Microsoft Word - IPCB - a.m. 10-10-06.txt

ILLINOIS POLLUTION CONTROL BOARD

October 10, 2006

IN THE MATTER OF:

)

PROPOSED NEW CAIR SO2, CAIR ) R06-26

NOx ANNUAL AND CAIR NOx

) (Rulemaking - Air)

OZONE SEASON TRADING

)

PROGRAMS, 35 ILL. ADM. CODE )

225, CONTROL OF EMISSIONS )

FROM LARGE COMBUSTION

)

SOURCES, SUBPARTS A, C, D )

and E

)

RECORD OF PROCEEDINGS

BEFORE JOHN KNITTLE

HEARING OFFICER

This records of proceedings was before the

Illinois Pollution Control Board taken on October 10,

2006, at 9:00 a.m., at the offices of the Environmental

Protection Agency, Springfield, Illinois, before Holly A.

McCullough, an Illinois Certified Shorthand Reporter, a

Missouri Certified Court Reporter, a Registered

Professional Reporter and a Notary Public.

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APPEARANCES:

MEMBERS OF THE ILLINOIS POLLUTION CONTROL BOARD:

Mr. John Knittle, Hearing Officer

Dr. G. Tanner, Girard, Board Member

Mr. Thomas E. Johnson, Board Member

Mr. Amand Rao, Board Staff

COUNSEL FOR THE ILLINOIS ENVIRONMENTAL PROTECTION AGENCY:

Ms. Rachel Doctors

Mr. John Kim

COUNSEL FROM SHIFF-HARDIN:

Ms. Kathleen Bassi

Mr. Stephen Bonebrake

COUNSEL FROM McGUIRE-WOODS:

Mr. David Rieser

COUNSEL FROM BAKER & McKENZIE FOR ZION ENERGY:

Mr. Steven J. Murawski

COUNSEL FROM ENVIRONMENTAL LAW & POLICY CENTER:

Ms. Faith E. Bugel.

INTERROGATION INDEX:

PRESENTATION BY JAMES ROSS: PAGE 13

EXAMINATION OF JAMES ROSS: PAGE 24

EXHIBITS:

Agency Exhibit No. 1 -- Page 10-11

Agency Exhibit No. 2 -- Page 12-13

Agency Exhibit No. 3 -- Page 12-13

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HEARING OFFICER KNITTLE: Let's go on the record

then. My name is John Knittle. I'm the hearing officer

for this rulemaking proceeding, R06-26, Proposed New CAIR

SO2, CAIR NOx annual and CAIR NOx Ozone Season Trading

Program, 35 Illinois Administrative Code 225, Control of

Emissions From Large Combustion Sources, Subparts A, C, D

and E.

Present with us from the Illinois Pollution Control

Board today are Board Member Tom Johnson to my left and

your right, Chairman Tanner Girard to my right and your

left, And we have rulemaking coordinator, Erin Conley,

back there, as well as Connie Newman, who has just raised

her hand.

On May 30th, the Board received a rulemaking as

proposed by the Agency that proposes a new Part 225 to

reduce intrastate and interstate transport of sulfur

dioxide and nitrogen oxide emissions from fossil

fuel-fired generating units on an annual basis and on an

ozone season basis for each calendar year. The Agency

proposes the adoption of the Clean Air Interstate Rule,

SO2 trading program, CAIR NOx trading program and the CAIR

NOx Ozone Season trading program to accomplish this

objective.

Today's hearing is the first of several, during which

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the Agency is going to present witnesses and answer

questions concerning the proposal filed with the Board.

We will proceed day-to-day until the Agency is finished or

until October 20th, whichever occurs first, and I'm hoping

that the Agency finishes before October 20th. We will

convene at 9:00 a.m. each day and proceed until close.

We're going to shoot for 5:00 p.m. as a target. During

breaks, I'll be available to answer procedural questions.

I want to emphasize that the Board and staff cannot

discuss the substance of this procedure -- or the proposal

off the record. Substantive items should be raised during

the hearing. If you're not sure whether your issue is a

substantive issue, please ask me about it during a break,

and I'll let you know.

The purpose of today's hearing is to do a prefiled

testimony of the Agency and to allow anyone who wishes to

ask questions of the Agency to do so. It's my

understanding the Agency is going to offer the prefile

testimony as if read to be entered as an exhibit, and I

understand that the Agency wants to give a brief overview,

and we will then proceed to questions. Anyone may ask a

question. We have people filtering in and out. I'm just

going to keep going. You may raise your hand and wait for

me to acknowledge you. I'm going to want to know your

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name, your affiliation, and then you can begin your

questions. Please speak one at a time. If you're

speaking over each other, the Court Reporter will not be

able to get the questions on the record, which is what we

want, everything on the record. Please note that any

questions asked by a Board member or a member of the Board

staff is not intended to express any preconceived notion

or bias by the Board or staff, but is merely an attempt to

have a complete record.

At the side of the room -- actually, it's more the

front of the room, near the door up there is sign-up

sheets for the notice and service lists. If you wish to

be on the service list, you will receive all pleadings and

prefile testimony in this proceeding. In addition, you

must serve all your filings on persons on the service

list. If you wish to be on the notice list, you will

receive all Board and Hearing Officer's orders in this

rulemaking. If you're filing a public comment, however,

and you're not on the service list, you need not serve

that comment on the service list personnel. So, if you

have any questions about the list, talk to me at a break.

You may also sign up on either list.

And at this time, unless there is something else that

I've forgotten, I've introduced Board member Thomas

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Johnson, who is the supervising Board member for this

rulemaking.

MR. JOHNSON: Thank you, John. I want to welcome you

all and thank you for coming and assure you that as always

the Board is going to give this rulemaking all the

attention it deserves. With that, let's get started.

HEARING OFFICER KNITTLE: I did forget one thing.

Department of Commerce and Economic Opportunity, Section

27(b) of this Act, requires the Board to request that the

DCEO to conduct an economic impact study on certain

proposed rulemakings, such as this. Prior to the adoption

of the rules, if the DCEO chooses to conduct the economic

impact study, the DCEO has 30 to 45 days after such

request to produce the study of the economic impact of the

proposed rules. The Board must then make the economic

impact study or DCEO's explanation for not conducting the

study available to the public at least 20 days before

public hearing on the economic impact of the proposed

rules.

The Board requested by letter dated June 28th, 2006

that the DCEO conduct an economic impact study for this

rulemaking. In that letter, the Board asked DCEO to

provide a decision as soon as possible. The DCEO has not

responded to that letter. Based on this non-response and

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the DCEO's past assertion that it does not have the

financial resources to perform the economic impact

studies, the Board considers that the DCEO decided not to

conduct a study 30 days after the letter was sent on July

28th. The Board's letter and the documents consisting of

the DCEO's response has been available to the public for

more than 20 days prior to the hearing as required by

statute.

Does anybody have any comments or questions on the

DCEO's position not to conduct an economic impact study?

(No response.)

HEARING OFFICER KNITTLE: I see none, nobody raising

their hand. So, we're going to consider this portion of

the hearing closed.

A written public comment period will be set, and if

anyone here does not want to testify after the close of

this hearing or the hearing the following subsequent days

but wants to provide comment, you can do that via that

avenue.

That's all I have. I'd like at this point in time to

have the Agency -- Let me rephrase. Also present today

here from the Board is Board's technical staff, Anand Rao,

and he'll be sitting up here and asking question. In the

same caveat, questions by Mr. Rao that I said earlier

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apply to us, no preconceived notion applies to Mr. Rao, as

well.

So, with that being said, Ms. Doctors, would be like

to introduce who you have here today and yourself?

MS. DOCTORS: Yes. My name if Rachel Doctors, and I

am representing the Illinois EPA, and John --

MR. KIM: John Kim also representing the Illinois

EPA.

MS. DOCTORS: And today starting -- we'll start with

James Ross, manager of air pollution control, and with him

in case there's other question is Rob Kaleel, unit

manager -- section manager of the air quality planning

section, and Ross Cooper from the permit section.

I'd like to start if I may. I spotted some

typographical-type errors that I'd like to put those on

the record so we can get them corrected.

HEARING OFFICER KNITTLE: I take it, you have an

errata sheet?

MS. DOCTORS: Yes.

HEARING OFFICER KNITTLE: You want to offer that as

an Exhibit?

MS. DOCTORS: Yes, I'd like to offer the errata sheet

as the first exhibit.

HEARING OFFICER KNITTLE: Before we do that, do we

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have people from the department that want to introduce

themselves? Let's do that, and if you have any objections

of the errata sheet, we can do that.

MS. BASSI: I'm Kathleen Bassi with Schiff-Hardin,

and I'm here today on behalf of Midwest Generation, Dynegy

and Southern Illinois Power Cooperative.

MR. BONEBRAKE: Steve Bonebrake, I'm also with

Schiff-Hardin, and I'm also here on behalf of Southern

Illinois Power, Dynegy and Midwest Generation.

HEARING OFFICER KNITTLE: Anybody else?

MR. RIESER: David Rieser from McGuire Woods. I'm

here on behalf of Amren.

MR. MURAWSKI: Steve Murawski from Baker and McKenzie

on behalf of Zion Energy.

MS. BUGEL: Faith Bugel from Environment Law and

Policy Center. I'm here on behalf of the ELPC.

HEARING OFFICER KNITTLE: I think that's it. Does

anybody have any objections to the Agency's production of

the errata sheet as Agency Exhibit 1, I take it, Ms.

Doctors.

MS. DOCTORS: Yes.

(No response.)

HEARING OFFICER KNITTLE: I see none. So, we'll

accept that. Ms. Doctors, do you have anything further

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you want to -- You can bring that up. Did you guys get

copies of that?

MS. BONEBRAKE: We have not.

HEARING OFFICER KNITTLE: We have extra copies up

here if anybody wants them. Ms. Doctors, that was

admitted as Agency Exhibit No. 1. Do you have anything

further before we get started.

MS. DOCTORS: I don't know how you'd like to do the

testimony.

HEARING OFFICER KNITTLE: You want to offer all that

prefiled testimony as if read? Why don't we swear in all

the witnesses.

MS. DOCTORS: Let's do that. Let's see if everybody

is here. We've got all but one of them in.

HEARING OFFICER KNITTLE: Pardon?

MS. DOCTORS: All but one of them is in.

HEARING OFFICER KNITTLE: Let's swear in who we have.

Are these all the witnesses who filed prefile testimony.

MS. DOCTORS: Yes.

(Court Reporter sworn in the following witnesses:

Gary Beckstead, David E. Bloomberg, Roston Cooper, Rory

Davis, Robert Kaleel, Yoginder Mahajan, James Ross and

Jacquelyn Sims.)

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HEARING OFFICER KNITTLE: And you want to offer the

prefile testimony as an Exhibit as if read.

MS. DOCTORS: I wanted to just do it by witness. So,

as the people testify. So, I'll start with Jim's.

HEARING OFFICER KNITTLE: Your witness. Before we

get started, though, is there anything from anybody else

before we get start with the Agency's testimony?

MR. BONEBRAKE: We have a preliminary comment, but I

think we'll wait until after Mr. Ross' opening

presentation.

HEARING OFFICER KNITTLE: Anybody else?

(No response.)

HEARING OFFICER KNITTLE: That sounds fine. Go

ahead, Ms. Doctors.

MS. DOCTORS: I have two Exhibits. I've got Jim's

testimony that was prefiled and his presentation. I've

got colored copies of the presentation. So, this would

be -- His testimony would be Agency Exhibit 2, and the

presentation would be Agency Exhibit 3.

MS. BASSI: Question.

HEARING OFFICER KNITTLE: Yes, ma'am.

MS. BASSI: Have these changed since what was

prefiled or what you sent out in the e-mail of his

testimony?

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MS. DOCTORS: The testimony I do not believe -- I

know the testimony has not changed.

MS. BASSI: Okay.

MS. DOCTORS: The overheads, I'm pretty sure they

have not changed since I sent them out Thursday, Friday.

MR. ROSS: No, they have not changed.

HEARING OFFICER KNITTLE: And the overheads you want

to introduce as Agency Exhibit 3?

MS. DOCTORS: Yes.

HEARING OFFICER KNITTLE: Any objections to the

admission of those two Exhibits?

(No response.)

HEARING OFFICER KNITTLE: Seeing none, those are both

admitted. Ms. Doctors, are you ready to go with Mr. Ross'

testimony?

MS. DOCTORS: I'm ready to go with his short

presentation, yes.

HEARING OFFICER KNITTLE: So, you want to set up the

overhead? We should vacate then.

MR. ROSS: I'm not sure how you guys want to sit.

HEARING OFFICER KNITTLE: Ms. Doctors, whenever

you're ready.

MS. DOCTORS: Jim.

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PRESENTATION BY JAMES ROSS:

It's a little deja-vu all over again. It seems like

just yesterday the mercury hearings were held here. I

appreciate the smaller number of people across from us.

Again, my name is Jim Ross, and I am the manager of

the division of air pollution control here at the Illinois

EPA. I'll be giving a brief presentation that provides

some background on the Clean Air Interstate Rule, which is

more commonly referred to as CAIR, and the public health

and air quality issues it addresses. In addition, I will

provide a broad overview of how the Illinois EPA proposes

that CAIR be implemented in Illinois, along with what we

are expecting to see in the way of results.

I would, of course, like to thank the members of the

Illinois Pollution Control Board for allowing us to give

this brief presentation. We feel it is an important first

step to frame the context of why we are here and what we

are trying to accomplish with this rule.

Of special note is that CAIR, much like the proposed

Illinois mercury rule, primarily affects Illinois'

coal-fired power plants. Therefore, I'd like to begin by

saying that the Illinois EPA recognizes the vital role our

power plants play in supplying power to Illinois

customers, as well as jobs and other economic benefits to

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Illinois citizens.

In regulating the power industry, we always keep this

in mind and in no way do we ever seek to impose

unreasonable standards that would create undue hardship on

the power sector or other related industries.

I'll start off with some very basic background

information. First, USEPA published CAIR on May 12th,

2005. CAIR is a regional cap and trade program involving

SO2 and NOx and includes up to 25 eastern states and the

District of Columbia. CAIR is a regional program because

it recognizes that air pollution can travel hundreds of

miles and cause health and environmental impacts very far

away from the source where the pollution originated. And,

finally, this phenomenon of traveling air pollution is

known as interstate pollution transport. Air pollution

simply does not recognize state boundaries.

CAIR targets reductions in the emissions of SO2 and

NOx. This is because CAIR's ultimate goal is to improve

the air quality in regards to PM2.5 and ground level

ozone. Both SO2 and NOx are precursors to PM2.5, and NOx

is also a precursor to ground level ozone. By reducing

these pollutants, CAIR will provide substantial human

health and environmental benefits. And, finally, affected

states, including Illinois, are required to comply with

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CAIR.

CAIR has two phases for both NOx and SO2. However,

as can be seen here, Phase 1 begins at different times for

each pollutant. NOx Phase 1 begins in 2009, and SO2 Phase

1 begins in 2010. Phase 2 for both pollutants begins in

2015.

SO2 and NOx contribute to a wide range of air

pollution issues, including air quality impairment, impact

on public health, acidification of lakes and streams,

damage to forest ecosystems, visibility degradation and

acceleration of the decay of building materials and

statues.

A number of health effects are attributed to PM2.5

and to ozone, including increased respiratory symptoms,

such as irritation of the airways, decreased lung

function, aggravated asthma, development of chronic

bronchitis, irregular heartbeat, non-fatal heart attacks

and premature death in people with heart and lung disease.

Any one of these effects is very serious. Taken together

they emphasize an impending need to take action. CAIR is

expected to provide vast improvements to the air quality

and have far reaching positive health impacts.

We'll now shift to how CAIR directly impacts Illinois

and how the Illinois EPA is proposing to implement CAIR in

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Illinois. EGU's are the largest source of SO2 and one of

the largest sources of NOx in Illinois. There are 59

coal-fired EGU's and 170 oil/gas-fired EGU's affected by

the proposed rule.

The one, two and three of why CAIR is needed in

Illinois in terms of regional and local air quality,

number one, we contribute to the air pollution problems of

other states in regards to areas that are not in

compliance with the federal national ambient air quality

standards or NAAQS. Such areas are categorized as

non-attainment areas.

Number two, in the states that Illinois pollution

affects, there are areas that are in attainment with the

NAAQS, and we interfere with the ability of these areas to

maintain the air quality and keep it in attainment.

And number three, the first two points address how

Illinois affects others, but we have substantial problems

right here at home. So, not only do we need to reduce NOx

and SO2 so that we reduce our interference with other

states, we need to reduce these emissions to address our

own non-attainment areas and help us maintain good air

quality in the areas that are in attainment in Illinois.

This slide, again, emphasizes reducing emissions in

Illinois benefits others and vice versa, that is other

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states are also required to reduce NOx and SO2 under CAIR,

and these reductions will have positive benefits for

Illinois. Illinois sources significantly contribute to

fine particle pollution in other states, including

Pennsylvania, Ohio, West Virginia, Indiana, Tennessee,

Kentucky, Alabama and Michigan. Illinois sources

significantly contribute to ground level ozone pollution

in other states, including Ohio, Wisconsin and Michigan.

And Illinois fine particle air quality will improve

because of the reductions of SO2 and NOx in Illinois of

course, Iowa, Kentucky, Michigan, Minnesota, Missouri,

Ohio, Texas and Wisconsin.

This slide shows the current non-attainment areas for

Lake Michigan Air Director Consortium or LADCO states. In

particular, it shows that Illinois' ground level ozone

non-attainment areas are in the greater Chicagoland and

East St. Louis Metro areas. Both these areas are

designated as moderate non-attainment for ozone.

These are the non-attainment areas for PM2.5. Again,

the same general areas with only small differences.

USEPA provides the following estimates of the impact

in Illinois of CAIR. The first table shows that CAIR is

expected to reduce SO2 emissions by 125,000 tons or

34 percent by 2015. The second table shows that CAIR is

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expected to reduce NOx emissions in Illinois by

81,000 tons or 55 percent by 2015.

Illinois is choosing to opt in to the federal cap and

trade programs for SO2 and NOx. The annual trading

programs are designed to address PM2.5 issues and consist

of trading programs for both SO2 and NOx. The seasonal

training program for NOx is designed to address ozone

pollution. The ozone season consists of the five-month

period of May 1st through September 30th of each year.

For the SO2 trading program, the Illinois EPA

proposes to follow the model federal program, which is

based on the acid rain trading program. For both the

annual and seasonal trading programs, the Illinois EPA is

proposing to also follow the model federal program.

However, USEPA does allow some limited amount of

flexibility in how the states allocate allowances, and the

Illinois EPA is proposing to utilize this flexibility.

More on this in the next few slides.

Specifically the Illinois EPA is proposing to utilize

flexibility in the following areas listed here. We have

proposed output based allocations instead of using heat

input. We propose that allocations occur three years in

advance of the date to be issued instead of six years in

advance. We will update allocations annually instead of

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establishing a single, continuing baseline. We have

set-aside 5 percent of allowances for new sources in both

phases instead of reducing to 3 percent in Phase 2. And

we propose to set-aside 25 percent of allowances for a

clean air set-aside. I believe it's safe to say that this

use of flexibility is the primary area of controversy or

concern by stakeholders in the proposed CAIR.

Being more specific yet, it is also fairly safe to

say that the Illinois EPA's proposed clean air set-aside

or CASA as we refer to it is the primary area of interest.

A set-aside is simply a pool of allowances that are taken

from the total amount of budget to be used from a variety

of environmentally beneficial goals. It is very important

to note that a set-aside is not the equivalent of lowering

the overall budget because the allowances usually remain

in the market. While the recipients of the set-aside

allowances are free to hold, sell or retire the allowances

as they see fit, it is far more likely that they would

offer to sell the allowances in the market in order to

realize a financial benefit.

As a result, the recipients have an additional source

of funding for their projects, and existing sources

continue to have a pool of allowances they can utilize if

needed to meet their requirements, and the total amount of

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emissions remain at or below the budgeted amount.

We have three main areas of the set-asides. First,

we have an EE/RE or energy efficiency/renewable energy

set-aside of 12 percent. Second, we have a set-aside for

clean technology projects of 11 percent, and this includes

clean coal and pollution control upgrades. And, finally,

for the above-related projects that commence operation

early, we have an early adopter set-aside of 2 percent.

Some important facts regarding CAIR: This first

bullet point is that the more NOx reduced, the greater the

benefits, a key concept as we move forward in the

hearings. Second, the NOx CASA is expected to result in

additional NOx reductions. The Illinois EPA is proposing

to retire the NOx compliance supplement pool, and we also

believe that this will result in some additional NOx

reductions. And the last bullet point, USEPA modeling in

support of CAIR shows that CAIR will not be sufficient for

all of Illinois to attain compliance with the NAAQS for

ozone or for PM2.5 and that more controls are needed.

LADCO's modeling today just confirms this finding.

We analyze any potential detrimental economic impact

of our NOx allocation policy. We hired ICF Consulting to

conduct modeling using the widely accepted immigrating

planning model or IPM. This is the same model that USEPA

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used and the same model that we used in development of our

proposed mercury rule.

Of importance is that we, again, believe we modeled a

more conservative rule than what we are actually proposing

so that any detrimental impacts would be less severe than

what the model found. ICF modeled the rule where all

30 percent of the set-asides were retired, which is not

the case, as these allowances remain available for

allocation. The principal findings included that overall

the implementation of the NOx budget reduction policy has

minimal effects both in Illinois and across the nation,

and that the retail electricity prices and costs across

all sectors, residential, industrial and commercial,

remain unchanged as a result of the NOx budget reduction.

In closing, this slide summarizes some key results of

CAIR implementation in Illinois as proposed by the

Illinois EPA. CAIR results in cleaner air and improved

health for Illinois and other states. Illinois will meet

federal requirements, including satisfaction of Illinois'

obligation under Section 110(a)(2)(D)(i) of the Clean Air

Act for transport. CAIR will assist Illinois and downwind

states in achieving and maintaining PM2.5 and eight-hour

ozone NAAQS. And the proposed CAIR will provide

incentives for EE/RE clean technology and early controls.

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We urge the Board to adopt the proposed CAIR. Thanks

for listening, and I'll turn it back over to the

appropriate person.

HEARING OFFICER KNITTLE: Thank you, Mr. Ross,

Ms. Doctors, do you have anything --

MS. DOCTORS: I have nothing further.

HEARING OFFICER KNITTLE: -- further with this

witness?

MS. DOCTORS: If there's questions for him.

HEARING OFFICER KNITTLE: We have questions on the

presentation.

MS. DOCTORS: Or on his testimony.

HEARING OFFICER KNITTLE: Or on the testimony, which

we have as Exhibit No. 2.

MR. BONEBRAKE: We will have some questions for

Mr. Ross, but, first, I just wanted to cover a couple of

preliminary matters --

HEARING OFFICER KNITTLE: Please do.

MR. BONEBRAKE: -- that I mentioned earlier. The

first preliminary matter, I wanted to mention that we

disagree with IEPA's conclusion as set forth in the

statement of reasons and as implied by Mr. Ross'

presentation that the IEPA has the authority to propose

and the Board to adopt the proposed rule. The reason for

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that is that the proposed SO2 regulations is inconsistent

with Section 10 of the Illinois Environmental Protection

Act, and as a result, the proposed rule is in firm. We

plan to submit at a later date this position in writing,

and at that time, we will set forth and explain in more

detail our views of the proposed rule with respect to

Section 10 of the Illinois Environmental Protection Act,

but at this point in time, we did want to alert the Board

and the Agency and other interested parties to our

position pertaining to the proposed rule.

HEARING OFFICER KNITTLE: Thank you, Mr. Bonebrake.

MR. BONEBRAKE: And the second preliminary matter, we

have identified a number of questions related to the

Technical Support Document, Statement of Reasons and the

regulations themselves, and for some of those, we're not

sure to whom on the IEPA panel we would direct related

questions. We will attempt to cover those questions if we

ask specific questions pertaining to witness testimony,

but we may well be in a position toward the back end of

this process where we have a collection of questions that

haven't yet been presented. So, we would ask both the

indulgence of the Board and the Agency with respect to

questions perhaps at the back end of the process that we

could present, and the Agency could let us know who would

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be in the best position to address those questions. And

like I say, we'll try to deal with that on a going forward

basis, but I just wanted to, again, alert the Agency and

the Board to that possibility.

HEARING OFFICER KNITTLE: We appreciate that. And I

think the Agency has indicated on our pre-hearing status

conferences, they would try to make the available --

witnesses to be available when they need them; correct?

MS. DOCTORS: Yes.

E X A M I N A T I O N O F

Mr. James Ross:

BY MR. BONEBRAKE:

Q. And on a related matter, I guess just to kind

of help the process move forward, my first question for

Mr. Ross would be, Mr. Ross, would you please identify for

us who drafted the various sections of the Technical

Support Document?

A. Well, in general it was a collaborative effort

of many at the Illinois EPA. We had numerous staff

working on each and every section. It went through many

iterations before the final version was submitted. I

believe I can go through quickly right now and perhaps try

to identify who drafted each section or perhaps we could

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provide a more detailed analysis, like we did for the

mercury rule, something in writing with names beside it,

if that's what you would prefer.

Q. Well, I guess if we could get both, that would

be great. Some preliminary information from you, I think,

would help guide us in terms of our questioning, and then

something in writing would also be useful.

A. As far as Introduction, I believe that was

written by Rob Kaleel.

Background Information, which is other programs, I

believe that was written with Gary Beckstead, Rob Kaleel,

and I think Gary Beckstead has submitted testimony on

other regulatory programs, and Rob Kaleel, the manager of

air quality planning section, also participated in the

writing of that, I believe.

The third section, Section 9.10 and 10 of the Act --

okay -- the third section, Environmental and Health

benefits, I believe that was written by our air quality

planning section, again, a collaboration of many staff. I

can't pinpoint a single person.

Process Description and Sources of NOx and SO2

Emissions, that, again, was a collaborative effort of

several persons in our air quality planning section.

Technical Feasibility of NOx and SO2 Controls, I

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would have to say the same thing, several persons from our

air quality planning section.

Economic Reasonableness of Controls, likewise.

Other Economic Considerations, that was written with

myself, Rob Kaleel, I believe a portion of that section of

the Technical Support Document is simply the publishing of

the IPM modeling results that were provided to us by ICF

Consulting. There were other staff as well that

participated in that section.

Proposed Illinois Regulations For Existing EGU's,

that was an effort of many Agency staff, much like the

other sections.

And, again, just for some background information on

this, we formed an internal group, the CAIR advisory

group, which consists of a member from each of the --

well, from many of the sections of the Bureau of Air, one

from the permit section, one from air quality planning,

one from the compliance section, and one from our legal

staff. They provided input into the Technical Support

Document. We also met, I would say, at least once a week

or once every other week since early November of last year

to discuss CAIR options, and during those meetings, a lot

of notes were taken, and we discussed Technical Support

Document issues. So, a lot of the Technical Support

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Document, the point being was developed over time by many

Agency staff. There wasn't necessarily one person

assigned to a particular section.

Section 9, Affected Sources and Emission Allocations,

I would say, again, the primary parties involved in that

were personnel from the Agency's air quality planning

section.

Summary, likewise.

HEARING OFFICER KNITTLE: Yes.

BY MS. BASSI:

Q. Did anyone outside the Agency write any of the

TSD?

A. No, I don't believe so.

Q. Was any of the TSD reviewed by people outside

the Agency before it was submitted?

A. Not to my knowledge, no.

HEARING OFFICER KNITTLE: Yes, sir?

BY MR. BONEBRAKE:

Q. You mentioned a number of sections where you

just generally identified staff in terms of authorship.

Is there somebody on the IEPA panel that is going to be

testifying that was a participant in drafting each of

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those sections?

A. Yes. Many of the people that submitted

testimony and that are available to testify also

participated in writing of the Technical Support Document,

and we tried to specify their areas of expertise or where

they focused on and provided the majority of input in

writing the TSD, and I believe that's available in the

synopsis of testimony that was submitted to the Board.

Q. You mentioned, I think, that Section 7

contains, I think you used the word, publication of the

ICF report. Do you recall that testimony?

A. Yeah. In general we contracted ICF to perform

modeling. They submitted to us a final report. We took

that report and incorporated it into the Technical Support

Document and did some modifications to it so that it read

better. They were, of course, developing the report for

the Illinois EPA. So, some of the terminology and the way

they presented it was directly at or for us to read and

not so much to be incorporated directly into a Technical

Support Document for everyone. So, we did take some

liberties and revised some of the wording of the final

report provided to us by ICF.

Q. And so that the record is clear, when we're

both talking about "the ICF report," are you referring,

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Mr. Ross, to the March 25, 2006 report by ICF entitled

"Analysis of Illinois NOx Budget Reductions"?

A. Yes, I am. That's correct.

Q. And has that report been submitted to the

Board as opposed to the synopsis in the TSD?

MS. DOCTORS: Are we -- Are you referring to the

attachment 33 from the TSD?

MR. BONEBRAKE: I'm not sure of the number, but I

believe that's correct.

MS. DOCTORS: Yes, that was submitted to the Board in

May.

BY MR. BONEBRAKE:

Q. And will anybody be testifying from ICF in

connection with this hearing?

A. No, they will not.

Q. When was ICF retained by the Illinois

Environmental Protection Agency?

A. I believe it was late December, early January,

February. I've been told likely in the December area.

Q. Was there somebody at the Agency that had the

lead for working with ICF?

A. I would say it would be myself and Rob Kaleel

and -- Yeah, those two.

Keefe Reporting Company

Q. And did you and Mr. Kaleel or others at the

Agency provide information to ICF?

A. We did.

Q. Can you generally describe for us what

information was provided to us?

A. Yeah. We had several conference calls with

ICF where we described the proposed CAIR rule to them and

went over the parameters and discussed with them how best

to model the CAIR rule, and whenever there was a question

of -- You know, it's a modeling tool. So, it can't

exactly reflect the requirements of the rule. So,

whenever there was a question on how to best model our

proposed CAIR rule, we emphasized to them to take the most

conservative approach, which is why, as I mentioned in my

presentation, for the 30 percent of the set-asides, IPM --

or ICF, rather, modeled the entire 30 percent as being

retired, where in reality those allocations remain -- or

those allowances remain available for allocation.

Q. I'll have probably some follow-up on that

later, but I want to follow-up on the other statement you

made. In addition to the conversations that you had with

ICF, did the Agency provide any written materials to ICF?

A. I'd have to go back and review. I believe we

may have provided a lot of this. These discussions were

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in conjunction with them modeling our proposed mercury

rule. We did provide them information -- written

information on the mercury rule. I'm not sure if that

same document contained information regarding the CAIR.

My first inclination is that it did not, that they modeled

CAIR based on conference call discussions only, but I'd

have to go back and search my records.

BY MS. BASSI:

Q. Is it the case, though, that when you provided

written information to ICF for this modeling under the

umbrella of the mercury rule, that that same basic

information would have applied to the CAIR rule?

A. In terms of input parameters, how they needed

to revise those in regard to coal usage and updating the

control configurations on the coal-fired power plants,

yes, they revised the input parameters in a like manner

that they did for the mercury modeling.

BY MR. BONEBRAKE:

Q. The ICF report itself contains a number of

findings, but I'm assuming that there are intermediate

outputs and other assumptions made by ICF that are not

reflected in this report, which raised the question in my

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mind, Mr. Ross, of whether ICF had provided any other

written materials to the Agency, other than the report

itself, in its support of the finding and conclusions in

its report.

A. Written materials? Not to my recollection.

We did have phone conversations with ICF after they

submitted the modeling results to discuss the results.

There were some e-mails traded. Most of it was on timing

of, "Is this report final? Will there be another

version?", stuff like that. I'd have to go back and check

my e-mails, but I don't think there was any significant

written back and forth on issues seeking answers to

certain issues like there was with the mercury rule.

There wasn't that kind of back and forth.

Q. Is it correct that ICF would have needed to

determine a number of inputs and a number of assumptions,

and that would be fed into the model to generate the

finding and conclusions reflected in the report?

A. Certainly they would need a lot of input, but

what they modeled was -- I mean, we are opting into the

federal trading program. We are only making -- using the

flexibility offered by USEPA for different allocation

methodology. So, we discussed those different

methodologies with ICF. They have vast experience with

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modeling CAIR regulation for USEPA, and I believe they've

modeled it for LADCO, and they've modeled it for perhaps

other states or organizations that represent other states,

as well. So, they had a lot less, fewer questions for us

on CAIR than they did for the mercury. So, we simply

explained to them the flexibility that we were using in

regards to allocation methodology. They seemed to

understand it. And the conclusion was if we wanted a

conservative model of our rule, that one approach would be

to retire the entire 30 percent of the set-asides, and,

so, that's what they did.

Q. The electronic information -- Well, strike

that. Let me put it this way: The input and assumptions

that ICF put into its models would have included some

additional inputs and assumptions that relate specifically

to the Illinois proposal and deviations from the federal

forum; is that correct -- including the CASA?

A. Yes, there would have been some different

inputs. Well, I'm uncertain.

Q. Are the inputs and assumptions that ICF used

in its model either in the possession of IEPA or available

to IEPA?

A. Yes, I believe so. I believe they're similar

inputs -- Like I said, the main changes they made to the

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inputs was to reflect the switch from bituminous to

sub-bituminous coal for many of the coal-fired power

plants and to re-collect an accurate picture of the

existing control configurations on Illinois' coal-fired

power plants. Previous IPM modeling, that is prior to we

provided different inputs, had inaccurate information on

those parameters. So, I believe we provided them one set

of inputs, and that was for mercury and CAIR. So, the

inputs as far as what I've discussed, changes to coal,

changes to control configurations, were made for the

mercury modeling -- the same changes were made for mercury

modeling as were made for CAIR. We provided them that set

of inputs, and they used it for both rounds of modeling.

Q. So, I just want to make sure I understand

this, and maybe we could back up a step. The inputs and

assumptions you just referred to for the mercury and the

CAIR modeling, was that information presented to the Board

and the interested parties in connection with the mercury

hearing? I do recall we received some information

pertaining to --

A. Yeah, I believe I testified at the mercury

hearings that we offered up in the stakeholder meetings

that preceded both rules. We had joint stakeholder

meetings. The stakeholder meetings were for the purposes

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of presenting and discussing both the proposed mercury

rule and the proposed CAIR rule, and during those

stakeholder meetings, we offered up the inputs and the

preliminary results of the modeling at that time, and then

we said we would provide the final results of all modeling

as soon as we got it, and others requested it. So -- And,

again, going back, the inputs were the same. So, I

believe it's been provided as part of the mercury hearing.

If it wasn't provided as part -- I'm uncertain if those

same inputs were included as a reference or attachment.

Probably not, but they were previously provided, and we

can provide them again, yes.

BY MS. BASSI:

Q. Just to be sure, if we find there is

additional informational on this line that we need, can we

request it and get it fairly quickly?

A. We can provide all the information we have in

our possession to you.

Q. Okay.

A. So, if you ask for something and we have it,

we will provide it.

MS. BASSI: Okay.

MR. BONEBRAKE: And I will also have some questions

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for you a little bit later pertaining to some of the

details of the ICF report, and it may be that will help

flush out the issue of whether there's some information

that ICF has that the Agency might not be aware of that

might help us all understand the ICF report. We can

follow-up on that in just a little bit.

A. Okay.

MR. KIM: We can go back and go over the mercury

exhibit list one more time and try and find the exhibit

number that is associated with the input data that

Mr. Ross is referring to. I believe it was on one of the

compact disks that was submitted to the Board, but we'll

go back and check that, and if nothing else, we can make

that available on the record.

MR. BONEBRAKE: One of the critical issues from my

perspective would be just making sure that we have an

understanding, to the extent there were changes made to

the data on that for purposes of the CAIR analysis in

question here, if those are somehow identified to us.

MR. KIM: Certainly.

BY MR. BONEBRAKE:

Q. You mentioned, Mr. Ross, that no one from ICF

will be testifying regarding its report. My question for

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you then would be, in terms of the substance of the

report, to whom at IEPA that is planning to testify at

this hearing would be direct on our questions pertaining

to the ICF?

A. Direct them to this panel.

BY MS. BASSI:

Q. Mr. Ross, I have some questions about the

written testimony that you submitted.

A. Okay.

Q. And my first question is, where did you study

emissions and control of each of the criteria air

pollutant caps? I think this is in one of the early,

early paragraphs in your written testimony.

A. Over my 18 years with the Agency, I attended

numerous courses on each of the criteria pollutants and

CAAPP emissions. Oftentimes those courses are offered by

USEPA. Sometimes they're offered by consulting firms.

Sometimes they're offered by environmental organizations,

staff of LADCO sponsored courses. So, from a variety of

entities offering courses.

Q. But were any of those college-type courses for

which you would receive credit?

A. No.

Keefe Reporting Company

Q. Okay. I was just curious actually if there

was such a thing. What training on permitting did you

provide to USEPA?

A. I provided many types of training. In

particular to USEPA, I provided training on Title 5

permitting. I was manager of the Agency's Clean Air Act

permit program for many years. And the USEPA has

sponsored several seminars over the years where they

select members from different states who have knowledge on

permitting and hold a seminar where those people will come

up and give presentations and training on how to write a

good Title 5 permit, how to write good federally

enforceable permit conditions, etc., etc.

Q. With this Title 5 training that you provided

to USEPA, were these for courses similar to the type that

you took on the air pollutant, on the criteria pollutants

and so forth, or were they aimed at just USEPA?

A. I took some knowledge gained from those

courses and incorporated those into my presentation. I

wouldn't say they were based on previous courses. They

were geared mostly toward writing good Title 5 permits,

flexible, yet enforceable Title 5 permits.

Q. Who were the types of people who would have

been in the audience?

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A. I would say a wide variety of people. To my

recollection, there were USEPA staff members. They have

considerable turnover at USEPA. So, some newbies, so to

say, as well as some experienced personnel, permit writers

or people affiliated with permit programs from other

states, consulting firms that are involved in permitting,

others as well. I think members of some environmental

organizations attended some of these seminars.

Q. Was your focus -- perhaps that's not the

correct word, but was your focus when you were explaining

the writing of federally enforceable permit conditions

power plants?

A. Focus?

Q. Yeah.

A. I would say there was no specific

industry-type focused upon. It was writing good permits

in general, which would encompass writing good Title 5

permits for power plants.

Q. Did your focus -- Was your focus Illinois, or

was it just general?

A. In general.

Q. Were 6,000 permits issued while you were the

acting manager of the permit section?

A. I think I testified that there are some 6,000

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permits or permitted facilities in Illinois where we could

have very well during my tenure as acting issued thousands

of permits, construction, renewals, administrative

amendments, minor mods, significant modifications.

There's many different kinds of permits. So, I would

doubt that 6,000 permits were issued during the year and

some-odd months that I was acting permit section manager,

but there could very well have been thousands of permits

issued during that time.

Q. With respect to the outreach, you say in your

testimony that the Agency held, quote, "substantial

outreach to stakeholders, including five weekly

stakeholder outreach meetings." Would you describe please

the format that the Agency used at these outreach meetings

to learn the stakeholders' concerns with the proposed

concepts presented at the meeting?

A. At the stakeholder meetings, the Agency

typically gave a presentation at the beginning of these

meetings summarizing how we were proposing to go forward

with the mercury rule and with CAIR, but we would follow

that up with a question and answer period until all

questions were answered. We did not leave until there

were no more questions. And then on several occasions, we

offered to meet with any and all interested parties

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outside the stakeholder meetings, and we also set up

regular mail and e-mail addresses where stakeholders could

send in comments or questions regarding the proposed rules

that would be answered at the following stakeholder

meeting.

Q. And, so, when you were answering these

questions that were submitted between meetings at the

following meeting, would you describe how that process

worked, please?

A. Well, that particular process would be we

would read the question submitted. We also provided, I

believe, handouts of all the questions submitted. And

then we would provide the answer, and then we would --

There would oftentimes be follow-up questions based on the

answer we provided, and we would answer the follow-up

questions until that answer was satisfactory and there

were no more follow-up questions, and then we would

proceed to the next question.

Q. Would you say that this actually -- this

process actually comprised the bulk of the stakeholder

meetings, particularly after the first week?

A. The bulk? I'd be hard pressed to say that.

During the -- Many of the stakeholder meetings -- Again,

based on a lot of the questions we received, we saw

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similar questions coming in. So, we would provide a

presentation or handouts. The intent being to answer the

bulk of those questions all at once, although we would

proceed through them after the presentations and say, "We

believe we answered this question in the handout or in the

presentation. Is there any follow-up questions?" But it

certainly comprised a large time segment of the

stakeholder meetings -- the question and answer period.

Q. Would you call this a dialogue?

A. Yeah, there was give and take. I believe

that's a dialogue.

Q. There was give and take. Would you say that

there was some distance and time between the give and the

take?

A. Yeah. The stakeholder meetings were held

weekly, though. A lot of times we -- Based on the

previous stakeholder meetings, we received the questions

on Friday or Saturday, even Sunday and had to have answers

prepared by Tuesday. The stakeholder meetings were held

on Tuesdays. So, we worked a lot of nights and weekends

coming up with the answers to these questions so that we

would have them ready for the next stakeholder meeting.

So, there was some time lapse that was minimal. And,

again, the stakeholder meetings were an open forum. There

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were no restrictions placed on anyone on what questions

they could ask or when they had to stop asking questions.

The meetings went until there were no more questions.

Q. Was there ever serious consideration given to

suggestions as opposed to responding to questions?

A. Absolutely. We had many internal meetings

discussing many of the questions. The answers to the

questions weren't prepared in a vacuum. Oftentimes we had

to meet and discuss and arrive at the correct answer to

the question as a group rather than one single person

giving their interpretation of the correct answer. So --

Q. Is there a reason why the Agency didn't invite

the regulated community as a whole to come in and talk

with it rather than relying on meetings with individual

members of the regulated community? You said several

times -- And just back that up a minute. You said several

times that you always asked or offered the opportunity to

meet with anyone.

A. Right.

Q. But was there ever an invitation to the

regulated community as a group?

A. I believe, during the stakeholder meetings,

yes, there was. During those stakeholder meetings, we --

myself and Laurel Kroack --

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Q. I'm sorry?

A. During the stakeholder meetings, myself and

Laurel Kroack got up in front of the microphone to all

parties -- and, again, I believe the meetings were open to

anyone -- and said, "We are willing to meet with anyone to

discuss the proposed rules."

Q. If I said to you, "I'm willing to have you

come over to my house," would you view that as an

invitation?

MR. KIM: Objection. I'm not sure what -- I think

he's answered your question. I'm not sure where you're

going with it.

BY MS. BASSI:

Q. My question was, did you invite the entire

regulated community to come in as a group?

MR. KIM: And I believe he answered the question. He

stated what the invitation was made.

MS. BASSI: And the invitation, as I understood the

answer, was, "We are willing to meet."

MR. KIM: And I think you can draw any conclusions

you'd like from that. He's given you exactly what he said

during that meeting.

Keefe Reporting Company

BY MS. BASSI:

Q. When the stakeholder process began, did the

Agency at that time announce that the set-aside would be

30 percent?

A. To the best of my recollection, during the

initial stakeholder meeting, we presented what we called

option papers or position papers, which laid out potential

options for set-asides and rationale for perhaps why the

set-asides -- the Agency would consider encouraging them

or using them, and we asked for feedback from all parties

on their, I guess, preference or their take on the use of

the options that were being proposed. I'm uncertain if --

at what period we actually put forth an exact percent to

each set-aside. I'd have to go back and review. But

certainly during one of the stakeholder meetings -- it may

not have been in the initial one, but in one of the

follow-up ones, we started providing percentages of the

set-asides.

Q. Did the Agency have an idea of what

percentages it was going to propose before the stakeholder

process began?

A. A general idea? I would say somewhat. We

were still open to hear the concerns of the regulated

community, the concerns of the environmental groups, the

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concerns of all the stakeholders on whether -- you know,

"What would an appropriate amount be? Is this even an

appropriate option for a set-aside?" So, we asked for any

and all feedback on it, on the set-asides.

Q. Do you recall whether any of the regulated

community expressed concern over a 30 percent set-aside?

A. Yes, I recall concern was expressed over a 30

percent set-aside. At which of the stakeholders meetings,

I'm not certain. Certainly that concern has been

expressed to us, yes.

Q. Did that concern at all influence the Agency's

decision making?

A. Yes, I believe so, to some extent.

Q. How so, please?

A. Well, I believe we provided perhaps -- And

there was a lot of factors involved, but that was one of

the factors that we took into consideration, but, you

know, we could have gone as high as 15 percent for the

energy/efficiency renewable energy as indicated in the

model CAIR rule. It allows up to 15 percent. We only

went to 12 percent. For the pollution control upgrades,

you know, we may have increased the amount available

there, which the pollution control upgrade category will

primarily be used by coal-fired power plants. So, we may

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have increased that amount of set-aside, early adopters as

well. That category will likely be used by the coal-fired

power plants for fluidized bed boilers. I believe we

listened to concerns there, that there should be some

set-asides available to them, and, in fact, we do provide

some set-asides to fluidized bed boilers.

Q. If I'm hearing you correctly then, what you're

saying is, is that the regulated community expressed

concern over the size of the set-aside, and then you

increased it; is that correct?

A. I would say we increased it, reduced it,

played with it. I said we reduced it somewhat. We didn't

go to the highest level possible for EE/RE. We're only

providing 12 percent, whereas the model CAIR says you can

go as high as 15 percent. So, perhaps we reduced it

there. Perhaps for the pollution control upgrade category

for the fluidized bed boiler category, letting them in and

using clean coal category, we may have let them use that

and increased the pollution control upgrade. So, perhaps

both, you know, we raised it and lowered it.

Q. I don't remember where I read this, probably

in the Statement of Reasons, but maybe it was somewhere

else, and you just mentioned it, which is what brings it

back to mind, and that is you're saying that the model

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CAIR allows up to a 15 percent EE/RE set-aside, and I

looked through the model CAIR and was unable to find that,

and, so, if at some point the Agency could provide us with

a cite to that, I would appreciate it.

A. Okay. We'll work on that.

Q. Okay. Are there any co-generation units in

Illinois that are affected by the CAIR?

A. I'm uncertain. I think CAIR -- Certain

percentage of the power has to be available or submitted

to the grid. Would you like to have the answer?

HEARING OFFICER KNITTLE: Would you please speak up?

A. Would you like to have the answer? We have

someone here on the panel who can provide that answer.

BY MS. BASSI:

Q. I'm sorry. On which?

A. We have someone here who can provide the

answer.

Q. On the co-generation?

A. Right.

MR. MAHAJAN: Yes. We can --

HEARING OFFICER KNITTLE: Would you identify yourself

first?

Keefe Reporting Company

BY MS. BASSI:

Q. What did you say?

MR. MAHAJAN: There was no coal units.

Q. There are no coal units?

MR. MAHAJAN: No.

Q. In fact, I now see my 15 percent set-aside

question. It's on Page 6 of your testimony.

A. (by Mr. Ross) Okay.

Q. That's where it is. And you're finding that

cite. Okay. After you find that cite, I may come back to

another follow-up on that if that's okay. Is the State

permitting of the acid rain units something new with CAIR?

A. Permitting of the acid?

Q. Yeah. Issuing acid rain permits or the --

A. No. The acid rain permits are required as

part of the acid rain trading program.

Q. Who issues those permits?

A. State.

Q. Let's see. You say in your testimony that

USEPA administers most other aspects of the SO2 program,

besides the permitting, and that's why I asked that other

question.

A. Okay.

Q. What aspects does the State control with

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respect to the CAIR SO2 program?

A. Permitting. I know we are involved in

compliance issues, such as inspections. That's all that's

coming to mind. We have limited involvement.

Q. Coming back to the set-asides, where does

USEPA suggest an 11 percent set-aside for clean technology

projects?

A. I don't believe they do.

Q. So, when USEPA developed and analyzed the CAIR

that was published in the federal register, did it

anticipate anything close to an 11 percent set-aside for

clean technology projects?

A. I can't speak to what USEPA anticipated.

Q. Do you know or can you recall whether this is

covered in the preamble to the CAIR?

A. The use of set-asides certainly.

Q. Clean technology projects?

A. Clean technology projects? I'm uncertain. I

mean, I know they say that states have flexibility to

provide set-asides. I don't believe they restrict --

Well, I know they don't restrict what states can provide

those set-asides for. So, I would say perhaps by not

addressing it, they allow states the ability to provide

set-asides as they see fit, and Illinois is utilizing that

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flexibility.

BY MR. BONEBRAKE:

Q. The federal CAIR that we've been talking

about, Mr. Ross, does it contain set-asides for existing

units?

A. Federal model CAIR?

Q. Federal model CAIR.

MR. RIESER: I'm sorry. Set-asides for --

MR. BONEBRAKE: Existing units.

A. Well, what they do is they provide flexibility

for states who are in charge of the allocations to provide

an allocation methodology that USEPA would then utilize to

allocate allowances. So -- The federal model CAIR simply

provides guidelines on what states can do.

BY MR. BONEBRAKE:

Q. But the federal model itself does not contain

set-asides for existing units; does it, Mr. Ross?

MR. MAHAJAN: The set-aside is only for the --

Q. I'm sorry. Was there an answer from Mr. --

A. I don't believe it does, but we'll have to

look at that. I'm not sure of the exact wording. I don't

want to say that the federal model CAIR says, "No

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set-asides shall be given to existing units." I can't say

that with certainty. I'd have to go in there and actually

re-look at it, but I do know, as I've emphasized, that

they do allow states the flexibility to provide

set-asides.

Q. But was there somebody else on the IEPA

witness panel that was offering an answer? I heard

somebody speak back there. I wasn't sure who I was

hearing.

MR. MAHAJAN: The USEPA given the states a budget to

distribute. So, the existing units in the model CAIR, if

you're asking the model, gets 95 percent of the allowances

to the existing units.

Q. And the remaining 5 percent is in the new

source set-aside; is that correct?

MR. MAHAJAN: Yes, the model CAIR.

BY MS. BASSI:

Q. How does USEPA provide for early adopters in

the CAIR?

A. (by Mr. Ross) I believe they did not provide

a set-aside for early adopters.

Q. Would they have provided for early adopters

perhaps with a compliance supplement pool?

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A. Yes, they would have perhaps.

Q. And isn't the compliance supplement pool a

considerably or a significantly different approach from

what Illinois EPA has provided -- or proposes? Sorry.

A. It is a different approach. However, I

believe both approaches provide an incentive for early

installation of controls. So -- And trading programs in

general provide incentives for early installation of

controls.

Q. To kind of recap then, the model rule that

USEPA adopted or -- according to Mr. Mahajan, provides

90 percent of the allowances to existing units --

MR. BONEBRAKE: 95.

BY MR. BASSI:

Q. What did I say -- 95 percent of the allowances

to existing units and 5 percent to new units, and it

provides in the annual program a compliance supplement

pool for early adopters; is that correct?

A. It's not only -- Well, that is, I would say,

partly correct. Yes, they allocate 95 percent of state's

budget to existing units, and 5 percent of that is for new

units in Phase 1. However, that is reduced to 3 percent

in Phase 2. And they provide a compliance supplement

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pool, which they have two purposes in general. One of the

reasons is for early reduction credits, as you mentioned.

The other is that states were given the flexibility to

allocate those allowances in the event they found a risk

to the power supply. So, it's a reliability of the grid

question, and we found no such reliability issues in

Illinois, and as far as providing an incentive for early

reduction credits, we are doing that with our early

adopters set-aside, and as I mentioned, cap and trade

programs in general provide incentives for installation of

early controls.

Q. So, then is it safe to conclude that Illinois'

proposal is substantially different from the model rule?

A. Yes, in terms of the amount of set-asides we

have proposed and in regards to the fact that we are

proposing to retire the compliance supplement pool, yes,

we are different from the model.

Q. And there are other differences, as well, that

we'll get into later?

A. Yes.

Q. Okay. Does USEPA development and analysis of

the CAIR, including its economic analysis, anticipate --

and by "anticipate," I don't mean what was USEPA's

thinking -- I'm saying, does it include anything that is

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similar to the Illinois rule, besides the fact that

there's a cap and trade program?

A. You mean what they modeled --

Q. Yeah.

A. -- in coming up with the cost to industry?

Q. Yes.

A. The differences are as you've noted.

Q. Okay.

A. So --

Q. Thank you.

HEARING OFFICER KNITTLE: Mr. Bonebrake is waving his

hand.

BY MR. BONEBRAKE:

Q. Is it true then, Mr. Ross, that USEPA's

economic analysis in connection with the CAIR would have

addressed a 5 percent set-aside as opposed to a 30 percent

set-aside?

A. Is that what they modeled?

Q. That's my question.

A. I believe that's what they modeled.

Q. Okay.

A. I mean, perhaps another point, Illinois --

This is as good a time as any to mention it. Illinois has

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also stated or proposed that we will give away the

allowances. We could have chosen to sell them or

distribute them through an auction. So, in that regards,

that's another flexibility that the USEPA offered to

states. So, we have chosen not to do that more costly

mechanism.

BY MS. BASSI:

Q. With respect to the possibility of auctioning

allowances, does Illinois EPA even have statutory

authority to do so?

A. I'm uncertain.

Q. There could be other reasons why you're not

auctioning them. Let me suggest that. Has Illinois

analyzed particularly the economic reasonableness and the

highly cost effectiveness of these control measures that

will be required in Illinois as a result of this proposal?

A. Yes, I believe we did with the ICF modeling.

Q. Okay. When I use the term "highly cost

effective," is this not a term that USEPA uses in the

CAIR?

A. Yes, it is.

Q. And would you please explain what it means?

A. Well, it means that the cost to industry of

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implementing this rule, reaching the caps required under

the cap and trade program meet the criteria for highly

cost effective. I guess one way you could phrase that is

they will not be significantly burdensome to the regulated

community, to the affected parties of this rule. So,

highly cost effective controls are controls that will not

impose a significant or a financial burden to the

regulated parties.

MR. KIM: Just as clarification, when you asked that

question, were you asking the witness what his

understanding of that phrase is, or what his understanding

of USEPA's definition of that phrase is?

MS. BASSI: The second.

MR. KIM: So, you were asking what did USEPA mean

when it used the phrase "highly cost effective"?

MS. BASSI: Yes. Which I think is set forth in the

preamble. So, assuming he's read the preamble, he's --

MR. KIM: I just wanted it clear.

BY MS. BASSI:

Q. Okay. So, when USEPA determined the emission

cap, it was based on what are highly cost effective

control levels in terms of the reductions that would be --

that they wanted to meet, plus the controls that would be

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imposed; is that correct?

A. That sounds correct.

Q. Okay. And my question then is, did Illinois

perform a similar highly cost effective-type analysis

before it determined that a 30 percent set-aside was

appropriate?

A. To some extent, yes. What we modeled with the

ICF was the incremental impact that our set-aside policy

and allocation policy would have to electricity rates,

cost to the power sector, and I believe the results of the

modeling show that there will be minimal impact. So,

the --

Q. If the --

A. I'm sorry.

Q. If the 30 percent set-aside, which arguably

could be viewed as a 30 percent reduction in the cap for

Illinois, was highly cost effective, wouldn't USEPA have

reduced the regional cap or Illinois' cap by 30 percent?

A. I can't speculate on what USEPA would have

done, but I will say that I don't believe that a 30

percent set-aside is the same as removing those

allowances.

Q. Is that because 30 percent is not being

removed in the rest of the region?

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A. Well, 30 percent of Illinois' budget is

set-aside and remains available for allocation. So, it is

not the same as removing 30 percent of the allowances.

Q. If this 30 percent set-aside is no longer

available to the regulated community in Illinois through

direct allocation, which is what happens when you have a

set-aside, does that -- you have said several times that

it's not removed because they're not retired -- does that

not then increase the cost of compliance for Illinois

sources who may have to go out and buy that 25 percent

that's gone from their allocation?

A. If they are unable to obtain enough allowances

from the set-asides, then, yes, that would increase the

cost to those companies. They would have to go out and

purchase, otherwise obtain enough allowances to cover

their emissions. The true --

Q. Just to establish this, because even though I

can -- probably we all understand it, the Illinois

coal-fired power generators are not -- is it correct that

they are no longer considered utilities, in that utilities

are regulated by the Illinois Commerce Commission? Are

the rates that are paid to the Illinois power generators

controlled by any governmental entity?

A. I believe they're regulated, controlled by the

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Illinois Commerce Commission. That's my understanding.

Q. Okay. We'll come back to that.

A. But I am no expert in that area.

Q. Yeah. I understand.

HEARING OFFICER KNITTLE: Ms. Bassi, let's go off the

record for just a second.

(A brief recess off the record.)

HEARING OFFICER KNITTLE: Let's go back on the

record. We are back on the record after a short break,

and, Ms. Doctors, you have a question.

MS. DOCTORS: We had found the citations to the

documents that Ms. Bassi asked for. So, I'd like to go

back on the record. It's Exhibit E to the Statement of

Reasons, Guidance on Establishing Energy Efficiency and

Renewable Energy Set-Aside in the NOx Budget Training,

Page -- It looks like it's right up front. It's Page X.

BY MS. BASSI:

Q. Just following up on that a bit. So, this was

not then developed for the CAIR; is that correct?

A. (by Mr. Ross) I believe it was developed for

the NOx SIP Call, but developed for NOx budget trading

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programs. And on Page X, it says, "EPA's recommendation

for size of a set-aside is 5 to 15 percent," and it's

referring to energy efficiency and renewable energy.

Q. Isn't the title of this "Guidance On

Establishing EE/RE Set-Aside in the NOx Budget Trading

Program," and it's dated March, 1999?

A. Yes, it is.

Q. And is the NOx budget trading program what we

call the NOx SIP Call?

A. Yes.

Q. Is that codified in Illinois in Part 217,

subpart W?

A. I believe so, yes.

Q. For EGU's, that is?

A. Yes.

Q. Is the CAIR exactly like the NOx budget

trading program?

A. No.

MR. KIM: When you say "CAIR," you mean federal CAIR?

BY MS. BASSI:

Q. I mean the federal CAIR NOx trading program,

is it exactly like the NOx budget trading program? And I

recognize the annual is annual.

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A. Right. No, it is not exactly.

Q. Okay. So, this is guidance then that was

developed for the NOx SIP Call and not for the CAIR, and

has there been any update to this relative to the CAIR?

A. No, not that I'm aware of, no.

Q. And I recognize there could be and nobody

would know.

A. Quite possible.

Q. Okay. So, I just wanted to clarify that the

Agency's basis for this 5 to 15 percent EE/RE set-aside

was something that was developed for a previous trading

program and not for the current trading program, and is it

not the case that Illinois did not include an EE/RE

set-aside in the NOx budget trading program?

A. Yes, all those statements are true.

Q. Mr. Ross, I realize this may predate your

position -- in fact, I know it predates your position, but

not Mr. Kaleel. Do you recall, Mr. Kaleel -- I'll ask you

because you're the one sitting there -- whether Illinois

considered an EE/RE set-aside in the NOx SIP Call?

MR. KALEEL: I don't believe we considered it at that

time.

MS. BASSI: Okay.

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BY MR. BONEBRAKE:

Q. Mr. Ross, I had earlier asked you some

questions about the ICF report and to whom at IEPA we

should direct our related questions, and I think you

basically told me the panel that's currently present, and

one of my questions then would be for you, Mr. Ross,

first, are you an economist by training?

A. (by Mr. Ross) No, I am not.

Q. Do you have any economic degree?

A. No, I do not.

Q. Do you have any training or degree in economic

modeling?

A. No, I do not.

Q. Mr. Kaleel, are you an economist by training?

MR. KALEEL: No, I'm not.

Q. Do you have any degree in economics?

MR. KALEEL: I do not.

Q. Do you have any degree in economic modeling?

MR. KALEEL: No, I do not.

Q. Do you have any formal training in economic

modeling?

MR. KALEEL: No.

Q. And same questions for the third member of our

panel.

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MS. KIM: Mr. Cooper.

BY MR. BONEBRAKE:

Q. Mr. Cooper. Thank you.

MR. COOPER: No.

Q. You have no economic degree, no training in

economic modeling?

MR. COOPER: Not specifically, no.

Q. Mr. Ross, we were earlier talking about the

differences in set-asides between the federal model

program and what IEPA, the Agency, has proposed here, and

I had a follow-up question for you, and the follow-up

questions relate to a comparison of what Illinois has

proposed and what other states in the CAIR region have

proposed or adopted at this point in time. And just to

kind of bring a fire point to the question, I think the

TSD at Page 114 -- And if you want to go there, that would

be fine, if you've got a copy handy. And this is the

Section 8.1.5.6 entitled "Economic Reasonableness of

CASA," and the first sentence in that section reads in

part, "While the Illinois CASA is larger than the

set-asides specified by other states in the NO2 SIP Call

trading program, or in other states CAIR SIP's (proposed

or adopted)," and goes on from there. So, my first

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question for you, Mr. Ross, is, has the Agency conducted

an investigation of what other states have adopted or

proposed with respect to set-asides and rules implementing

federal CAIR?

A. (by Mr. Ross) We previously had conducted

such an investigation.

Q. When you say "previously," can you describe

for us what you mean?

A. Prior to the writing of the Technical Support

Document. I believe a lot of the proposals for CAIR are

still ongoing. More states are letting it be known how

they are going to proceed in regards to CAIR, whether they

will be having significant set-asides or any set-asides

deviating from the model federal CAIR in regards to

utilizing the flexibility offered by USEPA.

Q. Is it still true that at this time the Agency

is not aware of any other states that has proposed

set-asides as significant in size as what Illinois has

proposed in the rule before the Board?

A. Yes, that is true. I am not aware of any

state that has proposed such a large set-aside.

Q. And has any other state adopted a rule with

set-asides as large as what the Agency has proposed?

A. Not to my knowledge, no.

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Q. And specifically, Mr. Ross, do you know what

any other states in the CAIR region have proposed or

adopted with respect to set-asides at this point?

A. Yes, we have that down somewhere. Like I

said, we did an investigation. We had identified several

states that were proposing some set-asides in different

amounts. Some states had actually adopted some set-asides

in their NOx SIP Call regulations which Illinois did not.

But as far as what other states are doing in regards to

CAIR, we had looked at that. We had reviewed, discussed

and included that in our thinking and in our arrival at

our set-asides.

Q. Was this analysis an investigation by the

Agency then reflected in some writing?

A. I believe there is some document out there,

whether it be draft or not. I know that we submitted as

part of the stakeholders meeting a position paper. So to

say, you'd call them position papers. I'm not sure what

you want to refer to them as. But they laid out all the

set-asides, and then we had some follow-up presentations

on what Illinois was proposing. I'm trying to recollect

if those presentations also included perhaps what other

states were considering. I'm uncertain. I'd have to go

back and review those. But a lot of that information is

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on our web site.

MR. BONEBRAKE: I guess I'd like to place a request

then to the Agency if there is a writing which summarizes

or otherwise identifies what other states have adopted or

proposed with respect to set-asides in CAIR implementation

programs, that would be a document we certainly would like

to see.

MR. KIM: We'll try and track that down.

MR. BONEBRAKE: Is anybody then on the panel in a

position to testify today about what other states

specifically are doing -- any or all of them?

MR. KIM: Possibly after we look at the document, we

could.

MR. BONEBRAKE: So, why don't we postpone further

questions on that until we have the opportunity to find

that document or documents?

A. (by Mr. Ross) Okay.

HEARING OFFICER KNITTLE: Does that conclude the

questions?

MR. BONEBRAKE: No. We have some more questions.

BY MR. BONEBRAKE:

Q. Mr. Ross -- I'm sorry.

A. (by Mr. Ross) I was just clarifying a point

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that many states that are involved in the CAIR trading

program have not made known yet what they intend to do in

regards to the set-asides, that Illinois is perhaps one of

the few out there that is moving forward with a CAIR

proposal.

Q. I would suggest to you, Mr. Ross, that I think

there are quite a few states that have proposed or adopted

CAIR rules, but perhaps we'll re-visit that line of

questioning when we find that document that we were

earlier talking about. Now, one of the allocation

methodologies that can be used relies on heat and another

on gross electrical output; is that correct, Mr. Ross?

A. That's correct.

Q. And which of those two does the USEPA model

CAIR use?

A. USEPA model rule uses heat input.

Q. And which does the IEPA proposed rule use?

A. We are proposing to use output based

allocations.

Q. When you say "output based allocations," can

you describe for us what you mean?

A. It's based on gross electrical output from a

facility, that is the amount of power produced measured, I

believe, in megawatt hours. Is that right? Gigawatt

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hours. I'm sorry. And we believe that output based

allocations reward efficiency. They encourage using less

fuel to produce the same amount of power, and, of course,

using less fuel, in particularly when it's coal that is

the fuel, the less coal burned, the fewer the emissions.

Q. Are fluidized bed boilers recognized by the

Agency to be good environmental performers?

A. To some degree, yes. They are recognized as

being less polluting than pulverized coal boilers, that is

their emissions, in particular of NOx and SO2, are lower

than the emissions of pulverized coal boiler --

uncontrolled emissions.

Q. And, in fact, in recognition of that, there is

a category of the CASA that is available to fluidized bed

boilers; is that correct, Mr. Ross?

A. That is correct.

Q. Is it also true that fluidized bed boilers are

less efficient as compared to pulverized cyclone units?

A. My understanding, they're in the same general

efficiency area.

Q. So, your testimony, Mr. Ross, is they have the

same levels of efficiency?

A. In general they have near the same levels of

efficiency. I don't believe there's a big difference in

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the efficiencies of fluidized bed boilers and pulverized

coal boilers.

Q. Is there anyone else on the panel that has any

different view?

MS. DOCTORS: No.

BY MR. BONEBRAKE:

Q. Mr. Ross, I think you've indicated that one of

the goals of the 25 percent CASA from the Agency's

perspective is to encourage and promote energy efficiency

and renewable energy, conservation and clean coal

technology. If you haven't done that so today, I think

there's testimony to that effect in the written testimony.

And my follow-up question for you, Mr. Ross, is, what

studies or analyses has IEPA done to determine that these

goals will, in fact, be attained by the CASA that it has

proposed for adoption?

A. Well, we have performed an assessment of what

could potentially occur as a result of our set-aside

policy, and we believe that our set-aside policy will, in

fact, encourage what it's meant to encourage, the items

you stated, energy efficiency, renewable energy, clean

technology and early adopters.

Q. Can you describe for us this assessment?

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A. We can -- I believe we have it somewhere. I

could probably provide it, also, but in general it shows

that to the extent that these -- this policy encourages

the use of these technologies of energy efficiency,

renewable energy, clean technology, early adopters, that

NOx emissions will in turn also be reduced, and to the

greater extent that NOx emissions are reduced, the greater

the public health and environmental benefits, and these

reductions could be in the areas of tens of thousands of

tons of pollutants each year.

Q. Your answer to my question suggested that

there's some writing that reflects or contains this

assessment. Is my understanding of your testimony

correct?

A. I believe we have a preliminary analysis out

there, a draft analysis that we could perhaps provide.

Q. And who was the author of this preliminary

draft analysis?

A. Agency staff. I mean, in general we have had

meetings -- many meetings on the effect of our policy, how

it will impact NOx emissions, SO2 emissions, what we

expect will occur. We formed a CAIR advisory group, which

also, from initial development of the rule all the way up

to weeks ago, had met many times discussing this issue.

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So, the document kind of evolved. There were perhaps some

primary authors, maybe Roston Cooper, who is on the panel.

He was perhaps the person who took the lead in that

document preparation.

Q. So, is it correct then that the Agency is

predicating its CASA allowances upon a preliminary draft

assessment that's not part of the record in this

rulemaking proceeding?

A. I wouldn't say that's correct. We are simply

speaking to encourage the use of energy efficiency,

renewable energy, clean technology, early adopters in

order to see additional NOx reductions in Illinois and

also to be consistent with the Governor's energy policies.

In addition, we looked at some guidance documents provided

by staff at LADCO. We looked at documents provided by the

USEPA. One of those was referenced earlier. Internal

staff discussions. So, all of these -- together through

all these we arrived at our policy.

Q. And I need to make sure that I understood the

answer that you just provided. I think you referred to

staff of LADCO guidance documents and USEPA guidance

documents. With respect to USEPA guidance documents, you

looked at EE/RE guidance document dated in 1999 that Ms.

Bassi asked you questions about. Are you referring to any

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guidance other than that by Illinois EPA?

A. I believe there are several other guidance

documents out there. Then there's the CAIR rule itself.

There's -- And perhaps someone else -- I believe we list

several of these documents in the references used for the

Technical Support Document. Do we have an

all-encompassing list somewhere? We may very well have.

I'd have to check.

Q. Just so it's clear, there's more than a set of

documents. From your perspective today, do they all

support the notion that the CASA will, in fact, achieve

the goals that are identified in your written testimony?

A. I believe they do. I don't believe there's

any contradiction in any of those documents.

MR. BONEBRAKE: And I guess I would place a request

to the Agency to get a copy of the written assessment that

Mr. Ross has been talking about.

MR. KIM: We can -- And I assume you're referring to

the internal document that he made reference to?

MR. BONEBRAKE: That's correct. I think you're

calling it the assessment, and I think he identified

Mr. Cooper as one of the primary authors.

MR. KIM: We should be able to make a copy of that.

Although I'd like to ask him just one question, and we

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will provide that.

BY MR. KIM:

Q. Mr. Ross, was that document that you're

referring to relied upon in preparing the rule that was

filed with the Board?

A. No, I don't believe so.

MR. KIM: And I think we can get more testimony, once

you get the document handy, exactly what the purpose and

impact of that document is.

MR. BONEBRAKE: Then I'm confused. My understanding

had been that the assessment that's reflected in this

writing is, in fact, what IEPA relied upon.

MR. KIM: And I think I can clarify that. I think

that your question started -- It took into account several

different concepts, both -- You began on that document,

and then you began asking about some other stuff. So, I

think maybe we just need to make clear, you know, what

documents were relied upon and were not. The documents

that were relied upon, you know, if he's referring to the

documents that are included on the lists -- the documents

that were relied upon the list, if there's something

beyond that list, I guess you can ask that. I assume that

there's not. That's why I asked the question. The

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internal document is -- I believe he's testified was not

relied upon in creating the rule.

MR. BONEBRAKE: Well --

A. (by Mr. Ross) Perhaps for some clarification,

through the rule development process, as I've stated, we

met numerous times. We formed a CAIR advisory group. We

had larger group meetings with that group as a subset. We

discussed all different types of potential set-asides,

what impact they would have, "What would be the result of

pursuing a large set-aside policy, of pursuing a renewable

energy, energy efficiency, set-aside of a certain

percentage, the effect of a clean technology set-aside

pollution control upgrades, and early adopters?", and

throughout the whole process, the thinking has always been

to the extent that these set-asides result in additional

NOx reductions, there will be additional public health and

environmental benefits and improvement to air quality.

So, the document was kind of in development, and it was

perhaps not anything formally in writing in a presentable

manner until perhaps several weeks ago, a month or so ago.

So, the concepts have existed for a very long time. As

far as something in writing that could be shared, that's a

rather newer development.

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BY MS. BASSI:

Q. Just to follow-up on one of the things that

you just said, you said that part of the concept or the

thought in the Agency's mind supporting a CASA or at least

EE/RE and perhaps some of these other set-asides that

you've included in the rule is that they would result in

NOx reduction that would result in improvement, I think

you said, of health benefits or something. Maybe you said

more.

A. Public health and environmental benefits in

the way of improved air quality.

Q. But you said earlier, as I recall, that

because this is just a set-aside, that these allowances

are still out there, meaning they can be traded, and they

then can be surrendered by sources who have emitted NOx

for compliance purposes; is that correct?

A. I believe you've characterized that correctly.

The allowances in the set-aside are available for

allocation back to the affected sources.

Q. Who can then trade them; is that correct?

A. Who can trade them.

Q. If they are traded and if they are not

retired, in other words, but they are traded, and they are

eventually surrendered to represent a ton of NOx emitted

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by some party, does this not -- I hesitate to use the

word, but does this not offset the environmental and

health benefits?

A. No, I don't believe so, and we'll get into

this somewhat in more detail, and this will be explained

as -- I believe we have a set-aside presentation. But in

general the energy efficiency/renewable energy category,

solar energy -- Let's say a new unit comes on-line, and

that energy that that produces is believed to in turn

offset the production of energy from a dirtier unit so

that the net effect is a cleaner environment. Now, what

that solar energy company does with the allowances they're

allocated is critical. We believe, you know, that they

could sell it back to a source here in Illinois. They

could sell it to a source outside of the Illinois. They

could retire it. They could bank it. But there is an

offset of a dirtier polluting source generating

electricity.

Q. Does the CAIR --

MR. KIM: I think Mr. Cooper wanted to add something

to that question.

MR. COOPER: Building off what Mr. Ross said, in

effect there is a two for one going on. There is the

first round of benefit that is given to the renewable

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source, such as a wind farm. So, it generates, say, a

megawatt. And then in turn that wind farm then, we

believe, most likely would sell to the utilities, and then

they would use it for their own purposes. So, the offset

in reduction is the megawatt of clean power that otherwise

perhaps not would have been generated.

BY MS. BASSI:

Q. Does the CAIR assume there is growth and

demand?

MR. COOPER: I am uncertain.

A. (by Mr. Ross) Does the CAIR modeling assume

there is growth --

Q. Does the CAIR, meaning the CAIR rule, when

USEPA developed the CAIR rule, was there an assumption

that there would be a growth and demand for electricity?

A. I'm uncertain, but I know that IPM in their

modeling takes into account growth.

MS. BASSI: Okay. Thank you. I have some questions

next about -- that might be covered by the errata, and I

haven't had enough time to look at this, but basically is

this errata sheet, I want to say, proposed amendments to

the proposed rule?

MS. DOCTORS: Some of them are. These are just like

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typographical errors versus there are some things that

need to be fixed that are more controversial issues. We

provided that, "Oh, we forgot a parentheses on one side of

an equation type of typo correction in that, but there are

some language changes coming later in the week that

correct some of the other errors in the rule.

MS. BASSI: Later this week?

MS. DOCTORS: Yes.

MS. BASSI: And I'm sorry. Are these language

changes, you say they don't correct; they change?

MS. DOCTORS: Correct.

MS. BASSI: Okay.

MS. DOCTORS: Well, there is a correction in --

There's both corrections, but just some controversial

people might have questions about them versus I don't

think people question the fact that you need to add a

parentheses or there's a word missing. Comprehensive.

BY MS. BASSI:

Q. Anyway, how will the CAIR improve

recreational -- And here when I say "the CAIR," I mean

this rule. How will this rule improve recreational and

commercial fishing? I'm just curious?

A. (by Mr. Ross) I believe one of the problems

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that I went over in the presentation -- I believe we

addressed it in Technical Support Document -- is the

acidification of lakes and streams, that is NOx and SO2

can transform or contribute to acid rain. So, acid rain

in turn can acidify lakes and streams and make them less

habitable to fish and aquatic life in general, which in

turn would affect the fishing industry.

Q. Going back a little bit to the economic

analysis, you say that your economic analysis evaluated

the increments of the Illinois rule over the CAIR. I

believe you said that in --

A. The incremental impact, that's correct.

Q. Okay. What is the total cost including both

the cost of the CAIR plus the incremental cost of this

rule to Illinois EGU's?

A. The total cost? I'd have to go back and

review those numbers. I believe it's more expensive in

the first phase and then becomes less expensive in the

following phases primarily due to lower generation.

Q. If there's lower generation, does that also

mean a loss of revenue?

A. I believe it does.

Q. Is that not a cost?

A. That is a cost.

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Q. Okay. So, I asked what the total costs to the

Illinois EGU's --

A. Yeah. I'd say I'd have to review it, but I

believe it's in the 30 million range.

Q. Per year?

A. I believe it's per year.

BY MR. BONEBRAKE:

Q. Just so the record is clear, Mr. Ross, is that

the total cost of the federal CAIR model with the

deviations reflecting the CASA as proposed by IEPA?

A. That's the incremental additional costs that

are incurred as a result of our policy.

BY MS. BASSI:

Q. And what I was asking for was the cost that

includes the basic rule, as well.

A. And that's in the modeling results. I don't

know that off the top of my head, but it is in the tables

that were provided as part of the Technical Support

Document.

Q. Do you know whether these costs that are

reflected in the TSD that includes apparently the whole

thing that I was just asking about include commonwealth

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Edison proposed rate hikes?

A. I don't believe they do. I'm uncertain,

though. I mean, I don't believe they do.

BY MR. BONEBRAKE:

Q. Mr. Ross, for clarification, can you refer us

to the TSD tables that you had in mind so we all have an

understanding of your testimony?

A. I believe they're in Section 7. Yeah, they're

in Section 7. They begin on Page 68 beginning with Table

7-1; Page 69 has Table 7-2; 7-3, 7-4 on Page 70; Table 7-5

is on Page 71, Table 7-6 and 7-7 are on Page 73; 7-8 and

7-9 on Page 74; Table 7-10 on Page 75; and Table 7-11 on

Page 76.

Q. Section 7, that contains all of the tables

that you just referenced, Mr. Ross, deals specifically

with the ICF incremental analysis with respect to the ways

in which the Illinois rule deviates from the federal

forum; is that correct?

A. I believe so, yes.

Q. So, all the tables that you just mentioned

address the incremental cost and other effects of the

Illinois proposal as opposed to total costs, including

those imposed by the federal model; is that correct,

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Mr. Ross?

A. Say that again, please.

Q. All the tables that you just mentioned --

A. Yes.

Q. -- are addressing the effects including the

cost effects of the Illinois rule as it deviates from the

federal forum and not the total cost of the Illinois

proposal including the impact of the federal model?

A. No, I don't believe that's accurate. The

tables are divided into different columns. For instance,

if you -- Well, we can look at the first table, Table 7-1

on Page 68. I believe column one is the policy case with

Illinois NOx rule. I believe those are total costs. Then

the base case is Illinois with CAIR CAMR. That is just

with the model federal CAIR. And then the third column is

the difference between the two. So, the third column is

the incremental impact. So, I believe you can determine

the total cost from these tables. So, they provide total

costs, and then the difference between column one and

column two were more specifically the difference. Well,

column one and column two is the incremental impact of

Illinois' policy.

Q. And all the tables that you just mentioned in

the TSD, are those taken from the ICF report?

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A. They are.

MR. BONEBRAKE: And I have some specific questions

for Mr. Ross pertaining to the ICF report, and I believe

we have an indication that a copy of that was an

attachment to the Statement of Reasons, I think you

mentioned, Ms. Doctors?

MS. DOCTORS: The ICF report was attached to the TSD

B33.

MR. BONEBRAKE: And I have some extra copies if

people want to follow along on specific questions.

BY MR. BONEBRAKE:

Q. Mr. Ross, have you had a chance to take a look

at the document that I just handed to you?

A. I'm familiar with the document.

Q. And this is the ICF report dated March 25,

2006 that we've been referring to this morning?

A. It is.

Q. And this was the report upon which Section 7

of the TSD was based; is that correct?

A. That is correct.

Q. At the bottom of Page 1 of 11, there are three

items there listed in the section "Reduction in Illinois

NOx Budget Allowances"?

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A. That is correct.

Q. And were each of these assumptions that were

made by ICF in performance of the modeling run for the

Agency?

A. Yes.

Q. And can you explain to us what the first item

means, that is the CAIR NOx compliance supplementary pool

item?

A. Yeah. That's what we were discussing earlier,

that USEPA provides an allowance pool -- a one-time

allowance pool that can be allocated to sources to

encourage early reduction or for the purpose, if it's been

identified that there is a risk to the power grid, a

reliability concern, then these allocations can be

distributed accordingly.

Q. Did I understand your testimony -- and correct

me -- from earlier this morning that that compliance

supplementary pool was not going to be allocated by the

Agency but retired?

A. That's correct.

Q. So, the reference here to "Starting in 2009,

the Illinois budget was reduced by 30 percent," in item

one, I found that phrase confusing. Do you know what that

was intending by that phrase in connection with the

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reference to the compliance supplementary pool?

A. Well, they retired our entire proposed

set-aside, which is 30 percent. They did not retire the

compliance supplement pool as we proposed. So, in that

regard, they did not specifically model what we are

intending to do with the compliance supplement pool.

Q. And the retirement of the compliance

supplement pool would have the effect of taking a certain

number of allowances out of the market; is that correct,

Mr. Ross?

A. That's correct. At the initial phase of the

program. Again, it's a one-time pool. So, it's 11,299

allowances that can be distributed during the first

perhaps two years of the trading program, whereas the

set-asides are an ongoing pool of allowances which can be

re-allocated. The answer to your question is, they did

not retire the compliance supplement pool in the model,

and that would result in additional costs to industry.

The modeling is not more conservative in that regard.

Q. So, in fact, the modeling results understated

the cost to industry?

A. To the extent that the compliance retirement

of the compliance supplement pool would increase those

costs, the answer is, yes, the modeling understated the

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cost to industry.

Q. ICF also assumed that 30 percent of the annual

and seasonal NOx allowances would be retired; is that

correct?

A. That's correct. And as I have stated many

times, that is not the case. That these allowances remain

available for allocation.

Q. And if, in fact, the allowances remain

eligible for allocation as opposed to -- Strike that.

I'll come back to that. Did ICF address, Mr. Ross, the

impact, if any, of the CASA on the use of Illinois coal?

A. Yes, I believe they did.

Q. And did they find in their modeling results

negligible or no impact? There is a Table 1-10 that might

help you answer.

A. Yeah, I think the -- what was found is the

proposed rule has minimal impact on coal use and type of

coal utilized.

Q. Is it also true that ICF found that the

30 percent retirement assumption led to the installation

of only 100 megawatts of additional NOx control in

Illinois?

A. I would have to go back and review the

results, but --

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Q. I guess --

A. In general I believe it did not find a large

amount of additional NOx controls being used.

Q. I think Table 1-9, Mr. Ross, addresses that

issue.

A. Yes, as can be seen from Table 1-9.

Q. And did ICF determine that instead of

installing new controls, EGU's in the state would by and

large buy allowances as a result of the 30 percent

set-aside?

A. As a result of retirement. You've got to keep

in mind as we go through these tables that ICF modeled

set-asides being retired. So, the modeling results do

show what you're saying with the set-asides being retired,

but, again, the set-asides will not be retired, and as

Mr. Cooper stated and I stated, we believe that set-asides

do provide a benefit in the way of additional NOx

reductions, but in regards to, I believe, what you're

stating, control retrofits for NOx controls, there's some

additional controls. 102 megawatts in 2009, and then that

goes for scrubbers, too, and then no additional retrofits

beyond 2009, if that's where I believe you're going, the

question asked.

Q. Well, in the scenario that Mr. Cooper

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described where there is an allowance that is made

available, let's say, to a wind farm and then sells that

allowance to an electric generating unit, there is a cost

from the electric generating unit's perspective in the

program inasmuch as it has to buy that allowance when but

for the CASA it would not; is that correct, Mr. Ross?

A. There is a scenario where that may be the

case. That's not necessarily the case. The utility, the

coal-fired power plant per se could reduce its emissions

substantially so that they do not need additional

allowances from CASA or anywhere else. So, they would not

necessarily have to purchase an allowance from the wind

farm or solar energy producing plant.

Q. The ICF model projects useable economic

activity; is that correct, Mr. Ross?

A. I believe that's correct.

Q. In fact, ICF is projecting a feasible economic

activity trading as opposed to installing controls and

less reducing the emissions in Illinois by and large; is

that not correct?

A. That's correct.

Q. Now, is it also true, Mr. Ross, that ICF

predicted essentially no change in NOx emission levels in

Illinois as compared to the federal CAIR model as a result

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of the 30 percent set-aside?

A. They predicted forecast some additional NOx

reductions, but minimal, correct.

Q. In fact, if we turn to Page 2 of 11, Section

headed "Results" --

A. Yes.

Q. -- the third paragraph in that section.

A. Yes.

Q. Does ICF predict in 2009 additional NOx

emission reductions of less than 1,000 tons or 1.8 percent

as compared to the federal CAIR model?

A. Yes. That's correct.

Q. And as of 2015 and 2018, ICF was predicting no

change in NOx emissions as a result of the additional

set-asides proposed by Illinois?

A. No change in Illinois as a result of

retirement of the set-asides. I think the next few

sentences emphasize there is a change in the regional

emissions of NOx and SO2, substantial reduction equivalent

to 30 percent retirement. This change was forecasted to

occur mostly in Florida and Kentucky, not Illinois.

Q. Has the Agency conducted any analysis of

whether reductions in Florida would have an impact on the

State of Illinois?

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A. I don't believe the Agency has. The USEPA has

conducted some modeling. And, yeah, I don't believe

Florida was identified as one of the significant

contributors to pollution in Illinois.

Q. Was not identified?

A. Was not, correct. But Kentucky was.

MR. KIM: While Mr. Bonebrake may form his next

question, I just had one question I wanted to ask Mr. Ross

just to sort of maybe frame all this.

BY MR. KIM:

Q. Mr. Ross, was the primary purpose behind the

proposal of the CASA in its form to result in reduced

emissions, or was there a different purpose that was

driving the Agency's proposal?

A. It was -- The primary purpose was to encourage

energy efficiency, renewable energy, clean technology and

early adopters, and as I stated, to the extent that those

result in additional NOx reductions, we would expect

corresponding improvements to public health and air

quality.

BY MS. BASSI:

Q. Is it -- At the outreach meetings, did the

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Agency not present that the CASA allowances that were not

used to be retired?

A. I believe we retain that as an option.

Q. Is that option to retire the CASA allowances

that are not used reflected in the proposed rule?

A. Yes, it is.

Q. And in the various documents that the Agency

has presented both in your testimony and -- I don't know

if it's fair to ask you about everybody else's, but in the

Statement of Reasons perhaps in the TSD, is there not the

concept included in there that retirement of unused CASA

allowances will aid towards attainment of the ozone and

PM2.5 standards?

A. Well, USEPA does offer guidance on how to

obtain SIP for retirements, but more generally to the

extent that retirements result in additional NOx

reduction, then the closer we are to meeting our air

quality goals.

Q. Does the Agency plan to take SIP credit for

EE/RE as set forth in guidance that you attached to, I

believe, the Statement of Reasons at your Exhibit F?

A. We are reviewing that, and we take SIP credit

where appropriate. So, there is guidance out there. We

are actively reviewing it and have been reviewing it, and

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we are examining how much SIP credit we can get for our

policy.

Q. Okay.

A. But certainly USEPA has stated that there is

some SIP credit available when you retire allowances.

Q. I was talking not about the retirement, but

about the --

A. Or to the extent that you can demonstrate that

additional reductions will occur as a result of a policy.

BY MR. BONEBRAKE:

Q. Has the Agency, that is the State Agency, had

any discussions with USEPA regarding SIP credit as a

result of the CASA?

A. I don't believe so, but we have participated

in seminars sponsored by USEPA on how to calculate and go

about getting SIP credit for reductions from retirement

allowances or a policy such as ours.

Q. Mr. Kim asked you a question about whether the

objective or at least one of the objectives was to reduce

NOx emissions, and he asked you specifically about some of

the set-aside programs, I think, like the EE/RE in his

question, and my understanding had been that the intent or

the goal of the EE/RE and other set-asides was, in fact,

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to reduce emissions. Is that understanding not correct?

A. I think Mr. Kim's question was, "What was the

primary purpose of our set-aside policy?", and the primary

purpose is to encourage these activities. A result of

this encouragement is certainly likely to be additional

NOx reductions, and to the extent that there are

additional NOx reductions that we can quantify and take

credit for, then all the better. They will help us in our

attainment demonstration, and they will result in

improvements to public health and air quality and all

that.

Q. The Agency wants to encourage the set-aside

activities because the result of those activities may be

to decrease emissions; is that right, Mr. Ross?

A. That is one of the reasons stated. Other

reasons consistent with the Governor's energy policy. I

believe I added a few others.

Q. So, to the extent that ICF analysis is telling

the Agency that, in fact, it should expect no or minimal

NOx emissions, then the goals of its CASA set-aside

program do not appear to be attainable through the CASA;

is that correct, Mr. Ross?

A. Well, the primary purpose of the ICF modeling

was to analyze an economic impact. The ICF modeling does

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not accurately reflect the NOx emission reductions we

expect to see as a result of our policy. Hence, we

performed and have discussed, as we've talked about

already, an assessment of the reductions in NOx that we

would expect to see as a result of our policy. So, I

think it's safe to say that we believe the actual results

of our policy will be different than what ICF results

show, because ICF results, stated several times, were

based upon a retirement of the entire set-aside, whereas

these allowances are available for re-distribution, and

through that re-distribution or re-allocation, they

encourage policies, which in turn result -- likely result

in additional NOx reductions.

Q. Other than the quantification that's in the

ICF report, has the Agency quantified what NOx reductions

it expects to see?

A. Well, that's something that the assessment

does to some degree. It attempts to put a number on it --

a potential number. I mean, you can just take one

category of the set-asides and focus on it. One category

is the pollution control upgrades. So, we believe, for

existing units at least, to the extent that they install

pollution control upgrades for which -- or additional

pollution controls for which the pollution upgrade

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set-aside is an incentive, there could be dramatic

reductions in NOx, and, in fact, we expect to see dramatic

reductions in NOx in Illinois over the coming years as a

result of the installation of additional pollution

controls.

BY MS. BASSI:

Q. How will NOx emission reductions in the

Chicago area benefit attainment of the ozone standard in

Chicago?

A. Well, to the extent that they contribute. If

it's a significant contribution, there will be significant

benefit to the NOx reductions. Modeling usually evaluates

that question and provides an answer, and we are in the

process -- have conducted modeling and are in the process

of, I believe, updating the modeling to reflect certain

developments.

Q. Is the NOx dis-benefit still an issue?

A. Well, the NOx -- The waiver for NOx, I

believe, expired. I'm not sure --

Q. That's not my question. My question goes to

the NOx -- the model NOx dis-benefit, the increase in

ozone that occurs when you reduce NOx.

A. And that's accounted for in the modeling. I

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believe they factor in to some extent the NOx dis-benefit,

and it is related to the NOx waiver because I believe the

NOx waiver was put in place as a result of the NOx

dis-benefit.

MR KALEEL: Maybe a longer answer on the NOx

dis-benefit, we still see NOx dis-benefit in the air

quality modeling that we're doing. It's not the same

signal. It may be -- Let me back up a second. The idea

of NOx dis-benefit really stems from the fact that NOx is

really composed of a couple of forms of nitrogen oxide.

One form of it, NO, is actually a very efficient scavenger

of ozone. So, it's typically the case that close to a

fresh emission of NO, ozone concentrations go down. So,

if you remove those emissions, the ozone levels, in fact,

appear to go up. They reflect more the regional level of

ozone. So, that increase in ozone concentration has been

termed NOx dis-benefit.

It's important to note that that signal is different

every day depending on the relevant emits of DOC's and NOx

in the air shed. You don't see the same signal on every

single day. So, it is the case that NOx dis-benefit is

significant locally within the City of Chicago on some

days and on other days it isn't. The modeling that we're

doing accounts for all these different types of days, and

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when we have our attainment demonstration put together,

then it will reflect a wide variety of meteorology, a wide

variety of aerosols in the city, different mixes of NOx

and DOC, and the NOx dis-benefit would have to be

accounted for. We couldn't develop an attainment plan

that has so much NOx dis-benefit that it would prevent us

from attaining the standard.

Q. On the days that you are seeing a higher

dis-benefit of NOx in this modeling that's been conducted

so far, are those days days when you're also seeing higher

levels of ozone? In other words, that -- I want to say

the exceedance days as opposed to non-exceedance days?

MR. KALEEL: In general, no. I think there are some

cases where the NOx dis-benefit is occurring at times

where there's also high levels of ozone. The City of

Chicago typically doesn't have real high ozones to begin

with. The ozone happens downwind of Chicago in the

northern suburbs and Lake County and in Wisconsin and

Michigan, but we see a lot of NOx dis-benefit at night.

The fact that ozone levels at the surface are low at night

is because of the NOx scavenging that goes on. It's one

form of that effect.

BY MR. BONEBRAKE:

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Q. Mr. Ross --

A. Yes.

Q. -- ICF also forecasted the incremental cost

impact on Illinois generators of the 30 percent set-aside;

is that correct?

A. That's correct.

Q. And if you can turn with me to Page 4 of the

ICF report, the bottom paragraph on that page that runs

over on Page 5. In the last full sentence in that

paragraph on Page 4 reads, incremental allowance cost to

the Illinois sources are approximately 26, 27 and 31

billion in 2009, 2015 and 2018 respectively. Do you see

that, Mr. Ross?

A. Yes, I do.

Q. Do you have an understanding of whether that

statement is ICF's projection of cost to Illinois

generators as a result of the Agency's proposed set-asides

above and beyond what's proposed in the federal CAIR

model?

A. Those are the costs that the IPM model showed

as a result of a retirement of the 30 percent set-aside.

So, those are incremental additional costs to the power

sector.

Q. When we say "incremental additional costs," do

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you mean above and beyond what's required by the federal

CAIR?

A. Correct. And I do want to re-visit an issue.

I believe we talked previously about the compliance

supplement pool and the additional costs that could be

incurred there. I believe the preamble to the federal

model rule states that, "The marginal cost of a ton of

annual NOx controlled under CAIR is the same with and

without the compliance supplement pool."

BY MS. BASSI:

Q. Would you repeat that, please?

A. "The marginal cost of a ton of annual NOx

controlled under CAIR is the same with and without the

compliance supplement pool," and we can provide the

reference.

BY MR. BONEBRAKE:

Q. The cost numbers that we just were talking

about, Mr. Ross, on Page 4 --

A. Right.

Q. -- do you know how ICF calculated those costs?

A. Not specifically. I believe we discussed

these with them in post modeling conference calls to some

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degree. What all exactly they take into account there --

The IPM modeling is very complex. So, I'm not an expert

in that area. But we did discuss this with ICF to some

degree. So, we discussed it with the experts and asked

that they provide us a final report in layman's terms so

that hopefully everyone could understand the results.

Q. Do you recall if ICF cost numbers are based

upon assumed additional buying of allowances that Illinois

generators would have to do?

A. I believe that is where the majority of the

costs -- additional costs are incurred.

Q. And do you know what costs ICF assigned to the

value of a NOx allowance seasonal and annual?

A. I did at one time. Whether it's between 2,000

and $3,000 per ton, I would assume -- I don't know that

off the top of my head, no.

BY MS. BASSI:

Q. Did you say, though, you think it's between 2

and $3,000 a ton?

A. I believe that is the generally accepted

amount that NOx allowances would fluctuate between.

BY MR. BONEBRAKE:

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Q. And I applied that $2,500 number to the annual

NOx 30 percent numbers based upon that to retirement, and

I came up with a different numbers. That's the reason why

I was asking about what we know in terms of how ICF

calculated these. Is there an intermediate output or

other written or electronic document that's in the

possession of the Agency that would describe the cost

calculation for us?

A. I don't believe -- This is all they provided

us in the way of results of the modeling.

Q. Is this information available from ICF at the

Agency's request?

A. It would be additional cost to the Agency,

which is something, my understanding is, we are limited in

our funds available. So, I wouldn't be able to say here

that any request for additional information could be

honored. I would have to examine what amount of funds we

would have available and take it from there. So --

Q. It's your understanding, Mr. Ross, that no

additional documents will be provided by ICF without

additional payment; am I understanding your testimony

correct?

A. That is accurate.

Q. So, we are in a somewhat difficult position

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looking at a black box of cost calculations that we don't

understand what went into them, and, so, we have a hard

time understanding what they really mean. Mr. Ross, do

you have any proposed solution for us?

A. Well, we would contact ICF and clear them to

provide information to you should you wish to incur the

cost, but we may be able to ask ICF for additional

information based on the premise that they don't charge us

any additional money or some significant amount. Again,

you would have to submit a request to us. We would have

to evaluate it, perhaps discuss it with ICF the cost

involved, evaluate the need for it. I would assume we may

be able to do some research. They probably used the same

value of NOx allowances that we used for the federal CAIR

modeling, and we may be able to extrapolate from that

modeling the cost that they used here.

Q. Does the Agency agree that $2,500 is a

reasonable estimate for the anticipated cost for NOx

annual and seasonal allowances under CAIR?

A. I believe we agree with that premise, yes.

Q. So, one way to calculate the value of

30 percent set-aside would be to apply 30 percent to the

total NOx allowances in Illinois for a given year and then

multiply it by that number, Mr. Ross?

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A. Yes.

MR. KIM: If I could ask a few questions. And I

believe you indicated that we will try and find the

exhibit that referenced the ICF inputs that were used for

this run. So, we'll make that available.

BY MR. KIM:

Q. So, my question to Mr. Ross is, aside from the

input information that we'll make available and we'll

identify and aside from the output results that you cited

to, is there anything more that you have seen, and USEPA's

presentation of their IPM results, that is in addition to

what Illinois EPA has presented to the Board in our

rulemaking? In other words, put a different way, the type

of calculation breakdowns that Mr. Bonebrake is asking

you, is that found anywhere, to the best of your

knowledge, in the federal CAIR rules or any documents

related to the federal CAIR rule?

A. I simply don't know. I've looked at the

modeling performed for USEPA by ICF, but I can't -- It's a

huge amount of documentation, paperwork. I simply can't

recall all --

MR. KIM: If I may, there's another member of our

panel, Mr. Mahajan, that is more familiar with that

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information. If I could present that same question to

him.

BY MR. KIM:

Q. Is there anything in the federal CAIR rule

presentation that contains the kind of calculation

breakdowns Mr. Bonebrake was asking of Mr. Ross, In other

words, how calculations were performed, how calculations

were worked out and so forth?

MR. MAHAJAN: No. There is no related discussion

like how much --

HEARING OFFICER KNITTLE: Could you speak up, sir?

I'm having trouble hearing, too.

MR. MAHAJAN: I said there is no related discussions

about these allowances, cost of allowances, and all this

they use the IPM modeling to arrive at those cost numbers.

BY MR. KIM:

Q. So, based upon your review of the IPM

information presented by USEPA, is there anything more

substantial or more comprehensive that USEPA provided than

in the federal CAIR rule as compared to what Illinois EPA

provided in our rule proposal?

MR. MAHAJAN: It might have provided in the

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background documents in the IPM. If you go to the IPM

inputs and outputs, it might have provided that

information, but I don't know that.

MR. KIM: Thank you.

BY MR. BONEBRAKE:

Q. Mr. Ross, on Page 4, Table 1-2, there's some

information pertaining to generation; is that correct?

A. (by Mr. Ross) That's correct.

Q. Can you describe for us what's in the Delta

column on the far right on that table?

A. Yes. It shows that for coal usage for 2009,

there will be 62 gigawatts per hour additional electricity

generated from coal. Then in 2015, the power generated

from coal actually is reduced by 3 gigawatt hours. And

then further out, IPM projects that in 2018, that coal

power generation is further reduced by a total of 29

gigawatts per hour, and then they also list other forms of

generation.

BY MS. BASSI:

Q. Are these gigawatts produced in Illinois?

A. Yes, I believe so.

Q. Is that what it means?

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A. The first row of values is for the State of

Illinois, and the second row is nationally.

MS. BASSI: Sorry. It was buried in the gray.

BY MR. BONEBRAKE:

Q. Do you know, Mr. Ross, if the forecast

increased in coal generation in 2009 is a result of an

increase in forecasted demand for generation in this

state?

A. Well, on the previous page, Page 3 of 11, it

states in the first paragraph, second sentence, "Total

generation in Illinois in 2009 is slightly higher than in

the base case CAIR CAMR case as generation from less

expensive, uncontrolled coal-fired power plants

increases." So, that would indicate to me that existing

plants become more cost effective or their power is less

expensive to produce than other units, and, therefore,

there is an increase in power generated from coal-fired

power plants.

Q. But do you know if ICF was forecasting a

general increase in demand across the state during the

year 2009 as compared to today?

A. I'm uncertain.

Q. The increase for 2015 and 2018 show net

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reductions in generation; is that right, Mr. Ross?

A. That's correct.

Q. And those are reductions in generation as a

result of the proposed set-asides by the Agency; is that

correct?

A. As modeled by IPM, that's correct.

Q. And the loss of generation that's projected by

ICF has an associated cost for generators; does it not?

A. Yes, it does.

Q. And do you know whether those associated costs

were included or not included in the cost numbers that we

talked about at the bottom of Page 4?

A. Well, I would assume -- I'm uncertain, but I

would assume they would be -- if ICF is doing their job,

they would include all costs, and they are -- IPM is

supposedly the gold standard of modeling. So, them being

economic experts, so to say, they would include all costs,

including the costs of lost generation from coal plants

and costs incurred to the power sector.

Q. The reason I asked, the sentence that we

focused earlier contains the dollar amounts. The lead-in

phrase, "an incremental allowance cost," that suggested to

me that ICF was focused on the cost of additional

allowances that would require as opposed to the cost of

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lost generation, and, so, with that language in mind, do

you recall, Mr. Ross, whether your discussions with ICF

regarding lost generation was included in the cost numbers

at the bottom of Page 4?

A. Well, a reading of that sentence would

indicate that those costs on the bottom of Page 4 are only

for allowance costs.

Q. Therefore, your understanding, Mr. Ross, is

that the dollars at the bottom of Page 4 in the sentence

that we read understates costs to Illinois generators as a

result of the CASA as projected by ICF?

A. If what you are implying is correct, that ICF

did not include the cost of lost generation in the 26, 27

and 31 million, then, yes, those are an understatement of

the total cost to the power sector as a result of our

policy in regards to how IPM modeled it. Again, a broken

record, but they modeled the retirement of 30 percent,

where, in fact, they are not retired.

Q. But it is true, is it not, Mr. Ross, that ICF

essentially was projecting negligible NOx emission

decreases in Illinois at a cost of at least tens of

millions of dollars each year as a result of the --

A. That is true. I mean, we're talking about

power generation. One thing -- I mean, we're talking

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about a loss of 29,000 -- 29 -- I'm sorry -- gigawatt

hours, where I believe -- Just to put it in perspective,

the total amount in Illinois is 109,000 gigawatt hours.

So, 29 gigawatt hours in comparison to the total picture

of 109,000 gigawatt hours, it's a very small loss in power

generation from coal.

Q. Do you know the value today of a gigawatt hour

of generation?

A. No, I don't.

Q. Does anybody on the panel?

MR. MAHAJAN: Table 7-4 has that 1999 by megawatt

hours.

MR. BONEBRAKE: I'm sorry. What was the reference?

MR. MAHAJAN: In the TSD, Page 70, Table 7-4.

MR. BONEBRAKE: I'm sorry. You're saying that 7-4

has the dollar value for gigawatt?

MR. MAHAJAN: Megawatt hours. So, you can --

MR. KIM: Well, there is math involved.

MR. BONEBRAKE: Being an attorney, I always have to

have somebody else decipher that for me. Thank you for

that information.

BY MR. BONEBRAKE:

Q. Now, Mr. Ross, did ICF also address the

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question of whether rates for electricity in Illinois

would be expected to increase as a result of the CASA and

USAH (phonetic) proposed by the Agency?

A. Yes, they did.

Q. And are the results of that analysis presented

at Page 7 of the ICF report, including Table 1-6?

A. Yes, they are.

Q. And there's a sentence in the first full

paragraph below Table 1-6, and it's the second sentence

which reads, "In 2009, residential, industrial and

commercial expenditures increased by approximately

$1 million." Do you see that, Mr. Ross?

A. Yes.

Q. Do you know, is that a projection by ICF of

additional expenditures by Illinois citizens, both

businesses and individuals, for electricity as a result of

the Illinois proposal as compared to the federal model?

A. Yes, I believe that's what it's stating.

Q. One of the things that I was wrestling with

when I was looking at the ICF report, earlier as we talked

about, they were projecting additional allowance costs of

tens of millions of dollars, and you just talked about the

fact that that may well not have included additional costs

associated with lost generation, and those numbers far

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exceed the 1 million dollars that's referenced in the

sentence we just talked about on Page 7. Did you know how

it is, Mr. Ross, that ICF was predicting an increase in

expenditures of only approximately 1 million dollars for

electricity while at the same time projecting tens of

millions of dollars in additional cost for generators?

A. Well, the additional costs for generators, I

believe, were focused on the need to purchase additional

allowances as a result of ICF modeling that 30 percent of

the budget was retired. So, that would indicate a large

number there. How that carries over and relates to

impacts to industrial, commercial and residential

electricity prices, I'm uncertain.

Q. Well, do you know if ICF was making the

assumption that, for instance, in 2009, when they were

projecting an increase in expenditures for electricity by

Illinois citizens of a million dollars and they were

projecting 26 million dollars in additional allowance

costs, do you know what ICF was assuming with respect to

how the generators would recover, if they would recover,

the additional 25 million dollars in costs?

A. You mean did ICF somehow take into account

that the power sector may pass on those costs through

increased electricity rates? I'm uncertain if ICF has the

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ability to do that. I simply don't know.

Q. Well, if a generator incurs 26 million dollars

of additional costs in 2009 and was an Illinois generator,

the same Illinois generators increase or we cover only a

million dollars of that increase from Illinois citizens,

does that imply, Mr. Ross, that the Illinois generators

have to absorb a 25 million dollar loss as a result of the

Illinois proposal?

MS. DOCTORS: Objection. We've kind of been going

through -- The USEPA didn't provide all the breakdowns

when they did the modeling for CAIR, and we're not going

to try and provide all the breakdowns on this IPM modeling

either.

HEARING OFFICER KNITTLE: Response?

MR. BONEBRAKE: Well, Illinois has its own statutory

requirements for rulemaking, including economic

reasonableness. The ICF has done an analysis of

economics, including the costs associated with the

rulemaking. I think all the information in the analysis

is very relevant to the Board's consideration of the

Illinois proposal.

MR. KIM: And I think we've been clear that our basis

for our argument on economic reasonableness is that we

relied upon the very same modeling that USEPA did, to the

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very same extent that they did and with no more or no less

detail than they did. So, you're asking us to provide a

lot more information than the federal rule otherwise

provides. So, we're in a difficult position to do that

because it's simply not available to the information we

have to the same extent that if you look at the federal

CAIR rule, you can apply the level of detail that you're

looking for.

MR. BONEBRAKE: And I think it's clear today from the

testimony that the federal analysis, the USEPA analysis

applies to the federal CAIR model. Here we're talking

about something different. We're talking about an

incremental analysis that's associated on the deviations

that Illinois has proposed from the federal program. So,

what it is that USEPA has done or not done is really not

under consideration when we're talking about the ICF

report. The ICF is focused in on the issue of what is the

impact associated with what Illinois has proposed inasmuch

as it is very different from the federal model.

MR. KIM: And, again, we relied upon the very same

model they did. We applied the results with our different

inputs compared to what the USEPA did. And it's, I

believe, unfair and it is going to take a lot of time

trying to find out answers that were simply not provided

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and, frankly, shouldn't have to be provided to the depth

and level of detail that we're being asked for.

HEARING OFFICER KNITTLE: Hold on. I'm going to

overrule the objection. I do think it's relevant to

economic reasonableness. However, if Mr. Kim, as you

said, you don't have the information or it's information

that's not available, you clearly can't answer that

question as so stated. You can proceed with your

questions.

MR. BONEBRAKE: And I forgot what question was

pending or raised.

MR. KIM: I think you were done.

BY MS. BASSI:

Q. I remember. I remember. The last question

was, if the cost to Illinois consumers is a million

dollars increased because of the CASA and the cost to

generators is 26 million dollars, what happens to the

difference; who absorbs the difference?

A. Well -- And how that is presented, the power

sector would be responsible for absorbing the difference.

Now, what options are available to them to recover those

costs I'm no expert, but I do know, if the CASA allowances

were not retired but were, however, available for

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allocation as they are under our proposed CAIR, then those

very same power companies could apply for and receive

allocations from our CASA, which in turn could be sold to

recover some of the costs incurred.

BY MR. BONEBRAKE:

Q. You're talking, Mr. Ross, for instance, about

a scenario where an electric generator would install an

air pollution control and, therefore, seek an allowance

from the appropriate CASA category?

A. That's certainly one mechanism that could be

utilized.

Q. And in that scenario then, that company would

be incurring the additional costs of that air pollution

control; is that correct?

A. They would be incurring that additional cost

from the installation of that control, correct.

Q. And that control installation would be a cost

incurred as a result of the CASA that would not be

incurred under the proposed federal model; is that not

correct, Mr. Ross?

A. You said that cost of the additional control

is incurred as a result of the CASA?

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BY MS. BASSI:

Q. In order to apply for allowances under a CASA

category, like the pollution control upgrade category, the

source would have to install a pollution control device at

some cost; correct?

A. Correct.

Q. Okay. And, so, that would be a cost incurred

that would not have been incurred if the source did not

attempt to apply for allowances from a CASA category?

A. No. The source may have the intent or plans

to install that pollution control device regardless of

whether a CASA exists or not. So, if they have those

plans anyway, then they are given additional incentive or

benefit from the CASA in the receipt of allowances, which

can then be sold to offset the cost of installation of

that control.

BY MR. BONEBRAKE:

Q. Do Illinois generators compete with generators

from other states for the sale of electricity?

A. They do.

Q. And would you expect that Illinois generators

incur 25 additional millions of dollars in 2009 as

compared to generators in other states, assuming that the

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other states follow the federal model as opposed to the

state model that's not yet been entered into the record at

this point, would you then anticipate that the Illinois

generators would be at a competitive disadvantage

vis-a-vis --

A. I couldn't reach that conclusion. I know

right now Illinois is a net exporter of power, which leads

me to believe that power production in Illinois is cost

effective, and that other states are purchasing it instead

of purchasing power generated in their own state or from a

neighboring state. So, I can't say that an additional

25 million dollars as a result of what IPM modeled, which,

again, is different than our policy, but I can't say that

that would make Illinois power producers less competitive.

It stands to reason that to a certain degree certainly

their power would be more expensive than it was prior to

incurring these costs. But does that make then

significantly less competitive? I can't say.

MS. DOCTORS: Can I Re-Direct?

BY MS. DOCTORS:

Q. Mr. Ross, I'd like you to take a look at the

last paragraph on Page 3 where it talks about the effect

of the base case and the policy case in exporting of

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energy.

MS. BASSI: This is the ICF analysis?

MS. DOCTORS: Yes.

MR. BONEBRAKE: And you referenced the last full

paragraph on Page 3?

MS. DOCTORS: Yes.

A. Yeah. And this simply, as I stated, we are a

net exporter of energy, and we continue to be, I believe,

is the conclusion reached by ICF.

HEARING OFFICER KNITTLE: Let's hold off here for a

second. Let's go off the record.

(A brief discussion off the record.)

(Proceedings were concluded for October 10, 2006.)

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STATE OF ILLINOIS

)

COUNTY OF ST. CLAIR )

I, HOLLY A. McCULLOUGH, a Notary Public within and

for the County of St. Clair, State of Illinois, do HEREBY

CERTIFY that the foregoing record of the proceedings was

made before me on October 10, 2006, at the Illinois

Environmental Protection Agency, Training Room, 1021 North

Grand Avenue East, North Entrance, Springfield, Illinois.

IN WITNESS WHEREOF, I have hereunto set my hand and

affixed my Notarial Seal the 11th day of October, 2006.

____________________________

HOLLY A. McCULLOUGH

Notary Public

CSR #084-004265

RPR #821968

CCR #1011

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