Air Quality Settlement with Tennessee Valley Authority Before the Environmental Management Commission Presentation by James C. Gulick, Senior Deputy Attorney General May 12, 2011

Agreement Announced April 14, 2011 Parties: EPA TVA North Carolina, Alabama, Tennessee and Kentucky The National Parks Conservation Association, Sierra Club and Our Children’s Earth Foundation

Format of Agreement Federal Facilities Compliance Agreement (“FFCA”) TVA and EPA Federal Consent Decree Plaintiffs: NC, AL, KY, TN, National Parks Conservation Association, Sierra Club and Our Children’s Earth Foundation Defendant: TVA

Public Comment Comment period ends May 20, 2011 If comments do not warrant change in FFCA, parties will ask Court to enter Decree as is If Court enters Decree, Decree is final and effective

TVA’s Plants

Background 1999: EPA alleged numerous violations by TVA of CAA New Source Review (NSR) program Ordered TVA to comply with NSR requirements Pollutants at issue: SO2, NOX and particulates 2004: U.S. Court of Appeals dismissed EPA’s orders on procedural grounds Effectively barred EPA from pursuing case any further

NC Clean Smokestacks Act 2002: NC enacted the Clean Smokestacks Act Requires Duke and Progress to reduce SO2 and NOX emissions SO2: 130,000 ton combined cap by 2013 NOX: 56,000 ton combined cap by 2009 §10: Directs State to use “all available resources” to effect similar reductions from sources in other States, “including the Tennessee Valley Authority”

Carrying Out Section 10 Negotiation CAA §126 Petition (and associated law suits) Challenge to EPA’s Clean Air Interstate Rule EPA is poised to significantly strengthen its regional interstate SO2/NOX pollution program next month Clean Air Transport Rule

Public Nuisance Action Against TVA Jan. 2006: AG sued TVA alleging that emissions of SO2 and NOX from TVA’s coal-fired power plants were a public nuisance Jan. 2009: U.S. District Court found that TVA’s four power plants located within 100 miles of NC were creating a nuisance in NC Kingston, John Sevier, Bull Run and Widows Creek Established schedule for TVA to install state-of-the-art controls and set emission limits

Appeal & Negotiations Dec. 2009 NC, TVA, EPA and other parties began negotiations to reach a global settlement of a variety of air quality claims against TVA Appeal of nuisance judgment pending July 2010: U.S. Appeals Court reverses District Court ruling Feb. 2011: NC seeks Supreme Court review Negotiations continue throughout

The Agreement Structure: Scope: Agreement will resolve the claims of: The FFCA and the Decree are interrelated Contain virtually identical substantive terms Scope: Agreement will resolve the claims of: NC (public nuisance action, NSR claims and the §126 Petition with respect to TVA) NSR claims of EPA, regulating States and NGOs

Emission Limits Cap emissions of SO2 and NOX from all eleven TVA facilities in the aggregate Caps would decline annually until reaching the final cap in 2019

2019, and each year thereafter 110,000 Calendar Year Tons of NOx Tons of SO2 2011 100,600 285,000 2012 2013 90,791 235,518 2014 86,842 228,107 2015 83,042 220,631 2016 70,667 175,626 2017 64,951 164,257 2018 52,000 121,699 2019, and each year thereafter 110,000

Control Requirements Every coal-fired unit (except some at Shawnee in SW KY) must: Be controlled with SCR and scrubber; Be repowered to burn biomass; or Be retired Unlikely that TVA would repower more than 1 or 2 units to biomass Agreement establishes specific dates for control of each unit

“100-Mile Plants” TVA’s John Sevier, Bull Run, Kingston and Widows Creek plants are within 100 miles of NC Were focus of Judgment in nuisance case Under the Agreement, the 100-mile plants would be among the first to be controlled or retired

Kingston & Bull Run Since the trial of the nuisance suit, TVA has completed pollution controls (SCRs and scrubbers) on all 10 units at Kingston and Bull Run Agreement would require those controls (and all other existing or new controls) to be operated at all times that the unit’s boiler is operating

John Sevier Idle all 4 units by 12/31/2012 TVA would be allowed to bring 2 units online if they are controlled (by SCRs and scrubbers) or repowered by 12/31/2015. The other 2 units to be retired permanently Nuisance judgment required controls on all four units by the end of 2011 TVA is constructing a natural gas plant at John Sevier site to replace lost power generation

Widows Creek TVA to be required to shutdown the 6 smaller, uncontrolled units on a staggered schedule beginning 7/31/2013 and ending 7/31/2015 Controls on the 2 larger units have been upgraded Nuisance judgment required controls on all units by the end of 2013

Other Plants Johnsonville Huge, old, uncontrolled After the 100-mile plants, Johnsonville has greatest impact on NC among other TVA plants Will be required to be shutdown entirely on a staggered schedule beginning 12/31/2015 and ending 12/31/2017 Colbert, Gallatin, Paradise, Allen and Cumberland: SCR/scrubber, repower or retire

Comparison to Clean Smokestacks Nature of Remedy: Systemwide cap – same as Clean Smokestacks Act (CSA) Level of Control and Timing: The TVA remedy takes longer to achieve but: Level of TVA cap is lower than CSA (adjusted for system size) TVA is required to control or shutdown virtually all units TVA remedy is substantially equivalent to CSA

Comparison to Nuisance Judgment Judgment would likely have resulted in lower emissions of SO2 and NOX for only a few years By no later than 2015 and continuously thereafter, emissions under the Agreement lower than under the Judgment Cumulative emissions are particularly important for ecological impacts Agreement’s SO2 and NOX caps even lower than those NC requested at trial

Mitigation TVA to spend $290 million on environmental mitigation projects to address emissions impacts Most of the money to be spent on energy efficiency and renewable energy projects TVA to pay $60 million to NC, AL, KY and TN to implement projects of the States’ choosing from broad categories of energy efficiency and renewable energy projects listed in the Decree NC to receive $11.2 million

Emissions Allowances TVA required to retire all SO2 and NOX marketable pollution credits, whether under the Acid Rain Program, the NOX SIP Call or any other program, that result from emission reductions required by the Agreement Similar to Clean Smokestacks Goes beyond Judgment in nuisance case

Relinquishment of Claims All plaintiffs (incl. NC) release all NSR, New Source Performance Standard (NSPS) and minor NSR claims (including follow-on Title V claims) that pre-date the Agreement All plaintiffs (incl. NC) release NSR, NSPS, minor NSR and follow-on Title V claims that post-date the Agreement only if those claims are based on specific actions required by the Decree (e.g., installation of a scrubber)

Relinquishment of Claims (cont’d) Because the Agreement fully meets NC’s objectives, upon final entry of the Consent Decree, NC to: withdraw its petition for Supreme Court review of the nuisance case withdraw its §126 Petition with respect to TVA’s facilities

Benefits of the Agreement The air quality benefits of the Agreement to NC will be very great by the time it is fully implemented. These include: Substantial health benefits Environmental benefits of reduced acid deposition and improved visibility Economic benefits

Estimating Benefits NC did not estimate the benefits of the emission reductions under the Agreement specifically, but Reductions under the Agreement exceed the reductions that NC sought in the nuisance case and that NC’s experts modeled for trial Benefits from reductions sought at trial meticulously estimated

Area with at Least 40 Days Perceptible Visibility Improvements with Additional TVA Controls (Modeled for Trial)

Acid Deposition At high concentrations, dissolved inorganic aluminum hinders the uptake of water and nutrients by tree roots Documented at NC Class 1 areas and at Mt. Mitchell Likely occurring in other State parks and natural areas in NC mountains Alters high-elevation forest soils Accelerates leaching losses of calcium and magnesium Increases concentrations of dissolved inorganic aluminum in soil waters

Acid Deposition (cont’d) NC’s trial experts demonstrated that reductions in emissions will benefit mountain soils and vegetation Because reductions under the Agreement exceed NC’s proposed remedy in the nuisance case, significant benefits are expected TVA required to give $1 million each to National Park Service and Forest Service to improve, protect, or rehabilitate park and forest lands that have been injured by emissions from TVA's plants

Economic Benefits Direct payment of $11.2 million over five years for projects in NC Significant health care costs avoided Benefits to tourism industry from improved visibility in NC Mountains

Summary Comprehensive settlement of claims against TVA Not final until after public comment period Fully implements CSA §10 regarding TVA Significant benefits to NC public health, environment and economy