## MzonaElectric 

# - PowerCooperoflve,inc. ATouchskncEnryUoopcr.iiiw 

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Sentvia Certified Mail December 13, 2013 Ms. Deborah Jordan Director, Air Division, Region 9 United States Environmental Protection Agency 75 Hawthorne Street San Francisco, CA 94105 RE: Arizona Utilities Group’s Comments on the Environmental Protection Agency (EPA) Greenhouse Gas Framework Questions Dear Ms. Jordan, The Arizona Utilities Group (AUG) appreciates this opportunityto provide inputto EPA related to the fourframework questions thatthe agency has posed related to the regulation of greenhouse gas (GHG) emissions from existingfossil fuel-fired power plants. The AUG is an ad hoc, unincorporated association ofindividual electric utilities, including Arizona Electric Power Cooperative, Arizona Public Service Company, Salt River Project Agricultural Improvement and PowerDistrict, Tucson Electric Power Company, and UniSource Energy Services. The AUG participates on behalfofits members in Clean Air Act (CAA) proceedings that may affect its members. As this proposal will have a direct and lasting impact on existing power plants foreach ofAUG’s members, the attached document outlines

### Letterto Ms. DeborahJordan December 13, 2013 Page 2 important items that EPA should consider as it moves forward with developing emissions guidelines under Section 111(d) ofthe CAA. The AUG looks forward to working coilaborativelywith EPAto develop a reasonable set of guidelines that are both achievable and cost-effective, ifyou have any questions regardingthe information contained in this attachment orifyou would liketo schedule a meeting with AUG members to discuss these issues in more detail, please contact Kara Montalvo at (602) 236- 5256 or by email at Kara.Montaivo@srpnet.com. Sincerely,
Jame—A1drew Charles Spell Arizona Electric Power Cooperative Arizona Public Service Company

Kara Montalvo Erik Bakken Salt River Project Agricultural Improvement Tucson Electric Power Company and and Power District UniSource Energy Services

cc: Amy Zimpfer, EPA Region 9 Colleen McKaughan, EPA Region 9 Janet McCabe, EPA Joseph Goffman, EPA Sarah Dunham, EPA PeterTsirigotis, EPA Henry Darwin, Arizona Department ofEnvironmental Quality Eric Massey, Arizona Department ofEnvironmental Quality Stephen Etsitty, Navajo Nation EPA carbonpollutioninput@epa.gov AttachmentArizona Utilities Group Responses to Framing Questions December 13, 2013 1. What is state and stakeholderexperience with programs that reduce carbon dioxide (C0 2 ) emissions in the electric power sector?
• Renewable energy o Arizona utilities and their customers have already made significant investments in renewable energy, which should be recognized under a Section 111(d) program. o Utilities regulated by the Arizona Corporation Commission (ACC) are required to generate 15 percent ofretail load using renewable energy by 2025, and otherutilities have committed to deliversimilar levels ofrenewable energythrough theirgovernance structures. o It is likely utilities will make additional investment in renewable resources ifavailability ofthese resources continues to increase and they represent a cost-effective means of meeting load requirements.
• Energy efficiency o Utility customers have made significant investments in energy efficiency, resulting in millions oftons ofavoided CO 2 emissions. These programs should be allowed to be incorporated into a Section 111(d) state plan (and considered forincorporation into Section 111(d) federal plans). Arizona was one ofthe first states to adopt an energy efficiency standard through the ACC, and that standard, at 22 percent by 2020, is one of the most aggressive. Otherutilities also have made commitments to energy efficiency savings through theirgovernance structures.
• Coal unit retirements orfuel switching o Due to many factors, including the viability ofcoal-fired generation in light ofpotential CO 2 emission limits, certain coal-fired generating units owned by Arizona utilities face the prospect ofearly retirementorfuel switching (i.e., within the nextfive years). o Replacement powerforthese coal-fired units will be a combination oflow and zero CO 2 emitting resources, resulting in substantial reductions in CO 2 emissions. o Arizona utility customers will incur costs associated with unit retirements as well as the replacement powerand should be credited forthat investment regardless ofwhether or notthe change was driven primarily by another regulatory program (e.g., Regional Haze).
• Unit efficiency improvements o Several coal-fired units in Arizona have completed plant efficiency improvements in recent years. o Most ofthese efficiency improvements have been undertaken in conjunction with other projects, such as airpollution control equipment installation, because the projects alreadytriggered New Source Review (NSR) permitting requirements.
1o The abilityto complete additional efficiency improvements is significantly limited by the constraints imposed by the NSR permitting program, the high capital costs associated with remaining improvement options, and otherunit-specific factors. o CO 2 emission savings associated with improvements already completed should be recognized due to the difficulty ofimplemenfing further efficiency improvements. 2. How should the Environmental Protection Agency (EPA) setthe performance standard for state plans? • EPA’s charge underSection 111(d) is to provide States with guidelines, notto set performance standards. The states are charged with setting the performance standards.
• EPA’s guidelines should give each state the ability to establish a unique emissions target taking into account such things as local fuel supply and emissions reductions programs already in place.

• In establishingguidelines, EPA must account forthe Best System ofEmission Reductions (BSER) 

### achievable by a specificsource. o In determining BSER, EPA mustconsiderthe following unit-specific factors: Total costs ofa control option

—the project itselfplus any associated impacts (i.e., additional controls required under NSR permitting requirements);
• Whether or notthe control option is technically feasible based on implementation ofthe control option at existing sources;
• Remaining useful life that considers utilitycustomer investments in pollution controls resulting from other airquality regulations;
• Level ofbenefit thatcan be achieved and the incremental costofthat benefit; and • Non-air quality health and environmental impacts, as well as energy requirements. o Upon completing the BSER analysis, EPA must identify a rate (pounds permegawatthour) with appropriate subcategorization for differenttypes offuel types and technologies. o EPA musttake into account regional differences in the current generation resource mix, as well as regional factors that affect future resource development, in establishing BSER. Critical, base-load resources should not be penalized by a BSER that is plainly not achievable due to infrastructure constraints unique to those units.
• EPA should establish in the guidelines document an extensive “toolbox” or “menu” that provides states with abundantflexibilityfor achieving emission reductions due to the unique generation profile within each state. At a minimum, this toolbox or menu should include the early-action programs already being implemented in Arizona, as described above. o Renewable energy sources serve differing needs within a utility’s generation portfolio. EPA should not apply general assumptions to howthese resources might displace traditional, base-load fossil generation sources. o Hydro-generation must be included as a form ofrenewable energy regardless offacility size, orwhether or not it is considered “low-impact” hydro-generation (i.e., it should not
2matterifelectricity is generated by a natural change in elevation vs. a man-made change in elevation). o EPA needs to accommodate the contractual provisions ofpurchased power agreements (PPA) forrenewable generation where the powerpurchaserhas also purchased the “environmental attributes” ofthe renewable resource regardless ofthe resource’s location. Forexample, ifa purchaser is located in one state and the resource is located in a different state, carbon reduction credits need to be preserved perthe terms ofthe applicable PPA, and not also be counted bythe state wherethe resource is located. o EPA should provide states with flexibilityto determine the appropriate energy efficiency calculation and accounting conventions foruse in the state. o Emission reductions from the implementation ofrenewable energy resources orenergy efficiency programs should be assessed using a system-wide emission factorthat is applied to energy savings.
• EPA should allow for “super-compliant” credits to be held in a bankforfuture use as needed. In Arizona, several utilities, includingthose regulated bythe ACC, take advantage ofcreditbanks.

• Guidelines must establish clear approvability criteria forthe state plan to provide regulatory certainty to the state and the sources impacted bythe plan. Once this criteria is established, EPA must be held accountable in that its review ofthe plan should be based on thatcriteria alone.

• EPA guidelines should provide options for implementation offleet-wide averaging.
• EPA’s guidelines should recognize the benefits ofregional (multi-state) compliance methodologies and should allow, ifnot incentivize, such strategies by providing the additional time needed to coordinate such efforts.
• EPA’s guidelines should recognize the benefits ofearly action and should provide States with a frameworkforrecognizing such actions. Recognition ofthese early actions in the emissions guidelines document, particularly in informing the timeline for compliance established in the guideline, increases the cost-effectiveness ofany given level ofemission reductions and creates a more consistent and equitable CO 2 regulatory program among states.
• The baseline should be setat 2005. This baselineyearwould ensure previous state actions to reduce carbon emissions are adequately recognized.
• EPA should provide a reasonable and achievable timeline forcompliance, but also provide States with guidance on how to craft an approvable aliernatetimeline.
• EPA should provide a standard method ofconverting between a rate-based and mass-based standard. 3. Whatrequirements should state plans meet, and whatflexibility should be provided to states in developing their plans? • States must be provided with abundantflexibility. EPA should recognize that it is not necessary for a Section 111(d) state plan to take a traditional New Source Performance Standard approach to regulation dueto the premise that carbon reductions will provide global benefit ratherthan targeting local improvement in ambientair quality.

3• State plans must demonstrate emission reductions equivalentto those that would have been achieved by a source-by-source application ofthe EPA guideline emission rate. States should be given latitude in the methodologies used to demonstrate equivalence to the EPA guidelines.
• States should set standards for sources within their state and develop a “State Implementation Plan (SIP)-like” plan to meetthe standards using a suite ofoptions based on EPA’s “toolbox,” including use ofexisting programs that reduce CO 2 emissions “outside the fence line” ofexisting electric generating units.
• States should have the option ofsetting a rate- or mass-based standard (or combination thereof) depending on whatworks bestfor a state’s energy profile.
• States must be afforded flexibility in the timing ofemission reductions. Forexample, programs/actionsthat achieve greater emission reductions, buttake longerto achieve should not be discarded simply based on the timing ofthe emission reductions.
• “Remaining useful life” should provide a basis forflexibility in the timing ofemission reductions, especially given the magnitude ofinvestments in airquality emission controls that have been made orwill be made atcoal-fired powerplants in Arizona.
• There should be no constraints placed on crediting CO 2 reductions taken as a resultofanother regulatory requirement. Similarly, there should be 

### no constraints on crediting emission reductions for otherpollutants achieved as a result ofimplementing a CO 2 reduction measure in other state planning actions, such as National AmbientAir Quality Standards compliance. 4. What can EPA do to facilitate state plan development and implementation?
• As stated above, States should be given flexibility in the methods to demonstrate equivalent emission reductions. • EPA guidelines could provide suggested methodologies forstrategies expected to be common among states (renewable portfolio standards, energy efficiency requirements, etc.), but those methodologies should not be mandatory.
• EPA should encourage, oreven incentivize, coordination among neighboring states, as the electricity system is not bound by political boundaries.
• EPA should not invest any time in developmentof“model rules,” as such rules are not likelyto meetthe many unique circumstances ofindividual states.
• EPA must minimize regulatory uncertainty by providing clearguidance to states on how to design an approvable state plan.
• Given the unique challenges associated with reducing CO 2 emissions from power plants and the complicated nature ofthe program, EPA should draft its guidelines to give regulated sources extended (i.e., well beyond 12-month) compliance schedules.

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