COOLING WATER INTAKE STRUCTURES RULE: § 316(b)

1. 10-05-10 COOLING WATER INTAKE STRUCTURES RULE: § 316(b) Congressional Briefing October 5, 2010

3. Timing & Schedule • Proposed rule expected February 2011 • 90-day inter-agency review expected in November • Notice of Data Availability expected in 2011 • Will address additional data on benefits valuation • Final rule due July 2012

4. At Issue • CWA Section 316(b) requires that cooling water intake structures reflect the best technology available (BTA) for minimizing adverse environmental impacts • EPA is crafting rule to set national performance standards • Central question is what constitutes BTA? • Once-through v. closed cycling cooling (cooling towers) • Other technologies or operating conditions to address “impingement” (trapping organisms against screens) and “entrainment” (passing organisms through the cooling system) of aquatic life • Debate is once size-fits-all vs. flexible site-specific technology requirements • Unintended environmental, energy and economic consequences at issue • Need for cost-benefit balancing crucial

5. § 316(b) History • 1970s – Present: States exercising best professional judgment and making site-specific BTA decisions • 1993: Riverkeeper suit forced promulgation of § 316(b) rules • 2001: Rules for “new” generation facilities completed

6. History: Existing Facilities Rule • 2004 – Phase II rule established national standards for impingement and entrainment. • Specified a range of qualifying technologies • Rejected cooling towers as a single BTA, due to excessive costs. • Allowed site specific decisionmaking based on cost-benefit analyses • 2007 – Second Circuit remanded the rule in part denying cost-benefit analysis and implied cooling towers should be deemed BTA • 2009 – U.S. Supreme Court decided EPA has discretion to use cost-benefit analysis • 18 states participated in an amicus brief including: AL, AR, CO, FL, IN, KS, KY, LA, MI, MO, NE, ND, NM, SC, TN, TX, VA, WV. • 2010 – EPA consolidates Phase II-III rulemaking for completion by July 2012

7. EPA Stated Objective • Uniform and consistent regulation of cooling water intake structures • Desire an “easy” rule to implement • Favor cooling towers (flow reductions) as most effective technology • EPA believes that it is reasonable to interpret adverse environmental impact as the loss of aquatic organisms due to impingement and entrainment.“ • Magnitude? • Barrier to this objective: each power plant configuration and location is unique

8. Exposure • Fuel neutral – affects ALL steam electric facilities • Number & overall capacity of affected facilities large • >444 power plants affected • 30% of U.S. Generation; 60% nuclear capacity; 23% fossil capacity • 327 GW affected (EPRI) • Once-through facilities distributed throughout U.S. • Retrofits: $65 billion capex cost (>$215-$220/kw) • Total compliance numbers significantly higher • Retrofits result in 2-4% lost capacity • Agency studies conclude reliability impacts (NETL, NERC, DOE) • 2008 DOE / NERC study found that 39,500 Mw would be prematurely closed due to retrofit mandate

9. Environmental Consequences • Questionable benefits to be realized – harm isn’t occurring in many situations • Cost: Towers are prohibitively expensive; difficult to retrofit • Effects plant economics, efficiency and electricity prices • Emissions: Additional GHG and particulate emissions • Other environmental concerns: fogging, icing, space consideration, noise, aesthetics • Permitting: Increase in particulate emissions may preclude permitting • Water Use: Towers consume more water than once-through systems (2x)

10. Energy & Price Consequences • Energy • Capacity reduction due to efficiency losses (2-4%) • Extended outages – vary, some companies report 40+ months • Resource margin adequacy, reliability difficulties, load balancing concerns • NY ISO forecast 1/5 of generation resources may retire • Insufficient compliance time may not allow for development of replacement capacity • Price increases – Two examples • CA: 6-9% increases • NY : 3-10% increase

11. California Developments • State Water Board adopted the policy May 4, 2010 • Policy effectively mandated closed cycle cooling • Policy finalized in September; proposed amendments issued October • Amendments are designed to avoid “rate shock” and premature closure of baseloaded plants

12. Industry Perspective • Site-specific technology decisionmaking • Multiple technology options – e.g., fine mesh screens, fish return systems, barrier nets, wedgewire screens, etc. • Meaningful cost-benefit test. Includes: • Demonstration that technology is “effective” at site • Determine technology is “affordable” at site • Cost-benefit calculation to determine benefits exceed costs (or is not “wholly disproportionate”)

15. Flow

16. David C. Brown Senior V.P. Federal Government Affairs and Public Policy

17. Marty McBroom Director, Federal Environmental Affairs (202) 383-3437 mamcbroom@aep.com

19. Fred Dacimo VP, Operations, License Renewal

20. Ann Loomis Director, Federal Public Policy 202-585-4205

23. Questions? Thank you for your attention!