Presentation-2 TEP CPP Final Rule-11-18-15

November 2015

EPA’s Clean Power Plan (CPP)

Pima Association of GovernmentEnvironmental Planning Advisory Committee

Air Quality Subcommittee

Jeff YockeyManager, Environmental and Long-Term Planning

Three Rules Issued August 3, 2015

Final Standards of Performance for New Power Plants; 768 pages

– CO2 emission rates (lbs/MWh) for new, modified, and reconstructed Electric Generating Units (EGUs)

Final Carbon Pollution Emission Guidelines for Existing Power Plants (“Clean Power Plan”); 1,560 pages

– Best System of Emission Reductions (“BSER”) for existing EGUs

– Separate limits for steam EGUs and NGCC

– State specific goals based on proportional share

Proposed Federal Plan; 755 pages

– Model trading rules

– Rate-based (lbs CO2/MWh) and Mass-based (tons CO2/year)

1

Technical Support Documents

Regulatory Impact Assessments

Response to Comments

Final Standards for New Power Plants

Combustion Turbines – Likely TEP future resources– “Base load” 1,000 lbs/MWh-gross; 1,030 lbs/MWh-net (NGCC)

– Peaking units 120 lbs CO2/MMBtu; “clean fuel standard”

Modified Steam EGUs – Need to pay attention– “large modifications” – unit specific based on historical performance

– Ceiling consistent with “Reconstructed” limits

New Steam EGUs – Not in our future– 1,400 lbs/MWh-gross; Supercritical pulverized coal with 20% carbon

capture

Reconstructed Steam EGUs – Not in our past or future– 1,800 lbs/MWh for large units; 2,000 lbs/MWh for small units

2

What Arizona asked for, What we got

Relief from 2020

Relief from 2030

Equity across states

? State flexibility

Reliability Safety Valve

Glide Path

3

Relief from 2020

Relief from 2030

Equity across states

State flexibility

Reliability Safety Valve

40 year useful life

Other Major Revisions

Things we didn’t ask for, but can live with

– Building Block restructuring

– Uniform National Emission Rate

– Mass–Based Goals• Clean Energy Incentive Program (CEIP)

4

Other Major Revisions

Things we didn’t ask for and don’t want

– Tribal Compliance Requirements

– Proposed Allowance Confiscation

– Proposed Leakage Provisions

5

NavajoFour

Corners

Revised Building Blocks“best system of emission reductions”

Two Subcategories of Effected Sources

6

Building Blocks

Plant Efficiency Improvement

Re-Dispatch to Natural Gas

Renewable Energy

Energy EfficiencyX

National Performance Rates (lbs CO2/MWh)

Subcategory Interim Final

Fossil-fired Steam Plants 1,534 1,305

Natural Gas Combined Cycle 832 771

Uniform National Emissions Rate

254

771

1,989

1,305

-

500

1,000

1,500

2,000

2,500Lb

s/M

Wh

7

(Navajo Nation)

(Washington)

(5 states)

(3 states)

Narrower

band between

the highest

and lowest

State limits

Proposal

(State-specific Emission Rates)

Final

(Uniform National Emission Rates)

Rate-Based Goals

Affected units create Emission Rate Credits (ERCs) with each MWhor generation

𝐸𝑅𝐶𝑠 =(𝐸𝐺𝑈 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 − 𝐸𝐺𝑈 𝑟𝑎𝑡𝑒)

𝐸𝐺𝑈 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑× 𝐸𝐺𝑈 𝑔𝑒𝑛𝑒𝑟𝑎𝑡𝑖𝑜𝑛

Renewable energy and energy efficiency are the primary compliance toolsExisting natural gas combines cycle can quality for gas shift ERCs (GS-ERCs)– For incremental increase in generation over 2012

Trading of ERCs may be an option– With use of subcategorized standards– Only with other Rate-Based states

Clean Energy Incentive Program

10

Mass-Based Goals

EPA established mass-based goals for each state and tribal area

Proposed allocation of allowances based on 2010-2012 historical generation

Proposed set-asides to address leakage– Reduce the incentive to build new NGCC

– Output based set-aside

– Renewable energy set-aside

Facilitates trading of allowances in regional or national system

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Clean Energy Incentive Program

Eligible Projects– Located in or benefit a state implementing CEIP

– Commence construction (RE) or operation (EE) after submission of final plan

– During 2020-2021, either (a) generate metered MWh from any wind or solar resource or (b) result in quantified and verified electricity savings through demand side EE in low-income communities

Credits– EPA provides matching credits to state budget allocation

– RE: For every 2 MWh generated, 1 ERC from state and 1 ERC from EPA

– EE: For every 2 MWh generated, 2 ERCs from state and 2 ERCs from EPA

– For mass-based program, project receives ERC equivalent in allowances

UNS Energy Plants

13

Valencia

Tucson

Four Corners

Phoenix

Flagstaff

Prescott

CALIFORNIA

Navajo

Springerville

Black

Mountain

Sundt

Gila & Merchants

Coronado

Cholla

Apache

Luna

San Juan

NEW

MEXICO

Coal

Gas Combined

CycleGas Combustion

Turbine

Wind

Solar

Coal – No UNS Ownership

Clean Power Plan (CPP) Final Arizona Reduction Requirements

“Arizona’s step 1 interim goal of 1,263 pounds per megawatt-hour reflects changes EPA made to provide a smoother glide path and less of a “cliff” at the

beginning of the program. The “cliff” had been particularly significant for Arizona.” - EPA

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Baseline Emissions

1,453 lb/MWh

Interim 2020 Requirement735 lb/MWh

2030 Requirement702 lb/MWh

52% reduction

Proposed

CPP

2030 Requirement963 lb/MWh

Arizona

Solution

Final CPP

EPA AdjustedBaseline Emissions

1,552 lb/MWh

2030 Requirement1,031 lb/MWh34% reduction

Interim 2022 Requirement

1,263 lb/MWh

0

500

1000

1500

2000

2500

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Clean Power Plan Navajo Nation CO2 Reduction Requirements

Baseline Emissions

2,121 lb/MWh Interim 2022 Requirement

1,671 lb/MWh


Final CPP


Proposed

CPP

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Clean Power Plan New Mexico CO2 Reduction Requirements

Baseline Emissions

1,586 lb/MWh


1,107 lb/MWh 2030 Requirement1,048 lb/MWh34% reduction

Final CPP

EPA AdjustedBaseline Emissions

1,798 lb/MWh



1,453 lb/MWh

Proposed

CPP

Markets and Trading

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Emission Rate

Credits

(ERCs)

MWh with zero

emission

Allowances

short tons CO2

10 Principles of an Arizona Response to the Clean Power Plan

18

1. Achieve meaningful emission reductions

2. Maintain grid reliability, with portfolio diversity

3. Maintain the affordability of electricity

4. Recognize and respect the roles and authorities of all branches of government

5. Respect current investments and try not to create stranded investments

6. Ensure that costs are equitably distributed

7. Create incentives for all consumer to positively change AND maintain their electricity usage behaviors

8. Take credit for existing programs that have resulted in measureable emission reductions

9. Phase-in the impacts of the Clean Power Plan over time to allow more precise and thoughtful implementation of its requirements

10. Work with other States or Tribes to make mutually beneficial emission reductions

Clean Power Plan Technical Work Group

Arizona Corporation Commission Arizona DOA Energy Office Arizona Electric Power Cooperative Arizona Public Service Arizona State University Environmental Defense Fund Freeport McMoRan Residential utility Consumer Office Salt River Project South Western Energy Efficiency Project (SWEEP) South Western Power Group Sun Devil Power Holdings The Ormand Group, LLC Tri State Generation and Transmission Cooperative Tucson Electric Power

19

Emission Standards and Trading Overview

20

Key Decisions

Final Federal Plan

– Allowance allocation

– Leakage Provisions

– Treatment of retired units

State Plan Decisions

– Rate vs Mass

– Allowance allocation

– Leakage Provisions

– Trading

– Treatment of retired units

– Submittal Timing

22

► Carbon Markets

– Size and diversity (liquidity)

– Pricing

– Trading Partners

► Litigation

Legal Challenges

Legal Challenges on Multiple Fronts– Judicial Requests to Stay the Final Rule– Administrative Requests to EPA to Stay the Final Rule– 26 Challenges Filed (113 Petitioners)

• Consolidated under West Virginia vs. EPA• 25 State and City Interveners; Six Industry Interveners

Two-track approach to challenges– Core legal issues

• Federal Overreach - Energy policy (not purview of administrative agency)• Certain Constitutional Challenges• Duplicate Regulation (§111 vs. §112)• Intrudes on FERC Regulatory authority (markets)• Consideration of cost• Regulating outside the “fenceline”

– Programmatic legal issues• Calculation of the national uniform emission rate standards • Technical concerns with new Building Blocks

23

Next Steps

Comments on Proposed Federal Plan– Published in the Federal Register October 23, 2015

– Comments due January 21, 2016

State Plan Development/ADEQ Stakeholder Process– Technical work group/Broader stakeholder meetings

– Initial State plan due September 6, 2016 (Final due September 6, 2018)

– Balancing coal, gas, renewables, efficiency

– Allowance trading options

Litigation is certain – outcome is not

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Clean Power Plan Timeline

25

State Implementation Plans (SIPs) are due September 2016 but can be extended to

September 2018 if requested.Compliance begins January 1, 2022

Resource Diversification StrategyTEP 2014 Integrated Resource Plan

27

2013 Portfolio Energy Mix Estimated 2020 Portfolio Energy Mix

Presentation-2 TEP CPP Final Rule-11-18-15

Documents

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