1 APPENDIX C

ENVIRONMENTAL MITIGATION PROJECTS

In compliance with and in addition t o the requirements in Section V.F (Environmental Mitigation Projects) of the Co mpliance Agreement

, TVA shall comply with the requirements of this Appendix to ensure that the benefits of the $ 29 0 million in total Project Dollars are achieved

.

I. Overall Environmental Mitigation Projects Schedule and Budget

A. TVA shall submit plans for review and approval pursuant to Section V.J ( Review and Approv al of Submittals) of the Compliance Agreement for the Environmental Mitigation Projects (“Projects’) described in this Appendix (except for actions required by Section V of this Appendix )

, within 120 days of the Effective Date of the Compliance Agreement

.

B. B eginning 120 days after the date EPA approves the plan and continuing semi

annually thereafter until completion of each Project (including any applicable periods o f de monstration or testing), TVA shall provide EPA with written reports detailing the activities undertaken and the progress of each Project, including an accounting of Project Dollars spent to date , and, if applicable, any GHG (expressed as carbon dioxide equ ivalent ( CO 2e ) )

, sulfur dioxide (SO 2 ), nitrogen oxides (NO

x ) and mercury (Hg) emission reductions and the metho dologies used

for those calculations

. TVA may consolidate the plans required by this Appendix into a single plan. For purposes of this Appendix, CO 2 e means the number of

metric tons of CO 2 emissions with the same global warming potential as one

metr ic ton of another Greenhouse G as, and is calculated using Equation A

– 1 of 40 CFR Part 98, Subpart A

.

C. W ithin 6 0 days fo llowing the final expenditure of Project Dollars for each Project required under the Co mpliance Agreement and this Appendix (including any applicable periods o f demonstration or testing), TVA shall submit to EPA a report
that documents the date tha t the Pr oject was completed, the emission reductions

or other environmental benefits resulting from the Project including TVA ’s methodology or analysis supporting these reductions and benefits, and the Project Dollars expended by TVA in implementing the Project.

D. Upon EPA ’ s approval of the plan s required by this Appendix, TVA shall complete the Environmental Mitigation Projects according to the approved plans. Nothing in the Co mpliance Agreement or this Appendix shal l be interpreted to prohibit TVA from completing the Environmental Mitigation Projects before the deadlines specified in the schedule of an approved plan

.2 E. Plan Revisions . Notwithstanding the submission and approval of a plan for these Projects as required by this Appendix , TVA reserves the right to su bmit to EPA for review and approval pursuant to Section V.J (Review and Approval of Submittals) a proposed amended plan if it identifies alternative Projects that have the potential for greater environmental benefits, are otherwise consistent with the

requ irements of this Section, and may be more cost

- effective than projects listed

herein or previously approved by EPA as part of the initial plan.

II.

A. No later than 12 0 days after the Effective Date of the Compliance Agreement TVA shall submit a plan to EPA for review and approval pursuant to Section V.J

of the Co mpliance Agreement (Review and Approval of Submittals) for the

reduction or avoidance of criteria pollutants, G reenhouse G ases ( GHGs )

, and

other air pollutants through the Energy Efficiency Projects

. The plan shall

describe how TVA will spend $2 4 0 million Project Dollars on Energy Efficiency Projects (Projects) within five years of the d ate of p lan a pproval

. The plan shall include a phased schedule for the redu ction of emissions and TVA’s expenditure s on these Projects . TVA may spread the payments for the E nergy Efficiency Projects evenly over five years from the d ate of p lan a pproval

. Energy Efficiency Project s

B

. Nothing in this Appendix is intended to preclude TVA from utilizing any GHG

reductions or avoided emissions achieved through implementation of the Energy Efficiency Projects to satisfy any future federal or state legislative or regulatory requirements requiring the avoidance, reduction or offset of GHG emis sions from

any TVA System Unit or plant

.

C

. TVA shall describe in the plan s submitted to EPA for review and approval how

TVA shall maintain the emission reductions associated with the P rojec ts it implements as part of the Energy Efficiency Projects

.

D

. The plan required to be submitted pursuant to this Section of this Appendix shall also satisfy the following criteria:

1. Describe how the proposed Projects in the plan are consistent with th e requirements of this Section and the Compliance Agreement , and how the Projects will result in the emission reductions projected to be reduced for GHGs (expressed in CO 2 e ) , SO 2 , NO

x and Hg pursuant to this Section.

2. Include a budget and schedule for completing the Energy Efficiency Projects on a phased schedule by five (5) years from the d ate of p lan

a pproval and the supporting methodologies and calculations for the budget

.

3. Describe the methodology and include any calculations that TVA proposes to use in order to document the emission reduct ions associated with any proposed P roject to be implemented as part of this Section

.3 E. Upon EPA’s approval of the plan, TVA shall complete the Energy Efficiency

P rojects according to the approved plan and schedule.

F. Energy Efficiency Projects Include :

1. Voltage Optimization (Transmission Loss Reduction)

. TVA will invest in

one or more Projects to improve the end

- to

- end efficiency of the power delivery system through optimization of system voltages or other similar approaches. An example project wou ld deploy advanced metering and control technology to provide real

- time measurement and optimization of
system voltages t o reduce transmission line losses, and reduce consumer energy consumption . B y optimizing distribution feeder voltages to the lower por tion of the A merican N ational S tandards I nstitute service range

, energy savings are estimated to be 2

- 3% of the total energy delivered

. TVA will spend $ 3 0 to 60 million in Project Dollars to implement this

P roject within five years from the d ate of p lan a pproval

.

2. Tennessee Valley Smart Energy C ommunities :

a) TVA will establish one or more “Smart Energy Communities ” in the Tennessee Valley Region to model the most efficient energy use processes and upgrades available. An example project would provide a range of energy efficiency technologies and the primary enabling elements of a smart grid (intelligent devices, two

- way communications, and information management) on a typical power distributor system to demonstrate the range of benefits that can be achieved from a smart grid deployment. Techno logy or efficiency applications could include : high efficiency air conditioning or water heating, lighting upgrades, smart meters, consumer interface/display devices, grid integrat ed renewable energy , energy storage, electric vehicle and vehicle charging, voltage optimization, and full characterization of the carbon impact of such a deployment. A component of “Smart Energy Communities”

could be the development of tools and resource s for educating consumers and communities on the benefits of such upgrades.

b) TVA will provide “Extreme Energy Makeover s” for at least two

communities of homes or residences located in at least two different climate regions in the Tennessee Valley

. This P r oject would retrofit a community of residences, such as low

- income housing, with the most cost

- effective energy

- reduction packages on actual homes and monitor the results, with a goal to achieve 25% energy use reduction . The estimated e nergy savings is 1, 000 MWh/yr at approximately $10/sq.ft.4 c) Within five years from the d ate of p lan a pproval

, TVA will expend $20 to $5 0 million in Project Dollars to implement these two Projects

.

3. Whole Home Efficiency Upgrade s : TVA will reimburse 50 percent of the

installation cost per item (with a targeted upper limit of $500 per household ) to home owners who invest in one or more of the following

items for their home : insulation; new ENERGY STAR heat pumps, air conditioning, and windows ; duct repair/replacement and sealing; or caulking, and weather

- stripping , and maintenance of existing H eating

Ventilation A ir C onditioning (HVAC) systems

. TVA and participating distributors of TVA power will also provide expert advice, financing, and lists of qualified weatherization and HVAC contractors to allow

homeowners to make the most cost

- effective improvements to lower their monthly energy bills. TVA will expend at least $ 45 to $ 50 million in Project Dollars within five years of the d ate o f p lan a pproval to implement

th ese Projects

.

4. Commercial Custom and Prescriptive Efficiency Assistance: TVA will provide incentives for commercial end

- users to invest in energy efficiency improvements to such systems as lighting, heating and cooling, and other technologies (e.g. refrigeration, food service, office equipment, etc.). TVA will fund energy audits and expert consulting services to collaborate with businesses to develop energy efficiency improvement plans aimed at making commercial faciliti es (e.g. schools, hospitals, office and government buildings, etc.) more energy efficient. TVA will offer custom incentives for site specific improvements resulting in calculated or directly measured energy and demand reductions and will offer a menu of

pr escriptive incentives for specified, pre

- approved types of efficiency upgrades to commercial building electric systems and equipment. Incentives will be structured to help commercial businesses shorten payback periods and move proposed projects to impleme ntation. TVA will expend $55 to $60 million in Project Dollars within five years of the date of p lan approval to implement this P roject.

5

. Industrial Custom and Prescriptive Efficiency Assistance: TVA will provide incentives for manufacturers to invest in energy

- efficient industrial process improvements (e.g., high

- efficiency motors, drives, compressed air, refrigeration, and lighting ). TVA will fund expert consulting services to collaborate with manufacturers to develop a portfolio of energy

- efficiency Projects aimed at making processes more energy efficient

. TVA will offer custom and prescriptive incentives for high

- efficiency equipment retrofits and process improvements. The

i ncentives wil l be structured to help manufacturers shorten payback periods and move proposed Projects to implementation. TVA will expend5 $45 to $50 million in Project Dollars to implement th ese Projects within five years of the d ate of p lan a pproval

.

III.

A. Within one hundred twenty (120) days from the Effective Date of this Compliance Ag ree ment

, TVA shall submit to EPA for review and approval pursuant to Section V.J (Review and Approval of Submittals) of this Com pliance Agreement: Clean Die sel Retrofit and Electric Vehicle Project s

1. A plan to retrofit in

- service non

- TVA publicly

- owned diesel engines (e.g

, municipal vehicles, public school vehicles, etc) with emission control equipment further described in this Section, designed to reduce emissions of particulates and/or ozone precursors (the “Clean Diesel Retrofit Project”) and fund the operation and maintenance of the retrofit equipment

for the time

- period described below.

2. TVA may also include a plan to replace in

- service non

- TVA publicly

owned motor vehicl es powered by diesel or gasoline engines with newly manufactured hybrid

- electric or electric vehicles (the “Electric Vehicle Project”). For purposes of this Appendix, “hybrid

- electric vehicle means a vehicle that can generate and utilize electric power to reduce the vehicle’s consumption of fossil fuel. Any hybrid

- electric or electric vehicle shall meet all applicable engine standards, certifications, and/or verifications required by law.

3. The Clean Diesel Retrofit Project and the Electric Vehicle Pro ject shall include, where necessary, techniques and infrastructure needed to support such retrofits and/or replacements. TVA shall ensure that the recipients operate and maintain the retrofit and/or replaced equipment for five years

from the date of insta llation/replacement, by providing funding for operation and maintenance as described in Section III.B.7., below.

4. TVA shall spend no less than $ 8 million in performing these Project s , and shall complete the Project s within five years of the date of pla n approval

. TVA shall limit the use of Project Dollars for administrative and project support costs (excluding educational materials) assoc iated with implementation of the s e project s to no greater than 10% of the Project Dollars TVA spends. A portion of t he funds allocated for administrative and project support may be used for training and travel to support the Project.

B. In addition to the requirements of Section I, the plan for the Clean Diesel Retrofit Project shall also satisfy the following criteria:

1. I nvolve vehicles based in the TVA service area.6 2. Provide for the retrofit of public diesel engines with EPA or California Air Resources Board (“CARB”) verified emissions control technologies to achieve the greatest measurable mass reductions of particulates and/or ozone precursors for the fleet of vehicles that participate(s) in the Clean Diesel Retrofit Project. Depending upon the particular EPA or CARB verified emissions control technology selected, the retrofit diesel engines

must achieve emis sion reductions of particulates and/or ozone precursors by 30%

- 90%, as measured from the pre

- retrofit emissions for the particular diesel engine.

3. Describe the process TVA will use to determine the most appropriate emissions control technology for each particular diesel engine that will achieve the greatest mass reduction of particulates and/or ozone precursors. In making this determination, TVA must take into account the particular operating criteria required for the EPA or CARB verified

emissions cont rol technology to achieve the verified emissions reductions.

4. Provide for the retrofit of diesel engines with either: (a) diesel particulate filters (DPF); (b) diesel oxidation catalysts (DOC); or (c) closed crankcase ventilation systems with either DPF or DOC.

5. Describe the process TVA will use to notify fleet operators and owners in TVA’s service territory that their fleet of vehicles may be eligible to participate in the Clean Diesel Retrofit Project and to solicit their interest in participating in the Project.

6. Describe the process and criteria TVA will use to select the particular fleet operator and owner to participate in this Project, consistent with the requirements of this Section.

7. For each of the recipient fleet owners and operators, describe the amount of Project Dollars that will cover the costs associated with: (a) purchasing the verified emissions control technology, (b) installation of the verified emissions control technology (including datalogging), (c) training costs associated with repair and maintenance of the verified emissions control technology (including technology cleaning and proper disposal of waste generated from cleaning), and (d) the incremental costs for repair a nd maintenance of the retrofit equipment (i.e., DPF, DOC, closed crankcase ventilation system) for five years from the date of installation, including the costs associated with the proper disposal of the waste generated from cleaning the verified emissions control technology. This Project shall not include costs for normal repair or operation of the retrofit diesel fleet.

8. Include a mechanism to ensure that recipients of the retrofit equipment will bind themselves to follow the operating criteria require d for the7 verified emissions control technology to achieve the verified emissions reductions and properly maintain the retrofit equipment installed in connection with the Project for the period beginning on the date the installation is complete through Dec ember 31, 2016.

9. Describe the process TVA will use for determining which diesel engines in a particular fleet will be retrofitted with the verified emissions control technology, consistent with the criteria specified in Section III.B.2.

10. Ensure that recipient fleet owners and/or operators, or their funders, do not otherwise have a legal obligation to reduce emissions through the retrofit of diesel engines.

11. For any third party with whom TVA might contract to carry out this Project, establish mini mum standards that include prior experience in arranging retrofits, and a record of prior ability to interest and organize fleets, school districts, and community groups to join a clean diesel

program.

12. Ensure that the recipient fleet(s) comply with lo cal, state, and federal requirements for the disposal of the waste generated from the verified emissions control technology and follow CARB’s guidance for the proper disposal of such waste.

13. Include a schedule and budget for completing each portion of the Project, including funding for operation and maintenance of the retrofit equipment through December 31, 2016.

C. In addition to the information required to be included in the report pursuant to Section I.C., above, TVA shall also describe the fleet o wner/operator; where it implemented this Project; the particular types of verified emissions control technology (and the number of each type) that it installed pursuant to this Project; the type, year, and horsepower of each vehicle; an estimate of the num ber of citizens affected (if applicable) by this Project, and the basis for this estimate; and an estimate of the emission reductions for Project or engine, as appropriate (using the manufacturer’s estimated reductions for the particular verified emissions control technology), including particulates, hydrocarbons, carbon monoxide, and nitrogen oxides.

D. In addition to the requirements of Section I, the plan for the Electric Vehicle Project shall also satisfy the following criteria:

1. Propose the replacement of conventional gasoline or diesel powered motor vehicles described in Section III.A. above with hybrid

- electric and/or electric vehicles operated in TVA’s service territory.8 2. Prioritize the public fleets in TVA’s service territo ry that will be selected for participation in this Project , including consideration of such issues as environmental justice and air quality

.

3. Describe the rational e and basis (including a discussion of cost) for selecting the make and model of the hybri d

- electric and/or electric

vehicles chosen for this Project, including information about other available hybrid

- electric or electric vehicles and why such vehicles were

not selected

.

4. Require the recipients of such hybrid

- electric or electric vehicles t o certify that the hybrid

- electric or electric vehicles will be used for their useful

life.

5. Describe the final disposition of the vehicles that are being replaced.

6. Include a schedule for completing the Electric Vehicle Project.

7. Describe ge nerally the expected environmental benefits of the Project, including any fuel efficiency improvements, and quantify emission reductions expected.

E. Upon EPA’s approval of the plan, TVA shall complete the Project s described in

this Section according to t he approved plan and schedule.

IV.

A. Within 120 days from the Effective Date of this Compliance Agreement TVA shall submit to EPA for review and approval pursuant to Section V.J (Review and Approval of Submittals) of this Compliance Agreement a plan for the reduction of GHG and other pollutants through the Clean/ Renewable Energy Projects listed

below. TVA shall spend no less than $ 4 0 million in Project Dollars performing

th e Clean/ Renewable Energy Projects listed below wit hin five years of the d ate of

p lan a pproval

. For purposes of this Appendix, “renewable energy” means energy from solar, wind, biogas, landfill gas, digester gas from wastewater treatment facilities, geothermal, hydrokinetic sources, renewable biomass, and biofuels derived from renewable sources, or incremental increases in hydro generation

after 1994. Clean/ Renewable Energy Projects

B. Nothing in this Appendix is intended to preclude TVA from utilizing any GHG

reductions or avoided emissions achieved through implementation of the

Clean/ Ren ewable Energy Projects to satisfy any future federal or state legislative or regulatory requirements requiring the avoidance, reduction or offset of GHG emissions from any TVA System Unit or plant.

C. TVA shall describe in the plans submitted to EPA for review and approval, how

TVA shall maintain the emissions avoided or reduced for the Projects it9 implements as part of the Clean/ Renewable Energy Projects.

D. The plan required to be submitted pursuant to this Section of this Appendix, shall also satisfy the following criteria:

1. Describe how the proposed Projects in the plan are consistent with the requirements of this Section and the Compliance Agreement,

and how the Projects will result in the emission re ductions projected to be reduced for GHGs (expressed in CO 2 e ) , SO 2 , NO

x and Hg pursuant to this Section.

2. Include a budget and schedule for completing the

Clean/ Renewable Energy Pro jects on a phased schedule, and the supporting methodologies and calculation s for the budget.

3. Describe the methodology and include any calculations that TVA proposes to use in order to document the emission reductions associated with any proposed P roject to be implemented as part of

this Section.

E. Upon EPA’s approval of the plan, TVA shall complete the Clean/Renewable Energy Projects according to the approved plan and schedule.

F. Clean/ Renewable Energy Projects Include

1. :

Waste Heat Recovery:

2. TVA will use its Advanced Lower Temperature Power Cycle (ALTPC) or other waste heat conversion technologies, to recover waste heat from an industrial process to generate approximately 5 MW of clean energy. TVA will expend $ 7

- $ 10 million in Project Dollar s within five years of

the d ate of p lan a pproval t o implement this P roject.

Electric Vehicle and Plug

- in Hybrid Electric Vehicle Solar Charging Stations

3. : TVA will develop and provide solar energy for vehicle battery re

- charging stations across the Tennessee Valley

. TVA will expend $ 1

- 3 million in Project Dollars within five years

of the d ate of p lan a pproval to implement this P roject

.

Solar Photovoltaic (PV) Installations :

4. TVA will install at least 5 00

kWs of solar PV at TVA facilit ies, TVA di rect serve customer
location s , or another government

- owned facility , and shall maintain them for a minimum of ten (10) years following approval of the plan

. TVA will expend $ 2

- 4 million in Project Dollars within five years of the d ate of p lan a pproval to implement this

P roject and secure these commitments

.

Landfill (or Wastewater Treatment) Methane Gas Capture and

Generation: TVA will enter l ong

- term power purchase agreement s10 to develop and secure the generation of approximately 10 MW of renewable power from landfill gas or digester gas from wastewater

treatment facilities. TVA will expend $ 16 to $30 million in Project

Dollars within five years of the d ate of p lan a pproval to implement

these Projects

.

V. Land and Ecological Re storation & Biological Carbon Sequestration

A. Within two hundred forty ( 240 ) days from the Effective Date of this Compliance Agreement, TVA shall pay $1 million to the National Park Service in accordance with the Park System Resource Protection Act, 16 U.S.C. § 19jj, to be used for the restoration of land, watersheds, vegetation, and forests using adaptive management techniques designed to improve ecosystem health and mitigate

harmful effects from air pollution. This may include reforestation or restoration of native species and acquisition of equivalent resources and support for collaborative initiatives with state and local agencies and other stakeholders to develop plans to assure resource protection over the long

- term. Projects will focus on one or more of the following Class I areas: Mammoth Cave National Park and Great Smoky Mountains National Park.

B. Instructions for transferring funds will be provided to TVA by the National Park

Ser vice. Notwithstanding Section V

. A of this Appendix, payment of funds is not due until ten (10) days after receipt of payment instructions. Upon payment of the required funds into the Natural Resource Damage and Assessment Fund, TVA

shall have no further responsibilities regarding the implementation of any project selected by the National Park Service in connection with this provision

.

C. Within two hundred forty (2 4 0) days from the Effective Date of this Compliance Agreement, TVA shall pay $1 million to the United States Forest Service in accordance with 16 U.S.C. § 579c, for the improvement, protection, or

rehabilitation of lands under the admin istration of the United States Forest

Service. Projects wi ll focus on one or more of the following Class I areas:

C o hu tta Wilderness Area, Linville Gorge Wilderness Area, Shining Rock Wilderness Area, Sipsey Wilderness Area, and Joyce Kilmer

- Slickrock

Wilderness Area.

D. Payment of the amount specified in the p receding paragraph shall be made to the Forest Service pursuant to payment instructions provided to TVA

. Notwithstanding Section V

. A of this Appendix, payment of funds by TVA is not due until ten (10) days after receipt of payment instructions. Upo n pay ment of the required funds, TVA shall have no further responsibilities regarding the implementation of any project selected by the Forest Service in connection with this provision.