 

and capacity 

avail. & price 

Generation business planning today requires 

modeling regulatory and market issues and response 

to those issues to develop a robust plan. 

(V (2) P) 

Identify 

Regulatory 

Issues 

m 

Identify?; 

Market Issues „; 

Develop 

* Regulatory 

Scenarios 

(5) 

1

 Mark*) 

.^Scenarios 5, 

Identify 

r Strategies/ 

Technologies 

M 

.;. y57- 5^5i5. 

(7) 

mm 

^•aodel ^ 

?5'I'IO/ZA 

CP 
P.8 

For example, PSE&G has assigned probabilities 

to emerging regulatory requirements/outcomes 

Estimated 

Probability 

0% 

OTC Regional Probabilistic 

Outcomes 

|50*Mreiiy | 

0% 

Federal Probabilistic 

Outcomes 

iSttsu, 

beyond ft 

Countless combinations of strategies are 

evaluated in a financial model to determine 

an optimum strategy. 

Output/ 

Calc 

^ 
P.9 

Each strategy is evaluated against the total 

number of possible market scenarios to 

produce a range of potential values. 

m. 

For example, for an existing asset the potential value 

outcomes include: 

Strategy 173 Strategy 0 Strategy 11 

VO/IM 

Major 

Characteristic* 

l«OM I166M S18W 

SNCR /Amine Injection 

33% Gas Cofiring 

Allowance Consumption 

S124M S151M 

• No Reductions 

• Pure Allowance 

Consumption 

S11SM S140M S1S7M 

• SCR - 2 year Catalyst 

In 1993 and in subsequent years, PSE&G has used this 

approach to develop a NOx strategy for our NJ generati 

~ 50 

o 

o 

w 

c 

o 

t/> 

c 

o 

Z, 

W 

E 

UJ 

X 

O 

z 

40 

30 

20 

10 

0 

\ BER 1A BUR 10 Repowar, 

• \ 1 HUD2-LNBKJFA 

\ HUD 1 - Wn t mj. 

OS HO*tACT ^ \ 

— Ki-iUf.T/^f: —' — 

MX HO* »•*#»< (n*m Uj_ 

I I I I 

mtK 1 A l . bNLK 

V 

MER 1 & 2 u Allrilio/-

GT-WaUrlnj. ' 

HUD 2 - Amine 

1 1 1 I 

MER 1 A 2 - CAH Sys. 

• wjtn-ewsy* ME . R 1 A 2 - Induct SCR 

HUD 2 - Eton. SCR 

\ GT-S«lgctRp»r 

^^^^JT 

90 95 ® 99 00 03 
P.10 

One way to reduce uncertainty is to get "hands-on" 

experience, such as PSE&G has done with Mercury 

Projected Full-Scale Sorbent Use and Cost 

PctUart Cm touted 

Type Sfedudian 

Sato t Needed 

Type Tcnsfyr CtxtSWyr 

Instated 

COSt 

* 

Hg 

s^ 

Ha 

s^ 

2D 

>76 

25 

90 

25 

SO 

SO 

75 

-60 

Acthhtul Cartm 

Acttated Carbon 

SodirnBcartxrate 

Sodhm Bkartxnate 

Scxfun Bcartxrate 

Sotfun Bcartxraks 

Hydrated Lire 

H/tkatedLvne 

HyckatedLkne 

530 

1,200 

12,000 

30,000 

3340 

14,400 

3,500 

16^00 

3*500 

26543? 

600.1^00" 

3,000 

7,500 

990 

3,600 

400 

1£00 

.*» 

2/400 

24,000 

2/400 

* D e cost range reflects the range h surtxatf Mb, AC-1 costs are 

. to be half those of the comrrertialty-avaiaMe Darco FGD 

It would seem that few companies are really 

"struggling" with uncertainty « many are buying 

coal and fossil fuel assets. 

Plantfs) Plant Size 

Kincaid (coal) 1108 

State Line (coal) 500 

Coal, Oil, Gas, Hydro 4000 

Oil, Gas 2645 

Oil, Gas 3956 

Oil, Gas 3700 

Oil, Gas, Hydro 1185 

Biomass 

Oil, Gas 2000 

Homer City (coal) 1800 

Coal, Oil 1424 

MW Seller 

Commonwealth 

Commonwealth 

NEES 

PG&E 

So. Calif. Edison 

So. Calif. Edison 

Central Mane Power 

Buyer 

Dominion Energy 

Southern Co. 

US Gen. Co. 

Duke Energy Power 

AES Corp. 

Houston Industries 

FPL Group 

Boston Edison Sithe Energies 

NYSEG, GPU Edison Mission Energy 

NYSEG AES Corp. 

Total = 22,318 MW 

H 
P.11 

IO 

\i 
PSE&G: 10,500 Megawatts of installed generating 

densely populated states in the U.S. 

wsmm®m>tmm!mmm®w@sim IlilBiillHKil^ 

Map of PSE&G Service Territory and 

Location of Generating Assets 

M«<; Ycrf 

® 

7 ^vKoystons m 3i f\?.m}syivani..! ® ^ 

Pittebur^i 

7 ^MDonsmaugh 

Ha rri a burg 

O

a

**:i i L±iLiSt^AMaaa phi a 

Benim 

Hw>aig-Jyi«"'TY 

V . Vp^biKlwi 

\ !p;! *«vai w 

TMnton\gj|-' 

ButinutonJkP'*r c *

r

i 

£ Fossil plant 

(size denotes relative heat input] 

(darts red denotes % ownership) 

0 Nuclear plant Service area 

"2212 m IA) - 43% ownership (\3) • I, ,\ r*i .</*3 

*»1031 mWI - 95% ownership V^" t- -

J

'

3

 -"-»« / 

PSE&G procure ~ 

25% of its energy heeds: 

tiyes msUlted|iiigabout65p 

MwofDSM!sin&1^ 

our target is 1050 Mw 5 

by200^;.-^<;"v;>.-^ 

PSE&G Generation 

Energy Mix 

^ 9as_ coal 

nuclear 
u ** C C 

aW<Iil*w5s«K?«'®^^ 

'Qsn^ralion J 4 

ansmssnon 

,.-< ?'" 

Distribution 

Full vertical integration 

- Customers "captive" to utility 

- Universal service at reasonable prices 

- Fair opportunity to obtain reasonable 

"returns" for prudent investment 

ci 
u n ii • I: » 

i^^^^^S^SSS^^^mS^r^^^^Sm^S^^m^^Sf^S^^W^msml^Sma^m^- S*m«:3Ss8«SSiSs^^^SMs^s^^^mm^lsmm^SM: ? 

Inventory of 

Resources: 

Supply & 

Demand 

n^lwIFo?iffP!alM 

* r*Ai.Au*.dn&inV]* X&fteldeffctioftsS 

v -j 

, , Complianpe^ \:\\ 

» 1 Externalities v••i'" i 

Projections 

of existing plant, 

new plant . 

costs &, 

DSM alternatives, 

iiSMWB 

Projection 

Fuel Pricing 

Buy vs. 

Build: PUC 

Considerations 

Alt Suppliers: 

Other Utilities, 

IPPs, etc. • 

^ 
Wholesale level — 

at state level. 

l^sggllsffisslsls^ SSBS 

Monopoly service territorie 

Open markets and consumer choic 

Pre-1992 utilities had monopoly service 

territories. Only competition was from 

cogeneration facilities. 

Post 1992: 

{%• Wholesale restructuring mandated 

at federal level 

r

 • Retail restructuring, proceeding at 

state-by-state level 

With resttucturing a ; 

|way-pWife".;:-::' ^.j^^^^/z^ 

r ^-
"New" Electric Business: Unbundled & Competitive 

Cogeneration 

LEGEND-TRANSACTIONS 

Third Party 

PSEG 
(I n 

Wmmie^^^mw^W^^^S »««<»#&^:ffi«;^^^^ 

GENERATION 

WHOLESALE 

• What's the market? 

- Energy: 

- MCP projection 

- Fuel projections 

- Envir. Reqm'ts 

- Capacity value 

- Ancillary services: 

- Location value 

- Voltage control 

- Trading value 

SWOT 

- Competitor assets 

- Owned assets 

TRANSMISSION 

Loading: 

- Existing capacity 

- Demand growth 

- Location of 

constraints 

- Loop flows 

Stability control -

- History 

- Projections 

Service & pricing 

opportunities 

LDC 

Loading: 

- Existing capacity 

- Demand growth 

- Location of 

constraints 

- Location of 

growth 

Reliability goals & 

Cust. response 

requirements 

Right-of-way avail. 

Community 

concerns 

Market Assessment 

- Market segmentation (cust. Type, 

energy, services) 

- Size of market 

SWOT 

- Self-assessment 

-Competitors 

Obligations: 

- Universal service? 

Wholesale energy 

and capacity 

avail. & price 

^ 
oo 

CL 

requires 

%|R% 

3 

(1) 

Identify 

Regulatory 

Issues 

(4) 

Identify 

Market Issues 

( 

f

2) 

Develop 

* Regulatory 

Scenarios 

(5) 

Develop 

* . . Market 

. Scenarios 

(3) 

Identify 

" Strategies/ 

Technologies 

(6) 

, Market 

Model 

(7) 

Financial 

• Screening 

Model 

(8) 

.'•.'• ' 

Strategy 

Selection 

r^ 
< I •• A • 

regulatory requirements/outcomes. 

stir ' 

Probability 

0% 

OTC Regional Probabilistic 

Outcomes 

50% [50% Mercury ] 

100% 

Toxic 

reporting 

5%/yr red. OTC MOU 

65% NOx 

199 

_^_ 

1.5lb/mwhNOx 

GPS 

100% Ozone & fine 

particulate std. 

revision 

000 005, 

Toxic 

reporting 

5%/yr 

50% 

AR S02 Phase II 

AR Group II & Revised 

Group I NOx 

1.5 Ib/MWh 

NOx GPS 

Greenhouse 

Gas Reductions 

Credited • 

50% Mercury 

CO, to 

Kyoto levels 

50% S02 

beyond AR 

0% 

Federal Probabilistic 

Outcomes 

010) 

25% S02 

beyond Ar 

<£> 
combinations 

in a 

mR^^s^mmmmmm^mimmsi^m^mfim^^memsmm^^m! BBBsHSelSS ®mu^mm^3m®sm$m8^mimw^%mm ISS^^^^S^SfSSSi^SSs 

NPV 

<JS -

Output/ 

Calc 
number of ios to produce a 

values 

For example, for an existing asset the potential value 

outcomes include: 

Value 

Major 

Characteristics 

Strategy 173 

Expected 

Value 

High 

Value 

$140M $166M $180M 

SNCR /Amine Injection 

33% Gas Cofiring 

Allowance Consumption 

Strategy 0 

Expected 

Value 

$124M $151M 

• No Reductions 

• Pure Allowance 

Consumption 

High 

Value 

$219M 

Strategy 11 

Expected 

Value 

High 

Value 

$118M $140M $187M 

• SCR - 2 year Catalyst 

O 
In 1993 and in 

1EIIHHH 

^. 50 

X 

c 

o 

(Ji 

mmmm 

£ 

LU 

X 

O 

40 

30 

20 

10 

BER 1 & BUR 10 Repower, 

LIN 9, COX 9 Replace 

HUD 2 - LNB/OFA 

HUD 1 - Water Inj. 

MER I & 2 -SNCR 

60% NOx RACT / MER1 &2-CAHSys. 

~HUD~2 -~CAH"5ys. ~~ " 

MER 1 & 2 - In-Duct SCR 

HUD2-Econ. SCR 

• • _MOxBudgetJPhaae l[ HJJD_J.i.S,N,CB _^ 

__®%L&n__ Xante*- _ MER-l-ft *--Amine-. 

GT - Water Inj. 

90% NOx Budget (Phase II) HUD 2 - Amine 

V' 

\ ST-SSelec e t Rpv\ 

\ 

T T T T 

90 95 (98) 99 00 03 

C\> 
One way to reduce uncertainty is to get "hands-on* 

experience, such as PSE&G has done with Mercury 

Projected Full-Scale Sorbent Use and Cost 

Pollutant Controlled 

Type % Reduction 

Hg 

so2 

Ha 

so3 

20 

>75 

25 

50 

25 

50 

50 

75 

-90 

Sorbent Needed 

Type Tons/yr 

Activated Carbon 

Activated Carbon 

Sodium Bicarbonate 

Sodium Bicarbonate 

Sodium Bicarbonate 

Sodium Bicarbonate 

Hydrated Ume 

Hydrated Lime 

Hydrated Lime 

530 

1,200 

12,000 

30,000 

3,940 

14,400 

3,500 

16,200 

3,500 

Cost$k/yr 

265-530* 

600-1,200* 

3,000 

7,500 

990 

3,600 

400 

1,900 

400 

Installed 

Capital 

Cost 

$k 

2,400 

24,000 

2,400 

S^itffiiS-SSe 

* The cost range reflects the range in sorbent $/lb, AC-1 costs are projected 

to be half those of the commercially-available Darco FGDTM 

c0 
It would seem that few companies are really 

"struggling" with uncertainty •- many are buying 

coal and fossil fuel assets. 

Plant(s) Plant Size -

Kincaid (coal) 

State Line (coal) 

Coal, Oil, Gas, Hydro 

Oil, Gas 

Oil, Gas 

Oil.Gas 

Oil, Gas, Hydro 

Biomass 

Oil, Gas 

Homer City (coal) 

Coal, Oil 

1108 

500 

4000 

2645 

3956 

3700 

1185 

2000 

1800 

1424 

MW Seller Buver 

Commonwealth 

Commonwealth 

NEES 

PG&E 

So. Calif. Edison 

So. Calif. Edison 

Central Maine Power 

Boston Edison 

Dominion Energy 

Southern Co. 

US Gen. Co. 

Duke Energy Power ^ 

AES Corp. ^ 

Houston Industries 

FPL Group 

Sithe Energies 

NYSEG, GPU Edison Mission Energy 

NYSEG AES Corp. 

Total = 22,318 MW