Assurance Provisions and Variability Calculations The proposed TR assumed assurance provisions (i.e., variability limitations) will demonstrate compliance with the Section 110(a)(2)(d) transport requirements. Under the TR, larger states are assigned a variability of ten percent and smaller states a specified value. Variability limits were included to address concerns of electricity reliability in years or seasons of greater/higher demands. Variability limitations begin in 2014. At the end of 2014, the EPA will determine if the state has exceeded their budget by greater than ten percent; if so, the EPA will determine which sources created the overage. The proposed TR included an example:
A state is 20 percent over their budget:
:: The EPA determines that one source was ten percent below their budget; the remaining two sources were over by ten percent each.
:: To cover the overage for the state, each of the sources that were over would be required to surrender five percent more allowances. (Not ten percent because the entire state is allowed an overage of ten percent on a yearly basis.)
:: Additionally, the three-year average of variability overages cannot exceed three percent for the entire state.
In addition, the proposal indicated that 2015 and beyond allowances may be used for exceedances of variability only, not for regular compliance needs in 2014, since the true-up occurs after the end of the compliance year (i.e., in the next year 2015 or beyond). [EPA-HQ-OAR-2009-0491-2774.1 p.4]
The DNRE believes this process will unfairly impact sources choosing to add on controls. What incentive does the source that is below its budget by ten percent have to generate reductions? The DNRE does not believe the potential sale of their extra allowances to other sources with emissions contributing to a percent overage would be incentive enough to cover the original cost to the source for additional controls. The DNRE also believes this would hamper active trading of allowances and potentially create unnaturally high pricing of allowances within the market.[EPA-HQ-OAR-2009-0491-2774.1 p.4]
As noted above, we disagree that requirements for compliance with the Section 11 O(a)(2)(d) requirements rest solely on the ability of a source to meet the variability limits. The determination of impacts for the proposed TR was based on state-level specific emissions impacting areas downwind. This determination was not completed using source-level specific emissions as those emissions traveled downwind. [EPA-HQ-OAR-2009-0491-2774.1 p.5]
In several areas within the impact methodology discussion in the proposed TR, contributions to downwind areas, i.e., impacts on the attainment and maintenance for downwind areas, were calculated using a 'state's' contribution. The EPA indicated in their technical support documentation (TR_AQModeling_TSD.pdf) that they created pollutant 'tags' and followed these tagged emissions of NOx, S02 and primary fine particulate matter (PM2.5) across state borders to the impacted areas downwind. Further, the EPA did not indicate where a 'tagged' emission originated (such as Monroe power plant unit #4) other than from the state itself. Therefore, the DNRE believes it is logical that any determination of the assurances provisions should be based on a 'state's impact,' not on individual source impacts. This approach is another reason the DNRE believes that the SIP approach of allowing the state to address allocations is more consistent with the EPA analysis. [EPA-HQ-OAR-2009-0491-2774.1 p.5]
Response:
States may submit and implement SIPs as early as 2013.  See preamble section X on state implementation plans for more details.
If assurance provisions are triggered for a state, only those sources that exceed their allowance allocations plus share of the state's variability limit at the common designated representative level, not the unit or source level, would be held responsible for surrendering allowances under the penalty provisions.  Those sources (at the DR level) that do not emit more than their allocations plus share of the state's variability limit do not pay any penalty, thereby providing certainty to those sources. See preamble section VII.E for more about assurance provisions and penalties.
Organization: Michigan Municipal Electric Association (MMEA)
Comment:
Michigan Municipal Electric Association (MMEA)
7.) EPA's Assurance Provisions Could Be Particularly Problematic for Michigan Public Power Units
EPA's assurance compliance provisions will impose a significant pro-rata penalty on any unit that did not reduce emissions sufficiently in any state that exceeds its emissions budget plus variability margin. However, given that Michigan public power units do not have the ability to cost effectively apply major pollution controls, and instead comply through Michigan hardship allowances, the application of assurance provisions on Michigan would impose massive, disproportionate impacts on public power communities. If Michigan exceeds its annual budget with variability, it will not be because of the small units owned and operated by the six public power systems commenting here, which contribute a relatively small amount of NOx and SO2 pollutions in comparison to the large, investor-owned utilities in the State. If Michigan exceeds these levels, it will be because of other parties, and will be beyond any control by these public power communities. Yet the hardest impact of EPA assurance penalties will likely fall on these small public power units because they will continue to comply primarily through allowances (whether allocated by EPA or the State, via regular or hardship allowances, or by allowance purchases), because pollution controls are cost-ineffective. If and when the assurance boom comes down on Michigan in the future, small municipal utilities will be extremely vulnerable and will bear the worse brunt of the penalties. [EPA-HQ-OAR-2009-0491-2828.1, p.15]
8.) Avoid "assurance" mechanisms that would pose disproportionate penalties on small municipal utilities that depend on allowance trading to meet compliance obligations. [EPA-HQ-OAR-2009-0491-2828.1, p.16]
Response:
If assurance provisions are triggered, only those sources that exceed their allowance allocations plus share of the state's variability limit at the common designated representative level would be held responsible for surrendering allowances under the penalty provisions.  Those sources (at the DR level) that do not emit more than their allocations plus share of the state's variability limit do not pay any penalty, thereby providing certainty to those sources.  Further, responsibility for exceeding the state assurance level is determined at the common DR level, so it is generally not the case that the emissions of a single unit will automatically result in a penalty if the state assurance level is exceeded.  In addition, allowing units to designate a single common DR provides them with greater compliance flexibility. See preamble section VII.E for more information about assurance provisions and penalties.
Finally, if the state of Michigan submits and implements a SIP, it can choose to allocate allowances using a different approach that addresses these circumstances for Michigan's public power generators.
Organization: Morgan Stanly Capital Group
Comment:
Morgan Stanly Capital Group
An individual facility's compliance depends on the overall performance of the state in which it is located, over which it will have no control; [EPA-HQ-OAR-2009-0491-2819.1 p.2]
There will not be timely access to cumulative, state-by-state emissions data, which would be required for a generator to have any capability of managing the risk of incurring penalties for excess emissions; [EPA-HQ-OAR-2009-0491-2819.1 p.2]
A facility that exceeds its portion of the applicable state variability limit cannot cover its excess emissions by purchasing allowances. Instead, if the state exceeds its variability limit, that facility is required to surrender two allowances for every ton of excess emissions, in addition to being subject to discretionary penalties under the Clean Air Act ("CAA"); [EPA-HQ-OAR-2009-0491-2819.1 p.2]
The EPA's primary proposal can provide for additional flexibility and still be compliant with North Carolina v. EPA, where the D.C. Circuit Court found that the Clean Air Interstate Rule ("CAIR") trading program was not authorized under the CAA because the regional program failed to prohibit sources "within the State" from contributing to nonattainment "in any other State."23 The D.C. Circuit Court did not suggest that a cap-and-trade market design could never be effective, but rather, that "region wide caps with no state-specific quantitative contribution determinations or emissions requirements" were inadequate to address the CAA's directive.24 As a result, the EPA is required to:
[EPA-HQ-OAR-2009-0491-2819.1 p.8]
 link and measure a state's significant contribution to each downwind state's nonattainment (which is addressed in determining individual state emissions caps);25
consider more than "highly cost-effective controls" in quantifying a state's significant contribution of a pollutant (which the D.C. Circuit Court defined as taking reasonable measures to assure upwind states will reduce emissions below their calculated significant contribution).
The Proposed Rule addresses the D.C. Circuit Court's directive by:
measuring and linking each upwind source to its corresponding downwind nonattainment area;
quantifying the "significant contribution" of each precursor pollutant for each state using "maximum cost considerations" informed by air quality considerations;27 and
setting emissions budgets or caps for each state based on the state's significant contribution of the particular pollutant involved.
[EPA-HQ-OAR-2009-0491-2819.1 p.9]
However, the D.C. Circuit Court decision does not require the Proposed Rule's automatic double surrender of allowances under the assurance provisions, or the potential imposition of discretionary penalties under the CAA when a facility exceeds its share of the state's overall emissions budget and variability limits.28 Similarly, the decision does not mandate how allowances are to be provided or whether or how to structure the variability limits established in the Proposed Rule. Given the risks that the Proposed Rule may pose to the development and reliability of power generation, the EPA should consider modifications that provide greater flexibility and avoid a "one size fits all" approach which could severely handicap minor emission sources and those operating on an intermittent basis. [EPA-HQ-OAR-2009-0491-2819.1 p.9]
The modifications now suggested for EPA consideration do not affect the basic premises of the Proposed Rule or the principles enunciated in North Carolina v. EPA. Instead, they focus on deployment of a relatively small portion of the allowances, preservation of an increment of the variability limits to ensure compliant operation, and provision of a more workable compliance alternative for sources with limited emissions and intermittent operations that will find it especially difficult to operate in compliance with the Proposed Rule. Incorporation of the foregoing modifications into the Proposed Rule will therefore enhance compliance and strengthen its impact, thereby helping to ensure that the directives of the North Carolina decision are met.
3. Alternative Compliance Payment as Alternative to Double Allowance Surrender Provision
MSCG recognizes and understands the reason for the Administrator's inclusion of mandatory emissions budgets on a state-wide basis that impose penalties on non-compliant sources (i.e., "assurance provisions"). That reason is of course the D.C. Circuit Court's directive to reduce downwind nonattainment linked to state-level upwind emissions. However, such penalties can be particularly harsh when applied to intermittent sources of emissions whose operation is subject to outside demands and therefore have greater difficultly projecting and budgeting for their emissions. [EPA-HQ-OAR-2009-0491-2819.1 p.7]
Another option for this limited class of relatively minor emission sources is an up-front "alternative compliance payment," or ACP, in lieu of the double allowance surrender and potential penalty payment. The value of the ACP would be established on a state-specific basis and at a sufficiently high level to encourage installation of pollution control equipment in its stead, particularly in states that are significant contributors to downwind exceedances. Nevertheless, such an option could be utilized to ensure against the imposition of a penalty or where installation of pollution control equipment is not a viable option due to facility operations and size.
In addition to these practical considerations, MSCG strongly opposes the surrender of two allowances as a matter of public policy. Instead of solely "punishing" a violator, it punishes all market participants. In a program where there are a finite number of allowances, a "double surrender" will artificially reduce the total supply. All other things being equal, a reduction in supply will increase price. This in turn this raises costs for other producers who have complied with the Proposed Rule, and those costs ultimately get passed to consumers. [EPA-HQ-OAR-2009-0491-2819.1 p.7]
Response:
There is timely generation and emissions data available to owners and operators to make decisions about buying or selling allowances and whether the state is likely to approach its state assurance level (budget plus variability limit) during the control period.  Covered sources have operational and compliance flexibility in this rule, to the extent possible under EPA's authority and the court rulings.
Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E for more information about assurance provisions and penalties.
As explained in the preamble section VII.E, EPA has designed the assurance provisions and penalties to ensure that states will not exceed their assurance levels.  EPA believes that any assurance penalty would be de minimis and have no noticeable effect on the market, and that in all probability, the assurance provisions will not be triggered.  EPA does not anticipate sources having to surrender allowances in quantities large enough to impact allowance prices based on its experience with other trading programs such as the Acid Rain program and CAIR in which compliance problems have been very infrequent.  The use of allowances for penalties is also based on previous trading programs such as the Acid Rain program, NOx budget trading program, and CAIR.
Organization: National Association of Clean of Air Agencies (NACAA)
Comment:
National Association of Clean of Air Agencies (NACAA)
Adding a Variability Factor to the Emissions Budgets Dilutes the Environmental Integrity of the Rule
EPA presents three "remedy" options for implementing the Transport Rule's emissions reduction requirements. EPA's preferred approach would use state-specific control budgets and allow for intrastate and limited interstate trading of emissions allowances allocated to power plants, to ensure that the majority of power plants in each state control their own emissions rather than buy out-of-state allowances. This option is implemented by adding a variability factor to each state budget, and if a state's emissions exceed the budget plus the variability factor, sources in the exceeding state are penalized (through the turn-in of allowances) based on their proportional share of the overage in emissions. [EPA-HQ-OAR-2009-0491-2771.1, p.4]
NACAA supports EPA's preferred approach but we recommend that the agency modify it to hew more closely to the Act's requirements under section 110(a)(2)(D) and to ensure protection of public health and the environment. Under EPA's preferred approach, if a state's emissions are below the budget plus a variability factor, then there is no penalty. However, EPA has determined that a state's emissions need to be at or under its budget (not at or under the inflated budget that includes the variability factor) in order to eliminate significant contribution to downwind nonattainment. In our reading of the Act, then, EPA cannot allow a state to emit any more than its emissions budget in order to eliminate significant contribution to downwind nonattainment and to not interfere with maintenance. [EPA-HQ-OAR-2009-0491-2771.1, p.5]
Response:
As explained in the preamble, state-level emissions are likely to vary even after all significant contribution to nonattainment and interference with maintenance that EPA identified in this final rule are eliminated. EPA believes that the remedy uses variability limits in a way that both provides the flexibility of limited interstate trading for dealing with real-world variability in the operation of the power system and for reducing costs of compliance with emission reduction requirements, as well as providing assurance for downwind states that significant contribution to nonattainment and interference with maintenance by upwind states will be eliminated.  EPA's remedy is consistent with CAA requirements and the court's rulings.  See preamble section VI.E for more information about variability limits and required reductions.
Organization: NextEra Energy, Inc.
Comment:
NextEra Energy, Inc.
NextEra Energy recommends revisions to the assurance provisions proposed in the Transport Rule.
Although NextEra Energy has significant concerns about EPA's use of projected emissions to allocate allowances to emission units, we strongly support the overall framework of the preferred option, including unlimited intrastate trading and limited interstate trading using the variability and assurance level provisions proposed in the rule. We support EPA's proposal to determine assurance provisions' surrender requiren1ents at the owner level, rather than the plant or unit level, because this would allow companies to optimize the management of their plants as a fleet. This allows much-needed flexibility while resulting in equal or lower emissions. The preferred option manages to allow some interstate trading while staying within the constraints of the D.C. Circuit decision by ensuring the necessary emissions reductions occur in the states identified as contributing to nonattainment or interfering with maintenance in other states. At the same time, the preferred option allows owners to use market mechanisms to buy and sell allowances. Allowance markets are essential to producing cost-effective reductions. [EPA-HQ-OAR-2009-0491-2718.1, p.10]
NextEra Energy believes that the assurance provisions proposed in the Transport Rule will create a powerful incentive to operate pollution control equipment rather than buying allowances. With a sufficient allowance price, the requirement that a unit owner surrender two allowances for every ton by which it exceeds the variability limit if a state exceeds its limit will likely result in companies limiting their reliance upon purchased allowances. Instead, companies will look to achieve further emissions reductions. This will ensure reductions occur in the necessary states so as to meet the requirements of Section 110, clarified in the D.C. Circuit decision. [EPA-HQ-OAR-2009-0491-2718.1, p.10]
If EPA agrees with NextEra Energy's recommendation to change the unit allocation methodology to a historic basis while maintaining the existing methodology for the setting the state budget, EPA will need to evaluate whether that requires a change to the assignment of responsibility for the assurance provisions to owners. NextEra Energy has considered this issue and, if EPA uses the allocation methodology supported by NextEra Energy, we recommend and support that EPA use the revised allocations as the basis for calculating the owner's share. That is, we believe that variability limits at the owner-level should be based on allocation. If an owner operates in a state where the variability Is ten percent of the state budget, the owner's variability should be ten percent of the owner's allocation. Any emissions above the owner's allocation plus variability would be used to calculate the owner's portion of the additional surrender requirement if the state exceeds the state budget plus variability limit.  [EPA-HQ-OAR-2009-0491-2718.1, pp.10-11]
Response:
EPA has finalized an allowance allocation approach different from the proposal that uses historic heat input data.  EPA has also updated the responsibility for assurance provision penalties to be determined at the common designated representative level, rather than by owner.  Only those sources in a state at the DR level that exceed their allocations plus share of the state variability limit are required to surrender additional allowances if the assurance provisions are triggered.  See preamble section VII.E for more information about assurance provisions and penalties.
Organization: Northeast States for Coordinated Air Use Management (NESCAUM)
Comment:
Northeast States for Coordinated Air Use Management (NESCAUM)
While we support the concept of provisions that limit interstate trading, some of the implementation specifics are troubling. EPA proposes to set state-specific trading budgets at the level necessary to significantly address transport, but then allows sources in a state to emit at the budget plus an increased variability limit, without mitigation in a specific state exceeding its budget. By allowing emissions in a state to be higher than the budget, the variability provisions weaken the state budgets that are already inadequate to fully address significant contribution in some states. EPA should correct this by setting the state-specific budgets with an adequate margin of safety that accounts for periods of high variability, so that emissions will not exceed the levels of significant contribution. [EPA-HQ-OAR-2009-0491-2694.1 p.8]
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.11.]
Third, we recognize that emissions variability needs to be addressed and support the concept of the proposed provisions that limit interstate trading. However, with the proposed state budgets being inadequate to fully address significant contribution, an emission variability approach needs to include an adequate margin of safety in the state budgets such that periods of high emissions do not cause significant contributions downwind.
Response:
As explained in the preamble, state-level emissions are likely to vary even after all significant contribution to nonattainment and interference with maintenance that EPA identified in this final rule are eliminated. EPA believes that the remedy uses variability limits in a way that both provides the flexibility of limited interstate trading for dealing with real-world variability in the operation of the power system and for reducing costs of compliance with emission reduction requirements, as well as providing assurance for downwind states that significant contribution to nonattainment and interference with maintenance by upwind states will be eliminated.  EPA does not believe it has the authority to set budgets below what is required to eliminate significant contribution and interference with maintenance, which is what this comment seems to suggest.  EPA's remedy is consistent with CAA requirements and the court's rulings.  See preamble section VI.E for more information about variability limits and required reductions.
Organization: Northern Indiana Public Service Company (NIPSCO)
Comment:
Northern Indiana Public Service Company (NIPSCO)
As indicated above, NIPSCO prefers EPA's 'Preferred Option' over the two alternatives offered. However, NIPSCO believes that both the NOx Budget Trading Program and the CAIR have demonstrated that open market emissions trading results in reduced emissions and improved air quality on a region-wide basis at lower overall cost. EPA's proposal to restrict open trading through the imposition of the assurance provisions or variability limits will cause increased costs of compliance with this rule while not producing corresponding benefits to the environment. NIPSCO is greatly concerned that the emissions trading market will not be sufficiently robust as to make emissions trading viable, at least in the way it has been under the NOx Budget Trading Program or the CAIR. [EPA-HQ-OAR-2009-0491-2747.1 p.8]
EPA acknowledges that air quality has improved significantly in the past several years, to the point where EPA proposes no zonal geographic limitations on NOx trading, such as it proposes for S02, and does not propose a reduction in the states' NOx budgets in 2014 to coincide with the reduction in Group 1 states' S02 budgets. The variability limits that EPA has proposed as responsive to the court's decision in North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), that reductions must occur in states having downwind impacts is overkill and should be removed from the proposal. [EPA-HQ-OAR-2009-0491-2747.1 p.8]
If EPA does not remove the assurance allowance surrender penalties, the assurance provision allowance surrender penalties should be reduced to not require an additional full allowance for each ton of emissions over the owner's proportional share of the state budget with the variability limit. We recommend one half of an allowance be established instead given the expected scarcity of allowances. [EPA-HQ-OAR-2009-0491-2747.1 p.8]
Response:
Unlimited trading of the type allowed under CAIR was found by the court to lack the necessary assurances that each upwind state would make its required emissions reductions and therefore, cannot be part of EPA's remedy going forward regardless of program costs.
The penalty for triggering the assurance provisions is an allowance surrender of 2 allowances for every 1 ton of emissions that exceed the state assurance level (state budget + variability limit).  Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E and the Assurance Penalty Level TSD for more information about assurance provisions and penalties.
Organization: NRG Energy
Comment:
NRG Energy
It is recommended that EPA clarify the description of an Owner with relation to the variability conditions. Among unregulated EGU's it is common to create an LLC for each plant which ultimately rolls up to a parent entity. NRG believes that it is EPA's intent to evaluate variability as a parent company's fleet within the state. [EPA-HQ-OAR-2009-0491-2749.1, pp. 4-5]
Response:
Variability was analyzed on a state-by-state basis and variability limits are set for the state emissions, as a whole, in any single control period.  However, to provide owners and operators with compliance flexibility, EPA is determining assurance provision penalties at the common designated representative level.  See preamble section VII.E for more information on assurance provisions and penalties.
Organization: Oglethorpe Power
Comment:
Oglethorpe Power
VI. Assurance
In response to EPA's request for comments on the proposed assurance provisions, Oglethorpe Power believes that the allowance surrender requirement associated with the assurance provisions should be less than one allowance per ton emitted, in addition to the standard allowance surrender, since a one allowance/ton surrender requirement is unnecessarily burdensome and overly punitive. This is especially true, given EPA's belief that the likelihood of triggering assurance provisions is low. Any allowance surrender in addition to the standard allowance surrender of one allowance/ton will provide adequate incentive for unit owners to avoid exceeding their share of the state budget (with variability limits). For similar reasons, such an exceedance should not be considered a violation of the CAA, subject to discretionary monetary penalties. [EPA-HQ-OAR-2009-0491-2732.1, p.11]
Response:
The penalty for triggering the assurance provisions is an allowance surrender of 2 allowances for every 1 ton of emissions that exceed the state assurance level (state budget + variability limit).  Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E and the Assurance Penalty Level Analysis TSD for more information about assurance provisions and penalties.
Organization: Ozone Transport Commission (OTC)
Comment:
Ozone Transport Commission (OTC)
In the proposed Transport Rule EPA relies on the assurance provisions to limit emissions that could occur in excess of the state budgets. EPA's approach is to rely on the 1-year and then 3-year variability limits and the requirement that covered sources hold allowances sufficient to cover their emissions as a limit on the incentives to trade, thus ensuring that emissions within states will stay below the budget with the variability limit. OTC finds the design of the assurance provisions at odds with the 3-year timeframe in which states are required to provide clean data in order to demonstrate attainment. With variability limits added on top of the state budgets as well as the opportunity to use unlimited banked allowances created in the new trading program, we are not satisfied that the system will work as EPA foresees to eliminate significant contribution and interference with maintenance over the 3-year period. Surrender of allowances and penalties occur after the assurance provisions are triggered over the 3-year timeframe, so there is no opportunity within that time period to correct for the excess emissions. We must therefore strongly recommend that EPA revisit its assurance provisions, in addition to the banking of allowances, incorporating OTC's recommendations to design a program that will guarantee the remedy for transport will be achieved in timeframes that coincide with the CLEAN AIR ACT's attainment requirements.
OTC has serious concerns with the banking and assurance provisions in all of the remedy options outlined in the proposed Transport Rule. EPA is proposing the state budgets at a level that is supposed to eliminate significant contribution and interference with maintenance. Banked allowances are those saved in one year of a trading program for use in a subsequent year, thus potentially adding to the total amount of NOx or SO2 emitted into the air in a future year. Without flow control or other mechanisms, the use of banked allowances in any new trading program has the potential to exceed the budget and put the remedy for transport and associated air quality and health benefits at risk. OTC recommends EPA include such mechanisms in any trading program to remedy transport.
Response:
EPA is finalizing one-year variability limits only, not three-year variability limits.  States must emit at or below their state assurance level (budget + variability limit) every single control period (i.e. every year).  The agency believes it has designed a remedy that eliminates significant contribution and interference with maintenance in upwind states and comports with the court's decision.  See preamble section VII for more information about the remedy.
Organization: Progress Energy Service Company
Comment:
Progress Energy Service Company
Progress Energy believes that utility owners should be required to surrender less than one allowance per ton emitted, in addition to the standard allowance surrender of one allowance per ton emitted, in the event that emissions from their utilities exceed their share of the state budget with variability limits. In addition, the provision that counts as a separate violation each day of a year in which a unit's emissions exceed the quantity of allowances in its account is excessive. Progress Energy believes that it is unreasonable to assess each day of the year in this way. particularly when it is quite likely that excess emissions would not occur until late in the year. It is the Company's position that the allowance surrender and monetary penalties are sufficient incentive not to emit in excess of allowance holdings, and we urge EPA to remove this penalty provision from the Transport Rule. [EPA-HQ-OAR-2009-0491-2831.1 p.8]
Response:
The penalty in the final rule for triggering the assurance provisions is an allowance surrender of 2 allowances for every 1 ton of emissions that exceed the state assurance level (state budget + variability limit).  Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E for more information about assurance provisions and penalties.
Organization: RRI Energy, Inc.
Comment:
RRI Energy, Inc.
How the proposal would be implemented - assurance provisions RRI supports the surrender of two allowances for each ton of emission above the number of allowances in the account in lieu of the 1:1 surrender as proposed in the CATR. [EPA-HQ-OAR-2009-0491-2717.1 p.5]
Response:
EPA has finalized an allowance surrender penalty of 2 allowances for every 1 ton of emissions in a state above its state assurance level (state budget + variability limit).
Organization: Southern Company
Comment:
Southern Company
XVI. Southern Company Supports Several of EPA's Decisions in the Proposed Transport Rule
As discussed throughout these comments, Southern Company has many concerns with the Proposed Transport Rule. However, we support several of EPA's decisions in the proposed rule including EPA's decision to phase in the assurance provisions. [EPA-HQ-OAR-2009-0491-2864.1, p. 52]
G. EPA's Decision to Not Begin the Assurance Provisions Before 2014
Although EPA should not begin compliance any sooner than 2015, we support EPA's proposal to phase-in the assurance provisions. Transition from one allowance program to another e.g., from CAIR to the proposed Transport Rule or from it to a future transport rule is likely to require significant adjustments in unit operations and system dispatch. Owners and operators need a period of time to adjust to the new requirements without the assurance provisions in place. The assurance provisions only apply where all statewide covered unit emissions exceed the state budget plus variability limits. Since there are multiple owners and operators impacting statewide emissions and all are adjusting their operations to account for the new rule at the same time, it is all the more important that the assurance provisions be phased-in. Put simply, EPA's proposal to phase-in the assurance provisions is an important aspect of its transition policy and should be retained in this proposal and in future transition periods (e.g. from this to the next transport rule). [EPA-HQ-OAR-2009-0491-2864.1, p. 54]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  EPA received comments supporting the implementation in 2012 with the rationale that is was more consistent with the court decision in North Carolina.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: State of Wisconsin, Department of Natural Resources
Comment:
State of Wisconsin, Department of Natural Resources
Preferred Program Approach - Addressing year-to-year Variance - Within both its preferred inter-state trading/banking program and its alternate intra-state trading program, EPA has added a component of emissions they call variance to account for year-to-year meteorology and economic variability in the level of actual annual emissions from the power sector. This variance structure effectively increases the 'working' budget for states by 10% or more for anyone year. By allowing for variance, EPA has placed the burden of impact on downwind states rather than accounting for it within the state emission budgets and makes the EPA-recommended trading structures too complex. One consequence is any modeled benefit projected within an attainment demonstration must necessarily discount the enforceable emission reduction by the same 10% because modeling needs to reflect actual system response during ozone and 24 hour PM-2.5 episodes. [EPA-HQ-OAR-2009-0491-2829.2, p. 9; This comment can also be found at IV.F.1 of this comment summary]
Wisconsin recommends that any variance in anticipated emission levels is addressed directly within the budget levels, thereby streamlining the trading and banking structure to avoid the potential air quality and legal problems associated with the proposed variance structure. A potential hybrid approach would be to combine a firmly limited inter-state trading program with a minimum rate-specified intra-state averaging program at a level that would reflect a slightly lower equivalent budget during typical periods. [EPA-HQ-OAR-2009-0491-2829.2, p. 9; This comment can also be found at IV.F.1 of this comment summary]
A simple assessment of the level of heat input modeled to establish the 2012 and 2014 budgets indicated that EPA already includes some portion of variance within the proposed budget levels. Any alternate variance structure should provide a lower net buffer than proposed in the current rule which provides for significantly greater system fuel consumption than 2009 levels and also includes a separate variance component. Sensitivity analysis suggests the current system annual operation level based on heat input could be raised by 6% for a 2014 budget (on average) in order to reflect the maximum level of system operation by state for the period 2005-2009 (see Figure 1), thus precluding the need for a separate variance structure. [EPA-HQ-OAR-2009-0491-2829.2, pp. 9-10; This comment can also be found at IV.F.1 of this comment summary]
Regardless of the final program structure adopted, EPA should retain some compliance flexibility, but focus that flexibility most in the early program years of 2012-2014 when it is most needed. 1t might make sense to start with a fairly open inter-state trading and banking program, but transition in later program phases (post-2014), to a structure that more reflects the Court's direction to meet state-by-state targets and to address the States' and Court's assurance concerns. [EPA-HQ-OAR-2009-0491-2829.2, p. 10; This comment can also be found at IV.F.1 of this comment summary]
Response:
As explained in the preamble, state-level emissions are likely to vary even after all significant contribution to nonattainment and interference with maintenance that EPA identified in this final rule are eliminated. EPA believes that the remedy uses variability limits in a way that both provides the flexibility of limited interstate trading for dealing with real-world variability in the operation of the power system and for reducing costs of compliance with emission reduction requirements, as well as providing assurance for downwind states that significant contribution to nonattainment and interference with maintenance by upwind states will be eliminated.  EPA does not believe it has the authority to set budgets below what is required to eliminate significant contribution and interference with maintenance, which is what this comment seems to suggest.  EPA's remedy is consistent with CAA requirements and the court's rulings.  Assurance provisions start in 2012.  See preamble section VI.E for more information about variability limits and required reductions.
Organization: Tenaska, Inc.
Comment:
Tenaska, Inc.
EPA's proposed assurance mechanism should be modified to allocate equitably the burden of compliance with state budgets on baseload, intermediate and peaking generation. Units should be given a portion of the assurance pool in proportion to the variability of the unit. In particular, peakers and intermediate units, which are inherently more variable in their operation than baseload units, should receive a greater distribution of variability allowances. [EPA-HQ-OAR-2009-0491-3705, pp.3-4]
Assurance Mechanism Should Allow Greater Flexibility.
Tenaska believes more flexibility is needed in the assurance program. Tenaska generally favors the preferred option assurance program which would allow intrastate and limited interstate trading of allowances within the target range. However, the initial assignment of variability should recognize and accommodate more variability in the operation of the units with the most inherent variability. Marginal peaking units and intermediate service units are far more variable in their seasonal and annual operation than baseload units. This relative variability is evident from Figure 4 which shows the standard deviations of heat input of various classes of units in the 2000-2009 timeframe. [EPA-HQ-OAR-2009-0491-3705,p.16] [[See Docket Number EPA-HQ-OAR-2009-0491-3705, p.16 for Figure 4.]]
Tenaska is concerned that allocation of allowed variability based upon historical emissions will have the effect of granting operating flexibility on base load units that need such flexibility least, while placing the entire burden of the assurance mechanism on intermediate and peaker EGUs. Allowed variability should reflect the role of the different classes of units to handle varying system load. Allocations of allowed variability among each class would be based on heat input (as we suggest) adjusted for the inherent variability of the class. Tenaska also supports the suggestion that the system be set up to label the allowances from each state and to allow unlimited trading of in-state allowances among units in that state, as well as the trading of allowances within the variability range for each state . This will make for a more liquid market promoting the goals of the Proposed Transport Rule and will enable owners to avoid the potential penalties of the assurance mechanism while investing in emission reductions in their state. Because the owners will have no knowledge during the compliance period regarding whether the assurance mechanism will be triggered in their state, the labeling of allowances by state will foster efficient targeting of investment in emission reduction. [EPA-HQ-OAR-2009-0491-3705,p.17]
Response:
Variability limits are set at the state level, not the individual unit level, which accounts for and provides sufficient operational flexibility for all sources.  If assurance provisions are triggered, only those sources that exceed their allowance allocations plus share of the state's variability limit at the common designated representative level would be held responsible for surrendering allowances under the penalty provisions.  Those sources (at the DR level) that do not emit more than their allocations plus share of the state's variability limit do not pay any penalty, thereby providing certainty to those sources.  See preamble section VII.E for more information about assurance provisions and penalties.
EPA did consider the use of state-specific allowances as an approach to assurance based on comments.  However, the same concerns that EPA expressed regarding the intrastate trading alternative option in the proposal also apply to state-specific allowance remedies. These issues include market power potential and small entity impacts, market size and liquidity, proliferation of trading programs to manage, higher program costs, etc. For these reasons, EPA is not finalizing state-specific allowances as part of the remedy.
Organization: Tennessee Department of Environment and Conservation, Division of Air Pollution Control
Comment:
Tennessee Department of Environment and Conservation, Division of Air Pollution Control
Comment on Assurance Provisions: The assurance provisions are likely to be controversial, since EPA will require source owners to surrender allowances in the absence of a violation. However, EPA has to use some mechanism to comply with the Court decision, and we don't have any better suggestions. [EPA-HQ-OAR-2009-0491-0553.1, p.4]
Response:
If assurance provisions are triggered, only those sources that exceed their allowance allocations plus share of the state's variability limit at the common designated representative level would be held responsible for surrendering allowances under the penalty provisions.  Those sources (at the DR level) that do not emit more than their allocations plus share of the state's variability limit do not pay any penalty, thereby providing certainty to those sources.  See preamble section VII.E for more information about assurance provisions and penalties.
Organization: Tennessee Valley Authority (TVA)
Comment:
Tennessee Valley Authority (TVA)
A. Issue: EPA requests comment on whether the exceedance of total emissions by a source over the source's share of the state budget should be considered a violation of the CAA and thus be subject to discretionary penalties. [p. 45314] [EPA-HQ-OAR-2009-0491-2782.1, p. 15]
TVA Comment: We believe the allowance surrender requirement is sufficient to ensure that the state emissions will not exceed the budget plus the variability. The requirement to surrender one additional allowance (on top of the normal allowance surrender requirement) for each ton emitted over the owner's proportional share would act as a sufficient economic deterrent to avoid any excess emissions. However, failure to hold sufficient allowances to meet the allowance surrender requirement might constitute a Clean Air Act Violation and subject to the Act's sanctions, including penalties. [EPA-HQ-OAR-2009-0491-2782.1, p. 15]
Response:
In the final rule, the penalty for triggering the assurance provisions is an allowance surrender of 2 allowances for every 1 ton of emissions that exceed the state assurance level (state budget + variability limit).  Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E and the Assurance Penalty Level TSD for more information about assurance provisions and penalties.
Organization: Texas Commission on Environmental Quality
Comment:
Texas Commission on Environmental Quality
The TCEQ disagrees with the EPA's assessment of FCAA violations and discretionary penalties under the proposed Transport Rule (75 FR 45314).
Because assurance provision requirements are not calculated until after a control period ends, and thus, sources have no valid means of ascertaining the state's total emissions to make informed trading decisions, they are also unable to ensure that they will be able obtain or provide additional allowances to cover an allowance surrender requirement. The same level of emissions plus trading activity by a given source in a given year may or may not lead to assurance provision allowance surrender requirements, depending on the emissions plus trading activity of all other sources in that state. It may be difficult for companies to decide whether to hold and/or acquire additional allowances (above those meant to provide for actual emissions) to cover allowance surrender requirements that may or may not be enacted. Additionally, tying the FCAA-compliance obligation of one source to the actions of all sources in a state is not only unreasonably burdensome, but illegal, since certifications of compliance may only be made by an official with personal knowledge. [EPA-HQ-OAR-2009-0491-2857.2, p.1]
Assurance Provisions Under the EPA-preferred Option (State Budget/Limited Trading)
The TCEQ does not support the assurance provisions that the EPA has included in the proposed preferred state budget/limited trading option because these provisions create substantial disincentives that the TCEQ expects will inhibit any trading, creating substantial costs that were not adequately analyzed by the EPA in its assessment of the proposed rule. [EPA-HQ-OAR-2009-0491-2857.2, p.4]
The EPA states that in the event assurance provisions are triggered by a state's total emissions exceeding the state budget plus the variability limit(s), the allowance surrender requirements associated with assurance provisions are applicable only to sources in the state with emissions exceeding the source's allocation plus its proportional share of the variability limit (75 FR 45313). At any given time in a control period, sources have no valid means of ascertaining the state's total emissions to make informed trading decisions or operational decisions to ensure their individual compliance with the rule. Therefore, a source might choose to limit its operation to its allocation plus its proportional share of the variability limit (particularly since assurance provision requirements are not calculated until after a control period ends). Operating under these limits (base allocation plus proportional share of the variability limit) establishes a de-facto allowable emission rate on a source and deters all trading - both interstate and intrastate. A consequence of this strategy might lead to allowance hoarding and result in a static market. The EPA further states that the proposed assurance provisions ' ...limit incentives to trade...' and that'...there is likely to be less need for trading in order for sources to comply with the requirement to hold allowances covering emissions' (75 FR 45314). While the trading limits are obviously intended to ensure that necessary reductions occur within each state, the inability of each source to plan for its compliance because it relies, in part, on all other sources within a state, has a great potential to limit market activity in such a way that emission reductions are inefficient and unnecessarily expensive. The fundamental purpose of a cap and trade program is to provide units with the flexibility to achieve the required emissions reductions in the most cost effective manner that utilizes market flexibility, i.e., units that can reduce emissions inexpensively will reduce emissions and sell their allowances to units that are unable to reduce emissions in a inexpensive manner, so that the required reduction is achieved collectively by all units. By requiring all units to operate below a certain emission level and including such extreme deterrents to trading in the proposed rule, the EPA undermines the goal of cap and trade programs. It is disingenuous to provide a trading program that, upon familiarity with the details, provides no viable alternative for compliance. [EPA-HQ-OAR-2009-0491-2857.2, pp.4-5]
The TCEQ does not support the prospect of making an exceedance of total emissions by an owner's sources over the owner's share of the state budget combined with the variability limit a violation of the FCAA and subject to discretionary penalties (75 FR 45314).  [EPA-HQ-OAR-2009-0491-2857.2, p. 5]
The EPA does not currently propose to consider an 'exceedance of total emissions by an owner's sources over the owner's share of the state budget with the variability limit' a violation of the FCAA but does request comment on the option. The fundamental purpose of a cap and trade program is to provide sources with the flexibility to accomplish the required emissions reductions in the most cost effective manner, i.e., sources that can reduce emissions inexpensively will reduce emissions and sell their allowances to sources that are unable to reduce emissions in a inexpensive manner, so that the required reduction is accomplished collectively by all sources. Making the exceedance of an owner's share of the state budget including the variability limit regardless of the source's ability to provide allowances to cover its emissions- into an FCAA violation is effectively a direct-control program. If the EPA intends to regulate interstate transport of air pollution via a direct-control program, they should propose such an alternative on its own merits and provide an opportunity for the public to fully participate in the development of such a program. [EPA-HQ-OAR-2009-0491-2857.2, pp.5-6]

Response:
In the final Transport Rule, sources whose emissions exceed their allocations plus share of the state variability limit when assurance provisions are triggered are not in violation of the CAA.  However, owners and operators must hold sufficient allowances in their accounts to cover their allowance surrender requirement.
EPA does not believe that trading will suffer dramatically or that liquidity will be a problem in the markets as a result of the rule's assurance provisions.  There are a large number of covered sources in the program that are expected to buy and sell allowances in the markets.  In addition, there is timely generation and emissions data available to owners and operators to make decisions about buying or selling allowances and whether the state is likely to approach its state assurance level (budget plus variability limit) during the control period.  Covered sources have operational and compliance flexibility in this rule, to the extent possible under EPA's authority and the court rulings.  For more on assurance provisions, see preamble section VII.E.
Organization: Utility Air Regulatory Group (UARG)
Comment:
Utility Air Regulatory Group (UARG)
2. Assurance Provisions.
EPA requests comments on the proposed assurance provisions. 75 Fed. Reg. at 45314/2. UARG believes that the allowance surrender requirement associated with the assurance provisions should be less than one allowance per ton emitted, in addition to the standard allowance surrender. An additional allowance surrender requirement of one allowance per ton would be unnecessarily burdensome and overly punitive. EPA states in the proposed rule that it "believes the likelihood of triggering assurance provisions is low." Id. at 45314/1. Indeed, the example that EPA provides of a circumstance that may lead to emissions "approaching the variability limit" -- "an extended nuclear unit outage that causes a company to run its fossil units harder to meet demand" -- indicates that EPA anticipates the assurance provisions would likely be triggered only in unusual conditions and for a temporary period, due to forces largely beyond the unit owner's control. Id. Any allowance surrender in addition to the standard allowance surrender of one allowance per ton -- perhaps, for example, an additional (1/2) allowance (rather than the additional one allowance) on top of the standard one-allowance surrender requirement -- would provide an adequate incentive for unit owners to avoid exceeding their share of the state budget with variability limits. [EPA-HQ-OAR-2009-0491-2756.1, p.94]
Additionally, for similar reasons, UARG strongly believes that such an exceedance should not be considered a violation of the CAA, subject to discretionary penalties. See 75 Fed. Reg. at 45314/2 (requesting comment on whether such exceedances should be considered a violation of the CAA and be subject to discretionary penalties). As explained above, any additional allowance surrender requirement would provide sufficient incentive to avoid triggering the assurance provisions.55 [EPA-HQ-OAR-2009-0491-2756.1,pp.94-95]

Footnote 55: UARG does not believe that EPA's proposed discretionary penalties for excess emissions, 75 Fed. Reg. at 45314/3, are appropriate. Those penalties could easily amount to millions of dollars for an inadvertent exceedance of allowance levels by even a few tons in one year. EPA should at a minimum clarify that in the allowance trading program that EPA proposes, an exceedance of one ton of emissions will be treated as a single violation over one year or ozone season, as the case may be, rather than as a separate violation for each day in that year or ozone season. This change is particularly appropriate because any exceedances of allowance levels under the Transport Rule are almost certain to be inadvertent.
Response:
If assurance provisions are triggered, only those sources that exceed their allowance allocations plus share of the state's variability limit at the common designated representative level would be held responsible for surrendering allowances under the penalty provisions.  Those sources (at the DR level) that do not emit more than their allocations plus share of the state's variability limit do not pay any penalty, thereby providing certainty to those sources.  The penalty for triggering the assurance provisions is an allowance surrender of 2 allowances for every 1 ton of emissions that exceed the state assurance level (state budget + variability limit).  Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E and the Assurance Penalty Level TSD for more information about assurance provisions and penalties.
Organization: West Virginia Department of Environmental Protection
Comment:
West Virginia Department of Environmental Protection
[[2790.1 p.7]]
Violation Provisions - EPA requested comment on whether the exceedance of total emissions by an owner's sources over the owner's share of the state budget with the variability limit should be a violation of the Clean Air Act and thus subject to discretionary penalties. WVDAQ does not believe it is appropriate that an exceedance of the owner's share of the state budget with the variability limit should be a violation of the Clean Air Act, as it seems unfair that if a source holds enough allowances to cover their emissions, they are penalized for a situation that cannot be foreseen. If there are multiple companies operating in a state, they may not have immediate access to the emissions data for other's units and cannot predict that the total emissions for the state are going to exceed that variability limit. This is especially true for the three-year variability limit. WVDAQ believes that this Clean Air Act violation provision will discourage trading.
Response:
For owners and operators that exceed their allowance allocations plus share of the state's variability limit in a state that triggers the assurance provisions, there is an allowance surrender penalty, but not a CAA violation in the final rule.  See preamble section VII.E for more on assurance provisions and penalties.
Organization: Wisconsin Power and Light Company
Comment:
Wisconsin Power and Light Company
WPL supports the application of variability provisions to state budgets in order to account for fluctuations in electric generation operations to meet power demand and believes that these should be increased to 20 percent. The fact that many existing EGUs will require significant outages in the next four years in order to provide for air pollution control retrofits supports EPA's use of a higher variability provision.
Response:
EPA finalized a modified variability limit approach, which simplified the determination of limits by eliminating the tonnage limits and giving all states the same percentage. The uniform percentage variability limits are higher than the 10% limits in the proposal.  See preamble section VI.E and VI.F for more details on variability limits.
Organization: Xcel Energy Inc.
Comment:
Xcel Energy Inc.
1. Xcel Energy opposes the penalty provisions as proposed.
Under CATR, a company could be subject to substantial penalties if its total emissions exceed the company's share of the state budget. It appears that EPA is proposing an excess emission penalty, of $37,500 per ton of excess emissions, with each day of the year assessed as a separate penalty. This could result in a company being assessed a penalty of $13,687,500 for a single ton of excess emissions (e.g., 1 excess ton out of compliance for 365 days at $37,500 per day of violation). We understand from the stakeholder meetings with EPA that this is not EPA's intention. EPA needs to make clear that the only impact from such excess emissions is the surrender of allowances proportionate to the state's variance exceedance. [EPA-HQ-OAR-2009-0491-2728.1, p.11]
Response:
The penalty for triggering the assurance provisions is an allowance surrender of 2 allowances for every 1 ton of emissions that exceed the state assurance level (state budget + variability limit).  Exceeding the state assurance level is not a CAA violation.  See preamble section VII.E for more information about assurance provisions and penalties.

V.D.2.e. Should Assurance Provisions Start in 2012 Instead of 2014?

Organization: Adirondack Council
Comment:
Adirondack Council
The Agency also requests comment on whether the remedy in the proposed FIPs should be modified so that the limits would apply starting in 2012 instead of 2014. (p. 357) The Adirondack Council supports the limits starting in 2012 instead of 2014. We believe that moving up compliance dates will provide human health and environmental benefits on an accelerated basis. [EPA-HQ-OAR-2009-0491-2848.1, pp.3-4]
For the 2012-2013 transition period, EPA is taking comment on whether the assurance provisions used to limit interstate trading are needed, since the state-specific budgets are based on known air pollution controls and thus a high level of certainty exists about where reductions will occur. (p. 407) The Adirondack Council believes that the assurance provisions should be in place during the 2012-2013 transition period. There is no legitimate reason for waiting for an additional two years when the same provisions will be in effect in 2014. We believe it is better to have the assurance provisions in place and not need them than to not have them in place during this time period and need them. [EPA-HQ-OAR-2009-0491-2848.1, p.4]
Response:
EPA is finalizing the assurance provisions to begin in 2012.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: American Public Power Association (APPA)
Comment:
American Public Power Association (APPA)
In addition, if EPA retains its proposed two-phased compliance schedule, APPA supports EPA`s proposal not to apply variability limits and assurance provisions before 2014. 75 Fed. Reg at 45296/1, 45305/3. EPA states that assurance provisions will not be necessary to limit interstate trading during the first two years of the program because during those years, "state-specific budgets are based on known air pollution controls and thus a high level of certainty exists about where reductions will occur." 75 Fed. Reg. at 45306/1. Given the nature of EPA`s proposal, EPA`s approach is quite reasonable: If the state budgets are based on reductions that EPA expects will occur based on use of control equipment that will be installed and operational by that time, there is no need for assurance provisions during this time period. 6 [EPA-HQ-OAR-2009-0491-2812.1, pp.10-11]

6. However, as explained in section VIII below, many of EPA`s assumptions regarding which controls will be installed and operational by the beginning of 2012 are ill-founded. EPA thus should revise its calculations based on an accurate accounting of the controls that will be operational by the beginning of 2012. [EPA-HQ-OAR-2009-0491-2812.1, p.11]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Attorney General of North Carolina
Comment:
Attorney General of North Carolina
[[2685.1 p.26]]
a. Assurance Provisions for the 2012-13 Period The preamble and the proposed rules are clear that EPA is proposing that the assurance provisions do not apply to the 2012 and 2013 control periods. See 75 Fed. Reg. at 45,312/3 (Assurance provisions apply "[s]tarting in 2014 . . . ."); 45,314/3 ("For the 2012-2013 transition period, EPA is proposing the State Budgets/Limited Trading remedy without the . . . assurance provisions . . . ."), 45,383/2 (proposing rule §97.425(b)(1), which would provide that assurance provisions are assessed for the preceding year "[b]y June 1, 2015 and . . . each year thereafter . . . ."). Absent the assurance provisions during the 2012 and 2013 control periods, EPA's proposal manifestly violates the D.C. Circuit's holding in North Carolina regarding interstate trading. The assurance provisions are the proposed rule's only enforceable curb on interstate trading. Because EPA is proposing to determine that in 2012 and 2013 emissions in certain States are exceeding what is allowed under §110(a)(2)(D)(i)(I), EPA cannot then simply allow sources in those States to emit whatever the market can support.
Moreover, EPA's justification for the proposal is unlawfully irrational. EPA appears to present four justifications for allowing unfettered interstate trading in 2012 and 2013: (1) because the 2012 and 2013 budget reflect only controls that are under construction, there is a "high level of certainty" that reductions will occur where projected; (2) the other remedies offered by EPA "present greater implementation challenges;" (3) the 2012-13 period allows sources time to "migrate to the new rule requirements in 2014, such as preparing for the imposition of assurance provisions;" and (4) "[a]ssurance provisions would provide sources less flexibility and therefore likely increase compliance costs . . . ." 75 Fed. Reg. at 45,314/2-45,315/1. These justifications are legally insufficient.
Taking each in turn:
1. The fact that EPA has a "high level of certainty" where reductions will occur cuts both ways. If this "high level of certainty" is accurate and 100% compliance is achieved, EPA has cost sources nothing by retaining the assurance provisions as a backstop. But enforcement mechanisms are not designed for those that comply with the law; they are for those that do not. For example, without any disincentive to exceed the budget, a source that is currently constructing a scrubber for the sole purpose of meeting CAIR and the Transport FIP may find it unnecessary to complete and operate that scrubber  -  for economic reasons  -  before 2014 if it can collect sufficient allowances from sources in other States to cover the overage. EPA's "high level of certainty" that this will not occur is no assurance that it will not and is no reason to jettison the assurance provisions.
2. EPA next contends that the other remedies EPA offered "present greater implementation challenges" for the 2012-13 period. Whatever the merits of this comparison, it is irrelevant. Simply because EPA can hypothesize other regulatory possibilities where assurance provisions would be more necessary does not mean that in the preferred scenario they are not necessary. That a seatbelt is a critical safety device in a 65 mph collision does not mean that it can be dispensed with in a 50 mph crash.
3. EPA's "migration" justification also fails. The 2012-13 period is not simply a period for sources to transition to the new control requirements. During the years 2012 and 2013, sources are required to meet limits in order to eliminate the "contribut[ing]" and "interfere[ing]" emissions that EPA has determined exist during those years. The nature of the requirement that sources reduce emissions during 2012 and 2013 is no different than the nature of the requirement that those same sources reduce emissions in 2014 and beyond. Although the requirement to reduce emissions during 2012 and 2013 may be of a different magnitude than the requirement for 2014, 2015 etc. it is no less a violation of the Clean Air Act for sources to exceed their budget in 2012 and 2013 than it is for those same sources to exceed their budget after that. Therefore, the 2012-13 period should be treated similarly unless EPA can justify dissimilar treatment on some other ground.
EPA has made no case why a so-called 2012-13 "migration" period is necessary. EPA asserts that sources must be allowed time to "prepar[e] for the imposition of assurance provisions" but provides no support as to why this is the case. The facts oppose EPA's conclusory assertion. As EPA touts, during this "migration" period emissions will be those that result from the operation of existing controls and controls that are now under construction. It is unclear what, if anything, sources can do differently in 2012 and 2013 to "prepar[e] for the imposition of assurance provisions." EPA also contends, again without any explanation, that the lack of any assurance provisions in 2012 and 2013 is warranted because "some States" face "tighter SO2 budgets." First, this says nothing about why sources should be excused from assurance provisions for annual or seasonal NOX emissions or why all States should be excused from SO2 assurance provisions to accommodate just "some States." Second, as just discussed, EPA has expressed a "high level of certainty that emissions reductions projected for 2012-2013 with interstate trading would be achieved within the states where they are projected to occur . . . ." 75 Fed. Reg. at 45,314/3-15/1. Consequently, there is little justification during this period for any interstate trading, much less interstate trading absent the assurance protections.
4. Finally, EPA suggests that the imposition of assurance provisions in 2012 and 2013 will result in "less flexibility and therefore likely increase compliance costs." Of course, the same could be said for the period after 2013, when EPA will be imposing the assurance provisions. Regardless, if the 2012-13 budgets are simply an attempt to lock in existing and planned controls and EPA is relatively certain where these controls are and will be, it is unclear what flexibility is needed. Similarly, a mandate to sources in the 2012-13 period to operate the controls they have installed and continue to construct those that are as yet incomplete should not increase compliance costs; it should just require expenditures that are already planned. Indeed, if it is the case that more "flexibility" is needed during the near term, this completely undercuts EPA's "high level of certainty" regarding where emissions reductions will occur and therefore argues for retaining the assurance provisions.
Accordingly, EPA should impose the assurance provisions in 2012 and 2013.
b. Surrender of Allowances North Carolina seeks clarity on the mechanics of the assurance provisions. The proposed rules require a calculation of, roughly speaking, the amount by which each owner's share (using definition (1) of owner's share, see infra) exceeds that owner's assurance level. Once this overage is determined, the owner must surrender that number of allowances [hereinafter "overage allowances"]. North Carolina assumes that the overage allowances are in addition to the one-to-one surrender the source must make under any circumstances to cover its emissions in general. That is, if an owner's sources emit 30,000 tons of SO2 and EPA determines that the owner's share exceeds the assurance level by 2,500 tons, then the owner must surrender 32,500 allowances. Although this seems the logical reading, nowhere does the proposed rule explicitly state that the overage surrender is in addition to the owner's general obligation to surrender allowances to cover its emissions on a one-to-one basis.
Response:
EPA is finalizing the assurance provisions to begin in 2012.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Dominion
Comment:
Dominion
Decision to Defer Imposition of Assurance Provisions
EPA's proposes to defer any limitations to the use of interstate trading for the first 2 years of the program by not imposing the assurance provisions and variability limit provisions of the rule until 2014. To the extent EPA retains the accelerated and unrealistic compliance schedule of the proposal in the final rule, increased flexibility will be particularly important during the initial phase of the program. We support this approach and urge EPA to retain the deferred application of the assurance provisions in the final rule. We also support EPA's proposed two-phased approach in assessing whether the penalty provisions would apply by first evaluating whether a state's total budget (plus variability limits) is exceeded and only if so, would then impose the penalty provisions upon companies that exceed their state-aggregated total allowance allocations (plus their pro-rata share of the state variability limits). [EPA-HQ-OAR-2009-0491-2715.1, p.3]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  Assurance provision penalties in the final rule are assessed at the common designated representative level, rather than on an ownership basis.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Duke Energy
Comment:
Duke Energy
While Duke Energy does not support EPA's PTR schedule, if EPA retains the proposed two-phased compliance schedule, Duke Energy supports EPA's proposal not to apply variability limits and assurance provisions before 2014. EPA states that assurance provisions will not be necessary to limit interstate trading during the first two years of the program because during those years, "state-specific budgets are based on known air pollution controls and thus a high level of certainty exists about where reductions will occur." Within the framework of EPA's proposal, Duke Energy agrees with EPA's reasoning on this point. If the state budgets are based on reductions that EPA expects will occur based on use of control equipment that will be installed and operational by that time, there is no need for assurance provisions during this time period. [EPA-HQ-OAR-2009-0491-2689.1, p.3]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Edison Electric Institute (EEI)
Comment:
Edison Electric Institute (EEI)
Many EEI members support EPA's proposal not to apply variability limits until 2014 after the transition period proposed under its preferred approach. They concur with EPA's rationale that the proposed interim remedy that does not impose the variability limits until 2014 is needed to provide compliance flexibility while not compromising the certainty that necessary emissions reductions will occur in 2012 and 2013. Others believe that the variability limits should be put into effect in 2012 to respond to the Court's direction that EPA act "as soon as practicable" to correct the deficiencies of CAIR and that, without the variability limits, EPA would essentially leave in place unrestricted interstate trading for two additional years, which the Court in North Carolina v. EPA found to be problematic. [EPA-HQ-OAR-2009-0491-2697.1, p.16]
[This comment was also submitted as testimony at the Chicago, Illinois public hearing on August 19, 2010.  See Docket Number EPA-HQ-OAR-0491-1746, p.28.]
Response:
EPA is finalizing the assurance provisions to begin in 2012.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Exelon
Comment:
Exelon
EPA WOULD MOST CLOSELY FULFILL THE REQUIREMENT TO REPLACE CAIR "AS SOON AS PRACTICABLE" BY IMPLEMENTING THE TRANSPORT RULE ASSURANCE PROVISIONS IN 2012, RATHER THAN DEFERRING THEM UNTIL 2014.
Because the assurance provisions of the proposed Transport Rule are the essential mechanism for ensuring that the emissions from each state are limited to no more than the state's budget plus variability limit, EPA should implement the assurance provisions beginning in 2012 rather than 2014. Without the assurance mechanism, there is no effective means to assure that states stay within their budgets in 2012 and 2013. In that case, the proposed Transport Rule, without the assurance provision, will likely suffer from the same fatal defect that caused the Court of Appeals to invalidate CAIR in North Carolina. [EPA-HQ-OAR-2009-0491-2666.1, p.23]
The court has required EPA to redress the deficiencies in CAIR "as soon as practicable." Given EPA's conclusion, with which Exelon concurs, that no new controls beyond those already firmly planned need to be installed to achieve 2012 state emission budgets, it is "practicable" for EPA to implement the assurance provisions in 2012. Because the variability limits build in the necessary flexibility, it is also practicable to impose assurance provisions from a trading and reliability perspective. It would therefore be practicable for EPA to implement the assurance provisions based on the 2012 emission budgets beginning in 2012; and the Transport Rule may be subject to a challenge that it does not correct CAIR's deficiencies "as soon as practicable" if implementation is deferred until 2014. [EPA-HQ-OAR-2009-0491-2666.1, p.23]
The proposed Transport Rule contains no provision that would impose a burden, or even a disincentive, for any owner to emit excess emissions in 2012 or 2013. 47 Without such a provision, the Transport Rule is essentially the same as CAIR: there is a requirement that sources obtain allowances for each ton of emissions, but those allowances may be obtained from any state and for any vintage year. It is the compliance assurance provision that separates the Transport Rule from CAIR, and that provision is effectively absent in 2012 and 2013. There is no legal or practical reason why the assurance provisions do not apply to 2012-2013 budgets in 2012 and 2013. EPA has determined that those budgets are achievable. Exelon has confirmed EPA's conclusions through a peer review, and the variability limits function as a safeguard against any error. Accordingly, Exelon urges EPA to modify the final Transport Rule to impose assurance requirements beginning in 2012. [EPA-HQ-OAR-2009-0491-2666.1, pp.23-24]

47 As discussed in Comment 6 below, EPA has revised its modeling assumptions. These revisions have resulted in modeling projections showing that, if anything, the state budgets set out in the proposed Transport Rule, which EPA has not yet revised, are even more certain to be achieved in keeping with the schedule in the proposed rule. Whether or not EPA ultimately reduces the proposed state emission budgets, as Exelon urges in Comment 6, EPA must establish both achievable state budgets and a means to ensure compliance with those budgets.
Response:
EPA is finalizing the assurance provisions to begin in 2012.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Florida Municipal Power Agency (FMPA)
Comment:
Florida Municipal Power Agency (FMPA)
D. The Proposed Assurance Provisions May Lead to Retroactive Penalties
FMPA prefers EPA's Preferred Remedy Option  -  a cap-and-trade program with state-specific budgets and limited interstate trading  -  because it is more cost effective and provides increased flexibility. However, we share others', including FMEA's, concerns about the assurance provisions in which EPA would assess penalties on utilities retroactively if states exceed their state cap, even if the individual utility is in compliance with its own allowance requirements. This would provide no compliance certainty for a utility regardless of the precautions taken to ensure that it meets allowance requirements. FMPA recommends EPA add a provision that would protect those utilities that have stayed within their allowance requirements from retroactive penalties in cases where the utility did not receive reasonable advance notice that the state would exceed its allowance cap. [EPA-HQ-OAR-2009-0491-2725.1, pp.7-8]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  If a utility (at the designated representative level) does not exceed its allowance allocation plus share of the variability limit, it will not have to surrender allowances even if the state goes over the state assurance level.  Only those sources whose common DR exceeds the number of allocated allowances plus share of the variability limit are responsible for surrendering allowances to cover the penalty when assurance provisions are triggered.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: GE Energy Financial Services (GE EFS)
Indiana Energy Association
Progress Energy Service Company
Comment:
GE Energy Financial Services (GE EFS)
At the very least, GE EFS believes that this concern supports EPA's proposal to delay implementation of the assurance provisions until 2014. [EPA-HQ-OAR-2009-0491-2701.1,pp.5-6]
Indiana Energy Association
b. The Indiana Utility Group may support EPA's decision to defer imposition of 'limited trading' through assurance provisions until the second phase of the program in 2014. [EPA-HQ-OAR-2009-0491-3711 p.5]
Progress Energy Service Company
In addition, and again in order to provide flexibility while assuring that emissions are reduced, Progress Energy supports EPA's proposal not to apply variability limits until 2014.  [EPA-HQ-OAR-2009-0491-2831.1 p.2]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Maryland Department of Environment (MDE)
Comment:
Maryland Department of Environment (MDE)
Additionally in the years 2012 and 2013, EPA proposes to use the State Budgets/Limited Trading remedy without assurance provisions. This would allow members of each trading program to buy allowances from one another, and state budgets would not be evaluated for exceedances at all in those two years. Maryland would like to see the first two years of trading incorporated into the trading program with assurance provisions. [EPA-HQ-OAR-2009-0491-2639.2, p.15]
Response:
EPA is finalizing the assurance provisions to begin in 2012.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Northeast States for Coordinated Air Use Management (NESCAUM)
Comment:
Northeast States for Coordinated Air Use Management (NESCAUM)
We also urge EPA to require variability provisions to take effect in 2012 rather than 2014.  [EPA-HQ-OAR-2009-0491-2694.1 p.8]
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.11.]
We also urge EPA to require variability provisions to take effect in 2012 rather than 2014.
Response:
EPA is finalizing the assurance provisions to begin in 2012.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Tennessee Valley Authority (TVA)
Comment:
Tennessee Valley Authority (TVA)
B. Issue: Under EPA's proposal, the 1-year variability limit would start applying in 2014 and the 3-year limit in 2016. EPA is seeking comment on whether the 1-year variability limit should apply starting in 2012 instead of 2014. [p. 45296] EPA is also taking comment on whether the assurance provisions used to limit interstate trading should be in force during the 2012-13 period. [p. 45306, 45314] [EPA-HQ-OAR-2009-0491-2782.1, p. 15]
TVA Comment: EPA should not apply the 1-year variability limit starting in 2012. As stated elsewhere in our comments, EPA should eliminate the 2012 compliance date in the Proposed Transport Rule. In any event, no basis exists for including a 2012-13 phase because, by EPA's own analysis, the emission levels required in this phase reflect emission reductions that would occur even in the absence of additional FGDs and SCRs. Under EPA's analysis, a high level of certainty exists as to where reductions will occur in this phase based on known air pollution controls, eliminating the need for variability limits in 2012 and 2013. By the same token, assurance provisions should not be in force during the 2012-13 period. [EPA-HQ-OAR-2009-0491-2782.1, p. 15]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  EPA received comments supporting the implementation in 2012 with the rationale that is was more consistent with the court decision in North Carolina.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Utility Air Regulatory Group (UARG)
Comment:
Utility Air Regulatory Group (UARG)
In addition, if EPA retains its proposed two-phased compliance schedule, UARG supports EPA's proposal not to apply variability limits and assurance provisions before 2014. 75 Fed. Reg at 45296/1, 45305/3. EPA states that assurance provisions will not be necessary to limit interstate trading during the first two years of the program because during those years, "state-specific budgets are based on known air pollution controls and thus a high level of certainty exists about where reductions will occur." 75 Fed. Reg. at 45306/1. Given the nature of EPA's proposal, EPA's reasoning is sound: If the state budgets are based on reductions that EPA expects will occur based on use of control equipment that will be installed and operational by that time, there is no need for assurance provisions during this time period. [EPA-HQ-OAR-2009-0491-2756.1, p.12]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.
Organization: Wisconsin Power and Light Company
Comment:
Wisconsin Power and Light Company
WPL further supports that the EPA would not apply the assurance provisions under the preferred option during the 2012-2013 transition period. [EPA-HQ-OAR-2009-0491-2844.1 p.3]
Response:
EPA is finalizing the assurance provisions to begin in 2012, rather than in 2014.  See preamble section VII.E for more information about the assurance provisions and EPA's decision to implement them starting in 2012.

V.D.2.f. Penalties

Organization: Edison Electric Institute (EEI)
RRI Energy, Inc.
E.ON U.S.
Class of '85 Regulatory Group
Gainesville Regional Utilities (GRU)
Duke Energy
Comment:
Class of '85 Regulatory Group
EPA Should Clarify Civil Penalties.
The penalties for holding insufficient allowances during a compliance period are unclear as written. It appears that EPA is planning to impose both an allowance surrender requirement and a discretionary civil penalty in cases where an owner fails to hold sufficient allowances to cover emissions during a given compliance period. As currently written 'each ton of unauthorized emissions and each day of the control period' could constitute separate violations of the CAA. However, it is unclear whether an owner would be subject to penalties for each day within the entire control period, or only those days for which they held insufficient allowances. It also is unclear whether one day equals one violation, or whether there could be multiple violations for each day for each ton of unauthorized emissions occurring that day. [EPA-HQ-OAR-2009-0491-2854.1,p.13]
The Class of '85 does not believe that civil penalties are appropriate for failure to hold sufficient allowances. However, if EPA insists on retaining the option for civil penalties, the Class of '85 believes that a penalty based on every day within a control period and cumulative civil penalties are excessive and inconsistent with the structure of the CAA. To address these inconsistencies and the lack of clarity in the Proposal, EPA should clarify the penalty provisions. Specifically, EPA should clarify that civil penalties can only begin on the day that an owner 'runs out' of allowances for a unit during a given compliance period. EPA should also clarify that penalties are not cumulative, but calculated on a per-day basis. For example, in a scenario where there are 365 days in a compliance period and an owner 'ran out' of allowances on day 363, there could be a maximum of three days of violation of the CAA, corresponding to a maximum imposition of three separate penalties. This is consistent with CAA provisions that allow a single civil penalty 'per day of violation' and avoids potential confusion resulting from the current penalty provisions, which are unclear as written. Finally, the imposition of an allowance surrender requirement on top of this civil penalty is excessive, unnecessary, and inconsistent with the CAA. EPA should clarify that any allowance surrender requirement is in lieu of civil penalties and does not constitute an additional penalty. [EPA-HQ-OAR-2009-0491-2854.1,p.13]
Duke Energy
The compliance provisions for excess emissions are unreasonable. If the Transport Rule is to be based on an allowance trading provision, it is not appropriate to cite a unit for violations of the Clean Air Act both for the excess tons and for each day during the control period. The excess emissions above the allowances held in a compliance account do not reflect any exceedance related to daily operations on a given unit. As proposed, a generating unit that exceeded the allowances in its account by even one ton, whether due to an accounting error or the inability to secure sufficient allowances, would be subject to penalties for daily violations across the entire control period (that is, for 365 days in the case of the NOx and SO2 annual programs, or for the entire period from May through September for the NOx ozone season program). Penalties should be imposed based on either the number of tons of the exceedance or on an allocation of the available allowances to correspond sequentially with the hours operated during the control period, but not both. In the latter case, no daily exceedance would occur until the date on which the available allowances were all accounted for.  [EPA-HQ-OAR-2009-0491-2689.1,pp.65-66]
E.ON U.S.
The proposed penalties for excess emissions are extremely high and unnecessary.
EPA has proposed penalties for excess emissions as high as $37,500 per ton and treating each day of the year as a separate violation. As such, penalties could reach millions of dollars for what could easily have been an accounting error. Certainly, there should be penalties for excess emissions, but this proposal is extreme. By contrast, the Acid Rain Program imposes penalties which started at $2,000 per ton and has increased to about $3,500 per ton. Companies have rigorously sought to comply with the Acid Rain Program and the very few instances of excess emissions appear to be due to administrative or clerical errors. There is no evidence that any company intentionally exceeded its allowance holdings because the penalties were too low. [EPA-HQ-OAR-2009-0491-2797.1, p.9]
Edison Electric Institute (EEI)
EEI opposes EPA's proposal on discretionary penalties
Under the construct of the Acid Rain Program, if a utility is found in violation of the requirement to hold sufficient allowances to cover its actual emissions, an excess emissions penalty is assessed automatically for each ton of excess emissions, and an automatic offset of emissions impact is made through the surrender of an allowance for each ton of excess emissions. The excess emissions penalty was set by statute, starting at $2,000, and has been CPI-adjusted annually. The current value for the excess emissions penalty for 2010 is $3,464. The success of this approach has been touted by EPA as a sufficient deterrent to non-compliance, and EPA has repeatedly emphasized a near perfect compliance record of the utility industry under the Acid Rain Program. EPA also has identified that most cases of non-compliance have only involved a few tons of excess emissions, and have resulted from administrative errors. [EPA-HQ-OAR-2009-0491-2697.1, p.18]
Despite this unassailable record, EPA has advanced in the Proposed Rule a draconian approach that could result in an excess emissions penalty assessed at the rate of $37,500 per ton of excess emissions, with each day of the averaging period assessed as a separate penalty. Such an approach could result in a company being assessed a penalty of $13,687,500 for a single ton of excess emissions under the proposed annual programs for SO2 and NOx. EPA has failed to provide any justification for such a radical change to the excess emissions penalty scheme as originally set by Congress, and should withdraw its proposed approach and return to a methodology consistent with the Acid Rain Program. [EPA-HQ-OAR-2009-0491-2697.1, pp.18-9]
Gainesville Regional Utilities (GRU)
GRU has Concerns with EPA's Automatic Penalty Provision
EPA establishes an automatic penalty system that will assess penalties on utilities retroactively if states exceed their specific caps even if the individual utility is in compliance with its own allowance requirements. This is in addition to penalties based on the CAA violations for emitting more emissions than the utility has allowances. This penalty system provides no compliance certainty for any given utility regardless of the precautions taken by an individual utility. [EPA-HQ-OAR-2009-0491-2674.1, p.7]
RRI Energy, Inc.
The penalties proposed for failure to hold an allowance for each ton of SO2 or NOx emitted are excessive and must be reduced.
RRI believes the proposed penalties are too severe for inadequate allowances being in an account at the required surrender date, and as such, proposes the following alternatives:
How the proposal would be implemented - penalties RRI supports the proposed penalty of $25,000 (adjusted per the CPI  -  $37,500 in 2009). However, RRI does not support a violation for every day in a control period when inadequate allowances are in an account. The daily violation should reflect the operating days remaining in a control period for which an inadequate number of allowances are available. For example, if an account is one allowance short for the control period, and there are adequate allowances in the account to cover the emissions for all operating days except the last one during the control period, then that unit would be accountable for two allowances  -  one for the short allowance and one for the operating day for which inadequate allowances are in the account. [EPA-HQ-OAR-2009-0491-2717.1 p.5]
Response:
See section VII.F of the preamble.

V.D.2.g. Electric Reliability

Organization: American Electric Power
Comment:
American Electric Power
The Proposed Transport Rule neglects to consider utility system planning factors that affect unit retirement decisions and deadline-driven resource and skilled labor shortages, and the consequences to electrical system reliability and functionality in the event of a national or regional grid emergency. [EPA-HQ-OAR-2009-0491-2665.1, p.26]
Response:
EPA does not believe it has neglected utility system planning factors in its analysis of this rule.  As stated in the preamble (VII.A), EPA selected an interstate trading program structure in part because its market-based flexibility promotes the sector's capacity for providing electric reliability in unit retirement decisions.  EPA believes that the level of potential retirements, projected to be approximately 4.8 GW in 2014 (see the RIA and IPM documentation in this docket) is well within the capability of utilities and regional organizations to manage effectively.  The IPM modeling for the rule takes into account both the required regional reserve margins and the limitations of firm power transfers between regions, so that the basic reliability requirements are already incorporated in the analysis of the impact of the rule.  Moreover, because the rule provides the flexibility to purchase allowances rather than retire, projected retirements under the rule are based on economic considerations rather than fixed deadlines or unit-specific compliance requirements.  Consequently, EPA anticipates that the Transport Rule will not affect the ability of regional grid management organizations and/or interconnected utilities to routinely manage any local grid issues that may arise.  For further information, see the Technical Support Document on Resource Adequacy and Reliability in this docket.
Organization: Constellation Energy
Clean Energy Group
Exelon
NextEra Energy, Inc.
PSEG Services Corporation
Comment:
Clean Energy Group
II. The Electric Sector has Tools at its Disposal to Implement the Transport Rule Without Significant Increased Reliability Risks
EPA was also reasonable in concluding that it will be feasible for the electric sector to comply with the Transport Rule, including in Group 1 S02 states. According to EPA's NEEDS database, approximately 56 GW of scrubbers were installed between 2006 and 2009, including 15 GW across 50 to 60 sites in 2009. EPA projects that an additional 19 GW of scrubbers will come online in 2010. In contrast, EPA estimates that between four and 14 GW of scrubbers and less than 1GW of SCR for NOx control will be required for the electric sector to comply with the proposed 2014 emission caps. [EPA-HQ-OAR-2009-0491-2702.1, p. 3]
EPA separately projects that 1.2 GW of generating capacity may be removed from operation by 2014 in response to the proposed rule. While the Clean Energy Group does not agree with some of the results of EPA's modeling on a unit level (see below and individual members' comments), we do not believe the Transport Rule, as proposed, would significantly increase system reliability risks. Reserve margins throughout the Transport Rule region exceed target reserve levels and there is substantial underutilized natural gas-fired combined cycle gas turbine capacity outfitted with advanced NOx controls, suggesting that the system has sufficient capacity to absorb additional retirements and compensate for scheduled outages for purposes of installing pollution control technologies.2 Additionally, substantial new capacity has been announced, planned, or is seeking grid interconnection studies. Across the regions of the North American Electric Reliability Corporation (NERC), a recent analysis identified over 55 GW of proposed generation in advanced stages of development. Although not all of this generation will be built, new capacity is expected to far exceed potential retirements related to the Transport Rule.  [EPA-HQ-OAR-2009-0491-2702.1, pp. 3-4]
Further, if there are isolated reliability issues in areas of heavy demand as a result of implementing the Transport Rule, other rules affecting the electric sector, or other reasons (e.g., weather), existing risk management procedures under the Clean Air Act, the Federal Power Act, and other statutes already provide EPA, the Department of Energy, the Federal Energy Regulatory Commission, and the President with tools to address unforeseen impacts on electric system reliability on an individual basis. In addition to these regulatory tools to mitigate risks to electric reliability, many of the competitive markets have forward capacity markets (for example, PJM's Reliability Pricing Model) that provide for coordinating unit retirement and system reliability. These forward capacity markets are approved by the Federal Energy Regulatory Commission (FERC) and supervised by independent market monitors. [EPA-HQ-OAR-2009-0491-2702.1, p. 4]
Constellation Energy
Reliability concerns will be the focus of many comments. Constellation Energy's view is that underutilized natural gas fired generating units are available with sufficient capacity to adequately supply any potential capacity deficit. This is possible because the Transport Rule appropriately strikes a balance between flexibility (market) and assurance of reductions (command/control). We urge EPA to employ the same type of balance in separate rulemakings on EGU MACT. Reliability could become a legitimate concern if MACT is employed strictly as an emissions rate-based approach. [EPA-HQ-OAR-2009-0491-3613,p.3]
Exelon
THE TRANSPORT RULE WILL NOT RESULT IN THE RETIREMENT OF FOSSIL FUEL GENERATION CAPACITY IN AN AMOUNT THAT IS MATERIAL TOTHE RELIABILITY OF THE ELECTRIC SYSTEM.
On a system-wide basis, no additional controls beyond those already firmly planned will be required by 2012, and few will be required by 2014. The industry has already installed far more controls in comparable periods in the past than will be required to achieve the emission budgets established by the Transport Rule. [EPA-HQ-OAR-2009-0491-2666.1, pp.18-19]
Exelon concurs with EPA's estimate that only a de minimis amount of fossil fuel generation capacity will become uneconomic to maintain as a result of the Transport Rule. There is over 55 GW of new generation capacity planned for 2013 already in the queue, far more than would be needed to replace any units retiring under the Transport Rule, even if none of the EPA-projected 14 GW of FGD and 1 GW of SCR required by 2014 were installed. Indeed, estimates across each of the North American Electric Reliability Corporation ("NERC") regions for 2013 anticipate actual capacity levels that exceed the minimum reserve requirements that protect against reliability threats such as unexpectedly high demand and transmission failures. Over 100 GW of surplus generating capacity is expected. There is adequate generating capacity to protect grid reliability even if older, uncontrolled power plants choose to retire rather than retrofit. [EPA-HQ-OAR-2009-0491-2666.1, p.19]
EPA CAN SUCCESSFULLY IMPLEMENT THE TRANSPORT RULE AS WELL AS FUTURE RULEMAKINGS NECESSARY TO PROTECT PUBLIC HEALTH AND THE ENVIRONMENT WITHOUT JEOPARDIZING SYSTEM RELIABILITY. EPA, DOE, INDEPENDENT SYSTEM OPERATORS/REGIONAL TRANSMISSION ORGANIZATIONS ("RTOS") AND INDUSTRY HAVE A WIDE RANGE OF TOOLS AVAILABLE TO SUPPORT THE TRANSITION.
Existing safeguards within the electric grid and coordination among government agencies and industry will ensure reliable energy distribution following implementation of the Transport Rule. As the comments submitted by the Clean Energy Group in response to EPA's Strategic Plan indicate, "the electric industry has demonstrated a proven ability to build replacement generation as needed or otherwise meet demand through demand response, energy efficiency, and conservation." Furthermore, regulatory agencies have legal tools that can be effectively coordinated to address issues that may threaten reliability. [EPA-HQ-OAR-2009-0491-2666.1, p.19; For additional comments pertaining to EPA CAN SUCCESSFULLY IMPLEMENT THE TRANSPORT RULE AS WELL AS FUTURE RULEMAKINGS NECESSARY TO PROTECT PUBLIC HEALTH AND THE ENVIRONMENT WITHOUT JEOPARDIZING SYSTEM RELIABILITY. EPA, DOE, INDEPENDENT SYSTEM OPERATORS/REGIONAL TRANSMISSION ORGANIZATIONS ("RTOS") AND INDUSTRY HAVE A WIDE RANGE OF TOOLS AVAILABLE TO SUPPORT THE TRANSITION, see pp.19-21 of this comment summary]
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, pp.39-40.]
With regard to electric system reliability, the Transport Rule will not pose any significant reliability risks as it will not drive significant power plant retirements or result in unmanageable pollution control retrofit requirements.
For example, EPA forecasts that 1.2 gigawatts of generating capacity may become uneconomic under the Transport Rule. However, looking across all NERC regions of the country, on a combined basis, there is currently over 100 gigawatts of installed generating capacity above required reserve margins; an amount of excess capacity that far exceeds any reasonable forecast of unit retirements under the Transport Rule.
Recently, Exelon joined with like-minded utility companies, all of which are members of the Clean Energy Group, to sponsor a reliability study that considers all of EPAs rules on a holistic basis. The report, entitled, 'Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability,' proposes some common sense steps that will allow the power generation industry to meet all expected new EPA air and regulatory requirements on a timely basis.
NextEra Energy, Inc.
NextEra Energy believes that the air quality benefits of the proposed Transport Rule can be achieved without jeopardizing reliability of the electric system.
As indicated above, EPA estimates that approximately 14 GW of SO2 scrubbers and less than 1 GW of SCR for NOx control will be required for the electric sector to comply with the proposed 2014 emission caps. In addition, EPA projects that, relative to base case projections (i.e., business-as-usual), about 1.2 GW of coal-fired capacity (less than 1 percent of all coal-fired capacity in the Transport Rule states) may become uneconomic to continue operating by 2014 as a result of the cost of compliance with the Transport Rule. According to EPA, these units are, for the most part, small and infrequently used generating units that are dispersed throughout the states covered in the Transport Rule and that, in practice, units projected to be uneconomic to maintain may be 'mothballed,' retired, or kept in service to ensure transmission reliability in certain parts of the grid. [EPA-HQ-OAR-2009-0491-2718.1, p.8]
Some third-party analysts have concluded that the proposed Transport Rule, along with other upcoming rulemakings that will regulate air emissions from fossil fuel-fired power plants, such as the Electric Utility Hazardous Air Pollutant Maximum Achievable Control Technology (MACT) Rule could result in the retirement of a significantly greater amount of the nation's 1,030 GW of electric generating capacity than EPA has projected with respect to the Transport Rule. This has raised concerns about the combined effects over the next five years of anticipated power plant retirements and outages required to install new pollution control equipment on the ability of the industry to maintain reliability of the electric system. [EPA-HQ-OAR-2009-0491-2718.1, p.8]
NextEra Energy does not believe the Transport Rule, as proposed, would significantly increase electric system reliability risks. Reserve margins throughout the Transport Rule region are well in excess of target reserve levels, suggesting that the system has the capacity to absorb additional retirements and compensate for scheduled outages for purposes of installing pollution control technologies. Further, if there are isolated reliability issues in areas of heavy demand as a result of implementing the Transport Rule or additional rules affecting the electric sector, existing risk management procedures under the Clean Air Act, the Federal Power Act, and other statutes already provide EPA, the Department of Energy (DOE), the Federal Energy Regulatory Commission (FERC), and the President tools to address unforeseen impacts on electric system reliability on an individual basis. [EPA-HQ-OAR-2009-0491-2718.1, pp.8-9]
This viewpoint is supported by a recent analysis performed by M.J. Bradley and Associates and the Analysis Group of the potential impact of EPA's upcoming air regulations (including the proposed Transport Rule), with a focus on the issue of possible power plant retirements on electric reliability.' This analysis reached the following three conclusions:
1. Even though some units likely will retire in lieu of complying with the new regulations electric system reliability will not be compromised if the industry and its regulators proactively manage the transition to a cleaner. more efficient generation fleet. When assessing reliability impacts, not only must generation capacity and availability be considered but consumption levels and patterns, and transmission capacity and use must be taken into account as well. According to the analysis, existing power system capacity well in excess of minimum reserve levels, relatively modest projections of load growth over the next several years, a large amount of proposed generating resources, and the availability of load management practices indicate that the electric system can handle the level of projected EGU retirements. The industry has a proven track record of adding new generating capacity and transmission solutions when and where needed and of coordinating effectively to address reliability concerns. In the three years between 2001 and 2003, the electric industry built over 160 GW of new generation-about four times what some analysts project will retire over the next five years as a result of the Transport Rule and other upcoming EPA air regulations. [EPA-HQ-OAR-2009-0491-2718.1, p.9]
2. Concerns that it will cost the industry too much to comply with EPA's proposed air regulations that pollution controls cannot be installed soon enough, or that the EPA regulations will lead to the closure of otherwise economically healthy power plants are without merit. The proven technologies for controlling air pollution emissions, such as NOx, SO2, mercury and acid gases, are commercially available and have already been, or soon will be, installed on the majority of the nation's coal plants (65 percent with scrubbers; 50 percent with advanced NOx controls), demonstrating that the costs can be managed. The industry also has a demonstrated ability to schedule and sequence unit outages in an efficient and reliable manner and is capable of installing additional pollution control systems to comply with the Transport Rule and Utility MACT Rule. Many of the coal units that are the most likely candidates to shut down are smaller, 40 to 60 year old units, which are nearing the end of their design life expectancy and are already economically challenged. Additionally, the retirement of some existing generating capacity will create room on the transmission grid to accommodate additional power flows, or new generating capacity, without requiring attendant upgrades in transmission, thus mitigating reliability concerns while reducing the cost of transitioning to a cleaner, more efficient generation fleet. [EPA-HQ-OAR-2009-0491-2718.1, p.9]
3. EPA FERC DOE and State utility regulators, both together and separately, have an array of tools to moderate impacts on the electric industry:
:: EPA may, and if needed should, exercise its statutory authority under the Clean Air Act to grant, on a case-by-case basis, extensions of time to complete pollution control installations, where appropriate.
:: To the extent that its legal authority allows, EPA should adopt regulatory approaches that allow for cost-effective compliance, such as the emissions trading mechanism proposed in the Transport Rule. [EPA-HQ-OAR-2009-0491-2718.1, p.9]
:: In circumstances in which power plant retirements trigger localized reliability concerns, EPA and DOE should follow established precedent, including use of consent decrees, to permit continued operation for reliability purposes only, pending necessitate upgrades or generation additions. Additionally, the various federal agencies and offices with responsibility for assuring reliability for the nation's electricity capability should work together to help support the industry and states in complying with EPA's new air regulations. [EPA-HQ-OAR-2009-0491-2718.1, p.10]
:: Transparent, well-established market rules approved by FERC and overseen by independent market monitors, particularly the forward capacity markets relied on by some Regional Transmission Operators, as well as state regulatory agency oversight, provide additional safety nets to help ensure adequate capacity. Although EPA is under court order to promulgate its air regulations, the Agency can and should coordinate the implementation of anticipated water regulations under Section 316(b) of the Clean Water Act and new waste regulations to avoid possible reliability concerns. [EPA-HQ-OAR-2009-0491-2718.1, p.10]
PSEG Services Corporation
The electric sector has tools at its disposal to implement the Transport Rule without negative impacts on the reliability of the electric system. In the preamble to the proposed rule, EPA estimates that approximately 14 gigawatts ("GW") of SO2 scrubbers and less than 1 GW of SCR for NOx control will be required for the electric sector to comply with the proposed 2014 emission caps. The magnitude of anticipated retrofits is significantly less than the industry has added in recent construction cycles. For example, during the recent peak of scrubber construction between 2008 and 2010, approximately 60 GW of coal capacity was retrofit with scrubber controls, highlighting the industry's ability to complete a substantial number of retrofits over a short period of time. In 2009 and 2010, the industry completed between 50 and 60 scrubber retrofits each year. [EPA-HQ-OAR-2009-0491-2627.1, p.3]
EPA projects that 1.2 GW of generating capacity may be removed from operation by 2014 in response to the proposed rule and notes that these units are predominantly small and infrequently-used generating units dispersed throughout the area affected by the rule. We do not believe the Transport Rule, as proposed, would significantly increase system reliability risks. Reserve margins throughout the Transport Rule region are well in excess of target reserve levels, suggesting that the system has the capacity to absorb additional retirements and compensate for scheduled outages for purposes of installing pollution control technologies. 2 [EPA-HQ-OAR-2009-0491-2627.1, p.4]
Further, if there are isolated reliability issues in areas of heavy demand as a result of implementing the Transport Rule or additional rules affecting the electric sector, existing risk management procedures under the Clean Air Act, the Federal Power Act, and other statutes already provide EPA, the Department of Energy, the Federal Energy Regulatory Commission, and the President have tools to address unforeseen impacts on electric system reliability on an individual basis. [EPA-HQ-OAR-2009-0491-2627.1, p.4]

2 For further analysis of the electric industry's considerable capacity to manage system reliability while installing pollution control equipment and retiring a portion of the generating fleet, please see the recent report Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability available at http://mjbradley.com/documents/MJBAandAnalysisGroupReliabilityReportAugust2010.pdf. The report was prepared on behalf of several members of the Clean Energy Group, including: Calpine Corporation, Constellation Energy, Entergy Corporation, Exelon Corporation, NextEra Energy, National Grid, PG&E Corporation, and Public Service Enterprise Group (PSEG).
Response:
These comments generally agree with EPA in maintaining that the rule will not impair the reliability of the electric power system.
Organization: Consumers Energy
Comment:
Consumers Energy
:: With respect to low-sulfur sub-bituminous coal, more coal has to be burned to produce the same amount of electricity as eastern coal, requiring changes to the coal-handling systems and potentially to the permit (which takes about 1.5 years). In addition, our coal and rail contracts are negotiated several years ahead of time and cannot be changed within 6 months. Furthermore, there are logistical limits to how much more coal can be provided in the near term by the suppliers, rail and vessel delivery systems, all of which are currently operating near capacity. It is unlikely that these systems would be able to support large increases in coal requirements quickly. [EPA-HQ-OAR-2009-0491-2837.1, p.8]
:: To shutdown or restrict the operation of the units, approval must be granted by both the MPSC and the Midwest Independent Transmission System Operator (MISO). Furthermore, notification to EPA is required. Retiring units or placing units into long term cold storage earlier than planned will increase customer rates, which the MPSC is resistant to do, especially in Michigan's current economy. According to MISO FERC Electric Tariff, Fourth Revised Volume No. 1, a MISO market participant must deliver to the 'Transmission Provider Attachment Y, Notification of Potential Generation Resource or SCU Change of Status, if a Market Participant plans to either: (i) decommission and retire a Generation Resource or a Synchronous Condenser Unit (SCU) that it either owns or operates; (ii) suspend operation of and place into extended reserve shutdown such Generation Resource or SCU for a period of more than two (2) months; or (iii) disconnect such Generation Resource or SCU from the Transmission System for a period of more than two (2) months. Attachment Y must be submitted to the Transmission Provider at least twenty-six (26) weeks prior to the Market Participant engaging in any of the aforementioned activities.' MISO will then evaluate whether or not the Generation Resource is necessary for system reliability. The best case scenario would be for an approval from MISO, but the more likely scenario would require some form of transmission system upgrade in order to do so. Preliminary estimates for upgrades are upwards of 39 to 40 months. [EPA-HQ-OAR-2009-0491-2837.1, p.8]
Response:
Transmission system concerns
      EPA modeling with IPM considered the issues of regional resource adequacy and inter-regional transmission of power. EPA recognizes that local grid issues, such as shifts in congestion patterns and transmission impacts from the retirement of specific power plants, will need to be coordinated at the utility and regional levels as they routinely managed for all changes in the power sector. However, EPA also believes that there are sufficient provisions in the rule for flexible coordination with regional entities and among utilities to permit these local issues to be resolved in the normal course of business.
      IPM modeling considers regional resource adequacy based on current and projected NERC reserve margins, and considers transmission system limitations by placing limits on flows between regions and on the amount of capacity that can be transferred between regions to meet regional reserve margins. This modeling is conservative, in the sense that it considers only current transmission capacity between regions and does not consider ways in which the transmission grid may be improved in the future to allow for additional flexibility in dispatch to meet load. In other words, EPA's projections show cost-effective EGU emission reductions subject to regional limitations of the transmission grid as it exists today, and its projections are fully compatible with the power sector's ability to comply with the rule's emission reductions while successfully operating the grid.
Coal switching concerns
      These comments make reference to retiring units but do not raise specific reliability concerns; in any case, the comments do not raise reliability concerns with respect to unit operation because the rule does not require fuel switching at individual units. In addition, EPA revised its modeling in response to comments on coal switching capability and costs in the analysis of the proposed rule. See preamble section VII.C.2 and IPM documentation in this docket.
Organization: Council of Industrial Boiler Owners (CIBO)
Comment:
Council of Industrial Boiler Owners (CIBO)
CIBO supports market-based mechanisms to achieve reductions, as these have been proven to be the most cost-effective means of achieving reductions. In the context of this Proposed Rule, CIBO generally supports the state budget/limited trading remedy, as the best of the solutions offered. However, that program as proposed is not without its foreseen difficulties. One such difficulty is reliability. CIBO members, many of whom are major consumers of electricity, are directly affected by electricity reliability. In the Proposed Rule, 75 FR 45315: EPA states that the state budget/limited trading remedy is not a risk to electric reliability. The statement is that the ISOs have the flexibility to manage regional generation so that reliability is maintained. The first question is how this affects the many interests participating in an ISO? Does this give the ISO/RTO a need to favor generation from one part of the country over another? For example, would this drive a preference for the dispatch of east coast gas/oil generation over Midwest coal during certain times of the year in order to preserve the "room" within a variability limit for summer/winter demand? If so, does that create a disparity for Midwest customers who would lose their access to lower-cost power? How does this impact transmission congestion, grid reliability, and resultant costs of power? These issues do not appear to have been fully addressed and likely need FERC input.  [EPA-HQ-OAR-2009-0491-2751.1 p.12]
Response:
      EPA believes that the modeling performed for the analysis of this rule has addressed the reliability issues raised in these comments with respect to dispatch shifts. EPA's IPM modeling includes representation of regional dispatch that includes regional reserve margins and transmission limits on transfer of capacity between regions to meet reserve margins. See IPM documentation and results of the IPM modeling of this rule in this docket.
Organization: Dairyland Power Cooperative
Comment:
Dairyland Power Cooperative
Considering the relative little time remaining prior to 2012, procurement and delivery of an adequate supply of PRE fuel for 2012 to the Dairyland Power's Alma Generating Station site, which only receives fuel delivery by river barge during the Mississippi River navigation season, appears more than a little problematic and places Dairyland Power in serious jeopardy of being able to operate Alma Unit 4 and Alma Unit 5 and comply with EPA's proposed Transport Rule. [EPA-HQ-OAR-2009-0491-2733.1 p.3]
The magnitude of lost generating capacity associated with a fuel switch to 100% PRE coal, from design coal quality, is significant to a small rural electric cooperative like Dairyland Power which has a small portfolio of generating assets. It is infeasible at this point in time for Dairyland Power to build replacement generating capacity by 2012. In the alternative, Dairyland Power would face a very constrained timeline to attempt to contract for replacement capacity between the time of rule promulgation and 2012. [EPA-HQ-OAR-2009-0491-2733.1 p.3]
In summary, we do not believe that the EPA's proposed Transport Rule properly accounts for the extreme impacts imposed on Dairyland Power's Alma Unit 4 and Alma Unit 5 with an assumption that these units can simply be 'switched' to fueling with 100% PRB coal by 2012, the first compliance year for the Transport Rule. We urge the EPA to take our comments into consideration when finalizing the Transport Rule 2012 and 2014 S02 allocations and direct control alternative S02 emission rates for Alma Unit 4 and Alma Unit 5.  [EPA-HQ-OAR-2009-0491-2733.1 p.3]
Response:
      These comments make reference to retiring units but do not raise specific reliability concerns; in any case, the comments do not raise reliability concerns with respect to unit operation because the rule does not require fuel switching at individual units. In addition, EPA revised its modeling in response to comments on coal switching capability and costs in the analysis of the proposed rule. See preamble section VII.C.2 and IPM documentation in this docket.
Organization: Florida Electric Power Coordinating Group, Inc. (FCG)
Comment:
Florida Electric Power Coordinating Group, Inc. (FCG)
Nor has EPA attempted to assess the proposed Transport Rule's impact, or the impact of all relevant rules combined, on electric system reliability, our national economy (especially given these sensitive and volatile economic times), or the disproportionate impact on lower socio-economic groups and individuals. A few key regulatory examples that EPA must incorporate into its economic and reliability analysis include the:
(a) 2010 National Ambient Air Quality Standard for N02;
(b) 2010 National Ambient Air Quality Standard for S02;
(c) 2010 National Ambient Air Quality Standard for ozone;
 (d) 2011 National Ambient Air Quality Standard for PM2.5;
(e) 2011 National Ambient Air Quality Standard CO;
(f) 2011 revisions to the Transport Rule;
(g) Regional haze rule;
(h) Greenhouse gas regulations;
(i) 2011 industrial boiler MACT;
(i) 2011 utility MACT;
(k) 2010 revisions to 40 CFR 63, Subpart ZZZZ;
(I) 316(b) cooling water intake structures;
(m) numeric nutrient criteria; and
(n) coal combustion residuals. [EPA-HQ-OAR-2009-0491-2658.1, pp.4-5]
Any credible economic and reliability assessment must include the combined impact of all of these rules; to do otherwise would be negligent, an abuse of discretion, and arbitrary and capricious. EPA attempted to analyze the cost of its proposal, but has thus far kept blinders on when considering whether other regulations could be relevant to its overall impact assessment. As an example of a more holistic assessment, the North American Electric Reliability Corporation is currently evaluating the combined impact of four of the above EPA rules on the retirement of specific electric generating units, Planning Reserve Margins, and the need for additional generating units, as well as the magnitude of construction planning necessary for timely compliance. The specific rules NERC is evaluating are the Transport Rule, the utility MACT, 316(b) intake structures, and coal combustion residuals. Further, Electric utilities in Florida are required (annually) to plan on a 10-year horizon, and whenever they decide to make a prudent capital expenditure, it is made with a 20-30-40+ year vision considering all relevant and foreseeable regulatory initiatives. EPA must also consider the long-term consequences of its rules. [EPA-HQ-OAR-2009-0491-2658.1, p.5]
Response:
      As discussed in section III of the Preamble to this rule, EPA will provide full opportunity for notice and comment on each rule as they are proposed and finalized. EPA will include the final Transport Rule in its regulatory impact analyses of subsequent rulemakings.
Organization: Independence Power & Light (IPL)
Public Utilities Commission of Ohio
E.ON U.S.
Edison Electric Institute (EEI)
First Energy
Four Flags Area Chamber of Commerce
Dominion
Indiana Utility Shareholders Association
Lansing Board of Water & Light
Michigan Manufacturers Association (MMA)
State of Ohio Environmental Protection Agency (Ohio EPA)
Comment:
Dominion
EPA's assumption that the required retrofits can be completed to meet the required deadlines of the proposed rule is very questionable. At a minimum, we believe EPA needs to assess the impact of the 2014 deadline in terms of electric reliability given the significant amount of capacity that will require retrofits and the very careful alignment of installation schedules and unit tie-in outages that will be required between facilities. In addition, scheduled outages to complete installation and unit tie-ins must be submitted to and approved by the regional Independent System Operators (ISO). We urge EPA to reconsider the feasibility of the 2012 and 2014 compliance dates. [EPA-HQ-OAR-2009-0491-2715.1, p.14]
E.ON U.S.