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## RMB Consulting & Research, Inc. 5104 Bur Oak Circle Phone (919) 510 - 5102 Raleigh, North Carolina 27612 Fax (919) 510 - 5104 **T E C H N I C A L M E**  **M O R A N D U**  **M TO**  : Michalene Reill y , Hoosier Energy

Jay Holloway , Sutherland Asbill & Brennan LLP **FROM** : Ralph Roberson , RMB

Rob Barton , RMB **DATE** : March 17 , 201 5 **SUBJECT** : Supporting Anal ys is for Hoosier Alternative to Proposed Clean Power Plan The following memo summarizes the methodology used to determine the emissions reduction associated with Hoosier Energy ’s proposed alternative to EPA’s proposed Clean Power Plan (CPP). 1 This memo focuses on th e procedures used to estimate the emissions red uction in 2030 and compares this reduction with EPA’s estimate in the proposed CPP. RMB assumed that all units that commenced commercial operation prior to 1978 would be retired b y 2030 and a ll units that commenced operation after 1978 would remain in operation. **METHODOLOGY** (1) Determination of Coal - Fired Emissions Database RMB created a new CO 2 emissions database that contained annual average emissions data for all coal - fired units for the period 2003

– 2012. The database was similar to the EPA data base used in the CPP rulemaking although it was comprised solely of data from the Clean Air Markets Division (CAMD) quarterly emissions files and included dates of commercial operation and CO 2 em issions estimates (tons per year and lb/MWh g ) based on gross generation . 2 InRMB’s database, a ll CO 2 emissions averages excluded substituted data and bias adjustment factors. RMB used gross generation data rather than net generation data to avoid the use of EIA net generation data, which was found to contain reporting errors that resulted in anomalous CO 2 emissions rates in the EPA database . Although net and gross generation may differ 5 - 10 percent depending on the plant, these differences are not relevant for this analy sis because both RMB and EPA estimate d mass reduction using a consistent basis ( e . g . mass reduction = gross generation (MWh g ) x CO 2 emission rate (lb/MWh g) = net generation (MWh n ) x CO 2 emission rate (lb/MWhn ).

1 79 Fed. Reg., 34,830 (June 18, 2014). 2 Annual averages were calculated based on the reported hourly values.MEMORANDUM

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2 (2) Calculate 2030 Baseline Emissions for All Coal - Fired Units RMB calcul ated baseline emissions for 2030 for all coal - fired units in the fleet. This estimate is based on unit - specific capacity factors, unit generator rating s , and historical CO 2 emissions rate s (lb/MWh g ). The 2030 capacity factor for each unit is based on the average capacity factor for the period 2003

– 2012. This assumption was based on “business as usual” where historical operation is representative of future operation. The CO 2 emission rate is based on the ave rage emissions rate (lb/MWh g ) for the period 2003

– 2012. For an y unit that was missing the average CO 2 emission rate or capacity factor, the average value was applied for all units for the period 2003

– 2012. RMB assumed that any unit that operated at any

point during the 2003

– 2012 timeframe would continue operating until 2030 (e.g. no unit shutdowns prior to 2030

– all reductions would occur in the y ear 2030). No new coal - fired generation is assumed for the period 2012

– 2030. Any new generation that is required during that time would be provided by other sources (i.e. gas, renewable energy , nuclear) and/or demand - side reductions. (3) Estimate Emissions Reduction Due to Unit Heat Rate Improvements RMB estimated the emissions reductions associated with the proposed heat rate improvements for all coal - fired units in the fleet. RMB assumed an average heat rate improvement for all units of 2 percent . 3 Because changes in heat rate correlate directl y with CO 2 emissions rate, RMB reduced the annual average CO 2 emissions rates by the same percentage as the estimated heat rate improvement . The estimated emissions reductions were then calculated for those units that commenced commercial operation before and after 1978 using different methodologies. For those units that commenced commercial operation prior to 1978, the effects of the heat rate improvements were included in the estimated emissions reductions associated with the shutdown of these units in 2030 as de scribed below. For those units that commenced commercial operation after 1978, the estimated emissions reductions were calculated by comparing the heat - rate adjusted emissions to the baseline emissions for the affected units. (4) Estimate 2030 Emissions Re ductions Including Natural Gas Offset RMB assumed that the lost generation due to shut down of pre - 1978 units was replaced with 100 percent gas - fired generation. This scenario assumes that the required gas generation would be achieved b y increasing the capacit y of existing gas - fired units and b y the construction of new combined cy cle units. The CO 2 emissions rate was assumed to be equivalent to a new combined cy cle unit (1,000 lb /MWhg). **RESULTS** The results show an estimated annual emissions reduction in 2030 of **7 5**  **0 million tons**  of CO 2 with natural gas offset . These estimates provide a range of estimated reductions associated with the proposal. Actual reductions will be somewhere between these two estimates because
3 Estimated heat rate improvement . This compares to EPA’s assumption of 6% used in Block 1 reductions i n the CPP.MEMORANDUM

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3 replacement generation will include a combination of gas - fired and non - fossil fuel generation. Th ese results compare with EPA’s estimated emissions reduction of **600 million tons** of CO 2 for Compliance Option #1 using the regional compliance approach and **612 million tons** using the state - level compliance approach. 4

4 Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plants , US EPA, June, 2014.