Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

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

August 2010Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

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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 170,000 megawatts of electric generating capacity ( including 110,000 megawatts of fossil generating ca pacity) throughout the U.S., and serve nearly a fifth of al l U.S. electric customers.

Calpine Corporation Constellation Energy Entergy Corporation Exelon Corporation NextEra Energy
National Grid PG&E Corporation 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 Paul J. Hibbard, Analysis Group Amlan Saha, M.J. Bradley & Associates LLC Carrie Jenks, 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 E­mail: vanatten@mjbradley.comEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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# Executive Summary

In the 20 years since the Clean Air Act (“CAA”) Ame ndments of 1990, electric power companies throughou t the United States have deployed a wide range of pol lution­control technologies, new power plants with relatively low emissions, and demand­side measures to reduce air emissions from electricity production .  The Environmental Protection Agency (“EPA”) has found, however, that despite this significant progress in reducing emissions, in 2008 about 127 million Americans stil l lived in counties with unhealthy air—many of whic h are located along the Ohio River Valley, in the Middle Atlantic, and in the Southeast. 1,2



### To begin to address these issues, on August 2, 2010 , EPA published its draft Clean Air Transport Rule (the “Transport Rule”), regulating emissions in 31 Easte rn states and the District of Columbia where contro lling emissions will produce the greatest public health b enefit. 3 

### EPA plans to implement the Transport Rule on January 1, 2012.  Additional rulemakings are also u nderway to regulate hazardous air pollutants (“HAPs ”), with EPA under court order to promulgate its final “Util ity MACT” rule by November 2011.  According to EPA, compliance would be required by early 2015. 4



### These new rules regulating air emissions from fossi l fuel­fired power plants will require certain unco ntrolled plants to install pollution control equipment.  Thi rd­party analysts have concluded that some coal pla nt owners may choose to retire units in lieu of such installa tions.  For example, two recent studies suggested t hat between now and 2015, the combination of low energy prices and EPA air regulations could result in the retirem ents of between 25 to 40 gigawatts (“GW”) 5,6 

### of the nation’s 1,030 GW of electric generating ca pacity. 7



### Although some of the nation’s less efficient power plants may be retired, many existing coal plants wi ll be retrofit with new pollution controls.  Approximatel y half of the nation’s coal­fired generating capaci ty (150 GW) has already installed SO 2 

### scrubbers, another 55 GW plan to install scrubbers , and a significant number of coal units have already announced plans to retire, 8 

### leaving approximately one­fourth of the nation’s c oal­fired generation to add pollution controls, switch to a c leaner fuel, or retire.  Companies may also have th e option to purchase allowances or adjust dispatch to comply wi th certain rules.

Some in the industry have raised concerns about the combined effects over the next five years of antic ipated power plant retirements and outages required to ins tall new pollution control equipment.  Clearly, the nation must carefully consider how to maintain electric sy stem reliability, while also improving our nation’s health and environmental quality.

In this paper, we highlight the impact of EPA’s upc oming air regulations, with a focus on the issue of possible power plant retirements on electric reliability.  W e conclude that, without threatening electric relia bility, the

1 U.S. EPA, Draft FY 2011­2015 EPA Strategic Plan , at p. 7. Collectively, power plants are responsib le for 66 percent of SO 2 emissions, 19 percent of NOx emissions, and 39 percent of CO 2 emissions in the U.S.  Also, in 2002, the EPA cata loged emissions in the United States and concluded that fossilfuel­fired power plants were responsible for the fo llowing percentages of nationwide emissions for the following HAPs (all figures are approximate): hydrochloric acid (60%); mercury compounds (45%); a rsenic compounds (35%); and nickel compounds (25%). U.S. EPA, 2002 National Emissions Inventory Booklet.

2 According to the recent National Academy of Scienc es, Hidden Costs of Energy: Unpriced Consequences of En ergy Production and Use (2010),  “after ranking all the [power] plants according to their d amages, we found that the most damaging 10% of plan ts produced 43% of aggregate air­pollution damages from all plants, and the least damaging 50% of the plants produce less than 12% of aggregate d amages” ...(and) the most damaging 10%...account for approximately one quarter of elec tricity generated at the 406 plants.” (at p. 88).

3 Office of Air and Radiation, U.S. EPA, Air Transport Rule Factsheet , at p. 1.

4 U.S. EPA, Proposed Rule: Federal Implementation Plans To Redu ce Interstate Transport of Fine Particulate Matter and Ozone. August 2, 2010.

5 PIRA Energy Group (“PIRA”), EPA’s upcoming MACT; Strict Non­Hg Can Have Far­Rea ching Market Impacts , April 8, 2010.

6 ICF International, EEI Preliminary Reference Case and Scenario Results

. May 21, 2010.

7 Energy Information Administration (“EIA”), Electric Power Monthly , July 2010. (Based on preliminary 2009 capacity, c apacity additions and retirements up through April 2010.)

8 PIRA, supra n.5.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### industry is well­positioned to respond to EPA’s pro posed road map to “help millions of Americans breat he easier, live healthier,” 9 

### provided that EPA, the industry and other agencies take practical steps to plan for the implementation of these regulations and adopt appro priate regulatory approaches.  In particular, we co nclude the following:

1. Even though some units likely will retire in lieu o f complying with the new regulations, electric syst em reliability will not be compromised if the industry and its regulators proactively manage the transition to a cleaner, more efficient generation fleet.

o Power system reliability relates not only to genera tion capacity and availability, but also to consump tion levels and patterns, and transmission capacity and use.  As such, all these factors must be considered when assessing reliability impacts.  Existing power system capacity well in excess of minimum reserve levels, relatively modest projections of load growt h over the next several years, a large amount of proposed generating resources, and the availability of load management practices indicate the system can handle the level of projected retirements.

o Each North American Electric Reliability Corporatio n (“NERC”) reliability region has excess capacity, totaling over 100 GW of excess capacity nationwide. Therefore, considering only the projected level o f coal unit attrition relative to existing capacity r esources, it appears there will be no capacity shor tages even if projected retirement scenarios prove accura te.

o Further, economic conditions have reduced the deman d for electricity in recent years providing an additional capacity cushion to assist in managing a ny power plant outages required to install pollutio n controls.

o The industry has a proven track record of adding ne w generating capacity and transmission solutions when and where needed and of coordinating effective ly to address reliability concerns.  In the three years between 2001 and 2003, the electric industry built over 160 GW of new generation—about four times what analysts project will retire over the ne xt five years.

o Notably, many of the regions of the country with or ganized wholesale markets, including many parts of the Midwest, Mid­Atlantic, and Northeast, have deve loped effective tools such as capacity markets and reserve sharing mechanisms enabling electric genera tors to access other companies’ available resources to assure regional reliability.

o Additionally, the industry is deploying enhanced de mand response actions, expanded energy efficiency programs, and new “smart grid” advances to manage c onsumption during the transition to cleaner, more efficient generation.

2. Industry data counter concerns that it will cost th e industry too much to comply with EPA’s proposed air regulations, that pollution controls cannot be installed soon enough, or that the EPA regulations will lead to the closure of otherwise economically healthy power plants.

o The proven technologies for controlling air polluti on emissions, such as NO

x 

### , SO 2 

### , mercury and acid gases, are commercially available and have already been, or soon will be, installed on the majority of the nation’s coal plants (65 percent with scrubbers ; 50 percent with advanced NO

x 

### controls), demonstrating that the costs can be managed.

o The industry has a demonstrated ability to schedule and sequence unit outages in an efficient and reliable manner and is capable of installing additi onal pollution control systems to comply with the Transport Rule and Utility MACT Rule.

9 U.S. EPA, supra n.1, at p. 2.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### o Many of the coal units that are the most likely can didates to shut down are smaller, 40 to 60 year old units, which are nearing the end of their design li fe expectancy and are already economically challenged.

o Additionally, the retirement of some existing gener ating capacity will create room on the transmission grid to accommodate additional power flows, or new generating capacity, without requiring attendant upgrades in transmission, thus mitigating reliabili ty concerns while reducing the cost of transitionin g to a cleaner, more efficient generation fleet.

3. EPA, the Federal Energy Regulatory Commission (“FER C”), the Department of Energy (“DOE”) and State utility regulators, both together and sep arately, have an array of tools to moderate impacts on the electric industry.

o 

### EPA may, and if needed, should exercise its statuto ry authority under the CAA to grant, on a case­bycase basis, extensions of time to complete pollutio n control installations where appropriate.

o 

### To the extent that its legal authority allows, EPA should adopt regulatory approaches that allow for c osteffective compliance, such as the emissions trading mechanism proposed in the Transport Rule.

o 

### In circumstances in which power plant retirements t rigger localized reliability concerns, EPA and DOE should follow established precedent, including use of consent decrees, to permit continued operation f or reliability purposes only, pending necessary upgrad es or generation additions.  Additionally, the vari ous federal agencies and offices with responsibility fo r assuring reliability for the nation's electricity capability should work together to help support the industry and states in complying with EPA’s new ai r regulations.

o 

### Transparent, well­established market rules approved by FERC and overseen by independent market monitors, particularly the forward capacity markets relied on by some Regional Transmission Operators (“RTOs”), as well as state regulatory agency oversi ght, provide additional safety nets to help ensure adequate capacity.

o 

### Although EPA is under court order to promulgate its air regulations, the Agency can and should coordinate the implementation of anticipated water regulations under Section 316(b) of the Clean Water Act (“CWA”) and new waste regulations to avoid poss ible reliability concerns. 10

10 EPA should also consider the possible greenhouse g as emissions implications of its 316(b) regulations .  In 2007, the U.S. Supreme Court found the EPA has clear statutory authority t o regulate greenhouse gases under the CAA.  Transit ioning to a cleaner generating fleet will help EPA fulfill this obligation.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### A.  The Electric System Has Substantial Excess Gener ating Capacity and Appropriate Processes in Place to Assure Reliable Electricity Supply to Cons umers

Currently, there are more than 17,000 electric gene ration units in the United States with a combined nameplate capacity of over 1,030 GW. 11 

### In 2009, coal­fired generation produced 45 percen t of the nation’s electricity, followed by natural gas (23 percent) a nd nuclear (20 percent), with the remaining amount produced through a combination of hydroelectric pow er, oil, wind and other miscellaneous fuel types. 12



### Power plant owners, transmission system owners, and power system operators plan and operate their systems according to numerous federal, state and lo cal regulations, policies and protocols, applying planning requirements designed to ensure electricit y suppliers have adequate resources to meet current and future demand, and operational standards to ensure power is available when consumers turn on the light s.

Power system reliability is tied to many things: ge neration plant capacity and availability, consumpti on levels and patterns, and transmission capacity and use.  As such, electric system planners must consid er all of these relevant system infrastructure and demand factors in assessing whether sufficient capacity wi ll be available to maintain reliability.  Existing power system capacity well in excess of minimum reserve l evels, relatively modest projections of load growth over t he next several years, a large amount of proposed generating resources throughout the country, and th e availability of load management practices indicat e the electric system should be able to handle the transi tion to a cleaner, more efficient generation fleet.

Under FERC’s oversight, NERC sets standards to ensu re the reliability of the nation’s electric system. NERC comprises eight regional reliability organizat ions (or “regions,” as shown in Figure 1), whose members include grid operators, utilities, generati ng companies and others in the electric industry.

Most of the nation’s regional reliability organizat ions cover multiple states and each manages and mon itors compliance with NERC’s reliability standards, inclu ding maintenance of minimum target reserve margins, a key indicator of resource adequacy.  Actual or expe cted reserve margins measure the extent to which generating capacity exceeds (or falls short of) pea k electricity demand.  All regions must have capaci ty above expected demand to accommodate power plant ou tages, transmission failures, unexpectedly high demand, or other contingencies.  Most regions have a minimum target reserve margin at or below 15
percent. 13 

### In recent years, actual reserve margins around th e country have been well above the minimum target levels, due not only to new power plant addi tions in most regions, but also to reduced demand
attributable to the economic recession and increasi ngly robust load management programs. 14



### Table 2 illustrates that, in 2013, all NERC regions expect to have actual capacity levels well in exce ss of minimum reserve requirements.  Although this provid es only one metric of reliability, and each region will undertake more granular analysis in the months ahea d, these capacity “cushions” indicate there should not be a capacity shortage even if projected retirement scenarios prove accurate.  As the table further hi ghlights, on an aggregate basis across all NERC regions, the electric sector is expected to have over 100 GW of surplus generating capacity in 2013, about three ti mes the 30 to 40 GW of retirements projected by PIR A Energy Group. 15,16 

### Reliability First Corporation (“RFC”) and the Sou theast Reliability Corporation

11 EIA, supra n.7.

12 EIA, Net Generation by Energy Source , http://www.eia.doe.gov/cneaf/electricity/epm/tabl e1_1.html (accessed July 31, 2010).

13 Some regions are below 15%, such as TRE (12.5%), S PP (13.6%), WECC (14.7%).  Regions that don’t estab lish a formal target are assigned one for planning purposes by NERC, wit h 15% for regions like the Midwest and 10% for regi ons with substantial hydroelectric power.  NERC, 2010 Summer Reliability Assessment , May 2010.

14 Id

. 15 NERC, 2009 Long­Term Reliability Assessment: 2009­2018 , October 2009. 

## I. M ANAGING 

## E LECTRIC 

## S YSTEM 

## R ELIABILITY 

## W HILE 

## I MPLEMENTING 

## N EEDED


## E NVIRONMENTAL 

## I MPROVEMENTS 

## W ITH 

## S IGNIFICANT 

## P UBLIC 

## H EALTH 

## B ENEFITSEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### (“SERC”) regions, for example, where most of the un controlled coal plants are located, are expected to have high reserve margins at 24.3 percent and 26.3 perce nt, respectively. 17 

### These regions could retire 17.1 GW (RFC) and 23.9 GW (SERC) of capacity and still main tain the 15 percent NERC reserve margin target.

Figure /Table 1 ­ NERC Electric Reliability Regions

Table 2 ­ Estimated Reserve Margins in All NERC Reg ions: Adequate Generating Capacity

NERC Electric Reliability Region Projected Reserve Margin (1)

in 2013 Cushion Above NERC Target  Reserve Margin (2) In 2013

TRE 23.9% 7.8 GW

FRCC 28.6% 6.1 GW

MRO 22.1% 3.2 GW

NPCC 24.4% 5.9 GW

RFC 24.3% 17.1 GW

SERC 26.3% 23.9 GW

SPP 30.3% 7.7 GW

WECC 42.6% 35.6 GW

Total 107.3 GW

1. Includes  capacity  defined  by  NERC  as  Adjusted  Pote ntial  Reserve Margin,  which is the  sum  of  deliverab le  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, 2009 Long­Term Reliability Assessment: 2009­2018 , October 2009, p. 396 (Summer Demand).

2. Capacity in excess of what is required to maintain NERC Reference Margin or the regional target reser ve levels. Source: NERC, 2009 Long­Term Reliability Assessment : 2009­2018, October 2009.

16 PIRA, supra n.5.

17 NERC, supra n.15. FRCC – Florida Reliability Coordinating Council SERC – Southeast Reliability Corporation

MRO – Midwest Reliability Organization SPP – Southwest Power Pool, RE

NPCC – Northeast Power Coordinating Council TRE – Texas Regional Entity

RFC –  Reliability First Corporation WECC – Western Electricity Coordinating Council

Note: NERC regional results shown in this presentation i nclude the continental US onlyEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### Experience in the RFC region, which encompasses thi rteen states in the Midwest and Mid­Atlantic region s, is illustrative of the electric system’s ability to tolerate retirements without jeopardizing reliabil ity. Generators in the PJM Interconnection (“PJM”) retir ed about 6,000 MW of capacity between 2004 and 2007, and over 3,000 additional MW of capacity have been announced for retirement in PJM by 2012. 18 

### Despite almost 10,000 MW of retirements over this s even year period, the RFC region is still forecast to have a reserve margin of over 24 percent in 2013, o r an excess of 17,000 MW of generation above the 15 percent NERC target reserve margin target.

Moreover, as a result of the economic recession, NE RC projects “significant reductions in projected lo ngterm energy use in North America” 19 

### , which provide an additional capacity cushion.  Wh ile total demand is still projected to increase in most regions, it wil l do so at a slower pace and from a lower starting point.  See, for example, Figure 2 which shows the decrease in f orecast energy use from NERC’s 2009 long­term reliability assessment as compared to its 2008 fore cast.  Additionally, summer peak demand has decreas ed over 10 GW per year for two consecutive years. 20 

### Furthermore, in all regions of the country, wellestablished tools exist to analyze potential region al power system impacts, and to facilitate planning

, managing and operating the system to ensure ongoing reliability.

Figure 2 – Annual Energy Use (2008 LTRA and 2009 LT RA Forecast Comparison)

Source: NERC, 2009 Long­Term Reliability Assessment : 2009­2018, October 2009, p. 13.

18 PJM, Generation Retirement Summaries , http://www.pjm.com/planning/generation­retirement s/gr­summaries.aspx (accessed July 31, 2010).

19 NERC, supra n.15, at p. 13.

20 NERC, supra n.13, at p. 1.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### B.  The Electric Industry Has Proven Its Ability to Avoid Capacity Problems in the Past—Through Power Plant Capacity Additions, Fuel Conversions, T ransmission Solutions, and Load Management Techniques

1. New Capacity is Already in the Pipeline

Even with the robust reserve margins in all NERC re gions, industry participants are pursuing various measures to safely and reliably transition to clean er, more efficient electric supply resources.  Plan s are underway for a variety of new plants, even as less efficient ones are retired.  While economics remain s the major consideration in deciding whether to develop or expand generating capacity or to mothball older plants, other major drivers, including reliability and environmental improvements, are in play.  For e xample, the implementation of forward capacity markets in c ertain Independent System Operators (ISOs) has provided more price transparency, enabling the indu stry to see the value of various generation resourc es.

Moreover, the industry has shown previously that it can efficiently add capacity or respond adequately to potential reliability issues.  Between 1999 and 200 8, for example, in response to a variety of market, regulatory and economic signals, the electric secto r added almost 270 GW of natural gas­fired generati ng capacity, the equivalent of more than 80 percent of the entire existing U.S. coal fleet. 21 

### (See Figure 3, which shows the significant investment in new gas plants during the past decade.)  Indeed, in just three yea rs between 2001 and 2003, the electric industry built over 160 GW of new generation, 22 

### about four times what analysts project will retire over the next five yea rs.  Although conditions a decade ago differ in sev eral respects, this robust construction cycle suggests t hat developers and investors will respond to strong signals if new capacity is needed.

Figure 3 – Power Plant Capacity Added by Year It En tered Service

Source: Ceres, et al., Benchmarking Air Emissions o f the 100 Largest Electric Power Producers in the U nited States, June 2010.



### Further, as indicated in Table 3, substantial new c apacity build has been announced, planned or is see king grid interconnection studies.  Across the NERC regi ons, a recent report identified over 55 GW of propo sed generation in advanced stages of development in the queue for 2013.  Although, not all of these plants will be built, strong market incentives and signals from regulators that new capacity will be needed will p romote generation development proposals beyond those annou nced to date.

21 EIA, Annual Electric Generator Report: Form EIA­860 , 2008.

22 Id. 

### -

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 200 0 2005

Renewable Hydro
Nuclear
Other
Oil

Gas
Coal **Nameplate Capacity (MW)** Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### Table 3 ­ Proposed New Build – 2013 23

NERC Region New Generation Proposed to Be Built

(in Transmission Queues for 2013)

TRE 4.3 GW

FRCC 2.0 GW

MRO 3.6 GW

NPCC 7.5 GW

RFC 8.7 GW

SERC 10.3 GW

SPP 2.8 GW

WECC 16.3 GW

Total 55.5 GW

Note: There are substantial additional generating f acilities in the queue in each region.



### Numerous electric companies have already announced substantial new capacity additions, many at the sit es of existing coal units that will be retired.  Georg ia Power, which recently demolished a coal plant in Georgia and stated its intention to retire another, announc ed it plans to build three 840 MW combined cycle ga s turbines (“CCGTs”) in Georgia. 24 

### Oglethorpe Power Corporation has proposed a 605 M W CCGT 25 

### and a 100 MW biomass facility in Georgia. 26 

### Also in the Southeast, Progress Energy plans to b uild a 950 MW CCGT at the site of three coal units, which will re tire when the gas plant comes online. 27 

### In Tennessee, TVA is building an 878 MW CCGT at the site of its J ohn Sevier coal plant, and the City of Vineland New Jersey plans to replace its 25 MW coal plant with a 60 MW gas plant. 28,29



### Also, although they do not operate in the same base load mode as do nuclear or many coal plants, low emission energy facilities have expanded rapidly ov er the past several years. 30 

### For example, the total wind power capacity now operating in the U.S. is over 35 ,600 MW.  In 2009 alone, the U.S. wind industry bro ke all previous records by installing nearly 10,000 MW of new generating capacity, enough to serve over 2 .4 million homes.  Additionally, over 400 MW of solar was installed throughout the nation in 2009.  Solar installations are poised to grow about 50 percent a nnually in the next three years, reaching 1.5 GW to 2 GW
of new installations in 2012. 31



### The retirement of inefficient coal units may spur f urther development of cleaner generating capacity. Regional transmission studies include capacity even if it runs infrequently.  Freeing room for new cap acity through retirements means some low emission generat ion resources, including gas plants, can be accommodated without having to invest in new transm ission.

2. Existing Gas Units Have Untapped Power Production P otential

Given the significant addition of gas­fired capacit y in the past decade, as detailed earlier in Figure 3, and the relative price advantage of coal versus natural gas in the period from 2007 to 2008, gas plants were n ot operated at their full design capability in many pa rts of the country.  As detailed in Table 4, gas­fi red CCGT power plants in 2008 had an average utilization rat e of only 33 percent, as compared to coal’s 56 perc ent.

23 ICF International, supra n.6.

24 Georgia Power, From Coal to Natural Gas, http://www.georgiapower.com/generation/home.asp (a ccessed July 31, 2010).

25 Oglethorpe Power, Oglethorpe Power to Build Gas­Fired Generating Plan t, March 10, 2010.

26 Power­Gen Worldwide, Oglethorpe plans a biomass plant , June 29, 2010.

27 Energy Business Review, Progress Energy Wins Approval To Build 950MW Gas­fi red Plant , October 2, 2009.

28 Marketwire, TVA Prepares to Begin Construction on 880­Megawatt Combined­Cycle Unit , March 16, 2010.

29 NJ Spotlight, NJ Coal Plants Face Cleanups and Closures, July 10, 2010.

30 Wind and solar are intermittent resources; therefo re, only part of their output is credited for relia bility purposes.

31 GTM Research, The United States PV Market Through 2013: Project E conomics, Policy, Demand and Strategy , December 2009.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### Despite declines in natural gas prices, existing ga s units have significant untapped power production potential, which can be expanded during off peak pe riods without constructing new generation.  This ex cess capacity can assist in managing power plant outages required to install pollution control systems.

Table 4 – Estimated Utilization of U.S. Coal and Ga s Plants (CCGT) by Region (2008)

Source: MJB&A analysis based on U.S. Energy Informa tion Administration’s Form EIA­860 (2008) and EIA­9 23 (2008)



### Additionally, many coal plants have the potential t o repower their units, by replacing conventional co alfired steam electric generating units with CCGTs, t hus increasing the units’ efficiency and reducing air emissions—an approach already being used today by t he industry.  For example, Xcel Energy has replaced a 270 MW coal plant in Saint Paul, Minnesota with a 5 15 MW CCGT, reducing SO 2 

### emissions by 99.7 percent, NOx emissions by 96.9 percent, and elimina ting mercury emissions. 32 

### It also repowered two coal units in Minneapolis. 33 

### In New Jersey, Calpine has announced its intent t o convert an 83 MW coal unit to a 158 MW gas unit. 34



### 3.  Enhanced Load Management Programs Can Be Deploye d to Meet System Reliability Needs Economically

Historically, grid operators have dispatched plants to meet customers’ electricity requirements.  Over the years, the industry has recognized that decreasing load requirements can be more efficient and economi cal than increasing supply by dispatching generation. As a result, load management tools, such as demand response (“DR”) and energy efficiency (“EE”) progra ms have been widely implemented across the nation.

DR programs manage load by temporarily reducing or shifting electricity use by homes or businesses dur ing critical times like hot summer days.  EE programs, on the other hand, primarily seek to reduce consume rs’ energy use on a permanent basis through the install ation of energy efficient technologies and conserva tion measures.  Both means of load management provide an additional tool for system operators to manage electric reliability.

32 Utility Engineering, Twin Cities to breathe easier thanks to UE , Value Connection, Issue 2, 2007.

33 North Dakota Home Town Times, Xcel Energy Switches Minneapolis Coal Plant to Natu ral Gas , October 13, 2009.

34 NJ Spotlight, supra n.29. 30% 15,966 45% 16,616 < 200 32% 30,136 60% 38,277 200 ­ 500 35% 181,473 67% 282,407 > 500 All US

Plants 49% 5,042 60% 2,465 < 200 40% 6,835 78% 2,992 200 ­ 500 47% 37,435 73% 30,081 > 500

WECC 24% 1,020 < 200 36% 5,025 82% 1,213 200 ­ 500 44% 28,869 80% 15,193 > 500

TRE 22% 465 44% 647 < 200 37% 2,116 72% 2,361 200 ­ 500 32% 12,051 71% 17,970 > 500

SPP 33% 1,229 36% 4,109 < 200 29% 4,995 57% 10,699 200 ­ 500 24% 40,529 66% 91,188 > 500

SERC 34% 1,794 48% 4,664 < 200 13% 2,709 54% 11,479 200 ­ 500 19% 28,087 61% 99,474 > 500

RFC 21% 2,843 47% 1,079 < 200 36% 4,326 70% 2,548 200 ­ 500 44% 13,791 79% 2,407 > 500

NPCC 10% 506 42% 3,111 < 200 15% 1,246 59% 4,915 200 ­ 500 15% 3,033 73% 18,113 > 500

MRO 20% 1,389 53% 199 < 200 26% 2,410 64% 1,628 200 – 500 46% 17,678 67% 7,981 >500

FRCC % Utilization Total Installed Capacity (MW) % Utilization Total Installed Capacity (MW) Region Gas (Combined Cycle) Coal Plant Size (MW)

30% 15,966 45% 16,616 < 200 32% 30,136 60% 38,277 200 ­ 500 35% 181,473 67% 282,407 > 500 All US

Plants 49% 5,042 60% 2,465 < 200 40% 6,835 78% 2,992 200 ­ 500 47% 37,435 73% 30,081 > 500

WECC 24% 1,020 < 200 36% 5,025 82% 1,213 200 ­ 500 44% 28,869 80% 15,193 > 500

TRE 22% 465 44% 647 < 200 37% 2,116 72% 2,361 200 ­ 500 32% 12,051 71% 17,970 > 500

SPP 33% 1,229 36% 4,109 < 200 29% 4,995 57% 10,699 200 ­ 500 24% 40,529 66% 91,188 > 500

SERC 34% 1,794 48% 4,664 < 200 13% 2,709 54% 11,479 200 ­ 500 19% 28,087 61% 99,474 > 500

RFC 21% 2,843 47% 1,079 < 200 36% 4,326 70% 2,548 200 ­ 500 44% 13,791 79% 2,407 > 500

NPCC 10% 506 42% 3,111 < 200 15% 1,246 59% 4,915 200 ­ 500 15% 3,033 73% 18,113 > 500

MRO 20% 1,389 53% 199 < 200 26% 2,410 64% 1,628 200 – 500 46% 17,678 67% 7,981 >500

FRCC % Utilization Total Installed Capacity (MW) % Utilization Total Installed Capacity (MW) Region Gas (Combined Cycle) Coal Plant Size (MW)Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### 12 Analysis Group 

### DR programs operate in all of the NERC Regions, as shown in Figure 4.  In some regions, such as RFC, SERC, WECC, and MRO, a substantial fraction of the DR resources are available in the form of “contractually interruptible” or curtailable loads. These typically entail contracts between a utilit y and an industrial customer, in which the customer agrees t o curtail part of its usage when requested for a sp ecified number of times during a certain period, in exchang e for electric rate discounts.  The other forms of DR— direct control load management, critical peak prici ng with control, and load as a capacity resource—ar e more dynamic forms of supply, in which the grid ope rator, in effect, dispatches the load to respond wi th a reduction or shift in load, much like a generating facility.

In particular, these other forms of DR have increas ed steadily in organized wholesale competitive mark ets. In PJM, for example, DR has increased five­fold in the past five years and continues to grow. 35 

### In the most recent PJM capacity auction, DR offers increased 32 percent over last year and over 9,000 MW cleared, which represents about six percent of total availab le capacity resources. 36 

### DR is expected to reduce the peak electricity use this summer in PJM by 8,525 MW, the equivalent output of ten large power plants. 37



### Figure 4 – NERC Summer Peak Capacity Demand Respons e ­ 2009­2018 Comparison

Source: NERC, Long­Term Reliability Assessment, 200 9, Figure 7 (page 18).



### DR is not just increasing in PJM.  According to the ISO/RTO Council, competitive markets are “shatteri ng barriers” in terms of attracting DR resources. 38 

### In FERC’s recently released National Action Plan on Demand Response , it highlighted that DR has tripled in recent year s in the New England region 39 

### and identified strategies to further enhance DR. Already, about half of electric utilities across th e nation have some type of DR program.  With continued support fr om regulatory agencies like FERC and the advancement of “smart grid” technologies, DR is exp ected to continue to grow as a viable supply altern ative to traditional generation.

As with DR, EE programs have increased dramatically in the past several years.  According to informati on compiled by the Consortium for Energy Efficiency, a nd as highlighted in Figure 5, the total budget for all US ratepayer­funded EE and DR programs has increase d 80 percent since 2006 to $4.4 billion in 2009. 40 

### These programs resulted in savings of almost 105,00 0 gigawatt hours (“GWh”) of electricity in 2008—the

35 PJM, Demand Response To Play Significant Role In Meeting PJM’s Higher Summer Peak Electricity Use ,  http://pjm.com/~/media/aboutpjm/newsroom/2010­releases/20100505­summer­2010­out look.ashx (accessed August 6, 2010)

36 PJM, 2013/2014 RPM Base Residual Auction Results , at p. 1.

37 PJM, supra n.35.

38 ISO/RTO Council, 2009 State of the Markets Report , September 22, 2009.

39 The Federal Energy Regulatory Commission Staff, National Action Plan on Demand Response , June 17, 2010, at p. 7.

40 Consortium for Energy Efficiency (“CEE”), The State of the Efficiency Program Industry: Budge ts, Expenditures, and Impacts , 2009, at p. 7.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 13 Analysis Group 

### equivalent of the total electricity consumption in Tennessee in the same year. 41 

### By 2018, new EE programs alone are expected to reduce summer peak demands by almost 20,000 MW (a full year’s growth). 42



### Figure 5 – Energy Efficiency and Demand Response Pr ogram Budgets, 2006­2009

Source: Consortium for Energy Efficiency, The State of the Efficiency Program Industry: Budgets, Expen ditures, and Impacts, 2009



### Figure 6 – Summer Peak Demand Growth Reduced by Dem and­Side Management

Source:  NERC, Long­Term Reliability Assessment, 20 09, at p. 18.



### Although California and the Northeast account for o ver half of the total, budgets for ratepayer­funded EE programs are expanding in all regions of the countr y.  In 2009, EE budgets for Illinois, Wisconsin, an d Iowa increased in 2009, year­on­year, by 60 percent, 40 percent, and 36 percent, respectively. 43 

### In the Southeast, Alabama, Mississippi, North Carolina, and Louisiana reported ratepayer­funded EE budgets for the first

41 Id.

42 NERC, supra n.15, at p. 12.

43 CEE, supra n.40, at p. 15.

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

2006 2007 2008 2009

Commercial and Industrial

Residential

Low Income

Load Management

Other

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

2006 2007 2008 2009

Commercial and Industrial

Residential

Low Income

Load Management

Other million $Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 14 Analysis Group 

### time in 2009. 44 

### EE’s use as a capacity resource is increasing in organized wholesale markets as well.  For example, EE resources accounted for 757 MW of the r esources offered into the most recent PJM RPM auction, an increase of 33 percent over the prior y ear.  Of those resources, 90 percent, or 680 MW cle ared the auction to serve as a firm capacity resource. 45



### NERC estimates that current levels of EE and DR wil l shave off certain portions of expected growth in demand, as shown in Figure 6, underscoring growing acceptance of these load­management tools.

Based on the experience of states and organized com petitive wholesale markets that have implemented EE and DR, it is clear these programs provide yet anot her cost­effective tool to help maintain reliabilit y in the face of generation retirements.

44 Id. at p. 16.

45 PJM, supra n.36.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### 15 Analysis Group 

### A.  The Majority Of Coal Plants Have Already Install ed Air Pollution Controls

Proven pollution control technologies are widely av ailable to dramatically reduce emissions of NO

x 

### , SO 2 

### , mercury, and other HAPs from coal plants, which acc ount for 98 percent of the electric sector’s SO 2 

### emissions, 86 percent of its NOx emissions, and 98 percent of its mercury emissions. 46,47



### Over the last 20 years, the industry has deployed a number of different technologies to comply with fe deral
and state SO 2 

### and NOx regulations.  The three basic options for r educing SO 2 

### emissions from coal plants include: (1) switching from higher to lower sulfur coal; (2) blending higher sulfur coal with lower su lfur coal; or (3) installing flue gas desulfurization (“ FGD”) control systems, commonly referred to as scru bbers. Wet scrubbers, which use a sorbent to capture SO 2 

### , can typically achieve at least 95 percent SO 2 

### removal. Widely available NOx control technologies for coal generation can be grouped into two broad categories : combustion modifications and post­combustion contro ls.  Post­combustion controls can reduce NOx emissions by 90 percent or more by removing the NOx after it has been formed in the boiler.  The most common post­combustion control is selective catalyt ic reduction (“SCR”) technology, in which ammonia (NH 3 

### ) is injected, combining with the NOx in the flue g as to form nitrogen and water.

The majority of coal plants have already installed such controls.  Of the 310 GW of coal capacity in t he United States, 150 GW have installed FGD systems an d another 55 GW have FGD controls planned, 48 

### representing 65 percent of the existing coal fleet. As detailed in Attachment A, numerous scrubber installations have been recently completed or soon will be completed.  Additionally, about 50 percent of coal capacity in the U.S. has installed or soon wil l be retrofit with advanced NOx controls (SCR and selective non­catalytic reduction (“SNCR”) technolo gies). 49



### To date, most studies put a heavy emphasis on deplo ying scrubbers to comply with the new EPA air regulations.  Retirements occur where the costs of installing scrubbers does not make economic sense b ased upon the unit’s characteristics.  However, a number of companies have announced that they will use oth er less costly technologies in lieu of scrubbers.  For example, on August 5, 2010, Edison Mission Interna tional, one of the nation’s largest merchant coal generator s, announced it could achieve compliance without installing scrubbers by using trona injection techn ology. 50



### B.  With Proper Planning, the Industry Can Install t he Necessary Pollution Controls on a Timely
Basis

EPA projects that about 14 GW of additional coal­fi red generating capacity will need to be retrofit wi th scrubbers and less than 1 GW with SCR controls by 2 014 to comply with the recently proposed Transport
Rule. 51 

### This number of retrofits is significantly less th an the industry has added in past construction cycl es. For example, during the peak of scrubber constructi on, between 2008 and 2010, approximately 60 GW of coal capacity was retrofit with scrubber controls, 52 

### highlighting the industry’s ability to complete a

46 EIA, U.S. Electric Power Industry Estimated Emissions by State (EIA­767 and EIA­906) , Electric Power Annual 2008, http://www.eia.doe.gov/cneaf/electricity/epa/emissi on_state.xls (accessed July 30, 2010)

47 U.S. EPA Office of Air Quality Planning and Standa rds, National Emissions Inventory for Hazardous Air Poll utants , 1999.

48 PIRA, supra n.5, at p. 7.

49 U.S. EPA, National Electric Energy Data System (“NEEDS”) , version 3.02.

50 Trona is a naturally occurring sorbent that can be injected directly into boilers to remove harmful a ir toxics without the use of FGD scrubbers. Given that the PIRA and EEI analyses did not consid er trona and other less costly compliance options, the predicted retirement scenarios are very likely overstated.  Nonetheless, this report uses t he predicted retirements as a conservative input to test all of the reliability considerations.

51 U.S. EPA, supra n.4.

52 M. J. Bradley & Associates analysis based on U.S. EPA NEEDS Database v. 3.02. 

## II. T HE 

## I NDUSTRY 

## H AS 

## T HE 

## C APACITY 

## T O 

## T IMELY 

## R ESPOND 

## T O 

## EPA’ S 

## F UTURE 

## A IR


## R EGULATIONSEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 16 Analysis Group 

### substantial number of retrofits over a short period of time. In 2009 and 2010, the industry completed between 50 and 60 scrubber retrofits each year. 53



### Moreover, the industry’s past successful installati on of pollution controls on numerous units undersco res its ability to schedule and sequence any required unit outages in an efficient and reliable manner.  To he lp ensure reliability, generators and transmission own ers provide reasonable advance notice of any planne d outages to the respective transmission authorities. In turn, the transmission authorities develop a coordinated outage schedule to prevent any delivera bility problems.  This illustrates a key benefit of a fully integrated national transmission system.

Further, the CAA allows three years for existing so urces to comply with the Utility MACT rule with the possibility of a one­year extension.  EPA is under a court­imposed deadline to complete its regulation s by November 2011, with compliance required by late 201 4.  As numerous states have adopted regulations limiting mercury emissions from coal­fired power pl ants, many companies have already begun to install mercury control technologies.  Also, the scrubber a nd particulate control systems installed to comply with the Transport Rule and other EPA regulations will h elp companies to comply with future air toxics regulations.

In the event, however, that any required retrofit c onstruction schedules could not be completed within the pre­compliance period, EPA may, and should, exercis e its authority under Section 112(i)(3)(B) of the C AA to provide up to one­year extensions to complete po llution control installations.  In addition, to pro tect the national security interest of maintaining adequate electrical grid reliability, the President has the authority under Section 112(i)(4) of the CAA to grant one or more compliance extensions of up to two years each. Any such extensions would be unit­specific and base d on clear demonstration that the technology to implement such standards is not available.

These federal tools combined with market rules and signals, industry reliability standards and enforce ment mechanisms, and utility regulatory requirements and incentives, provide a robust portfolio of techniqu es to assure compliance with health­based air regulations while maintaining reliable electricity supply.

C. The Coal Plants Most Likely To Retire Are Nearing T he End Of Their Design Life Expectancies And Are Already Economically Challenged

As indicated by Table 5, many of the uncontrolled c oal units, which are the most likely to retire, are smaller (250 MW and below) and are 40 to 60 years old.  Thu s, the coal plants most likely to retire are alread y nearing the end of their design life expectancies, as confirmed in recent coal plant retirement announcements, detailed in Attachment B.

Table 5 ­ Characteristics of U.S. Coal Plants

53 Id. 48% 41% 23% 13% 297,639 1,004 Total 29% 57% 29% 43% 349 1% 2,444 1% 7 10 years or younger 31% 66% 29% 6% 492 27% 80,165 16% 163 11 ­ 30 years 27% 65% 43% 4% 498 38% 114,090 23% 229 31 ­ 40 years 53% 33% 19% 15% 249 20% 58,078 23% 233 41 ­ 50 years 64% 19% 9% 21% 127 13% 39,787 31% 313 51 ­ 60 years 87% 11% 4% 2% 38 1% 1,762 5% 46 > 60 years Uncontrolled Scrubber SCR SNCR % MW % Count Pollution Control Installed (% of units) Avg. Unit

Size (MW) Capacity Units Unit Age

48% 41% 23% 13% 297,639 1,004 Total 29% 57% 29% 43% 349 1% 2,444 1% 7 10 years or younger 31% 66% 29% 6% 492 27% 80,165 16% 163 11 ­ 30 years 27% 65% 43% 4% 498 38% 114,090 23% 229 31 ­ 40 years 53% 33% 19% 15% 249 20% 58,078 23% 233 41 ­ 50 years 64% 19% 9% 21% 127 13% 39,787 31% 313 51 ­ 60 years 87% 11% 4% 2% 38 1% 1,762 5% 46 > 60 years Uncontrolled Scrubber SCR SNCR % MW % Count Pollution Control Installed (% of units) Avg. Unit

Size (MW) Capacity Units Unit Age

Data Sources: 2007/2008 EPA IPM, ARP, NBP Databases & Commercial Sources, MJB&A AnalysisEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 17 Analysis Group 

### Information included in the most recent annual State of the Market Report prepared by PJM’s Independent Market Monitor (“IMM”) suggests that fundamental ec onomics, not the EPA regulations, are already challenging those units most likely to retire.  In that report, the IMM identified over 11 GW of coal units at risk for retirement, since they “did not recover av oidable costs even with capacity revenues.” 54 

### Of the 11 GW identified in the report, most operated less tha n 1,000 of the 8,760 hours in 2009 and tended to be significantly smaller with an average installed cap acity of only 73 MW. 55 

### Of the 122 coal units in PJM with capacity less than or equal to 200 MW, 35 failed to recover their avoidable costs and another 52 were close to not recovering those costs.  Therefore, in PJM, a region covering 13 states and DC, in addition to approximately 10 GW of coal generation that has or will be retired during the seven years from 2004 to 2011, another 11 GW faces a troubling economic outl ook.  As such, the units’ economics already place them at risk of shutdown, regardless of EPA’s futur e air regulations.

In reducing the air pollution emissions from some o f the nation’s most inefficient uncontrolled units, EPA will facilitate the development of cleaner, more ef ficient generation while improving air quality and reducing greenhouse gas emissions.  The current lev els of air pollution in certain regions of the coun try require industrial facilities and power plants to o btain emission offsets to expand their operations. This requirement discourages economic development due to the increased permitting and financial obligations compared to areas that meet federal and state air q uality standards.  Significantly as well, as shown in Figure 7, because these non­attainment areas are concentra ted in highly populated areas, reducing emissions t here will facilitate the development of cleaner, more ef ficient generation near electric load centers where it is
needed most.

Additionally, the retirement of generating capacity that has been previously supported by transmission investment could create room on the transmission gr id to handle power flows both within and outside th e regions, or the addition of new generating capacity , without requiring attendant transmission upgrades

. These considerations, too, will help mitigate relia bility concerns and reduce the cost of upgrading th e nation’s power system infrastructure.

Figure 7 – Worst Air Pollution Near Population Cent ers

54 PJM, State of the Market Report , Vol. 1, March 11, 2010, p. 21.

55 Id. Vol. 2 at p. 176.

Counties in red are in
violation of one or more of the following
NAAQS in the periods 2003-2005, 2004-2006, and/or

2005-2007:

-1997 PM 2.5 -1997 Ozone

-2006 PM 2.5 New York Metro

Philadelphia

Washington, DC

Atlanta

Houston Dallas St. Louis

Chicago Detroit Cleveland

Pittsburgh 

### Counties Violating Air Quality

Standards in the Proposed Transport Rule Region

(based on 2003­07 air quality monitoring data)

Source: U.S. EPA (with city/urban center locations added by MJB&A)Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

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### 18 Analysis Group 

### A.  Statutory, Regulatory and Market Safeguards Exis t To Mitigate Risks of Retirement On Reliability

Assorted risk management procedures under the CAA, the Federal Power Act (“FPA”) and other statutes provide EPA, DOE, FERC, and the President tools to moderate potential impacts on electric system reliability.  The procedures serve as a bridge, if necessary, to a permanent solution, helping ensure reliability while minimizing exposure to harmful air pollutants .  EPA also has the authority to develop cost­effec tive regulatory approaches, such as the emissions tradin g mechanism proposed in the Transport Rule, that wi ll enable greater compliance flexibility and flexibili ty in managing potential reliability issues.

In addition to the EPA’s and President’s authority to extend deadlines for installation of pollution c ontrols described in Section II B, where necessary to maint ain electric system reliability, DOE has the power under Section 202(c) of the FPA to override CAA­derived c ontrol requirements in limited emergency circumstances.  In such emergency situations, inclu ding extended periods of insufficient power supply as a result of shortage of electric facilities, DOE has the discretion to issue unit­specific orders design ed to maximize CAA compliance and minimize health risks.

Two examples of DOE’s exercise of this authority il lustrate the point.  In 2003, the Secretary of Ener gy ordered energizing a new underwater cable connectin g New Haven, Connecticut to Long Island, which had previously been constructed but remained inoperable due to legal actions appealing permits.  Citing Au gust 2003’s massive electric service outage, the Secreta ry invoked his authority to alleviate the reliabili ty
emergency. 56



### DOE’s actions related to the Potomac River plant se rving Washington, DC provide another example.  In 2005, the plant’s owner, Mirant, had decided to shu t down all five generating units at its Potomac Riv er plant located outside Washington, DC.  The DC Publi c Service Commission requested that DOE issue an emergency order directing Mirant to continue to ope rate the units, as their shutdown would have
“immediate” and “drastic” effects on DC’s electric system reliability.  In conjunction with the EPA, w hich required Mirant to enter into a consent decree, DOE issued an Order 57 

### requiring Mirant to operate the plants under specific and limited circumstances tailored t o relieve the risk of a DC area blackout, while avo iding to the full extent possible exceedances of federal air quality standards.

The well­established consent decree template, as us ed to address the Potomac River situation, provides EPA yet another tool to synthesize reliability and envi ronmental concerns.  By restricting a unit to opera te for reliability purposes only, pending completion of an y required transmission upgrades or replacement generation, such consent decrees can maintain relia bility while minimizing adverse environmental impac ts to the fullest extent possible.

Many regional wholesale competitive markets also ha ve well­established forward capacity markets such a s PJM’s Reliability Pricing Model and New England’s F orward Capacity Market, which are approved by FERC and overseen by independent market monitors, t o facilitate and provide advanced notice of the

56 DOE, Order No. 202­03­2 , August 28, 2003. “I hereby determine that an emer gency continues to exist in the Northeast United St ates due to a shortage of electric energy, a shortage of faciliti es for [...] the transmission of electric energy and other causes. [...] On August 14, 2003, the Northeast and Upper Midwest areas in the United Sta tes, as well as portions of Canada, experienced the largest electric transmission grid failure and electric service outage ever to occur in North Amer ica.  Tens of millions of people were affected by t his outage, and it presented profound risks to the public health and safety throughout the affecte d areas. [...] Only hours after the outage occurred, and after considering the unanimous
recommendation of the North American Electric Relia bility Council, the New York Independent System Ope rator (NYISO), ISO New England, Inc. (ISO­NE), and electric utilities in both New York a nd Connecticut in support of the issuance of an eme rgency order, I issued an order directing the NYISO and ISO­NE to require the Cross­Sound Cable C ompany, LLC (CSC) to operate the Cross­Sound Cable and related facilities as necessary to alleviate the disruptions in electric transmission service.  The Cable was energized a short time ther eafter.”

57 DOE, Order No. 202­05­03 , December 20, 2005. 

## III. EPA, DOE, FERC A ND 

## S TATE 

## U TILITY 

## R EGULATORS 

## H AVE 

## T HE 

## T OOLS 

## T O 

## M ODERATE


## I MPACTS 

## O N 

## T HE 

## E LECTRIC 

## I NDUSTRY 

## A ND 

## M ANAGE 

## E LECTRIC 

## S YSTEM 

## R ELIABILITYEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 19 Analysis Group 

### retirement of inefficient units while maintaining r eliability.  Reliability impact studies are conduct ed for
units that have announced retirement or fail to cle ar the forward capacity auctions, and those identif ied as being needed for reliability may continue to operat e past their planned retirement date pursuant to “reliability must run” (“RMR”) agreements. To help ensure reliability while minimizing adverse environmental impacts, the RMR agreements can provi de the units operate only to maintain reliability. For example, Exelon Generation recently coordinated wit h PJM and the Pennsylvania Department of Environmental Protection (“PA DEP”) to negotiate a consent decree and operating procedures related to an RMR agreement for its two retiring coal units, whic h require the units operate for reliability purpose s only. 58



### In addition to these established ISO/RTO procedures , advance analysis in the long range reliability pl anning processes should lead to rational and timely invest ments in new transmission that will mitigate any se rvice reliability issues associated with future generatio n retirements.  The local transmission owners curre ntly play an important supplemental role in accomplishin g this objective.  For example, Commonwealth Edison (“ComEd”), the local transmission owner in Chicago, proactively filed an application with the Illinois

Commerce Commission 59 

### seeking permission to enhance its transmission sys tem.  In its application, ComEd noted the identified upgrades would be required to maintain system reliability in the event that two o f Midwest Generation’s at­risk coal units, Fisk and C rawford, were to retire. 60



### Procedures also exist to protect electric system re liability in regions where coal plants are not part of an organized wholesale competitive market, but are own ed by vertically­integrated utilities in traditiona lly regulated monopoly regimes.  Generators regulated b y state regulatory commissions have a legal obligat ion to reliably serve their customers, and to conduct l ong range resource planning.  Typically, generators will have many options to meet their statutory obligatio n to serve including, but not limited to:  (1) inve sting in existing plants; (2) building new plants; (3) decre asing load through DR and EE programs; (4) building transmission; or (5) a prudent combination of all t hose tools.  Too, state regulators may adopt ratema king policies to encourage such actions, including ones that address utilities’ financial disincentives whe re aggressive EE and DR programs would otherwise produ ce lower revenues.

As such, FERC and other relevant agencies have a nu mber of tools available to moderate the impacts of air emission regulations, while maintaining reliability and minimizing adverse environmental impacts. Moreover, EPA is also developing new water regulati ons under Section 316(b) of the Clean Water Act (“CWA”), new waste regulations, and greenhouse gas regulations affecting the electric power sector.  E PA should consider efficiently coordinating these rule s as it moves forward with its rulemakings to avoid possible reliability concerns.

58 Commonwealth of Pennsylvania Department of Environm ental Protection v. Exelon Generation Company, LLC.

, No. 382 MD 2010 (Pa. Cmmw. April 16, 2010) included in Operating Procedures for Cromby Generating Station Unit No. 2 and Eddystone Generating Station Unit N o. 2 as Required for Reliability Purposes at Appendix 1, http://pjm.com/planning/generation­ retirements/~/media/planning/gen­retire/must­run­op eratingprocedures.ashx (accessed August 6, 2010).

59 Commonwealth Edison Company, Application for authorization under Section 4­101 o f the Illinois Public Utilities Act (“Act”), 220 IL CS § 5/4­ 101, or alternatively, for a Certificate of Public Convenience and Necessity, pursuant to Section 8­40 6 of the Act, to install, operate and maintain two new 345,000 volt electric transmission lines in Cook County, Illinois , No. 10­0385 (Ill. Cir. June 11, 2010).

60 Direct Testimony of Thomas W. Leeming, p. 2, Lines 25­35.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 20 Analysis Group 

### Current industry practice and a review of applicabl e system data indicate the industry is well­positio ned to respond to EPA’s mission to “help millions of Ameri cans breathe easier and live healthier” without threatening electric reliability.  Generation plant capacity and availability, consumption levels and patterns, and transmission capacity and use must all be consi dered when judging the reliability impacts of environmental regulatory action.

The existing substantial excess capacity, the indus try’s proven track record to timely construct new generation and to efficiently coordinate the schedu ling of planned outages, together with capacity upg rades, transmission enhancements, “smart grid” investments , fuel conversions, DR, and EE, should mitigate reliability concerns.

The industry has already successfully employed thes e various strategies to reliably meet customers’ en ergy needs while reducing environmental impacts, and it will continue to do so in response to EPA’s new regulations.  As a final backstop, existing statuto ry, market and regulatory safeguards will facilitat e the retirement of inefficient units, and an orderly tra nsition to cleaner, more efficient generation. 

## IV.  C ONCLUSIONEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 21 Analysis Group 

### ATTACHMENT A

Sampling of Recent Announcements of Scrubber Instal lations

Plant Unit State Size (MW) Highlights

Brandon Shores 1 MD 643

Brandon Shores 2 MD 643 This significant environmental upgrade supports Con stellation Energy's environmental stewardship efforts by: Reducing Maryland's coal­fired power pl ant's SO 2 emissions by an estimated 95 percent; Reducing existing mercury emissions by 90 percent; and Significantly reducing acid gases. http://www.constellation.com/portal/site/constellat ion/menuitem.38d5d085b395c0cb2adedd10d661

66a0/
Kingston 1 TN 135
Kingston 2 TN 135
Kingston 3 TN 135
Kingston 4 TN 135
Kingston 5 TN 177
Kingston 6 TN 177
Kingston 7 TN 177
Kingston 8 TN 177
Kingston 9 TN 178 The two scrubbers added at Kingston will control su lfur dioxide from all nine boilers at the fossil plant, which can generate 10 billion kilowatt­hours of electricity per year.  "We now have state­ofthe­art control equipment on all of our units at Ki ngston, allowing us to generate the electricity needed by our customers," Kingston Plant Manager Le slie Nale said. "This translates into cleaner air in the Great Smoky Mountains and across the reg ion." http://www.tva.gov/news/releases/aprjun10/kingston_ scrubbers.html

Miller 3 AL 750

Miller 4 AL 750

Gaston 5 AL 861
Barry 5 AL 750 During peak construction, Alabama Power’s $1.7 bill ion scrubber initiative was responsible for creating more than 2,300 jobs.  “This investment is not only good for the environment, it’s also good for Alabama’s economy,” Charles McCrary, Alaba ma Power president and CEO, said. http://southerncompany.mediaroom.com/index.php?s=43 &item=2074

Coffeen 1 IL 340

Coffeen 2 IL 560 “Our investment in these technologies reflects our commitment to environmental stewardship and our support for the communities we serve,” says Chu ck Naslund, AER chairman, president and chief executive officer. “Through these projects, w e have not only offered continued permanent employment to hundreds of Illinoisans, but we have also provided jobs to contract employees who call Illinois home. Clearly these projects have had a positive impact on the economies of central and southern Illinois – areas hard­hit by tough economi c conditions.” http://www.bloomberg.com/apps/news?pid=conewsstory& tkr=AEM:SP&sid=a.W8.1491R8g

Cardinal 1 OH 600

Cardinal 2 OH 600

Cardinal 3 OH 630 According to Buckeye Power, one of the owners of th e Cardinal Plant, “the addition of these scrubbers means the Cardinal plant is able to reduc e emissions while using Ohio coal, meaning jobs and economic benefits for eastern Ohio and the regi on.”  The unit 3 scrubber is still under

construction. http://www.buckeyepower.com/pages/buckeye­power­2

Monroe 4 MI 775

Monroe 3 MI 795 DTE Energy will also be installing two additional F GD systems at Monroe units 1 and 2. According to DTE, “the $600 million project will cr eate 900 jobs and be one of the largest construction projects in Michigan over the next few years.” http://www.prnewswire.com/news­releases/dte­energy­ environmental­project­will­create­900­jobs78770632.html

Cliffside 5 NC 550 According to Duke, the scrubber control installatio n at Cliffside Unit 5 will be completed by the Fall of 2010.  Duke already has emission­control sc rubbers on all its large Carolinas coal plants— Allen, Marshall and Belews Creek.  According to Duk e spokesman Andy Thompson, Duke has reduced its NOx emissions by 80% since 1997 and SO2 emissions have fallen 70% since 2005. http://www.bizjournals.com/charlotte/blog/power_cit y/2010/07/duke_energy_assessing_new_epa_r
ules.html

Bowen 1 GA 713 Scheduled for completion in early 2010, according t o Georgia Power. http://www.georgiapower.com/pluggedin/construction_ 2009_08.asp

Crist 6 FL 302

Crist 7 FL 477 According to Gulf Power, since 1992, the company ha s reduced regulated emissions by more than 70 percent despite increased electricity demand fro m 120,000 new customers.  With the scrubber system fully operational, Gulf Power will have redu ced overall regulated emissions by more than 85 percent since 1992. http://www.renewablesbiz.com/article/09/12/gulf­pow er­begins­scrubber­startup Clifty Creek 1 IN 217 Clifty Creek 2 IN 217 Clifty Creek 3 IN 217 Clifty Creek 4 IN 217 Clifty Creek 5 IN 217 Clifty Creek 6 IN 217 Kyger Creek 1 OH 217 Kyger Creek 2 OH 217 Kyger Creek 3 OH 217 Kyger Creek 4 OH 217 Kyger Creek 5 OH 217 "The addition of these FGD systems represents a maj or commitment to environmental quality in southeastern Ohio and southeastern Indiana," said D avid L. Hart, vice president and assistant to the president of OVEC­IKEC. "The projects will also pro duce an economic boost to the two regions." The scrubber installations at Clifty Creek and Kyge r Creek are scheduled for completion in 2010. http://www.prnewswire.com/news­releases/ovec­ikec­t o­invest­820­million­for­environmentalcontrols­at­kyger­creek­and­clifty­creek­power­plan ts­56325052.htmlEnsuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 22 Analysis Group Plant Unit State Size (MW) Highlights

Chalk Point 1 MD 342

Chalk Point 2 MD 341
Morgantown 1 MD 624
Morgantown 2 MD 620

Dickerson 1 MD 182

Dickerson 2 MD 182

Dickerson 3 MD 182 "We are making a major investment in emission reduc tion technologies," said Edward R. Muller, Mirant chairman and CEO. "This equipment offers an excellent solution for substantially improving air quality while maintaining system reliability an d efficient power generation for consumers and
businesses." http://investors.mirant.com/releasedetail.cfm?relea seid=351567

Brunner Island 1 PA 344

Brunner Island 2 PA 397

Brunner Island 3 PA 754 According to PPL’s website, “[t]he unit’s scrubber is now operating as designed, thanks to plant employees who safely made the final connections bet ween the plant and the scrubber during a recent maintenance outage.” http://www.pplweb.com/ppl+generation/ppl+brunner+is land.htm Hatfields Ferry 1 PA 530 Hatfields Ferry 2 PA 530

Hatfields Ferry 3 PA 530 According to an Allegheny Energy fact sheet, “[t]he ‘scrubbers’ will remove approximately 95 percent of the sulfur dioxide (SO 2 ) emissions and significantly reduce mercury emissi ons from the station...In addition to improving the environment, t he scrubber system will enable Hatfield’s Ferry to purchase more local coal, which will preserve re gional coal mining and related coal mining support jobs.  The project will bring approximately 350 construction jobs to the region for a period of about three years.  Additional full­time positio ns will be added to operate and maintain the
scrubbers.” http://www.alleghenyenergy.com/Newsroom/Scrubber.Ha t.2page.pdf

Hudson 2 NJ 583

Mercer 1 NJ 315

Mercer 2 NJ 310 According to PSEG Power, advanced emissions control s would be installed at Hudson by 2010. Scrubbers at its Mercer plant are scheduled for com pletion in late 2010, http://www.reuters.com/article/idUSN145007212008051 4

Source: MJB&A analysis.Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability | Aug ust 2010

M. J. Bradley & Associates LLC 

### 23 Analysis Group 

### ATTACHMENT B

Recent Coal Plant Retirement Announcements

Source: MJB&A analysis based on U.S. EPA Acid Rain Program database and U.S. EIA File 860. Name Owner State Installed Capacity (MW) Age (years) Advanced SO 2 /NOx Controls

Weatherspoon Progress Energy NC 48 60 None

Weatherspoon Progress Energy NC 49 59 None

Weatherspoon Progress Energy NC 76 57 None

L V Sutton Progress Energy NC 93 55 None

L V Sutton Progress Energy NC 102 54 None

L V Sutton Progress Energy NC 403 37 None

H F Lee Progress Energy NC 74 57 None

H F Lee Progress Energy NC 77 58 None

H F Lee Progress Energy NC 248 47 None

Cape Fear Progress Energy NC 172 51 SNCR

Cape Fear Progress Energy NC 144 53 SNCR

Cameo Xcel Energy CO 54 49 None

Arapahoe Xcel Energy CO 47 58 None

Arapahoe Xcel Energy CO 121 54 None

Wabash River Duke Energy IN 95 53 None

Wabash River Duke Energy IN 85 55 None

Wabash River Duke Energy IN 85 56 None

Wabash River Duke Energy IN 85 54 None

Wabash River Duke Energy IN 318 41 None

John Sevier TVA TN 176 53 SNCR

John Sevier TVA TN 176 52 SNCR

John Sevier TVA TN 176 54 SNCR

John Sevier TVA TN 176 54 SNCR

Cromby Exelon PA 144 55 SNCR + Scrubber

Eddystone Exelon PA 309 49 SNCR + Scrubber

Eddystone Exelon PA 279 50 SNCR + Scrubber

Richard Gorsuch American Municipal Power OH 50 59 None

Richard Gorsuch American Municipal Power OH 50 59 None

Richard Gorsuch American Municipal Power OH 50 59 None

Richard Gorsuch American Municipal Power OH 50 59 None

Indian River NRG Energy DE 82 53 None

Indian River NRG Energy DE 177 40 None

Jack McDonough Southern Co GA 258 46 None

Jack McDonough Southern Co GA 259 45 None

Hunlock UGI PA 50 51 None

Will County Midwest Generation IL 188 55 None

Will County Midwest Generation IL 184 55 None

Boardman Portland General Electric, Others OR 585 29 None

Howard Down Vineland Municipal Electric

Utility NJ 25 40 None

TOTAL 4,939

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