BEFORE THE ILLINOIS POLLUTION CONTROL BOA18E
CLERK'S
C
: E
I
OFFICE
V E D
IN THE MATTER OF :
)
PROPOSED NEW CAIR SO2, CAIR NO,
)
ANNUAL AND CAIR NOx
OZONE SEASON )
TRADING PROGRAMS, 35 11 . ADM.
)
CODE 225, CONTROL OF EMISSIONS
)
FROM LARGE COMBUSTION SOURCES,
)
SUBPARTS A, C, D AND E )
NOTICE OF FILING
TO: Those Individuals as Listed on Attached Certificate of Service
Please take notice that on November 9, 2006, the undersigned filed with the Clerk of the
Illinois Pollution Control Board the Appearance of James H
. Russell on behalf of Christian
County Generation, LLC, and the pre-filed written testimony of Dr . Gregory Kunkel, copies of
which are herewith served upon you.
CHI :1814046.1
By:
R06-026
(Rulemaking - Air)
NOV
0 S 2006
Pollution
STATE OFControl
ILLINOIS
Board
J
a -A
W
,
. Russell
Atto y for Christian County Generation, LLC
Winston & Strawn LLP
35 W. Wacker Drive
40th Floor
Chicago, IL 60601
Telephone
: 312-558-6084
jrussell@winston.com
APPEARANCE
The undersigned hereby enters his Appearance in this proceeding on behalf of Christian
County Generation, LLC .
By:
Winston & Strawn LLP
35 W
. Wacker Drive
40th Floor
Chicago, IL 60601
Telephone
: 312-558-6084
jrussell@winston
.com
CHI :1814069. 1
BEFORE THE ILLINOIS POLLUTION CONTROL BO4*ft
c E
a
V EE ,:)
CLERK'S OFFICE
IN THE MATTER OF
:
)
NOV
0
~T
2006
PROPOSED NEW CAIR SO2, CAIR NO.
ANNUAL AND CAIR NO, OZONE SEASON
R06-026
Pollution
STATE OF
Control
ILLINOIS
Board
TRADING PROGRAMS, 35 11. ADM .
CODE 225, CONTROL OF EMISSIONS
FROM LARGE COMBUSTION SOURCES,
SUBPARTS A
. C. D AND E
(Rulemaking - Air)
BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
IN THE MATTER OF:
RECEIVED
CLERK'S OFFICE
PROPOSED NEW CAIR SO 2, CAIR NOx
ANNUAL AND CAIR NOx
OZONE
SEASON TRADING PROGRAMS, 35 ILL .
ADM. CODE 225, CONTROL OF EMISSIONS
FROM LARGE COMBUSTION SOURCES,
SUBPARTS A, C, D and E
NOV
0 ,9
20,96
R06-26(Rulemaking-Air)Pollution
STATE OF
Control
ILLINOIS
Board
Testimony of Dr.
Gregory Kunkel, Director of Environmental
Affairs at Tenaska, Inc.,
On Behalfof TavlorvilleEnergy
Center
My name is Greg Kunkel
. I represent Christian County Generation, LLC (CCG)
.
CCG is the developer of a proposed Integrated Gasification Combined
Cycle (IGCC)
electric generation facility, named the Taylorville Energy Center
. I am employed by
Tenaska, Inc
. where I am the Director of Environmental Affairs
. A Tenaska affiliate has an
ownership interest in CCG .
My academic credentials include B
.A. and M.A
. degrees from the University of
Colorado at Boulder, and a Ph .D
. from the University of California at Davis . I have been
employed by Tenaska for 12 years .
Tenaska develops, owns, and operates electric generation facilities . A Tenaska
affiliate, Tenaska Power Fund, LP, already owns one electric generation facility in Illinois
.
It recently announced an agreement for the acquisition of two additional electric generation
facilities in Illinois .
My testimony today will address the Agency's proposed Illinois CAIR provisions,
particularly as they may affect the viability of future IGCC projects in Illinois, such as
the
Taylorville Energy Center.
IGCC technology will improve the environmental performance
of the electric
generation industry.
It removes sulfur and mercury from coal-derived gaseous fuel, and
thereby reduces emissions from the use of that relatively-clean fuel
in highly efficient
combined cycle generation facilities .
We understand that Illinois has a special interest in
IGCC technology, because it will use high-sulfur Illinois coal while still achieving superior
environmental performance.
As a regulatory system that places a more stringent limit on utility emissions
of
sulfur dioxide and oxides of nitrogen, and allows market-based trading of allowances
for
those pollutants, CAIR can help IGCC technology developers not only to achieve the
benefits
This in turn
of reduced
promotes
emissions
investment
and
and
enhanced
the financing
fuel efficiency,
of IGCC facilitiesbut
to monetize
. IGCC technology
them
as wellis.
1
expected to have greater capital costs than conventional pulverized coal generation .
However, it will use fewer allowances because of lower emissions . CAIR properly translates
these lower emissions into an economic benefit for sources that are willing to employ state-
of-the-art, clean-coal IGCC technology
. The Illinois CAIR rulemaking also includes important
incentives in the form of allowance allocation rules . These rules encourage the use of new,
efficient, clean-coal technologies.
With respect to sulfur dioxide, the federal CAIR allows no opportunity for Illinois to
allocate or reallocate allowances
. A new IGCC project in Illinois would receive no
allowances for sulfur dioxide emissions . It would be required to obtain sulfur dioxide
allowances in an unpredictable, volatile marketplace . In this respect, any new electric
generation project with sulfur dioxide emissions is at a competitive disadvantage to baseline
sources in the Acid Rain Program
. The baseline sources receive such allowances without cost .
In contrast, there are significant opportunities for creating incentives in Illinois CAIR's
allocation of annual and seasonal NOx allowances
. These incentives will materially assist
IGCC project development in Illinois . They are the focus of my testimony .
CCG Supports Illinois CAIR
CCG generally supports Illinois EPA's judgment in the CAIR framework to allocate
NOx allowances in a way that benefits the people of Illinois.
In particular, we support the following specific aspects of Illinois CAIR . They will
assist development of IGCC technology in Illinois :
•
Allowances based on output, rather than fuel (heat) input, in order to emphasize a
source's efficiency, rather than its energy usage ;
•
Frequent updating of the baseline production records upon which allowance
allocations will be based ;
•
A reduced lag time (compared to the federal Model Rule) between allocating
allowances and using them, so that new sources will become part of the overall
allowance pool more quickly;
•
Establishment of a new source set-aside
;
•
Definition of new units as
those which commence operation after January 1, 2006
;
•
Creation of a Clean Air Set-Aside (CASA) category for highly efficient generation
;
•
Creation of a CASA category for clean-coal technology including IGCC
;
•
Creation of an Early Adopter incentive within the CASA
; and
•
Allowing project participation in multiple CASA categories
.
2
For the Taylorville Energy Center and similar IGCC projects, all these CAIR
provisions promote clean, modem technologies in ways that are superior to the regulatory
alternatives .
Output-based allocations are one good example
. Heat input is easily defined for a
conventional, pulverized-coal boiler, but it is not clear what that might mean for an IGCC
facility
. With IGCC, there are a number of varying solid and gaseous fuel heat inputs to the
gasifiers and combustion turbine units
. Using output, rather than heat input, resolves this
question in a modem, professional way--not only for IGCC, but for the variety of
renewable-energy and energy-efficiency projects that are also anticipated by the CASA
.
Frequent updating of the baseline data used to allocate allowances, and shorter lag
time between allocating an allowance and using it, are two more excellent examples
. In
the federal Model Rule, retiring units receive a windfall of surplus allowances because of
obsolete baseline data and the time it takes for a new allowance to be actually used
. Under
Illinois CAIR, the pool of allowances available to both operating generators and new
efficiency projects will be greater
. Generators will also have to produce something of
value for society, in order to earn valuable allowances
. This is sound public policy, in
CCG's view .
Certainly it is true, just for the record, that the new Taylorville Energy Center may
receive NOx allowances under the proposed new source set-aside, highly-efficient
generation, clean-coal, and early-adopter provisions of Illinois CAIR
. We believe that this
is also as it should be
. Collectively, these represent significant financial incentives that will
help to offset some of the added cost of new, clean-coal technology such
as IGCC.
Effect of Illinois CAIR on Use of Illinois Coal
Illinois CAIR will promote, not discourage, the use of Illinois coal, and do it in an
environmentally-beneficial way
. Illinois CAIR provisions encourage investment not only
in IGCC technology, but in emission controls for existing coal-fired generation facilities in
Illinois
. These investments make the use of Illinois' high-sulfur coal feasible--even though
the sulfur dioxide limits of CAIR are more stringent
. Please also consider this : if the
regulation is stringent enough to force the installation of scrubbers, then it further expands
the market for Illinois coal, not just in Illinois but in other states
as well.
Recommendations for Improvement
There may be details of Illinois CAIR that could be improved to provide a more
effective
suggestionsincentive
:
for new, clean-coal technologies
. We respectfully offer the following
1
. Reduce the time in which new sources are in the new-source category by making
3
CHI :1807054.4
allocations one or two years in advance, rather than three
. The new-source set-aside
will almost certainly be over-subscribed
. This will limit its benefit, and make its
benefit almost impossible to quantify in advance
. If the benefit cannot be quantified,
it will limit the positive impact on investment decisions and the financing of clean
coal technology--one of the very goals of Illinois CAIR
.
2
. For Early Adopters, eliminate pro-rata reduction of CASA allocations for the life of
the project, or for at least ten years
. Like the above suggestion, this will increase
effectiveness of the incentive by making the quantity of the allocation predictable,
reducing risk, and promoting investment financing
.
That concludes my testimony
. I am pleased to answer your questions
.
4
CERTIFICATE OF SERVICE
I, James H
. Russell, attorney for Christian County Generation, LLC, hereby certify that I
served a copy of my Appearance on behalf of Christian County Generation, LLC and the pre-
filed written testimony of Dr
. Gregory Kunkel, upon those listed below on November 9, 2006 via
First Class Mail, postage paid .
John J . Kim
Rachel L
. Doctors
Illinois Environmental Protection Agency
Division of Legal Counsel
1021 North Grand Avenue East
Post Office Box 19276
Springfield, IL 62794-9276
Sasha M. Reyes
Steven J. Murawski
Baker & McKenzie
One Prudential Plaza, Suite 3500
130 East Randolph Drive
Chicago, IL 60601
Sheldon A . Zabel
Kathleen C
. Bassi
Steven Bonebrake
Schiff Hardin, LLP
233 South Wacker Drive, 6600 Sears Tower
Chicago, IL 60606
Matthew J. Dunn, Division Chief
Office of the Attorney General
Environmental Bureau
188 West Randolph, 20th Floor
Chicago, IL 60601
Virginia Yang, Deputy Legal Counsel
Illinois Department of Natural Resources
One Natural Resources Way
Springfield, IL 62702-1271
Ms. Dorothy Gunn, Clerk
Illinois Pollution Control Board
James R. Thompson Center
100 West Randolph Street
Suite 11-500
Chicago, IL 60601
William A. Murray
City of Springfield
Office of Public Utilities
800 East Monroe, 4 th Floor
Municipal Building East
Springfield, IL 62757
Faith E. Bugel
Environmental Law and Policy Center
35 East Wacker Drive, Suite 1300
Chicago, IL 60601
Keith I. Harley
Chicago Legal Clinic, Inc .
205 West Monroe Street, 4th
Floor
Chicago, IL 60606
Daniel McDevitt
Midwest Generation
440 South LaSalle Street, Suite 3500
Chicago, IL 60605
S. David Farris, Manager
Environmental, Health and Safety
City of Springfield, Office of Public Utilities
201 East Lake Shore Drive
Springfield, IL 62757
David Rieser
James T. Harrington
Jeremy R. Hojnicki
McGuire Woods LLP
77 W. Wacker Drive
Suite 4100
Chicago, IL 60601
Winston & Strawn LLP
35 W. Wacker Drive
40`s Floor
Chicago, IL 60601
Telephone : 312-558-6084
jrussell@winston.com
CHI:1814079.1
John Knittle, Hearing Officer
Illinois Pollution Control Board
James R. Thompson Center
100 West Randolph, Suite 11-500
Chicago, IL 60601-3218
Bruce Niles
Sierra Club
122 W. Washington Ave .
Suite 830
Madison, WI 53703
By:
Jam
s
H. Russell
o
Atto
for Christian County Generation LLC
