What Electricity Consumers Need to Know About Environmental Regulation of the Utility - PowerPoint Presentation

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What Electricity Consumers Need to Know About Environmental Regulation of the Utility Sector

Daniel ChartierDirector, Environmental Markets & Air Quality Programs

BGE

Fall Customer Meeting

October 31,

2013Slide2

Edison Electric Institute

Trade Association of Investor-Owned Electric Companies

Membership includes

All

US investor-owned electric

companies 70 international affiliates250 associate members US members Directly employ over 500,000 workersProvide electricity for 220 million electric utility customersOur mission focuses on advocating public policy; expanding market opportunities; and providing strategic business information

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OutlineSetting the StageThe electric industry is responding to many challenges

Federal Environmental ProgramsThe 5 programs with the highest near-term impactState-Specific ProgramsEnvironmental programs specific to MarylandOverall Industry ImpactAdding it all up – what does it mean?

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Setting the Stage: Divergent Forces

Markets/

Technology

Tax Policy

Sales/Economic

Recovery

Environmental

Regulations

Congress/States/FERC

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ChallengesWith the current economy, little or no growth in energy sales

Still need to invest in new generation, upgrade existing generation and spend on Transmission & Distribution (T&D) to meet future anticipated demand Perhaps $2 trillion CAPEX over next two decades (Brattle Group, 2008)Maintaining fuel diversity in the near and long termEnsuring reliable electricity for our customersNegotiating the political landscape

Comply with environmental standards

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Utilities Have Substantially Reduced Air Emissions

While Increasing Electricity ProductionSlide8

2012

National Fuel MixElectric Companies Use a Diverse MixOf Fuels to Generate Electricity8

*Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal,

non-wood waste, wind, and solar.

** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies.

Source: U.S. Department of Energy, Energy Information Administration, Power Plant Operations Report (EIA-923);

preliminary 2012

generation data.Slide9

*Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal, non-wood waste, wind, and solar.

** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies.

Sum of components may not add to 100% due to independent rounding.

Source: U.S. Department of Energy, Energy Information Administration, Power Plant Operations Report (EIA-923);

2011 final generation

data.

February 2013

©

2013

by the Edison Electric Institute. All rights reserved.

Different Regions of the Country Use Different Fuel Mixes to Generate Electricity

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Generation Fuel MixNet Electricity Generation (January 2009 – June 2013)10

Source: Energy Information Administration, Monthly Energy Review (Chapter 7), September 2013

Natural Gas

Nuclear

Renewables

OtherSlide11

U.S. Natural Gas Electric Power Price Dollars per Thousand Cubic Feet11

Source

: Energy Information Administration, http://www.eia.gov/dnav/ng/hist/n3045us3M.htmSlide12

Natural gas Production by Source, 1990-2040 (trillion cubic feet)12

Source: Energy Information Administration, http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfmSlide13

Non-Hydro Renewable Sources More than Double between 2010 and 2035

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Renewable Portfolio Standard Policies

www.dsireusa.org

/ September 2012

.

29 states,

+

Washington DC and 2 territories,have Renewable Portfolio Standards

(8 states and 2 territories have renewable portfolio goals).

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Age of Units*

Generating Units

Total Nameplate Capacity

Total Net Generation

Year 2008

Total CO

2

Emissions

Year 2008

Total SO

2

Emissions

Year 2008

Total NO

X

Emissions

Year 2008

#

Percent of Total

GW

Percent of Total

GWH

Percent of Total

MTons

Percent of Total

Tons

Percent of Total

Tons

Percent of Total

0-10 Years

16

1.4%

5.3

1.6%

19,788

1.1%

28.7

1.4%

18,083

0.2%

13,779

0.5%

11-20 Years

64

5.8%

14.9

4.5%

78,261

4.2%

78.1

3.8%

137,803

1.9%

108,115

3.8%

21-30 Years

186

16.7%

86.1

26.1%

541,408

29.0%

615.0

29.6%

1,336,033

18.0%

763,207

26.9%

31-40 Years

23821.4%

122.537.1%724,20638.8%780.7

37.6%2,750,02537.1%1,053,259

37.1%41-50 Years27024.3%

60.818.4%316,02916.9%352.216.9%1,879,15225.4%533,03818.8%51-60 Years30427.3%39.311.9%187,47310.0%220.710.6%1,265,38817.1%356,90212.6%61-70 Years302.7%0.90.3%1,1660.1%2.50.1%19,223

0.3%6,5540.2%> 70 Years40.4%0.00.01%50.0003%0.10.004%870.001%4840.02%Coal Unit Totals1,112100.0%329.95100.0%1,868,336

100.0%2077.9100.0%7,405,794100.0%2,835,339100.0% Source:  Ventyx, Inc.—EV Suite MTon = million tons * Does not include units that came online in 2009Coal Units by Age, Capacity and EmissionsU.S. Generating Units, 10 Year Increments 15Slide16

Industry Capital Expenditures

Source: EEI Finance Department, company reports, SNL Financial (October 2013)

Actuals

Projections (July 2012)

Projections

(Oct.

2013)

Notes: Total company spending of U.S. Shareholder-Owned Electric Utilities

Projections based on publicly available information and extrapolated for companies reporting fewer than three projected years (6% in 2014 and 2015).

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Projected Investment by Category

2012P

2013P

$94.4 B

as of August 2012

as of October 2013

$95.2 B

Generation

Distribution

Transmission

Gas-Related

Environment

Other

Industry committed to reliability, making needed investments in generation, transmission, smart grid/distribution and environmental controls

How will climate regulations affect

capex

decisions?

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Source: EEI Finance Department, company reports (October 2013)

Notes: Total company functional spending of U.S. Shareholder-Owned Electric Utilities

Projections based on publicly available information and extrapolated for companies not reporting functional detail (1.6%).Slide18

Federal Environmental Regulatory Challenges:

2012 and Beyond18

Coal Ash

PCBs in Electrical Equipment

HazMat Transport

Transmission Siting and Permitting

Avian Protection

Endangered Species

Vegetation Management

316(b)

Effluent Guidelines

Limitations

Waters of the United States

NPDES Pesticide Permits

NSPS- New & Modified Sources

NSPS-Existing Sources

BACT Permitting

International Negotiations

Utility

MATS

Interstate Transport

(CAIR/CSAPR)

Regional

Haze/Visibility

Multiple NAAQS

New Source Review (NSR)

Waterbody- Specific StandardsSlide19

Utility Mercury & Air Toxics (MATS) Regulation Rule finalized April 16, 2012

Significant Improvements – Filterable Particulate Matter (PM) instead of total PM as surrogate for non-mercury metals; monitoring/verification; startup-shutdown – now work practice standards; and limited use subcategory for oil-based unitsRemaining key problems – compliance timeline; new source limitsEPA granted reconsideration of certain new source issues30 total petitions for review consolidated under

White

Stallion Energy Center LLC v. EPA, D.C.

Cir., No. 12-1100

Oral arguments likely in spring 2013The court has granted expedited schedule for new source issues19Slide20

Utility MATS Regulation (2)Annualized compliance costs to power industry estimated at $9.6 billion (2007$) in 2015Estimated annual monetized benefits of $27 - $80 billion (2007$) using a 3-percent discount rate

EPA projects ~5 GW of coal-based generation may retire by 2015, and the installation of:103 GW of dry scrubbing controls: 51 GW dry flue gas desulfurization (FGD) and 52 GW dry sorbent injection(DSI)148 GW of activated carbon injection (ACI)191 GW of fabric filters (baghouses)

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April 2015

Utility MATS Compliance Time

Companies have up to 3 years to bring units into compliance as specified by

§112(i)(3)(A)

State permitting authorities can grant 1 additional year for compliance as needed for technology installation as allowed by §112(i)(3)(B)

EPA has indicated it will use §113(a) Administrative Orders for sources that “must operate in noncompliance” (

e.g.,

past a 4

th

year extension.) EPA intends to limit applicability only to cases with a “specific and documented reliability concern.”

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April 2012Slide22

Cross-State Air Pollution Rule (CSAPR)

August 8, 2011 - final rule published in Federal RegisterAffects power companies in 27 eastern states through budgets for NOX and/or SO2 (both for most states)

On August 21, 2012, the D.C. Circuit vacated the rule

EPA petitioned for rehearing

en banc

on October 5, 2012The decision leaves the Clean Air Interstate Rule (CAIR) in place for now, but directed EPA to move “expeditiously” to finalize a replacement for the Cross-State ruleEPA appealed vacatur to the Supreme Court; Oral arguments in the case are scheduled for December 9, 2013

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Cross-State Air Pollution Rule (2)

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President Obama’s Energy Agenda

“All-of-the-Above” Strategy

Invest in a Clean Energy Future

Promote Energy Efficiency

Reduce our Dependence on Oil

Tackle the issue of Climate Change

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National Climate Action Plan

On June 25, President Obama outlined his climate action plan, which contains three “key pillars”

Cutting U.S. carbon emissions

Preparing U.S. for the impacts of climate change (adaptation)

Leading international efforts to address climate change

Near-term mitigation focus is on

power sector emissions reductions

Presidential Memo set schedule for EPA action

New source reproposal: September 2013

Final new source standards: “in a timely fashion”

Existing source emission guidelines for states: June 2014

Final existing source guidelines: June 2015

State compliance plans: June 2016

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National Climate Action Plan (2)

Presidential memo also calls on EPA to:

Engage with states, the power sector and other stakeholders

Take into account other “environmental regulations and polices that affect the power sector”

Ensure the continued provision of reliable and affordable electricity

What does the President’s plan mean?

Legacy issue – likely to push hard to complete NSPS rulemakings

Consistent with messages since State of the Union

New spending will be difficult to get through Congress

Ramped up U.S. presence in international climate talks

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GHG Regulation – Introduction

EPA already is regulating

GHG

emissions under Clean Air Act’s (CAA) prevention of significant deterioration (

PSD

) Program

Pre-construction (BACT

) permits addressing

GHGs

required for larger new and modified sources, such as power plants, since January 2011

Permits issued to date have largely focused on efficiency of technology being used in order to limit

GHG

emissions

Next wave of

GHG

regulations will be under

CAA’s

new source performance standards (NSPS) program

§111(b): covers new and modified sources; EPA will address modified and reconstructed sources under a separate standard

§111(d): covers existing sources

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GHG

NSPS – New Sources

EPA required to issue unit-specific regulations for new sources; no compliance flexibility

EPA issued original proposal in April 2012

As part of President’s climate plan, EPA issued a

reproposed

NSPS for new sources on September 20Sets separate standards for coal and gas

Coal standard requires use of Carbon Capture & Sequestration (CCS); effectively prohibiting new coal plants because technology is not commercially available

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GHG NSPS – Existing Sources

EPA develops guidelines; states submit compliance plans

Proposed

GHG

NSPS for existing sources due by June 2014

Undergo inter-agency review starting in March 2014

Proposal will be drafted during late fall and winterNear-term windows of opportunity to impact the proposal

EPA is believed to be looking at variety of approaches

Energy efficiency improvements

Flexibility mechanisms (e.g., define existing state programs like RGGI as equivalent or credit for early action)

EPA and some legal scholars think that EPA and states have a lot of flexibility

But, no one really knows what this might mean because courts have never addressed it

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Cooling Water Intake Structures – 316(b) RuleProposed rule signed March 28, 2011; EPA is required to finalize the rule by July 27, 2012

In general, the rule sets separate standards for impingement mortality and entrainment mortality for units with design intake rates above 2 million gallons per day (MGD)The proposed rule leaves much to the discretion of the permit writer (and the EPA Region that reviews the permit) EPA estimates the total annualized cost at $384.8 million; benefits = $18 million; cost-benefit ratio ~21:130Slide31

Cooling Water Intake Structures (2)ImplicationsEvery facility over 2 MGD withdrawal will be required to install new equipment

> 600 steam electric generating facilities affected (includes nuclear plants)Fairly prescriptive rule; based largely on closed-cycle cooling with aspects of site-specific decision-makingClosed-cycle cooling may not meet all requirementsOther water regulations

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Cooling Water Intake Structures (3)

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Coal Combustion Residuals (CCR)Co-proposal of two options in June 2010 (75 Fed. Reg. 35128):

Subtitle C, “Special” hazardous waste listing; Subtitle D regulationsBeneficial use exempt from regulationComments submitted Nov. 2010; Final Rule expected 2012Subtitle C option would reverse 1993 & 2000 Regulatory DeterminationsMajority of states, ash recyclers, industry groups, large number in Congress oppose hazardous waste regulationsWill significantly impact operations: closure of ash ponds, construction of additional disposal capacity, reductions in beneficial use

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Effluent Limitation Guidelines (ELGs)

Will set new Best Available Technology (BAT) limits on 7 important waste streams (

including fly ash and bottom ash already covered under the

CCR

rule

)Coal, oil, gas and nuclear facilities affected (~1,200 facilities)Proposal issued April 2013

8 options; 4 preferred“Zero discharge” fly ash limits a part of all but 2 options

No industry preference (yet)

Industry will conduct cost and feasibility analysis

Final rule required by May 2014 due to consent decree

Implementation: 2014-2019 (maybe longer)

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Maryland Environmental SnapshotState Utility Sector Emissions (2011 preliminary, EIA)

Carbon dioxide (CO2): 23,031,013 tons Nitrogen oxide (NOx): 17,184 tonsSulfur dioxide (SO2

): 30,541 tons

The Maryland Healthy Air Act, signed into law on April 6, 2006, establishes emission limitations and related requirements for NOx, SO2 and mercury

These emission limitations apply to 15 coal-fired electric generating units.

Reductions in two phases: 2009/2010 and 2012/2013Total reductions: NOx, 75%; SO2, 85% and mercury, 90%35Slide36

Maryland Environmental Snapshot (2)Maryland Greenhouse Gas Reduction Act of 2009

Requires the State to achieve a 25% reduction in Statewide GHG emissions from 2006 levels by 2020. Requires the State to demonstrate that the 25 percent reduction can be achieved in a way that has a positive impact on Maryland’s economy, protects existing manufacturing jobs and creates significant new “green” jobs in Maryland Maryland participates in the Regional Greenhouse Gas Initiative (RGGI)

Mandatory, multistate market-based program to achieve an initial 10% reduction in CO2 emissions from the power sector; participants recently amended the program

Maryland’s cumulative share of proceeds from the allowance auctions is $300,026,815 (through Auction 21 , Sept. 2013)

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Maryland Environmental Snapshot (3)Maryland's Renewable Portfolio Standard (RPS)

Requires that 20 percent of Maryland's electricity be generated from renewable energy resources by 2020, including 2 percent from solar energyIn 2012, renewable energy resources accounted for 7.9 percent of total net electricity generationMD Solar Renewable Energy Credit (REC) types and prices1Tier 1

2013, $12.79

(wind, biomass, methane from landfills, geothermal, ocean, poultry litter incineration, certain fuel cells and small hydro

)

Solar 2013, $142.5037

1. REC pricing as of 10/18/2013, per SNL

FinancialSlide38

Overall Industry ImpactRetrofit, retire or repower virtually every coal plant Estimates of retirements vary widely

Impacts on reserve margins; potential local reliability challenges ~63 GW of coal-fired generation retirements have been announced; Brattle estimates a total of 59−77 GW 1, 2Take place between 2010 and 2022; Most will be 50-60 years old upon retirement; Approx. 16% of 2010 fleetDue to fuel and/or compliance costs, consent decrees, age, etc.

Will require significant amount of investment; potential impacts on power prices

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1

. Announced retirements based on publicly available data as compiled by EEI.2. Projected retirements from

Potential Plant Retirements: 2012 Update, The Brattle Group, October 2012. Slide39

What does this mean for electricity consumers?The Energy Information Administration’s latest Annual Energy Outlook (AEO 2013) says that average electricity prices in 2035 are expected to average 2 percent above 2011 levels

1, 2Predicated on low natural gas prices continuingDoesn’t includeImpacts of ash, water, greenhouse gases (GHG) and other rulesCapital for

T&D

upgrades and modernization

Other projections

2IHS Global Insight, average 20 percent increase 2011 to 2035INFORUM, average 6 percent increase 2011 to 203539

1 Price increases are based on 2011 dollars and do not reflect the impact of inflation.

2. All price data from AEO 2013, table 11. Available online at

http://www.eia.gov/forecasts/aeo/pdf/0383(2013).

pdfSlide40

Contact Information

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