BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

In The Matter of:

Proposed New 35 Ill. Adm. Code 225

Control of Emissions from

Large Combustion Sources

)

)

)

)

)

No. R06-25

(Rulemaking -Air)

FINAL COMMENTS OF KINCAID GENERATION, LLC

NOW COMES Participant KINCAID GENERATION, L.L.C. (“Kincaid”), by and

through its attorneys, JENNER & BLOCK LLP, and respectfully submits its final comments to

this rulemaking. Kincaid appreciates this opportunity to comment again on these important new

rules. Kincaid has been an active participant throughout this long rulemaking process – attending

all the “outreach” meetings convened by the Illinois Environmental Protection Agency (IEPA) in

Springfield in January and February, participating in the Board hearings both in Springfield and

Chicago, providing comment on the proposal on three separate occasions, and providing

testimony at the Chicago hearing.

As we have witnessed this proceeding unfold, with the many changes, agreements, and

other surprises, we want to emphasize how unfair this proposal is for the Kincaid facility and we

offer the following comments as evidence of that claim.

I.

Introduction

Kincaid maintains that the proposed Illinois mercury rule is unreasonable for several

reasons. First, we do not have confidence that there currently exists commercially proven

technology that will achieve a sustained 90% reduction in mercury emissions. We also believe

the proposal unfairly disadvantages the Kincaid facility. As we explain in these comments,

Kincaid is not eligible for the Averaging Demonstration under section 225.232 of the proposal or

THIS FILING IS SUBMITED ON RECYCLED PAPER

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

the Temporary Technology-Based Standards (TTBS) under 225.234 of the proposal. The Multi-

Pollutant Standards (MPS) that have been devised through agreements with Ameren and Dynegy

have been designed to accommodate the needs of these two companies and do not provide any

flexibility for plants like Kincaid that have already achieved in large part the SO

2

and NO

x

reductions that are part of the MPS requirements. Further, we do not believe the proposed MPS

has met the legal requirements that would allow such a dramatic addition to a previously

proposed regulation. Finally, while Kincaid steadfastly recommends adoption of the federal

CAMR (Clean Air Mercury Rule) in Illinois, we have included in this submittal a bona fide

proposal that guarantees mercury controls at the Kincaid facility by July 2009, with no

“averaging” among other facilities and no deadline extensions for smaller units.

II.

Background

Dominion Resources, Inc. (“Dominion”) owns and operates electric generating facilities

in eleven states, including the 1250 megawatt coal-fired Kincaid Generation LLC power plant,

located in Kincaid, Illinois. Dominion’s position on the IEPA mercury proposal is well

established. Though Dominion believes reductions of mercury emissions from coal-fired utility

boilers are warranted, we also note that it is well documented that U.S. man-made emissions of

mercury are small in comparison to other sources across the globe. We believe the IEPA

proposal to reduce coal-fired electric utility mercury emissions 90% by July 2009 to be

unreasonable. We do not believe that mercury-specific control technology is currently developed

sufficiently to achieve a sustained 90% reduction. Further, we believe the proposal places

Kincaid at a distinct competitive disadvantage with other electricity providers in Illinois.

Kincaid has compiled an exemplary environmental compliance record. Since Dominion

purchased the plant in 1998, the plant has received no environmental violations, has cut sulfur

-2-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

dioxide and nitrogen oxide emissions drastically from pre-1998 levels, and has taken steps to

minimize opacity and particulate levels. Not only that, the Kincaid station’s commitment to

environmental stewardship goes beyond the air side of the business. For the second time in three

years, Kincaid Station has been nominated by the IEPA for “Best Operated Wastewater

Treatment Works.” Kincaid Station was one of only four facilities nominated out of 1,594

facilities statewide.

III.

Kincaid and other similarly situated facilities cannot achieve 90%

mercury reduction (or 0.0080 lbs/GWH) on a consistent basis using the

Activated Carbon Injection (ACI) approach. Therefore, this approach

is not technically feasible.

The agreements struck by IEPA with Ameren and with Dynegy effectively allow more

than 8000 megawatts – more than 50% - of coal-fired generation in Illinois to avoid the 90%

reduction requirement until 2015. Furthermore, this MPS option would allow ten power plants to

avoid mercury controls altogether until 2013, and, even then, there is no requirement that these

units meet the 90% reduction or the emission rate restrictions. Generating units that are not part

of these agreements get no relief from the July 2009 requirement for 90% mercury reduction or

the .0080 pounds per gigawatt-hour emission limit (collectively the 90% or 0.0080 limit). Based

on 1999 estimates, this allows more than 88 pounds of mercury to continue to be emitted in

Illinois without any controls or restrictions until 2013.

In exchange for this “delay of the mercury emissions standards,”

1

these companies have

agreed to additional SO

2

and NO

x

reductions on an accelerated schedule as part of this MPS

1

Illinois EPA document, “Analysis of Ameren’s Multi-Pollutant Alternative (to Illinois’

Proposed Mercury Rule)”, July 27, 2006.

-3-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

approach. These reductions would likely have eventually been required as part of these

companies’ requirements under the Clean Air Interstate Rule (CAIR) or as part of a Consent

Decree with the USEPA. But the fact that these companies were so willing to accelerate their

CAIR compliance plans in order to gain relief from what is generally acknowledged to be the

most stringent mercury proposal in the nation is evidence of the uncertainty surrounding the

feasibility of the technology required for a sustained 90% or 0.0080 limit mercury reduction

.

The hearing record in many cases further supports the position that the technology to

achieve a 90% or 0.0080 limit mercury reduction for long periods of time is not currently

available. Nowhere in the hearing record is this made clearer than on the first day of the Board

hearings in Chicago. “Some of them may not reach 90 percent,” testified the IEPA staff,

2

“[the

MPS] recognizes that potentially there may be difficulties. We’ll give you more time in this

broad multi-pollutant category.”

3

As Kincaid has stated in our comments and testimony, and as verified by others during

the August hearings, we do not have confidence that, at the current state of technology,

halogenated activated carbon injection (with bromine, iodine or chlorine) can achieve a sustained

90% or 0.0080 limit mercury reduction at the Kincaid facility. We do not believe this

technology has been fully demonstrated and we do not believe “commercially offered” – as some

vendors say – is the same as “commercially available.” We agree with the conclusion of IEPA’s

consultant Dr. James Staudt in his March 2006 article in Environmental Science & Technology:

2

Transcript of cross-examination response of Jim Ross, IEPA, Illinois Pollution Control

Board Mercury Rule Hearing, August 14, 2006, page 211.

3

IBID, page 212.

-4-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

“a broad and aggressive R&D program now under way will yield more experience and

information in the next few years.”

4

But such expectations do not provide guaranteed

performance from which compliance would be measured. Absent performance guarantees,

Kincaid cannot accept the realistic risk of potential non-compliance.

This position has been supported by many witnesses in their testimony and/or cross-

examination at the August hearings of the Illinois Pollution Control Board. Mr. Ed Cichanowicz,

expert witness on power plant controls, in his pre-filed testimony, stated, “…despite impressive

results at selected demonstrations, the control technology that is the focal point of interest –

activated carbon injection (ACI) – is not sufficiently developed to consistently deliver high Hg

removal under the varied conditions in Illinois. For ACI within an existing ESP, several

demonstrations recorded 90% or better Hg removal. However, these results reflect short-term

tests and 30-day trials, thus the degree these controls can provide satisfactory 24/7/365 service is

uncertain.”

5

The Ameren testimony at the Board hearing on August 14 provides evidence of that

company’s lack of confidence in halogenated activated carbon injection (HACI) to reliably

achieve a long term 90% reduction in mercury. When asked if the company would rely solely on

HACI if the proposed rule did not include the MPS option, the Ameren representative stated,

4

Ravi K. Srivastava, Nick Hutson, Blair Martin, Frank Princiotta, U.S. EPA; James

Staudt, Andover Technology Partners, “Control of Mercury Emissions from Coal-Fired Utility

Boilers”,

Environmental Science & Technology, March 1, 2006.

5

Pre-filed testimony of J.E. Cichanowicz, Independent Consultant, “A Review of Status

of Mercury Control Technology”, July 28, 2006, page 3.

-5-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

“No…we believe we would have to put at least fabric filters or baghouses on each one of our

units in combination with ACI or a scrubber of some form.”

6

Furthermore, as a practical matter, compliance with a 90% mercury reduction restriction

and the uncertainty in current mercury measurement technology will undoubtedly require the

control systems to be designed to achieve a somewhat higher-than-90% reduction, just to account

for fuel variability and equipment failures and to ensure compliance over the long haul. The

Board hearings on August 16 bear this reasoning out: “…coal variability for periods would

elevate the required removal to above 90 percent.”

7

The pre-filed testimony of Mr. Ed

Cichanowicz further clarifies this issue: “…I believe the cumulative effect of measurement

uncertainty, variability in coal composition, and variability in process operation require a design

Hg removal target of at least 93–95% to consistently deliver 90%.”

8

There are many researchers that agree with our position that the development of mercury-

specific controls is not advanced enough to achieve a 90% reduction. A very recent (August

2006) EPRI report supports this position:

“Mercury

reductions/readiness:

CTC (Chemically Treated Carbon): capture rates based on hourly averages ranged

from 75% to 95% over one-month test periods at two PRB (Powder River Basin)

– fired plants and one PRB/bituminous-coal-fired plant. All plants had large

6

Transcript of cross-examination response of Mike Menne, Ameren, Illinois Pollution

Control Board Mercury Rule Hearing, August 14, 2006, page 159.

7

Transcript of cross-examination response of J.E. Cichanowicz, Illinois Pollution Control

Board Mercury Rule Hearing, August 16, 2006, page 616.

8

Pre-filed testimony of J.E. Cichanowicz, Independent Consultant, “A Review of Status

of Mercury Control Technology”, July 28, 2006, page 2.

-6-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

ESPs, and the field trials were conducted under a testing environment (i.e., testing

conducted under stable boiler conditions rather than under more variable, but

normal, day-to-day conditions).”

9

At the Board hearing of August 16, 2006, a representative of Sorbent Technologies,

Corporation, a sorbent vendor, cross-examined Mr. Cichanowicz and produced data supposedly

released by the Department of Energy on tests of HACI at the Midwest Generation Crawford

station. The sorbent vendor claimed the data revealed a 90% reduction during the HACI test at

the Crawford station. Mr. Cichanowicz cautioned against using such preliminary data: “…I’m

finding that informal reports from field tests related to the results in a technical

paper…sometimes it is not always the same.”

10

On August 25, 2006, the sorbent vendor submitted for the record a “corrected exhibit” of

the data produced at the August 16 Board hearing. In that letter, the sorbent vendor stated,

“Sorbent Technologies’ data quality-control procedures just discovered a problem

with three of the data points on one of the Exhibits that was entered into evidence

in the recent Illinois power plant mercury regulation hearings…These readings

came in a bit lower…denoting about 80-85% removal.

“Indeed, we started our 30-day continuous C-PAC run at Crawford a week ago at

an injection rate of 4 lb/MMacf and we are seeing average total Hg removal rates

of around 80%…not 90%

“However, this is an important difference because the difference between 90% Hg

removal and 80% may be particularly key in Illinois”

11

9

“Status of Mercury Controls for Coal-Fired Power Plants – An EPRI Assessment”

August 2006, Electric Power Research Institute (EPRI)

10

Transcript of cross-examination response of J.E. Cichanowicz, Illinois Pollution

Control Board Mercury Rule Hearing, August 16, 2006, page 539.

11

Corrected Exhibit #88 of Sid Nelson, Jr., President, Sorbent Technologies Corporation,

PC#6287.

-7-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

This captures the “rush to judgment” approach the development of new air pollution

control technology sometimes takes. We all want to solve the problems as quickly as possible.

However, the prudent investment of millions of dollars in capital for pollution controls demands

that power companies take a carefully measured, well developed, or “proven” approach. From

Mr. Cichanowicz’ testimony:

“The evolution of environmental controls for coal fired power plants has

historically required an extended period for process development, testing and full-

scale commercialization. The distinguishing feature of capital-intensive process

equipment is that product lifetime is measured in decades, and not months or

years as with consumer products. Further, the penalties for malperformance or

failure of an environmental control system are not limited to a shortfall in

environmental control capability or higher operating cost, but actually challenge

the reliability of the plant.”

12

IV.

If ACI will not work, it is not economically reasonable to require

Kincaid and similarly situated facilities to install the next level of

controls: Baghouses or Scrubbers.

IEPA representatives have stated several times during the February “outreach” meetings

that capital costs for compliance with this 90% or 0.0080 limit mercury proposal will cost “$2

million per unit.” IEPA witness Jim Staudt, in his oral testimony at the Springfield Board hearing

in June, indicated that the “typical capital cost is around $2/KW”

13

(capital cost is the

installation cost) for activated carbon injection (ACI) systems. Dr. Staudt estimates the cost of

brominated PAC to be $.80/lb.

14

The capital cost for ACI systems referenced by Thomas J.

Feeley in his April TV interview and later reaffirmed by the DOE/NETL in the April 28, 2006

12

Pre-filed testimony of J.E. Cichanowicz, Independent Consultant, “A Review of Status

of Mercury Control Technology”, July 28, 2006, page 17.

13

Pre-filed testimony of James E. Staudt, Independent Consultant for Illinois

Environmental Protection Agency, June 21, 2006, page 5.

14

IBID, page 7.

-8-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

paper “Clarification of the U.S. Department of Energy’s Perspective on the Status of Mercury

Control Technologies for Coal-Fired Power Plants “ was $5-$7 per kilowatt (installed cost)

which is substantially higher than Staudt’s estimate.

15

For Kincaid, that difference is significant

at $5,000,000 (installed cost). Using the DOE’s $6/KW estimate, the cost is $7.5 million; using

Staudt’s $2/KW estimate, the cost is only $2.5 million. In the DOE/NETL’s April 2006 report,

“DOE/NETL’s Phase II Mercury Control Technology Field Testing Program,” on page 23, the

cost of Brominated PAC is listed as: DARCO Hg-LH at $.95/lb., B-PAC at $.85/lb.

16

Again,

Staudt’s estimate is low. The difference between $.90/lb and $.80/lb may seem minor but, for

Kincaid, this $.10/lb. difference would be significant at $1 million per year in increased

operating costs (units- 80% capacity factor with a 5 lb. injection rate). This would be just normal

ACI costs. At a 5 lb. injection rate, which IEPA desires, the annual operating costs would be

considerable. Total annual operating costs for just the PAC would be - ($.90/lb PAC)(700lb./hr

PAC for 625MW unit)(2 units)(7008 hrs (80% C.F))= $8.83 million/yr. However, this amount

does not account for O&M on the maintenance of the two injection systems.

The previous section shows that ACI is not capable of reliably achieving the required

emissions level all of the time. Therefore, Kincaid, and other Illinois utilities, must rely on fully

demonstrated technologies for planning purposes. The IEPA technical document references the

“TOXECON” project currently underway at WE Energies’ Presque Isle plant in Michigan as the

15

U.S. Dep’t of Energy National Energy Technology Laboratory, “Clarification of the

U.S. Department of Energy’s Perspective on the Status of Mercury Control Technologies for

Coal-Fired Power Plants,” April 25, 2006.

16

Jones, A., et al., “DOE/NETL’s Phase II Mercury Control Technology Field Testing

Program: Preliminary Economic Analysis of Activated Carbon Injection,” April, 2006.

-9-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

next level of control technology capable of achieving the mercury reductions required by this

proposed rule.

17

This application includes installation of an ACI system in addition to a fabric

filter system. The IEPA document suggests capital costs for a TOXECON system would be

“typically in the range of about $40-$60/KW.” The document describes the Presque Isle project

as “unusual” and fails to include the projected costs for the project, which, according to the

recent design study conducted for WE Energies, are reported to be equivalent to a capital cost of

$120/KW.

18

The TOXECON II system (injection of PAC into back fields of an existing ESP) will not

work on the Kincaid units due to the “marginal” size of the ESPs. The more expensive

TOXECON system, with a separate baghouse, is the only option. The Kincaid units will not

require the “dry” scrubbers for mercury removal. The capital cost for the WeEnergies Presque

Isle ACI/TOXECON system listed on page 4 in the DOE/NETL’s April 28, 2006 “Clarification

of the U.S. Department of Energy’s Perspective on the Status of Mercury Control Technologies

for Coal-Fired Power Plants” paper was $126/KW. The IEPA suggested this same system would

only cost $40-$60/KW. For Kincaid’s 1250 MWs, the cost at $126/KW would be $157 million.

This cost is not economically reasonable and no portion of the testimony in the record supports

such excessive costs as being economically reasonable.

17

Illinois Environmental Protection Agency, “Technical Support Document for Reducing

Mercury Emissions from Coal-Fired Electric Generating Units” (TSD), AQDSTR 06-02, March

14, 2006, page 130.

18

Johnson, D. et al., “TOXECON Retrofit for Mercury and Multipollutant Control”,

2005 NETL Mercury Review Control Technology Conference, July, 2005, Pittsburgh, PA.

-10-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

The Agency continues to support a 90% or 0.0080 limit, premised on control costs of “$2

million per unit” or a “typical capital cost is around $2/KW”, based on ACI injection rates not to

exceed 5 lbs. What if achieving the 90% or 0.0080 limit requires ACI injection rates of 15 lbs,

or installation of a TOXECON system? The range of possible control costs discussed in this

proceeding is simply too large to validate the Agency requested absolute emission limitations,

“regardless of costs.” If the Board ultimately adopts a 90% or 0.0080 limit for some future

compliance date it must provide a mechanism for regulatory relief at those facilities where

control costs will dramatically exceed the Agency’s expectations. Kincaid discusses this issue in

Section XIV below.

V.

Both Kincaid Units are identical. Therefore if ACI fails to achieve the

standard, it would fail on both units. To have any relief Kincaid would

need to have a reduced standard apply to both units.

The two Kincaid units are virtually identical – constructed side by side under identical

engineering designs. The ‘cyclone’ firing boiler design was first developed by Babcock &

Wilcox to promote more efficient coal firing. The design involves a series of horizontal

combustion cylinders with crushed coal introduced with combustion air in a centrifugal motion

that promotes higher temperatures and more complete combustion. Though we are not sure,

because we have only tested emissions from one of the Kincaid units, we expect the emissions

from both units to be identical. Therefore, whatever final mercury emissions limitations that the

Kincaid units are ultimately subject to must be identical – we do not expect one Kincaid unit to

be capable of meeting a more stringent emissions limit than the other. Thus, expanding the

existing TTBS from the current proposal to a level that would make one unit at Kincaid eligible

will not provide the expected relief we believe Kincaid will need to comply with the current

-11-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

proposal – we do not expect either of the units at Kincaid to be capable of achieving 90%

reduction or the emission limitation of 0.0080 pounds per gigawatt-hour.

VI.

Kincaid believes the development of the MPS option has been too

narrowly designed to meet the needs of two companies and unfairly

excludes other companies that have already installed pollution controls

and have far surpassed the emissions reductions of these companies.

The MPS alternative developed by Ameren, Dynegy and the IEPA has been designed

only to accommodate the exclusive needs of these companies and makes no attempt at universal

appeal or feasibility. It appears that the MPS is so clearly tailored to align with the Ameren and

Dynegy plans for compliance with the CAIR 2015 NO

x

and SO

2

emissions reductions; previous

agreements signed by these companies; and their goals to exempt the applicability and potential

compliance costs for several small units that it is not useful to the other companies.

In some respects, this multi-pollutant approach forces emissions reduction at the Ameren

and Dynegy plants that are already well underway at other plants. For example, NO

x

and SO

2

emissions at the Kincaid plant have been declining since Dominion purchased the plant in 1998.

Installation of SCRs (Selective Catalytic Reduction) and other NO

x

controls have reduced total

annual NO

x

emissions (expressed as tons per year) by 54% since 1998 with a cumulative

reduction of over 70,000 tons over that period.

Annual NO

x

emissions rates (expressed in pounds per million Btu of heat input) have

been cut by 67%. The NO

x

emissions rate from Kincaid during the ozone season (May through

September), by IEPA’s calculation, is the lowest coal-fired utility rate in Illinois – 50% below

that of the Ameren plants and a third lower than the Dynegy plants. When the SCRs are

operated on a year-round basis, beginning in 2009, we expect Kincaid’s NO

x

emission rate to be

comparable to or lower than the NO

x

limit of the MPS that would not be effective until 2012 –

-12-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

three years later. Kincaid has already installed the NO

x

controls needed to achieve the NO

x

reductions contemplated in the MPS. But the MPS requires reductions from “present levels.” It

is unreasonable to require Kincaid to achieve additional reductions of this magnitude from our

present low emissions rate.

The SO

2

story at Kincaid is even more impressive. As we have stated previously, the

Kincaid switch to sub-bituminous coal in 1999 drastically reduced emissions of SO

2

. Kincaid’s

total annual SO

2

emissions (tons per year) in 2005 were 62% lower than 1998. Over that seven-

year period, SO

2

emissions rates (pounds per million Btu heat input) have been cut by more than

73%. The cumulative reduction in SO

2

emissions over that period is more than 190,000 tons. By

IEPA’s calculation, the Kincaid SO

2

emission rate for 2002-04 is also as low as any other coal-

fired utility in Illinois during that period.

According to USEPA records, SO

2

emissions from the 8088 megawatts eligible for the

MPS (the Ameren and Dynegy coal-fired units) were over 186,000 tons in 2005, with an SO

2

emission rate of about 0.70 pounds per million Btu of heat input (lbs/mmBtu).

19

Under terms of

the MPS, these units have to achieve an SO

2

emission rate of 0.25 lbs/mmBtu by 2015. For

comparison purposes, assuming the fuel consumption of these units is the same as 2005 data,

these units would have SO

2

emissions of about 66,500 tons at an emission rate of .25 lbs/mmBtu,

or a “per megawatt” reduction of about 14.8 tons (186,000 tons - 66,500 tons/8088 megawatts =

14.8 tons/megawatt).

19

USEPA Clean Air Markets Division (CAMD) website,

http://www.epa.gov/airmarket/emissions/prelimarp/05q4/054_il.txt

-13-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

The 190,000 tons in SO

2

reductions already achieved at the 1250-megawatt Kincaid

station since 1998 represents a “per megawatt” reduction of about 152 tons

.

(190,000 tons/1250

megawatts = 152 tons per megawatt). For comparison purposes, for the per megawatt SO

2

reduction of the MPS units to increase from 14.8 tons per megawatt to the Kincaid per megawatt

SO

2

reduction of 152 tons per megawatt, it would take these 8088 megawatts of MPS generation

more than 10 years to achieve an equivalent reduction as the one that has been achieved at

Kincaid since 1998

(

152 tons per megawatt/14.8 tons per megawatt = 10.27 years). Furthermore,

the Kincaid units will continue to operate at these lower SO

2

emissions rates and pile up

thousands of tons of SO

2

reductions throughout the period leading up to full implementation of

the MPS requirements in 2015 – a full eight years from now.

The MPS requires reductions of 48% of the Base Annual Rate for NO

x

and 56% of the

Base Annual Rate for SO

2

. Proposed Section 225.233 (e). Such large percentage reductions

may or may not be technically feasible and economically reasonable for EGUs at Dynegy and

Ameren where prior reductions have not been made. For facilities like Kincaid, that have

already made dramatic reductions in SO

2

and NO

x

, additional percentage reductions in

emissions of this magnitude from our present low emissions rates are neither technically feasible

nor economically reasonable and nothing in the record supports a conclusion that they are.

VII. Kincaid is uniquely disadvantaged by the IEPA proposal, even with the

MPS.

Kincaid is ineligible for any of the IEPA attempts at flexibility in the proposal. We

cannot participate in the Averaging Demonstration under section 225.232 of the proposal as the

pool of potential averaging partners consists of only two other, much smaller, generating plants.

We cannot apply for the TTBS under section 225.234 of the proposal because the capacity of the

-14-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Kincaid plant exceeds the limit on the number of megawatts for which is option is available.

And, as we have explained above, we further believe that a large part of the SO

2

and NO

x

emissions reductions required of the MPS under proposed section 225.233 of the rule have

already been achieved at Kincaid, thus making that option infeasible.

First, Section 225.232 of the proposed rule provides affected sources with a means for

combining emissions from multiple units to average a 90% overall reduction in mercury

emissions for the first few years of the program. However, the rule allows this averaging only

among existing sources under common ownership, or among a very short list of single-facility

companies. For the larger Illinois utility companies affected by this rule, this “Averaging

Demonstration” could include as many as 19 different units. Kincaid, on the other hand, is given

the opportunity to average among many fewer units, owned by other companies. Kincaid also is

effectively forced into a “sellers’ market,” trying to strike a deal with companies that likely will

have no incentive to enter into an agreement to average emissions other than to generate revenue.

Because Kincaid would have to enter into some financial agreement with another company and

because the pool of units that would be eligible for inclusion in an “Averaging Demonstration” is

so much smaller than the pool available to the larger companies, this provision creates an

unequal, unfair playing field for Kincaid.

Second, the IEPA testimony at the June 22 Board hearing confirms that the proposal

specifically excludes Kincaid from one of the very few compliance options and thus places

Kincaid at a severe competitive disadvantage (June 22 testimony of Dr. Staudt, page 159). The

TTBS limits the availability of its use to no more than 25% of a company’s capacity in the state.

Since Dominion’s coal-fired capacity in Illinois consists solely of the Kincaid plant with its two

625-megawatt units, seeking the TTBS for one of these units would exceed the 25% capacity

-15-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

restriction and therefore preclude its eligibility. The IEPA testimony before the Board on June 22

shows that the IEPA proceeded to propose limited access to this TTBS against the advice of its

technology expert. The agency has described the TTBS as a measure of “flexibility” but has

limited availability of this flexibility to only the large utility companies in Illinois, which is

unfair.

VIII. The IEPA mercury rule presents a profound economic hardship to the

Kincaid facility.

Dominion purchased the Kincaid plant in 1998 from Commonwealth Edison. Under

terms of that purchase, the companies signed a “power purchase agreement” (“PPA”) in which

all electricity generated at Kincaid is delivered to Commonwealth Edison and the price that

Commonwealth Edison would pay Kincaid for electricity would be fixed for the term of the

agreement, which in this case extends until February 2013.

20

This PPA does not allow Kincaid

to recover the additional costs associated with compliance with many new requirements,

including the costs for compliance with the IEPA proposed mercury rule during the term of the

agreement.

After February 2013, Dominion will price the power generated at the Kincaid facility

based on the actual production cost of that power and the prevailing market rate. Contractually,

until 2013, Dominion cannot adjust the current production cost to account for installation of

additional control technology.

20

A copy of the PPA is attached to this final comment.

-16-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

In 1997, the Illinois General Assembly passed legislation to restructure the electric utility

industry in Illinois. The restructuring has been phased in over a 9-year period and included a

1997 electricity rate freeze. That rate freeze will expire at the end of 2006 and several Illinois

electric companies are seeking approval for rate increases, reported to range from 20 to 35%,

phased in over several years. There are a number of reasons given for this rate increase,

including higher fuel costs, market prices for unregulated power and “environmental compliance

expenditures.”

21

The Illinois legislature and the Commerce Commission (ICC) have had the foresight to

pass and implement fair restructuring legislation that includes a built-in “correction” factor to

ensure continued reliable, safe electricity service for the citizens of Illinois. It also allows

Illinois utility companies to recover reasonable costs brought on by new regulatory requirements,

such as the proposed IEPA mercury control rule.

As we have stated previously, we do not believe the Kincaid units can achieve the 90%

mercury reduction for the long time periods required of this proposal. The “TOXECON”

system, discussed above, appears at this point to be the only control option with the best chance

of attaining reliable, long term 90% mercury reduction at Kincaid. TOXECON has been fully

demonstrated under numerous full-scale tests, some for over a year.

22

Also, the first full-scale

installation is underway under DOE contract at the Presque Isle plant in Michigan. Of course,

21

Gary Rainwater, “Earnings Guidance and Regulatory Update”, Ameren, January 2006.

22

TSD, page 129.

-17-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

the question of whether or not this application will actually achieve the 90% reduction over the

long haul will not be answered until this installation is up and running for several years.

The costs for installation of the TOXECON system have been discussed above – capital

cost of $126/Kilowatt. For the 1250 megawatts at Kincaid, total capital would exceed $157

million. Annual costs would be as follows:

-18-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

TOXECON Costs for Kincaid

Annualized Capital Charges =

$157,000,000 x 8.40%

= $13,188,000

Sorbent Costs = $1.00 x 2 lbs/mmACF x 1,622,219 mmACF/yr

= $ 3,244,438

Total Annual Cost = $16,432,438

Should the ACI system work with a capital cost of $6 million for the two Kincaid units, annual

costs would work out like this:

Activated Carbon Injection Costs for Kincaid

Annualized Capital Charges =

$6,000,000 x 8.40%

= $ 504,000

Sorbent Costs = $1.00 x 5 lbs/mmACF x 1,622,219 mmACF/yr

= $8,111,097

Total Annual Cost = $8,615,097

Either option leaves the Kincaid plant facing a huge capital outlay as well as significant annual

expenses – costs that will have a profound impact on the economics and profitability of the

Kincaid plant. Kincaid’s inability to recover these costs for compliance with the proposed IEPA

mercury control rule presents another unfair advantage for Kincaid competitors. While most

utility companies operating in Illinois will undoubtedly gain approval to increase rates to

accommodate the costs for new mercury control technology, Dominion’s Kincaid station will

have no such opportunity.

IX.

The Board cannot legally adopt the NO

x

and SO

2

provision under

Illinois and federal law since those provisions were never subject to

First Notice.

It would violate Illinois and federal administrative law for the Board to adopt final

regulations controlling the MPS pollutants where no First Notice disclosure has been presented

to the public. The type of regulatory change being considered here, adopting a regulation

controlling SO

2

and NO

x

emissions in a regulatory proceeding that only provided public notice

of mercury controls, was described by the United States District Court for the District of

Columbia as a “flip-flop” that pulls, “a surprise switcheroo on regulated entities.”

Environmental

-19-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Integrity Project v. Environmental Protection Agency,

425 F.3d 992, 996 (D.C. Cir. 2005). The

Board should not adopt a surprise switcheroo here.

In

Environmental Integrity Project v. Environmental Protection Agency

, an

environmental group argued that the EPA’s revised interpretation of its proposed rules required

notice and comment, because it was not a “logical outgrowth” of its initially proposed

interpretation. In its final rule the EPA had “switched course and adopted the opposite position.”

Id.

at 995. The court concluded that a “logical outgrowth” of the proposal did not include EPA’s

decision to repudiate its proposed rule and adopt the inverse position; therefore, the final rule

violated notice and comment requirements.

Id.

at 995-97.

The court discussed the well established and long standing law of the D.C. Circuit Court

that “an agency’s proposed rule and its final rule may differ only insofar as the latter is a ‘logical

outgrowth’ of the former.”

Id.

at 996.

See also Shell Oil Co. v. EPA,

950 F.2d 741, 750-51

(D.C. Cir. 1991); and

Ne. Maryland Waste Disposal Auth.,

358 F.3d 936, 952 (D.C. Cir. 2004)

(stating that “a final rule is a ‘logical outgrowth’ of a proposed rule only if interested parties

‘should have anticipated’ that the change was possible, and thus reasonably should have filed

their comments on the subject during the notice and comment period.”) (quoting

City of

Waukesha v. EPA,

320 F.3d 228, 245 (D.C. Cir. 2003)). The court found that the doctrine does

not extend to a final rule that “finds no roots in the agency’s proposal” because “something is not

a logical outgrowth of nothing.”

Id.

at 996 (quoting

Kooritzky v. Reich,

17 F.3d 1509, 1513

(D.C. Cir. 1994)). Also, a final rule is not a “logical outgrowth” of the proposed rule if the

interested parties “would have had to ‘divine [the agency’s] unspoken thoughts’” to suspect the

contents of the final rule.

Id.

(quoting

Arizona Pub. Serv. Co. v. EPA

, 211 F.3d 1280, 1299

(D.C. Cir. 2000)).

-20-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

“Thus, we have refused to allow agencies to use the rulemaking process to pull a

surprise switcheroo on regulated entities.

Id.

The court makes clear that there is

nothing wrong with an agency refusing to adopt proposed amendments; however,

a ‘flip-flop’ complies with the Administrative Procedure Act only if it is preceded

by the appropriate public notice and opportunity for public comment.

Id.

at 997;

see Am. Iron & Steel Inst. v. EPA,

886 F.2d 390, 400 (D.C. Cir. 1989);

see

also Ne. Maryland,

358 F.3d at 951-52. The court admonishes that if the notice

requirements of the Administrative Procedure Act (“APA”) mean anything, “they require

that a reasonable commenter must be able to trust an agency’s representations about

which particular aspects of its proposal are open for consideration.”

Id.

at 998.

In

International Union v. Mine Safety and Health Administration,

407 F.3d 1250 (D.C.

Circ. 2005), the proposed rule provided for a 300-foot per minute minimum air velocity to

ventilate underground coal mines.

Id.

at 1259. However, in the final rule, there was a maximum

air velocity of no greater than 500 feet per minute, despite the assertion by the agency that there

would be no cap.

Id.

Ultimately, the court held that the maximum cap provision of the final rule

was not a ‘logical outgrowth’ of the initially proposed rule.

Id.

The

International Union

court quoted much of the language found in

Environmental

Integrity.

In addition, the court stated that, “The ‘logical outgrowth’ doctrine does not extend to

a final rule that is a brand new rule,” nor does it apply when the final rule was “‘surprisingly

distant’ from the proposed rule.”

Id.

at 1260 (quoting

Kooritzky,

17 F.3d. at1513;

Shell Oil Co.,

950 F.2d at 751)). The premise of the doctrine is to alert interested parties to the possibility that

the agency might adopt a different rule than the one the agency originally proposed.

Id.

(citing

Kooritzky,

17 F.3d at 1513). However, “an unexpressed intention cannot convert a final rule into

a ‘logical outgrowth’ that the public should have anticipated.”

Id.

(quoting

Shell Oil Co,

950

F.2d at 751). Interested parties are not given an opportunity to anticipate, criticize, or comment

-21-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

on rules if they receive only “ambiguous comments and weak signals” from the agency as to

what they should expect.

Id.

at 1261 (quoting

Shell Oil,

950 F.2d at 751). Even when public

comment raises a foreseeable possibility that the agency might act according to their suggestions,

acting in this manner is at the “outer limits” of the “logical outgrowth” doctrine.

Id.

(citing

Natural Resources Defense Council, Inc. v. Thomas,

838 F.2d 1224, 1243 (D.C.Cir. 1988)).

In

City of Waukesha v. EPA,

320 F.3d 228 (D.C. Cir. App. 2003), the court offers

additional clarification as to what constitutes a “logical outgrowth.” The Court explains that the

test applies when an agency changes its final regulation “in some way from the proposed

regulation for which it provided notice and requested comment.”

Id.

at 245. “[I]f the final rule

deviates too sharply from the proposal, affected parties will be deprived of notice and

opportunity to respond to the proposal.”

Id.

(quoting

Small Refiner v. EPA,

705 F.2d 506, 546-47

(D.C. Cir. 1983)). The “key question” is whether commentators should have anticipated that the

agency might change the originally proposed rule in the way in which the agency ultimately did

change it.

Id.

One factor to consider is whether “a new round of notice and comment would

provide the

first

opportunity for interested parties to offer comments that could persuade the

agency to modify its rule.”

Id.

at 246 (quoting

Ariz. Pub. Serv. Co.,

211 F.3d 1280, 1299 (D.C.

Cir. 2000) (emphasis in original)). However, even if the interested party fails to show that their

comments would have differed if they had had adequate notice that does not necessarily mean

that there is no claim for a lack of “logical outgrowth” between the proposed rule and the final

rule.

Id.

In

Northwest Tissue Center v. Shalala,

1 F.3d 522 (1993), the original rule was to

regulate replacement heart valves, including valves made of prosthetic materials, porcine valves,

and valves constructed from a combination of the two.

Id.

at 525. However, the final rule

-22-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

promulgated by the agency also subjected allographs (human heart valves) to regulation.

Id.

The relevant parties in the industry had no warning that these valves would be subject to this

regulation, and they protested that this would cause extensive economic problems for them.

Id.

Plaintiffs argued that “the agency promulgated a back door amendment” to regulate allographs.

Id.

at 527. They claimed “this back door procedure denied them the right to notice and comment

on the regulation of allographs which the FDC Act and the APA guarantee.”

Id.

The

Shalala

court quoted the

Shell Oil

rule that “it was the business of the [agency], not

the public, to foresee that possibility [of potential regulation] and address it in its proposed

regulations. . . . Ambiguous comments and weak signals from the agency gave petitioners no

such opportunity to anticipate and criticize the rules or to offer alternatives.”

Id.

(quoting

Shell

Oil,

950 F.2d at 751). The court then addressed the agency’s argument that the interested parties

should infer from the proposed rule what the final rule will entail stating,

Implicit in this argument is the notion that a reference to a specific topic. . .can

give rise to notice of the existence of a more general topic. . .and that the general

topic, in turn can encompass notice of a second specific topic. . . only remotely

related to the first specific one. Such reasoning, if accepted by the court, would

turn notice and comment rulemaking into a guessing game in which the inclusion

of one subject indicates that a distant cousin of that subject might be addressed.

This reading of the APA cannot be sustained.

Id.

at 529 (quoting

Fertilizer Institute v. EPA,

935 F.2d 1303, 1311 (D.C. Cir. 1991)).

Ultimately, the

Shalala

court agreed that NAFR was a permissible interpretation of the

older regulation, but found that the manner in which it was announced merits review.

Id.

at 532.

The case was remanded to examine where the agency provided adequate notice of its intention to

regulate allographs under these regulations.

Id.

at 536.

In

American Medical Association v. United States,

887 F.2d 760 (7th Cir. App. 1989), the

agency originally proposed a tax regulation that was a flexible, case by case, totality of the

-23-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

circumstances type of rule. The final rule, however, was a limited set of precise rules that was to

be applied to all cases. Although the ultimate determination was in favor of the promulgating

agency, the case discussion does delve into the issue in depth and provides assistance regarding

the 7th Circuit’s approach to the logical outgrowth doctrine.

In

AMA,

the Court found the APA allows for two types of notice: notice that specifies the

“terms or substance” of the contemplated regulation, and notice that identifies the “subjects and

issues involved” in the proceeding.

Id.

at 767.

“[N]otice is adequate if it apprises interested parties of the issues to be addressed

in the rule-making proceeding with sufficient clarity and specificity to allow them

to participate in the rulemaking in a meaningful and informed manner. Stated

another way, a final rule is not invalid for lack of adequate notice if the rule

finally adopted is ‘a logical outgrowth’ of the original proposal.”

Id.

An agency may “change its course” as long as the final rule is “generally consistent with the

tenor of its original proposals” and indicates that the agency takes the requirement to give the

public notice and opportunity for public comment seriously.

Id.

In a discussion of what constitutes a “logical outgrowth,” the

AMA

Court noted cases in

which courts have upheld final rules, as well as cases in which the courts have found that notice

is inadequate.

Id.

at 768. “[A] rule will be invalidated if no notice was given of an issue

addressed by the final rules.”

Id.

This has included (in other courts) times in which the issue

was only generally addressed in the original proposal.

Id.

“The crucial issue, then, is whether

parties affected by a final rule were put on notice that ‘their interests were at stake;’ in other

words, the relevant inquiry is whether or not [sic] potential commentators would have known

that an issue in which they were interested was ‘on the table’ and was to be addressed by a final

rule.”

Id.

(quoting, in part,

South Terminal Corp. v. EPA,

504 F.2d 646, 659 (1st Cir. 1974)).

-24-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Most directly on point for the present mercury proceeding is

American Frozen Food

Institute v. Train,

539 F.2d 107 (D.C. Cir. 1976). The American Frozen Food Institute asserted

the regulation originally proposed differed from the final regulation in that it regulated more

pollutants than the proposed rule. The court restated previous rulings that found a mere

difference between the proposed rule and the final rule does not

automatically

lead to a new

opportunity for public notice and comment.

Id.

at 135. However, the court declared,

In one instance, however, the EPA has clearly failed to solicit or allow for public

comment. The Development Document identified only three pollutants as to

which measures of control were proposed. In the final regulation for the industry

. . . EPA added a fourth pollutant, fecal coli, and prescribed a limitation for it. No

prior notice of intention to add fecal coli to the list of controlled pollutants had

been given to the industry or to the public and, of course, no comment on any

proposed standard had been solicited or received. This failure, we believe, was

violative of the Administrative Procedure Act, 5 U.S.C. § 553 (1970). . . .

Id.

As to the pollutant not mentioned in the original proposal, the court remanded to the

Administrator for reconsideration “consistent with the notice and comment requirements” of the

APA.

Id.

American Frozen Food Institute

was also mentioned by the First Circuit, which cautioned

that although the question requires a case by case determination, “where the Agency adds a new

pollution control parameter without giving notice of intention to do so or receiving comments,

there must be a remand to allow public comment.”

BASF Wyandotte Corp. v. Costle,

598 F.2d

637, 642 (1st Cir. 1979) (citing

American Frozen Food Instit.,

539 F.2d at 135). The

BASF

Wyandotte

court cautioned that when the final rules result from “a complex mix of controversial

and uncommented upon data and calculations,” the court may remand the rule.

Id.

at 642

(quoting

Weyerhaeuser Co. v. Costle,

590 F.2d 1011, 1031 (D.C. Cir. 1978)).

-25-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

A search of federal and state cases endorsing the “logical outgrowth” doctrine provides

over 150 cases, with 31 cases in the last five years. The federal cases come from the 1st, 2nd,

3rd, 4th, 5th, 6th, 7th and 10th United States Circuit Courts of Appeal and the U.S. District

Courts of many states, including Illinois.

Center for Biodiversity,

422 F.Supp. 2d 1115 (N.D. of

CA 2005);

Earth Island,

2005 U.S.Dist. LEXIS 34447 (2005);

Diamond Roofing Co. v. OSHRC,

528 F. 2d 645, 649 (5th Cir. 1976) (“open-sided floor” could not be interpreted to include “open-

sided roof”);

Riverkeeper v. United States EPA,

358 F. 3d 174, 202 (2nd Cir. App. 2004);

Nat’l

Black Media Coalition v. FCC,

791 F.2d 1016, 1022 (2d Cir. 1986);

NVE, Inc. v. Department of

Health and Human Servs.,

436 F.3d 182, 191 (3d Cir. 2006);

see also Jerri’s Ceramic Arts, Inc.

v. Consumer Product Safety Commission,

874 F.2d 205 (4th Cir. 1989);

Chocolate Mfrs. Ass’n v.

Block,

755 F.2d 1098, 1105 (4th Cir. 1985);

Brazos Elec. Pwr. Coop. v. Southwestern Pwr.

Resources. Assoc.,

819 F.2d 537 (5th Cir. 1987);

Usery v. Kennecott Copper Corp.,

577 F.2d

1113, 1118-19 (10th Cir. 1977); and

Chrysler Corp. v. Dep’t of Transp.,

515 F.2d 1053, 1061

(6th Cir. 1975) (finding that a final rule is valid if it does not “embrace any major subjects that

were not described in the notice of proposed rule making”).

Several other states have confronted the issue and have referenced and followed the

holdings in prominent federal court cases.

Collazuol v. Department of Natural Resources and

Environ. Control,

1996 Del. Super. LEXIS 453, *24-28 (1994);

Sullivan v. Evergreen

Healthcare Ltd.,

678 N.E.2d 129 (Ind. App. 1997);

Meier v. American Maize Prod. Co.,

645

N.E.2d 662 (Ind. App. 1995);

Motor Vehicle Manufacturers Assoc. v. Jorling,

577 N.Y.S.2d 346

(N.Y. Misc. 1991);

Bassett v. State Fish and Wildlife Commission,

27 Ore. App. 639 (1976);

Western Oil & Gas Assn. v. Air Resources Board,

37 Cal. 3d 502 (1984);

Texas Workers’

Compensation Commission v. Patient Advocates of TX,

136 S.W.3d 643 (Tex. 2004);

In re

-26-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Petition of Dept. of Pub. Serv.,

632 A.2d 1373 (Vt. 1993); and

American Bankers Life Assurance

Co. v. Div. of Consumer Counsel,

263 S.E.2d 867 (Va. 1980).

Although we have found no case law in Illinois that is directly on point with the issues

here, the Illinois Administrative Procedure Act mirrors the federal act in all critical aspects

including the requirement that all interested persons be given the opportunity to provide

comments as to proposed rule changes. As a result, the same general principles of administrative

law will apply. Moreover, in

Senn Park Nursing Center v. Miller

, 470 N.E.2d 1029, 1035 (Ill.

1984), in considering the necessity of providing notice and comment prior to changing a rule, the

Illinois Supreme Court recognized that actual knowledge of the change by an appealing party

was not sufficient to satisfy the agency’s legal requirement for notice and comment as to the

change, adding “[t]o hold that actual knowledge is sufficient to preclude a party’s challenge to an

agency’s failure to comply with the rulemaking requirements of the Illinois Administrative

Procedure Act would make the notice and comment requirement illusory.”

Board adoption of the MPS would be violative of the fundamental and long-established

tenet of administrative law that only changes to a proposed rule that are a logical outgrowth of

the original proposed rule are valid without notice and opportunity to comment. The Board’s

proposed rule at First Notice did not contain any reference to regulation of SO

2

and NO

x

. No

aspect of the original proposal provided potentially interested parties with any inkling that SO

2

and NO

x

might be addressed by the final rule. The fact that the MPS is just one method of

achieving compliance with the overall mercury proposal does not relieve the Board from the

requirements of the APA. Therefore, the Board cannot adopt a final rule that includes these

pollutants.

-27-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Kincaid has been specifically prejudiced by the failure to identify the MPS in the Board’s

First Notice in the following manner. This proceeding began with the Illinois EPA’s proposal

filed on March 14, 2006 and published for First Notice on March 31, 2006 (30 Ill Reg. 5957),

June 2, 2006 (30 Ill. Reg. 10193) and July 28, 2006 (30 Ill. Reg. 12705). That proposal only

referenced emissions restriction on Mercury. The initial public hearings on the proposal lasted

from Monday June 12, 2006 until Friday, June 23, 2006. Throughout those public hearings

Kincaid participated and questioned the Agency’s witnesses on a proposal that included only

emissions limitations on mercury. The Board established a deadline of July 28, 2006 for affected

entities, such as Kincaid, to submit their pre-filed testimony. Kincaid filed its testimony on that

date, again, addressing a regulatory proposal that only restricted emissions of mercury.

On July 28, 2006, Ameren and the Agency filed a joint statement that for the first time

introduced the concept of an MPS. This submission (filed 164 days after the proceedings began,

on the very last day that formal testimony from the Utility industry was required to be submitted,

and 10 business days before the hearing to receive questions regarding the Utility groups pre-

filed testimony) was the first indication (to any of the non-Ameren participants) that pollutants

other than mercury might be considered in this proceeding. No formal public notice for the

concept of regulating SO

2

and NO

x

was ever provided. Even at that late date, the impact of the

MPS filing was unclear. The filing was not an amendment to the Agency’s proposal, but merely

a “joint statement” and the participants had no idea how the Board would consider the joint

statement.

During the brief 10-business day window between filing of the joint statement and the

commencement of the Utility portion of the hearings, Kincaid did not had an adequate

opportunity to respond in any meaningful manner to the MPS. These are not minor concerns.

-28-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Controls on SO

2

and NO

x

are highly technical and can cost tens or hundreds of millions of

dollars. Those costs are in addition to the millions of dollars of costs for mercury controls which

are described above. It is arbitrary and capricious for the Board to believe Kincaid could

intelligently respond to such a significant departure from the original proposal in only 10

business days. Furthermore, any such testimony would have been beyond the scope of Kincaid’s

pre-filed testimony (testimony that was required to be submitted prior to any articulation of the

MPS concept). By submitting such a dramatic change so late in the process and just before

hearings, the Agency and the MPS proponents have sandbagged Kincaid and similar facilities.

If Kincaid had been allowed a reasonable opportunity to consider the MPS proposal, it

would have been able to do the following things:

•

Evaluate the technical feasibility of additional SO

2

and NO

x

controls at Kincaid

•

Evaluate the economic reasonableness of additional SO

2

and NO

x

controls

•

Determine what changes to the MPS proposal would be necessary to make

additional SO

2

and NO

x

controls at Kincaid technically feasible and

economically reasonable

•

Determine whether the existing MPS proposal provides an unfair economic

advantage to some Illinois facilities compared to Kincaid

•

Identify experts to review the MPS proposal and present testimony to the Board

documenting Kincaid’s evaluation of the benefits and disadvantages of the MPS

•

Identify experts to review the MPS proposal and develop questions of the MPS

proponents for hearings before the Board on the proposed regulatory language

•

Identify alternatives to the MPS for Kincaid that would provide different, but

equivalent environmental benefits without NO

x

and SO

2

controls

•

Present Kincaid’s position to the Board in a rational and complete manner with

supporting testimony and documentation

Because these issues require significant technical and economic analysis, Kincaid could

not accomplish the tasks in the brief period of time between the submission of the MPS proposal

and the conclusion of the hearings. Therefore, not only would Board adoption of the MPS

violate fundamental and long established tenets of administrative law, Kincaid would be directly

harmed by any such adoption.

-29-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

X.

Section 10 of the Illinois Environmental Protection Act prohibits the

Board from adopting the MPS.

Section 10 the Illinois Environmental Protection Act (the “Act”) prohibits the Board from

adopting SO

2

regulations and emission standards for existing fuel combustion stationary

emission sources located outside the Chicago, St. Louis and Peoria Metropolitan areas unless

those regulations are necessary to attain and maintain the Primary National Ambient Air Quality

Standards (“NAAQS’) for sulfur dioxide. 415 ILCS 5110. There is no evidence in the record that

the SO

2

portion of the MPS is necessary for attaining and maintaining the SO

2

NAAQS. The

MPS purports to be available to all EGUs in the state and many of the Ameren and Dynegy

plants are outside the three metropolitan areas.

The fact that the MPS is just one method of achieving compliance with the overall

mercury proposal does not relieve the Board from the proscription of Section 10. Otherwise, the

Board could avoid all statutory prohibitions on regulatory action simply by making the offending

control “one option” in an otherwise broad range of controls. Second, there is no evidence in the

record that the SO

2

limits contained in the MPS are necessary to attain and maintain the Primary

National Ambient Air Quality Standards (“NAAQS”) for sulfur dioxide as required by Section

10. Consequently, Section 10 prohibits the Board from adopting the SO

2

provisions of the MPS.

XI.

Section 27 of the Illinois Environmental Protection Act prohibits the

Board from adopting the MPS.

Section 27 requires the Board to take into account the “technical feasibility and economic

reasonableness” of reducing the particular type of pollution for which controls are sought. There

is no factual basis in the record that the MPS is technically feasible or economically reasonable

for Ameren and Dynegy, except for their acquiescence to the language. There is absolutely no

basis in the record that such controls would be technically feasible and economically reasonable

-30-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

for any facility other than Dynegy and Ameren. Kincaid presented testimony that the MPS

would not be technically feasible or economically reasonable at Kincaid, and expands on that

testimony in earlier portions of this comment. As discussed earlier, the Board cannot avoid the

Section 27 requirements for rule making simply by stating that the MPS requirement is only one

option in an otherwise broad array of options. Otherwise the statutory rule making requirements

could be avoided at an Agency’s whim.

XII.

Federal Constitutional considerations preclude adoption of the MPS.

The MPS also raises issues under federal law. The Supremacy Clause of the Constitution

“invalidates state laws that ‘interfere with, or are contrary to,’ federal law.”

Clean Air Markets

Group v. Pataki

, 194 F. Supp. 2d 147, 157 (N.D.N.Y. 2002), affirmed 338 F.3d 82 (2d Cir.

2003). As such, federal law preempts state law to the extent state law actually conflicts with the

federal law. Id. In

Clean Air Markets

, New York passed a law that placed a trading restriction on

SO

2

allowances. Id. at 154. The court found that “New York’s restrictions on transferring

allowances to units in the Upwind States is contrary to the federal provision that allowances be

tradable to any other person.” Id at 158. As a result, the court held that New York’s law was

preempted by the Clean Air Act (“CAA) because it interfered with the CAA’s “method for

achieving the goal of air pollution control: a cap and nationwide SO

2

allowance trading system.”

Id.

Like New York’s law in

Clean Air Markets

, the MPS mandates that a party opting into

the MPS must surrender SO

2

allowances. As a result, the MPS effectively prohibits trading of

SO

2

allowances and, as IEPA has indicated, it intends to retire the surrendered allowances and

thus reduces the size of the market as expressly determined by Congress in Title IV of the CAA.

Under the Supremacy Clause and Clean Air Markets, state laws cannot impede on the CAA’s

-31-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

cap and nationwide SO

2

allowance trading system. As such, the CAA may preempt the MPS,

thus potentially invalidating, under federal law, its limitations on trading of SO

2

allowances.

The proposed amendment also may potentially violate the Commerce Clause of the

Constitution. In

Clean Air Markets

, New York attempted to halt altogether “transfers of SO

2

allowances from New York units to units in Upwind States[,] . . . in spite of a federal system

designed for free nationwide transferability of SO

2

allowances.” Id at 162. Thus, New York’s

law imposed a burden on interstate commerce. Id And since New York failed to justify its law in

terms of “local benefits flowing from the statute and the unavailability of nondiscriminatory

alternatives adequate to preserve the local interests at stake”, the court invalidated New York’s

law under the Commerce Clause. Id

Like

Clean Air Markets

, the MPS may prohibit sources in Illinois from transferring SO

2

allowances in spite of the free-market federal system. Further, as noted above, by taking

allowances off the market the MPS would change the scope of that market, a scope that has been

specifically defined by Congress. Even if there are local benefits from the MPS, there may be

less discriminatory (as to interstate commerce) alternatives.

Under the Clean Air Mercury Rule (“CAMR”), each state must demonstrate that it will

meet the mercury cap. How Illinois will demonstrate compliance with CAMR if the Board

adopts the MPS is unclear. Evidence in the record shows that if Ameren alone opts-in to the

proposed amendment, a 500 pound increase in mercury emissions will occur. See Testimony of

Anne Smith, Ph.D., Figure 3. If other sources opt-in, that raises the question of whether Illinois

will be able to demonstrate compliance with the mercury cap.

-32-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Finally, adoption of the MPS in this regulatory docket would not satisfy the federal

requirements for public participation in adoption of state regulations submitted for USEPA

approval. There has been no public notification that this docket will regulate NO

x

and SO

2

. Any

state regulation submitted to USEPA for approval without adequate public participation must be

rejected.

XIII. What Kincaid wants the Board to do.

At the Board hearing on August 23, 2006, Kincaid presented a bona fide offer that was

not accepted by the IEPA. We withdraw that offer and present here for the Board’s consideration

another proposal.

Kincaid urges the Board to adopt the federal Clean Air Mercury Rule (CAMR). In the

absence of that, we are prepared to revise our previous proposal before the Board. Because the

IEPA proposed mercury rule provides no compliance flexibility for Kincaid, and because we

cannot tolerate the risk of non-compliance and continue to fulfill our operational commitments

for the Kincaid generating units, we are offering a mercury reduction proposal that we feel –

though we are not certain – can be achieved at Kincaid. This proposal commits Kincaid to the

installation of mercury controls on both Kincaid units in 2009, includes no provisions for trading

with other plants and targets greater mercury reductions than required by the federal CAMR,

several years before the federal deadlines. Our proposal surrenders all of the compliance

flexibility provided under the CAMR rule and commits Kincaid to a substantial capital outlay as

well as significant annual expenses – costs that will have a profound impact on the economics

and profitability of the Kincaid plant.

Phase 1 – July 1, 2009 - for cyclone-fired boilers, that have good “native”

mercury reductions, Kincaid will install ACI systems on both units at the facility

and operate the two systems at a maximum sorbent injection rate of 3 pounds per

-33-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

million ACFM – or – achieve a plant-wide 90% mercury reduction from inlet

levels.

Phase 2 – July 1, 2013 – operate the two ACI systems at a maximum sorbent

injection rate of 5 pounds per million ACFM – or – achieve a plant-wide 90%

mercury reduction from inlet levels.

We have discussed this approach with the staff of the IEPA. The IEPA has not dismissed

this approach but were concerned that it did not include a multi-pollutant element. Kincaid

believes that this proposal, combined with Kincaid’s continuing NO

x

and SO

2

reduction

program, that has already resulted in hundreds of thousands of tons of reductions – and that will

continue to provide a dramatic decline as the CAIR NO

x

and SO

2

reductions become effective in

2009-2010, offers a very substantial emissions reduction – reductions that will be achieved at the

Kincaid plant – with no averaging or trading among other plants and no deadline extensions

designed to accommodate small units for the purpose of avoiding controls.

We have drafted the necessary regulatory language that can be easily inserted into the

existing proposed rule should the Board approve this alternative:

Section 225.233 Alternative Emissions Standards for EGUs Electing Optional Control Plan

a) General

1. At a source with EGUs that began commercial operation on or before December 31, 2008, for

an EGU that meets the eligibility criteria of subsection (b) of this Section, as an alternative to

compliance with the emission standards of Section 225.230(a) of this Subpart, the owner or

operator of an EGU may comply with the emission standards of this Subpart, by means of an

Optional Control Plan. Such plan must show that the actual emissions of mercury from the EGU

or EGUs electing such plan are less than the allowable emissions of mercury under subsection

(b) of this Section on a rolling 12-month basis.

2. An EGU that is complying with the emission control requirements of this Subpart by

operating under this Section may not be included in a compliance demonstration involving other

EGUs during the period that it is operating under this Section.

3. The owner or operator of an EGU that is complying with this Subpart by means of this

Section must comply with the applicable monitoring, recordkeeping, and reporting requirements

in Sections 225.240 through 225.290 of this Subpart.

-34-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

b) Eligibility

To be eligible to operate an EGU under this Section, the following criteria shall be met for the

EGU:

1) The EGU is equipped and operated with air pollution control equipment or systems that can

be demonstrated to achieve the mercury emission standards of this section.

2) The EGU is part of only a single existing source with EGUs (i.e., City, Water, Light &

Power, City of Springfield, ID 167120AAO; Electric Energy, Inc., ID 127855AAC; Kincaid

Generating Station, ID 021814AAB; and Southern Illinois Power Cooperative/Marion

Generating Station, ID 199856AAC).

c) The EGUs at each source covered by an Optional Control Plan must comply with the

following emission standards on a source-wide basis for the period covered by such plan:

1) by July 1, 2009, install ACI systems on all units and operate the systems at a

maximum sorbent injection rate of 3 pounds per million ACFM, achieve an

emission limit of 0.0080 lbs/GWH or achieve a plant-wide 90% mercury

reduction from inlet levels.

2) by July 1, 2013, operate all ACI systems at a maximum sorbent injection rate

of 5 pounds per million ACFM, achieve an emission limit of 0.0080 lbs/GWH or

achieve a plant-wide 90% mercury reduction from inlet levels.

XIV. Kincaid’s concerns with absolute emissions limitations.

Kincaid has repeatedly stated its profound concern that the technologies described during

this proceeding will not be able to achieve the absolute emission limitations of 0.0080 lbs/GWH

or achieve a plant-wide 90% mercury reduction from inlet levels at reasonable economic costs.

For this reason, Kincaid cannot endorse the Agency’s requested absolute emission limitation,

even in 2015. Any adoption of such an absolute emission limitation is, at best, a guess by the

Board that the technologies will work as described. The Agency’s regulatory language makes no

provision for situations where that guess is incorrect, and actual control costs are excessive.

Dominion’s corporate policy requires its facilities to operate in compliance with all regulatory

requirements. Agreeing to an emission limit that we are not convinced that we can realistically

achieve would put us at risk of non-compliance, an unacceptable outcome. This legitimate

corporate concern could be minimized if the regulatory language contained a specific reference

-35-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

to future options for relief from the Board where actual control costs will be excessive. Kincaid

suggests the following language:

Facilities that cannot achieve the 90% mercury reduction or 0.0080 lbs/GWH

from ACI input levels of 5 pounds per million ACFM by July 1, 2015 may

petition the Board for an adjusted standard or site specific regulation to address

their specific technical and economic issues.

XIV. Conclusion

For the reasons listed above Kincaid requests this Board to adopt CAMR or reject the

MPS and adopt the regulatory language suggested by Kincaid in Section XIII.

Respectfully submitted,

Kincaid Generation, L.L.C.

by:

/s/ Bill S. Forcade

One of Their Attorneys

Dated: September 20, 2006

Bill S. Forcade

Katherine M. Rahill

Jenner & Block LLP

One IBM Plaza

Chicago, IL 60611-7603

(312) 840-8618

-36-

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

ATTACHMENT TO COMMENTS

PART

1

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

ORIGINAL

Stcpbcn

H.

Watts, I1

One James Center

901 East Cary Street

Richmond, Virginia 23219-4030

Telephone/TDD (804)

775-1000

Fax

(804) 775-1061

E-Mail: shn.att@mwbb.com

Direct

Dial: (804) 775-4357

Dircct

Fax

#:

(804) 698-2202

April 1, 1998

The Hon. David

P. Boergers

Acting Secretary

Federal Energy Regulatory

Comrnissi

888 First Street, N.E.

Washington, DC 20426

FR

98-2401

Kincaid Generation L.L.C.

Docket No. EW8--000

Dear Mr. Boergers:

Kincaid Generation

L.L.C. ("KGL") hereby submits for filing in the above-captioned

docket six copies of the following agreement for

the provision of electric service to

Commonwealth Edison Company ("ComEd"):

Power Purchase Agreement dated as of March

29,

1996 between Commonwealth Edison Company

and Kincaid Generation

L.L.C. (the "Power

Purchase Agreement")

Reason for Filing

On October 4, 1996, as amended December

1 1,

1996, KGL filed with the Commission,

pursuant to Section 205 of the Federal Power Act

("FPA"), an application authorizing it to

engage in power sales at market-based rates to ComEd from the 1108

MW Kincaid Generating

Station it had contracted to purchase from ComEd. (Rate

Tariff). That rate schedule was

conditionally accepted for filing in Docket No. ER97-30-000 on January 30, 1997.

Kincaid

Generation, L.L. C., 78 FERC

1

61,082

(1

997). KGL submitted a letter accepting the conditions

set forth in the Commission's

January 30, 1997 order on February 18, 1997.

Also on October 4, 1996, KGL submitted to the Commission

an application to acquire

the Kincaid Generating Station from ComEd pursuant to Section 203 of the

FPA.

KGL's

Section 203 application was granted by an order issued pursuant to delegated authority in Docket

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

April

1,

1998

Page

2

Nos. EC97- 1-000 and EC97-2-000 on January 30,

1

997.

Kincaid Generation,

L.

L. C.,

78 FERC

7

62,060 (1997).

On February

27, 1998, KGL closed on its acquisition of the Kincaid Generating Station

from ComEd. On that date, service to ComEd commenced pursuant to terms of the Power

Purchase Agreement. Pursuant to Section 205 of the FPA, and Part 35 of the Commission's

regulations,

KGL now files the Power Purchase Agreement as a long-term service agreement

under its Rate

Tariff.

Request for Waiver of Notice Requirement

KGL requests waiver of the 60-day requirement to allow the Power Purchase Agreement

to become effective as of February

27, 1998.

See

18 C.F.R.

$5

35.3 and 35.1

1.

Such a waiver is

consistent with

the Commission's January 30, 1997 order in Docket No. ER97-30-000 granting

KGL a waiver of notice to the extent necessary to allow Kincaid to commence service upon

closing the purchase of the Kincaid Generating Station from ComEd.

See

Kincaid Generation

L.L.C.,

78 FERC at 61,301.

Waiver of Filing Requirements

Many of the Commission's standard filing requirements are inapplicable to this filing

since it involves a service agreement under a previously filed

tariff. Therefore, to the extent that

any filing requirement is not satisfied by this filing and the materials enclosed herewith, or

referenced, herein, KGL requests the waiver of such requirement

List of Materials

This filing contains the following materials:

Attachment

1

:

Notice of Filing

Exhibit

A:

Power Purchase Agreement

Copies of all filings and correspondence

in this matter should be addressed to:

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

April 1, 1998

Page 3

Stephen H. Watts

11

Malcolm G. Deacon, Jr.

Patrick T. Home

Kincaid Generation, L.L.C.

McGuire Woods Battle

&

Boothe, LLP

c/o Dominion Energy, Inc.

One James Center

901 East Byrd Street

901 East

Cary

Street

Richmond, Virginia

232

19

Richmond, Virginia 23219

(804)

775-5868

(804) 775-4357

Notice

Attached to this filing as Attachment

1

are a form of notice suitable for publication in the

Federal Register and a computer diskette containing the notice of filing in the Wordperfect

format.

Should you have

any questions or require any further information, please do not hesitate

to call me.

Very truly yours,

Stephen H. Watts,

11

Attorney for Kincaid Generation, L.L.C.

cc:

Christine M. Schwab, Esq.

Mr. Donald J. Gelinas

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

ATTACHMENT 1

UNITED STATES OF AMERlCA

FEDERAL ENERGY REGULATORY COMMISSION

Kincaid Generation L.L.C.

1

Docket No. ER98---000

Notice of Filing

Take notice that on April 1, 1998, Kincaid Generation L.L.C.("KGLU) tendered for filing

the following agreement for the provision of electric service to Commonwealth Edison

Company:

Power Purchase Agreement dated

as of March 29,

1996 between Commonwealth Edison Company

and Kincaid Generation

L.L.C.

Any person desiring to be heard or to protest such filing should file a motion to intervene

or protest

with the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington,

D.C. 20426, in accordance with Rules 21

1

and 214 of the Commission's regulations

(1

8 C.F.R.

$8

385.21 1 and 385.212). All such petitions or protests should be filed on or before

.

Protests will be considered by the Commission in determining the

appropriate action to be taken, but will not serve to make protestants parties to the proceeding.

Any person wishing to become a party must file a petition to intervene. Copies of this filing are

on file

with the Commission and are available for public inspection.

David

P. Boergers

Acting Secretary

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Exhibit

.

,I.

., ) .

A

,. . .

Ft.!!i:Fl~l.

ENEHGY.

i;t'CUCAl.i!iiY

CCEIYiSSICN

POWER PURCHASE

-

AGREEMENT

Dated

as

of Marcb

29,1996

Between

Commonwealth Edison Company

and

Kincaid Generation,

L.L.C.

giacaid Generating Station

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

. .

...............................

1

(a)

&h!mm

. .

.........................................

1

(b)

........................................

5

(c)

5

............................

6

(d)

...................................

6

....................................

6

(a)

Chaxkr

..........................................

6

(b)

sqqlg

...........................................

7

(c)

Jxqmcb

..........................................

7

((I)-

....................................

7

...................................

. .

9

(a) kkkng

..........................................

9

(b)

Wr

Tern ...........................

9

(c)

. .

..................................

10

(d)AuditP

...........................................

11

nf F

acdq

. .

....................................

11

(a) StsnnardnfQparhn

.................................

11

(b)-

.............................

11

(c)

-

. .

....................................

12

tnC)utaPes

..........................

12

(e)

outages

..........................................

12

(i)

................................

12

(ii)

.............................

13

(iii)

nr

For

cdlkhg

...................

13

(f)

1

......................

13

(g)

-

. .

..............................

14

01)

.............................

14

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

(i)

.....................................

14

(j)

....................................

14

9

.

..................................

15

(a) f&u&@mg

........................

'.

...........

15

(b)

F_ncrPv

s...................................

-15

(c)

.............................

15

(d)

lkalAp& .......................................

16

(e)-

.....................................

17

(f)

7

.................................

17

(g)

RrRl~pc~ams

..................................

17

01)

fi

......................

17

10

.

(a)

.............................................

. .

.................................

18

18

(b)

of

Prdve F.tp$ment

..........................

18

11

.

1

. .

..........................

18

(a)

TrinPcrinP

nf

c-

I

.

...........................

18

(b)

-of-

I

.

............................

19

(c)

...............................

19

(d)

v..

................................

20

(e)

DncumP.ntatinn .........................

20

13

.

Jhbil@!

............................................

22

(a)

Defaults.. ........................................

22

(b)

................................

23

(c)

I.)i.cclaimtt ........................................

23

(d)&mdes

.........................................

23

14

.

(a)

Anmlnlatrativc

0

.

........................................

.......................

23

23

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

21

.

. .

..................................

28

(a)

~nn-~~llivtr

.......................................

28

(b)

. .

...............................

28

(c)

m

n

f parries.

................................

28

(d)

Survival

..........................................

28

(e)

................................

28

Appendix A

.

Calculation of EAF and

EFOR

Appendix B

.

Compensation

Appendix

C

.

Form of Coal Supply Agreement

Appendix

D

.

SO, Allowances

Appendix E

.

Design Limits

Appendix

F

.

Gu~f8nttcd Heat Rates

El

.

Years

1

and

2

F-2

.

Years

3 through 15

Appendix G

.

NO, Compliance Cost

Appendix

H

.

Real Estate

Tax

Adjustments

Appendix

I

.

Form of Step-In Easement

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

POWER PURCHASE

AGREEMENT

THIS

POWER

PURCHASE

AGIEJMENT

(this "Agreement')

dated

as of March 29,

19%,

bawccn

COMMONWEALTH EDlSON COMPANY, an Ninois corporation ("ComEdm),

ad

KDVCAID

GENERATION,

L.L.C.,

a Virginia limited

liability

company ("Seller"; ComEd

and

Seller art

mmctimcs

ref&

to

huein

individually as a

'Party"

and collectively as "Parties");

WITNESSETH:

WHEREAS,

ComEd owns

de.c

facilities and is engaged in the generation, purchase,

transmission,

distribution and

salt

of electric energy in the

State

of Illinois; and

WHEREAS, Seller intends to purchase and

thereafter

operate CornEd's existing Kincaid

electric

generation

plant; and

WHEREAS,

CornEd

has included the

electric

generating capacity of such plant within its

available,

wristing

resources for least cost

and

other planning purposes and, therefore,

requires

assurances that the electric generating

capacity

of such plant

will

be

maintained throughout the

rum

of this

Agreement;

and

WHEREAS, CornEd

desins

to

rrctive and purchase, and

Seller

desires to deliver and sell,

eldc capacity and energy; and

WHEREAS,

CornEd

desires to

detumhe

the dispatching of such plant and to provide the

fuel

for the generation of electric energy at such plant;

NOW,

THEREFORE, in consideration of the mutual covenants

and

agreements herein set

forth, the Parties

hanto

agree as follows:

(a) Dcfinltlnnn

. .

.

As used in this Agreement, (i) the

urns

set

forth below in this

Section I(a) shall have the rwptctive meanings so set forth, (ii) the

tcrms

defined elsewhere in

this Agreement shall have the meanings therein so specified, and

(iii)

the terms "Equivalent

Availability Factor" (or

"EAF"),

"Equivalent Forced Outage Rate" (or

"EFOR

"),

"Forced

Mg,"

"Forced

Outage," "Maintenance Outage,

"

"Net Dependable Capaciry

"

and "Planned

Outage," and the associated terms referred and

used

in the calculation of such

terms,

shall have

the respeclive

meanings

assigned

to such

terms

from

time to time by

the

North

American

Electric

Rdhbility Council

(IEEE

Standard 762)

(the

current version of such definitions being set forth

in Appendix

A

for convenima of referact), except with

re~pect

to this clause (iii), (1) EFOR

and EAF

shall

be

calculated

on a

Bast

Facility-wide basis

rather

than

per

unit, (2) as modified by

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Section 12(c)and (3) as modified by Sections

3.7(b),

5.7 and 5.8 of the Facilities Agreement.

Other

capiW terms relating to compensation are defined in Appendix B.

'AfkmdPaq'

has the meaning

specified

in Section 12(a).

*-'

means the Asset Sale Agreement dated as of March 29,

1996,

bctwccn CornEd

and

Seller,

goveming the

transfer

of

thc

Basc

Faciiity from ComEd

to

Seller.

w

-''

means electric generating equipment and related structures and

support equipment

conveyed

to

Seller

under the Asset Sale Agreement, located at the Site

and having an electric energy generating capacity of 1,108 megawatts of Electric Energy

under normal

operating

conditions.

The

ttrm

"Base

Facilityn shall not include

impmvements

to

the

Facility

afta

the Effective Date to the extent that such improvements

mult in an

uprating

above 1,108

megawatts.

'-'

means

the

Coal

Supply Agrcement between Seller and

CornEd in substantially the form attached hereto

as

Appendix C.

"-"

has

the

meaning specified in Section S(d)(iii).

m-a

means

the electric transmission system owned by ComEd and its

affiliates.

9-w

means any of

(i)

the First Contract Year,

(ii)

the Second Contract

Year, and

(iii)

a twelve-calendar month period commencing on an anniversary of the

commencement of the Stcond Contract Year and ending on the fast day of the calendar

month immediately

proceeding the next such anniversary during the term of this

Agreement.

l

DmpLmmn

.

means the items listed in Appendix E.

'Dkpuhn means CornEd's right to control the generating level of the

Basc

Facility within

and subject

to

the

Design Limits

and consistent with prudent utility practice

and consistent with the

Dispatch

criteria

employed by ComEd for units owned by

ComEd.

8

Effer.tivcw

means

the date on which the closing of the

sale

of the

Basc

Facility by ComEd to Seller occurs under the

Asset

Sale Agreement.

m

nc F~"

shall have the meaning specified in Section

5(a)

of this

Agreement.

"Emq#Bqan

means

the charges so identified in Item

XI

of Appendix B.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

, ...

means

the

Facilities Agreement

dated

as

of the

Effective

Date

between CornEd and Selcr.

"EacWy'

mans electric generating equipment and related structures and support

equipment located at the Site and capable of producing

Electric

Energy. The

term

"Facility" shall include the

Base

Facility.

w.

Flwt"

means the period commencing on the Effective Date and

cnding

on

the

last

day

of the twelfth

calendar

month following the Effective Date.

*-"

shall

be

bc

heat

rates shown in Appendices

F-1

and F-2.

"k&$s)"

means (i) any

ptrson or

entity

that,

from

time to time, has made

loans

to

Seller,

its

permitted

successors or pcrmittrd assigns for the financing or refinancing of

the

Facility or

which

an

secured

by

the

Facility, (ii) the holders of indebtedness

cvidmcbg

any

such

loans, or

(iii)

any person or entity acting on behalf of such lender(s)

to

whom

any ldcrs' rights under

hcing

documents have been transferred, any trustee

on behalf of

any such lenders, and any person or

entity

subrogated to the rights of the

lenders.

I

Nn_"

or

"blCCm

has the

meaning

specified in

Appendix

G.

*Nnnmlmml..rm

means

a calendar month in a Nonsummer Period.

w

means the portion of a

Contract Year

that is not the Summer

Period.

"&ISM"

means

a corporation, company, pmership, association, trust, natural

person, government or other

political

subdivision or other legal entity.

f

~"

means (i) with respect to

Electric

Energy delivered and

rtccivcd

from

the Facility, the point of interconnection between

the

Facility and

the

ComEd System

specified

in

the

Facilities Agreement,

and (ii)

with nspect to Substitute

Enngy

made

available by Seller such point or points of interconnection

with

the CornEd

System,

if any,

as

may be

established in accordance with Section S(d)(ii) in connection

with

a particular

proposed

dclivtry

of Substitute

Energy.

a

RnlltllPsCIR"

.

means,

with

respect

to a calendar month,

the

Equivalent Ford

Outage

Ratr:

of the

Basc

Facility for the twelve-month period ending prior to the beginning

of such month. For

purposes of this Agreement, the Equivalent Forced Outage

Rate

of

the Base Facility for

each

calendar month during the First Contract Year and the Smnd

Contract

Ytar

shall be dam4 to

be zero.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

'-w

means

a

twelve-calendar

month paid

commencing on the

first

day

of the first month following

the

First Contract Year and ending on the last day

of

such

period.

"Sitew

means the

Owned Real

Property

(as

defined in the Asset Sale Agreement)

located

in Kincaid, IUinois.

w

-m

means, with

respect

to

a Contract Year, the amount so identified

below:

'-"

mans

a

date

on which

CornEd

steps-in and assumes operational

control of

the Facility

under Section 11.

Tn

Pdm

mas a

period,

beginning on a Stcpln Date and ending on a

Step-Out

Date,

during which ComEd steps-in and assumes operational control of the

Facility under Section 11.

"-"

means

a

date

on which ComEd relinquishes operational control

of the

Facility

under Section 1

1

(d).

w

p"

means the

Base

Facility plus electric energy output above the

Base

Facility from

integrated

equipment, but does not include any additional generating

units installed

by

Seller

after

the Effective Date.

m

-"

means

Electric Energy delivered from a source other than the

Fadlity.

The

characta

of such Electric Energy shall be non-rtcallable (not intcnuptiblc)

unless

the

Base

Facility is operating at or

above

its minimum operating level as specified

in

the

Design Limits, in which

case

such Electric Energy may be interruptible.

m

-"

means a

notice

in substantially the form

attached

to the

Facilities

Agreement and containing the anticipated point(s) of receipt into the ComEd

System

of

tht

Substitute Energy

and

the time and

date

on

which

the

deliveries

an:

proposed

to

begin

and end and otherwise containing the information required to be so included

by

the

North

American Electric ReliabiIity Council. Any such delivery shall be assumed to

be made at a constant rate unless otherwise specified in such notice.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

'Snmmtr" means a calendar month in a Summw

Period.

w

-"

means the period

from

June

1

until September 30 (inclusive).

a

-"

. .

means the earlier of (i) the last

day

of the caiendar month

immarliatcly preceding the fourteenth anniversary of

the

commencement of the Second

Conm

Year

and (ii) the

date

on which this Agreement may

be

terminated by a Party

pursuant

to its

tcrms.

(b)

lnmp%hn.

In this Agretment, unless a clear

contrary

intention appears:

(i) the singular

number

includes the plural number and vice versa;

(ii)

refma to any Person includes such Person's successors and assigns

but, if applicable, only if such

successors and assigns

are

permitted by this

Apemat,

and

nfancc

to

a

Ptrson

in a particular capacity excludes such Person

in

any

other

capacity

or individually;

(iii)

nfcrtnct to any gender includes each other gender;

(iv)

reference to any agreement (including this Agreement), document

or instrument

means such agreement, document or instrument as amended or

modified

and in effect

from

time to time in accordance with the terms thereof and,

if applicable,

the terms hereof;

(v)

reference to any Section, Appendix or Exhibit

mcans

such

Section

of this Agreement or

such

Appendix or Exhibit to this Agreement, as the

case

may

be,

and

rcfacnces in any Section or definition to any clause

means

such clause of

such Section or definition;

(vi)

"hertundcr", 'hereof'", "heretow and words of similar

import

shall

be

deemed references to this Agreement as a whole and not to any particular

Section

or othu provision hereof or thenof;

(vii)

"including" (and

with

condative meaning "include") means including

without

limiting the generality of any description preceding such term;

(viii)

dative to the determination of any period of time, "fromw

means

"from and includingw,

"to"

mcans

"to

but excluding' and "through" means

"through and includingw; and

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

(ix)

reference

to any

law

(including

statutes

and

ordinances)

means such

law

as

amardcd,

modified, codified

or reenacted, in whole or in part, and in effect

from

time to time, including rules and regulations promuigated thereunder.

(c)

of

nf.

This

Agreement

was

negotiated by the Parties with

UIC

bcnefit of

ltgal

rcprcsmtation and any rule of construction or intcprcration otherwise

requiring this Agreement to be cunsaucd or interpreted against any

Party

shall not apply to any

construction or intqxetation

hmof.

(d)

-.

Section titles and headings in this Agreement are inserted

for

convenience of

refereria

only and

arc

not intended to be a

part

of or to

affect

the meaning

or

inttrpntation of this Agreemmt.

This Agreement shall have a term commencing on the Effective Datc and ending on the

Tcsmination

Datc.

The

Parties

acknowldge that this Agreement and the Asset Sale Agreement are subject to

thc

approd

of

faiual

or

state

regulatory

authorities, and that, except

as

provided in this Section

3, all obligations

and

undertakings

set forth herein

arc

wntingen

t upon

receipt

of such regulatory

w. Tht Parries will

cooperate

with each othtr and @om all

acts

as may reasonably be

requid

to

obtain

such

ttgulatwy

appmvah

in

aocordancc

with the Asset Sale Agreement. In the

event

that

the

Asset

Sale

Agrctmt is

ttnninated

pursuant to Article 12 thcnof, then either Party

may

terminate

this Agntment by providing notice of such termination to the other Party. Such

notice of tcnnination

shall be

effective immediately, and neither Party shall thereafter have

any

further liability or obligation under this Agreement to the

other

Party.

Subject to

the

terms

and conditions of this Agreement, during the term of this Agreement,

Sellcr shall

use

nasonable

efforts to

cause

the

Base

Facility's Net Dependable Capacity to be not

less

than 1,108

megawatts.

(a)

Chackr. All

detric

energy

which

Seller

shall sell and

dcliver

to CornEd hereunder,

whether generated

at the Facility or procured by Seller

from

other sources (such electric energy

being

refad

to

hertin

as

the

"Elecmc

Energy"), shall be in the form of

thm-phase

alternating

current having a nominal frequency of approx.imately sixty cycles per second, a harmonic content

consistent with the requirements of the Institute of Electrical and Electronic Einginters Standard

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

No. 519, and a voltage content consistent

with

the guidelines applied

by

CornEd to the CornEd

System.

(b)

Supply.

Subject to the

tgms

and conditions of this Agreement, during the term of this

Agrccmmt,

Sdkr shaU

make

available at the Point of Dclivery to

ComEd

for delivery and

sate,

and ComEd

may

dvt and purchase

from

Sella, Elccmc

Energy.

CornEd shall not be

obliplal

to receive or purchase any Electric Energy from Seller except such Electric

Energy

as

is Dispatched by ComEd pursuant to Stction 5(c).

Except as provided in Section 5(d), such

Electric Enagy

need not

be generated at

the

Facility.

(c)

Rhptch.

During

the

term of this Agreement, ComEd shall have the sole right to

DisppltCh

tk

dtljvay

of Electric Energy

from

the

Basc

Facility at a rate up to the

Base

Facility's

NU

I)epardabk

Capecity

(or such

greater

or lesser rate as Seller may from time to time declare

to

bc available

in

accordance

with Won 7(c)) at any time when the

Base

Facility is declared by

Sella to be available in

8ccordana

with Stction 7(c).

CornEd shall

Dispatcb

the delivery of

Elrcrric

Energy

from the

Base

Facility in accordance with the standards and methods that it

uses

in

DiptAbg

its

owned

gtntrating

facilities and in a manner that does not discriminate between

such

ComEdswnai

facilities and the

Base

Facility. ComEd shall not Dispatch the units of

the

Basc

Facility (1) dwing any Planned Outage, Maintenance Outage or period of a Force Majeurc

Emt,

(2) during

any period

that SeUa has designated a Forced Outage, provided this clause

(2)

M

not

nlicvr

Seller

from

its obligation to deliver Substitute Energy in an amount

equal

to the

Dispatched

kvd

up to the

Net

Dependable Capacity of the

Basc

Facility under the circumstances

spacificd

in Section 5(d)(i)(2), or (3) above Seller's designated dcxatcd capacity level during the

pcriod

of

any

Forad

Daating,

provided

this clause (3) shall not relieve Seller

from

its obligation

to

dtliva

Substitute

Enc%y

in

an

amount

equal to the

Dispatchad

level up to the Net Dependable

Capacity

including the difference between the Net Dependable Capacity of the Basc Facility and

such derattd level under the circumstances specified in Section

5(d)(i)(2).

(i) In the event that:

(1) subject

to the requirements of Section S(d)(ii), Seller desires to

deliver, or

(2)

as result of a Forced Outage or Forced Derating at the Base

Facility during a calendar month when the Rolling

EFOR

for such month

exceeds 0.10, Seller must deliver,

Substitute

Energy

to ComEd, it

shall

deliver a Substitute Energy Notice to ComEd. In the

case

of a

Forced

Outage or Forced

Derating

at

the Facility, such Substitute Energy Notice

shall

be delivered as promptly as practicable following the occurrence of the Ford

Outage

or Forced Dcraring; and in

all

other

cases,

such Substitute Energy Notice shdJ

be

dilivencd

prior to

12:00

p.m.

(Noon)

Chicago time on the calendar day preceding

the

day

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

on

which dtlivery of such Substitute Energy is proposed to commence (unless CornEd's

dispatchers shall allow a later time in a given situation).

(ii)

Any delivery of Substitute Energy shall be subject to CornEd's reasonable

daamination that

(1)

amss

is available to the

CornEd

System at

the

proposed

point(s) of

delivery, (2) such

access

will not have a

mattrial

adverse effect on the operational

requinmcnts of the ComEd System and (3) the requirements of the CornEd System and

the

tmmkion

network

to

which it is amntctcd do not

require

that the delivery be made

from the Facility.

If such

access

is determined

by

ComEd not to be available, CorriEd

shall

so

inform Seller and

Seller

may request Coa to quote a

cost

to redispatch

the

dclivay

of

Ehxic

Energy on the ComEd System

so

as to

make

the proposed point(s) of

dtlivay

available.

ComEd shalt, if such redispatch is possible, promptly provide such a

quote

to

Seller.

If

Sella

agrees

to

pay such cost, thcn ComEd shall

make

the proposed

point(s)

of

dctiwry

aMilabk

for

tht

scheduled delivery. If access is determined not to

be

available, or CornEd is

unable

to

ndispatch

the delivery of Elecaic Energy on the CornEd

System

or

Sdtr

is unwilling to pay the cost of such dispatch, then CornEd may refuse

the

proposed delivery of Substitute Energy.

(iii)

In

the event that:

(1)

Sclla

shall

fail

to deliver Electric Energy Dispatched

from

the

Basc

Facility for

any rtason

other than

[A]

a Forced Outage or Forced

Dc~ting at the

Base

Facility during a calendar month when the Rolling

EFOR

for such month is 0.10 or

less

or

p]

a

Force

Majeure Event,

(2) Stller

shall

fail to deliver Substitute Energy at the scheduled

time

specified in a Substitute Energy Notice at the point of delivery

established pursuant to clause

(ii),

or

(3)

Seller

shall fail, or

be

unable (regardless of whether such

inability is

due

to a determination by CornEd undw clause (ii) of this

Sedan 5(d)),

to

cause

the

commencement of delivery of Substitute Energy

within

ten minutes of the

occumce

of a Forced

Outage

or Forced

Derating at the

Basc

Facility during a calendar month when the Rolling

EFOR

for such month

exceeds

0.10,

then

CornEd

shall

be entitled to arrange for the delivery of electric energy either from

ComEdamcd

gemration sources or from other generation sources (such electric energy

dclivuies

so

arranged being refemd to herein as the "ComEd Arranged Energy") during

the

period that Seller fails or is unable to deliver such Electric Energy or Substitute

Energy,

as the

case

may

be;

provided, however, that if

Sdlu

is subsequently able to

arrange for the delivery of Electric Energy from the Facility,

or

Substitute

Energy

in

accordance with the

nquiremcnts of clauses (i) and (ii) above, thcn ComEd shall accept

such delivery in lieu of any ComEd Arranged Energy commencing promptly following

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

receipt of a notice from Seller of such availability. Seller

shall

pay to ComEd for tach

megawatt

hour of CornEd Arranged Energy an amount

equal

to

(x),

if generated by

ComEd, the

markct price of elecnic power prevailing in the region, at the

time

such

CornEd

Arranged

Enagy

is generated by ComEd, for a ddivcry of similar

size,

duration

and

timing,

or, if CornEd purchases such

electric

power from others, the price paid for

such

clccbic

power (subject

to

CornEd's obligation to mitigate

damages,

it being

undastood

that

such

CornEd

Arranged hergy may

be

subject

to

a minimum takr-or-pay

period) plus

(y)

one dollar ($1.00) minus

(2)

the

costs

CornEd

would have incurred per

megawatthour

(iiuding

CornEd's

costs

for

fucl

that

would have been consumed by Seller

and

paymats

ComEd would have

made

to Seller for Electric Energy) if Seller had

dtlid

such Elccbic

Energy as Dispatched by CornEd.

CornEd agrees

that it shall use

msmabIc

commucial

efforts

to

avoid, or wh unavoidable, to

minimize

any take or pay

obligaths

for

CornEd

Ananged

Energy. If a Forced

Dmting

or Forced Outage occurs

at

a time when CornEd is

entitled

to reimbursement for ComEd Arranged Energy, then

initially

ComEd

shall

not

arrange

for

d&c

power beyond Midnight of

the

day following

thc

day

on

which

the Forced

Outage

or

Forced

Denting occur&, and as soon as possible

within the twenty-four hour

ptriod

following the start of the Forced Outage or Forced

Daating,

Seller

shalt provide a good faith

&mate

of the duration of the Forced Outage

or Forced

Dtrating.

ThutafW, ComEd may commit to purchase ComEd Arranged

Energy for

the estimated

duration of the Forced

Dexating

or Forced Outage or, if shorter,

the puiod

ending

at the time when Seller has notified CornEd that Seller will commence

the

delivuy of Substitute Energy. If CornEd commits to purchase ComEd Arranged

Energy

beyond

the

estimated

duration of the Forced Outage or Forced Derating and if the

Forced

Outage

or Forced hating ends within such estimated duration, Seller shall not

be

liabk

for

any

costs

of

CornEd

Arranged Energy beyond the estimated duration of such

Forad

kming

or

Ford

Outage. If

the

Forced

Outage or Ford Denting does not end

within

the

estimated

duntion furnished by Seller, or if a dtlivq of Substitute Energy

dots not

begin

at the scheduled time,

thcn

Coma may arrange for ComEd Arranged

Encrgy

in

amdance

with the pr#xding

three

sentences

as if the Forced Outage or Forced

Dcrating

had just occurred.

(a)

Mckrhg.

All

Elecaic Energy

delivered by Seller to ComEd from the Facility shall

be

metered

at

CornEd's

billing meter installations provided, installed and maintained pursuant

to

the

Facistits

Agreement. Such meters shall be kept under

seal,

and such seals shall be broken

ordy

when

the

mc!crs

an

to

be

tested or

adjusted.

ComEd shall provide Seller with information

from

the billing

meter

installations for Seller's use in prepring billing statements.

(b) @.

ComEd shall

test

meters at least once during

any

Contract

Year.

In &tion,

Sella

shall have the right to request a test of, and ComEd shall test,

such metas

once

during a Contract

Year

at a time reasonably

selected

by Seller. Seller sM be

afforded

a

mumable

opportunity to have its representative attend and witness such tests. If any

test

of the billing mctas by CornEd discloses an inaccuracy of more than 0.5

96

fast or 0.5 96 slow,

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

a billing adjustment shall be made to

comct

for the inaccuracy. For purpose of the billing

adjustment,

if

the

inaccuracy is tractable to a specific event or occurrence at a reasonably

asudnable time, then the adjustment shall extend back to that time; otherwise, it shall

be

assumed that the mr has existed for a period

equal

to onehalf of the time

elapsed since the

mder was

instPllad

or

onc-half of the time

since

the

last

meter

test,

whichever is

lam.

At Seller's

aption

and

expcnsc,

back-up

meters

may

be

installed

at

the

Facility.

If

available,

such back-up

mUcrs shall

be

used, in accordance with practices and procedures established by the

Parties,

for

billing

adjustments

of discovend billing

mtter

inaccuracies in lieu of the above procedures. At

any

mUcring

location,

should the

billing and back-up meters any time both fail

to

register, the

delivered Electric

Energy

shall

be dctmnhed

by CornEd from the best available

data,

unless

SellP

objects

within

30 days. Such disagreements shall

be

resolved pursuant to Section 14, save

that

Seller

shall

have the burden of disputing ComEd's determination.

(c)

v

. .

.

As soon as practicable after the end of each calendar month

during

the

term of this Agreement:

(i) Seller

shall

rtndcr a statement

(the

'Sellu Monthly Statement") to

ComEd with

nspcct

to

such month for (1) the Monthly Capacity Charge due in

nsped

of

such

month,

(2)

the

Energy

Charges owed

for delivend Elccaic Energy,

(3)

with

rtspact

to

adjustments

for a NO, compliance project, the NO, Compliance

Cost

and additional

futl

custs

due, if any, (4)

the

charges specified in Part B, Item

III

of Appendix B in respect of start-ups of the units of the Base Facility cot,

Warm

and Cold Starts), (5) costs incurred under Part B, Items IV and V of

Appardix

B for

demicity

and

natural

gas,

(6) any

coal

quality adjustment payment

undcr

Part B,

Item

W

of

Appcndix

B and

(7)

any other

costs

due.

On

a quarterly

basis, such Seller Monthly Statement also shall contain an invoice for the reward

due,

or a mdit for the penalty payable, as the

case

may

be,

pursuant to Section

9(d)(ii). Such Seller Monthly Statement shaIl also contain reasonable detail

showing the

manner

in which the Monthly Capacity Charge and the charges for

delivered Electric Energy were determined; and

Ci)

ComEd shall

mder

a statement (the

"

ComEd Monthly Statement

")

to

Seller

with

respect

to such month for any charges due in rtspect of ComEd

Ananged Energy, as provided in the last sentence of Section S(d)(iii).

Billings for Electric Energy

shall

be

based on meter information for deliveries made from the

Facility.

Billings for Substitute Energy shall

be

based on the amount of Substitute Energy

scheduled for

delivery. Billings for ComEd Anangad Energy shalt

be

based on the amount of

CornEd

Arranged Energy scheduid for delivery. The amount due Seller as shown on any such

Seller

Monthly

Statunent

shall

be

paid by ComEd by electronic means to an account

specified

by

Seller within

twenty

business days after

the

date

such Seller Monthly Statement is rendered to

CornEd.

Tht amount due ComEd as shown on any such ComEd Monthly Statement shall

be

paid

by

Seller

by electronic means

to

an account specified by

CornEd

within twenty business days

after

the date such

CornEd

Monthly Statement is rendered to Seller. Any amounts not paid when due

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

shall

bear

intatst until paid at the prime

rate

cstabiishd by the First National

Bank

of Chicago

at the close of business on the date the amount

becomes

past due, plus one percent.

(d) Audits. Throughout the

tam

of this Agreement, ComEd and Seller shall

keep proper

books

of

record

and account in which

proper

entries will be made to substantiate any charges

to

each

otha

rtlated

to this Agreement in

accordance

with

generally

accepted

accounting principles

crnsisttntly

applied.

From

time

to

time

during the

term

of this Agramcnt, mch

Party

shall have

the

right to

conduct

a

hew

of

the

other Party's

books

and

records

on a confidential basis to the

extent

they

relate

to this Agncment, but solely to the extent such review is necessary'

to

substantiate charges pursuant to this Agntmmt.

(a)

Standard

nf

Qpatim.

Seller shall

cause

the

Bast

Facility to be maintained in

accordance with the requirements of Section 4. In addition, Seller shall operate the Facility in

accordance with (i) the practices, methods,

acts,

guidelines or

criteria

of the Mid-America

Lntcrwnntcted

Network and the North American EJtctric Reliability Council;

(ii) ail

applicable

laws, ordinances,

rules

and regulations; and

(iii)

the requirements of the Facilities Agreement.

Seller

wiU

obtain

all certifications, permits,

licenses

and approvals necesq to operate and

candmWm

maintain

. .

the

and

Facility

synchronization

dwing the

of

term

the Facility's

of this Agreement.

equipment with

Seller

the

will

CornEd

be responsible

System, and

for

shall

the

be

solely responsible for any damage that may

occur

as a dim result of Seller's improper

coordination or synchronization of such equipment with

the ComEd System.

(i) During the

term of this Agreement, ComEd shall have

the

sole and exclusive

right

to

receive and purchase Electric Energy generated by the

Base

Facility; and the

capacity

rcprtsentcd

by the Base Facility shall not be committed to, and Electric Energy

generated by the

Base

Facility shall not be delivered or sold

to,

any individual or entity

other

than CornEd (unless otherwise approved in writing by ComEd).

(ii)

In the event that

(I)

the Facility shall have

electric

generation capacity in

excess of the

Base

Facility and (2) Seller shall propose to offer such capacity and

associawl

electric energy on a firm, committed basis of seven days or more, Seller shall

offer such capacity and

associated electric energy to ComEd prior to offering it to any

other individual or entity. In the

case

of any offer involving a

firm,

committed

period

of

less than 90

days,

CornEd shall have five business days

from

its receipt of such offer to

determine

whether it

wishes

to accept such offer. In the

case

of any such offer involving

a firm, committed period of between 90 days and one year, CornEd shall have ten days

from its mipt of such offer to determine whether it wishes to accept such offer. In the

case

of any offer involving a

firm,

committed period of one year or more, ComEd shall

have twenty

business days from its receipt of such offer to determine whether it wishes to

accept

such

offer. If ComEd

shall refuse

such offer in whole or in part, Seller may market

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

and dl

such

capcity andlor electric energy to any other individual or emtity on

terms

no

more favorable than

the

terms

offered to ComEd. Notwithstanding the foregoing, if

CornEd

shall

have refused any such offu and

shall

subsequently determine to accept the

portion

so

rcfiued, it may do so provided

(a)

Seller has not entered into a binding

commitment with another individual or person with ft~ptct thereto, (y) at least 180

days

have

rlapsad

since

CornEd's

original

refusal,

and

(2)

the

offer has not

expi.

by its terms.

(c)

-

. .

.

The Facilities Agreement provides for the installation and

maintenance

of a telacommunications

link between

Seller and

CornEd,

which shall be used

'by

Seller and

CornEd

to exchange any

necessary

operating information with respect to the Facility

and

to impkrncnt

the

Dispatching of Seller's deliveries of Electric

Energy

to ComEd. Such link

shall

be

compatible

with

the

linlts

to ComEd's other generating facilities. The Facilities

Agrccmmt also

specifies the manner in which Seller shall declare the availability of the Facility

and

its Minimum

Operating

Lcvd and

Ramp Rate.

(d)

V

tn

Quagcs.

Seller shall provide to

ComEd

dl information

relating

to

outages

of generating

capacity at the Facility which would affect Seller's ability to

deliver

Electric

Energy

from the Facility.

(i)

v.

On or prior to the Effective Date, Seller shall submit to

CornEd a proposed schedule of Planned Outages scheduled by Seller for the following

the

Contract

Ymn

at the Facility, which schedule shall be supplemented by Seller every

six

months following

the

Effective

Date

to extend the period covered by such schedule by

six

months. Such schedule, and each supplement thereto, shall indicate the planned

start

and completion dates for each Planned Outage shown during the period covered thereby

and

thc

amount of

gdg

capacity that

will

be

affected.

Within thirty days of receipt

of such

schedule

or any supplement thmto,

CornEd

may

rtqucst reasonable modifications

the-.

Sclla

and

CornEd

shall

work

together to schedule Planned Outages to meet their

mutual

rcquimmts; how~er,

it is

undmtmd

that in

the

event of a disagreement on such

scheduling,

(1) CornEd will have

the

right, exercisable at least

six

months prior

to

the

scheduled

start

of a

Planned

Outage, to delay such Planned Outage proposed by Seller, as

ComEd

reasonably

determines to be appropriate by not morc than two months, and (2)

ComEd

may

not

accelerate

the scheduled start or reduce the duration

of

any

Planned

Outage

pmposed

by

Sclla

without

the

cxmstnt

of Seller. If within

six

months prior to

the

scheduled start of a Planned Outage, CornEd desires to change the scheduled start or

duration of

such

Planned

Outage,

CornEd

shall

notify Seller of ComEd's

requested

change

and Seller shall, in its sole discretion,

propose

compensation from ComEd to Sellw for

such

change.

CornEd

shall

then

have

the right to either direct such change and

pay

Seller

such

compensation, or withdraw the request for such change. In making or requesting

mudificatim

to

any

such

schedule

or supplement,

ComEd shall

apply the

same

procedures

as it applies to its

owned

generating facilities and in a manner that does not discriminate

between such owned

facilities and the Base Facility.

At

least one

week

prior to

any

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Planned Outage, Seller shall orally notify ComEd of the expected start date of such

Planned Outage, the amount of generating capacity at the Facility which will not be

available

to

CornEd

during

such

Planned

Outage,

and the

cxpcctd

completion date of such

Planned

Outage. Seller shall orally notify CornEd of any subsequent changes in such

gentrating capacity not available or any subsequent changes in the Planned Outage

completion

date.

As soon as practicable, all such oral notifications shall be confirmed in

writing. Notwithstanding the foregoing, ComEd

shall

not request any changes to

the

schedule of Planned

Outages

during the First Cmbact

Year

and the Stcond Conbact

Year.

(ii)

v.

TO the extent that during

any

Contract

Year

Seller

needs

b

schedule a

Maintenance

Outage, Seller

shall

notify ComEd of such proposed

outage and the

Partits

shall plan such outage of generating capacity

to

mutually

accommodate

the reasonable requirements of Seller and service obligations of CornEd.

Notice of a

proposed

Maintenance

Outage shall include the

expected

start date of the

outage,

the

amount of unavailable generating capacity and the expected completion

date

of

the

outage, and shall be given to CornEd at the time the

need

for the outage is

determined by

SeIler.

CornEd

shall

promptly respond to such notice and may quest

msonabk

modifications

in the

schedule

for

the

outage. In requesting modifications to any

such

Maintenance

Outage,

ComEd shall apply the same procedures as it applies to its

owned

gemming

facilities

and in a

manner

that dots not discriminate between such owned

f;rcilities and the

Bast

Facility.

Seller shall use all

reasonable

efforts to comply with such

a rquest

to

reschedule a Maintenance Outage

provided

that it may do so in accordance

with prudent dectric utility practice as such practice relates solely to Seller's operation of

the Facility.

Seller

shall notify ComEd of any subsequent changes in such generating

capacity

not available to ComEd or any subsequent changes in such Maintenance Outage

completion

date. As

soon as practicable,

any

such notifications given orally

shall

be

confinned in writing.

(iiiii)

Wcr

W

promptly provide to ComEd

an

oral

report

of

any

Forccd

Outage or Ford Denting at the Base Facility, which

report

shall

include

the amount of

gdg

capacity at the

Base

Facility unavailable because of

such Forced Outage or Forced Derating and the

expected

return

date

of such generating

capacity,

and shall update such report as

necessary

to advise ComEd of changed

circumstances.

(f)

e,

Seller shall undertake all necessary steps to

maintain the Equivalent Forced

Outage

Rate

of the Base

Facility

below the Specified

EFOR.

In

the event that the Equivalent Forced Outage Rate for the Base Facility for any two consecutive

Contract

Years

(neither of which may

be

the First or Smnd Contract

Years)

shall

exceed

the

Specified

EFOR

for such Contract

Years,

then

CornEd may appoint, and Seller shall retain and

pay, a muWy acceptable consulting engineer who shall examine and inspect the

Basc

Facility

(including

all equipment, structures, operating procedures and maintenance practices

necessary

for

the

generation

and deliwry of Electric Energy). The consulting engineer shall be required to

promptly issue a written

report

regarding such examination and inspection (the "Inspection

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

Report")

to

Sells

and

CornEd.

As

soon as practicable, and in no event later than sixty days aftcr

receipt of the Inspection Report, Seller shall undertake substantial efforts toward the

e

implcnmtation

of

the

mmmmdations contained in the Inspection Report regarding equipment,

structum,

operating

procedures and

maintenance

practices nectssary for the generation and

ddivq of

Electric Eaugy

to the extent consistent with prudent electric utility practice and

standards

for

similar

facilities.

(g)

-.

Seller shall provide ComEd with information as to all of

the

Facility's operating characteristics which may affect the delivery of Electric Energy to

the

CornEd

Systcm,

and

as

to

any

material

changw in such information. Seller shall reduce, curtail

or

inttmrpt

electrical

generation at the Facility or

take

other appropriate action which in the

reasonable judgment of ComEd may

be necessary to operate, maintain and protect the ComEd

System,

however,

such reduction, curtailment or interruption shall not be a Ford Outage or

Forced Derating.

Q fnnrl.

.

ComEd may, in its discretion, install and maintain

equipment

to

regulate load frequency at the Facility. The costs of installing the necessary

equipment

shall

be

borne

by CornEd; and CornEd shall have the right to remove any such

equipment at

its

expense

following any tamination of

this

Agreement. Seller shall provide any

na#srary

personnel to implement load

fi.bqmcy regulation

at the

Faciljty

and shall provide access

to the

Facility

for the purposes of this Section

701).

(i) R1.cn+ltlnf

Seller

shall keep and maintain

all

records as

may

be necessary or

uscful in

performing

or verifying any calculations made pursuant to this Agreement, or in

vuifying

Stllcr's

performance herder.

All

such records shall be retained by

Sder

for at least

three

calcndar

ytars

following the

calendar

year in which such records wen

created.

Seller shall

make such

records available to CornEd for inspection and copying at ComEd's expense, upon

masunable

notice

during

Sella's

ngufar

business hours. ComEd shall have the right, upon thirty

days

written

notice prior to the end of an applicable three calendar year period to request copies

of such

fecords.

Seller

shall provide such copies, at ComEd's expense, within

thirty

days of

receipt

of

such

&a.

Unavailability of any record requid to be kept and maintained pursuant

to

this Agnernent shall

create

a rebuttable presumption that the data or information in such record

would be

adverse

to Seller.

0)

-.

On the Effective Date, Seller shall post an operational security

guaranty (the "Security Guaranty") with ComEd in an aggregate amount

equal

to Twenty-Two

Million

Dollars

($22,000,000)

to

ensure

timcly

performance by Seller of its obligations to deliver

Electric Energy

under this Agreement. Such Security

Guaranty

requirement shall be met by

depositing

with

CornEd

(1) cash

or an unconditional and irrevocable direct pay letter of credit in

the

minimum amount of $5,000,000 plus (2) a corporate

guaranty

from Dominion Energy, Inc.

with

liquidity support for such guaranty to be provided by Dominion Resources, Inc. or other

unconditional

promise from such entity to pay an aggngate amount (excluding collection

costs)

qua1

to the

difference

between

$22,000,000

and the amount deposited pursuant to clause (1) of

this sentence; provided, however, that in the event that

the

guarantor

on any such

corporate

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

guaranty or the promisor under any such other promise to pay shall

fail

to pay any amount

properly

demanded

by CornEd pursuant to the Security Guaranty, then Seller shall immediately

deposit

cash

andor

an

irrtvocabk

direct pay letter of cdit with ComEd such that the total of

such cash

and

the face amount of such kttcrs of credit so deposited with CornEd shall equal

$22,000,000.

The entity issuing any letter of credit, guaranty or promise, and the form of any

such

lerta

of

credit, guaranty

or

promise, shall

be reasonably acceptable to ComEd. ComEd may

draw

upon the

Security

Guaranty to reimburse itself for any damages incurred

as

a result of

Stllc;r's

fPilurc to deliver Electric Energy as required under this Agreement to the extent Sellu

wauld

be liable

fm

such

damages pursuant to

the

tams

of this Agrcemmt. In the event that Seller

objects

to a

drow

made

by ComEd upon the

Security

Guarantee,

Seller shall be entitled to have

tfit

objection

rrsolvcd

in

acumianct

with

Section

14 of this Agrctmcnt. To the extent that it is

detmnkd

pursuant to

Section

14 that

CornEd

was

not entitled to such draw, ComEd shall refund

the

drawn amount

to

which it

was

not entitled to

Wtr

together

with

intextst on such amount

from

the

date of the

draw

until the

date

of the refund at an

annual

rate equal to

the prime

rate

csbblhhd

by the First National

Bank

of Chicago

as

of the close of business on the

date

of such

draw,

plus

one

percent

(1

96).

Upon the termination of this Agreement for any reason other than

a

bd

or Qefault by Seller, CornEd shall

return

the undrawn amount of any

cash,

letter of

credit,

corporate guaranty

or other promise

rectivtd

by it hereunder. Upon any mination of

this Agreement

due

to the brcach or default of Seller, ComEd may

retain

and draw in full upon

the

Scaity

Guaranty provided by

Seller

hereunder to the extent of ComEd's damages arising

fnrm

such

bnacfi

or default to the extent Seller would be liable for such damages pursuant to the

terms of this Agreement.

Prior to the Effective Date, ComEd and Seller shall enter into the Facilities Agreement.

(a)

-.

As

the

capacity

payment,

ComEd

shall

pay to Seller during the

tcrm

of this A-t

a monthly amount

equal

to the Monthly Capacity Charge. During any period

that

(i)

a

ad

test

bum

is being conducted

at

the

Base

Facility as provided in Article 7 of the Coal

Supply

Agnxmat

or

(ii)

the

Base

Facility would be available for Dispatch but for the failure of

ComEd to

deliver

coal

as required under the Coal Supply Agreement, the Facility shall be

considered available

for

purposes

of calculating EAF and

EFOR,

and during such periods ComEd

shall

be

liable for

payment

of Monthly Capacity Charges and Seller shall not be liable for the cost

of

ComEd Arranged

Energy.

@)

hmg#hqp.

As the energy charge for El&c Energy, ComEd shall pay to Seller

the

Energy

Charges

identified in Part B,

Item I1

in Appendix B.

(c)

Rattp.

The

rates

for service specified herein (i.e., delivery of

Electric

Ent%y

and capecity) shall remain in effect for the

term

of this Agreement, and shall not

be subject to

change

through application to the

Federal

Energy Regulatory Commission

("FERC")

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

pursuant

to the

provisions of

Stction

205

of the Federal Power Act, absent agreement of the

Parties.

(i) ComEd shall provide coal to Seller in accordance with the Coal Supply

Agreement for (1) the start-up of the units at the

Basc

Facility and (2) the generation of

Electric

Energy

at the

Base

Facility.

At any time,

Seller

may

propose

to

CornEd that

Stllcr

supply a specific quantity of

coal

to the

Facility.

If such supply would result in

the

Electric

Energy

being

lcss

costly to CornEd

than

would have resulted

from

CornEd

supplied

axil

for the Facility, CornEd approves of such

alternate

supply and CornEd and

Sclla

agnc

to

make

any necessary modifications to

this

Agreement and the Coal Supply

Agreement to

reflect

such alternate

source

of supply, then Seller and ComEd shall divide

such

savings evenly (after due consideration of Seller's costs in procuring and delivering

such

coal).

(ii)

CornEd and

Seller

have

agreed

that Seller should

be

rewarded for operating

thc

Basc

Facility

at

a

heat

rate lcrs than

the

Guaranteed Heat Rate and should be

pcnaliztd

for

optrating

at

a

heat

raht

greater

than

the Guarantd

Heat

Rare,

which reward or

penalty

would

k

calculatad

as

hueinah

provided and, on a quarterly basis, would be added

to,

or

subtracted

from, the payments for

Electric Energy

in

aocordanct

with Seztion

qc).

The

amount of any

such rtward

or

penalty

in respect of a Contract Quarter shall be calculated

in

accxlrdanct

with the procedures and formulae

set

forth in Part B, Item

VI

of Appendix

B.

(iii)

There shall

be

an adjustment to the

Guaranteed

Heat Rate when the weighted

avnage

heat

content

of coal consumed during a month at the

Base

Facility is below 8600

Bhlflb. Such adjustment shall be made in accordance

with

the formulae set out in Part B,

Item

VII

of Appendix B.

(iv) Thest shall be an adjustment to non-fud energy charges (i.e., the Adjusted

Variable

0

&

M

Charge) due to maintenance cost changes projected by the

CQIM

as

provided in Sections 7.01 and 7.02 of the

Coal

Supply Agreement and as set forth in Part

B,

Item

1I.A.

I of Appendix B.

(v)

Caal

supplied

to

the

Base

Facility by ComEd as of the Effective Date through

the

date

of conversion to Powder River Basin Coal

("PRB

Coal") shall conform to the

sprzifications

set

forth

in

the Coal Supply Agreement unless the Parties mutuatly

agree

to

utilize

other

coal

as tbdn

provided.

ComEd shall mvm

to PRB

Coal before

Oactmber

1, 1997, and such

coal

shall confonn to the specifications set forth in the Coal Suppiy

Agreement,

unless

the

parties mutually

agree

to utilize other

coal

as provided in the Coal

Supply

Agreement. In

addition, ComEd

agrees

that the financial costs and returns of

Seller should not be impacted significantly by a switch to

PRB

Coal. As such, if Seller

ahd

ComEd rmsonably

agree

that blending of a higher quality coal ("Blending Coal*) is

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

necessary to maintain the Net Dependable Capacity of the

Base

Facility at not less than

1,108

megawatts,

CornEd

shall provide such Blending Coal to Seller on the same basis as

it

provides

other coal

to

Seller under the Coal Supply Agncment and to begin such

dtlivlaits

within

fiftetn

(15) days

after

the

Seller

first orders Blending Coal from ComEd.

Sclkr

shall

mah:

its

first

order

for Blending Coal (if any) within one

year

after the Base

Facility

begins

to consume

PRB

Coal.

(vi) In the event

that

them

is a Forud

Dtrating

or Forccd Outage at the

fhse

Facility

as

a result of the

use

of ComEd supplied

coal

that

does

not confonn to the

applicable

spdications, such Ford Derating or Ford Outage shall be excluded

from

tfic

dculation of the

EAF

and the

EFOR

of the

Base

Facility under this Agreement. In

addition,

Base

Facility performance during any period

between

Seller's first order of

Blading Coal and CornEd's first delivery thereof shall not be included in the calculation

of the

EAF

and

EFOR

of the Base Facility.

(e)

-.

ComEd shall pay Seller the costs specified in Part B, Items

IIi, N

and V of Appendix B.

(f)

Nn..

If additional NO,

emission

requirements

an

imposed upon the

Facility,

SJlcr shall

make

any necasq capital improvements and shall be entitled to a monthly

NO,

Compliance

Cost

payment

calculatad in

accordance

with Item I of Appendix G. ComEd shall

atha

pFwide

Seller

with the additional fuel required as a rcsuit of, or compensate Seller for the

additional

fucl

wsts that result from, any such additional NO, emission nquirements.

The

Guaranteed

Heat

Ratts

also shall

be

reasonably adjusted by the Parties

as

required. The selection

of quipmcnt and methodology for complying with such NO, requirements will conform to

industry practice for similar facilities within reasonable parameters responding only to emission

limitations actually imposed. The

selection will be made in consultation with ComEd, but the

final decision is solely within the discretion of Seller.

If, (i)

CornEd disagrees with Seller's

selected

compliance

strategy,

(ii)

CornEd suggests an alternative strategy that is commercially

available

for

use

at dha

cyclone units similar to the Facility in the United

States

and is consistent

with prudent

electric

utility

pmctice, (iii)

Seller

does not

agree

to such alternative strategy and (iv)

NO,

capital costs for Seller's planned strategy

exceed 520,000,000,

ComEd shall have the right

to repurchase the Facility from Seller at a

price determined in accordance with

Item

I1

of

Appendix G, unless Seller decides to waive its right to receive the NCC payment.

(g)

ltd0npe-a.

The Monthly Capacity Charge shall be subject to adjustment

as

-provided in Appmdix H.

(h) @.

Txansfer of SO, Allowances from ComEd to

Seller

are

addressed in Appendix D.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

In

orckr

to

grant

CornEd

cgtain

rights

for testing so

that

CornEd

may

have the information

it

may

nead

to

enforce

certain

other rights or remedies granted

elsewhere

in this Agreement, and

without

granting in this Section any rights or remedies to ComEd not specifically granted

clscwhm

in this Agreement, the

Partits agree

as follows:

(a)

T&n@

nf

FFacility.

Capability evaluations of

the

Base Facility

may be

conducted

by

ComEd

at

reasmabk intcrvals

during

which

CornEd

shall request

the Base

Facility

to

generate

Electric

Energy

for

dclinsy

to the ComEd System at Net

Dcjmdable

Capacity. In addition,

ComEd

may

quest

not more than once per Contmct

Year

that the Base

Facility undergo a

gm

test

as

specified in

Gui&

No. 3 of

the

Mid-America

Inttrco~ccted

Network. No tests

will

be

conducted or continued which, in the opinion of Seller, could result in significant

degradation

of

the

Facility.

(b)

e.

In addition, ComEd shall have

the

right to operate

and

test any

of

the Facility's

protective

equipment to assure proper accuracy and operation.

Any

such testing

shall

not

dcvc

Sellu

of

the

nsponsibility

to

assure

proper operation of its equipment

and

to

perform

routine maintenance and testing.

(i) Seller fails

to

rdain

any

consulting engineer appointed by

ComEd

under

Section

70,

(ii)

Seller

Ms to undertake substantial efforts

toward

the implementation

of

the

recommendations contained in any Inspection Report issued under Section

7(f)

within the

time

periods set forth in Section

7(f)

and the Rolling

€FOR

continues

to wmd

0.10

after

the ninety (90) day period following delivery of

the

Inspection

Report,

(iii) the

EFOR

of

the

Base

Facility exceeds 0.10 for three consecutive

Y-9

(iv)

a

proceeding

is

fled

by

Seller

setking

the protection of

any

bankruptcy

or insolvency

law,

(v)

a proceeding

is

Ned against Seller, and is not subsequently dismissed

within

60 days of it. filing, dng to declare Seller a bankrupt or to appoint a

receiver

for any

part

of its

prom

or

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

(vi) Seller is dissolved and not

reinstated

within sixty (60) days of the

dissolution (or discovery of such dissolution if such dissolution

was

inadvertent),

then CornEd shall

have, as

a &y

(which nrnedy, if

cxmkd

by

CornEd,

shall

be

its exclusive

remedy for

events

that

have occwred

prior to the

StepIn

Datc (other

than

any failure by Sella

to pay

any

amounts due and owing hutunder to ComEd as of such

datt)

with

nspcct

to the

event(s) giving

rise

to the

exercise

of such remedy and any and all loss or damage

suffered

or

incurred by

CornEd

arising

from

such

cvent(s)

and for any other loss or

damage

suffered

or

inarmd

by

ComEd

in don

with

its

optmtion

of the Facility during

the

StepIn

Period),

the

right during

the amtinuance

of

such

events,

Hpon notice to

Seller

as

set forth in Section 1 l(b),

to

stcpin and

operate

the Facility in

~ccordance

with the

terms

of this

Sectjon.

@)

-A's

CornEd

shall

give Sella

notice

sixty

(60)

days

in

advana

of ComEd's exercise of its right to

stcpin

and

vtc

the Facility, which notice

shall

state which of

the

wmts

set forth in

Section

1 l(a) is the

basis

for

the

exercise

of such step-in

right. During

a

Stcpln Period, CornEd shall operaot

and

maintain

the Facility in

accordan=

with

prudent eleajc

utility practice

using and directing the site

personnel

of Seller. CornEd shall

indemnify,

defend

and

hold had

Sella

for

any

loss,

damage

or exptnsc (incl~~ding

rwonablc

attorneys' fees and litigation expcnsts) for

property

damage or bodily injury occurring at the

Facility

arising

from

the

cxcrck

by

CornEd

of its

stepin

rights or

from

or in com&on with

the

opuation of the Facility by ComEd during a

Stepln

Period; provided, however, the foregoing

indemnity

shall

not

apply to any such loss, damage or

expense

arising

from

the negligence

or

wilful

misconduct of

the

size

personnel

or Seller's or

Lenders'

agents.

Seller,

Under

and

their

respective

agents

shall

be

given

nasonable access to

the

Facility during a

Step-In

Period

to

analyze the condition of the Facility, monitor ComEd's activities and

to

coordinate the

implementation of comtive measures with ComEd to improve the ptrfonnance of the Facility.

In addition, during a

Step-In

Period, ComEd shall, subject to the pvisions of Section 5(c),

purchase

Electric Energy

from the

Base

Facility, and any additional capacity as to which it

has

accepted

an

offer described

in Section

'I@),

in accordance with the

prices

established under this

Agreement.

If

Seller

has contracted

with

a third party for

energy

or

energy

and capacity

from

the

Stretch

Facility, CornEd shall

be

nsponsiblc for the performance of Seller's obligations

under

such

third

party

contract except to the extent that (i) such energy or

cncrgy

and capacity is to be

delivered

from

facilities

other

than

the Stretch Facility

and

(ii)

the

Stretch

Facility is not capable

of producing such energy

or energy and capacity.

(c)

-.

For

purposes

of calculating payments by ComEd to Seller

during a

Step-In

Period,

the Bast

Facility shall

be

deemed to have

operated

with tire following

EAFs

and ComEd

shall

pay Monthly Capacity Charges

based

on such

deemed

optrating levels:

(i) during

&

first

six

months following

the

StepIn

Date,

the EAF of the Base

Facility

during the

most

nccntly

cndad

full

Summer

Paiod

and full Nunsummer Period, as ~licable, immediately

preceding such

StrpIn Date,

and

(ii)

thcreafkr until the

SttpOut

Datc,

the

Specified Equivalent

Availability Factor for such month. CornEd shall apply

any

Monthly Capacity

Charges

and the

pd

from

the

sala(s) of

Elcctric

Enagy

so pmhad by it, which

dd otherwise

be

payable

to

Seller, first to

satisfy

any principal, interest and other charges payable by Seller

to

any

Lurder

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

for

ar

with

nspect

to a

loan

or loans

secured

in whole or part

by

a

lien

on or security interest in

the Facility

or this Agreement, and second to reimburse CornEd for any and

all

expenses

msamb1y

incurred

by it in opaating

the

Facility and exercising its

stcpin

rights pursuant

to

this

Saction

11. Sellcr

shall

be

responsible for, and shall pay prior to any

return

of the Facility,

any

such

expen-

of

CornEd

which arc not so paid.

Any balance of payments remaining

afw

application as

provided in the

pnctding

sentence

shall be paid to

Seller

on a current basis.

(d)

v.

Subject to

the payment of any expenses

incd

by CornEd

during a StcpIn

Faid

that have

not

bca reimbursed in full as pmidcd

in Section

1

l(c), ComEd

shall

rrlinquish

its right

to

optratc,

and Seller

shall

resume operation of,

the

Facility on the

Step-

Out Date, which shall be

30 days

following the earliest to

occur

of:

(i)

the

last

day

of

any

consecutive twelve

(12) month paiod, if the Base

Facility's

Equivalent Fod Outage

Rate

calculated over such twelve

(12)

month

period

is 0.10

or

less;

(ii)

the

last day

of

any

consecutive twelve

(12)

month

period

beginning

at

least

one

ymr aher

the Step-In Date, if the

Base

Facility's Equivalent Forced

Outage Rate

calculated for such twelve

(12)

month

period equals

or exceeds the

Equivalent

Forccd

Outage

Rate

for the immediately preceding consecutive

twelve

(12)

month

period,

(iii)

the

last day of any consecutive twelve

(12)

month period beginning

after

the

Step-in

Date, if the Equivalent Ford Outage

Rate

for such twelve

(12)

month

period

equals

or exceeds the Equivalent

Forced

Outage Rate for the twelve

(12)

month

period immediately preceding the commencement of the StepIn

Period;

(iv) the Termination

Date;

or

(v)

the date on which a Lender has

taken

possession of the Facility,

fortclosed on the Facility or had a receiver appointed therefor, if CornEd's

exark

of stepin rights under this

Section

1

1

was

in

respect

of an even! described

in Section

1 1 (a)(vi)

above.

Following a Step-Out

Date,

ComEd

may

reassume operation

and

possession

of the Base

Facility pursuant to this Section 11 if the

EFOR

of the

Base

Facility exceeds

0.10

for two

consecutive

years.

For the purposes of

dewmining

whether an event

d&bd

in

Section

1 l(a)

has

ocxumd

after

the Step-Out

Date,

entitling

ComEd again to stepin and operate the Facility,

there shall

be excluded from

such determination

any

period or events occumng prior to the

Step-

Out

Date.

(e)

Dneumentah'nn

nf

CkmEd3@&.

Prior to the Effective Date, Seller will grant to

ComEd

the

rights, licenses and

easements

set forth in Appendix I, which will

be

irrevocable

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 20, 2006

* * * * * PC 6299 * * * * *

---

durh

the

tam of this Agreement, to enter the Facility for the purpose of operating the Facility

as provided

hcnin,

and shall deliver evidence of the consent to this Section 11 of any Lenders

having a security intenst in

the

Facility, and their agreement to acknowledge that their exercise