BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

NOTICE

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

R06-25

PROPOSED NEW 35 ILL. ADM. CODE 225

)

(Rulemaking – Air)

CONTROL OF EMISSIONS FROM

)

LARGE COMBUSTION SOURCES (MERCURY) )

NOTICE

TO:

Dorothy Gunn

Clerk

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph St., Suite 11-500

Chicago, IL 60601-3218

SEE ATTACHED SERVICE LIST

PLEASE TAKE NOTICE that I have today filed with the Office of the Clerk of the

Illinois Pollution Control Board the

RESPONSE TO MIDWEST GENERATION’S MOTION

TO SCHEDULE ADDITIONAL HEARINGS, a copy of which is herewith served upon you.

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY

By: ______________________

Charles E. Matoesian

Assistant Counsel

Division of Legal Counsel

DATED: August 31, 2006

1021 North Grand Avenue East

P. O. Box 19276

Springfield, IL 62794-9276

THIS FILING IS SUBMITTED

217/782-5544

ON RECYCLED PAPER

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

R06-25

PROPOSED NEW 35 ILL. ADM. CODE 225

)

(Rulemaking – Air)

CONTROL OF EMISSIONS FROM

)

LARGE COMBUSTION SOURCES (MERCURY) )

RESPONSE TO MIDWEST GENERATION’S MOTION TO SCHEDULE

ADDITIONAL HEARINGS

NOW COMES the ILLINOIS ENVIRONMENTAL PROTECTION AGENCY

(“Illinois EPA”), by its attorneys, and, pursuant to the Illinois Pollution Control Board

(“Board”) Rules at 35 Ill. Adm. Code 101.500 and 101.504, hereby responds to Midwest

Generation LLC’s (“Midwest Generation”) Motion to Schedule Additional Hearings

(“Motion”). The Illinois EPA requests that the Board enter an order denying the Motion,

and in support of this request, the Illinois EPA states as follows:

Midwest Generation’s initial issue in support of its Motion is that without

additional hearings, Midwest Generation and other participants have no opportunity to

present evidence regarding the Multi-Pollutant Standards (“MPS”) of proposed Section

225.233 of the Illinois EPA’s proposed mercury rule. Motion at 2. However, this

argument is without merit. The MPS language offered by Ameren Energy Generating

Company, AmerenEnergy Resources Generating Company, and Electric Energy, Inc.

(“Ameren,” collectively), with the support of the Illinois EPA, was filed with the Board

on July 28, 2006, when pre-filed testimony was due prior to the hearing held in this

proceeding in Chicago. As such, Midwest Generation had sufficient time to prepare

questions of Ameren and the Illinois EPA prior to and at hearing concerning the MPS

language (“Ameren MPS”).

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

Indeed, Midwest Generation did submit numerous pre-filed questions to

Ameren’s two witnesses that appeared at the Chicago hearing, and followed up the

answers to those questions with additional follow up questions during the hearing.

Furthermore, Midwest Generation took the opportunity at hearing to question the

representatives of the Illinois EPA about the Ameren MPS. On August 21, 2006, Dynegy

Midwest Generation, Inc. (“Dynegy”) submitted an exhibit with the support of the Illinois

EPA that included a slightly revised version of the Ameren MPS. This exhibit was

resubmitted to the Board on August 23, 2006, in corrected form (“Dynegy MPS”). The

Dynegy MPS was provided to the Board with redlines showing the slight changes from

the Ameren MPS language. Given the questioning that was allowed for regarding the

Ameren MPS, and the minor changes from that language found in the Dynegy MPS,

there is no reason to conduct a separate hearing solely on either version of the MPS

language. Given the minor distinctions between the Ameren MPS and Dynegy MPS, and

the fact that the Dynegy MPS effectively supersedes the Ameren MPS, the Dynegy MPS

will henceforth be referred to in this pleading as the MPS.

Furthermore, the hearing in Chicago was scheduled to end on August 25

. On

August 23

, when Midwest Generation indicated it had no further witnesses to present,

the Hearing Officer properly adjourned the hearing. The failure of Midwest Generation

to take advantage of the remaining time during the Chicago hearing to offer witnesses

contesting the provisions of the MPS (which was in possession of Midwest Generation at

least by July 28, 2006) highlights the lack of merit in the Motion. It is disingenuous of

Midwest Generation to indicate it has no further testimony to present during the time

allotted but then later file a request asking for just that, additional time and opportunity

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

for testimony. Indeed, many of the witnesses proffered by Midwest Generation during

the Chicago hearing testified that they had either not read (presumably then they had not

been provided with) the MPS or, if they had, they had no opinion or comment on the

language.

Midwest Generation’s second argument is that it needs additional time for its

experts to analyze the impacts of the MPS.

Id.

at 3. Midwest Generation claims that

“[w]ithout expert analysis, MWG, and the Board, cannot adequately assess the following

potential impacts of the MPS: 1) impacts of opting in or out of the MPS in terms of both

the impact on companies that opt in and the impact of opt-ins on the broader proposal,

including achieving required state caps under CAMR [Clean Air Mercury Rule]; 2)

impacts on future SO2 and NOx, regulations; and 3) impacts created by exchanging

allegedly harmful, neurotoxic mercury emissions for particulate and ozone precursors.”

Neither the Board nor Midwest Generation needs worry that the MPS could

adversely affect the broader proposal, especially since the MPS is intended and was

written to be a key component of the underlying proposed rule. As written, the effect of

both the proposed rule and the MPS is company specific. No averaging or trading

between companies is allowed. The progress of one company, or system, toward

compliance is thus independent of the progress of other systems. The Illinois EPA

testified at hearing how compliance with the CAMR State cap will not be adversely

affected by virtue of utilization of the MPS. This is primarily due to CAMR’s weak cap

prior to 2018. As the MPS ends in 2015, for all except a small fraction of the total EGUs

that constitute the smallest EGUs, and the Illinois proposed rule is more stringent than

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

CAMR, the MPS will not seriously impact the 2018 Illinois cap. Only a very small

percentage of Illinois electric generating units will be exempt from attaining the 90%

reduction. Even then, these units will be required to install mercury control technology

that will significantly reduce mercury emissions. In particular, calculations performed by

the Illinois EPA indicate that the additional mercury emissions that would occur from the

eligible Ameren and Dynegy units are approximately 1% of the total uncontrolled

emissions, and therefore, the impact of the MPS on the ability to meet the CAMR caps is

believed to be negligible. Considering that the Illinois proposed rule requires a 90%

mercury emissions reduction, compared to a 70% reduction under CAMR, there should

be no conflict. The Illinois EPA has also been and will continue to be in contact with the

United States Environmental Protection Agency (“USEPA”) to determine how the

Illinois proposed rule will comply with the CAMR.

The impact of the MPS on future SO2 and NOx rules should best be discussed in

those future rulemakings. Current rulemakings should not be side tracked over fears of

what future regulations may bring. At present, only one other rulemaking has been

proposed concerning SO2 and NOx, and that is the Illinois Clean Air Interstate Rule

(“Illinois CAIR”). Hearings on that proposed rulemaking are scheduled for October and

November of this year, and this issue is more properly presented there. However, the

Illinois EPA does intend to respond to the Hearing Officer’s request that guidance,

suggestions and/or recommendations be provided in post-hearing comments as to how

the MPS provisions of the Illinois mercury rule should be interpreted and applied in

conjunction with the Illinois CAIR rule. The Illinois EPA has analyzed the interaction

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

between the proposed rule and the Illinois CAIR and believes that they will work together

to ensure significant reductions in harmful pollutants.

Regarding Midwest Generation’s concern that there will be an impact for

substituting particulate and ozone precursor reductions for mercury reductions, Midwest

Generation does not support the Illinois proposed rule and both the proposed rule and the

MPS are far stricter than the Federal CAMR in reducing mercury emissions. If Midwest

Generation fears for the safety of Illinois citizens, it can always choose to comply with

the proposed rule.

Midwest Generation’s third argument is that “[w]ithout expert analysis, MWG

and the Board are unable to determine why the MPS technology standards cannot be

applied generally to reduce emissions from all [electric generating units] EGUs.”

. In

drafting or assisting in the drafting of proposed provisions of the Illinois rule that are

intended to provide regulatory flexibility, the Illinois EPA’s goal was to ensure that any

alternative method of compliance did not violate the spirit of the Illinois proposed rule or

the Federal CAMR cap. Therefore, the Illinois EPA has negotiated with all owners or

operators that have approached it in good faith seeking to reach an accord on provisions

intended to assist in compliance with the rule. Having said this, there are limits to what

mercury emissions the Illinois EPA can allow to be offset. Keeping the focus on

maintaining the integrity and effectiveness of the proposed rule as a whole resulted in the

defined scope and eligibility of the MPS. Of note is that both Ameren and Dynegy

anticipate, and the Illinois EPA is in agreement, that the installation of controls under the

MPS will result in system-wide mercury emissions reductions of greater than 90% when

fully implemented.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

However, it cannot be said that the Illinois EPA has not provided great flexibility

for sources. The allowance of averaging between EGUs in a system, a two-stage

implementation of the rule, the ability to comply with either a 90% reduction requirement

or an output-based standard, the Temporary Technology-Based Standard (“TTBS”), and

the MPS allay any such notions. Thus, the MPS is available to any eligible source that

wishes to take advantage of it. There are, of course, specific circumstances that are

unique to each affected entity under the Illinois proposed rule. CWLP has created a

separate deal which moots the need for it to consider the MPS. As evidenced by their

presenting the MPS to the Board, both Dynegy and Ameren consider it reasonable.

Kincaid Generation LLC (“Kincaid”) has chosen to present its own option to the Board

without the support of the Illinois EPA. Only Midwest Generation and Southern Illinois

Power Cooperative (“SIPC”) have indicated continued objection to the Illinois proposed

rule and the proffered forms of regulatory flexibility without making any similar offering

of their own. Of course, those sources may always comply with the primary rule. If

Midwest Generation is unable to take advantage of the MPS, which is only one option, it

can still apply to use the TTBS. Or, it can comply with the general rule which the Illinois

EPA has demonstrated is feasible and reasonable.

Midwest Generation’s fourth argument is that the MPS, or alternatively, the

proposed rule, may not be a rule of general applicability.

. at 4. This argument is

wholly without merit as the rule and the MPS are clearly of general applicability. Any

owner or operator of an affected EGU can choose to comply with the Illinois proposed

“general” rule. The MPS is intended and presented as an option for those concerned

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

about achieving and maintaining the 90% standard. The Illinois EPA has lived up to its

promise to meet with, and discuss concerns of, sources regarding meeting the 90%

emissions reduction requirement in the proposed rule. This is not to say that the Illinois

EPA believes the 90% reduction requirement to be infeasible; rather, it demonstrates a

willingness of the Illinois EPA to listen to and if possible work to alleviate the concerns

of industry. The MPS merely allows a slight relaxation of the mercury emissions

reduction requirements in return for deep cuts in NOx and SO2 emissions. Because all

regulated EGUs are subject to the proposed rule and the MPS is available to all sources

that meet the defined eligibility criteria, the Illinois proposed rule – of which the MPS is

a component – is a rule of general applicability.

Midwest Generation’s fifth argument is that Illinois law requires the Board to

consider the “technological feasibility and economic reasonableness” of measuring or

reducing the particular type of pollution proposed to be regulated, yet the docket contains

no evidence related to SO2 or NOx. 415 ILCS 5/27. Id. at 4. As a result, Midwest

Generation claims that it is unclear if regulating SO2 or NOx under the MPS is

technologically feasible and economically reasonable.

Pollutants SO2 and NOx are only involved tangentially in the Illinois proposed

mercury rule.

The MPS suggests an alternative to reduce

mercury compliance

uncertainty

by utilizing known and well-tested NOx and SO2 technologies, and the

resulting co-benefits achieved from utilization of those control technologies. Given that

the record is replete with copious testimony on the actual issue of mercury compliance,

Midwest Generation is attempting to create a diversion by trying to change the focus of

the rulemaking. The Illinois proposal concerns mercury emissions reductions from

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

EGUs, not SO2 and NOx reductions. The technological feasibility and economic

reasonableness of mercury reductions have been thoroughly examined throughout the

course of the hearings. The MPS allows a slight relaxation of the mercury compliance

requirements in exchange for the greatly increased control of SO2 and NOx emissions.

These pollutants have been regulated for decades and can be controlled by equipment that

is thoroughly tried and tested. So commonplace is the notion of SO2 and NOx control

that the Federal CAMR relies on the reduction of these pollutants to achieve the Phase I

mercury limit. The focus of the Illinois proposed rule is thus the technological feasibility

and economic reasonableness of mercury reductions, not SO2 and NOx reductions. The

Illinois EPA reiterates that as part of post-hearing comments to be submitted in this

proceeding, it will address the impact and interplay between the MPS in the Illinois

mercury rule with the provisions of the proposed Illinois CAIR rule.

Midwest Generation’s sixth argument is that the MPS may violate Section 10 of

the Act which prohibits the Board from adopting SO2 regulations and emission standards

for existing fuel combustion stationary sources located outside non-attainment areas

except to attain or maintain the SO2 National Ambient Air Quality Standard

(“NAAQS”).

. The Illinois EPA submitted its mercury regulatory proposal pursuant to

Section 27 of the Illinois Environmental Protection Act (“Act”) (415 ILCS 5/27), and not

Section 10. Therefore, the arguments raised by Midwest Generation pertaining to

whether or not the MPS violates Section 10 are irrelevant and without merit.

The

argument is nothing more than an attempt to distract the Board and invite confusion by

attempting to introduce an irrelevant provision of the Act as the basis for another attack

on the proposed rule.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

However, in the event the Board does decide to give this argument some

consideration, the Illinois EPA notes that it discussed the Section 10(B) issue in the

Statement of Reasons that accompanied the Illinois CAIR regulatory proposal. The

Illinois EPA will thus briefly summarize the Section 10(B) discussion as it appears in the

Illinois CAIR Statement of Reasons.

Again, the Illinois EPA submitted the mercury regulatory proposal, including the

MPS, pursuant to Section 27 of the Act. For reasons other than attainment of the SO2

NAAQS, the proposed MPS would further address SO2 emissions from those EGUs who

voluntarily chose to comply with the mercury proposal through the MPS, where such

EGUs might be located in the three major metropolitan areas of Chicago, Peoria, and

Metro-East/St. Louis.

Although Section 10(B) appears to apply to the SO2 portion of

the MPS, such is not the case for several different reasons.

A closer reading, however,

of that provision and subsequent regulatory and legislative history prove otherwise.

Section 10(B) of the Act is not applicable to this rulemaking, including the MPS,

since the purpose behind that statutory provision has been fulfilled. It is well-established

that in construing a statute, the most fundamental rule is to give effect to the legislature’s

intent, and the best evidence of that intent is the statutory language. That language must

be given its plain and ordinary meaning, and courts may not properly construe a statute

by altering its language in a way that constitutes a change in the plain meaning of the

words actually adopted by the legislature. If the statutory language is clear, a reviewing

body must give effect to the plain and ordinary meaning without resorting to other

On April 4, 1995, USEPA approved the State Implementation Plan revision necessary for the last

remaining SO

nonattainment area in the Illinois to be redesignated to attainment of the NAAQS. 40 CFR

52.724(h).

Section 10(B) of the Act was adopted as part of Senate Bill 1967, later P.A. 81-1370, effective August 8,

1980.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

construction aids.

U.S. Bank National Association v. Clark

The language of Section 10(B) is clear. The provisions were intended to limit the

extent to which SO2 emissions from fuel combustion sources outside of the three major

metropolitan areas could be controlled, as Illinois EPA was moving forward with its

attainment and maintenance strategies for the SO2 NAAQS, following the adoption of

the Clean Air Act Amendments of 1977. Accordingly, the General Assembly clearly

gave the Board the authority to adopt two categories of regulations. First, the General

Assembly stated that the Board would have the authority to adopt certain SO2

regulations and emission standards for existing stationary fuel combustion emission

sources located in all areas of the State except for the Chicago, Peoria and Metro-East/St.

Louis major metropolitan areas. As to those “state-wide” SO2 regulations, the General

Assembly’s language required in pertinent part that such regulations be no more

restrictive than necessary to attain and maintain primary and secondary NAAQS for SO2.

415 ILCS 5/10(B)(1).

To address the second purpose of Section 10(B), i.e., nonattainment in the major

metropolitan areas, Illinois EPA proposed standards for SO2 emissions from fuel

combustion emission sources located within the major metropolitan areas, on December

1, 1980.

On February 24, 1983, the Board issued its final order for the adopted rule

stemming from Illinois EPA’s December 1980 proposal.

See

In the Matter Of: Sulfur

Dioxide Emission Limitations: Rule 204 of Chapter 2

, R80-22, February 24, 1983. In the

final order, the Board recognized that Illinois EPA’s December 1980 proposal was in

See

In the Matter Of: Sulfur Dioxide Emission Limitations: Rule 204 of Chapter 2

, R80-22, February 24,

1983.

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response to the legislative mandate (of Section 10(B) of the Act) that it review the SO2

emission standards for existing fuel combustion emission sources located within the three

major metropolitan areas and thereafter propose amendments, consistent with the CAA’s

NAAQS program, which would enhance the use of Illinois coal. R80-22, p. 1.

By virtue of the completed rulemaking in R80-22, the Board and Illinois EPA

fulfilled the second purpose of Section 10(B) as set forth by the General Assembly. Thus,

that aspect of Section 10(B) has been met and no longer has any purpose.

With respect to the first purpose of Section 10(B), the Board was left with certain

guidelines as to the nature of regulations affecting SO2 emissions in the remainder of the

State other than the major metropolitan areas. The Board was to adopt such regulations

so long as they were no more restrictive than needed to attain the NAAQS for SO2.

Prospectively from 1983, then, the only remaining function of Section 10(B) was to

provide guidance in the adoption of SO2-related regulations by the Board. A newer

statutory provision superseded Section 10(B) as to that limited purpose, and therefore all

remaining purpose and effect of Section 10(B) has essentially ended.

In 2001, the General Assembly adopted Section 9.10 of the Act pertaining to the

regulation of electric generating units. 415 ILCS 5/9.10. Section 9.10(b)(2) directed

Illinois EPA to propose regulations controlling SO

emissions from such sources.

It is clear that the General Assembly fully intended that Illinois EPA should

propose, and the Board should have the authority to adopt, regulations for the control of

emissions whose nature went far beyond the minimum needed for attainment of the

SO2 NAAQS, e.g., attainment of the PM

2.5

NAAQS, reduction in interstate transport, and

improvement in visibility. This is obvious because the State of Illinois was in full

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

attainment of the SO

NAAQS when Section 9.10 was adopted.

That being the case, while there may seem to be a conflict between Sections 9.10

and 10(B) insofar as Section 9.10 contemplates regulation of SO

emissions statewide for

several different purposes based on Illinois EPA findings and Section 10(B) envisions a

more restricted regulation of SO

emissions, a review of relevant case law shows that

there is no such conflict.

It is presumed that the legislature, in enacting various statutes, acts rationally and

with full knowledge of all previous enactments. It is further presumed that the legislature

would not enact a law that completely contradicts a prior statute without an express

repeal of it and that statutes that relate to the same subject are to be governed by one

spirit and a single policy.

Spina v. Toyota Motor Credit Corporation

Dist. 1998). In general, repeal of a previous enactment

by implication through passage of a new law is not favored. Courts assume that the

legislature will not draft a new law that contradicts an existing one without expressly

repealing it, and that the legislature intends a consistent body of law when it amends or

enacts new legislation. Thus, courts construe statutory provisions in a manner that avoids

inconsistency and gives full effect to each provision wherever reasonably possible.

In re

Marriage of Lasky

, 176 Ill.2d 75, 79-80, 678 N.E.2d 1035, 1037 (1997).

Applying those rules to the interplay of Sections 9.10 and 10(B), the appropriate

conclusion to be drawn is that the General Assembly intended Section 10(B) to allow for

the adoption of SO

regulations for the three major metropolitan areas, and also to

provide a framework for other SO

emission-related regulations applicable to the

remaining areas of the State. As a natural progression, over two decades later, the

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

General Assembly revised its previous stance, seeking to take into account the change in

conditions throughout the State, and the increase in knowledge concerning atmospheric

chemistry, the health effects of pollution and the availability of new emission control

technology, it enacted Section 9.10 which allowed for,

inter alia

, broad-based regulation

of SO

emissions throughout the State with no specific exclusion of the three major

metropolitan areas identified in Section 10(B).

Section 10(B)’s purpose in terms of

directing regulation of SO

emissions was not without function in its historical context.

However, it must be concluded that the General Assembly’s intent for regulating SO

emissions has progressed to the broader instructions found in Section 9.10. For all these

reasons, the Board should find that, to the extent any argument concerning the

applicability or affect of Section 10(B) on the MPS be allowed, that Section 10(B) is not

an impediment to the inclusion of the MPS into the Illinois proposed mercury rule, nor

the adoption of that underlying rule as a whole.

Midwest Generation’s seventh argument is that the MPS may not be a rule of

general applicability, but rather an emission standard for only Ameren and Dynegy.

Motion at 5. Citing to

Commonwealth Edison Co. v. Pollution Control Board

, 25 Ill.

App. 3d 271 (1

Dist. 1974), Midwest Generation claims that if such is the case, these

companies may be required to seek a variance or adjusted standard. Ameren and Dynegy

have accepted the MPS alternative. Kincaid has suggested its own alternative. CWLP

has created a separate deal which moots the need to consider the MPS. The rule and the

MPS are of general applicability. Rather, it is Midwest Generation that is arguing that it

cannot abide by the rule or any proffered alternative. Accordingly, it is Midwest

Generation that may need to seek an adjusted standard or other site-specific relief. An

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alternative does not have to be accepted by everyone to be generally applicable, only

made available to them. The MPS is reasonably available to all affected sources.

Midwest Generation cites dicta from

Commonwealth Edison

for the proposition

that the MPS is more appropriately an emission standard for Ameren and Dynegy.

However, reviewing

Commonwealth Edison

, one sees that the MPS is generally

applicable. The Court in

Commonwealth Edison

stated:

The Board cannot be expected to research, evaluate, and make allowance

for every special, unusual, or unique problem involving every producer of

electrical energy. Where one fails to challenge the rules generally and

instead seeks to relax their enforcement against him exclusively due to

arbitrary and unreasonable hardship, the legislature has determined that

the appropriate remedy is for the aggrieved party to seek a variance in

accordance with Title 9 of the Act.

25 Ill.App.3d 271, 281. More importantly, the Court stated:

We believe that the rules in question should be found valid when one can

reasonably infer from the evidence in the record that the Board concluded

in promulgating the rules that it was technically feasible and economically

reasonable for a substantial number of the individual emission sources in

this state to comply by the specified deadline.

Id.

at 281-282.

From this, it is apparent that the Board does not have to ensure that every source

can avail itself of a potential rule. Rather, the Board must assure that “a substantial

number” of the sources are able to comply. If a source is unable to comply with the MPS

or TTBS, and it believes that it cannot comply with the general rule, then it may petition

the Board for a variance or adjusted standard. Although in the present case Midwest

Generation has challenged the rule generally, it is nevertheless such a source. Ameren

and Dynegy have expressed support for the MPS, and they represent 31 of the 59 units in

the State. CWLP, representing five units, could avail itself of the MPS, but has come to a

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

separate arrangement independent of the proposed rulemaking. Thus, this arrangement

moots the MPS. In addition, Kincaid, representing two units, has submitted its own

proposal to the Board. This leaves only Midwest Generation and SIPC remaining.

There has been ample testimony concerning the technical feasibility and

economic reasonableness of the mercury standards. The MPS is purely voluntary;

Midwest Generation is under no obligation to utilize its provisions. Midwest Generation

could also elect to use the provisions of the TTBS, if it preferred to do so. The method of

compliance is within the discretion of Midwest Generation. If Midwest Generation

believes that none of the compliance methods truly countenances its particular situation,

it may seek a variance or adjusted standard. But if it only wants to avoid the capital

investment necessary to install mercury control technology, it is left to its own devices. It

should not be allowed to pull down the whole edifice of the rule to avoid compliance.

Midwest Generation is able to comply with the general rule, though it clearly wishes not

to do so. That distaste of the rule, however, should not be equated to an inability to

comply with the rule.

Midwest Generation’s eighth argument is that if all of the sources in the State

have the same coordination, financing and technology problems with the rule then the

rule should be changed rather than creating an MPS. Motion at 6. Contrary to Midwest

Generation’s erroneous assumption, however, all sources do not have the same problems

with the rule. As stated above, CWLP, Kincaid, Ameren, and Dynegy have suggested

alternatives that fit their general economic planning. Since some of those alternatives

involve minor changes to the mercury control requirements in the rule, in return for

substantial reductions of other pollutants, the Illinois EPA has agreed to support some of

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

those alternatives. The Illinois EPA is not suggesting that the rule is unworkable or

unmanageable. Rather, there has been extensive testimony on how the Illinois EPA

believes the rule is both technologically feasible and economically reasonable. The MPS

provides an alternate form of compliance. It is not an admission that the rule is improper.

But, like the STAPPA/ALAPCO model rule and New Jersey’s mercury rule, the Illinois

EPA believes in the principle of flexibility.

See

Regulating Mercury from Power Plants:

A Model Rule for States and Localities

, STAPPA/ALAPCO, November 2005 (copy

attached to Statement of Reasons in initial filing) and N.J.A.C. 7:27

et seq

Midwest Generation’s ninth argument is that the MPS may raise compliance

problems with meeting both the mercury regulations and the CAIR. Motion at 6. Once

again, any possible problems would be better dealt with in future rulemakings. The

present rule cannot be defeated over fears of what the future may bring. Hearings on how

Illinois CAIR may be impacted by the current rule are appropriate for the Illinois CAIR

hearings. Those hearings have already been scheduled. Midwest Generation should wait

until those hearings to determine how that rulemaking will impact the present proposal.

To do otherwise would put the cart before the horse. Merely because there is some

overlap in subject matter between the rules does not mean there will be conflict. Indeed,

the Federal CAIR was written with CAMR in mind. The Illinois EPA has analyzed the

interaction between the proposed rule and the Illinois CAIR and believes they will work

together to ensure significant reductions in harmful pollutants.

Midwest Generation’s tenth argument is that the MPS may violate the Supremacy

Clause of the United States Constitution by restricting the trading of SO2 allowances,

citing

Clean Air Markets Group v. Pataki

, 194 F. Supp. 2d 147, 157 (N.D.N.Y. 2002),

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

aff’d,

338 F.3d 82 (2d Cir. 2003).

. Midwest Generation claims that since the MPS

requires parties opting into it to surrender SO2 allowances, such action effectively

prohibits the trading of such allowances, thereby reducing the size of the market

Congress created under Title IV of the CAA.

Midwest Generation’s eleventh argument is that the MPS may violate the

Commerce Clause of the United States Constitution.

. at 7. Citing to

Clean Air

Markets

, Midwest Generation claims that the MPS burdens interstate commerce without

justifying those burdens in terms of "local benefits flowing from the statute and the

unavailability of nondiscriminatory alternatives adequate to preserve the local interests at

stake."

Midwest Generation’s tenth and eleventh arguments concern the interplay of the

Illinois proposed rule and the Federal Supremacy and Commerce Clauses. In support of

the proposition that the Illinois proposed rule violates these clauses, Midwest Generation

cites to

Clean Air Markets

, which concerned a New York law that sought to limit

participation by New York sources in the Federal Acid Rain SO2 Allowance Trading

Program under Title IV of the CAA. New York sources that transferred excess

allowances to states “upwind” of New York (the law listed such states) had to report the

sales to the New York Public Service Commission that would assess an air pollution

mitigation offset against the seller.

Clean Air Markets

at 154. This offset would be equal

to the amount received for the SO2 allowances.

. Transfers to entities that were not in

upwind states would have to contain a restrictive covenant prohibiting future sales to

upwind states.

. The attachment of the restrictive covenant was found to lower the

value of the New York allowances.

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Using a Supremacy Clause analysis, the Court found that the New York law

“actually conflicts with federal law.”

. at 158. The Court made this determination

because although there was no physical impediment to the transfer of allowances, the

New York law was contrary to the Federal provision that allowances be tradable to any

other person.

. Specifically, the New York law “is preempted because it interferes

with the Clean Air Act's method for achieving the goal of air pollution control: a cap and

nationwide SO2 allowance trading system.”

. at 158. The New York law also resulted

in the decreased availability of SO2 allowances to states upwind of New York.

. Thus,

the law indirectly regulated the trading of allowances in other states.

. at 159. The

New York law effectively went beyond controlling emissions in New York to controlling

emissions in other states.

The Court in

Clean Air Markets

also performed a Commerce Clause analysis and

such analysis centered on the principle of whether the law “is basically a protectionist

measure, or whether it can fairly be viewed as a law directed to legitimate local concerns,

with effects upon interstate commerce that are only incidental.”

. at 160. That is, “If

the legislative means result in ‘isolating the State from the national economy,’ then the

statute is unconstitutional despite a legitimate legislative goal.”

. In other words, a

state cannot block imports from other states, nor exports from within its boundaries,

without offending the Constitution.

Accordingly, was the New York law

protectionist or isolationist?

The Court found that the New York law did impose a 100% penalty on New York

unit allowance transfers to upwind states.

. Since most units would not reasonably

agree to make such transfers, the law discriminated against articles of commerce,

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

“isolating [New York State] from the national economy.”

. Moreover, the law did not

restrict the transfer of SO2 allowances from one New York unit to another, thus giving a

preferred right of access to SO2 allowances to in-state units over out-of-state units.

Nor did the Court consider the New York law to be “fairly viewed as a law

directed to legitimate local concerns, with effects upon interstate commerce that are only

incidental.”

. at 161. Concerning this, the Court found no “direct connection between

the law’s requirements and the purported concerns being addressed.”

. This is because

the law could not guarantee that other states would not simply transfer their allowances to

“upwind states.”

. at 162. Accordingly, there was no guarantee that the law would

actually reduce pollution coming into New York.

. Thus, the Court held that local

concerns were not sufficiently strong for the burden placed on interstate commerce.

. at

162.

The USEPA reviewed and dismissed the

Clean Air Markets

case when

formulating CAIR. In describing the workings of the CAIR program, See, 70 Fed. Reg.

25162 (May 12, 2005), USEPA stated:

The EPA’s approach provides States the opportunity to impose more

stringent control requirements for EGUs’ SO2 emissions than under title

IV through an EPA-administered cap and trade program that requires the

use of title IV allowances for compliance at a ratio of 2 allowances per ton

of emissions for allowances allocated for 2010 through 2014 and 2.86

allowances per ton of emissions for allowances allocated for 2015 or

thereafter.

. at 25291. Concerning the role of states, USEPA stated:

Further, as discussed above, if a State wants to achieve the SO2 emissions

reductions required by today’s action through more stringent EGU

emission limitations only but without using the model cap and trade

program, then EPA is requiring that the State include in its SIP a

mechanism for retiring the excess title IV allowances that will result from

imposition of these more stringent EGU requirements. In this case, the

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State must retire an amount of title IV allowances equal to the total

amount of title IV allowances allocated to the units in the State minus the

amount of title IV allowances equivalent to the tonnage cap set by the

State on SO2 emissions by EGUs, and the State can choose what

retirement mechanism to use.

. Importantly, concerning the use of Title IV allowances in a different program,

USEPA asserted:

The EPA maintains that it has the authority under section 110(a)(2)(D)

and title IV to establish a new cap and trade program requiring the use of

title IV allowances at a different tonnage authorization than under the

Acid Rain Program and the retirement of such allowances for purposes of

both programs. First, as discussed in section V above, EPA has the

authority under section 110(a)(2)(D) to establish a new SO2 cap and trade

program, administered by EPA if requested in a State’s SIP, to prohibit

emissions that contribute significantly to nonattainment, or interfere with

maintenance, of the PM2.5 NAAQS. Further, EPA notes that under

section 402(3), a title IV allowance is:

An authorization, allocated to an affected unit by the

Administrator under this title [IV], to emit, during or after a

specified calendar year, one ton of sulfur dioxide. 42

U.S.C. 7651(a)(3).

However, section 403(f) states that:

An allowance allocated under this title is a limited authorization to

emit sulfur dioxide in accordance with the provision of this title

[IV]. Such allowance does not constitute a property right. Nothing

in this title [IV] or in any other provision of law shall be construed

to limit the authority of the United States to terminate or limit such

authorization. Nothing in this section relating to allowances shall

be construed as affecting the application of, or compliance with,

any other provision of this Act to an affected unit or source,

including the provisions related to applicable National Ambient

Air Quality Standards and State implementation plans. 42 U.S.C.

7651b(f).

In opposition to USEPA, Commenters cited the

Clean Air Markets

case.

. at 25293. In distinguishing CAIR from the

Clean Air Markets

case, USEPA

proffered:

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

EPA believes that the exercise of its explicit authority under section 403(f)

to limit the tonnage authorization of a title IV allowance in the CAIR SO2

cap and trade program and to terminate the tonnage authorization in the

Acid Rain Program once the allowance is used in the CAIR SO2 program

is consistent with—and necessary to preserve—the operation of the Acid

Rain Program. Therefore, EPA concludes that its approach of limiting and

terminating of the tonnage authorization of title IV allowances does not

impermissibly interfere with the interstate operation of the Acid Rain

Program and is reasonable.

. Moreover, USEPA declared:

Unlike the circumstances in

Clean Air Markets Group,

under EPA’s

approach in today’s action, each title IV allowance is freely transferable

nationwide unless and until a source uses the allowance to meet the

allowance-holding requirements of the CAIR SO2 program, at which time

the allowance is deducted from the source’s allowance tracking system

account and retired for purposes of both the CAIR SO2 program and the

Acid Rain Program.

. Thus, USEPA stated:

EPA maintains that, on balance, the retirement of title IV allowances used

for compliance in the CAIR model SO2 cap and trade program does not

constitute impermissible interference with the interstate operation of the

Acid Rain Program, but rather is consistent with, and necessary to

preserve, the operation of the Acid Rain Program.

. Furthermore, USEPA believed that due to the fact that CAIR is not a nationwide

program, the flood of Title IV allowances, were they not retired under CAIR, would

cause the Title IV SO2 allowance market in those states not covered by CAIR, but still

under Title IV to collapse.

The MPS is similar to the Federal CAIR and, indeed, Illinois has proposed a

CAIR rulemaking where this issue may more appropriately be discussed. Regardless,

Federal CAIR anticipates the situation that Illinois is in and supports it. Beyond this,

CAIR recognizes that a state allowance program may differ from the Federal program.

That is, USEPA allows states to comply with CAIR by either: 1) requiring all SO2

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

reductions from EGUs; 2) requiring some SO2 reductions from EGUs and some from

non-EGUs; or 3) requiring all reductions from non-EGUs.

. at 25295. As USEPA

stated:

the allowance retirement requirement echoes the State’s decision in the

first instance concerning the amount of SO2 emissions reductions to

require from EGUs in the State.

Other important differences exist between the Illinois MPS and the New York law

at issue in

Clean Air Market

. First, the MPS does not prohibit trading with anyone.

Second, it imposes no restrictive covenants on anyone. Third, the MPS does not

differentiate between in-State and out-of-State purchasers. Illinois sources cannot sell

any excess allowances made available from compliance with the MPS to other sources

whether they are in Illinois or in other states. Finally, and most importantly, the MPS is

voluntary. No unit is required to utilize it. It is only an option for sources that consider it

the best fit for their business plan. Sources voluntarily agree to retire allowances directly

attributable to the lower SO2 emissions standard that they become subject to under the

MPS. Any additional allowances the source generates from SO2 emissions reductions

beyond that required for compliance with the MPS, or from banking, may be freely

transferred to any other entity.

Midwest Generation’s twelfth argument is that it is not clear on the record how

Illinois will demonstrate compliance with the CAMR emissions cap if other sources

opted into the MPS. Motion at 8. This is not Midwest Generation’s concern. The

Illinois EPA testified at hearing that Illinois intends to successfully demonstrate to

USEPA that it will be able to comply with the State cap. The Illinois EPA has had

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

extensive conversations with the USEPA on this matter, and those conversations will

continue. Once again, the MPS ends in 2015, at which time virtually all sources will be

required to meet the 90% mercury emissions reduction standard. Thus, compliance with

the CAMR cap should not be a concern. In addition, the MPS is voluntary, and thus, no

source is under any obligation to make use of its provisions.

Since both companies that have indicated they will utilize the MPS (i.e., Ameren

and Dynegy) have estimated that from 2015 forward they will be achieving greater than

90% mercury emissions reductions system-wide, an assessment that the Illinois EPA

agrees with, the issue of demonstrating that the CAMR caps will be met should be readily

achievable. In fact, the Illinois EPA estimates that all companies will be achieving 90%

or greater mercury emissions reductions from 2015 forward, which is significantly more

stringent than the Federal CAMR caps.

WHEREFORE, for the reasons set forth above, the Illinois EPA requests that the

Board enter an order denying the Motion to Schedule Additional Hearings.

Respectfully submitted,

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY

By:

/s/__________________

Charles E. Matoesian

Assistant Counsel

Division of Legal Counsel

DATED: August 31, 2006

1021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

217.782.5544

217.782.9807 (fax)

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

STATE OF ILLINOIS

)

COUNTY OF SANGAMON

)

CERTIFICATE OF SERVICE

I, the undersigned, an attorney, state that I have served electronically the attached

RESPONSE TO MIDWEST GENERATION’S MOTION TO SCHEDULE

ADDITIONAL HEARINGS upon the following person:

Dorothy Gunn

Clerk

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph St., Suite 11-500

Chicago, IL 60601-3218

and mailing it by first-class mail from Springfield, Illinois, with sufficient postage affixed

to the following persons:

SEE ATTACHED SERVICE LIST

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY,

__________________________

Charles E. Matoesian

Assistant Counsel

Division of Legal Counsel

Dated: August 31, 2006

1021 North Grand Avenue East

Springfield, Illinois 62794-9276

(217) 782-5544

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

SERVICE LIST 06-25

Marie Tipsord

Hearing Officer

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph St., Suite 11-500

Chicago, IL 60601-3218

77 West Wacker, Suite 4100

Special Assistant Corporation Counsel

Office of Public Utilities

800 East Monroe

Springfield, IL 62757

S. David Farris

Environmental, Health and Safety

Manager

Office of Public Utilities

City of Springfield

201 East Lake Shore Drive

Springfield, IL 62757

Faith E. Bugel

Howard A. Lerner

Meleah Geertsma

Environmental Law and Policy Center

205 West Monroe Street, 4th Floor

Chicago, IL 60606

Christopher W. Newcomb

Karaganis, White & Magel, Ltd.

414 North Orleans Street

Springfield, IL 62705-5776

233 South Wacker Drive

122 W. Washington Ave., Suite 830

Madison, WI 53703

James W. Ingram

Senior Corporate Counsel

Dynegy Midwest Generation, Inc.

1000 Louisiana, Suite 5800

Houston, TX 77002

Dianna Tickner

Prairie State Generating Company, LLC

St. Louis, MO 63101-1826

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006

Midwest Generation, LLC

440 S. LaSalle Street, Suite 3500

Chicago, IL 60605

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, AUGUST 31 2006