Southern Company - Southeast Energy Efficiency Alliance

238 Pages·2014·1.98 MB·English

UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY

Comments of Southern Company

Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility
Generating Units; Proposed Rule, Notice of Data Availability, and Notice

(79 Fed. Reg. 34,830 (June 18, 2014))
(79 Fed. Reg. 64,543 (October 30, 2014))
(79 Fed. Reg. 67,406 (November 13, 2014))
Docket ID No. EPA-HQ-OAR-2013-0602
TABLE OF CONTENTS
EXECUTIVE SUMMARY .............................................................................................................1
I. EPA’S PROPOSAL IS A FUNDAMENTAL VIOLATION OF THE CLEAN AIR
ACT......................................................................................................................................8
II. EPA HAS NO AUTHORITY TO REGULATE EGUS UNDER § 111(d) .......................13
A. Congress has Foreclosed Regulation of EGUs under § 111(d) because EGUs
are Already Regulated under § 112 .......................................................................14
B. Even if Congress had Delegated the Authority to EPA to Implement such
Sweeping Regulation of the Energy Sector, EPA has not Satisfied the
Statutory Predicates Necessary for Regulation of CO from Existing Sources .....17
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1. EPA has not satisfied its duty to make an endangerment finding..............17
2. EPA’s § 111(b) standards for new and for modified/reconstructed
sources are insufficient to support the §111(d) proposal ...........................20
III. EPA HAS NO AUTHORITY TO ADOPT THE PROPOSED GUIDELINES ................23
A. EPA does not have the Authority to Set National or State Energy Policy ............24
B. EPA’s Proposal Illegally Encroaches on Authority Delegated to Other
Federal Agencies or Reserved to the States ...........................................................26
1. EPA’s interpretation of its authority under § 111(d) conflicts with the
Federal Power Act, the Public Utility Regulatory Policies Act, and the
Atomic Energy Act ....................................................................................27
2. Provisions of the Acid Rain Program under Title IV of the CAA
confirm Congressional intent to preserve existing lines of authority
over the electricity sector ...........................................................................30
3. EPA’s proposal usurps state authority in contravention of the Tenth
Amendment ................................................................................................31
IV. EPA’S BSER DETERMINATION AND PROPOSED EMISSION GUIDELINES
ARE LEGALLY FLAWED UNDER § 111(d) .................................................................35
A. EPA’s BSER Determination Usurps the Role of States under § 111(d)................35
1. EPA’s role under § 111(d) is limited; states develop standards of
performance that take into account source-specific factors .......................37
2. EPA’s asserted promise of flexibility to states is belied by the
stringency of the goals the Agency has set ................................................40
B. EPA’s BSER and Emission Guidelines cannot Rely on Outside-the-Fence
Measures ................................................................................................................41
1. The “best system of emission reduction” cannot include reducing the
hours of operation of designated sources or mandating the operation
of other sources ..........................................................................................42
2. EPA’s own implementing regulations and previous EPA § 111(d)
precedent contradicts EPA’s interpretation of “system” ...........................44
C. EPA’s BSER Determination Exceeds States’ Authority and is Therefore
Legally Unsupportable ...........................................................................................46
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1. EPA’s proposed BSER is based on outside-the-fence measures that
are beyond the authority of state agencies .................................................47
2. EPA’s Building Blocks cannot constitute BSER because states lack
adequate authority to implement them .......................................................48
a. Building Block 1: Six percent heat rate reduction .........................49
b. Building Block 2: Re-dispatching gas ...........................................50
c. Building Block 3: Renewable generation ......................................53
d. Building Block 4: Demand-side energy efficiency ........................55
e. State or regional cap and trade programs cannot save EPA’s
BSER determination ......................................................................56
D. EPA’s BSER Determination is not Tethered to the Statutory Elements of
BSER......................................................................................................................57
1. The four Building Block system has not been Adequately
Demonstrated .............................................................................................58
2. EPA’s Building Block 3 is based on an undemonstrated regional
portfolio approach ......................................................................................60
3. EPA has not established that its state standards are achievable through
implementation of the four Building Blocks .............................................62
4. EPA has not evaluated the combined cost of the four Building Blocks
as a system .................................................................................................63
5. EPA arbitrarily distinguishes between existing and new zero-emitting
resources ....................................................................................................63
6. EPA’s proposal also arbitrarily prefers solar and wind generating
sources over biomass. ................................................................................65
E. EPA Cannot Impose More Stringent Standards on Existing Sources under
§ 111(d) than it has under § 111(b) ........................................................................65
1. Regulation under § 111(d) is governed by the same regulatory
standard—BSER—as § 111(b) but with additional flexibility allowed
for existing sources ....................................................................................65
2. EPA’s proposal of separate standards for new Da sources and KKKK
sources under § 111(b) is inconsistent with its singular standard for
coal- and natural gas-fired EGUs under § 111(d) ......................................66
3. The majority of EPA’s proposed state goals are more stringent than
the emission limits that EPA has proposed for new coal- and natural
gas-fired units, which is inconsistent with the structure and intent of
§ 111...........................................................................................................67
4. EPA’s requirement that modified sources remain subject to the
existing source standards under § 111(d) provides further evidence
that EPA has turned § 111 on its head .......................................................68
V. EPA HAS SET ARBITRARY AND CAPRICIOUS DEADLINES .................................69
A. EPA’s Rulemaking Schedule does not Provide an Adequate Opportunity for
Public Comment or for EPA to Consider and Respond Thereto ...........................71
B. EPA’s Recent Notice of Data Availability and Rate to Mass TSD Further
Demonstrate the Need for More Time ...................................................................75
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C. EPA’s Proposal does not Provide Adequate Time for Development of State
Plans .......................................................................................................................76
D. EPA’s Proposal does not Provide Adequate Time for Compliance ......................79
VI. BUILDING BLOCK 1 IS NOT FEASIBLE OR ADEQUATELY
DEMONSTRATED ...........................................................................................................80
A. A Six Percent Net Heat Rate Improvement is not Feasible ...................................80
1. EPA ignores current industry practice .......................................................81
2. EPA’s best practices analysis is arbitrary and lacks any basis in the
real world ...................................................................................................83
3. EPA’s assessment of equipment upgrades is based on a misuse of the
S&L Report ................................................................................................87
4. Numerous factors negatively impact heat rate, offsetting best practices
and heat rate improvement projects ...........................................................91
a. Certain heat rate losses are unavoidable ........................................91
b. Environmental controls significantly impact net heat rate ............91
c. Lower load operations negatively impact heat rate .......................94
B. A Six Percent Heat Rate Improvement is not Adequately Demonstrated .............96
C. The Cost of Building Block 1 is not Reasonable ...................................................98
D. EPA Fails to Adequately Address New Source Review ........................................99
VII. BUILDING BLOCK 2 IS NOT FEASIBLE OR ADEQUATELY
DEMONSTRATED .........................................................................................................103
A. A 70 Percent NGCC Fleet-Wide Capacity Factor is not Feasible or
Adequately Demonstrated ....................................................................................103
1. Not all EGU owners maintain dispatch capability ...................................104
2. Annual availability does not equal capacity factor ..................................105
3. NGCC capacity factors remained below 70 percent during historically
low natural gas prices...............................................................................106
4. Plant-level capabilities do not equal fleet-wide capabilities ....................107
B. NGCCs Play an Important Role in an Integrated Electric System ......................108
C. The Interaction of Building Blocks Further Erodes the Feasibility of NGCCs
Achieving a 70 Percent Fleet-Wide Capacity Factor ...........................................118
D. Natural Gas Availability and Inadequate Pipeline Infrastructure Further
Hinder the Feasibility of Achieving a 70 Percent NGCC State-Wide Capacity
Factor ...................................................................................................................121
E. EPA Gambles on Historically Low Natural Gas Prices .......................................124
1. Natural gas price volatility .......................................................................124
2. Many factors suggest upward pressure on future natural gas prices
that EPA should take into account ...........................................................125
3. Numerous industry studies demonstrate the historical volatility and
unpredictability of natural gas prices .......................................................127
F. EPA’s Suggested Building Block 2 Alternatives in the NODA are Unlawful,
Unsupported, and Unworkable ............................................................................128
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VIII. BUILDING BLOCK 3—“AT RISK” NUCLEAR AND UNDER CONSTRUCTION
NUCLEAR—IS NOT BSER ...........................................................................................129
A. EPA Erred by Incorporating Six Percent of Existing Nuclear Generation in
Calculating Alabama, Florida, Georgia, and Mississippi’s Goals .......................130
1. EPA’s determination that approximately six percent of existing
nuclear generation is “at risk” of retirement from 2012 to 2019 in the
Southeast is wrong ...................................................................................130
2. EPA’s across-the-board operating assumptions for “at risk” nuclear
do not account for state-specific differences ...........................................133
B. EPA’s Assessment of the Costs of Maintaining Existing Nuclear is
Insufficient ...........................................................................................................134
C. Under Construction Nuclear is not BSER ...........................................................134
1. EPA has completely ignored the significant capital investment
necessary to support under construction nuclear .....................................135
2. EPA has no data to support its assumption that under construction
nuclear will operate at 90 percent capacity factor ...................................137
3. EPA’s approach contravenes important national energy and
environmental policy objectives ..............................................................139
IX. BUILDING BLOCK 3—RENEWABLE ENERGY—IS NOT FEASIBLE OR
ADEQUATELY DEMONSTRATED .............................................................................140
A. EPA’s BSER Determination is not Feasible or Adequately Demonstrated in
the Southeast ........................................................................................................141
1. Numerous flaws exist in EPA’s methodology to establish regional-
and state-level renewable generation targets ...........................................141
a. Formation of regions ....................................................................141
b. Misapplication of state-level RPS ................................................143
c. Renewable energy baselines consist primarily of wood
product-related facilities, which have limited potential for
market growth ..............................................................................149
d. EPA’s targeted growth of renewable energy is not feasible ........151
2. EPA has not analyzed the technical issues with significant penetration
of intermittent renewable resources .........................................................153
B. EPA has not Adequately Considered the Costs Associated with Renewable
Energy Development in the Southeast .................................................................156
C. EPA’s Treatment of Biomass is Inconsistent and Arbitrary ................................157
D. EPA’s Alternative Renewable Energy Approach, while still Flawed, Provides
a more Logical Approach.....................................................................................159
E. EPA Ignores Numerous Factors that may Hinder the Deployment of
Renewable Energy ...............................................................................................162
1. EPA fails to account for land development limitations ...........................162
2. EPA fails to account for impact of endangered species ...........................163
a. Critical Habitat .............................................................................163
b. Species Listings ...........................................................................164
3. Significant time is required for permitting...............................................165
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4. Inflexible NGCC permits may hinder cycling needed to support
renewables................................................................................................165
X. BUILDING BLOCK 4 IS NOT FEASIBLE OR ADEQUATELY
DEMONSTRATED .........................................................................................................166
A. EPA has Ignored Technical Barriers to Achieving DSEE Levels .......................167
1. Climate differences could limit potential DSEE ......................................168
2. Building codes could erode potential DSEE ............................................169
3. Differing State-level regulatory frameworks skew potential DSEE ........169
4. Customer mix impacts potential DSEE ...................................................170
5. DSEE evaluation method for cost effectiveness varies by state ..............171
6. Economy and market factors vary by state ..............................................172
7. Electricity rates and rate structures vary by state.....................................172
B. 1.5 Percent Annual Incremental Savings is not Adequately Demonstrated ........173
C. EPA should use Gross, not Net Energy Savings..................................................174
D. EPA does not Address Evaluation, Monitoring, and Verification Issues ............174
E. Even if Technically Achievable, EPA’s Cost Analysis is Flawed.......................176
F. The Proposed Rule Provides a Disincentive to Beneficial Electrification ..........177
XI. EPA’S STATE-LEVEL EMISSION RATE GOAL CALCULATIONS ARE
FLAWED .........................................................................................................................178
A. EPA’s State Goal Calculations Contain Unit Data Errors ...................................178
1. Units that do not meet the applicability criteria should not be included
in state goal calculations ..........................................................................179
2. Under construction NGCCs should not be included in state goal
calculations ..............................................................................................180
3. Retired Units should not be included in state goal calculations ..............181
4. EPA should have used net summer capacity ...........................................182
B. The Assumptions in EPA’s Building Blocks Result in Significant Errors in
State Goal Calculations ........................................................................................183
C. Additional Issues Impacting State Goal Calculation ...........................................186
1. EPA has eliminated the operational applicability criteria for Subpart
Da sources ................................................................................................186
2. If no unit-level data existed, EPA arbitrarily distributed CO
2
emissions and net generation ...................................................................188
3. Inclusion of the Kemper County Energy Facility ....................................189
4. EPA should not displace generation from affected sources based on
incremental renewable energy and DSEE savings ...................................190
XII. EPA SHOULD PROVIDE STATES MAXIMUM FLEXIBILITY IN
DEVELOPING STATE PLANS .....................................................................................191
A. State Plan Considerations ....................................................................................191
B. The Option to Convert from a Rate-Based to a Mass-Based Emission Limit
Should be Preserved .............................................................................................194
C. Other Considerations ...........................................................................................197
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XIII. MONITORING AND REPORTING ...............................................................................198
A. EPA’s Uses of Net Electric and Net Energy Output are Inconsistent with its
§ 111(b) Proposals and are Inappropriate ............................................................199
B. Southern Company Supports the Use of any 40 C.F.R. Part 60 and 75
Methods for Monitoring .......................................................................................200
XIV. SOUTHERN COMPANY OPERATION WILL BE IMPACTED DUE TO THE
COMPLEXITIES OF IMPLEMENTING THIS RULE ..................................................203
XV. EPA’S COST AND BENEFIT ANALYSIS IS FLAWED .............................................204
A. EPA has Underestimated the Potential Cost of Compliance with the Proposal ..205
1. EPA’s IPM modeling is inadequate and underestimates the potential
cost of compliance ...................................................................................205
2. Independent analyses show costs are much higher than EPA’s
estimate ....................................................................................................207
3. Southern Company’s preliminary estimate of costs based on EPA’s
“Option 1 – State Scenario Results” predicts upward pressure on
customer rates ..........................................................................................208
B. EPA’s Compliance Modeling is Inadequate ........................................................210
1. The docket is incomplete due to missing modeling results .....................210
2. EPA’s IPM v.5.13 Base Case contains significant errors ........................211
C. EPA’s Compliance Modeling Results are not Feasible .......................................214
1. EPA’s proposed regulatory timeline lacks support ..................................214
a. Fossil fuel-fired unit retirements ..................................................214
b. EPA has failed to consider the remaining useful life of many
electric generating units ...............................................................215
c. New generation assumptions .......................................................217
2. EPA inadequately evaluated reliability and transmission implications ...219
a. NERC’s initial assessment of the proposal cites concerns ..........219
b. Southern Company’s preliminary screening of transmission
system impacts depicts constraints ..............................................221
D. The Proposed Guidelines do not Properly Characterize Benefits ........................223
1. EPA has used an incorrect methodology in its analysis of the Social
Cost of Carbon .........................................................................................224
2. EPA improperly claims public health benefits ........................................227
3. There are no benefits to the proposed guidelines .....................................230
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EXECUTIVE SUMMARY
“We really wanted this to be an opportunity to look at a short- and long-term investment
strategy, not a pollution control strategy,” EPA Administrator McCarthy said. “[Carbon
pollution] . . . can be reduced in the electricity sector in ways that are very far from pollution
control technologies.” 1
The proposed Clean Power Plan is the most complex and far-reaching environmental
proposal ever created by the Environmental Protection Agency (“EPA” or “Agency”). The
proposed Clean Power Plan extends beyond EPA’s authority under the Clean Air Act (“CAA” or
“Act”), is unworkable, and would increase electricity prices to customers while jeopardizing
reliability. This will result in a complete deconstruction of the nation’s electric sector and
negatively impact America’s energy security.
To accomplish goals that have nothing to do with “pollution control technologies,” EPA
manipulates a seldom-applied portion of the CAA, which provides states with the authority to
establish standards of performance for existing units. In unprecedented fashion, EPA assumes
reductions in carbon dioxide (“CO ”) emissions from existing power plant sources can and
2
should be achieved through measures applied from “plant to plug.” Thus, rather than focus on
controlling affected sources through emissions “control technologies” or work practice
standards, EPA proposes to force a shift in generation from coal-fired units to alternate forms of
generation, such as natural gas combined-cycle (“NGCC”) units, under construction and “at-
risk” nuclear, and renewables. And EPA would go further, requiring a reduction in the overall
demand for electricity by regulating even the amount of electricity that end-use consumers are
able to use. In this proposal, EPA has openly exceeded its authority under the CAA, and used
error-laden and infeasible assumptions to create overly stringent state-based goals. EPA’s goals

1 Edward Klump, POLICY: EPA’s McCarthy pushes states to adopt carbon-cutting ‘investment strategy,’
E&E Publishing: EnergyWire (July 15, 2014), www.eenews.net/stories/1060002860.
1
are unworkable in their current form and provide no flexibility to the states in developing
performance standards or compliance programs. EPA also grossly underestimates the potential
costs and impacts of the proposal and demonstrates no valid off-setting benefits. For these and
other reasons, EPA must withdraw its proposed rule.
Section 111(d) of the CAA, in certain circumstances, authorizes EPA to establish
emission reduction guidelines based on the “best system of emission reduction” (“BSER”) that
has been “adequately demonstrated” at a “reasonable” cost at an individual affected source. It
affords states the discretion to determine performance standards, considering such factors as the
remaining useful life of sources, and to develop compliance programs that consider a state’s
unique attributes.
In this proposal, EPA’s artificial BSER determination has little to do with actual
performance standards at existing sources—the focus of § 111(d). It is not technically feasible,
Adequately Demonstrated, nor reasonably priced and thus it is legally indefensible. EPA
contends that its collection of “Building Blocks” is Adequately Demonstrated because they are
used in numerous states for reducing the operation of (and hence the emission of CO from)
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existing fossil fuel-fired electric generating units (“EGUs”). But no state has enacted or
undertaken all of EPA’s Building Blocks at the levels prescribed by EPA, therefore its proposed
BSER cannot be considered Adequately Demonstrated. EPA also made no effort to estimate the
cumulative cost of implementing its proposed BSER. Southern Company, however, attempted to
determine the total cost of collectively implementing EPA’s four Building Blocks. The analysis
concluded that implementation of EPA’s BSER determination, using EPA’s cost assumptions at
the prescribed levels, may cost this country up to an astounding $1.1 trillion over the first decade
of implementation. Such an amount cannot be considered a reasonable cost.
2
EPA may object to these cost estimates based upon its continued assertion that states
have flexibility to choose among the four Blocks to reduce overall costs. A recent study from
National Economic Research Associates, Inc. (“NERA”), however, concludes that even
optimizing among the four Blocks would make this proposal the most costly rule ever created
and that annual costs of compliance could be $41 billion or more per year nationally,
dramatically exceeding the cost of all CAA standards in 2010 ($7 billion) and dwarfing the $10
billion annual cost of the Mercury and Air Toxics Standards (“MATS”) rule.2 Thus, both the
absolute cost of implementing the EPA’s BSER and an optimized economic compliance solution
yields intolerably high compliance costs and customer rate increases. Such an extraordinarily
and unreasonably expensive proposal cannot possibly reflect the “best” system of emission
reduction and is at odds with the Administrator’s obligation to regulate only as necessary to carry
out her functions under the Act.3
Furthermore, according to the plain language of the CAA, U.S. Supreme Court precedent,
and by its own admission, EPA does not have the legal authority to regulate CO emissions from
2
existing power plants because these sources are already subject to § 112 of the CAA. It is
unambiguous in the CAA that EPA cannot establish standards of performance under § 111(d) for
existing sources for any air pollutant emitted from any source category that is related under a
§ 112 National Emission Standards for Hazardous Air Pollutants (“NESHAP”).4 In the proposed

2 New Study Confirms Major Economic Costs from EPA’s Proposed Carbon Regulations, America’s
power (Oct. 16, 2014), available at: http://www.americaspower.org/new-study-confirms-major-economic-costs-epa-
s-proposed-carbon-regulations
3 42 U.S.C. §§ 7411(a).
4 The Supreme Court noted in AEP v. Connecticut, 131 S. Ct. 2527 (2011) that “EPA may not employ
[standards under Section 111(d)] if existing stationary sources of the pollutant in question are regulated under the
[NAAQS] program . . . or the [NESHAP] program [under Section 112] . . . .” Id. at 2537 n.7.
3