The EPA Clean Power Plan:Update on New Jersey’s CPP Evaluation

New Jersey Clean Air Council MeetingApril 13, 2016

Office of Air and Energy AdvisorNJ Department of Environmental Protection

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Today’s briefing topics

1. Litigation Update and Possible Timeline2. New Jersey Energy Mix and Trends3. Thoughts on PJM Reference Model Prelim Results4. New Jersey’s Regulated Facilities Under the CPP5. Renewable Energy and Energy Efficiency: Interaction

with the CPP 6. Review of Mass-based Allowance Deficit and Rate-

based ERC Surplus in NJ 7. Resources for Additional Information

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Litigation Update and Possible Timeline

Andrea FriedmanNJDEP Office of Air and Energy Advisor

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Litigation Update

• Oral arguments scheduled for June 2nd (and 3rd if necessary) in the U.S. Court of Appeals for the District of Columbia Circuit.

• The D.C. Circuit Court could:o uphold or vacate the rule in whole or in part, and/oro remand portions of the rule to EPA

• After the decision, either side can petition the D.C. Circuit Court for en banc review of the D.C. Circuit panel decision.

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Litigation Update

• After the D.C. Circuit Court decision, either side can petition the Supreme Court to hear the case.

• The rule remains stayed unless:• neither side petitions the Supreme Court• the Supreme Court refuses to hear the case• the Supreme Court hears the case and issues a decision

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Possible Timeline

June 2016 D.C. Circuit Court hears oral arguments

Fall 2016 D.C. Circuit issues decision

Jan 2017 New Federal Administration

2017/18 Supreme Court decision grants or deniespetition and/or issues a ruling

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Bottom Line

• States will not submit CPP extension requests or state plans before 2017/18.

• The EPA Proposed Federal Implementation Plan and Model Rule will not be finalized before 2017/18.

• All deadlines and compliance periods in the rule will need to be revisited by EPA.

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New Jersey’s Energy Mix and Trends

Tom McNevinNJDEP Office of Air and Energy Advisor

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% Im

port

ed P

ower

MW

hTotal NJ Electric Generation and Retail Sales

NJ Total Generation NJ Retail Sales Percent of Imported Power Linear (NJ Total Generation)9

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MW

hNJ Fossil Generation

Total Coal Natural Gas 10

39%

35%

31%31%

26%

23%

21%

19%

15% 15%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% Im

port

ed P

ower

MW

hTotal NJ Gas-Fired Electric Generation with Imported Power

NJ Gas Generation Percent of Imported Power Linear (NJ Gas Generation) 11

Thoughts on PJM Reference Model (not including the CPP) :

4/8/16 Preliminary Results

William O’SullivanNJDEP Office of Air and Energy Advisor

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Thoughts on PJM Reference Case Levelized Electric Costs

1. The lower gas price ($3.43) has a significant effect on electric costs (about 14% less), as compared to the higher gas price ($5.14).

2. Implementation of existing Renewable Portfolio Standards (RPS) does not significantly impact the average cost of electricity production in PJM.

3. Results will be different on a state by state basis.

4. The 2 gas prices studied are neither the lowest or highest possible.

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Thoughts on Changes in Capacity for Different Generating Types

1. NGCC new builds increase significantly, more so if gas is lower price.

2. Coal decreased significantly, much more so if gas is lower price.

3. Solar new builds are significantly higher with low gas price.

4. Wind is significantly higher with RPS implementation.

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Thoughts on PJM Reference CaseCO2 Emission Projections

1. Natural gas prices have a major effect on CO2 emissions in PJM.

2. $3.43 gas reduces CO2 emissions by over 30%, as compared to $5.14 gas.

3. RPS is more effective with lower gas price.

4. $3.43 gas achieves CO2 levels well under the 2030 CPP goal for PJM (over 20% lower).

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New Jersey’s Regulated Facilities Under the CPP

Tom McNevinNJDEP Office of Air and Energy Advisor

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62%

30%

64%

58% 57%

51%

64% 63%

26%

21%

62%

49%

76%

13%17%

32%

16%

25% 27% 27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Perc

ent o

f Em

issi

ons

not c

over

ed b

y Al

low

ance

s

CO2

(ton

s)Mass-Based

NJ 24 CPP Plants: 2012 Emissions with 2030 Allocations based on EPA Proposed FIP, with 3 "Under Construction" Plants Operating at 75% Capacity Factor

2012 Emissions 2030 Allocations Percent of Emissions not covered by Allowances

Plants under construction in 2012 run at 75% CF

Output-based set asides applied to 4 eligible plants: Woodbridge, Newark, Red Oak, West Deptford

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Rate-Based Approach:What is an ERC?

An ERC is an administratively created, tradable instrument with a unique serial number that “represent[s] one MWh of actual energy generated or saved with zero associated CO2 emissions”. When held and retired by an EGU, an ERC allows that EGU to adjust its emission rate as follows:

EGU CO2 Emissions (lb)Adjusted emission rate = -------------------------------------------------------

𝐸𝐸𝐺𝐺𝑈𝑈 𝐺𝐺𝑒𝑒𝑛𝑛𝑒𝑒𝑟𝑟𝑎𝑎𝑡𝑡𝑖𝑖𝑜𝑜𝑛𝑛 (MWh) + 𝐸𝐸𝑅𝑅𝐶𝐶𝑠𝑠 (𝑀𝑀𝑊𝑊ℎ)

2030 Adjusted emission rate goals: NGCC = 771 lb/MWh, Boilers = 1,305 lb/MWh

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-12%

22%

14%

-1%

-20%

0%

20%

40%

60%

80%

100%

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

ERCs

Nee

ded

as %

of

(Gen

erat

ion

+ ER

Cs)

MW

hRate-Based:

NJ CPP Plants: 2010-2012 Generation with ERCs needed at 2030 Emission Rates, with Adjustments for 4 CHP Plants with Steam Customers in 2015

Generation ERCs needed % ERCs

Plants under construction in 2012 run at 75% CF

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1,898

1,238

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2012

lb/M

Wh

Hudson-2 Average 2012 - 2015 CO2 Rates, Coal vs Gas-fired Generation

Coal Gas

2030 Goal = 1,305

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Renewable Energy and Energy Efficiency: Interaction with the CPP

Joseph CarpenterNJDEP Office of Air and Energy Advisor

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NJ RPS Trajectory(Note: Pre-2013 activities are not credited under CPP)

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NJ EE Savings – Projected to 2030(Assumes 1% EE savings annually)

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RE Treatment in a Mass Based Program

• MWh of RE reduces demand, which helps keep state under the emission cap

• RE can receive allowance allocation from set-aside (state discretion) for sale to regulated generators

• 5% RE set-aside in FIP for new source leakage• Utility scale wind, solar, geothermal,

hydropower can be set-asides to address leakage

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RE Treatment in a Rate Based Program

• RE MWhr generates tradeable ERCs for compliance purposes

• Post-2012 wind, solar, geothermal power, hydropower(EPA solicits comment on inclusion of qualifying biomass feedstocks)

• Rate based requires RE or EE for compliance

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EE Treatment in a Mass Based Program

• MWh savings from EE help keep state under the emission cap

• Do not result in a tradeable compliance mechanism – therefore no direct financial incentive, aside from optional allowance allocation under a state plan

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EE Treatment in a Rate Based Program

• Post-2012 EE actions create tradeable ERCs for compliance

• All measurable EE qualifies, provided verified using EPA-accepted EM&V protocols

• State and utility EE programs, project based demand-side EE, state building codes, state appliance standards, conservation voltage reduction, CHP

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Review of Mass-based Allowance Deficit and Rate-based ERC Surplus in NJ

William O’SullivanNJDEP Office of Air and Energy Advisor

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Mass-Based Approach

• New Jersey 2030 Cap = 16.6 million tons

– Existing Sources = 12.4 million tons (75%)(directly allocated)

– Renewable Energy Set-Aside = 0.8 million tons (5%)(indirectly available)

– Output-Based Set-Aside = 3.4 million tons (20%)(directly allocated to certain efficient NGCCs)

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3,413,100

829,987

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2012 Ops 2012 + UC s 2012 + UC s - Retirees 2012 + UC s - Retirees +Stakeholder's 2030 Projections

2030 Cap

CO2

(sho

rt to

ns/y

ear)

NJ Estimated Actual CO2 Emissions Compared with 2030 Emissions Cap

"2012 Ops" = Annual 2012 emissions from 21 plants "2012 + UCs" = Actual 2012 emissions plus emissions from 3 plants then Under Construction operating at a 75% capacity factor "2012 = UCs - Retirees" = "2012 + UCs" - 5 plants scheduled to retire

Existing Source

Allocations

OB set-aside for NGCC

RE set-aside

RE = Renewable EnergyOB = Output-based

2030 Cap

15.3 million

20.4 million19.7 million

23.4 million

12,356,662

16.6 million

2012 + UCs - Retirees + Power Companies' 2030 Projections

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2030 Mass Based Allowance Shortfall Per Year

2030 Allowance Need* 23.5 million

2030 Allowance Allocation 16.6 million__________________________________________________

2030 Allowance Deficit - 6.9 million (30%)

*Based on company expectations for 2030 electric generation.- Under construction units at 75% capacity- 5 facilities are shut down or replaced with

new units

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Note: This graph is based on EPA CPP data.

Fossil Steam, (8% of MWhs at 2380 lb/MWh)

Fossil Steam Goal Rate, (8% at 1305 lb/MWh)

Operating NGCC, (68% of MWhs at 949 lb/MWh)

NGCC Goal Rate, (92% at 771 lb/MWh)

NGCC Under ConstructionAdjustment, (24% of MWhs

at 949 lb/MWh)

2012 Baseline 2030 Goal

2012 Baseline Rate: 1058 lb/MWh Combined Goal Rate: 812 lb/MWh

-23%

CPP Rate-based Goal for New Jersey

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See attachment (2 pages)

Rough Accounting for Hypothetical NJ Rate Based Program (in 2030 Based on 2012 Electric Generation)

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Conclusions1. NJ has an allowance deficit if it selects mass based

- 30% short for existing CPP regulated facilities

- 50% short if include new facilities (based on permitted or planned facilities)

2. NJ would need to depend on excess allowances in other states to comply with a mass based program.

3. Including new sources (as is done in RGGI) would add to the difficulty of compliance with the EPA’s mass-based program.

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Conclusions (cont’d)

4. NJ may have an ERC surplus if it selects rate based

5. ERC credit depends on EPA final rules

6. EPA’s proposed rules cannot be met by NJ under existing energy law. EPA regulation at the wholesale market is primary problem.

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Resources for Additional Information

Background Material on the Clean Power Plan on the CAC website at http://www.state.nj.us/dep/cleanair/hearings/pdf/cpp.pdf

Includes: Text of the CPP and the Proposed Federal Plan and Model Rules Resources from the U.S. Environmental Protection Agency Resources from Universities Resources from Other Sources The State of New Jersey’s Response to the CPP New Jersey Energy Master Plan Litigation Materials

Background Material on the Clean Power Plan was updated on 3/31/16. If you see an older version on the CAC website, refresh your web browser. (The date is on the bottom of the last page.)

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There is much to consider…

Adapted from Understanding EPA’s Clean Power Plan: A Webinar for State Energy & Environmental Regulators, Great Plains Institute and Duke Nicholas Institute for Environmental Policy Solutions 40