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, 2013

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Edison Electric Institute

Trade Association of Investor-Owned Electric Companies Membership includes

All US investor-owned electric companies 70 international affiliates 250 associate members

US members Directly employ over 500,000 workers Provide electricity for 220 million electric utility

customers Our mission focuses on advocating public policy;

expanding market opportunities; and providing strategic business information

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Outline

Setting the Stage The electric industry is responding to many

challenges

Federal Environmental Programs The 5 programs with the highest near-term impact

State-Specific Programs Environmental programs specific to Maryland

Overall Industry Impact Adding it all up – what does it mean?

Setting the Stage: Divergent Forces

Markets/

Technology

Tax Policy

Sales/Economic

Recovery

EnvironmentalRegulations

Congress/States/

FERC

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Challenges

With 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 term

Ensuring reliable electricity for our customers

Negotiating the political landscape

Comply with environmental standards

Utilities Have Substantially Reduced Air EmissionsWhile Increasing Electricity Production

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2012 National Fuel Mix

Electric Companies Use a Diverse MixOf Fuels to Generate Electricity

*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.

Coal37.4%

Natu-ral Gas

30.4%

Nu-clear

19.0%

Hydro6.7%

Other re-newables*

5.4%

Fuel Oil0.6%

Misc.**0.6%

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*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)

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

0%

10%

20%

30%

40%

50%

Coal

Natural Gas

Nuclear

RenewablesOther

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

11

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar-1

0

May-1

0

Jul-1

0

Sep-

10

Nov-1

0

Jan-

11

Mar-1

1

May-1

1

Jul-1

1

Sep-

11

Nov-1

1

Jan-

12

Mar-1

2

May-1

2

Jul-1

2

Sep-

12

Nov-1

2

Jan-

13

Mar-1

3

May-1

3

Jul-1

3$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

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

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

12

-

5

10

15

20

25

30

35

Shale

Tight Gas

Lower 48 Onshore ConventionalLower 48 Offshore

Coalbed Methane Alaska

ACTUAL PROJECTED

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

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).14

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Age of Units*

Generating Units

Total Nameplate Capacity

Total Net Generation Year 2008

Total CO2 Emissions Year 2008

Total SO2 EmissionsYear 2008

Total NOX

Emissions Year 2008

#Percent of Total

GWPercent of Total

GWHPercent of Total

MTonsPercen

t of Total

TonsPercent of Total

TonsPercent 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%137,80

31.9%

108,115

3.8%

21-30 Years 186 16.7% 86.1 26.1%541,40

829.0% 615.0 29.6%

1,336,033

18.0%763,20

726.9%

31-40 Years 238 21.4% 122.5 37.1%724,20

638.8% 780.7 37.6%

2,750,025

37.1%1,053,2

5937.1%

41-50 Years 270 24.3% 60.8 18.4%316,02

916.9% 352.2 16.9%

1,879,152

25.4%533,03

818.8%

51-60 Years 304 27.3% 39.3 11.9%187,47

310.0% 220.7 10.6%

1,265,388

17.1%356,90

212.6%

61-70 Years 30 2.7% 0.9 0.3% 1,166 0.1% 2.5 0.1% 19,223 0.3% 6,554 0.2%

> 70 Years 4 0.4% 0.0 0.01% 50.0003

%0.1

0.004%

87 0.001% 484 0.02%

Coal Unit Totals 1,112 100.0% 329.95 100.0%

1,868,336

100.0% 2077.9100.0

%7,405,7

94100.0%

2,835,339

100.0%

Source:  Ventyx, Inc.—EV Suite MTon = million tons * Does not include units that came online in 2009

Coal Units by Age, Capacity and EmissionsU.S. Generating Units, 10 Year Increments

Industry Capital Expenditures

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

ActualsProjections (July

2012)Projections (Oct.

2013)Notes: Total company spending of U.S. Shareholder-Owned Electric UtilitiesProjections based on publicly available information and extrapolated for companies reporting fewer than three projected years (6% in 2014 and 2015).

94.4

85.8 83.7

95.2 92.8

85.3

43.0 41.1

48.4

59.9

74.1

82.877.7

74.378.6

90.5

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

($ Billions)

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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? 17

6% 6%6% 7%

10% 12%

15%17%

22%21%

41% 37%

$0 B

$20 B

$40 B

$60 B

$80 B

$100 B

2012P 2013P

Generation

Distribution

Transmission

Gas-Related

Environment

Other

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

Notes: Total company functional spending of U.S. Shareholder-Owned Electric UtilitiesProjections based on publicly available information and extrapolated for companies not reporting functional detail (1.6%).

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Federal Environmental Regulatory Challenges: 2012 and BeyondAir Climate Water Land &

Natural Resources

Waste & Chemical Managem

ent

Coal Ash

PCBs in Electrical

Equipment

HazMat Transport

Transmission Siting

and Permitting

Avian Protection

Endangered Species

Vegetation Manageme

nt

316(b)

Effluent GuidelinesLimitations

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/Visibili

ty

Multiple NAAQS

New Source Review (NSR)

Waterbody- Specific Standards

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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 units

Remaining key problems – compliance timeline; new source limits

EPA granted reconsideration of certain new source issues

30 total petitions for review consolidated under White Stallion Energy Center LLC v. EPA, D.C. Cir., No. 12-1100 Oral arguments likely in spring 2013 The court has granted expedited schedule for new

source issues

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Utility MATS Regulation (2)

Annualized compliance costs to power industry estimated at $9.6 billion (2007$) in 2015

Estimated 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)

Years 1 -3 Year 4 Year 5+

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 4th year extension.) EPA

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

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April 2012

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Cross-State Air Pollution Rule (CSAPR)

August 8, 2011 - final rule published in Federal Register Affects 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,

2012

The 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 rule

EPA 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)

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 talks26

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 sources27

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 20 Sets 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 winter Near-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) Rule Proposed 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 ~21:1

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Cooling Water Intake Structures (2)

Implications Every 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-making

Closed-cycle cooling may not meet all requirements

Other 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 regulations Beneficial use exempt from regulation Comments submitted Nov. 2010; Final Rule expected

2012

Subtitle C option would reverse 1993 & 2000 Regulatory Determinations

Majority of states, ash recyclers, industry groups, large number in Congress oppose hazardous waste regulations

Will significantly impact operations: closure of ash ponds, construction of additional disposal capacity, reductions in beneficial use

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 Snapshot

State Utility Sector Emissions (2011 preliminary, EIA) Carbon dioxide (CO2): 23,031,013 tons Nitrogen oxide (NOx): 17,184 tons Sulfur 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

2012/2013 Total reductions: NOx, 75%; SO2, 85% and mercury,

90%

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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 energy

In 2012, renewable energy resources accounted for 7.9 percent of total net electricity generation

MD Solar Renewable Energy Credit (REC) types and prices1

Tier 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 Financial

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Overall Industry Impact

Retrofit, 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, 2

Take place between 2010 and 2022; Most will be 50-60 years old upon retirement; Approx. 16% of 2010 fleet

Due to fuel and/or compliance costs, consent decrees, age, etc.

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

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.

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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, 2

Predicated on low natural gas prices continuing Doesn’t include

Impacts of ash, water, greenhouse gases (GHG) and other rules

Capital for T&D upgrades and modernization

Other projections 2

IHS Global Insight, average 20 percent increase 2011 to 2035

INFORUM, average 6 percent increase 2011 to 20351 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).pdf

Contact Information

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