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## Arizona’s	Non **- IPM	Questions	on	Clean	Power	Plan	Proposal**  **Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ Priority Concern 1**  I. Can EPA briefly explain how it envisions the state might apply “remaining useful life” during the plan development phase? Does EPA view the concept as limited to analyzing costs under Building Block 1 or can the state look more broadly at overall impacts from Building Blocks 1

-4 and the impact on source utilization versus design life (e.g., if goal suggests shutdown in 2020, does the “remaining useful life” concept provide a basis for extending the operating period to reduce costs to a state

determined reasonable amount)? Discussed on 8/14/2014 call. See 79 Fed. Reg. at 34925

- 26: “Under the proposed guideline, states would have the flexibility to adopt a state plan that relies on emission reducing requirements that do not require affected EGUs with a short remaining useful life to make major capital expenditures or incur unreasonable costs. Indeed, the EPA’s proposal would p rovide states with broad flexibility regarding ways to improve emission performance through utilizing the emissions reduction methods represented by the four ‘building blocks.’” None 1

1 Indicates that Arizona believes it understands EPA’s position and that further discussion with EPA HQ will probably not be productive . ADEQ may nevertheless submit comments critiquing EPA’s position.2

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** II. Did EPA’s goal consider the time and cost impacts of existing regul ations on new infrastructure? a. AZ likely to need new natural gas plants and associated infrastructure by 2020 to comply with interim goals. b. Siting, permitting, and constructing this new infrastructure will be difficult over such a short timeframe. c. New gas pipeline and transmission line infrastructure will be subject to requirements like NSR or the National Environmental Policy Act (NEPA). Yes. This is the reason for a 10

-year compliance period. None

III. Can AZ’s plan include credit for the retirement of a coal unit located in a different state, yet which serves AZ, without entering into a full multi

- state plan, provided the state where the retiring unit is located does not also account for that retirement (no double counting)? Seeking comment on this issue at 79 Fed. Reg. at 34911. None

**Priority Concern 2** I. In applying Building Block 2 (BB2), EPA shifted all existing coal generation to “available” natural gas combined cycle (NGCC) generation. Did EPA’s modeling consider both the inte rstate gas transportation requirements as well as the peak generation capacity available to displace existing coal generation? Discussed at GHG Abatement Measures TSD at 3

- 14 to 3

- 20. At page 3

- 15, the discussion could be read as assuming that coal can be used for peaking and that because its use will be limited, this will not jeopardize compliance with the rate

based goal

. Is this correct? Does EPA have any other response to the peaking issue?3

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** a. Given the relationship between AZ’s winter gas requirements (usage weighted by residential/commercial heating) and summer gas requirements (usage weighted by power generation), did EPA’s modeling consider the pipeline infrastructure impacts of base loaded combined cycle generators during the winter gas season? None

b. Did EPA’s modeling factor in summer derates on nameplate capacity to account for AZ high summer temperatures? None

c. Did EPA’s modeling factor in any federally enforceable emission permit limits on allowable usage? None

d. Did EPA’s modeling factor in existing purchase power agreements that are tied to existing AZ merchant owned combined cycle units? (Thus reducing the available capacity to displace existing coal fired generation). No. None

e. Utilities cannot count on these units when contemplating “available” NGCC capacity to dispatch in place of coal generation because the utilities do not own or operate them. Federal laws require fossil

-fuel fired capacity to held in reserve to ensure reliability of the grid when renewable energy like solar and wind is unavailable, or if there is catastrophic failure of a base load unit. Ownership not accounted for. None4

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** f. If a State can demonstrate that certain NGCC capacity is not available, can that reduced capacity be accounted for under BB 2 in setting the state goal? None

g. Did EPA’s modeling consider intrastate transmission limitations, including load serving entities’ existing transmission scheduling rights in its coal redispatch assumptions. If so, how? None

h. Did EPA consider reliability impacts from coal

-fired unit retirements associated with increasing NGCC annual capacity utilization? Coal units would be unavailable to assist with peak capacity needs as these units are not designed to operate in a peaking fashion. None

II. How does EPA contemplate treating new generation resources that are built to displace existing coal capacity? Will they fall under the New Source Performance Standard (NSPS) and will these new resources be regulated on a stand

- alone basis? Or will thes e new resources fall into the Existing Source Performance Standard (ESPS) category with their output being included along with the existing state generation resources? Comment on this issue is requested at 79 Fed. Reg. at 34923. None

III. Does EPA believe it has legal authority to allow states to include new/modified/reconstructed units subject to 111(b) in the plans developed under 111(d)? See above. None5

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** IV. Has EPA considered how a presently non

affected unit that becomes subject to the rule (e.g., due to an increase in utilization above the capacity factor threshold) will affect compliance with the State goal? EPA solicits comment on use of operational data as applicability criteria in NSPS proposal. 79 Fed. Reg. at 1460

- 61. Required. The cited material does not explain how the program will apply to existing units that become affected units after the effective date. **Priority Concern 4** I. In establishing the goals, it appears that EPA accepted state renewable and energy efficiency goals, although it “regionalized” them for some purposes. Did EPA conduct an “enforceability” review of these state goals before accepting them in establishing EPA’s proposed goals? a. If not, will EPA do so prior to the final rule and commit t o only including those measures that are deemed acceptable in establishing the state goals? b. If EPA does not feel it can commit, what assurance does the state have that its programs used to establish the goal

– and hence the binding state target

– will b e accepted? See GHG Abatement Measures TSD 4

-9 to 4

- 11 Methodology for setting goal was inherently conservative. None6

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** II. Is EPA considering applying Clean Air Act §110 requirements for surplus, enforceable, creditable and permanent emissions reductions? a. Existing renewable energy (including distributed generation) and energy efficiency standards may not meet standards. b. Existing local ordinances are unlikely to meet standards. c. Existing energy efficiency programs may not be creditable, even though the actual benefits are real. 79 Fed. Reg. at 34887: RE and EE requirements already included in SIPs. Guidance for inclusion cited in footnotes 228 and 232: Guidance on SIP Credits for Emission Reductions from Electric

- Sector Energy Efficiency and Renew able Energy Measures (Aug. 2004), http://www.epa.gov/ttn/oarpg/t1/memoranda/e reseerem_gd.pdf Incorporating Emerging and Voluntary Measures in a State Implementation Plan (SIP) (Sep t. 2004), http://www.epa.gov/ttn/oarpg/t1/memoranda/e vm_ievm_g.pdf

. Roadmap for Incorporating EE/RE Policies and Programs into SIPs/TIPs (July 2012), http://epa.gov/airquality/eere/manual.html Has anyone successfully received approval for RE or EE in a SIP? Can we get examples?7

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** III. Is participation in a multi

- state plan the only way to get credit for reductions attributable to out
- of

- state resources? a. Would EPA allow for a hybrid plan that incorporates state agreements to handle specific issues, such as renewable energy credits (RECs)? b. If not, which State gets credit if an AZ utility

- portfolio based plan results in reductions at a unit in another State? c. The renewable portfolio standards that EPA relies upon in setting the state targets currently allows for utilities to count renewable generation located in another State if the RECs are owned by a utility and its custom ers. d. If EPA does not allow for out

- of

- state RECs to be applied in determining compliance with AZ’s emission goal, will the EPA revise the target to likewise remove these RECs from the goal determination under BB3? EPA is open to RECs as a compliance pat hway. 79 Fed. Reg. at 34913 (second column, paragraph starting with, “An emission standards is non

duplicative....”) (D oesn’t seem pertinent). State P lan Considerations TSD at 60

- 69: Under a bilateral contract model:
“A renewable energy supply contract also generally addresses the ownership of the RECs related to the renewable energy generation. Under such a contract, purchase of the RECs should accompany the purchase of the electricity, in order for the utility to satisfy its RPS obl igations through the contract. ... This ensures that multiple parties are not using the same MWh of renewable energy generation to comply with their RPS obligations. ” TSD at 65

- 66 & n. 93. Under a REC model:
“The renewable energy generator can then sell the renewable electrici ty as a bundle (both the commodity electricity and the associated REC) or unbundle the RECs from the electricity and sell the two products separately. ” Doesn’t say whether bundling should be required for CPP credit. Does the state plan have to establish wh ether and if so how RECs are recognized for purposes of satisfying RE requirements? Or will EPA establish a federal, nationwide approach? If the state s are responsible , how will EPA handle inconsistent approvals or late approvals (so that the 111(d) versi on of a “SIP gap” occurs)?8

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ General Comments**  I. Will EPA consider population shifts in setting the interim and final goals? a. States with declining population (Northeast) can comply with the goals while shifting burden to growing states. b. States with growing population will have to achieve greater reductions to accommodate growing population. c. Exclusion of growth precludes the availability of a mass

- based approach for growing states. See Projecting EGU CO2 Emissions TSD at 10

- 12 (Growth Tools), 15 (P rojection Scenarios): Growth tool “algorithms generally seek to examine how operation and emissions from individual EGUs could be expected to change with changes in environmental regulations or installed pollution control retrofits and additional or reduc ed hourly electricity demand.” TSD at 11. Assumptions in constructing reference case include “Electricity load growth projections (energy and peak demand)” TSD at 17. Does EPA contemplate increased usage of existing affected units as a permissible way of meeting future demand growth?

II. EPA’s proposal contemplates States making changes to plans. What are EPA’s procedures for processing these changes? Will these procedures include time requirements for EPA review and approval? a. How will the state credit new renewable generation or energy efficiency measures in the state plan if they are not included in the original plan? Partial response: 34917 #6 Modification of an Approved State Plan None

III. Can a unit be derated to less than 73 MW to exit the program? If so, what is required to make the deration effective? Still needed.9

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ BB1**  I. Did EPA determine whether 111(d) will subject efficiency improvement changes to NSR permitting? a. NSR permits will delay implementation of efficiency gains. b. Addit ional air pollution controls required for criteria pollutants absorb energy savings gained from efficiency projects. c. Were costs associated with additional air pollution controls required as a result of NSR permitting considered in the economic analysis? See 79 Fed. Reg. at 34928: States could limit NSR applicability through plan provisions or synthetic minor permits. EPA seeks comment on this issue. No definitive answer to (c); but see IPM Modeling Introduction, Fig. 1

- 1. None10

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** II. How did EPA consider transmission loss, and would EPA give credit for efficiency improvements in transmission? Yes, EPA will give credit for transmission efficiency improvements. (Fed. Reg. pages 34923 )
“Beyond the types of state plan measures already discussed in this section of the preamble, the agency has identified a number of other measures that could also lead to CO 2 emission reductions from EGUs. These include, for example, electricity transmission and distribution efficiency improvements, retrofitting affected EGUs with partial CCS, the use of biomass

- derived fuels at affected EGUs, and use of new NGCC units.” 34924 “Building block 4 focuses on improving end

-use energy efficiency. Another way to reduce the utilization of, and CO 2 emissions from, affected EGUs is through electricity transmission and distribution upgrades that reduce electricity losses during the delivery of electricity to end users. Just as end

-use energy efficiency can reduce mass emissions from affected EGUs, so can transmission upgrades.” Non e

**BB2** I. Why did EPA use the name plate capacity instead of net capacity for each affected unit? a. Name plate can be as much as 20% higher than actual capacity, overstating available reductions. None11

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ** II. Did EPA consider existing energy policies and regulations when setting the goal? a. Would a State Plan take priority over bilateral contracts between a buyer of power in one State and a seller of power in another? If so, how and under what authority? State would need to show legal authority to overri de contract, if necessary for plan. None

**BB3** I. It appears that EPA’s goal is to preserve the 6% of nuclear energy that is “at risk.” What methods does EPA anticipate States must use to demonstrate compliance? See 79 Fed. Reg. at 34958: “Policies that ... discourage premature retirement of nuclear capacity could be useful elements ....” See 79 Fed. Reg. at 34970. Explains basis for goal setting methodology, but not how compliance would be demonstrated. The NPRM discussion explains the basis for using at

- ris k nuclear to set the rate

- based goal, but ADEQ feels it is still unclear how states are to address this building block when projecting and demonstrating compliance with the goal.
II. Has EPA considered including a force majeure provision to accommodate th e sudden and unavoidable shut down of a low

- or zero - carbon emitting electric generating unit? a. Grid reliability requirements will mandate nearly immediate replacement electricity to prevent brown/black

- outs. b. The most reliable reserve electric generat ing units burn fossil fuel resulting in increasing and unexpected carbon emissions. Averaging periods (10 years for interim goal, rolling 3

-year for final goa l ) are designed to preclude the need for force majeure. None12

**Question EPA	Region	9**  **Guidance Follow** **- Up**  **With	HQ BB4**  I. Will there be a standardized Measurement and Verification (M&V) approach for counting savings? a. Different approaches for reporting under State energy efficiency standards and under 111(d) State Plans could be duplicative and costly. b. How will persistence and variables such as the life of measures be considered and determined if current State M&V standards on this issue differ from EPA standards? EPA intends to issue guidance describing minimum levels of EM&V. (p. 34909). State Plan Considerations TSD at 34

- 60 When will the guidance come out ?

II. What ‘discount rates’ or other adjustments does EPA expect to be applied to savings? a. Net to gross issues to account for free riders and program spillover? b. Discount rates for take

- back effects? State Plan Considerations TSD at 34

- 60, especially 53. None

**Additional question:** When will the rate
-to
- mass conversion documentation be available?