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$UNFLOWER ELECTRIC Midwest Energy, 

### Inc. POWER CORPORATION 

# * *es :_tar Energy.

May 20, 2014

The Honorable Gina McCarthy Administrator, U.S. Environmental Protection Agency 1200 Pennsylvania Avenue, NW, WJC Bldg, Room 3000 Washington, DC 20460 rr-_5 

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### Dear Ms. McCarthy: This letter is sent to provide the Environmental Protection Agency with input regarding Clean Air Act Section l 11(d) greenhouse gas regulations for existing electric generating stations. We appreciate your consideration of the approach and principles that this plan contains. The attached document was developed collaboratively among these Kansas utilities: Midwest Energy, Inc., Kansas Electric Power Cooperative, Sunflower Electric Power Corporation and Westar Energy.

Sincerely,

l c"^IeST L.Phi:,Rr, Earnest Lehman (May 20, 2014) 

### Earnie Lehman Stuart Lowry President and General Manager 

## CEO Midwest Energy, Inc. Sunflower Electric Power Corporation 

# 1 J
^— Churk ?errill (May 20. 2014) Mark, A. Ruelle (May 20. 2014? 

### Chuck Terrill Mark Ruelle Executive Vice President & CEO President & CEO Kansas Electric Power Cooperative (KEPCo) Westar Energy, Inc.

cc: John Mitchell, Kansas Department of Health and Environment Tim Keck, Kansas Department of Health and Environment Karl Brooks, Environmental Protection Agency-Region 7

# A Greenhouse Gas Policy Proposal

for Compliance under the Clean Air Act for Existing Electric Utility Sources

May 2014

## Table of Contents

PREFACE..................................................................................................................................................................... 3 ThePresident's Challenge .........................................................................................................................................3 TheUtility Response .................................................................................................................................................3 Equitable Share CO, Emission Reductions ...............................................................................................................3 INTRODUCTION......................................................................................................................................................... 4 Clean Air Act Section I I I(d) Regulatory Scheme .................................................................................................... 4 Kansas Emission Intensity Performance Metric ........................................................................................................4 CAN KANSAS ACHIEVE A 17 PERCENT CO2 REDUCTION? ..............................................................................4 Kansas Can Achieve Reasonable Reduction Targets ................................................................................................ 4 Kansas— The Current Status ..................................................................................................................................... 5 GUIDINGPRINCIPLES .............................................................................................................................................. 5 CAA 11I(d): A State Diiven Process ........................................................................................................................5 CAA 111(d): State Flexibility ................................................................................................................................... 5 Limited Reductions from Unit Level Efficiency or Heat Rate Improvenients .......................................................... 5 BOUNDARY COMPLIANCE OPTIONS ...................................................................................................................6 Utility-Specific Boundary for Determining COz Emission Compliance ................................................................... 6 Kansas State Boundary for Determining CO, Eniission Conipliance Strategy .........................................................6 Southwest Power Pool Boundary (RTO) for Deterniining CO2 Strategy Compliance .............................................. 6 CO, Intensity Trading for Emission Compliance Strategy ........................................................................................6 SUMMARY.................................................................................................................................................................. 7

2

### PREFACE

This proposal is a response to President Obama's Climate Action Plan in anticipation of Clean Air Act Section 111(d) regulations and follows conversations with both the United States Environmental Protection Agency (EPA) and the Kansas Department of Health and Environment (KDHE). It is a plan for Kansas which meets both the letter and intent of the President's challenge, taking into account the state-based approach of l l l(d) and Kansas' effort to develop its outstanding wind resource. The President's Challenge On June 25, 2013, President Obama released his Climate Action Plan directing EPA to work closely with "states, industry and other stakeholders" to develop COz standards of pertormance for existing electric utility generating units (EGUs). A Presidential Memorandum was issued directing EPA to provide guidelines to the States under CAA Section 111(d) by June 1, 2014.1 The Utility Response As part of his Climate Action Plan, the President affirmed his pledge to reduce America's COz emissions in the range of 17 percent below 2005 baseline levels by 2020. Kansas electricity generating units are significant contributors to total Kansas CO2 emissions. As noted in Figure 1 below, electricity generating units released less than half of the 2011 annual COz emissions in the State of Kansas, with the majority of the CO 2 emissions coming from other sources. Consistent with the President's challenge we might expect EPA guidance to require CO 2 emissions reductions "in the range of 17 percent below 2005 levels". The Kansas legislature acted in 2014, passing House Bill (HB) 2636 which the Governor signed into law on April 23, 2014. This legislation establishes the means by which the KDHE can work in accordance with the Clean Air Act to achieve compliance with the EPA guidance on COz reductions for EGUs. Consistent with that legislation, the undersigned have developed a range of strategies by which Kansas might meet these reductions acting under the Section 111(d) regulatory scheme. Greater details for these CO Z emission reduction strategies are provided below. Equitable Share CO 2 Emission Reductions To achieve the President's objective, CO, emission reductions need to be split fairly across all econoniic sectors (e.g. EGUs, industi-ial, residential, ete.). As depicted in Figure 1, more than half of the COz emissions in the State of Kansas are from sources other than EGUs. In order to achieve economy-wide reductions, other sectors of CO, emissions will also need to achieve proportional reductions of CO2 emissions. Kansas CO 2 Emissions by Sector Figure 1 Residential 5-^, Con►mercial

Source: EIA 2011State of F"ansas CO,Einissiuns

I The President's Clinlate Action Plan, Executive Office of the President, The White House, Washington, D.C., June 2013.

### INTRODUCTION

Clean Air Act Section 111(d) Regulatory Scheme Clean Air Act (CAA) Section 111(d) provides the mechanism for establishment of emission standards by States for existing sources for pollutants for which there is no existing ambient air quality standard. Whenever the EPA promulgates a standard for a new source category under Section l 1 l(b) the CAA also requires EPA to issue guidelines to the States under Section 111(d). These guidelines are then utilized by the States for the development of emission control strategies for the given pollutant. The emission control strategies developed by each State will be incorporated into state plans under Section 11 I(d), which are submitted to EPA for approval. On January S, 2014, EPA published in the Federal Register Standnrds 

## of Performnnce for Greenhouse Gcls Emissionsfrom New Stationnry Soiu-ces: Electric Utility Gen.era.ting Units. These are the proposed CO, standards of performance for new electric utility generating units developed under CAA Section 111(b). With the issuance of these proposed new source regulatiotls, CAA Section 111(d) has been triggered for existing CO2 emissions sources. The guidance by EPA to the states will be issued for public comment later this year. In accordance with CAA Section 1 1 l(d) the states are afforded flexibility under the CAA to develop complianee strategies for existing sources. In fact, in accordance. with CAA Section l l l(d) regulations developed by EPA, the States are to submit a state plan to "take into consideration, among other factors, the remaining useful life of the existing source to which such standards applies". Therefore, the State of Kansas is afforded flexibility under the CAA to develop GHG compliance strategies for existing sources. 

### Kansas Emission Intensity Performance Metric The Kansas utilities recommend the standard of performance be based upon COz intensity. The CO2 intensity should be defined as the allowable CO 2 emissions in pounds per unit of electricity generated in megawatt-hours (lb/MWh). CO Z intensity provides a more complete view of changes to Kansas' CO, emissions. For instance, COz intensity takes into account efficiency improvements at an EGU, industrial or residential source as well as electric transmission line efficiency improvements. In addition to changes in emissions from carbon-fueled sources, the CO2 intensity measure also includes additions or decommissioning of renewable non-0O 2 generating sources. We chose to estimate CO, intensity as an illustration of one way this policy might work. We obtained publicly available historic and projected CO 2 emissions and electricity generation data for affected fossil', nuclear, and i-enewable EGUs located within Kansas. We summed the total Kansas CO, mass emissions and the electricity generated in MWh from affected fossil, nuclear and renewable EGUs. We organized the data into calendai- year datasets; for each calendar year we calculated the annual CO2 emission intensity by dividing the mass emissions foi- all affected fossil EGUs by the total MWh of electricity generated by Kansas EGUs.



### CAN KANSAS ACHIEVE A 17 PERCENT COz REDUCTION? Kansas Can Achieve Reasonable Reduction Targets Kansas COz intensity reductions should be limited to no more than seventeen (17) percent, as proposed by the President, from the baseline 2005 Kansas CO2 intensity by 2020. As can be seen in Figure 2, we believe we can maintain the COz intensity for Kansas below 17 percent of the 2005 CO2 intensity. Kansas is uniquely positioned to take advantage of a significant amount of 'Affected fossil electric utility generating units are those existing sources detined as an "affected unit" in 40 CPR 72.2 (Acid Rain Program).

### renewable energy, especially wind electricity generation. In fact, Kansas has the second best wind

resource in the United States. 3 The State recognized this incredible potential and passed the Kansas Renewable Energy Standards Act in 2009 and subsequently established renewable portfolio standards (RPS). The RPS statute requires the State's investor-owned and cooperative utilities to provide not less than 20% of their peak demand with renewable energy by 2020. 

### Kansas — The Curreiit Status So how are we doing as a state in our quest to reduce COz emissions? In 2013, 19.4 percent of Kansas' electricity was provided by wind and this percentage of electricity generation ranked Kansas 3"' nationally.' By adopting RPS and adhering to the aggressive schedule for implementation, Kansas' affected electric generating units are in a unique position to uc able to meet President vuatna's challenge of 17 percent reduction in Kansas state-wide CO 2 

### eniissions from a 2005 baseline by 2020.



### GUIDING PRINCIPLES CAA 111(d): A State Driven Process We believe that after the issuance of guidelines by EPA under CAA section 1 I 1(d), Kansas has the responsibility to develop standards of performance for CO, emission sources within Kansas boundaries. In fact, the Kansas Air Quality Act (AQA) has recently been amended requiring KDHE to develop standards for each individual or class of affected units and, further, that KDHE may aggregate and average the emissions from electricity producing resources within Kansas to meet the final EPA guidance. Ultirnately, these standards of performance will be included in a state plan that will be submitted to EPA for approval. We believe the EPA should give deference to the State during the plan approval process. 

### CAA 111(d): State Flexibility While the EPA may issue guidelines for unit level emission reductions and must limit those reductions to "inside the fen.celine", the Kansas Air Quality Act (AQA) provides the flexibility to go "outside the fenceline"

f 

### when developing compliance plans and schedules of performance. It is necessary and wholly consistent with 111(d) that the state must be allowed complete flexibility in developing the final standards of performance. This flexibility needs to include the ability of the Kansas to take into consideration, among other factors, the remaining useful life of the existing source when developing standards of performance. 

### Limited Reductions from Unit Level Efficiency or Heat Rate Improvements Because EGUs inherently operate very close to their design efficiencies, we believe unit specific efficiency improvements will have limited impact on overall COz emission reductions. While some units may be able to achieve minimal efficiency gains, many others wil] find it impossible to make even small ones. Because these small efficiency changes are highest immediately upon their implementation, after which they degrade over time, even these efficiency increases will have minimal long term CO2 reduction potential. Due to the small opportunity for efficiency improvement impacts, the flexible regulatory compliance mechanisms that are afforded the Secretary by the Kansas AQA's statutory language will be essential to achieving the overall targeted reductions.

; American Wind Energy Association — State Wind Energy Statistics: Kansas referencing data from the National Renewable Energy Laboratory. 4 American Wind Energy Association — State Wind Energy Statistics: Kansas. 5 lriside the fenceline is defined as CO, emissions from affected existing emission sources within the physical
1 property boundary of the stationary source. Outside the fenceline is defined as non or less polluting COz emission sources located outside the physical property boundary of the stationary sources. These sources could include but are not limited to wind, solar, landfill gas, and nuclear electricity generation, etc.

### BOUNDARY COMPLIANCE OPTIONS

Utility-Specific Boundary for Determining COa Emission Compliance KDHE may choose to develop a utility-wide compliance strategy by aggregating those electricity generating sources located within Kansas as an alternate compliance strategy consistent with EPA guidance. These electricity generating sources would include but are not limited to affected fossil, nuclear, and renewable EGUs. Each utility will be accountable for its' own CO 2 

### emission performance within the utility's boundaries. 

### Kansas State Boundary for Determining CO 2 

### Emission Compliance Strategy KDHE may choose to aggregate all electricity generating sources located within the boundaries of Kansas when developing compliance strategies under EPA guidance. These electricity generating sources would include but are not limited to affected fossil, nuclear, and renewable EGUs. Only those electric generating sources located within the Kansas boundaries would be included. Kansas will be aceountable for CO 2 

### emission performance within the state's boundaries. Figure 2 below provides an example of the how the 17°Io 

### reduction might be achieved in future years using the Kansas boundary compliance strategy. Regional Transmission Organization (RTO) Boundary for Determining CO2 Strategy 

## Compliance KDHE may choose to pat-ticipate in an RTO-wide compliance strategy with all electricity generating sources located within the boundaries of the RTO participating in an aggregate compliance strategy consistent with EPA guidance. These electricity generating sources would include but are not limited to all affec.ted fossil, nuclear, and renewable EGUs. Only those electric generating sources providing electricity inside the RTO boundaries would be included. The RTO will be accountable for CO2 

### emission performance within the RTO's boundaries. 

### CO 2 

### Intensity Trading for Emission Compliance Strategy Kansas utilities may buy, sell, or trade excess intensity credit with other utilities. Unused intensity credits may be converted to mass emission credits for such trading.

Figure 2 

## State of I<ansas - CO 2 

## Intensity Trends and Forecast

2,000 1,800 1,600

— 01,400 -- — ---- —

-- -- — — —

e ` n i 

## s ^ 1,200

^ Kanzas c 1,000 c02 ^

- Intensity ^ 800 c — — 17% p i^00

— Beloyv

" 2005 400

200 0 oh o^° 0 1 0 ^ o°' ti ° y ' y 1 ti '' ^4 ti h y 1 ti 0 y C i L° ti o ti o y o y o y o , y o ti o , y o , y o y o ,^o y o , y o ti o y o yo^.^i11311►!mm



### Much is unknown about the upcoming guidance to be issued by EPA to the states. This plan is a response to those upcoming CO2 emissions i-eduction requirements, regardless of how the boundaries are di-awn for which compliance 111ust be demonstrated. Kansas utilities can achie.ve the required reductions if the rules adhere to the guiding principles described above. Utilities should be aceountable only foi- what they produce and other sectoi-s should be likewise accountable. States should be given maximuiu flexibility in developing performance standards. Unit efficiency or heat rate improvements must be realistic. Lastly. we believe that using CO, intensity as the pei-tormance measure is preferred, is simple to calculate and regulate, and yields the nlost accurate picture of CO, reduction in the electricity producing sector.TRK# 

### 7700 4923 8348 0201 

# XC RDVA THU - 22 MAY 10:30A PRIORITY OVERNIGHT

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# IAD Page 1 of 1

From: (785) 575-6388 Origin ID: TOPA Pam Cochrane 

## Fec[E-K. Westar Energy r,r1e'S 818 S Kansas Ave Topeka, KS 66612

J 1 41 o I 4i7_'07o32B SHIP T0: (000) 000-0000 BILL SENDER 

### The Honorable Gina McCarthy US Enviomental Protection Agency 1200 Pennsylvania Ave NW WJC Bld Room 3000 WASHINGTON, DC 20460 Ship Date: 21MAY14 ActWgt: 1.0 LB CAD: 10100571INET3490 Delivery

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