1. Overview of EPA’s Final Clean Air Act Section 111(d) Emissions Guidelines for Greenhouse Gas Emissions from Existing Electric Generating Units Overview of EPA’s Final Clean Air Act Section 111(d) Emissions Guidelines for Greenhouse Gas Emissions from Existing Electric Generating Units Air Quality Committee Special Information Session September 9, 2015 Sushma Masemore, PE Planning Section Chief Division of Air Quality Department of Environment and Natural Resources

2. Topics Covered North Carolina’s Historical Emissions Authority Approach Interim and Final Goals Timeline State Plan Components Emissions Trading Reliability Assurance Community Involvement 2

3. Key Terms Carbon Dioxide (CO2) mass emissions = ton of CO2 emitted from Electric Generating Units (EGUs) Net Electric Output = gross electric generation minus electricity used to operate plant equipment and includes transformer losses at the point of sale CO2 Rate = CO2 mass emissions ÷ Net Electric Output Heat Rate = energy input to the boiler ÷ Net Electric Output Heat Rate Improvement = any measures taken inside the footprint of the EGU facility to decrease the heat rate of the affected unit  Equipment repairs, modifications, replacements, or upgrades  Changes to processes or control systems  Changes to management practices such as maintenance procedures and load management  Utilization of thermal energy produced from combined heat and power system  Others 3

4. Key Terms NGCC = natural gas combined cycle power plants RE = renewable energy generation from zero to no carbon emitting sources such as solar and wind EE = energy efficiency achieved through actions by end-users such as lighting improvements and the use of more efficient appliances BSER = Best System of Emissions Reductions available to an affected source to achieve emissions reductions after considering cost, technical feasibility, useful life, etc. 4

5. Historical Trends in NC’s CO2 Rate and Emissions 5 Reductions Already Achieved: Relative to 2005 Rate: 18.8% Mass: 25.8% Relative to 2012 Rate: 7.8% Mass: 1.6% Source: Energy Information Administration

6. CLEAN POWER PLAN: AUTHORITY 6

7. Authority Cited in EPA’s Clean Power Plan Clean Air Act section 111(d) 40 Code of Federal Regulations (CFR) Part 60 Applies to fossil fuel-fired electric generating units (EGUs) that began construction on or before January 8, 2014 Signed August 3, 2015 http://www2.epa.gov/cleanpowerplan/clean-power-plan-existing-power-plants Requires reductions in CO2 rate or mass emissions by 2030 relative to 2012 levels EPA applied BSER (considering cost, size of reductions, technology, feasibility) to develop guidelines for states to achieve 7

8. Affected Sources in North Carolina 8

9. Rule Content and Supporting Documents Final Rule (1,560 pgs) Regulatory Impact Analysis (343 pgs) Technical Documents  Power Sector Modeling (322 pgs + many spreadsheets)  Legal Memorandum for Certain Issues (152 pgs)  Emission Performance Rate and Goal Computation (50 pgs + spreadsheet)  New Source Compliments to Mass Goals (10 pgs + spreadsheet)  GHG Mitigation measures (274 pgs + spreadsheet)  Resource Adequacy and Reliability Analysis (57 pgs)  Incorporating Renewable Energy and Energy Efficiency into State Plans (20 pgs)  Demand-Side Energy Efficiency (105 pgs + spreadsheets) Fact sheets 9

10. CLEAN POWER PLAN: EPA’S APPROACH 10

11. Determination of Best System of Emissions Reductions (BSER) System = network of electrical grid connecting power sources BSER based on three building blocks BSER applied to three interconnections to create: 11 1 2 3 Uniform emission performance rate for: Fossil Steam (Coal + Oil) units Natural gas combined cycle (NGCC) units State rate goal State mass goal

12. Goal Setting Method 12 2012 Baseline Emissions for Each State (coal, oil, NGCC) 2012 Baseline Emissions for Each State (coal, oil, NGCC) Adjusted 2012 Baseline Emissions for Each State (coal, oil, NGCC) Adjusted 2012 Baseline Emissions for Each State (coal, oil, NGCC) Under construction units added Regional 2012 Baseline Emission Rate (fossil steam, NGCC) Regional 2012 Baseline Emission Rate (fossil steam, NGCC) Building Block 1 Heat Rate Improvement Building Block 2 75% NGCC capacity further shifts fossil steam Building Block 2 75% NGCC capacity further shifts fossil steam Building Block 3 Renewable Energy shifts fossil steam and NGCC Regional Rates For Three Interconnections (fossil steam, NGCC) Regional Rates For Three Interconnections (fossil steam, NGCC) Emission Performance Rates (fossil steam, NGCC) Emission Performance Rates (fossil steam, NGCC) State Rate Goal (aggregate) State Rate Goal (aggregate) Excess Building Block generation not needed to meet performance rate goal State Mass Goal (aggregate) State Mass Goal (aggregate) Least stringent regional rate used 1 2 3

13. 13 Coal Steam State 2012 CO2 Emission Rate (lb/MWh) NC 2,054 WV 2,064 MA 2,070 MO 2,083 OH 2,124 DE 2,128 PA 2,133 TX 2,160 MD 2,161 SC 2,163 KY 2,166 IN 2,168 NE 2,181 NY 2,226 SD 2,240 TN 2,244 IA 2,250 MI 2,256 AL 2,263 FL 2,279 AR 2,287 GA 2,294 LA 2,297 IL 2,301 OK 2,309 MN 2,332 WI 2,363 KS 2,365 ND 2,368 NH 2,382 VA 2,419 NJ 2,441 MS 2,494 MT 2,633 CT 3,027 NC’s Coal Plants had the lowest CO2 Emission Rate in 2012 NGCC State 2012 CO2 Emission Rate (lb/MWh) TN 771 CT 811 GA 840 MS 844 WI 846 ME 848 SC 848 NC 853 OH 866 FL 867 AL 877 MN 877 NH 878 LA 881 MA 889 MO 890 IA 891 OK 895 AR 896 NM 897 PA 902 VA 909 RI 918 IL 945 NJ 949 IN 953 NY 973 MD 975 DE 979 MI 998 NE 1,016 TX 1,056 2012 Regional Fossil Steam Rate range 2012 Regional NGCC Rate range 2012 Baseline CO2 Rates

14. Summary of North Carolina’s Interim and Final Targets 14 Uniform Emission Performance Rate (lb/MWh) NC’s 2012 Baseline Rate Interim Performance Rate: 2022-2029 Final Performance Rate: 2030 Fossil Steam 2,0541,5341,305 NGCC853832771 North Carolina Rate Goal (lb/MWh) NC’s 2012 Baseline Rate Interim Rate Goal: 2022-2029 Final Rate Goal: 2030 NC Aggregate 1,7781,3111,136 North Carolina Mass Goal (annual tons) NC’s 2012 Baseline Emissions Interim Mass Goal: 2022-2029 Final Mass Goal: 2030 NC Aggregate 58,353,477 56,986,025 51,266,234 1 2 3

15. BUILDING BLOCKS 15

16. Building Block 1: Heat Rate Improvements at Affected Coal Units Regionally derived heat improvement used to reduce CO2 emissions from affected coal-fired EGUs in each interconnection region  Eastern = 4.3%  Western = 2.1%  Texas = 2.3% Goals cannot be met solely through heat rate improvement 16

17. Building Block 3: Renewable Energy (RE) Applied before Building Block 2 RE = onshore wind, solar (utility scale/concentrated, geothermal, hydroelectric) Existing RE not counted, only the incremental amount RE Generation Potential calculated based on economic modeling of each interconnection region  Excess RE from Western and Texas interconnections calculated using a model. Accounts for portion not needed to meet less stringent performance rates in the Eastern interconnection. RE Generation replaces 64% of coal generation and 36% of NGCC generation in the Eastern Interconnection 17

18. Building Block 2: NGCC Capacity Increased to 75% Used as a ceiling to further reduce fossil steam generation NGCC generation at 75% capacity factor reduces additional fossil steam generation beyond those already replaced through renewable energy in Building Block 3 States can specify their own glide paths to achieve 75% NGCC capacity by 2030 18

19. Other BSER Options Outlined in EPA’s Guidelines Demand side energy efficiency New or uprated nuclear generation Other types of renewables (distributed solar, offshore wind) Sustainable biomass Combined heat & power, waste heat power Transmissions and distribution improvements Inclusion of new NGCC for mass-based goal 19

20. COMPLIANCE TIMELINE UNDER EPA’S CLEAN POWER PLAN 20

21. Key Dates Under EPA’s Clean Power Plan Sept. 6, 2016 – Final Plan or Initial Submittal (with request for extension)  Sept. 6, 2017 – Initial Submittal update due if extension granted  Sept. 6, 2018 – Final Plan due if extension granted July 1, 2021 – Milestone status report due 2022-2029: Interim goal to be achieved  July 1, 2025: meet Interim Step 1 Goal for 2022-2024  July 1, 2028: meet Interim Step 2 Goal for 2025-2027  July 1, 2030: meet Interim Step 3 Goal for 2028-2029 2030: Final goal to be achieved  July 1, 2032 and every 2 years beyond 21

22. STATE PLAN COMPONENTS 22

23. Initial Plan Components (If Final Plan is not submitted by Sept. 6, 2016) 1. Explanation why the state requires additional time 2. Final Plan approach under consideration, including progress made to date 3. Demonstration of public engagement (including vulnerable communities) 4. If interested, non-binding statement of interest in the Clean Energy Incentive Program (CEIP) 23

24. Types of Final State Plans Must define whether the state will achieve  Federal emission performance rates or  State rate-based goal or  State mass-based goal Choose between 2 types of Plans  Emissions Standards Plan  State Measures Plan 24

25. Emissions Standards Plan & State Measures Plan 25 Emissions Standards Plan Performance Rate State Rate-Based State Measures Plan Mass-Based Regulates only the owners/operators of covered EGUs EGUs must meet their required performance rate or state- specific rate-based goal Similar to other Clean Air Act programs Consists of federally enforceable or combination of federally enforceable and state only enforceable requirements Must result in EGUs meeting the EPA’s or state’s mass-based goal Must be “quantifiable, verifiable, enforceable, non-duplicative and permanent” States can impose requirements on non-EGUs through state law  Examples: renewable energy, energy efficiency  Not federally enforceable If state measures don’t perform as planned, federally enforceable backstop (e.g., final model rule) kicks in

26. Final Plan Components 26 Federally Enforceable (Codified) 40 CFR 60.5740 Sections 1-5 Non-Enforceable (Not Codified) 40 CFR 60.5745 Paragraphs (a)1-13 +

27. OTHER COMPONENTS EMISSIONS TRADING RELIABILITY ASSURANCE COMMUNITY INVOLVEMENT 27

28. Key Summary Points States must choose their approach:  Federal emission performance rates or  State rate-based goal or  State mass-based goal States must submit a Final Plan by Sept 6., 2016 or Sept. 6, 2018 (if extension is granted) Final Plan must contain federally enforceable and state-only enforceable measures  Demonstration of compliance for each component must in be great detail to ensure interim and final goals will be met 28

29. Visual Depiction of North Carolina’s Targets 29 1 2 3

30. Questions? 30 Contact Sushma Masemore, PE Division of Air Quality 919-707-8700 sushma.masemore@ncdenr.gov

31. ADDITIONAL REFERENCE MATERIALS FROM EPA’S CLEAN POWER PLAN 31

32. Emission Performance Rates Emission Performance Rates FOSSIL STEAM Region 2012 Regional Fossil Steam Rate (lb/MWh) 2030 Regional Fossil Steam Rate (lb/MWh) Final 2030 Fossil Steam Performance Rate (lb/MWh) Eastern2,1601,305 (least stringent) 1,305 Western2,198360 Texas2,192237 32 NGCC Region 2012 Regional NGCC Rate (lb/MWh) 2030 Regional NGCC Rate (lb/MWh) Final 2030 NGCC Performance Rate (lb/MWh) Eastern894771 (least stringent) 771 Western899690 Texas951697 1

33. 33 North Carolina’s Rate Goal North Carolina’s Rate Goal North Carolina 2012 NC Rate (lb/MWh) 2012 NC Generation by Source Type Final 2030 Performance Rate (lb/MWh) Final 2030 NC Rate Goal (lb/MWh) Fossil Steam2,05468% 1,305 771 NGCC85332% NC Aggregate1,778 1,136 Performance Rate x % State’s Generation from Fossil Steam & NGCC in 2012 = State Rate Goal 2

34. Rate Goal Comparisons with Other States 34 Fossil Steam Goal NGCC Goal 1,136 36% Note: Goals and % reductions are highly dependent on each State’s unique generation mix.

35. State Mass Goal Method State Mass Goal Method Excess RE Potential from Western & Texas Interconnections developed using optimization algorithm  Excess RE is the portion not needed to meet the less stringent performance rates in Eastern interconnection Apportion Excess RE Potential based on 2012 share of affected EGU generation  NC = 3% New Source Compliment (not addressed today) – allows new sources subject to 111(b) standards to be moved under 111(d) 35 State Rate Goal 2012 State Generation + 2 X NC Excess RE = State Mass Goal x 3

36. North Carolina’s Mass Goal 36 North Carolina NC’s 2012 Baseline Mass Emissions (annual tons CO2) Final 2030 North Carolina’s Mass Goal (annual tons CO2) NC Aggregate 58,353,477 51,266,234 Note 1: EPA’s 2015 Power Sector Modeling projects that NC’s CO2 emissions without the CPP will be 48,856,544 tons in 2020. Note 2: The 2014 Power Sector Modeling projected much higher emissions at 64,658,776 tons CO2 for 2020. 3

37. Mass Goal Comparisons with Other States 37 51 12% Note: Goals and % reductions are highly dependent on each State’s unique generation mix.

38. Federally Enforceable Components in the Final Plan Component 1 - Identify affected EGUs and their CO2 emissions Component 2 – Required for emission rate based goals Identify all emission standards Compliance periods for each emission standard Demonstrate how CO2 emission performance rate or rate goal will be achieved Corrective measures  Multiple triggers at interim steps Component 3 – Required for mass-based goals only Federally enforceable backstop - emission standards for affected EGUs during interim & final periods Triggers for backstop 38

39. Federally Enforceable Components in the Final Plan (Cont’d) Component 4 - Required for all goal plans Monitoring, reporting and recordkeeping for each affected EGU Component 5 – Required for all goal plans Process, contents and schedule for state reporting Report to EPA by July 1, 2021 that NC is on track to meet milestones defined in State Plan 39

40. Non-Federally Enforceable Components in the Final Plan Component 1 – Define State Plan approach and geographic scope Component 2 – Identify emission performance rates or state rate goal or state mass goal for interim period, interim steps, and final period Component 3 – Demonstrate that affected EGUs are projected to achieve CO2 goals Component 4 – Demonstrate that affected EGU’s emission standard is quantifiable, non-duplicative, permanent, verifiable and enforceable 40

41. Non-Federally Enforceable Components in the Final Plan (Cont’d) Component 5 – Demonstrate achievement of rate-based or mass-based goals Component 6 –State Measures Information  Descriptions of all state measures, including applicable state laws or regulations  Projected impacts  Parties implementing State Measures  Schedule and milestones  CO2 performance projection Component 7 – Demonstrate that reliability of the electrical grid has been considered 41

42. Non-Federally Enforceable Components in the Final Plan (Cont’d) Component 8 – timeline of all milestone steps Component 9 – demonstrate state’s legal authority and funding to implement and enforce each component Component 10 – demonstrate each interim step goal will be met, include analytic process, tools, methods and assumptions Component 11 – certification that a public hearing of the State Plan was held Component 12 – documentation of community outreach and involvement 42

43. Emissions Trading Market based policy that creates financial incentive to reduce emissions where the costs of doing so are the lowest States can design “trading ready” rate-based or mass-based plans Allows EGUs to use creditable out-of-state reductions to achieve required CO2 reductions EGUs meet their emission standards via emission rate credits – ERCs (for a rate-based standard) or allowances (for a mass-based standard) 43

44. Reliability Safety Valve EPA’s approach to avoid threats to grid reliability during implementation State must demonstrate that it has considered reliability issues in developing its State Plan Safety valve triggered on EGU when there is conflict between requirements of the State Plan and maintenance of electric system reliability due to unforeseen or catastrophic events  Source emissions will be excluded from applicable emissions standards for 90 days  During the 90-day period, the source must meet an alternative emission standard that will not jeopardize grid reliability 44

45. Clean Energy Incentive Program Optional for states Early credit program for RE and EE programs started in 2020 and/or 2021  Credits may be banked or traded RE  Must generate electricity from wind or solar sources  For every 2 MWh generated, project receives 1 credit EE  Must implement in low-income communities  Electricity savings must be quantified and verified  For every 2 MWh saved, project receives 2 credits 45

46. Community Involvement & Environmental Justice Plans must demonstrate engagement with communities as part of public participation process in formulating state plans Assessment of localized and community impacts 46