Concerns in light of
expected EPA regulations
November 28, 2011
Economic Studies Working Group
Southwest Power Pool, Inc.
Revision History
Date
Author
Change
Description
11/8/2011
Kip Fox
Original Draft
11/28/2011
SPP staff
12/12/2011
ESWG
Added introduction,
recommendation, and
other options considered
Edited parts of the
sections titled “General
Concerns” and
“Economic Concerns”.
Concerns in light of expected EPA regulations
Comments
Emailed to group for
comments – David
Reid, Mike Proctor,
and Steve Gaw[?]
provided comments.
Emailed to group for
comments
ESWG endorsed the
document on this date.
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Southwest Power Pool, Inc.
Background & Recommendation:
The ESWG has been participating in the finalization of the 2012 Integrated Transmission Planning
10-Year Assessment (ITP10) and in evaluating the results has concerns that the latest intelligence
regarding the expected EPA regulations Cross-State Air Pollution Rule (CSAPR) and the pending
Mercury and Air Toxics Standards (MATS) rule has only been approximated with the information
available to the ESWG in the spring of 2011. The rules have continued to undergo changes and be
subject to great levels of uncertainty since that time. The specific concerns are listed below. The
ESWG group has undertaken to provide a recommendation on routes that may allay these concerns
with a brief scope, impact analysis, and timeline.
With a focus upon the studies that will begin in 2012 (specifically the 2013 ITP Near Term, the 2013
ITP20, and any High Priority Studies1) the ESWG offers the following recommendation, for
consideration.
The ESWG recommends that in addition to the currently scheduled ITP Near Term and ITP20
studies, with the impact of the regulations for those studies modeled, that a High Priority Study
specifically dealing with the economic and reliability impacts of these CSAPR regulations be
performed. This study would begin in early 2012, study a ten year horizon, and be completed within
twelve months.
ESWG realizes this plan of action does not address immediate concerns with EPA regulations
(immediate near term) but is to address some of the longer term, more expensive transmission
upgrades that are usually identified in the ITP-10.
Other Options Considered
In the development of this recommendation, the ESWG and staff have considered the potential
impact of an additional study upon the strategic vision of the ITP process and evaluated four separate
options for action. These options are listed here in order of preference with option A being the
recommendation of staff and the ESWG. Further detail for each is provided in the subsequent
sections.
A) In addition to the ITPNT and ITP20, perform a High Priority Study that specifically deals
with the economic impacts of these regulations upon transmission expansion within the next
ten years.
B) Conduct the ITPNT and ITP20. Within the context of the ITP20, perform analysis upon the
tenth year in addition to the strategic, long-term twentieth-year assessment.
C) Perform the ITPNT and ITP20 without major modification to the current study processes.
These studies will incorporate the best known data regarding the EPA regulations and will
address them as foreseen by the ITP process. The ITPNT will assess the impact of these
regulations in the near term.
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Open Access Transmission Tariff, Attachment O, Section IV.2
Concerns in light of expected EPA regulations
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Southwest Power Pool, Inc.
D) Lay aside the 2013 ITP20 and repeat the ITP10 with the latest intelligence regarding the
regulations. Perform the ITPNT as planned.
Any action apart from option C will result in negative impacts to the ITP study schedules, budgets,
and stakeholder attention to the planning process as a whole.
General Concerns:
Significant changes between now and when the ITP10 assumptions were made include the
following:
1. CSAPR will be in effect on January 1, 2012. CSAPR affects were not in the Business as
Usual (Future 1) case or Future 2 case (high wind/carbon).
2. MATS rules are not in the Future 2 case. A final rule on MATS is expected by year end.
3. Coal generation output had a carbon tax placed upon it in Future 2 case (so did natural gas
but at about 50% of the rate of coal). This will not address the change in the now anticipated
decreases in coal-based generation outputs expected from any of the EPA rules.
4. A rerun of ITP10 with the EPA rules may not be satisfactory
a. The ITP10 analysis has been a year ten look. The SPP analysis shows that there may
be greater risk much sooner than this. Thus a near term analysis may need to be done
either as a priority to the year ten outlook or in concert as a multiple year analysis
within the 10 year horizon.
b. The foundation of the ITP10 was based upon certain generation build and retirement
assumptions that were developed during the ITP20 which may not now be valid under
new EPA rules. There is a question as to whether a new set of assumptions as to
generation would be prudent.
5. The Addition of Entergy in the MISO footprint was not considered by ESWG as part of the
ITP10 and the EPA impacts for potential imports and exports should be considered. With the
addition of Entergy to the MISO footprint, significant changes in flow and potential usage of
the SPP network by the Joint Operating Agreement Congestion Management Program for
coal and gas resources will significantly affect SPP members, resources and the long term
plans which should be considered in the planning process.
Generation Concerns:
1. The CSAPR and MATS rules may reduce generation more than the 2 GW (could be as much
as 5 GW) that was planned in the ITP10 study (shutdown of generators 200 MW and
smaller). A preliminary review of the latest stakeholder surveys on this topic indicated these
rules will only have minimal impacts upon SPP generation resources. However, if larger
generators are shut down or have significantly curtailed generation, the ITP10 results may
not be the optimal solutions. Specifically, more than doubling the MWs of lost base-load
generation could have a significant impact on type and location of new generation assumed
in developing the transmission plan.
2. If 5 GW is shutdown, a new capacity resource plan will need to be developed which may also
change the current ITP10 solutions. The studies need to be run limiting SO2 and NOX
emissions to the state allowances to comply with CSAPR. Exports from state to state could
be significantly limited which may also change the ITP10 solutions.
Concerns in light of expected EPA regulations
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Southwest Power Pool, Inc.
3. ESWG members did not have sufficient information to determine if large base-load, coalfired generation units would be retrofitted with environmental controls, seasonally run or
retired. The assumptions may not have correctly contemplated the new EPA rules. The
resulting effect could be to have the ITP10 counting on generation that may not be there for
delivery to the load. This could distort the results of both reliability and economic projects
associated with ITP10.
4. Due to the addition of equipment required to comply with the proposed MATS rules such as
SCR’s, scrubbers, and bag houses, there will be associated de-ratings of the plants where this
equipment is installed on these facilities. This will reduce some of the capacity available
within the SPP footprint.
Economic Concerns:
1. The Reliability and Reserve Capacity plans currently being addressed by SPP will address
how to keep the lights on under implementation of EPA rules. While transmission reliability
analysis is certainly critical to addressing very short-term fixes, if the transmission analysis
does not also include economics, the additional costs to rate payers from delaying a joint
economic and reliability analysis is not acceptable. Waiting three years until the next ITP10
is completed is too long to wait for joint solutions to be approved and implemented.
2. The possibility that some of the transmission upgrades to deliver renewable power to the east
may instead be transmitting power needed to meet reliability issues from restricted outputs
and plant shutdowns associated with EPA Rules. Thus, additional transmission capacity may
be required to meet both requirements.
3. The proposed MATS rules have not been addressed in load projections in the ITP10. Load
may have been overstated in the ITP10. The study should consider load sensitivities around
the ITP10 load values.
4. The dispatch order of the generation may be impacted by the rules.
Regulatory Concerns:
1. The extent of the MATS rules as of 11/09/11 is still not known. A final rule is expected in
December and clarification in the first quarter of 2012 may significantly alter the futures that
need to be studied in contrast to the futures studied in the current ITP10 plan. Thus, the
resulting ITP10 plan may not address economic projects that will bring the greatest value to
the footprint. In addition, the benefits from the current ITP10 plan are uncertain based on the
futures that are consistent with the MATS results.
Brief Scope:
A brief study scope has been outlined for each of the study processes that could be used to address
these concerns. Each scope corresponds with one of the recommendations.
A) If a High Priority Study is utilized to address these concerns, the study should include both
the impact of the CSAPR and MATS regulations upon the transmission plans that have been
developed within the 2012 ITP10 in order to determine if additional/alternative transmission
is needed in the next ten years. The analysis would include consideration of both reliability
and economic projects.
Concerns in light of expected EPA regulations
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Southwest Power Pool, Inc.
B) If the ITP20 is utilized to address these concerns, the study should include the standard
twentieth year assessment but also include an additional assessment of the tenth year. The
ITP20 is expected to include consideration of the CSAPR and MATS regulations in any
regard; this would continue.
C) If the ITPNT is utilized to address these concerns, the study should follow its proposed
schedule but incorporate the economic impact of the regulations upon the dispatch utilized in
the models and provide mechanisms for the development of economic solutions.
D) If the ITP10 is utilized to address these concerns, the study should follow another accelerated
timeline, and focus on only one future with treatment of the EPA regulations. The analysis
would include consideration of both reliability and economic projects. The ITP20 would not
be pursued.
Impact Analysis:
The need to consider futures related to the new EPA rules will take time away from the scheduled
ITP work for next year. All of the options have some disadvantages. Any alteration toof the current
ITP plan will immediately cause a two month delay since work is already underway on the 2013
ITP20. The benefit of the work that has already been undertaken for the 2013 ITP20 will be lost.
Each impact analysis corresponds with one of the recommendation options laid forth above.
A) Performing a High Priority Study in parallel with the ITP20 may cause either study to suffer
due to lack of stakeholder focus or staffing resources. A consultant could be engaged to
lower staffing requirements, but low stakeholder involvement in either study would continue
to be a risk.
B) Analyzing, in detail, a tenth year as part of the ITP20 will diminish the intended strategic
value of the study and will take staff and stakeholder focus away from the true purpose of the
study. Using the ITP20 in this manner may set precedent that will allow the opportunity for
other ITP studies to be re-tasked beyond their intended scope.
C) Providing an economic perspective within the ITPNT will accelerate, artificially, the
expected natural evolution of the study and may reduce the quality of study or require greater
resources for completion by 2013.
D) Pushing the ITP20 off another year will likely require a tariff filing, allows slippage at the
time when SPP is just beginning its planning process, may make it easier to ignore the
deadlines of the eighteen month cycle in the future, and may impact the timing of the
Reasonableness Review of the cost allocation principles. If the ITP20 is continuously pushed
back, the strategic vision of the ITP process will be lost.
Timeline:
Jan 2012 – Obtain Strategic Direction from SPC, MOPC, and BOD
Feb 2012 – Scope the study, determine need for contractors
July 2013 – Provide an update to the MOPC and SPC on the study progress
Oct 2013 – Present draft results to the MOPC and update the SPC
Jan 2014 – Provide final results with recommended action.
Concerns in light of expected EPA regulations
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Southwest Power Pool, Inc.
Action by SPC, MOPC, Board Required:
A decision on whether to endorse and approve or other action as determined by the SPC, the MOPC
and SPP Board of Directors is needed.
Concerns in light of expected EPA regulations
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