Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

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# Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability

November 2011 

# FALL 2011 UPDATEEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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# Acknowledgements

The following report was prepared on behalf of the Clean Energy Group’s Clean Air Policy Initiative, a coalition of electric companies dedicated to respon sible energy and environmental stewardship. The participating companies (listed below) are some of the nation’s largest generators of electricity, wit h over 146,000 megawatts of electric generating capacity ( including 93,000 megawatts of fossil generating cap acity) throughout the U.S.

Calpine Corporation Constellation Energy Exelon Corporation NextEra Energy

National Grid Public Service Enterprise Group

REPORT AUTHORS

Michael J. Bradley, M.J. Bradley & Associates LLC Susan F. Tierney, Analysis Group Christopher E. Van Atten, M.J. Bradley & Associates LLC Amlan Saha, M.J. Bradley & Associates LLC

For questions or comments about this report, please contact:

Christopher Van Atten M.J. Bradley & Associates LLC 47 Junction Square Drive Concord, MA 01742 Telephone: 978 369 5533 E-mail: vanatten@mjbradley.comEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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# Executive Summary

This marks the third installment in a series of rep orts focusing on the reliability implications of tw o U.S. Environmental Protection Agency (“EPA”) clean air r ules affecting the electric power sector: (1) the C ross-State Air Pollution Rule (“Transport Rule”) 1 

### and (2) the national emission standards for hazard ous air pollutants from coal- and oil-fired electric utility steam generati ng units (“Utility Toxics Rule”). 2



### The first report, published in August 2010, conclud ed that the electric industry is well-positioned to comply with EPA’s proposed air regulations without threatening electric system reliability. The summer 2011 updat e, published in August, supplemented the original anal ysis in light of new information and reaffirmed the prior report’s major conclusion that the electric industr y can comply with EPA’s air pollution rules without threatening electric system reliability. The Augus t report noted that proper planning and implementat ion can secure important public health benefits, reliable e lectric service, and efficient market outcomes.

This “Fall 2011 Update” focuses on the many tools t hat are available for ensuring electric reliability as companies comply with the EPA rules by installing m odern pollution control systems, utilizing allowanc es or retiring portions of the fleet that are uneconomic to retrofit.

Federal and state regulators agree that the industr y has the tools to maintain electric system reliabi lity even in the face of coal plant retirements. In testimony to Congress, FERC Commissioner John Norris stated “[i ]n short,

based on the information I have reviewed to date on EPA’s regulations, I am sufficiently satisfied tha t the reliability of the electric grid can be adequately maintained as compliance with EPA’s regulations is achieved.” 3



### 1. The electric power sector relies on a wide range of planning and operational tools and market mechanisms to ensure the reliability of the Nation’ s bulk electric power system.

o Long-term reliability planning is an ongoing proces s involving industry participants, system operators and regulators that ensure adequate resou rces are available to satisfy future electricity demand—with an added margin of safety in the event of unplanned contingencies, such as an unexpected generation plant shutdown or extreme wea ther event.

o A full reliability assessment considers not only th e generating assets available to supply the grid, b ut also the transmission facilities, the interconnect ions with neighboring power systems and the demand side resources grid operators can dispatch o r otherwise call upon to balance the system’s supply and demand.

o 

### In recent years, actual reserve margins around the country have been well above the minimum target levels, because of new power plant additions, as we ll as reduced demand attributable to the economic recession and increasingly robust load man agement programs.

o 

### According to reports published by the North America n Reliability Corporation (“NERC”), the group responsible for overseeing compliance with national reliability rules, the projected reserve margins

1 The Transport Rule is sometimes referred to as CASP R rule.

2 The Utility Toxics Rule is sometimes referred to as MATS (mercury and air toxics) rule.

3 Testimony of Commissioner John R. Norris Federal En ergy Regulatory Commission Before the House Subcomm ittee on Energy and Power Of the Committee on Energy and Commerce Unite d States House of Representatives. September 14, 2 011.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### in 2014 range from 28% to over 40% , with a large amount of excess generating capacity (150 GW nationwide) above the target reserve margins.

NERC Electric Reliability Region Projected Reserve Margin (1)

in 2014 NERC Target Reserve Margin Cushion Above NERC Target Reserve Margin (2)

In 2014

TRE 31.0% 12.5% 12.5 GW

FRCC 31.7% 15.0% 7.4 GW

MRO 28.3% 15.0% 5.5 GW

NPCC 30.1% 15.0% 9.5 GW

RFC 34.0% 15.0% 34.8 GW

SERC 29.4% 15.0% 30.4 GW

SPP 40.3% 13.6% 12.3 GW

WECC 40.2% 14.7% 33.2 GW

Total 145.7 GW

1 Includes capacity defined by NERC as Adjusted Poten tial Reserve Margin, which is the sum of deliverabl e capacity resources, existing resources, confidence factor adjusted future resour ces and conceptual resources, and net provisional t ransactions minus all derates and net internal demand expressed as a percent of net inter nal demand. Source: NERC, 2010 Long-Term Reliability Assessment , October 2010, p. 32 (Summer Demand).

2 Capacity in excess of what is required to maintain NERC Reference Margin or the regional target reserv e levels.

Source: NERC, 2010 Long-Term Reliability Assessment, October 2010.



### o System operators routinely perform power flow and p ower system studies to evaluate the implications of generating unit retirements. If th ey identify reliability concerns, system operators will establish mitigation measures to implement bef ore the unit retires, including, for example, upgrades to existing power lines, upgrades to subst ations, adding additional transformers, building new transmission lines, and/or entering into reliab ility-must-run (“RMR”) agreements with the retiring unit.

o Many power projects are in development. Expanded d omestic natural gas production is facilitating a transition to a cleaner generation fleet. For ex ample, at present, there are 38 gigawatts (“GWs”) o f generating capacity under construction, 18 GWs of w hich is natural gas-fired; and there are another 12 GWs of natural gas-fired generation capacity in advanced stages of development. In normal market conditions, it may typically take 2-3 years to fully develop, permit and construct a peaking facility, and 3-4 years to fully develop, permit an d construct a gas-fired power plant. Demand-side resources, however, can be brought on line with muc h-shorter lead times (e.g., less than one year).

o Lisa Jackson, Administrator of the U.S. EPA, recent ly stated: “[i]n 40 years, the Clean Air Act has never caused a reliability problem.” 4 

### A review of recent outages on the bulk power syst em confirms her statement. Recent outages have been caused by trees touching power lines, operator errors, substation fires, substation malfunctions, and weat her-related system failures, not by implementing

EPA clean air rules.

4 

### Lisa Jackson, verbal testimony, U.S. House of Repr esentatives, Committee on Energy and Commerce Heari ng. September 22, 2011.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### 2. Options are available under existing law to manage electric system reliability as the industry makes the investments necessary to comply with EPA’s clea n air rules.



## o A survey of recent corporate earnings statements sh ows that many of the Nation’s generating companies impacted by the EPA clean air rules are w ell positioned to comply because of earlier investments in their fleets. See Appendix A.



## o Companies representing half of the nation’s coal-fi red generating capacity—eleven out of the top 15 largest coal fleet owners in the U.S.—have indicate d that they are well positioned to comply with EPA’s clean air rules because of early investments in their generating fleets.

o Some electric generating units (or whole generating facilities) may choose to retire in lieu of installing air pollution controls. The Bipartisan Policy Center, for example, projects about 20 GW of coal plant retirements as a result of EPA’s air, water, and coal ash rules.

o EPA and state regulatory authorities have the discr etion to grant, on a unit-by-unit basis, an additional 12 months for the installation of pollut ion control systems where appropriate, beyond the three years allowed under the Clean Air Act (“CAA”) . Existing regulations detail the process for requesting additional time for the installation of pollution control systems.

o Permitting authorities have used the one-year exten sion provision in the past under previous air toxics rules. For example, the following industria l facilities were granted 10-12 month extensions to comply with prior MACT (Maximum Achievable Contr ol Technology) standards: (1) Lincoln Paper and Tissue in Lincoln Maine, (2) Biscoe Iron Foundry in Biscoe North Carolina, (3) Boral Bricks Salisbury Plant in Rowan County North Caroli na, (4) Iowa Army Ammunition Plant in Middletown Iowa, and (5) Kaiser’s aluminum works in Tacoma Washington.

o If four years is still not enough time to install t he necessary pollution control systems, EPA has the statutory authority to enter into administrative or ders of consent under §113(a)(4) of the CAA or consent decrees with power plant operators, allowin g additional time for the installation of controls.

o EPA and the states also have existing legal authori ty to address potential reliability concerns associated with the retirement of electric generati ng units. Five of the nation’s RTO’s have submitted public comments to EPA proposing a “targe ted backstop reliability safeguard” to address situations where additional time is required for a unit retirement. The joint RTO commenters anticipate that the reliability safeguard “would no t need to be invoked often, if at all”. 5



### o If additional time is provided for the installation of pollution control systems or to accommodate the retirement of a unit that is needed for reliability purposes, units should operate only for reliabilit y purposes to limit the plant’s air pollution emissio ns during the extension period. The CAA directs EPA specify “any additional conditions” for the pro tection of public health during the extension period. This approach ensures that reliability sta ndards are maintained, while minimizing air pollution emissions, without an across-the-board de lay in the implementation of the clean air rules.

5 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Syst em Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### The electric power system in the United States, des pite its scope and complexity, has proven to be a v ery robust and reliable system. The power system opera tes pursuant to a detailed set of operating standar ds, as designed and implemented by the North American Elec tric Reliability Corporation (NERC) and approved by the Federal Energy Regulatory Commission (FERC). This comprehensive system of standards and regulatory oversight guides the efforts of electric utilities and grid operators to ensure reliable en ergy supplies. Numerous stakeholders help maintain the reliability of the electric system, including regio nal reliability organizations, regulators, utilities, g rid operators, and other market participants. Toge ther, the policy infrastructure, industry participants, and p lanning tools provide a critical backdrop for asses sing the changes underway as the electric industry responds to EPA’s upcoming clean air rules.

A. Reliability Planning: Systems are in place to en sure the reliability of the Nation’s bulk electric
power system

Reliability planning and coordination is an ongoing process to ensure that adequate resources are avai lable to satisfy peak electricity demand—with an added ma rgin of safety in the event of unplanned contingenc ies, such as an unexpected generation plant shutdown or extreme weather event. Industry planners engage in long-term planning for peak-day “resource adequacy” , while also conducting special assessments of the localized implications of generating unit retiremen ts or new plant interconnections.

1. Resource Adequacy: Planning for peak demand days

System planners conduct long-term resource adequacy studies, to ensure that there are sufficient resou rces available to satisfy the demand for electricity on peak days. The resources evaluated include: genera ting facilities; transmission facilities; interconnectio ns with neighboring power systems; and demand side resources (e.g., emergency generators) which the gr id operator can dispatch or otherwise call upon to balance the system’s supply and demand.

Most regions observe the “one day in 10 year” loss- of-load expectation (LOLE) standard, where the objective is to experience no more than one involun tary service interruption (e.g., blackout) every te n years. 6


### To meet the resource adequacy standard, planners fo r each electrical region use probability models to

determine the amount of resources needed to meet en d-use demand for electric power. To assess whether

additional resources are needed to meet the LOLE st andard, these studies review: scheduled and unplanned/forced outage rates; availability of capa city on transmission connections to neighboring sys tems; on-call demand-reduction resources; and higher-than -expected peak-load use.

2. System Assessments: Planning to accommodate reliabl e operations when a plant retires or is added to the system

Additionally, system planners conduct periodic reli ability assessments when infrastructure changes are anticipated to occur on the system. For example, s ystem impact studies are performed when: (1) a company plans to interconnect a new generating faci lity to the grid; (2) an existing generating unit p lans to retire from service; or (3) a company plans to cons truct a new transmission facility. The goal is to ensure that, even with the changes in the physical compone nts of the system, the system will continue to oper ate reliably at all times and under a variety of operat ing conditions and contingencies. These system imp act

6 The standard focuses on outages caused by insuffic ient deliverable generation and other resources ins talled on the system, rather than

weather-related and other events that take out tran smission and distribution facilities, and thus inte rrupt service to customers. 

## I. E LECTRIC 

## S YSTEM 

## R ELIABILITY 

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## I MPLEMENTATIONEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### studies may also identify associated changes (e.g., transmission system upgrades) required to maintain voltage support, reliable power system flows, or ot her critical grid operating capabilities.

Planners also perform special assessments of emergi ng issues—such as how fuel supply and delivery issu es might affect the ability of power plants to operate at certain times of the year; how limitations on t he operations of a power plant (e.g., due to constrain ts on air emissions) might limit the grid operator’ s ability to dispatch generating units; or how penetration of non-dispatchable generating resources (such as win d, or solar) might impact system operations and reliabili ty. These studies identify issues that operators m ay need to consider as they dispatch plants and operate the system.

3. Real-Time System Operations: Systems to assure ope rational reliability at all times

System operators also plan for secure system operat ions in real time by equipping operators with a var iety of tools. Some of the tools provide power plant di spatch signals that reflect inherent technical oper ating constraints related to particular plants (e.g., how long it takes them to start up, or to ramp up from low operating levels to full output). Other tools refl ect regulatory agreements controlling plant output. These agreements include, for example, RMR agreements whi ch keep an otherwise uneconomic plant operating under certain system conditions to provide voltage support or other reliability functions, or ones lim iting plant dispatch to maintain required emissions level s. Other critical tools provide real-time communic ations and control devices advising grid operators of faci lity operations’ status, to avoid operational distu rbances which would shut down parts of the system, and to e nable operators to manage any unexpected reliabilit y problems by responding immediately to changing syst em conditions, including through automatic control

devices.

B. Reliability Entities: Multiple parties play a ro le in ensuring the reliability of the Nation’s bulk electric power system

1. Roles of NERC, the regional reliability councils, e lectric utilities, and others

NERC establishes and maintains standards to ensure the reliability of the North American bulk electric
system. 7 

### These standards define the reliability requiremen ts for planning and operating the system, which includes three major regions of interconnected elec trical systems: the Eastern Interconnection (coveri ng most of eastern North America); the Western Interco nnection (a large area spanning from the Great Plai ns to the Pacific Coast); and the ERCOT Interconnection, comprising most of Texas.

NERC works with eight regional reliability entities , whose participants include grid operators, utilit ies, generating companies and other key stakeholders in the electric industry. As shown in the map below, the regional entities include: the Western Electric Coo rdinating Council (WECC) covering the Western Interconnection; the Texas Reliability Entity (TRE) , covering most of Texas; and the Nation’s Eastern Interconnection served by the Midwest Reliability O rganization (MRO); the Southwest Power Pool (SPP); the Northeast Power Coordinating Council (NPCC); th e Reliability First Corporation (RFC); the SERC Reliability Council (SERC); and the Florida Reliabi lity Council (FRCC).

7 Under the authorities established in the Energy Po licy Act of 2005, FERC certified NERC as the Nation ’s independent electric reliability organization (ERO), with the responsibi lity to establish and enforce the reliability stand ards for the bulk power electric system. All reliability standards and enforcement actions p roposed by NERC must be approved by FERC. Also, FE RC’s authority is limited to the bulk-power system—not the distribution system. Bulk-power system outages, as opposed to outages o n the distribution system, can affect large areas with significant regional and na tional implications.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### Most of the Nation’s regional reliability entities cover multiple states. Each monitors and enforces compliance with NERC’s reliability standards, and a ssesses the maintenance of minimum target reserve margins, a key indicator of resource adequacy. All regions plan to have capacity above expected deman d to accommodate unplanned power plant outages, transmis sion failures, unexpectedly high demand, or other contingencies. Most regions maintain minimum targe t reserve margins of about 15 percent.

Actual or expected reserve margins measure the exte nt to which generating capacity exceeds (or falls s hort of) peak electricity demand. In recent years, actu al reserve margins around the country have far exce eded the minimum target levels, due not only to new powe r plant additions, but also to reduced demand

attributable to the economic recession and increasi ngly robust load management programs.

NERC Electric Reliability Region Projected Reserve Margin (1)

in 2014 NERC Target Reserve Margin Cushion Above NERC Target Reserve Margin (2)

In 2014

TRE 31.0% 12.5% 12.5 GW

FRCC 31.7% 15.0% 7.4 GW

MRO 28.3% 15.0% 5.5 GW

NPCC 30.1% 15.0% 9.5 GW

RFC 34.0% 15.0% 34.8 GW

SERC 29.4% 15.0% 30.4 GW

SPP 40.3% 13.6% 12.3 GW

WECC 40.2% 14.7% 33.2 GW

Total 145.7 GW

1 Includes capacity defined by NERC as Adjusted Poten tial Reserve Margin, which is the sum of deliverabl e capacity resources, existing resources, confidence factor adjusted future resources and con ceptual resources, and net provisional transactions minus all derates and net internal demand expressed as a percent of net internal demand. Sou rce: NERC, 2010 Long-Term Reliability Assessment , October 2010, p. 32 (Summer Demand).

2 Capacity in excess of what is required to maintain NERC Reference Margin or the regional target reserv e levels.

Source: NERC, 2010 Long-Term Reliability Assessment, October 2010.



### Within the different regions, the reliability counc ils, transmission owners, electric utilities, power plant owners, and independent system operators are respon sible for compliance with different aspects of NERC ’s reliability standards. They rely on various tools to ensure a reliable power supply: TREEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### • Regional entities carry out the fundamental resourc e adequacy assessments and identify surpluses

and shortfalls.

• System operators and transmission companies conduct long-term transmission planning to assess future reliability conditions, in light of load gro wth, planned resource additions (or retirements), a nd other anticipated changes in the system infrastruct ure. Transmission plans are developed with considerable public input.

• Regulated utilities prepare integrated resource pla ns (“IRP”), which serve as comprehensive road maps for providing reliable electric service to cus tomers while addressing economic trade-offs of different supply options (e.g., new power plants, n ew transmission facilities, energy efficiency) and associated risks and uncertainties. As with long-r un transmission plans, IRPs are developed with considerable public input.

• Many independent system operators—like PJM Intercon nection, L.L.C. (“PJM”), the New York ISO (NYISO), and ISO New England (ISO-NE)—rely on f orward capacity market designs to encourage investment in new and existing resources and conduct periodic auctions to secure commitments to supply future capacity. In June 20 11, ISO-NE announced that it had procured sufficient generation and demand-side resources to meet the region’s reliability needs in 2014-

2015. 8 

### In May 2011, PJM also announced that it had secur ed sufficient resources to meet its reliability needs in 2014-2015; PJM secured resourc es sufficient to maintain a 20 percent reserve margin for the region. 9



### • Transmission operators (e.g., Regional Transmission Organizations (RTO) like the Midwest ISO (MISO), the Southwest Power Pool (SPP), PJM, NYISO, and ISO-NE) as well as electric utilities in parts of the country without an RTO also conduct st udies to identify transmission overloads, voltage limitations and other potential reliability standar ds violations. Also, they develop transmission plans to resolve violations that could otherwise le ad to overloads and black-outs.

• Before commencing commercial operation, power plant developers request transmission operators perform system impact studies to determine, any rel iability issues arising from the new plant’s interconnection to the grid. Using power flow mode ls to examine a variety of operating conditions with the new plant in place, these system impact st udies and subsequent facility studies identify reliability concerns and proposed measures (such as transmission system upgrades) to mitigate any potential concerns.

• Before retiring or deactivating a generating unit, existing power plant owners must provide the RTOs notice so that system operators can evaluate t he reliability implications of the retirement or deactivation using power flow and other power syste m modeling. Factors considered in such an assessment include, but are not limited to, “the op erating characteristics of a unit, the number of

8 ISO-NE. Fifth Forward Capacity Market Auction Sec ures Power System Resources for 2014-2015: More tha n 40,000 Megawatts of Resources Competed to Meet the Region’s Capacity Ne eds. June 8, 2011.

9 As discussed in the Summer Update, PJM recently an nounced the results of its forward capacity auction for the period when EPA’s

clean air rules will be in effect. The results of the auction confirm that the PJM region will have a mple electricity supply after EPA's rules take effect. The market response represents a 20.6 percent reserve margin for the region. PJM. Demand Resources and Energy Efficiency Continue to Grow in PJM’s RPM Auction. May 13, 2011.

PJM. 2014/2015 RPM Base Residual Auction Results. PJM DOCS #645284.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### proposed retirements and the location of the units. ” The respective RTOs/ISOs require the following advance notice requirements: 10

RTO/ISO Advance Notice Requirements

ERCOT 90 days notice (for units to be taken out of servic e for periods that exceed 180 days) 11

MISO 26 weeks 12

NYISO 180 days (for generators larger than 80 MW) and 90 days (for generators smaller than 80 MW) 13

PJM 90 days 14

SPP 45 days 15



### Despite these tariff requirements, however, power p lant operators have historically given several years advance notice. Several RTOs have suggested that notification of retirements associated with

EPA’s rules should be made within 12 months of EPA issuing its final regulations. 16 

### From a timing perspective, PJM, for example, will typically compl ete a deactivation study within 30 days, testing for violations of NERC reliability criteria includi ng stability, thermal line loadings and voltage limits. In 2011, PJM received eight unit deactivat ion requests; seven of the reliability studies identified no reliability impacts. 17



### • If a power flow and other power system analyses ide ntify reliability concerns, system operators will specify mitigation measures that need to be impleme nted before the unit retires. This could include upgrades to existing power lines, upgrades to subst ations, adding additional transformers, or building new transmission lines. ISOs/RTOs can nei ther compel the construction of new generating facilities nor prevent an existing generating unit from retiring. “Rather, the ISO/RTO model is based on a market platform that provides financial incentives designed to facilitate resource adequacy consistent with applicable reliability sta ndards”. By contrast, transmission assets are regulated, and as a result, the ISO/RTOs plan for, and have the authority pursuant to their tariffs to direct the expansion of the transmission grid to ad dress reliability issues.” 18 

### Additionally, to help mitigate reliability impacts of retiring generation units, the ISO/RTOs use their transmission planning reports as well as these system impact stu dies, to signal to the market the need for market response solutions, such as the addition of generat ion, demand response or energy efficiency

resources. 19



### • Where a retirement might lead to a local reliabilit y concern, ISOs/RTOs may attempt to enter into RMR agreements with the owner of a power plant to p revent it from retiring the plant. An RMR agreement identifies the terms and conditions under which the plant may operate for grid reliability purposes, in exchange for the users of the system p aying the plant owner its costs to keep the plant in operation. For example, when PJM determined tha t two proposed-to-be-retired power plants in

10 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Sys tem Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool, p. 3.

11 ERCOT Protocol Section 3.14.1.1.

12 MISO Tariff section 38.2.7 and Attachment Y.

13 NYSPC Case No. 05-E-0889.

14 PJM Tariff section 113.1 and 113.2.

15 SPP EIS Protocols Section 12.

16 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Sys tem Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool.

17 PJM. Generator Deactivations as of September 7, 2 011.

18 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Sys tem Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool. p. 3.

19 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Sys tem Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool. p. 4.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### Pennsylvania were needed to maintain local reliabil ity, PJM entered into an agreement to keep the plants operating until completion of required trans mission upgrades. The agreement included “explicit operating procedures that would prevent t he dispatch of these units except for ‘Reliability Purposes,’ defined as the commitment of the units o nly ‘after all [generation] resources have already been committed and additional units are required to help alleviate a ‘Transmission Security Emergency... .” 20



### 2. The Role of the Federal Energy Regulatory Commissio n

Since 2005, FERC has been responsible for ensuring electric system reliability. As noted above, under the Energy Policy Act of 2005’s amendments to the Feder al Power Act (“FPA”), Section 215, FERC approves NERC’s adoption and enforcement of electric reliabi lity standards. “By law, Reliability Standards ca nnot include any requirement to enlarge Bulk-Power Syste m facilities or to construct new transmission capac ity or generation capacity.” 21



### The District of Columbia Circuit Court of Appeals h as upheld FERC’s authority under the FPA to approve

, even over state commission or local utility objecti ons, reserve capacity requirements assigned by RTOs to those entities (e.g., electric distribution compani es, other providers of retail electricity supply to end-users), and to require they pay for such capacity obligatio ns. 22 

### FERC can also authorize ISO determinations approving or disallowing the resources that are all owed to count for resource adequacy purposes. 23 

### The FPA does not, however, authorize FERC to engage in “direct regulation of generation facilities”, becau se this activity is reserved to the states. 24



### FERC expects transmission entities (e.g., ISOs/RTOs ; transmission companies) to carry out long-term planning to ensure reliable service. Also, “the Co mmission does and will review studies to determine the changes that occur due to a change in the mix and l ocation of resources in a region. The Commission al so does and will review planning-related proposals tha t account for implementation of these proposed EPA regulations.” 25 

### FERC also assesses periodically the ability of de mand-response resources to play a role in assuring resource adequacy. 26



### In response to an owner’s decision to retire the Po tomac River Generating Station in Virginia because of various air pollution standards violations, FERC re quired an RTO (PJM) and a transmission company (PEPCo) to submit a plan to preserve reliability in the District of Columbia (“DC”) in the absence of that generating facility. In that case, the U.S. Depart ment of Energy prohibited the plant from shutting d own to maintain the DC area’s electric reliability. 27 

### PEPCo and PJM recommended investing in various transmission upgrades, most of which have now been built and have commenced commercial operation 28



### ,

20 Testimony of John Hanger, former Pennsylvania Secr etary of Environmental Protection, before the House Energy and Commerce Committee, September 14, 2011, p. 7.

21 Statement of FERC Chairman Jon Wellinghoff before the House Energy and Commerce Committee, September 14, 2011, pp. 5-6, citing 16 U.S.C. § 824o(a)(3) (2006).

22 FPA Section 206(a), Connecticut Department of Public Utility Control v. FERC , 569 F.3d 477 (D.C. Circuit 2009) , cert. denied , 130 S. Ct. 1051(2010).

23 Sacramento Municipal Utility District v. FERC , 616 F.3d 520 (D.C. Cir. 2010). ( per curium ).

24 FPA Section 201(b).

25 Statement of FERC Chairman Jon Wellinghoff before the House Energy and Commerce Committee, September 14, 2011, pp. 5-6, citing 16 U.S.C. § 824o(a)(3) (2006).

26 See, for example, FERC Staff, Assessment of Demand -Response and Advanced Metering, November 2011. http://www.ferc.gov/legal/staff-reports/11-07-11-de mand-response.pdf

27 U.S. Department of Energy, Order No. 202-05-2 (Dece mber 20, 2005).

28 See Paul Hibbard, Pavel Darling, and Susan Tierney , “Potomac River Generating Station: Update on Reli ability and Environmental Considerations,” Analysis Group, Inc., July 19, 201 1.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### and, according to PJM, have relieved the associated reliability problems. 29



### 3. The Role of the States

Many states have direct authority to ensure resourc e adequacy, or can accomplish that end through a va riety of ratemaking authorities. States that exercise tr aditional regulation over vertically integrated ele ctric companies (and even in some states with restructure d electric industries that allow for customer choic e) often use integrated resource planning processes to ensure that electric distribution companies build and/or otherwise arrange for sufficient resources to meet projected load and reserve requirements in a least- cost fashion. To ensure resource adequacy, some states also require traditionally regulated utilities to a dd costeffective energy efficiency resources, to develop a nd construct generating resources, to conduct compe titive

solicitations to determine whether to enter into lo ng-term contracts for energy and capacity, and/or t o develop and construct transmission facilities.

4. The Role of the Market

In most parts of the U.S., and particularly in the regions with organized wholesale electricity market s administered by ISOs/RTOs, the market itself plays an important role in ensuring the development and construction of new generation facilities and other supplies needed for resource adequacy. As noted previously, several ISOs/RTOs rely on forward capac ity markets to procure the amount of generating capacity and demand-side resources needed to meet f uture resource requirements.

In those market regions, and in other states, utili ty and non-utility companies plan for, permit, engi neer and construct new power projects. In normal market con ditions, it may typically take 2-3 years to fully d evelop, permit and construct a simple cycle gas turbine tha t could support peak demand periods, and 3-5 years to fully develop, permit and construct a gas-fired pow er plant. 30 

### New coal projects and nuclear plants will likely require much more time. Demand-side resourc es, however, can be brought on line with much-short er lead times (e.g., less than one year).

Throughout the country, many projects are underway, spurred by the relatively low prices for natural g as, renewable energy requirements, and the potential re tirement of some number of existing power plants. For example, at present, there are 38 GWs of generating capacity under construction (18 GWs of natural gas

fired generating capacity) with another 12 GWs of n atural gas-fired generation capacity in advanced st ages of development.

New Capacity Additions by In-Service Year

Planned In-Service Year Lower 48: Total Under Const ruction Capacity (MW)

2011 6,653

2012 19,623

2013 9,018

2014 1,858

>2014 792

Total 37,944

Source: SNL Financial – as of 11-11-2011

29 Letter from Michael Kormos, PJM, to Chairman Betty Ann Kane of the DC Public Service Commission, Sept ember 29, 2011. http://www.dcpsc.org/pdf_files/hottopics/PJM_Evalua tion.pdf

30 There are situations where reliability concerns ha ve caused states to allow for expedited permitting of power plants. See, for example, Susan Tierney and Paul Hibbard, “Siting Power Plant s in the New Electric Industry Structure: Lessons f rom California and Best Practices for Other States,” Electricity Journal, June 2002, page 35. Also, directives to state permitting agen cies to coordinate their permitting processes can lead to complex permits being issued within a year, as occurred in Colorado when the var ious public health agencies and

the Colorado Public Service Commission reviewed and approved the proposed Xcel power projects under Co lorado’s Clean Air-Clean

Jobs Act of 2010.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 13 Analysis Group New Capacity Additions by Region

NERC Region (Lower 48) Total Announced Capacity (MW) Total Under Construction Capacity (MW)

WECC 145,749 12,940

SERC 43,319 13,200

RFC 48,875 5,078

ERCOT 43,907 1,491

MRO 41,263 1,291

SPP 33,544 1,324

NPCC 17,399 1,171

FRCC 11,063 1,449

Total 385,119 37,944

Source: SNL Financial – as of 11-11-2011

Natural Gas Capacity Additions by Region

New Power Plant Capacity (Lower 48) - MW

Region Power Plant Technology Under

Construction Advanced

Development Announced Total

ERCOT Natural gas - combined cycle - 2,977 6,449 9,426

Natural gas - gas turbine

- 1,400 790 2,190
Natural gas - other (CAES, fuel cell) - - 335 335

Total Natural Gas
- 4,377 7,574 11,951

FRCC Natural gas - combined cycle 1,295 1,295 2,135 4,72 5

Natural gas - gas turbine

- - 1,282 1,282
Natural gas - other (CAES, fuel cell) - - - -

Total Natural Gas 1,295 1,295 3,417 6,007

MRO Natural gas - combined cycle 300 - 1,645 1,945

Natural gas - gas turbine 60

- 2,176 2,236
Natural gas - other (CAES, fuel cell) - - 288 288

Total Natural Gas 360
- 4,109 4,469

NPCC Natural gas - combined cycle - 350 3,920 4,270

Natural gas - gas turbine 512 246

- 758
Natural gas - other (CAES, fuel cell) - 37 177 214

Total Natural Gas 512 632 4,097 5,241

RFC Natural gas - combined cycle 938 667 9,163 10,768

Natural gas - gas turbine 352

- 1,265 1,617
Natural gas - other (CAES, fuel cell) 6 - 716 722

Total Natural Gas 1,297 667 11,144 13,107

SERC Natural gas - combined cycle 7,079 1,300 4,108 12,4 87

Natural gas - gas turbine 731

- 1,869 2,600
Natural gas - other (CAES, fuel cell) - - - -

Total Natural Gas 7,810 1,300 5,977 15,087

SPP Natural gas - combined cycle - - - -

Natural gas - gas turbine 42

- 223 265
Natural gas - other (CAES, fuel cell) - - - -

Total Natural Gas 42
- 223 265

WECC Natural gas - combined cycle 3,409 3,411 13,176 19, 996

Natural gas - gas turbine 3,214 350 2,215 5,779
Natural gas - other (CAES, fuel cell) 3 - 317 320

Total Natural Gas 6,626 3,761 15,708 26,095

TOTAL

Lower 48 Natural gas - combined cycle 13,022 10,000 40,595 6 3,617

Natural gas - gas turbine 4,912 1,995 9,821 16,728
Natural gas - other (CAES, fuel cell) 9 37 1,834 1, 879

Total Natural Gas 17,942 12,032 52,250 82,223

Source: SNL Financial – as of 11-11-2011 Note: CAES = compressed air energy storageEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 14 Analysis Group 

### B. Reliability Outcomes: System performance includi ng past power outages and blackouts

The U.S. bulk-power system is generally very reliab le, delivering uninterrupted power to customers thr ough

an interconnected network of transmission lines. A s described above, large outages are infrequent bec ause of the many “defense-in-depth” reliability tools in place to protect the bulk power systems. 31



### NERC maintains and reports industry-wide and region al metrics on the performance of the system, including reserve levels, loss of load due to trans mission-related outages, and other variables. 32 

### Most outages on the system arise from weather-related ev ents, not problems in the bulk power system itself.

However, even a short outage can be very disruptive to households and businesses. The largest blackou t in American history occurred on August 14, 2003, affec ting eight states in the northeastern U.S. and part s of Canada. The blackout affected 50 million people an d caused the loss of between $4.5 billion and $12 billion in economic activity. 33 

### The event was triggered by tree contacts with sev eral high-voltage power lines in Ohio, although the ultimate causes were at tributed to violations of multiple NERC standards, which were not enforceable prior to the Energy Policy Act of 2005. 34 

### Other recent outages have been caused by substation fires, substation malfunctions, and weat her-related system failures.

Examples of major U.S. bulk power system outages an d their causes

Event Date Areas affected Description and proximate cause Northeast blackout of

2003 August 14, 2003 Large area including the Northeast, Midwest and
Canada Several high

- voltage power lines in Ohio were damaged by trees, causing other lines to trip in a cascade of events that eventually led to over 50 million people in th e Northeastern U.S. and Canada losing power. i The
breadth of the blackout arose from several violatio ns of
NERC standards.

2008 Florida
blackouts February 26, 2008 Florida The combination of a failed switch , operator errors, and
a fire at a substation outside of Miami led to mult iple power plants across the state going offline, ultima tely resulting in over two million people losing power. ii 2011 Texas rolling
blackouts February 2, 2011 Texas Unusually low winter temperatures caused both a spike in demand (two thirds of Texas households heat thei r home with electricity) as well as cold weather-rela ted failures at power plants. Over 7 GW of capacity wa s shut down, leading ERCOT to implement rolling
blackouts across the state. Over 1 million househo lds lost power for up to an hour. iii
2011 Southwest
blackout September 8

- 9, 2011 Southern California,
Arizona and
northwestern Mexico Over 7 million people lost power after a malfunctio n at a substation in Yuma, Arizona led to cascading events throughout the region. Investigation of the cause is still under investigation iv i. Time Magazine, “Can we prevent another blackout? ” 8/11/2008 http://www.time.com/time/health/article /0,8599,1831346,00.html ii CNN, “Power restored to parts of Florida after o utage” 12/26/2008 http://articles.cnn.com/2008-02-2 6/us/florida.power_1_outage-normal-electricservice-electrical-substation?_s=PM:US iii. Reuters, “Texas weathers rolling blackouts as mercury drops.” 2/2/11 http://www.reuters.com/artic le/2011/02/02/us-ercot-rollingblackotsidUSTRE7116ZH20110202 iv. Yuma Sun, “Massive power outage not caused by o ne worker: Officials.” 10/27/11 http://www.yumasun. com/news/power-74029-outageutility.html

31 In the U.S.-Canada Power System Outage Task Force, “Final Report on the August 14, 2003 Blackout in t he United States and Canada: Causes and Recommendations,” April 2004 (pa ge 9), the task force identified these “defenses in depth”:

1. A range of rigorous planning and operating studies, including long-term assessments, year-ahead, seaso n-ahead, week-ahead, day ahead, hour-ahead, and real-time operational contin gency analyses.... 2. Preparation for the worst case. ... 3. Quick response capability... 4. Maintain a surplus of generation and transmissio n.... 5. Have backup capabilities for all critical functi ons

32 NERC website: http://www.nerc.com/page.php?cid=4|3 31

33 U.S. Department of Energy, Transforming the Grid to Revolutionize Electric Power in North America.

34 U.S.-Canada Power System Outage Task Force, “Final Report on the August 14, 2003 Blackout in the Unit ed States and Canada: Causes and Recommendations,” April 2004, Chapter 3.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 15 Analysis Group 

### The EPA is finalizing two important air pollution r egulations limiting power plant air emissions: the Transport Rule and the Utility Toxics Rule. As the industry prepares to comply with these new environmental requirements, the key issues will be to: (1) manage the retirement and replacement of existing generating units that are uneconomic to re trofit with modern pollution controls; and (2) coor dinate any facility outages required to complete pollution control system installations. System operators ne ed to coordinate these outages across the grid so that ad equate generating capacity is available to meet pea k

demand.

Several mechanisms are available under existing law to manage electric system reliability as the indus try transitions to a cleaner, more efficient generation fleet.

A. Company Plans: Financial disclosures and stateme nts confirm that many of the Nation’s generating companies are well positioned to comply

A survey of recent corporate earnings statements sh ows that many of the Nation’s generating companies impacted by the EPA rules are well positioned to co mply because of earlier investments in their fleets . The results of this survey are in Appendix A, with quot es from a sampling of electric company executives indicating that: (1) companies have long anticipate d these rules; (2) early investments have positione d these companies well; and (3) the impact on electricity r ates is manageable. The quoted companies indicati ng they are well positioned to comply with the EPA air pollution regulations represent about half of the nation’s coal-fired generating capacity and eleven out of the top 15 largest coal fleet owners in the U.S.

B. Additional time for the installation of controls under the Utility Toxics Rule

Under the CAA Congress requires existing, affected sources to comply with the Utility Toxics Rule “as expeditiously as practicable, but in no event later than 3 years after the effective date of such stan dard.” EPA plans to finalize the rule by December 16, 2011 . As a result, affected coal-fired and oil-fired p ower plants will need to comply with the emissions limit s of the Utility Toxics Rule by the beginning of 20 15. As detailed in Appendix A, most generating facilities have indicated they expect to comply with the Utili ty Toxics Rule within the Act’s timeframe. Notably, h owever, the CAA also contains exceptions allowing

additional time for installation of controls. EPA and state regulatory authorities have the discretio n to grant, on a unit-by-unit basis, an additional 12 months fo r the installation of pollution control systems whe re

necessary. 35 

### EPA is also considering extending this compliance flexibility to units converting to cleaner burning fuels.

Permitting authorities have used this provision in the past under previous air toxics rules

. For example, the following industrial facilities were granted 10-12 month extensions to comply with prior MACT standard s: (1) Lincoln Paper and Tissue in Lincoln Maine, (2) Biscoe Iron Foundry in Biscoe North Carolina, (3) B oral Bricks Salisbury Plant in Rowan County North Caroli na, (4) Iowa Army Ammunition Plant in Middletown Iowa, and (5) Kaiser’s aluminum works in Tacoma Was hington. Under existing regulation for all MACT standards, to qualify for a compliance extension, s ources must file a request 120 days prior to the compliance date. A request for a compliance extens ion must include: (1) a description of the controls to be installed to comply with the standard; (2) the sche dule for construction and installation of the contr ols; and (3) the completion date. To facilitate reliability planning and outage scheduling, several of the Nat ion’s

35 See CAA section 112(i)(3)(B). The process for requ esting an extension under a MACT standard is detail ed at 40 CFR Part 63.6. 

## II. M ANAGING 

## R ELIABILITY IN THE 

## C ONTEXT OF 

## EPA’ S 

## C LEAN 

## A IR 

## R ULESEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 16 Analysis Group 

### RTOs have recommended that utility companies should provide this information to EPA and system operators within one year of EPA issuing its final Utility Toxics Rule. 36



### The CAA provides companies the flexibility to sched ule the installation of controls across multiple ou tage periods, thus maintaining electric system reliabili ty while facilitating expeditious installation. Co mpanies will typically construct pollution control systems while their power plants continue to operate. The equipment is then connected or “tied-in” to the pla nt during a scheduled outage period, coordinated wi th other generating facilities to ensure reliability. This will typically occur during a month or month( s) when the demand for electricity is relatively low to avo id the hottest summer months and the coldest winter months. A 12-month extension would provide plant o perators with an additional two shoulder periods to schedule outages and stagger the installation of co ntrols across a control region.

In granting an extension of time for the installati on of controls, existing regulation requires EPA or states to specify “any additional conditions” for the protect ion of public health during the extension period. To limit the emissions of harmful pollutants, stakeholders h ave recommended limiting operations of any EGU receiving any compliance extension to only times re quired to maintain reliability (i.e., “Reliability

‐ Only Dispatch”). 37 

### Operating limitations are commonly placed on gene rating units and reflected in dispatch decisions, including RMR agreements, startup times, and fuel use restrictions.

If four years is still not enough time to install t he necessary controls, EPA has the statutory author ity to enter

into administrative orders of consent under Section 113(a)(4) of the CAA or consent decrees with power plant operators, allowing additional time for the i nstallation of controls. Again, to protect the pub lic and maximize health benefits during the extension perio d, such orders or decrees can limit a unit to opera ting only when required to maintain reliability.

C. Managing unit retirements

Some electric generating units (or whole generating facilities) may choose to retire in lieu of instal ling air pollution controls. The Bipartisan Policy Center, for example, projects about 20 GW of coal plant retirements as a result of EPA’s air, water, and co al ash rules (see table below).

FERC Commissioners recently testified before the Ho use Subcommittee on Energy and Power that they do not expect widespread reliability concerns due to r etirements. The FERC Commissioners acknowledged, however, that the retirement of significant amounts of generation could cause some localized reliabili ty issues, for example, voltage stability concerns. F ERC Commissioner Cheryl A. LaFleur explained that “ in such cases, a time-limited waiver of EPA regulation s may be needed. In some cases, a ‘reliability mus t-run’ (“RMR”) contract may also be needed to allow the po wer plant to operate within certain discrete parame ters for a limited period of time.” 38 

### LaFleur also noted that this process is not uniqu e to EPA regulations, but rather used as a process for any retirements, inclu ding those due to market conditions, and the need f or such solutions “must be targeted and discrete”.

Generating capacity retirements will need to be eva luated by system operators for reliability purposes with several possible outcomes: (1) unit can retire with no adverse reliability impact before the complianc e deadline in 2015; (2) transmission system upgrades or new capacity additions are required to avoid reliability concerns and upgrades or replacement po wer can be completed within 12 months of the compliance deadline; or (3) transmission system upg rades or new capacity additions are required to avo id

36 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Sys tem Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool.

37 Hanger, John. Reliability-Only Dispatch. 2011.

38 Testimony of Commissioner Cheryl A. LaFleur Federal Energy Regulatory Commission Before the House Subc ommittee on Energy and Power of the Committee on Energy and Commerce U nited States House of Representatives. September 1 4, 2011.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 17 Analysis Group 

### reliability concerns, but upgrades or replacement p ower cannot be completed within 12 months of the compliance deadline.

EPA and the states have the statutory authority to address each of these scenarios, just as they have the authority to address reliability concerns in the co ntext of pollution control retrofits. In fact, fiv e of the nation’s RTOs have submitted comments to EPA propos ing a “targeted backstop reliability safeguard” to address situations requiring additional time. The Joint RTO Commenters anticipate that the reliabilit y safeguard “would not need to be invoked often, if a t all”. 39 

### As with retrofit extensions, units can be restricted to operating for reliability purposes on ly to limit the plant’s air pollution emissions dur ing the extension period. This targeted, limited approach ensures that reliability standards are maintained w ithout a blanket delay in implementing these important air p ollution rules.

Estimated Projections of Retrofits and Retirements through 2015 Source Projected Coal

Retirements (GW) Projected Pollution Control Retrofits (and existing controls) 1

Scrubbers Baghouses DSI (Trona) ACI SCR Bipartisan Policy

Center Modeling of Utility MACT, Transport Rule, BART, 316(b), coal ash, and

various state rules through 2015 (low NG price scenario) 35 GW

Note: 18 of which is attributed to new air, ash, and water regulations 92 GW 203 GW 2 20 GW 137 GW 32 GW

Existing Control Installations in the U.S. 190 GW 79 GW <5 GW 49 GW 123 GW

1. Retrofit figures reflect total retrofits through 2015, not simply the incremental retrofits above R eference Case levels.

2. BPC makes a conservative assumption that control of metals will require a fabric filter for all coa l units. Studies indicate that existing electrostatic precipitators (or upgrades to existin g precipitators) may be sufficient to comply.

Source: BPC. Environmental Regulation and Electric System Reliability. June 2011.

39 Joint Comments of the Electric Reliability Council of Texas, the Midwest Independent Transmission Syst em Operator, the New York Independent System Operator, PJM Interconnection, L .L.C., and the Southwest Power Pool.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 18 Analysis Group 

### Reliable electric supply is essential to the nation 's economy and the health of its citizens. The ele ctric industry is well-positioned to maintain the reliability of t he bulk electric system while transitioning to a cl eaner, more efficient generating system.

The electric power sector relies on a wide range of proven planning and operational tools and market mechanisms to maintain the reliability of the natio n's bulk electric power system. These include proc esses to ensure adequate electric resources to meet future n eed, including an added margin of safety to handle unexpected stresses on the electric grid. NERC, th e Nation's electric reliability organization along with , regional reliability entities, system operators, RT Os, transmission companies, and other organizations routinely conduct assessments to identify reliability issues that need to be managed. The assessments include, for example, long-term system studies, unit or plant-sp ecific analyses of upcoming generating capacity add itions or retirements, as well as operational studies focusin g on localized operating requirements.

These comprehensive, coordinated planning processes are overseen by federal and state regulators, as w ell as NERC. In many cases, the results of reliability as sessments and system studies provide concrete infor mation about actions that must be taken to maintain grid r eliability. Other studies provide signals to marke t participants about the timing and location of needed resource ad ditions, thus helping to inform investment and busi ness decisions by generation developers and suppliers of demand response and other resources.

The market is responding already to the EPA air pol lution rules. For example, new power projects are under construction, in part due to the availability of ab undant, domestic natural gas resources as well as e xpectations of potential retirements. Developers of natural ga s projects have 18 GWs under construction and anoth er 12 GWs in advanced stages of development. Additionall y, eleven out of the top 15 largest coal fleet owne rs in the U.S., representing half of the Nation’s coal capaci ty, have indicated they are well positioned to time ly comply with EPA's air pollution rules. According to FERC Commissioner Marc Spitzer, “the electric industry recognizes its obligation to comply with both envir onmental regulations and FERC-approved reliability standards and to plan their systems to reliably ser ve consumers while complying with environmental requirements.” 40



### Finally, a range of options are available under exi sting law to manage electric system reliability as the industry makes the investments necessary to comply with EPA' s clean air rules. These tools include EPA's autho rity to make unit-by-unit determinations that allow for an additional 12 months for the installation of pollut ion control systems where appropriate, beyond the three years a llowed under the CAA. If four years is still not e nough time to install the necessary controls while also ensuri ng reliability, EPA has the statutory authority to enter into

administrative orders of consent or consent decrees with power plant operators, allowing additional ti me for the

installation of controls. Several of the Nation's RTOs have also proposed a "targeted backstop reliab ility safeguard" to address situations in which additiona l time is required before a unit retires. Any addi tional time provided for compliance should be accompanied by re strictions on plant operations so that they run onl y to meet reliability needs.

With the proper planning, communication and use of available tools outlined in this paper, the America n public can have clean air and a reliable electric power sy stem.

40 Testimony of Marc Spitzer, Commissioner Federal En ergy Regulatory Commission Before the House Subcomm ittee on Energy and Power of the Committee on Energy and Commerce Unite d States House of Representatives. September 14, 2 011. 

## V. C ONCLUSIONEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 19 Analysis Group 

### APPENDIX A

Company Statements in Response to EPA Regulations – November 9, 2011

No. Company Statements

1 AES “So we're not prepared to put a CapEx number out today, but the regulation, as you're awa re, in Indiana would allow us to recover those costs th rough rates. The balance of our North America fleet is mostly already scrubbed and has NO x control, so we don't anticipate any significant capital on the balance of our fleet ... [ W]e feel, overall, like we're in pretty good shape and certainly didn't get any what we would co nsider to be significant surprises, and I think anticipate that the MACT rules that come out will actually drive what the CapEx requirements will be.”

- Ned Hall, Q2 2011 Earnings Call, 8/5/2011 ( transcript )

“Outside of IPL and DPL, certainly, our plants that have contracts, or the few that are still remaining that are merchant, are largely scrubbed f or SO 2 and NOx. So we're in pretty good shape as far as the CSAPR rules go from those facil ities. IPL may have to actually make some investment. But there's clarity in how that would w ork ... that investment would be anticipated to be recovered through rates as it is made. And DPL is actually in pretty good shape in terms of NOx and SOx requirements as well. So overall, I think we're feeling like we're in a good position.”

- Ned Hall, Q3 2011 Earnings Call, 11/4/2011 ( transcript [corrections by MJB&A])

2 Ameren “This compliance strategy is a win for our customers, our shareholders, and the State of Missouri. As a result of this strategy, we will be able to avoid estimated rate increases for our customers of approximately 15% to 20% by 2017 that might otherwise have been required to
meet the SO
2 emission standards of this rule. We believe that t his strategy will benefit the State of Missouri by keeping Ameren Missouri’s elec tric rates among the most competitive in the nation helping the State better retain and attr act new businesses ... It’s something we’ve been doing for some time to try and anticipate wher e these regulations were going to come and we were able to execute the strategy successful ly.”

- Thomas Voss, Q2 2011 Earnings Call, 8/4/2011 ( transcript )

3 Buckeye Power

Cooperative “The one

- two punch of environmental regulations found in the new Cross

- State Air Pollu tion Rule (CASPR) and pending Utility Maximum Achievable Control Technology (MACT) rule aimed at mercury emissions will reduce coal-fired p ower plant generation and require unit closures, but Buckeye Power, Inc. is well positione d for compliance. ... “We started down this path almost 10 years ago” with investment in select ive catalytic reduction (SCR) systems and SO2 scrubbers at Cardinal units 2 and 3, O’Loughlin said ... O’Loughlin is confident Buckeye is poised to meet the new EPA regulations.

“We’ve got the tools,” he said. “We’ve got among th e best scrubbers in the world.”

- (website 10/14/2011; cached )

4 Calpine “On the environmental front, the EPA’s cro ss

- state air pollution rule is being challenged by group of coal generators in States seeking to stay the rule from becoming effective on January 1, 2012. Calpine has intervened to fully support th e EPA and its efforts to enforce this long anticipated rule, for which the environmental contr ol technologies have been available for decades ... We would not be surprised to see continue d congressional efforts to blockade EPA action, but remain hopeful that the EPA will stay t he course on both CSAPR and the Utility
MACT.”

- Jack Fusco, Q3 2011 earnings call, 10/28/2011 ( transcript )

5 CMS Energy “The bottom line: we are well positioned to comply with these new laws with the plans we have in place.”

- John Russell, Q3 2011 Earnings Call, 10/27/2011 ( transcript )

6 Constellation “We believe EPA schedules for rule completion and f or compliance are appropriate and feasible based on our own experience with available control technologies and installation
timelines to make our own fleet cleaner. Because w e already made investments in pollution controls and lower emitting generation plants, Cons tellation's fleet should benefit from the new and forthcoming EPA regulations as higher power and capacity prices more than offset any incremental costs of compliance.”

- Mayo Shattuck, Q2 2011 Earnings Call, 8/3/2011 ( transcript )Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 20 Analysis Group No. Company Statements

7 Dominion “There's a lot of activity around our generator fac ilitie s and we believe we are well

- positioned to meet the challenges.”

- Thomas Farrell, Q1 2011 Earnings Call, 4/28/2011 ( transcript )

“[T]he so-called CSAPR rules have no material impac t or significant impact on our environmental plans.”

- Thomas Farrell, Q2 2011 Earnings Call, 7/28/2011 ( transcript )

8 Duke “Even though CSAPR is more restrictive and the comp liance periods are more aggressive than originally proposed, the provisions are within our long-term planning assumptions ... the anticipation of more stringent environmental regula tions has long been part of our long-term strategic planning process.”

- Jim Rogers, Duke Q2 2011 Earnings Call, 8/2/2011 ( transcript )

“When our modernization program is complete, nearly 100% of our coal generation capacity will have scrubbers in operation. This positions us well, as the EPA continues to finalize more stringent environmental regulations ... We are well a long with our strategy to achieve the new [CSAPR] compliance limits by January 1.”

- Jim Rogers, Duke Q3 2011 Earnings Call, 11/3/2011 ( transcript )

“I think three years is doable,” Jim Rogers, chief executive of Duke Energy Corp., said in an interview, referring to Duke's compliance schedule for the EPA rules.

- Jim Rogers, news article , 11/8/2011

9 Dynegy “[W]e have made substantial capital investments in state

‐ of

‐ the

‐ art air pollution control devices. Any efforts to delay or derail CSAPR would undermine the reasonable, investment

‐ backed expectations of Dynegy.”

- CEO Ralph C. Flexon, letter to House Committee on S cience, Space and Technology, 9/12/2011 (quoted in EESI issue brief )

10 Edison Int ernational “We installed the necessary equipment [for complian ce with the Toxics Rule] back in 2009 and are already achieving these limits. U.S. EPA's rule contained other draft provisions covering acid gases and non-mercury metals, which w e can meet by installing the pollution control equipment we have been planning to use at M idwest Gen to meet our SO
2 emissions
commitments to the Illinois EPA.”

- Theodore Craver, Q1 2011 Earnings Call, 5/2/2o11 ( transcript )

“With respect to the coal fleet, EMG has met and co ntinues to remain committed to meeting all of its environmental obligations on time, as sp elled out in the 2006 Illinois Combined Pollutant Standard agreement and more recent U.S. E PA regulations. We believe that the efforts to identify cost-effective compliance solut ions and the financing strategies to support them will serve us well in the long run even though they present considerable challenges for
us in the near term.”

- Theodore Craver, Q2 2011 Earnings Call, 8/4/2011 ( transcript )

11 Exelon “Being clean is a competitive hallmark for Exelon. It will become even more advantageous as we move into this new era of EPA regulations. More and more, through a combination of economics, gas prices and pending environmental reg ulations, we expect to see the market bias towards cleaner forms of energy.”

- John Rowe, Q2 2011 Earnings Call, 7/27/2011 ( transcript )

“The rules have been in the works for about a decad e, and the electric utility industry is wellpositioned to respond, with more than 60% of coal-f ired power plants already equipped with pollution controls,” said Joseph Dominguez , senior vice president of federal regulatory affairs, public policy and communications for Exelo n. “Those companies that have done little or nothing to improve or update antiquated, ineffic ient plants should start planning for compliance now, instead of lobbying for categorical extensions or legislative delays.” ...

“Exelon's experience demonstrates that there are ex isting mechanisms that would allow the
health and economic benefits of the rules to take e ffect as quickly as possible, as opposed to a blanket compliance extension that would unnecessari ly prolong the public's exposure to dangerous pollution,” said Dominguez. “Implementati on of the rule also provides the regulatory certainty utilities need to make substan tial capital investments in modernizing the nation's electric system, which will create jobs.”

- Press release , 9/15/2011Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

M. J. Bradley & Associates LLC 

### 21 Analysis Group No. Company Statements

12 FirstEnergy Anthony Alexander: “Even so, today, we are much bet ter positioned than many other companies to address these new requirements. In fac t, more than 90% of our production is from non-emitting nuclear, low-emitting natural gas , scrubbed coal or renewable facilities.”

James Lash: “And as they evolve, we are confident w e are well positioned to handle the final requirements that will come from [EPA’s regulations ] ... While we agree with others in our industry that current timetables are really unreali stic and that the impact on prices paid by customers will be significant, it is important to r emember that unscrubbed supercritical coal is not significant in the context of our overall po rtfolio.”

- Anthony Alexander and James Lash, Q1 2011 Earnings Call, 5/3/2011 ( transcript )

“In general, we believe we are in pretty good shape relative to other coal generators, thanks to the work that has been completed across our fleet. Looking at our competitive base load generating capacity, most of the air pollution cont rol equipment is already in place to meet the EPA's new NOx and SO2 emission reduction requir ements.”

- Anthony Alexander, Q2 2011 Earnings Call, 8/2/201 1 ( transcript )

13 GenOn “We expect to make some capital expenditures, but w e expect those expenditures to be manageable ... We also expect that any reduction in G enOn’s earnings as a result of those retirements will be more than offset by higher earn ings from increases in market prices as a result of industry retirements.”

- Edward R. Muller, Q1 2011 Earnings Call, 5/9/2011 ( webcast [quote transcribed by MJBA])

“We also expect that any reduction in GenOn’s earni ngs from retirements of its units resulting from the environmental regulations, if and when imp lemented, will be more than offset by higher earnings from increases in prices resulting from industry retirements.”

- Edward R. Muller, GenOn Q2 2011 Earnings Call, 8/8/ 2011 ( transcript )

14 Great Plains Energy “Regardless of the outcome of the challenges, KCP&L is well positioned to meet the requirements of the new rules without having to inv oluntary shut down any units. Any shortfall in allocated allowances is anticipated to be addressed through a combination of permissible allowance trading, installation of nomi nal emission control equipment, changes in plant processes or purchases of additional power in the wholesale market.”

- M.J. Chesser, Q3 2011 Earnings Call, 11/4/2011 ( transcript )

15 Lower Colorado River Authority “With our scrubbers, we will be in compliance with (new EPA) air pollution rules," said Michael McCluskey , manager of generation resource development at the LCRA. When the rules take effect, "we will comply while other util ities may have difficulty taking steps to comply. It's a problem we've already solved.”

- Austin American-Statesman article , 8/1/2011

16 NextEra “I don't believe that replacin g 50

- year

- old fossil plants with new, more efficient units wi ll be the train wreck we have been hearing so much about, nor do I believe that putting pollution controls on many of the remaining plants is all tha t terrible ... While there is no free lunch, the cost of this upgrade to the nation's generation fleet is likely to be far less than the costliest predictions.

Consider our own utility. In 2010, FPL recorded a S O2 emissions rate 76% below the industry average, a NOx emissions rate 65% below the industr y average and a CO2 emissions rate 36% below the industry average. Yet despite having one of the cleanest generation fleets of any utility in the nation, FPL's typical residential cu stomer bills were 24% below the national average at the year-end 2010. We are proof that uti lity can be clean and cost-effective at the
same time.”

- Lewis Hay, Q1 2011 Earnings Call, 4/29/2011 ( transcript )

17 Northeast Utilities “We believe that this technology will provide us wi th some of the cleanest coal burning units in the country and will position us well to meet th e EPA's proposed rules on hazardous air pollutants.”

- Charles Shivery, Q1 2011 Earnings Call, 5/6/2011 ( transcript )Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### 22 Analysis Group No. Company Statements

18 NRG “[T]he key takeaway is that we do not expect at thi s time any additional environmental CapEx beyond what we have previously announced ... So I thi nk on our environmental CapEx, we really are focusing on controlling mercury through ACIs, and for Big Cajun, it’s fabric filters to control mercury and SO
2 . And we think that with that, we will be able to c omply with the
rules.”

- Mauricio Gutierrez, Q1 2011 Earnings Call, 5/5/2011 ( transcript )

“We believe that incremental compliance costs are n ot material and can largely be offset the by impact in electricity prices as we saw in the pr evious slide.”

- Mauricio Gutierrez, Q2 2011 Earnings Call, 8/4/2011 ( transcript )

19 PowerSouth Electric

Cooperative “In response to the CAIR rule, PowerSouth constructed a $400 million Air Quality Control project at the Lowman Power Plant to build addition al equipment to reduce SO
2 and NOx emissions at the plant. Because of PowerSouth’s pro active approach to CAIR, Lowman Power Plant is already in compliance with the Cross-State Air Pollution Rule.”

- website , September 2011

20 PPL “We stand to be in a very good position going forwa rd in that we've already spent the money and spent it at the right time.”

- James Miller, Q4 2010 Earnings Call, 2/4/2011 ( transcript )

“Overall, we do not see the need to increase capita l expenditures to comply with the CSAPR requirements. Overall, PPL's competitive supply fle et is well-positioned with respect to these rules and can clearly benefit from coal plant retir ements that will tighten up the supply
situation in PJM.”

- William Spence, Q2 2011 Earnings Call, 8/5/2011 ( transcript )

21 Progress “Over the past decade or so both companies have bee n aggressively installing new environmental controls on their largest coal plants ... As a result of these combined actions, we believe the new company will be well-positioned to meet the new EPA MACT regulations expected later this year and into 2012. We still ha ve much work to do to comply with these new rules, which could require significant addition al capital investments and additional announced plant closures. However, we are further d own the road on compliance than many other companies with large coal fleets. We should a lso benefit by combining best practices in
our fleet modernization efforts.”

- Bill Johnson, conference call announcing Duke-Progr ess merger, 1/10/2011 ( transcript )

22 PSEG “During the past 5 years, we have invested more tha n $2 billion to replace inefficient, older generating units and to upgrade our existing facili ties to meet new environmental restrictions. PSEG is a long-time advocate of the Clean Air Act R egulations. We view the EPA's recent technical adjustments to the Cross-State Air Pollut ion Rule, more commonly referred to as
CSAPR as favorable for our fleet. We are also well- positioned to meet the anticipated requirements under EPA's HAPs/MACT regulation, whic h is scheduled to be issued on December 16. We believe these regulations are long overdue. Our experience shows that it is possible to clean the air, create jobs and power th e economy, all at the same time. The issuance of these regulations will also provide the industry with much-needed certainty to invest in long lived capital intensive projects suc h as power plants.”

- Ralph Izzo, Q3 2011 Earnings Call, 11/1/2011 ( transcript )Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### 23 Analysis Group No. Company Statements

23 Santee Cooper “Fortunately, at Santee Cooper, proper planning and foresight has made us well positioned to comply with these new standards when they take effe ct next year ... I am happy to say that Santee Cooper has already installed the necessary e quipment — SO 2 limestone scrubbers and NOx reducing selective catalytic reactors — to be w ell below any transport rule targets. In the past 10 years, in fact, we’ve reduced SO
2 and NOx emissions from our coal-fired units by 61 percent and 72 percent, respectively, while increas ing coal-fired generation by 18 percent.

We were well aware that at some point in the future , EPA would require reductions for a number of reasons. The key was to be able to do it at the lowest impact to our customers. A great example was finding a market for the scrubber byproduct created by the removal of SO
2 . This material, synthetic gypsum, is used at the Ame rican Gypsum wallboard plant in Georgetown and has also been used in cement manufac turing and as soil amendment. Every bit is recycled.

Good planning has put Santee Cooper in a position t o comply with these new standards, while minimizing the impact to our customers and contribu ting to the local economy.”

- Company blog post , 7/13/2011

24 SCANA “ But in the short term we don’t see any impacts to o ur fleet, and we believe that the scrubber and SCR technologies along with the baghouses and/o r electrostatic precipitators we have installed in those bigger units should put us in co mpliance for those units.”

- Steve Byrne, Q3 2011 Earnings Call (Q&A), 10/26/201 1 ( transcript )

25 Seminole Electric

Cooperative, Inc. “If the EPA ado pts a mercury rule as currently proposed, Seminole would already be meeting the standard,” said Mike Opalinski, Seminole’s seni or vice president of energy policy ...

While other utilities may have to choose between hu ge investments in pollution controls or shutting down plants, Seminole is not in that hard position. The investment in pollutioncontrol equipment early on was good for the environ ment. It also proved to be cost effective ... So contrary to many opinions, today’s modern coal plants can protect the environment while providing reliable and affordable electricity .”

- Website, 10/6/2011 ( link )

26 TECO Energy “TECO Energy is supportive of national and state ef forts that encourage others to invest in pollution control technologies or repower or retire uncontrolled units ... Because of our ongoing environmental accomplishments and initiatives , we believe that we are well positioned to comply with these emerging regulatory initiative s.”

- 2010-2011 Corporate Sustainability Report

27 TVA “ Yes, we will be able to comply with the new EPA rules and we will spend more money in doing so. We have announced scrubbers (to control sulfur dioxide) for Allen and Gallatin fossil plants and SCRs at Gallatin (to control nitr ogen oxides); Allen already has SCRs. This new control equipment along with the 17 scrubbers a nd 21 SCRs we already have in place will help us meet all EPA rules as well as the mercury r ule. We continuously review our clean air strategy and we are reviewing whether to retire, id le or control additional coal units in the TVA system.”

- Barbara Martocci, APR, TVA Media Relations 11/16/20 11

28 Vectren “As seen with EPA rules proposed in March, which fo cused on mercury and other hazardous pollutants, our significant investment in emissions control equipment for this region is again paying off and will ensure we comply with this new rule [CSAPR],” said Carl Chapman, Vectren’s chairman, president and CEO ...

“More than a decade ago, we chose to move forward w ith these investments to improve the air quality for our region, which has positively impact ed southwestern Indiana’s quality of life and serves as an advantage from an economic develop ment standpoint,” added Chapman. “As such, our customers’ rates increased throughout the past 10 years to reflect the cost of these investments. However, we now find ourselves in a p osition to comply, while other regional utilities may be required to consider retiring some uncontrolled coal generation units or make significant investments to lower emissions.”

- Press release , 7/28/2011Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | FALL 2011 UPDATE

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### 24 Analysis Group No. Company Statements

29 Wisconsin Energy “We really see very little impact on customer elect ric rates or our capital plan between now and 2015 as a result of all the new EPA regulations that have been proposed ... We might see 1% to 2% increase our best guess. So that gives you an example of how well we are positioned from the environmental standpoint in terms of compl ying with even the new proposed rule.”

- Gale Klappa, Q1 2011 Earnings Call, 5/3/2011 ( transcript )

30 Xcel “Our proactive steps to reduce emissions through th e MERP project in Minn esota and our plans for the Clean Air-Clean Jobs Act in Colorado put us in good position to comply with these rules [utility MACT].”

- Paul Johnson, Q1 2011 Earnings Call, 4/28/2011 ( transcript )