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F E B R U A R Y 1 4 , 2 0 1 7 | H O L Y O K E , M A

Patricio Silva

Environmental Advisory Group

Greenhouse Gas Regulatory Update

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• November 4, 2016: Paris Agreement enters into force with 74 parties, representing 58% of global greenhouse gases submitted compliance instruments

• U.S. pledged to reduce U.S. GHG emissions by 26-28% by 2025 compared to 2005 levels

2

2015 Paris Agreement & Global CO2 Emissions Forecasts

Sources: Spiegel & McDiarmid LLP; CRS

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CLEAN POWER PLAN & NEW SOURCE UPDATE

3

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EIA Annual Energy Outlook 2017: National Net Generation Projections by Fuel Type Without CPP, coal generation forecasted to recover

4

0

500

1,000

1,500

2,000

2,500

1980 1990 2000 2010 2020 2030 2040

U.S. net electricity generation from select fuels billion kilowatthours

natural gas

Reference

petroleum

coal

renewable energy

nuclear

2020 2030 2040

Source: EIA, Annual Energy Outlook 2017

With Clean Power Plan

No Clean Power Plan

History Projections Projections 2016 2016

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Clean Power Plan 111(d) Litigation Update Stayed, Awaiting Court or Administrative Action

Awaiting D.C. Circuit Court of Appeals Full Panel Decision • September 27, 2016: D.C.

Circuit Court of Appeals heard several hours of oral arguments

• D.C. Circuit panel could affirm, reject, or remand CPP back to EPA

• Decision expected in early 2017 – West Virginia v. EPA, No. 15-

1363

Denial of Petitions for Review and Administrative Stay

• January 17, 2017: EPA rejects petitions for review and administrative stay of Clean Power Plan

• March 20, 2017: deadline for filing petitions for review challenging denials. Several already filed and consolidated – North Dakota v. EPA, No. 17-1014

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New Source 111(b) Litigation Update North Dakota v. EPA, No. 15-1381 (D.C. Cir.)

Challenges to GHG Standard for New or Reconstructed Generators • August 3, 2015: EPA finalizes CO2

standards for modified or reconstructed power plants, with separate standards for:

– Electric steam generating units – Stationary combustion turbines

• Base load natural gas units • Non-base load natural gas units • Multi-fuel units

• Six groups of petitioners (States, affected industry, trade groups) filed various challenges

– D.C. Circuit consolidated all challenges

• November 2016-February 2017: D.C. Circuit set briefing deadlines, with final briefs due early in 2017

– Arguments have not been scheduled

Petitioners Assert EPA Exceeded Authority in Drafting 111(b) Rule • States and industry petitioners

assert the CO2 standards assume widespread deployment of carbon capture and storage technologies (CCS) for new coal-fired power plants notwithstanding the technology is presently in limited commercial use

• EPA maintains CCS technologies represent the appropriate technology standard for new coal-fired plants and demonstration projects underway are sufficient justification

6 Sources: MJ Bradley & Associates LLC; Law360

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• 2009 Endangerment Finding: found GHG emissions threaten public health and welfare, requiring EPA to take action to mitigate GHG emissions – Revising or withdrawing 2009

Finding requires offering a justification for change in policy

– Significant regulatory record and legal precedent presents complex path to navigate

• Clean Power Plan & New Source Standards: rely on Endangerment Finding for justification, withdrawing or modifying Finding could be used to withdraw or modify §111 GHG regulation

7

Options for Reversing Existing Federal GHG Regulations Involves Unraveling Complex, Interlocking Rules

Endangerment

Finding

New Source Standards

§111(b)

Clean Power Plan

§111(d)

Source: Covington & Burling LLP

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REGIONAL, STATE GHG MEASURES

8

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New England States Have Significant Greenhouse Gas (GHG) Emissions Reduction Goals % Reduction Below 1990 Levels by 2050 Economy Wide*

* Some states have different baseline and target years (e.g., Maine’s goal specifies reductions below 2003 levels that may be required “in the long term”)

80% 80% 80% 75%-80% 80% 80% – 95% 75% – 85%

Connecticut Massachusetts Rhode Island Maine

New Hampshire Vermont

0%

100%

9 Source: ISO New England

New England Governors - Eastern Canadian Premiers

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Significant Regional, State Greenhouse Gas Reduction Efforts Underway New England expected to Further Reduce GHG Emissions Regional, State GHG Reduction Efforts Continue • Regional Greenhouse Gas

Initiative: 2016 program review pursuing additional modeling, possibly factoring in federal changes

• Massachusetts Global Warming Solutions Act (GWSA): suite of proposed GHG rules includes a generator emissions cap affecting 9 GW of capacity beginning in 2018

• Carbon pricing legislation: Massachusetts and Rhode Island legislatures reintroduced bills adding a carbon tax on fossil fuels

EIA Forecast of New England Power Sector CO2 Emissions (2015-2048)

10

0

5

10

15

20

25

30

35

40

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

Mill

ion

Shor

t Ton

s

Total CPP

Total no CPP

Sources: RGGI, EIA

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REGIONAL GREENHOUSE GAS INITIATIVE 2016-2017 Program Review and Interaction with Clean Power Plan

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RGGI Program Overview 3rd Control Period (2015-2017)

Overview, Allocations & Auction 34 (December 2016) Results • 84.3 million short tons - RGGI 2017 cap,

covers 20% of 9 RGGI States total GHG emissions inventory

– 163 affected entities (RGGI wide) – New England share 28.5 M

• 62.4 million short tons – 2017 Adjusted RGGI cap (to account for banked allowances)

– New England share 21.1 M (34% of total)

• 219 million allowances in circulation at the end 3rd Qtr 2016

• Auction 34 (December 7, 2016) results: All 14.8 million allowances offered purchased at clearing price of $3.55/ton

• Next auction (35) scheduled for March 8, 2017, offering 14.37 million allowances

RGGI 2016 CO2 Allowance Allocation (State %)

6% 4%

4%

22%

16% 5%

39%

3% 1%

Connecticut Delaware Maine

Maryland Massachusetts New Hampshire

New York Rhode Island Vermont

12 Sources: RGGI; MJ Bradley & Associates LLC

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New England RGGI States Auction Results 2009-2016 (Auctions 1-34)

13 Source: RGGI

-

2

4

6

8

10

12

14

16

-

2

4

6

8

10

12

14

16

Auct

ion

1

Auct

ion

2

Auct

ion

3

Auct

ion

4

Auct

ion

5

Auct

ion

6

Auct

ion

7

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ion

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ion

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ion

10

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ion

11

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ion

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ion

13

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ion

14

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ion

15

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ion

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ion

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ion

18

Auct

ion

19

Auct

ion

20

Auct

ion

21

Auct

ion

22

Auct

ion2

3

Auct

ion

24

Auct

ion

25

Auct

ion

26

Auct

ion

27

Auct

ion

28

Auct

ion

29

Auct

ion

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ion

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ion

32

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ion

33

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ion

34

2008 2009 2010 2011 2012 2013 2014 2015 2016

Qua

rter

ly R

GGI N

ew E

ngla

nd C

O2 E

miss

ions

(Mill

ions

)

RGGI

New

Eng

land

Sha

re To

tal C

O2

Allo

wan

ces S

old

(Mill

ions

) VT

RI

NH

MA

ME

CT

CO2 Emissions

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New England RGGI States Auction Proceeds 2009-2016 (Auctions 1-34)

14

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$-

$10

$20

$30

$40

$50

$60Au

ctio

n 1

Auct

ion

2

Auct

ion

3

Auct

ion

4

Auct

ion

5

Auct

ion

6

Auct

ion

7

Auct

ion

8

Auct

ion

9

Auct

ion

10

Auct

ion

11

Auct

ion

12

Auct

ion

13

Auct

ion

14

Auct

ion

15

Auct

ion

16

Auct

ion

17

Auct

ion

18

Auct

ion

19

Auct

ion

20

Auct

ion

21

Auct

ion

22

Auct

ion2

3

Auct

ion

24

Auct

ion

25

Auct

ion

26

Auct

ion

27

Auct

ion

28

Auct

ion

29

Auct

ion

30

Auct

ion

31

Auct

ion

32

Auct

ion

33

Auct

ion

34

2008 2009 2010 2011 2012 2013 2014 2015 2016

Qua

rter

ly A

uctio

n Al

low

ance

Cle

arin

g Pr

ice

($do

llars

)

RGGI

New

Eng

land

Qua

rter

ly A

uctio

n Pr

ocee

ds ($

Mill

ions

)

VT

RI

NH

MA

ME

CT

Clearing Price

Source: RGGI

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2016 RGGI Program Review Update Modeling Assumptions Adjusted Post-Election 2017 Modeling Updates for Post-2020 Design Deliberations • February 8, 2017: 7th RGGI

stakeholder meeting outlined updates to various modeling assumptions for additional analyses – Date range (2017-2031) – Fuel prices (natural gas in

particular) – Regional energy and peak demand – Firmly planned generation and

retirements

• Also seeking input on whether to continue modeling CPP implementation

RGGI Assumed New Build & Retirements for New England

15

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2015 2016 2017 2018 2019 2020 2021

Nam

epla

te C

apac

ity (M

W)

CT/CC Solar PV Wind Hydro BiomassGas Coal Oi/Gas Nuclear

Source: RGGI

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RGGI 2016 Program Review Modeled Reduction Scenarios (2016-2031)

16 Sources: RGGI; ICF Consulting

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RGGI Emissions Containment Reserve (ECR) Potential Program Change Used in Other GHG markets

• November 2016: RGGI States considering a program design change, an emissions containment reserve (ECR) would be triggered a single or multiple times a predetermined allowance price above the reserve price floor and withdraw a predetermined quantity of allowances which would not be offered at auction

• Since RGGI emissions have been lower than caps over its history, ECR is intended to allow market adjustments responding to external factors (other GHG regulations, lower fuel costs, greater renewable production, etc.) that reduce demand for allowances, in between program reviews – Avoids build up of large bank of allowances ,

• Differs from existing two-sided cost containment: – Reserve price provides a hard price floor ($2.15 in 2017) encourages innovation

and early action, preserving – Cost containment reserve (CCR) ceiling price ($10.00 in 2017) operates as a reserve

price on additional allowances • 15 million CCR allowances released to date in program history (Auctions 23, 29) provided

‘buoyancy’ to the program

Source: RGGI

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MASSACHUSETTS GLOBAL WARMING SOLUTIONS ACT RULEMAKINGS

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SF6 CO2

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MA DEP: MA GHG Emissions Inventory State is

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Emissions in 2013 were 75.8 MMTCO2e, which is 19.7% below 1990 level

Source: MA DEP

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Massachusetts Global Warming Solutions Act Section 3(d) Potential Rule Stakeholder Meetings

Executive Order 569 Fulfilling Kain v. DEP requirements • September 16, 2016: Governor Baker

directs Mass DEP propose regulations that:

– Limit greenhouse gas emissions – Limit the aggregate emissions released

from each group of regulated sources or categories of sources,

– Set emission limits for each year, and – Set limits that decline on an annual basis

• November 2-7, 2016: stakeholder outreach meetings held

• December 16, 2016: GWSA proposed rules published, opening public comment period:

– Gas-insulated switchgear – State transportation planning – State vehicle fleet – Natural gas distribution – Clean energy standard – Generator emissions cap

GWSA Rulemaking Timeline: • February 6-10, 2017: public

hearings held

• February 27, 2017: public comment period closes

• August 11, 2017: deadline for adopting final rules to meet 2020 GHG state-wide emission limits

20 Source: MA DEP

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EIA: Massachusetts Electric Power Sector CO2 Emissions by Fossil Fuel (Million Short Tons)

21

0

5

10

15

20

25

30

35

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Natural Gas

Oil

Coal

Source: EIA

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Proposed GWSA 2018 Generator Emissions Cap Allocation (Short Tons)

Emissions Cap by Fuel, Technology Type (Million Short Tons CO2)

2018 Existing & New Generator Cap Allocation (%, Short Tons)

22

Existing 84%

New 16%

Existing 8,398,639 New 1,653,465

Source: MA DEP

0

1

2

3

4

5

6

7

8

9

10

Steam Turbine Gas Turbine Combined Cycle

2018

Residual Oil

Distillate Oil

Natural Gas

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Proposed GWSA Emission Cap vs. Potential MA 2.5% RGGI Budget 2018-2050 (Million Short Tons)

23

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2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Poss

ible

MA

2.5%

RG

GI B

udge

t ( M

illio

n Sh

ort T

ons)

Prop

osed

Gen

erat

or E

mis

sion

s Cap

(Mill

ion

Shor

t Ton

s) Existing New MA RGGI 2.5% Year Total GWSA Cap

(M Short Tons CO2) 2018 10.05 2019 9.80 2020 9.55 2030 7.04 2040 4.52 2050 2.01

Sources: MA DEP; RGGI

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GWSA Section 3(d) Potential Sulfur Hexafluoride (SF6) Draft Aggregate Cap

• Proposed cap affects Eversource and National Grid operations

• Based on 2015 nameplate capacity of existing, new gas insulated switchgear (GIS) and existing rule declining leak rates (below)

• MA DEP proposes after 2020, the leakage rate would remain in place and allow for growth in GIS capacity

Maximum Allowable SF6 GIS Emissions Cap for Eversource, National Grid (pounds)

24

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2018 2019 2020

SF6

Source: MA DEP

0.0%

1.0%

2.0%

3.0%

4.0%

2015 2016 2017 2018 2019 2020

Maximum Annual SF6 Emissions Rate

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