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Sent via 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 opportunity to provide input to EPA related

to the four framework questions that the agency has posed related to the regulation of

greenhouse gas (GHG) emissions from existing fossil fuel-fired power plants.

The AUG is an ad hoc, unincorporated association of individual electric utilities, including

Arizona Electric Power Cooperative, Arizona Public Service Company, Salt River Project

Agricultural Improvement and Power District, Tucson Electric Power Company, and UniSource

Energy Services. The AUG participates on behalf of its 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 for each of AUG’s members, the attached document outlines
Letter to Ms. Deborah Jordan

December 13, 2013

Page 2

important items that EPA should consider as it moves forward with developing emissions

guidelines under Section 111(d) of the CAA.

The AUG looks forward to working coilaboratively with EPA to develop a reasonable set of

guidelines that are both achievable and cost-effective, if you have any questions regarding the

information contained in this attachment or if you would like to 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

Peter Tsirigotis, EPA

Henry Darwin, Arizona Department of Environmental Quality

Eric Massey, Arizona Department of Environmental Quality

Stephen Etsitty, Navajo Nation EPA

carbonpollutioninput@epa.gov

Attachment
Arizona Utilities Group

Responses to Framing Questions

December 13, 2013

1. What is state and stakeholder experience 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 of retail load using renewable energy by 2025, and other utilities

have committed to deliver similar levels of renewable energy through their governance

structures.

o It is likely utilities will make additional investment in renewable resources if availability

of these 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 of tons of avoided CO2emissions. These programs should be allowed to be

incorporated into a Section 111(d) state plan (and considered for incorporation into

Section 111(d) federal plans). Arizona was one of the 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. Other utilities also have made commitments to energy efficiency

savings through their governance structures.

• Coal unit retirements or fuel switching

o Due to many factors, including the viability of coal-fired generation in light of potential

CO2emission limits, certain coal-fired generating units owned by Arizona utilities face

the prospect of early retirement or fuel switching (i.e., within the next five years).

o Replacement power for these coal-fired units will be a combination of low and zero CO2

emitting resources, resulting in substantial reductions in CO2emissions.

o Arizona utility customers will incur costs associated with unit retirements as well as the

replacement power and should be credited for that investment regardless of whether or

not the 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 of these efficiency improvements have been undertaken in conjunction with other

projects, such as air pollution control equipment installation, because the projects

already triggered New Source Review (NSR) permitting requirements.

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o The ability to 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 other unit-specific factors.

o CO2emission savings associated with improvements already completed should be

recognized due to the difficulty of implemenfing further efficiency improvements.

2. How should the Environmental Protection Agency (EPA) set the performance standard for state

plans?

• EPA’s charge under Section 111(d) is to provide States with guidelines, not to 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 establishing guidelines, EPA must account for the Best System of Emission Reductions (BSER)

achievable by a specific source.

o In determining BSER, EPA must consider the following unit-specific factors:

Total costs of a control option — the project itself plus any associated impacts

(i.e., additional controls required under NSR permitting requirements);

• Whether or not the control option is technically feasible based on

implementation of the control option at existing sources;

• Remaining useful life that considers utility customer investments in pollution

controls resulting from other air quality regulations;

• Level of benefit that can be achieved and the incremental cost of that 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 per megawatthour) with appropriate subcategorization for different types of fuel types and

technologies.

o EPA must take 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 abundant flexibility for 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 how these resources might displace

traditional, base-load fossil generation sources.

o Hydro-generation must be included as a form of renewable energy regardless of facility

size, or whether or not it is considered “low-impact” hydro-generation (i.e., it should not

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matter if electricity is generated by a natural change in elevation vs. a man-made

change in elevation).

o EPA needs to accommodate the contractual provisions of purchased power agreements

(PPA) for renewable generation where the power purchaser has also purchased the

“environmental attributes” of the renewable resource regardless of the resource’s

location. For example, if a purchaser is located in one state and the resource is located

in a different state, carbon reduction credits need to be preserved per the terms of the

applicable PPA, and not also be counted by the state where the resource is located.

o EPA should provide states with flexibility to determine the appropriate energy efficiency

calculation and accounting conventions for use in the state.

o Emission reductions from the implementation of renewable energy resources or energy

efficiency programs should be assessed using a system-wide emission factor that is

applied to energy savings.

• EPA should allow for “super-compliant” credits to be held in a bank for future use as needed. In

Arizona, several utilities, including those regulated by the ACC, take advantage of credit banks.

• Guidelines must establish clear approvability criteria for the state plan to provide regulatory

certainty to the state and the sources impacted by the plan. Once this criteria is established, EPA

must be held accountable in that its review of the plan should be based on that criteria alone.

• EPA guidelines should provide options for implementation of fleet-wide averaging.

• EPA’s guidelines should recognize the benefits of regional (multi-state) compliance

methodologies and should allow, if not incentivize, such strategies by providing the additional

time needed to coordinate such efforts.

• EPA’s guidelines should recognize the benefits of early action and should provide States with a

framework for recognizing such actions. Recognition of these early actions in the emissions

guidelines document, particularly in informing the timeline for compliance established in the

guideline, increases the cost-effectiveness of any given level of emission reductions and creates

a more consistent and equitable CO2regulatory program among states.

• The baseline should be set at 2005. This baseline year would ensure previous state actions to

reduce carbon emissions are adequately recognized.

• EPA should provide a reasonable and achievable timeline for compliance, but also provide States

with guidance on how to craft an approvable aliernate timeline.

• EPA should provide a standard method of converting between a rate-based and mass-based

standard.

3. What requirements should state plans meet, and what flexibility should be provided to states in

developing their plans?

• States must be provided with abundant flexibility. 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 due to the premise that carbon reductions will provide global benefit rather than

targeting local improvement in ambient air quality.

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• State plans must demonstrate emission reductions equivalent to those that would have been

achieved by a source-by-source application of the 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 meet the standards using a suite of options based on EPA’s “toolbox,”

including use of existing programs that reduce CO2emissions “outside the fence line” of existing

electric generating units.

• States should have the option of setting a rate- or mass-based standard (or combination

thereof) depending on what works best for a state’s energy profile.

• States must be afforded flexibility in the timing of emission reductions. For example,

programs/actions that achieve greater emission reductions, but take longer to achieve should

not be discarded simply based on the timing of the emission reductions.

• “Remaining useful life” should provide a basis for flexibility in the timing of emission reductions,

especially given the magnitude of investments in air quality emission controls that have been

made or will be made at coal-fired power plants in Arizona.

• There should be no constraints placed on crediting CO2 reductions taken as a result of another

regulatory requirement. Similarly, there should be no constraints on crediting emission

reductions for other pollutants achieved as a result of implementing a CO2reduction measure in

other state planning actions, such as National Ambient Air 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 for strategies expected to be common

among states (renewable portfolio standards, energy efficiency requirements, etc.), but those

methodologies should not be mandatory.

• EPA should encourage, or even incentivize, coordination among neighboring states, as the

electricity system is not bound by political boundaries.

• EPA should not invest any time in development of “model rules,” as such rules are not likely to

meet the many unique circumstances of individual states.

• EPA must minimize regulatory uncertainty by providing clear guidance to states on how to

design an approvable state plan.

• Given the unique challenges associated with reducing CO2emissions from power plants and the

complicated nature of the program, EPA should draft its guidelines to give regulated sources

extended (i.e., well beyond 12-month) compliance schedules.

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