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State Waiting for Final Carbon Rule, Hopeful for Reduced Burden By: Rachel Leingang azcapitoltimes.com  July 31, 2015 , 4:50 am   With the Environmental Protection Agency expected to release its final rule on carbon emissions next week, Arizona officials and utility representatives are hoping for a bit of relief.   The draft of the EPA’s Clean Power Plan called for Arizona to reduce its carbon emissions by 52 percent by 2030, the second-highest percentage reduction of any state. Under the proposed rule, the majority of the reduction would need to be met by 2020.   “It’s just untenable, it’s too fast, it’s too much,” said Eric Massey, director of the Arizona Department of Environmental Quality’s air quality division.   Nationwide, the EPA’s overall goal includes a 30 percent reduction in carbon emissions by 2030 from 2005 levels. Arizona wants its 2030 goal to be 34 percent, which is more in line with neighboring states, according to DEQ.   The EPA’s assumptions for Arizona include a 77 percent expansion in natural gas to meet the 52 percent reduction in carbon emissions, as well as a 10 percent increase in use of solar, wind or nuclear power, and a 13 percent increase in energy efficiency.   Since the proposed rule was announced, Arizona agencies, utilities and consumers have sent thousands of comments to the EPA saying the rule unfairly affects the state and would negatively affect electrical reliability and affordability.   Predictions from utilities and state officials are grim, if the EPA doesn’t budge on the rule. Nearly all of the state’s coal plants would be shuttered. Electricity rates would shoot up. Grid reliability would plummet, potentially leading to brown-outs.   Still, the head of the state’s environmental quality agency believes the EPA has listened to the barrage of comments from Arizona, including those from DEQ and the Arizona Corporation Commission, and will make some changes that allow the state to avoid filing a lawsuit.   “I’m maybe too much of an optimist, but I’m still hoping the things that we’ve said to EPA and the reaction that we’ve heard so far will mean that they will reduce our goal,” DEQ Director Henry Darwin told a joint legislative committee on July 24.   The committee headed by Sen. Gail Griffin, R-Hereford, and Rep. Frank Pratt, R-Casa Grande, will ultimately need to approve any state plan DEQ wants to submit to the EPA to comply with the Clean Power Plan. If a state doesn’t submit its own plan, it will be subject to a general federal plan, which would not take any local differences into account.   At least one group, however, doesn’t want to see Arizona’s goal reduced. Sandy Bahr, director of the Sierra Club-Grand Canyon Chapter, said it’s time for utilities to ramp up renewables and wean off coal.   “Our hope is that EPA will not come out with a weaker proposal and that it will hold Arizona’s feet, as well as other states’ feet, to the fire on this because we need to do something yesterday when it comes to climate change,” Bahr said.   WAITING GAME The EPA said the final Clean Power Plan would be released this summer, but hasn’t specifically set a date. According to industry watchers, the rule is expected to drop on Aug. 3. Environment & Energy Publishing found a timeline posted on EPA’s website that showed an Aug. 3 release date, though the timeline was then taken off the EPA site.   News reports from The New York Times and The Washington Post on July 28 said the EPA’s final rule is expected to give states two more years to meet the interim goal, pushing compliance back to 2022 instead of 2020. The newspapers also said confidential sources indicated there would be incentives given to states to encourage Clean Power Plan compliance.   “It could help, it could not help,” DEQ’s Massey said of the potential two-year lag. “It’s hard to say until we see the whole piece.”   Ahead of the proposed release date, DEQ has held stakeholder meetings to come up with potential solutions to lessen the burden on Arizona. After the rule is released, the stakeholder groups will continue to meet to move toward a state plan.   LAWSUIT-READY And while Arizona has taken a somewhat measured approach to work with the EPA and make its unique circumstances known, other states have quickly jumped into lawsuits or, defiantly, outright said they wouldn’t submit a state plan.   Oklahoma attempted to sue the EPA to block the rule’s completion, but a U.S. District Court judge in Tulsa threw out the lawsuit, calling it premature and exaggerated, according to OK Energy Today.   In Arizona, state officials, including Attorney General Mark Brnovich, have said they’re prepared to sue to fight what they call federal overreach from the EPA.   “I need to stand up for our state’s sovereignty when the federal government overreaches. … I am not afraid of a fight,” Brnovich told the Arizona Capitol Times in February.   In June, Brnovich announced the state had joined a lawsuit against the final Waters of the U.S. rule, which regulates pollution in rivers, streams, marshes and lakes. In 2013, then-Attorney General Tom Horne sued the EPA over regional haze rules and their impacts on the Navajo Generating Station.   DEQ’s Darwin said it’s his preference to try to produce a state plan and comply with the EPA’s rule because of limited resources and the likely length of litigation. Darwin told the joint legislative committee that he would likely be pressured to sue the EPA, but he would rather his staff focus on creating a plan that will work for Arizona.   “I will not be able to prepare the best plan Arizona can provide if I’m also told that I have to sue EPA because the goal they have set is unachievable or unbeatable,” Darwin said.   Meanwhile, if the state pursues litigation, it’s unlikely a court would put a stay on the EPA’s rule, and utilities will start working toward complying with the Clean Power Plan in case a lawsuit fails, he said.   “If we weren’t able to get (a stay), then the rest of the litigation really is somewhat, not completely, but somewhat meaningless because utilities would have to comply with it regardless,” Darwin said.   Bahr, of the Sierra Club, said she wouldn’t be surprised to see a lawsuit, but it would be disappointing given all the work DEQ has done to try to find compromises and work toward a state plan for Arizona.   “Arizona doesn’t need any more ceremonial lawsuits,” Bahr said. “We have filed plenty of lawsuits against the federal government … and what we’ve found out is, despite what the Arizona Legislature thinks, we are still part of the United States of America.”   STRANDED COSTS Potential effects on Arizona’s relatively young coal plants are perhaps toughest to swallow, industry experts say. Coal plants in Arizona are the sixth-youngest in the nation. Utilities plan for a life cycle of at least 40 years for coal plants, and the cost of installing the plants, plus a reasonable rate of return on investment, is rolled into electricity rates.   “There’s lots of useful life remaining in those coal plants. We need a reasonable transition period if we’re going to phase them out,” said Gary Yaquinto, president of the Arizona Investment Council, which represents Arizona utility company investors.   DEQ’s Massey said the agency didn’t just want to complain that EPA got it wrong, but instead provide a solution. DEQ suggests if coal facilities are less than 40 years old by 2030, they should be allowed to finish out their useful lives instead of converting to natural gas. And if coal plants have made efforts and spent money to comply with other EPA guidelines on pollution controls, they should be allowed an additional 20 years to recoup the costs of added compliance.   Stranded costs are a major concern for the state’s electric cooperatives, said Will Barnow, director of federal government relations at the Grand Canyon State Electric Cooperative Association.   The state’s co-ops rely mostly on the Apache Generating Station in Cochise County, and the proposed rule would force one of the station’s coal-fired units to shutter, which would result in an estimated 34 percent increase in wholesale electricity prices, Barnow said.   Rural co-op members are unique: One-third of them are below the poverty level. And since members are owners of the cooperatives, it means cost increases hit hard.   “They can’t afford those increases,” Barnow said.   The life cycle for Apache doesn’t end until 2035, and there’s still more than $200 million in federal loans owed on the facility, Barnow said. If it gets shut down early, the cooperatives will struggle to generate revenue to pay back the loans.   Barnow said it’s tough to gauge what would need to change in EPA’s rule for it to be acceptable to Arizona’s rural cooperatives, but all options, including litigation, are still on the table.   “We’ll have to assess what steps will best serve rural Arizona going forward,” he said.   If the coal plants are taken offline to add more natural gas capacity, as EPA suggested in its proposed rule, utilities say customers may end up paying for plant costs even though the plants themselves aren’t functioning, in addition to the costs for adding natural gas and/or renewables.   Yaquinto said, “To get the investment out of those plants, you would have to roll those costs into (customers’ electric) rates. … Either that, or investments take a haircut,” which could impact credit ratings and the future availability of capital.   The EPA would need to make serious changes to its proposal for Arizona, Massey said, but the federal government has been much more collaborative and willing to listen on the Clean Power Plan than it has been on past rules.   “EPA is listening. EPA has indicated that there will be changes made, we’re just all waiting to see what those changes are,” Massey said.