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Regulations Update

Mercury & Air Toxics Standards

The most stringent of the federal regulations, the Mercury and Air Toxics Standards rule (MATS), was finalized in 2012. MATS established unit-specific emission requirements for mercury, metals and acid gases. The MATS compliance deadline is April 16, 2015, but up to a one-year extension may be obtained from state permitting authorities if adequate justification is provided. AEP has received several MATS deadline extensions, typically due to transmission reliability concerns, capacity obligations or a lengthy scheduled retrofit. Our compliance strategy calls for installation of emission control systems, unit retirements and conversion of some coal units to natural gas. Implementation is under way with permitting and regulatory reviews, and engineering and design work.

The timing of MATS and the number of compliance-driven unit retirements and retrofit projects for AEP and the industry are causing grid reliability concerns. Reliability during peak demand periods is most at risk. During extreme cold weather in January 2014, on average, most of AEP’s coal units slated for retirement in mid-2015 ran to serve the high customer demand. At the same time, natural gas delivery to some of our gas-fueled plants was challenged, all of which required voltage and load reductions in the bulk power system. Although the system held together, there was a real threat of rolling blackouts and little room for error. It is a reminder that the electric system must be able to meet extreme requirements, such as we saw this winter, not just steady-state conditions.

We continue to provide leadership in the ongoing dialogue to help ensure that MATS compliance strategies balance the need to preserve grid reliability. We are closely coordinating these efforts with state commissions and environmental agencies, the EPA, regional transmission organizations, the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation.

Emission transport rules

The EPA’s efforts to reduce interstate transport of SO2 and NOx in the eastern half of the United States continue. In 2005, the EPA finalized the Clean Air Interstate Rule (CAIR), which was remanded by the D.C. Circuit Court of Appeals but was allowed to stay in effect until an alternate rule was developed. The EPA then developed the Cross-State Air Pollution Rule (CSAPR), but it also was remanded after a legal challenge. The EPA appealed that decision, and the case went before the U.S. Supreme Court in December 2013. A ruling is expected in mid-2014. Meanwhile, the CAIR requirements remain in place, pending additional court or agency action.

Separate from CSAPR, the EPA has indicated that it is developing a new ozone transport rule that will be proposed during the summer of 2014 and will focus on NOx emissions. Also, on Dec. 9, 2013, eight states from the Northeast Ozone Transport Region petitioned the EPA to add nine upwind states to the region, including states with AEP generating resources. The goal would be additional NOx and volatile organic compound (VOC) emission reductions from these states. The EPA has 18 months to respond to the petition.

NAAQS

The Clean Air Act requires the EPA to review and, if needed, revise National Ambient Air Quality Standards (NAAQS). Several NAAQS proposals have been revised or are under review, possibly leading to additional emission reduction requirements. The EPA is expected to propose a revised ozone NAAQS in late 2014. NAAQS for SO2 and NOx were revised in 2010 and NAAQS for fine particulate matter were revised in 2012.

Due to the EPA’s implementation schedule for the revised NOx, SO2 and NAAQS – impacts, if any – from these revisions won’t be known until later this decade at the earliest. The expected time frame for finalization and implementation of a revised ozone NAAQS rule would also likely result in any associated emission reductions being required late this decade at the earliest.

Regional Haze

The EPA’s regional haze regulation is designed to protect visibility in designated areas such as national parks. In February 2014, the EPA approved Oklahoma’s compliance plan for Public Service Company of Oklahoma (PSO) to meet requirements of the EPA’s regional haze rule. Under the plan, PSO will install emissions control equipment on some of its gas-fueled plants. PSO will also retire one of its coal-fueled units at Northeastern Station in 2016 and will retrofit the other Northeastern Station unit with emission controls in 2015. The latter unit will be retired in 2026. The plan is also expected to enable PSO’s coal facilities to meet the requirements of the EPA’s MATS rule. The state’s plan is a result of an April 2012 agreement with the EPA, the state of Oklahoma and PSO to reduce emissions and protect Oklahoma consumers and ratepayers.

Greenhouse Gas (New Source Performance Standard - NSPS)

AEP continues to engage the federal government as it develops regulations to reduce CO2 emissions from new and existing fossil fuel-based power plants. As one of the nation’s largest consumers of coal, we have particular interest in helping to shape these regulations. We seek an appropriate balance between environmental protection, impact on company operations and cost to our customers.

We believe the EPA’s NSPS guidelines for existing sources should take into account the following principles:

  • New rules should maintain the generating fleet that currently powers America. Rules should not strand existing capital investments in equipment or jeopardize reliability.
  • The rules should respect the rights of states to have ultimate authority and flexibility in enforcing the regulations.
  • EPA guidelines should be based on reductions that are achievable at the source.
  • Performance standards should be based upon adequately demonstrated systems that are fuel- and technology-specific.
  • Credit should be given for significant reductions already made or those that are being made.
  • Electricity consumers should be treated fairly and equitably. Standards should reflect the electric sector’s proportional share of U.S. CO2 emissions and not require additional reductions that adversely affect low- and middle-income consumers.

Coal Combustion Residuals Rule

How coal ash is handled has been the focus of the EPA for the past few years as it considers a couple of options for regulating coal combustion residuals. Public and regulatory attention heightened in early 2014 following an incident involving a coal ash pond owned by another utility company. In light of the Dan River Plant incident in North Carolina, AEP has undertaken a review of its ash ponds for similar design arrangements. If we find any issues or concerns, we will address them immediately and appropriately.

In December 2013, our industry received clarity and direction on the EPA’s intent to finalize rules to regulate coal ash and other coal combustion residuals (CCRs). The agency continues to weigh two options to regulate coal ash – as either special waste under the hazardous waste section of the Resource Conservation and Recovery Act, or as a non-hazardous waste. A solid waste ruling will be important to the industry. The EPA has extended the deadline to finalize the rule to Dec. 19, 2014.

CCRs have long been used in concrete, wallboard and a wide variety of construction materials. While this benefits other industries, it also provides a source of financial and environmental benefits to AEP. By diverting the coal ash to beneficial reuses, we are minimizing our environmental impacts by reducing the need for waste disposal sites. In addition, the sale of CCRs provides an important source of revenue for AEP.

In 2013, AEP generated 8,666,177 tons of CCRs and was able to beneficially reuse more than 3.1 million tons, or 36 percent of the total. Beneficial reuse of CCRs avoided more than $20 million in disposal costs in 2013 and generated more than $8 million in revenues.

316(b) Standards

New rules governing cooling water intake systems, known as 316(b) standards, were signed by the EPA in May 2014 with a phased-in compliance timeline.

Under the Clean Water Act, the 316(b) standards aim to protect fish and other aquatic organisms that have contact with water intakes or, more specifically, the screens that protect cooling water systems from debris. Impingement occurs when water currents draw aquatic organisms against an intake screen. Entrainment occurs when small fish, eggs or larvae are drawn into the cooling water system through the screen openings and are affected by heat, physical stress or compounds used to prevent build-up of algae and slime that can affect the efficiency of the system.

Our power plants will be affected by the new 316(b) rule. Several of these plants will be retiring, and we are working with our permitting agencies to be able to refrain from making any unneeded modifications in the interim. For the remaining plants, we may need to retrofit modified intake screen systems to reduce impingement. Changes to address entrainment are more difficult to gauge, since that decision will be determined by a series of site-specific studies that the EPA is expected to require. The EPA recognized that its most costly solution, cooling towers, may not be appropriate in all locations and has written a rule that considers alternatives on a site-by-site basis. We favor this approach.

Cooling towers reduce plant efficiency and increase water consumption. Adding cooling towers would be problematic at some of our western coal plants, which operate in areas prone to long droughts. Many of these plants already use a closed-loop cooling system in which reservoirs were built specifically to hold and recirculate the water used for cooling.

Steam Electric Effluent Limitation Guidelines

The Clean Water Act directs the EPA to set, periodically review and update effluent limitation guidelines that regulate wastewater discharge from steam electric generating facilities (e.g., coal, combined-cycle natural gas and nuclear units). On April 19, 2013, the EPA proposed more stringent guidelines that could require upgrades to, and installations of, new wastewater treatment systems at a potentially significant expense. A final rule was expected this year but the EPA has delayed the release of the standards to Sept. 30, 2015. We’ve been studying the possible impact if we move from wet to dry handling of coal ash. To comply with existing treatment standards, many of our coal ash ponds provide treatment of the ash wastewater from the plants in addition to many additional waste streams. If the ash ponds are eliminated, those remaining waste streams would still need to be treated – and the necessary technologies for that would have to be selected, engineered and installed.

We’re expanding our use of a computer model to help us assess what will happen to various pollutants as they move through different wastewater processes at a power plant. The model considers the type of coal burned, water chemistry, size and flow of the treatment ponds, chemical reactions, weather conditions and other factors. This helps us to predict how changes to the plant will affect the waste streams. For example, the model will permit us to better gauge how adding a new scrubber or eliminating an ash pond will affect the wastewater the plant produces.

The model will also be used to help with water recycling decisions and to determine if water reuse will affect the final wastewater output or any intermediate water treatment steps. It will help us ensure that water management changes not only meet national effluent guidelines but also do not create unintended consequences or prevent us from meeting local water quality standards. The information generated will be useful as changes resulting from the revised effluent guidelines are implemented in the coming years.

Our Commitment to Zero Harm

At AEP, our focus on zero harm - zero injuries, illnesses or fatalities - means compliance with regulations is just a starting point. We are committed to continuous safety and health improvement.
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