BREAKING THE COAL HABIT Stefanie A. Brand, Director New Jersey Division of Rate Counsel 31 Clinton St., 11 th Floor P.O. Box Newark, N.J Phone: , Fax: Website: 1

Reducing our dependency on coal-fired generation is expensive and difficult but can be accomplished without too much economic pain. Reducing our dependency on coal-fired generation is necessary to address contributing factors to climate change and health impacts of certain pollutants. 2

New Jersey has made the transition over the last decade. Necessary to comply with Federal Clean Air Act Necessary to address health and environmental concerns 3

The entire State of New Jersey is non-attainment for 8-hour ozone standard Source: New Jersey Dept. of Environmental Protection 4

Urban areas are non-attainment for fine particulates Source: NJ Dept. of Environmental Protection 5

One county in NJ is nonattainment for Sulphur dioxide Source: U.S. EPA 6

Air Pollution Control Act, N.J.S.A. 26:2C-1 et seq. Enacted in 1954 and substantially amended in 1995 in response to the Clean Air Act. Authorizes NJDEP to promulgate rules to ensure compliance with CAA. Requires State of the Art pollution control technology for new or modified facilities. In November 2005, the DEP adopted a new regulation under the authority of New Jersey’s Air Pollution Control Act to classify CO2 as an air contaminant. 7

New Jersey Global Warming Response Act, N.J.S.A. 26:2C-37 to 26:2C-44 adopted statewide limits on greenhouse gas emissions in July The law mandates the statewide reduction of greenhouse gas emissions to 1990 levels by 2020, approximately a 20 percent reduction, followed by a further reduction of emissions to 80 percent below 2006 levels by

In 2000, NJ had 10 coal plants PSEG Mercer 1&2 PSEG – Hudson 2 City of Vineland Connectiv/Calpine Deepwater BL England 1 &2 Carney’s Point 1&2 PG&E Logan Unit 1 9

Reduction in coal-fired capacity was accomplished through a series of Consent Orders and Agreements: PSE&G Mercer and Hudson– Pursuant to 2006 Consent Order with NJDEP, installed pollution control equipment to reduce SO2, NOx, particulate, mercury and CO2 emissions. Modifications completed in City of Vineland – Converted to natural gas in 2012 after settling emissions violations from 2004 and 2008 Deepwater - After emissions violations in 2007 and 2008, sold by Connectiv to Calpine who agreed to burn only natural gas. 10

BL England 1&2 - Under 2012 Consent Order with NJDEP to resolve CAA violations by previous owners, will shut down of Unit 1 by fall 2013 and convert Units 2 and 3 (oil burning) to natural gas by May Carney’s Point – Cogeneration facility owned by PG&E, providing steam to DuPont Chambers Works plant. Installed state of the art pollution control equipment in Logan 1 – Cogeneration facility providing steam to Ferro Corp. Well controlled with state of the art pollution control equipment. Reduction in coal-fired capacity was accomplished through a series of Consent Orders and Agreements: 11

Source: NJ Energy Master Plan (final)

2011 Energy Master Plan Rejects New Coal Resources “Coal-fired power plants are also expensive to construct. In light of the reduction in natural gas prices and, to a lesser extent, the cost of emission allowances, energy produced from coal plants is no longer much less expensive than energy produced from new CC plants, or even old-style gas-fired steam turbine generators. Many coal plants in PJM have had to retrofit increasingly expensive emission control equipment to meet air quality requirements. Coal plants produce a significant portion of New Jersey’s greenhouse gas emissions. Some units are candidates for retirement; incentives for new generation are designed to shut down these older, dirtier, less efficient plants. While coal plants have historically produced reliability and economic benefits and have balanced the technology mix of generation resources in New Jersey, coal is a major source of CO2 emissions and New Jersey will no longer accept coal as a new source of power in the State. “ p. 79 (emphasis added). Calls for expansion of natural gas generation and renewables. 13

Other measures take to reduce coal plant emissions in NJ Litigation with upwind out-of-state facilities: See, e.g., United States v. Cinergy Corp., 458 F.3d 705 (7th Cir. 2006), United States v. American Electric Power Service Corp., 137 F.Supp. 2d 1060 (S.D. Ohio 2001 State of New Jersey v. RRI Energy Mid-Atlantic Power Holdings, LLC et al, (E.D. Pa. Dkt. No, 5:07-cv JKG ); Commonwealth of Pennsylvania, Dept. of Environmental Protection et al v. Allegheny Energy, Inc. et al, (W.D. Pa., Dkt. No. 2:05-cv-885. NJDEP filed under section 126 of the Clean Air Act to reduce the impact to New Jersey's air quality from the emissions generated by the Portland Power Plant in Pennsylvania. EPA granted the petition and required reduction in SO2 emissions by 81%. Petition is on appeal. Company has said they will close the plant in Rules implementing SIP require High Energy Demand Day (HEDD) units to achieve 60% reduction in NOx emissions or shut down by

Source: NJ Energy Master Plan (final)

Impact on prices has not been drastic Source: NJ Energy Master Plan (final)

Source: NJ Energy Master Plan (final)

Impact of EPA rules GAO Report: exact costs unknown but likely to be significant (.1% to 13.5%) in some areas. GAO , Jul 17, Brattle Group October 2012 Discussion Paper: impact on wholesale prices will be “not very large“ and “transitory.” No matter how the costs are characterized, it is not disputed that it will be costly to retrofit/replace existing coal units. 18

EPA maintains cost/benefit is there According to GAO report, EPA projected annual compliance costs of $10.2 billion for MATS and $853 million for CSAPR. EPA maintains there will be annual benefits of $150 to $380 billion, including avoiding 18,000-46,000 premature deaths each year. 19

Impacts can be mitigated Time for compliance. Cost recovery mechanisms (regulatory asset, amortization). Closure of uneconomic plants. New natural gas plants operate efficiently, e.g. BL England will generate the same amount of MW with two gas fired units instead of 3. Natural Gas prices at historic low. Impacts of doing nothing could be worse… 20

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