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December 20 , 2013

VIA EMAIL to: carbonpollutioninput@epa.gov

Ms. Gina McCarthy, Administrator U.S. Environmental Protection Agency 1201 Constitution Ave., N.W. Washington, D.C. 20460

Re: Listening Sessions on the D esign of a Program to Reduce Carbon Pollution from Existing Power Plants Under Sec. 111(d) of the Clean Air Act

Dear Administrator McCarthy:

In response to the various listening sessions that the U.S. EPA has conducted over the past several months to obtain public input on possible design considerations regarding the Administration’s expected regulatory program to limit emissions of greenhouse gases from existing power plants under Sec. 111(d) of the Clean Air Act , American Municipal Power, Inc. (AMP) and the Ohio Municipal Electric Association (OMEA) hereby offer the following initial considerations and practical implications for the agency’s review

. AMP , one of the nation’s largest municipal power suppliers, welcome s the opportunity to meet with you and your staff to address in person any questions you may have and provide any additional information that you might need , particularly regarding the unique ramifications of potential options on municipal utilities and the ir ability to provide affordable and reliable energy to a broad range of consumers.2

Background on AMP
Ohio

- based AMP is the non

- profit wholesale power supplier and service s provider for 129 locally regula ted municipal electric entities located in Delaware , Kentucky, Michigan, Ohio, Pennsylvania, Virginia, and West Virginia. AMP’s members collectively serve more than 625,000 residential, commercial, and industrial customers and have a system peak of more than 3,000 megawatts. AMP’s core mission is to develop, manage and supply diverse, competiti vely priced, reliable wholesale energy to public power members through strategic partnerships, member

- focused relationships and a diversified power resource mix. AMP’s diverse energy portfolio makes the organization a national leader in the deployment of renewable and advanced power assets that include a variety of base load, intermediate and distributed peaking generation using hydro, wind, landfill gas, solar and fossil fuels, as well as a robust energy efficiency program. The majority of AMP’s members a re located in the PJM regional transmission organization footprint, with a handful of AMP members located
in MISO. The OMEA represents the state and federal legislative interests of AMP and 81 Ohio municipal electric communities.

Because of AMP’s structure as a non - profit power provider, AMP / OMEA closely follow federal and state regulation that could impact its members’ costs and reliability. To that end, AMP’s / OMEA’s comments on the design elements of limits on GHG emissions from existing power plants reflect expected impacts of the upcoming standards on AMP and
member units, as well as potential impacts to other existing units in the region, from which
AMP / OMEA members expect to acquire varying proportions of their power supply through wholesale mark et purchases. The multi

- state nature of AMP’s / OMEA’s membership and power supply portfolio, plus the various types of electricity markets within which we operate, all point to the need for careful consideration of all options, particularly those that a cknowledge that “one size does not fit all” when it comes to carbon
standards.

AMP is a progressive leader in developing alternative and renewable energy among both its public and private peers. AMP has actively worked over the past decade to diversify o ur3

power supply portfolio, to the point that we are on track for our owned assets to be approximately 20% renewable by 2016. The closure of an old er coal facility in 2010, coupled with the addition of 70 7 MW of new natural gas combined cycle ( NGCC ) genera tion
at the AMP Fremont Energy Center (AFEC) in 2012 and 300 MW of new run

- of

- the

- river hydroelectric generation by 2016, has both reduced our reliance on market purchases and lowered our overall carbon footprint considerably. AMP was an early participant in carbon markets through membership in the Chicago Climate Exchange (CCX) and has an active forestry carbon offsets development program, with over 200 acres already reforested in
Ohio alone. In a ddition, AMP’s t hree

- year - old Efficiency Smart program is de livering positive results and energy (and emissions) savings to participating AMP members.

Existing AMP and member

- owned facilities that are expected to be subject to EPA’s upcoming carbon standards include the previously mentioned NGCC generating plant , a number of small natural gas combustion turbines , and member

- owned local coal

- fired electric generating units. In addition, AMP owns approximately 23% of the Prairie State Energy Campus, a 1,600 MW mine

- mouth supercritical coal plant in Illinois that be gan commercial operation in 2012

. AMP’s / OMEA’s comments reflect expected impacts on those facilities plus impacts on regional electricity markets.

Specific AMP/ OMEA Comments for EPA Consideration As a leading provider of energy to municipalities an d their residents and businesses, AMP brings a perspective to EPA rulemakings impacting the energy field that is both complementary and distinct from other stakeholders. Accordingly , AMP / OMEA request that EPA carefully consider the following speci fic comments prior to proposing any carbon
standards on existing units. These are our initial high

- level comments for consideration by EPA at this early stage of rulemaking development , and are like ly to evolve with additional analysis and developments

. AMP’s / OMEA’s comments a re directed not at the legal underpinnings of the expected standards at this time (and thus we take no position at this time on EPA’s legal authority to pursue such rules) , but rather on issues relative to feasibility, practicality , and applicability to AMP, our members, and existing units under4

both AMP’s and our members ’ control and ownership. We also are active with a variety of coalitions and national organizations that will be raising legal issues for EPA’s
consideration , and look forward t o working collaboratively and cooperatively with EPA in sharing our perspectives on the impacts of such standards on AMP, its members ’ municipal
utilities , and their customers.

Scope of Applicability : As noted above, AMP / OMEA expect that a number of small coal units owned by local municipal governments, plus a number of small combustion turbines owned by both AMP and our members, could be subject to the upcoming existing source
rule. Under other federal air regulatory programs, units 25 MW and below have been exempted or subject to separate rulemaking procedures due to lower overall emission / impacts, higher relative compliance costs when compared to benefits, equipment incompatibility, etc

. Public power systems and utility units, like those of AMP ’s members
, tend to be smaller and older than investor

- owned systems and units , and are therefore disproportionately likely to fall beneath the 25

- MW threshold

. AMP / OMEA request that a similar approach be taken to exempt fossil units 25 MW and below fro m the existing source
rule.

AMP Organizational Structure / Business Model : As a joint action agency that cooperatively s upplies energy and capacity and provides other services to our 129 member electric systems in seven states, AMP , like many public util ities, does not easily fit the mold that EPA envisions for electricity generators that it intends to regulate under the existing
unit rule. In practice, each of the AMP ’ s project participants effect ively owns its project share through contractual arrangements.

When it comes to regulation, however, EPA appears to presume that it can impose
emissions standards on distinct EGUs that are owned and operated by a single entity, such as a utility. Special at tention may be needed to ensure that performance standards or compliance options do not fail to recognize or accommodate the business model of many joint action agencies and public power providers , particularly their multi

- state5

characteristics

. As an example, AMP is headquartered in Ohio, has members in seven states, and owns units or parts of units in four states. AMP owns the largest portion of an EGU in Illinois, but none of AMP’s members are located in that state, even though many get

var ying portions of their power supply from that unit.

In addition, state implementation plans should also recognize the multi

- jurisdictional nature of AMP’s business model, membership, and ownership of its various generating
units. AMP / OMEA are particula rly concerned that states are able to develop reasonable, workable state implementation plans without fear that another state or federal process will supersede its efforts

Role of RTO Markets : Concomitant with AMP’s business model as an issue that warrants particular and distinct consideration by EPA is the increasingly important r ole that regional transmission organizations (RTOs) are playing in the operation of EGUs, and thus
emissions. AMP / OMEA and others have repeatedly identified this issue in comments filed on other regulat ory proceedings in the past several years; yet, EPA appears to favor regulatory approaches that assume that the owner / operator of a power plant is part of a traditional vertically integrated model . The vast majority of AMP’s members are located in the PJM market, with a few in MISO (Michigan members) , a nd two members located in Kentucky, which are not included in any RTO.

A majority of A MP’s Ohio

- based EGUs are located in the PJM region

. However, as noted above, the Prairie State Energy Campus, which serves AMP / OMEA members in Ohio and other states, is located in the MISO region. In today’s deregulated electricity markets, there are markets for both energy (actual electricity produced, as measured in kWh) and capacity (the capability of a power plant to produce electricity, as measured in kW). Capac ity markets have been created to try to predict which EGUs might be available in the future to provide needed electricity and to try to send long

- term price signals for all EGUs. In PJM, which operates a forward capacity market, the basic idea is that pow er plants receive compensation for capacity, or the power that they will provide at some point in the future.6

The way these markets are run in the PJM territory, there is an auction every year that has a delivery date three years away (forward capacity mar ket). This auction is called the Base
Residual Auction. Then, there are smaller balancing auctions every year leading up to the delivery date where bidders can buy back commitments, sell o ther capacity or sell new or additional capacity

. These are called Incremental Auctions and occur in case a power plant cannot meet its commitment, and needs to purchase replacement capacity from another power plant or to sell new or additional capacity

.

EPA’s upcoming existing source rule will undoubtedly impact AMP’s and our members’ ability to bid EGU capacity into these forward capacity auctions, as bidding decisions are being made now regarding units for which some compliance is expected but for which we have no details as to compliance requirements. Relying on bi d “correction” through future
incremental auctions may not be a viable option going forward under changing PJM rules and, irrespective of the ability to correct bids in incremental auctions, the uncertainty created by this process adds additional risk to p ower supply planning

.

In addition, as noted previously, AMP’s generation assets are located in multiple jurisdictions, and the participating members in those projects are not necessarily located in the same jurisdiction or even RTO . For example, many AMP / OMEA members are participants in the Prairie State facility located in Illinois (which is in MISO) , and AMP members from other states are participants in the AFEC facility located in Ohio. This split jurisdictional issue creates the opportunity for own ers of AMP generation assets to be subject to multiple, potentially conflicting, regulatory requirements.

AMP / OMEA do not believe that this complexity is insurmountable, but it calls for highly
flexible , innovative , and perhaps state

- driven multi

- state regulatory program s that recognize the important role that RTOs are currently playing relative to emissions and energy and capacity markets.7

State Flexibility / Multi

- S tate C oordination : As noted above, AMP’s nature as a multi

- state organization reinfor ces the need for maximum flexibility for the states, which are charged under Sec. 111(d) as the lead agencies for establishing performance standards and determining how facilities within each state can meet those standards. EPA’s role under Sec. 111(d), o n the other hand, is to provide guideline documents for the development of state implementation plans , including the types of control measures that are adequately
demonstrated and achievable for an affected source in those individual states . While EPA

can not directly control state actions in defining performance standards under Sec. 111(d), the agency can greatly encourage state flexibility by recognizing the changing nature of the nation’s electricity grid, markets, and players, which are rarely confined by geographic
state boundaries. AMP / OMEA respectfully urge EPA to carefully consider the multi

- state nature of today’s energy markets when proposing its guidelines.

AMP / OMEA also note that EPA’s tight schedule for developing and finalizing standards for existing units is extremely ambitious and is likely to impa ir the ability of states to properly respond with their state implementation plans by the June 2016 deadline. This time limitation will be magnified by the need for many states to consider pos sible multi

- state coordination options in response to their individual needs and priorities.

Early Action for Compliance : As a leader in the region in the development and deployment of renewable energy and other cleaner generation, AMP is proud of the st eps it long has taken to diversify our power supply portfolio. Prior federal legislative efforts to address CO2 / GHGs envisioned providing “credit” for certain actions that had been undertaken by the regulated entity to reduce emissions prior to a specif ied date.

Early action “credit” should specifically include prior compliance actions, including retirement of coal units, system or end

- user efficiency improvements, addition s of renewable generation, development of carbon offset projects, etc. , as well as any compliance activities that can be taken inside the unit’s boundaries. This flexibility is particularly important to AMP / OMEA and its members because of the diffuse ownership8

structure of our generating units. In addition, early action efforts should be considered in the establishment of any baseline applicable to allowance allocations / emissions trading program, should that approach be included in any compliance program.

EPA has indicated some interest in looking to actions taken ou tside the traditional boundaries of affected units for possible compliance options, including energy efficiency, renewables, etc. AMP / OMEA concur with this flexibility but need to reinforce our position that the “outside the fenceline” approach is only appropriate for compliance options, as is the case for other flexibility or market mechanisms. Specifics as to standard setting must be source - specific , not applicable to electric systems as a whole.

Credit for U nit R etirements : An element of “early action” that may also extend into the compliance period would include providing credit against future compliance obligations
for early retirement of higher emitting older fossil generating units. These could include
units retired due to a var iety of reasons (economic, regulatory, etc.)

– but the end result would be reduced emissions. Owners taking such actions should be able to count such reductions toward compliance with any future standards. As with early action compliance credits, the est ablishment of a reasonable baseline for unit retirement credits is essential and should accommodate, at a minimum, owners’ decisions made relative to EPA’s prior GHG regulatory actions.

Protect ion A gainst NSR Triggers : EPA’s upcoming standards for existin g units c ould also encompass units that undergo modifications, including the addition of pollution control equipment, efficiency upgrades, etc. It is essential that owners that undertake responsible
actions to reduce emissions at the unit itself will not face New Source Review (NS R) violations. AMP / OMEA urge EPA to carefully consider this matter prior to issuing its guidelines to states and avoid the risk of creating significant regulatory and permitting pitfalls for facilities that engage in energy eff iciency projects that reduce greenhouse gas
emissions.9

Preserving U seful L ife of Fossil Units : As a part owner of one of the nation’s newest and cleanest coal units, AMP encourages EPA to allow states to consider the economic life of power plants in orde r to avoid billions of dollars of stranded investment, which will only result in higher prices for customers and no comparable emission reductions. It is important to note that efforts to preserve a unit’s useful life in the past have been interpreted by E PA as triggering NSR, which in some cases has led to delaying maintenance projects, thus reducing unit efficiency, or to the early retirement of such units

. Such
unfortunate re sults should be avoided in the future.

Costs of Compliance / Cost Effectiveness : While it is impossible to estimate possible compliance costs for AMP / OMEA and our members in advance of EPA issuing proposed standards for existing units, decisions made b y EPA and by the states on all of the prior issues will ultimately impact compliance costs and the overall cost

- effectiveness of any standards for existing u nits

. AMP / OMEA are concerned that EPA ’s assumption that there

are no costs to its new unit NSPS proposal could be carried forward into the agency’s upcoming existing source rule

. In addition, t he agency ’s assumptions in the new unit rule
about th e availability of carbon capture and sequestration (CCS) are unreasonable and unproven. If these positio ns are repeated or incorporated into the existing source rule, impacted units will likely not be able to comply with any existing source rule in a cost

effective way. CCS is at best an unproven and expensive experimental technology that
should not be use d as the basis for emissions standards in the existing source rule. AMP / OMEA urge EPA to decline to adopt these assumptions in the existing unit rule in light of the age ncy’s assertion that it is seeking cost

- effective and flexible solutions.

AMP also notes that the unique nature of our business model

– as very different from that
of a traditional vertically integrated utilit y
– effectively precludes our ability to sprea d compliance costs across a large number and variety of units

– both impacted and not impacted, or to recover costs directly from customers. Again, state flexibility is needed if these circumstances are to be accommodated in state implementation plan s

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C onclusion While by no means exhaustive, these broad topics encompass the initial key issues of importance to AMP / OMEA regarding the upcoming existing unit rule. AMP / OMEA will work with our states on these and other issues as they arise, and we tha nk EPA for this opportunity to provide input to the agency at this critical time in an effort to influence the outcome of this action. Please let us know if you need additional information ; we are standing by to be of assistance at any point in this process.

AMP Co ntact: Jolene M. Thompson, Senior Vice President

jthompson@amppartners.org
614.540.1111