the specific situations faced by cooperatives and similarly situated utilities. As discussed in section II.C above, the CAA and regulations direct EPA to provide States with broad flexibility to determine the extent to which to apply standards of performance to particular sources and source categories.
That flexibility is particularly important for cooperatives and similarly situated utilities, which will face significant challenges in complying with any standard of performance based on the BSER that EPA has established, making application of less stringent standards much more reasonable for cooperatives and similarly situated utilities than the full application of BSER that EPA has proposed.
EPA appears to understand this fact. For instance, EPA correctly recognizes that many rural electric cooperatives have very small fleets of generating assets and that many “may not have as much flexibility [as larger utilities] to control dispatch because they are operating in a competitive market, where they can be in a position in which they need to operate if called upon.”124 Unfortunately, the rule fails to give
States the flexibility to address the special circumstances that even EPA admits is needed. EPA’s proposed binding, statewide emission reduction targets are based on unfounded
assumptions about the availability of re-dispatch, renewables, and demand reduction. Because these blanket assumptions are baked into EPA’s emission reduction goals, and because EPA has made no provision for reducing those statewide emission reduction goals if their assumptions prove unfounded in a specific case, the Proposed Rule unlawfully deprives the States of their ability to truly address cooperatives’ and similarly situated utilities’ circumstances in a reasonable way.125
124
79 Fed. Reg. at 34,887.
125 See 42 U.S.C. §§ 7411(a) (specifying “cost of achieving such reduction” in emissions as factor that must be
considered in determining BSER), 7411(d) (specifying that “[r]egulations of the Administrator under this paragraph shall permit the State in applying a standard of performance to any particular source under a plan submitted under this
Given this fundamental problem with the proposal, NRECA appreciates that EPA expressly invites comment on “whether there are special considerations affecting small rural cooperative or municipal utilities that might merit adjustments to this proposal, and if so, possible adjustments that should be considered.”126
NRECA welcomes this invitation to comment, and it believes that the proposal requires substantial revision to account for the particularly difficult circumstances that rural electric cooperatives and similarly situated utilities face. Recognizing individual unit circumstances, including remaining unit useful life, is not only consistent with the statute but it is a function specifically delegated to the States by Section 111(d) in determining the extent to which to apply any standard of performance to a specific unit or class of units.
Specifically, as we discuss in more detail below, the final federal emission guidelines should recognize that: (1) most rural electric cooperatives have extremely limited portfolios of generating assets and therefore that re-dispatch to gas-fired or renewable energy sources may not be available for many rural electric systems; (2) in many cases they rely on coal-fired EGUs that may be able to make only minimal improvements in heat rate to achieve lower CO2 emission rates; (3) existing lessor financing arrangements and concerns about creating stranded assets through premature shutdown or curtailment would create significant adverse rate impacts for NRECA members, and these will constrain their ability to comply with EPA’s proposal if finalized in its current form; and (4) opportunities for additional demand-side energy efficiency measures in rural areas are likely to be extremely limited due to the rural and largely residential nature of the cooperatives’ customers. Moreover, EPA’s suggestion that cooperatives build or contract for electric supply from lower-emitting sources is unlikely to be practicable and will result in unreliable electric supply to rural customers at extraordinary rates. Many small investor-owned utilities also face the same
paragraph to taken into consideration, among other factors, the remaining useful life of the existing source to which such standard applies”), 40 C.F.R. §§ 60.22(b)(3) (requiring EPA, in promulgating emission guideline documents, to provide States “information on the costs … of applying each system to designated facilities”), 60.22(b)(5) (emission guideline must reflect “the application of the best system of emission reduction (considering the cost of such reduction)”; subcategorization, with “different emission guidelines or compliance times or both for different sizes, types, and classes of designated facilities” is required “when costs of control, physical limitations, geographical location, or similar factors make subcategorization appropriate.”).
challenges caused by limited generation portfolio, coal reliance, and widely dispersed, largely residential customers that cooperatives face.
To solve the problems faced by cooperatives and similarly situated utilities, and to restore the States’ statutorily-mandated flexibility, NRECA urges EPA to limit itself to its statutorily prescribed roles of: (1) defining the “procedures” under which the States will develop and submit their plans, and (2) identifying the “best system of emission reduction” that EPA determines has been “adequately demonstrated.” Beyond that, EPA should adhere to the statute’s express command that the States individually be permitted to determine the specific standards of performance to apply to sources within their borders, on a unit-by-unit basis, based on the procedures EPA has developed and the BSER it has properly identified.
a. Most rural electric cooperatives have extremely limited portfolios of generating assets and therefore re-dispatch to gas-fired or renewable energy sources may not be available for many rural electric systems. The vast portion of cooperative electric generation is coal-fired. Nationwide concerns over natural gas availability prompted the U.S. Congress to enact the 1978 Power Plant and Industrial Fuel Use Act. Although this act was repealed in 1987, during implementation it required all new electric generating facilities to be “coal capable.” Due to the capital cost differentials between facilities constructed to be “coal capable” and those designed solely for natural gas use, as well as the historically higher fuel cost of natural gas, the Fuel Use Act economically prohibited new EGUs that were coal-capable from using natural gas as the primary fuel. During the time the relevant portions of the Fuel Use Act were in effect, electric
cooperative generation needs grew substantially. As a consequence about 60 percent of cooperative total baseload electric generation was constructed under Fuel Use Act and is coal based.
Because of their location far from other sources of generation, and because of the unique cost constraints they face, many cooperatives lack affordable or practical access to enough gas-fired and renewable energy sources to replace the coal that would be displaced by the new rule. This makes the emission reductions that EPA assumes can be obtained from Building Blocks 2 and 3 unrealistic for many rural electric cooperatives.
b. Only limited improvements in heat-rate are available for many cooperative-owned, coal-fired units.
Electric cooperative owners and operators strive to maintain generation that is both reliable and affordable. Because cost savings are passed directly to members, cooperatives work constantly to ensure that their generating assets are well maintained and operated in a way that maximizes electric output for any given quantity of fuel input. As a consequence, many of the heat-rate improvement projects that EPA assumes that units will be able to undertake to comply with Building Block 1 of the Proposed Rule have already been undertaken, thus making impossible for those units to obtain anything close to the 6% improvement in emission rates that EPA proposes. We detail these heat rate improvement limitations in III.B. below. Moreover, our members’ experiences demonstrate that the emission reductions obtainable from heat-rate improvement projects tend to be temporary, and that emissions per megawatt-hour tend to rise as time passes following completion of such a project, even with continued maintenance of the unit, as detailed below in III.B.
c. Rural electric cooperatives face unique constraints resulting from lessor financing arrangements and threat of stranded assets.
The costs imposed by the Proposed Rule will ultimately be borne by cooperatives’ members and consumers. Cooperative generators have limited equity available to them. In other words, they are highly leveraged, and cooperative consumers must service the debt on units affected by the rule. In many cases units running even less that 10 percent below their operational norm on a continuing basis would be unable to generate enough revenue to service the outstanding debt on the unit. Running them less (which is what EPA effectively requires when it suggests that cooperatives can build new, lower-emitting units or purchase electricity from lower-emitting sources in lieu of generating it from existing units) will lead to significant financial issues and a very high likelihood of creating stranded assets.
For example, EPA’s model presumes that Arizona’s Tri-State Generation and Transmission Association, Inc., (Tri-State) coal-fired facility, Springerville Unit 3, will dispatch at such a low level due to environmental dispatch that in reality its continuing operation will no longer be economically viable. EPA modeling projects almost 100% re-dispatch of coal resources in Arizona by 2030. Tri-State built this 417
MW coal-fired unit in 2006 and invested just under one billion dollars in it. The expected useful remaining life of the plant extends until 2066. The Springerville plant is a state of the art coal plant with air pollution controls including bag houses for particulate matter, scrubbers for sulfur dioxide, and selective catalytic reduction for nitrogen oxides. Tri-State will be installing additional controls in 2015 to reduce mercury emissions.
Similarly, based on the EPA’s modeling under the proposed rule, Seminole Electric Cooperative’s coal-fired generating facilities have been arbitrarily scheduled for retirement well before the end of their useful life. Seminole has invested more than $530 million in environmental control technology and recycling practices – $260 million of which was placed in service less than 5 years ago. To reduce emissions, and as part of Seminole’s commitment to their communities, approximately 70% of the byproducts produced at their coal facility are recycled for use in products that consumers use every day, including wallboard and concrete. These continued investments have made Seminole’s facility one of the cleanest coal-based power plants in the country. Should the EPA’s proposed CO2 rule be finalized, these costly investments will become stranded assets and Seminole’s coal-fired power plant will be forced to close – leaving 300 hard-working, skilled employees without jobs. Additionally, Seminole would have to build or purchase new power generation to replace the electricity produced from its coal-fired facility. Such a drastic and sudden shift in Seminole’s power portfolio will not only drive up the cost of electricity for its member cooperatives and member consumers, but could have sweeping unintended consequences for the fragile but recovering workforce and economy in Florida. In fact, as highlighted above in Table1, numerous cooperatives will have units that face premature phase-out, creating stranded assets and consequently state regional economic disruptions.
Considerations such as remaining useful life and stranded assets or stranded investments associated with units are precisely the types of factors that Congress expected States to be able to consider in
determining what standard of performance to apply to each specific facility within their individual borders. Yet the Proposed Rule deprives States of that ability.
d. Rural electric cooperatives have fewer opportunities to achieve reductions through demand-side energy efficiency measures than EPA assumes.
The customer base of most rural electric cooperatives is unusual. While most utilities serve a mix of both residential and commercial customers, rural electric cooperatives serve mostly residential
consumers.127 This customer base significantly limits the opportunities for obtaining reductions through
demand-side energy efficiency improvements that are available to more traditional utilities.128 Thus, EPA’s
across-the-board assumption that a 1.5-percent-per-annum emission reduction can be obtained through Building Block 4 cannot be squared with the particular circumstances that rural electric cooperatives face.
Taken together, these specific examples of the extraordinary challenges and obstacles rural electric cooperatives would face in attempting to comply with the proposed emission guidelines demonstrate the need for state discretion to take these and other relevant considerations into account in determining the extent to which any standard of performance can be applied to cooperative-owned units, whether individually or as a class. States must also be allowed the discretion to take into account the special circumstances of similarly situated utilities.
III. Even if EPA could prescribe binding numerical targets for States, the targets prescribed in