1. Impacts of Environmental Regulations in the ERCOT Region Dana Lazarus Planning Analyst, ERCOT January 26, 2016

2. 1 Background Current Resource Mix and Generation Development in ERCOT Environmental Regulations Grid Simulation Methodology and Results Potential Grid Impacts Agenda

3. 2 In December 2014, ERCOT evaluated the potential impacts of pending environmental regulations, including the proposed Clean Power Plan, on grid reliability On August 3, 2015, EPA released the Clean Power Plan final rule –The final rule made adjustments to magnitude and timing of the carbon dioxide (CO 2 ) emissions reductions for Texas –The requirements for Texas in the final rule are less stringent compared to the proposal ERCOT updated its analysis of the potential impacts of the Clean Power Plan for grid reliability based on the changes in the final rule Background

4. 3 Current ERCOT Resource Mix

5. 4 Coal Capacity by Age and Controls SCR = Selective catalytic reduction SNCR = Selective non-catalytic reduction

6. 5 Generation Development in ERCOT Information available at the Resource Adequacy page on the ERCOT web-site: http://www.ercot.com/gridinfo/resource/index.html

7. 6 Projected Reserve Margins (Dec. 2015 CDR) *To be eligible for the CDR, projects must have signed interconnection agreements, applicable air permits and proof of adequate water.

8. 7 Cross- State Air Pollution Rule (CSAPR) Mercury and Air Toxics Standards (MATS) Ash Disposal Rule Clean Water Act Section 316(b) Regional Haze Federal Plan Clean Power Plan Environmental Regulations April 2015 Jan 2015; 2017* 2018-2022 2019-2021 July 2015-2018** 2022-2029; 2030 Compliance Date: Addresses cross-state air pollution through a cap and trade program Sets limits on hazardous air pollutant emissions at power plants Requires controls to limit impacts to aquatic life at cooling water intake structures Requires controls on air emissions to improve visibility in national parks Sets carbon dioxide emissions limits for existing units Places requirements on disposal of coal ash *Proposed CSAPR update rule would take effect beginning in January 2017. **Longer timeframes for facilities required to close. Does not include the Steam Electric Effluent Limitation Guidelines (ELG) rule, which has compliance dates between 2018-2023. There are several proposed and recently finalized environmental regulations that could impact grid reliability in ERCOT: Coal units Natural gas units Costs to: Color key: No costs Moderate costsHigh CostsLow costs

9. 8 Big Brown 1, 2 Sandow 4 Limestone 1, 2 Coleto Creek San Miguel Martin Lake 1, 2, 3 Monticello 1, 2 Monticello 3 Regional Haze Affected Units in ERCOT

10. 9 Sets limits on the amount of CO 2 that existing power plants can emit to the air Sets interim and final CO 2 emissions limits: –Three interim limits must be met on average between 2022-2024, 2025- 2027, and 2028-2029 –Final limit must be met from 2030 onwards States may choose to comply with either the rate (lb CO 2 /MWh) or mass (tons CO 2 ) form of the limit Clean Power Plan Requirements for Texas

11. 10 Used ERCOT stakeholder-vetted methodologies consistent with ERCOT’s Long Term System Assessment (LTSA) Modeled four primary scenarios: Modeled the Clean Power Plan mass-based requirements for ERCOT as a limit and as an emissions fee –Scenario with emissions limit allows model to select the least-cost way to achieve compliance –Scenarios with emissions fees simulate a potential approach to achieve compliance, and allow an initial assessment of likely increases in wholesale power prices Modeled Regional Haze by adding costs of scrubber retrofits or upgrades for affected units Included an additional scenario to assess the impacts of energy efficiency Simulation Methodology Scenario Regulations Included in ScenarioCO 2 Price ($/ton) CSAPRCPPRegional Haze20222030 1. Baseline n/a 2. CO 2 Limit n/a 3. CO 2 Price $1.00$22.50 4. CO 2 Price & Regional Haze $0.00$21.00

12. 11 Coal Unit Retirements At least 4,000 MW of coal unit retirements due specifically to the Clean Power Plan Additional coal unit retirements when Regional Haze is considered, likely to occur before the Clean Power Plan compliance timelines Grid Simulation Results Renewable Energy Growth Up to 23,000 MW of solar and wind additions in scenarios with the Clean Power Plan, resulting in almost 44,000 MW total intermittent renewable capacity Increases compared to previous CPP study due to updated capital cost assumptions

13. 12 Resource Adequacy: if future unit retirements occur without sufficient notice for the market to respond with new investment, there could be periods with reduced reserve margins and increased risk of system scarcity events. Transmission Reliability: the retirement of legacy units may result in localized transmission constraints that may affect transmission reliability and grid congestion. –Transmission improvements require four to five years for planning, routing approval, and construction. –Reliability-Must-Run contracts may not be an option if units are retired for environmental compliance reasons. Renewables Integration: while ERCOT has been very successful at integrating renewable generation, grid operations with the levels of renewables seen in future scenarios will be a challenge. At high levels of renewable penetration, any must-take requirements on renewable output to achieve environmental compliance goals could affect grid reliability. Possible Grid Impacts

14. 13 CREZ Reactive Study Questions?