1. Meeting the Need for Reliable Electricity Post-SONGS 1 Mohsen Nazemi P.E. Deputy Executive Officer South Coast Air Quality Management District California Desert Air Working Group 2014 Conference Pala, California October 8 & 9, 2014

2. What is South Coast Air Quality Management District? Local Air Pollution Control Agency in Southern California (All of Orange & Non-Desert Portions of LA, Riverside & San Bernardino Counties) Population of 16.4 million (about half of State’s population) Worst air quality in the nation (Ozone & PM 2.5) Receives and Processes about 9,000 permit applications annually Regulates over 27,000 stationary sources 2

3. SCAQMD’s Role/ Responsibility in Permitting Power Generation Local Air Quality Permitting Agency Primary Permitting Authority for Power Generation for less than 50 Megawatts (MW) Co-Permitting Authority for thermal Power Generation projects of 50MW or greater CEC has Primary Licensing and CEQA Lead Agency Authority/ Responsibility (AFC Process) SCAQMD has Authority/ Responsibility to issue Federal Permits (Title V/ PSD Permits) Small Distributed Generation – Exempt from Permits/ Must meet CARB Certification 3

4. San Onofre Nuclear Generating Stations (SONGS) Shutdown 4 Since Jan. 2012, SCE has shutdown both SONGS Units 2 & 3 due to leaks in radioactive steam tubes Total of 2,200 MW lost – Shortfalls in South Orange County & San Diego SCE announced permanent shutdown of SONGS on June 7, 2013

5. Actions Post SONGS Shutdown Retirement of SONGS on June 7, 2013 Governor’s Office called upon energy agencies, utilities and others to develop a plan Multi-agency review of options to assure reliability Preliminary Reliability Plan for LA Basin and San Diego developed by multi-agency team was reviewed in September 2013 and updated in August 2014 at CEC workshops held at UCLA, as part of IEPR proceeding CPUC and CAISO made policy decisions in March 2014 that partially implements the “Preliminary Reliability Plan” SCAQMD is proposing to implement contingency measures 5

6. CPUC’s Long Term Procurement Plan (LTPP) The LTPP authorizes new infrastructure to maintain system reliability Looks forward 10 years to identify system and local needs Considers alternative futures (renewable portfolio, demand and supply, and transmission scenarios) 6

7. CPUC’s 2012 LTPP Track 1 – D.13-02-015 authorized SCE to procure electrical capacity in the West LA Basin & Moorpark sub-areas to meet long term local capacity requirements Track 4 – D.14-03-004 authorized additional procurement for SCE and SDG&E to meet local capacity needs as a result of the retirement of SONGS 7

8. CPUC Procurement Authorization and Requirements for SCE * Resource Type Track 1 LCR Resources (D.13-02-015) Additional Track 4 (D.14-03-004) Total Authorization Preferred Resources Minimum Requirement 150 MW400 MW550 MW Energy Storage Minimum Requirement 50 MW--50 MW Gas-fired Generation Minimum Requirement 1000 MW--1000 MW Optional Additional From Preferred Resources/Energy Storage Only Up to 400MW Additional from any Resource 200 MW100 to 300 MW300 to 500 MW Total Procurement Authorization 1400 to 1800 MW 500 to 700 MW1900 to 2500 MW Maximum Gas Fired Generation 1200 MW 300 MW1500 MW * Source: CPUC Decision Authorizing Long Term Procurement to Replace Permanent Shutdown of San Onofre Nuclear Station – March 14, 2014 8

9. CPUC Procurement Authorization and Requirements for SDG&E* Resource Type Prior Authorizations D.13-03-029/ D.14-02-016 Additional Track 4 D.14-03-004 Total Authorization Preferred Resources (including energy storage) Minimum Requirement ---175 MW Energy Storage Minimum Requirement ---25 MW Additional from any resource 300 (Pio Pico)300 to 600 MW600 to 900 MW Total Procurement Authorization 300 MW500 to 800 MW800 to 1100 MW Maximum Gas Fired Generation 300 MW600 MW900 MW * Source: CPUC Decision Authorizing Long Term Procurement to Replace Permanent Shutdown of San Onofre Nuclear Station – March 14, 2014 9

10. Other Requirements / Actions OTC policy was adopted by SWRCB in May 2010 with compliance dates linked to known replacement projects January 2013, SONGS units shutdown Summer 2012, HB Units 3-4 brought back Summer 2013, HB Units 3-4 converted to synchronous condensers and ISO/utilities begin installation of reactive power equipment at selected substations 10

11. Once-Through-Cooling Generating Units 11 OperatorFacilityUnits Total MW OTC Replacement Date AESAlamitosBoilers 1-61,9502020 AESHuntington Beach 1 Boilers 1-48802020 AESRedondo BeachBoilers 5-81,3102020 NRGEl Segundo 2 Boilers 3-46702015 LADWPHaynes 3 Boilers 1,2,5,6 Turbines 9,10 1,6542029 LADWPHarborTurbines 1,23642029 LADWPScattergood 4 Boilers 1-38182024 Total 7,646 1 Huntington Beach Boilers 3 & 4 (450MW) shutdown Nov. 2012 2 El Segundo Boiler 3 (135MW) shutdown July 2013 State Water Resources Control Board Policy 3 Haynes Boilers 5&6 (573 MW) shutdown June 2013 4 Scattergood Boilers 3 (460 MW) shutdown Dec 2015

12. SCAQMD’s Major Source Thresholds & Offset Requirements 12 Pollutant Offset Requirement Major Source PTE Threshold (tons/yr) SCAQMD Offset PTE Threshold (tons/yr) VOC ERCs*/ Offsets Required104 NOx RTCs**/ Offsets Required104 SOx ERCs/ Offsets Required1004 CO* Attainment, No Offsets Required5029 PM10 ERCs/ Offsets Required704 PM2.5 ERCs/ Offsets Required100 *Emission Reduction Credits **Reclaim Trading Credits

13. PM10 ERC Supply & Cost 2000 – 2014* * Thru May 2014 13

14. Rule 1304.1 - Electrical Generating Facility Fee For Use Of Offset Exemption Rule 1304(a)(2) exempts electric utility boiler replacements from offsets, however SCAQMD still has to provide offsets from SCAQMD’s Internal Bank Rule 1304.1 adopted on September 6, 2013 to require fees for use of this exemption & SCAQMD offsets Governing Board directed staff to work with stakeholders to develop guidelines for use of funds  “...priority will be placed on the use of the funds to improve air quality consistent with the AQMP in the impacted, surrounding communities” 14

15. Rule 1304.1 Overview Rule 1304.1 applicable to Repowering of electric utility boiler units at Existing power plants Provides PM10, NOx, SOx and VOC Offsets to repowering projects for a fee Current lack of PM10, SOx and NOx ERCs in the open market 15

16. Proposed Guidelines for Use of Rule 1304.1 Mitigation Fees Impacted Surrounding Communities consistent with AQMP with Emphasis on: Preferred Resources Energy Efficiency Demand Response Energy Storage Renewables Meeting AQMP Reduction Needs Near Zero- or Zero-Emission Vehicles & Charging Infrastructure 16

17. Proposed Rule 1304.2 Purpose Implement the “Contingency Measure” in the Governor’s Multi-agency’s “Preliminary Reliability Plan” Promote preferred resources CPUC Loading Order CARB AB32 Scoping Plan SCAQMD Energy Policy Facilitate grid reliability Assist in implementation of attainment strategy 17

18. Proposed Rule 1304.2 Overview Require a Fee for SOx/PM10 Offsets obtained from SCAQMD offset accounts for New Greenfield Electrical Generating Facility Not mandatory to obtain offsets from SCAQMD accounts Fee proceeds to be invested in air pollution improvement strategies consistent with the Air Quality Management Plan and/or local impacts 18

19. Use of Proposed Rule 1304.2 Fees Impacted Surrounding Communities, consistent with AQMP with Emphasis on: Preferred Resources Energy Efficiency Demand Response Energy Storage Renewables Low- or Zero-Emission Vehicles & Charging Infrastructure Consistent with Proposed Rule 1304.1 Guidelines 19

20. PSD/T-V GHG Tailoring Rule PSD Permitting New projects with emissions of >100,000 tpy of CO 2 e Modifications at an existing Major source with increase of >75,000 tpy of CO 2 e Title V Permitting All new and existing sources with PTE >100,000 tpy CO 2 e Modifications at an existing Major source with increase of >75,000 tpy of CO 2 e 20

21. GHG Tailoring Rule – Actions Completed to Date Step 1 Established GHG applicability criteria for “anyway sources” “Anyway sources” must address GHG emissions increases of 75,000 tons per year (tpy) CO 2 e or more Went into effect on January 2, 2011 Step 2 Retains “anyway sources” applicability criteria and established GHG applicability criteria for large air emissions sources PSD Permits for New facilities with GHG emissions of at least 100,000 tons per year (tpy) CO 2 e and existing facilities with at least 100,000 tpy CO 2 e making changes that would increase GHG emissions by at least 75,000 tpy CO 2 e Title V Permits for New and existing sources with GHG emissions above 100,000 tpy CO 2 e Went into effect on July 1, 2011 21

22. U.S. Court of Appeal’s Decision On June 26, 2012, The U.S. Court of Appeals for the D.C. Circuit ruled on cases for GHG Regulations The Court of Appeals upheld four of EPA’s GHG rulemakings. Upheld EPA’s Endangerment Finding and the Tailpipe Rule on the merits, and Dismissed the petitions for review of the Triggering/Timing Rule and the Tailoring Rule on standing grounds 22

23. GHG Tailoring Rule – Actions Completed to Date (cont’d) Step 3 Did not lower the applicability thresholds under Steps 1 and 2; these thresholds still apply Establishes GHG PALs for GHG-only sources on a CO 2 e basis in addition to the already available mass-basis Finalized in July 2012 June 23, 2014 Supreme Court split decision (5-4) struck down the PSD & Title V permit requirements for “GHG only sources”, but withheld BACT for GHG for “Anyway PSD Sources” 23

24. U.S. Supreme Court Decision in Utility Air Regulatory Group vs. EPA On June 23, 2014 U.S. Supreme Court ruled in the case of UARG vs. EPA To Sum Up: “We hold that EPA exceeded its statutory authority when it interpreted the CAA to require PSD and TV permitting for stationary sources based on their GHG emissions. Specifically, EPA may not treat GHG as a pollutant for purposes of defining a “major emitting facility” (or a “modification” thereof) in the PSD context or a “major source” in the TV context. To the extent its regulations purport to do so, they are invalid.” 24

25. U.S. Supreme Court Decision in Utility Air Regulatory Group vs. EPA To Sum Up (continued): “EPA may, however, continue to treat GHG as a “pollutant subject to regulations under this chapter” for purposes of requiring BACT for “Anyway” sources. The judgment of the Court of Appeals is affirmed in part and reversed in part.” The “Anyway” sources account for about 83% of stationary sources GHG emissions, compared to only 3% for the “Non-Anyway” sources under Steps 2 & 3 of Tailoring Rule 25

26. Future Actions – Tailoring Rule – Step 4 5-Year study will be used to support a “Step 4” rule that might phase-in GHG permitting for smaller sources Determination to consideration same criteria used in Tailoring rule: 1. The time that permitting authorities need [or needed] to ramp up their resources, including developing permitting infrastructure as well as hiring and training staff 2. Sources’ abilities to meet the requirements of the PSD program and permitting authorities’ abilities to issue timely permits, including gaining experience with GHG permitting 3. Whether the EPA and the states could develop [or developed] streamlining measures Rule is due on April 30, 2016, but may not be pursued due to the Supreme Court decision 26

27. Step 1 Implementation Step 2 Implementation 201520142012201120132016 Step 3 Implementation 5-Year Study Step 4 Phase-in Rule GHG Tailoring Rule Implementation Timeline 27

28. EPA’s New Power Plants GHG RULE Proposed Rule - 111(b) EPA released proposed rule for GHG emissions from new electric generating units(EGUs) in Sept. 2013 Applies to units built/operated after January 8, 2014 CO2 limits based solely on fuel type and size For natural gas-fired units: — 1,000 lbs CO2/MW-hr for EGUs > 850 MMBtu/hr — 1,100 lbs CO2/MW-hr for EGUs <= 850 MMBtu/hr — EGU with <33% capacity factor is exempt 28

29. EPA’s Existing Power Plants GHG RULE Proposed Rule - 111(d) June 2, 2014 - EPA released proposed rule for GHG emissions from existing EGUs — Expected to reduce CO2 emissions 30% from 2005 levels by 2030 — Limits carbon intensity of a state’s electrical grid as a whole — Credit given for demand-side energy efficiency programs and renewable energy programs 29

30. Proposed Rule 111(d) Building Blocks Four building blocks to set emissions target: Make existing coal-fired EGUs more efficient — Greater use of lower-emitting EGUs — Greater use of zero and low-emitting power sources — Increase demand-side energy efficiency 1.5% annually States have flexibility to comply using any combination of measures 30

31. Proposed 111(d) Target EPA proposed California’s emission baseline is 698 lb CO2/MW-hr in 2012 California’s proposed target is: — 537 lb CO2/MW-hr by 2030 CARB’s Preliminary analyses suggest that California will meet the targets through existing programs 31

32. Proposed Rules 111(b) & 111(d) Schedule June 2015 - EPA to finalize 111(b) rule June 2015 - EPA to finalize 111(d) rule June 2016 - States to submit compliance plans June 2018 - States may choose to submit multi-state plans 32