EXPOSICIÓN DE RESULTADOS Y DESARROLLO DE LA PROGRAMACIÓN

This section provides a summary of the MATS rule that highlights its reliance on the interconnected grid and off-site measures.

The Mercury Air Toxics Standards (MATS)322 provides another example of EPA

interpreting CAA provisions in a way that reflects the reality of the interconnected nature of the electricity sector, and which recognizes the long-standing practice in that sector of retiring or replacing higher-emitting units to meet CAA standards. MATS established national emission standards for hazardous air pollutants (NESHAP) for coal- and oil-fired EGUs. The relevant CAA authority, section 112, generally requires existing sources to comply with applicable standards within three years of the standard’s effective date.323 However, an existing source can

320 _{EIA, “Electric Power Annual 2000,” vol. 1 (August 2001) 13}

http://www.eia.gov/electricity/annual/archive/vol1/0348001.pdf (emphasis added).

321_{See, e.g., NOx Supplement to the Title I General Preamble, 57 FR 55620 (Nov. 25, 1992);} EIP Final Rule, 59 FR 16690, 16704 (April 7, 1994).

322 _{77 Fed. Reg. 9,304 (Feb. 16, 2012).} 323 _{42 U.S.C. § 7412(i)(3)(A).}

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obtain an extension of up to one year if the permitting authority determines that the additional time is “necessary for the installation of controls.”324

In interpreting the phrase “installation of controls” for purposes of coal- and oil-fired EGUs complying with MATS, the EPA was significantly influenced by the uniqueness of the electricity sector:

[T]his source category is unique due to the large, complex and interconnected nature of electrical generation, transmission and distribution, and the critical role of the electric grid in the functioning of all aspects of the economy. The grid functions as an interconnected system that supplies electricity to end users on a continuous basis. Safe, reliable operation of the grid requires coordination among actions taken at individual units, including ... derating, or deactivation.325

This uniquely interconnected system drove the EPA to propose a reasonable interpretation of “necessary for installation of controls” that encompassed not only add-on controls made at an existing unit, but also the “replacement of an existing unit with a cleaner one.”326 _{At the proposal} stage, the Agency proposed to reasonably interpret “necessary for the installation of controls” to allow for an extension if necessary for

the construction of on-site replacement power (e.g., a case when a coal unit is being shut down and the capacity is being replaced on-site by another cleaner unit such as a combined cycle gas turbine or simple cycle gas turbine ...).”327

Commenters representing owners and operators of coal-fired EGUs widely praised the Agency’s uniquely tailored interpretation, and urged the Agency to interpret “installation of controls” even more broadly to encompass a number of off-site actions that EGUs owners can take to enable emission reductions at an existing coal-fired EGU.

For example, UARG urged EPA to consider certain transmission system upgrades as an “installation of controls” that would merit an extension:

UARG supports EPA’s decision to encourage States to grant a one-year extension in cases where there is construction of on-site power replacement. UARG believes there are other cases that could be considered “installation of controls.” One example is a transmission system upgrade that is needed to bring power generated at other locations to replace the power generated by the retiring unit.328

Southern Company similarly urged that EPA’s interpretation should apply to replacement generation constructed anywhere -- not just at the site of the EGU:

324 _{42 U.S.C. § 7412(i)(3)(B).} 325 _{77 Fed. Reg. at 9,410.} 326 _{76 Fed. Reg. 24,976, 25,055.}

327 _{76 Fed. Reg. 24,976, 25,055 (emphasis added).} 328 _{UARG’s MATS comment (#17775) at 244 n.292.}

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Regardless of where the replacement power is built (either by the utility or purchased as part of a power purchase agreement), the one-year extension [for installation of controls] should be allowed for retirement, construction of replacement power, and construction of new and upgraded transmission lines that bring replacement power from new or existing generation units.329

American Electric Power (AEP) commented that EPA’s proposed interpretation limiting “installation of controls” to on-site generation was “too limiting” in light of the ability to construct effective replacement generation in other locations, including with natural gas: AEP appreciates that EPA includes construction of on-site replacement power as an eligible activity for a compliance extension should units be retired and replaced. However, the reference to “on-site” replacement generation is too limiting as existing sites, among other technical factors, may not have easy access to natural gas supply, which will be the likely fuel source for much of the replacement generation. Additionally, replacement generation may be added at a single larger site to replace retired generation at number of smaller sites. Thus, AEP requests that ANY capacity being added to off-set unit retirements automatically be eligible for the compliance exemption.330

A number of these commenters indicated that a retirement of an EGU should qualify as an “installation of controls,” regardless of whether there will be replacement power. For example, AEP contended that an extension would be necessary for the installation of controls “if required state and federal regulatory approvals to retire the capacity cannot be obtained.”331 _{The Florida} Electric Power Coordinating Group, which represents utilities and rural electric cooperatives in that state, commented that it

supports EPA’s interpretation that building replacement power meets the requirements in Section 112(i)(3) “to install controls,” and requests that EPA apply this provision to all retirements, and not limit it to retirements where replacement power will be built at the same site.332

In light of these and many other supportive comments, in the final MATS rule the EPA formally interpreted “necessary for the installation of controls” as applying to a wide variety of on- and off-site actions that the owners and operators of EGUs can make to reduce emissions, which are made possible only because of the unique, interconnected nature of the electricity sector. Specifically, the EPA interpreted “installation of controls” to include not only construction of on-site replacement power, but also retirements, construction of off-site

generation, or transmission upgrades. Accordingly, the EPA advised state permitting authorities

329 _{Southern Co.’s MATS comment (#18023) at 199.}

330 _{AEP’s MATS comment (#19114) at 28. AEP further suggested that other off-site measures} should qualify for the extension, such as “if transmission improvements are needed” or

“additional gas supply lines must be constructed or replaced”). Id. at 20. 331 _{AEP’s MATS comment (#19114) at 20.}

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that any of the following would “reasonable justification” for providing up to an additional year of compliance time as “necessary for the installation of controls”:333

(1) Generation from the retiring unit is needed to maintain reliability while other units install emission controls; (2) new off-site generation was being built to replace the retiring unit, but the new generation was not scheduled to be operational within the 3-year time-frame and any gap between the time the existing unit retires and the new unit comes on line would cause reliability problems; and (3) transmission upgrades were needed in order to maintain electric reliability after the unit retired but could not be completed within 3 years.334

The EPA believed that this interpretation was fully consistent with the requirement the fact that the extension “on its face applies to individual sources ....”335 _{This interpretation nevertheless} complies with that source-specific requirement because off-site transmission upgrades, on- and off-site replacement generation, and retirement of the affect coal-fired EGU itself are all

techniques that allow the EGU to reduce its emissions – in MATS, mercury and other hazardous emissions; in this rule, CO2 emissions.

At least some sources have taken advantage of the EPA’s offer by seeking and obtaining extensions for reliability-delayed retirements coupled with construction of replacement

generation.