Welcome to “Air Quality Regulation: Developments, Trends, and Impacts to Energy Generation in Florida,” a free webinar presented by the Energy Committee of the Environmental and Land Use Law Section of The Florida Bar. Our featured speakers today are Brian Accardo, Director of DEP’s Division of Air; Robert Manning, Hopping Green & Sams, PA; and Mike Kennedy, Progress Energy. PROGRAM PRESENTED BY THE ENERGY COMMITTEE OF THE ENVIRONMENTAL AND LAND USE LAW SECTION OF THE FLORIDA BAR

Brian J. Accardo Director, Florida DEP’s Division of Air 2600 Blair Stone Road, MS 5000 Tallahassee, Florida Phone: Brian is the director of the Florida Department of Environmental Protection’s Division of Air Resource Management. In this role, he leads the State of Florida’s efforts to responsibly manage its air resource. In addition to developing and implementing statewide regulatory policy, he oversees the monitoring of ambient air quality, permitting and compliance of emission sources, and siting and licensing of power-generation and transmission

Robert A. Manning Hopping Green & Sams 119 S. Monroe Street, Ste. 300 Tallahassee, Florida Phone: A native Floridian, Robert Manning has been practicing environmental law with Hopping Green & Sams since Robert’s practice focuses primarily on air quality-related issues, including policy development, legislation, rulemaking, permitting and enforcement. Robert is past Chair of the Florida Bar’s Environmental and Land Use law Section and the Florida Section of the Air and Waste Management Association.

Mike Kennedy Manager of Environmental Affairs Progress Energy Florida P.O Box PEF 163 St. Petersburg, FL Phone: Mike has 34 years of experience in environmental regulations, permitting, modeling, and compliance. This includes 12 years in air quality planning, permitting, and regulation development with the Indianapolis Air Pollution Control Division and 22 years in permitting, compliance, strategic planning and environmental policy with the electric utility industry. He currently works as Progress Energy Florida’s corporate environmental policy liaison with State agencies such as the DEP, water management districts, and the Public Service

Air Quality Regulation: Developments, Trends, and Impacts to Energy Generation in Florida Brian Accardo, Director Division of Air Resource Management ELULS Webinar February 27, 2013

6 Presentation Outline Florida Air Program Update Ambient Air Quality Standards Cross-State Air Pollution Regional Haze

7 Division of Air Resource Management

8 Florida Air Program Successes Florida’s air quality monitoring network covers 90% of Florida’s population. NO x emissions from power plants have decreased 80% since 2000; SO 2 emissions have decreased 75%. Time to process air permit applications has decreased 42% since Florida reducing emissions fees by 10%.

9 National Ambient Air Quality Standards

10 National Ambient Air Quality Standards Carbon Monoxide Final Rule, 76 Fed. Reg. 54,294 (Aug. 31, 2011) Lead Final Rule, 73 Fed. Reg (Nov. 12, 2008) Nonattainment SIP submitted to EPA (June 2012, Feb. 2013) Nitrogen Dioxide Am. Petroleum Group v. EPA, No (D.C. Cir.)(July 17, 2012)

11 NAAQS - Ozone Ozone Final Rule, 73 Fed. Reg. 16,436 (Mar. 27, 2008) Proposed Rule, 75 Fed. Reg. 2,938 (Jan. 19, 2010) EPA Withdraws Draft Final Rule, September 22, 2011 EPA Proposed Standard Expected in 2013, Final in 2014

12 NAAQS - Ozone

13 NAAQS – Particulate Matter Particulate Matter Final Rule, 78 Fed. Reg. 3,086 (Jan. 15, 2013) Annual PM 2.5 standard strengthened from 15 to 12 ug/m 3

14 NAAQS – Particulate Matter

15 NAAQS – Sulfur Dioxide Sulfur Dioxide Final Rule, 75 Fed. Reg. 35,520 (June 22, 2010) Florida Nonattainment Recommendations, June and Nov EPA “120-day” Letters Concurring with Recommendations, Feb EPA Formal Designations, June 2013 Submit nonattainment SIP, Dec Attain Standard by June 2018

16 Cross-State Pollution – CAIR Clean Air Interstate Rule Final Rule, 70 Fed. Reg. 25,162 (May 12, 2005) North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), modified on rehearing, North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008)

17 Cross-State Pollution – CSAPR Cross-State Air Pollution Rule Proposed Rule, 75 Fed. Reg. 45,210 (Aug. 2, 2010) Final Rule, 76 Fed. Reg. 48,208 (Aug. 8, 2011) EME Homer City Generation v. EPA, No (D.C. Cir.) Order granting Motion to Stay, December 30, 2011 Vacated, Aug. 21, 2012 Petition for Rehearing Denied, Jan. 24, 2013

18 Regional Haze – CAIR era Regional Haze Rule 64 Fed. Reg. 35,714 (July 1, 1999) Develop plans to attain “natural visibility conditions” in national parks and wilderness areas by 2064 Require Best Available Retrofit Technology (BART) CAIR is “better-than-BART” 70 Fed. Reg. 39,104 (July 6, 2005) Regional Haze State Implementation Plan (SIP) August 2010

19 Regional Haze – CSAPR era CSAPR “replaces” CAIR, Oct Proposed Limited Disapproval of SIP, 77 Fed. Reg. 4,735 (Jan. 31, 2012) CSAPR is “better-than-BART”, 77 Fed. Reg. 33,642 (June 7, 2012) Florida’s Regional Haze SIP Revision, Sept. 17, 2012 EPA Proposed Full Approval, 77 Fed. Reg. 73,369 (Dec. 10, 2012) Final Action Due July 2013

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21 Air Quality Regulation: Developments, Trends, and Impacts to Energy Generation In Florida Hopping Green & Sams ELULS Webinar 12:00p – 1:30p February 27, 2013

22 Hopping Green & Sams 119 S. Monroe Street Tallahassee, FL (850)

 Cooperative Federalism Trends ◦ CSAPR ◦ Other Examples  Sue-and-Settle Strategy ◦ GHG Regulation ◦ Excess Emissions 23

 EPA sets standards and states determine how best to implement ◦ State Implementation Plans (SIPs) are cornerstone 24

 Cross-State Air Pollution Rule (CSAPR) ◦ Addresses interstate transport in eastern US  Florida included based on modeled impact on Houston ◦ Final Rule published on August 8, 2011, to take effect on January 1,

 DC Circuit issued Stay on December 30, 2011 ◦ Vacated rule on August 21, 2012  Court held that EPA cannot set standard and issue FIP at same time 26

 Other Examples ◦ PSD for GHGs ◦ Regional Haze ◦ Excess Emissions ◦ Enforcement 27

 EPA sued for failure to act  EPA enters a Settlement Agreement establishing the substance and schedule for rulemaking 28

◦ Deadlines for EPA’s promulgation often extended, but EPA often uses Settlement to not extend public comment periods ◦ Intervention by affected industry can have standing issues 29

GHG Regulation  Initial Petition to regulate car’s GHG emissions  In 2003, EPA declined and DC Circuit upheld  In 2007, Supreme Court declared GHG a pollutant under CAA, and directed EPA to make an “endangerment finding”  In 2009, EPA did, and its new car rules triggered other CAA permitting requirements for stationary sources 30

GHG Regulation  Recent petitions for EPA to develop New Source Performance Standards (NSPS) and a National Ambient Air Quality Standard for CO 2  EPA proposed NSPS for utilities on April 13,

Excess emissions during Startup, Shutdown and Malfunction (SSM)  Sierra Club petitioned EPA to find that SSM rules in 39 states are inconsistent with the CAA and EPA guidance 32

 On February 22, 2013, EPA proposed a SIP Call for 36 (of 39) states ◦ Many of these state rules (including Florida’s) were approved by EPA over 30 years ago ◦ Also key example of federalism trend, because EPA is mandating how states must limit emissions 33

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New Federal Air Quality Regulations: Implications for the Electric Utility Industry Mike Kennedy Florida Environmental Affairs February 27, 2013

36 Mike Kennedy Manager of Environmental Affairs Progress Energy Florida Mike has 34 years of experience in environmental regulations, permitting, modeling, and compliance. This includes 12 years in air quality planning, permitting, and regulation development with the Indianapolis Air Pollution Control Division and 22 years in permitting, compliance, strategic planning and environmental policy with the electric utility industry. He currently works as Progress Energy Florida’s corporate environmental policy liaison with State agencies such as the DEP, water management districts, and the Public Service Commission.

Progress/Duke Energy 37 July 2, 2012 Merger Largest U.S. Electric Utility 50,000 MW Generating Capacity (FL: 10,000 MW) 7.1 million Customers (FL: 1.6 million) 104,000 sq. miles Service Area (FL: 20,000 sq. miles) Diverse mix of coal, oil, natural gas, nuclear, and hydro generating assets Progress Energy Florida name change to Duke Energy Florida in April 2013

Agenda – Impacts We Will Discuss Mercury and Air Toxics Standards (MATS) Regional Haze National Ambient Air Quality Standards (NAAQS) Greenhouse Gas (GHG) New Source Performance Standards (NSPS) Excess Emissions Regulation CSAPR Decision 38

MATS Rule Stringent new emissions standards for mercury, acid gases (measured as HCl), and non-mercury metals from coal- and oil-fired electric utility units. Compliance required by April 16, 2015, with the potential for 1-year extensions to install control equipment and/or to address reliability issues. Generally requires flue gas desulfurization (scrubber) and selective catalytic reduction (SCR) to comply (coal-fired units). 39

MATS Rule (cont’d) The combination of availability and low price of natural gas with the high cost of installing controls results in the tendency to retire coal-fired utility units. Example: Units 1 and 2 at Progress Energy’s Crystal River plant. ▫900 MW of total capacity ▫$1 to $1.5 billion to install controls ▫Currently plan to retire in 2015 to 2018 time frame – MATS rule is a major driver Overall result of MATS in combination with other rules will be a much greater dependency on a single fuel – natural gas. By narrowing the choices for electricity generation technology and fuel, the EPA is determining national energy policy. 40

Regional Haze Requires installation of Best Available Retrofit Technology (BART) on certain units. Other units affecting visibility may also need reductions. Mainly serves as a backstop to the MATS requirements for most affected units. ▫For Progress Energy, the BART permit requires the installation of SO 2 and NOx controls on Crystal River Units 1 and 2 by ▫Alternatively, the company may cease operation as coal-fired units by ▫MATS compliance requires similar controls by no later than April

NAAQS Two small areas proposed for nonattainment of SO 2 standard (portions of Hillsborough and Nassau Counties). ▫Remainder of the state will continue to be evaluated using monitoring and/or modeling analysis. ▫Additional controls or fuel switches may be required if additional nonattainment areas are identified. Revised ozone standard likely in 2014 ▫A tighter standard would result in additional required NOx reductions from several major sectors of the economy – utilities, transportation, manufacturing – with proportionate effects on consumer costs. 42

GHG NSPS Proposed standard corresponds to the emissions from a new natural gas combined-cycle combustion turbine. ▫Typical coal unit emits ~ 2,000 lb/MWh ▫Super-critical coal unit emits ~ 1,800 lb/MWh ▫Simple-cycle combustion turbine emits ~ 1,200 – 1,500 lb/MWh The proposed limit would eliminate new coal-fired units, unless they can incorporate yet-to-be-demonstrated carbon capture and storage (CCS) technology. The EPA’s 30-year average option is not viable. It assumes that CCS will be available in 10 years. ▫CCS is not demonstrated at utility scale – significant technical, legal, property rights, and liability issues must be resolved. ▫Utility planners are very unlikely to risk that CCS will be commercially-available (and cost-effective) in 10 years. 43

GHG NSPS EPA represents that “Because this standard is in line with current industry investment patterns, this proposed standard is not expected to have notable costs and is not projected to impact electricity prices or reliability.” ▫The agency is not taking into account that this proposal would further drive the industry toward placing most of its eggs in the natural gas basket. In setting the standard, EPA determined that NGCC is the Best System of Emission Reduction (BSER) ▫NGCC is not an emission reduction system; it is an electricity generation technology The NSPS program is not technology-forcing; standards are to be based on commercially-available technologies. 44

GHG NSPS – Potential cost Large potential cost for abandoning coal as a fuel for new power plants and relying too heavily on natural gas. ▫Depends greatly on the supply and cost of natural gas, which historically have been volatile. CCS likely to remain technically challenging and costly for many years. ▫Pilot projects show a 30% energy penalty ▫Many areas are unsuitable geologically Eventually, NSPS will apply to modified and reconstructed units as well as existing units. The existing unit standard may determine whether the current coal-fired fleet can remain viable. 45

Excess Emissions SIP Call Current Florida provisions recognize operational limitations of controlling emissions during startup, shutdown, and malfunction periods. More stringent federally-driven criteria would result in the need to install additional control systems, and/or would result in a number of new emissions limit violations. ▫Risk of additional cost from enforcement penalties. ▫Risk of third-party lawsuits. ▫Little benefit to environment; Florida currently complies with air quality standards in almost all areas. 46

CSAPR Decision Court vacatur leaves the Clean Air Interstate Rule (CAIR) in effect. Florida’s utilities have been complying with CAIR since Decision maintains status quo, so no additional compliance cost or impact to customers. 47

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