BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

)

PROPOSED NEW CAIR SO

2

, CAIR NOx

)

R06-26

ANNUAL and CAIR NOx OZONE SEASON

)

(Rulemaking – Air)

TRADING PROGRAMS, 35 ILL.ADM.

)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D, AND E

)

KINCAID GENERATION LLC’S PREPARED TESTIMONY OF C. J. SALADINO

Introduction

My name is C.J. Saladino, and I am the Station Director of the Kincaid Generation L.L.C. power

plant in Kincaid, Illinois in Christian County. I have been an employee at Kincaid for 24 years

and a life-long resident of Springfield, Illinois. During my career, I have held various positions at

the Kincaid facility, including technical staff engineer, water department supervisor, operations

supervisor, operations manager and now Director. I am a 1982 graduate of the University of

Illinois with a bachelor’s degree in mechanical engineering. In 2005, I also completed the

Advanced Management Program at Duke University.

Facility Background

The Kincaid facility comprises two 625-megawatt coal-fired boilers. These units have burned

Powder River Basin (PRB) sub-bituminous coal since 1999. The facility switched to lower sulfur

western coal in order to meet the federal Acid Rain program sulfur dioxide emissions limitations.

Although the PRB coal has a much lower sulfur and ash content, it also has a lower heating value

and higher moisture levels. Its relatively low density and high water content makes this coal

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susceptible to spontaneous combustion if not packed densely during storage in order to limit free

air flow. As a result, the Station has implemented coal handling techniques that include a

concerted effort to minimize coal dust through careful housekeeping.

Kincaid's conversion to and handling of this lower emissions sub-bituminous coal has been so

successful that the Kincaid plant twice has been chosen by the national Powder River Basin Coal

Users group as the Coal Plant of the Year, in 2001 and 2004. Kincaid Station was selected from

among hundreds of plants that burn low sulfur PRB coal. Kincaid was honored for going to

“extraordinary lengths to keep a clean, safe environment” in order to minimize dust from

accumulating to explosive levels. Power stations nominated for the award are judged on safety,

housekeeping and use of best practices. Other criteria for the award are availability, heat rate, the

amount of electricity generated, and the amount of coal burned.

In 2001, Kincaid began construction of two SCRs, or selective catalytic reduction facilities.

These massive controls, which together cost more than $85 million, began operation in 2002 and

have been very effective, removing up to 90% of the nitrogen oxide (NOx) emissions from the

flue gas. These SCRs have enabled Kincaid to achieve the NO

x

emissions limits of the Illinois

Part 217, Subpart W regulations and Kincaid was one of the first large utility plants to install

these SCRs. We currently spend more than $1 million per year for anhydrous ammonia for the

SCR operation during the ozone season. We expect these costs to rise to $2.5 - $3.0 million per

year for year-round operation for compliance with the proposed Illinois Clean Air Interstate Rule

(CAIR).

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Kincaid’s Environmental Accomplishments

The result of all these activities is much lower emissions both from the stack and from the

material handling operations at Kincaid. Accordingly, Kincaid has compiled an exemplary

environmental compliance record. Since Dominion purchased the plant in 1998, the plant has

received no environmental violations, cut sulfur dioxide and nitrogen oxide emissions drastically

from pre-1998 levels, and taken steps to minimize opacity and particulate levels. Kincaid

Station was nominated by the Illinois Environmental Protection Agency (IEPA) in 2004 as one

of four finalists out of over 1100 facilities for Best Operated Wastewater Treatment Plant. The

Station was again nominated this year for the same award.

Kincaid’s Community Accomplishments

The Kincaid Power Station supports the community in which our employees live. Nearly all the

147 Kincaid employees live in Christian or Sangamon Counties. The Station supports many

charitable activities in the area, including the Shadow House Women's Shelter, Central Illinois

Foodbank, Friend-In-Deed Program, and Mary Bryant Home for the Blind. We at Kincaid are

extremely proud of our Station and its excellent operations– an achievement we accomplished

while generating more power, more efficiently, more safely and, at the same time, with

substantially lower emissions than ever before in the plant’s history.

Kincaid’s Concerns with the IEPA CAIR Proposal

For all these reasons, I am here today to register our concern with the IEPA’s proposed

implementation of the federal CAIR. We believe the proposal unjustifiably and arbitrarily

establishes a NO

x

emissions reduction program that goes so far beyond the federal rule that it

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may be the most stringent CAIR proposal currently under consideration in the U.S. The IEPA

has offered little justification for an additional NO

x

“Clean Air Set-Aside” (CASA) of 25% of

the Illinois CAIR NOx budget that significantly exceeds the 5% set aside for new sources

established in the EPA model rule (included as the New Unit Set-Aside (NUSA)) in the Illinois

CAIR proposal. This “beyond CAIR” proposal also withdraws the incentives for early reductions

by “retiring” all 11,299 allowances from the “compliance supplement pool” established by U.S.

EPA, thereby eliminating any incentives for affected sources to reduce emissions early and thus

accelerate benefits to the environment.

1

Furthermore, we believe the CASA pool set up for an

“air pollution control equipment upgrade project”

2

is too restrictive and should include physical

and operational improvements to existing equipment, such as SCRs installed for the Subpart W

compliance. The proposal also makes it clear that the IEPA intends to “retire” any allowances

left unclaimed in the CASA after the different CASA pools are replenished.

3

This is a

significant deviation from the federal EPA model rule which redistributes unused allowances

from set asides to existing units. The adverse financial impacts to electric generators are

significant.

Kincaid urges the Illinois EPA to justify any “beyond CAIR” NO

x

reductions with a thorough

modeling demonstration. We believe that should there remain local areas in Illinois that fail to

meet the air quality standards following implementation of the CAIR regional reductions, the

IEPA should thoroughly evaluate the amount of additional air quality improvement needed and

1

Section 225.480 of the proposed rule: Part 225 – Control of Emissions from Large Combustion

Sources, May 30, 2006.

2

IBID, Section 225.460(c)(1) of the proposed rule: Part 225 – Control of Emissions from Large

Combustion Sources, May 30, 2006.

3

IBID, Section 225.475(b)(5)

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the amount of emission reductions needed in the more localized nonattainment area in order to

achieve the needed air quality improvements in the most cost-effective manner. Requiring all

Illinois sources subject to CAIR to implement “beyond CAIR” reductions across-the-board for

the purpose of resolving local problems is not environmentally necessary or economically

reasonable. Instead, we urge IEPA to conduct a thorough modeling demonstration to determine

the level of reductions that may be necessary to resolve any residual non-attainment problems

following implementation of the CAIR reductions. The 25% NO

x

“set-aside” is unreasonably

burdensome to Illinois generators and their customers and has not been demonstrated to be

necessary to achieve attainment with the ambient air quality standards. As USEPA has stated,

the CAIR program is designed “to balance the burden for achieving attainment between regional-

scale and local-scale control programs.”

4

Therefore, for the purposes of implementation of CAIR, Kincaid does not believe it is necessary

for IEPA to propose the “beyond CAIR” NO

x

reductions and urges IEPA’s full adoption of

USEPA’s federal “model rule” on the same schedule established by USEPA.

With regard to PM

2.5

non-attainment, Kincaid questions whether further EGU reductions of SO

2

and NO

X

are necessary. Mandated beyond-CAIR EGU reductions of SO

2

and NO

x

may not have

any beneficial effect on reducing the particle concentration of monitored PM

2.5

, particularly in

urban areas dominated by many different sources of fine particles and precursor pollutants to fine

particles. The PM

2.5

particle composition may well be driven by mobile sources, especially in

winter. Another source mix may drive the PM

2.5

composition in summer. Until additional

4

70 Fed. Reg. 25166 (May 12, 2005)

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speciated monitoring data is available, it is premature to require “beyond CAIR” SO

2

or NO

x

reductions from EGUs.

Kincaid therefore supports the approach to implement CAIR essentially as established by

USEPA, and then work with sources in local nonattainment areas to determine the appropriate

mix of reductions needed to resolve the remaining local nonattainment area issues.

We want to emphasize that the Illinois Part 217, Subpart W NO

x

rule, based on the federal NO

x

SIP Call rules, is a “cap and trade” program, i.e., Illinois affected sources must meet a federal

NO

x

“budget” or “cap” on emissions during each ozone season (May 1 through September 30).

Sources are allocated a discrete number of NO

x

allowances for each ozone season and the

affected sources must make up any shortfall in the number of allowances they hold versus the

number of tons of NO

x

the sources emitted during the ozone season. Affected sources have three

options to make up any shortfall: reduce NO

x

emissions to levels below the number of eligible

allowances they hold, use allowances they have “banked” through purchase or over-compliance

in previous ozone seasons, or purchase/trade allowances held by other affected sources

throughout the 19 eastern states under the federal NO

X

SIP Call region. The Kincaid plant chose

to reduce NO

x

emissions at the stack rather than to rely on extra allowances purchased from

other sources.

The Illinois Subpart W rules at Part 217.770 also included an opportunity for affected sources to

obtain “early reduction credits” by reducing NO

x

emissions to specified levels before the rules

were fully effective in the ozone season of 2004.

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Kincaid clearly could have relied on the purchase or trade of NO

x

allowances from other

facilities to comply with the Illinois Subpart W rules, including allowances from the more than

100 Dominion-owned generating units allocated NO

x

allowances under the NO

x

SIP Call

program. Instead, both units at the Kincaid facility were equipped in 2002 with the most

effective NO

x

controls available – selective catalytic reduction (SCR). While this was certainly a

business decision, it was brought about in part by the incentives presented by the early reduction

credits available under Part 217.770 of the Subpart W rules. The bottom line is that emissions

were reduced earlier than required and the benefits to the environment were delivered faster – a

real “win-win” for Kincaid, the IEPA and the environment.

Nevertheless, the IEPA CAIR proposal summarily withdraws this important incentive for early

reductions with no other explanation than “for public health and air quality improvements.”

5

Kincaid urges the Board to restore the allowances for the Compliance Supplement Pool in order

to promote early compliance that will provide environmental benefits to accrue and allow

affected facilities to properly plan and implement compliance strategies. Withdrawing these early

reduction provisions removes the incentive for sources to reduce NOx emissions in the non-

ozone season in 2007 and 2008 (by operating SCR’s year-round).

At the October Illinois Pollution Control Board hearings in Springfield, the IEPA maintained that

the 25% CASA does not restrict the allowance market.

5

Section 225.480 of the proposed rule: Part 225 – Control of Emissions from Large Combustion

Sources, May 30, 2006.

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“It is very important to note that a set-aside is not the equivalent of lowering the overall

budget because the allowances usually remain in the market. While the recipients of the

set-aside allowances are free to hold, sell or retire the allowances as they see fit, it is far

more likely that they would offer to sell the allowances in the market in order to realize a

financial benefit. As a result, the recipients have an additional source of funding for their

projects, and existing sources continue to have a pool of allowances they can utilize if

needed to meet their requirements, and the total amount of emissions remain at or below

the budgeted amount.”

6

This explanation gives no consideration of the impact withdrawing these allowances have on the

market-based principles of the federal CAIR rule. Withholding the additional 25% of the NO

x

allowance budget reverses the economic underpinnings of the rule. Under the federal model rule,

the allowances are allocated to affected sources based on the highest three years of heat input

over of the course of a five year period. Set-asides are presented in the model rule as an option

states may adopt, but nowhere suggests such a dramatic set-aside. Indiana, for example, has

recently finalized its CAIR rule with a 4½% set-aside for new sources and a ½% set-aside for

energy efficiency/renewable energy projects. For Kincaid, the 30% set-aside equates to an annual

allowance surrender of 1625 annual trading program allowances and 601 ozone season trading

program allowances or, in today’s market, about $2.5 million per year. Under the IEPA proposal,

if Kincaid needed to purchase back these allowances (which under the federal model rule would

have been directly allocated to Kincaid), the net financial impact would be $5 million per year.

The unfortunate final result will ultimately fall on the businesses, factories and institutions that

use electricity in Illinois, thereby, disproportionately impacting Illinois competitively with

surrounding states that are adopting CAIR rules that more closely resemble the federal approach.

6

Testimony of James Ross, Manager-Division of Air Pollution Control, IEPA, October 10, 2006.

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IEPA has suggested in its testimony in Springfield that the allowances will remain available in

the market for developers as “an additional source of funding for their projects,” and that

“existing sources continue to have a pool of allowances they can utilize if needed to meet their

requirements”. The IEPA proposal then establishes the largest single set-aside for energy

efficiency/renewable energy (EE/RE) projects, with 12%. Under the NOx SIP Call, several states

found that many of the EE/RE allowances were left unclaimed and eventually returned to the

utilities. The IEPA proposal, however, states that the agency “may elect to retire” the unclaimed

allowances. Since the largest pool of CASA allowances in the IEPA proposal is designated for

the EE/RE set-aside, which has historically been under-subscribed under the NO

x

SIP Call

experience, we expect many of the CASA set-asides for EE/RE projects to go unclaimed and

very likely to be retired.

Kincaid urges the Board to reject the 30% NO

x

set-aside in favor of a set-aside consistent with

the federal model rule or some other more reasonable approach.

As we have stated, we installed SCRs on both units at Kincaid in 2002. SCR is widely accepted

as the most effective control for NO

x

emissions from coal-fired utility boilers. This equipment

has provided up to a 90% reduction in NO

x

emissions during the past 5 ozone seasons of 2002

through 2006, enabling Kincaid to over-comply with the Illinois Subpart W rules. We are

expecting that this equipment will provide the year-round NO

x

reductions needed to comply with

the upcoming CAIR reductions. However, the current Illinois CAIR proposal, with the 25%

CASA, allocates 5% of the Illinois NO

x

budget for both the annual and ozone season trading

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program for “air pollution control equipment upgrades” including “installation

of selective

catalytic reduction.”

7

Because the eligibility to apply to this “air pollution control equipment upgrade” set-aside

apparently hinges on installation of new controls on an existing source, it appears the SCRs at

Kincaid would not be eligible for these allowances. This is unfair. Operation of the Kincaid

SCRs on a year-round basis will require a dramatic expansion of the operations of this

equipment, increasing significantly the costs for ammonia, catalysts, and other variable costs for

operating the SCRs. We expect the year-round SCR operation to significantly increase

“parasitic” loads on the plant, as well, primarily from increased fan loads.

Allowances were intended to help companies offset these economic burdens, and we do not

believe that Illinois should disproportionately burden its electric generators.

Excluding existing air pollution control equipment that must be operated on a year-round basis

following adoption of the proposed rule from applying for allowances from the “air pollution

control equipment upgrade” set-aside is unfair and Kincaid urges the Board to change the

eligibility so that these existing controls are included. We suggest the proposed rule be amended

at §225.460(c)(1) as follows:

“Air pollution control equipment upgrades at existing coal-fired electric

generating units, as follows: installation of flue gas desulfurization (FGD) for

control of SO

2

emissions; installation of a baghouse for control of particulate

matter emissions; and installation of

or extended operation of existing

selective

7

Section 225.460(c)(1) of the proposed rule: Part 225 – Control of Emissions from Large

Combustion Sources, May 30, 2006.

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catalytic reduction (SCR), selective non-catalytic reduction (SNCR), or other add-

on control devices for control of NO

x

emissions.”

I appreciate this opportunity to provide my testimony on these important new rules.

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