Clean Power Plan – Now What?OCTOBER 16, 2015

FALL PR-MR & MARKETING MEETING

How does the Final CPP really work?

1) EPA sets individual emissions goals for each of 47 states (less Vermont, Alaska and Hawaii) and the plan compliance period begins in 2022 and the compliance period ends 2030.

2) State emissions goals are set by a very complicated formula (big change compared to proposed rule)

◦ Add up all the fossil-fueled generation in the nation, put them in two broad categories then figure out average emission rates in 2012 in each of the 3 US continental grids (Eastern, Western, ERCOT). WFEC is in the Eastern grid and EPA calculates that the coal plants in the Eastern grid average 2,160 lbs of CO2/MWH and combined-cycle gas plants average 894 lbs of CO2/MWH.

◦ Estimate how much these plants can reasonably reduce or cut CO2 emissions using what EPA determines to be the “best system of emissions reductions” (BSER). EPA decided BSER consists of 3 methods for emissions reductions (i) Operate coal plants more efficiently by 2.1% to 4.3%; (ii) run gas plants more (75% capacity factor) and coal plants less (hard to pay for part i); and (iii) build a lot more zero emissions renewable energy such as wind, solar, geothermal, hydro, and biomass (up to 28% of electric supply by 2030). (iii) is outside the fence. Gas plants loaded so hard to regulate renewables.

◦ EPA makes it clear these steps are not mandatory, but examples and are the basis for required reductions.

Continued – or 3,000 pages condensed to 3 slides

◦ EPA next calculates the effect of applying the BSER to power plants and determines that coal plants should reduce emissions from 2,160 lbs/mwh to 1,305 lbs/mwh by 2030 (run less and efficiency). Combined cycle gas plants from 894 lbs/mwh to771 lbs/mwh (not sure how). Apply these goals to all 3 grid regions.

◦ Use these new emissions rates to establish each states goal. Determine what % of a states fossil fuel generation is coal (assume 70% here) and what percentage is natural gas combined cycle (assume 30% here).

◦ EPA calculation looks like this – (.7*1,305 lbs/mwh coal) + (.3*771 lbs/mwh gas CC) = 1,145 lbs/mwh◦ So this example state would have to reduce average emissions from 1,780 lbs/mwh to 1,145 lbs/mwh

3) Every state has its own unique goal based on these factors and calculations. EPA says that if each state met its goal, then CO2 emissions in 2030 would be reduced 32% compared to 2005

4) Each state, of the 47, has to make different levels of reductions but the range between states is smaller in the final rule as compared to the proposed rule.

Continued – or 3,000 pages condensed to 3 slides

5) According to EPA states will have a lot of flexibility in how they meet their respective goals◦ Ramp up renewable energy more than the goal◦ Ramp up gas generation and reduce coal even more drastically than the goal◦ Build new gas or nuclear generation and replace coal generation or less efficient gas generation◦ Join with other states and create multi-state or regional plans◦ Develop cap and trade programs6) If a state develops an implementation plan (SIP) to meet its goal, it must do so before 9/6/2016 or have done enough to be awarded a 2 year extension to 9/6/2018. If a state does not file a SIP timely, qualify for the extension or a state’s SIP is not approved by EPA, the EPA can implement and enforce a federal implementation plan (FIP) upon that state.7) EPA released the proposed FIP and model SIP along with the final CPP on 9/6/2015. Parties are commenting on those now and ultimately EPA will issue a final FIP. States won’t really know what the final FIP looks like for awhile. It appears it will be a cap and trade program. Don’t yet know if that plan will be mass based (an overall limit on CO2 emission in a state and let generators to trade pollution credits) or rate based (a limit per mwh and allow trading on that basis). Mass based versus rate based is a big issue, complicated and difficult to analyze. If a state adopts a rate-based goal, then emissions can technically increase over time with economic growth — it's just that the carbon intensity of power plants has to go down. By contrast, EPA estimated that mass-based goals might be a little cheaper to comply with, as well as more useful for setting up cap-and-trade programs.

Mass basedreduction

OK now what about OK?

Generally look less stringent than the proposed rule and certainly interim goal is less stringent.

What is next?

Final Clean Power Plan published in CFR this month.

Law suits will start. EPA exceeds its authority.

Regulating “outside the fence” impermissible under the Clean Air Act.

Impermissibly mandates a federal Renewable Energy Portfolio (RPS) that Congress has rejected multiple times.

Is regulation of coal-fired EGUs barred because of MATS?

Has EPA promulgated the required predecessor Section 111(b) rule?

Do EPA’s emission-rate standards impermissibly displace state authority to issue Section 111(d) “standards of performance”?

Is BSER achievable?

Destroys remaining useful life of coal fired generation assets

Rule should be stayed pending outcome of lawsuits

WHAT DOES A UTILITY DO? WHAT DOES WFEC DO? Normally, we develop compliance plans for Clean Air Act and other EPA rules for our generation assets – not so here.

State Action

Should Oklahoma develop a SIP? Either by 9/6/2016 or

Should Oklahoma develop a SIP adequate to be award the 2 year extension for a final plan? So that final SIP due 9/6/2018.

Should Oklahoma look at a statewide emissions inventory (rather than generator by generator)?

Should Oklahoma “just say no” and fight the rule and any resulting FIP? What happens if we lose? Who pays for non-compliance? EPA fines?

How and when would Oklahoma get a FIP?◦ Submit nothing by 9/6/2016.◦ Submitting a non-compliant SIP by 9/6/2016.◦ Submit a SIP by 9/6/2016 with no intention of filing a final compliant SIP.◦ EPA can issue a FIP “within 2 years” of the occurrence of any of the above, or essentially immediately.◦ If Oklahoma submits what it believes to be a compliant SIP, then EPA can take up to 2 years to review.

Timelines

11/1/2015 – Legal actions initiate to stay the CPP and/or overturn the CPP

9/6/2016 – Either a compliant SIP or a SIP adequate to obtain extension

9/6/2016 – No SIP or inadequate SIP could get FIP any time prior to 9/6/2018

9/6/2018 – If gained extension, final SIP due.

9/6/2018 – EPA review and determination of any full SIP filed by 9/6/2016.

12/31/2018 – Sometime in 2018 best likely time for a final determination of actions for Stay or overturn.

9/6/2020 – EPA review and determinate of any SIP filed by 9/6/2018.

2022 – Compliance period begins

2025 – Compliance step

2028 – Compliance step

2030 – Achieve final CO2 emission reductions/rates as established by the plan