2. “From Plant to Plug” A Legal and Policy Critique of 111(d) Conference of Western Attorneys General July 22, 2014 Karl R. Moor Senior Vice President & Chief Environmental Counsel Southern Company

3. Unveiling Climate Action Plan “I’m also directing the EPA to develop [standards for existing power plants] in an open and transparent way, to promote flexibility to different states with different needs...” Remarks by the President on Climate Change June 25, 2013

4. Elements of “Clean Power Plan” Focal point of President’s Climate Action Plan Establishes CO 2 emissions standards for existing power plants under Section 111(d) of the Clean Air Act Requires 30% reduction of CO 2 emissions from power sector from 2005 levels by 2030 States must show “meaningful progress” by 2020

5. Legal Hurdles for 111(d) “... EPA’s authority under the Clean Air Act is limited to developing a procedure for states to establish emissions standards for existing sources. EPA, if unchecked, will continue to implement regulations which far exceed its statutory authority to the detriment of the States...” Letter from 17 State Attorneys General to EPA Administrator McCarthy September 11, 2013

6. “... a standard of performance of performance under section 111(d) cannot be established for any air pollutant – HAP and non-HAP – emitted from a source category regulated under section 112.” “... if EPA is regulating source category X under section 112, section 111(d) could not be used to regulate any HAP emissions from that particular source category.” U.S. Environmental Protection Agency March 29, 2005 Legal Hurdles for 111(d) (cont’d)

7. D.C. Circuit Rejects EPA Reading of Section 111 “... EPA has attempted to change the basic unit to which [Section 111] appl[ies] from a single building, structure, facility, or installation – the unit prescribed in the statute – to a combination of such units. The agency has no authority to rewrite the statute in this fashion.” (emphasis added) ASARCO v. EPA, 1978 Legal Hurdles for 111(d) (cont’d)

8. BSER – “Inside” Performance standards reflective of emission limitation achievable through application of “best system of emission reduction” at single source BSER – “Outside” “... is based on a range of measures that fall into four main categories” (1)efficiency (2)environmentally-manipulated dispatch (3)renewable and nuclear power (4)demand-side efficiency

9. BSER “Building Blocks” Erode State Flexibility Assumes 6% efficiency improvement at each coal-fired unit on a continuous basis Increases natural gas combined cycle dispatch to 70% capacity factor Assumes unprecedented increases in renewables and penalizes states currently constructing low- and zero- emitting generation projects Applies selective and un-sustained demand side energy efficiently to all 50 states

10. Source: U.S. Energy Information Administration 2013 Annual Energy Outlook Changes in the U.S. Fuel Mix

11. Structural Hurdles for States Carbon Integrated Resource Plan (Carbon IRP) In vertically-integrated states, coops, munis and IPPs must be brought into dispatch process Who will control dispatch process – PUC or DEQ? Carbon IRP leads to reshuffling dispatch order Changes to generation portfolios take years Decisions must be made now

12. Structural Hurdles for States (cont’d) “Acceptable” SIPs require regulatory structures that are non-existent in many states Multi-state plans necessitate interstate compacts; require state legislative approval and comply with Compact Clause SIPs due by June 2016 Clock is ticking

14. Questions? Karl Moor Senior Vice President & Chief Environmental Counsel Southern Company krmoor@southernco.com