635
1 BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
2 VOLUME IV
3 IN THE MATTER OF: )
)
4 EMISSIONS REDUCTION MARKET ) R97-13
SYSTEM ADOPTION OF 35 ILL. ) (RULEMAKING)
5 ADM. CODE 205 AND AMENDMENTS )
TO 35 ILL. ADM. CODE 106. )
6
7
8 The following is the continued transcript of a
9 rulemaking hearing held in the above-entitled matter,
10 taken
stenographically by LORI ANN ASAUSKAS, CSR,
11 RPR, a notary public within and for the County of
12 Cook and State of Illinois, before Chuck
Feinen,
13 Hearing Officer, at 100 West Randolph Street, Room
14 9-040, Chicago, Illinois, on the 4th day of February,
15 1997,
A.D., commencing at the hour of 9:00 o'clock
16 a.m.
17
18 ** ** ** ** **
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24
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1 A P
P E A R A N C E S :
2 HEARING TAKEN BEFORE:
3 ILLINOIS POLLUTION CONTROL BOARD,
100 West Randolph Street
4 Suite 11-500
Chicago, Illinois 60601
5 (312) 814-4925
BY: MR. CHUCK FEINEN,
6 HEARING OFFICER.
7 ILLINOIS POLLUTION CONTROL BOARD MEMBERS PRESENT:
8 Ms. Elizabeth Ann
Mr. Kevin
Desharnais
9 Ms. Kathleen
Hennessey
Mr. Richard
McGill
10 Ms.
Marili McFawn
Mr. Joseph
Yi
11
ILLINOIS ENVIRONMENTAL PROTECTION AGENCY MEMBERS
12 PRESENT:
13 Ms. Bonnie Sawyer
Mr. Richard
Forbes
14 Mr.
Bharat Mathur
15 OTHER AUDIENCE MEMBERS WERE PRESENT AT THE HEARING,
BUT NOT LISTED ON THIS APPEARANCE PAGE.
16
17
18
19
20
21
22
23
24
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1 I N D E X
2 PAGES
3 GREETING BY HEARING OFFICER................638 - 640
4 TESTIMONY OF GARY BECKSTEAD................640 - 643
5 QUESTION AND ANSWER SESSION................643 - 739
6 TESTIMONY OF JOSEPH GOFFMAN................740 - 759
7 QUESTION AND ANSWER SESSION................759 - 850
8 CLOSING COMMENTS BY HEARING OFFICER........850 - 875
9 * * * * * * * *
10 E X H I B I T S
11 Marked for
Identification
12
Hearing Exhibit No. 37.......................738
13
Hearing Exhibit No. 38.......................764
14
Hearing Exhibit No. 39.......................764
15
Hearing Exhibit No. 40.......................764
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Hearing Exhibit No. 41.......................764
17
Hearing Exhibit No. 42.......................766
18
Hearing Exhibit No. 43.......................766
19
Hearing Exhibit No. 44.......................767
20
Hearing Exhibit No. 45.......................767
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24
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1 THE HEARING OFFICER: Good morning. We're
2 going to do a little switch on the schedule that I
3 talked about at the close of yesterday's hearing
4 due to plane delays.
5 This morning, I would like to start out
6 with the testimony of Gary
Beckstead. I believe we
7 will have questions to Gary also after his testimony
8 since he will not be available at the 10th and 11th
9 hearings. His testimony is strictly on technical
10 feasibility.
11 I hope that is a feasible task this
12 morning. So are there any comments about that?
13 MS. HODGE: I just have maybe just a
14 clarifying question. I know the agency said the
15 testimony is on technical feasibility.
16 When I look at it, there is a good
17 amount of economic information on the testimony.
18 We will certainly have some questions on economics,
19 but we would like him to come the same time you put
20 on your economist, Mr. Case.
21 MS. SAWYER: Well, Gary doesn't necessarily
22 have to answer those questions on economics. He
23 worked in coordination with Chris Romaine and Gale
24 Newton and others on that. So other people could
L.A. REPORTING - (312) 419-9292
639
1 answer those questions.
2 MS. HODGE: Okay. That's fine.
3 THE HEARING OFFICER: I don't mean that I am
4 going to excuse Mr.
Beckstead from today. Hopefully,
5 we can get most of those questions answered.
6 The other thing we should just talk
7 about real quick before we start is the questions
8 on the ACMA portion. I don't think Mr.
Kanerva is
9 going to be with us today. I think we're going
10 to have to hold those questions. I don't know if
11 it would be a good idea to ask all of those questions
12 up to 610 or just skip 610 and ask the questions
13 after 610 if there are any. There are not that many
14 sections based on that.
15 MS. SAWYER: My suggestion is to skip 610 and
16 move forward.
17 MS.
McFAWN: Is there anyone else from the
18 agency that can answer those questions?
19 MS. SAWYER: No.
20 MS.
McFAWN: When is Mr.
Kanerva going to join
21 us again?
22 MS. SAWYER: The 10th and 11th.
23 THE HEARING OFFICER: So with that, we will
24 turn it over to Bonnie to call her witness.
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640
1 MS. SAWYER: The agency calls Gary
Beckstead.
2 THE HEARING OFFICER: Would you swear in the
3 witness, please?
4 (Witness sworn.)
5 WHEREUPON:
6 G A R Y B E C K S T E A D ,
7 called as a witness herein, having been first duly
8 sworn,
deposeth and saith as follows:
9 MS. SAWYER: Please proceed.
10 MR. BECKSTEAD: My name is Gary
Beckstead.
11 My academic credentials include a bachelor's degree
12 in ceramic engineering from the Georgia Institute of
13 Technology at Atlanta, Georgia, and a master's of
14 science degree in applied earth sciences from
15 Stanford University, Stanford, California.
16 I have been employed by the Illinois
17 Environmental Protection Agency since April of 1991
18 as an environmental protection engineer in the Air
19 Quality Planning Section of the Division of Air
20 Pollution Control in the Bureau of Air.
21 In general, I am involved in the review
22 of emissions inventories and in the preparation of
23 technical support for proposed ozone regulations
24 affecting point sources. In this capacity, I have
L.A. REPORTING - (312) 419-9292
641
1 responsibility for projects that address the
2 expansion and applicability of reasonably available
3 control technology on sources emitting ozone
4 precursors.
5 My responsibilities include quality
6 control and quality assurance of ozone inventories
7 and the evaluation of point source emissions. I
8 have prepared technical support for rulemakings
9 R91-28, R93-14, R94-16 and R94-21.
10 Rulemaking R91-28 involved the
11 geographic expansion of RACT to point sources
12 submitting volatile organic material that were
13 located in Goose Lake and
Aux Sable Townships in
14 Grundy County and Oswego Township in
Kendall County.
15 I reviewed the Illinois EPA emissions
16 inventory for potentially affected sources and
17 evaluated the economic reasonableness and technical
18 feasibility of controls that this rulemaking would
19 impose.
20 I also assessed the impacts of RACT
21 on VOM point sources for Rulemaking R93-14, which
22 implemented the change in the definition of major
23 source from 100 tons per year to 25 tons per year
24 in the Chicago
nonattainment area pursuant to the
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1 requirements of the 1990 Clean Air Act amendment.
2 In addition to these RACT rulemakings,
3 I provided technical assistance in determining
4 potential VOM emission reductions and control costs
5 for meeting the 15 percent rate of progress plan
6 for Chicago and Metro East St. Louis
nonattainment
7 area.
8 In the development of the 15 percent
9 ROP, I prepared the technical support documents
10 for rulemaking R94-16, which addressed the
11 feasibility and economic reasonableness of lowering
12 the applicability for air oxidation processes and
13 for rulemaking R94-21, which addressed tightening
14 surface coating standards.
15 In regards to the present rulemaking
16 for the Emissions Reduction Market System, I have
17 technically assisted in evaluating potential VOM
18 reductions from traditional command and control
19 techniques and in determining the cost and
20 feasibility of controls to obtain such reductions.
21 I estimated the emission reductions
22 obtainable and cost of controls from imposing
23 California RACT regulations for the extreme ozone
24 nonattainment of Los Angeles on the point sources
L.A. REPORTING - (312) 419-9292
643
1 located in the
nonattainment area in Chicago.
2 In addition, I assisted in reviewing
3 the 50 VOM point sources in Chicago with the greatest
4 annual emissions to determine the availability of
5 emission reductions if the most stringent controls
6 currently known to be available were applied to
7 these sources.
8 Finally, I technically assisted in
9 determining control costs for all the various
10 standard industrial classification codes that
11 are presented by the point sources located in
12 the Chicago
nonattainment area.
13 My testimony is on the methodology
14 used in determining these various control costs and
15 the emission reductions has been pre-submitted.
16 I am here today to offer testimony
17 to the Illinois Pollution Control Board to clarify
18 any technical questions that might arise in regards
19 to this submittal or portions of the ERMS TSD
20 that address these issues.
21 MS. SAWYER: Thank you, Mr.
Beckstead.
22 Are there any questions? Actually, I
23 think there were some specific questions in Gardner,
24 Carton & Douglas when they filed for Mr.
Beckstead.
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644
1 MS. MIHELIC: We did, and after meeting with
2 the agency last week, we have significant revisions
3 to those questions. So I'm not sure if there is
4 anybody else that has questions that want to go first
5 that may be addressed that already have
prefiled
6 questions.
7 MS. SAWYER: I believe Mr.
Trepanier also had
8 specific questions for Mr.
Beckstead.
9 MR. TREPANIER: Thank you. Good morning.
10 What, if anything, did the agency do
11 to confirm or check the information that was
12 provided by the sources? This was that information
13 cited in the testimony under Section 2.2, estimated
14 cost of controls.
15 MR. BECKSTEAD: I became as familiar as I
16 could in regards to the source or sources that were
17 contending that materials were not available to
18 meet the limits specified.
19 I reviewed sources with similar
20 operations located in other regions who were meeting
21 the prescribed limits to determine how it was being
22 achieved.
23 Contacts were also made with at
24 least three of the largest suppliers of surface
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645
1 coating materials to determine if materials meeting
2 the specified limits for the application in question
3 was available.
4 I also discussed future availability
5 of such materials with supplies.
6 MR. TREPANIER: Did you learn that these --
7 that there are these materials available?
8 Is there somewhere that these -- that
9 the material substitutions or the
reformulations are
10 taking place?
11 MR. BECKSTEAD: For the particular sources in
12 Illinois, these materials were not available from the
13 information that I gathered.
14 MR. TREPANIER: I understand that would be
15 expected as these materials are expected to be of a
16 higher cost and they are not required in Illinois,
17 but in places where this material is required, is
18 that material available?
19 MR. BECKSTEAD: The survey that we performed
20 in California found that, yes, some materials are
21 available and other cases, add-on controls were
22 being used depending on the particular application
23 in question.
24 MR. TREPANIER: Were there any cases that you
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646
1 found where a reformulation was being used to meet
2 the lower emission levels?
3 MR. BECKSTEAD: Yes, I did find that.
4 MR. TREPANIER: Then, did this information,
5 then, confirm what your sources told you -- that
6 your sources told you that this material was
7 available?
8 MR. BECKSTEAD: My sources told me that the
9 materials were not available in Illinois, but the
10 Illinois sources, for the particular applications
11 that they had, I was informed that the material
12 substitution and the limits we were asking would
13 force them into add-on controls.
14 MR. TREPANIER: Now, I'm understanding that
15 your response is saying that you found these
16 materials to be in California. Did you find that
17 that information -- does that information lead you
18 to believe that these materials would become
19 available when it's required?
20 MR. BECKSTEAD: In talking to suppliers for
21 the particular applications in Illinois, materials
22 are under R and D, but I was informed that it could
23 take as high as seven to ten years to make these
24 materials market-available.
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1 MR. TREPANIER: Maybe I'm not understanding
2 you or I'm asking the same questions, but these
3 materials that you found in California and
4 identified, these were comparable materials?
5 They are using processes in California,
6 which were processes that would fix cars or whatever
7 just as well in Illinois?
8 MR. BECKSTEAD: They are comparable, but they
9 are not exact.
10 MR. TREPANIER: Do you have information if the
11 sources of materials that are available in California
12 could just be shipped across the country and
13 certainly wouldn't take --
14 MR. BECKSTEAD: Several of these large
15 suppliers have distribution throughout the United
16 States, yes.
17 MR. TREPANIER: What do you know of the
18 generalized comparison that could be made of the
19 pollution controls obtained through a material
20 substitution compared to the cost of pollution
21 control obtained through add-on costs?
22 MR. BECKSTEAD: Such materials have to be
23 available for the application in question. For
24 the particular application that Illinois' sources
L.A. REPORTING - (312) 419-9292
648
1 have, materials substitutions are not available.
2 On the basis of the information
3 gathered in the 15 percent ROP plan, impacted sources
4 substantiated that any further tightening of the
5 limits beyond those set in the 15 percent rulemakings
6 would necessitate add-on controls for Illinois'
7 sources and their particular applications.
8 In general, materials substitutions
9 can be less expensive. However, equipment changes
10 and additional process renovations can add
11 substantially to the overall final costs of
12 controls.
13 THE HEARING OFFICER: Mr.
Trepanier, could
14 state the question number when you ask it while we
15 go through?
16 MR. TREPANIER: Yes.
17 THE HEARING OFFICER: Thank you.
18 MR. TREPANIER: I understand you are saying
19 that if there is a material substitution available,
20 that that's generally less expensive than an add-on
21 control?
22 MR. BECKSTEAD: In general. It's kind of a
23 case-by-case evaluation. Some substitutions require
24 major changes in processing and interrupts production
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649
1 schedules and you have to go through evaluating and
2 getting all the bugs out of it. So it's not just a
3 cut and dry yes answer. You have to evaluate a
4 particular substitution that you are going to
5 undertake.
6 MR. TREPANIER: Those substitutions that
7 you found in California, if those materials were
8 available in Illinois, then, what applications
9 are those?
10 MS. SAWYER: I'm not sure I understand the
11 question.
12 MR. TREPANIER: Just putting these first two
13 questions together, you responded to the first
14 question that you did find some materials in
15 California that were material substitution that
16 lowered VOM emissions.
17 Then, in Question 2, regarding these
18 generally are less expensive, my question is what
19 processes -- what materials were these that were
20 identified in California that would fulfill that?
21 MR. BECKSTEAD: I can give you one example
22 where in a can
coder in California was packing food
23 which required a different coding than the Illinois
24 application.
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650
1 There was a difference in stringency
2 of what was required of the materials is what I'm
3 saying. I mean, a can
coder is a can coder. What
4 you're putting in the can makes a difference on what
5 the characteristics that the coding material can
6 have.
7 Our sources in Illinois said they can't
8 use the can coding material that California has even
9 though it's meeting limits specified by South Coast.
10 MR. TREPANIER: In using your example, were
11 you able to confirm or check that information?
12 MR. BECKSTEAD: Yes, we did to the best of our
13 abilities.
14 MR. TREPANIER: In your example, how was that
15 done?
16 MR. BECKSTEAD: By direct contact with the
17 supplier, direct contact with the source themselves
18 and with familiarity with the Illinois source and
19 its operations and contact with them through outreach
20 meetings and discussions about what limits we were
21 proposing.
22 MR. TREPANIER: The supplier, was that the
23 supplier of the reformulated or the substitute
24 material that you contacted?
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651
1 MR. BECKSTEAD: Yes.
2 MR. TREPANIER: Who gave you the information
3 that that material wouldn't meet the code for
4 Illinois?
5 MR. BECKSTEAD: The impacted sources.
6 MR. TREPANIER: Were you able to check that
7 information?
8 MR. BECKSTEAD: Yes, I did the best I could.
9 MR. TREPANIER: How was that information
10 checked?
11 MS. SAWYER: Didn't he just -- he answered
12 this question.
13 MR. TREPANIER: I think the previous answer
14 was that the information was checked with the
15 supplier and with the impacted source.
16 MS. SAWYER: He said he also checked the
17 source in Illinois.
18 MR. TREPANIER: That was the source of the
19 information? The source of the information also
20 couldn't be the checker of the information. The
21 source and the checker of the information are
22 separate entities.
23 MS. SAWYER: Well, the checker is the
24 supplier.
L.A. REPORTING - (312) 419-9292
652
1 MR. TREPANIER: The supplier wasn't able to
2 make a determination whether or not that material
3 met Illinois code.
4 MR. BECKSTEAD: We also discussed this with
5 permit engineers who are very familiar with the
6 sources from dealing with it through the years and
7 they are familiar with the operations to confirm what
8 the source was saying was, in fact, true and what we
9 had on file from permit application.
10 MR. TREPANIER: Were the permit engineers
11 familiar with what Illinois code requires for inside
12 a food can?
13 MR. BECKSTEAD: I would think they would have
14 that knowledge. It's not part of their business, per
15 se, on a day-to-day operation, but I would think they
16 would be familiar as to what the firm was canning and
17 what they were doing, yes.
18 MR. ROMAINE: I would qualify that. That's
19 probably not knowledge that is generally known by
20 most permit analyst, but an analyst who has been
21 specializing in can coding operations over the years
22 may, in fact, have that level of knowledge.
23 MR. TREPANIER: Who was that engineer?
24 MR. BECKSTEAD: I interface with the permit
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653
1 engineers so often at the various sources, I can't
2 recall at the present time.
3 MR. TREPANIER: Would the agency be able to
4 provide that information?
5 MS. SAWYER: Why do you want it?
6 MR. TREPANIER: I'm making an inquiry to
7 see if there is -- I believe that the rulemaking
8 is substantially predicated on the basis that
9 there was unavailable material substitutions and
10 reformulations sufficient to meet the ROP
11 requirements other than through the proposal.
12 I think that's what Mr.
Beckstead's
13 testimony has gone to. Now, I have asked questions
14 on how that was determined.
15 MS. SAWYER: Well, it isn't. So I don't think
16 that's relevant.
17 MS.
McFAWN: It isn't what?
18 MS. SAWYER: It isn't predicated on what he
19 just said.
20 MS.
McFAWN: That is not why you are posing
21 the --
22 MS. SAWYER: It's less expensive. It's the
23 most cost-effective means to achieve reduction.
24 MS.
McFAWN: So his testimony is not
L.A. REPORTING - (312) 419-9292
654
1 that these things are not available to Illinois
2 manufacturers, but it's just that they are more
3 costly?
4 MS. SAWYER: No. He -- his testimony is
5 that they can't use that particular product, but
6 that isn't why we are proposing this rule versus
7 another.
8 MS.
McFAWN: The technical feasibility is
9 not part of your testimony, Mr.
Beckstead?
10 MR. BECKSTEAD: Yes, it is.
11 MS.
McFAWN: It is?
12 MR. BECKSTEAD: Yes.
13 MS.
McFAWN: Is it your testimony that some
14 of these
codings that are used in the South Coast
15 are not available to manufacturers in Illinois?
16 MR. BECKSTEAD: For the particular
17 applications in Illinois, the reformulation on
18 material substitution materials, those are not
19 available.
20 MS.
McFAWN: It's not that they are more
21 costly, it's just that they are not available?
22 MR. ROMAINE: Let me interrupt.
23 MS.
McFAWN: Certainly.
24 MR. ROMAINE: The evaluation Gary was
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655
1 performing was in the context of coming up with
2 additional specific command and control regulations.
3 So the determination was not necessarily whether
4 one particular manufacturer in any particular
5 circumstances might, in fact, be able to use
6 particular
codings with minimal changes and some
7 efforts, but the question was trying to be reviewed
8 whether, in fact, at this point in time could
9 Illinois successfully adopt the South Coast rules
10 that required use of these materials across the
11 board for an entire category of source.
12 That is where Mr.
Beckstead's review
13 identified difficulties with making that widespread
14 change that would affect all manufacturers of cans.
15 MS.
McFAWN: To get back to the question
16 still pending before the agency, you said that you
17 consulted with permit analysts within Illinois EPA
18 in making this conclusion?
19 MR. BECKSTEAD: As part of it, yes.
20 MS.
McFAWN: Could you perhaps provide to
21 the board and the participants in this proceeding
22 a list of who you talked with inside of the agency
23 not so they will be called here as being witnesses,
24 but so that we understand better the chain of your
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1 research?
2 MR. ROMAINE: Maybe I can simply answer the
3 question.
4 MS.
McFAWN: All right.
5 MR. ROMAINE: My expectation is that the
6 people -- the senior analyst that might have this
7 information that Gary probably talked to would
8 have been
Harish Desai, Dan Punzak and Mangu Patel,
9 M-A-N-G-U, P-A-T-E-L.
10 There may have been a number of other
11 analysts who had been recently working on them,
12 but they do not have the years of experience that
13 those individuals have.
14 MS.
McFAWN: Thank you, Mr. Romaine.
15 MR. TREPANIER: Thank you.
16 Question No. 3, regarding your
17 testimony of the unavailability of substitute
18 coding applications, where and when did the
19 outreach readings for the 15 percent ROP plan
20 occur?
21 MS. SAWYER: Objection, irrelevant.
22 MR. TREPANIER: This was said in your
23 testimony as a source of your knowledge.
24 MS. SAWYER: These were rules that were
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657
1 adopted by the board. I don't see where our
2 outreach is relevant.
3 MR. TREPANIER: I think that we just had an
4 extended discussion to find that this information
5 and the basis that the chain of the research is
6 an important issue to the board and this is a very
7 similar question.
8 THE HEARING OFFICER: Can the agency answer
9 the question?
10 MS. SAWYER: Sure.
11 MR. BECKSTEAD: Meetings were held in various
12 locations and at various time frames or times during
13 the 1993 and 1994 time frame. The meeting times and
14 places are a part of the record of the 15 percent
15 rulemaking proceedings.
16 MR. TREPANIER: Thank you.
17 Part B, could material substitutions
18 or
reformulations have become available since the
19 15 percent ROP plan outreach meeting?
20 MR. BECKSTEAD: Technological advancement is
21 always occurring given the incentive to do so like
22 marketable emissions reductions as afforded by the
23 proposed rule. Some material substitutions could
24 be available, but from the data gathered in the 15
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658
1 percent ROP rulemaking, approximately seven to ten
2 years are necessary for a new material to become
3 marketable.
4 MR. TREPANIER: In Part C, I apologize.
5 It appears that not all of the question was
6 written down, but it reads, if substitute quoting
7 applications were available -- and what I meant and
8 maybe you will be able to answer that -- if these
9 coding applications became available, how would
10 you become aware of it?
11 MR. BECKSTEAD: I generally become familiar
12 with the advancement of technology and what is
13 occurring when we propose new regulations and the
14 impacted source and we discuss what we are going
15 to do under the old command and control scenario.
16 That is generally when we heard about
17 new materials being available, new control technology
18 being available, and discussions with impacted
19 sources is generally where we gather that
20 information, discussions again with permit engineers
21 or doing the issuing of permits, operating permits.
22 MR. TREPANIER: Specifically, here in this
23 instance, you mentioned about the command and
24 control. In this instance, now since those 15
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659
1 percent ROP outreach meetings in '93 and '94, if
2 substitute coding applications were to become
3 available, how would you have knowledge of that?
4 Did these command and control meetings
5 that you are speaking of occur?
6 MR. BECKSTEAD: I missed that question.
7 MR. TREPANIER: I'm wanting to know, and maybe
8 you've answered the question, but you said that you
9 learned about these when you are meeting with sources
10 regarding command and control regulations. Did those
11 meetings occur?
12 MR. BECKSTEAD: We are not proposing a command
13 and control situation here.
14 MR. TREPANIER: I'll go on to my next question
15 here. Question No. 13, I consider that we have just
16 made lots of progress.
17 Regarding your testimony upon the cost
18 of controls for the fixed group and internal floating
19 tanks, Subpart A, is the $8,000 to $13,000 cost per
20 ton a one-time cost?
21 MR. BECKSTEAD: It is an estimated recurring
22 annualized cost per ton to control.
23 MR. TREPANIER: And how would that -- is there
24 a possible comparison with that number comparing that
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1 to an after burner technology?
2 MR. BECKSTEAD: From discussions with our
3 impacted sources, generally a vapor recovery system
4 or these closed seal vapor seals are used. After
5 burners are not real practical for an application of
6 storage tanks. I'm just a little confused at that
7 question, sir.
8 MR. TREPANIER: Okay. Let's just move on. I
9 may have misunderstood the material myself.
10 Okay. I'll drop number C having gotten
11 your answer to number one.
12 Question 14, is it your testimony or
13 belief that at about minimum, the cost is
14 approximately $8,000 per ton per year from VOM
15 prevented from entering the atmosphere from fixed
16 room tanks and internal floating room tanks?
17 MR. BECKSTEAD: Based on the information
18 presented by affected sources in the 15 percent
19 ROP rulemaking proceedings, it is my testimony
20 that the estimated cost for controls is in the
21 range $8,000 per ton.
22 MR. TREPANIER: Is that now a measure that has
23 been implemented?
24 MR. BECKSTEAD: Not to the levels we are
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661
1 talking here. It's been implemented for tanks
2 greater than 40,000 gallons. We're talking generally
3 20,000 to 40,000-gallon tanks with lower vapor
4 pressure requiring tighter seals and the more cost
5 intensive at that size tank than what we were
6 confronted with in the 15 percent rulemaking.
7 MR. TREPANIER: This type of control measure
8 that was implemented resulting from the 15 percent
9 rule, have you gotten some feedback on if the actual
10 costs were realized?
11 MR. BECKSTEAD: I haven't personally, no.
12 MR. TREPANIER: So it is possible that the
13 cost is actually less than $8,000?
14 MR. BECKSTEAD: That is a possibility. It
15 could be greater than that also.
16 MR. TREPANIER: That information would be
17 available if somebody were to seek it out?
18 MR. BECKSTEAD: I would think so.
19 MR. TREPANIER: Okay.
20 MR. BECKSTEAD: I'm informed that we wouldn't
21 ask for cost of data control at this stage of the
22 rules.
23 MS.
McFAWN: So you mean that the agency
24 wouldn't have that information available if it was
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1 sought from you?
2 MR. BECKSTEAD: No, correct. That's correct.
3 MR. TREPANIER: So the testimony that you gave
4 was based on information that you received in '93 and
5 '94 as an estimated cost of control rather than an
6 inquiry on what was the actual cost?
7 MR. BECKSTEAD: It is an estimated cost of
8 control, yes.
9 MR. TREPANIER: My next question starts on
10 the second page of the questions that I have for you.
11 It begins on Page 3 regarding, quote, it was assumed
12 that add-on control would be required and that the
13 low solvent materials are not currently available.
14 Why that assumption?
15 MS. SAWYER: Can I ask is this different than
16 your other question, the one that you asked, your
17 first question?
18 MR. TREPANIER: It seems to be very similar.
19 I'll withdraw that and then continue.
20 Well, maybe with the second part of
21 that question it would make more sense, then. Why
22 the assumption, when the California rules, you were
23 applying for the Chicago
nonattainment area
24 specifically recognizes low solvent adhesives with
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1 the 2.1 pound VOM gallon in the very rule?
2 So my question is when the California
3 rules requires a 2.1 VOM gallon adhesive to be used,
4 why did you assume that those would be unavailable
5 in Chicago?
6 MS. SAWYER: I think he did answer that
7 question already.
8 MR. TREPANIER: We talked about can
codings,
9 but maybe this would help the board to understand
10 why the assumption was made on low solvent
11 adhesives.
12 MR. BECKSTEAD: This assumption was based
13 on the best information available from the sources
14 affected by the previous rulemaking.
15 Reformulation or substitute materials
16 are currently not available in the marketplace for
17 the Illinois types of applications.
18 MR. TREPANIER: So if we -- so would you
19 assume that this is a situation similar to the can
20 coding that in Illinois, they've got -- where they
21 are using the glue, the rules are a little bit
22 different and they can't use this glue that's being
23 used in California?
24 MR. BECKSTEAD: Yes.
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1 MR. TREPANIER: It would have been the same
2 sources, the -- would it be the same permit engineers
3 that would have provided that information?
4 MR. BECKSTEAD: I don't recall talking
5 extensively with permit engineers on this analysis,
6 on the adhesive side of it.
7 MR. TREPANIER: Okay.
8 MR. BECKSTEAD: I would also like to clarify
9 that California regulations also have the option for
10 sources to use add-on controls as we do in Illinois.
11 Not all sources in California are meeting a pounds
12 per limit per gallon -- pounds per gallon limit in
13 complying with their regulations. Add-on controls
14 are being used also.
15 MR. TREPANIER: Is there a 2.1 VOM per gallon
16 low solvent adhesive available in California?
17 MR. BECKSTEAD: I think there are applications
18 in California that sources are using, yes, as I
19 recall.
20 MR. TREPANIER: Is it your conclusion that
21 those sources are not available for use in Illinois?
22 MR. BECKSTEAD: They are available for use,
23 but they don't fit the applications in Illinois.
24 MR. TREPANIER: What's the basis of your
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1 knowledge on that?
2 What's the chain of research?
3 MR. BECKSTEAD: Discussions with the impacted
4 sources in the previous rulemakings.
5 MS.
McFAWN: Do you know what the difference
6 is? I mean, what's different in California from
7 Illinois, for instance, in the can -- concerning the
8 can coding that you said. It was the product going
9 into the can. What's the difference here between
10 south California and Illinois?
11 MR. BECKSTEAD: As I recall, one of the
12 primary hurdles is difference in climates here in
13 Chicago and the South Coast area, the fact that it's
14 a much warmer climate and they can operate with
15 lower solvent materials because of and they get the
16 same
flowability and get the same coverage and yet
17 are able to use less solvent because of year-round
18 better operating conditions temperature-wise. It
19 was a primary hurdle that I kept hearing in all
20 the various surface coding applications.
21 MR. TREPANIER: Were these outdoor
22 applications.
23 MR. BECKSTEAD: Sometimes the drying will
24 occur in the outdoors. Not all of them, but
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1 sometimes they roll them into a big room and just
2 let them air dry a little. We, in Chicago, sometimes
3 have to use baked operations.
4 MR. TREPANIER: Some of these materials, they
5 are used in a controlled climate, isn't that right?
6 These materials are being used in a controlled
7 climate so the weather difference between Chicago and
8 California is not a factor?
9 MR. BECKSTEAD: I'm sure that's true too.
10 MR. ROMAINE: To add something a bit to this
11 discussion. For adhesives, you cannot assume that
12 there is one adhesive that will fit all categories.
13 When Gary is referring to applications, he is
14 referring to a specific combination of materials.
15 That includes paper, plastic, plastic to plastic,
16 metal to metal, aluminum to brass, wood to paper,
17 wood to wood, and because of those demands, there
18 has to be an adhesive that meets the particular
19 substrate requirements, strength requirements,
20 exposure requirements, be it the temperature, heat,
21 how many cycles and solvent.
22 So that adhesives are a very difficult
23 category to deal with because of all of those unique
24 products' specific features. The applications to
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1 cans have similar characteristics obviously. The
2 contents that was put into the can affects what
3 lining is needed. I would say this is probably a
4 more uniform category than adhesives.
5 MR. TREPANIER: How big of a source are we
6 talking about when we are talking cans and
7 adhesives?
8 MR. BECKSTEAD: The question again is?
9 MR. TREPANIER: How large of a source are
10 we talking about? Is this a little minutia? Is
11 this a piece of minutia or are we talking about a
12 substantial source?
13 MR. BECKSTEAD: This is a category of
14 emissions. There are several sources in each
15 category of emissions.
16 MR. TREPANIER: So this is a significant
17 source from what I'm hearing?
18 MR. BECKSTEAD: Can coding is an appreciable
19 amount of our emissions inventory.
20 MR. TREPANIER: I'm going to skip my next
21 question. It appears more like a statement than a
22 question.
23 Going on to the one after, referring
24 to Page 4 of your testimony, the non-CTG emissions
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1 categories, what is the basis for the assumption --
2 what is the basis for, and I quote, the assumption
3 was made -- was also made that South Coast material
4 limit would not be met and that Illinois sources
5 would require add-on controls. I think maybe we
6 have answered that one already. I'll withdraw it.
7 On Page 5 of your testimony, starting
8 now with regarding 4.0, analysis of the top 50
9 emission sources, your analysis showed 4192 tons
10 per season of emissions reductions that were
11 identified as potentially available from the 50
12 largest emissions sources in the Chicago
13 nonattainment area or equivalent to 27.4 tons of
14 reduction per day. You state this approach would
15 provide the reduction necessary to meet the 1999
16 ROP level.
17 How much beyond the 1999 ROP level is
18 this?
19 MR. BECKSTEAD: The agency has estimated
20 that 12.6 tons per day of emission reductions are
21 needed to meet the 1999 ROP target level. The
22 analysis of the top 50 emission sources indicates
23 that 24.7 tons per day of emissions reductions are
24 provided, which is 14.8 tons per day more than is
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1 needed.
2 MR. TREPANIER: How much could the -- your
3 estimated costs of the -- of this alternative be
4 lowered if less than the most stringent controls
5 were applied to these 50 emitters if they were
6 required -- if they were the most cost-effective
7 way and still meet the 1999 ROP level?
8 MR. ROMAINE: I think we need to back up
9 a bit and give some explanation.
10 When we talk about the largest 50
11 sources, what really occurred was that the technical
12 staff in the Bureau of Air reviewed the VOM control
13 measures used by the larger sources identified as
14 being participating sources under the program.
15 I think, in fact, the cutoff was
16 VOM emissions of about 50 tons per season. The goal
17 of review was to identify units where significant
18 improvements could possibly -- possibly be made in
19 the VOM control measures.
20 For example, if no control were present
21 on a unit where a control is technically feasible,
22 the unit was flagged for additional control.
23 Likewise, if the present control devices were only
24 limited
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1 for moderate effectiveness, the units were flagged
2 for upgraded controls with the high efficiency
3 device.
4 The important thing is that this
5 evaluation did not involve a detailed review of the
6 circumstances of individual sources considered
7 site-specific costs of making them change it.
8 So as a result, some of these changes
9 that we have identified as resulting from the most
10 stringent controls, you are right, could be, in fact,
11 very expensive. I don't think that we presented
12 this as a demonstration that, in fact, there were,
13 in fact, a comprehensive alternative that would
14 involve applying these control measures to these
15 50 sources.
16 Rather, it was simply a starting point
17 that was then relied upon in the economic analysis
18 to develop a couple of alternatives for review.
19 MR. TREPANIER: What's the value, then, of
20 this analysis under 4.0 if what you are analyzing
21 is emission reductions double -- practically double
22 what we are looking for and with no eye towards
23 efficiency of the application of these control
24 measures?
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1 MR. ROMAINE: I guess the point is this was
2 simply the first step in the evaluation to identify
3 where areas of control could possibly be improved.
4 When we got to the next step in coming
5 up with alternatives, that is where we then factored
6 in some economic information to select a particular
7 combination of control measures that would result
8 in -- within those constraints for command and
9 control at lesser costs.
10 So one option that was selected was
11 identifying eight sources that by themselves would
12 minimize the number of participating sources, I
13 believe, and then another option was to -- I came
14 up with 12, I think. A further description of that
15 will be discussed in our economic testimony.
16 MR. TREPANIER: Does your testimony give a
17 cost of control if this -- if the top 50 emitting
18 sources were required to install what kind of
19 controls that you have here, the best available?
20 MR. ROMAINE: No.
21 MR. TREPANIER: There is no estimate in the
22 cost of that control?
23 MR. ROMAINE: No.
24 MR. TREPANIER: Regarding your testimony at
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1 2.1, estimated emission reductions, does the grand
2 total of 6.82 tons per day of emissions reductions
3 identify -- fulfill the 1999 ROP level?
4 I think I have the answer to that
5 question already. I understand you just said that
6 was 12.6?
7 MR. BECKSTEAD: 12.64 is the required level.
8 MR. TREPANIER: Thank you.
9 Would you be able to give an estimate
10 of the cost of control -- and I'm reading the last
11 question on the second page of my questions. I'm
12 reading from my last question.
13 Are you able to make an estimate of
14 what the lowest cost would be if the minimal level
15 of reduction necessary to meet the 1999 ROP were
16 found within the 50 largest VOM emitters in the
17 Chicago
nonattainment area?
18 MR. BECKSTEAD: Those analyses, Options 1, 2
19 and 3, are an attempt to address that specific
20 question.
21 We looked at 12 percent reduction of
22 all sources greater than -- having emissions greater
23 than ten tons per ozone season. Just a uniform 12
24 percent of all of those.
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1 We also analyzed from two subsets from
2 those top 50 emitters and asked ourselves the
3 question if we got it all from, say, the eight with
4 the greatest potential for reductions, what kind of
5 cost would that be? If we got it from the 12 most
6 cost-effective, what kind of cost are we looking at
7 there? That's more economic questions than technical
8 feasibility, I feel.
9 MR. TREPANIER: So I understand you, that
10 information is not available today regarding what
11 would be the cost of control if the 50 largest
12 emitters were commanded to make the most economic
13 controls to accomplish our 1999 ROP?
14 MR. BECKSTEAD: The agency feels that we
15 have addressed the question in the two or three
16 alternatives that were analyzed, the 12 percent
17 across the board, the eight largest, the 12 most
18 cost-effective. We feel that we are addressing
19 that issue.
20 MR. TREPANIER: Do you know the number, what
21 the cost per ton would be if the 50 largest emitters
22 were commanded to reduce their emissions in the most
23 efficient manner -- economical manner to meet the
24 ROP?
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1 MR. BECKSTEAD: I would refer to section --
2 MS. SAWYER: Can I suggest that we defer
3 these questions, Mr.
Trepanier, to the specific
4 economic section of the questions. I think we
5 would be able to provide you with a better answer
6 at that point. We will go through what we did and
7 I think it would be more appropriate to answer it
8 at that point.
9 MR. ROMAINE: I would prefer to answer it.
10 THE HEARING OFFICER: At this point, Bonnie,
11 I would like to say that I have a couple questions
12 on the estimated costs too. So I would like to have
13 them answered by Mr.
Beckstead.
14 In a couple of places in his testimony
15 in Section 4, in the second paragraph, he says that
16 the current level of control of each unit was
17 compared to the most stringent level of control
18 currently known available and other reductions
19 were estimated.
20 In the last section of 50, you say
21 with the paragraph -- the second paragraph, in
22 applying the most stringent controls known to be
23 available to the 50 largest VOM sources in the
24 Chicago
nonattainment area, we have sufficiently
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1 conducted, however, the cost of these control
2 measures are estimated to exceed the cost of the
3 California sources.
4 At some point, I believe he estimated.
5 I was just wondering if you have that number.
6 MR. BECKSTEAD: The second comment, it was
7 just a general statement. If we have -- we come to
8 the rationalization by applying South Coast, and we
9 had a range of 8,000 to 26,000 in applying those, if
10 we go with the most stringent, which would be even
11 above the California regulations, we would -- our
12 estimate was we would probably exceed that range
13 of cost. A specific number was not generated, no.
14 THE HEARING OFFICER: So your testimony really
15 is that you expected the cost to exceed?
16 MR. BECKSTEAD: Yes, right, yes.
17 THE HEARING OFFICER: Okay. Does that answer
18 your question, Mr.
Trepanier?
19 MR. ROMAINE: The question I heard asked is
20 what is the most cost-effective way to control the
21 top 50 sources? The simple answer is this trading
22 program. That's why we are putting forward this
23 trading program and as stated in the technical
24 support document, we have estimated the cost of,
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1 I believe, $2,800 or $2,900 a ton.
2 MR. TREPANIER: Well, you misread my question,
3 but you did provide some information. That was the
4 last question that I had.
5 THE HEARING OFFICER: Are there any other
6 questions particular to Mr.
Beckstead?
7 MS. MIHELIC: As a follow-up to the previous
8 question, did you look at what it would take to
9 control the top 50 sources -- I guess the first
10 question is what do you mean by source; an entire
11 facility or just a unit at a facility?
12 MR. BECKSTEAD: A source is an entire
13 facility.
14 MS. MIHELIC: So when you say the top 50
15 sources, you are talking about an entire plant?
16 MR. BECKSTEAD: Yes.
17 MS. MIHELIC: So not just one emission unit
18 at a plant?
19 MR. BECKSTEAD: Right.
20 MS. MIHELIC: Did you look at what it would
21 take at those 50 sources to not get the most
22 stringent control that would achieve double the
23 reductions needed, but what would be needed to
24 obtain the 12-ton per day reduction at those 50
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1 sources?
2 MR. BECKSTEAD: We did it in the subsets
3 of the eight largest emitters and the 12 most
4 cost-effective.
5 MS. MIHELIC: But you did not look at the 50?
6 MR. BECKSTEAD: We looked at the 50 for total
7 emissions available, not for cost factors.
8 MS. MIHELIC: And not for cost factors based
9 on only 12-ton per day reduction and not a 27-ton a
10 day reduction?
11 MR. BECKSTEAD: No. We just expected that
12 it would be greater than the California regulations.
13 MS. MIHELIC: And that you expected that the
14 costs of controlling to the most stringent control
15 would be greater than the California standards, is
16 that correct?
17 Is that what is stated in the technical
18 support documents?
19 MR. BECKSTEAD: Yes.
20 MS. MIHELIC: Do you state anywhere in your
21 technical support document that you expect it would
22 also be more -- it would cost more to control only
23 the 12 tons per day needed for those 50 sources?
24 MR. BECKSTEAD: I think that's what we were
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1 in search of in the
analyzation of the data, what's
2 the best approach.
3 MS. MIHELIC: Okay. But I'm saying did you --
4 do you have anywhere in here that for the 50
5 sources -- for 50 sources out there, is there
6 anywhere in your testimony or in the technical
7 support documents an analysis or a conclusion
8 of what the costs would be for obtaining only a
9 12-ton per day reduction from those 50 sources,
10 all 50 sources?
11 MR. ROMAINE: I think that's implicit in
12 the analysis. It would be more than we evaluated
13 and came up with for the specific alternatives.
14 You would have to tell us how you would want to
15 assign that emission reduction among those 50
16 sources.
17 But the reason we came up with the
18 particular alternatives is that was a reasonable
19 way to approach those 50 sources to get the
20 required 12-ton reduction with some attempt at
21 minimizing costs.
22 MS. MIHELIC: You are saying you assumed
23 it would be more costly to control 50 than for,
24 say, just the 12?
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1 MR. ROMAINE: Yes.
2 MR. SAINES: But we're talking about two
3 different things. At one point, we're talking
4 about the most stringent controls known and you --
5 in your technical support document, you have
6 estimated that it would be technically feasible
7 to control the largest 50 sources with the most
8 stringent controls known generating 27 tons per
9 day, which is in excess of what is needed, is
10 that correct?
11 Okay. Is it your testimony that you
12 did not, then, look at those same 50 sources and
13 instead of applying the most stringent controls
14 known, you applied lesser controls with the same
15 50 sources through command and control to generate
16 12 tons?
17 MR. ROMAINE: I think, as you phrased the
18 question, we did not do the specific analysis that
19 you are suggesting. We did not have the information
20 to identify some intermediate level of moderate
21 control. We also didn't have the cost data to
22 identify what would be the cost of those moderate
23 levels of control. So it was beyond the scope of our
24 analysis.
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1 We did try to identify within the
2 constraints evaluation being done for those 50
3 sources what would be necessary or what would be
4 done to achieve the rate of progress plan, working
5 from that population of 50 sources, while minimizing
6 costs.
7 MR. SAINES: Thank you.
8 MS. MIHELIC: Did you --
9 MS. SAWYER: Are you asking your
prefiled
10 questions?
11 MS. MIHELIC: No. Because my
prefiled
12 questions -- I'm sorry. I thought we were on to
13 no more
prefiled questions being asked.
14 THE HEARING OFFICER: Are you just asking
15 follow-up questions to these questions?
16 MS. MIHELIC: Right. Well, I can wait.
17 There are additional questions I have to ask.
18 MR. FORCADE: We had
prefiled questions
19 relating to technical support document Appendix E.
20 I'm not certain whether this is not the time for
21 that. Is there some other person we should ask?
22 MS. SAWYER: Right. Once we get the panel
23 together, that would be the best time to ask.
24 MS.
McFAWN: Which panel is that?
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1 MS. SAWYER: When we get everyone back up and
2 we go into -- E doesn't relate to the technical
3 feasibility, basically.
4 THE HEARING OFFICER: I guess my question
5 is are these particular to his testimony --
6 MS. MIHELIC: Yes.
7 THE HEARING OFFICER: -- or just generally
8 about the proposal?
9 MS. MIHELIC: Particular to his testimony.
10 MS. SAWYER: Can I ask a little further? If
11 they are particular about the economics, I know there
12 is some crossover, but really, it would be better to
13 hold those questions until we have the economic
14 panel. They are not?
15 MS. MIHELIC: No.
16 MS. SAWYER: Okay.
17 MS. MIHELIC: At least I don't believe that
18 they are.
19 Did the agency --
20 MS.
McFAWN: Ms. Mihelic, can I interrupt for
21 a moment?
22 Is Mr.
Beckstead going to come with the
23 economic panel tomorrow?
24 MS. SAWYER: No.
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1 MS.
McFAWN: Go ahead, Ms.
Mihelic.
2 MS. MIHELIC: Did the agency assess the
3 technical feasibility of installing the most
4 stringent control on the eight sources with the
5 greatest emission reduction potential?
6 MR. BECKSTEAD: Well, that was analyzed in
7 Section 8. If you refer to Section 8 and the
8 tables --
9 MS. MIHELIC: That is in the economic impact
10 analysis, that's not in the technical feasibility
11 analysis?
12 MR. BECKSTEAD: No, it's not. It's in
13 Section 8.
14 MS. MIHELIC: Did the agency assess the
15 technical feasibility of actually installing that
16 kind of control on these eight sources?
17 MR. BECKSTEAD: We knew that these type of
18 controls are being used. They are known to be on
19 similar sources.
20 MS. MIHELIC: When you say similar sources,
21 in the Chicago area or outside of the Chicago area?
22 MR. ROMAINE: We did not limit our
23 comparison to just the Chicago area. It's in general
24 use.
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1 MS. MIHELIC: Did the technical feasibility
2 analysis look at the particular eight sources in
3 question to assess the technical feasibility of
4 installing that control at that particular facility?
5 MR. ROMAINE: No. There was not a separate
6 review of technical feasibility beyond the general
7 review of feasibility conducted for all 50 sources
8 or for the 50 biggest sources.
9 MS. MIHELIC: So it also wasn't done with the
10 12 sources --
11 THE HEARING OFFICER: Can I interrupt for a
12 second?
13 MS. MIHELIC: Certainly.
14 THE HEARING OFFICER: You are asking questions
15 of Mr.
Beckstead and yet Chris Romaine is answering
16 them anyway. I don't know if these questions are
17 directed to Gary after all.
18 MS. MIHELIC: Well, it's on technical
19 feasibility and I don't really know who is here
20 to testify as to that.
21 THE HEARING OFFICER: Right. And I was going
22 to ask -- Mr.
Beckstead, your testimony you submitted
23 deals mostly with economics, in my humble opinion.
24 I'm wondering -- I know you can't be available for
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1 the 10th and 11th. That's because of a prearranged
2 situation. You will be available at another time if
3 we do have to hold another hearing?
4 MR. BECKSTEAD: Sure.
5 MS.
McFAWN: Also, is there anyone else at the
6 agency that can testify or answer questions related
7 to your testimony?
8 MS. SAWYER: Yes, Mr. Romaine.
9 MS.
McFAWN: Mr. Romaine?
10 MS. SAWYER: Yes.
11 THE HEARING OFFICER: And additionally,
12 Sarah -- I know Sarah
Dunham has also prefiled some
13 testimony.
14 Is your testimony purely economics or is
15 it feasibility?
16 MS. DUNHAM: Purely economics.
17 MS. SAWYER: But we can answer this question
18 one more time that Ms.
Mihelic is asking right now.
19 I would like to get this a little straight because I
20 think there is some confusion.
21 THE HEARING OFFICER: I think I have a couple
22 questions just to go to Mr.
Beckstead and I think
23 we might as well just bring the whole agency panel
24 up, then, because it seems that we are doing
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1 questions for all of them. I don't see these are
2 questions just for Mr.
Beckstead. So if you could
3 hold off on your questions, let me ask a couple of
4 questions.
5 MS. MIHELIC: I just have two
prefiled
6 questions I would like to ask, then, of Gary
7 Beckstead, which I believe goes directly to his
8 testimony.
9 THE HEARING OFFICER: Well, why don't you ask
10 those then.
11 MS. MIHELIC: Okay. In my
prefiled question,
12 Question No. 3., D., of the modified questions.
13 It's the third to the last page of the
prefiled
14 questions.
15 The question is what was the amount
16 of reductions in VOM achieved in South Coast Air
17 Quality Management District Area by the California
18 rules?
19 MR. BECKSTEAD: Six, B.?
20 MS. MIHELIC: Yes.
21 MR. BECKSTEAD: What was the amount of
22 reductions in VOM achieved in the South Coast area
23 by the California rules?
24 MS. MIHELIC: Right.
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1 MR. BECKSTEAD: We didn't analyze how much
2 reductions South Coast were getting.
3 MS. MIHELIC: Did the agency -- this is
4 No. 7.
5 Did the agency determine how many
6 sources in the Chicago area would satisfy the
7 California rules despite not being required to
8 do so in Illinois and to clarify that, that's
9 currently satisfying the California requirements?
10 MR. BECKSTEAD: Yes. In the analysis, if
11 the source had sufficient controls to meet what
12 California was specifying, there were no reductions
13 available. So we moved to the next source.
14 MS. MIHELIC: How many sources actually meet
15 the California rules?
16 MR. BECKSTEAD: I do not have an exact count
17 on that. All I have is total emissions available,
18 which was the focus on the analysis.
19 MS. MIHELIC: Is there any documentation
20 that you do have, not with you today, that would
21 show how many sources actually meet the California
22 rules?
23 MR. BECKSTEAD: We didn't keep the information
24 because that was not the focus of our rule.
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1 MS. MIHELIC: If some of these sources have
2 already met this level of remission reductions,
3 wouldn't this impact the costs associated with the
4 sources coming into compliance with these rules?
5 MR. BECKSTEAD: No, it would not.
6 MS. MIHELIC: If they already are in
7 compliance, wouldn't the cost be zero to come into
8 compliance?
9 MR. BECKSTEAD: We calculated an annual
10 cost per ton of VOM reductions. There were no
11 reductions there. It would be the cost of that
12 source.
13 MR. ROMAINE: Let me add a clarification.
14 In terms of the regulatory analysis to support the
15 rule evaluating the cost effectiveness and putting
16 in the control measures of what's being required,
17 Gary is correct, that that information would not
18 change that cost effectiveness value.
19 In terms of the overall impact of
20 the rule, clearly, if there is some source that
21 has already complied with the rule, all of the
22 sources and all of the reductions, the total cost
23 would obviously be less.
24 Some sources are already in compliance,
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1 but that is not the type of evaluation that is done
2 for a command and control rule. It's only one piece
3 of the evaluation for the command and control rule.
4 MS. MIHELIC: My questions go to -- more
5 to cost. So I will wait to ask those at a later
6 time.
7 MS.
McFAWN: What about your questions one
8 through five?
9 MS. MIHELIC: Those are questions that I was
10 revising and I was told to wait to ask them until
11 the panel came up. These are going to the technical
12 feasibility assessment and economics. It appears
13 that they are not willing for those to be asked at
14 this time.
15 MS.
McFAWN: So you will be asking those
16 when more of the economic experts of the agency
17 are here?
18 MS. MIHELIC: Correct.
19 MS.
McFAWN: Thank you.
20 THE HEARING OFFICER: Are there any other
21 questions specific for Mr.
Beckstead?
22 I have one just for my own benefit.
23 You stated in your testimony today what was in there,
24 but I didn't recall you stating whether or not you
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1 believe, in your opinion that the ERMS proposal is
2 technically feasible.
3 MR. BECKSTEAD: Yes. I do believe that it
4 is technically feasible.
5 THE HEARING OFFICER: And then there is one
6 other question that I think you can answer.
7 Does the ERMS proposal prohibit the use
8 of any alternative solvents, adhesives, or other
9 alternative things for the use of command and control
10 technology?
11 MR. BECKSTEAD: No. In fact, it's an
12 incentive for sources to find the most economic and
13 most advantageous way to get reductions particular
14 to their application.
15 THE HEARING OFFICER: That's all the questions
16 that I have. Could we have one second?
17 MS. ANN: I have three questions on the
18 technical support document. I don't know if you can
19 answer them all.
20 First, I'm just going to ask you just a
21 general question. How are you going to change from
22 tons per day to tons per season?
23 MR. BECKSTEAD: How do we change?
24 MS. ANN: Right.
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1 MR. BECKSTEAD: We have the operating schedule
2 of each source.
3 MS. ANN: Okay. So there is not just a
4 certain amount of days that you are going to
5 multiply?
6 MR. BECKSTEAD: No.
7 MS. ANN: It's specific to each source or
8 unit?
9 MR. BECKSTEAD: Yes.
10 MS. ANN: Okay. In the summary of the
11 technical support document, it says that -- it's on
12 the last page. It says small businesses that remain
13 in the ERMS, the ACMA, provides an absolute cap on
14 control costs of $10,000 per ton, but that's not
15 stated anywhere in the proposed rules. Was that just
16 decided again?
17 MR. BECKSTEAD: She's talking about the ACMA?
18 MS. SAWYER: What was your question?
19 Could you repeat your question?
20 MS. ANN: In the conclusion of the technical
21 support document, it says for small businesses that
22 remain in the ERMS, that ACMA provides an absolute
23 CAAPP on control costs of $10,000 per ton, but
24 that's not stated anywhere in the rules, the proposed
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1 rules.
2 MS. SAWYER: Could you ask that question later
3 when we have the economic portion?
4 MS. ANN: Yes.
5 THE HEARING OFFICER: Is that it?
6 MS. ANN: Yes.
7 MS. MIHELIC: I have one more follow-up
8 question.
9 Who are the 50 sources?
10 MS. SAWYER: Who are what?
11 MS. MIHELIC: The 50 sources.
12 Is there a list provided anywhere?
13 MR. BECKSTEAD: We did not include it in
14 our technical support document and I don't have
15 the information with me to list them at the present
16 time.
17 MS. MIHELIC: Is it available anywhere? I
18 mean, is there a list available somewhere?
19 MR. BECKSTEAD: Yes.
20 MS.
McFAWN: Why don't you bring it to the
21 next hearing?
22 MR. FORBES: Yes, we will provide the list.
23 MS.
McFAWN: Thank you.
24 THE HEARING OFFICER: Mr.
Newcomb?
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1 MR. NEWCOMB: I have one quick question.
2 Did the agency estimate cost
3 inefficiencies for implementing controls for sources
4 other than point sources with the narrow exception
5 of the cold solvent cleaning?
6 MS. SAWYER: Could you repeat the question?
7 MR. NEWCOMB: Did the agency estimate cost
8 inefficiencies of implementing controls for sources
9 other than point sources with the narrow exception of
10 cold solvent cleaning?
11 MR. BECKSTEAD: The purpose of this technical
12 feasibility analysis was for point sources. That's
13 where my involvement has been. That's why I'm
14 testifying.
15 MR. NEWCOMB: Can I take it, then, that your
16 answer is no?
17 MR. FORBES: In terms of -- I'll answer that
18 in terms of rate of progress plan, we assess
19 reductions -- possible reductions from all sectors.
20 But specific to Mr.
Beckstead's
21 testimony, that goes to the technical feasibility
22 of the stationary source proposal, which is the
23 ERMS rule.
24 MR. NEWCOMB: Thank you.
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1 THE HEARING OFFICER: Are there any other
2 questions at this time of Mr.
Beckstead? Thank you.
3 Let's take a 10-minute break.
4 (Whereupon, after a short
5 break was had, the
6 following proceedings
7 were held accordingly.)
8 THE HEARING OFFICER: I believe all the
9 witnesses are still under oath. We will start
10 out with
ERG's questions.
11 MS. ROSEN: Thank you. Good morning. My
12 name is Whitney
Rosen. I'm legal counsel for the
13 Illinois Environmental Regulatory Group.
14 I would just like to briefly make a
15 two-sentence statement. ERG worked closely with
16 the agency in an effort to achieve consensus on
17 the proposal. We appreciate that opportunity.
18 We will be providing testimony at a later date
19 based on some outstanding issues and our questions
20 today are in an effort to help clarify the agency's
21 testimony in the proposal.
22 THE HEARING OFFICER: When you go through
23 your question, please state the page, when they were
24 filed, if they are different. I know you have a lot
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1 of questions on 320 at a later filing date.
2 MS. ROSEN: Yes. Thank you.
3 The document, which I will first refer
4 everyone to, is our original filing that was dated
5 January 14, 1997. These are the
prefiled questions
6 of Illinois Environmental Regulatory Group. We
7 start on Page 2, Question 1, addressing Subpart A,
8 Section 205.150.
9 On Page 22 of Mr. Romaine's testimony,
10 he discusses the applicability of new source review
11 under the ERMS program. He states, quote, U.S. EPA's
12 regulations for evaluating changes in emissions are
13 associated with projects distinguish between actual
14 and allowable emissions and do not consider emission
15 increases that are exempt from the federal definition
16 of modification.
17 I have two questions. A., what are the
18 emission increases that are exempt from the federal
19 definition of modification?
20 MR. ROMAINE: As addressed by 35 Illinois
21 Administrative Code 203.203, some of the changes
22 that are not considered modifications under new
23 source review are routine maintenance and repair
24 of equipment, increases in hours of operation or
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1 production rate, if those are not prohibited by
2 enforceable permit conditions, and changes to an
3 alternative fuel or raw material that a unit is
4 capable of accommodating and again, is not prohibited
5 by the enforceable permit conditions.
6 MS. ROSEN: Those are the exemptions that are
7 included in 203.203?
8 MR. ROMAINE: I believe so, yes.
9 MS. ROSEN: Okay. And you are distinguishing
10 those maybe between the ones that are federal
11 exemptions?
12 MR. ROMAINE: Yes. Those are the regulations
13 that are in the state's new source review program
14 that are implemented through the state's rules.
15 Those, however, are based upon the federal
16 regulations. Those are, in fact, the exemptions
17 that are also found in the federal regulations as
18 well.
19 MS. ROSEN: B., will the -- I'll modify that
20 this -- will the federal exemptions or those
21 exemptions found in 203.203 continue to apply to
22 sources once they are subject to the ERMS program?
23 MR. ROMAINE: Yes. Those exemptions would
24 continue to go with the new source review program.
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1 MS. ROSEN: Thank you. Question 2, on
2 Page 22 of Mr. Romaine's testimony, he states that
3 as there cannot be a direct relationship between
4 seasonal VOM emissions for purposes of ERMS and
5 applicability of new source review, implementation
6 of new source review under ERMS only extends to the
7 emission offset requirement.
8 Can the agency state generally what
9 other requirements a source will have to comply
10 with in order to fulfill the new source review
11 requirements and how those requirements will be
12 coordinated with the requirements of the ERMS
13 program?
14 MR. ROMAINE: Yes. To receive a construction
15 permit for a major project, in addition to the offset
16 requirement, a source must show that it will control
17 nonattainment emissions to the lowest achievable rate
18 or LAER. This is the case-by-case determination of
19 the most stringent control practices applicable to
20 the source.
21 In some cases -- as I mentioned
22 earlier, BACT may be acceptable instead of LAER --
23 a source must also perform analysis of alternatives
24 to the proposed project showing that the benefits
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1 of the project outweigh the environmental impacts
2 and certify that other major sources in Illinois
3 are in compliance.
4 Then, upon startup of that major project
5 and thereafter, the source must demonstrate that the
6 lowest achievable emission rate is being achieved as
7 specified in the construction permit.
8 If we are talking about a minor project,
9 the source must demonstrate that the proposed project
10 is, in fact, minor.
11 Then, you asked how will this be
12 coordinated with the requirements under the trading
13 program? The only change under the new source
14 review rules as a result of the trading program
15 is to convert the offset requirement to a seasonal
16 basis in terms of
ATUs.
17 We believe that this change is
18 consistent with Clean Air Act. We don't need any
19 other changes to new source review rules themselves.
20 Other requirements of new source review
21 are unchanged. The applicability provisions for
22 new source review, that is the definition of what
23 is a major source, a major modification, provision
24 for netting is unchanged. Changes to those parts of
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1 new source review program can't be made as part of
2 the rules for the trading program.
3 MS. ROSEN: I know we did try to get rid of
4 questions which may have already been asked and
5 answered. I apologize if our decision might result
6 in some repetition.
7 Question No. 3(a), in general, if a
8 facility has received its allocation of allotment
9 trading units and its post-year 2000 and made its
10 required reductions, would it be allowed to make
11 any changes, modifications, or introductions of
12 new processes within the facility beyond 2000 as
13 long as it keeps its VOM emissions below the
14 admission level?
15 MR. ROMAINE: The question that's posed is
16 really combining new source review rules and ERMS
17 again. I said the situation with the -- under
18 the ERMS will not affect the new source review
19 status. This concept that you mentioned staying
20 within a particular limit, I think is referring
21 back to the concept of a plant-wide applicability
22 limit. This is something that U.S. EPA is
23 considering as part of changes to its new source
24 review regulations.
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1 Under this concept, if an appropriate
2 plant-wide applicability limit were set for a
3 permit or is set for a source in a permit, this
4 source could, then, make changes and they wouldn't
5 be considered modification under our new source
6 review if the source wide emissions stayed within
7 its plant-wide applicability limit.
8 Those are provisions of new source
9 review. We are not in a position at this point to
10 say that a source's allocation is, in fact, a
11 plant-wide applicability limit. It's just not the
12 way that the U.S. EPA has set up the New Source
13 Review Program.
14 MS. ROSEN: B., how could the fact that the
15 source has passed actual emissions, which were 25
16 tons of VOM per seasonal allotment period below
17 the source's allocated amount of
ATUs for a number
18 of years impact its activities post-2000?
19 MR. ROMAINE: Well, quite simply, the source
20 would have a surplus of
ATUs and it could bank or
21 trade those
ATUs.
22 MS. ROSEN: Okay. Would the source have a
23 risk of triggering new source review applicability
24 if it is now using the 25 tons, which they may have
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1 been selling under the program?
2 MR. ROMAINE: You would have to go through
3 the specific evaluation under the New Source Review
4 Program to see whether, in fact, there has been a
5 modification of the source.
6 Going back to what I said previously,
7 if the source had a permitted operation that allowed
8 it to use certain raw materials or increase hours of
9 operation or increase production rate, that has not
10 been restricted by a permit condition, the fact that
11 it has temporarily not been taking advantage of that
12 and had surplus
ATUs and sold them off would not
13 allow them to come back in the future and return to
14 operation and resume those
ATU's itself.
15 MS. ROSEN: Okay. So is it correct that in
16 theory, what you have is -- and we may have touched
17 on this yesterday -- is that you're going to have
18 a new source review sort of baseline and an ERMS
19 baseline and they are separate and apart, the
20 decisions you are going to have to make about
21 emissions increases --
22 MR. ROMAINE: That's correct.
23 MS. ROSEN: -- and reductions? Thank you.
24 Question 4, if the source were to
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1 fulfill its rate of further progress reduction
2 requirements under ERMS, meaning it's met its 12
3 percent reductions, would any additional reductions
4 made at the source, and with the assumption that
5 such decrease occurred within the five-year period
6 for the associated increase, be creditable for
7 purposes of netting under 35 Illinois Administrative
8 Code 203.208?
9 MR. ROMAINE: Generally, yes, for purposes
10 of netting. Of course, one would have to adjust for
11 the seasonal emissions from the trading program and
12 annual emissions for purposes of new source review.
13 In addition, the main difference between
14 the New Source Review Program and what is credible
15 in the trading program is there could be provisions
16 under new source review which would further restrict
17 whether a particular emission decrease would be
18 considered credible for purposes of netting.
19 MS. ROSEN: How about the same situation
20 for purposes of offsetting under 35 Illinois
21 Administrative Code 203.208?
22 MR. ROMAINE: They would be credible for
23 purposes of offsets.
24 MS. ROSEN: B., if the answer to the above
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1 question is yes, and if those additional reductions
2 were made due to imposition of the post-1996 federal
3 requirement, such as MACT, would the reductions be
4 creditable for purposes of netting under new source
5 review provisions?
6 MR. ROMAINE: You have come up with a
7 circumstance where new source review rules further
8 restrict the credit from a particular decrease for
9 purposes of netting.
10 A decrease in hazardous air pollutant
11 emissions as a consequence of a MACT rule would not
12 be considered surplus for purposes of netting under
13 new source review. The source could only get credit
14 for incidental reductions for non-hazardous air
15 pollutant emissions that accompanied a MACT rule.
16 That would be the portion that would be credible.
17 MS. ROSEN: Okay. How about for purposes
18 of ERMS?
19 MR. ROMAINE: Under the ERMS, that decrease
20 would be fully recognized and would reduce the
21 source's need for ATU.
22 MS. ROSEN: Okay. How about for when --
23 THE HEARING OFFICER: When you say that
24 decrease, are you referring to the decrease in the
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1 MACT or the incidental decrease that goes along with
2 MACT?
3 MR. ROMAINE: I was referring to the
4 total decrease; the MACT reduction and the incidental
5 reduction.
6 THE HEARING OFFICER: Thank you.
7 MR. ROMAINE: Assuming that CAAPP is an
8 organic pollutant.
9 MS. ROSEN: For purposes of offsetting under
10 35 Illinois Administrative Code, Section 203.302?
11 MR. ROMAINE: Under our proposal, the decrease
12 would be accepted for purposes of offsets.
13 MS. ROSEN: I'm going to go on to Question 5.
14 There may be some aspects of it that were answered in
15 your previous answer.
16 If a facility's ATU allocation after the
17 year 2000 equates to 100 tons of VOM for the seasonal
18 allocation period, in the year 2002, the source
19 complies with the MACT standard, which requires the
20 source to reduce
HAPs, hazardous air pollutants, on
21 a portion of its facility. By reducing the
HAPs,
22 the source has incidental
VOMs emission reductions
23 of 30 tons during the seasonal allotment period.
24 The source has achieved its 12 percent required
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1 reductions for purposes of ERMS prior to 1999 through
2 reductions of other units within the facility. Would
3 the source have the option of keeping those
ATUs
4 achieved via the MACT reduction as credits for
5 selling those
ATUs?
6 MR. ROMAINE: Yes. As described, it would
7 have surplus
ATUs to bank or sell.
8 MS. ROSEN: Okay. And Question B., assuming
9 that the response to Paragraph A is yes, the source
10 decides to sell the credits for a period of five
11 years from 2003 through 2008. In 2009, the source
12 installs a new process unit at the facility which
13 annually will emit 50 tons of VOM. During the ozone
14 season, it will emit an additional 25 tons of VOM.
15 Modification is major under new source review.
16 However, the facility has sufficient
ATUs to allocate
17 to cover the increase.
18 Subparagraph 1, would the facility
19 be able to perform netting under new source review?
20 MR. ROMAINE: Not really. Although a source
21 is always able to pursue netting, in the case that's
22 been described, the emission decrease would no longer
23 be contemporaneous. The reduction is describe as
24 having occurred in the year 2002. The increase for
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1 which netting is being considered occurs in 2009,
2 2003, 2004, 2005, 2006, 2007, 2008. That's six years
3 intervening time. Therefore, the emission decrease
4 would no longer be contemporaneous for purposes of
5 netting.
6 MS. ROSEN: We will strike Subparagraph 2.
7 Subparagraph 3, would the facility have
8 to meet a 1.3 to 1 offset for the new emission unit
9 under new source review?
10 MR. ROMAINE: Yes, it would. In this case,
11 in 2009, we would expect it would be achieved through
12 the trading program. I'm assuming there isn't any
13 other emission reductions, no other netting or other
14 arrangement going on that would otherwise excuse it.
15 MS. ROSEN: And under ERMS?
16 MR. ROMAINE: Well, because it would be
17 a major modification -- assuming it's a major
18 modification, the way that it would satisfy its
19 obligation and have offsets would provide 1.3
ATUs
20 for each unit of emissions from the new unit or
21 the new emissions.
22 MS. ROSEN: Four, how will the source
23 demonstrate compliance -- just a moment please.
24 How will the source demonstrate
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1 compliance with new source review offset
2 requirements?
3 MR. ROMAINE: It would have to have sufficient
4 ATUs to meet the offset ratio. Thus, 13-ATU would
5 have to be held for each ton emitted by the new unit
6 rather than ten ATU tons generally required.
7 MS. ROSEN: C., assume that the source
8 installs MACT and achieves the 30 tons of VOM
9 reduction for 2003. Prior to the seasonal ozone
10 period of 2003, the source installs the same new
11 process unit. One, would this facility be able
12 to perform netting under new source review?
13 MR. ROMAINE: Yes, it would. In this case,
14 you would compress time period so that you are now
15 having contemporaneous increases and decreases.
16 MS. ROSEN: Two, would the BACT -- would BACT
17 and LAER have to be achieved for the new emissions
18 unit under new source review?
19 MR. ROMAINE: Not if they successfully net
20 out of new source review. So if these are all the
21 increases and decreases we are talking about, then,
22 it would net out and it would not have to have
23 BACT or LAER. I just want to precaution, because
24 it is a severe ozone
nonattainment area, we have
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1 to make sure there aren't any other contemporaneous
2 increases and decreases. That's just a precautionary
3 note.
4 MS. ROSEN: Three, would the facility have to
5 meet 1.3 to one offset with the new emission unit of
6 the new source review?
7 MR. ROMAINE: No. If it successfully nets
8 out, it's not subject to the offset requirement.
9 MS. ROSEN: Or under ERMS?
10 MR. ROMAINE: If it were ERMS, it would simply
11 have to hold enough
ATUs. Under the description
12 provided, it would seem that the prior reduction
13 would free up some
ATUs to accommodate this new
14 emission unit.
15 MS. ROSEN: Question 6, would a source
16 still have to obtain a construction permit for a
17 modification which would result in emission increases
18 which would be covered by the source's
ATUs
19 allocation under ERMS?
20 MR. ROMAINE: Yes, it would. The trading
21 program doesn't change the source's obligation to
22 contain construction permits before construction
23 of new or modified units.
24 MS. ROSEN: Our Questions 7, 8 and its
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1 subparts, we would like to -- some have been
2 asked and answered. We may be addressing them
3 possibly within our own testimony.
4 THE HEARING OFFICER: You are going to
5 withdraw those?
6 MS. ROSEN: Excuse me?
7 THE HEARING OFFICER: Are you going to
8 withdraw those?
9 MS. ROSEN: Yes. We will withdraw them.
10 Turning to Question 9 on Page 6,
11 on Page 6 of Mr. Romaine's testimony, when
12 discussing sources seeking exemption by reducing
13 their baseline emissions by 18 percent, he states
14 that those sources would not be subject to the
15 various market elements of ERMS. To which ERMS
16 elements would those sources be subject?
17 MR. ROMAINE: Well, exempt sources would
18 certainly be subject to seasonal regarding for
19 their VOM emissions. In addition, exempt sources,
20 pursuant to the ATU exemption, you will have to
21 file ERMS applications to establish the source's
22 baseline emissions so we can determine what
23 emission level represents an 18 percent reduction.
24 What exempt sources wouldn't have to
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1 do would be to hold
ATUs for seasonal emissions.
2 It wouldn't have to have transaction accounts or
3 account officers and they are also not subject to
4 the automatic excursion provisions of the trading
5 program.
6 MS. ROSEN: Question 10, if a source has
7 requested in its CAAPP application that an activity
8 be deemed insignificant pursuant to 35 Illinois
9 Administrative Code 201.211, yet the agency has
10 not made a determination under the CAAPP permitting
11 process, how would this source address these
12 activities in its ERMS application?
13 MR. SUTTON: If the source has claimed these
14 activities as insignificant in their Title 5 permit,
15 they should assume their insignificant activities
16 until they are directed otherwise by the agency.
17 So they are to proceed as if they were insignificant
18 activities in the ERMS application.
19 MS. ROSEN: Question 11, on Page 23 of
20 Mr. Romaine's testimony, he discusses how the
21 agency will handle new or modified emission units
22 for which a construction permit was issued prior
23 to January 1, 1998, but for which three years of
24 operational data is not available.
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1 He further states that it is the
2 agency's intent that an emission unit that has
3 not operated for three complete seasons will
4 result in the future adjustment to the allocations
5 of
ATUs when representative emissions data from three
6 complete seasons is available.
7 In this regard, can you describe
8 procedurally how the baseline adjustment will be
9 made? For example, will allotments for the new
10 unit be reduced by 12 percent?
11 MR. ROMAINE: Well, I'm going to give you a
12 big overview. The potential for the pending project
13 adjustment will be addressed as part of the initial
14 baseline emission determination allocation process.
15 The construction permit for the pending
16 project will address the pending project, its
17 permanent VOM emissions, and associated
18 quantification material.
19 This material could be relied upon the
20 initial baseline determination allocation process
21 so that the source's Title 5 permit describes the
22 maximum adjustment that is available and the method
23 to be used to determine actual VOM emissions for the
24 project.
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1 This material would certainly specify
2 whether this unit would be considered an excluded
3 unit, in which case it would not have to have 12
4 percent reduction or whether it's an ordinary unit,
5 in which case it would have to have 12 percent
6 reduction once the emission data was favorable.
7 Now, what would occur is after the
8 pending project is operational for three seasons,
9 the adjustment for the allocation would be a routine
10 administrative matter. Everything proceeds as laid
11 out in Title 5 permits.
12 In that case, when we get emission
13 data consistent with the methods set forth in the
14 Title 5 permit, additional ATU, with the adjustment
15 or 12 percent reduction, if necessary, would be
16 issued or subsequent seasons based on that data.
17 However, if something unforeseen
18 occurred so that the source wants to provide relevant
19 provisions of the Title 5 permit, the source would
20 have the option of requesting revised Title 5 permit
21 to address new development. In that case the
22 adjustment would be handled as part of crossing
23 that request for a revised permit.
24 MS. ROSEN: Thank you.
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1 MS. HODGE: I'm Catherine
Hodge from Hodge &
2 Dwyer representing ERG as well.
3 Just as a follow-up on that point,
4 Mr. Romaine, let's assume that the new unit was not
5 an exempt unit. That might be an unusual situation,
6 but let's assume it's not exempt and we are waiting
7 for three full seasons of data, when would the source
8 have to make 12 percent reductions?
9 When would the reduction occur?
10 MR. ROMAINE: Well, that's an interesting
11 question. The way we have set it up is that for
12 those first three complete seasons, the source would
13 not be required to hold ATU for that emission unit.
14 So conceivably, for 100 percent emissions. You
15 pointed out an oversight.
16 MS. HODGE: Okay.
17 MS. ROSEN: Question 12, if a source has
18 100 emission units that are treated as one unit
19 for purposes of permitting under the existing
20 permitting program, may those units be treated as
21 one unit for the purposes of establishing a baseline
22 under ERMS?
23 MR. ROMAINE: This would certainly be our
24 preference for consistency with Title 5 application.
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1 If at all possible, we would strive to maintain that
2 grouping.
3 There could be circumstances, however,
4 where the historical grouping of equipment might
5 have to be broken down further for purposes of
6 setting the baseline under the trading program.
7 For example, a grouping of equipment
8 would have to be subdivided when determining a
9 source's baseline emissions if some units show
10 voluntary over-compliance and other units that do
11 not or if some units are subject to MACT requirements
12 would be excluded and others are not.
13 So that historical group might not fit
14 some of the new demands of the trading program, but
15 if we can keep it, it certainly is our preference.
16 MS. ROSEN: Question 13, on Pages 12 and 13
17 of Mr. Romaine's testimony, when discussing the
18 emissions determination methods to be used, he
19 states the ERMS does not mandate that a particular
20 determination method will be used for a particular
21 type of unit.
22 He also states that quantifying
23 emissions based on published emission factors may
24 be acceptable and that, quote, for a particular
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1 unit, a more rigorous measurement method such as
2 emissions testing will not be warranted for purposes
3 of the ERMS due to the small size of the unit or
4 other considerations.
5 Question A is what are some of the
6 other considerations that may be factored into this
7 case-by-case determination?
8 MR. ROMAINE: It is a case-by-case
9 determination. Some of the other considerations
10 that might come up certainly would be the
11 determination that is proposed by the source and
12 that method's ability to adequately quantify VOM
13 emissions from a particular unit.
14 You might also consider the expense
15 or difficulty of testing as a technical matter.
16 The difficulty in testing under a representative
17 set of conditions or maybe the benefit of a
18 consistency and determination method over a large
19 number of similar emission units.
20 MS. ROSEN: B, would the statement that,
21 quote, emissions testing will not be warranted
22 for purposes of ERMS apply to emission units
23 that quantify emissions based on methods other
24 than published emission factors?
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1 MR. ROMAINE: Yes, it would.
2 MS. ROSEN: Question 14, does the agency
3 envision requiring testing above that performed
4 under existing applicable requirements?
5 MR. ROMAINE: Yes. This is a possibility.
6 For example, testing could be required under the
7 trading program if the source wants to rely on a
8 level of control that is higher than verified under
9 existing requirements.
10 Testing could also be needed for
11 compliance where applicable requirements can be
12 verified without any testing, but the method
13 chosen for quantification of VOM emissions relies
14 on tests.
15 MS. ROSEN: On Page 15 of Mr. Romaine's
16 testimony, he states that existing operating records
17 and compliance practices may need to be further
18 enhanced to provide adequate quantification of VOM
19 emissions specifically for purposes of ERMS.
20 A., what do you mean further
21 enhancement?
22 MR. ROMAINE: Well, one aspect of Title 5
23 permitting in itself is enhancement of record keeping
24 and the other practice is followed by a source to
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1 show compliance with applicable requirements.
2 In this respect, Title 5 permits will
3 be much more specific in delineating practices that
4 a source must follow. Rather than assuming that
5 adequate practices will be filed under a Title 5
6 permit, a Title 5 permit will specify that records
7 of certain operating parameters be kept at least
8 given frequency to show that emission unit is
9 operating within the normal range.
10 So you start from the site, it will be
11 enhancement under Title 5. It will happen under
12 trading program that there could, in fact, be further
13 enhancement of those particular procedures beyond the
14 Title 5 level as necessary to assure that there was
15 adequate quantification of VOM emissions for purposes
16 of the program.
17 In general, I guess the other thing to
18 point out is that this whole process takes place
19 based on the compliance plan that the applicant or
20 the source includes in their Title 5 application.
21 That's where the source is supposed to
22 apply the practices that they have been using and
23 plan to use in the future to show compliance.
24 MS. ROSEN: Moving to C., is it true that
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1 if there is a disagreement over the future
2 enhancement -- further enhancement of monitoring,
3 sampling, testing or record keeping requirements,
4 this issue could be appealed to the board?
5 MR. ROMAINE: Yes, it certainly could.
6 MS. ROSEN: I just realized that our
7 questions on our other document go to a section
8 which we have kind of, for the most part, we are
9 passing up as we proceed. Would you prefer, and
10 the agency, too, to continue asking from this set
11 of questions and move to the other set of questions
12 or should I proceed in order of the rule?
13 MS.
McFAWN: For purposes of the record?
14 THE HEARING OFFICER: Bonnie, do you have a
15 preference?
16 MS. SAWYER: Well, I'm not sure how many
17 questions there are. You said we already passed
18 the section?
19 THE HEARING OFFICER: Yes.
20 MS. ROSEN: We just past it.
21 THE HEARING OFFICER: The other questions they
22 filed were on January whatever. They deal with Seth
23 Garcia Section 205.320. In fact, I think they all
24 are on 320.
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1 MS. ROSEN: For the most part.
2 THE HEARING OFFICER: We are
are now on 335.
3 MS. SAWYER: So have you concluded 335 now?
4 MS. ROSEN: Yes. We have just concluded
5 that.
6 MS.
McFAWN: We're getting ready to go on to
7 Subpart D, which she is pointing out.
8 MS. SAWYER: It might make sense just to go
9 through Subpart C at this point.
10 THE HEARING OFFICER: Okay. Let's go back to
11 the 320 section.
12 MS. ROSEN: All right. Then, these questions
13 are coming from the document entitled, "Supplemental
14 Prefiled Questions of the Illinois Environmental
15 Regulatory Group," which is dated January 27.
16 Question No. 1., what is meant by the
17 phrase limitations placed in the sources permits
18 based on such applicable requirements as used in
19 Sections 205.320(d) and (e)?
20 MR. ROMAINE: This phrase refers to conditions
21 in a source's permits as a result of applicable
22 emissions standards or rules. The most common
23 example of such requirements would be conditions
24 placed in construction permits to assure that
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1 proposed projects are not major pursuant to the
2 New Source Review Program.
3 MS. ROSEN: Does the phrase include
4 limitations which do not relate to either an
5 applicable requirement or the avoidance of an
6 applicable requirement?
7 MR. ROMAINE: No. This phrase is intended
8 to relate to conditions for which there is a
9 regulatory basis.
10 MS. ROSEN: C, which limitations are used
11 for the purpose of calculating a source's baseline
12 emissions if the source's operating permit
13 limitations are different than the limitations in the
14 source's construction permit.
15 MR. ROMAINE: There isn't a simple answer to
16 this question.
17 One of the things that the Title 5
18 permit process has to do is to consolidate the
19 past requirements applying to a particular source
20 and sort out what are the appropriate requirements
21 and then place them into the Title 5 permit. So
22 if the Title 5 permit would determine which is
23 the binding limit.
24 Hopefully, it would be in the operating
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720
1 permit because that is the last one we worked on
2 assuming we changed because there is a reason. So
3 the operating permit is the one that's appropriate,
4 but it would have to be reviewed on a case-by-case
5 basis and whatever was decided would be reflected in
6 the source's Title 5 permit.
7 MS. ROSEN: Could I have just one moment,
8 please?
9 I'll try to phrase this. How will
10 the -- I think your testimony -- the testimony has
11 been that the CAAPP permitting process is going to
12 resolve the differences between these limitations.
13 For purposes of baseline determination,
14 you are looking at years, you know, prior years,
15 '93, '94, whatever years you might choose. If the
16 construction permits at that time and your operating
17 permits at that time have different limitations,
18 I'm trying to describe a situation where those
19 limitations might be different than the limitations
20 are -- and the activities at your source which are
21 going to be governed by your CAAPP permit, how are
22 you -- there might be discrepancy between the
23 operating limitations at that time and those that
24 ultimately go into your CAAPP permit.
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1 How is that going to occur? When you
2 look at your baseline years, how are they reconciled?
3 MR. ROMAINE: I think that cleanup could
4 still be part -- that is part of the Title 5 review
5 process. It's believed necessary to have a
6 determination. What limitations were appropriate or,
7 in fact, perhaps to say that neither limitations were
8 appropriate. In any event, whatever limitation is
9 revised for the trading program, it would be part of
10 the application. Part of the ERMS application would
11 be subject to review. Presumably, if the baseline
12 were based on that data as reflected in the Title 5
13 application, that would be determination for how a
14 particular source's baseline emissions were
15 determined.
16 MS. HODGE: I'll ask a follow-up on that.
17 So will a source be able to have the
18 agency revise a condition or a limitation of a
19 previously issued construction permit?
20 Can that be revised in a CAAPP permit?
21 MR. ROMAINE: That is our hope. We have
22 not exactly figured out if there are any other
23 additional procedures that have to be followed,
24 but whatever is decided could be reflected in the
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722
1 Title 5 permit.
2 MS. ROSEN: That's all we have at this time
3 on that particular issue, but could we possibly
4 revisit it, not today, but. . .
5 THE HEARING OFFICER: Yes.
6 MS. ROSEN: Thank you. Question 2, how will
7 baseline emissions be calculated for an emission
8 unit where the only applicable requirement limiting
9 VOM emissions is the eight-pound per hour rule?
10 MR. ROMAINE: By the eight-pound per hour
11 rule, I assume you are referring to 135 Illinois
12 Administrative Code 218.301. This is a rule that
13 limits the use of organic material.
14 Actually, this is a pretty good
15 question because this is one of our more
16 misunderstood rules.
17 Part of the reason is it dates back
18 to the original board rules back in 1973 and it
19 predates the concept to volatile organic material
20 and, in fact, only goes after photochemical reactive
21 organic material, which is another very specialized
22 definition.
23 In any event, what the rule requires
24 is that emissions of photochemical reactive organic
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1 material be controlled by 85 percent if the emissions
2 would otherwise be more than 8 pounds per hour.
3 If you look at it in those terms, you
4 see that really the eight-pound per hour is not an
5 emission limit. It's an applicability level to
6 determine whether add-on control is required.
7 So we would not look at that eight-pound
8 per hour number as an emission standard. We would
9 look at whether that particular emission unit had to
10 be controlled or not.
11 MS. ROSEN: How are emissions reductions,
12 which result from product recovery, treated for
13 purposes of ERMS? I'm going to kind of tie it to
14 the next question.
15 For example, will there be any
16 distinction made between emission reductions which
17 result from the imposition of product recovery as
18 compared to the emission reductions which result
19 from the implementation of other process
20 modifications or the imposition of control
21 technologies?
22 MR. ROMAINE: Well, the purpose of the trading
23 program is to recognize VOM emission reductions. It
24 doesn't really matter from that perspective whether
L.A. REPORTING - (312) 419-9292
724
1 the emission reductions come from adding control onto
2 the back of the process or by putting in enhanced
3 process improvements into the process.
4 MS. ROSEN: So you are saying that there
5 wouldn't be any distinction for practical purposes?
6 MR. ROMAINE: Right.
7 MS. ROSEN: Okay. Our Question No. 4 relates
8 to an issue that was delved into yesterday so I would
9 just like to kind of modify it to get to our more
10 direct point, if I may.
11 I'll read the question and then just
12 kind of phrase a follow-up. Number 4, what
13 information will be necessary for a source to
14 demonstrate non-representative conditions which
15 would justify the use of a substitute season?
16 For example, if I am asserting that I
17 had a strike during one of the default years and I
18 would like to use a non-representative year, do I
19 have to provide detailed emission data for the
20 default year for the '93/'94 year or do I just have
21 to present information which supports that I had a
22 strike?
23 MR. ROMAINE: Let me check the rules. That's
24 something I'm not sure of.
L.A. REPORTING - (312) 419-9292
725
1 What is required is specified in
2 205.310(b)(1)(B). What is stated here is that a
3 source must provide justification of the years more
4 representative including data on production types
5 and levels from the proposed substitute years and
6 for historical production data as needed to justify
7 the proposed substitute year is represented.
8 MS. ROSEN: Okay. It sounds like the rule
9 is stating that you are providing that data for the
10 substitute year, but not for the regular year, but
11 I'm going to look at the section right now.
12 MS.
McFAWN: I have a question while you do
13 that.
14 Chris, does that mean -- what does
15 that mean when you say the words historical data
16 as necessary?
17 MR. ROMAINE: I have to consult with my
18 attorney.
19 MS.
McFAWN: That is very prudent of you,
20 Mr. Romaine.
21 MR. ROMAINE: We concluded you have to provide
22 emissions data for '94, '95, '96, and the like year
23 for that substitute season.
24 MS. ROSEN: Where is that required?
L.A. REPORTING - (312) 419-9292
726
1 MR. ROMAINE: We believe that's a combination
2 of the requirement under Section 205.310 requiring
3 VOM emission data and production time from baseline
4 emission years as specified in Section 205.320(a)(1),
5 which refers to baseline emission data for '94, '95
6 and '96.
7 MS. ROSEN: The last section you referenced,
8 what was the cite, 205.320(a)?
9 MR. ROMAINE: 205.320(a)(1).
10 MS. ROSEN: Well, if you are not calculating
11 your baseline period from the seasonal allotment
12 periods of '94, '95 and '96, why would you be looking
13 at that information for those years?
14 MR. ROMAINE: Well, there are two answers for
15 that. The first answer is because that's what the
16 rule reads.
17 MS. ROSEN: Okay.
18 MR. ROMAINE: The second answer is I think
19 we have to think about the fact that we would need
20 the emission data if we are not relying on that
21 season.
22 MS. ROSEN: All right. And as a follow-up,
23 isn't it true that the agency is going to have this
24 data as part of your seasonal -- annual emissions
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1 report and won't that information be sufficient
2 rather than require the remittal of it when your
3 justification is something like a strike that the
4 emissions aren't really relevant to the issue of
5 the strike?
6 MR. ROMAINE: Well, I think one general answer
7 to that question is just referring to 205.210(b),
8 which does allow a source to rely on information that
9 has already been submitted to the agency if it is
10 adequately referenced.
11 So if there is sufficient data in
12 somebody's annual emission reports, with a season
13 that's considered non-representative and it clearly
14 shows that the strike affected it, that may certainly
15 be sufficient to satisfy the obligation to provide
16 emission data for that non-representative season.
17 MS. ROSEN: Thank you. If I could follow-up
18 just briefly on that, assuming that I had a
19 production slump for two years, two of the '94, '95
20 and '96 years, and I wanted to argue that those years
21 aren't representative and I wanted to look at other
22 years, what sort of information would I have to
23 submit to make that showing that those are
24 non-representative years?
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728
1 I believe your testimony yesterday was
2 you may have touched on the fact that you won't be
3 allowed to make that sort of showing if it appears
4 that there was a consistent production level during
5 those years. I apologize if I'm
mischaracterizing
6 it.
7 MR. ROMAINE: That wasn't what I was trying to
8 communicate.
9 MS. ROSEN: Okay.
10 MR. ROMAINE: In fact, the circumstances
11 you're describing is a production slump. A
12 production slump, as I understand it, is a temporary
13 condition so the objective and the application would
14 be to show, in fact, it was a slump.
15 If it wasn't a consequence of a
16 permanent change in the particular business or
17 markets, but it was simply a temporary condition,
18 I guess this is the way I think of slumps.
19 Activity is at a particular level.
20 It goes down for a while and goes back up again.
21 The source can make that shown as what has happened,
22 that would be a sufficient demonstration to go to
23 another substitute season.
24 MS. ROSEN: And you might be able to make a
L.A. REPORTING - (312) 419-9292
729
1 showing. It might be reasonable to anticipate a
2 showing that you had a production slump that took
3 course in two of those years and you might have to
4 justify -- it might be possible to justify that a
5 production slump that occurred in more than one year
6 would allow -- would be non-representative for
7 purposes of getting a different --
8 MR. ROMAINE: Speaking hypothetically, that
9 certainly could be the case.
10 MS. ROSEN: Okay.
11 MR. ROMAINE: Somebody could come in and show
12 that none of the seasons of '94, '95 or '96 are
13 anywhere near as representative.
14 MS. ROSEN: Thank you.
15 MS. SAWYER: One moment. Did we respond to
16 Board Member
McFawn's question?
17 MS.
McFAWN: Yes, you did.
18 MS. SAWYER: Okay.
19 MS. ROSEN: Question 5, could you please
20 clarify what is meant by the following, and I'm
21 quoting from the testimony of Christopher Romaine,
22 Example 3-B, "The source would first have to hold
23 ATUs for this emission unit in the 2000 season
24 after the supplement would be available."
L.A. REPORTING - (312) 419-9292
730
1 What did you mean by that phrase?
2 MR. ROMAINE: This was an example of a
3 pending project. The way we set up this proposal,
4 the sources are not required to hold
ATUs until a
5 pending project has been optional for three complete
6 seasons.
7 I think in terms of the particular
8 chronology given in my example, the first season
9 after those three complete seasons was 2000. So
10 that would be at the point where they would then
11 have to address the emissions of that pending
12 project.
13 Presumably, the source would have
14 provided the emission data to us at the end of the
15 three complete seasons. We would have done through
16 the outline as set forth in the Title 5 permit to
17 do the adjustment so that that supplement would be
18 available to them by the time the fourth season
19 came along in May of the following year.
20 MS. ROSEN: We will withdraw Question 6.
21 It has been asked and answered or you clarified
22 it in your information yesterday, yesterday.
23 Thank you. That concludes the questions
24 on the January 27th document. We will return to the
L.A. REPORTING - (312) 419-9292
731
1 other one.
2 I believe that we were at the bottom of
3 Page 8, starting with the Subpart D questions. We
4 would like to withdraw Question 16, A., but would
5 like to ask Question B. So I'll read the preparatory
6 language.
7 On Page 25 of Mr. Romaine's testimony,
8 he states that source will have to provide sufficient
9 data in the ERMS application to support these
10 exclusions. The Illinois EPA have to reflect these
11 exclusions in its allocation of
ATUs to the sources
12 as reported in the CAAPP permit; and B., will the
13 excluded units be subject to reporting on a seasonal
14 emissions report?
15 MR. ROMAINE: Yes, they will.
16 MS. ROSEN: And C., Could the agency provide
17 some examples of fuel combustion emission units that
18 would be exempt under Section 205.405?
19 MR. ROMAINE: Yes. Some examples of fuel
20 combustion emission units are boilers, water heaters,
21 things that are found in most sources, and things
22 like process heaters as found in refineries and
23 chemical plants.
24 MS. ROSEN: Question 17, assume the source
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1 has five emission units and the source achieves
2 12 percent required reduction from its baseline
3 as a result of emission reductions at two of the
4 units further.
5 Further assume that in the year
6 2001, three of the other units achieve MACT and
7 automatically excluded emission units under the
8 ERMS.
9 Question A., will the source continue
10 to receive allotments based on the pre-MACT emissions
11 from those three units?
12 MR. ROMAINE: Well, to clarify, in this
13 hypothetical example, it's assumed that three
14 emission units achieved MACT in 2001. This is really
15 relevant to the answer as the baseline emissions for
16 this source and the source is resulting allotment of
17 ATU have already been established.
18 Therefore, the fact that something
19 happens after the baseline has been set in 2001
20 wouldn't affect the allotments to the source.
21 MS. ROSEN: Okay. B., will the three MACT
22 units be limited to their actual emissions following
23 the application of MACT?
24 MR. ROMAINE: Well, they certainly have to
L.A. REPORTING - (312) 419-9292
733
1 comply with the MACT requirements, but beyond that,
2 the trading program would not put any restraints on
3 their actual emissions beyond MACT.
4 The source would continue to operate
5 under the trading program with its established
6 allotment of
ATUs and go about its business holding
7 ATUs for those units.
8 MS. ROSEN: Are emission units that achieve
9 MACT prior to 1990 excluded units under Section
10 205.405(a)(1)?
11 MR. ROMAINE: Yes, they would be. I assume
12 in this case they are complying or achieving
13 compliance under adopted MACT standard. They have
14 just been a leader in their field and doing it for
15 a long time. If the unit is complying with a MACT
16 standard, it is an excluded unit.
17 MS. ROSEN: Okay. We would like to withdraw
18 Questions 19 A. and B.
19 Question 20, if a source has a printing
20 line that achieves 98 percent control, yet there is
21 new control technology that has been developed that
22 would allow a unit to achieve 99 percent control
23 efficiency, would the existence of the new technology
24 preclude the source from seeking exclusion for the
L.A. REPORTING - (312) 419-9292
734
1 unit under Section 205.405?
2 MR. ROMAINE: No, it would not.
3 MS. ROSEN: Twenty-one, on Page 31 of
4 Mr. Romaine's testimony, he states that the BAT
5 exclusion cannot be used to address short-term
6 conditions, for example, the remaining few years of
7 operation of a now obsolete unit. Units experiencing
8 temporary circumstances of limited duration are
9 ideally addressed by the market.
10 What do you mean by the use of the
11 term short-term and temporary in your statement?
12 MR. ROMAINE: Well, I really didn't have
13 any particular period of time in mind. I was
14 thinking more in terms of the circumstance
15 where the source doesn't believe it's appropriate
16 to do something under the best conditional VOM
17 control measures on a particular unit because
18 of the time factors.
19 So I'm really putting it on a source's
20 side. If they come to us and argue you can't control
21 because of time, then, I would say, well, it's
22 temporary circumstance that they are concerned with.
23 MS. ROSEN: Okay. Question 22, assume Source
24 A purchases 200
ATUs from Source B and thereafter,
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735
1 following entry of the
ATUs into the database, the
2 agency discovers that Source B, the seller, did not
3 make the appropriate emission reductions, which would
4 have made
ATUs available for sale. Under this
5 scenario, who would be subject to the emissions
6 excursion compensation provision under the ERMS
7 rule?
8 MR. KOLAZ: Source B, under the scenario
9 you just described, would not hold enough
ATUs at
10 the end of the reconciliation period.
11 Therefore, they are the ones who
12 would receive the excursion compensation report.
13 As mentioned in an answer that was given yesterday
14 regarding how the agency determines whether someone
15 has access
ATUs, I want to emphasize that this also
16 points to the fact that nothing in the rule prohibits
17 a source from selling
ATUs beyond what it would need
18 to reconcile its emissions.
19 So as the agency issues the emission
20 excursion compensation notices, they will be simply
21 looking at those that do not hold enough
ATUs
22 regardless of whether they have enough
ATUs during
23 reconciliation period, but somehow chose to sell
24 those off.
L.A. REPORTING - (312) 419-9292
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1 MS. ROSEN: Question 23, on Page 4 of
2 Mr.
Kolaz's testimony, he states that at the end
3 of each reconciliation period, the agency will
4 retire the
ATUs in each account used to reconcile
5 the previous season's VOM emissions. The
ATUs
6 used for such purposes must be valid for the
7 proceeding allotment period.
8 Would the agency provide examples of
9 when
ATUs used for such purpose would not be valid
10 for the preceding allotment period?
11 MR. KOLAZ: Yes. My testimony and my answer
12 really are based on two provisions of the rule. One,
13 is 205.400(b), which states that the
ATUs are valid
14 for the season issued and if not, used for the season
15 following issuance.
16 To give an example of that situation,
17 it's -- as the agency retires
ATUs, it will look to
18 see if the
ATUs fit that particular description.
19 So if someone bought
ATUs that are valid for
20 following season, keeping in mind that in my
21 testimony I mentioned that we will be issuing
ATUs
22 for multiple seasons, it's possible that the
ATUs
23 that a source wishes to retire is actually not valid
24 until the following season.
L.A. REPORTING - (312) 419-9292
737
1 The other example really deals with
2 Rule 205.530(a)(5), which describes the situation
3 where
ATUs acquired in a transaction after December
4 31st cannot be used to reconcile emissions from
5 the preceding season and that's even in a situation
6 where the
ATUs were issued for the preceding season.
7 So as we look at a transaction account,
8 if we found that you had purchased
ATUs valid for
9 the preceding season, but the transaction occurred
10 after December 31st, then, you would not be allowed
11 to use those to reconcile the pre-season's
12 emissions.
13 MS. ROSEN: Thank you. We would like to
14 strike Question 24. I believe that the remainder
15 of our questions are best directed to Mr.
Kanerva.
16 MS. SAWYER: Okay.
17 THE HEARING OFFICER: I have a couple of
18 questions. One of them is actually best directed
19 towards Chris.
20 During your discussion about the
21 slumps and the question about the slump periods of
22 production, is it -- does the ERMS rules take into
23 effect a cyclical production slump that may occur
24 in a facility?
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1 MR. ROMAINE: No special provision has been
2 made to deal with a cyclical operating schedule.
3 The source would have the ability to demonstrate
4 that they would have non-representative conditions
5 of '94, '95 and '96, and then come up with a
6 selection of seasons that they believe are
7 representative.
8 THE HEARING OFFICER: Okay. I have another
9 question that maybe Mr.
Sutton could help me with.
10 In revising the construction permit, when we were
11 talking about the revision, being shown in the CAAPP
12 permit, couldn't a source just request a modification
13 of the construction permit?
14 MR. SUTTON: Correct. As a matter of fact,
15 our 39.5 directs that a construction permit
16 application for a CAAPP source would be deemed an
17 automatic amendment of the CAAPP application. So
18 there is a clear and direct way of seeking another
19 construction permit.
20 What Chris was alluding to is we would
21 like to see if there is a possibility of expanding
22 the use of the CAAPP application as U.S. EPA would
23 say to hygienically clean out some of the
24 non-representative portions of that construction
L.A. REPORTING - (312) 419-9292
739
1 permit that previously existed, but you are correct
2 in your assumption.
3 THE HEARING OFFICER: Let's go off the record
4 for a second.
5 (Whereupon, a discussion
6 was had off the record.)
7 THE HEARING OFFICER: Let's go back on the
8 record, please.
9 MS. SAWYER: I would like to have the written
10 testimony of Gary
Beckstead moved into evidence.
11 (Document marked as
12 Hearing Exhibit No. 37
13 for identification, 2/4/97.)
14 THE HEARING OFFICER: Exhibit 37 is dated
15 January 2, 1997.
16 Are there any objections to having
17 Mr.
Beckstead's testimony entered into the record?
18 Seeing none, I will enter that into the
19 record as Exhibit No. 37 as Gary
Beckstead's
20 testimony dated January 2, 1997.
21 Do you want to call your next witness,
22 Bonnie?
23 MS. SAWYER: The agency would recall Joe
24 Goffman.
L.A. REPORTING - (312) 419-9292
740
1 THE HEARING OFFICER: Just as a reminder, I
2 wanted to remind you that you under still under oath
3 from your previous testimony.
4 MS.
McFAWN: Welcome, Mr.
Goffman.
5 WHEREUPON:
6 M R. J O S E P H G O F
F M A N ,
7 called as a witness herein, having been previously
8 duly sworn,
deposeth and saith further as follows:
9 MR. GOFFMAN: I can't decide where to start
10 my testimony. Thank you very much for letting me
11 testify again on behalf of the Environmental Defense
12 Fund.
13 It is a testament to the board's
14 fortitude and patience to let me put my slides up
15 again, but what I would like to talk about today
16 is give you a very brief overview of the basic
17 design and performance of the acid rain emissions
18 trading program because when the design team, over
19 time, worked on specific issues involving the ERMS
20 program, the design and the heroic performance of
21 the acid rain program gain a point of reference.
22 While the design team did not
23 consciously start out attempting to replicate the
24 acid rain program, a number of design decisions
L.A. REPORTING - (312) 419-9292
741
1 that the U.S. Congress had made and the EPA had
2 made in that program ended up having relevance to
3 address concerns of the regulating community and
4 the public that were expressed to the agency
5 during the course of the design team's work and
6 then communicated back to the design team.
7 Just to review very quickly, the
8 Acid rain program was codified under Title 4 of
9 the 1990 amendments to the Clean Air Act. Its
10 likely objective here was to reduce a pollutant --
11 in this case, sulfur dioxide -- by a specified
12 amount.
13 The focus of implementation was on
14 utility power plants. The pollutant regulated
15 chiefly under Title 4 was sulfur dioxide or SO2
16 as a precursor of acid deposition.
17 The program was implemented through
18 the issuance of the fixed number of SO2 emissions
19 allowances, which are exactly comparable to the
20 ATUs contemplated by the proposed rule here.
21 The permitting aspect of the Title 4
22 was not so much from the operation side. It was
23 simply on the output side.
24 Title 4 says in as many words that for
L.A. REPORTING - (312) 419-9292
742
1 purposes of regulating SO2 under Title 4, all a
2 permit has to do is specify the conditions and
3 requirements for monitoring emissions by power
4 plants and then specify to the utility holding the
5 permit it will hold as many emissions allowances as
6 SO2 emissions its monitors measure coming out of its
7 stacks.
8 The number of emissions allowances in
9 the case of the SO2 program is 8.95 million allocated
10 every year by the U.S. EPA.
11 This is basically a pictorial
12 representation of an example of why emissions trading
13 makes sense economically while still producing at
14 least the same amount of emissions reductions as
15 would occur if the two sources in this example were
16 required to make all the reductions for which they
17 were responsible on-site as opposed to engaging in
18 trading.
19 As you can see in this example, the
20 unit which can make a reduction at less cost has
21 an incentive and is given money for making more
22 reductions than required by the operator of the
23 unit that has to spend more to make the same
24 reductions. In the end, the -- this source saves
L.A. REPORTING - (312) 419-9292
743
1 about $100,000 a year under this example.
2 This source receives revenue for making
3 extra emissions reductions and the environment sees
4 the same amount of emissions reductions as
5 contemplated by the law and as it would occur
6 under the -- under a non-trading approach.
7 In fact, as I think we talked about
8 last time, a trading system which gives monetary
9 value not to pollution, but to making reductions
10 in pollution actually creates incentives for sources
11 at least in the early years of the program to speed
12 up their emissions reductions and make more emissions
13 reductions than are required.
14 The evidence for that theory's
15 application to practice is in the results of the
16 acid rain program. 1995 was the first year of
17 implementation and in the last two years, '95 and
18 '96, the affected sources under the SO2 program
19 have actually made more reductions than Congress
20 requires them to make because in making those
21 reductions, they created a financially rewarding
22 or potentially rewarding economic asset at the
23 same time and they have been able to accomplish
24 this at a significantly lower cost than anyone
L.A. REPORTING - (312) 419-9292
744
1 projected.
2 MS.
McFAWN: Before you go on, could you
3 go back to your last overhead?
4 MR. GOFFMAN: Sure.
5 MS.
McFAWN: Could you walk us through those
6 two examples?
7 MR. GOFFMAN: Yes, I'm sorry.
8 MS.
McFAWN: I don't believe you did last time
9 at our last hearing.
10 MR. GOFFMAN: No, I didn't. I would be happy
11 to.
12 This unit is emitting 10,000 tons.
13 It's potential trading partner is emitting 8,000
14 tons. The 10,000-ton unit has to make 5,000 tons
15 worth of reductions.
16 It can do so at the cost of $150 a ton.
17 It makes those reductions. I'm sorry to say I might
18 be confused by my own example. I'm sorry about
19 that.
20 MS.
McFAWN: Do you want to start over?
21 MR. GOFFMAN: I probably should start over.
22 MS.
McFAWN: Okay.
23 MR. GOFFMAN: I'm terribly sorry. I have to
24 admit I did this slide about three years ago or even
L.A. REPORTING - (312) 419-9292
745
1 longer. I have to say I forget whether this 150-ton
2 number represents -- that's right. I think as I was
3 beginning to say, it represents the marginal cost of
4 reduction, the cost at the time.
5 This unit can, therefore, make extra
6 reductions at the lower cost and can sell those
7 reductions to the higher cost unit. I can tell
8 by the look on your face that I'm probably getting
9 this backwards.
10 MS.
McFAWN: Well, I don't know that you are
11 getting this backwards. Let me just ask you a couple
12 questions.
13 MR. GOFFMAN: Go ahead. Ask me some
14 questions.
15 MS.
McFAWN: So you're saying that the
16 10,000-ton unit is going to cut in half its
17 emissions?
18 MR. GOFFMAN: Yes. They are both obligated
19 by law to cut their emissions in half. So nominally,
20 in the SO2 program, they are issued a quantity of
21 allowances equal to one-half of their current
22 emissions. This unit was issued 5,000 allowances.
23 This unit was issued 4,000 allowances.
24 MS.
McFAWN: This example assumes that it
L.A. REPORTING - (312) 419-9292
746
1 costs $150 per ton for the 10,000?
2 MR. GOFFMAN: Right, exactly, exactly. That's
3 a marginal cost. I think in this example, what we
4 were trying to illustrate when we put it together is
5 that dirtier units tend to enjoy economies of scale.
6 The more reduction they try to make, the lower the
7 marginal cost and the more likely they are to make
8 additional reductions beyond what they are required
9 to do and to sell those reductions at a lower cost
10 than a higher marginal cost reducer can achieve on
11 the site.
12 MS.
McFAWN: So the 4,000-ton number
13 represents that they over-controlled by 1,000?
14 MR. GOFFMAN: Right. They over-controlled
15 by -- let's say they over-controlled by 1,000
16 tons. Thank you for doing a better job of reading
17 my slide than I am. I think you've got it. Thank
18 you for the help.
19 They over-control by 1,000 tons. They
20 sell the over-control for $300 a ton to the 8,000
21 tons. Essentially, they have incurred $150,000
22 cost to make those additional reductions and they
23 have reaped $150,000 a year profit for selling those
24 reductions, which they can use for any number of
L.A. REPORTING - (312) 419-9292
747
1 purposes, but obviously to subsidize their initial
2 investment in over-control.
3 This unit, which initially awarded
4 4,000 allowances, can emit 5,000 tons because in
5 addition to the 4,000 allowances, it has acquired
6 1,000 additional allowances from the first unit.
7 That reduces for it a net savings including its
8 expenditure of $100,000 a year.
9 So basically, as I said before, the
10 environment sees the same level of reductions at
11 least. The regulated sources in the example spend
12 less money on that for those reductions.
13 Overall, the dynamics of the system of
14 trading create incentives that so far in the case of
15 the acid rain program produced a significant
16 environmental result in the form of extra reductions
17 that Congress itself couldn't mandate and legislate.
18 Again, my apologies for relying on your
19 help to walk me through my own slide.
20 MS.
McFAWN: No need to apologize.
21 MR. GOFFMAN: In the late '80s and 1990,
22 when EDF was initially advocating for this approach,
23 we did an analysis of the relative economic impacts
24 on a national basis for the command and control
L.A. REPORTING - (312) 419-9292
748
1 approach that would produce ostensibly the same
2 results, that is, a ten million time reduction
3 a year of SO2 and a market approach.
4 Essentially, the -- this line represents
5 the negative economic impact nationally.
6 MS.
McFAWN: If I could interrupt you, could
7 we just note for the record that this overhead is
8 called "
Macroeconomic Impacts"?
9 MR. GOFFMAN: Right.
10 MS.
McFAWN: Thank you.
11 MR. GOFFMAN: The air analysis showed a
12 significant negative economic impact in terms of
13 costs for a command and control approach and a much
14 smaller impact in terms of cost to the economy from
15 a market-based approach.
16 In the same analysis, I'm putting up a
17 slide called "Cost Changes in Trading is Restricted."
18 What our analysis showed is that for different
19 regions or
subregions of the country where sulfur
20 dioxide emissions were high and sulfur reduction
21 costs were expected to be high, the cost of complying
22 with the program increased significantly if trading
23 was restricted in some way or eliminated all
24 together.
L.A. REPORTING - (312) 419-9292
749
1 As I suggested, the EPA has estimated --
2 I get this from the testimony that the EPA submitted
3 to Congress in 1994 -- the EPA has estimated that the
4 savings of the acid rain program are on the order of
5 at least 50 percent compared to what the same
6 reductions or the price tag for the same reductions
7 would be in the absence of emissions trading.
8 The reason for this is that through
9 emissions trading and emissions banking, it's much
10 easier for utility power plants that are required
11 to make these SO2 reductions to integrate their
12 response to the requirements of the SO2 program
13 with their response to the general economic demands
14 that they face just in doing business.
15 In this slide entitled "Utility
16 Investment Decisions," all I did was enumerate the
17 menu of alternatives that utilities could choose
18 to meet their SO2 requirements.
19 I think of the contrast if Congress or
20 the EPA would have decided to achieve the same level
21 of SO2 reductions by prescribing specific technology
22 or fuel choices.
23 It would have been that much harder
24 particularly if each and every unit had to choose
L.A. REPORTING - (312) 419-9292
750
1 from among that unlimited menu for any one of these
2 alternatives to be selected for any one of these
3 potential innovations to be developed or to penetrate
4 further into the marketplace and that much harder for
5 utilities to integrate the demands of doing business
6 with the demands of achieving SO2 reductions.
7 On this slide, which is entitled,
8 "Overview of the Allowance System," I just wanted
9 to lay out just sort of the basic mechanics of the
10 allowance -- the SO2 allowance system, which I think
11 you will recognize as being very similar to the basic
12 mechanics of the ERMS system.
13 In this case, one allowance equals
14 one-ton of SO2 emissions. In the case of the
15 proposed rule, one ATU equals one unit of VOM.
16 A limited number of allowances in
17 the acid rain program are allocated to the
18 emission -- allocated to the sources of the units.
19 Allowances in the SO2 program are fully
tradeable
20 and fully bankable.
21 They also, in addition to being the
22 units of exchange, are the instruments of
23 implementation or compliance because as I said, each
24 utility source's permit specifies, as does Title 4
L.A. REPORTING - (312) 419-9292
751
1 in statutory language, that compliance is holding
2 the same number of SO2 allowances as the quantity
3 of emissions measured in each source.
4 Again, on a slide entitled, "Key
5 Components of the System," the EPA provides
6 accountability or ensures compliance by setting
7 up a tracking system which doubles as the bookkeeping
8 account for trading as well as compliance.
9 That system -- a similar system is
10 contemplated for the proposed rule. The U.S. EPA's
11 role in achieving this accountability and ensuring
12 compliance is essentially managing or making
13 deductions from the allowance accounts ensuring
14 that the monitoring or quantification of actual
15 emissions on a high quality basis and that all the
16 units report the results of measurement or
17 quantification to the agency and then allowances
18 are deducted from each unit's accounts equal in
19 number to the reported measured or quantified SO2
20 emissions.
21 One of the key elements of the SO2
22 allowance system is a concept of kind of built-in
23 mechanical
automaticity, if I can make up a word.
24 Under this system, under the Title 4
L.A. REPORTING - (312) 419-9292
752
1 system, units that emit more SO2 than they have
2 allowances to cover the SO2 are automatically subject
3 to a monetary penalty and are automatically subject
4 to a deduction from their next year's allowances.
5 In addition, they are subject to the
6 full panoply or array of Clean Air Act remedies as
7 well. This
automaticity, particularly with respect
8 to the automatic reduction of SO2 allowances, is
9 very important because it ensures that in the year
10 immediately following the SO2 emissions
exceedance,
11 the environment is compensated.
12 In addition, it ensures that sources
13 are subject to an
evermore stringent level of
14 liability because their allowable emissions by the
15 dent of the production of their next year's
16 allowances is lessened in the next year.
17 Therefore, they are subject to much
18 greater liability under the traditional Clean Air
19 Act and enforcement remedies.
20 I believe the proposed rule sets up a
21 similar kind of mechanics wherein sources that
22 have what are called emissions excursions are
23 automatically liable to compensate the environment
24 by achieving additional emissions reductions and
L.A. REPORTING - (312) 419-9292
753
1 if they don't succeed, suffer an automatic deduction
2 in the
ATUs allocated to them.
3 The same compensating environmental
4 affect and the same compliance incentive is created
5 under the proposed rule as seems to be working under
6 the SO2 program.
7 In the case of the SO2 program, the
8 EPA -- and I have up here a slide entitled "Emission
9 Monitoring" -- the EPA puts most of its effort into
10 enforcing the source's requirement that they use
11 either continuous emissions monitors in their stacks
12 or apply a comparably reliable and accurate method
13 of quantifying their emissions.
14 So the EPA's enforcement compliance
15 resources are much more focused on the actual
16 performance result and the proposed rule imposes a
17 similar emphasis on quantification and measurement
18 and authorizes the agency to ensure comparable
19 performance on the quantification and measurement
20 requirements of sources.
21 Under the SO2 program, there is a
22 mandatory auction not all of the allowances are
23 handed out by the EPA. A little under three percent
24 of them are held back and distributed through a
L.A. REPORTING - (312) 419-9292
754
1 public auction held every year.
2 The primary purpose of this provision
3 in the SO2 program was to provide the regulating
4 community with the assurance that there would be
5 some availability of allowances that they could
6 acquire in the event that the market somehow didn't
7 work or didn't supply a sufficient amount of
8 tradeable or transactable allowances.
9 To address similar anxieties on the part
10 of the regulating community here, the proposed rule
11 establishes something called -- something known by
12 the acronym ACMA. I keep forgetting what ACMA stands
13 for.
14 I believe it stands for Alternative
15 Compliance Market Account, which does not function
16 as an auction, but rather it functions as a direct
17 sale source from the state for sources that cannot
18 find
ATUs in the market, but are willing to pay a
19 premium price to purchase
ATUs in the state.
20 To the extent that those
ATUs are
21 funded, if you will, out of the affixed pot of
22 ATUs, the total emissions CAAPP as in the case of
23 the SO2 program is preserved, and the state stands
24 as in effect the guarantor of the availability of
L.A. REPORTING - (312) 419-9292
755
1 ATUs in the event that the market doesn't offer an
2 adequate supply.
3 The EPA auction -- and I'm putting up
4 a supply entitled "1994 Auction Results," is well
5 subscribed to by sources. People have come in each
6 year and purchased the full amount of allowances,
7 but they have purchased them in extremely low prices
8 relative to what the predicted cost of SO2 emissions
9 reductions were.
10 There are a lot of different theories,
11 and I emphasize the word theories -- for these low
12 prices -- but one of them is that the auction in the
13 SO2 system is somewhat superfluous.
14 Sources are, in fact, finding success
15 in seeking to purchase allowances in the trading
16 market and certainly they are finding success in
17 creating banks of allowances which they can use or
18 have available to use in later years.
19 THE HEARING OFFICER: Before you go on, could
20 you explain some of the samples what they stand for?
21 MR. GOFFMAN: Sure. Basically, S stands for
22 sold, capital U, small N, stands or unsold. These
23 refer to -- as an adjunct to the EPA auction.
24 Private holders of SO2 allowances can use the same
L.A. REPORTING - (312) 419-9292
756
1 mechanisms and put their allowances up for auction
2 and specify minimum bids that they would take.
3 So in this column, there are allowances
4 that are
vintaged 1995. That is to say they are
5 usable in 1995 and they are available on a spot basis
6 for, if you will, immediate use or use within the
7 next year.
8 Now, 2,000 advance refers to allowances
9 that are put up for sale in the '90s, but can't be
10 used before the year 2000. So those were referred to
11 as advance allowances.
12 These results again are primarily
13 the results of the private adjunct auction, not
14 just --
15 MS.
McFAWN: These being the numbers listed
16 under number of bids?
17 MR. GOFFMAN: Exactly.
18 MS.
McFAWN: That wasn't the CVOT auction?
19 MR. GOFFMAN: The CVOT is acting as the agent
20 to the EPA auction kind of a distinction to what a
21 futures product CVOT is attempting to sell.
22 MS.
McFAWN: So they acted as an auctioneer
23 for the private sale as well --
24 MR. GOFFMAN: Yes,
uh-huh. What EPA did was
L.A. REPORTING - (312) 419-9292
757
1 not exactly bland or unify the two options, but make
2 sure they occurred simultaneously.
3 As you can see, the number of bids far
4 exceeded the number actually sold. It's the best
5 thing that a number of the bidders did not bid the
6 price that the computer to seller demanded in these
7 auctions.
8 Perhaps the analogy --
9 MS.
McFAWN: When it says bid price, is that
10 the price being offered by the seller?
11 MR. GOFFMAN: By the seller.
12 MS.
McFAWN: Wouldn't that be the opposite?
13 MR. GOFFMAN: Oh, I'm sorry. I was looking up
14 here. Yes, the bid price was --
15 MS.
McFAWN: That was the range --
16 MR. GOFFMAN: Yes.
17 MS.
McFAWN: -- by the seller?
18 MR. GOFFMAN: That was the range by the -- by
19 the buyer, exactly.
20 Most of the sellers' minimum bid demands
21 obviously fell somewhere in that range so that some
22 bids succeeded in clearing the sellers' minimum
23 price, but most, as you see, didn't.
24 What I was going to say was that in
L.A. REPORTING - (312) 419-9292
758
1 addition to the auction, the SO2 system has an
2 account for direct sales, that is, in addition to
3 auctioning the percentage of the allowances, the
4 EPA holds another small percentage of the allowances
5 back and by statute, it offers them for sale or at a
6 fixed price higher than the price that the allowance
7 market was expected to elicit.
8 That direct sell provision has never
9 been used by anybody. The most -- in fact, all
10 sellers have found allowances to be available in
11 the SO2 trading market.
12 Indeed what we have seen, and I'm
13 putting up a slide entitled "SO2 Allowance Values"
14 that in the mid '90s, the price of allowances that
15 were tracked by a private corporation monitoring
16 the SO2 emissions allowance market fell not just
17 by operation of the auction, but in the private
18 exchange market, which is an indication of mostly
19 the fact that utilities had made investments in
20 over-control and created large banks, and therefore,
21 large supplies of allowances representing access
22 or accelerated or early emissions reductions.
23 The only thing that I can add to the
24 slides that I have presented and that were included
L.A. REPORTING - (312) 419-9292
759
1 in the
prefiled material is just a quick comparison
2 to reclaim program for
NOx and SO2, which has many
3 of the same basic design features of the SO2 program,
4 but one thing it does not permit is banking.
5 To the surprise of some, notwithstanding
6 the absence of banking, that market has still worked
7 in terms of allowing sources to use trading as a form
8 of compliance while still achieving the required
9 local
NOx and SO2 reductions for the South Coast Air
10 Quality Management District.
11 However, the absence of banking has
12 created at least a slight environmental hazard
13 because since the
NOx and SOx reclaim units expired
14 at the end of each season or year, there is somewhat
15 of a perverse incentive to use them.
16 So the reclaim program has generated,
17 from the information that I have, a smaller amount
18 of early access reduction investment in a program
19 like the SO2 program which includes banking.
20 Thank you for your time.
21 MS.
McFAWN: Thank you, Mr.
Goffman.
22 THE HEARING OFFICER: Could we go off the
23 record for a second?
24
L.A. REPORTING - (312) 419-9292
760
1 (Whereupon, a discussion
2 was had off the record.)
3 THE HEARING OFFICER: Previously, we had
4 marked, but not entered into the record, certain
5 parts of those slides. Mr.
Goffman added additional
6 slides to that --
7 MR. GOFFMAN: I did?
8 THE HEARING OFFICER: -- that were not marked
9 already and then did not talk about some that were
10 marked.
11 I think I would like to make those part
12 of the record as exhibits so when you are reading the
13 transcript, they will be attached and hopefully, you
14 can refer to them. That would make life, I think, a
15 little bit easier for everyone. I'm just trying to
16 sort out the best way of doing that.
17 MS. SAWYER: Which exhibits didn't he use that
18 weren't marked?
19 THE HEARING OFFICER: The slides he used that
20 weren't marked previously were Page 12, which is the
21 first slide that he showed and talked about.
22 MS.
McFAWN: Is that a slide that was used
23 today?
24 THE HEARING OFFICER: That's from today. The
L.A. REPORTING - (312) 419-9292
761
1 page number was 12.
2 Now, the second slide that he used was
3 Page 17 of his
prefiled testimony.
4 The third slide, fourth slide, and fifth
5 slide were already entered and marked. Those were
6 Pages 18, 15 and 16.
7 The sixth slide was Page 19 and then the
8 seventh slide was Page 20.
9 The eighth slide was Page 21. The
10 ninth slide was Page 22; the tenth slide was Page 23;
11 the eleventh slide was Page 25; the twelfth was Page
12 26, and that was previously marked already; and the
13 thirteenth slide was Page 27, which was also
14 previously marked.
15 MS.
McFAWN: When you say previously marked --
16 THE HEARING OFFICER: Previously marked at the
17 other hearing as exhibits.
18 MS.
McFAWN: That would January 23rd?
19 THE HEARING OFFICER: Correct. So I think
20 what we will do first is the ones that were
21 previously marked, and I will enter them as exhibits
22 if there is no objection.
23 I will go through them. Slide 3 was
24 Page 18. It was entitled "Savings Through Trading."
L.A. REPORTING - (312) 419-9292
762
1 It was marked previously as Exhibit No. 28. We
2 will enter that into the record as Exhibit 28.
3 The fourth slide shown was Page 15 of
4 his
prefiled testimony and it was entitled
5 "Macroeconomics Impact." It was previously marked
6 as Exhibit 26.
7 If there are no objections, we will move
8 that into the record as Exhibit 26.
9 Seeing none, we will do so.
10 The fifth slide shown was Page 16. It
11 was entitled "Cost Changes If Trading Was
12 Restricted." That was previously marked as Exhibit
13 27.
14 If there are no objections, we will move
15 that into the record as Exhibit 27.
16 Then, skipping to the twelfth slide
17 shown, which is Page 26 of his handouts, which was
18 entitled "1994 Auction Results," it was previously
19 marked as Exhibit 29, we will move that into the
20 record if there are no objections.
21 Seeing none, that will be moved in as
22 Exhibit 29.
23 Finally, we will go to the thirteenth
24 slide that was shown today, which is Page 27,
L.A. REPORTING - (312) 419-9292
763
1 entitled "SO2 Allowance Values," which was previously
2 marked as Exhibit 30.
3 If there are no objections, we will move
4 that into the record as Exhibit 30.
5 Seeing none, we will move that into the
6 record as Exhibit No. 30.
7 While we were looking at the previously
8 marked exhibits, do you want to move the ones you
9 previously marked that weren't moved into the record?
10 Again, I don't think he used them during
11 that testimony. We marked them, but then you never
12 used them.
13 MS. SAWYER: Right. That is what happened.
14 He had not used any of those exhibits during his
15 previous testimony.
16 MS.
McFAWN: Let the record reflect that we
17 have marked as Exhibit 24, Page 13.
18 THE HEARING OFFICER: "SO2 Emissions From The
19 Largest Sources," that was just marked, and Exhibit
20 25 was marked, which was Page 14, "Regional Emissions
21 Trades," but we are not moving those into the record,
22 which brings us to going back to the slides he did
23 use today.
24 The first slide, which was Page 12 of
L.A. REPORTING - (312) 419-9292
764
1 his
prefiled testimony, which is entitled "Acid Rain
2 Emissions Trading," we will mark that as Exhibit 38.
3 (Document marked as
4 Hearing Exhibit No. 38
5 for identification, 2/4/97.)
6 THE HEARING OFFICER: Okay. If there are no
7 objections, we will move that into the record.
8 Seeing none, we will move that into the
9 record as Exhibit 38.
10 We will mark Page 19 as Exhibit 39.
11 It's entitled "Utility Investment Decisions."
12 (Document marked as
13 Hearing Exhibit No. 39
14 for identification, 2/4/97.)
15 THE HEARING OFFICER: If there are no
16 objections to moving that into the record as an
17 exhibit, we shall do so.
18 MR. SAINES: Just for clarification, is that
19 Slide 6?
20 THE HEARING OFFICER: That was Slide 6.
21 MR. SAINES: Thank you. Okay.
22 THE HEARING OFFICER: Thank you. Slide 7,
23 Page 20 of his
prefiled testimony, is entitled
24 "Overview of Allowance System," will be marked as
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1 Exhibit 40.
2 (Document marked as
3 Hearing Exhibit No. 40
4 for identification, 2/4/97.)
5 THE HEARING OFFICER: If there are no
6 objections, we will move that into the record.
7 Seeing none, we will move that into the
8 record as Exhibit 40.
9 MS.
McFAWN: That would be Slide 7?
10 THE HEARING OFFICER: Apparently, I missed
11 Slide 2, which was Page 17. Let's go back and put
12 that in as 41.
13 We are marking as Exhibit No. 41
14 Page 17 of his testimony, which was the second
15 slide. That is entitled "Title 4 Clean Air Act
16 1990."
17 (Document marked as
18 Hearing Exhibit No. 41
19 for identification, 2/4/97.)
20 THE HEARING OFFICER: We will move that into
21 the record if there are no objections.
22 Seeing none, that's moved into the
23 record.
24
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766
1 (Document marked as
2 Hearing Exhibit No. 42
3 for identification, 2/4/97.)
4 THE HEARING OFFICER: Then, going back to
5 Slide 8, which was Page 21 of his
prefiled testimony,
6 it is entitled, "Key Components of the System," we
7 will move that into the record if there are no
8 objections as Exhibit No. 42.
9 Seeing none, we will move that in.
10 We will mark Slide 9, which was Page 22,
11 as Exhibit No. 43, which was entitled "Allowance
12 Systems Compliance."
13 (Document marked as
14 Hearing Exhibit No. 43
15 for identification, 2/4/97.)
16 THE HEARING OFFICER: We move that into the
17 record if there are no objections.
18 Seeing none, that will be moved into the
19 record.
20 Slide 10, which was Page 23, we will
21 mark as Exhibit 44, which is entitled "Emissions
22 Monitoring."
23
24
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767
1 (Document marked as
2 Hearing Exhibit No. 44
3 for identification, 2/4/97.)
4 THE HEARING OFFICER: If there are no
5 objections, we will move that into the record.
6 Seeing none, we will move that into
7 the record.
8 Finally, Slide 11, which was Page 25 of
9 the
prefiled testimony, is entitled "Allowance
10 Auctions," we will mark that as Exhibit 45.
11 (Document marked as
12 Hearing Exhibit No. 45
13 for identification, 2/4/97.)
14 THE HEARING OFFICER: We will move that into
15 the record if there are no objections.
16 Seeing none, that is moved into the
17 record. Thank you for your indulgence.
18 At this time I guess we will open
19 the floor up for questions. We will start with
20 Mr.
Trepanier.
21 MR. TREPANIER: Good afternoon, Mr.
Goffman.
22 Mr.
Goffman, would you agree with a
23 statement that in evaluating this proposal that
24 most importantly the question is does the emission
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1 trading program accomplish the desired reduction
2 in pollution?
3 MR. GOFFMAN: I would agree with it as a
4 partial statement, yes.
5 MR. TREPANIER: How would you augment that to
6 your satisfaction?
7 MR. GOFFMAN: Well, I guess you would want
8 to augment it with considerations of the ability
9 of the system to one, achieve the desired emissions
10 reductions in actuality; two, to stimulate
11 environmental and beneficial and economically
12 beneficial innovations so that there -- so that
13 the program can continue to perform over time; and
14 three, you would want to see those benefits achieved
15 at the lowest possible cost.
16 MR. TREPANIER: I have another question.
17 This question is a follow-up. The
18 benefits beside, is that what you spoke of earlier
19 when you talked about the incentive to reduce
20 pollution early?
21 MR. GOFFMAN: I'm sorry?
22 MR. TREPANIER: The benefits beside -- when
23 you augmented the question at first, you said
24 actually you could reduce emissions, which I think
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1 was the first question. You said beside that, you
2 would augment that with that there would be benefits
3 beside.
4 MR. GOFFMAN: Right. I think one potential
5 benefit of a system like this is to extenuate early
6 emissions reductions, that is, more emissions
7 reductions in the early years of the program than
8 are required in those years, more emissions
9 reductions early in the program than are required.
10 MR. TREPANIER: Is that the type of
11 reductions that you found that the reclaim program
12 was not able to obtain or at least not near to the
13 degree of the SO2 program?
14 MR. GOFFMAN: Pretty much, yes. I think the
15 incentive to create extra reductions created simply
16 by the ability to trade within the same year between
17 the sources did stimulate some investments in -- it
18 did stimulate some investments in extra emissions
19 reductions, not all of which were transacted or sold
20 or used. So there was some early reductions achieved
21 in that program.
22 At the same time, some analysis I
23 have seen suggests that if there had been some
24 banking allowed, there would have been more
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1 early or extra emissions reductions achieved in
2 that program.
3 MR. TREPANIER: The reclaim program, you said,
4 had no banking?
5 MR. GOFFMAN: That's right.
6 MR. TREPANIER: And the SO2 program has
7 open-ended banking?
8 MR. GOFFMAN: That's correct.
9 MR. TREPANIER: Now, in this current proposal,
10 where does it fall between those two?
11 MR. GOFFMAN: Somewhere in the middle
12 actually. Under the SO2 program, individual sources
13 where sources collectively can pretty much build-up
14 their banks as quickly as they -- as quickly as their
15 investment decisions and the performance of their
16 investment allows and over time, build those banks
17 to an unlimited size.
18 In this program, if I remember the
19 proposal accurately, each ATU is usable in the
20 year in which it is issued and then in the following
21 season. If it's not used after the following season,
22 it expires. It can't be used to offset a unit of
23 emissions.
24 However, if you assume that sources will
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1 use a first in first out ATU management system for
2 when they choose to save a -- for which
ATUs they
3 choose to save and which ones they choose to spend,
4 then, the effect of that rule really isn't the
5 limitation on the lifetime of any given ATU.
6 The effect of that rule is to control
7 the rate at which any source builds a bank of
ATUs
8 and ultimately to CAAPP the total size of that bank
9 at the level equivalent to number of
ATUs that its
10 initially allocated.
11 So in effect, it's as if this rule said
12 you can slowly build the bank up to the number up to
13 and
equalling ATUs initially allocated. That's why I
14 say it falls somewhere in the middle.
15 It proposes some control on the rate of
16 bank build-up and an ultimate limit on the size of
17 the bank, neither of which the SO2 program does.
18 MR. TREPANIER: If I understand you, under the
19 current proposal, you said that the size of the bank
20 is limited to the size of the allotment?
21 MR. GOFFMAN: The size of the annual
22 allotment, right, the size of one year's allotment.
23 MR. TREPANIER: And that there was no
24 comparison to that SO2 program, like you said,
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1 because they have as many as they want?
2 MR. GOFFMAN: Right, exactly.
3 MR. TREPANIER: In the SO2 program, they can
4 hold that bank as long as they want?
5 MR. GOFFMAN: That's right.
6 MR. TREPANIER: Here, it's one year?
7 MR. GOFFMAN: Here, once you hit the bank size
8 limit, the source will presumably continue to be
9 allocated at
ATUs and it can take some of the newer
10 ATUs and deposit them in the bank, if you will, or
11 retain them for the bank at a rate that at least in
12 theory could replace the
ATUs in the bank that are
13 unused and expired.
14 So once you hit the total bank size
15 limit, you can keep a bank of that size moving
16 forward in time over the course of the program.
17 Even at that point, the bank never gets any bigger
18 in that sense.
19 MR. GOFFMAN: Giving the experience that you
20 have witnesses with the SO2 program building the
21 banks and the reclaim program with no bank and little
22 success, I understand, in getting early reductions,
23 how do you see that this system with the one year
24 bank is going to -- how is that going to fair.
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1 Can you give us any estimation on
2 the likelihood that it's going to drive early
3 reductions?
4 MR. GOFFMAN: I can only give you what I call
5 a qualitative answer. I have not done any analysis
6 and I'm not familiar with any analysis. I don't know
7 whether any has been done or not.
8 A qualitative answer is that the ability
9 to do some banking in this system will drive some
10 early reductions and will ultimately make the -- it
11 will drive early reductions, I suspect, more early
12 reductions than if you just had trading.
13 More important, almost as a matter if
14 you will, is political economics. If these early
15 reductions are retained by a number of sources in
16 their banks and carried forward over time, it should
17 make it easier for the agency if the air quality
18 modeling suggests that it's necessary to apply
19 aggressive reductions to VOM as may be required
20 because the sources will know that they have, if you
21 will, an additional increment to built-in flexibility
22 because of the banks that they have been able to
23 build up.
24 So there is a direct environmental
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1 benefit that I think would occur as a result of
2 banking, which -- of which incrementally less would
3 occur if you didn't have banking and there is a kind
4 of, by extension, an environmental benefit in terms
5 of program durability because banking will allow
6 sources kind of a self-help form of flexibility that
7 will make additional emissions reductions if they
8 prove necessary as the attainment date is
9 approaching. It's more cost-effective.
10 MR. TREPANIER: Would it be fair to
11 characterize that situation that you described where
12 the emitter has a bankbook up of a year's worth of
13 allotments, that in that situation, if the agency
14 were to promulgate a rule and reduce the amount that
15 VOMs allowed to be emitted, that that rule wouldn't
16 resolve in a reduction in VOM emissions for some
17 time?
18 MR. GOFFMAN: At that point, it would depend
19 on what the sources did with their banks. I might
20 not have followed the question exactly.
21 Are you --
22 MR. TREPANIER: I was addressing that which
23 you referred to as flexibility.
24 Does that flexibility mean that when
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1 the rule is promulgated -- if a rule were promulgated
2 reducing the amount of
VOMs allowed to be emitted
3 that we wouldn't see the reduction in the amount of
4 VOMs emitted, not initially, and how long would it
5 take?
6 MR. GOFFMAN: Well, it just depends. I think
7 the answer to that depends on whether or not most
8 sources use most of their banks early.
9 My sense is -- and again, this is not
10 based on any modeling or analysis -- is that the
11 economic diversity of the sources covered by this
12 program suggest that it would be very hard to predict
13 that in response to tightening the VOM rules, a
14 majority of sources at the same time would be using
15 a majority of their banks because ultimately, my
16 suspicion is that surrounding economic conditions
17 as much as the tightening of a -- of the VOM
18 requirements would affect what sources do in terms
19 of either continuing to maintain their banks or using
20 them at any given point in time.
21 Remember, as I understand the context
22 of this program, it's anticipated -- it's already
23 anticipated that there will be step-downs in the VOM
24 limitation requirements.
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1 So sources are -- can be presumed to
2 be looking forward to not only building banks, but
3 maintaining banks at a quantity greater than zero
4 virtually forever because they will always be facing
5 the tension between ultimately more stringent VOM
6 requirements and continuing economic change and
7 potential economic growth.
8 I guess it's a complicated way of saying
9 that in most cases, it would be hard to imagine any
10 one source, let alone a large group of sources,
11 choosing at the same time to reduce their banks to
12 zero. There's always going to be some value in
13 having some number greater than zero in the bank
14 because you are looking forward to the next year of
15 economic activity while still having to manage your
16 VOMs.
17 MR. TREPANIER: I understand from your
18 testimony that you believe there could be some
19 benefit even if it was just an incremental benefit
20 from ongoing trading.
21 By ongoing trading, I mean trading past
22 the point that we have made the reductions, trading
23 at a point where no reductions are being demanded.
24 My question now is do you believe that
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1 we could still retain a significant benefit of this
2 program getting those reductions while the public
3 would retain decision-making powers regarding the
4 distribution of pollution?
5 MR. GOFFMAN: Well, to tell you the truth,
6 we have had 25 years in some ways of the public
7 retaining a fairly large increment of control
8 in the form of -- in the form of regulators
9 specifying specific technologies to be used in
10 specific groups of sources.
11 Implicitly, those decisions have
12 resulted in the distribution of pollution and the
13 distribution of costs which the sources have
14 significantly less ability under -- than they do
15 under a trading system to reallocate.
16 As I tried to suggest in my previous
17 testimony, there has actually been a surprising and
18 perverse trade-off between the level of control and
19 the actual level of environmental performance at
20 least as measured in terms of achieving the emissions
21 reductions that you think you are going to get and in
22 stimulating continuous invasion.
23 So a program like this represents
24 an attempt to reverse that trade-off to essentially
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1 transfer from regulatory bureaucracies cost
2 allocation decisions and in the case of your
3 question, some
distributional, you know, geographic
4 distributional decisions for what in the end is
5 superior environmental performance.
6 That certainly has been the case in the
7 SO2 program and probably compared to its predecessors
8 in the South Coast Reclaim Program.
9 MR. TREPANIER: What I'm asking, though, is
10 that if we use this proposal to make the reductions
11 and the chairs have been shifted around the table or
12 or a little more to the point the amount of emissions
13 allowed for each polluter has been adjusted to where
14 we need to make our reduction, now at that point, if
15 trading ceases, does the public retain any benefit --
16 a significant benefit of this program?
17 MR. GOFFMAN: Well, the -- I guess I would
18 argue that it still does because what makes
19 trading happen, if you will, is certainly a
20 continuous or continual demand to make new increments
21 of reduction.
22 Also, what drives trading is economic
23 change or economic growth, which sources have to
24 respond to or want to seek while having to limit
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1 their emissions to a specific level.
2 Even under those conditions where you've
3 got -- where you are no longer asking for new
4 emissions reductions, but you're demanding that
5 sources maintain their emissions at a constrained
6 level, trading will still stimulate sources -- some
7 sources to make investments in over-control so they
8 can respond to opportunities for economic growth and
9 in doing so, continue to invest in the creation and
10 dissemination of environmental innovations which
11 yields to the public the benefit of their
12 environmental performance and yields to that same
13 public costs.
14 In the last analysis, the cost --
15 the economic benefit or environmental benefit
16 relationship is on a continuum. Even if you are
17 just asking sources to meet a kind of flat constraint
18 rather than a step-down constraint, you still get
19 benefits on that continuum.
20 The other thing that's worth observing
21 here is that the EPA just proposed a new ozone
22 standard under the National Air Quality Standards.
23 So in a sense, if that new standard is
24 adopted and the public continues to demand increasing
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1 levels of public health protection over time, then,
2 continuous dynamic of investments and innovation are
3 going to be very useful to the public, both on the
4 environmental side and on the economic side.
5 MR. TREPANIER: What kind of a circumstance
6 would work against -- and I'm asking you to take a
7 critical look, give us a critical look now?
8 Now, what would work against those
9 incidental benefits of trading, the benefits beyond
10 accomplishing a reduction in pollution?
11 MR. GOFFMAN: You mean if you had -- you're
12 not talking about -- you're not talking about
13 restrictions, you're talking about some sort of
14 inherent economic conditions?
15 MR. TREPANIER: Yes. Maybe from the
16 experience from other trading programs or otherwise,
17 have you been able to identify anything that -- a
18 circumstance that is going to work against those
19 incidentals?
20 MR. GOFFMAN: Well, I guess generally, a lot
21 of the dollars that I have been hypothesizing about
22 gets spent on making the next round of environmental
23 improvements either in the form of additional
24 emissions reductions or in the form of new
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1 technologies that can achieve the same reductions
2 at lower costs. The fact that for any company,
3 there is a lot of competition for those new
4 investment dollars.
5 It may be in a lot of cases companies
6 will look at the ability to spend what I will call
7 innovation money on either environmental compliance
8 improvements or on other productivity improvements
9 and will choose in number of cases to put the money
10 into productivity improvements ahead of environmental
11 improvements.
12 That's just, if you will, life in the
13 marketplace. What you want to do is set up a system
14 so that the choice of putting those innovation
15 dollars into environmental improvements is more
16 financially attractive and you can compete against
17 the choice of putting the same dollars into
18 productivity or other kind of economic improvements.
19 MR. TREPANIER: In designing this rule or
20 improving this rule, what should we be allowing for?
21 What specifically are you -- is there
22 something specifically you are describing, say, from
23 southern California, from their experience?
24 MR. GOFFMAN: No. The problem that I was
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782
1 talking about, I don't think we have a design for
2 particularly.
3 What you do want to make sure of is that
4 you don't introduce unnecessary restrictions that
5 don't produce significant environmental benefits, but
6 undercut the incentive creating value of emissions
7 trading.
8 So, for example, the limitation on
9 banking in the South Coast makes developments
10 in over-control or environmental innovation less
11 valuable. You know, it's just as a matter of
12 arithmetic.
13 That's the kind of thing if that
14 limitation is not otherwise environmentally required,
15 you don't want to induce a system like this.
16 MR. TREPANIER: On the same line, though, if
17 the baselines are inflated, will that impact on
18 these incidental environmental benefits?
19 MR. GOFFMAN: Oh, absolutely. I'm sorry.
20 I didn't mention it. That's a very good point.
21 It's absolutely critical that the
22 nominal emission reductions -- the so-called surplus
23 reductions free up
ATUs for banking or trading for
24 the creation of actual reductions or reductions in
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1 actual emissions and not just reductions in nominal
2 emissions.
3 For example, regarding the program for
4 VOCs, in effect, what the potentially affected
5 sources demanded as part of their baselines amounted
6 to inflated baselines.
7 So it is absolutely critical, as I
8 think your question points out, that the baselines
9 correspond to real emissions occurring in the
10 environment because you're right, your implication
11 is absolutely right, if they don't correspond to
12 that, then, the benefits I'm talking about not only
13 the secondary benefits, but the primary objectives
14 of the program isn't effective.
15 MR. TREPANIER: Does your support for this
16 proposal depend on those continuous step-downs that
17 you are saying you are anticipating?
18 MR. GOFFMAN: Not literally, but in effect,
19 yes. I mean, our support for the proposal really
20 does depend on the agency doing a reliable and fair
21 job of first setting the baselines to the
22 correspondence of actual emissions and then
23 determining over time what emissions reductions
24 are needed or are appropriate from this sector to
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1 achieve attainment of the ozone standard.
2 MR. TREPANIER: Have you considered that
3 environmental progress in other types of pollutants
4 might be delayed by the precedent here, that the
5 precedent that me might establish here, that
6 polluters might wait until their baseline is
7 established for a pollutant prior to reducing it?
8 MR. GOFFMAN: Well, I guess if the only
9 economic factor on a source was trying to get more
10 out of its baseline, if you will, or get a bigger
11 baseline, then, that would be more than just a
12 hypothetical worry, and it is a hypothetical worry.
13 Most sources' emissions behavior, I
14 think, is dictated by a whole host of economic
15 factors and conditions that overwhelm whatever
16 incentive sources may have to inflate their
17 baseline. If I understand this rule correctly,
18 the core baseline years are what?
19 Could you remind me what the core
20 baseline years are?
21 MS. SAWYER: '95 and '96.
22 MR. GOFFMAN: Okay. If that's the case, and
23 this is 1997, then, most sources have already
24 established their emissions baseline prior to the
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1 promulgation of this program.
2 So that hypothetical incentive, which
3 would apply if the baselines were set based on
4 prospective activity or set on years subsequent to
5 the promulgation of the program, it doesn't exist
6 here.
7 MR. TREPANIER: Could you tell us about the
8 problem that arose in southern California with cyclic
9 emitters?
10 MR. GOFFMAN: If that's a term of art, I'm not
11 familiar with it so I might not know.
12 MR. TREPANIER: Maybe I described it wrong.
13 These would be polluters who emissions levels rise
14 and fall substantially, but over a period of years,
15 not within one year, but maybe over a period of four
16 years. There may be spikes.
17 MR. GOFFMAN: Well, from a -- if you have a
18 true CAAPP and if you have set the CAAPP correctly
19 or the progressive
CAAPs correctly according to the
20 demands of air quality, then, I'm having a hard
21 time seeing what those so-called cyclic emitters
22 present in terms of problems to the integrity of the
23 system.
24 MR. TREPANIER: Okay. Do you have an opinion
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786
1 if the CAAPP in this program is set correctly?
2 MR. GOFFMAN: I don't have an opinion because
3 my sense is what the agency has decided to do is
4 engage in a progressive process to set a succession
5 of steps or
CAAPs.
6 As far as prima facie, the process looks
7 like a reliable one. Since we haven't seen the
8 results, you know, for the critical years, you know,
9 it's just -- you can't judge it yet basically.
10 MR. TREPANIER: A progression of
CAAPs,
11 that's the stepping down that you referred to
12 earlier?
13 MR. GOFFMAN: Yes.
14 MR. TREPANIER: I know in your testimony you
15 referred to the Michigan program as illegitimate
16 because it lacked the CAAPP?
17 MR. GOFFMAN: Yes.
18 MR. TREPANIER: Does the Illinois program --
19 does it have a CAAPP?
20 MR. GOFFMAN: That's my understanding, yes.
21 It has a CAAPP on -- at least on a mechanical level,
22 the fact that the rule would authorize the agency to
23 hand out only a fixed amount of
ATUs. So as a
24 mechanical matter, it will have a CAAPP.
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1 The real issue is the number of
2 ATUs that the agency accumulates that it can hand out
3 that correspond to appropriate total levels of VOM
4 emissions for the sector. Again, the agency appears
5 to be devoting a significant amount of resources in
6 making sure that number is set properly.
7 The Michigan program, you know, was
8 treated as surplus and therefore,
transactable
9 emissions reductions, emissions reductions that
10 could not reliably by definition be assumed to
11 be a surplus because sources there weren't operating
12 under a CAAPP.
13 MR. TREPANIER: Now, when you spoke about
14 addressing these spikes through properly setting the
15 CAAPP, if the system -- if this proposal in front of
16 us were to allow polluters to emit the level of their
17 spike and issue them allotments at the level of the
18 spike, would that be a properly set CAAPP?
19 MR. GOFFMAN: Well, I don't -- I would imagine
20 that what the spike levels would inform, you know,
21 hypothetically the spike levels would perform is
22 simply the baseline term of the equation that
23 produced the -- whose product was the CAAPP number.
24 I assume that in the process of
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1 identifying sources' baselines for this sector,
2 if a number of these, what you call, cyclical or
3 spiking units return in their emission spikes as
4 their baseline, the agency would have to prepare
5 those total baselines with its air quality modeling
6 results, and simply impose a more stringent emission
7 reduction percentage to get that initial baseline
8 down to the level of VOM emissions dictated by the
9 air quality models.
10 MR. TREPANIER: In this instance, you think
11 the amount of reductions required would be dependent
12 on how the baselines are recording?
13 MR. GOFFMAN: I think not solely. I think how
14 the baselines are reported is critical, but the CAAPP
15 setting, or the
CAAPs setting process, will equally
16 and critically be formed by the air quality model.
17 MR. TREPANIER: Is that in this proposal are
18 you speaking?
19 MR. GOFFMAN: Yes. In this sort of four
20 squares of this rule, plus having been on the design
21 team and having been believed by the agency several
22 times, as to how it was going to go about setting the
23 CAAPP. That's the basis of the statement I just
24 made, about role of the air quality modeling
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1 results.
2 MR. TREPANIER: Is it your understanding that
3 the CAAPP on this program is going to be based on air
4 quality monitoring --
5 modeling?
6 MR. GOFFMAN: In part, yes. That's my
7 understanding.
8 MR. TREPANIER: Do you know any place in the
9 rule that you would point us to that would show us
10 that the CAAPP is going to be based on air quality
11 modeling?
12 MR. GOFFMAN: No. I can't point to anything
13 in the rule because, if you will, that's not what
14 this rule is about. I'm generally familiar with how
15 the states establish their state implementation plan
16 which is their overall strategy for all affected
17 sectors.
18 Certainly, that depends critically on
19 air quality modeling results and the sector would
20 be intimately involved in the formulation of the
21 overall state implementation plan.
22 It's based on general knowledge. That's
23 where I make my statement. This particular rule is
24 not designed to address that issue. It doesn't
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1 apply.
2 MR. TREPANIER: You understand that there was
3 going to be more stepping down and that has something
4 to do with your program?
5 MR. GOFFMAN: Yes.
6 MR. TREPANIER: Now, if the initial CAAPP is
7 based and includes -- makes an allowance for these
8 spikes, makes an allowance by setting the allotment
9 at the level of the spike, will the CAAPP be
10 legitimate?
11 MR. GOFFMAN: Well, it depends on the
12 percentage of reduction applied to those -- applied
13 to the baseline for the sector.
14 MR. TREPANIER: I see. Relative to the size
15 of the sector?
16 MR. GOFFMAN: Right. And that percent --
17 the legitimacy of that percentage reduction depends
18 not just on its arithmetic affect on the baselines,
19 which may or may not include spikes, but also depends
20 on whether or not the product or the baseline with or
21 without spikes and percentage of reduction put the
22 nonattainment area on a path of reasonable further
23 progress towards attainment, which in turn is
24 dependent on the air quality modeling that
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1 information the formulation of the state
2 implementation plan.
3 MR. TREPANIER: In your previous testimony,
4 you spoke to -- in regards to the SO2 program, that
5 there were theoretical risks, and these -- you were
6 referring to a trade-off between actual present
7 benefits and theoretical risks. I believe we were
8 talking about the banking of SO2 at that time.
9 MR. GOFFMAN: Yes.
10 MR. TREPANIER: Now, in this current proposal,
11 could you identify some of these theoretical risks?
12 MR. GOFFMAN: Again, I think banking
13 potentially present the same risks. If you -- in
14 the risk -- in the context of ozone formation, the
15 amount of VOM emitted at one time under certain
16 conditions can lead to formation of excessive amounts
17 of ozone.
18 If you, in effect, move VOM emissions
19 from the past into the present -- into some future
20 present through the availability of the bank, then
21 you could end up with more VOM emissions than the
22 air can tolerate in terms of ozone formation.
23 So there is no doubt that the design
24 of this program had to involve a conscious weighing
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1 of the trade-off between the benefits, direct and
2 indirect, of incentives for early reductions,
3 flexibility and cost savings, and the risk of
4 so-called excess VOM emissions at some future time.
5 Essentially, in every program, no matter
6 what paradigm you are using for designing a program
7 like this one, if you are using the command and
8 control paradigm, it involves having to make final
9 decisions on trade-
offs between risks and benefits.
10 You may, for example, under a command
11 and control program create more certainty as to
12 where emissions reductions were going to occur,
13 but you may not be able to create certainty as to
14 the total amounts of VOM into the air at any one
15 time even though you don't have bank and trading.
16 So basically, to identify the kind of
17 trade-off that I just identified, it is not in
18 itself unique about this program or dispositive
19 because any time you design a program, no matter what
20 model you are using, you are making these kind of
21 essentially trade-offs between different
22 environmental benefits and effects.
23 THE HEARING OFFICER: I have been giving you
24 a pretty far leeway in letting you ask these
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1 questions. It's been roughly about a half an hour.
2 I was wondering if there was any way you could start
3 wrapping up your questioning?
4 Some of your questions seem to be going
5 a little bit beyond the scope of this witness's
6 testimony and more into how this rule is actually
7 going to work. That's maybe more of a question
8 better directed towards the agency.
9 MR. TREPANIER: Maybe, you know, in the
10 instance of that question, that's not my intention,
11 we will just quickly move over that and then speed
12 this up.
13 THE HEARING OFFICER: Do you have many more
14 questions to go?
15 MR. TREPANIER: I think about 20.
16 THE HEARING OFFICER: Twenty more questions?
17 Okay. Well, try to discern which questions would be
18 better asked of agency and Mr. Goffman.
19 MR. TREPANIER: In your previous testimony,
20 you said in the history of most of these programs,
21 that the information, that's the emission
22 information, is provided by the polluters and
23 that it's essentially a quantification or a
24 measurement than the firm's actual emissions.
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1 Now, does the proposal before the board
2 differ in how -- in that regard?
3 MS. SAWYER: I suggest that that's one of the
4 questions that would be better asked of the agency.
5 MR. TREPANIER: Okay. I'm moving through a
6 couple questions here on my own.
7 THE HEARING OFFICER: You do understand that
8 you can always ask those questions. I'm not saying
9 you can't ask those questions to the agency. It's
10 just that I think they could give you better
11 answers.
12 MR. TREPANIER: Okay. Would you agree that
13 a significant benefit of this proposal, if it were
14 implemented, would be that emissions reductions
15 begin to occur as a result -- I would like to start
16 the question over again.
17 Would you agree with the statement
18 that the benefit of this proposal would occur when
19 emission reductions begin as a result essentially
20 of a CAAPP in its legal implementation?
21 MR. GOFFMAN: Well --
22 MS. SAWYER: I don't quite understand the
23 question.
24 MR. GOFFMAN: Let me answer -- try to answer.
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1 I think this is, if you will, a multi-benefit program
2 because it's dynamic.
3 On its face, it's a statement that
4 attempts to identify these -- one benefit is the
5 single most important benefit or one aspect of the
6 mechanism established by this program is the
7 critical mechanism. The premise of that kind of
8 question, I disagree with.
9 MR. TREPANIER: Well, I just wanted to
10 point out that I have been taking this from your
11 transcripts from Pages 321 to 322, Lines 23 through
12 dash two. Maybe I could restate it. I may have --
13 MR. GOFFMAN: Well, I've learned a lot in
14 two weeks obviously, so. . .
15 MR. TREPANIER: Let me restate my question.
16 MR. GOFFMAN: I'm glad I had a chance to come
17 back now.
18 MR. TREPANIER: A benefit occurs in this
19 program when emission reductions begin to occur and
20 they occur as a result essentially of a CAAPP in its
21 legal implementation.
22 MS. SAWYER: Well, I think you already
23 asked this question, in essence.
24 MR. GOFFMAN: I mean, that's a true statement
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1 but. . .
2 MR. TREPANIER: Okay. I just wanted to bring
3 this out for the board, this opinion that the
4 CAAPP -- the importance of the CAAPP.
5 MR. GOFFMAN: Right.
6 MR. TREPANIER: And you also believe that we
7 cannot trade our way to attainment?
8 MR. GOFFMAN: We definitely cannot trade our
9 way to attainment, correct.
10 MR. TREPANIER: And the value of a pollution
11 allotment, is that created when the CAAPP is
12 installed?
13 MR. GOFFMAN: Implicitly, I guess that's
14 right.
15 MR. TREPANIER: And isn't that --
16 MR. GOFFMAN: Actually, the value isn't
17 realized until somebody produces the additional, that
18 is, the surplus emissions reduction in making that --
19 given that that emission allotment is available to
20 bank and trade.
21 MR. TREPANIER: Let me refer to my prefiled
22 questions.
23 Who are the major contributors to the
24 Environmental Defense Fund?
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1 MR. GOFFMAN: Well, I --
2 MS. SAWYER: Objection, relevance.
3 MR. GOFFMAN: I would be happy to say that the
4 major contributors to the Environmental Defense Fund
5 are fill and profit foundations and individuals. We
6 have about 300,000 individual members who have made
7 contributions of varying amounts. That's about 60
8 percent of our budget. Almost all of the rest is
9 from fill and profit foundations.
10 MR. TREPANIER: Does the -- this is Question
11 No. 8. Does the design team member from the
12 Environmental Defense Fund have active partnerships
13 with an environmental group, and in particular,
14 Citizens For A Better Environment?
15 MR. GOFFMAN: Do we have an -- I think some of
16 my colleagues work on projects actively with Citizens
17 For A Better Environment.
18 We have, in fact, an environmental
19 network or alliance that works with the CBE on a lot
20 of issues. I don't know whether the EDF folks who
21 have worked with the CBE directed this issue to the
22 CBE people that they work with. I didn't
23 personally.
24 MR. TREPANIER: Did you see critiques
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1 provided by environmental groups of this proposal?
2 MR. GOFFMAN: I think I did. I think -- and
3 this is just based on recollection. I think that
4 The American Lung Association and the Midwest Center
5 for Environmental Policy submitted some comments to
6 the agency staff, which were shared with the design
7 team.
8 MR. TREPANIER: Do you know when the CAAPP
9 on this program could be last expanded or arranged
10 without further ruling?
11 MS. SAWYER: I suggest that that's another
12 question that you should ask of the agency.
13 MR. TREPANIER: Do you have any forecast to
14 what degree the market system may tend to drive up
15 low profit VOM emitters from business?
16 MS. SAWYER: I think that that is probably a
17 better question asked during the economic portion of
18 the presentation.
19 MR. TREPANIER: For sources that opt to --
20 MR. GOFFMAN: You know, that doesn't make
21 any -- that question really doesn't make any sense
22 because by definition, a market-based program is
23 less costly than an alternative approach.
24 So by definition, it's less likely to
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1 present a kind of fatal -- economically fatal threat
2 to VOM emitters with low marginal profits.
3 MR. TREPANIER: The system does allow the
4 pollution rates to be purchased by the largest
5 wallet, do they not?
6 MR. GOFFMAN: Well, pollution rights are just
7 one form of compliance. Any affected source can and
8 is obligated to purchase from a menu of compliance
9 alternatives and in effect, what emissions trading
10 does with the availability of ATUs is expand that
11 menu and expand the flexibility or accessibility of
12 all affected sources in that vein.
13 So by most economic systems, the more
14 choice you have, the more likely it is that you would
15 be able to acquire what you want at low cost.
16 In this case, whether you are a large
17 source or a small source or a highly profitable
18 source or a marginally profitable source, the
19 compliance menu is going to have items on it that are
20 going to be cheaper and more varied than they would
21 be under a command and control system.
22 MR. TREPANIER: Are you familiar with the
23 provision in this proposal to allow sources to opt
24 to accept the voluntarily 15-ton limit?
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1 MS. SAWYER: Is there a follow-up question
2 to this? I guess I'm thinking that this is probably
3 a better question asked of the agency.
4 MR. TREPANIER: I would ask the
5 follow-up and then maybe you could make a
6 determination.
7 MS. SAWYER: Yes, right. Could you do that?
8 MR. TREPANIER: Does the agency have a --
9 do you, Mr. Goffman, have any forecast of how many
10 and to what degree polluters will use this
11 flexibility allowed under the 15-ton CAAPP?
12 MS. SAWYER: That would be a better question
13 asked of the agency.
14 MR. TREPANIER: I think I have asked all of my
15 questions, but if I might look through my notes for a
16 a moment. . .
17 THE HEARING OFFICER: Sure. Why don't we take
18 a couple of seconds.
19 In the meantime, does anyone else have
20 any questions for Mr. Goffman?
21 Go ahead.
22 MR. SAINES: Thank you. Good afternoon,
23 Mr. Goffman. I just have a few questions.
24 First, regarding the banking system,
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1 as I understand it from your testimony, under SO2,
2 the bank, once you acquire allotments into the bank,
3 they are indefinite?
4 MR. GOFFMAN: Yes.
5 MR. SAINES: Under ERMS, they expire?
6 MR. GOFFMAN: Right.
7 MR. SAINES: So under ERMS, the ability to
8 develop a bank of significant ATUs requires a period
9 of years or a period of time?
10 MR. GOFFMAN: For a substantial investment in
11 over-control.
12 MR. SAINES: At one particular time?
13 MR. GOFFMAN: Right, and then applying it
14 continuously.
15 MR. SAINES: All right. I guess the question
16 is for purposes of a source that is interested in
17 expansion, once the source expands and then utilizes
18 the ATUs that it has either acquired in the bank for
19 a period of time of one year through a significant
20 investment or has development over a period of, say,
21 three or four years through modified production,
22 isn't it true that the ATUs are no longer available
23 for that year once they are used?
24 MR. GOFFMAN: Once they are used, yes.
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1 Remember, this program is not just a source-by-source
2 banking program. It's a trading program, which means
3 that it's quite possible that the supply of ATUs --
4 there will be essentially a continuous or a continuum
5 type of relationship between the supply of ATUs
6 transacted between sources in the market and the
7 supply of ATUs that reside in any one source's bank.
8 For example, one of the brokerage
9 houses in the SO2 market runs what amounts is a
10 continuous spot auction. So virtually at any time
11 whether a source has its own bank or not, it has
12 access at a fairly low price to additional SO2
13 allowances.
14 Given the size and diversity of the
15 sources in this market, it's not hard to imagine
16 that either the same brokerage firm or copycat can
17 establish a similar system in making the distinction
18 between what a source can build up in its bank and
19 what would be available in the intersource trading
20 market, you know, less salient and in some ways, less
21 economically significant.
22 MR. SAINES: But do you feel that that's --
23 given that the banking system -- inherent in the ERMS
24 banking system is an expiration date, do you still
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1 feel that that's going to happen under the ERMS?
2 MR. GOFFMAN: Yes, because then the salient
3 affect of the expiration date is on the rate at
4 which these banks are built and the ultimate size
5 of the bank.
6 Having any given set of ATUs expire
7 is not limiting in the sense that they are going
8 to be replaced the next year by the allotment coming
9 to the source and if the source is continuing to
10 operate or whatever over-control strategy it has,
11 expired ATUs will immediately need to be replenished
12 on-site, if you will, of the individual source and
13 can be augmented by purchasing allowances in -- or
14 purchasing ATUs in the market.
15 MR. SAINES: So for a source that does develop
16 their own bank and then expands using that bank, they
17 are required, then, under this program to seek other
18 ATUs in the market to make up for the next year's --
19 MR. GOFFMAN: If they need to -- if they have
20 emissions that they want to offset, yes, by the
21 intent of the expansion, but you know, it seems to me
22 that economically even though the ATUs that they have
23 in their bank are initially or nominally transferred
24 to them by the agency for free, they exist in the
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804
1 bank only because the agency or -- sorry -- the
2 source has made some affirmative investment to create
3 the emissions reductions needed to allow them to
4 retain those ATUs.
5 So when you are talking about an ATU
6 being used in the bank as opposed to the ATU being
7 purchased, ultimately you are not really thinking in
8 economic terms between an ATU that cost you nothing
9 and an ATU that cost you more than nothing.
10 You know, you are talking about
11 basically non-zero cost ATUs whether you are talking
12 about your own bank ATUs or somebody else's ATUs.
13 The reason I'm going on like this is
14 the implicit advocacy in your question presupposes
15 or makes essential if this were only a single source
16 or a source-by-source banking system. Again, it's
17 not.
18 So the economics which might make the
19 one year limit and it's affect seem relatively
20 Draconian in a source-by-source banking program,
21 really, don't pertain here because this is an
22 additional trading program.
23 MR. SAINES: I have a question related to a
24 slide I believe you showed in your testimony that
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1 had a list of compliance alternatives, I think,
2 under the SO2 program, sources that were faced with
3 choices.
4 Can you elaborate on choices that
5 the Phase 1 sources under the SO2 were faced with
6 when the SO2 program came into effect?
7 MR. GOFFMAN: Well, the most popular
8 alternative to the SO2 program that was developed
9 would have required Phase 1 sources to put on
10 technology, that is to say, they would have required
11 SO2 emissions stack scrubbers.
12 The availability of cleaner fuels or
13 cold washing techniques or even to a certain extent
14 energy conservation would have been irrelevant
15 because they really would not have been available
16 choices because under that alternative program,
17 compliance would have been defined in terms of
18 when you put a stack scrubber on your stack.
19 Essentially, by legislative fiat, had
20 that alternative program been adopted, that whole
21 menu would have been eliminated.
22 As it happens, sources are using either
23 stack scrubbers or energy conservation. A lot of
24 sources are switching to lower sulfur content of
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1 coal. A lot of sources are switching to natural
2 gas or coal firing with natural gas. Some sources
3 are even doing more of what is called cold washing.
4 None of those compliance alternatives would have
5 been available.
6 MR. SAINES: None of these compliance
7 alternatives would have been available --
8 MR. GOFFMAN: If the alternative approach
9 or just having the legislative mandate about what
10 technology should be used or adopted.
11 MR. SAINES: All right. Can you -- do you
12 have something?
13 MS. MIHELIC: Immediately following that
14 question, if you don't mind, you said that they
15 wouldn't have been available as other alternatives.
16 Is that because they weren't discussed previously
17 or what?
18 MR. GOFFMAN: No, no, no. They would have
19 been legally excluded by Congress. Congress said
20 you're in compliance if you put a stack scrubber on
21 and you are not in compliance if you don't.
22 Then, the option of not putting a stack
23 scrubber on, but buying low sulfur coal, would have
24 resulted in SO2 reductions, but would have still left
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1 the source out of compliance.
2 MS. MIHELIC: Did these utilities ever discuss
3 with Congress the option of using alternatives other
4 than the the low -- other than the scrubbers and
5 other than the trading program?
6 Did Congress ever consider this?
7 MR. GOFFMAN: Well, my recollection from
8 having read a lot of the -- been at a lot of the
9 hearings is that Congress did consider the
10 availability of various options and ultimately
11 considered the sort of inadvisability of trying
12 to sort of take a snapshot in time of what the
13 available technology was, make assumptions about
14 what would or would not have been available under
15 different subsequent conditions, and then select
16 one or two technologies.
17 MS. MIHELIC: Would every utility have to
18 install scrubbers?
19 MR. GOFFMAN: Under?
20 MS. MIHELIC: Under the one approach you said
21 they were going to command?
22 MR. GOFFMAN: Yes. Under Phrase 1 of that
23 approach, anywhere from ten to 20 utilities would
24 have been specified by Congress and these ten to 20
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1 sources would have been told to put a specific kind
2 of technology on it.
3 MS. MIHELIC: How many sources are currently
4 in the Phase 1 category?
5 MR. GOFFMAN: About 110, I think.
6 MS. MIHELIC: But only ten or 20 of those
7 would have been required to install the additional
8 controls?
9 MR. GOFFMAN: Yes, but it's not clear you
10 would have gotten the same amount of emissions
11 reductions although most analyses presented to
12 Congress and the EPA at the time suggested that would
13 have been extremely expensive to ten or 20 plants.
14 It was a hit list approach.
15 MR. SAINES: So are you saying that less than
16 20 or 30 sources did, in fact, install add-on
17 controls then?
18 MR. GOFFMAN: I don't know offhand. One of
19 the other variables is that in the last analysis,
20 I think, Congress acquired more total emissions
21 reductions under Phase 1 of the program that was
22 adopted.
23 I think it's possible that in effect
24 more than ten or 20 used add-on controls, but they
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1 used add-on controls of varying technological
2 characteristics and ultimately produced more total
3 emissions reductions.
4 MR. SAINES: Of the 110 or 111 Phase 1
5 sources, do you know how many of those sources rather
6 than adding on controls decided to switch to low
7 sulfur coal?
8 MR. GOFFMAN: Can't give you a number, but
9 the answer is lots, lots.
10 MR. SAINES: Lots?
11 MR. GOFFMAN: Yes.
12 MS. MIHELIC: As a quick follow-up to that
13 question, do you know how sources of those Phase 1
14 sources reduced their sulfur dioxide emissions by
15 making internal changes in their operations?
16 MS. SAWYER: As compared to what?
17 MS. MIHELIC: By somehow modifying their
18 operations to come up with reductions necessary.
19 Basically, how many sources did that?
20 MR. GOFFMAN: I believe that MIT is in the
21 process of doing a survey of compliance responses
22 and at a presentation I heard a couple months ago,
23 it was suggested that a lot of sources are doing a
24 combination of things, which include making internal
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1 changes, using more coal washing, mixing their fuels.
2 There was a significant number of plants
3 that instead of doing just one thing, they are using
4 a combination of internal changes and operational
5 changes to produce the result.
6 MR. SAINES: I don't mean to belabor the
7 point, but is there any chance you could give a
8 rough estimate in terms of percentages as to the
9 number you refer to as being a lot.
10 MR. GOFFMAN: Well, no. It's a very high
11 percentage.
12 MR. SAINES: Above 50 percent?
13 MR. GOFFMAN: Probably, yes.
14 MS. McFAWN: For their benefit and perhaps
15 others, is there some report or preliminary report?
16 You mentioned MIT is in the process, but is there
17 something else we could read to know more about the
18 SO2 program?
19 MR. GOFFMAN: I believe I have saved the
20 handouts from that oral presentation I heard. If I
21 have, you are welcome to that.
22 MS. McFAWN: I didn't necessarily mean that.
23 I just meant has anybody prepared either in a
24 magazine or otherwise some article that would explain
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1 how the SO2 program is to date?
2 MR. GOFFMAN: I think if I were less tired, I
3 could probably answer your question.
4 MS. SAWYER: We did submit a couple things
5 on that as part of the record. There is U.S. EPA's
6 acid rain program update.
7 MR. GOFFMAN: That's right, that's right.
8 MS. SAWYER: That's May '96. It's in the
9 record. We can take a look at that.
10 MS. McFAWN: Great. That and other resources
11 would answer your questions for you.
12 MS. SAWYER: We also had another article that
13 we included that was prepared by MIT and that's also
14 part of the record.
15 MS. McFAWN: Thank you for pointing those out
16 to us. I think that would help answer a lot of these
17 detailed questions for us.
18 MS. MIHELIC: I have a few more questions.
19 Under the SO2 program, you showed a
20 slide previously today that if a source exceeded its
21 allotment, there were penalties that were assessed,
22 one being a $2,000 penalty.
23 Was that per ton?
24 MR. GOFFMAN: Per ton, yes.
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1 MS. MIHELIC: In addition, it was a one-to-one
2 or somehow it had to decrease its allotment the
3 following year, is that correct?
4 MR. GOFFMAN: Right, right.
5 MS. MIHELIC: Was that on a one-to-one ratio
6 so that if it exceeded it by 50 tons, it had to
7 reduce next year by 50 tons?
8 MR. GOFFMAN: That's correct.
9 MS. MIHELIC: How did they reach this
10 one-to-one ratio?
11 MR. GOFFMAN: My recollection is that a
12 $2,000 per ton automatic penalty was considered
13 quite stringent and not Draconian relative to
14 the expected costs of compliance and therefore,
15 the combination of that Draconian automatic,
16 and I emphasize the word automatic, monitary
17 penalty and the one-to-one offset provided more
18 than enough incentive for virtually every utility
19 to comply.
20 MS. MIHELIC: Okay.
21 MR. GOFFMAN: And if I remember correctly,
22 the proposed rule doesn't have that financial
23 automaticity. So the element of automaticity adheres
24 exclusively and a demand for additional ATUs to be
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1 purchased by the source are to be deducted from
2 subsequent allotments.
3 MS. MIHELIC: Is my understanding correct that
4 any source that is subject to the Title 4 program
5 would be subject to the Title 4 program regardless of
6 where it was located in the United States?
7 MR. GOFFMAN: Yes, in the 48 contiguous
8 states, Alaska and Hawaii are not covered.
9 MS. MIHELIC: So if a source was currently
10 located in New York and it moved it California, it
11 would still be required to comply with the same
12 regulations under Title 4?
13 MR. GOFFMAN: Well, probably technically if
14 it did something like that -- if it's California
15 embodiment, it would be considered a new source.
16 It would have to go and purchase allowances or
17 somehow acquire allowances from a fixed allocation of
18 allowances distributed to existing sources.
19 MS. MIHELIC: But aside from any state
20 regulations, the federal regulations would be the
21 same?
22 MR. GOFFMAN: Yes.
23 MS. MIHELIC: Does the cost of complying with
24 the Title 4 program for similar sources or merely
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1 identical sources differ depending on where the
2 sources are located?
3 MR. GOFFMAN: Probably, but I don't think you
4 can sort of establish a firm correlation between cost
5 differential and geographic locations.
6 MS. MIHELIC: What would be the reasons for
7 the cost differential?
8 MR. GOFFMAN: Well, first of all, Congress
9 used different initial allowance allocation sources
10 for different categories of plans.
11 MS. MIHELIC: I'm assuming you are in the same
12 category of plans?
13 MR. GOFFMAN: Well, I'm told by utility
14 companies that if you are on a lake, your cost of
15 compliance is higher than if you are on a river
16 because it's easier to get long distance transported
17 low sulfur coal if you're located on a river than
18 if you are on a lake.
19 MS. MIHELIC: Okay. So that goes to the cost
20 of transportation and all that?
21 MR. GOFFMAN: Yes.
22 THE HEARING OFFICER: While I appreciate
23 Mr. Goffman's willingness to answer all of these
24 questions, could you start explaining the relevancy
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1 of how you are going to tie this in with the proposal
2 that is before the board?
3 MS. MIHELIC: Part of this is because it's a
4 nationwide program. Regardless of where the source
5 is located in the United States, it has to comply
6 with this program.
7 This program here in Chicago and for
8 Chicago sources. It's only based upon existing in
9 Chicago, but when going somewhere else, it won't --
10 if a cost were to exist somewhere else, the costs
11 of perhaps reducing production there is less than
12 in Chicago.
13 MS. McFAWN: I think Mr. Goffman is here to
14 talk about the SO2 trading program. I don't think
15 he is here to do a comparison to every detail to the
16 program proposed before us. If you want to make
17 that comparison between the SO2 and the proposal,
18 that's probably best done through your testimony.
19 MS. MIHELIC: He is the expert here on the
20 SO2 marketing program.
21 MS. McFAWN: He is, and you are asking him
22 questions that we know to be the obvious. That's a
23 nationwide program and I think those distinctions
24 have been made without belaboring the point.
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1 MS. MIHELIC: And I was just talking about the
2 cost of compliance.
3 MS. McFAWN: Right, and we understand the
4 sources regulated under the SO2 are significantly
5 different than the types of sources geographically
6 and otherwise.
7 So I think if you would like to make
8 those distinctions before the board, the better
9 way to do it is through testimony rather than by
10 asking him to do side-by-side comparisons. Okay?
11 MS. MIHELIC: Okay. That was my last question
12 anyways.
13 MS. SAWYER: Mr. Goffman, if you wouldn't mind
14 just this one question and then --
15 MS. McFAWN: I appreciate your cooperation.
16 MR. GOFFMAN: The reason that it's a
17 nationwide program is that it adheres to the nature
18 of the environmental problem. It's a different
19 environmental problem with a different pollutant
20 acting in an air shed defined with different
21 characteristics.
22 MS. MIHELIC: When Title 4 was first
23 implemented, had the 111 sources that are currently
24 reduced emissions previously reduced their emissions
L.A. REPORTING - (312) 419-9292
817
1 based on the requirements of the Clean Air Act?
2 MS. SAWYER: I think you have already asked
3 this question of another agency witness. We're going
4 to have to keep this thing rolling. You did ask this
5 question.
6 MR. GOFFMAN: Some have, some haven't.
7 MS. MIHELIC: Some have, some haven't?
8 MR. GOFFMAN: Right.
9 MS. MIHELIC: Under the Clean Air Act?
10 MR. GOFFMAN: Right.
11 THE HEARING OFFICER: Do you need some time?
12 MS. MIHELIC: I just have one more question.
13 You stated earlier that the cost of
14 coming or reducing emissions in the future would be
15 less -- you expect it to be less than current costs
16 of reducing emissions, is that correct, under the SO2
17 program?
18 MR. GOFFMAN: I think at least up to a point,
19 the marginal costs over time will go down. I say
20 that because traditionally, under the Clean Air Act
21 programs, even in the face of increasing reduction
22 requirements, the development of technology and other
23 control strategies over time has a tendency to make
24 things cheaper.
L.A. REPORTING - (312) 419-9292
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1 MS. MIHELIC: And it's not because -- it
2 wasn't based upon the assumption sources would have
3 reduced by more earlier?
4 MR. GOFFMAN: That has something to do with
5 it as well. In the context of the SO2 program,
6 that's right, but that's just one factor. There are
7 technology progress factors as well.
8 THE HEARING OFFICER: Mr. Trepanier, do you
9 have some quick questions?
10 MR. TREPANIER: Yes. I think it's just the
11 one question.
12 Are you familiar with the New Jersey VOC
13 market trading program handling of cyclic pollution
14 histories, the spikes?
15 MR. GOFFMAN: I'm not familiar with that, no.
16 MS. SAWYER: Thank you, Mr. Goffman.
17 THE HEARING OFFICER: Are there anymore
18 questions?
19 MS. SAWYER: I'm sorry.
20 THE HEARING OFFICER: Does the board have any
21 questions?
22 Then, I think we will take a ten-minute
23 break at this point.
24
L.A. REPORTING - (312) 419-9292
819
1 (Whereupon, after a short
2 break was had, the
3 following proceedings were
4 held accordingly.)
5 THE HEARING OFFICER: Let's go back on the
6 record.
7 Why don't we just start out with
8 Tenneco's questioning and we will see how that goes.
9 MR. FORCADE: Good afternoon. My name is Bill
10 Forcade from Jenner & Block representing Tenneco
11 Packaging. With me is Larry Lamb from Tenneco
12 Packaging.
13 We presubmitted questions in two phases.
14 With the permission of the hearing officer, I would
15 like to start with the first and proceed to the
16 second.
17 Our first set of questions deals with
18 the interrelationship between the proposed emissions
19 reduction market system and the nonattainment new
20 source review. I would like to pose Question 1 by
21 example.
22 The emissions reduction market system
23 will impose new regulatory requirements on facilities
24 which are already subject to the Nonattainment New
L.A. REPORTING - (312) 419-9292
820
1 Source Review Program.
2 Consider the following scenario in
3 which a source may be required to comply with both
4 programs.
5 Facility X wishes to locate a new
6 emissions unit in the Chicago nonattainment area.
7 Facility X will submit a complete construction permit
8 application on June 1, 1997. Facility X anticipates
9 that the new unit will meet LAER requirements and
10 will have actual VOM emissions of ten tons of VOM per
11 month and potential to emit PTE or allowable of 15
12 tons per month. Thus, Facility X appears to be
13 subject to both ERMS and nonattainment new source
14 review.
15 Question A will Facility X be required
16 to obtain emissions offset credits under the existing
17 Nonattainment New Source Review Program?
18 MR. ROMAINE: Yes, it will.
19 MR. FORCADE: Under nonattainment new source
20 review, what amount of offsets will facility X need
21 to be required to purchase 156 tons, 1.3 times the
22 actual emissions, or 234 tons, 1.3 times the amount
23 of annual PTB?
24 MR. ROMAINE: Well, certainly the actual
L.A. REPORTING - (312) 419-9292
821
1 emissions cannot be relied upon. The source isn't
2 built. So we don't know what the actual emissions
3 are.
4 Offsets under the current program would
5 be based on the potential to emit. This would, in
6 fact, be the permitted emissions of the new emission
7 unit. So it isn't what I would say a worst case
8 potential to emit.
9 It's the decision of the source, what
10 level potential to emit or permanent emissions it
11 wants placed on its permit. Of course, once it
12 accepts that limit, it's committed to that number.
13 MR. FORCADE: Under Nonattainment New Source
14 Review, must Facility X require offsetting emissions
15 from a unit that has that number of actual emissions
16 or that number of allowable emissions?
17 MR. ROMAINE: Under new source review, we are
18 looking for actual emission reductions.
19 MR. FORCADE: So offsetting for a new source
20 under nonattainment new source review, you will
21 offset with actuals?
22 MR. ROMAINE: Yes.
23 MR. FORCADE: Is this purchase of offsets
24 a one-time only purchase when the facility begins
L.A. REPORTING - (312) 419-9292
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1 operations or annually?
2 MR. ROMAINE: It is a one-time agreement to
3 provide emission offsets. Those emission offsets
4 have to be, in fact, a permanent reduction in
5 emissions that will continue year after year.
6 MR. FORCADE: Under Nonattainment New Source
7 Review, may a Facility X offset summertime VOM
8 emissions with non-summertime VOM emissions?
9 MR. ROMAINE: No.
10 MR. FORCADE: If not, what is the agency's
11 authority?
12 MR. ROMAINE: Well, the fundamental authority
13 is under Section 173 of the Clean Air Act, which
14 requires that offsets be provided so as to provide
15 reasonable further progress.
16 Since reasonable further progress is
17 a measure of reductions emissions that contribute
18 toward attainment and because reasonable further
19 progress for ozone is measured in terms of summertime
20 emission reductions, that effectively means that
21 you cannot compensate for increases in summertime
22 emissions with emissions from outside that period
23 of time.
24 Those provisions are carried out or
L.A. REPORTING - (312) 419-9292
823
1 carried through into the state program. The state
2 new source review rules also include provisions
3 requiring emission offsets to contribute to
4 reasonable further progress.
5 They also have provisions pursuant
6 to federal regulations that require that emission
7 offsets have the same qualitative effects for
8 health and welfare.
9 Again, since we are dealing with
10 seasonal problem, reductions in wintertime emissions
11 would not have the same seasonal effects as
12 reductions in summertime emissions.
13 Now, as a practical matter, what we talk
14 about in most cases is annual offsets in exchange
15 for annual emission increases, but that assumes
16 consistent operation throughout the year so that
17 effectively you are getting appropriate offsets for
18 summertime emissions and you're getting appropriate
19 offsets for wintertime emissions.
20 But there would not be a seasonal
21 disparity where you are specifically allowing
22 increases of precursors during the period of time
23 where we have a problem with ozone in exchange for
24 decreases in precursors that have minimal affect
L.A. REPORTING - (312) 419-9292
824
1 on air quality.
2 MR. FORCADE: Number F under nonattainment
3 new source review, may Facility X offset summertime
4 emissions by using existing control technologies
5 throughout the year including non-summertime?
6 MR. ROMAINE: Again, you have to look at it
7 carefully to make sure you are getting comparable
8 offsetting reduction in the summertime for the
9 summertime increases in emissions.
10 MR. FORCADE: Under the ERMS program, will
11 Facility X need to purchase ERMS credits or allotment
12 trading units?
13 MR. ROMAINE: The situation that's been
14 described here would be a project that would have a
15 complete construction permit application submitted
16 on June 1, 1997. Presumably, that permit would be
17 issued before January 1, 1998.
18 So it would qualify as a pending
19 project. Pending projects are considered encumbents.
20 So it would receive an allotment of ATUs. We would
21 not expect that this source would now have to both
22 go out again as if it were a new participating source
23 and purchase ATUs from the very starting point for
24 this new project.
L.A. REPORTING - (312) 419-9292
825
1 MR. FORCADE: As a brief follow-up, assuming
2 that the facility is submitting a nonattainment new
3 source review permit application with the LAER
4 demonstration, how many of those have you issued
5 in a six-month period in the past?
6 MR. ROMAINE: Well, I don't think I can
7 calculate it. I can't divide by zero.
8 MR. FORCADE: Okay.
9 MR. ROMAINE: We haven't issued any new source
10 review permits since I don't know when that required
11 a LAER determination.
12 MR. FORCADE: What then leads you to believe
13 that a June 1st submission would lead to a January
14 1st permit issuance?
15 MR. ROMAINE: I can't make that assumption,
16 but in these circumstances, hopefully, we have
17 closely communicated and worked with the applicant
18 ahead of time and we are aware of the schedule that
19 is necessary so that permitting can be successfully
20 completed by January 1, 1998, so that the pending
21 project's status is achieved for this project.
22 Obviously, the other thing about it that
23 I should remind you or put in the record is obviously
24 allocation of ATUs pending project would only occur
L.A. REPORTING - (312) 419-9292
826
1 if the project is actually built, it becomes
2 optional, and there would be no issuance of ATUs for
3 a pending project if this project received a permit,
4 but was never pursued.
5 MR. FORCADE: Under H, if the ERMS program
6 is adopted by the board, but U.S. EPA has not yet
7 approved them or switched under the nonattainment
8 resource review to ERMS credits, will Facility X
9 need to purchase ERMS credits or ATUs in lieu of
10 offsets?
11 MR. ROMAINE: Well, I guess I need to back
12 up. Illinois nonattainment area and New Source
13 Review Program is approved by U.S. EPA. I believe
14 it was approved in late 1995. So it's basically
15 business as usual until the ERMS proposal is
16 finalized.
17 MR. FORCADE: I apologize. I honestly did
18 not believe you would say that you would process
19 LAER applications in six months. I assumed the
20 answer was no and then this logical question then
21 flowed.
22 In that interim between when ERMS was
23 adopted by the board and the subsequent date where
24 ERMS summertime offsets are approved by U.S. EPA as
L.A. REPORTING - (312) 419-9292
827
1 a replacement for the current annual ERMS, I was
2 trying to find out if this period of overlap contains
3 a dual purchase of offsets of ERMS credits?
4 MR. ROMAINE: Well, the whole purpose of the
5 pending project provision is to prevent that to
6 overlap and the approach provides that a source
7 that has, in fact, provided offsets under the current
8 program, that it has gotten their construction permit
9 in place and issued at the time that ERMS
10 applications are due, and it would be treated as
11 encumbents with respect to those emission units.
12 MR. FORCADE: Then, going on to Question I,
13 at a period of time after the ERMS program was
14 finalized and U.S. EPA approves Nonattainment New
15 Source Review, would facilities at that point need
16 to purchase ERMS credits or ATUs and would these be
17 equivalent to the nonattainment new source review
18 offsets?
19 MR. ROMAINE: I assume we are continuing with
20 this example. We are dealing with a pending project.
21 We are assuming that we can successfully complete the
22 pending -- the issuance of the construction permit
23 pursuant to that, that it would be an incumbent
24 source, so it would receive an allocation of ATUs.
L.A. REPORTING - (312) 419-9292
828
1 Now, this doesn't necessarily address --
2 I'm sorry. It would receive an allocation of ATUs
3 for that new unit.
4 As the program is currently set up,
5 that would be based on the first three seasons
6 for which it has optional data. Based on that
7 allotment, it would then go into normal operation
8 of the trading program having to hold ATUs for
9 its emissions.
10 In addition, I can't really speculate
11 what else might be going on elsewhere at Facility X
12 that might affect whether it has emission units to
13 which it needs to obtain ATUs.
14 MR. FORCADE: Question 2, continuing the
15 example from above, assume that Facility X has a
16 construction permit and Facility Y shuts down on
17 January 1, 1997.
18 Under nonattainment new source review,
19 may Facility X bank or hold the offsets from Facility
20 Y until Facility X is allowed to start operations?
21 MR. ROMAINE: Well, this question poses a lot
22 of background. I guess the first point to make is
23 that offsets are addressed as part of the issuance
24 of a construction permit.
L.A. REPORTING - (312) 419-9292
829
1 So this issue of starting operations is
2 not really relevant. When we would be looking for
3 offsets is at time or up to and including the time
4 the construction permit was issued.
5 The other thing that's been put forth
6 in this example is that we are dealing with an
7 offset -- an emission reduction that is suggested
8 as an offset that is due to a shutdown. The shutdown
9 is described as occurring January 1, 1997, but the
10 permit application for the new unit is described on
11 June 1, 1997. So the permit application comes in
12 after the shutdown.
13 MR. FORCADE: Okay.
14 MR. ROMAINE: The question, then, is did the
15 shutdown occur before the project or did the shutdown
16 occur after the project was initiated?
17 As far as background, going back another
18 step, there are certain restrictions on use of past
19 shutdowns as an emission offset. It's been developed
20 by U.S. EPA.
21 It is reflected in our rules because
22 it is part of U.S. EPA's guidance for nonattainment
23 area new source review programs, but what U.S. EPA's
24 guidance and what our rules currently say is that
L.A. REPORTING - (312) 419-9292
830
1 you can't use a past shutdown as an emission offset
2 unless the new project using the offsets for are a
3 replacement for the shutdown piece of equipment.
4 So the real question is even though
5 the shutdown occurred on January 1, 1997, was that
6 shutdown pursuant to agreement with the facility
7 proposing the new project, was this their preliminary
8 attempts to work out an arrangement to provide
9 offsets instead of working ahead of time and this
10 agreement was finalized well before January of 1997,
11 or was it just a matter of finalizing the other
12 details until the construction application was
13 actually submitted in June of 1997, so the shutdown
14 would be considered a prospective shutdown or was
15 this a situation where the source came forward
16 mid-1997, somebody came up with an idea of a project,
17 they realized they have to submit a construction
18 permit application, and then they started the
19 initiative of finding emissions reductions to be used
20 as offsets.
21 In that case, the shutdown would have
22 already occurred. There was no prior agreement with
23 the applicant about use of that shutdown. That would
24 have to be considered a past shutdown and would only
L.A. REPORTING - (312) 419-9292
831
1 be available for use of that particular project if
2 there were replacement situations involved.
3 MR. FORCADE: As a point of clarification,
4 you mentioned the word a replacement as one of the
5 requirements for a nonattainment new source review
6 offset exchange.
7 Am I understanding you correctly that
8 two separate facilities could not enter into an
9 agreement that one will shutdown and the other
10 will acquire the emission credits unless it is
11 a replacement for the unit that was shut down?
12 Did I misunderstand that?
13 MR. ROMAINE: Yes.
14 MR. FORCADE: So it would be an exchangeable
15 commodity without a replacement value?
16 MR. ROMAINE: No. The point is there are two
17 points of arrangements. There is a distinction
18 there. If the shutdown has already occurred before
19 there was any arrangement or agreement with the
20 individual proposing the new source and then there
21 is that additional requirement that the new source
22 be a replacement for the shutdown --
23 MR. FORCADE: I understand.
24 MR. ROMAINE: If, in fact, the agreement was
L.A. REPORTING - (312) 419-9292
832
1 entered into prior to the shutdown, then, there would
2 be, in fact, the ability to transfer that shutdown as
3 an offset for the proposed project.
4 What that assures, and this is another
5 step, is that before the shutdown has occurred,
6 Mr. Forbes can be informed that this is not, in fact,
7 a shutdown that can be relied upon for reasonable
8 further progress, but, in fact, there has been an
9 agreement with another new source that the intent
10 is to use this shutdown as an offset and that the
11 agency should not, in fact, rely upon it as part of
12 its reasonable further progress or rate of progress
13 plan demonstration.
14 MR. FORCADE: If I understand you correctly,
15 then, an advance contractual arrangement to shut
16 down a source does not depend on that being a
17 replacement for the unit that was shut down?
18 MR. ROMAINE: That's correct.
19 MR. FORCADE: Okay. Thank you.
20 Under nonattainment new source review,
21 is there a maximum time period which the agency will
22 allow between the shutdown of the Facility Y and the
23 start of operations and the start of operations of
24 Facility X where there was advance agreement for
L.A. REPORTING - (312) 419-9292
833
1 this?
2 MR. ROMAINE: Historically, we have tried
3 to use the five-year contemporaneous time period
4 as the period within which emission reductions
5 should be used.
6 However, I'm not aware of any provision
7 in the regulations that would restrict that. What
8 really affects that is whatever case-by-case
9 requirements were developed in the provision
10 shutdown, what occurs in terms of the reasonable
11 and further progress plan, and as I guess I also
12 said, we have had no projects that involve LAER.
13 To date, we haven't had any projects
14 that have come to fruition involving external
15 offsets where one source provides the offset,
16 another source takes that offset and actually builds
17 something. So we don't have a precedent to reply
18 upon.
19 MR. FORCADE: Could you tell me what kind
20 of documentation must be provided to Mr. Forbes
21 in advance to get his approval for not counting
22 the facility shutdown in his database?
23 MR. ROMAINE: I think the key thing is that
24 that source not simply withdraw their permit, that
L.A. REPORTING - (312) 419-9292
834
1 the source, as part of their correspondence with
2 the permit section, indicate that even though this
3 permit is being withdrawn, this other agreement
4 exists.
5 MR. FORCADE: Does the agency maintain a
6 database or other listing of possible offset
7 sources?
8 MR. ROMAINE: We do not maintain a specific
9 database of possible offsetting sources. We have
10 maintained our general inventory that certainly
11 indicates the sources that are out there. We can
12 make those databases available to people upon
13 request.
14 The other source of information that
15 we have about offsets is simply anecdotal information
16 where a particular permit analyst becomes aware of
17 things that may be occurring and upon discussion
18 with an analyst, just generally inquire and also
19 make that information available to assist a source
20 in satisfying the offset requirement.
21 I think one of the things that the
22 trading program does is to create infrastructure
23 that would make it easier for sources to obtain
24 offsets because there will, in fact, be a market
L.A. REPORTING - (312) 419-9292
835
1 for ATUs and there will be a database.
2 So that is certainly an advantage for
3 sources in the circumstance. The other thing that
4 the trading program does is it helps establish in
5 much clearer terms what rights a source has in terms
6 of ATUs and allowances which is something that I
7 said is not very well-defined, for example, in the
8 terms of length of duration.
9 Certainly, in the absence of that
10 information, I think my general perspective is
11 sources have been fairly -- well, I didn't really
12 want to volunteer that they've had emission
13 reductions because they're afraid that he had other
14 interest in those remission reductions that are --
15 their purposes may not be the same as the source's
16 in this respect.
17 MR. FORCADE: Okay. Continuing from the
18 example in Question 1, from what type of facility
19 may a facility purchase nonattainment new source
20 review offsets? A., May you purchase nonattainment
21 new source review offsets from an Illinois facility
22 that is not subject to Title 5 of the Clean Air Act,
23 but does have a federally enforceable state operating
24 permit?
L.A. REPORTING - (312) 419-9292
836
1 MR. ROMAINE: Certainly, there are
2 circumstances where this could occur. The key point
3 of an emission offset is that it has to be readily
4 enforceable and permanent.
5 Certainly, a federally enforceable state
6 operating permit would be a means to make an emission
7 reduction permit and, in fact, the reason that
8 Illinois started a federally enforceable state
9 operating permit was to make offsets enforceable.
10 It predated the Title 5 permit program
11 and is something that now we have also relied
12 possibly upon for the Title 5 permit.
13 MR. FORCADE: May Facility X purchase
14 nonattainment new source review offsets from a source
15 whose actual emissions are less than 50 percent of
16 the major source thresholds and therefore, requires
17 only an Illinois minor source air permit?
18 MR. ROMAINE: Yes and no. They could make
19 that purchase, but then in terms of making that
20 emission reduction enforceable, we would probably
21 have to get that minor source covered by a federally
22 enforceable state operating permit.
23 MR. FORCADE: Last, may they purchase offsets
24 from a source such as a gas station so fall small it
L.A. REPORTING - (312) 419-9292
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1 does not need an air permit?
2 MR. ROMAINE: Theoretically, yes. I would
3 wonder how again we would ever make this type of
4 emission reduction permit enforceable. I would
5 question as a practical matter whether they relied
6 upon it as an offset.
7 MR. FORCADE: Okay. At this time, if it's
8 possible, I would like to continue the nonattainment
9 new source review and ERMS questions which are found
10 at Page 41 of our --
11 THE HEARING OFFICER: Before you go on, there
12 is a Subpart D on Page 5. Do you want to finish that
13 up?
14 MR. FORCADE: Oh, I'm sorry. May the facility
15 purchase nonattainment new source review offsets from
16 mobile sources such as those in the complete vehicle
17 program under Part C of Title 3?
18 MR. ROMAINE: Theoretically, yes. As a
19 practical matter, I don't see how they would work
20 that out with the problem being under the complete
21 vehicle programs, from my perspective, only
22 accelerate and perhaps turn over vehicles of
23 particular fleets.
24 You have to have a difficult problem
L.A. REPORTING - (312) 419-9292
838
1 coming up with a particular emissions reduction that
2 would, in fact, permit it enforceable. At some time
3 the natural turn of vehicles probably catch up with
4 you.
5 Gale, would you agree with me or have I
6 mispoken.
7 MR. NEWTON: I agree with you unless you had
8 an ongoing program where they bought X number of
9 vehicles every year.
10 MS. McFAWN: Could you speak up?
11 THE HEARING OFFICER: Could you speak up,
12 please?
13 MR. NEWTON: Oh, I agree.
14 MR. FORCADE: If I could, I would like to
15 continue the new source review question section of
16 our January 27th submittal, which begins on Page 41
17 near the bottom rather than breaking up the issue
18 into two sections.
19 Consider the following scenario:
20 Facility X obtains all available nonattainment new
21 source review offsets by purchasing and shutting down
22 facility-wide, which has past actual emission of
23 156 tons and an allowable of 234 and a baseline of
24 65. Facility Y shuts down on January 1, 2000.
L.A. REPORTING - (312) 419-9292
839
1 Facility X and Y are both owned by the same
2 corporation, Z. Under nonattainment new source
3 review, Corporation Z shuts down Facility Y, how
4 many nonattainment new source review offset
5 credits may Facility X acquire, 156 tons or 234?
6 MS. SAWYER: Would you give us just a moment?
7 We're a little lost.
8 MR. FORCADE: Sure.
9 MR. ROMAINE: The answer is none.
10 MR. FORCADE: Okay.
11 MR. ROMAINE: The rationale for that is this
12 emission reduction or the shutdown would have
13 occurred January 1, 2000. We would assume that the
14 trading program would have been in operation for over
15 a year by that point so that the trading program
16 would affect how this transaction might occur.
17 MR. FORCADE: As a follow-up, am I assuming
18 correctly that you believe the board will adopt this
19 by January 1, 1998, and that sometime prior to
20 January 1, 2000, U.S. EPA would approve the
21 conversion from nonattainment new source review under
22 the existing program under Part 203 and the new
23 program that would flow from the ERMS program?
24 MR. ROMAINE: Yes.
L.A. REPORTING - (312) 419-9292
840
1 MR. FORCADE: So this would be handled all
2 under the ERMS program, assuming U.S. EPA has
3 approved that part of the Nonattainment New Source
4 Review Program?
5 MR. ROMAINE: The question that you are
6 raising in my mind is whether U.S. EPA, in fact,
7 has to approve the ERMS program for this to become
8 effective at the state level.
9 MR. FORCADE: No. Actually, the question that
10 I'm asking is when you have an existing federally
11 approved Part 203 Nonattainment New Source Review
12 Program, which has historically operated on annual
13 emissions.
14 If I'm correctly understanding the
15 agency's proposal, they intend to replace this
16 annual-to-annual accounting period with a
17 seasonal-to-seasonal accounting period. I will
18 turn it back to you as to whether or not that
19 change needs to be federally approved.
20 MR. ROMAINE: I think that calls for a legal
21 conclusion, but from my engineering conclusion is
22 if Facility X gets its construction permit from new
23 project, that deals with the permitting of new
24 project at Facility X.
L.A. REPORTING - (312) 419-9292
841
1 MR. FORCADE: Okay. I believe, then, if the
2 correct answer is no new source review offsets will
3 be needed, that Question B would not be applicable?
4 THE HEARING OFFICER: Why don't you read in
5 Question B?
6 MR. FORCADE: Question B says under the
7 emissions reduction system, if Facility X is required
8 to obtain ATUs in addition to nonattainment new
9 source review offsets, and I believe if I understood
10 Chris correctly, he said the number of nonattainment
11 new source review credits would be zero because
12 handled under the ERMS system at that point in time?
13 MR. ROMAINE: That's correct.
14 MR. FORCADE: Okay. So, then, again under
15 Question C --
16 MR. ROMAINE: Oh, are you done with Question
17 B?
18 MR. FORCADE: If there are no new source
19 review offsets coming into play because the ERMS
20 program has replaced it, then, you will simply be
21 dealing with this as an ERMS source wishing to
22 construct under acquiring ATUs, is that correct?
23 MR. ROMAINE: Well, I guess the problem
24 that I have with the example is I don't have any
L.A. REPORTING - (312) 419-9292
842
1 construction project.
2 MR. FORCADE: Well, okay.
3 MR. ROMAINE: What we are talking about?
4 This seems to be some sort of a transaction involving
5 the transfer of ATUs from one facility to another
6 facility, both owned by the same company, that would
7 then affect their operation on a continuing under the
8 trading program.
9 MR. FORCADE: Then, again, under Question C,
10 because there is no nonattainment new source review
11 offset credits being transferred, the question would
12 not have meaning.
13 Question D, likewise, would have no
14 meaning.
15 MS. McFAWN: I'm sorry. What was the answer
16 to your initial question?
17 MR. FORCADE: All of the questions of this
18 have been premised under the theory --
19 MS. McFAWN: But what did he answer in
20 response?
21 MR. FORCADE: Oh, I'm sorry. I thought he
22 shook his head yes.
23 MS. McFAWN: That doesn't go on the record.
24 Chris, do you want to respond?
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1 THE HEARING OFFICER: Why don't you go back.
2 Can you read back the question and the answer?
3 Are you going to withdraw C and D?
4 MR. FORCADE: I would like to withdraw B,
5 C, and D under the agency's assertion that no
6 nonattainment new source review offsets would
7 be transferred post-2000 because the program
8 would be controlled by the ERMS ATUs and in such
9 circumstances, those questions have no relevance.
10 MS. SAWYER: I think there may be some
11 clarification needed just exactly. . .
12 THE HEARING OFFICER: Mr. Romaine, let me
13 ask this question because of your answer in
14 Question A, does that make Questions B, C, and D
15 not applicable?
16 MR. ROMAINE: It does make Questions B, C
17 and D inapplicable. Questions E is not applicable
18 for another reason in that I don't know where this
19 first year of operation comes in.
20 THE HEARING OFFICER: We haven't gotten
21 to Question E.
22 MR. ROMAINE: I need to know is this a
23 continuation of previous questions?
24 MR. FORCADE: They were all premised under
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1 the questions which start out there will be a
2 construction project and we have simply moved it
3 from the period of 1997 to 2000. I apologize if
4 that wasn't clear.
5 The questions originally posed under
6 the year 1997, if I'm correct in summarizing the
7 agency, there was a nonattainment new source review
8 offset requirement as a component to the answers.
9 Then, we moved to the year 2000. The
10 question was posed, and the response, if I'm
11 correctly characterizing it from the agency, was
12 that there was no nonattainment new source review
13 component to construction and transfers that take
14 place in the year 2000 because it will be handled
15 by the ERMS ATU program.
16 I'm just wishing to clarify that that's
17 true because that would make Questions B, C, and D
18 irrelevant.
19 MS. SAWYER: I think our confusion with this
20 question was the way it's worded, it doesn't really
21 pose a pending construction project in the first
22 place.
23 MS. McFAWN: That assumption was the basis
24 of your answers, Mr. Romaine, up to this point?
L.A. REPORTING - (312) 419-9292
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1 MR. ROMAINE: Yes.
2 MS. McFAWN: Should we start again to get that
3 assumption in?
4 MR. FORCADE: Moving back to Page 41, Question
5 1, with Facility X shutting down and a
6 contemporaneous application to the agency for a
7 construction and the desire to secure appropriate
8 agency permits and if necessary, appropriate ERMS
9 credits to allow operation of a new facility, I'm
10 posing now Question A under nonattainment new source
11 review if it is applicable if Corporation Z shuts
12 down Facility Y, how many nonattainment new source
13 review credits may it receive for the new
14 construction and would it be 156, 234, or some other
15 number?
16 MR. ROMAINE: The period of time that's being
17 described -- when it is Facility X --
18 MR. FORCADE: This would be June 1, 2000. I
19 apologize in that sentence was left out.
20 MR. ROMAINE: We would be dealing with a
21 shutdown of a facility, I assume that the facility
22 was shut down and the permit was withdrawn before
23 this facility -- this transaction was proposed.
24 MR. FORCADE: This was contemporaneous. This
L.A. REPORTING - (312) 419-9292
846
1 is shutting down one facility to start operations at
2 another location.
3 MR. ROMAINE: Well, the trading program would
4 be in place at that point and a transfer between
5 Facility X and Facility X would be in terms of ATU.
6 You have described a baseline emissions
7 of Facility Y of 65 tons per season. That, of
8 course, isn't necessarily its allotment.
9 If its allotment were reduced by 12
10 percent as generally you have assumed, there would
11 only be, in fact, 57.2 tons per year of emissions --
12 I mean -- of allotment trading units created or
13 available for Facility Y.
14 The further question that has to be
15 asked is whether this is considered a source
16 shutdown. So we would take 20 percent of those
17 emission decreases and transfer them over to the
18 ACMA account or if, in fact, this arrangement
19 where Facility Y will satisfy the offset requirement
20 for the new operation of Facility X which occurs
21 over time so that there is not a final shutdown of
22 Facility Y until the new emission unit becomes
23 operational.
24 You do have to make the adjustment of
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1 the emissions to account for the allotment process,
2 but then there is a further adjustment that you
3 probably have to work on a case-by-case basis to
4 see how the shutdown provision that requires 20
5 percent of source shutdowns when the permit is
6 withdrawn to be transferred over the ACMA.
7 So in terms of the question, the correct
8 answer is certainly neither, 156 or 234. There is
9 certainly no offset credits transferred. There would
10 be a transfer of ATUs, a transfer of ATUs 57.2 tons
11 worth and conceivably 80 percent of that.
12 MR. FORCADE: I think we have answered all of
13 the questions there if I'm correct that the operating
14 facility would not need to purchase any offsets.
15 You said no offsets would be transferred, but new
16 construction would not need to purchase -- would
17 not need to acquire nonattainment new source review
18 offsets and instead it would require ATUs, is that
19 correct?
20 MR. ROMAINE: No. We've asked about the
21 transfer. Now, the question is what sort of
22 ATUs would be required for the new emission
23 units.
24 You proposed that the new emission
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1 units would have actual seasonal emissions of ten
2 tons per month for five seasons. That would be
3 50 tons of actual emissions. So they would have
4 to provide 1.3 ATUs for each 200 pounds of those
5 emissions.
6 MR. FORCADE: I appreciate that. I'm not
7 trying to belabor the point here.
8 My question was a conclusion of the
9 nonattainment new source review offset program and
10 its replacement by ERMS and I'm asking would they
11 have to acquire any nonattainment new source review
12 offsets. I'm not asking about the ATUs. I'm asking
13 about nonattainment new source review offsets under
14 Part 203.
15 MR. ROMAINE: Well, the offset provision of
16 new source review as still they would have to be
17 resolved in terms of allowance trading units.
18 MS. McFAWN: And that's why it's a 1.3 ratio?
19 MR. ROMAINE: Yes. Once the trading program
20 is in place, the offset requirement would still
21 apply with further refinement to how that offset
22 requirement is being implemented that is now being
23 put into place through the trading program. So you
24 would have a combination of two programs in place.
L.A. REPORTING - (312) 419-9292
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1 MR. FORCADE: One more time, if they acquire
2 the appropriate of ATUs, whatever that number is,
3 they would not be required to go out and purchase
4 additional nonattainment new source review offsets
5 and the ATUs would satisfy the requirement?
6 MR. ROMAINE: You have combined two things.
7 I think a simple answer would be yes, but the point
8 is they would never have to buy offset credits.
9 What they might have to buy is if they
10 don't have enough ATUs to satisfy their requirement
11 for the new emissions.
12 MR. FORCADE: But they would not have to
13 purchase both?
14 MR. ROMAINE: That's right.
15 MR. FORCADE: Good. Thank you. I appreciate
16 that. Okay. I believe that concludes Question 1.
17 I'm going on now to Question 2. If a
18 source which begins operation of a major modification
19 holds ATUs in compliance with 205.150(c)(2)(A), will
20 a source be required under nonattainment new source
21 review to obtain other emissions offsets during the
22 nonseasonal period?
23 If I'm correctly understanding your
24 previous answer, the answer is no, they will not?
L.A. REPORTING - (312) 419-9292
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1 MR. ROMAINE: That's correct.
2 MR. FORCADE: I believe you just answered
3 three. I believe you have answered four. I believe
4 you have answered -- oh, actually, at this point that
5 concludes the nonattainment new source review
6 questions.
7 Would it be appropriate to --
8 THE HEARING OFFICER: I think we need to end
9 it here today. I think we are all getting pretty
10 tired. I think Lori is getting pretty tired there
11 too.
12 Let me just first state that I think we
13 want -- I think Ms. Rosen has some comments she wants
14 to make on the record.
15 MS. ROSEN: Yes.
16 THE HEARING OFFICER: Do you want to do that
17 real quick or as quick as it can be?
18 MS. ROSEN: Sure. On behalf of ERG, I would
19 like to make a comment regarding the proposed use of
20 the video conference.
21 Most importantly, ERG does not oppose
22 the use of the new technology. We support the use of
23 it, but we believe that its use could raise a number
24 of issues and we are just putting the issue out here
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1 for maybe some discussion to know whether the board
2 has considered all of these different issues and
3 given thought as to how they might be resolved.
4 We particularly have a concern regarding
5 whether the use of the video conference will diminish
6 the quality of the evidence and the debate and the
7 ability to cross-examine the witness which could
8 impact the record as a whole.
9 To that end, we are concerned with if
10 the quality is diminished, has the board determined
11 what weight they want to give the evidence, that is,
12 that results from the video conference.
13 Our suggestion is that prior to the
14 weight determination being decided that the
15 participants to the proceeding have an opportunity
16 to comment on whether the process worked and whether
17 what was elicited was productive and everybody got
18 their questions answered given the format.
19 To that end, if the process doesn't
20 work, will the board give the agency an opportunity
21 to have the witness come in person so that it can aid
22 in the creation of a complete record.
23 Our concern is also premised on the
24 potential precedent that it could set if this is just
L.A. REPORTING - (312) 419-9292
852
1 allowed given -- we are trying to accommodate some
2 unusual circumstances, but if it's allowed this time,
3 in the future, will our participants in rulemakings
4 be able to take advantage of it when their schedules
5 can't work with the schedule established by the
6 board? Will they be able to speak from other venues?
7 That's basically our comment. We hope
8 that sometime prior to the teleconference, we will
9 have a discussion that further flushes out all of
10 these issues and impacts.
11 THE HEARING OFFICER: Thank you. Are there
12 any other comments along that same vein?
13 In the back?
14 MR. TREPANIER: I have some concern that the
15 agency has selected someone that they know who is
16 going to be unavailable because the schedule of the
17 legislature in Wyoming is published and then this
18 is someone who is reviewing the program and didn't
19 independently analyze this. So I do have concerns
20 that somebody with these restrictions was selected
21 by the agency to move forward with this testimony.
22 MS. SAWYER: Could I just respond to that
23 briefly?
24 First of all, Mr. Case was selected for
L.A. REPORTING - (312) 419-9292
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1 exactly the opposite reason because he did analyze
2 the program. He was involved in the design process
3 and he further analyzed the economic impact. The
4 reason that he was the best person is because he was
5 involved in the earlier stages of designing the
6 program. As to your accusation that that was our
7 intent, you know, I think we would deny that.
8 MS. McFAWN: I don't have any of Mr. Case's
9 prefiled testimony before me right now, but are his
10 qualifications attached to that by any chance? I
11 don't have it in front of me.
12 MS. SAWYER: No. Sarah -- I don't have it in
13 front of me.
14 MS. McFAWN: Okay. Well, then, does anyone
15 on the panel know other than what Mrs. Sawyer just
16 told us why he became involved in the design team?
17 His specialties perhaps other than he is a
18 legislator?
19 MR. NEWTON: He is a Ph.D. economist.
20 MS. McFAWN: He is a Ph.D. economist, did you
21 say?
22 MR. NEWTON: Yes. And I think he teaches at
23 the University of Wyoming.
24 MR. MATHUR: Are we off the record?
L.A. REPORTING - (312) 419-9292
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1 THE HEARING OFFICER: No. We're on the
2 record.
3 MR. MATHUR: I was going to . . .
4 MS. McFAWN: Wait until we're off the record
5 to make your comment.
6 MR. MATHUR: No. I can make it on the record
7 about Mr. Cale Case. He is a Ph.D. economist. He is
8 a professor at Wyoming State. He is a state
9 legislator, which we shouldn't hold that against him.
10 He was on the design team as an economic consultant
11 and as a part of the Palmer Bellevue Company.
12 MS. McFAWN: Of what company?
13 MR. MATHUR: Of the Palmer Bellevue Company.
14 He was instrumental in helping the agency over the
15 past several years in the design effort.
16 MS. McFAWN: Okay.
17 THE HEARING OFFICER: Is there any way the
18 agency can find out from Dr. Case the Wyoming's
19 legislative session schedule?
20 MS. SAWYER: Do we know it now, Sarah?
21 MS. DUNHAM: It ends on March 5th.
22 THE HEARING OFFICER: I believe there is
23 usually a spring break or at least there is one in
24 Illinois.
L.A. REPORTING - (312) 419-9292
855
1 If you could actually provide that
2 somehow in writing and let us know when that break is
3 just in the offhand chance we do decide to actually
4 want him here to testify.
5 MS. SAWYER: You want it in writing?
6 THE HEARING OFFICER: Just let us -- I would
7 like to know a little bit more than just off the top
8 of our heads if it definitely is March 5th.
9 MS. SAWYER: It is. It definitely is.
10 THE HEARING OFFICER: Okay.
11 MS. ROSEN: Also, when you consider the timing
12 that he's going to -- if the teleconference comes
13 about, he is scheduled very late in the day. Once
14 his formal testimony gets presented and then the
15 panel and he begin to answer questions, are we
16 realistically going to be able to conclude the
17 extensive economic questioning that I have envisioned
18 on that day and what will we have to do to
19 accommodate the end of his testimony? That's one
20 more issue.
21 THE HEARING OFFICER: That, quite honestly,
22 has been a concern of mine from the beginning, but
23 let's just say at this point that everything has been
24 taken under advisement of the board. I don't know if
L.A. REPORTING - (312) 419-9292
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1 we will have the transcript done. I don't think we
2 will, but surely board members present and myself
3 will remember what the comments were and we will kind
4 of discuss that.
5 MS. McFAWN: Those will welcome, your
6 concerns. The ones that Mr. Feinen has mentioned
7 has been a concern of the board. It has been
8 discussed as has several of the other concerns
9 raised. We still have to work out the details of the
10 teleconferencing, but as Mr. Feinen says, we have it
11 under advisement. Keep in mind, too, we might -- I
12 think your comments were really good. I don't know
13 if we can answer those issues before we even try it.
14 MR. ROSEN: We understand.
15 MS. SAWYER: We understand that if we don't
16 get through the questions, that we have to go on to
17 get through the questions on the economic stuff.
18 MR. TREPANIER: I saw that when I read
19 Mr. Case's prefiled testimony, it made no indication
20 that he had been a member of the design team, only
21 that he had reviewed the agency's work. That's why I
22 brought up that concern. I didn't want it to be
23 treated as an accusation.
24 THE HEARING OFFICER: Okay. Let me discuss
L.A. REPORTING - (312) 419-9292
857
1 now at this point what's planned for next week on the
2 record. Although we previously discussed this, I'll
3 just put it on the record.
4 We're going to continue this matter
5 until February 10th, Monday, at 9:00 o'clock. Not
6 10:00 o'clock, but 9:00 o'clock. We are going to set
7 out the morning with the testimony from the design
8 team; Mr. Compton, Mr. Ziesmann and Mr. Jerik. The
9 questioning of the design team will be turned back to
10 the panel for questioning.
11 Then, that will probably round out the
12 10th. On February 11th, once again, we'll start out
13 at 9:00 o'clock in this room. We'll start out the
14 morning with the panel and questioning. We will
15 continue to the panel until, I will say, roughly
16 2:30 or 2:00 o'clock.
17 At that time, we will hopefully have the
18 agency present the testimony of Sarah Dunham which
19 will carry us into the 3:15 time for the presentation
20 of Dr. Case's testimony and then we will start
21 questioning as quickly as possible after that.
22 Are there any questions? Are there any
23 other matters? All right. We will then continue
24 this matter on the 10th.
L.A. REPORTING - (312) 419-9292
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1
2 (Whereupon, no further proceedings
3 were had in the above-entitled
4 cause, to be recommenced on
5 February 10, 1997, at 9:00
6 o'clock a.m.)
7
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L.A. REPORTING - (312) 419-9292
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1 STATE OF ILLINOIS )
) SS.
2 COUNTY OF C O O K )
3 I, LORI ANN ASAUSKAS, CSR, RPR, notary
4 public within and for the County of Cook and State
5 of Illinois, do hereby certify that the testimony
6 then given by all participants of the rulemaking
7 hearing was by me reduced to writing by means of
8 machine shorthand and afterwards transcribed upon
9 a computer, and the foregoing is a true and correct
10 transcript.
11 I further certify that I am not counsel
12 for nor in any way related to any of the parties to
13 this procedure, nor am I in any way interested in the
14 outcome thereof.
15 In testimony whereof I have hereunto set
16 my hand and affixed my notarial seal this 25th day of
17 February, A.D., 1997.
18 _______________________________
Lori Ann Asauskas, CSR, RPR
19 Notary Public, Cook County, IL
Illinois License No. 084-002890
20
21 SUBSCRIBED AND SWORN
before me this 25th
22 day of February, 1997.
23
_____________________
24 Notary Public
L.A. REPORTING - (312) 419-9292