November 27 , 2013

Mr. Mark Smith

Branch Chief Air Permitting and Compliance Branch U.S. EPA Region VII

11201 Renner Blvd.
Lenexa, KS 66219

Re: Missouri Utilities General Principle s Discussed at EPA’s Clean Air A ct Section 111(d)

Stakeholder Forum

De ar Mr. Smith:

On behalf of the Missouri Utilities (Ameren Corporation on behalf of Ameren Missouri

, Associated Electric Cooperative , Inc. , City Utilities of Springfield, Empire District Electric Company

, Kansas City Power & Light Company , and KCP&L Greate r Missouri Operations Company ) , we thank you and the other EPA attendees for the opportunity to participate in the

Missouri Utilities Clean Air Act (CAA) section 111(d) Stakeholder Forum conducted on November 7, 2013 in Jefferson City, Missouri.

As you kn ow, EPA is current ly developing a proposal under s ecti on 111(d) of the CAA to
establish carbon emissions guidelines for states to regulate existing fossil

- fueled electric generating units (EGUs). According to the Presidential Memorandum issued in June 2013 , EPA is to issue draft guidelines by June 2014, finalize them by June 2015, and require state plans to be submitted by June 2016.

EPA is seeking pre

- proposal input from stakeholders as it prepares to draft emissions guidelines. We appreciated the opport unity to provide input into the pre

- rulemaking discussion. As requested, this letter documents some general principles regardin g the s ection 111(d) rulemaking

submitted on behalf of the Missouri Utilities

. The Missouri Utilities submit these general prin ciples with the understanding that we may comment on any proposed rule consistent or variant depending on the details of the proposal when promulgated

.

Authority to Regulate

The Missouri Utilities believe that EPA is not authorized to undertake s ection 111(d) emission guidelines for existing power plants. Section 111(d) of the CAA was amended by Congress in 1990, and somewhat conflicting amendments passed by the House and the Senate were never reconciled in conference committee before the president sign ed the amendments into law. The

Missouri Utilities believe that the proper reading of those conflicting amendments (in the context of their legislative history and principles of statutory construction) is that EPA does not possess the authority to regulate source categories that are already regulated under section 112 of the Act. Because EGUs are a regulated source category under section 112 pursuant to the Mercury and

Air Toxics Standards (MATS) , EPA may not regulate EGUs under section 111(d).Mr. Mark Smith

November 27, 2013 Page 2 of 7

Necessity to Regulate

The Missouri Utilities believes that not only is EPA not authorized to undertake section 111(d) emission guidelines for existing power plants, but that it is not obligated to do so.

Cooperative Federalism Framework

If EPA nevertheless procee ds despite this lack of authority to propose emission guidelines for existing EGUs, EPA’s authority under section 111(d) to regulate existing EGUs is narrowly tailored and that Congress intended for section 111(d) regulation to employ a cooperative

federal ism framework. In section 111(d), Congress directs EPA merely to “establish a procedure ... under which each State shall submit to [EPA] a plan which . . . establishes standards of performance” for existing sources within the state.

In addition, section 11 1(d) requires that state

- established performance standards reflect what is achievable at each existing unit. Congress, however, has provided states with flexibility and discretion regarding how to implement section 111(d) within their borders. Once standar ds are established that are achievable at each existing unit, states have the authority to grant individual sources flexible options (including but not limited to renewable portfolio standards, energy efficiency programs, demand

- side management programs, a nd state and regional cap

- and

- trade programs) to comply with such standards.

Section 111(d) operates through a cooperative federalism framework. EPA should not “set the performance sta ndard for state plans ” as it suggested in its September 23, 2013, pre

- proposal considerations document on section 111(d). P erformance standards apply to so urces, not state plans. Congress did not give EPA the authority to devise any federally enforceable standards of performance for existing sources, except when a state fail s to submit a “satisfactory” plan.

U nlike the very different language in section 111(b) governing the standards of performance for new sources, section 111(d) gives EPA no direct regulatory authority over existing sources, and instead gives states broad discretion to develop such plans subject to a general requirement that the state’s exercise of discretion be “satisfactory.” Section 111(d)(1) limits EPA’s authority to setting up procedures

– the states are given the authority and responsibility to establ ish the actual, substantive standards of performance.

Und er section 111(a)(1), the EPA is authorized only to set “emission guidelines” addressing

factors relevant to the states’ determination of the “best system of emission reduction” (BSER )

that has been “adequately demonstrated” and is “achievable” for each source type. Importantly, EPA’s guidelines are not legally binding or directly enforceable on sources

– they simply set out considerations for states to address in adopting their own standards for exi sting sources. Accordingly, EPA’s approach to determining BSER for limiting CO 2 emissions from EGUs may inform the content of EPA’s emissions guidelines and the considerations states need to take into account in setting standards achievable by each source, but does not determine the resultingMr. Mark Smith

November 27, 2013 Page 3 of 7

standards established by the state. What the EPA determines to be BSER is merely one of the many factors states must consider in determining the level and form of any existing source performance standard as applied to a specific EGU.

State Flexibility and Discretion

The CAA requires states to “submit . . . a plan . . . which establishes standards of performance,” and requires EPA to “permit the State in applying a standard of performance to any particular

source . . . to take into consideration, among other factors, the remaining useful life of the existing source to which such standard applies.” State plans under section 111(d) must be approved by EPA if they are “satisfactory.” The CAA provides criteria for establish ing whether a state plan is “satisfactory,” including the definition of “standard of performance ,” and a direction

to consider the remaining useful life of sources , “among other factors.” In other words, the Act

leaves to the states substantial discretion as to the factors to be considered in formulating a state plan and how those factors are to be weighed, and it does not dictate any particular outcome for the state. States thus have significant discretion to adopt state plans that vary from EPA’s

emission guidelines.

S tates have considerable flexibility to deviate from EPA’s emission guidelines in adopting plans and emission standards. For example, states may apply “less stringent emission standards or longer compliance schedules” to particular facilities or classes of facilities if the costs of adopting the standards suggested by the emission guidelines would be unreasonably costly, physically impossible, or for other reasons. States have significant discretion in designing their own plans and determining how individual sources or classes of sources may demonstrate compliance, including taking into account the “remaining useful life of the existing source.” Applying this criterion, states may grant individual sources or types of sources longer periods of

t ime to comply, or may apply less stringent standards than set forth in EPA’s emission guidelines. EPA has also stated that “[s]tates will be free to vary from the levels of control represented by the emission guidelines . . . . In most if not all cases, th e result is likely to be substantial variation in the degree of control required for particular sources, rather than identical standards for all sources.” Thus, EPA may publish several emission guidelines for existing fossil

fuel

- fired EGUs, and states hav e further flexibility to implement such guidelines as they deem “reasonable” where costs are determined to be “unreasonable,” where they would be “physically impossible,” or otherwise “unreasonable.” EPA also made clear that “[s]tates will be free to set

m ore lenient standards [than those set out in EPA’s emission guidelines], subject to EPA review . . . in cases of economic hardship.”

Standards of performance must, among other things, be “adequately demonstrated” for each source type, and be cost

- effectiv e. A work practice approach or best management practices may be justifiable instead of a specific, numerical standard in a state plan. Furthermore, once a standard is set that is achievable by each existing unit, states have discretion to allow sources to comply with such a standard through a range of flexible mechanisms.Mr. Mark Smith

November 27, 2013 Page 4 of 7

In short, unless a state fails to submit a satisfactory plan with due consideration for the flexibility allowed to the states under section 111(d) , EPA has no authority under the CAA to i mpose substantive requirements on existing EGUs

– that is the responsibility of states.

Application of State flexibility

The Missouri Utilities believe that states can and should have broad flexibility in the range of compliance options they utilize in d eveloping state plans to implement the EPA guidelines, and that EPA’s emissions guidelines should not limit state discretion otherwise available under section 111(d).

EPA’s emissions guidelines should not foreclose the use of any state option, including the following , in complying with the standards of performance which are set at levels that are achievable at each existing unit :

 Improving unit heat rates

 Equivalency for state programs

 Averaging/bubbling that could include new, lower

- emitting units (i.e., across a fleet, across units in a particular state or region, among sources in the same source category or in different subcategories, among existing and closed facilities, etc.)

 Trading

 Unit

- specific or generally applicable variances

 Purchasing energy ef

ficiency credits generated by the increased deployment of end

- use efficiency programs

 Shifting dispatch to lower

- emitting generation

 Adding new lower

- emissions fossil fuels and renewable energy

 Offsets

 Other cost containment mechanisms

Need for Adequate T ime for State Plan Development and Implementation

Section 111(d) imposes no rulemaking sche dules or deadlines on the EPA or states. The statute provides no timetable by when state plans must be proposed, finalized, or implemented. Because this is likely t o be a significant endeavor, EPA should afford states and regulated entities adequate time to study, consider, comment on, and implement guidelines and state plans. EPA should consider extending the deadline for the submission of state plans under section 111(d) to three years so as to parallel the requirements for state implementation plans.

Effective Compliance D ate

As noted above, EPA’s schedule calls for submittal of state implementation plans by the end of

June 2016. States are concerned that it co uld take more than one year to finalize their compliance plans, given the required state

- specific processes necessary for public comment and stakeholder engagement, before then submitting those plans to EPA for approval.Mr. Mark Smith

November 27, 2013 Page 5 of 7

The Missouri Utilities are concer ned about the timing of actual compliance obligations.

C ompliance should not begin until state plans are approved, and should provide adequate time for regulated sources to comply. There are a number of ways that EPA could give states more time to comply. As described above, EPA could allow states more time to submit and have their plans approved, or not require the first compliance milestone to be met until some later date. States already have the authority to allow longer compliance schedules for certain covered

sources when circumstance s merit doing so. The Missouri Utilities believe that compliance should not be before 2020 and phased in for older units to incorporate "remaining useful life".

States have the authority to consider the remaining useful lif e of units when setting standards.

Supply

- side Energy Efficiency (heat

- rate) Improvements

EPA may consider supply

- side energy efficiency (heat

- r ate) improvements as an onsite activity that could be considered when assessing BSER. EPA’s technical analysis indicates that heat rates hypothetically could be increased by at least 2

- 5 percent across existing units, which the

Missouri Utilities believe significantly overstates the actual potential (i.e., of one percent or less).

Many EGUs already have undertak en available projects that have been identified as options for improving efficiency. A further challenge is that energy efficiency improvements tend to be temporary and degrade over time, making it necessary to revisit these actions. In addition, supply

- si de energy efficiency improvements

, especially those improvements at power plants, should not be subject to New Source Review (NSR)

.

Fair share

The Pres ident’s Climate Action Plan reaffirmed a U.S. GHG emissions reduction goal of 17 percent below 2005 emi ssions by 2020. Under the CAA, this goal cannot be the technical basis for emissions guidelines. This goal, however, may be inform ative of EPA’s thinking with respect to existing source performance standards. The Missouri Utilities believe this is an econo my

- wide goal and not a power sector only goal. We further believe that the power sector should not have to make more than its equitable share of reductions. The Mis souri Utilities believe that carbon reductions achieved to date should be recognized in the rule.

Stranded Investment

The Missouri Utilities are making major investments in their plants, and considering or retiring others, in order to comply with MATS and other existing environmental regulations. There may

also be additional investments in the next several years to comply with pending environmental regulations, including Clean Water Act Section 316(b), effluent guidelines and coal combustion residuals. These investments could be at risk depending on the stringency and t iming of the existing sou rce carbon standards. As a result, the Missouri Utilities believe that EPA should take these actions into account in developing the guidelines in order to minimize potential stranded

investments.Mr. Mark Smith

November 27, 2013 Page 6 of 7

Baseline and Credit for Early Action

While there is no ag reement on the baseline used, the Missouri Utilities believe that state plans, and the EPA guidelines, should allow for the recogn ition of actions taken prior to implement ation of the existing source carbon standard. In addition, a longer baseline period ( three or four years) may be sought

.

The Missouri Utilities believe that credit should be received for changes in the composition of generating fleets and other actions take n before the existing source carbon standards are finalized

that have the effect o f reducing carbon emissions associated with providing electric service (e.g., plant retirements and repowerings, investments in zero

- emitting generation such as nuclear uprates, inve stments to comply with state renewable energy standards or to improve heat rates, etc.). In particular, EPA should ensure that its approach to BSER allows states to include early emissions reductions activities in compliance plans.

Rate

- based or Mass

- based Standard

The Missouri Utilities believe that EPA should allow states t o convert a rate

- based ( lbs CO2/MWh) standard to a mass

- based ( annual tons of CO2) standard, or vice

- versa, but not

mandate either one. In addition, states should be allowed to consider alternatives to either a rate

or mass standard which could include a t echnology or efficiency standard. Any standard should take into consideration and promote the acceptance o f lower

- emitting fuels such as renewable

and bio

- mass energy even if the use of those fuels result in increased emission rates because of higher cycli ng and transmission inefficiencies

.

Remaining Useful Life

C onsistent with the language in s ection 111(d), the Missouri Utilities request EPA allow states to consider the remaining useful life of existing units when developing compliance plans.

Carbon C apture and Storage

The Missouri Utilities believe that the BSER for existing sources should not be defined to require partial or full Carbon Capture and Storage ( CCS ) on existing coal or gas units. CC S has not been adequately demonstrated for any new coal or gas unit, let alone an existing unit.

Coordination with Regional Transmission Organizations

The Missouri Utilities suggest that EPA coordinate with the Region Transmission Organizations (RTO)

. Missouri is covered by both the Southwest Power Pool (SP P) and the Midwest Independent System Operator (MISO) . Discussions directly with these RTOs will provideMr. Mark Smith

November 27, 2013 Page 7 of 7

insight into your questions regarding unit dispatch and transmission e fficiency among other

matters.

Sincerely,



## Paul M. Ling

Paul M. Ling

Directo r of Compliance Kansas City Power & Light Company KCP&L Greater Missouri Operations Company

On behalf of the following Missouri U tility representatives

St eve n C. Whitworth

Director

, Environmental Services

Ameren Services

Brent Ross Manager, Environmenta l, Health & Safety Associated Electric Cooperative , Inc.

Dave Fraley

Director

– Environmental Affairs City Utilities of Springfield

Tim Wilson Director of Energy Supply Services Empire District Electric Company