1. EPA’s Final Clean Power Plan: Overview Steve Burr AQD, SIP Section September 1, 2015

2. Slide 2 Overview  Status  Review of Clean Power Plan Basics – Legal Basis – BSER Building Blocks  Major Changes from Proposal  Initial Submittal  Regulatory Framework Options  Clean Energy Incentive Program (CEIP)

3. Slide 3 CPP Status On August 3, 2015, EPA  Signed final CPP rule and published supporting documents: – http://www2.epa.gov/cleanpowerplan/clean-power- plan-existing-power-plants#CPP-final http://www2.epa.gov/cleanpowerplan/clean-power- plan-existing-power-plants#CPP-final  Signed final NSPS for new, modified and reconstructed EGUs: – http://www2.epa.gov/cleanpowerplan/carbon- pollution-standards-new-modified-and-reconstructed- power-plants http://www2.epa.gov/cleanpowerplan/carbon- pollution-standards-new-modified-and-reconstructed- power-plants  Proposed federal CPP rules for states that fail to submit a plan: – http://www2.epa.gov/cleanpowerplan/clean-power- plan-existing-power-plants#federal-plan http://www2.epa.gov/cleanpowerplan/clean-power- plan-existing-power-plants#federal-plan

4. Slide 4 Legal Basis  Clean Air Act § 111: Standards of Performance for New Stationary Sources (NSPS)  Section 111(b) requires EPA to: – List categories of stationary sources that EPA finds cause, or contribute significantly to, “air pollution which may reasonably be anticipated to endanger public health or welfare.” – Promulgate “standards of performance” for emissions of air pollutants from new sources in the listed categories

5. Slide 5 Legal Basis  Standard of Performance: § 111(a)(1) defines as a standard which – Reflects the emission limitation achievable from the “best system of emission reduction” (BSER) that – Taking cost, non-air quality environmental impacts and energy requirements into account – “the Administrator determines has been adequately demonstrated.”

6. Slide 6 Legal Basis  Section 111(d) – Requires EPA on adopting an NSPS to establish guidelines and procedure for regulating existing sources that would be subject to the NSPS if they were new. – The procedure must require states to submit a plan that “establishes standards for performance” (i.e. BSER) for covered existing sources – If a state fails to submit a 111(d) plan or EPA disapproves a submitted plan, EPA must establish a plan for the state (similar to FIP under 110(c)).

7. Slide 7 Legal Basis  NSPS – Proposed January 8, 2014 for GHG emissions from new fossil-fuel fired electric generating units (EGU) – Proposed June 18, 2014 for modified and reconstructed EGUs – Final rule for all 3 adopted August 3, 2015, same date as final CPP  CPP consists of 111(d) guidelines for same sources

8. Slide 8 BSER “Building Blocks”  Proposed BSER was based on “strategies, technologies and approaches already in widespread use by power companies and states”  Strategies include: – Measures to reduce the CO 2 emissions rate of individual generating units. – Measures to reduce the use of fossil-fuel fired generating units.

9. Slide 9 BSER “Building Blocks”  EPA proposed 4 “Building Blocks” (BB) as BSER: – BB1: Reduce carbon intensity of generation from coal-fired units through heat-rate improvements. – BB2: Shift generation from coal-fired and oil- and gas-fired steam turbines to natural-gas fired combined cycle (NGCC) units. – BB3: Increase reliance on renewable energy generation, which has zero CO 2 emissions. – BB4: Reduce demand for fossil-fuel fired generation by improving energy efficiency of electricity consumers.

10. Slide 10 BSER “Building Blocks”  State-Specific Goal Rates – Metric: lbs CO 2 / MWh – Based on application of BSER over 2020-2029 to state’s generation mix – Interim goal for 2020-2029 average – Final goal for 2030+ – Arizona 1453 baseline Assumed reduction to 778 by 2020 as result of BB2 735 interim goal (49 % reduction) 702 final goal (52 % reduction)

11. Changes from Proposal Proposal  Goals based on application of BSER to each state Final  Goals based on application of BSER to 3 regions: – Eastern Interconnection – Western Interconnection – Texas Interconnection  Goals based on least stringent rate for any region 11

12. Changes from Proposal Proposal  Single form of goal: state- specific rate Final  Multiple forms: – National uniform performance rates for 2 subcategories: NGCC and fossil fuel steam (FFS) – State goals based on performance rate and mix of generation – Mass-based goals 12

13. Changes from Proposal Proposal  Full application of BB2 by 2020 assumed – In AZ = complete retirement of coal generation by 2020 Final  Application of BB2 phased in beginning in 2022 13

14. Changes from Proposal ProposalFinal 14  Energy efficiency (BB4) included in BSER and used to calculate goal  BB4 no longer used to calculate goal, but may be used for compliance  Utility-scale RE in operation in 2012 + “at-risk” nuclear counted in goal calculation and compliance  Not counted for either purpose – Effect is a “wash”

15. Changes from Proposal Proposal  Wide range of state goal rates: – Lowest: 215 (WA) – Highest: 1989 (Navajo) Final  Narrower range of goal rates: – Lowest: 771 (3 states) – Highest: 1305 (5 states) 15  Arizona goals: – Interim: 735 (49 % reduction) – Final: 702 (52 % reduction)  Arizona goals: – 1,173 (24 % reduction) – 1,031 (34 % reduction)

16. Slide 16 Changes from Proposal

17. Proposal  Rate-to-mass conversion left to states  Trading allowed, but details unspecified Final  Rule establishes state mass- based goals  Trading requirements and limitations established in rule for various emission standard types 17

18. Changes from Proposal Proposal  “Portfolio approach”: federal enforceability of measures other than emission standards required Final  “State measures approach”: federal enforceability of measures other than emission standards not required; backstop required 18  No credit for early emission reductions; NODA sought comment  Clean Energy Incentive Program (CEIP) – Optional – Included in federal plan

19. Changes from Proposal Proposal  Plan submission deadline: 6/30/2016  If initial submittal: – 6/30/2017 deadline for single-state plans – 6/30/2018 deadline for multi- state plans Final  Plan submission deadline: 9/6/2016  If initial submittal: – 9/6/2017 update on progress – 9/6/2018 deadline for all plans 19

20. Slide 20 Initial Submittal  Must include – Identification of final plan approach or approaches, including a description of progress made to date – Explanation of need for additional time to submit final plan – Demonstration or description of Meaningful engagement with stakeholders, including vulnerable communities, during the initial submittal preparation period Opportunity for public comment on the initial submittal Plans for engagement during development of the final plan  9/6/2017 update on progress: must include commitment to one approach and draft or proposed legislation or regulations

21. Slide 21 Regulatory Framework Options  Goals – 2 Rate-Based Separate, nationally uniform, “performance rates” for fossil fuel steam (FFS) and NGCC State “rate-based CO 2 goals” based on application of performance rates to each state’s 2012 generation mix National Performance Rates (lbs CO­ 2 /MWh) SubcategoryInterimFinal Fossil Steam1,5341,305 NGCC832 771 Arizona Rate-Based Goals (lbs CO­ 2 /MWh) InterimFinal 1,1731,031

22. Slide 22 Regulatory Framework Options  Goals (cont’d) – 2 Mass-Based For existing EGUs only For existing EGUs with “new source complement” – State plan must demonstrate achievement of one of these goals Arizona Mass-Based Goals (short tons CO 2 ) Interim Final 33,061,997 30,170,150 Arizona Mass-Based Goals with New Source Complement (short tons CO 2 ) Interim Final 34,486,994 32,380,196

23. Slide 23 Regulatory Framework Options  2 plan types: – Emission standards Imposes requirements solely on affected EGUs in the form of federally enforceable emission standards Emission standards suffice to achieve goal – State measures May impose emission standards that partially achieve goal or no emission standards at all Measures other than emission standards must be enforceable at state level but do not become federally enforceable Must demonstrate compliance with mass-based goal Must establish backstop emission standards plan  Emission standard types (next page)

24. Regulatory Framework Options 24

25. Slide 25 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

26. Slide 26 Clean Energy Incentive Program  Credits – Allocated from state budget for 2022-2029 interim compliance period; EPA provides matching credits as the incentive for participation – RE Projects: For every 2 MWh generated, project receives 1 ERC from state and 1 matching ERC from EPA – EE Projects: For every 2 MWh generated, project receives 2 ERCs from state and 2 matching ERCs from EPA – For mass-based program, project receives ERC equivalent in allowances; in TSD EPA applies emission factor of 0.8 short tons CO­ 2 per MWh FF generation