[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]









                            OUT OF THIN AIR:
                  EPA'S CROSS-STATE AIR POLLUTION RULE

=======================================================================

                                HEARING

                               BEFORE THE

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                      THURSDAY, SEPTEMBER 15, 2011

                               __________

                           Serial No. 112-35

                               __________

 Printed for the use of the Committee on Science, Space, and Technology




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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                    HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR.,         EDDIE BERNICE JOHNSON, Texas
    Wisconsin                        JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas                LYNN C. WOOLSEY, California
DANA ROHRABACHER, California         ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland         BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma             DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois               GABRIELLE GIFFORDS, Arizona
W. TODD AKIN, Missouri               DONNA F. EDWARDS, Maryland
RANDY NEUGEBAUER, Texas              MARCIA L. FUDGE, Ohio
MICHAEL T. McCAUL, Texas             BEN R. LUJAN, New Mexico
PAUL C. BROUN, Georgia               PAUL D. TONKO, New York
SANDY ADAMS, Florida                 JERRY McNERNEY, California
BENJAMIN QUAYLE, Arizona             JOHN P. SARBANES, Maryland
CHARLES J. ``CHUCK'' FLEISCHMANN,    TERRI A. SEWELL, Alabama
    Tennessee                        FREDERICA S. WILSON, Florida
E. SCOTT RIGELL, Virginia            HANSEN CLARKE, Michigan
STEVEN M. PALAZZO, Mississippi
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY















                            C O N T E N T S

                      Thursday, September 15, 2011

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Ralph M. Hall, Chairman, Committee on 
  Science, Space, and Technology, U.S. House of Representatives..    10
    Written Statement............................................    11

Statement by Representative Eddie Bernice Johnson, Ranking 
  Minority Member, Committee on Science, Space, and Technology, 
  U.S. House of Representatives..................................    12
    Written Statement............................................    14

                               Witnesses:

Bryan W. Shaw, Chairman, Texas Commission on Environmental 
  Quality
    Oral Statement...............................................    16
    Written Statement............................................    18

Gregory Stella, Senior Scientist, Alpine Geophysics, LLC
    Oral Statement...............................................    22
    Written Statement............................................    24

Barry T. Smitherman, Commissioner, Texas Railroad Commission
    Oral Statement...............................................    37
    Written Statement............................................    38

Wayne E. Penrod, Executive Manager, Environmental Policy, 
  Sunflower Electric Power Corporation
    Oral Statement...............................................    40
    Written Statement............................................    42

Chip Merriam, Chief Legislative and Regulatory Compliance 
  Officer, Orlando Utilities Commission
    Oral Statement...............................................    47
    Written Statement............................................    49

The Honorable Gina McCarthy, Assistant Administrator, Office of 
  Air and Radiation, U.S. Environmental Protection Agency
    Oral Statement...............................................    56
    Written Statement............................................    58

Discussion.......................................................    62

             Appendix 1: Answers to Post-Hearing Questions

Bryan W. Shaw, Chairman, Texas Commission on Environmental 
  Quality........................................................    77

Gregory Stella, Senior Scientist, Alpine Geophysics, LLC.........    79

Wayne E. Penrod, Executive Manager, Environmental Policy, 
  Sunflower Electric Power Corporation...........................    80

Chip Merriam, Chief Legislative and Regulatory Compliance 
  Officer, Orlando Utilities Commission..........................    83

The Honorable Gina McCarthy, Assistant Administrator, Office of 
  Air and Radiation, U.S. Environmental Protection Agency            84

             Appendix 2: Additional Material for the Record

Letter from Mr. Bryan W. Shaw and Mr. Barry T. Smitherman to Mr. 
  Cass R. Sunstein, Administrator, Office of Information and 
  Regulatory Affairs, OMB........................................   102

Impacts of the Cross-State Air Pollution Rule on the ERCOT System   105

Exhibit 1: EPA CSAPR Overview, Sunflower Electric Power 
  Corporation....................................................   115

Letter to Hon. Cass R. Sunstein from Members of Congress.........   122

Letter to Mr. Robert Perciasepe, Deputy Administrator, EPA, from 
  Mr. David A. Campbell, Chief Executive Officer, Luminant.......   130

Letter to Mr. Cass R. Sunstein, OMB, from Mr. Thomas R. Kuhn, 
  President, Edison Electric Institute...........................   135

Letter to Chairman Ralph M. Hall and Ranking Member Eddie Bernice 
  Johnson from Pedro J. Pizarro, Preisdent, Edison Mission Group.   137

Dynegy: Comments on Proposed Federal Implementation Plans to 
  Reduce Interstate Transport of Fine Particulate Matter and 
  Ozone..........................................................   141

Consent Decree: State of Illinois vs. Illinois Power Company and 
  Dynegy Midwest Generation, Inc.................................   150

Letter to Chairman Ralph M. Hall and Ranking Member Eddie Bernice 
  Johnson from Mr. Robert C. Flexon, Dynegy......................   170

Letter to Ms. Gina McCarthy, Assistant Administrator, Office of 
  Air and Regulation, EPA, from Mr. Jonathan Gardner, 
  International Vice President, IBEW.............................   172

News Release: Luminant Announces Facility Closure, Job Reductions 
  in Response to EPA Rule........................................   174

Luminant: Related Fact Sheet for September 12, 2011, News Release   178

NERA: Proposed CATR and MACT.....................................   181

Letter to Mr. David Campbell, CEO, Luminant, from Robert 
  Perciasepe, Deputy Administrator, EPA..........................   211

Standard and Poor's Global Credit Portal, September 12, 2011.....   213

Letter to Administrator Lisa P. Jackson, USEPA, from Nicholas A. 
  Brown, et al., Southwest Power Pool, Inc.......................   227

 
                            OUT OF THIN AIR:
                  EPA'S CROSS-STATE AIR POLLUTION RULE

                              ----------                              


                      THURSDAY, SEPTEMBER 15, 2011

                  House of Representatives,
               Committee on Science, Space, and Technology,
                                                    Washington, DC.

    The Committee met, pursuant to call, at 9:34 a.m., in Room 
2318 of the Rayburn House Office Building, Hon. Ralph Hall 
[Chairman of the Committee] presiding.



                            hearing charter

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                     U.S. HOUSE OF REPRESENTATIVES

                            Out of Thin Air:

                  EPA's Cross-State Air Pollution Rule

                      thursday, september 15, 2011
                         9:30 a.m.--12:00 p.m.
                   2318 rayburn house office building

Purpose

    On Thursday, September 15, 2011, the House Committee on Science, 
Space, and technology will hold a hearing to review the scientific, 
procedural, and technical basis of the Environmental Protection 
Agency's Cross-State Air Pollution Rule, including a discussion of 
economic, employment and reliability impacts.

Witnesses

    Panel One

      Dr. Bryan W. Shaw, Chairman, Texas Commission on 
Environmental Quality

      Mr. Gregory Stella, Senior Scientist, Alpine Geophysics, 
LLC

      Mr. Barry T. Smitherman, Commissioner, Texas Railroad 
Commission

      Mr. Wayne E. Penrod, Executive Manager, Environmental 
Policy, Sunflower Electric Power Corporation

      Mr. Chip Merriam, Chief Legislative & Regulatory 
Compliance Officer, Orlando Utilities Commission

    Panel Two

      The Honorable Gina McCarthy, Assistant Administrator, 
Office of Air and Radiation, U.S. Environmental Protection Agency

Background

    The Clean Air Act (CAA) requires the Environmental Protection 
Agency (EPA) to promulgate National Ambient Air Quality Standards 
(NAAQS) for PM2 and ozone,nd requires States to 
develop State Implementation Plans (SIP) that outline how each State 
will meet such standards. \1\
---------------------------------------------------------------------------
    \1\  NAAQS pollutants (also called criteria pollutants) are 
pollutants that ``may reasonably be anticipated to endanger public 
health or welfare . . . '' CAA Section 108(a)(1). EPA has identified 
six pollutants subject to NAAQS: ozone, particulate matter (2 
and 2), carbon monoxide, sulfur dioxide, nitrogen oxide, and 
lead.
---------------------------------------------------------------------------
    When EPA finalized new NAAQS for both PM2 and ozone in 
1997, some States found that despite their best efforts, their SIPs 
were inadequate for compliance. The problem resulted in part due to the 
contribution of pollution from upwind States. Under Section 
110(a)(2)(D) of the CAA, States must include provisions in their SIPs 
to prevent sources within their State from significantly contributing 
to the ability of downwind States to attain the standards. Finding that 
interstate transport of sulfur dioxide (SO2) and nitrogen 
oxides (NO2) constituted a ``significant contribution'' \2\ 
to downwind States' inability to attain compliance with those NAAQS, 
EPA issued the Clean Air Interstate Rule (CAIR) in 2005.
---------------------------------------------------------------------------
    \2\  Significant contribution was defined by CAIR as the product of 
three factors: (1) the actual amount of transported pollution from 
upwind States that contributes to nonattainment in downwind States; (2) 
how often contributions over specific thresholds occur; and (3) the 
comparative amount of the upwind transported contribution to the total 
nonattainment situation to the downwind area.

---------------------------------------------------------------------------
Clean Air Interstate Rule (CAIR)

    CAIR established a regional cap-and-trade program for SO2 
and NO2 emissions from electric generating units (EGUs) in 
28 eastern States and the District of Columbia. The program was 
composed of three emission caps: two were annual regional emission caps 
that address the interstate contribution of SO2 and NO2 
to PM2 nonattainment; the third cap was a seasonal cap to 
address interstate contribution of NO2 to ozone 
nonattainment. See attachment A for States affected by these regional 
caps.





    Based on a methodology centered on reductions from EGUs and 
adjusted for type of fossil fuel burned, each affected State was 
assigned a portion of the regional cap in the form of a Statewide 
``emissions budget'' or cap. Each covered State was then required to 
submit a revised SIP identifying measures it intended to implement to 
achieve its emissions budget. In its final rule, EPA encouraged States 
to adopt the most cost-effective measures to achieve their emissions 
budget, specifically through a cap-and-trade program. This type of 
program had been successful in the past, specifically with regard to 
the Acid Raid Program established under Title IV of the CAA, and the 
NO2 SIP Call, a seasonal NO2 cap-and-trade 
program that includes electric utility and other major stationary 
sources. The interstate trading allowed by the CAIR rule was intended 
to promote the reduction of emissions in the most cost-effective 
manner, and then selling emission allowances to those EGUs that decided 
the most cost-effective method of compliance was for them was buying 
allowances on the market.
    Despite general support from stakeholders, CAIR was challenged in 
court by petitioners that argued the rule was not strong enough to 
address pollution from upwind sources. On July 11, 2008, a unanimous 
court decision found that EPA lacked the authority to promulgate a 
regional cap-and-trade rule under Section 110 of the CAA unless it 
could show a link between the pollution emitted in specific States and 
nonattainment standards or failure to maintain standards in downwind 
States. The court found that EPA had established a significant 
contribution made by power plants to pollution levels in other States 
as required under Section 110, but that its methodology for 
establishing emission budgets was unrelated to that link. Because the 
trading program established under CAIR assumed that the entire upwind 
region contributed significantly, and not that each State's sources 
contributed significantly to downwind States' nonattainment as defined 
in Section 110(a), the interstate trading aspect of the rule was 
considered unlawful.
    Without CAIR, States would have a difficult time demonstrating that 
their SIPs could meet NAAQS. Therefore, the court subsequently modified 
its decision on December 23, 2008, stating that the CAIR rule could 
remain in effect until a new rule was promulgated by EPA. Although the 
Court did not impose a specific deadline on EPA's development of a 
replacement rule for CAIR, it did say that it was not granting an 
indefinite stay, and that petitioners may sue again if EPA did not 
promulgate a new rule.

Cross-State Air Pollution Rule (CSAPR)

    On July 6, 2010, EPA proposed a replacement for CAIR, the Clean Air 
Transport Rule. The proposed transport rule left the CAIR Phase I 
limits in place and set new limits replacing CAIR's Phase II limits in 
2012, three years earlier than the original CAIR rule. The proposed 
rule included the States in CAIR and added three new States--Oklahoma, 
Kansas, and Nebraska. The rule allowed unlimited trading of allowances 
within individual States, but severely limited interstate trading in 
order to address one of the Court's reasons for vacating the CAIR rule. 
In order to ensure expedited implementation of the rule, EPA proposed a 
Federal Implementation Plan (FIP) for each of the States, focusing 
solely on EGUs. States may develop their own SIPs and choose to control 
other types of sources in addition to EGUs if they wish, but the 
federal plan will take effect until the State acts to replace it.
    Exactly one year later, in July 2011, EPA finalized the transport 
rule, now called the Cross-State Air Pollution Rule (CSAPR). The final 
rule includes requirements for 28 States (see attachment B) to reduce 
SO2 and NO2 emissions that may contribute to 
nonattainment of the ozone or fine particulate PM2 NAAQS for 
downwind States. Since the proposed rule came out in July 2010, EPA 
issued three Notices of Data Availability (NODAs) to address fuel cost 
assumptions, emission inventories, and allowance allocation methods. As 
a result, the final rule contains a variety of significant changes when 
compared to the July 2010 proposal, or CAIR.
    There were several significant changes between the proposed rule 
and the finalized CSAPR. The final rule requires States to comply with 
the cap established in their emission budgets by January 1, 2012, 
instead of the January 1, 2014, date in the proposed rule. The final 
rule also included a new allowance allocation approach that bases 
allocations on heat input, discounting the type of coal used or the 
efficiency of the plant. As a result of updated modeling and analysis 
tools, EPA decided to change the mix of States included in the final 
rule. Texas was added to the annual SO2 and NO2 
programs, while Connecticut, Delaware, the District of Columbia, 
Florida, Louisiana, and Massachusetts were removed. Iowa, Missouri, and 
Wisconsin were added to the ozone-season NO2 program; 
Connecticut, Delaware, and the District of Columbia were removed.






    Like the proposed rule, the final CSAPR left in place the CAIR 
Phase I limits and replaced the CAIR Phase II limits with new limits to 
take effect in 2012, three years earlier than CAIR, and also included a 
third Phase to take effect in 2014. The reductions envisioned under 
CAIR are already underway. On August 11, 2010, EPA reported that 
emissions of SO2 had declined sharply in both 2008 and 2009. 
In 2009, SO2 emissions from fossil-fuel power plants were 
44% below 2005 levels and NO2 emissions were 45% below 2005 
levels. \5\
---------------------------------------------------------------------------
    \5\ EPA ``2009 Acid Rain Program Emission and Compliance Data 
Report,'' August 11, 2010.
---------------------------------------------------------------------------
    Key Issues--The following issues identified by experts and 
stakeholders continue to be the subject of ongoing debate regarding the 
justifications for, and impact of, the final CSAPR rule:

      Modeling vs. Measurement. EPA modeling does not reflect 
the significant emissions reductions made since implementation of the 
2005 CAIR rule, resulting in modeling data inconsistent with real-world 
conditions and the potential for overestimation of States' downwind 
impacts. Additionally, the most recent air quality data indicate fewer 
nonattainment and maintenance areas than projected by EPA, thereby 
lessening the benefits that would be obtained under the CSAPR.

      Implementation Timeline. The CSAPR rule was finalized on 
July 6, 2011, and Phase II compliance is required by January 1, 2012, 
leaving less than six months for companies and States to act to reduce 
emissions. This issue was acknowledged by the Administration during 
interagency comment on the rule, specifically noting that ``such a 
substantial change occurring six months prior to the effectiveness of 
the assurance provision leaves sources with few options to respond in a 
cost-effective manner, increasing the likelihood of disrupting system 
reliability if it becomes necessary to achieve compliance through 
derates and/or idling.'' \6\
---------------------------------------------------------------------------
    \6\  OMB Summary of Interagency Working Comments, Doc. EPA-HQ-OAR-
2009-0491-4133 (posted to the docket on July 11, 2011).

      Allowance Banking. The CSAPR drastically limits the use 
of banked allowances saved under the Acid Rain program and the NO2 
---------------------------------------------------------------------------
SIP Call, increasing implementation costs and compliance challenges.

      Costs and Benefits. EPA's cost-benefit analysis does not 
consider costs of control equipment installed for CAIR compliance, but 
nonetheless takes credit for emission reductions already achieved by 
these controls.

      Implementation Flexibility. In order to facilitate 
implementation of the rule, EPA has issued a FIP in place of allowing 
States to generate their own SIPs, contrary to the cooperative 
federalism outlined in the CAA.

    Reliability. EPA asserts that CSAPR will not compromise electric 
reliability. Others have questioned this assumption. For example, the 
Electric Reliability Council of Texas (ERCOT) concluded that rolling 
brownouts would have been necessary if the rule had been in place in 
2011: ``ERCOT would have experienced rotating outages during days in 
August. Off-peak capacity reductions in the three scenarios evaluated 
as part of this study, when coupled with the annual maintenance outages 
that must be taken on other generating units and typical weather 
variability during these periods, also place ERCOT at increasing risk 
of emergency events, including rotating outages of customer load.'' \7\
---------------------------------------------------------------------------
    \7\  7 http://www.ercot.com/content/news/presentations/2011/
ERCOT-CSAPR-Study.pdf.

      Impact on Electricity Rates, Jobs, and the Economy. 
According to an analysis conducted by NERA Economic Consulting, the 
combined impacts of EPA's CSAPR and proposed utility MACT rules would 
increase retail electricity prices by 12 percent in 2016 and reduce net 
employment significantly over the next eight years (with losses 
outweighing gains by more than 4 to 1). This finding has been 
reinforced by some of the largest electric generators and unions in the 
U.S., which indicate that CSAPR and related EPA rules will cause the 
retirement of numerous power plants and mining operations, as well as 
significant job losses.



    Chairman Hall. The Committee on Science, Space, and 
Technology will come to order, and I say good morning to you 
and thank you for being so punctual and at your places. And I 
thank some of my staff who has urged you to stay within the 
limit of five minutes. We are going to relegate our questions 
to three minutes each because we are going to have to go vote 
in a little bit, and we know your time is valuable and the 
other witnesses' time is semi-valuable. And we want to give 
each of us the same length of time to talk. Thank you all. And 
I thank the Members.
    And welcome today to our hearing that is entitled ``Out of 
Thin Air: EPA's Cross-State Air Pollution Rule.'' In front of 
you are packets containing written testimony, biographies, and 
Truth-in-Testimony for everybody here, and disclosures for 
today's witnesses. Today's hearing includes two panels, which I 
will note for the record is not the typical practice of our 
Committee.
    I will now recognize myself for five minutes for an opening 
statement. And I relegate myself to three minutes, but I don't 
know what part of this I leave out because I didn't write any 
of it, but I am going to read most of it.
    I want to welcome everyone here today for this hearing 
entitled ``Out of Thin Air: EPA's Cross-State Air Pollution 
Rule.'' I particularly want to thank all the witnesses on the 
first panel who provided their testimony on time. Despite being 
told more than three weeks in advance about this hearing, we 
had a little problem with the other testimony that is given, 
but maybe everybody has a reason for that, so we usually try to 
overlook that. But thank you for being punctual and being 
responsive.
    A week ago, President Obama gave a speech about jobs and 
asked Congress to give him $450 billion in new money to spend. 
As we debate the merits of that proposal, I hope the 
Administration will recognize the single most important thing 
it can do for the economy that doesn't cost a dime. All it 
takes is for the President to assert some leadership and get 
the out-of-control EPA to stop its regulatory assault on 
American jobs.
    The issue today before us is a prime example of that. The 
Cross-State Rule is intended to ensure upwind States do not 
negatively impact the air quality of their downwind neighbors, 
a seemingly reasonable concept. In reality, however, it serves 
as another monument to the activist EPA's legacy of putting bad 
politics ahead of good science without regard to economics. To 
fully state the number of problems with this rule would far 
exceed my five minutes or two minutes or 15 minutes it would 
take me, but there are a few that require mention.
    First, issuing a rule forcing major installations of 
pollution-control equipment and expecting States to comply with 
it five months later is unheard of, even by EPA's previous 
track record and appears to be setting up States to fail. To 
add insult to injury, EPA added Texas and several other States 
to the rule at the last minute, without giving affected 
stakeholders the ability to review or comment on this decision. 
Incredibly, EPA has staked its justification for the inclusion 
of Texas on the basis of a single-projected impact on a county 
in Illinois. Just to be clear, EPA has modeled a potential 
effect in the single area hundreds of miles away. This has not 
been actually measured; in fact, that county even is currently 
meeting the standard.
    Furthermore, the model assumptions EPA used to estimate 
such linkages are hidden from the public and not subject to 
peer review. These black-box models allow EPA to pick and 
choose its input data and assumptions free from technical 
scrutiny. This is not how science really should be done.
    Today, we will hear from witnesses from States that have 
been adversely affected by this rule. The concerns are the 
same: not enough time, EPA's abuse of modeling to justify the 
rule, and electrical reliability concerns that will result from 
the rule's implementation. Now, for my State of Texas, it is 
important to note that it is a clean-air success story. Through 
a flexible, pro-jobs, all-of-the-above energy strategy, Texas 
has achieved recent environmental progress that eclipses many 
other States in the country. Since 1995, electric utilities in 
Texas have reduced sulfur dioxide emissions by 26 percent, 
NO2emissions by 62 percent. The Cross-State Air 
Pollution Rule requires Texas to reduce its SO emissions by an 
additional 47 percent, so by January 1, 2012.
    Last week during a Congressional hearing, Assistant 
Administrator Gina McCarthy stated, ``I don't want to create 
the impression that EPA is in the business of creating jobs,'' 
a little sarcastic, I think. I want to assure Mrs. McCarthy not 
to worry. Americans are not getting that impression from EPA. 
And I frankly think it is a shame for an Administration 
official to make a smart-aleck remark like that when people are 
in jeopardy of losing their jobs and having to come home and 
tell their family that they don't have a job and they can't 
provide for them. We are in a desperate time to have that kind 
of talk.
    Just this week, Texas companies have announced that they 
will have to cut jobs specifically in response to this rule. 
EPA may not be in the business of creating jobs, but with more 
than nine percent unemployment, it certainly should not be in 
the business of destroying them either, which is what will 
happen if this rule goes into effect the way they have planned 
it.
    And I now represent--recognize a very fine Ranking Member, 
Ms. Johnson, for five minutes for an opening statement.
    [The prepared statement of Chairman Hall follows:]
     Prepared Statement of Representative Ralph M. Hall, Chairman,
              Committee on Science, Space, and Technology

    I want to welcome everyone here today for this hearing entitled Out 
of Thin Air: EPA's Cross-State Air Pollution Rule. I particularly want 
to thank all the witnesses on the first panel who provided their 
testimony on time. Despite being told more than three weeks in advance 
about this hearing, Assistant Administrator McCarthy submitted her 
testimony less than 24 hours in advance of this hearing and well past 
the Committee's deadline. This is yet another example of the 
Administration's disrespect to the Congress.
    A week ago President Obama gave a speech about jobs and asked 
Congress to give him $450 billion in new money to spend. As we debate 
the merits of that proposal, I hope the Administration will recognize 
the single most important thing it can do for the economy doesn't cost 
a dime; all it takes is for the President to assert some leadership and 
get the out-of-control EPA to stop its regulatory assault on American 
jobs.
    The issue before us today is a prime example of that. The Cross-
State rule is intended to ensure upwind States do not negatively impact 
the air quality of their downwind neighbors, a seemingly reasonable 
concept. In reality, however, it serves as another monument to the 
activist EPA's legacy of putting bad politics ahead of good science 
without regard to economics. To fully state the number of problems with 
this rule would far exceed my five minutes, but there are a few that 
require mentioning.
    First, issuing a rule forcing major installations of pollution 
control equipment and expecting States to comply with it five months 
later is unheard of, even by EPA's previous track record, and appears 
to be setting up States to fail. To add insult to injury, EPA added 
Texas and several other States to the rule at the last minute, without 
giving affected stakeholders the ability to review or comment on this 
decision. Incredibly, EPA has staked its justification for the 
inclusion of Texas on the basis of a single projected impact on a 
county in Illinois. Just to be clear, EPA has modeled a potential 
affect in a single area hundreds of miles away--this has not been 
actually measured. In fact, that county is currently meeting the 
standard.
    Furthermore, the model assumptions EPA uses to estimate such 
linkages are hidden from the public and not subject to peer review.
    These black box models allow EPA to pick and choose its input data 
and assumptions free from technical scrutiny. That is not how science 
should be done.
    Today we will hear from witnesses from States that have been 
adversely affected by this rule. The concerns are the same: not enough 
time; EPA's abuse of modeling to justify the rule; and electrical 
reliability concerns that will result from the rule's implementation. 
As for my State of Texas, it is important to note that it is a clean 
air success story. Through a flexible, pro-jobs, all-of-the-above 
energy strategy, Texas has achieved recent environmental progress that 
eclipses many other States in the country. Since 1995, electric 
utilities in Texas have reduced sulfur dioxide emissions by 26 percent 
and NO2 emissions by 62 percent. The Cross-State Air 
Pollution Rule requires Texas to reduce its SO2 emissions by 
an additional 47 percent, by January 1, 2012.
    Last week during a Congressional hearing, Assistant Administrator 
Gina McCarthy stated, ``I don't want to create the impression that EPA 
is in the business of creating jobs.'' I want to assure Ms. McCarthy 
not to worry--Americans are not getting that impression. I think it is 
a shame for an Administration official to make a smart-aleck remark 
like that when real people are in jeopardy of losing their jobs.
    Just this week, Texas companies have announced that they will have 
to cut jobs, specifically in response to this rule. EPA may not be in 
the business of creating jobs, but with more than nine percent 
unemployment, it certainly should not be in the business of destroying 
them either, which is what will happen if this rule goes into effect 
the way you have planned. I now recognize Ranking Member Johnson for 
five minutes for an opening statement.

    Ms. Johnson. Thank you very much, Mr. Hall, and let me 
apologize for being a little late. I was stuck in the 395 
tunnel after the police cut it off for 30 minutes. And so I got 
here a lot later than I intended. I really intended to have 
breakfast before coming.
    But let me commend you for having this hearing. The 
finalized Cross-State Air Pollution Rule is effectively known 
as ``Casper.'' This is a very complex and contentious 
regulatory issue and not one that would fall within the 
Committee's purview. But the principle is simple and embodied 
in Clean Air Act's Good Neighbor Provision. Air pollution 
doesn't stop at the State line, just as it doesn't at city 
limits, and when the pollution from one State affects the air 
quality of another, measures should be taken to mitigate that 
impact. For instance, the emissions of some pollutants from my 
home State of Texas with its booming economy, growing 
population, and vibrant fossil energy sector are some of the 
highest in the country. You can't fence it in, so it stands to 
reason that the effects will be felt somewhere downwind and 
that we owe it to our neighbors to clean up our act. The hard 
part is figuring out how. This is why we have EPA and why 
Congress and the Republican President passed the Clean Air Act 
to identify threats to the environment and public health and 
determine the fairest and most cost-effective ways to remedy 
them.
    However, much as we might wish for a world where big 
environmental issues are addressed voluntarily by industry or 
through the workings of the free market, or are best regulated 
by the individual States, we all know that it just does not 
work that way. Now more than ever the American people need a 
strong EPA to protect their rights of clean air and clean 
water.
    I am a nurse by profession. I know the statistics of the 
lungs that have been affected by all of this pollution. That 
said, while I will always be a strong defender of EPA's charge 
to protect public health and the environment, I am concerned 
about their process for the inclusion of Texas in the final 
Transport Rule at this time. As indicated in the letter my 
colleagues and I from Texas sent to OMB, some important 
affected parties in Texas feel that they did not have 
sufficient opportunity to comment. These parties will likely 
have difficulty meeting the timeline of the final rule.
    I am not and nor is EPA a job killer. We are simply trying 
to protect the lives of the people. I simply feel that 
stakeholders need more time to work with EPA on an economically 
and environmentally responsible solution, a solution that I 
know we can reach. We have evidence.
    With so much at stake in this and other rules, EPA cannot 
afford to get bogged down and derailed by procedural missteps. 
What the public, State governments and industry stakeholders 
need more than anything is regulatory certainty that allows for 
long-term investment planning. I sincerely hope that this 
somewhat irregular and confusing process is not laying the 
groundwork for what could be a protracted battle when in the 
end, clean air is in everyone's best interest.
    Beyond those concerns, let me take this opportunity to 
clarify where I stand on the broader concern about EPA. First, 
do not mistake my position on this single issue as standing 
with Governor of Texas Perry or others in the Republican Party 
in the misguided disingenuous war on the dedicated scientists 
and public servants at the EPA. So I do not join my Governor in 
this race to the bottom as he seeks to outcompete the rest of 
the country in tearing down environmental and public health 
protections. I stand with the people of Texas who, regardless 
of where they fall in the partisan divide, universally agree 
that they have a right to clean air and clean water, and that 
respiratory diseases, heart attacks, premature deaths are not 
part of the sacrifice that we have to make for the sake of the 
Texas Miracle.
    Air quality-related illnesses have very real and 
destructive effects on the economy on the order of hundreds of 
billions of dollars annually, and the benefits for reducing 
those effects will be seen throughout our country. Second, 
despite the noise from the echo chamber on the right, on the 
whole, EPA regulations do not, do not, do not kill jobs. From 
catalytic converters to CFCs, scrubbers to seatbelts, for 
decades we have heard how almost every major environmental 
consumer protection act that Congress considers will decimate 
the American industrial base and result in irreparable economic 
disruption, only to see the power of American innovation 
quickly leave these cynics and pessimists in the dark.
    In fact, there is much more evidence showing that jobs are 
created and the economy expands following the passage of major 
reforms. For example, the U.S. economy grew by 64 percent in 
the years following the passage of the Clean Air Act, and 
recent vehicle fuel economy and emissions standards have 
already resulted in the creation of 150,000 jobs. And that is 
some of the figures that have not just been tabulated by EPA 
but others as well. Yes, some types of industries will see a 
decline in the face of new regulations. That is very true of 
much of what we see. Technology, though, makes a difference.
    In Texas--I am over my time, but, Mr. Hall, let me finish. 
In Texas, depending on how the relevant firms decide to comply, 
we stand to lose a number of rural jobs at lignite mines and 
power plants. I truly hate to see any family suffer a job loss, 
but I am an optimist. With the well-founded faith that 
ultimately these regulations act as a catalyst for the creation 
of new jobs in industrial sectors and that the hardworking and 
talented Texas workforce will be the ones to benefit in the 
end.
    In conclusion, my position on the specific issue of Texas' 
inclusion in the final Transport Rule is clear. Texas needs 
more time to consider the full implications of the rule to 
submit comments to EPA and possibly to prepare for 
implementation. Too many jobs in our State are at stake in the 
short term. However, my position on the protection of public 
health through higher air and water quality standards and our 
ability to meet those standards through homegrown innovation 
should be equally clear and never in question. The sooner we 
learn that we do not have to sacrifice jobs for a cleaner 
environment, the sooner we will see a more robust economy and a 
healthier public, two things that we all look forward to.
    Thank you.
    [The prepared statement of Ms. Johnson follows:]

            Prepared Statement of Ms. Eddie Bernice Johnson,
                        Ranking Minority Member,
              Committee on Science, Space, and Technology

    I want to thank Chairman Hall for holding a hearing on the recently 
finalized Cross-State Air Pollution Rule, affectionately known as 
``Casper.'' This is a very complex and contentious regulatory issue, 
and not one that would fall within the Committee's purview. But the 
principle is simple and embodied in the Clean Air Act's ``Good 
Neighbor'' provision. Air pollution doesn't stop at the State line, and 
when the pollution from one State affects the air quality in another, 
measures should be taken to mitigate that impact.
    For instance, the emissions of some pollutants from my home State 
of Texas--with its booming economy, growing population, and vibrant 
fossil energy sector--are some of the highest in the country. You can't 
fence that in. So, it stands to reason that the effects will be felt 
somewhere downwind, and that we owe it to our neighbors to clean up our 
act. The hard part is figuring out how.
    This is why we have an EPA, and why Congress and a Republican 
President passed the Clean Air Act--to identity threats to the 
environment and public health, and determine the fairest and most cost-
effective ways to remedy them. However, as much as we might wish for a 
world where big environmental issues are addressed voluntarily by 
industry or through the workings of the free market, or are best 
regulated by the individual States, we all know that it just does not 
work that way. Now, more than ever, the American people need a strong 
EPA to protect their rights to clean air and water.
    That said, while I will always be a strong defender of EPA's charge 
to protect public health and the environment, I am concerned about 
their process for the inclusion of Texas in the final transport rule. 
As indicated in the letter my colleagues from Texas and I sent to OMB, 
some important affected parties in Texas feel that they did not have 
sufficient opportunity to comment. These parties will likely have 
difficulty meeting the time line of the final rule. I simply feel that 
stakeholders need more time to work with EPA on an economically and 
environmentally responsible solution, a solution I know we can reach.
    With so much at stake in this and other rules, EPA cannot afford to 
get bogged down and derailed by procedural missteps. What the public, 
State governments, and industry stakeholders need more than anything is 
regulatory certainty that allows for long-term investment planning. I 
sincerely hope that this somewhat irregular and confusing process has 
not laid the groundwork for what could be a protracted battle when, in 
the end, clean air is in everybody's best interest.
    Beyond those concerns, let me take this opportunity to clarify 
where I stand on the broader concern about the EPA.
    First, do not mistake my position on this single issue as standing 
with Texas Governor Perry or others in the Republican Party in the 
misguided and disingenuous war on the dedicated scientists and public 
servants at the EPA. I do not join my governor in his race to the 
bottom as he seeks to out-compete the rest of the country in tearing 
down environmental and public health protections.
    I stand with the people of Texas who, regardless of where they fall 
in the partisan divide, universally agree that they have a right to 
clean air and water, and that respiratory diseases, heart attacks, and 
premature deaths are not part of the sacrifice we have to make for the 
sake of the ``Texas Miracle.'' Air quality-related illnesses have very 
real and destructive effects on the economy--on the order of hundreds 
of billions of dollars annually--and the benefits for reducing those 
effects will be seen throughout the country.
    Second, despite the noise from the echo chamber on the right, on 
the whole, EPA regulations DO NOT kill jobs. From catalytic converters 
to CFCs, scrubbers to seatbelts, for decades we have heard how almost 
every major environmental and consumer protection act that Congress 
considers will decimate the American industrial base and result in 
irreparable economic disruption, only to see the power of American 
innovation quickly leave these cynics and pessimists in the dust.
    In fact, there is much more evidence showing that jobs are created 
and the economy expands following the passage of major reforms. For 
example, the U.S. economy grew by 64 percent in the years following 
passage of the Clean Air Act, and recent vehicle fuel economy and 
emissions standards have already resulted in the creation of over 
150,000 jobs.
    Yes, some types of industries will see a decline in the face of new 
regulations. In Texas, depending on how the relevant firms decide to 
comply, we stand to lose a number of rural jobs at lignite mines and 
power plants. I truly hate to see any family suffer a job loss. But, I 
am an optimist with a well-founded faith that ultimately these 
regulations act as a catalyst for the creation of new jobs and 
industrial sectors, and that the hardworking and talented Texas 
workforce will be the ones to benefit in the end.
    In conclusion, my position on the specific issue of Texas' 
inclusion in the final transport rule (CSAPR) is clear--Texas needs 
more time to consider the full implications of the rule, to submit 
comments to EPA, and possibly to prepare for implementation. Too many 
jobs in my State are at stake in the short term. However, my position 
on the protection of public health through higher air and water quality 
standards, and our ability to meet those standards through home-grown 
innovation, should be equally clear and never in question . The sooner 
we learn that we do not have to sacrifice jobs for a cleaner 
environment, the sooner we will see a more robust economy and a 
healthier public, two things we should all look forward to.
    Thank you.

    Chairman Hall. The gentlelady yields back her time. If 
there are other Members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    And at this time, I would like to introduce our first 
witness panel. Dr. Bryan Shaw is the Chairman of the Texas 
Commission on Environmental Quality and also an Associate 
Professor in the Biological and Agricultural Engineering 
Department of Texas A&M University. Prior to his current 
appointment, Dr. Shaw was an Associate Director of the Center 
of Agricultural Air Quality Engineering and Science and has 
served as a member of the EPA Science Advisory Board 
Environmental Engineering Committee.
    Next, we have Gregory Stella, a Senior Scientist at Alpine 
Geophysics. Mr. Stella is internationally recognized as a 
technical authority in the planning, development, evaluation, 
and modeling of local, national, and international emissions 
inventories and policy options for the projection and control 
of ozone and particular matter pollutants and precursors.
    Our third witness is Barry T. Smitherman, a recent 
appointed Commissioner on the Texas Railroad Commission. He is 
also a member of the National Association of Regulatory Unity 
Commissioners, Board of Directors, and the Committee on Energy, 
Resources, and the Environment. In his prior role as Chairman 
of the Public Utility Commission of Texas, he served as an ex 
officio board member on the Electric Reliability Council of 
Texas and Vice President of the Regional State Committee for 
the Southwest Power Pool.
    Next, we have Mr. Wayne E. Penrod, Executive Manager of 
Environmental Policy at the Sunflower Electric Power 
Corporation in Kansas. He is responsible for Sunflower's 
compliance with all federal and State environmental 
regulations, permitting, and reporting activities for 
Sunflower's generation facilities.
    Rounding out the panel, we have Mr. Chip Merriam, Chief 
Legislative and Regulatory Compliance Officer of the Orlando 
Utilities Commission. Mr. Merriam is responsible for managing 
energy and water regulatory and compliance matters for the 
Orlando Utilities Commission and is heavily involved in the 
development of the State of Florida and federal legislative 
policy.
    And as our witnesses should know, spoken testimony is 
limited to five minutes, after which the Members of the 
Committee will have three minutes each to ask a question. And 
we hope you can stay as close to the five minutes, but if you 
have to run over, we understand that. We recognize, and on both 
sides of the docket recognize, that you are giving up time for 
your preparation for being here, for your travel here, for your 
service here and going back to wherever you came from. So we 
won't be really bad on you if you go over the five minutes.
    So I guess at this time I now recognize Mr.--Dr. Bryan 
Shaw, Chairman of the Texas Commission on Environmental 
Quality.

           STATEMENT OF DR. BRYAN W. SHAW, CHAIRMAN,

           TEXAS COMMISSION ON ENVIRONMENTAL QUALITY

    Mr. Shaw. Thank you, Chairman Hall, Members. My name is 
Bryan Shaw. I am the Chairman of the Texas Commission on 
Environmental Quality. Also, as you pointed out, I am on leave 
of absence as a Professor of Agricultural Engineering at Texas 
A&M University, so I will try to rein in my natural desire to 
speak for 50 minutes at a time and try to stay under the five-
minute mark.
    I want to talk about this rule, the Cross-State Air 
Pollution Rule. Specifically, I want to talk about the concerns 
we have with the lack of due process that was afforded the 
State of Texas in this process, and not just the lack of due 
process also but the specific implications in this matter. Both 
you and Member Johnson have pointed out some of the concerns 
with the timing. And specifically, I want to lay out that 
process as it occurred.
    Texas was included only in the Ozone Seasonal Requirements 
in the proposed rule. Those are the requirements from May to 
September. In the final rule, Texas was included not only for 
the ozone but also in the annual standard for PM2 
and specifically in the ``Group 2'' SO2 trading 
component. This gives us a very short time frame, less than 3-
1/2 months from today, January 2012, to comply with this 
regulation. The lack of adequate notice and meaningful 
opportunity for comment occurred because of the fact that in 
the proposed CATR, the Cross-State Air Transport Rule, they did 
not include Texas in the annual programs for NO2 and 
SO2 reductions for PM2. In fact, EPA's 
own models acknowledge that Texas did not exceed the linkages 
that would be necessary to include us.
    At rule finalization and for the very first time, Texas was 
included and linked to a monitor in Granite City, Illinois, and 
included in the Federal Implementation Plan for the 1997 
PM2 standard. Because Texas was not significantly 
linked in the PM2 rule proposal, it was not possible 
for the State to provide meaningful comment on the technical 
underpinnings of a linkage to any particular one monitor among 
dozens of non-attainment or maintenance receptors for PM2 
covered by rule.
    EPA maintains throughout its rule preamble and in response 
to comment that Texas had ample opportunity for comment and 
notice of a potential inclusion. However, Texas had not had 
been provided additional information on possible linkages or 
proposed budgets in order to provide meaningful comment. In 
fact, what EPA took comment on in the proposal was a 
questionable scenario whereby EPA posited that Texas might 
increase its sulfur dioxide emissions in effect because the 
rule was likely to make it cheaper to burn higher sulfur coal. 
The State of Texas and others commented on the fallacy of that 
approach. EPA abandoned that and instead relied on a newly-
found and created linkage which first appeared in the final 
rule.
    Interestingly, EPA informed six other States that their 
supplemental modeling from the time of proposal to finalization 
of the rule showed that additional modeling linked them for 
ozone to other sites that weren't included in the proposal. 
EPA, instead of moving forward, did not include those linkages 
and did not include them in the final rule. They afforded those 
six States supplemental notice and opportunity for comment even 
though three of those States--Kansas, Oklahoma, and Michigan--
had been linked to other monitors which Texas was not in the 
initial rule. It seems to--EPA seems to understand that those 
other States needed an opportunity to comment on the linkages, 
but not Texas. EPA's insistence that Texas knew of its 
inclusion in this program and that it was possible that 
inclusion was going to occur and therefore inclusion under a 
wholly separate and unproposed scenario was reasonable, raises 
both due process concerns and equity concerns.
    Texas was only provided the final emissions budget for 
SO2 and NO2 at rule finalization. EPA 
apparently believes the proposed emission budget is not 
necessary for adequate notice and comment. However, every other 
State included in this rule received a proposed budget--or a 
budget at proposal.
    Now, it seems that after having had our first meeting with 
EPA--though I requested a meeting with the Administrator prior 
to the finalization of the rule--we were--we met with the 
Deputy Administrator just--I am going to say his name 
Perciasepe--EPA seems to want to look at finding ways to 
minimize the unintended impacts of this rule on a case-by-case 
basis. More specifically, suggesting they may be able to 
provide additional budget allocations for emissions on a case-
by-case basis. This shows clearly the EPA does not understand 
the competitive wholesale market-based approach that Texas has 
and doesn't recognize the challenges with being able to move 
forward and ensure that we have the reliability that is 
necessary to keep the lights on and keep Texans safe whenever 
we have adverse weather conditions that make us rely on 
adequate air conditioning and other power supply.
    As you look at the linkage that EPA cited was a .18 
micrograms per cubic meter, which is .03 micrograms per cubic 
meter, that is .03 millionths of a gram per cubic meter above 
the linkage threshold to a monitor in Granite City, Illinois. 
This linkage is tenuous, and yet based on this, EPA has 
recommended that Texas have a 47 percent reduction of their 
SO2 emissions from the 2010 level.
    I point out that Texas has had a great deal of success. In 
fact, we have reduced our SO2 emissions by over 32 
percent from 1999 to 2010. This rule does not provide adequate 
time for us to implement this reduction and the EPA can't undo 
the negative consequences of this rule simply by trying to 
address the errors in their data and the errors in their 
analysis specifically with ERCOT and regard to reliability of 
the Texas system. We need to have an opportunity for full 
vetting so that we avoid the consequences I have spoken of.
    Thank you for the opportunity to present to you today, sir, 
and Members.
    [The prepared statement of Mr. Shaw follows:]

           Prepared Statement of Dr. Bryan W. Shaw, Chairman,
               Texas Commission on Environmental Quality

    As Chairman of the Texas Commission on Environmental Quality 
(TCEQ), I appreciate the opportunity to provide testimony and 
information to the U.S. House Committee on Science, Space, and 
Technology at the hearing entitled ``Out of Thin Air: EPA's Cross-State 
Air Pollution Rule.'' This is a critical topic regarding the effect of 
the EPA's recently finalized rule on the environment, electric 
reliability, and commerce throughout our Nation, as well as in the 
State of Texas. Equally important is the precedent set by the EPA with 
this rule and its disregard for transparency and full public 
participation; its selective use of data undermining common sense and 
Federal Clean Air Act obligations; and its unrealistic timetables for 
compliance. Instead, EPA is forcing the burdens of its own flawed 
interstate transport rule schemes onto the shoulders of a single, vital 
industry in order to meet the requirements of a paper exercise having 
limited relation to actual air quality in America. As I have said 
before, a strong economy does not need to come at the cost ofthe 
environment, and Texas has shown that to be true.
    The TCEQ regularly weighs and balances matters that affect the 
environment and economy. We value regulation that addresses real 
environmental risks while being based on sound science and compliance 
with State and federal statutes. In every case where Texas disagrees 
with the EPA's rule, it is because EPA's rule is not consistent with 
these principles.

Cross-State Air Pollution Rule (CSAPR)

    The EPA finalized Federal Implementation Plans (FIP) on July 6, 
2011, requiring 27 eastern States to reduce sulfur dioxide 
(S02) and nitrogen oxides (NO2) emissions from 
electric generating units (EGU) to address transport obligations under 
the 1997 and 2006 fine particulate matter (PM2) and 1997 
ozone National Ambient Air Quality Standards (NAAQS). The FIPs require 
reductions during the ozone season (May through September) of NO2 
emissions that cross State lines for States under the ozone 
requirements and reductions in annual S02 and NO2 
for States under the PM2 requirements. The FIPs utilize cap 
and trade programs that include overall State budget emission caps with 
unlimited intrastate and limited interstate allowance trading. Although 
the rule proposal only included Texas under the ozone season 
requirements, the final rule not only includes Texas in the annual 
PM2 programs for NO2 and ``Group 2'' S02 
trading (in addition to the ozone program requirements), but it 
requires substantial reductions to be in place beginning January 2012 
\1\--just three and a half months from today.
---------------------------------------------------------------------------
    \1\  The compliance period begins January 1, 2012, but reductions 
could take place at anytime within the year, as long as the yearly 
emissions total is within the required assurance level and covered by 
allowances.
---------------------------------------------------------------------------
    The TCEQ has significant legal concerns regarding the lack of 
adequate notice and the overreach of the EPA's emission reduction 
requirements. These concerns have certainly been articulated by the 
many submitted requests for reconsideration by affected parties. 
However, even without the procedural legal weakness of this rule, the 
technical flaws merit re-examination. This rule serves as another 
example where the EPA inadequately rationalizes the need for a complex 
regulatory scheme to solve a non-existent problem.

Lack of Adequate Notice or Meaningful Opportunity to Comment

    The CSAPR, or Clean Air Transport Rule (CATR) as it was originally 
proposed in August 2010 by the EPA, did not include Texas in the annual 
program for NO2 and S02 emission reductious to 
address PM2 transport. In fact, the EPA's proposed rule 
acknowledged that Texas power plant emissions, as modeled by the EPA, 
did not exceed the thresholds for inclusion in the PM2 
portion of CATR (for either the 1997 annual or the 2006 24-hour 
standards). At rule finalization, and for the very first time, Texas 
was significantly ``linked'' for PM2 to a monitor in Granite 
City, Illinois, and included in the FIP for the 1997 annual PM2 
standard. Because Texas was not significantly linked to any PM2 
monitors at proposal, it was not possible for the State to provide 
meaningful comment on the technical underpinnings of a linkage to any 
potential one monitor among dozens of ``nonattainment'' or 
``maintenance'' receptors for PM2 covered by the rule.
    The EPA, throughout its final rule preamble and in its response to 
comments, maintains that Texas had ample notice of its potential 
inclusion in the PM2 program and need not have been provided 
additional information on possible linkages or proposed budgets in 
order to provide meaningful comment. At proposal, the EPA had developed 
a questionable scenario under which CATR would make higher sulfur coals 
more cost effective than lower sulfur fuels. The EPA's hypothesis 
regarding this cascading result of price points was that Texas' 
SO2 emissions would increase and therefore cause an air 
quality effect exceeding the threshold. The EPA used this scenario to 
take comment on whether Texas should be included in the program as a 
``Group 2'' State. In other words, the only topic on which the EPA 
sought comment at proposal was regarding Texas' potential inclusion in 
the PM2 program. But this request for comment was specific 
to a hypothetical scenario involving increased SO2 
emissions, not an actual linkage to a specific monitor. No potentially 
significantly linked monitors were ever identified at proposal or in 
any subsequent notice. The TCEQ and others subsequently provided 
comments critical of this hypothetical scenario, which the EPA 
ultimately abandoned at rule finalization, relying instead on a newly 
created significant linkage whose first appearance was at final 
adoption.
    Interestingly, the EPA provided six other States supplemental 
notice and an opportunity to comment on ozone monitor linkages that 
were not identified at rule proposal, though three of these States 
(Kansas, Oklahoma, and Michigan) had already been proposed for 
inclusion in the rule's ozone program based on linkages to other 
monitors subsequently dropped at rule finalization. Such action by EPA 
suggests it understands the importance of fully providing information 
regarding significant monitor linkages to States for review and comment 
prior to rule finalization. Yet, inexplicably, the EPA failed to 
provide Texas with similar supplemental notice on its unproposed 
significant PM2 linkage. The EPA's insistence that Texas 
knew its inclusion in the PM2 program was possible and 
therefore its inclusion under a wholly separate and unproposed scenario 
is reasonable raises significant due process and equity concerns. 
However, EPA's argument that CSAPR, as it relates to Texas, is not 
subject to additional notice and comment requirements is undercut by 
the supplemental notice it provided to other States which could have 
expected their inclusion in the program based on proposed information.
    With this new, significant linkage, Texas was provided only a final 
budget for annual NO2 and S02. This deprived 
Texas of any opportunity for comment on the impacts of such budgets or 
the calculations of ``significant contribution'' to Texas' new linkage 
monitor forming the basis of such budgets. Texas was not provided 
proposed annual budgets, and therefore had no indication of the EPA's 
interpretation of calculations for emissions reductions needed to 
prevent Texas' significant contribution to any hypothetical monitor. 
Though the EPA had assembled data regarding what it believed to be 
cost-effective controls at a number of price points for States (Texas 
included), EPA went no further for Texas--it set no cost threshold 
level for Texas; did no analysis to determine the effect of specific 
reductions downwind for Texas; and set no proposed budgets for Texas. 
Further, in the proposed rule preamble, the EPA notes that when setting 
budgets for Group 2 States (and Group 1 States in 2012, prior to their 
2014 budget step-down), it chose to not use cost curves to set annual 
budgets. Instead EPA reviewed the actual performance that EGUs achieved 
in 2009. Given the limited information provided for Texas, it would 
have been nearly impossible for Texas to guess on a possible budget 
regarding its possible inclusion, and any such guess would likely have 
been far larger (particularly if using 2009 data) than the budget the 
EPA finalized for Texas. According to the EPA, a proposed budget was 
not necessary for adequate notice and comment. If that is true, why did 
every other State included in CSAPR receive a budget at proposal?
    Had Texas been afforded the opportunity to comment on a linkage to 
the Granite City monitor and on emissions reductions necessary to 
prevent significant contribution to nonattainment at this monitor, it 
surely would have pointed out that the ``nonattainment'' monitor in 
question is situated within approximately 1/2 mile of a steel mill. The 
linkage monitor is, unsurprisingly, heavily influenced by local 
emissions. In fact, the monitor was specifically sited to monitor 
particulate emissions from the mill. Texas would also have commented 
that the monitor has measured attainment of the annual PM2 
standard since 2008 when the mill stopped operating. It is important to 
note that the mill has since resumed operations under the requirements 
of a Memorandum of Understandiug (MOU) with the TIlinois Environmental 
Protection Agency, and the monitor continues to show attainment. This 
significant information could have resulted in the EPA's modeling 
analysis projecting attainment for the monitor, thereby eliminating the 
basis for Texas and many other States' inclusion in the rule's PM2 
program. Further, EPA's proposed and final notices of attainment for 
the St. Louis area make no mention of possible transport issues that 
would affect the area's ability to stay in attainment. Finally, Texas 
would have provided comment regarding (1) S02 control cost 
assumptions and (2) the overreach of any budget (had one been provided 
at proposal) requiring disproportionately significant emissions 
reductions based upon any known contribution linkage to a monitor--
known to be attaining the standard in question.

The EPA Disregards the Federal Clean Air Act and Over-Controls 
                    Emissions

    Section 1l0(a)(2)(D)(i)(I) of the Federal Clean Air Act, which is 
the statutory basis for both the Clean Air Interstate Rule (CAIR) and 
CSAPR, requires States to prohibit sources within the State from 
emitting air pollutants in amounts that will contribute significantly 
to nonattainment in, or interfere with maintenance by, any other State 
with respect to any national primary or secondary ambient air quality 
standard. The statute does not provide the EPA authority to require 
States to prohibit emissions below the significant contribution 
threshold.
    Of all States included in CSAPR for annual PM2 linkages, 
Texas' linkage to a downwind receptor is among the weakest, at 0.18 
micrograms per cubic meter--just 0.03 micrograms per cubic meter over 
the EPA's linkage threshold. Of States ``linked'' to any receptors in 
the eastern U.S. for the annual PM2 standard, only Maryland 
has a smaller downwind contribution. Despite this tenuous link, the 
SO2 budget Texas received at rule finalization would require 
a 47% reduction in 2012 in EGU emissions of 217,708 from its 2010 
emissions. Considering that the monitor linking Texas is known to be 
currently monitoring attainment (with the influence of Texas' 2010 EGU 
S02 emissions at 461,662 tons), it is unreasonable and 
untenable that the EPA could require such significant reductions to be 
accomplished in less than four months.
    The fact that the EPA does not believe Texas will be able to comply 
with its budget in a cost-effective manner calls into question the 
validity of the budget itself. EPA conducted a ``lignite sensitivity 
analysis'' for Texas that acknowledges the infeasibility of large-scale 
coal switching as a compliance strategy for many coal-fired plants in 
the State. The EPA's own analysis of cost-effective emission reductions 
projects that in 2012, under CSAPR, Texas EGUs would emit over 280,000 
tons of SO2--or 36,000 tons beyond the EPA's allotted budget 
for Texas. Thus, even if it were possible to operate as projected by 
EPA's model, the State cannot meet its emission reduction obligation. 
The EPA apparently believes this to be reasonable, in that Texas could 
theoretically purchase allowances from its Group 2 trading partners and 
still be below its assurance level. A presumption that Texas must rely 
on out-of-State allowances improperly disregards rule compliance costs 
and makes clear the inadequacy of Texas' budget. More disturbing is the 
EPA's failure to consider whether such a volume of allowances would 
even be available among the limited Group 2 trading program. If each 
Group 2 State made exactly the reductions predicted by the EPA at a 
$500/ton cost threshold in 2012 (the threshold the EPA claims it used 
to determine budgets), and Texas made the reductions predicted by the 
lignite analysis, and all available allowances were sold only to Texas, 
Texas would still be short by 23,894 allowances. Failure to hold 23,894 
allowances to cover emissions would result in forfeiture by the EGUs 
unable to secure those allowances of 47,788 additional allowances from 
the following year's budget. This allowance shortage could result in 
civil penalties totaling over $327 billion for just one control period 
and the potential for criminal penalties.
    The EPA's own final modeling data, which does not take into account 
local controls from the previously mentioned steel mill's MOU, shows 
that the Granite City monitor would be projected to have neither 
attainment nor maintenance problems for the annual PM2 
standard by 2014, with or without the existence of CSAPR controls. Put 
differently, the EPA's own modeling makes clear that States' projected 
2014 base case S02 emissions levels are adequate to ensure 
that no State significantly contributes to nonattainment or interferes 
with maintenance at the Granite City monitor. Despite this information, 
Texas' projected 2014 base case S02 emissions are 
approximately 453,000 tons, or over 200,000 tons higher than the level 
the EPA deems necessary to eliminate significant contribution.
    Though I have focused on the lack of notice and technical flaws 
regarding Texas' inclusion in the PM2 program, it is worth 
noting that the two monitors to which Texas is linked for ozone, and 
therefore required to make ozone-season NO2 reductions for, 
are both monitoring attainment of the 1997 eight-hour ozone standard. 
The Baton Rouge area, in fact, has been proposed by the EPA for 
redesignation to attainment of that standard.

Economic Effects

    This rule puts at risk the economic future of power generation and 
those dependent on affordable electricity in Texas. It also places 
vulnerable citizens at a significant health and safety risk. For 
example, elderly and low-income populations whose health and welfare 
are dependent on reliable energy would face significant adverse 
consequences resulting from such a rule. While air pollution regulation 
is certainly necessary to protect the health of our citizens, the 
elements of this regulation pertaining to Texas' SO2 
emissions are not necessary for public health protection and only 
result in negative consequences.
    The President's Executive Order 13563, enacted January 18, 2011, 
calls for careful analysis of the likely consequence of regulation, 
including consideration of underlying science, or alternatives, of 
costs and benefits and of simplified, harmonized, and flexible methods 
for achieving regulatory goals. Because the possibility of including 
Texas was not adequately fleshed out as a part of the rule proposal, 
the EPA did not adequately assess the impacts of this rule on Texas, 
nor did Texas have the opportunity to comment on the possible 
consequences. Further, the EPA's analysis entitled ``Resource Adequacy 
and Reliability in the IPM \2\ Projections for the Transport Rule TSD'' 
\3\ was not available at rule proposal and includes significant errors 
regarding generation capacity within ERCOT--the largest grid operator 
within Texas. For example, the EPA overestimates ERCOT's generation 
capacity by nearly 20,000 megawatts.
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    \2\  Integrated Planning Model.
    \3\  Technical Support Document.
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    If coal-fired power plants in Texas are faced with these 
significant emission reductions, decisions regarding the operation of 
these plants may result in considerable reductions in the safety 
margins of power operation of this State. The strong disincentives for 
operation of coal-fired power plants would undoubtedly result in 
significant cost to energy consumers including the possible shutdown of 
base-load units. Manufacturing and production plants also rely on 
affordable energy to continue or even expand operation. EPA has failed 
to consider this potentially devastating economic ``ripple effect.'' 
Again, because the proposal did not contain any specifics on how Texas 
would be regulated under this scheme, we were not able to fully 
evaluate and provide comments on the significant effects, such as 
shutdowns, of this rule.
    More importantly, the resulting effect of increased cost of power 
and power shortages, such as rolling blackouts, would not only 
jeopardize the personal and economic health of Texas citizens but also 
endanger lives. Whether it is cost prohibitive to operate electricity 
or electricity is simply unavailable, vulnerable populations, such as 
the elderly and low income, will be put at risk because the EPA has 
pursued inappropriate regulation of S02 in Texas under the 
guise of PM2 transport.

Conclusion

    Texas' inclusion in the CSAPR FIP for PM2 was based 
solely on a previously unidentified significant linkage to a monitor 
next to a functioning steel mill that has implemented an MOU with 
federally enforceable controls ensuring attainment of the standard in 
question. Texas' S02 budget for the rule is not attainable 
at the cost levels predicted by the EPA, but it also far exceeds the 
level that would be necessary, even if the monitor showed 
nonattainment, to eliminate Texas' significant contribution to 
nonattainment.
    It should go without saying that the EPA has drastically 
overreached in its scheme to address interstate transport. The 
questionable technical data used to include States in the CSAPR program 
is wholly divorced from the equally questionable technica1 data used to 
determine States' required emissions reductions. Most likely, the 
average rational person would have no difficulty supporting the idea 
that States should control emissions proportionately to the level at 
which those emissions negatively affect other States. The EPA, however, 
has abandoned rational science and common sense in an attempt to 
squeeze as many reductions out of a single industry in as short a time 
as possible. EPA took this course of action at the expense of affected 
entities who have not had a chance to fully understand and object to 
the myriad flaws in the rule. EPA instead demands drastic reductions in 
unrealistic time frames in order to address a non-existent problem 
allegedly caused by Texas. The fact is, the linking monitor is fully in 
attainment for the standards in question. This simple fact, among a 
number of other EPA errors and inconsistencies, highlights and 
underscores the weak justification for CSAPR, and makes the utter lack 
of transparency and public participation afforded to Texas all the more 
egregious.
    The EPA's practice of proposing technically flawed and inadequate 
rules, in combination with a lack of action where needed within the SIP 
process, leaves all sectors of industry in a reactive mode. How could 
any facility--EGUs producing power, or even those dependent upon 
reliable power--plan for economic growth where tomorrow's regulatory 
demands are in constant flux?
    The energy sector is a captive recipient of the EPA's attention. 
Unlike other industry, the possibility of moving to a more industry-
friendly regulatory environmental outside of the U.S. is not an option. 
These regulations have vast economic effects, not limited to the direct 
energy generation costs that will be felt by every energy consumer, but 
also through the indirect effects of higher costs associated with the 
cost of manufactnring goods, and regrettably, the potential for lost 
jobs, as all sectors struggle to absorb these costs.
    Businesses need certainty to drive our economy and thrive. 
Businesses should be subject to reasonable and appropriately protective 
regulation. For citizens to be protected from harmful pollution, both 
Federal and State Governments need to focus their resources on real 
risks, instead of creating false crises that frighten the public and 
misuse public resources. The potential effect of this rule on power 
generation and electric reliability in Texas and throughout the eastern 
U.S. could be devastating, at a time when we can least afford such 
problems. Under average conditions, the potential generation loss in 
Texas caused by this rule will have real impacts to real people. Should 
Texas face another sweltering summer like this past one, there is every 
reason to worry about loss of life.

    Chairman Hall. Thank you very much. I now recognize the 
second witness, Mr. Gregory Stella, Senior Scientist at Alpine 
Geophysics.

                STATEMENT OF MR. GREGORY STELLA,

            SENIOR SCIENTIST, ALPINE GEOPHYSICS, LLC

    Mr. Stella. Mr. Chairman and Members of the Committee, 
thank you for giving me the opportunity to testify today 
regarding the results of two recent independent studies that my 
firm, Alpine Geophysics, has conducted on behalf of the Midwest 
Ozone Group. These two studies utilize state-of-the-science 
data, methods, and models to assess the needs for the types of 
emission reductions contemplated by the Cross-State Air 
Pollution Rule. We conducted these analyses of emission 
reductions and air quality improvements for purposes of 
comparing them to EPA's findings from its modeling of the 
proposed Clean Air Transport Rule, now finalized as the Cross-
State Air Pollution Rule. Specifically, we have identified two 
major areas in which our assessment differs distinctly from 
that conducted by EPA.
    Firstly, EPA did not use the most recently available 
emissions inventories and air quality measurements at the time 
of its rulemaking, and secondly, EPA did not account for the 
air pollution controls and related emission reductions that 
have been or are being installed to satisfy the requirements of 
the Clean Air Interstate Rule, or CAIR.
    Our first study was designed to quantify historical changes 
in ozone and particulate matter precursor emissions and the 
associated changes in air quality attributed to those emission 
changes during a 10-year period covering 1999 through 2009. On 
regional and state levels, our findings confirm that across the 
lower 48 States, all pollutants have typically decreased since 
1999. In particular, NO2 and SO2 
emissions from electric utility fuel combustion sources have 
significantly decreased as the result of the Acid Rain Program, 
NO2 Budget Trading Program, and CAIR control 
implementation.
    With respect to mobile sources, all studied pollutants 
except ammonia decreased over time as a result of various fuel 
and fleet rulemakings. Correspondingly, we computed ozone and 
fine particulate matter design value trends for each region in 
the United States for the same period of 1999 through 2009. Our 
results again demonstrated that average eight-hour ozone and 
both the average annual and 24-hour PM2 design 
values have decreased across the Nation during this 10-year 
period. Noticeably, EPA did not rely on this more recent air 
quality data in the development of the Cross-State Air 
Pollution Rule, instead relying on older air quality monitoring 
data that does not reflect these improvements.
    The objective of our second study was to perform 
technically credible photochemical modeling, including the EPA 
Attainment Test for three key years--2008, 2014, and 2018--in a 
study area that includes much of the central, midwestern, and 
northeastern United States. As a result of this modeling and 
use of the most recent emissions and observational air quality 
measurements and design value calculations, we found that in 
2008, within our study area, air quality was much better than 
was assumed by EPA in the Cross-State Air Pollution Rule. With 
only three counties exceeding the 1997 eight-hour ozone NAAQS, 
all but nine counties in attainment with the annual PM2 
NAAQS and 21 counties in nonattainment with the 24-hour 
PM2 NAAQS.
    Additionally, our future years' simulations of 2014 and 
2018 indicated that within our study area, all counties and 
monitors achieved eight-hour ozone attainment by 2014 and 
remained in attainment in 2018. Only one county, Allegheny 
County, Pennsylvania, affected largely by local sources, was 
found to remain in nonattainment of the annual PM2 
NAAQS in 2014 and 2018 and only two counties, also ones 
affected by local sources, were found to remain in 
nonattainment of the 24-hour PM2 NAAQS in 2014 and 
2018.
    From these results, we have found that the ozone objectives 
of the Cross-State Air Pollution Rule can be achieved no later 
than 2014 and that both annual and 24-hour PM2 NAAQS 
can be met in 2014 in all counties within our study area except 
for those affected by local sources with no new controls beyond 
those that have been or are being constructed to satisfy the 
requirements of CAIR.
    In summary, our studies and associated results indicate 
that significant ozone and particulate matter precursor 
emission reductions have occurred in the United States since 
1999 and that air quality has improved more rapidly than has 
been predicted by EPA in the development of the Cross-State Air 
Pollution Rule. Additionally, by using no more than recent 
emissions and air quality concentration data, the majority of 
nonattainment and maintenance counties identified in EPA's 
Cross-State Air Pollution Rule analysis are found to be in 
attainment by 2009 with both the ozone and the particulate 
matter NAAQS objectives of the final rule.
    Finally, our modeling demonstrates that the air quality 
objectives of the Cross-State Air Pollution Rule can be 
achieved in an eastern portion of the United States with no new 
controls beyond those being installed to satisfy EPA's original 
care.
    I thank you for your time and this opportunity to present 
this information before the Committee, and I am happy to answer 
any questions that Members may have on this work.
    [The prepared statement of Mr. Stella follows:]

               Prepared Statement of Mr. Gregory Stella,
                Senior Scientist, Alpine Geophysics, LLC

    Mr. Chairman and Members of the Committee, thank you for giving me 
the opportunity to testify today regarding the results of two recent 
independent analyses that my firm, Alpine Geophysics, LLC, has 
conducted on behalf of the Midwest Ozone Group. These two studies 
utilized state-of-the-science data, methods, and models to provide (a) 
an emissions and air quality trends picture for a recent 10-year 
period, (b) residual ozone and particulate matter nonattainment results 
for a 12km modeling domain (study area) over much of the central, 
midwestern and northeastern United States and (c) a list of 
nonattainment and maintenance monitoring sites for 2012 which based on 
air quality observations from 2006 through 2009, were determined to 
already achieve attainment of the target National Ambient Air Quality 
Standards (NAAQS) in EPA's Proposed Transport Rule (75 FR 45210; PTR) 
and final Cross-State Air Pollution Rule (76 FR 48208; CSAPR).

Introduction

    On August 2, 2010, the U.S. Environmental Protection Agency (EPA) 
issued Federal Implementation Plans to Reduce Interstate Transport of 
Fine Particulate Matter and Ozone; Proposed Rule stating that:

      EPA is proposing to limit the interstate transport of 
emissions of nitrogen oxides (NOX) and sulfur dioxide (SO2). 
In this action, EPA is proposing to both identify and limit emissions 
within 32 States in the eastern United States that affect the ability 
of downwind States to attain and maintain compliance with the 1997 and 
2006 fine particulate matter (PM2) national ambient air 
quality standards (NAAQS) and the 1997 ozone NAAQS.

    In support of this proposal (and resulting final rule), EPA 
developed and processed base year 2005 and future-year emission 
inventories from multiple source categories with emissions and air 
quality models to determine relative contributions to downwind 
nonattainment and to simulate changes in air quality as the result of 
control strategy implementation.
    Alpine conducted two separate studies to compare with the findings 
of the proposed EPA rule. Specifically, we have identified two major 
areas in which our assessment differs markedly from that conducted by 
EPA. First, EPA did not use the most recently available emissions 
inventories and air quality measurements at the time of its rulemaking, 
and second, EPA did not account for the air pollution controls and 
related emission reductions that have been or are being installed to 
satisfy the requirements of the Clean Air Interstate Rule (or CAIR).
    The first project was designed to quantify historical changes in 
ozone and particulate matter precursor emissions and the associated 
changes in air quality attributed to those emissions changes from a 10-
year period covering 1999 through 2009. The second analysis was 
designed to develop a residual ozone and particulate matter 
nonattainment picture for a study area over much of the eastern United 
States utilizing more recent emissions and air quality data and an 
alternate ``Business As Usual'' future-year scenario for 2014 and 2018 
(comparable to EPA's Clean Air Interstate Rule or CAIR) that were 
simulated by EPA in support of its proposed rules and to additionally 
use these more recent design value data to determine which of EPA's 
identified nonattainment or maintenance sites were actually already in 
attainment with the NAAQS, based on observations from 2006-2009.

Emissions and Air Quality Trends

    The objective of our first project was to develop and present 
publicly available information on trends in emissions and ambient air 
quality in the United States over the period 1999 through 2009 in easy-
to-understand visual and tabular formats. In addition to the 
quantitative historical summary provided, we included a qualitative 
assessment of meteorological influences on these trends as available 
for temperature and rainfall anomalies. Our metrics were developed for 
the United States using subregional groupings of States (Figure 1).
    Figure 1. Sub-regional state groupings for emissions and air 
quality trends analysis.




    We collected and processed publically available EPA emission 
inventories for years within the study period of interest (1999-2009) 
by pollutant and source category to develop the trends for the 
analysis. \1\ To improve the year-to-year quantification of emissions, 
we augmented the EPA data with year-specific continuous emissions 
monitoring (CEM) emissions (2002 through 2009) and year-specific 
wildfire emissions data (2005 through 2008). Categories were grouped in 
our study as follows:
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    \1\  http://www.epa.gov/ttn/chief/eiinformation.html.

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      electric generation (EGU) coal fuel combustion;

      electric generation non-coal fuel combustion;

      industrial fuel combustion;

      other fuel combustion;

      industrial processes;

      on-road vehicles;

      non-road engines and vehicles; and

      miscellaneous (including wildfire, prescribed fire, 
agricultural activities, etc.).

    Our findings (examples provided in Figures 2 and 3) were comparable 
to EPA national level published reports \2\ of emissions and air 
quality trends and confirm that in each region analyzed, we confirmed 
that all pollutants have decreased since 1999 in aggregate with some 
demonstrated intermediate-year increases typically due to variability 
in year-to-year fire emissions. NO2 and SO2 from 
electric utility fuel combustion sources show a significant decrease 
over time as a result of the Acid Rain Program, NO2 Budget 
Trading Program and CAIR control implementation. All pollutants (except 
ammonia) from the highway and off-highway vehicles categories show 
decrease over time as a result of various mobile source fuel and fleet 
rulemakings, including the Tier 2/Gasoline Sulfur rule and Heavy Duty 
Engine/Vehicle and Highway Diesel Fuel rules.
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    \2\  http://www.epa.gov/airtrends/index.html.
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    Correspondingly, we computed and summarized ozone and fine 
particulate matter (PM2) design value trends for each region 
in the eastern United States for the same period of 1999 through 2009. 
These design values were calculated at both State and regional levels 
and for each three-year period we computed the average of design values 
across all monitoring sites meeting data completeness requirements. The 
eight-hour ozone and 24-hour and annual particulate matter design 
values for each overlapping three-year period started with 1999-2001 
and ended with 2007-2009 and were calculated based on EPA data handling 
conventions. Our results found that average eight-hour ozone and both 
the average annual and 24-hour PM2 design values have 
decreased in all five regions during the 10-year period. (Figures 4, 5 
and 6).
    Figure 2. Midwestern States NO2 emission trends.

    
    

    Figure 3. Northeastern states SO2 emission trends.

    
    
    Figure 4. Regional average eight-hour ozone design value trends.

    
    

    Figure 5. Regional average annual PM2 design value 
trends.




    Figure 6. Regional average 24-hour PM2 design value 
trends.



Ozone and Particulate Matter Attainment Modeling

    The objective of our attainment modeling analysis was to perform 
technically credible photochemical modeling, including the EPA 
attainment test, for three key years: 2008, 2014, and 2018 for 
comparison with projections published by EPA in its rule proposals. 
Modeling for year 2008 served the important objective of providing a 
recent ``typical baseline'' year for the purpose of calculating 
relative response factors (RRFs), which tie observed design values to 
the air quality modeled results. Most importantly, moving to 2008 took 
direct advantage of recent reductions in ozone and particulate matter 
design values measured across the eastern State study area (Figure 7) 
and the controls and related emission reductions that were already 
occurring in response to CAIR. Results of our work clarified when the 
effects of ``Business As Usual'' (BAU) State and federal control 
programs would begin to significantly lower the eight-hour ozone and 
annual and daily PM design values at key monitors in the study area.

    Figure 7. 36/12 km CAMx modeling domain. Red box represents eastern 
State study area.



    We constructed the summer (eight-hour ozone) and annual 
(PM2) 2008 base year model performance evaluation 
inventories and future year 2014 and 2018 inventories using the most 
recent EPA 2005v4 data sets as the foundation. To these foundation 
files we updated the base year inventories to contain (a) 2008 Clean 
Air Markets Division (CAMD) CEM data for EGU sources (as reported under 
various programs and accounting for controls installed through 2008), 
(b) 2008 year-specific vehicle miles traveled (run through the MOBILE6 
tool to generate onroad emissions), (c) wild and prescribed fire 
emissions (from EPA's SMART Fire contract), and (d) biogenic emissions 
using a most recent version (v2.03a) of the MEGAN biogenics emissions 
model. All data that we used for the upgrades is and was available to 
and through EPA as it prepared its proposals.
    The non-EGU future year inventories included all pertinent growth 
and control measures ``on the books'' up to that year as provided by 
EPA's PTR data distribution \3\ as well as additional consent decree 
and local and State program data available at the time of our modeling. 
Additional growth and control data obtained from EPA were applied to 
EPA's 2005v4 to generate 2008 emissions and fill in the 2008 inventory 
in whole. In cases where growth and control data were not available, 
interpolations of EPA 2005 and 2010 inventories were used for 2008 
emissions.
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    \3\  http://www.epa.gov/airtransport/techinfo.html.
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    To determine future SO2 and NO2 emissions for 
EGUs, we utilized output from the Emission-Economic Modeling System 
(EEMS), which is a modeling system that has been used by individual 
utilities and organizations to evaluate the economic and compliance 
implications of environmental policies and rules. EEMS is a computer 
model that was developed in 1997 to perform specific emission and 
economic analyses of environmental policies and regulations impacting 
the electric utility and coal industries. In general, EEMS uses a set 
of decision rules to identify a combination of control options 
(technology versus allowances) that approximates the least cost 
solution for a given utility system under a specific regulatory (e.g., 
trading) regime.
    The SO2 and NO2 emission forecast for this 
analysis (``Business As Usual'') assumed compliance with the Clean Air 
Interstate Rule, as well as known utility agreements contained in 
Consent Decrees and State programs. The future regional electrical 
generation by fuel type and regional fuel forecasts that were 
incorporated into the model were from the Energy Information's 
Administration's Annual Energy Outlook 2009 (AEO2009)--Updated 
Reference Case. \4\
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    \4\  http://www.eia.gov/oiaf/archive/aeo09/index.html.
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    The modeling inventories developed for the 2008 base year and the 
2014 and 2018 forecast years were prepared using the same technical 
methodologies as employed by EPA for the PTR and CSAPR. These 
inventories, founded upon the base and future year modeling analyses 
performed by EPA, have undergone considerable QA by the agency and thus 
represent some of the best information available in the central and 
eastern United States for this regional modeling purpose. We feel that 
the resulting ``first principal'' inventories are of sufficient 
technical credibility to justify their use in this regional analysis 
and are consistent with the inventories produced by EPA for the same 
purpose.
    We then examined the air quality impacts of the emissions prepared 
for the base year 2008 simulation and examined residual nonattainment 
in 2014 and 2018. The air quality modeling associated with this task 
had three primary objectives:

      Perform 2008 baseline and 2014 and 2018 future year 
modeling exercises with the Comprehensive Air Quality Model with 
extensions (CAMx) v.5.20.1 modeling system setup at 36/12 km scale over 
the study area for 2008. These simulations shed light on the degree to 
which current controls and controls considered ``Business As Usual'' 
provide for attainment of the PTR objective NAAQS.

      Use EPA's PTR attainment results with the new information 
produced for 2014 and 2018 to examine the rate at which residual ozone 
and PM nonattainment monitors come into attainment as planned federal 
and local controls begin to take effect in the out-years.

      Identify those areas, if any, for which residual 
nonattainment of the eight-hour ozone or annual/daily PM NAAQS are 
simulated in the future years.

    In this analysis, we used measurements of ambient ozone and 
PM2 data from several State and federal monitoring networks. 
This includes data from over 500 ozone monitoring sites as well as over 
500 Federal Reference Method (FRM) PM2 sites in the eastern 
U.S. In addition, speciated PM2 data from the Chemical 
Speciation Network (CSN) and IMPROVE network were used to estimate 
PM2 species concentrations at each FRM site. The ambient 
data used in this analysis were obtained from EPA's Air Quality System 
(AQS).
    The EPA modeling guidance \5\ recommends using the average of the 
three design value periods centered on the year of the base year 
emissions. Since 2008 was the base emissions year for the our modeling 
and design values were not yet available to represent the base year 
using the three design value periods centered on this year (2006-2008, 
2007-2009, and 2008-2010), we used an alternate approach recommended by 
EPA.
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    \5\  http://www.epa.gov/ttn/scram/guidance/guide/final-03-pm-rh-
guidance.pdf.
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    An alternate EPA recommended averaging technique assumes that at 
least five complete years of ambient data is available at each monitor. 
In some cases there were less than five years of available data 
(especially at relatively new monitoring sites). In this case, EPA 
recommends that data from the monitor is used if there are at least 
three consecutive years of data. If there are three years of data, then 
the baseline design value will be based on a single design value.
    For ozone, we used the design value period that straddled the 
baseline inventory year (e.g., the 2007-2009 design value period for 
our 2008 baseline inventory year). For both annual and 24-hour 
PM2, 2009 design value data were not yet available at the 
time of our analysis and so a design value period from a three-year 
period which at least contained our base year in its range (2006-2008) 
was used.

Projection of Future Design Values and Determination of Nonattainment 
                    for Ozone and Annual and 24-Hour PM2

    The EPA notes that the projection methodology for ozone and 
PM2 involves using the model predictions in a relative sense 
to estimate the change in concentration between 2008 and each future 
year scenario. For a particular location, the percent change in modeled 
concentration (the relative response factor (RRF)) is multiplied by the 
corresponding observed base period ambient concentration (DVb) to 
estimate the future year design value for that location (DVf).
    Consistent with EPA methods of calculating future year design 
values in the PTR with the Modeled Attainment Test Software (MATS), \6\ 
we generated ozone and PM2 future design values and 
resulting nonattainment predictions using EPA default settings in the 
software package and with noted differences in design value period 
years chosen as noted above.
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    \6\  http://www.epa.gov/scram001/modelingapps-mats.htm.

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Results

    The Modeled Attainment Test Software (MATS) v2.3.1 was used to 
implement the modeled attainment tests for particulate matter 
(PM2) and ozone (O2) for the air quality 
simulations conducted in this analysis. An update we made to the public 
distribution of this model was the inclusion of final 2009 ozone design 
value data as published by EPA in August 2010. These data were used in 
the attainment tests conducted for eight-hour ozone in the modeling 
domain. Most recent data distributed with the noted version of the 
software were used in the annual and 24-hour PM2 attainment 
tests.
    Some of the key attainment findings of this latest study included:

      Eight-hour Ozone Attainment Demonstration: Using eight-
hour ozone design values calculated from 2007-2009 observational data 
sets, we found that only three counties in our study area exceeded the 
objective 1997 eight-hour ozone NAAQS of 85 ppb in 2008. Our future 
year simulations of 2014 and 2018 indicated that all counties and 
monitors within the study area achieve eight-hour ozone attainment by 
2014 and remain in attainment in 2018. From these results, we found 
that the ozone objectives of the proposed transport rule can be 
achieved with no new controls beyond BAU no later than 2014.

      Annual PM2 Attainment Demonstration: Our 
modeling showed that all but nine counties in the study area were in 
attainment of the annual PM2 NAAQS in 2008. From this list, 
only one county (Allegheny County, PA) was found to remain in 
nonattainment of the 15.0 mg/m3 annual PM2 NAAQS in 2014 
(16.6 mg/m3) and 2018 (16.2 mg/m3). From these results, the annual 
PM2 objectives of the proposed transport rule can be 
achieved with no new controls beyond BAU no later than 2014 with the 
possible exception of additional local controls at the Allegheny 
County, PA, location. This site has been previously documented to be 
heavily influenced by emissions from local sources. \7\
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    \7\  Proposed Revision to the Allegheny County Portion of the 
Pennsylvania State Implementation Plan. Attainment Demonstration for 
the Liberty-Clairton PM2 Nonattainment Area. Allegheny 
County Health Department. February 22, 2010.

      24-hour PM2 Attainment Demonstration: Our 
modeling showed that twenty-one counties in the study area are in 
nonattainment of the 24-hour PM2 NAAQS in 2008. From this 
list, only two counties (Allegheny County, PA, and Brooke County, WV) 
were found to remain in nonattainment of the 35 mg/m3 24-hour PM2.5 
NAAQS in 2014 (51.2 and 38.0 mg/m3, respectively) and in 2018 (50.0 and 
37.2 mg/m3, respectively). From these results, the 24-hour PM2 
objectives of the proposed transport rule can be achieved with no new 
controls beyond BAU no later than 2014 with the possible exception of 
additional local controls at the Allegheny County, PA, and Brooke 
---------------------------------------------------------------------------
County, WV, locations.

Impacts of Updated Design Values on Determinations of Contributions to 
                    Nonattainment and Maintenance in the Proposed EPA 
                    Transport Rule

    The EPA's Proposed Transport Rule and Cross-State Air Pollution 
Rule identify the link between specific upwind States and downwind 
ozone or PM2 nonattainment areas based on photochemical 
modeling of the 2005 base year and two future years: 2012 and 2014. 
Model results for the base and future years are used to compute 
relative response factors (RRFs) equal to the ratio of predicted future 
year to corresponding predicted base year design values (DVs). These 
RRFs are then multiplied by DVs calculated from monitoring data for a 
base period centered on the 2005 base model year to obtain the 
predicted future year DV.
    Two different base period DVs are calculated from observations: the 
average of DVs computed from measurements for periods ending 2005, 
2006, and 2007 (i.e., average of the three design values for the three 
attainment periods 2003-2005, 2004-2006, and 2005-2007) and the maximum 
of these three base period DVs. RRFs and resulting predicted future 
year DVs were computed by EPA using the Modeled Attainment Test 
Software (MATS).
    EPA's PTR and CSAPR identify two categories of ozone and PM2 
monitoring sites based on the predicted future year DVs determined from 
MATS in the above manner:

      ``Nonattainment'' sites are those monitoring sites for 
which the average of the three DVs is projected to exceed the NAAQS in 
2012.

      ``Maintenance'' sites are those monitoring sites that are 
not nonattainment sites as in (1) above but the maximum of the three 
DVs is projected to exceed the NAAQS in 2012.

    EPA used source apportionment modeling to determine which states 
are predicted to contribute an amount in excess of 1% of the level of 
the NAAQS to ozone or PM2 at each downwind nonattainment or 
maintenance monitoring site defined in the above manner. Emissions from 
any such States are deemed to produce a ``significant'' contribution to 
either nonattainment or maintenance sites, respectively, of the ozone 
or PM2 NAAQS for purposes of the rule. Thus, significant 
transport couples are defined by EPA based on DVs calculated from 
observations made during 2003-2007. However, in late 2010, EPA released 
DVs based on observations from two more recent periods: 2006-2008 and 
2007-2009. \8\ These more recent DVs reflect reductions in ozone and 
PM2 precursor emissions which have occurred since 2003-2007 
and thus a reduction in the number of potential nonattainment and 
maintenance sites as defined above.
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    \8\  Results presented here are based on EPA's final ozone and 
PM2 design values for 2006-2008, final ozone design values 
for 2007-2009 and 13 July 2010 draft PM2 design values for 
2007-2009 (http://epa.gov/airtrends/values.html; http://www.epa.gov/
ttn/analysis/dvreview.htm).
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    We examined EPA's list of nonattainment and maintenance monitoring 
sites for 2012 as defined in the PTR to determine which of these sites 
were actually already in attainment of the NAAQS based on observations 
from 2006-2009. Sites already in attainment based on these most recent 
data represent locations where transport from upwind sources is not 
contributing to nonattainment or maintenance problems. In performing 
this comparison, we used DVs calculated from annual summary statistics 
(e.g., annual fourth highest daily maximum eight-hour average ozone 
concentration) for 2006-2009. In some cases, insufficient data were 
available from which to compute the annual summary statistic. In these 
cases, we used procedures for filling in missing data similar to those 
used by EPA for computing air quality trends \9\. This is a 
conservative approach within the context of this analysis as DVs based 
on filled-in data may suggest a monitoring site is a nonattainment or 
maintenance site whereas MATS does not contain a DV for the monitoring 
site.
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    \9\  http://epa.gov/airtrends/reports.html.

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Results

    Total counts of nonattainment and maintenance monitoring sites 
based on EPA's 2012 projections in the PTR versus nonattainment and 
maintenance sites determined from 2006-2009 data are provided in Table 
1. These results show that over 80% of the sites predicted by EPA to be 
in nonattainment of the ozone or PM2 standards in 2012 are 
already in attainment as of 2009 based on an average of the 2006-2008 
and 2007-2009 DVs. Furthermore, over 80% of the PM2 2012 
maintenance sites and 1/3 of the ozone 2012 maintenance sites are no 
longer maintenance sites as of 2009. These results indicate that air 
quality has improved more rapidly than predicted by EPA's PTR modeling.
    We examined locations of monitoring sites projected by EPA to be 
nonattainment in 2012 which were observed to be in attainment as of 
2009 based on averaging the 2006-2008 and 2007-2009 DVs. Table 2 lists 
all counties with such monitoring sites. Similarly, Table 3 lists all 
counties with monitoring sites projected by EPA to be maintenance in 
2012 which were observed to be neither maintenance nor nonattainment as 
of 2009 based on 2006-2008 and 2007-2009 DVs.


 


Summary and Conclusions

    Our findings confirm that in each region analyzed, all ozone and 
particulate matter precursor pollutants have decreased since 1999 in 
aggregate with some demonstrated intermediate-year variability 
typically due to specific year-to-year fire emissions. Additionally, 
our results show that average eight-hour ozone and both the average 
annual and 24-hour PM2 design values have decreased in all 
five regions of the continental United States during the 10-year period 
from 1999 through 2009.
    Photochemical modeling analyses, including the EPA attainment test, 
were conducted for three key years: 2008, 2014, and 2018. The modeling 
for year 2008 served the important function of providing a recent 
``typical baseline'' year for the purpose of calculating relative 
response factors (RRFs). Most importantly, moving to 2008 took direct 
advantage of recent reductions in design values measured across the 
study area and the use of current emissions inventory data made 
available from EPA and others which include the controls and related 
emission reductions that were already occurring in response to CAIR. 
Results of this work clarify when the effects of ``Business As Usual'' 
State and federal control programs would begin to significantly lower 
the eight-hour ozone and annual and 24-hour PM2 design 
values at key monitors in the modeling domain.
    The SO2 and NO2 emission forecast for this 
analysis (``Business As Usual'') assumed compliance with the Clean Air 
Interstate Rule, as well as utility agreements with regard to Consent 
Decrees and State programs. The future regional electrical generation 
by fuel type and regional fuel forecasts that were incorporated into 
the model were from the Energy Information's Administration's Annual 
Energy Outlook 2009 (AEO2009)--Updated Reference Case.
    Using EPA attainment test software and algorithms with the output 
from our ``Business As Usual'' air quality model simulations for 2008, 
2014 and 2018, we concluded that the ozone objectives of the proposed 
transport rule can be achieved within our study area with no new 
controls beyond ``Business As Usual'' no later than 2014.
    We also concluded that the annual PM2 objectives of the 
proposed transport rule can be achieved within our study area with no 
new controls beyond ``Business As Usual'' no later than 2014 with the 
possible exception of additional local controls at the Allegheny 
County, PA, location.
    Additionally, we concluded that the 24-hour PM2 
objectives of the proposed transport rule can be achieved within our 
study area with no new controls beyond ``Business As Usual'' no later 
than 2014 with the possible exception of additional local controls at 
the Allegheny County, PA, and Brooke County, WV, locations.
    Finally, we concluded that that over 80% of the sites predicted by 
EPA to be in nonattainment of the ozone or PM2 standards in 
2012 are already in attainment as of 2009 based on an average of the 
2006-2008 and 2007-2009 DVs. Furthermore, over 80% of the PM2 
2012 maintenance sites and 1/3 of the ozone 2012 maintenance sites are 
no longer maintenance sites as of 2009. These results indicate that air 
quality has improved more rapidly than predicted by EPA's PTR and CSAPR 
modeling.

    Chairman Hall. Mr. Stella, thank you very much. You stayed 
exactly within the five minutes.
    I now recognize our third witness, Mr. Barry T. Smitherman, 
Commissioner of the Texas Railroad Commission.

             STATEMENT OF MR. BARRY T. SMITHERMAN,

            COMMISSIONER, TEXAS RAILROAD COMMISSION

    Mr. Smitherman. Mr. Chairman, Ranking Member Johnson, 
Members of the Committee, the Texas Railroad Commission--which 
does not regulate railroads but regulates the oil, gas, and 
coal industry in Texas--was founded in 1891. Prior to my 
appointment two months ago, I was for seven years on the Public 
Utility Commission, the last four as Chairman. My testimony 
today is that the Cross-State Air Pollution Rule was 
promulgated using a flawed process, will jeopardize the 
reliability of the Texas Electric Grid, which contains three of 
the 10 largest cities in America and is home to the largest 
petrochemical industry in our Nation. It will also eliminate 
many high-paying jobs.
    In the original version, as you have heard, the State of 
Texas along with three other States--Oklahoma, Arkansas, and 
Mississippi--was included only for seasonal ozone. As a result, 
neither Texas regulators, the Texas Electric Grid operator, or 
industry participants were given notice that more stringent 
regulations might be passed relating to coal-fired electric 
generation, and in fact, significantly, there was a map which 
detailed our status and the other States' status as well.
    In fact, in a report dated July 21, 2011, prepared by the 
ERCOT technical personnel, they said, ``Based on the proposed 
rule, an ERCOT study evaluating the expected impacts of all 
pending EPA regulations did not include any incremental impacts 
from CATR on the ERCOT system.'' With publication of the final 
version of CSAPR on July 6, our worst fears were confirmed. In 
fact, in a rare public press release on July 19, ERCOT 
leadership highlighted the surprise change the EPA made by 
including Texas and said, ``CSAPR could cause a shortage of 
generation necessary to keep the lights on in Texas.''
    Subsequently, on September 1, ERCOT completed a detailed 
study of the effects of CSAPR and concluded that it would 
impact the reliability of the Texas electric grid by requiring 
between 1,200 and 6,000 megawatts of generation to not run 
during certain periods of the year. On several days this past 
summer, ERCOT experienced record demand for electricity on our 
grid and we were required to ask load to voluntarily curtail in 
order to keep the lights on. We also, Mr. Chairman, imported 
power from Mexico during several of these periods of time. In 
other words, if the plant closures that were announced this 
week by Luminant had been in effect this past summer, we would 
have been unable to keep the lights on for several days. Now, 
that puts lives at risk.
    But in addition to doing that, approximately 1,300 
megawatts of electric generation and three lignite mines to 
support that generation will close according to recent 
announcements. That kills 500 high-paying jobs in Texas and 
hurts the Texas economy. Approximately 3,000 Texans work 
directly in the lignite mining industry, which is responsible 
for over 1.3 billion in annual gross product.
    As Dr. Shaw said, Texas has been recognized for reducing 
SO2 emissions over the last 10 years, but if allowed 
to go forward, CSAPR would require a 47 percent reduction in 
Texas in less than six months. Now, Texas has been able to 
achieve much of our air quality improvements by increasing the 
amount of electricity coming from wind energy and from natural 
gas-fired generation. Air quality in Texas will continue to 
improve without the implementation of CSAPR. We have over 
10,000 megawatts, more than any other State, of wind energy on 
our grid, and that number is likely to increase.
    More significantly, new unconventional natural gas 
discoveries in Texas using horizontal drilling and hydraulic 
fracturing techniques make available vast quantities of cheap 
burning natural gas. When natural gas is used to make 
electricity, members, electricity rates are very low. In Dallas 
today you can purchase electricity for less than five cents a 
kilowatt hour. I believe that going forward as we add natural 
resources, generation resources in Texas to meet our growing 
economy where jobs are still being created, much of that will 
be done using clean-burning natural gas.
    In short, Mr. Chairman, Texas needs time to retrofit our 
plants to comply with CSAPR and please not focus on killing 
more jobs and jeopardizing the reliability of our grid and the 
lives of many of our citizens. Thank you.
    [The prepared statement of Mr. Smitherman follows:]

             Prepared Statement of Mr. Barry T. Smitherman,
                Commissioner, Texas Railroad Commission

    My name is Barry Smitherman, and I am a Commissioner with the Texas 
Railroad Commission. The Railroad Commission was founded in the Texas 
Constitution in 1891, and we regulate the oil, gas, and lignite coal 
mining industries in Texas. We are recognized worldwide for our 
expertise in fossil fuel regulation. Prior to my serving at the 
Railroad Commission, I was a member for the past seven years of the 
Public Utility Commission of Texas--for the last four years of that 
tenure, I was Chairman. The PUCT regulates the electric and land line 
telecommunications industries in Texas. In addition, the Chairman of 
the PUCT is a board member of ERCOT, the Electric Reliability Council 
of Texas, our electric grid operator or Independent System Operator 
(IS0).
    My testimony today is that the Cross State Air Pollution Rule 
(CSAPR) was promulgated using a flawed procedural process, will 
jeopardize the reliability of the Texas electric grid, and will 
eliminate many high-paying jobs nationwide. Let me address each of 
these in order.
    The original version of CSAPR, then known as the Clean Air 
Transport Rule (CATR), was first published in the summer of 2010. In 
that version, the State of Texas, along with three other States--
Oklahoma, Arkansas, and Mississippi--was included only for seasonal 
ozone, not for SO2 or NO2 reductions. As a 
result, neither Texas regulators, nor the Texas electric grid operator, 
nor industry stakeholders were given notice that more stringent 
regulations might be passed relating to coal fired electric generation. 
In fact, in a report dated July 21, 2011, and prepared by ERCOT, the 
potential reliability implications of a number of impending EPA 
regulations, including the MACT HAP rule, the 316 (B) cooling water 
intake rule, the coal combustion residual ash rule, and potential 
future greenhouse gas regulations, were analyzed. In presenting the 
results of their analysis, the ERCOT technical personnel specifically 
stated that the CATR would not apply to Texas: ``Based on the proposed 
rule, an ERCOT study completed on June 21, 2011, evaluating the 
expected impacts of the pending regulations, did not include any 
incremental impacts from the CATR on the ERCOT system.''
    As the date for the final version of what is now known as CSAPR 
approached, stakeholders in Texas began to hear rumors that we would 
now be included for SO2 and NO2, rather just 
seasonal ozone, which is what we were initially led to believe. Texas 
Commission on Environmental Quality Chairman, Dr. Brian Shaw, and I 
wrote a letter to the EPA, dated June 9, 2011, outlining our concerns 
with what we were hearing about the final version of the regulations 
(copy of that letter attached). With publication of the final version 
of the CSAPR on July 6, 2011, the stakeholder, regulatory, and grid 
operator communities' worst fears were confirmed. In fact, in a rare 
public press release on July 19, 2011, ERCOT leadership highlighted the 
surprise ``gotcha'' change the EPA made by singling Texas out for year-
round SO2 and both year-round and peak period 
NO2, after specifically stating Texas would not be included, 
and sounded the alarm about the fact that CSAPR could ``cause a 
shortage of generation necessary to keep the lights on in Texas.'' 
Subsequently, on September 1, 2011, ERCOT completed a detailed 
technical analysis of CSAPR (copy attached) wherein the engineers at 
ERCOT clearly state that CSAPR will impact the reliability of the Texas 
Electric Market by requiring between 1,200 and 6,000MW of generation to 
not run during certain periods of the year. On several days in 2011, 
ERCOT experienced record demand for electricity and was forced to 
implement procedures that resulted in load voluntarily curtailing 
consumption to maintain grid reliability. If the plant closures that 
were announced Monday as a direct result of CSAPR would have been 
closed this summer, ERCOT would have been forced into rolling blackouts 
on multiple days. Therefore, we have empirical evidence that CSAPR 
would force Texas into blackouts on the hottest and coldest days of the 
year when Texas' most vulnerable citizens need electric heating and 
cooling in order to survive.
    In addition to putting the lives of vulnerable citizens at risk, 
with the announcement that Luminant will have to idle 1,300MW of 
electric generation and the mines to support that generation, the CSAPR 
rule has already killed 500 high-paying jobs and hurt the economy. 
According to Nobel Economics Prize nominee, Ray Perryman, approximately 
3,000 Texans work directly in the lignite mining industry, which is 
responsible for over $1.3 billion in annual gross product, as well as 
almost 14,000 permanent jobs. Many of these jobs will be lost if CASPR, 
as presently written, is implemented within the currently anticipated 
timetable.
    Texas has been recognized nationally for reducing SO2 
emissions by 33% over the last 10 years. If allowed to go forward, 
CSAPR will require a 47% decrease from current SO2 levels in 
less than six months. Even the AFL-CIO said in comments to the EPA that 
``EPA's proposed 2012 annual SO2 and NO2 
emissions reduction deadline is unrealistic and unnecessary,'' and that 
``the 2012 interim deadline and the deep 2014 emissions reduction 
requirements could trigger shutdowns that will unnecessarily eliminate 
jobs.' Even the AFL-CIO agrees that, while emissions reductions are a 
good goal, they must be done sensibly, and on a realistic timeline.
    Texas was able to achieve much of our air quality improvement by 
increasing the amount of electricity coming from wind energy and gas-
fired generation. And while it is true that four new coal-fired 
generation plants have commenced operation in ERCOT within the last 
several years, each of them will be compliant with CSAPR.
    Finally, air quality in Texas will continue to improve in the 
future without the implementation of CASPR. We have over 10,000 MW of 
wind in Texas, and that number is likely to rise.
    More significantly, however, new unconventional natural gas 
discoveries in Texas, using horizontal drilling and hydraulic 
fracturing techniques, make available vast quantities of cheap, clean-
burning natural gas. Natural gas has less SO2 and NO2 
than coal and no mercury or particulate matter. Natural gas also has 
about 40% of the CO2 of coal.
    When used to make electricity, natural gas today results in 
extremely low electricity rates. In Texas, for example, consumers can 
purchase electricity in Dallas for as low as 4.5 cents a kwh. I have no 
doubt that as Texas seeks to add new generation resources in order to 
meet the needs of our rapidly growing state, with its vibrant job-
creating economy, that clean burning natural gas fired generation will 
be the mainstay of our expanding generation fleet. In the short run, 
EPA must allow Texas enough time to refit our plants to comply with the 
new rule, and not focus on cramming through a punitive, job-killing 
rule that may almost immediately jeopardize the lives of our most 
medically fragile citizens, and which is opposed by a wide coalition of 
unions, nonprofits, scientists, engineers and regulators. In the long 
run, I hope this Committee and the rest of Congress looks at the bait-
and-switch tactics and dubious science EPA used to pass this rule, and 
puts the brakes on at this agency. If these politically motivated, 
punitive regulations are allowed to stand in Texas today, they set the 
precedent for a runaway agency to do whatever they see fit tomorrow.
    Thank you for the opportunity to testify.

    Chairman Hall. Thank you, sir, and for giving us back 
almost a minute. And by the way, I had breakfast with Elizabeth 
Ames, gentleman, one of your commissioners this morning 
earlier. Who is watching the gate down there in Texas?
    Mr. Smitherman. Commissioner Porter, sir.
    Chairman Hall. All right. That is good. Thanks. I now 
recognize our fourth witness, Mr. Wayne E. Penrod, Executive 
Manager of Environmental Policy of the Sunflower Electric Power 
Corporation.

               STATEMENT OF MR. WAYNE E. PENROD,

            EXECUTIVE MANAGER,ENVIRONMENTAL POLICY,

              SUNFLOWER ELECTRIC POWER CORPORATION

    Mr. Penrod. Thank you, Chairman Hall, Ranking Member 
Johnson. I appreciate the opportunity to come today to talk to 
you about the circumstances that we find ourselves in related 
to the Clean--Cross-State Air Pollution Rule, which we call 
``Zapper.'' The problems with this rule are notice; a lack of 
transparency as it relates to the modeling and the impacts that 
our sources might have; reliability, that is the ability to 
keep the lights on as a result of the electricity distribution 
that is assumed by the rule; and four, is the time it will take 
to comply with the rule and how we are to go about achieving 
compliance with it.
    In the attachments to my testimony, I had a couple of 
slides, one of which was the 2005 CAIR States and the second 
was the Cross-State Air Pollution Rule States that are 
impacted--conspicuous by their absence in the first slide, 
Kansas, Nebraska, and Oklahoma, and to some degree a difference 
in classification for Texas and Minnesota. As late as fall--
excuse me--as late as January of 2011, January this year, the 
last--number three--notice of date of availability published by 
the EPA relative to the Clean Air Transport Rule, Kansas 
Utilities were not looking at any required reductions in 
emissions. In fact, Sunflower didn't even have the opportunity 
to take the opportunity to file comments because we didn't 
expect to be impacted at all by the final rule. It was to be 
promulgated by EPA. That turned out not to be the case.
    We are primarily a single coal-based unit that operates in 
the western half of Kansas, and that is our primary source of 
energy for our people. The whole community was going to suffer 
a 50 percent load-carrying capacity as the result of the 
passage of the Clean Air--or the Cross-State Air Pollution 
Rule, 50 percent. We were--suggested that we might be able to 
buy energy, that we might be able to fuel-switch, that we might 
be able to install gas capacity. All those things in six months 
are beyond the pale, frankly, suggestions as a way we might be 
able to comply with this rule.
    Kansas is unique in several respects aside from being flat. 
There are 15 coal-based units in Kansas. Ten of them are fairly 
large units. Of those 10, seven of them are scrubbed. Only one 
large one is not. All are equipped with some version of low-
NO2 burners or overfire air. One of the large units 
has selected catalytic reduction. As we look around, we don't 
see how those units--some of them legacy units--are going to be 
able to reduce their emissions of either NO2 or 
SO2 beyond the levels that are required in this 
CSAPR rule. In fact, one of the plants has a super-compliance 
opportunity. That is words in their consent order that preceded 
their being able to retrofit some of their old scrubbers with 
new ones.
    So we wonder why we are included. I have heard some of the 
discussion earlier about receptors in other States and how 
those receptors cause us maybe to think about why we should be 
included. We have that same concern. We know that when CAIR was 
first proposed, Kansas was included, but by virtue of some 
discussions that we had with EPA and some review and evaluation 
of the data that they used in developing their model, we took 
exception to it and were able to make corrections, and Kansas 
was suddenly not a part of that rule. We think maybe that is 
really what needs to happen here. Unfortunately, we are not 
afforded the opportunity to communicate with them and to try to 
get a remodel run that might show that.
    Reliability is a major concern. One of the slides in my 
attachment again shows a picture of the impact on reliability. 
Actually, a percent voltage that we expect to see at a base 
case in Kansas and you see a few small faded white dots. And 
the EPA base case is imposed on that same scale you see a lot 
of bright lights; those are negatives. It will be bright dark 
frankly in those places where those situations occur. We don't 
expect to escape summer operation without some major energy 
shortages, and it will be rather sudden and rather widespread 
in our part of the State. So those are the things that we see 
that are problems with this reliability.
    I would tell you that we are unique in another respect. 
Sunflower has a shovel-ready project that we were able to 
advance two years and we are going to start installing low-
NO2 burners and overfire air on our coal-based unit 
beginning the first of January. Very unusual circumstance, but 
this is an unusual rule. And we can't wait until 2013 to figure 
out whether or not we can buy allowances that might cover our 
emissions. So we are doing that. We are going to pay a penalty. 
It is going to cost us probably 30 percent more to do that work 
than when we had originally intended to do it, which was 2013.
    Also, we find that rather than being able to purchase 
burners made in Kansas, they are going to be imported from 
China. We are going to meet the schedule. We are not going to 
suffer the inability to meet the load with our lowest-cost, 
most-reliable unit that serves the people of the western half 
of Kansas.
    I thank you for the opportunity to come today and speak 
with you about this.
    [The prepared statement of Mr. Penrod follows:]

     Prepared Statement of Mr. Wayne E. Penrod, Executive Manager,
       Environmental Policy, Sunflower Electric Power Corporation

Introduction

    Sunflower Electric Power Corporation (Sunflower) appreciates the 
opportunity to provide testimony to this Committee on EPA's Cross-State 
Air Pollution Rule (CSAPR). For Kansas, CSAPR imposes very near-term 
requirements (in 2012 and 2014) to reduce annual emissions of nitrogen 
oxides (NO2) and sulfur dioxide (SO2). EPA also 
proposes to require Kansas utilities to reduce ozone-season emissions 
of NO2, also in the very near term. Under this proposal, 
Kansas will be required to offset its ozone-season NO2 
emissions with additional allowances for the 2012 ozone season, even 
though the ozone season requirements are still only proposed.
    CSAPR will significantly undermine the reliability of the 
electricity transmission and distribution system and increase the cost 
of providing electric energy in central and western Kansas. Preliminary 
modeling by the Southwest Power Pool indicates the rule may cause 
significant voltage reductions in central and southwest Kansas and in 
the north Texas panhandle, situations which could lead to electricity 
blackouts. \1\
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    \1\  See Exhibit 1, slide 7.
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    Moreover, EPA's process for promulgating this rule was technically 
flawed. Because of changes to EPA's modeling in the middle of the 
rulemaking process, Kansas became subject to significant, potentially 
unachievable near-term emission reduction requirements with almost no 
advance notice. Yet the changes result from modeling that is a 
proprietary ``black box,'' and we are therefore unable to understand 
the exact basis for the emission reduction requirements to which we 
have become subject.
    The modeling itself is also flawed because it assumes the downwind 
area that is supposedly affected by Kansas' ozone-season emissions is 
in nonattainment. Yet actual real-world monitoring data show this area 
is in attainment. Moreover, the modeling does not take into account 
future reductions from Kansas emission sources that are either already 
completed or otherwise locked in and which will reduce any impacts to 
this area even further.
    In sum, Kansas has become subject to very harsh requirements with 
little advance notice based on (a) use of a model to which the public 
does not have access and (b) for the ozone season requirements, the 
erroneous modeling assumption that Kansas emissions are causing a 
downwind county to violate EPA air quality standards.

Sunflower and Mid-Kansas

    These comments are provided on behalf of Sunflower and Mid-Kansas 
Electric Company, LLC (Mid-Kansas). Sunflower and Mid-Kansas are not-
for-profit electric generation and transmission cooperative 
corporations that are owned and operated by the rural electric 
distribution cooperatives to which they supply electricity. These 
distribution cooperatives, in turn, are owned by their members who are 
electric consumers--families, farms and other businesses. These 
electric consumers select their distribution cooperative board members 
through democratic elections, and these board members in turn appoint 
the board members of Sunflower and Mid-Kansas.
    Sunflower is owned by members Lane-Scott Electric Cooperative, 
Inc., Dighton; Prairie Land Electric Cooperative, Inc., Norton; Pioneer 
Electric Cooperative, Inc., Ulysses; The Victory Electric Cooperative 
Association, Inc., Dodge City; Western Cooperative Electric 
Association, Inc., WaKeeney; and Wheatland Electric Cooperative, Inc., 
Scott City; all in Kansas.
    Mid-Kansas Electric Company, LLC, is a coalition of five rural 
electric cooperatives and one wholly owned subsidiary including Lane-
Scott Electric Cooperative, Inc., Dighton; Prairie Land Electric 
Cooperative, Inc., Norton; Southern Pioneer Electric Company, Ulysses 
(a wholly owned subsidiary of Pioneer Electric Cooperative, Inc.; The 
Victory Electric Cooperative Association, Inc., Dodge City; Western 
Cooperative Electric Association, Inc., WaKeeney; and Wheatland 
Electric Cooperative, Inc., Scott City; all in Kansas.
    Together the electricity provided by Sunflower and Mid-Kansas to 
these distribution cooperatives, and to more than 25 municipalities 
within the service area meets the electricity requirements of more than 
400,000 people in central and western Kansas. Because Sunflower and 
Mid-Kansas and their distribution cooperative members operate on a not-
for-profit basis, the cost of compliance with CSAPR flows directly 
through to these electricity consumers.
    As in many rural areas, these individuals tend to be older and 
living on fixed incomes and tend to have incomes below the federally 
defined poverty level. The people served at retail by the distribution 
cooperatives include more than 64,000 (16%) above the age of 65 and 
more than 48,000 (12%) whose annual household income is below the 
federal poverty level.

CSAPR Impact Is Immediate

    The Administrator of the Environmental Protection Agency (EPA) 
signed the final CSAPR on July 6, 2011. \2\ The rule was published in 
the Federal Register on August 8, 2011, and is effective January 1, 
2012. As proposed, the rule was known as the ``Clean Air Transport 
Rule'' (CATR) (July 2010). The rule replaces the Clean Air Interstate 
Rule (CAIR) that was issued in 2005. CAIR was overturned in court, but 
remains in place until CSAPR goes into effect on January 1, 2012. The 
CAIR rule did not apply to Kansas, and the CSAPR rule does not provide 
adequate time for Kansas utilities to properly respond to its 
requirements.
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    \2\  76 Fed. Reg. 48208 (August 8, 2011).
---------------------------------------------------------------------------
    Because CAIR requirements have effectively remained in place, the 
utilities covered by that rule continued pollution control projects 
planned in 2005 and beyond. These projects included the installation of 
selective catalytic reactors for reducing NO2 emissions and 
scrubbers for reducing SO2 emissions. An allowance trading 
program was established under CAIR for the affected States to assure 
that utility plants did not exceed the emissions budgets established by 
EPA. Many of these pollution control projects were completed in 2010--
the last of them will conclude this fall.
    However, several States, including Kansas, were not included in the 
CAIR rule, and therefore Kansas, and these other States, did not plan 
for nor did they install the long-term, large-scale pollution control 
projects that were planned and installed in the CAIR States. Kansas was 
included in CSAPR as proposed, but the NO2 budgets proposed 
would not have required any emission reductions at any Sunflower or 
Mid-Kansas coal or gas-based facilities. In fact, because Sunflower was 
not impacted by the proposed budget for allowances, Sunflower did not 
even file comments on the proposed rule.
    Sunflower, however, was affected by CSAPR as finalized. Under the 
rule, Sunflower will receive NO2 allowances adequate to 
generate only about 50% of its energy requirements in 2012 (Phase I), 
just five months after the rule became final. \3\ Project engineering, 
permitting, vendor selection, manufacture and delivery, and 
installation of projects to reduce emissions generally consume between 
18 and 48 months. Recall that the industrial Midwestern and 
Southeastern States have been working on similar projects since 2005. 
The imposition of such a compliance schedule on utilities within States 
that had absolutely no meaningful notice of such requirements is 
unjustifiable.
---------------------------------------------------------------------------
    \3\  The 2010 average NO2 emission rate for Sunflower/
Mid-Kansas resources was about 0.30 lb/mmBtu. The 2012 (Phase I) 
allowances allocated to Sunflower support an average NO2 
emission rate of about 0.16 lb/mmBtu. The 2014 (Phase II) average 
supported by allowances is just over 0.13 lb/mmBtu.

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Black Box

    The heart of CSAPR is the emission budget that is established for 
each State. Statewide utility emissions are limited to the amount of 
their budgets, with the possibility that such budgets can be exceeded 
if, in limited situations, certain other States are able to emit less 
than their budgets. As noted, for Sunflower, the budgets mean that 
Sunflower must find a way to reduce or offset 50 percent of its 
otherwise forecast NO2 emissions by the beginning of next 
year.
    The way EPA performs its modeling, however, prevents Sunflower from 
fully understanding why it is that, under the proposed rule, Sunflower 
would have been allocated sufficient NO2 allowances, but 
under the final rule those allowances have been cut in half. This is 
because the model EPA uses, the IPM model, is proprietary and the 
public, therefore, is unable to replicate the model results. Thus, 
although Sunflower can understand the different assumptions that EPA 
used in the modeling that resulted in the final rule as compared with 
the proposed rule, we cannot track those changes through the model to 
see exactly why those changed assumptions resulted in the final 
NO2 budgets.
    It is as if we have been given a very large invoice for payment, 
but are told we cannot perform an audit to determine how the amount due 
on the invoice was calculated. Indeed, we are not able to know whether 
the changes in the Kansas budget resulted from a model glitch or 
unsubstantiated assumptions by EPA.
    We think this is an extremely unfair and certainly not a 
transparent way for EPA to promulgate rules. Given the large costs for 
Sunflower, Mid-Kansas and Kansas as a whole, and indeed for the whole 
country, EPA should either make the model available or use a different, 
non-proprietary model. The stakes are too high for EPA to keep a key 
part of the rulemaking process secret.

Questionable Modeling of Impact of Kansas Emissions Outside of Kansas

    The premise of CSAPR is that utility emissions are being 
transported to downwind States, interfering with the ability of these 
downwind States to attain EPA's national ambient air quality standards 
(NAAQS). EPA proposes that Kansas should be subject to ozone-season 
NO2 requirements because EPA air quality modeling shows that 
Kansas emissions will cause or contribute to a Holland, Michigan 
(Allegan County), violation of the eight-hour ozone NAAQS. But this 
modeling is flawed for two reasons.
    First, the assumptions EPA uses to estimate Kansas emissions 
throughout the rulemaking were based upon actual emissions that 
occurred in 2006, then in 2008, and finally in 2009, and thus they do 
not take into consideration the substantial emission reductions that 
have already been or will be achieved by 2012 and 2014 because of 
emission control projects already completed or in the pipeline. 
Additionally, the early allowance allocations, even in January 2011, 
did not penalize the Sunflower/Mid-Kansas generation facilities at all; 
clearly something has changed, and we cannot see into the ``black box'' 
to identify the changes. It seems plausible that if these recent 
emission reductions from Kansas sources were considered and if the 
model properly responded to the changes, that at a minimum the modeled 
impact on the Allegan County, Michigan, receptor would almost certainly 
be less than the 1% threshold adopted by EPA for significance. It seems 
plausible to us that, as with CAIR, Kansas should be out of CSAPR 
altogether and the regulatory program would have no effect on Kansas 
utilities.
    Second, based on actual air quality modeling data, Allegan County 
is no longer failing to attain the ozone standard. In fact, the 
Michigan DNRE petitioned EPA on August 2, 2011, to move Allegan County 
to an attainment classification. The required demonstration concludes 
that current and future expected ozone air quality, based upon local 
actions, will meet both the one-hour and eight-hour ozone NAAQS. Thus, 
EPA's model, which concludes that Allegan County is in non-attainment, 
does not reflect real-world conditions.
    In summary, for ozone season NO2 emissions, Kansas is 
proposed to become subject to expensive new standards that may place 
the Kansas electric supply system at significant risk, with very little 
notice, in order to solve an air quality problem to which Kansas is no 
longer significantly contributing and that, in any event, no longer 
exists at the determined receptor in Michigan.

CSAPR Will Have Significant Reliability Impacts in Kansas and Elsewhere

    Sunflower is a member of the Southwest Planning Pool (SPP). The SPP 
is a Regional Transmission Organization (RTO), mandated by the Federal 
Energy Regulatory Commission (FERC) to ensure reliable supplies of 
power, adequate transmission infrastructure, and competitive wholesale 
prices of electricity in an eight-State region in the middle of the 
United States. As a North American Electric Reliability Corporation 
Regional Entity, SPP oversees enforcement and development of 
reliability standards.
    SPP engages in regular planning to ensure reliable operation of the 
system. The SPP transmission planning process is described in 
Attachment O of the SPP Open Access Transmission Tariff and utilizes 
three planning horizons. The Near-Term Assessment is conducted annually 
and generally looks at time horizon of three to five years. SPP long-
range transmission planning is conducted over a three-year planning 
cycle with a 20-year assessment being conducted during the first half 
of the three-year cycle and a 10-year assessment conducted in the 
second half of the three-year cycle. This open and transparent planning 
process developed by the SPP stakeholders and approved by FERC is 
utilized to assure that the type of incremental changes in supply and 
transmission resources that utilities normally make are planned and 
implemented consistent with reliability requirements.
    However, the requirements of CSAPR, which go into effect in 2012, 
are being implemented much too quickly to be adequately studied by SPP 
and accommodated in the SPP's normal planning process. Indeed, the SPP 
has only recently begun studying the impacts of CSAPR on the reliable 
operation of the SPP system, because the rule was only recently issued.
    Moreover, EPA is not proposing the type of incremental changes for 
2012/2014 that would normally be a subject of short-term study by the 
SPP, a process with sufficient time to plan how to accommodate those 
incremental changes. Rather EPA is implementing a dramatic shift in 
operating resources that will lead to a re-dispatch of the system as 
compared to the current dispatch plan. In fact, the Sunflower/Mid-
Kansas resources identified by EPA to be dispatched in those years 
include substantial operation of the Great Bend, Holcomb 1, and S3 
units.
    But this unit dispatch makes little sense and it is the least 
likely generation scenario that would be actually dispatched absent 
CSAPR. EPA allowances are only adequate to support a 50% capacity 
factor on Holcomb 1, while historical capacity factors are consistently 
above 90%. Further, natural gas prices make the Great Bend unit the 
last resource likely to be dispatched to meet the load. Finally, S3 is 
a black-start combustion turbine with the highest heat rate of any 
generating unit in the system; it is also the oldest unit operated for 
the combined Sunflower/Mid-Kansas system and would likely require 
substantial pre-operational maintenance if such a duty-cycle were to be 
reasonably expected of it. CSAPR, thus, will have a radical and 
unplanned effect on our system, the systems of other Kansas utilities, 
and indeed on the entire SPP.
    Had there been time to implement these significant dispatch changes 
into the way the electric system operates, both in Kansas and 
throughout the SPP region, the SPP would have long ago been working on 
a dispatch model that conforms the proposed dispatch to assess the 
needed improvements to preserve the real-to world system reliability. 
Instead SPP is hurriedly assessing the reliability impacts of the CSAPR 
utilizing EPA's generation dispatch model. Preliminary results suggest 
that in the summer of 2012 there will be significant degradation of 
voltage levels in southwest and south central Kansas and the north 
Texas panhandle, and that these conditions could cause various blackout 
conditions to occur. At the current time, given CSAPR, the SPP 
computers have not been able to solve the approximately 50,000 
simultaneous equations necessary to indicate that the electricity grid 
model remains intact. SPP engineers, though, have been able to identify 
several local severe voltage contingencies in Sunflower's service area.
    The SPP continues to study the reliability effects of CSAPR and 
will have more definitive information in the near future. As previously 
stated, the short lead time for implementation of CSAPR does not 
adequately allow for planning or implementation of environmental 
controls or additional generating resources needed to comply with 
CSAPR. This puts electric generation operators, transmission owners, 
and reliability coordinators in a proverbial ``Catch-22'' situation: 
they can either maintain system reliability and violate EPA mandates 
and be subject to EPA sanctions, or they can comply with EPA mandates 
and risk system reliability and face NERC and FERC sanctions. Most 
importantly, electric customers will bear the increased costs 
associated with either outcome.

CSAPR Compliance Options

    The reason the CSAPR requirements are so costly and, indeed, may 
not be achievable is the fact that EPA has overstated the ability of 
utilities like Sunflower and Mid-Kansas to comply with the rule on such 
short notice. EPA has suggested that utilities can comply with the rule 
by installing new control technology, by relying more on natural gas, 
by allowance trading, by fuel switching to natural gas and low-sulfur 
coal, and by purchasing electricity from others. Yet none of these 
options is truly available given the extremely short compliance 
schedule.
    The timeframe for construction of emission control technologies is 
not adequate--Obviously, for systems that do not have pollution control 
projects nearing completion as a result of CAIR, there is no 
possibility of constructing new pollution control devices by the end of 
this year or even by 2014. In addition to construction times, nearly 
all of these projects will require the issuance of a PSD construction 
permit prior to commencing construction; failure to secure such a 
permit is a criminal offense under the PSD permit program. Sunflower 
has been engaged in such a process since early 2010, intending to 
finish the installation of a low-NO2 burner, overfire air 
system in the fall of 2013. Because of pre-existing plans, we already 
had a PSD permit application submitted in March 2011, expected a permit 
issuance by spring of 2012 (about one year), and expected to issue 
contracts for manufacture in early summer 2012. In order to expedite 
the process, we issued a letter of intent so as to commence manufacture 
of the burner components on August 1, 2011 (a year ahead of schedule), 
and have rescheduled our outage for January 2012, effectively advancing 
the project schedule by over 18 months. But this schedule was not 
without consequences; we expect to pay a 20 to 25% premium for the 
components, which will now be manufactured in China. But even if 
expedited, more capital-intensive projects, such as selective catalytic 
reactor or scrubber installations, cannot be completed in time to meet 
Phase II requirements.
    New natural gas-based resources cannot be brought on line quickly 
enough--achieving reductions by bringing new resources online in such a 
short timeframe, unless such resources were already in process, simply 
cannot be done by 2012 or 2014.
    Allowance trades within Kansas are inadequate for utilities--CSAPR 
authorizes intrastate trading of CSAPR allowances, but that will have 
only a limited effect for Kansas utilities. All Kansas utilities must 
reduce emissions significantly. It is highly unlikely that any of them 
can reduce so quickly and so significantly as to generate sufficient 
allowances to cover the emissions of other Kansas utilities. In 
Sunflower's situation there will not be an excess supply of allowances 
to trade among Kansas utilities.
    The importation of up to 18% of budgeted allowances from States 
that have met their objectives is inadequate for Kansas--CSAPR 
authorizes limited interstate trading of allowances. A State can exceed 
its budget by up to 18% if another State with which it is authorized to 
trade has excess allowances. But there is good reason to believe that 
the trading market will not be robust, particularly by 2012 and even 
2014. First, the rule is so new and its effect so little understood 
because of its complexity that utilities that do generate excess 
allowances will bank them for their own future use rather than trading 
them. Second, utilities will likely be particularly cautious about 
trading given the experience in CAIR. When CAIR was overturned in 
court, the value of CAIR allowances was immediately reduced to near 
zero. Under CSAPR, EPA is about to terminate utility accounts of both 
CAIR and acid rain allowances. This results in the elimination of 
millions of dollars in allowance values. Having seen their significant 
investments in CAIR allowances disappear, utilities are likely to be 
reluctant to jump into significant allowance trading under CSAPR. 
Finally, utility caution about trading will be enhanced by the 
significant penalty provisions that are associated with a State 
exceeding its emissions budget but being unable to cover that excess 
with allowances from other States. \4\
---------------------------------------------------------------------------
    \4\  EPA, in the final CSAPR rule, determined that SO2 
allowances would be available for purchase at about $600, annual 
NO2 allowances at $500, and ozone season NO2 
allowances at $1,300. First contracts for allowance trading completed 
just this last week have been reported at SO2 prices of 
$2,600 per allowance and annual NO2 allowances at $3,500 
each. These prices reported are four to seven times higher than EPA 
estimated for such transactions.
---------------------------------------------------------------------------
    In sum, it is unreasonable for EPA to expect utilities to rely on 
trading in the early years of the rule to make up for their inability 
to install controls fast enough.
    Fuel switching--EPA identifies that a key compliance strategy for 
implementing CSAPR is for utilities to switch from high-sulfur to low-
sulfur coal, or from coal to natural gas. Even assuming that sufficient 
fuel and transportation resources exist for such a strategy to be 
widely effective, it does not solve the problem for Kansas utilities. 
Specifically for managing SO2 reductions there are only two 
Kansas units that blend some relatively small amounts of local Kansas 
coal with low-sulfur coal; all other coal-based units already use low-
sulfur PRB coal. Further, the act of switching steam units from coal to 
natural gas fuel to manage NO2 results in only a trivial 
reduction; switching the generation dispatch from PRB coal-based steam 
units to gas-based steam units likewise does not accomplish any 
significant reduction.
    Electricity purchases from other providers--EPA's suggestion that 
the purchase of electricity from other providers is a viable way of 
meeting the allowance dilemma is not realistic. Electricity markets now 
take the form of very short-term purchases--known as the existing 
``next-day market'' and the soon-to-be-implemented ``day-two'' market--
and firm power transactions that are for fixed terms of length suitable 
for the participants. Power purchases as a compliance strategy either 
will not work or will drive up the cost of electricity.
    First, short-term markets rely on price signals determined by 
individual utilities on an ongoing basis. Like other utilities in the 
SPP Sunflower prices all of its resources each day into the ``next-
day'' market. For Sunflower to sell electricity to others so that they 
can meet their CSAPR obligations, Sunflower would have to increase 
generation from its own resources, thereby increasing emissions above 
the EPA-determined budget which could only be satisfied by purchasing 
additional allowances. How then does Sunflower price the resources that 
it would utilize for the benefit of another's allowance shortages 
without transferring the same allowance shortage to itself by the same 
transaction? The net effect of these uncertainties will likely make 
trading more difficult, not less, and increase the price of electricity 
to all who make such transactions.
    Long-term transactions, on the other hand, are the responsible way 
to meet pool obligations when such a large part of the native load (50% 
in the case of Sunflower) now needs to be met with a purchased power 
contract. However, before any utility can expect delivery of 
electricity by a firm contract, it must arrange a firm transmission 
path, a process that requires the power pool's involvement to determine 
whether such a path is available for the transfer of firm electricity 
from one company to a neighboring company. It is already too late for 
Sunflower to acquire such a path in order to meet peak-season 2012 
loads, and it is probably too late for the 2013 peak season. \5\
---------------------------------------------------------------------------
    \5\  This process can take 12 to 18 months to complete the studies, 
and if additional transmission needs to be constructed, this could take 
anywhere from three to 10 years, depending on the scope of facilities 
necessary.
---------------------------------------------------------------------------
    Clearly EPA's conclusion that the purchase of power from other 
utilities is not a clear path on which utilities can depend for 
complying with EPA's emission dispatch of electricity producing 
resources.

Conclusion

    CSAPR will result in large consequences for rural Kansas electric 
consumers, including the undermining of the reliability of the electric 
system, yet the rule is based on flawed modeling. The model is a 
``black box,'' preventing utilities from understanding the significant 
changes in budgets that occurred from the proposed rule to the final 
rule. Moreover, for the ozone season NO2 program, the 
modeling assumes that Kansas emissions are contributing to the 
inability of a single county in Michigan to attain EPA air quality 
standards, yet that county is already attaining those standards.
    Sunflower and Mid-Kansas appreciate the opportunity to submit this 
testimony, and we would be glad to respond to any questions you might 
have.

    Chairman Hall. Thank you. We now recognize our final 
witness for this panel, Mr. Chip Merriam, Chief Legislative and 
Regulatory Compliance Officer of the Orlando Utilities 
Commission, for five minutes. Thank you, sir.

                 STATEMENT OF MR. CHIP MERRIAM,

      CHIEF LEGISLATIVE AND REGULATORY COMPLIANCE OFFICER,

                  ORLANDO UTILITIES COMMISSION

    Mr. Merriam. Thank you, Chairman Hall and Ranking Member 
Johnson.
    I represent the Orlando Utilities Commission, known as OUC, 
the Reliable One. We are the second-largest municipal generator 
of electricity in the State of Florida. We are the 16th largest 
in the Nation. We are able to provide service to the cities of 
Orlando, St. Cloud, and parts of unincorporated Orange and 
Osceola Counties.
    One of the things that we would like to be recognized for 
is we are an example of one of the closest connections between 
regulatory decisions that are made in Washington and the 
ratepayers that are paying the salaries, the bills, of--for 
organizations such as ours.
    Federal regulatory rules and implementations are burdensome 
and we all know that they have impacts associated with them. 
Our Commission and our Board is--has strived and will continue 
to strive to make sure that we are environmentally good 
stewards even though we burn coal and we burn natural gas. We 
also have nuclear as well as landfill gas and solar available 
to us.
    We were prepared when the Clean Air Interstate Rule was 
brought forward. We worked with our trade agencies and 
organizations; we worked with EPA in commenting. We had a 2014 
deadline as the others that were covered by this rule in order 
to be prepared for this to move forward. On the Clean Air 
Transport Rule, again, we were prepared and we were actually 
capitalizing some of our projects such as low-NO2 
burners in order to achieve the deadline of 2014. As we move 
forward, the surprise for us was the immediacy of the Cross-
State Air Pollution Rule. All of a sudden, now, the target date 
to be--achieve compliance is for us as an ozone-season-only 
State is May 1. Our projects are still capitalized out to 2014. 
Florida has approximately 11,000 tons short in their allowances 
to achieve compliance using the method that was set forth by 
the Cross-State Rule. We are going to have to achieve it by 
living within our own means within the State at this point in 
time.
    OUC has got a very unique water management system. In a 
State that receives an average of 54 inches of rainfall a year, 
we have no discharge off of our site. We take all 54 inches of 
rain that contacts our landfill onsite, contacts our generation 
facility, and we actually run it through our scrubbers and 
evaporate that water instead of discharging it into protected 
waters in the State of Florida.
    Additionally, we take waste water from the Orange County 
Waste Water Treatment Facility and we use that to cool our 
boilers and process, again, our electricity. We thought this 
was a significantly visionary approach in the '80s when we 
constructed the facility. What the Cross-State Rule is going to 
require us to do today in order to live within the means is we 
will have to take a portion if not all of one of our units--
coal units offline during the NO2 season for the 156 
days. We will also, in order to meet our reliability 
requirements, have to go out on the market and buy a power 
purchase agreement in order to bring energy in to make sure we 
meet our reliability requirements. What that is going to drive 
which is unique to us in this rule is we are going to have to 
find another way to manage that water on the site. So we are 
looking at upwards of $40 to $50 million of additional 
injection wells or other means in order to deal with this 
rainfall that we were trying to take care of on our own.
    And what also gives us some pause--and Ranking Member 
Johnson brought this forward--was the certainty that is 
required in order to meet the obligations of being a generator 
today. While we are sitting here talking about a Cross-State 
Rule, we are looking straight down the barrel of the MACT Rule, 
the Maximum Achievable Control Technology, the CO2 
New Source Performance Standards, additional changes to 
PM2 and NAAQS, Coal Ash, and 316(b) Rules. All of 
these will have a significant impact as we have to modify, 
capitalize more projects on our site.
    What we would really like and what all the members have 
said here is the time, same time and some of the same 
flexibility that was provided for in the CAIR discussions and 
the Transport Rule discussions. Our position is at this point 
we are not going to challenge the technical side of the rule if 
we can get the time. We are going to build the things necessary 
to get there. Moving back the deadline to allow us to pay out 
and change the capital cost would be very beneficial to our 
ratepayers.
    In closing, I would just like to emphasize that Central 
Florida is still reeling today from the economic downtown that 
we have all been experiencing. Our unemployment is high. We 
have seen a significant increase of us having to deal with 
long-term customers making utility payment arrangements because 
they cannot afford to pay their current bills that are 
presented to them today. All these businesses have been hit 
particularly hard and if we have to increase our rates to 
manage water to make these generation changes, because we are 
so close to our customers, it is a direct pass-through to them. 
So it would be a new and a very difficult impact.
    So with that, I thank you for the opportunity.
    [The prepared statement of Mr. Merriam follows:]

       Prepared Statement of Mr. Chip Merriam, Chief Legislative
    and Regulatory Compliance Officer, Orlando Utilities Commission
    Mr. Chairman, thank you for the opportunity to provide the 
Committee on Science, Space and Technology with some real world impacts 
resulting from the new Cross-State Air Pollution Rule (CSAPR) 
promulgated by the Environmental Protection Agency and signed by the 
Administrator on July 6, 2011.
    First, an introduction of whom I represent.
    My name is Chip Merriam; I am the Chief Legislative and Regulatory 
Compliance Officer with the Orlando Utilities Commission, known as 
OUC--The Reliable One. OUC is the second largest municipal utility in 
Florida and the 16th largest in the Nation, providing electric and 
water service to more than 313,000 metered accounts in the cities of 
Orlando and St. Cloud and unincorporated portions of Orange and Osceola 
counties.
    We are privileged to serve our customers and get an opportunity 
daily to meet with them at our customer service center in downtown 
Orlando as many struggle to pay for the current cost of energy. We are 
an example of one of the closest connections between regulatory 
decisions from Washington and the direct impact on utility ratepayers. 
I can tell you firsthand that federal regulatory burdens are never 
easy, but in tough economic times, the regulatory impacts we are 
discussing today are devastating. Nearly 40 percent of OUC's customer 
base has an annual household income of less than $35,000 per year. Any 
time there is a fiscal impact to our bottom line, it is passed on to 
our ratepayers. Our customers ask us for a few but important things; 
namely, to keep our rates as low as possible, to make our service the 
most reliable, and to provide a reasonable explanation for any rate 
increases.
    With that in mind, OUC has worked hard to diversify our fuel 
portfolio. With the exception of our fleet and service vehicles, we are 
not dependent on foreign oil. Our fuel sources include natural gas, 
coal, nuclear, landfill gas, and solar. This diversity allows us to 
dispatch our fuels in the most economical manner available.
    Allow me to walk you through OUC's experience with the EPA 
rulemaking, beginning with the Clean Air Interstate Rule (CAIR), and 
discuss the changes after the District Court of Appeals ruling. I'll 
also discuss the changes OUC anticipated and commented on regarding the 
Transport Rule, as well as how CSAPR dramatically altered the game.
    OUC, along with our industry partners, offered comments during the 
development of CAIR. While we had differences with the EPA regarding 
the technical basis of the Rule, it always has been OUC's mission to be 
a good steward of Central Florida's environment.
    OUC began the capital discussion to achieve compliance with the 
clear understanding described in the Rule that new emission controls 
would have to achieve compliance by 2014. EPA had provided enough 
allowances, flexibility, and time such that an energy generator like 
OUC could appropriately plan and make major capital changes to our 
generation facility.
    The Rule was challenged. The District Court of Appeals found parts 
of the Rule fatally flawed and remanded the Rule back to EPA. At that 
point, OUC had already committed $50 million out of a total estimated 
$150 million in capital projects necessary to comply with CAIR.
    Understanding the basis for the Court's rulings, OUC chose to 
continue the design of our capital project changes while holding off on 
further construction until a new rule was drafted. The risk of 
expending the remaining $100 million while not knowing the goals of a 
new rule greatly concerned our leadership, as did the risk that we may 
miss the target of complete compliance. Based on this thinking, OUC 
purchased emission credits to ensure compliance with CAIR during this 
``transition period'' until a new rule would be finalized by EPA.
    EPA then began the process of developing a new rule to replace 
CAIR--the Clean Air Transport Rule (CATR). Again, the industry was 
watching and commenting in a manner that appeared to reflect some 
understanding by EPA of the industry concerns. The first emission 
reduction requirements identified in the Rule's ``Option 0'' was 
reasonable for Florida, and, from an OUC perspective, the implications 
to our budget were significantly reduced. However, the next two options 
provided much more restrictive emissions requirements. Option 2 (the 
final drafted option) provided OUC leadership with optimism that the 
change of direction at the time of the CAIR challenge was the correct 
business decision for our ratepayers. The emission credits we had 
purchased were enough to allow the design work to move forward during 
the transition. The final drafted option of the Transport Rule provided 
for a declining emission allowance but gave OUC enough flexibility that 
the budgeted capital construction process could mature and achieve full 
compliance by 2014 without further need for allowances.
    With the vision that our decision process was appropriate and 
fiscally and technically sound, we were stunned when a new rule, now 
called the Cross-State Air Pollution Rule (CSAPR), was signed by the 
Administrator of EPA on July 6, 2011. The new Rule has significant 
impacts on Florida and some very costly changes for OUC.
    The basics of the Cross-State Rule:

      Include the replacement of the CAIR, beginning January 1, 
2012.

      Address the transport of sulfur dioxide (SO2) 
and nitrogen oxides (NO2) across state borders.

      Apply to electric generation units (EGUs) only.

      Include designs to eliminate ``significant contribution 
of EGUs to downwind States'' nonattainment of (or impairing ability to 
maintain compliance with) the National Ambient Air Quality Standards 
(NAAQS) for ozone and fine particulate matter (PM2).

    And this Rule is only one of a suite of overlapping EPA power 
sector regulations.
    While the Rule provides for an allowance trading program, the 
allowances were greatly reduced. From the Option 0 of the Transport 
Rule to the allowances provided for in the Cross-State Rule, Florida's 
Emission Budget was reduced from 56,939 to 27,825 metric tons (see 
Figure 1). Put another way, emissions allowances were cut by more than 
half. OUC emissions also were slashed as identified in Figure 2. A more 
detailed graphic is depicted in Figure 3.
    All of this occurred without the regulated industry providing 
comments and without allowing for the States to work with EPA and 
develop a state implementation plan. Since the CSAPR is a Federal 
Implementation Plan, it sidesteps the States' ability to adopt an 
after-the-fact state plan. Since the federal plan is the rule, a State 
would find it difficult to adopt a plan that is not the federal plan.
    The Rule is one of many overlapping regulatory actions by the EPA 
that include but are not limited to:

      The Utility Maximum Achievable Control Technology Rule 
(MACT)

      CO2 New Source Performance Standards (NSPS) that apply to 
existing new and modified units. At this time, this greenhouse gas rule 
has unknown requirements to improve efficiency, and compliance timing 
is likely tied to the Utility MACT Rule.

      New, more stringent National Ambient Air Quality 
Standards (NAAQS) for ozone, which were just delayed by the White 
House, along with more stringent PM2 NAAQS that are expected 
to further reduce SO2 and NO2 emissions.

      Coal Ash Rule.

      316(b) Cooling Water Intake Structure Rule.

    The Cross-State Rule will have significant impacts to OUC and our 
customers.
    The emission allowances purchased prior to CSAPR expire December 
31, 2011, with the new Rule taking effect January 1, 2012. Florida and 
OUC are in the ozone-only portion of the Rule that begins May 1, 2012, 
only months after the publishing of the Rule. Under this timeline, 
there is little opportunity for the utilities in need of capital 
construction development to complete construction in such short 
timeframes.
    Because of the reduction in emission allowances and restrictions on 
trades, OUC will have to lower the capacity of our 450 megawatt coal 
Unit 1 to little more than 100 MW. Yet we still could be at risk for 
further reductions that could force us to take the unit offline before 
the end of the 156-day ozone season. We remain on the timetable, as 
required under CAIR and CATR, for final completion of construction 
prior to the start of the 2014 ozone season. This will require OUC to 
purchase additional generation options (through Power Purchase 
Agreements), since the Ozone Season coincides with our highest demand 
period--summer in Florida.
    OUC's main energy generation site is unique. The site was designed 
in the early 1980s with a visionary approach. It utilized recycled 
water from a nearby wastewater treatment plant to be used in the 
cooling towers and prohibited the runoff of any stormwater from the 
site. With an average of 54 inches of rainfall a year, we keep all 
stormwater on site and convert it to steam through our scrubbers. We 
also utilize wastewater from Orange County, Florida, to meet our other 
generation needs and allow that water to evaporate over time.
    An additional side effect of CSPAR on OUC is that with the loss of 
full operation of both of OUC's coal units, the efficient design of our 
site does not provide for the management of the Florida summer rains 
and the additional stormwater. Therefore, OUC would be required to 
design, permit, and construct other means to manage and store this 
stormwater at an additional projected cost of nearly $40 million.
    With this as background, I thought a description of the impacts 
associated by a rule such as the Cross-State Air Pollution Rule (CSPAR) 
would benefit the committee. Today's discussion is not about 
criticizing EPA and our technical differences in the Rule; rather, it 
is to provide the Committee with factual impacts when such rules are 
developed without the necessary input from the industry that must 
manage under these rules. Frankly, the Commissioners who make up the 
governing body of OUC want to deliver the best, most affordable and 
reliable service to our customers while serving as great stewards of 
our environment.
    Our position is that when the EPA can demonstrate the benefits of 
moving forward on air or water quality improvements, we will do our 
best to find a way to achieve compliance while always keeping an eye on 
the bottom line when it comes to electric rates. The real costs are not 
reflected in the economic studies provided by EPA, and there appears to 
be no full connection or link to the promulgation of rules within the 
EPA. It just is not as simple as the economic studies reflected in the 
rule development. Our strong suggestion would be for EPA to work with 
the electric generators to determine if there are common, cost-
effective ways to achieve scientifically credible improvements in the 
utilization of coal for the generation of energy in the United States.
    OUC's position is not to challenge the Rule but to demonstrate the 
need for more time to reach the emission requirements identified. 
Moving back the deadline also would provide more time to pay for the 
costs associated with the Rule. Utilizing the same timeframes developed 
in both CAIR and CATR, organizations such as OUC will be able to 
comply.
    In closing, I would like to emphasize that Central Florida is still 
reeling from the economic downturn. Unemployment is high, and we have 
seen a significant increase in the number of long-term customers 
needing utility payment arrangements. Small businesses have been hit 
particularly hard by the recession and are still struggling to make 
ends meet. Increasing utility rates to pay for the CSAPR regulation 
could have a devastating effect on OUC customers and the Central 
Florida economy.




    Chairman Hall. And I thank you. And I thank all of you for 
your testimony. And I yield myself the first three minutes.
    Mr. Stella addressed some of the omissions of the 
scientific information used by the EPA in arriving at their 
decision, and I thank you for that and the Commissioner in 
plain language at the cost of jobs and money. I will ask Dr. 
Shaw, our witness on the next panel, Gina McCarthy, has claimed 
that the public health benefits far outweigh any cost Texas 
might experience, and whether or not we ought to experience 
them or not, I am not asking you to get into that, but what are 
the real costs? They have already been enumerated that each of 
you is going to be damaged and be hurt, but do you have 
anything to add to their----
    Dr. Shaw. Thank you, Chairman Hall. Specifically, I don't 
have the full numbers of what the cost would be, because, 
frankly, the individual utilities are still trying to calculate 
what that strategy will be and what the cost associated with 
that will be. One thing we know that is clear is that the 
health benefits are questionable. And that is part of the 
reason we need an opportunity to be able to vet this because 
there are assumptions both in the data of what is being 
admitted----
    Chairman Hall. The objection to the time as much as you are 
the decisions?
    Mr. Shaw. Yes, sir, and partially because we need to be 
able to verify the basis of their decision. We found errors 
that make us believe that the decision is wrong, but without 
the opportunity for comment for--and input, it is difficult to 
convince EPA of that. And, moving forward, saying we will paper 
over it doesn't make those problems go away. And so there is a 
need for more time to be able to address the true cost both in 
the environmental benefits and as in cost to comply.
    Chairman Hall. And Commissioner, you have the same problems 
as he does? Do you have anything in addition to your testimony?
    Mr. Smitherman. Mr. Chairman, I would add----
    Chairman Hall. How would you answer Ms. McCarthy?
    Mr. Smitherman. I would say that when the lights go out in 
Texas, it is usually either 20 degrees or 105 degrees. And when 
that happens, vulnerable citizens are at risk and there is a 
cost associated with that.
    Chairman Hall. All right. I yield back my time. The Chair 
recognizes Ms. Johnson for her three minutes.
    Ms. Johnson. I am not going to be so cutting that five 
wouldn't hurt.
    You know, I was a practicing nurse before I went into 
politics, and I still visit hospitals, and I would invite you 
to visit the Children's Hospital in Dallas or even a Parkland 
Emergency Room where we have the most uninsured people in the 
country. They go to the emergency room for sick care. Eighty-
some percent of the young people that are admitted to 
Children's Hospital have respiratory problems, and more than 
that are the older people who have the same thing in Parkland 
Emergency Room. And you can check that out. You are welcome to 
visit.
    I am not a person that is against business, but I do feel 
strongly that when we devise techniques and technologies that 
will protect the health of people, they are available. They are 
costly sometimes, but I think that needs time. I think we can 
work out more win-win situations, but it must be done.
    Reflect with me for a moment. I remember when we had a lot 
of lead in paint and a lot of lead in gasoline, and the rules 
came that had to change because it was damaging to health. The 
technologies came and now--that is gone. It is a thing of the 
past and people and the health of people have benefitted from 
it. The technologies are possible. Many companies have met 
them. I am not saying that you don't need time to reach and 
achieve these changes. My question is, especially my Texas 
people, what are the new technologies are you pushing? How 
successfully have you pushed them? And how important is the 
Clean Air Rule to you as rulemakers? And what would have been 
done without the regulations?
    Mr. Shaw. Ranking Member Johnson, this is Bryan Shaw. I 
appreciate the opportunity to answer that question. I, too, 
share your concern for addressing respiratory challenges. And 
part of the reason----
    Ms. Johnson. That is just part of it--you see it, but you 
know you got all kind of blood dyscrasias and everything else 
coming from a lot of this pollution.
    Mr. Shaw. Sure, and the key thing is my concern with the 
way this rule has been developed is we are, as I like to say, 
chasing the wrong rabbit potentially. We have very real 
environmental and health concerns we need to address, but if we 
have bad data that leads to these regulations, and leads to 
where we invest both private capital and government dollars, we 
won't see the benefits that are projected. And that is--my 
concern is that EPA's data failed to present the evidence to 
where we know that is the proper place to invest. For example, 
I believe that there are likely other pollutant sources and 
other pollutants of concern that we need to focus on that will 
have very real health benefits. EPA, through the process they 
utilized, has not provided evidence so that we have the comfort 
that this is actually going to result in those benefits that 
you and I both want.
    Mr. Smitherman. Ranking Member Johnson, if I may, great 
question, and here is what we have done. We are employing 
cleaner coal technologies in Texas. The new plants that are 
coming online are cleaner than the old ones, no question about 
it. We are using more natural gas, which has none of--some--no 
mercury, no pollutant, less NO2, less 
SO2, 40 percent CO2. We have more wind on 
the grid than any other State, 10,000 megawatts probably 
doubling that. We are building transmission in order to enable 
us to get more energy out of our existing generation fleet. So 
I think we are pushing the envelope on technology and it is 
achieving real results for us. Can we do more in the future? Of 
course we can. But these investments take time.
    Ms. Johnson. Thank you.
    Chairman Hall. The gentlelady's time has expired, and I 
have an agreement on both sides of the Chair here we have a 
vote, we have about eight minutes to get to that vote, and we 
are going to--recognize--we have time for Mr. Rohrabacher? All 
right. They say we have time for Mr. Rohrabacher, and I used a 
minute of his three minutes so you have two minutes to go. You 
have got a full two minutes, Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. Let me 
just note--and I am sorry there was a group of young people 
here earlier. Most of the kids in California believe that the 
air pollution level right now in California is so much worse 
than it was when I went to high school, and I ask them that 
every single time. The fact is it is just the opposite. We have 
made dramatic progress in these last 20 and 30 years in terms 
of health-related diseases in terms of pollutants in the air, 
dramatic progress. And once you try to start ignoring that and 
trying to frighten people, we end up wasting money by 
frightening people that their progress isn't being made and 
that money is totally evaporated which could then have been 
used to actually make things better. And I think that is what 
we are facing today in this situation, Mr. Chairman.
    We have got--what we have testimony--what we are hearing is 
that by eliminating the flexibility and speeding up this 
process, we are going to waste hundreds of millions of dollars 
that could be used to actually buy the--make the capital 
investments that would cause real progress in the future. Mr. 
Penrod I guess we said was 30 percent more and we are going to 
buy foreign-manufactured goods because of this speedup. Merriam 
said $50 million more and Mr. Smitherman has testified that air 
pollution was--has been dramatically down anyway since 1999. 
This action by the EPA is being rushed onto us. And I might add 
we have another example of what that--of what this 
Administration accomplishes when they rush through something.
    We have Solyndra--is that how you pronounce it--Solyndra, 
their solar plant up there in Fremont, California; we just gave 
them $500 million and now they are going bankrupt. Well, that 
is $500 million that now has evaporated from being able to 
create real jobs someplace else and be able to clean the air 
with real investments that are based on solid science rather 
than trying to scare people into doing things prematurely 
before we have got the investment and the equipment ready to do 
the job.
    So thank you very much, Mr. Chairman, for holding this 
hearing, and thank you, panelists, for giving us some very 
valuable information.
    Chairman Hall. And thank you. And I would ask Mr. Harris--
are you leaving? We have only five minutes to get over there 
but I would give you 30 seconds if you want to--all right. 
Don't judge our interest and appreciation you are here, the 
Democrats or the Republicans because they have--they are 
honoring two new members over there and there are special 
honors for them because they are two new Republicans. But the 
Democrats are welcoming them, too, just like we are over there 
now, and so we would be over there.
    We are going to dismiss this panel. You are free to go when 
you want to. And we--you are excused and we will move to the 
next panel when we get back. And we will be coming back 
probably five minutes after the last vote over in the House, 
and I expect that will be 20, 30 minutes from now, maybe 40 
minutes.
    Thank you so much for good testimony and thank you for your 
courtesy and for all the jobs. And Mr. Commissioner, go back 
down there and get us some more oil and gas. Let's drill a 
landmark, too, just as soon as we can.
    With that, we are recessed.
    [Recess.]
    Chairman Hall. The Committee will come to order.
    At this time, I would like to introduce our second 
witnesses panel. The Hon. Gina McCarthy is Assistant 
Administrator of the Office of Air and Radiation for the U.S. 
Environmental Protection Agency. Prior to her confirmation, Ms. 
McCarthy served as a Commissioner of the Connecticut Department 
of Environmental Protection. She has worked at both the State 
and local levels on critical environmental issues and helped 
coordinate policies on economic growth, energy, transportation 
and environment.
    As our witness probably knows--she is not a stranger to 
testifying on the Hill--the spoken testimony is limited to five 
minutes but because of your schedule and our appreciation for 
you being here, if you go a little over, well, Ms. Johnson 
wouldn't let me hit the gavel at all, I know, so take what time 
you really need and we appreciate you being here. At this time 
I recognize you, Ms. McCarthy.

                STATEMENT OF HON. GINA MCCARTHY,

  ASSISTANT ADMINISTRATOR FOR THE OFFICE OF AIR AND RADIATION,

              U.S. ENVIRONMENTAL PROTECTION AGENCY

    Ms. McCarthy. Thank you very much, Mr. Chairman. I 
appreciate it.
    Chairman Hall, Ranking Member Johnson, Members of the 
Committee, I do appreciate the opportunity to be with you 
today.
    The Cross-State Air Pollution Rule will cut power plants' 
emissions from States in the eastern half of the country so 
that local communities can meet the Act's goals to reduce both 
smog and soot. Now, I understand that many Members of the 
Committee have expressed concern about the economic impacts 
associated with the cross-State rule, and while Congress did 
not set up EPA as a job creation organization, our agency, as 
EPA's mission is public health and environmental protection, 
EPA nevertheless takes its job very seriously, to look at the 
economic consequences of the rules that it develops. It spends 
a great deal of time and resources on developing the best cost-
benefit analysis we have, and we also have as an Administration 
begun to address the analysis associated with jobs more than 
any prior Administration, and we have conducted a thorough 
cost-benefit and economic analysis as well as a jobs analysis 
of the rule that is in discussion today.
    So each year the cross-State rule will prevent tens of 
thousands of premature deaths and hundreds of thousands of 
aggravated asthma attacks including up to 1,700 premature 
deaths just in the State of Texas. Nationally, the rule will 
net $120 billion to $280 billion in annual benefits in 2014. 
Total health benefits in Texas will be between $5.8 and $14 
billion annually in 2014.
    EPA had to issue the cross-State rule to replace the Bush 
Administration's Clean Air Interstate Rule, or CAIR, which the 
court said in 2008 did not meet Clean Air Act requirements. In 
the meantime, States' obligations to address transported 
emissions in the CAIR program have remained in effect. Its 
emissions reduction requirements will end when the cross-State 
rules start.
    I will focus on two questions today. First, why is Texas in 
the cross-State rule, and secondly, can Texas comply with the 
program that begins in 2012.
    Texas was in CAIR and is in the cross-State rule because 
NO2 and SO2 emissions from its power 
plant significantly contribute to air pollution problems in at 
least one other State. Texas emissions also contribute to fine 
particle pollution in 11 other States, in ozone pollution in 13 
other States. But that is not surprising because Texas emitted 
462,000 tons of SO2 in 2010. In fact, Texas is the 
second largest emitter of the 27 states that are covered by 
this rule. Texas is home to three of the 11 largest power plant 
sources of SO2 emissions, all of which are owned by 
Luminant. If the cross-state rule excluded Texas, Texas was 
projected to increase the pollution it would send to other 
states. Texas, like all other states, has a legal 
responsibility to address air quality problems that it 
contributes to downwind.
    Texas had fair warning that it might be in the cross-state 
rule. Texas was in the CAIR annual control program as early as 
2005. EPA specifically proposed to include Texas in the 
summertime program, and the EPA's proposal also requested 
comments on including Texas in the annual programs which 
provided sufficient legal as well as practical notice.
    The State of Texas and the major Texas utilities, including 
Luminant, provided detailed comments on the proposal, including 
specifically the question of Texas's inclusion in the annual 
programs. Based on those comments, EPA's new projections 
determined that Texas SO2 emissions would be even 
higher than our earlier projections confirming that Texas, like 
27 other states, significantly contributed to downwind 
nonattainment problems. We have fully met our notice and 
comment obligations both legally and in practice with respect 
to Texas in the cross-state program.
    Can Texas comply with the program in 2012? EPA understood 
that new SO2 pollution control equipment would not 
be able to be installed before 2012. So we designed the 2012 
requirement to take advantage of already existing, not new 
pollution control installations. NRG reportedly expects to meet 
the cross-State rule by increasing scrubber efficiency. It 
doesn't expect its compliance costs to be either material nor 
any plants to be shut down.
    Why are we able to start the program in 2012? Well, because 
CSAPR is not the start of the State's obligation to reduce 
pollution that threatens the air quality in downwind States. 
That obligation to be a good neighbor was put in place by 
Congress when it passed the Clean Air Act. The Bush 
Administration defined a pathway forward for States to meet 
this obligation when it issued CAIR in 2005, but that rule was 
found not to be consistent with the Clean Air Act.
    CSAPR is a replacement of CAIR that is built on a stronger 
both legal as well as scientific foundation. Under CAIR, States 
and power plants have already implemented, or plan to 
implement, pollution controls. CSAPR, just like CAIR, is a 
market-based program that gives companies compliance 
flexibility. It does not dictate a specific technology or 
require specific unit-by-unit reduction. Texas power plants 
have more than one cost-effective option that they can choose 
under the cross-State rule. Although the program starts in 
2012, power plants' first compliance obligation, their first 
compliance obligation is not until March 1, 2013. While the 
program starts in 2012, the first compliance for 
SO2, which is the biggest challenge that Texas 
faces, is March of 2013 when they are required to turn in 
allowances.
    So let me assure you, we do not want and we will not in any 
way force the lights to go out or the air conditioning to not 
be available within the State of Texas or anywhere else as a 
result of these rules.
    I look forward to your questions, and again, I thank you 
for the opportunity to be here.
    [The prepared statement of Ms. McCarthy follows:]

               Prepared Statement of Ms. Regina McCarthy,
             Assistant Administrator for Air and Radiation,
                  U.S. Environmental Protection Agency

    Chairman Hall, Ranking Member Johnson, and Members of the 
Committee, I appreciate the opportunity to appear before you today to 
testify on the Cross-State Air Pollution Rule.

The Cross-State Air Pollution Rule

    On July 6, 2011, Administrator Jackson signed the final Cross-State 
Air Pollution Rule (previously known as the Transport Rule). This rule 
cuts power plant pollution from States in the eastern half of the 
country that contribute to harmful smog and soot-forming pollution.
    In a single year (2014), the Cross-State Air Pollution Rule is 
projected to produce net benefits valued at $120 billion to $280 
billion and to avoid: \1\
---------------------------------------------------------------------------
    \1\  EPA final Cross-State Air Pollution Rule Table VIII.C-1 
Estimated Annual Reductions in Incidences of Health Effects Based on 
2014 Modeling. http://www.epa.gov/crossstaterule/actions.html.

---------------------------------------------------------------------------
      Up to 34,000 premature deaths;

      15,000 heart attacks;

      400,000 cases of aggravated asthma;

      19,000 cases of acute bronchitis;

      19,000 hospital and emergency room visits;

      Over 1.8 million days when people miss work or school due 
to respiratory illness and other diseases caused or exacerbated by air 
pollution.

    The Cross-State Air Pollution Rule will save lives, prevent 
illness, and protect American communities by cutting power plant 
pollution that hurts air quality in downwind States. By 2014, the rule 
and other State and EPA actions will reduce sulfur dioxide 
(SO2) emissions by 73 percent and nitrogen oxides emissions 
by 54 percent from 2005 levels. \2\ The rule is based on the need to 
meet the 1997 ozone and 2006 fine particle air quality standards and 
implements the Clean Air Act's ``good neighbor'' provision to cut 
pollution. By reducing air pollution regionally, the rule makes it 
easier for communities to meet Clean Air Act goals.
---------------------------------------------------------------------------
    \2\  Id.
---------------------------------------------------------------------------
    The Cross-State Air Pollution Rule is achievable, cost-effective, 
and flexible because it uses proven market-based compliance mechanisms 
to keep costs low, encourages technological innovation, and allows the 
power sector to transition to cleaner electricity generation. The 
rule's market-based approach gives companies flexibility in developing 
compliance strategies; it does not dictate a specific technology for 
any particular company or power plant.
    Many U.S. power plants have already invested in proven, readily 
available pollution technologies. This rule will provide badly needed 
regulatory certainty that will enable investments Just last week, a 
spokesperson for Exelon, one of the largest utilities in the United 
States, noted that ``Electricity generators have known the rule was 
coming for years, and many have already made plans to comply with it, 
so timely implementation will level the playing field for power plants 
that are already controlling these emissions by requiring others to do 
so.'' \3\
---------------------------------------------------------------------------
    \3\  Exelon spokesman Paul Elsberg, Argus Air Daily, Volume 18, 
173, September 2011.
---------------------------------------------------------------------------
    The Cross-State Air Pollution Rule will improve air quality in 
thousands of counties throughout the eastern, central, and southern 
U.S.--counties that are home to over 75% of the U.S. population, 
including 57 million children under the age of 18. This rule will help 
States achieve the health-based ambient air quality standards for ozone 
and fine particles, more commonly called smog and soot. After full 
implementation of this rule, the Houston-Galveston metropolitan area is 
the only area affected by this rule that we project will need 
additional local measures to meet the 1997 ozone standards.
    The Cross-State Air Pollution Rule is affordable, technologically 
achievable, and will dramatically improve public health.

Background

    Effective technologies for controlling SO2 and NO2 
emissions from power plants have been available for years. Many power 
plants have installed modern pollution control equipment to limit 
NO2 and SO2 emissions. Yet, a substantial portion 
of the aging coal fleet has not. \4\ Although SO2 scrubbers 
have been available for more than 35 years, well over a third of the 
coal-fired electrical utility capacity has yet to apply them . \5\ Many 
of those units were built before the Clean Air Act was enacted in 1970.
---------------------------------------------------------------------------
    \4\  NEEDS v.4.10 PTox Database. http://www.epa.gov/airmarkets/
progsregs/epa-ipm/docs/NEEDSv410-PTox.xlsx.
    \5\  Id.
---------------------------------------------------------------------------
    We are not the first Administration to recognize the need to clean 
up power plants and to issue rules to address that need. In fact, since 
1989, when President George H.W. Bush proposed the Clean Air Act 
Amendments of 1990, power plant clean up has been the continuous policy 
of the U.S. Government.
    President George W. Bush recognized the need to further clean up 
the power sector, championing legislation such as the Clear Skies Act, 
and rules such as the Clean Air Interstate Rule (CAIR), to address 
these public health issues. Explaining the need to reduce power plant 
emissions, my predecessor testified to Congress that the Bush 
Administration plan would ``dramatically reduc[e] fine particle 
pollution caused by SO2 and NO2 emissions,'' and 
noted that ``Of the many air pollutants regulated by EPA, fine particle 
pollution is perhaps the greatest threat to public health.'' \6\
---------------------------------------------------------------------------
    \6\  Testimony of Jeffrey Holmstead, Assistant Administrator, U.S. 
Environmental Protection Agency, Before the Energy and Air Quality 
Subcommittee, Energy and Commerce Committee, U.S. House of 
Representatives (May 26, 2005).
---------------------------------------------------------------------------
    In 2005, the Bush Administration promulgated CAIR to limit SO2 
and NO2 emissions from power plants in the eastern half of 
the country to help areas attain the ozone and fine particle standards. 
The U.S. Court of Appeals for the District of Columbia Circuit held 
that CAIR did not meet Clean Air Act requirements and remanded the rule 
to EPA for revision. CAIR has been in effect for almost seven years, 
including the past few years while EPA was developing the Cross-State 
Air Pollution Rule to replace it, in compliance with the Court's 
decision. EPA's replacement rule ends power plants' CAIR emission 
reduction obligations when CSAPR's reduction obligations start.

Texas and the Cross-State Air Pollution Rule

    The Committee has asked me to discuss concerns raised by Texas and 
Texas stakeholders regarding CSAPR. Texas is affected by CSAPR in two 
ways: It benefits from reduced air pollution emissions from plants in 
Texas and other States, and its power plants must limit emissions of 
SO2 and NO2.
    Pollution reductions by power plants in Texas and other States will 
provide significant benefit to Texans--preventing an estimated 670-
1,700 premature deaths per year starting in 2014, and will assist 
Houston-Galveston in its effort to bring its air quality to attainment 
of the ozone standard. Reductions from power plants outside Texas will 
help reduce the emission reduction obligations that might otherwise 
need to be placed on Texas businesses. Under CSAPR, Texas power plants 
are required to limit summertime NO2 emissions to reduce 
ozone, and to limit annual NO2 and SO2 emissions 
to reduce fine particle pollution. The requirements for annual emission 
reductions are similar to the ones that Texas power plants have faced 
since the 2005 promulgation of the Clean Air Interstate Rule, which 
will be replaced by CSAPR in 2012. Without CSAPR, and in the absence of 
CAIR, EPA projected that Texas power plants would contribute 
significantly to air pollution in downwind States, tribes, and local 
communities, in some cases forcing more costly local reductions, and in 
all cases unfairly imposing tremendous health costs on thousands of 
American families.
    The claim that the inclusion of Texas in the Cross-State Air 
Pollution Rule is ``out of thin air'' is false. In July of 2010, EPA 
proposed to include Texas in the summertime NO2 program and 
requested comment on whether to include Texas in the annual NO2 
and SO2 program. Texas and its utilities provided comments 
during the rulemaking process. In particular, the Texas Council on 
Environmental Quality (TCEQ) provided information on high sulfur coal 
usage by the Texas power industry that was different than what EPA had 
relied on in the proposed rule. Based on this new information, EPA 
estimated that Texas would have higher SO2 emissions in 2012 
than what EPA had projected as part of the analysis supporting the 
proposed rule. With respect to including Texas in both the summertime 
and annual programs, we have fully met our notice-and-comment 
obligations under the Clean Air Act and the Administrative Procedure 
Act.
    EPA used a two-step process to set limits on upwind States' 
emissions. First, EPA determined whether a State's power plant 
emissions were projected to contribute significantly to air quality 
problems in a downwind area (making it hard for a downwind area to 
attain or stay in attainment with ambient air quality standards). 
Second, EPA determined the amount of emission reductions that power 
plants in upwind States could make without exceeding a cost threshold. 
We followed both steps with Texas. The record demonstrated that Texas 
power plants contributed to air quality problems in downwind States, 
and that they could reduce their pollution at a reasonable cost. Based 
on the factual record, Texas power plants have a legal responsibility 
under the Clean Air Act to take action to address the air quality 
problems they create downwind.
    Relying on similar analysis, the Bush administration included Texas 
in the CAIR annual SO2 and NO2 control programs 
promulgated in 2005. It should thus come as no surprise that EPA 
reached the same conclusion after updating its analysis in 2010 and 
2011. In fact, EPA's modeling projects that Texas power plants would 
actually increase the amount of pollution they send to their downwind 
neighbors if the Cross State Air Pollution Rule excluded Texas.
    EPA's analysis also demonstrated that Texas power plants have more 
than one cost-effective option to meet their obligations. EPA and the 
Office of Management and Budget had several meetings or calls with 
Texas stakeholders during the development of CSAPR. Based on their 
concerns, we ran an additional sensitivity analysis regarding options 
for Texas power plants to meet their obligations starting in 2012. EPA 
modeling shows that Texas can comply with the requirements of this rule 
without threatening electricity reliability or the continued operation 
of coal-burning units, including those power plants that burn lignite 
coal from local mining operations (mine mouth coal plants). That 
analysis shows that, if the state and its utilities so choose, Texas 
power plants can meet this rule without jeopardizing electricity system 
reliability or altering current use of lignite. Like other states 
covered by this rule, Texas has the opportunity (and is encouraged by 
EPA) to replace EPA's allowance allocation approach with its own 
preferred approach as soon as 2013, the second year of the program, by 
submitting its own State Implementation Plan (SIP). Texas took 
advantage of this opportunity under CAIR, and EPA has developed a 
streamlined process to expedite the application and approval of these 
SIPs under CSAPR.
    CSAPR's emission reductions come in two phases, one starting in 
2012 and deeper reduction starting in 2014 for some states. \7\ In 
part, this was to ensure adequate time for cost-effective compliance. 
The 2012 requirements were designed to take advantage of existing 
pollution control technologies and strategies and not to require the 
installation of additional SO2 control technology. The 2014 
requirements, however, are expected to lead to installation of 
additional control technologies. For all power plants in affected 
states, not just Texas, the rule allows adequate time for compliance; 
especially since the industry has known for years that additional 
requirements were coming. Industry has moved rapidly to comply with 
past requirements. For example, they installed an average of 20 
gigawatts (GW) of scrubbers each year between 2008 and 2010. They also 
added 150 GW of new generating capacity between 2001 and 2003. \8\
---------------------------------------------------------------------------
    \7\  Texas is a Group Two State and not subject to the lowered 
SO2 budget in 2014. Their 2012/2014 budgets are the same.
    \8\  NEEDS v.4.10 PTox Database http://www.epa.gov/airmarkets/
progsregs/epa-ipm/docs/NEEDSv410-PTox.xlsx.
---------------------------------------------------------------------------
    After CSAPR was finalized, a number of Texas stakeholders raised a 
variety of concerns related to the rule. We are taking these claims 
very seriously. We do not want the lights, or the air conditioning, to 
go out in Texas (or anywhere else) as a result of our rules. We are 
investigating these claims, meeting with interested stakeholders as 
necessary to obtain further information, and will decide whether 
additional action is necessary and appropriate to address reliability 
or other issues in Texas. Based on technical information companies have 
recently provided, we are initiating a process to increase the 
emissions ``budget'' for Texas by tens of thousands of additional tons, 
reducing the amount of emissions that the State is required to cut. The 
Administrator has also made clear that EPA has not ruled out any 
potential solution to the concerns being raised, should the flexibility 
and choice of compliance strategies built into the rule not prove 
adequate to meeting those concerns.

The Clean Air Act

    The Cross-State Air Pollution Rule is a continuation of the 40-year 
Clean Air Act success story. For 40 years, the nation's Clean Air Act 
has made steady progress in reducing the threats posed by pollution and 
allowing us all to breathe easier. In the last year alone, programs 
implemented pursuant to the Clean Air Act Amendments of 1990 are 
estimated to have reduced premature mortality risks equivalent to 
saving over 160,000 lives; spared Americans more than 100,000 hospital 
visits; and prevented millions of cases of respiratory problems, 
including bronchitis and asthma. \9\ They also enhanced productivity by 
preventing 12 million lost workdays; and kept kids healthy and in 
school, avoiding 3.2 million lost school days due to respiratory 
illness and other diseases caused or exacerbated by air pollution. \10\
---------------------------------------------------------------------------
    \9\  USEPA (2011). The Benefits and Costs of the Clean Air Act from 
1990 to 2020. Final Report. Prepared by the USEPA Office of Air and 
Radiation. February 2011. Table 5-6. This study is the third in a 
series of studies originally mandated by Congress in the Clean Air Act 
Amendments of 1990. It received extensive peer review and input from 
the Advisory Council on Clean Air Compliance Analysis, an independent 
panel of distinguished economists, scientists and public health 
experts.
    \10\  Ibid.
---------------------------------------------------------------------------
    However, few of the emission control standards that gave us these 
huge gains in public health were uncontroversial at the time they were 
developed and promulgated. Most major rules have been adopted amidst 
claims that that they would be bad for the economy and bad for 
employment.
    Some may find it surprising that the Clean Air Act also has been a 
good economic investment for our country. In contrast to doomsday 
predictions, history has shown, again and again, that we can clean up 
pollution, create jobs, and grow our economy all at the same time. Over 
that same 40 years since the Act was passed, the Gross Domestic Product 
of the United States grew by more than 200 percent. \11\ In fact, some 
economic analysis suggests that the economy is billions of dollars 
larger today than it would have been without the Clean Air Act. \12\
---------------------------------------------------------------------------
    \11\  Bureau of Economic Analysis, National Economic Accounts, 
``Table 1.1.5. Gross Domestic Product,'' http://bea.gov/national/
index.htm#gdp.
    \12\  Dale W. Jorgenson Associates (2002a). An Economic Analysis of 
the Benefits and Costs of the Clean Air Act 1970-1990. Revised Report 
of Results and Findings. Prepared for EPA. http://yosemite.epa.gov/ee/
eerm.nsf/vwAN/EE-0565-01.pdf/$file/EE-0565-01.pdf.
---------------------------------------------------------------------------
    Some would have us believe that ``job-killing'' describes EPA's 
regulations. It is misleading to say that enforcement of the Clean Air 
Act is bad for the economy and employment. It isn't. Families should 
never have to choose between a job and healthy air. They are entitled 
to both.
    Studies led by Harvard economist Dale Jorgenson in 2001 to 2002 
found that implementing the Clean Air Act actually increased the size 
of the U.S. economy because of lower demand for health care and a 
healthier, more productive workforce. \13\ By 2030, the Clean Air Act 
will have prevented 3.3 million work days lost and avoided the cost of 
20,000 hospitalizations every year, based on recent EPA estimates. \14\ 
A study that examined four regulated industries (pulp and paper, 
refining, iron and steel, and plastic) concluded that, ``We find that 
increased environmental spending generally does not cause a significant 
change in employment.'' \15\
---------------------------------------------------------------------------
    \13\  Jorgenson (2002a).
    \14\  Jorgenson (2002a).
    \15\  Morgenstern, R. D., W. A. Pizer, and J. S. Shih. 2002. ``Jobs 
versus the Environment: An Industry-Level Perspective.'' Journal of 
Environmental Economics and Management 43(3):412-436.
---------------------------------------------------------------------------
    The EPA's updated public health safeguards under the Clean Air Act 
will encourage investments in labor-intensive upgrades that can put 
current unemployed or underemployed Americans back to work. 
Environmental spending creates jobs in engineering, manufacturing, 
construction, materials, operation and maintenance. For example, EPA 
vehicle emissions standards directly sparked the development and 
application of a huge range of automotive technologies that are now 
found throughout the global automobile market. The vehicle emissions 
control industry employs approximately 65,000 Americans with domestic 
annual sales of $26 billion. \16\ Likewise, in 2008, the United States' 
environmental technologies and services industry employed 1.7 million 
workers generated approximately $300 billion in revenues and led to 
exports of $44 billion of goods and services, \17\ larger than exports 
of sectors such as plastics and rubber products. \18\ The size of the 
world market for environmental goods and services is comparable to the 
aerospace and pharmaceutical industries and presents important 
opportunities for U.S. industry. \19\
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    \16\  Manufacturers of Emissions Control Technology (http://
www.meca.org/cs/root/organization-info/
who-we-are).
    \17\  DOC International Trade Administration. ``Environmental 
Technologies Industries: FY2010 Industry Assessment''. http://
web.ita.doc.gov/ete/eteinfo.nsf/068f3801d047f26e85256883006ffa54/
4878b7e2fc08ac6d85256883006c452c/$FILE/
Full%20Environmental%20Industries%20Assessment%202010.pdf (accessed 
February 8, 2011).
    \18\  U.S. Census Bureau, Censtats Database, International Trade 
Data--NAICS, http://censtats.census.gov/naic3-6/
naics3-6.shtml (accessed September 6, 2011).
    \19\  Network of Heads of the European Environment Protection 
Agencies, 2005. ``The Contribution of Good Environmental Regulation to 
Competitiveness.'' http://www.eea.europa.eu/about-us/documents/
prague-statement/prague-statement-en.pdf 
(accessed February 8, 2011).
---------------------------------------------------------------------------
    Jobs also come from building and installing pollution control 
equipment. For example, the U.S. boilermaker work force grew by 
approximately 35 percent, or 6,700 boilermakers, between 1999 and 2001 
during the installation of controls to comply with EPA's regional 
nitrogen oxide reduction program. \20\ Over the past seven years, the 
Institute for Clean Air Companies (ICAC) estimates that implementation 
of just one rule--the Clean Air Interstate Rule Phase 1--resulted in 
200,000 jobs in the air pollution control industry. \21\ Similar 
effects have been recognized by the electric power industry as well. In 
a letter to the editor in the Wall Street Journal, eight major 
utilities that will be affected by our power plant air pollution 
standards said, ``Contrary to claims that EPA's agenda will have 
negative economic consequences, our companies' experience complying 
with air quality regulations demonstrates that regulations can yield 
important economic benefits, including job creation, while maintaining 
reliability.'' \22\
---------------------------------------------------------------------------
    \20\  International Brotherhood of Boilermakers, Boilermaker Labor 
Analysis and Installation Timing, March 2005, EPA Docket OAR-2003-0053 
(docket of the Clean Air Interstate Rule).
    \21\  November 3, 2010, letter from David C. Foerter, Executive 
Director of the Institute of Clean Air Companies, to Senator Thomas R. 
Carper, http://www.icac.com/files/public/
ICAC-Carper-Response-110310.pdf 
(accessed February 8, 2011).
    \22\  December 8, 2010, WSJ ``We're OK With the EPA's New Air 
Quality Regulations.''
---------------------------------------------------------------------------
    The Cross-State Air Pollution Rule at issue today continues the 
Clean Air Act's 40-year success story. Thank you for the opportunity to 
testify today. I look forward to your questions.

    Chairman Hall. And we thank you for your testimony, and 
reminding Members that the Committee rules limit questioning 
normally to five minutes but we have an agreement with this 
witness. She has come before us with the understanding that she 
has to be away from here by noon, so we will keep our questions 
down to three minutes each in the interest of time and giving 
everyone a chance, and I think there will be more here, and 
don't take the absence of people in these chairs for not caring 
to hear from you or getting a chance to ask you questions, 
because we just swore in two Members over there, and I think 
they are still in session. We were interrupted a couple of 
times, but we are taking this down, and even TV in some of it, 
and all will have copies of your testimony and our questions, 
and I have used a minute of my three minutes now.
    I just want to ask you this. Let us talk some about 
options. One of the major things that the others have set forth 
that have testified here today was the time and the effect of 
the time and their inability to comply with that time. It seems 
like to me that there ought to be some way to make some 
adjustment on that. I am going to ask you about options, 
though. You state that EPA conducted an analysis that 
demonstrates that Texas power plants have more than one cost-
effective option to meet their obligations. Well, given the 
short period and the severity of the cuts, buying allowances is 
extremely costly--that is one of them--as evidenced by the 
price of $2,600 per ton we saw in the market last week. The 
other, fuel switching, is not that easy as most utilities 
purchase coal on long-term contracts including for 2012, and 
additional control technologies can't be built in the next five 
months. After these options are eliminated as too costly or 
unfeasible, what cost-effective solutions does EPA recommend 
and what are left? I only have about a minute for you.
    Ms. McCarthy. Then I will be very quick. EPA does not 
specifically require any particular option to be developed or 
to be chosen at any particular facility. It is an entirely--it 
is a business decision. It is a market approach to achieving 
these reductions. We believe that there is equipment installed 
in the state already that can be maximized in terms of its 
efficiency. Those are scrubbers for particulate matter that 
actually reduce SO2 emissions, one of the main 
concerns. There is also FCRs, SNCRs, low-NOx boilers that are 
in place that can be turned on every day all year around 
instead of them are currently used part of the year, part of 
the days during that part of the year. There are also upgrades 
of pollution control equipment that can be done quickly, simple 
pollution control additions that can be made. There is lower-
sulfur coal and there is fuel switching. We believe that there 
are a number of options in addition to the purchasing of 
allowances.
    Chairman Hall. Let me interrupt you there. The options you 
have stated are not feasible, so what else do you have to 
offer, if anything?
    Ms. McCarthy. Actually, Mr. Chairman, we believe that all 
of those options are quite feasible and can be done to achieve 
the requirements by the time the first compliance period is 
required to be met, which for SO2 is March of 2013. 
Now, I will also add that we have been petitioned to look at 
this issue and we are taking very seriously our obligation to 
look at that. If we believe that we have been incorrect as a 
result of those petitions and investigating those, every option 
is available to us.
    Chairman Hall. Well, it has been testified here and those 
companies say that it can't be done. Why does EPA think that 
they know better?
    Ms. McCarthy. Well, EPA in this particular rule identified 
not just the air quality reductions that needed to be made but 
they also identified that we did not want companies in 2012 to 
have to expend significant funds to comply. We are looking at a 
very low cost per ton, and we believe that those tonnage 
reductions are available by the use of existing equipment, by 
the use of operational changes, fuel switching and other 
mechanisms that are very readily available to them today.
    Chairman Hall. I thank you.
    I recognize Ms. Johnson for three minutes.
    Ms. Johnson. Thank you very much, and thank you, Ms. 
McCarthy, for appearing.
    I don't disagree with the findings of EPA, although I know 
that there is some question, but what I do question is how can 
we assure that Texas has other options other than the closure 
of the lignite mines and the power plants in that time, and I 
want you to comment briefly too, Dr. Smitherman indicated that 
it was a flawed process that you used, and I want you to 
comment on that. Dr. Shaw indicated that you had bad data, and, 
you know, these were serious indictments, and what I would like 
to have you do is clarify those issues, and Dr. Stella 
indicated that if some things are assumed by the EPA, I think 
it is important for your credibility to be justified with how 
you do things and what rules you follow.
    Ms. McCarthy. Thank you for asking those questions. Let me 
try to get at them very quickly.
    The first thing is, do we need to close--do companies need 
to choose to close the lignite facilities in order to comply. 
The simple answer is no. This system is set up to allow a 
number of choices, business choices. It may be that that 
business has chosen to take that path forward but EPA 
anticipated that Texas may want to choose other options, and in 
the rule itself, we included information that indicated that 
you could maintain the same historical use of lignite coal in 
Texas and still achieve the reductions under the rule within 
the same cost constraints, which make them very inexpensive 
reductions, so we believe you do not need to do that, and we 
are sitting down with the company and the State of Texas to 
walk through our analysis on that.
    And you asked a question about a flawed process. We believe 
we not only met the letter but the spirit of the law in terms 
of moving forward to include Texas in this annual program. They 
are in the CAIR program. When we proposed this rule, we were 
proposing to bring them in for seasonal ozone. We also took 
comment on whether or not we should include them in the annual 
program, and it was comments from the State of Texas itself in 
response to that solicitation of comment that told us that they 
knew about this, they provided us information, and on the basis 
of the information they provided, we redid the modeling, which 
clearly showed that Texas would increase its emissions if we 
brought in the cross-State rule--if we didn't bring in the 
cross-State rule and the CAIR program went away. So we feel 
very comfortable that we are both legally as well as in the 
spirit of the law done what we needed to do.
    Now, the third issue is bad data. I will tell you that we 
strongly disagree with the data analysis or the back-of-the-
envelope calculation that we heard from Mr. Shaw. We are going 
to walk through those issues, but we did a thorough analysis.
    And the last issue is Stella and the modeling. Let me tell 
you that Stella had some fatal flaws in the way it modeled this 
rule. Let me just name two. First of all, they failed to 
understand that we need to look at pre-CAIR data. We needed to 
do modeling, not just look at current monitoring data, because 
the court told us that CAIR has to go away and has to go away 
quickly. We had to replace it. That is what this rule does. So 
we had to look at the world before CAIR and make sure that we 
were backstopping all of those reductions and then moving 
forward.
    Secondly, by basing it on monitoring data, they are looking 
at an economy that has a downturn and they are not recognizing 
that we want to make sure that Texas and other States have the 
ability to grow and we factor in that growth when we do our 
analysis.
    Ms. Johnson. Thank you.
    Chairman Hall. Thank you. Time has expired.
    The Chair now recognizes the gentleman from Maryland, Mr. 
Harris, for three minutes.
    Mr. Harris. Thank you very much, Mr. Chairman, and thank 
you, Ms. McCarthy, for appearing before the Committee.
    I have a question. As a physician, I just am curious that 
the claim that this somehow saves money says that we avoid up 
to 34,000 premature deaths. Could you break that down to what 
these premature deaths are due to?
    Ms. McCarthy. I can tell you that the analysis we do is on 
the basis of health data. It looks at exposure----
    Mr. Harris. I understand. Can you just break that down? 
What are these deaths due to?
    Chairman Hall. He is not asking you what your practice is. 
What did you do in this----
    Ms. McCarthy. The deaths are due to the pollution----
    Mr. Harris. No, no, no. What diseases? You can use specific 
diagnoses for me. I will understand them.
    Ms. McCarthy. Well, I wouldn't want to presume that I could 
articulate them to the extent that you could understand them. 
We would have respiratory illnesses, heart illnesses----
    Mr. Harris. Well, you say 15,000 heart attacks per year. If 
every one of those patients died, I could see that is 15,000. 
The estimated number of asthma deaths per year on the EPA 
website is 10,000 per year due to exacerbations, so that would 
be 25,000 if every one of those was attributed to this. How do 
you get up to 34,000? I mean, and I am used to science. When 
they say up to 34,000, there is usually a confidence interval 
there. You know, it is like one to 34,000 or 10 to 34,000. Why 
would you use something so unscientific to say up to 34,000?
    Ms. McCarthy. The health data is all part of the record, 
and I would indicate to you that we are looking at health 
benefits----
    Mr. Harris. Okay. Thank you. And I would appreciate.
    Ms. McCarthy [continuing]. Across the United States.
    Mr. Harris. Sure, I understand that, and if you could get 
me that information, I appreciate it. Now, is that health data 
due to the particulates or the ozone?
    Ms. McCarthy. It would mostly be the particulate matter 
but----
    Mr. Harris. Weren't these numbers the same numbers, though, 
that were floated around a week ago when the Administration 
suspended its ozone standards?
    Ms. McCarthy. Clearly not, no.
    Mr. Harris. They weren't?
    Ms. McCarthy. No, they were not.
    Mr. Harris. What were those figures?
    Ms. McCarthy. I actually don't have them at the top of my 
head but I certainly can provide them.
    Mr. Harris. I would appreciate that, because I recall that 
the deaths in the press reports from the advocates were very, 
very similar to that, and there is evidence, I think, that 90 
percent of the health benefit claimed by the EPA under this 
rule are for particulates, so I am just curious about that, how 
many times you can count a death for a rule for its proposed 
benefit.
    Ms. McCarthy. We do that----
    Mr. Harris. Are those particulate matter, the data that 
supports that death and injury data, is that publicly 
available?
    Ms. McCarthy. Yes.
    Mr. Harris. Could you get that to me?
    Ms. McCarthy. Yes, sir.
    Mr. Harris. Thank you very much, because I would love to 
have it, you know, reviewed independently from the EPA.
    Ms. McCarthy. I think I should probably clarify only 
because I just realized what you are indicating is that the 
15,000 heart attacks that we reference are nonfatal, so that 
would be very different than thinking that we----
    Mr. Harris. That is even worse because the number of people 
that have a heart attack who go on to die actually now under 
current therapy is actually quite low, so the numbers of deaths 
from heart attacks actually would be strikingly low as part of 
that 34,000, so I am just curious about that.
    But anyway, my time is expired. Thank you, Mr. Chairman, 
and I appreciate follow-up on those two questions I asked. 
Thank you.
    Chairman Hall. I thank the gentleman.
    The gentleman from Maryland, Mr. Sarbanes, is recognized 
for three minutes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Thank you for your testimony. I want to commend you, 
because it sounds to me--and I don't profess to be an expert on 
this, but it sounds to me from your testimony and from what I 
have read in your written testimony that the EPA has taken a 
very responsible course with respect to this Cross-State Air 
Pollution Rule and regime that it wants to put in place to 
protect people's safety and health. Even with respect to the 
concerns that have been raised by the Texas delegation, I think 
that your responses have been good and straightforward and 
indicate that there is no sort of special mission here to get 
Texas, that you are trying to do your job and you understand 
that the downwind effects from pollution in one part of the 
country or one State have to be measured, have to be regulated. 
Otherwise we are not going to be able to make progress with 
respect to these air pollution issues.
    I just wanted to ask you on behalf of Marylanders, I know 
that the Maryland Department of Environment submitted some 
comments speaking to concerns about the nitrogen oxide 
standards and the Cross-State Air Pollution Rule. I think our 
Secretary of Environment, Sherry Wilson, testified through 
those comments that, you know, that we are interested in making 
sure that the standard is where it needs to be because we have 
a lot of air that blows into Maryland that is above the levels 
with respect to National Ambient Air Quality Standards for 
ozone. So can you speak a little bit to how the rule that you 
are looking at you think would benefit Marylanders who have 
that concern?
    Ms. McCarthy. I certainly can. The 27 States that are 
incorporated in the region that is regulated under this rule 
encompass three-quarters of the United States population. We 
recognize that for many years the Clean Air Act has required 
States to take care of their downwind contribution, but we have 
failed to be able to achieve the reductions that were necessary 
to do that.
    This rule actually does a couple of things. First, it 
scientifically links where there are challenges in different 
States to achieve--that are trying to achieve nonattainment--
are in nonattainment. Let me say that again. That are out of 
attainment that need to get in attainment and also how they can 
maintain that. We know that Maryland and other states in the 
East have had significant challenges and met those challenges 
in their own States, but because of pollution from upwind 
States, they continually are trying to drive more reductions at 
higher and higher cost per ton. This rule makes the link to the 
upwind States scientifically but then we look at, how do we 
also look at where there are cost-effective reductions up there 
so that we can bring those reductions to the table, because we 
don't expect the upwind States to bring the downwind into 
attainment but meet their own significant contribution. So this 
rule will go significantly far to help Maryland and other 
States that have been recipients of this pollution to get into 
and to maintain attainment.
    Chairman Hall. The gentleman's time has expired. The Chair 
recognizes the gentleman from Georgia, Dr. Broun, for three 
minutes.
    Mr. Broun. Ms. McCarthy, in the last week you said it is 
not EPA's job--it is not EPA's purpose of creating jobs. Ma'am, 
this rule of yours is going to destroy jobs and it is going to 
greatly harm our economy. Now, the questions I have are these. 
The final cross-State rule is significantly more stringent than 
the proposed rule. The cross-State rule requires more emissions 
reductions and imposes new regulations on the trading of 
allowances. Can you explain why the final rule was much more 
stringent? Do you think it is practical for power plants that 
have been looking at the proposed rule for almost a year now 
and developing compliance plans based on that rule and how 
without notice get a final rule which is much more stringent to 
be able to suddenly change those compliance plans and only have 
until January 1st to make those changes?
    Ms. McCarthy. Thank you for your question. First of all, I 
would like to point out that the context of my statement from 
last week needs to be----
    Mr. Broun. Ms. McCarthy, I asked you a question. I just 
made a statement with that. Would you please answer my 
question? Because I don't have but a minute and a half left. I 
have got several other questions.
    Ms. McCarthy. Okay. My statement is, we are not insensitive 
to jobs and I certainly am not. We do not believe----
    Mr. Broun. Please go ahead and answer my question. I would 
appreciate it.
    Ms. McCarthy. I thought I was doing that. I apologize.
    So we have looked at the rule. We have designed it in a way 
that not only can be achieved in terms of achieving the air 
quality reductions but very----
    Mr. Broun. You are not answering my question. Why is it 
more stringent than the proposed rule?
    Ms. McCarthy. Well, because we have updated our data and it 
is the basis of emissions that are being emitted and it takes 
advantage of current technologies that are in place to continue 
to drive----
    Mr. Broun. How do you think the power company can when they 
have been planning for almost a year to put in place plans to 
follow this new rule?
    Ms. McCarthy. Well, actually, many power companies have 
known and all of them should have known that this program has 
actually been in place since 2005. The courts told us we had to 
replace it----
    Mr. Broun. No, but you have changed the proposed rule to 
this new rule. Let me ask you another question. Shouldn't the 
public have been given an opportunity to comment on this final 
rule since it is so different from the original proposal?
    Ms. McCarthy. They were given ample opportunity to comment, 
and it is not significantly different than the proposed rule.
    Mr. Broun. Ma'am, it is. The final cross-State rule will 
have significant real impacts in starting just over three 
months because power plants cannot install technologies to 
reduce emissions in such a short period of time. Plants will be 
restricted on how much they can run starting next year. I 
believe this raises costs for utility customers. Did EPA reach 
out to State regulators and public utility commissioners on the 
details of the final cross-State rule before you issued it?
    Ms. McCarthy. We met with States as well as companies 
continuously through the proposal as well as prior to the final 
and after the final, and----
    Mr. Broun. Would you submit, please, for the record the 
dates and names of such contacts?
    Ms. McCarthy. Sure.
    Mr. Broun. Thank you. My time is expired. I yield back.
    Chairman Hall. The gentleman's time has expired. The Chair 
now recognizes the gentlelady from Maryland, Mrs. Edwards, for 
three minutes.
    Ms. Edwards. Thank you, Mr. Chairman, and to the Ranking 
Member for the hearing, and I just want to say first, really, 
thank you to the Environmental Protection Agency, which is 
under the direction of Lisa Jackson. I think that you are all 
doing yeoman's work in a really difficult environment to 
balance the interests of business but also the public interest 
and protecting our health and our air quality. So I want to 
thank you for your leadership.
    I know that Maryland has actually some of the toughest 
rules along the East Coast, but I think one of the challenges 
that we face is that we are not just a State that is an island 
on its own, that part of the reason that we need the EPA to 
take a broad look across State boundaries is because air 
travels across State boundaries, and so it makes entire sense 
that the EPA has really taken this on to try to balance all of 
those interests but to ensure the public health, and so I thank 
you for that commitment.
    Ms. McCarthy, I want to just ask you one thing. Isn't it 
true that the new rule is in fact less stringent than the rule 
that the court remanded?
    Ms. McCarthy. It is--it actually is--it is designed with 
the same market flexibility. It is based on better data than we 
had before and it still offers a broad range of options for 
facilities to come into compliance either through cost-
effective reductions at their own facilities or through the 
market and the purchase of allowances.
    Ms. Edwards. And I note that. I know that you received 
testimony in the rulemaking from Constellation Energy in 
Maryland, which is one of our largest energy companies, and 
what they said is, they have already made a billion-dollar 
investment in making sure that they come into compliance, and 
they are urging the EPA, in fact, to act quickly to implement 
the rules, and you have heard from a number of energy companies 
saying exactly the same thing.
    I was actually out at FedEx Field just a while ago with NRG 
Energy, which is installing solar panels there. They too have 
also said, you know, the same thing: it is time for the EPA to 
act so that there is clarity in the industry as to the 
direction that we ought to go but not to leave them in this 
limbo unclear of what the investments are going to make, and so 
I wonder if you could talk about what, if any, other options 
are really available to the EPA to address the part of the 
ruling that says, you know, there are a lot of different 
alternatives for the industry to take.
    Ms. McCarthy. Well, first of all, I want to tell you that 
Maryland is one of the 27 states in the Cross-State Air 
Pollution Rule, and in that region on average, those states 
have reduced their SO2 emissions since 1990 by 70 
percent, so congratulations.
    But what we are here to talk about is the States that may 
not have been as prepared. If you look at comparable timelines 
in the State of Texas, they are almost where they started. 
SO2 reductions in Texas have been reduced from 1990 
to today only by .1 percent. So we have a challenge here, and--
--
    Chairman Hall. The gentlelady's time has expired. I now 
recognize the gentleman from California, Mr. Rohrabacher, for 
three minutes.
    Mr. Rohrabacher. Thank you very much. You were just about 
to suggest what the trend line was. Let me ask you, for the 
last 10 or 20 years, the trend line in terms of cleanliness of 
our air has been in what direction?
    Ms. McCarthy. For most of the major pollutants, it is 
significantly reduced.
    Mr. Rohrabacher. Significantly reduced?
    Ms. McCarthy. Yes, sir.
    Mr. Rohrabacher. And so now we find ourselves in a 
situation where the EPA, even though there is a trend line 
going dramatically in the right direction, has decided that 
they have to move up a deadline and what business is calling 
draconian. We just had five witnesses in front of us talking 
about that this moving up the deadline will cost hundreds of 
millions of dollars that otherwise wouldn't cost, so what is 
the crisis that makes you move up the deadline at the cost of 
hundreds of millions of dollars to the American people?
    Ms. McCarthy. The courts were telling us that EPA had to 
act to respond to the original vacature of CAIR and then its 
remand. I will say that while the trend lines nationally have 
gone down, there are some States that have not sufficiently 
looked at the ability----
    Mr. Rohrabacher. Did the court set the deadline for you?
    Ms. McCarthy. The courts told us we had to----
    Mr. Rohrabacher. Did they set the deadline for you?
    Ms. McCarthy. Their deadline----
    Mr. Rohrabacher. No. The answer is no.
    Ms. McCarthy [continuing]. As soon as possible.
    Mr. Rohrabacher. Yes, so the answer is no, they did not set 
a deadline. Do you think the courts wanted you to waste 
hundreds of millions of dollars of American people's money in 
order to move up a deadline that could be achieved at a lot 
less cost within a year or two?
    Ms. McCarthy. Our deadlines are achievable with cost-
effective reductions.
    Mr. Rohrabacher. That is not what we just heard in 
testimony from people who probably have as much expertise on 
this as you do. But here we are in the aftermath of an actual 
case in California where $500 million was given by this 
Administration to a solar panel company that then went 
bankrupt, again evaporating hundreds of millions of taxpayer 
dollars yet we have an example of another company. On September 
11, 2011, a letter to the Deputy Administrator at the EPA 
suggests that the EPA has offered to make technical adjustments 
that will give Texas and Luminant thousands of additional tons 
of pollution allowances to reduce required emissions 
reductions. Now, let me ask this. Is this just for this 
particular group or have other companies across the country 
been offered this technical adjustments that will allow for 
additional allowances?
    Ms. McCarthy. Well, in order to ensure that the reductions 
could be achievable in 2012 at a low cost, we took great care 
to look at what kind of technologies were already in place that 
could achieve those reductions quickly. Luminant came to us as 
well as the State of Texas and identified three scrubbers 
within Texas that had been on a pathway to be invested in and 
be ready to----
    Mr. Rohrabacher. So have any other utilities across the 
country asked for this? Is this the only example of where 
people have asked for this?
    Ms. McCarthy. No. There are about a little over a handful 
of adjustments we are making on the basis of technology 
installations that are in place and ready to be turned on. The 
particular concern----
    Mr. Rohrabacher. But others have----
    Ms. McCarthy. The particular concern we have with Luminant 
is, they have chosen to make an announcement that they are 
actually closing mines associated with burning lignite when we 
believe they haven't thoroughly looked at all of their options 
or given us an opportunity to----
    Mr. Rohrabacher. But I would hope you would be as concerned 
about the other people who are losing hundreds of millions of 
dollars in jobs because----
    Ms. McCarthy. We are open to all----
    Mr. Rohrabacher [continuing]. Of actions of the EPA and 
perhaps we will see who gets special favors. We know that this 
solar company got it in California and ended up costing the 
taxpayers $500 million.
    Chairman Hall. The gentleman's time is about to really 
expire.
    Ms. McCarthy. I just--Mr. Chairman, I just wanted to say 
that we are talking to a number of States. If there are 
technical adjustments, we are making them. There are no special 
favors here.
    Chairman Hall. The gentleman's time has expired. The Chair 
now recognizes Mr. Neugebauer, the gentleman from Texas, for 
three minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    I want to go back and kind of make sure we are correct 
here. The court said that CAIR could stay in place until a 
replacement was put in place. Is that correct?
    Ms. McCarthy. Then they told us to do it as expeditiously 
as possible because CAIR was not legal.
    Mr. Neugebauer. Now, you didn't answer my question.
    Ms. McCarthy. I did.
    Mr. Neugebauer. No, you didn't.
    Ms. McCarthy. I said ``and.'' You are correct, and they 
added other requirements for us to get it done as quickly as 
possible.
    Mr. Neugebauer. But they did say it could stay in place 
until a replacement could be found?
    Ms. McCarthy. That is correct. They remanded it instead of 
vacating it.
    Mr. Neugebauer. Yes or no.
    Ms. McCarthy. Yes.
    Mr. Neugebauer. Thank you. But it never said that the EPA 
could not take into account the gains that were made under 
CAIR, right? The improvements that were made under that 
particular----
    Ms. McCarthy. I don't believe it took into account that 
particular issue. I don't know in what context we would take 
credit for gains or not.
    Mr. Neugebauer. Well, some of those companies were banking. 
They were making improvements and banking.
    Ms. McCarthy. Oh, they were, but they clearly told us that 
we couldn't continue with the CAIR program or the use of those 
banked allowances.
    Mr. Neugebauer. The court told you you could not use banked 
allowances?
    Ms. McCarthy. That is correct.
    Mr. Neugebauer. Are you sure about that?
    Ms. McCarthy. Yes, we are sure.
    Mr. Neugebauer. So we had some legislation in place, and 
companies spent billions of dollars, you know, under that 
program making improvements, getting credits for doing that, 
and then we are coming out with this new rule that says you 
know what, all that great stuff you did in the past, we are not 
going to give you credit for that. Is that right?
    Ms. McCarthy. I don't--let me explain how we did it. We 
actually looked at the achievements that have been made with 
CAIR. We looked at the air quality reductions that would be 
necessary to make to help with the attainment and maintenance 
issues in downwind States and then we looked upwind at where 
the inexpensive reductions could be made and then we 
established State budgets accordingly. That does not mean we 
ignored or didn't consider all of the benefits, and, in fact, 
over the past five years, there has been significant 
installation of pollution control equipment as a result of CAIR 
that we are taking advantage of. That is why we can move 
forward in 2012 with cost-effective reductions.
    Mr. Neugebauer. So are you using the 2005 data or the 2009 
data?
    Ms. McCarthy. We are using both current monitoring data as 
well as modeling data in order to establish those linkages to 
look at how to allocate the pollution from the upwind States 
and then in order to establish those budgets. So we are looking 
at both monitoring and modeling data, but you are absolutely 
right that we are looking at identifying the pollution that 
would be emitted without CAIR in order to establish those 
budgets, recognizing that those States that have been 
aggressive in CAIR would be able to achieve reductions, or even 
in some cases, already be in compliance with 2012 levels.
    Mr. Neugebauer. But if you are using 2005 data, you may not 
be using current data then.
    Ms. McCarthy. We are actually using of combination of both 
current monitoring data as well as modeling data to understand 
what the world would have looked like without CAIR because the 
world will be without CAIR when the cross-State rule comes into 
place, then to model what those monitors would look like using 
both information at the monitor itself as well as our modeling 
data to make those adjustments. I know it is complicated, and I 
apologize, but I certainly can send you how we did our modeling 
and how we made our projections, but we feel very confident 
that it is the way that it needs to be done in order to 
actually backstop from any backsliding if CAIR goes away and 
the cross-State rule takes over.
    Mr. Neugebauer. I see my time is expired, Mr. Chairman.
    Chairman Hall. The gentleman's time has expired. The 
gentleman from Texas, Mr. McCaul, is recognized for three 
minutes.
    Mr. McCaul. Thank you, Mr. Chairman.
    Ms. McCarthy, with all due respect, I believe at a time we 
are trying to create jobs in the Congress and the 
Administration, your agency is destroying jobs and causing real 
harm, justifying it based on possible noncompliance in the 
future. I believe this rule will result in higher prices for 
electricity. It has already shut down two plants. It is being 
imposed on Texas with very short warning, and Texas has been 
included not because of actual measurements that show problems 
but because of models that show hypothetical problems in the 
future. We heard that testimony from the previous panel.
    My questions, I have two questions. One is that because 
Texas was not included in the initial rule, state agencies, 
energy companies and residents did not have the opportunity to 
offer their input into the rulemaking process. I understand 
that Texas was included in the final rule, but why were Texans 
not given the opportunity afforded to others to offer their 
suggestions and concerns on this rule and make the necessary 
preparations for compliance once you decided to include us? And 
I will say there were six other States that were added in the 
final rule and they were provided a time, supplementary notice 
on their inclusion that allowed them time to comment, yet Texas 
was not treated in the same way and provided this similar type 
of notice, and rather we were just put on the final rule. Now, 
would you mind commenting to those two questions?
    Ms. McCarthy. No, I don't mind commenting, but first of 
all, the cross-State rule does not shut down facilities. It is 
the most flexible market-based approach that we have to achieve 
cost-effective reductions. If EPA--if you would like, I would 
refer you to the Houston Chronicle article today that is 
entitled ``Don't Blame EPA over Luminant Woes.'' You know, we 
are not to blame for Luminant's financial trouble. We can 
achieve reductions and they can achieve those reductions, we 
believe, without the closure of those facilities and we would 
like to see that happen.
    Mr. McCaul. We like to comply, but I think you need to be 
reasonable and not, you know, shove us into a rule without any 
input from the State and not giving us time to, you know, have 
input the way you did six other States. That doesn't seem fair 
to me. As a Texan, it looks like that you are being unfair with 
Texas and that this Administration is playing unfair with the 
State of Texas.
    Ms. McCarthy. I clearly don't want you to walk away 
believing that because Texas in terms of their air quality 
emissions and what we expect of them is the same process that 
we use for every State to identify their contribution and make 
reductions. I will tell you that we did solicit comment. It 
disturbs me that Texas is now claiming that they didn't have 
due process. We have been as transparent as we possibly could 
be with this rule. We solicited comment, and the fact that they 
actually commented should deflate that issue somewhat or that 
claim.
    Mr. McCaul. If I could just close. My time is expired. 
Again, you have six other States, Iowa, Kansas, Michigan, 
Missouri, Oklahoma and Wisconsin, added in the final rule. They 
were provided with a supplementary notice on their inclusion. 
They allowed for their comment.
    Ms. McCarthy. Because it was on the basis of new data, and 
the proposal didn't request comment on their inclusion so we 
did have to do a supplemental rule. That is not the same 
situation as the State of Texas.
    Mr. McCaul. So Texas was treated differently than the six 
other States?
    Ms. McCarthy. We had different data at the time that we put 
the proposal out. We actually solicited comment on their 
inclusion and they provided comment. We adjusted our model, and 
indeed they significantly contributed to pollution in downwind 
States.
    Mr. McCaul. In closing, Mr. Chairman, I do think that if we 
are treated differently, there is--I understand your position, 
but I do think it smacks of unfairness. Thank you.
    Chairman Hall. The gentleman's time has expired. We will 
have some insertions into the record. I think the gentlelady 
has a letter request. Do you want to state your request?
    Ms. Johnson. I would like to ask for the letter that the 
delegation signed be submitted for the record as well as the 
one from Dynergy that was sent--well, to both of us.
    Chairman Hall. At this time, I would like to enter into the 
hearing record a number of important letters and documents 
containing stakeholder viewpoints and technical analysis 
regarding the CSAPR rule. This includes several pieces of 
correspondence between affected utilities and EPA and an 
analysis by ERCOT of the rule's impact on reliability and 
analysis of the economic and job-killing impacts of the rule by 
Nera Economic Consulting as well as Standard and Poor, and 
these documents have all been shared in advance with the 
Minority and with the Majority and a complete list can be made 
available to members at their request.
    [The information may be found in Appendix 2.]
    Chairman Hall. And Ms. McCarthy, just yesterday the 
Chairman of the Texas House Committee on State Affairs, Byron 
Cook, sent you a letter requesting your appearance at a 
Committee hearing on the CSAPR rule on September 22nd at 10 
a.m. in Austin. Chairman Cook wrote, ``It is absolutely 
essential that this agency explain to Texas why the State was 
unexpectedly without opportunity for input included in this 
rule.'' Will you accommodate Chairman Cook's request to appear 
at the Texas committee hearing?
    Ms. McCarthy. Mr. Hall, I will take that request under due 
consideration.
    Chairman Hall. I appreciate it if you will.
    I would like to leave the record open long enough for your 
callous remark that you are not in the business of creating 
jobs. You don't really mean that, do you?
    Ms. McCarthy. I actually didn't put it in that context. I 
was actually providing----
    Chairman Hall. If you want to make a statement, make it for 
the record and I will----
    Ms. McCarthy. I will. Both EPA as well as I personally am 
very concerned not just about the environmental health but also 
the economic health of this State, and I recognize and EPA does 
its responsibility to develop rules as----
    Chairman Hall. You can talk on from now on if you want to 
because we are on your time now.
    Ms. McCarthy. No, sir, I just----
    Chairman Hall. No, you need to be gone by 12 and it is five 
after 12, and we thank you----
    Ms. McCarthy. I just didn't want you to believe that I was 
callous to jobs.
    Chairman Hall. Well, I want to believe that. I sure do.
    Ms. McCarthy. Please do.
    Chairman Hall. And we thank you for your time here and we 
wish you well.
    Ms. McCarthy. You too, Mr. Chairman. Thank you.
    Chairman Hall. With the round of questions completed, I 
thank the witnesses from both panels for valuable testimony and 
the Members for their questions. The Members of the Committee 
may have additional questions for any one of the witnesses. We 
will ask the witnesses, including Mrs. McCarthy, to respond to 
those in writing. The record will remain open for two weeks for 
additional comments from Members.
    We are adjourned.
    [Whereupon, at 12:07 p.m., the Committee was adjourned.]

                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Dr. Bryan W. Shaw, Chairman, Texas Commission on 
        Environmental Quality

Questions Submitted by Chairman Ralph M. Hall

Q1a.  Can you describe the historic way in which States have led the 
way for enviromnental progress under the Clean Air Act and other 
statutes?

A1a.  In Texas, protection of air quality predates the Federal Clean 
Air Act, and State requirements are often more stringent than what is 
required by the federal statute. States are given primary 
responsibility for ensuring air quality protection under the Federal 
Clean Air Act, with United States Environmental Protect Agency's (EPA) 
role being primarily supervisory and secondary to the role of the 
States. States, including Texas, are responsible for developing State 
implementation plans (SIP), which contain the necessary control 
strategies for ensuring that States attain and maintain [he National 
Ambient Air Quality Standards (NAAQS). SIPs must also contain major and 
minor permitting programs and provisions for public participation. 
These programs are developed and managed by the States, with the 
exception of some States that rely on EPA to manage their Prevention of 
Significant Deterioration (PSD) permitting programs, the programs that 
permit major sources of air pollutants. Texas has been delegated 
authority to manage its own PSD permitting program from EPA (with the 
exception of greenhouse gas permits), and permits both major and minor 
sources of air pollutants in the State. With the exception of certain 
activities that produce de minimis amounts of air pollution, all 
stationary sources in Texas that produce air contaminants must be 
permitted. Texas has also developed a variety of robust rules to set 
limits on types of air pollution, particularly in the State's 
nonattainment areas, to ensure that those areas meet and attain the 
NAAQS by the applicable Federal Clean Air Act deadlines.
    In addition to rules that are required for implementation of the 
NAAQS, Texas has worked to develop innovative permitting mechanisms to 
allow flexibility while requiring sources to control their emissions. 
For example, Texas has required all grandfathered major sources of air 
pollution to obtain air quality permits that contain federally 
enforceable emissions limitations. In this way, Texas went beyond what 
is required by the federal statute to ensure that emission sources in 
the state will have control requirements that can be enforced to ensure 
protection of the State's air quality resources. Because of innovative 
programs for point sources, Texas has seen 58% reduction to point 
source nitrogen oxides (NO2) emissions from 2000 through 
2009.
    The strides that Texas has made in reducing emissions and more 
importantly ambient concentrations of ozone are more impressive 
considering Texas' population increase and position as an economic 
engine of the entire country. Texas now has the second largest 
population in the country behind California. Between April 1, 2000, and 
July 1, 2009, Texas population increased by more than 840,000 people, 
more than any other state, yet its mobile somce emissions decreased. 
The Federal Government has the primary responsibility to regulate 
mobile sources. States have very little ability to effect change in 
this area. The Texas Legislature, however, chose to fund one of the 
most aggressive, if not the most aggressive, programs to reduce 
NO2 from mobile sources. The Texas Comnission on 
Environmental Quality (TCEQ) has provided over $900,000,000 in grants 
through its Texas Emissions Reduction Plan program to diesel equipment 
owners to replace old, dirtier diesel engine equipment with new, 
cleaner equipment. Over $150,000,000 has been provided through the 
Drive A Clean Machine program to repair gasoline vehicles that fail 
emission tests and replace old vehicles with newer, cleaner cars and 
trucks, Texas also has requirements for cleaner-burning fuel that are 
more stringent than federal fuel requirements in order to reduce 
NO2 and volatile organic compounds (VOC) emissions (Texas 
Low Emission Diesel and Low Reid Vapor Pressure Gasoline programs).

Q1b.  Is there a role for State flexibility in implementation under 
CSAPR? If so, what is it?

A1b.  CSAPR provides limited flexibility to States to adopt abbreviated 
SIPs in States' efforts to address limited portions of the federal 
implementacion plans (FIP) prescribed by EPA in the rule. These 
limitations are discussed on pages 48326-48332 of the final rule 
preamble, and in rule provisions found at 40 C.F.R. Sec. Sec.  52.38 
(governing the trading rule NO2 provisions) and 52.39 
(governing the trading rule SO2 provisions). CSAPR provides 
for no State authority or flexibility for the 2012 control period.
    With regard to this limited flexibility afforded to States in 
providing EPA SIPs for the CSAPR, a major underlying issue still has 
not been addressed by the EPA. Section 110(a)(2)(D)(i)(I) of the FCAA 
obligates States to prohibit emissions that contribute significantly to 
nonattainment, or interfere with maintenance by, any other State with 
respect to the NAAQS. However, Section 110(a)(2)(D)(i)(I) is clearly a 
requirement for inclusion in the SIPs that States are required to 
submit under Section 110(a)(1). The writers of the FCAA clearly 
envisioned that States would be given the opportunity to implement 
local controls as necessary to address transport impacts to other 
States. While the EPA indicates that it has determined that States 
covered by CSAPR have not submitted SIP revisions adequate to meet the 
requirements of Section 110(a)(2)(D)(i)(I), the EPA does not plan to 
limit this approach to just the 1997 and 2006 PM2 NAAQS and 
the 1997 ozone NAAQS. The EPA has indicated (75 FR 45213) that future 
revisions to NAAQS may necessitate revisions to CSAPR with greater 
reductions from the sources covered under CSAPR, or possibly from 
States or different source categories not included in the current rule. 
Based on this statement, the EPA has predetermined that no States will 
ever be in compliance with Section 110(a)(2)(D)(i)(I) of the FCAA. 
Therefore, the EPA has assumed sole responsibility and authority for 
Section 110(a)(2)(D)(i)(I) for the ozone and PM2 NAAQS, 
including any future revisions to these standards.

Q2.  In a letter from EPA to Luminant, the EPA Deputy Administrator 
claimed that ``EPA has offered to make technical adjustments . . . that 
will give Texas and Luminant thousands of additional tons of pollution 
allowances'' and that ``there are alternative compliance approaches 
that rely on existing pollution control technology already installed.'' 
In your view, would EPA's offer of additional allowances or alternative 
compliance approaches be sufficient for Texas' generators to meet the 
2012 and 2014 standards in a cost-effective way?

A2.  The TCEQ believes that Texas should not be included in the CSAPR 
for fine particulate matter (PM2). Texas was not included in 
the rule for PM2 at proposal. The TCEQ has technical 
concerns with the EPA claim that Texas is contributing to the monitor 
in Granite City, Illinois. EPA also violated Texas' due process rights 
as well, on the grounds that neither Texas, not her citizens, were 
provided an opportunity to comment on CSAPR.
    On October 6, 2011, the EPA proposed revisions to the CSAPR that 
would provide an additional 70,067 tons of SO2 allowances to 
the Texas CSAPR budget and delay until 2014 the implementation of the 
assurance provisions limiting interstate trading. Based on TCEQ's 
initial review of the EPA's proposed revisions, the proposal may lessen 
some of the impact of the CSAPR on some Texas utilities, but it 
completely fails to address TCEQ's overall concerns regarding the 
feasibility of such substantial reductions in sulfur dioxide 
(SO2) emissions in such an unprecedented short period of 
time. Even accounting for the additional allowances proposed for Texas' 
budget, recent SO2 scrubber startups, and announced SO2 
scrubber startups for 2012, the TCEQ expects that substantial SO2 
reductions will still be needed in Texas for the 2012 control period.
    Furthermore, while the 2012 control period is an annual compliance, 
companies must reduce their SO2 emissions early enough in 
the year to avoid running out of allowance mid-year and being forced to 
shut down. Companies must certify compliance with CSAPR, and there are 
significant penalties associated with a company's actual SO2 
emissions exceeding the allowances held. Therefore, companies are 
unlikely to gamble compliance on SO2 allowances becoming 
available at the end of the 2012 control period. The EPA's intent for 
delaying the assurance provisions until 2014 is to encourage trading in 
the initial two years of the CSAPR program. However, Texas remains 
limited to trading with Group Two States, which does not appear to be a 
viable trading market for SO2 allowances. In effect, 
companies will only have a matter of months to achieve the large 
reductions in SO2 emissions that the EPA is mandating with 
the CSAPR, leaving companies with limited options for compliance.
    The TCEQ will continue reviewing the EPA's proposed revisions to 
CSAPR, and plans on submitting comments to the EPA on the proposed 
changes. However, the TCEQ does not consider the CSAPR, as finalized or 
with the proposed revisions to the rule, to be cost-effective or 
environmentally beneficial.
Responses by Mr. Gregory Stella, Senior Scientist, Alpine Geophysics, 
        LLC

Questions Submitted by Chairman Ralph M. Hall

Q1a.  You state in your testimony that ``over 80 percent'' of the sites 
predicted by EPA to be in nonattainment of the ozone or PM2 
standards in 2012 are already in attainment as of 2009. This appears to 
indicate major errors in EPA modeling accuracy. In your opinion, why is 
the EPA model wrong on 80% of attainment projections?

A1a.  The issue is not that EPA's model is wrong; rather it is the fact 
that older data were used to develop EPA's attainment projections. The 
methods and models used by EPA and Alpine were consistent, however, 
EPA's use of an older emissions base year (2005), design value data 
(2003-2007), and emission projections and associated controls absent 
the implementation of CAIR resulted in estimates of poorer air quality 
in 2012 compared to Alpine's results. When we used a more current base 
year inventory (2008) and current design value data (2007-2009) which 
account for control technologies and associated emission reductions in 
response to current compliance with CAIR, air quality in 2009 already 
is observed to be below CSAPR air quality objectives.

Q1b.  How can it be improved?

A1b.  In my professional opinion, the use of a most current modeling 
platform, including emission inventories, projection factors (inclusive 
of already implemented control technologies), observational data and 
associated metrics (design values), would provide a more current 
picture of existing air quality and establish a more current baseline 
from which to develop emission projections and associated air quality 
predictions.

Q1c.  Is it fair to say that the majority of EPA's estimates about the 
need for this rule are based on questionable predictions?

A1c.  I do not think that it is fair to say that EPA's estimates are 
based on questionable predictions. Rather, I would say that the 
modeling upon which EPA established its estimated predictions is based 
on outdated data.

Q2a.  In your written testimony, you state that your firm identified 
two critical components where EPA's underlying science for the CSAPR 
rule appears to be incomplete. You refer to ``EPA's exclusion of the 
most recently available emissions inventories and air quality 
measurements at the time of its rulemaking and EPA's exclusion of the 
controls and related emission reductions that are actually occurring in 
response to the Clean Air Interstate Rule (or CAIR).'' Could you please 
explain for the Committee how the exclusion of these two components 
would directly impact the integrity of the CSAPR rule, and the accuracy 
of any of its downstream regulations and requirements?

A2a.  In our analysis, we observed that when the control technologies 
already installed as a result of current compliance with CAIR are 
included in the modeling platform (emissions, air pollutant 
concentrations, and associated projections), the air quality objectives 
of CSAPR are already met or are projected to be met in many areas 
without additional emission reductions beyond those originally 
identified in CAIR. As these results show current (2009) attainment of 
CSAPR air quality objectives in many EPA identified nonattainment or 
maintenance downwind areas, the need for incremental emission 
reductions addressing interstate transport of air pollutants to these 
EPA identified areas may be unnecessary.

Q3.  Has the air become cleaner over the last decade? Is there any 
reason to expect that the large portions of the U.S. that meet National 
Air Quality Standards in 2009 would reverse the trend in 2014?

A3.  According to both EPA published reports \1\ and studies conducted 
by Alpine Geophysics, LLC (associated written testimony to this 
response) concentrations of air pollutants measured by EPA have 
decreased over the last decade. While there is always the possibility 
that changes in meteorology, technology, economic activity, or emission 
regulation may impact the direction of emission and air quality trends 
in the U.S., in my professional opinion and based on promulgated air 
quality regulation and long-term emission trends, I do not see a reason 
to expect that the large portions of the U.S. that meet National Air 
Quality Standards in 2009 would reverse this trend by 2014.
---------------------------------------------------------------------------
    \1\  http://www.epa.gov/airtrends/2010/index.html.
---------------------------------------------------------------------------
Responses by Mr. Wayne E. Penrod, Executive Manager, Environmental 
        Policy, Sunflower Electric Power Corporation

Questions Submitted by Chairman Ralph M. Hall

Q1a.  In your written testimony you note that EPA's CSAPR is based on 
flawed modeling, and that the underlying model itself is a ``black 
box.'' Could you please describe for the Committee the range of 
relevant information that was withheld by EPA, and how this impacted 
the rulemaking process overall?

A1a.  Response: Information regarding IPM and EPA's use of it is found 
on their website at the following URL. Their description of the value 
the model (emphasis added) brings to their work is fairly revealing and 
it describes what the model enables ``them'' to ``accomplish.'' http://
www.epa.gov/airmarkets/progsregs/epa-ipm/. The excerpt below from this 
website addresses the question.

General Purpose of IPM Modeling

      EPA uses the Integrated Planning Model (IPM) to analyze 
the projected impact of environmental policies on the electric power 
sector in the 48 contiguous States and the District of Columbia. 
Developed by ICF Consulting, Inc. and used to support public and 
private sector clients, IPM is a multi-regional, dynamic, deterministic 
linear programming model of the U.S. electric power sector. It provides 
forecasts of least-cost capacity expansion, electricity dispatch, and 
emission control strategies for meeting energy demand and 
environmental, transmission, dispatch, and reliability constraints. IPM 
can be used to evaluate the cost and emissions impacts of proposed 
policies to limit emissions of sulfur dioxide (SO2), 
nitrogen oxides (NO2), carbon dioxide (CO2),and 
mercury (Hg) from the electric power sector. The IPM was a key 
analytical tool in developing the proposed Transport Rule.

      Among the factors that make IPM particularly well suited 
to model multi-emissions control programs are (1) its ability to 
capture complex interactions among the electric power, fuel, and 
environmental markets; (2) its detail-rich representation of emission 
control options encompassing a broad array of retrofit technologies 
along with emission reductions through fuel switching, changes in 
capacity mix and electricity dispatch strategies; and (3) its 
capability to model a variety of environmental market mechanisms, such 
as emissions caps, allowances, trading, and banking. IPM's ability to 
capture the dynamics of the allowance market and its provision of a 
wide range of emissions reduction options are particularly important 
for assessing the impact of multi-emissions environmental policies like 
the proposed Transport Rule.

    Although the inputs to the model are highly complicated and 
sometimes difficult to follow, this information is generally made 
available by EPA to the public, as are the outputs. What is not 
available are the inner workings of the model and how the model 
processes the inputs to produce the outputs, which is why the model is 
called a black box. Because the model is proprietary, the public cannot 
itself run the model, and therefore cannot, for instance, vary the 
assumptions to see what the outputs will be. We are simply asked to 
trust that the model is accurately processing the inputs in producing 
the outputs. But for all we know, a change in a modeling input that 
produces a particular result could be the result of a glitch in the 
model.
    The ``IPM'' model is a virtual electric grid upon which different 
dispatch scenarios can be simulated. The model has been used for 
several years to simulate the complex interactions that can occur when 
evaluating different economic policy strategies. It has been used to 
identify the lowest cost electricity-generating unit additions. It has 
also been used to evaluate utility mergers, both real and virtual. The 
value of the IPM ``tool'' is to identify the ``differences,'' within 
bounds, between or among different or competing strategies; it should 
not be expected to yield a single dispositive answer to any question.
    The inputs to the model include information and assumptions about 
electricity generation and transmission facilities, fuel, load 
forecasts, economic factors--in theory, all the information that goes 
into operation of the electric grid. Outputs of the model are the 
resulting amounts of electricity each generating unit will produce, the 
overall impact on electric rates, the amount of each type of generation 
fuel that is used, etc. In other words, the inputs to the model are all 
of the inputs that EPA thinks are necessary to run the U.S. power grid. 
However there are hundreds of significant assumptions and many 
simplifications that are involved in developing a model upon which to 
draw realistic comparisons.
    One of the main problems a lack of access to the model causes when 
EPA uses the model is that EPA may tell the public it is considering a 
change in modeling inputs and ask for comment, but we have no way of 
knowing how the changed assumption will change the rule. This happened 
three times during the rulemaking process, when EPA issued ``Notices of 
Data Availability'' proposing to change modeling inputs without telling 
the public how doing so would change state budgets. There was no way 
for the public to understand how the new inputs would change the 
budgets, because EPA wasn't saying and because the model is proprietary 
and unavailable for the public to run itself. This is nowhere more 
significant than in the 45% allowance allocation difference in the 
third NODA for Sunflower's operations.
    Moreover, we know that certain modeling inputs are flawed. As just 
one important example, one of the main criticisms that those with 
experience in the electric utility industry--including FERC and various 
RTOs--made of FERC's reliability analysis is that the IPM model assumes 
that power flows freely within broad geographic areas and is not 
subject to local bottlenecks and constraints. As an EPA Technical 
Support Document for the MATS rule states, ``[w]ithin each model 
region, IPM assumes that adequate transmission capacity exists to 
deliver any resources located in, or transferred to, the region.'' \1\ 
This assumption, however, is factually inaccurate because there are 
significant local transmission bottlenecks. These local reliability 
concerns and the failure of EPA's model to simulate them are the reason 
FERC's Chairman called the methodology EPA used to assess reliability 
``irrelevant'' \2\ in assessing true reliability impacts. Again, this 
is very evident in the recent Southwest Power Pool modeling summary 
analysis (attached)--very low voltages in regions served by Sunflower 
and other neighboring utilities.
---------------------------------------------------------------------------
    \1\  Resource Adequacy and Reliability in the IPM Projections for 
the Toxics Rule, EPA-HQ-OAR-2009-0234-3063[1], Exhibit 12 at 1.
    \2\  The American Energy Initiative: Impacts of the Environmental 
Protection Agency's New and Proposed Power Sector Regulations on 
Electric Reliability Before the Subcomm. on Energy and Power of the H. 
Comm. on Energy and Commerce, 112th Congress (September 14, 2011) 
(response of Jon Wellinghoff, Chairman, FERC, to question by Rep. 
Rush).
---------------------------------------------------------------------------
    Kansas utilities have, after the rule became final, tried to 
duplicate some of the EPA work. We discovered that;

      Only EPA had access to the actual input parameters to an 
important sub-routine within the model, and

      Information provided by EPA concerning the treatment of 
certain default parameters was reported erroneously.

    The effect of these mistakes wasted considerable amounts of our 
time and resources that could have been given to trying to understand 
more fully what EPA did in other areas of the model. This discovery 
only serves to raise further questions regarding other aspects of the 
EPA modeling which we were unable to adequately evaluate in the 
available time.
    It should also be identified that EPA did not even always ask for 
comment when it changed inputs to the model; of course, these input 
changes resulted in significant output differences. In the final rule, 
EPA justified the reduced budgets based on new input information that 
was never made available for comment. Significantly, this is exactly 
counter to the process that EPA insists that utilities use when they, 
for instance, propose to construct a new source. EPA insists that the 
air dispersion impacts of a proposed source be strictly evaluated using 
EPA-issued guidance and that such modeled evaluations be done on EPA-
approved software. They carefully evaluate the inputs and outputs on a 
case-by-case basis. Whenever any issue or problem is encountered during 
the EPA evaluation of the source, they insist that the applicant 
redefine the model, correct whatever mistake was made (even if the 
mistake was made by the EPA or EPA contractors), resubmit the results, 
and then re-issue the entire process for new public comment. That same 
level of transparency should be expected of EPA.

Q1b.  In your opinion, what is the single greatest scientific flaw or 
assumption in EPA's rulemaking process for CSAPR, and its compliance 
projections?

A1b.  Clearly there are two huge flaws in the rulemaking process. The 
largest is the assumption that utilities can move electricity on the 
grid as easily as the simplistic assumption used by EPA in the model 
(as identified above). The Southwest Power Pool (SPP) has clearly 
identified that electric system reliability will be significantly 
impacted. In fact, SPP has identified that their much more realistic, 
single- purpose electric grid model will not solve in certain areas 
given the generation solution reached by the EPA model to allocate 
allowances. Under the circumstances we find ourselves on the horns of a 
dilemma--either operate as required to meet the load under the 
reliability requirements of the SPP, or operate so as to conform to the 
inadequate allowance structure devised by EPA. Clearly, our obligation 
to meet both conflicting requirements will be a most difficult, costly, 
and uncertain task.
    EPA does not in their own modeling adhere to the standards they 
require of the utilities. As we know by experience, for example, 
whenever a new emission source that may impact the visibility in a 
National Park is proposed, additional time and modeling may be required 
by the responsible federal land manager. Since the SPP has identified 
serious concerns with the reliability of the electric grid, an 
essential element in the security of a modern society, surely this is 
reason enough for EPA to undertake additional, open, transparent 
modeling of grid reliability resulting from the rule.
    Secondly, the assertion that a liquid, vibrant allowance trading 
market will develop in 2012 enabling utilities to comply with the rule 
defies logic. EPA recognizes that utilities will not be able to install 
all of the new control technologies in time to meet the rule by 2012 
and that other compliance options are relatively limited. EPA believes, 
however, that an allowance market will emerge in which utilities can 
cover their compliance obligations by purchasing allowances.
    The problem is that utilities have no reason to believe that this 
will be so, and every reason to believe that it won't. Because EPA cut 
so many State emission budgets between the proposed and final rule, we 
can only ask from what sources EPA believes excess allowances can be 
generated in so short a time period. First the allowance budget 
identifies several severe shortfalls; even EPA identifies that new 
control technology must be installed, and further asserts, illogically, 
that the time for deploying some of these technologies is adequate to 
generate allowances. We have no reason to be confident that there will 
be any allowances available to cover the shortfalls, particularly at a 
price that would make economic sense.
    Moreover, the allowance trading scheme is limited under CSAPR 
because, for SO2, utilities can only trade with utilities in 
their own State or in States in the same group. Also, a great deal of 
allowance value was wiped out when EPA decided that the old CAIR 
allowances cannot be used in CSAPR in light of the court decision in 
the CAIR case. With CSAPR subject to so many legal challenges, we think 
utilities may wish to hold onto and bank any credits they have, and 
utilities will be reluctant to buy allowances and risk having that 
value similarly wiped out if CSAPR is overturned. Thus, since we must 
plan conservatively, given the threat of serious penalties for non-
compliance, we must assume that we cannot meet a significant part of 
our compliance obligations with allowances.
    Because we can't rely on the availability of allowances, our only 
compliance option is as I outlined in my initial testimony. We have to 
essentially re-dispatch our system, cutting back generation at our more 
efficient base-load coal unit, and increasing generation at more 
expensive units. Moreover, as set forth in my testimony, we accelerated 
our acquisition of pollution control equipment, which resulted in a 
higher cost and our having to purchase the equipment from China rather 
than from a Kansas manufacturer as originally planned.

Q2.  What impact would extreme weather in Kansas have on electricity 
generation, delivery, and reliability if CSR were to be implemented in 
its current form, and with its current compliance deadline?

A2.  Certainly, a colder-than-expected winter or a hotter-than-expected 
summer would increase electricity demand and increase the risk that our 
generation and transmission resources are not adequate, in contingency 
situations, to meet the load. This is especially the case given the 
identified transmission constraints caused by the EPA ``dispatch 
model.'' Indeed, the Southwest Power Pool told EPA in a September 20, 
2011, letter, the electric system will be strained to meet CSAPR. This 
strain will be magnified if there is a loss of one or more significant 
transmission or generation facilities, either of ours or of our 
neighbors, occurs during a severe hot- or cold-weather event. These 
unexpected and isolated events will occur. They always have, and the 
reserve sharing arrangements of the SPP are constructed to provide 
shared mutual resources for those circumstances. All of those 
reliability management practices developed by SPP and other reliability 
pools are placed at greater risk of collapse in extreme weather 
conditions given the effects of CSAPR.
Responses by Mr. Chip Merriam, Chief Legislative & Regulatory 
        Compliance Officer,Orlando Utilities Commission

Questions Submitted by Chairman Ralph M. Hall

Q1.  Is it possible for OUC and other Florida utilities to just 
purchase NO2 allowances from other CSAPR states that are 
able to reduce NO2 emissions within the compliance window?

A1.  From our early experience with this rule, those who have excess 
allowances in Florida will not be interested in releasing those 
allowances for two reasons: the first, for those that may have excess, 
the margins between expected emissions and allocated allowances are 
very tight, as such, OUC strongly believes that these entities will opt 
to bank the excess allowances rather than release them into the market 
with the thought that they may eventually need them, and second, those 
with allowances are trying to determine what the real value of these 
allowances might become as we all near the compliance period. Those in 
the CSAPR are demonstrating the same response as we have experienced 
within the State of Florida, making sure they have adequate allowances 
before those allowances are for sale and also awaiting what the real 
value of the allowances will be as the compliance period nears.

Q2.  What impact would hurricanes or severe weather have on electricity 
generation, delivery, and reliability if CSAPR were to be implemented 
in its current form, and with its current compliance deadline?

A2.  There are at least two questions within this question which are as 
follows:
    First, electric generation usually does not have the same type of 
impacts as does transmission and distribution services during severe 
weather events. Generation is very reliable during cyclonic events, or 
at least that is what we thought in Florida until the hurricane season 
of 2005. Because of the impacts resulting from the onslaught of 
Hurricanes Katrina and Rita on natural gas production in the Gulf of 
Mexico, the supply of natural gas to the State was cut dramatically for 
several days. Since there are not any large-scale gas storage 
facilities in the State, gas fired generation was significantly 
curtailed and, if not for the coal units which are a part of the focus 
of this EPA rulemaking effort, the State might not have faired as well 
as it did.
    Second, delivery and reliability are much different. In order to 
meet the demands of the CSAPR, OUC will take our Stanton Coal Unit 1 
offline for all or part of three summer seasons as we modify the coal 
unit with the installation of Selective Catalytic Reduction to reduce 
the NO2 emissions. Additionally, OUC will be forced to shift 
planned maintenance outages from the spring to the summer peak season 
in order to reduce emissions to try to comply with the Rule. This is 
the same time the State of Florida is most at risk for cyclonic events. 
In order to meet with our reliable standards, as well as demands on our 
generation fleet, OUC will, most likely, have to go out on the market 
and purchase supplemental generation from other generators. This will 
now place our generation requirements on the transmission system which 
has been impacted during past hurricane seasons.
Responses by The Honorable Gina McCarthy, Assistant Administrator, 
        Office of Air and Radiation, U.S. Environmental Protection 
        Agency

Questions Submitted by Chairman Ralph M. Hall

Q1a.  In your response to my question regarding available compliance 
options for the State of Texas, you answered that the compliance 
decisions are business decisions and can be done through a market 
approach. You stated that EPA believes there is pollution control 
``equipment installed in the State already that can be maximized in 
terms of efficiency.'' Please provide a list of equipment on each power 
plant in Texas that EPA has determined can be maximized for efficiency. 
Please include the current efficiency of each identified piece of 
equipment and the maximum efficiency EPA believes this equipment can 
achieve.

A1a.  EPA's IPMv.4.10 computer model uses Energy Information Agency 
(EIA) information for SO2 removal rates for flue-gas 
desulfurization. These values are reported directly to EIA by the 
sources themselves using form 860 (data is referred to as EIA 860). In 
the case of seven units in Texas, EPA made adjustments to the SO2 
removal rates based on subsequent information from Luminant on how they 
had interpreted the form and, in some cases, misreported information. 
NO2 rates are based on 2009 data. There is a hierarchy of 
rules used to determine rates. The rules and all the hueristics that go 
along with them can be found in section 2 of the Supplemental 
Documentation on the CSAPR website (http://www.gpo.gov/fdsys/pkg/FR-
2011-07-11/pdf/2011-17456.pdf).




Q1b.  You also claimed that there are FCRs, SNCRs, and low NO2 
boilers already in place that ``can be turned on every day all year 
around instead of them currently used part of the year, part of the 
days, during that part of the year.'' Please provide a list of each 
power plant in Texas that EPA has determined is not using its FCRs, 
SNCRs, and low-NO2 boilers all day, every day, all year. 
Please include the current amount of time this equipment is currently 
being utilized and the technical analysis that EPA has conducted to 
determine that this equipment can and should be utilized all day, every 
day, all year.

A1b.  EPA determined that from a technical standpoint, the State, as a 
whole, already has the controls in place to make the needed reductions 
even at current heat input levels. EPA reached this conclusion with the 
following process. For each unit in Texas, we calculated the lowest 
quarterly NO2 rate achieved by that unit between 2005 and 
2010 and applied that rate to 2010 data. If all of Texas's units had 
operated at their lowest quarterly NO2 rates for the entire 
year (using their 2010 heat input), it would have resulted in a 
reduction of nearly 22,000 tons of NO2 for 2010, which would 
yield an emission level substantially lower than the CSAPR state budget 
for annual NO2 in Texas. We believe these data show that 
Texas units have substantial flexibility in controlling their NO2 
emissions and meeting their CSAPR obligations even without the 
installation of new NO2 controls. In addition, utilities 
provided information to EPA indicating that some controls were 
operational for limited periods of time.




Q1c.  Additionally, you claimed that there are upgrades of pollution 
control equipment that can be done quickly. Please provide EPA's 
analysis that identifies each power plant in Texas that has pollution 
control equipment eligible for quick upgrades. Please include a list of 
each piece of equipment in the identified power plant, what upgrades 
can be made, what, if any, permits are required to do these upgrades, 
how long the upgrades will take to install, and the cost of each 
upgrade.

A1c.  EPA analysis indicated that sources could meet both the annual 
and ozone-season requirements in the rule in 2012 by running existing 
controls (or those already expected to come online in the near future) 
efficiently, making changes in dispatch (how electricity is distributed 
across units at a facility) including shifting generation from higher-
emitting units to lower-emitting units, fuel switching, or buying 
allowances. Additional upgrades are possible but they are not necessary 
to achieve compliance.

Q1d.  You stated that there is low-sulfur coal and fuel switching 
options. Please provide EPA's analysis in which you determined 
purchasing low-sulfur coal for 2012 was a cost-effective option for any 
plant affected by this rule. Please include EPA's complete analysis of 
the coal market, transportation availability concerns, and any 
assessment of the cost difference between the low-sulfur coal and the 
coal type normally burned.

A1d.  The coal choices (including low-sulfur subbituminous and 
bituminous coals), transportation options, and the comparative cost of 
different coal sulfur grades that are available to electric generating 
units are included in EPA's modeling of the U.S. electric power sector 
and are comprehensively documented in Chapter 9 and related appendices 
of Documentation for EPA Base Case v.4.10 Using the Integrated Planning 
Model (available on the Web at www.epa.gov/airmarkets/progsregs/epa-
ipm/docs/v410/Chapter9.pdf, www.epa.gov/airmarkets/progsregs/epa-ipm/
docs/v410/Chapter9Appendix9-3.xls, www.epa.gov/airmarkets/
progsregs/epa-ipm/docs/v410/Chapter9Appendix9-4Data.xls, and 
www.epa.gov/airmarkets/progsregs/epa-ipm/docs/v410/
Chapter9Appendix9-4Graphs.pdf). The assumptions described in 
this documentation and used in EPA's modeling were prepared by leading 
industry coal experts. They are very extensive. For example, they 
include 85 separate coal supply curves and more than 1,200 coal 
transportation links.
    For each coal-fired electric generating unit, the power sector 
model identifies the lowest-cost coal or combination of coals that can 
be burned by the unit and allow it to meet its generating and emission 
requirements. These coals include the type normally burned as well as 
any low-sulfur coal options available to the unit. The coals that the 
model projects will be used in any given modeled year (including 2012) 
are reported in model run output files (also available on the Web).




    In addition to the optimal least-cost solution in Texas, we have 
examined options that do not involve switching from lignite to lower 
sulfur sub-bituminous coal. In this complementary analysis, EPA 
constrained Texas units from increasing their blending of sub-
bituminous coal beyond the level each unit reported to EIA for 2010. 
Under these conditions, Texas is still projected to meet its SO2 
assurance level using other cost-effective emission reduction 
strategies, including greater dispatch from lower-emitting generators, 
while still maintaining 2010 lignite blending levels.

Q2.  In your response to my questioning about the CSAPR timeline, you 
repeatedly stated that the first compliance period does not have to be 
met until March 2013. It is my understanding however, that the 
allowances that would cover emissions from January 1, 2012, to December 
31, 2012, would be due to EPA in March 2013. Is this correct? Please 
clarify what you mean when you say the compliance period does not have 
to start until March 2013.

A2.  On December 30, 2011, the U.S. Court of Appeals for the District 
of Columbia Circuit stayed the Cross-State Rule pending resolution of 
litigation challenging it. The Court order imposing the stay did not 
discuss the merits of the challenges. EPA believes the Cross-State Rule 
is legally sound and will continue defending it vigorously. While the 
stay is in effect, power plants will not have to comply with the Cross-
State Rule until the stay is lifted. Pursuant to the Court's order, the 
Clean Air Interstate Rule (CAIR), which was to be replaced by the Cross 
State Rule as of January 1, 2012, is now in effect.

Q3.  During the hearing, you stated that the Cross-State Air Pollution 
Rule was designed with the same market flexibility as the CAIR rule. It 
was my understanding that the market mechanism used in the CAIR rule 
was part of the reason the rule was vacated in the first place. Please 
describe the market mechanisms in both the CAIR and CSAPR rules and 
explain how they are the same.

A3.  CSAPR maintains a trading system like CAIR, but CSAPR has greater 
limits on trading starting in 2014. This addresses the D.C. Circuit 
Court concern that CAIR did not provide adequate assurance that the 
required reductions would occur within each State, but did not prohibit 
all emissions trading. In response to the court ruling, EPA established 
assurance provisions to guarantee that, in each State, the emissions 
that significantly contribute to downwind air quality problems will be 
eliminated. The CSAPR assurance provisions limit the total number of 
allowances that each State can use for compliance by imposing a penalty 
on sources whose emissions cause a State to exceed its budget by more 
than an allowed ``variability'' limit. But like CAIR, the CSAPR 
maintains the flexibility of trading, which promotes innovative 
emission reduction strategies and builds on a highly successful market-
based approach familiar to the power sector. Over the past 15 years, 
trading programs have achieved dramatic SO2 and NO2 
emission reductions at a fraction of expected cost and with nearly 
perfect compliance. Similar to CAIR, the emissions reporting and 
tracking systems under CSAPR will support an active allowance market by 
providing quarterly data, the wide distribution of allowances among 
numerous entities, and overall recognition of the benefits of trading 
due to differentiated compliance costs.

Q4.  In his September 11, 2011, letter to David Campbell, the EPA 
Deputy Administrator stated that, ``EPA has offered to make technical 
adjustments . . . that will give Texas and Luminant thousands of 
additional tons of pollution allowances to reduce required emissions 
reductions.'' Can you describe the ``technical adjustments'' referenced 
in the letter?

A4.  On February 7, 2012, the EPA finalized technical changes to CSAPR 
that will facilitate compliance by Texas power plants. In developing 
CSAPR, the EPA relied on information, in many cases submitted by power 
plant operators or accessible in public documents, about the operation 
of certain power plants in Texas. After we finalized the rule, EPA 
became aware of information updating, correcting, or completing the 
earlier information. This allowed the agency to identify data 
discrepancies and to remedy those discrepancies. Accordingly, on 
February 7, 2012, EPA finalized technical adjustments that result in an 
approximately 50,000 ton increase to Texas' SO2 budget and 
small increases to both Texas' ozone season NO2 and annual 
NO2 budgets with corresponding revisions to assurance levels 
and new unit set-asides. In addition to the increase in the number of 
allowances that Texas power plants will receive, EPA finalized 
adjustments to increase a company's menu of compliance options by 
allowing sources to use an unlimited number of interstate allowances 
for compliance in 2012 and 2013. This was designed to provide greater 
assurance that the allowance trading market will continue to develop 
rapidly. The technical changes are substantial for Texas, although 
overall they maintain the extensive public health benefits of CSAPR and 
do not change the core elements or fundamental structure of the rule.

Q4b.  Are these technical adjustments and additional allowances 
available to any other State or utility that inquires?

A4b.  EPA conducted a notice-and-comment rulemaking allowing all 
parties to submit relevant information, and based on additional 
information provided by commenters, EPA finalized adjustments affecting 
multiple state budgets.

Q4c.  It is our understanding that the allocations will not be drawn 
from other States' budgets. Can you describe from where the additional 
allowances are to be drawn?

A4c.  The technical corrections created additional allowances. They 
were not drawn from other States' budgets.

Q4d.  Finally, can you discuss the impact that the allocation of these 
allowances would have on emissions budgets throughout the program?

A4d.  The finalized revisions will not affect the significant air 
quality improvements slated to occur under CSAPR, nor will they 
undermine CSAPR's goal to reduce interstate transport of pollution to 
help downwind States in their efforts to attain and maintain the 
National Ambient Air Quality Standards (NAAQS). While individual State 
adjustments vary, overall, the budget increases are slight--about one 
percent--when compared to the millions of tons of pollution reductions 
secured by CSAPR.

Q5.  The final CSAPR rule describes the costs of the rule as the 
``retirement of smaller or less efficient EGUs, employment shifts as 
workers are retrained at the same company or reemployed elsewhere in 
the economy, and certain relatively small permitting costs.'' In 
layman's terms, these costs are better known as plants being closed and 
workers being laid off. Given our Nation's struggle to create jobs, 
what gives the EPA the confidence to claim that workers who lose their 
jobs as a result of this rule will be ``re-employed elsewhere in the 
economy''? Could you give this Committee some examples of where your 
agency identified job opportunities for these workers?

A5.  In Appendix D to the Regulatory Impact Analysis, \1\ EPA estimates 
the short-term job effects of the CSAPR. EPA anticipates that there 
will be increased jobs due to increased demand for pollution control 
equipment and reductions in labor demand due to retirements of 
generating units and changes in demand for fuels. EPA estimates a 
short-term increase in job-years demanded (due to new pollution 
controls) of 2,230 job years in 2014 due to CSAPR. A job-year is 
defined as the amount of work that can be completed by a full-time 
individual for one year. Most of these jobs are expected to last over 
an extended period of time, although some jobs last longer than others. 
For example, the production and installation of pollution control 
equipment due to anticipated requirements will likely increase 
construction demand labor, resulting in short-term employment that 
could last a few years. Operational jobs needed to operate the 
pollution control equipment are likely to be longer term. As shown in 
the Regulatory Impact Analysis, EPA estimates longer-term changes in 
employment within the electric power sector to range from 1,000 fewer 
jobs each year relative to baseline to 3,000 more jobs, with a best 
estimate of 700 additional jobs.
---------------------------------------------------------------------------
    \1\  Regulatory Impact Analysis for the Federal Implementation 
Plans to Reduce Interstate Transport of Fine Particulate Matter and 
Ozone in 27 States; Correction of SIP Approvals for 22 States. U.S. EPA 
Office of Air and Radiation. June 2011. Available at: http://
www.epa.gov/airtransport/pdfs/FinalRIA.pdf.
---------------------------------------------------------------------------
    Utilities often seek to reassign employees that have been displaced 
due to a plant closure. For example, South Carolina Electric & Gas 
(SCE&G) recently announced a plan to retire some coal units and repower 
some coal units to natural gas. SCE&G ``will assist affected employees 
in looking for other positions within the company.'' \2\ In addition, 
the natural gas repowering and pollution control installations at SCE&G 
facilities will result in both short- and long-term employment 
opportunities.
---------------------------------------------------------------------------
    \2\  http://www.sceg.com/en/news-room/current-news/sceg-announces-
plans-to-retire-a-portion-of-its-coal-fired-generation.htm.

Q6.  The final rule states that ``a stand-alone analysis of employment 
impacts is not included in a standard cost-benefit analysis.'' However, 
the rule also states that the need to hire labor and expertise to 
implement new pollution controls will generate an additional 2,250 jobs 
in 2014. Where does EPA believe the funds will come from to pay for 
this new labor and expertise, and won't these costs be passed on to 
---------------------------------------------------------------------------
consumers in the form of higher electricity prices?

A6.  As shown in the RIA for the final CSAPR, the EPA estimates the 
annual costs of the rule to be approximately $0.8 billion in 2014. 
These costs include the cost of hiring additional labor to implement 
new pollution controls. On average, the EPA estimates that electricity 
rates paid by consumers may increase in the region affected by the 
CSAPR by 0.8 percent by 2014 due to this regulatory action. This 
electricity rate increase is associated with increased health and 
environmental benefits to society that range from $120 to $280 billion 
annually (in 2007 dollars) by 2014. These health and environmental 
benefits to society vastly outweigh the costs of implementing this 
rule.

Q7.  In the past, you and EPA Administrator Lisa Jackson have claimed 
that CSAPR and related rules have included an analysis of electric 
reliability, as well as consultations with FERC. However, when FERC 
Chairman Jon Wellinghoff testified in front of Congress, he emphasized 
that their informal assessment ``in no way should be used for 
planning,'' and that the only relevant assessments are conducted by 
planning authorities like ERCOT. How has ERCOT's breakdown of the 
massive reliability concerns--including rotating outages--been included 
in EPA's CSAPR decision-making?

A7.  On December 30, 2011, the U.S. Court of Appeals for the District 
of Columbia Circuit stayed the Cross-State Rule pending resolution of 
litigation challenging it. The Court order imposing the stay did not 
discuss the merits of the challenges. EPA believes the Cross-State Rule 
is legally sound and will continue defending it vigorously. While the 
stay is in effect, power plants will not have to comply with the Cross-
State Rule. Pursuant to the Court's order, the Clean Air Interstate 
Rule (CAIR), which was to be replaced by the Cross-State Rule as of 
January 1, 2012, is now in effect.
    As to concerns about reliability for future years, EPA's analysis 
of the Cross-State Rule shows that Texas power plants can meet this 
rule's emission reduction obligations while maintaining a healthy 
annual capacity reserve margin above the planning target established by 
the ERCOT. EPA carefully examined the economic and electricity impacts 
of including Texas in the CSAPR programs for annual SO2 and 
NO2 reductions in the final rule. Our conclusions are in 
keeping with the past 40 years of Clean Air Act experience, which has 
seen our country make tremendous improvements in public health while 
simultaneously maintaining economic growth and ensuring reliability. We 
share your concern over reliability issues facing ERCOT, but we find no 
evidence that they would have to choose between clean air and air 
conditioning. Texas will be able to provide cleaner air to its 
residents and to downwind States under this rule while also maintaining 
economic growth.
    EPA does not believe that the CSAPR rule will lead to a greater 
likelihood of blackouts next summer. Nor do we believe the CSAPR rule 
requires Texas plants to shut down in 2012. We have closely examined 
the ERCOT report in terms of the number of megawatts ERCOT expects to 
be offline as a result of the CSAPR rule and of ERCOT's assessment of 
what the impact would have been if those megawatts had not been 
available over the past summer. It is important to recognize, however, 
that the ERCOT report made no prediction of the likelihood of blackouts 
next summer, and does not revise their projection of an adequate 
reserve margin for 2012. Moreover, ERCOT has other options for 
maintaining grid reliability including bringing some of the mothballed 
plants back into service for next summer, which they have done, and 
pursuing their initiatives to expand existing programs for demand 
reduction. It is clear to us that there are multiple tools available to 
ensure adequate grid reliability while securing the clean air benefits 
of the CSAPR rule.

Q8.  The State of South Carolina has asked the Federal Energy 
Regulatory Commission to convene a State-federal panel--called a 
section 209 panel--to resolve specific reliability problems likely to 
result in that State because of the new EPA power-sector rules. Federal 
law allows for this type of dialogue in order to order to ensure 
adequate planning has occurred in advance of federal policy 
developments. Are you aware of this? Will EPA delay the implementation 
of CSAPR and related rules UNTIL this dialogue is complete?

A8.  FERC's response to this petition is within FERC's authority and 
discretion. At this point we cannot know whether FERC will respond to 
this petition or in what time frame. In any event there is nothing in 
the petition that warrants any delay in the implementation of CSAPR or 
related rules. Based on its analysis, EPA does not believe that these 
rules will have any significant adverse effect on electricity 
reliability. There are numerous tools that can avoid localized 
reliability problems, should they arise, including both demand-side and 
supply-side resources that can be used. In addition, the Clean Air Act 
itself authorizes mechanisms that can bring sources into compliance and 
ensure electricity reliability. For example, under EPA's Mercury and 
Air Toxics Standards (MATS), the Clean Air Act provides three years for 
all sources to comply; a fourth year as needed to complete installation 
of control technologies; and a pathway for reliability-critical sources 
to obtain up to a fifth year if unable to complete necessary retrofits 
or transmission upgrades by that time.

Questions Submitted by Representative Paul Broun


Q1a-1c.  At the hearing, I asked you if EPA reached out to State 
regulators and public utility commissioners on the details of the final 
cross-State rule before it was issued. I asked you to provide such 
information for the record. (a) Please provide the dates and names of 
the contacts of all the State regulators EPA met with during each stage 
of the rule's promulgation. (b) Please provide the dates and names of 
the contacts of all the Public utility commissioners EPA met with 
during each stage of the rule's promulgation. (c) Please provide the 
dates and names of the contacts of all the companies EPA met with 
during each stage of the rule's promulgation.

A1a-1c.  As part of the development of regulations, EPA seeks to invite 
public comment from all interested stakeholders. State agencies are 
among the important constituencies that we reach out to. In developing 
the power plant rules, EPA reached out to PUCs on several occasions, 
including the following:

      In December of 2009, Gina McCarthy travelled to Dallas to 
give a keynote address at the winter meeting of the National 
Association of Regulatory Utility Commissioners, (NARUC) an association 
comprised of the Commissioners from utility regulatory bodies in each 
State. In her talk, Ms. McCarthy spoke about the upcoming power plant 
rules and the role that the PUCs would play in implementation.

    At that meeting, Ms. McCarthy also spoke at a breakfast for 
interested State commissioners in more detail about these subjects.
    EPA participates in the Eastern Interconnection States Planning 
Council (EISPC). EISPC represents the 39 states and eight Canadian 
Provinces located within the Eastern Interconnection electric 
transmission grid. EPA staff gave a presentation on August 26, 2010, 
entitled ``EPA's Power Sector Rulemakings.''
    In February 2011 at a NARUC winter meeting in Washington, DC, Ms. 
McCarthy spoke about the rules that would become CSAPR and MATS in some 
detail. She talked about the role that the State Commissioners would 
play in implementation of the rule including encouraging energy 
efficiency and demand response as a part of implementation, and 
encouraging early planning and action on the part of the power 
generating companies to assure timely compliance.
    Ms. McCarthy also participated on a panel discussion for an 
audience of State regulators at the National Electricity Forum 
sponsored by NARUC and DOE on the impact of environmental regulations 
on the electricity system.
    EPA staff participated in two Webinars sponsored by NARUC for State 
commissioners and their staffs. The purpose was to brief them on the 
power plant rules and to take their questions. These were held on 
September 24 and October 15 of 2010.
    On August 30, 2011, EPA, in conjunction with DOE, organized a 
Webinar for State utility commissioners, air offices and energy offices 
in the Southeast to discuss EPA rules for the power sector.
    EPA staff also participated in a series of three meetings organized 
by the Bipartisan Policy Center in conjunction with NARUC and Northeast 
States for Coordinated Air Use Management (NESCAUM) on the power sector 
regulations that were under development.
    EPA did receive comments from some PUCs on CSAPR and from others on 
MATS. NARUC submitted comments on MATS as well.
    We have also heard from local governments at hearings and in the 
public comment process. And we have reached out to the public power 
providers, which include municipal power providers. This effort has 
been ongoing beginning with meetings that Ms. McCarthy hosted early on 
in her tenure at EPA.

Questions Submitted by Representative Dana Rohrabacher

Q1a.  You stated during questioning about Luminant's decision to close 
several lignite mines that ``we believe [they] haven't thoroughly 
looked at all of their options.'' Please provide the analysis EPA 
conducted to determine that Luminant had not thoroughly looked at all 
of their options.

A1a.  IPM, the electricity dispatch model used by EPA for analysis of 
CSAPR, is a multi-regional, dynamic, deterministic linear programming 
model of the U.S. electric power sector that generates optimal 
decisions. It determines the least-cost method of meeting energy and 
peak demand requirements over a specified period of time.
    Luminant will make business decisions regarding compliance and 
operation in light of the rule. However, in addition to the optimal 
least-cost solution for Texas, we examined options that do not involve 
switching from lignite to lower sulfur sub-bituminous coal and found 
that cost-effective compliance is still achievable. In this 
complementary analysis, EPA constrained Texas units from increasing 
their blending of sub-bituminous coal beyond the level each unit 
reported to EIA for 2010. Under these conditions, Texas is still 
projected to meet its 2012 SO2 assurance level using other 
cost-effective emission reduction strategies, including greater 
dispatch from lower-emitting generators, while still maintaining 2010 
lignite blending levels.

Q1b.  Why does EPA believe it knows how to run a utility company better 
than those currently running it?

A1b.  EPA has not claimed that it should serve as a substitute for 
utility decision-making. In fact, the opposite is true--EPA has 
stressed that compliance and operational decisions are left entirely to 
the utilities, and EPA has designed CSAPR with ample flexibility to 
account for a variety of compliance strategies. However, EPA does have 
information about utility facilities and is in a position to make 
observations about potential feasible compliance options. In addition 
to EPA, other organizations such as UBS Securities have evaluated 
Luminant's options and concluded that the utility could comply with 
CSAPR without closing its coal-fired power plants. UBS Securities says, 
``We reiterate our belief Texas reliability is not threatened by CSAPR 
as we do not believe material capacity will be retired.'' \3\
---------------------------------------------------------------------------
    \3\  Analysts doubt Luminant's need to shut plants; available 
online: http://www.chron.com/business/energy/article/Analysts-doubt-
Luminant-s-need-to-shut-plants-2175119.php.

Q1c.  Please list the names of all EPA employees who have the expertise 
running a utility who would be able to make the determination that 
---------------------------------------------------------------------------
Luminant had not thoroughly looked at all of their options.

A1c.  See response to 1b.

Questions Submitted by Representative Randy Neugebauer

Q1.  You stated at the hearing that EPA had to look at pre-CAIR data 
because the Court vacated the rule and EPA needed to replace it. Please 
identify the exact part of the CAIR ruling that stated that EPA had to 
base the replacement regulation with the assumption that CAIR had never 
taken place.

A1.  The Court determined that CAIR was fatally flawed and could remain 
in effect only as a stopgap measure until EPA could act to replace it. 
Thus, unlike most other regulatory requirements, the emission 
limitations contained in CAIR are only temporary. Moreover, the 
duration of these limitations is directly tied to CSAPR. CSAPR replaces 
CAIR. Thus, CAIR itself will be terminated for the SO2, 
annual NO2, and ozone-season NO2 control periods 
when the emission limitations established in the final CSAPR for those 
control periods take effect. For this reason, emission reductions made 
to comply with CAIR cannot be treated as if they were emission 
reductions achieved to comply with rules and other enforceable 
requirements that establish permanent emission limitations. EPA takes 
reductions made to comply with permanent limitations into consideration 
when quantifying each state's baseline emissions for the purpose of 
analyzing whether its emissions significantly contribute to 
nonattainment or interfere with maintenance in another state. However, 
the unique legal status of CAIR and its replacement with CSAPR 
distinguish the emission reductions required by CAIR from those of 
other regulatory requirements. Since the limitations and emission 
reduction requirements in CAIR are temporary and will be terminated by 
CSAPR, they must be excluded from CSAPR's base case analysis. EPA's 
analysis properly recognized that, after CAIR is terminated, the 
emission limitations imposed by CAIR will cease to exist.
    On December 30, 2011, the U.S. Court of Appeals for the District of 
Columbia Circuit stayed the Cross-State Rule pending resolution of 
litigation challenging it. The Court order imposing the stay did not 
discuss the merits of the challenges. EPA believes the Cross-State Rule 
is legally sound and will continue defending it vigorously. While the 
stay is in effect, power plants will not have to comply with the Cross-
State Rule until the stay is lifted. Pursuant to the Court's order, the 
Clean Air Interstate Rule (CAIR), which was to be replaced by the 
Cross-State Rule as of January 1, 2012, is now in effect.

Q1a.  Doesn't the fact that the Court stated EPA could keep CAIR in 
place until a replacement rule was finalized oppose the argument that 
the Court intended EPA to promulgate a replacement rule as if the 
original CAIR rule was never implemented?

A1a.  See response to 1.

Q2a.  In the hearing, when I was asking you about the Court's decision 
to remand the CAIR rule and if the Court had said you could not take 
into account the gains made under CAIR, you stated that you did not 
know ``what context we would take credit for gains or not.'' The gains 
I was referring to were the gains made in reducing pollution under the 
CAIR rule. Did EPA take into account the significant amount of 
reductions in pollution attributable to CAIR compliance or not?

A2a.  See response to 1.

Q2b.  Did EPA start modeling runs from the current or most recent three 
years of monitoring data when determining what current emission levels 
were like and how much needed to be reduced?

A2b.  EPA used monitoring data for the period 2003 through 2007 as the 
starting point for projecting ozone and PM2 concentrations 
to 2012 and 2014. The air quality projections were based on modeling of 
2005 base-year emissions and 2012 and 2014 forecast emissions. The 2012 
and 2014 base-case emissions account for reductions associated with all 
existing enforceable State and federal emissions control programs (with 
the exception of CAIR), consent decrees, and known plant closures. The 
rationale for EPA's methodology for projecting future air quality is 
described in the CSAPR preamble.

Q3a.  You stated that EPA is ``using a combination of both current 
monitoring data as well as modeling data to understand what the world 
would have looked like without CAIR because the world will be without 
CAIR when the cross-state rule comes in place.'' Does this mean EPA 
assumed that every power plant that installed pollution control 
equipment will automatically turn it off or dismantle it so their 
emissions would mimic what they were before CAIR was in place?

A3a.  EPA assumed that control equipment would still exist but that the 
statutory requirements of CAIR to reduce emissions and operate the 
controls would no longer be in effect.

Q3b.  If this was not EPA's assumption, please provide an explanation 
as to why EPA believed it needed to model the emissions of these plants 
in the absence of CAIR, or rather, as if CAIR never existed.

A3b.  See response to 1.

Q4a-4d.  At the same time, you also stated that EPA ``modeled what 
those monitors would have looked like using both information from the 
monitor itself as well as our modeling data to make those 
adjustments.'' (a) Does this mean that EPA used modeling data, and 
hypothetical data of what EPA assumed emissions would have been without 
CAIR based on 2005 monitoring data, and put that into a model in order 
to come up with a state budget? (b) Is using data that results from 
another model, rather than a monitoring station an acceptable, peer-
reviewed practice? (c) Please provide the EPA protocols that permit the 
use of modeled data as an input for another model instead of the use of 
current, monitoring data. (d) Please provide the references in the 
scientific literature that peer reviews and endorses the concept of 
using modeled data as an input for another model rather than data 
obtained through monitoring.

A4a-4d.  The use of meteorological and emissions models to provide 
inputs to air quality models is a well-established practice. EPA and 
States have been using models to inform and support air quality 
decisions for many decades. EPA uses models in the development and 
evaluation of regulations, and they are used by State air pollution 
control agencies in the development of State Implementation Plans for 
attainment demonstrations. Models are needed in order to determine air 
quality concentrations and source contributions for future time periods 
as well as to determine the expected air quality impacts of particular 
emissions control scenarios. In addition, models are needed to assess 
the impacts on air quality expected from emissions control scenarios, 
like CSAPR.
    EPA used monitored air quality during the period 2003 through 2007 
coupled with air quality photochemical modeling for 2005 and 2012 to 
calculate eight-hour ozone concentrations and annual and 24-hour 
PM2 concentrations for the CSAPR 2012 baseline. This air 
quality modeling, in part, relied upon inputs from emissions forecasts 
for electric generating units (EGUs) and onroad and nonroad mobile 
sources that were based on emissions models specific to each of these 
sectors. The air quality projections for 2012 were used to identify 
monitoring sites that are expected to be nonattainment and/or have 
maintenance problems for the ozone or particulate matter NAAQS in 2012 
without the emission reductions from CAIR. Upwind States that 
contribute one percent or more of the NAAQS to 2012 nonattainment and/
or maintenance sites were considered for State budgets as part of 
CSAPR. To determine the State emission budgets, EPA identified a cost 
threshold of $500/ton for ozone-season nitrogen oxides (NO2) 
control for all States required to reduce ozone-season NO2 
emissions. EPA also identified a cost threshold of $500/ton for annual 
NO2 control for all States required to reduce annual 
NO2 emissions and a cost threshold of $500/ton of sulfur 
dioxide (SO2) starting in 2012 for all States required to 
reduce SO2 emissions and $2,300/ton for the Group 1 States 
starting in 2014. EPA used these cost thresholds to quantify each 
State's emissions that significantly contribute to nonattainment or 
interfere with maintenance of the NAAQS downwind. Using the Integrated 
Planning Model (IPMv4.10) to model EGU emissions, EPA based State 
emission budgets on the State level emissions that remained at the 
corresponding cost thresholds.
    Current monitoring data alone cannot be used to determine future 
air quality. A key consideration in our projection methodology is the 
use of monitoring data to anchor the design value projections to the 
future. The modeling is used in a relative sense by multiplying the 
modeled percent change in ozone or PM2 species 
concentrations by the base-year monitoring data. The protocols for this 
type of air quality modeling approach are described in the EPA guidance 
document: Guidance on the Use of Models and Other Analyses for 
Demonstrating Attainment of Air Quality Goals for Ozone, 
PM2, and Regional Haze (EPA, 2007 http://www.epa.gov/ttn/
scram/guidance/guide/final-03-pm-rh-guidance.pdf ). EPA and States have 
been using the recommended projection methodology for national rules 
and State ozone and PM2 SIPs over the last decade. The 
following published papers further describe and evaluate methods for 
coupling modeling and monitoring data to project the impacts of 
emissions changes on air quality.

    2001: Hogrefe, C. and S.T. Rao, ``Demonstrating Attainment of the 
Air Quality Standards: Integration of Observations and Model 
Predictions into the Probabilistic Framework.'' J. Air Waste Manag. 
Assoc., 51, 1060-10722.

    2004: Sistla, G., C. Hogrefe, W. Hao, J.-Y. Ku, E. Zalewsky, R.F. 
Henry and K. Civerolo, ``An Operational Assessment of the Application 
of the Relative Reduction Factors (RRF) in Demonstration of Attainment 
of the 8-hr Ozone National Ambient Air Quality Standard (NAAQS).'' J. 
Air Waste Manag. Assoc., 54, 950-959.

    2005: Jones, J.M., C. Hogrefe, R.F. Henry, J.-Y. Ku, and G. Sistla, 
``An Assessment of the Sensitivity and Reliability of the Relative 
Reduction Factor (RRF) Approach in the Development of 8-hr Ozone 
Attainment Plans,'' J. Air Waste Manag. Assoc., 55, 13-19.

    2008: Hogrefe, C., K.L. Civerolo, W. Hao, J.-Y. Ku, E.E. Zalewsky, 
and G. Sistla, ``Rethinking the Assessment of Photochemical Modeling 
Systems in Air Quality Planning Applications,'' J. Air Waste Manag. 
Assoc., 58, 1086-1099.

    2010: Yunhee Kim, J.S. Fu, T.L. Miller, ``Improving ozone modeling 
in complex terrain at a fine resolution--Part II. Influence of schemes 
in MM5 on daily maximum 8-h ozone concentrations and RRFs (Relative 
Reduction Factors) for SIPs in the nonattainment areas,'' Atmospheric 
Environment, Vol. 44, Issue 17, Jun 2010, pg 2116-2124.

Questions Submitted by Representative Michael McCaul

Q1.  During the hearing, I stated that I was concerned that EPA was 
treating Texas unfairly, a concern you essentially said was unfounded. 
How many States received a State budget to comment on in the proposed 
transport rule? Was Texas given a State budget to comment on in the 
proposed transport rule? How does EPA consider its treatment of Texas 
to be fair when all the other States in the proposed rule did in fact, 
receive a State budget?

A1.  EPA did explicitly request comment on the option of including 
Texas in the final rule. While Texas was not included in the State 
budget tables in the proposal, Texas sources had the same information 
as other sources on how EPA was designing the final rule, including how 
downwind receptors would be addressed, what level of emissions 
constitutes ``significant contribution,'' what remedy EPA would and 
should be using for reducing emissions contributing significantly to 
poor air quality downwind, how allowances should be allocated, and all 
other key issues. In fact, the Agency received comments on the proposed 
rule and associated notices of data availability from Texas sources, 
regulators, and the Texas Commission on Environmental Quality (TCEQ) 
that are comparable to comments received from other States' agencies 
and sources. EPA responded to those comments by updating our data and 
improving our modeling, just as we did in response to comparable 
comments from other States and sources. The comments submitted by Texas 
stakeholders on EPA's emissions inventory are the basis of the final 
rule's approach on Texas, including the Texas State budgets included in 
the final CSAPR. The transparent presentation of methodologies and data 
for all States, including Texas, demonstrated how EPA determined State 
reduction requirements in the proposal. Texas and individual companies 
like Luminant had all the data used by EPA to calculate State budgets 
and they could (and did) use that information to determine what Texas' 
budget would have been under the proposal.

Q2.  You stated that Iowa, Kansas, Michigan, Missouri, Oklahoma, and 
Wisconsin were provided a supplementary notice on their inclusion in 
the rule based on new data. Was EPA's decision to include Texas in the 
annual programs in the finalized rule based on new modeling information 
that was not included in the draft rule? If so, how come EPA does not 
treat the new modeling information that determined Texas' inclusion the 
same as the new data that is determining these other six States' 
inclusion?

A2.  The new data that necessitated that a supplementary notice be made 
for Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin was that 
the States were given no notice that their ozone-season NO2 
emissions could lead to ozone pollution contributions at, or above, the 
one percent contribution threshold to one of two specific receptor-
monitors in either Allegan, MI, or Harford, MD. These monitors were 
newly identified in the air quality modeling for the final rule to have 
problems "maintaining" the NAAQS in the final. These monitors were 
estimated to be in attainment with the NAAQS in the air quality 
modeling for the proposal. In addition, for several of the States, 
specifically, Missouri, Iowa, and Wisconsin, they were not modeled to 
contribute to any receptors in the proposal that had difficulty 
attaining or maintaining the NAAQS. The receptors that Oklahoma, 
Kansas, and Michigan contributed to in the proposal were modeled to be 
in attainment in the final.
    This contrasts with Texas, where the public was able to identify 
the specific receptor-monitor that Texas contributed to in both the 
proposed and final rules. This monitor was consistently modeled to have 
problems attaining and maintaining the NAAQS in both the proposal and 
the final rule. In both the proposal and final rule, the maximum annual 
PM2 contribution from Texas to a nonattainment and/or 
maintenance receptor was to this monitor. In the proposal, EPA 
identified that under the ``remedy'' control scenario that emissions 
from Texas could lead to the contribution from Texas exceeding the 
threshold. In the proposal, EPA specifically took comment on whether 
Texas should be included in the rule. In the final rule, as a result of 
comments made by the public, the base case SO2 emissions 
from Texas were modeled to be at levels near the level of the proposed 
``remedy'' control scenario. Thus, it is not surprising that in the 
final air quality modeling that Texas' contribution is at, or above, 
the one percent contribution threshold to the specific receptor.

Questions Submitted by Representative Steven Palazzo

Q1.  The Clean Air Act is based upon cooperative federalism, a model 
that involves the Federal Government setting basic air standards and 
the States developing specific State Implementation Plans. According to 
``The Plain English Guide to the Clean Air Act'' from your website, 
``It makes sense for State and local air pollution agencies to take the 
lead in carrying out the Clean Air Act. They are able to develop 
solutions for pollution problems that require special understanding of 
local industries, geography, housing, and travel patterns . . . '' Why 
can't States develop their own State Implementation Plans for this rule 
for 2012?

A1.  On December 30, 2011, the U.S. Court of Appeals for the District 
of Columbia Circuit stayed the Cross-State Rule pending resolution of 
litigation challenging it. While the stay is in effect, the EPA will 
not be implementing the Rule, and power plants will not have to comply 
with it until the stay is lifted. Pursuant to the Court's order, the 
Clean Air Interstate Rule (CAIR), which was to be replaced by the 
Cross-State Rule as of January 1, 2012, is now in effect. The Court 
order imposing the stay did not discuss the merits of the challenges. 
EPA believes the Cross-State Rule is legally sound and will continue 
defending it vigorously.

Q2.  In their Regulatory Impact Analysis for this rule, EPA admits that 
``[i]n the short run . . . industries are able to pass on $0.7 billion 
(in 2007 dollars) of the Transport Rule's costs to U.S. households in 
the form of higher prices.'' They also admit that the rule will make 
U.S. products less competitive, in acknowledging that as ``[t]he price 
of goods produced in the United States increase, domestic exports 
decline, and domestic production is replaced to a certain degree by 
imports.'' Does this Administration condone a rule that will punish the 
only bright spot in our economy--exports--and increases consumer costs?

A2.  EPA carefully considered the economic impacts of the CSAPR in 
developing the rule and developed a detailed in-depth Regulatory Impact 
Analysis (RIA) \4\ for this rulemaking outlining the benefits, costs, 
and economic impacts anticipated for this rule. It is necessary to look 
at the total picture of economic consequences expected for the rule to 
make an assessment of impact to consumers and the economy. In the RIA, 
EPA reports that the monetary estimates of public health benefits for 
the CSAPR range from approximately $120 to $280 billion annually while 
the annual costs of the rule to society are approximately $0.8 billion 
in 2014, indicating that this regulation is providing public health 
benefits that vastly outweigh its costs. Residents of the affected 
areas of the U.S. will benefit from decreased premature mortalities, 
fewer hospital admissions for cardiovascular and respiratory ailments, 
a drop in emergency room visits for asthma, a reduction in school and 
work loss days, and a variety of other health benefits, as well as 
improvement in visibility in the areas where people live, work and 
play.
---------------------------------------------------------------------------
    \4\  Regulatory Impact Analysis for the Federal Implementation 
Plans to Reduce Interstate Transport of Fine Particulate Matter and 
Ozone in 27 States; Correction of SIP Approvals for 22 States. U.S. EPA 
Office of Air and Radiation. June 2011. Available at: http://
www.epa.gov/airtransport/pdfs/FinalRIA.pdf.
---------------------------------------------------------------------------
    The EPA's economic analysis suggests that the $0.8 billion costs of 
the rule will be shared by households, in the form of higher-priced 
electricity rates, and by producers in terms of reduced production. 
However, it is important to recognize that these market impacts are 
relatively small for this rule. For example, consumers on average will 
experience an increase of 0.8 percent in retail electricity prices in 
the region benefitting from the CSAPR in 2014. While the small 
projected increase in electricity prices may have some effects on the 
economy in terms of secondary market impacts, these impacts are 
expected to be minimal, given how small the price effects are. The 
impacts on exports in particular are expected to range from a decline 
of 0.001 percent (one one-thousandth of one percent) for the 
transportation sector to a decline of 0.009 percent (nine one-
thousandths of one percent) for the non-metallic minerals sector 
annually.

Questions Submitted by Representative Randy Hultgren

Q1.  I understand there will not be tangible environmental benefits 
(separate from CAIR) from the Rule until 2014. Is that correct?

A1.  On December 30, 2011, the U.S. Court of Appeals for the District 
of Columbia Circuit stayed the Cross-State Rule pending resolution of 
litigation challenging it. The Court order imposing the stay did not 
discuss the merits of the challenges. EPA believes the Cross-State Rule 
is legally sound and will continue defending it vigorously. While the 
stay is in effect, the EPA will not be implementing the Rule, and power 
plants will not have to comply with it until the stay is lifted. 
Pursuant to the Court's order, the Clean Air Interstate Rule (CAIR), 
which was to be replaced by the Cross-State Rule as of January 1, 2012, 
is now in effect.
    Benefits of CSAPR will begin immediately upon implementation and 
will be realized in every year that CSAPR reduces emissions. Beyond 
reducing emissions from the no-CAIR baseline immediately, the rule will 
expedite emissions reductions as owners and operators make immediate 
investments to prepare for 2014 and beyond. EPA did not estimate the 
benefits for years prior to 2014, but the Agency's emissions modeling 
for CSAPR shows greater emission reductions in 2012 than 2014 due to 
baseline emissions--emissions from which the rule is able to reduce--
being higher in 2012 than 2014. Therefore, the health benefits in 2012 
would be larger than the estimated annual benefits for 2014 of $120 to 
$280 billion.

Q2.  Under the Rule, many companies get far more allowances between 
2012-13 than they need to operate--giving them a windfall profit. How 
does giving windfalls to certain companies help the environment?

A2.  The level of emissions is what provides environmental and human 
health benefits, not the allocation of allowances. Once the emissions 
levels are determined, the allocation of allowances is simply an 
accounting exercise that makes implementation possible. In other words, 
allowances are the currency used for trading program implementation, 
but their distribution has no bearing on environmental protection.
    Regarding whether certain entities receive ``far more allowances 
than they need to operate'' the allocation method utilized in the rule 
limits the allocations allotted to any individual unit based on 
historic emissions. In other words, no unit receives more emission 
allowances than the amount that would cover their historic emissions. 
Due to this limitation, sources are not provided far more emission 
allowances than they could reasonably emit.

Q3.  Some companies get far fewer allowances between 2012-13 than they 
need. How does that help the environment?

A3.  See response to 2.

Q4.  How many coal plants do you expect to shut down because of this 
Rule? What kind of analysis on consumer price impacts has EPA done on 
the Final Rule?

A4.  Because of the flexibility afforded under CSAPR's market-based, 
allowance trading system, this rule does not force retirements nor does 
it require specific control strategies. Retiring a plant is a business 
decision made by plant owners and operators based on a range of market 
forces. EPA analysis indicated that sources could meet both the annual 
and ozone-season requirements in 2012 by running existing controls (or 
those expected to come online in the near future), making changes in 
dispatch (how electricity is distributed across units at a facility) 
including shifting generation from higher-emitting units to lower-
emitting units, fuel switching, or buying allowances. For NO2 
requirements, EPA also projected some retrofitting of low NO2 
burners, installation of overfire air systems, and making combustion 
control improvements. EPA projected that approximately 4.8 GW of 
additional coal-fired generation may be removed from operation by 2014 
with CSAPR, a small portion of the more than 300 GW of total coal 
capacity and 1,100 GW of installed capacity expected to be online by 
2014. Units taken out of service are typically the least efficient and 
oldest units that are operated infrequently.
    EPA used a multimarket partial equilibrium model to estimate the 
economic impacts of the rule to industry sectors outside the electric 
power industry and social costs, including electricity prices, 
associated with the rule. See Chapter 8 of the Regulatory Impact 
Analysis for more detail: http://epa.gov/crossstaterule/pdfs/
FinalRIA.pdf.

Q5a-5b.  ``CSAPR is one of a number of rulemakings which power 
generators will simultaneously be forced to comply with between 2012 
and 2016. Has EPA done an analysis of the costs of the numerous 
regulations; its impact on prices for electricity; and the impact of 
the additional natural gas which utilities will need to use to keep the 
lights on?'' (a) If not, given the disparate impact the higher prices 
for electricity and natural gas and the disparate impact on those least 
able to absorb price increases as seniors and minorities, don't you 
think the Congress is entitled to know the cumulative cost, and would 
you recommend that the Administration support the TRAIN Act? (b) If 
not, please have your staff compile a cumulative analysis on the 
effects of those rules and share it with this Committee.

A5a-5b.  For each rulemaking that the Agency undertakes that exceeds a 
certain cost, the EPA is required to perform a detailed cost-benefit 
analysis to support any particular regulatory action. This analysis 
includes a detailed assessment of the estimated economic impacts and 
benefits. A draft Regulatory Impact Assessment (RIA) is presented and 
available for public comment at the time a proposed rule is issued. As 
each rule is promulgated and finalized, we incorporate the emission 
reductions into the ``baseline'' for our analytical efforts, to the 
extent that it is feasible and practicable to do so. For example, the 
RIA for MATS incorporates the estimates from the final CSAPR into its 
baseline, so that estimated impact of MATS could be viewed beyond those 
of the proposed CSAPR.
    In particular, EPA has conducted resource adequacy analyses within 
the context of EPA air rules, which can be found in the RIAs and 
corresponding technical support documents. In the regulatory 
development process for the CSAPR and MATS, EPA conducted extensive 
analyses on the impacts that these rules would have on power generation 
incremental to baselines without these rules, including looking at 
impacts on both the regional and national levels. On a Nationwide 
average, as shown in the RIA for the final CSAPR, the EPA estimates 
that electricity prices paid by consumers may increase incrementally 
over the baseline by 0.8 percent by 2014 due to this regulatory action. 
This electricity price increase is associated with increased health 
benefits to society that range from $120 to $280 billion annually (in 
2007 dollars) by 2014. The annual costs of the rule to society, 
inclusive of electricity price increases, are approximately $0.8 
billion in 2014. For MATS, EPA assessed the impacts of MATS 
implementation incremental to a baseline that included the CSAPR. This 
assessment, as shown in the RIA for the final MATS, found that on a 
Nationwide average, electricity prices paid by consumers may increase 
incrementally over the baseline by three percent by 2016. This price 
increase is associated with increased health benefits to society 
ranging from $37 billion to $90 billion annually (in 2007 dollars) by 
2016. The annual costs of the rule to society, inclusive of electricity 
price increases, are approximately $9.6 billion in 2016. These analyses 
indicate that these regulations will provide health benefits to society 
that vastly outweigh the costs of implementing these rules. 
Additionally, despite the minor incremental increase in electricity 
prices under these rules, electricity prices are estimated to be lower 
than 1990 levels and to stay well within normal historical 
fluctuations.

Questions Submitted by Representative Dan Lipinski

Q1.  Could you quantify the percentage of the pollutants in Illinois 
that actually come from other States? Can you estimate how much it 
would costs to clean these up without looking at the out-of-State 
pollutants and compare that to the costs of implementing the Cross-
State Air Pollution Rule?

A1.  As part of the development of the Cross-State Air Pollution Rule 
(CSAPR), EPA quantified the contributions from SO2 and 
NO2 emissions to annual and 24-hour PM2 at 
monitoring sites in Illinois that are projected, based on EPA's CSAPR 
modeling, to be nonattainment or have maintenance problems in the 2012 
base case for either or both of these NAAQS. EPA calculated the 
contributions of sulfate and nitrate particles at each of these 
receptors from SO2 and NO2 emissions in Illinois 
as well as from SO2 and NO2 emissions in States 
upwind of Illinois, individually. The percent of the total contribution 
to sulfate plus nitrate that is attributable to emissions in upwind 
States at each projected 2012 PM2 nonattainment and 
maintenance site in Illinois is provided in the following table. 
Additional information on these data can be found in the Air Quality 
Modeling Final Rule Technical Support Document (http://www.epa.gov/
crossstaterule/pdfs/AQModeling.pdf)





    The CSAPR was promulgated under the ``good neighbor'' provision of 
the Clean Air Act, which explicitly addresses emissions that are 
transported across State boundaries, rather than local emissions. It is 
important to note that the emission contributions shown in the table 
above could not be addressed through local controls alone and the 
trading provisions included in the rule incentivize the regulated 
community to identify the most cost-effective compliance options 
available. EPA's analysis of the SO2 and NO2 
reductions required under CSAPR found that these reductions are most 
cost effectively obtained from the power sector relative to the costs 
of obtaining similar reductions from other source categories.

             Appendix 2: Additional Material for the Record



                                    

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