P. !



# OAR Box 1778 Prepped by Ollie Stewart



### Document

Number: 

# 233)11-1-1 3
Docket Number: 

# A-90-0 6

Printed 10/28/20089:51:02 AM Sheet 233 of 276i 2

_

0-- . '0 2 -*9 C 09-0 4 COUG^ L I IMT E II-1-1 3 

## Departmen to f

Energ y Washington. O

C 8058 5

MEMORANDU M T O i

FROM :

R E I
DAT E i Dr . Roge r B . Porte r

Assistan t t o th e Presiden t fo r Economi c an d Domesti c polic y D r . Mieha* 1 J . Boeki n Chairman , Counci l o f Economi c Advisor s
an d
C . Boyde nora y Counse l t o th e Presiden t Linda 0 . Stunt s £ $ Deputy Unde r secretar

y Policy , plannin

g an d Analysi s WEPC O Apri l 2 , 1** 0 

# -c \ •^<E%2^\

^ © a \ h

. \ l \

Enclose dar e example s tha t illustrat e ho w failur e t o meaningfull y addres B th e WEPC O problem , a a Senator s Johnston , McClur e an d other s hav e propose dt o do , wil l substantiall y interfer e wit hth e cost-effectiv e operatio no f th e allowanc e tradin g eyetem . Substantively , maintainin g a syste m tha t allow s onl y tradin g "down " is neithe r consisten t wit heverythin g w e hav e bee nsayin g abou t th e tradin g syste m no r defensible . Politically , th e argumen t agains t DOE* a approac hseem s t o hav e tw o legs i (1 ) th e environmentallet s wil l oppos e this ; an d (2 ) EP W staf f wil l oppos e this . Le t m e bristl y addres s eac ho f thes e arguments . 1 ) Havin g receive dn o oomprehensibl e answe r t o m y questio n o f wh y th e Johnsto namendment , a s DO E woul damen di t t o protec t NAAQS , P8 D incremen t an d visibility , doe e no t sufficientl y protec t th e environment , J thin k th e environmentalist s would'hav e a har dtim e demonstratin g wh y thl a revise damendmen t wa s ba d fo r th e environment . O na purel y politica l basis , I hav e no t hear d th e environmentalist s sayin g anythin g nic e abou t th e compromis e latel y anyway . Wha t ar e w s worrie dabou t the m doin g tha t the y ar e no t doin g already ? 2 ) A e tax EP

W staff , 1 suggeste d at ou

r fire t meetin

g las t week o nthi s subjec t tha t Johnsto nan d other e Wh

o ar e intereste

d woul d hav

e t o persuade EP

W member e o f th

e amendment' s merit . O n matter s outside th e agreement , suc

ha s thl a one , EP W staf f ha s no righ t t o exercis e a veto . Eve nmatter s insid

e th e agreement have bee nrevise

d wheni t wa s considere d necessar

y t o d o s o becaus e o f stmber concern s (NO Xan d dea d tones) .P. 3

04.--02/9 C 09 ! 0 5 CGN61
. I 1KTERG00EPM'€HTAL 00 3

A rea l proble

m ha s bee ndemonetrated . W e ehoul d a t leae t suppor t Johnston , McClur e an d other s wh o ar e tryin g t o fixit . If< with our support , Johnsto nan d McClur e determine that the vote s ar e no t there , w

e ca nregrou

p t o loo

k at ou r optione l nthe Houee . Th e Energ

y an d Commerc e Committe e l e mor e receptiv e t o a WEPC O fixthani s EPW . Substantively , th

e EP A approachma

y b e a margina l improvemen t ove r curren t law , dependin g o nho w "actual " la defined , a matter no t addressed l

nEPA' s Frida

y formulation . However , th e EP A approac hl

nn o wa y remove s th

e uncertainty

grippin

g th e utility Industr y o nthi s issue . Nor doe s lt allo w fre e tradin

g u p an d gow ni nthe moa t efficien t manner . We d o not , therefore , expec t tha t Senator s Johnsto nan d McClur e woul d suppor t EPA' s proposal . I f th e Administratio

nsupport * EPA' s WEPCO fix , w e ar e eayin

g tha t i t fixe s th

e problem . (T

o ee e th

e trutho f this , on e nee d onl y remember th

e claim s bein g mad e fo

r th e Bumper s amendmen t passed las t Thursda y night t o preempt Senator Johnston) . An y rea l fixe s woul d the nbe precluded . Fo r that reaaon , w

e urge tha t th e Adminletratio

neuppor t th

e DO E approach , not EPA'a .

ect BobGrad

y Teres e Gorma

n Howard Gruenspecht . Davi d Rifke

n Bil l Rosenborg Poll y Oaul tP. 4

04-'02/9 0 0?!0 5 CONSUL & iHTER&OyERHfe-ITft L 00 4
Attachmen t 1



### EXAMPLE S
pxBpnfli e vUIM B contro l equipmen t installatio n Scenario : Powerpia m A install s UIMB , a lowcapita l 802/NO x contro l

syste m t o mee t 80 2 an d NO x standard s i n 1095
. Remova l efficienc y i s 60 % fo r 80 2 an d 50 % fo r NOx
. Th e plan t Operate d a t 50 % capacity facto r fo r th e previou s five years , bu t migh t wan t t o operat e a t 75 % capacity facto r i n th e future , give n th e degre e of S0 2 reductio n achieve d (80%)
. Th e plan t alread y ha d a 95 % efficien t electrostati c precipitato r (ESP ) fo r particulate control
. Unde r th e curren t polic y o f "actual-to-potential " emission s comparison , emission s o

f S0 2 an d NO x decreas e (du e t o th e contro l equipmen t Installed , bu t particulate matte r shows a potentia l increase , relate d primaril y t o capacit y facto r change s (u p fro m 50 % t o 75% , a 50 % increase) , bu t als o du e i n par

t (assum e anothe r 10% ) t o increase d particulate loadin g fro m th e LIM B system
. Outcome : Curren t polic y - installatio n o

f contro l equipmen t I s a non routin e change
. Ther e I s a ne t increas e i n emission s o f particulate matte r an d NO x sinc e th e future capacity facto r coul d b e 100% , compare d t o th e ol d actua l capacit y factor
. Th e sourc e must eithe r instal l additiona l contro l equipmen t fo r particulate matte r an d NO x t o offse t th e potentia l increas e i n emissions , o r stipulate t o a limitatio n o n operation , Sinc e additiona l NO x contro l i s extremel y expensive , an d th e sourc e onl y expect s t o operat e a t 75 % capacity facto r anyway , th e sourc e woul d likel y stipulate t o a limit o n utilizatio n o

f 75% , an d agre e t o upgrad e its ES P t o abou t 98 % efficiency
. Breau x amendmen t - Unde r th e Breau x amendment , installatio n of contro l equipmen t ( a presume d t o caus e n o increas e i n capacity factor
. Therefor e on e woul d expec t tha t th e plan t woul d have n o problems
. However , tw o potentia l problem s stH

t remain
. First , a riva l contro l equipmen t vendo r want s t o bloc k us e o f LIM B a t th e facility , becaus e h e offers a mor e traditiona l contro lO4/02.-9 O 6 9 s 0 7 COHG' L 8 , INTER30'JERH'©mPL
. or .

packag e (we t limeston e scrubbing)
. H e informe d th e utilit y tha t the y ar e a t ris k

I fthe y g o forwar d wit h th e projec t because h e migh t infor m EP A tha t th e utilit y ha s a n economi c incentive t o ru n th e controlle d syste m a t s w greate rcapacit y factor , an d thereb y rebu t th e presumptio n ofconstan t capacity facto ran d forc e a commitmen t t o a maximu m capacit y facto ran d a n ES P upgrade
. Secortov EP A ma y decid e tha t th e LIM B syste m wJ l caus e 10 % mor e particulat e matte remission s an d forc e a n ES P upgrad e t o cove rtha t increase
. Propose d amendmen t - Unde rth e propose d amendment* : emission s befor e an d afte rth e nonroutin e chang e ar e compare d base d o n maximu m hourl y operation
. Unde r thi s comparison , th e 10 % increas e i n emission s of particulat e matte rcoul d stil l requir e additiona l control , bu t i f ambien t ai rqualit

y modellin g demonstrate d tha t n o NAAQ S o rPS D incremen t wa s exceeded , the n n o additiona l contro l woul d b e required
. I f 8 standar d wer e exceeded , contro l woul d b e required , bu t onl y enoug h t o protec t th e standard
. Generall y speaking , a smal l o rmoderat e chang e i n powerpia m emission s wil l no t creat e a n ambien t ai r quality problem , s o additiona l contro l requirement s ar e unlikely
. Exampl e #2 : Simpl e FG O retrofi t Scenario : Assum e th e abov e scenario , bu t assum e a 95 % efficien t

we t limeston e scrubbe ri s bein g installe d o n a cyclon e unit
. Becaus e o fth e extremel y goo d S0 2 control , th e utilit y agai n intend s t o significantl y increas e osjafittiuttetion , an d us e othe runit s wit h greate rS0 2 emjssionrateTlew
. Outcome : Curren t policy - A s m cas e #1 , th e (nstallatio n i s a non routin e change
. Emission s o f S0 2 g o down , bu t emission s o fNO xg o up , unde rth e actual-to-potentia l comparison
. Th e particulat e matte rincreas e coul d b e offset b y upgradin g th e ESP , bu t th e leve l o f NO xcontro l neede d i s no t achievabl e wit h currentl y availabl e technology
. Th e utilit y woul d hav e t o stipulat e t o n o Increas e k i capacit y factor , whic h I t doe s no t wan t t o d o give n th e capita l Investmen t neede d fo rtiie equipment
. Breau xamendmen t - Unde rth e Breau xamendment , th e presumptio n o

fn o increas e m capacity facto rwoul d. - . . aa . , n »l..l.i r» a.•« . M n Uf > • f ftftl 04.O2-'* O 09 : I

G POLICY. PLPM41N 5 fiND *N*LY S I S BC 2



### appearto b e sufficient

. However

, th e utilit y i s stil l vulnerabl e t o claims tha

tI twil l ru n th e uni tmor e du e t o the extremel y goo d 80 2 emission s rat e ( aclai m which , infect , i s true) . Hence , f

ti s stil l constrained fro

m optimizin

g it s contro l program. Proposed amendmen

t- The proposa

l woul d bas e th e emissio n differenc

e o n maximu

m hourl y operatio n rate s befor e and afte rthe change . I

ti s unlikel y tha tther e woul d b e an y increas e i

n maximu m emissio n rates base d o n such operations . The source woul d stil l have t o mode

l ai rqualit y an d tak e an y necessary step s t o ensure tha tfutur e operations woul

d no tviolat e standards , a s i

n cas e #1 . Exemp t#a . Exampl

e #1 , wit h contro l equipmen

tshutdown . Scenario : Assume Exampl e #1 , bu t2 0 years afte

r1995 , th e sourc e i s i n such poorcondition, th e utilit y onl y want s t o us e Kfo

r ver y ligh tcycling dut

y afte r201 5 (30 % capacit

y factor) . Give n th e refurbishmen

tcost s o f th e $0 2 contro

l system , th e utilit y woul d Hk e t o discontinue It

s use . Rather

, r twil l continue th e us e o

f tow NO x burners , bu

tus e lo w sulfu r Coal , and increas e S0 2 controls atothe runits , i f necessary to sta y withi n the cap . Outcome : Curren

tpolic y - Remova

l o f contro l equipmen

ti s anon routin e change . Th

e increas e i

n $02 , althoug

h below level s existing i

n 1990 , I s stil l a n increas e ove rS0 2 emission s i

n 2010 . Stipulatio

n t o atowe

rcapacit y facto r wil l notensure S0 2 emission s wU i no tincreas e abov e level s emitte

d wit h th e contro

l hardware. Th e utilit

y doe s nothave th e prerogativ

e t o reconfigur

e It s 80 2 contro

l progra m t o adjus

tt o th e realit

y o f th e aging unit

, eve n thoug h S0 2 rates sta

y withi n th e utility' s cap . Breau x amendmen

t- N o help . Proposed amendmen

t- The sem e basi crule

s apply, excep ttha

tadditiona l controls ar

e require d onl y t o th e extentt o protec

trea l environmenta

l value s (NAAQS, PS

D increments , etc.) . Wit

h us e o f lo w sulfu rooal , I tladoubtfu

l tha tan y furthe rconstrain

twoul d b e necessary .P. 7

W02.'9 0 09:0 6 COMS-t
. l i INTER»«&rE!frA L 00 5

»&* • 

### Exampl e A:

Oil-to-ga s conversion
. Scenario : A larg e oi l fire d steam-electri c uni t i s not designe d t o bur n

natura l gas , bu t want s t o convert t o natura l ga s becaus e ga s price s ar e currentl ylowe rtha n oi l prices , an d $0 2 emission s ar e towe r(zero)
. Outcome : Curren t policy- Th e conversio n i s a non-routin e change
. f-J^C^Utur o potentia l omission s o fNO xar e greate rtha n curren t if ^ **i£ i vactua l emissions
. Th e sourc e must agre e t o a futur e ^0^ *r •^ \Jr*" maximu m capacit yfacto rn o greate rtha n it s recen t pasjf^ ^^ ^ Breau xamendmen t - Th e conversio n woul d appea rt o b e sanctione d b yth e rebuttabl e presumptio n regardin g capacityfactor
. However , th e curren t oi l supplie rha s r^f , < y - " notifie d th e utilit

ythat i t wil l suppl yt o EP A detaile d cos t lJ 

### ^ tf dat a showin g that gas-fire d operatio n wil l b e cheape rtha n *°£ D 

### p curren t oil-fire d operation
. Lowe rvariabl e cost s shoul d *" ' lea d t o increase d capacityutilization , thereb yrebuttin g th e presumption
. EP A woul d b e force d t o require reduction s i n NOx
. Propose d amendmen t - Becaus e ofth e emission s compariso n bein g mad e o n maximu m hourl ybasis , there iSProgapT- y n o increas e I n emissions
. Th e sourc e woul d stil l hav e t o mode l ai rqualit yan d take an ynecessarystep s t o ensure tha t futur e operation s woul d not violat e standards , a s i n cas e #1 , bu t n o additiona l contro l requiremen t i s likely
. gxampl e 5 ; Qas/coa l cofirlng
. Scenario ; A uni t I n Texa s burnin g lowsulfu rcoa l woul d lik e t o switc h t o 90 % lo wsulfu rcoa l an d 10 % natura l gas . Th e utilit yha s alread yme t It s 80 2 reductio n requirements , bu t ga s i s chea p enoug h tha t th a utilit yca n sel l th e "extra* allowance s fo rmore tha n th e cos t differentia l betwee n coa l an d ga s i n Texas
. Th e uni t currentl yrun s a t 60 % capacityfactor , bu t th e utilit yanticipate s tha t th e uni t wil l ru n mor e i n th e futur e a s electricit

ydeman d increases
. Outcome : Curren t policy- Cofirin g require s non-routin e changes
.

. Vf t C Th e utilit yfail s th e actual-to-potantla i emission s tes t fo r J ^ 1 5AN0X
. 

### Additiona l NOXan d particulate controls , o ra • ^ {JJJ^^etlpulatio n o n capacityfactor , o raom e combinatio n i s_P. 8

04'O2-'9 G 09 5 0 ? CONS^ U& n-rTEReok»ERM!i£irri^ L 

### BC 6



### required
. Th e utilit

ywoul d probabl yforeg o th e tradin g opportunityrathe rtha n relinquis h it s flexibilit yt o operat e a s I t see s fit
. Breau xamendmen t -Th e amendmen t explicitl yinclude s ga s us e withi n th e Rebuttabl e presumption " o n capacity factor
. Ther e ar e n o obviou s problems , unles s futur e ga s price s an d allowanc e value s chang e enoug h tha t th e S0 2 reductio n canno t b e obtaine d e t a profi t H switchin g bac k t o 100 % coa l require s a physica l chang e t o th e boile r (perhap s som e o fth e origina l ai rsuppl ypon s wer e bein g use d fo rga s an d nee d t o b e reconverted) , the n th e uni t woul d b e subjec t t o a n actual*to*potentiat emission s tes t fo ral l pollutants , eve n thoug h I t I s onl ya retur n t o condition s existin g i n 1994
. Additiona l control s woul d likel yb e require d o n al l pollutants , t fto wNO xburner s hav e ic^r v alroad 

### y bee n 

### installe d (e.g - Ifth e reconversio n t o coa l i s J^Zf^S T post-2000) , the n somethin g bevon d lo wNQ* humer a 

### #y v * ' wmil d h o nannTflnjyKnowin g ni l th' n I n mm . th n ilHTr y ' {^jt^

wou W b e 

### * 00,hard 

### y to 

### pursu e th e cofirin g project
. Propose d amendmen t - Th e cofirin g chang e woul d no t Increas e emissions , bu t returnin g t o 100 % coa l would
. However , i t i s likel ytha t th e smal l Increas e i n emission s coul d b e accomplishe d withou t violatin g an yenvironmenta l standards
. T o reconvert t o 100 % coal , th e uni t woul d hav e t o fin d a wa yt o reduc e 80 2 emission s b y10% , perhap s by t 

### usin g slightl ylowe rsulfu rcoal
. 

# A 

# %yy

/