Unconventional Approaches:Part of the Electric Industry’s Responseto Upcoming EPA RegulationsSue Tierney – Analysis GroupPanel on Infrastructure Reliability and AdequacyAspen Energy Policy Forum:“Changing Currents – Turbulence for the Electric Industry”July 5, 2011 – AspenAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page2Overview: Responses to the upcoming EPA RegulationsThe challengeExpanding the toolkit of responsesExamples: viable tools – described hereEnergy efficiency (mining resources in new places)Demand response (PJM forward capacity auction)Distributed generation (NREL building)Transmission solutions (PEPCO)Examples: viable tools – not described hereStation modernization (Everett “Air Quality Improvement Plan”)Locking in fuel prices (XCEL)Siting policies (NY, CAL)Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page3THE CHALLENGEUnconventional Responses to the Upcoming EPA RegulationsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page4The challenge: EPA proposalsEPA has moved forward to propose regulations (some undercourt orders):CATR for SO2, NOxAir Toxics (MACT) for mercury, benzene, arsenic, and others HAPs316(b) water coolingNo draft regulations for GHG for existing plantsOther context:EPA’s regulations allow for more flexibility than originally anticipated (feared)Many companies have already invested in env’l equipmentMany states already have mercury rules stricter than EPA’s proposalSome big emitters already under consent decrees to “retrofit, retire or repower”Many older, inefficient, small, uncontrolled plants already done operate muchAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page5The Challenge:Estimates of Capacity Retirements Due to EPA Clean Air Rules*Many studies that have looked at impacts:Most (except BPC) were done prior to issuance of draft rulesMost assumed range of scenarios (e.g., base, “moderate”, “strict”)No studies assumed that there would be robust market response including demand-sidemeasures) in combination with the more moderate cases consistent with EPA regulations* Notes: ICF / EEI (5/2010) is based on Scenario 1 (CAIR andMACT); NERC (10/2010) low end based on “moderate” CATR and MACT case, and “high end” based on “strict”CATR and MACT cases; ICF/EEI (1/2011) based on scenario with CATR and MACT (high flexibility); and BPC (5/2011) based on estimate of all four non-GHG rules010203040506070PIRA (4/2010) ICF/INGAA(5/2010)ICF/EEI(5/2010)Credit Suisse(7/2010)Bernstein(10/2010)NERC(10/2010)CRA (12/2010) ICF/EEI(1/2011)BPC (5/2011)high endlow endEPA AirToxicsProposalEPACATRProposalAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page6EXPANDING THE TOOLKITUnconventional Responses to the Upcoming EPA RegulationsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page7Build a new power plantto replace a retiringone’s capacityRetrofit apower plantwith pollutioncontrolequipmentSeek a delay:-The entire rule, or-The rule’s application to a particular plant,-A temporary delay (e.g., RMR)The “Classic”:The tool assumed bymany of the studiesand some in theindustry ......Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page8The “Champ”:The tools that are availableAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page9Build a newpower plantto replace aretiring one’scapacityRetrofit a powerplant with pollutioncontrol equipmentSeek surgical delay (from EPA, President)in applying a rule to a particular plantS. Tierney: The 21stCentury ToolkitRegulators in traditionaland restructured states:Understand a system’s exposure-Ask air regulators to identify potentially affectedplants (based on emissions)-identify plants with potential to retire (e.g., age,capacity factor, heat rate, control equipment)The “Champ”:The tool we haveRefresh & use competitive procurementtools (including long-term capacityauctions) to determine retrofit v. newbuild v 3rdparty resource mixState, federalregulators: AskTOs/RTOs toperform “what if”transmissionstudies based onlists of plantsRegulators: requireowners ofpotentially exposedplants to stateintentions, file plansRegulators andutilities: updateavoided costanalyses to accountfor new incrementalgeneration costsRegulators: examineratemaking tools for smoothingpotential rate impactsRegulators and utilities:examine cost-effectivedemand-side options in lightof new avoided costsRegulators: gearup for effectivesiting/ permittingprocessesRegulators: clarify policiesfor long-term capacity,energy and gas contractsAsk RTO/TOs to identify and costout transmission reconfigurations,targeted upgrades to address localreliability issuesInitiate new rounds of IRPstargeted to situations withpotential retrofits / retirement sIdentify specific ways in whichinvocation of DOE authorities canbe applied as backstopPolicy makers: set new,tailored targets forenergy efficiency, DRRegulators:ask TOs,RTOs, LDCs,to plan forusing smartgrid , pricingtoolsRegulators, RTOs:use RMR contractswhere necessaryRegulators:Sponsor stakeholder dialogueabout “what doesprudency looklike” givenuncertaintyAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page10CASE:ENERGY EFFICIENCYUnconventional Responses to the Upcoming EPA RegulationsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page11Energy efficiency opportunities arewell documentedEPRI’s “Prism” studyMcKinsey’s “Wasted Energy” StudyWWF – G8 Energy Efficiency PotentialInteracademy Council – “Lighting the Way”Northeast Energy Efficiency PartnershipNational Academy of Sciences –America's Energy Future: EnergyEfficiency Technologies:Opportunities, Risks, and Tradeoffs(underway)National Action Plans forEnergy EfficiencyBut there is still muchmore to do that is (or willbe) cost-effective.Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page12Coal basins0%10%20%30%40%50%60%70%80%90%100%Coal plantsIn general, higher electricity pricesIn general, lower electricity pricesCoal country% of coal in electric mix* Except the big hydro statesAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page13Retail Sales of Electricity per Dollar of GSP0.00.10.20.30.40.50.60.70.8 WY WV KY MS AL SC AR MT LA OK ID ND IN TN MO NE OH IA GA KS NC TX FL AZ SD NM WI NV VA PA OR WA MI US UT MN ME MD IL VT CO DE NH AK HI NJ RI MA CT CA DC NY

Kwh per Chained (2000) DollarSource: EIA, State Energy Data System (SEDS), Table R3, available at http://www.eia.gov/emeu/states/_seds.html.States with high KWh/$ GSPHighest Next highest:-Wyoming - Louisiana-W. Virginia - Oklahoma-Kentucky - N. Dakota-Mississippi - Indiana-Alabama - Tennessee-S. Carolina - Missouri-Arkansas - Nebraska-Montana - Ohio(Does not include states with high hydro)Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page140.002.004.006.008.0010.0012.0014.0016.0018.0020.00HI CT NY AK MA NJ NH ME RI MD VT CA DE DC NV FL TX WI PA MI US IL AZ OH AL VA SC MS GA MN NM CO NC IA KS IN TN AR MT OR WY MO NE OK SD UT KY LA WV ID WA NDAverage Retail Price Residential (c/kWh)$-$200$400$600$800$1,000$1,200$1,400$1,600$1,800MD HI CT TX FL AL DE VA MS SC NV TN AZ GA NC AK NJ US LA MA NY NH AR PA DC KY IN OH OK MO RI OR WV ND SD KS IA VT NE CA ID WA WI IL ME MN MT WY MI CO UT NMAverage Bill - Residential (Annual $)Customers in many states with low ratesuse a lot of energy – leading to higheraverage bills: examples:ND, WV, KY, MO, TN, IN, NC, AL, GA. TXCustomers in many states with highprices have lower average bills:CA, IL, DC, NJ, MA, NYAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page15MTWYIDWAORNVUTCAAZNDSDNECONMTXOKKSARLAMOIAMNWIILINKYTNMSALGAFLSCNCVAWVOHMINYPAMDDENJCTRIMAMEVTNHAKHIStates with strong demand-side management programsState rankings15-20 points10-15 points5-10 points0-5 pointsACEEE scorecard - 2010Area of goodpotential for muchgreater demandreduction to lowercustomer bills(MW and MWh)Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page16Coal plant capacity –Without emission controls, by state024681012 IL MI OH MO TX IN IA OK TN AL KY PA NC NE WV SC GA VA WI AR FL LA MS MD NY MN KS DE CO MA UT MT CT ND NJ CA WY NV AZ ME NH SD ID NM

GWCoal Units Without Emissions Controls(Total GW – 2009)Notes:[1] Totals do not include Alaska or Hawaii.[2] Units without emissions are those units without SCR or FGD systems.Source: SNL data.States with still-good potentiallower customers’ bills throughdemand-side measures(and ratemaking policy)All coal plantsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page17CASE:DEMAND RESPONSEUnconventional Responses to the Upcoming EPA RegulationsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page18PJM – Boundaries of transmission operators’ systemsComEdAEPAlleghenyAEPAEPDominionDelmarvaPPLPenelecJCPLPSEGAECPECOMetEdBGEPEPCODPLATCDuquensePJM capacity =41% coal-fired(end of 2010)PJM is FERC-regulatedAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page19PJM’s forward capacity market (FERC regulated)Mechanism used by PJM to assure sufficient capacity is in place in afuture year:“Reliability Pricing Model” = forward capacity marketIdentification of resource requirements (forecasts of demand) and availablesupply (market-based mechanism to identify supply to meet demand)The “Base Residual Auction” – annual auction to identify:Which resources will be available ina future year (through “offers”) andWhich resources are needed (through those that “clear the market” – at theintersection of demand projections and resource offers)Which resources will receive compensation in the form of capacity payments(with $/MW payments established by theclearing price) (if a resource doesn’t“clear”, it does not receive capacity payments)Resources eligible to bid (or offer MW of supply)Generation (existing and new)Demand-response and energy efficiencyAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page20PJM’s forward capacity auction (results from 5/2011)Most recent Base Residual Auction:To procure capacity for the period May 31, 2014 through June 1, 2015Results announced 5-31-2011Market-based indications that the region is able to meet its reliabilityrequirements in 2014/2015NOTE: this is the time period when the Utility Toxics Rule and the TransportRule will both be in effect.Even though some coal plant offers did not “clear the market” (and mayretire), the results show that the region was still able to secure an amplesupply of energy resources to maintain reliability.Generators had received guidance to offer capacity with prices that reflectedcompliance with environmental regulations as proposed by EPA.Robust response from generators and providers of energy efficiency anddemand-response supply.Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page21PJM’s Base Residual Auction (5/2011) for 2014/2015PJM, “2014/2015 RPM Base Residual Auction Results”Demand Response OffersAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page22PJM Base Residual Auctions:Offered and Cleared ResourcesPJM, “2014/2015 RPM Base Residual Auction Results”In 2011/2012 forward market:Offered resources:99% = generation1% = demand responseOf the amounts cleared:99% = generation1% = demand response4% more MW offered than neededIn 2014/2015 forward market:Offered resources:90% = generation10% = demand response and energy efficiencyOf the amounts cleared:90% = generation10% = demand response and energy efficiency7% more MW offered than needed9 MW ofgenerationoffered bynot cleared:To beretired?Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page23Other results of PJM auctionThere are sufficient resources available tofederal reliability standards as ofthe period (2014/2015) when the air rules go into effect.More than 5 GW of new capacity came into the market with this auction:New generation (including gas-fired, wind (695 MW), and solar power (46 MW))New demand side resources (EE and DR)Generating capacity that failed to clear the auction:Included fossil generating units that may eventually retire (i.e., 6.9 GW of coal MW)Largely offset by these new resourcesThese results suggest that the tool kit is robustMore robust that the many studies have assumedFERC-regulated RTO markets play an important roleAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page24CASE:DISTRIBUTED GENERATIONUnconventional Responses to the Upcoming EPA RegulationsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page25NREL:Lab of the Future –Zero energy useSource: “Lab of the Future,” BillGlover, Deputy Laboratory Directorand Chief Operating Officer, NREL,presentation to NREL ExternalAdvisory Council, June 29, 2011ResearchSupport Facility,Golden, COConstruction:2008-2010Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page26NREL RSF: How do you get to zero energy?Design-Build Process based onperformance criteriaFocus first on energy efficiency features.Then focus on adding renewable energyinto the equation.Then use architecture to support thosefirst two goals, rather than the other wayaround. Design around energyperformance requirements.Extensive energy modeling establishedthe basic building architecture andstructure.Source: “Lab of the Future,” Bill Glover, Deputy Laboratory Director andChief Operating Officer, NREL, presentation to NREL External AdvisoryCouncil, June 29, 2011Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page27What happened:What NREL wanted:Net zero energy goal –with as many of theperformance goals aspossibleLEED PlatinumCompetitive cost for fs800 employeesWhat NREL got:Net zero energy includingPVs – under budget and 130days early, with everyperformance goal achievedLEED Platinum220,000 sf at $250/sf825 employeesSource: “Lab of the Future,” Bill Glover, Deputy Laboratory Director and Chief Operating Officer, NREL, presentation to NREL ExternalAdvisory Council, June 29, 2011Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page28Source: “Lab of the Future,” Bill Glover, Deputy Laboratory Director and Chief Operating Officer, NREL, presentation to NREL ExternalAdvisory Council, June 29, 2011Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page29Comparing the energy use (per sf):AnnualEnergyUseIntensity(kBtu/ft2)RSFwithPVRSFwithoutPVSource: “Lab of the Future,” Bill Glover, Deputy Laboratory Director andChief Operating Officer, NREL, presentation to NREL External AdvisoryCouncil, June 29, 2011Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page30Distributed generation:450-kW Roof-Mounted PV PerformanceDecember 2010Source: “Lab of the Future,” Bill Glover, Deputy Laboratory Director andChief Operating Officer, NREL, presentation to NREL External AdvisoryCouncil, June 29, 2011Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page31CASE:TRANSMISSIONUnconventional Responses to the Upcoming EPA RegulationsAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page32Options when facilities are needed for local reliabilityMany authorities exist to ensure that there is no situation inwhich local or system reliability will be threatened with aplant closure for environmental, economic or other reasons:EPA’s authority:to allow 1-year extension for good cause in the Utility Toxics rule(case-by-case basis)DOE and EPA authority:to enter into administrative orders of consent or consent decrees withpower plant owners, governing terms and conditions of operations forreliability purposes, pending compliance with environmentalregulationsExample:GenOn (Mirant) plant (Alexandria, VA) – outside of Washington, DCAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page33Potomac River Gen Station – Alexandria, VAAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page34Potomac River Gen Station – in PJM and local gridPRGS(482 MW, coal-fired,5 units entering servicebetween 1949-1957)Aspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page35Environmental and reliability issuesAug. 2005: VA DEQ says PRGS violates local air issues: “fix or retire”;PRGS owner announces intention to retireDC (PSC, Off of People’s council) petitions to FERC to keepplant open to assure reliability in DCNov. 2005: DOE declares reliability ‘emergency’ & orders PRGS to operateDec. 2005: ORNL study to DOE on local reliability issues if PRGS retiredJan. 2006: PJM and PEPCO file reliability plan with FERC;identifies plan including two new 230 kv transmission linesJune 2007: Construction of two lines (and other facilities) is completeJuly 2007: FERC finds PRGS shutdown poses no reliability issueAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page36The “Champ”:The tools that are availableAspen Energy Policy Forum - Panelon Electric InfrastructureJuly 5, 2011Page37Sue TierneyManaging PrincipalAnalysis Group111 Huntington Avenue, 10thFloorBoston, MA 20199stierney@analysisgroup.com617-425-8114