1

ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

PROPOSED NEW CAIR SO2, )

4 CAIR NOX ANNUAL AND CAIR ) R06-26

NOX OZONE SEASON TRADING ) (Rulemaking-Air)

5 PROGRAMS, 35 ILL. ADM. )

CODE 225, CONTROL OF

)

6 EMISSIONS FROM LARGE

)

COMBUSTION SOURCES,

)

7 SUBPARTS A, C, D and E )

TRANSCRIPT OF PROCEEDINGS held in the

10 above-entitled cause before Hearing Officer

11 John Knittle, called by the Illinois Pollution

12 Control Board, pursuant to notice, taken before

13 Julia A. Bauer, CSR, RPR, notary public within and

14 for the County of Cook and State of Illinois, at

15 James R. Thompson Center, Room 2-025, Chicago,

16 Illinois, commencing at the hour of 1:00, on the

17 28th day of November, A.D., 2006.

L.A. REPORTING (312) 419-9292

1 A P P E A R A N C E S:

ILLINOIS POLLUTION CONTROL BOARD:

Mr. John Knittle, Hearing Officer

Mr. Anand Rao, Senior Environmental Scientist

Mr. Thomas E. Johnson, Board Member

Ms. Andrea S. Moore, Board Member

Mr. G. Tanner Girard, Actin Chairman

ILLINOIS ENVIRONMENTAL PROTECTION AGENCY:

Ms. Rachel Doctors

Mr. John J. Kim

Mr. Ross Cooper

Mr. James Ross

Mr. Robert J. Kaleel

Mr. Rory Davis

JENNER & BLOCK,

One IBM Plaza

Chicago, Illinois 60611-7603

(312) 222-9350

BY: MR. BILL S. FORCADE

Appeared on behalf of Kincaid Generation,

LLC;

McGUIRE WOODS, LLP,

77 West Wacker Drive

Suite 4400

Chicago, Illinois 60601-1681

(312) 849-8100

BY: MR. DAVID L. RIESER

Appeared on behalf of Ameren Services;

L.A. REPORTING (312) 419-9292

1 A P P E A R A N C E S: (Continued)

ENVIRONMENTAL LAW & POLICY CENTER OF

THE MIDWEST,

35 East Wacker Drive

Suite 1300

Chicago, Illinois 60601-2110

(312) 795-3708

BY: MS. FAITH E. BUGEL

BAKER & McKENZIE,

One Prudential Plaza

130 East Randolph Drive

Chicago, Illinois 60601

(312) 861-8000

BY: MR. STEVEN J. MURAWSKI

Appeared on behalf of Zion Industry, LLC;

SCHIFF HARDIN, LLP,

233 South Wacker Drive

Suite 6600

Chicago, Illinois 60606

(312) 258-5567

BY: MS. KATHLEEN C. BASSI

MR. STEPHEN J. BONEBRAKE

MR. SHELDON A. ZABEL

Appeared on behalf of Midwest Generation,

LLC, Southern Illinois Power Cooperative,

and Dynegy;

WINSTON & STRAWN, LLP,

33 West Wacker Drive

Chicago, Illinois 60601-9703

(312) 558-6084

BY: MR. JAMES H. RUSSELL

Appeared on behalf of Christian County

Generation, LLC.

L.A. REPORTING (312) 419-9292

I N D E X

PAGES

3 Testimony of Mr. Jason M. Goodwin, P.E....15

4 Testimony of Dr. Gregory Kunkel...........115

E X H I B I T S

7 Zion Energy Exhibit No. 1....................12

Zion Energy Exhibit No. 2....................14

8 Christain County Generation Exhibit No. 1....116

Christian County Generation Exhibit No. 2....120

L.A. REPORTING (312) 419-9292

THE HEARING OFFICER: My name is John

2 Knittle. I'm the hearing officer for this

3 rulemaking proceeding, which is R06-26. Proposed

4 New CAIR SO2, NOX Annual and CAIR NOX Ozone Season

5 Trading Programs, 35 Illinois Administrative Code

6 225, Control of Emissions From Large Combustion

7 Sources, Subparts A, C, D and E.

With me here today from

9 the Illinois Pollution Control Board is

10 Board Member, Tom Johnson, who is the presiding

11 Board Member of these proceedings; Board Member,

12 Andrea Moore; Chairman, Tanner Girard; and we have

13 Anand Rao here as well.

Mr. Johnson, do you have anything

15 you want to say at this point about the

16 proceedings?

MR. JOHNSON: Nope.

THE HEARING OFFICER: Mr. Johnson

19 having nothing to say, we'll proceed.

A little background, this

21 rulemaking that was proposed by the Agency was

22 received on May 30th, 2006. I proposed a New Part

23 225 to reduce interest date and interest date

24 transport of sulfur dioxide and nitrogen oxides

L.A. REPORTING (312) 419-9292

1 emissions for fossil fuel fire and electric

2 generating units on an annual basis and on an

3 ozone seasonal basis for each of the calendar

4 year. The Agency proposes the adoption of the

5 Clean Air Interstate Rule, the Sulfur Dioxide

6 Trading Program, the CAIR, NOX Annual Trading

7 Program and the CAIR NOX Ozone Season Trading

8 Program to accomplish this objective.

We have had hearings on this

10 matter, October 10th through the 12th, at which

11 point in time we received the testimony of the

12 Illinois -- I'm not loud enough, am I sir?

MR. RUSSELL: I just want to make sure

14 I'm picking everything up.

THE HEARING OFFICER: Okay -- the

16 Illinois Environmental Protection Agency. Today

17 the hearing is designed to elicit testimony from

18 witnesses other than those from the Illinois

19 Environmental Protection Agency. We have five

20 witnesses scheduled to testify today and tomorrow,

21 and the hearing will go on as needed until we are

22 finished.

As before, aside from today, we'll

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

L.A. REPORTING (312) 419-9292

1 close with 5:00 p.m. as the target. Things are a

2 little different up here in Chicago. This is the

3 James R. Thompson Center, as you know, and they

4 close the doors down, and it kind of locks down on

5 us. So we're going to try to be out of here on a

6 timely fashion.

So, during the breaks, I'm

8 available to answer any procedural questions. If

9 you want to have a chat with me, please feel free.

10 I want to emphasize like I did last time that the

11 Board and staff can't discuss the substance of the

12 proposal off the record. The substantive items

13 should be raised during the hearing. If you're

14 not sure whether it's substantive or not, just

15 raise it during the hearing, we'll address it

16 then.

We're going to start with the

18 prefiled testimony of Jason Goodwin. I do want to

19 note before we get started and introduce all the

20 interested parties that outside of the room, I

21 have copies of all the prefiled testimony that was

22 filed. Now, some of that may be amended in the

23 near future, but they're out there if you need

24 them. I also have sign-up sheets for the notice

L.A. REPORTING (312) 419-9292

1 and service lists. If you wish to be on the

2 service list, you know you'll receive all the

3 pleadings and prefiled testimony in this

4 proceeding. And in addition, you must serve all

5 your filings on the persons on the service list.

6 If you wish to be on the notice list, of course,

7 you'll only receive Board and hearing officer

8 orders. If you're filing a public comment and not

9 on the service list, you need not serve that

10 comment on the service list. If you have any

11 questions about which list you want to be on, and

12 I don't really see anybody who's not familiar with

13 our procedures, but feel free to ask me. You can

14 sign up for either list on the Board's website in

15 the clerk's office on-line.

And at this time, I'd like to move

17 forward and introduce the interested parties.

18 We'll start with the Agency again since it's your

19 rule.

MS. DOCTORS: Rachel Doctors. I

21 represent the Illinois Environmental Protection

22 Agency.

MR. COOPER: Ross Cooper, representing

24 the Illinois Environmental Protection Agency.

L.A. REPORTING (312) 419-9292

MR. ROSS: Jim Ross with the Illinois

2 Environmental Protection Agency.

MR. KALEEL: Rob Kaleel with the

4 Illinois EPA.

MR. DAVIS: Rory Davis, Illinois EPA.

MR. KIM: John Kim with the Illinois

7 EPA.

THE HEARING OFFICER: I didn't see you

9 back there, Mr. Kim.

And for the other interested

11 parties, Mr. Zabel?

MR. ZABEL: Schiff, Hardin,

13 representing Midwest Generation, LLC; Southern

14 Illinois Power Cooperative and Dynegy.

MR. BONEBRAKE: Steve Bonebrake with

16 Schiff, Hardin, representing the same three

17 clients.

MS. BASSI: Kathleen Bassi with

19 Schiff, Hardin, and the same three clients.

MS. BUGEL: Faith Bugel representing

21 Environmental Law & Policy Center.

MR. RUSSELL: Jim Russell, Winston &

23 Strawn, on behalf of Christian County Generation,

24 LLC.

L.A. REPORTING (312) 419-9292

MR. FORCADE: Bill Forcade, Jenner &

2 Block, on behalf of Kincaid Generation, LLC.

THE HEARING OFFICER: Mr. Rieser?

MR. RIESER: David Rieser on behalf of

5 Ameren.

MR. MURAWSKI: Steven Murawski on

7 behalf the Zion Industry, LLC.

MR. GOODWIN: Jason Goodwin with Zion

9 Industry.

THE HEARING OFFICER: I think that's

11 it. Before we get started, I was negligent in

12 asking if any of the remaining Board members have

13 anything they want to add at this point in time?

14 I see no responses from the Board members.

So one last minor bit of

16 housekeeping, the testimony of Michael Menne came

17 accompanied by a motion for leave to file

18 instanter the testimony. That was filed on

19 November 17th. The response time has been filed

20 in lapse for that. But in light of the fact that

21 we're going to be hearing the testimony today or

22 tomorrow, we should probably address that now.

23 Anyone have any objections to the motion for leave

24 to file instanter? Seeing none, we're going to

L.A. REPORTING (312) 419-9292

1 grant the motion for leave to file instanter and

2 accept the prefiled testimony of Michael L. Menne.

3 That's all I have. We're scheduled to start with

4 testimony of Jason Goodwin.

MR. MURAWSKI: My name is Steven

6 Murawski, and I represent Zion Energy, LLC, as I

7 said. Before we begin with Mr. Goodwin's

8 testimony, I'd like to make a motion before the

9 Board to accept the prefiling testimony of Jason

10 M. Goodwin timely filed with the Board and served

11 on the parties prior to this hearing, and I'd like

12 it read into -- as though it was read into the

13 record.

THE HEARING OFFICER: Can we have a

15 motion to -- should we make that Exhibit No. 1?

MR. MURAWSKI: Yes.

THE HEARING OFFICER: Anyone have an

18 objection to that exhibit and entering it as if

19 read into the record? Ms. Bassi?

MS. BASSI: Does that exhibit number

21 have some other appellation besides No. 1? The

22 reason why I ask that is because at the

23 Springfield hearing, we introduced --

THE HEARING OFFICER: Right. I was

L.A. REPORTING (312) 419-9292

1 going to designate a whole new set of exhibits for

2 the second hearing, but we can continue if you'd

3 like.

MS. BASSI: Well, no. We introduced

5 an exhibit that was -- I think you called it

6 Midwest Generation Exhibit No. 1 or something, and

7 that's why I was asking.

THE HEARING OFFICER: Yeah. I don't

9 have any problem. We can definitely call that --

10 hold on. I'm getting there. Zion Energy No. 1,

11 if you'd like.

MR. MURAWSKI: We have no objection.

THE HEARING OFFICER: With that note

14 being made, anyone have objections to the

15 admission of Zion Energy Exhibit No. 1?

That will be admitted.

MR. MURAWSKI: Before we proceed, I'd

18 like to state to the Board and ask permission to

19 use a slide presentation as a visual aid only. We

20 do not plan to introduce this as a separate

21 exhibit. This is just for assistance with his

22 presentation.

THE HEARING OFFICER: Are you

24 referring to the --

L.A. REPORTING (312) 419-9292

MR. MURAWSKI: Yes.

THE HEARING OFFICER: -- handout you

3 made?

MR. MURAWSKI: Except there's certain

5 modifications that we'll discuss, just

6 clarifications, or some spelling error, but --

THE HEARING OFFICER: Just so I

8 understand, you're not intending to admit this

9 (indicating) document?

MR. MURAWSKI: I'm not intending to

11 admit it. It'll just be used as a visual aid.

12 We've also provided 20 copies at the front.

THE HEARING OFFICER: Would you have

14 any objection if we wanted to admit this as Zion

15 Exhibit No. 2?

MR. MURAWSKI: No, we have no

17 objection.

THE HEARING OFFICER: Does anyone else

19 have any objections to that?

MR. BONEBRAKE: I just have a

21 question.

THE HEARING OFFICER: Yes.

MR. BONEBRAKE: Is this the same

24 document that was circulated yesterday by e-mail?

L.A. REPORTING (312) 419-9292

MR. MURAWSKI: Yes, there are two

2 changes. One is there were references to CUSA

3 instead of CASA. And I believe there is also a

4 reference to all criteria pollutants, and it

5 should be major criteria pollutants on one of the

6 slides. Those are the only two changes.

THE HEARING OFFICER: With that

8 clarification, Mr. Bonebrake, any objection?

MR. BONEBRAKE: No.

THE HEARING OFFICER: Let's admit this

11 as Zion Exhibit No. 2 just to keep the record

12 clear if we're going to be discussing it.

MR. MURAWSKI: There's also one

14 correction on Page 7, which it says, "Constructed

15 in the past 5-8 years." It should be 5-10 years.

16 That's the only other change in the version of the

17 slides.

THE HEARING OFFICER: So we've got

19 Zion No. 1 and 2 having now been admitted into the

20 record. And, Mr. Murawski, you can proceed as you

21 see fit.

MR. MURAWSKI: The next thing is that

23 we have a preference that questions be held until

24 the end. But, obviously, we'll answer questions

L.A. REPORTING (312) 419-9292

1 if it happens.

THE HEARING OFFICER: How long do you

3 anticipate the slide show last?

MR. MURAWSKI: I don't think we

5 anticipate it -- if no questions are asked, maybe

6 ten minutes.

THE HEARING OFFICER: I think we can

8 probably hold questions until the end then.

MR. MURAWSKI: And, finally, the

10 presentation addresses the proposed rule that the

11 Illinois EPA initially presented to the Board. It

12 does not address the newly proposed rule that was

13 just filed with the Board, just for clarification.

THE HEARING OFFICER: Duly noted.

Can we swear Mr. Goodwin in,

16 please?

(Witness sworn.)

MR. GOODWIN: I'm Jason Goodwin. I'm

19 the director of the environmental health and

20 safety for Calpine Corporation eastern power

21 region, and I'm here today. I appreciate the

22 opportunity to present an overview of the comments

23 on proposed Clean Air Interstate Rule as proposed

24 by the Illinois EPA.

L.A. REPORTING (312) 419-9292

Just kind of a general overview,

2 the content of our presentation is largely a

3 summary of our written comments.

THE HEARING OFFICER: Can you elevate

5 the volume a little bit?

MR. GOODWIN: The comments were

7 submitted on behalf of Zion Energy, LLC. Zion

8 Energy, LLC is a wholly-owned subsidiary of

9 Calpine Corporation. Zion Energy, LLC is the

10 owner of the Zion Energy Center, which is a

11 peaking power generating facility located in Lake

12 County north of Chicago. The operations,

13 maintenance and other support services such as

14 environmental health and safety support is

15 provided via contract of Calpine Services Company,

16 which is also a wholly-owned subsidiary of Calpine

17 Corporation. I'm employed by Calpine Operating

18 Services, and that's how I'm involved with Zion

19 Energy.

As I said, it's a peaking power

21 generating facility, which is intended to serve

22 electric power market demands during peak periods.

23 The facility began construction in August of 2001.

24 And the final unit was completed and began

L.A. REPORTING (312) 419-9292

1 commercial operations in September of 2003. The

2 facility itself is a simple-cycle combustion

3 turbine based facility. It includes three

4 simple-cycle combustion turbines based on the

5 general electric 7FA model. It fires natural gas

6 as its primary fuel, but it does have the ability

7 and is permanent for distal fuel as a backup fuel

8 when necessary.

As part of the permitting process,

10 Zion Energy was required to undergo review by the

11 Prevention of Significant Deterioration Program,

12 and the program does meet best available control

13 technology requirements for all major criteria

14 pollutants.

Just to clarify, Zion Energy will

16 be restricting its comments to the NOX portion of

17 the CAIR rule. Its taken notes on it, on the SO2

18 portion of the rule.

In general, Zion is generally

20 supportive of the concepts proposed in the CAIR

21 rule by Illinois EPA. We believe

22 that -- we believe it provides a good foundation

23 for an equitable and effective emission reduction

24 program. First and foremost, we want to highlight

L.A. REPORTING (312) 419-9292

1 and support the concept of using the CAP and trade

2 model. We believe that through other CAP and

3 trade models such as in the acid rain program, NOX

4 trading program, which has been in effect in

5 Illinois for several years, I think this

6 represents the best model and best mechanism for

7 achieving emission reduction in a cost effective

8 manner.

We also support and applaud the

10 Agency for including an emissions allocation

11 process that we used in updates on an annual

12 basis. We believe that frequent updating in a

13 timely manner provides a great opportunity to have

14 allocations appropriately match the conditions of

15 the power market and provide a strong relationship

16 and correlation between those two factors. We

17 also support the revision of the initial

18 allocation date moved to January 1st, 2006. In

19 contrast to the federal proposed rules, where

20 initial sources are including the program by a

21 much earlier date, this provides a greater

22 opportunity to include the majority of sources in

23 the pool at the outset and reduce pressure on the

24 new source allocation pool.

L.A. REPORTING (312) 419-9292

We also support the shorter

2 baseline opportunity for newer sources giving them

3 an opportunity to integrate into the main pool in

4 a more timely fashion. We also support the new

5 source set-aside, which enables new sources to

6 reduce their out-of-pocket compliance cost and

7 expenses in order to comply with the program.

And, finally, although Zion is not

9 directly effected by this portion of the rule, we

10 support the notion of using -- providing credit

11 for steam generated by combining

12 power/cogeneration facilities.

MR. MURAWSKI: Is there any caveat to

14 your support of the cogen rule related to

15 allocation --

THE REPORTER: What was that? Sorry.

MR. MURAWSKI: Is there any -- does he

18 have any caveat to his support of that rule

19 related to the allocations?

MR. GOODWIN: The mechanism by which

21 the cogen is steamed based on the credit is

22 applied relates to another provision that we

23 discuss a little bit later in terms of the

24 fuel-weighting provision. We discuss that in more

L.A. REPORTING (312) 419-9292

1 detail. But, conceptually, we do strongly support

2 the idea of giving credit toward steam generating

3 by cogen at CHB facilities.

THE HEARING OFFICER: Yeah, and I

5 apologize for the room here, but it is really hard

6 to hear up here. And if I can't hear it, I'm

7 assuming the court reporter is having trouble

8 hearing as well. So just at the end, you guys are

9 kind of tailing off. And I think it's going to be

10 a problem all day long for me as well. So if you

11 can't hear me, please let me know.

MR. GOODWIN: If you can't hear, can

13 you please let me know?

THE REPORTER: Yes, definitely.

MR. GOODWIN: Despite our general

16 overall support for the rule, Zion Energy does

17 have a couple of areas to where we feel like the

18 Agency should review and reconsider certain

19 provisions.

All of these issues generally go

21 to the overall view of how we see the treatment of

22 the rule as applied to gas-fired peaking

23 facilities. There are several components of that,

24 which all stem from the same general concern. The

L.A. REPORTING (312) 419-9292

1 fuel-weighting of allowance allocations, which is

2 currently provided from the proposed rule, the

3 Clean Air Set-Aside, and specifically with the

4 proportion of allowances that are set aside for

5 projects and early elections and other ventures of

6 that nature. And, again, the overall treatment of

7 gas-fire peaking units, and what, in our view, is

8 a lack of consideration as to the limitations that

9 we have with respect to making additional

10 reductions.

Fuel-weighting aspect is one of

12 the primary components that we feel bears

13 additional review by the Agency. We are opposed

14 to what we view as inequitable treatment of

15 sources based on fuel type. We believe that this

16 sets up inequitable reduction requirement for

17 facilities. Specifically, those that have

18 undergone control technology review within the

19 recent past and have demonstrated compliance with

20 best available control technology requirements.

21 We see this as an unfortunate departure from the

22 NOX trading program, which has been in effect and

23 operational within Illinois for several years. We

24 view the past experience with the trading program

L.A. REPORTING (312) 419-9292

1 as being highly successful and question the basis

2 for deviating from that concept.

Further, the reduction in terms of

4 allocations that are available to the gas-fired

5 units ignores the basis and the understanding that

6 the facilities that we're talking about, and

7 specific design energy in particular, represent

8 the -- not only the best available emission

9 control and technology threshold, but it also

10 satisfies the most available emission rate

11 technology for similar sized facilities throughout

12 the country. We deducted an additional review of

13 EPA's RACT/BACT/LAER clearing house, and

14 determined that between those recent facilities

15 would have permitted in the United States since

16 Zion bearing the same type of the equipment at the

17 exact same emissions. We believe that that

18 indicates that there has not been a sufficient

19 level consideration for the fact that there is no

20 real ability to make reduction beyond what's

21 achievable with this technology.

MR. MURAWSKI: Before moving on, can I

23 ask a couple questions?

THE HEARING OFFICER: Yes, you may.

L.A. REPORTING (312) 419-9292

MR. MURAWSKI: Are you familiar with

2 the bases that the Illinois EPA has included in

3 its technical support document and testimony

4 during the last hearing on why fuel neutral

5 allocation was not chosen?

MR. GOODWIN: Yes.

MR. MURAWSKI: And in response to the

8 Illinois EPA's position, could you explain why the

9 testimony that you're giving presents a unique

10 impact on Zion Energy versus what the Illinois EPA

11 has stated as its position supporting fuel

12 weighting?

MR. GOODWIN: My understanding of the

14 Agency's testimony is that the fuel-weighting

15 concept that was introduced for the purpose of

16 recognizing and taking into consideration the

17 inherently higher emission rates seen from

18 coal-fired facilities compared to gas-fired

19 facilities.

However, what I don't believe the

21 Agency has adequately addressed is the issue of

22 how gas-fired simple-cycle combustion turbines

23 would be able to address additional reduction

24 requirements or needs to the extent that those

L.A. REPORTING (312) 419-9292

1 might be required. Specifically, the type of

2 combustion technology that we're talking about has

3 does not lend itself to additional controls

4 required by some additional rule provision or

5 bioreduction in the overall emissions CAP.

6 Because the vast majority of gas-fired facilities

7 in the state of Illinois are simple-cycle peakers

8 and not of the combined cycle variety, which are

9 more easily controlled, we believe that this is an

10 issue that bears additional consideration from the

11 perspective of the inability to make additional

12 reductions.

MR. MURAWSKI: And what is the effect

14 from a compliance standpoint or a participation

15 standpoint for Zion Energy and similar

16 simple-cycle units?

MR. COOPER: Could you please repeat

18 that?

MR. MURAWSKI: Could she read it back,

20 please?

THE HEARING OFFICER: As last time, if

22 you want the court reporter to read it back, ask

23 me, and I'll find out if she can. Can you do

24 that?

L.A. REPORTING (312) 419-9292

(Whereupon, the requested

portion of the record

was read accordingly.)

MR. MURAWSKI: Let me restate the

5 question.

THE HEARING OFFICER: Please.

MR. MURAWSKI: What is the effect on

8 Zion Energy and similar simple-cycle EGUs in the

9 State of Illinois from the scenario that the

10 Illinois EPA's proposal presents?

MR. GOODWIN: Under a CAP and trade

12 program, the effected source is making a decision

13 between the options of installing emission

14 controls and reducing emissions on their own and

15 purchasing allowances from other sources to cover

16 its accommodations. There's a cost benefit

17 analysis that's done. And the company must make a

18 decision about whether it makes more sense to

19 install controls or whether it makes more sense to

20 leave emissions as they are and purchase credits

21 from other sources to satisfy their obligation.

Because of the unique technical

23 limitations in these types of facilities in

24 simple-cycle peakers, half of that equation is not

L.A. REPORTING (312) 419-9292

1 something that we can go and take advantage of.

2 There really is no option for us to make any sort

3 of additional reductions at the facility itself.

4 In the event that we fall short in terms of

5 emission credits or would be forced to go to the

6 market and make additional purchases, credits, to

7 cover that allocation, which for a peaking

8 facility is critical because those costs --

9 ultimately have to been factored under the cost of

10 generation and ultimately have been passed onto to

11 the electric consumers.

Regarding the Clean Air Set-Aside

13 Program, we believe that, in concept, this is a

14 valid concept, a valid proposal. We've

15 participated through Calpine and other

16 organizations within the company and other

17 rule-makings in other parts of the country and

18 seen similar programs and endeavors. We are

19 neutral to the position of whether or not that

20 program should be in place.

However, our concern is primarily

22 associated with the percentage of the pool that's

23 proposed to be set aside for such projects. We

24 believe that 25 percent of the overall pool is an

L.A. REPORTING (312) 419-9292

1 inordinately large portion to be set aside with

2 respect to the overall pool. We believe this is

3 out of proportion with the compliance needs and

4 CAIR rules in the state.

Clearly, Illinois is strongly

6 oriented to the coal generation. It's expected

7 there is a significant number of emission

8 reductions that may be required to comply with the

9 CAIR CAP. We believe that some portion of these

10 should be re-evaluated for distribution for the

11 Illinois allocation program to name other sources.

In particular, we strongly feel

13 that nongenerating sources under the program, such

14 as the energy efficiency program and related

15 programs, programs of that nature, should not be

16 included for consideration because at the end of

17 the day, they're not generating sources and

18 there's no opportunity for them to ever have a

19 compliance obligation. And when you take -- and

20 bringing this back to our overall concern and

21 concept, we feel like we're such a large

22 proportion of the pool to pull that aside for

23 Clean Air Set-Aside Programs, and then the

24 additional issue of fuel weighting and the lack of

L.A. REPORTING (312) 419-9292

1 opportunity for us to make additional reductions

2 should we choose, this is really a very

3 disadvantageous position for companies like

4 ourselves to be put in.

Lastly, on this issue, we also

6 feel that unused allowances out of the concept

7 pool should be redistributed to the main pool for

8 allocation to main budget sources. The current

9 rule proposal contemplates that unused or

10 unclaimed credits would be rolled to the following

11 year. We feel like this particularly is such a

12 large set-aside included here that any unclaimed

13 credits should be rolled back into the pool for

14 redistribution.

Again, focusing back on our main

16 concept, we believe that the rule proposal doesn't

17 adequately consider the circumstances of gas-fired

18 peaking units in the state, and that's our primary

19 reason for requesting that the Agency review these

20 concepts for the rule. Again, most of the

21 gas-fired effective facilities under CAIR in this

22 state are simple-cycle turbines. The vast

23 majority of those have been constructed within the

24 last five or ten years. Those facilities have all

L.A. REPORTING (312) 419-9292

1 undergone BACT or LAER control technology reviews,

2 which essentially, demonstrates that they are at

3 the top of the class in terms of emission control

4 technology.

As I said, these facilities are

6 unable to install additional controls should we

7 find the need to do so. The main reason for that

8 is that control technology, such as selective

9 catalytic reduction and selective non-catalytic

10 reduction, which are the two most common

11 post-combustion control technologies, are highly

12 dependent on combustion exhaust temperature.

13 These particular control technologies are

14 incompatible with the exhaust temperatures that

15 are seen from large frame combustion turbines, and

16 essentially infective for making additional

17 reductions. As we talked about in our review of

18 the RACT/BACT database, EPA's determinations have

19 supported that, and we believe that that's

20 something that the Agency should take into

21 consideration and review.

So in conclusion, we'd like to

23 commend and support the Agency on the majority of

24 the rule. We believe that, in our experience in

L.A. REPORTING (312) 419-9292

1 comparison with other states and other rule

2 proposals regarding CAIR, that this is a highly

3 positive rule. We believe that it's a significant

4 improvement on the federal model rule, and we

5 encourage the Agency to continue moving forward.

Again, though, we do note that

7 there are several provisions that we would

8 recommend for additional review and

9 reconsideration. Specifically with --

THE REPORTER: Specifically what?

MR. GOODWIN: I'm sorry.

THE REPORTER: That's okay.

MR. GOODWIN: Specifically with fuel

14 neutral allocations proportion of the CASA

15 set-aside fuel and the overall gas-fired peaking

16 facilities.

This concludes my presentation.

18 I'm happy to answer any questions that anyone has

19 at this point.

THE HEARING OFFICER: Well, do we have

21 any questions for Mr. Goodwin?

MR. BONEBRAKE: We have some

23 questions, and I don't know if the Agency has some

24 questions as well or --

L.A. REPORTING (312) 419-9292

MS. DOCTORS: We do, but you can go

2 first.

MR. BONEBRAKE: Does anyone else want

4 to ask questions first?

THE HEARING OFFICER: I think they're

6 all allowing you to ask the first set of questions

7 there, Mr. Bonebrake.

MS. BUGEL: I'm signaling that I want

9 to go at some point. I don't want to go first. I

10 just want to go at some point.

MR. BONEBRAKE: I guess I will break

12 the ice.

13 BY MR. BONEBRAKE:

Q. Mr. Goodwin, I'm going to have a

15 number of questions for you that are directed at

16 your prefiled written testimony. And so if you

17 wouldn't mind first turning with me to the first

18 page of your testimony.

MR. BONEBRAKE: Am I projecting

20 sufficiently?

THE REPORTER: Pretty good.

22 BY MR. BONEBRAKE:

Q. The first paragraph in your background

24 section on Page 1 refers to 28 power generating

L.A. REPORTING (312) 419-9292

1 facilities in 15 states?

A. Yes.

Q. And could you tell us in which states

4 those facilities are located?

A. Let's see. Colorado, Wisconsin,

6 Illinois, Arkansas, Oklahoma, Louisiana, Alabama,

7 Florida, South Carolina, New Jersey, New York,

8 Maine, Ohio. Did I say Minnesota?

Q. I didn't hear it before.

Are a number of those states,

11 Mr. Goodwin, in the process of adopting CAIR rules?

A. Yes, nine of those states are in the

13 process of adopting CAIR rules.

Q. And have you been involved in a

15 proceeding like this in any of those states

16 concerning their CAIR rule proposals?

A. Yes, we've been involved in several

18 rule-makings and continue to be involved at this

19 point.

Q. Have you provided testimony at any of

21 those proceedings?

A. I don't believe I've submitted

23 testimony in terms of the administrative hearing

24 process, but we have submitted written comments on

L.A. REPORTING (312) 419-9292

1 numerous of those examples.

Q. Are you familiar with the approach

3 that those nine states have taken with respect to

4 set-asides?

A. Yes, to varying degrees. I mean,

6 certainly with nine different states, you're talking

7 about a spectrum of different approaches to

8 implement CAIR.

Q. And I think you mentioned in your

10 opening discussion that you had a concern about the

11 size of the CASA in Illinois as proposed; is that

12 correct?

A. Yes.

Q. Are you aware of whether any of the

15 nine states that are in -- the other nine states

16 that are in the process of adopting CAIR rules have

17 proposed set-asides of 25 percent or higher?

A. In my experience, there's no other

19 state that I've seen that's set-aside such a large

20 pool.

Q. What's the highest level of set-asides

22 for existing units that you have seen in the other

23 nine states?

A. If memory serves, the 7 percent

L.A. REPORTING (312) 419-9292

1 proposal for the Wisconsin DNR program would be the

2 largest, but I believe that's restricted to new

3 sources only.

Q. So in terms of the largest proposed

5 set-aside for existing units that you've seen, what

6 would that number be?

A. Can you clarify the question? When

8 you say set-asides for existing units, you mean the

9 portion of the pool dedicated to existing units not

10 considering new source and things of that nature.

Q. Right. We refer to it, I think, in

12 the Illinois proposal as NUSA and CASA. So my

13 question would be pertaining to the highest level

14 for existing sources in other states that's been

15 proposed that would be comparable to CASA in the

16 Illinois proposal?

A. I think 95 percent would represent the

18 largest proportion for main source allocation, the

19 main source pool.

Q. Maybe my question was unclear. Does

21 that mean that the set-aside -- the highest

22 set-aside that you've seen for existing sources

23 would be only 5 percent?

A. Well, no. The highest set-aside would

L.A. REPORTING (312) 419-9292

1 have been 7 percent for new sources indicating a

2 93 percent set-aside pool -- main pool. So if I

3 understood your question, you asked me largest

4 set-aside and then the largest main pool?

Q. I mean, the question I'm trying to get

6 to, and maybe I am not asking it clearly, is if you

7 look at just existing sources, and then we consider

8 the CASA type set-aside from allowances that

9 otherwise would be allocated to existing sources, in

10 Illinois that number I believe was 25 percent.

11 What's the highest number that you have seen in

12 another state that would be comparable to that CASA

13 set-aside?

A. Most of the other states don't have a

15 specific CASA set-aside program and a new source

16 set-aside program. My experience has been that

17 there's a more generic, if you will, set-aside

18 program -- set-aside pool that new sources and other

19 projects are allowed to request allocation for them.

20 So the concept of a bifurcated new source and clean

21 air source or clean unit source concept is -- I

22 don't know if it's unique to Illinois, but it

23 certainly is less frequent than other states.

Q. And then if I understood you

L.A. REPORTING (312) 419-9292

1 correctly, your testimony was that the highest total

2 combined set-aside that you have seen for both new

3 sources and existing sources combined set-aside with

4 7 percent?

A. That's correct. That's the best of my

6 knowledge at this point.

THE HEARING OFFICER: Mr. Goodwin?

THE WITNESS: Yes.

THE HEARING OFFICER: That 7 percent

10 are among the nine states that you're familiar

11 with? Or are you talking about all the states

12 in the country?

THE WITNESS: That's the --

14 the 7 percent represents the highest among the

15 various rule programs that I've seen.

THE HEARING OFFICER: That you've been

17 involved with?

THE WITNESS: Some of those I'm more

19 familiar with than others.

THE HEARING OFFICER: Okay. I was

21 curious whether you were limiting that to the nine

22 states you've been involved with or if you have

23 knowledge outside of that?

THE WITNESS: Our company, Calpine,

L.A. REPORTING (312) 419-9292

1 does a larger sense of zoning because the

2 facilities and states that are affected by CAIR in

3 ten states, so I'm covering nine of those. But

4 from what I recall, the largest percentage of

5 set-aside pool among those nine that I deal with

6 is 7 percent.

THE HEARING OFFICER: Thank you.

MR. JOHNSON: And the tenth is

9 Illinois?

THE WITNESS: No, actually, the tenth

11 would be Texas. Illinois is within that nine.

12 BY MR. BONEBRAKE:

Q. Mr. Goodwin, on Page 3 of your

14 testimony, please. At the top of that page there's

15 a paragraph starting with, "In particular." Do you

16 see that?

A. Yes.

Q. And then there's a sentence that

19 reads, "Therefore, such facilities face a

20 substantial risk to their ability to consistently

21 generate power during peak demand due to foreseeable

22 unit curtailments and shutdowns if Illinois EPA

23 reduces the overall NOX allowance pool or otherwise

24 retires NOX allowances pursuant to the proposed

L.A. REPORTING (312) 419-9292

1 rule." And then you have a sentence that starts,

2 "That is because." And as I understand what you're

3 writing here because is basically comprised of three

4 things that you list in the sentence. That is,

5 first, that additional controls will not be

6 possible. Second -- excuse me -- let me go back.

Are there essentially two factors

8 that you are relying upon in support of your

9 statement that starts in that sentence, "Therefore"?

10 I'm trying to understand how the two sentences in

11 that paragraph fit together.

A. There's actually three. The first

13 item refers to the concern about additional controls

14 and reductions being possible. That's, I believe,

15 the one you are referring to.

The second concern starting after

17 the comma and the following sentence with, "The

18 proposed rule limits NOX emission allocations to

19 national gas fired units."

And then the third item following

21 that, the following sentence, "The number of

22 remaining NOX allowances. That concern issue --

23 that concern related to the availability to

24 allowances in emission commodity market should

L.A. REPORTING (312) 419-9292

1 be --

THE REPORTER: Should be what? Sorry.

THE WITNESS: I'm sorry.

4 BY THE WITNESS:

A. The third point was related to concern

6 about the availability of emission allowances should

7 we need to go to the emission commodity market to

8 purchase allowances to cover our compliance

9 obligation.

10 BY MR. BONEBRAKE:

Q. I'll ask the question first about your

12 assertion regarding what controls will or will not

13 be possible. As I understand your statement here,

14 what you're saying, Mr. Goodwin, is that additional

15 NOX emission controls are not possible on

16 simple-cycle combustion turbines; is that correct?

A. Of this size, yes.

Q. I saw later in your testimony a

19 reference to some catalyst, typically, some

20 manufacturers that are touting as -- on having good

21 efficacy in this type of generator. Do you recall

22 that testimony?

A. Yes.

Q. And what is your view of the

L.A. REPORTING (312) 419-9292

1 assertion --

THE REPORTER: Of the assertion...

MR. BONEBRAKE: By those

4 manufacturers.

5 BY THE WITNESS:

A. In our knowledge and our experience,

7 those high temperature catalysts, which is what

8 they're referring to, how they're commonly referred,

9 they have not been effective in long-term

10 demonstrations and certainly have not been applied

11 to commercial with respect to F-class combustion

12 turbines.

13 BY MR. BONEBRAKE:

Q. Can you identify for us the

15 manufacturer or manufacturers that makes these

16 catalysts that may operate at high temperatures?

A. Not at this time.

Q. When you say long-term tests, what do

19 you mean, Mr. Goodwin?

A. Are you looking for a length of time

21 or test conditions or something along those lines?

Q. I think you use that term in your

23 testimony, if I understand too correctly, and I was

24 trying to get an understanding of what you intended

L.A. REPORTING (312) 419-9292

1 by the phrase?

A. By the phrase long-term tests?

Q. Right.

A. Tests beyond -- I haven't had any

5 particular experience with developing a test plan.

6 But on the number of projects that I have worked

7 with respect to working for BACT analyses and that

8 sort of thing, there's been no commercially

9 demonstrated tests, and there have been no tests

10 with corresponding emission determinations or

11 emission data to show that over a range of operating

12 conditions consistent with the expected operating

13 profile of this turbine that such reductions are

14 possible.

Q. Would you say that high temperature

16 catalyst are a developing technology?

A. I don't know that I'd characterize

18 them as developing. I'm not in the position to

19 speak to the market demand for those; and therefore,

20 I'm not able to make a determination about how much

21 interest there is in developing such technology.

What I could tell you is that, to

23 this date, Calpine, which operates a number of

24 combustion combined cycle and simple cycle, has not

L.A. REPORTING (312) 419-9292

1 seen effective demonstration of high temperature

2 catalyst.

Q. Do you anticipate that within the next

4 few years the high temperature catalyst with

5 efficacy will be developed and commercially

6 available?

A. I'm not in the position to say.

Q. I also have a follow-up question for

9 you regarding the last phrase in the paragraph that

10 we were referring to. The phrase reads, "Will

11 likely be severely limited and cost prohibitive."

12 Do you see that?

A. Yes.

Q. And you're referring there to NOX

15 allowances; is that correct?

A. Yes.

Q. And can you tell us the basis for the

18 assertions regarding severe limitations on costs

19 emissions concerning NOX allowances?

A. In what context?

Q. I'm just trying to understand what the

22 basis is for that statement, the kind of information

23 that you have in your possession, what kind of

24 calculations or analysis that you've done?

L.A. REPORTING (312) 419-9292

A. In terms of availability of

2 allowances?

Q. Sure. Let's start there.

A. Well, I think we can draw from the --

5 experience from the California energy market crisis

6 in 2000 and 2001, where a number of facilities

7 essentially had run out of allowances by the end of

8 years. And because of the construction of market

9 there, there was no opportunity for them to continue

10 to operate without violating the terms of their

11 requirements, the terms of the permits of

12 their emission control programs. So there's a

13 situation -- or there's a potential that -- and I

14 don't know that, necessarily, there will be -- there

15 would not be allowances available. My concern is

16 more along the lines of central cost excavation

17 considering that that would be our only option

18 available to comply with the program.

Q. Have you done any kind of calculation

20 or analysis to determine what the cost of NOX

21 allowances may be in the future under the CAIR

22 program?

A. I understand that as part of the

24 preamble for the federal rule, that EPA used a cost

L.A. REPORTING (312) 419-9292

1 per ton break point of approximately $2,000 per ton

2 as their guidepost for represented highly cost

3 effective controls. And given the consideration of

4 weighing cost of installing controls versus cost of

5 purchasing allowances, I believe that's a reasonable

6 basis on which to base emission costs.

Q. Is it your testimony that you think

8 that number was going to be low as we move forward?

A. I have no way of telling you what the

10 costs are going to be.

Q. You just made the assertion regarding

12 limited and cost prohibited, so I'm trying to get a

13 sense of when you use the term cost prohibited, what

14 kind of economic --

A. Well, my statement was with respect to

16 the concern about the potential, and asking the

17 Agency to reconsider that portion because I'd like

18 to have that potential --

THE REPORTER: Potential what?

20 Litigated?

21 BY THE WITNESS:

A. Mitigated to the degree possible.

23 BY MR. BONEBRAKE:

Q. The concerns regarding the cost

L.A. REPORTING (312) 419-9292

1 allowances, which would apply as well, would they

2 not, Mr. Goodwin, to others in Illinois that

3 reported they are subject to compliance obligations

4 under the proposed Illinois CAIR, such as coal-fired

5 generating units?

A. I suppose the cost of controls versus

7 purchasing allowances would be a consideration

8 for (inaudible).

Q. The next page of your testimony,

10 Mr. Goodwin, at the top in the first sentence in

11 Section B, and the first sentence reads, "Zion

12 strongly supports the concept of annual review

13 redistribution of allowances in the years 2012 and

14 beyond." Are you aware of whether the Illinois

15 Environmental Agency has any difficulties in timely

16 determining NOX allowance allocations under the NOX

17 SIP call?

A. In terms of what specifically?

Q. In terms of making allocations.

A. In terms of calculating what

21 allocations are offered to a particular source?

Q. Correct.

A. No, I'm not aware of any concerns.

Q. If the Agency had a difficulty in

L.A. REPORTING (312) 419-9292

1 making timely allocations, would that create a

2 concern in your mind about annual review and

3 redistribution of allowances?

A. No, I think the Agency has plenty of

5 very bright people that can handle the process of

6 calculating emissions on an annual basis.

Q. My question assumes that they have

8 challenges making the annual allowance allocations.

9 And if they were unable to do so, would that cause

10 you concern if the regime was set up to require

11 annual allocations?

A. Presuming the Agency had problems with

13 figuring out the allocations, I think the correct

14 course of action would be to understand the cost and

15 concern. It certainly doesn't confuse the

16 legitimacy of an annual manually updated program.

Q. Page 6 of your testimony, Mr. Goodwin,

18 you talked some about fuel adjustment factors in an

19 area in your opening presentation.

Is it true that the Illinois

21 Environmental Protection Agency proposal uses the

22 same fuel adjustment factors that's set forth in the

23 federal CAIR model rule?

A. The Agency has exercised its

L.A. REPORTING (312) 419-9292

1 discretion to follow the example set by the federal

2 rule, yes.

Q. And is it also true that the United

4 States Environmental Protection Agency used those

5 fuel adjustment factors to derive the NOX state

6 budgets?

A. I believe that's the case, yes.

Q. Do the proposed fuel adjustment

9 factors have the affect of encouraging the use of

10 coal?

A. In terms of a hypothetical company

12 that we're deciding on whether to deploy a

13 particular generating technology fuel type; is that

14 the context?

Q. Sure.

A. I think decisions about fuel and

17 technology for generating sources are largely

18 independent of the consideration of whether

19 fuel-weighting factors would be applied to the CAIR

20 rule. Technologies and fuel choices are dependent

21 on -- more so, on market segment than they are

22 necessarily on whether or not there's a more

23 favorable allocation.

Q. You would agree, would you not, that

L.A. REPORTING (312) 419-9292

1 over time, if there was a significant difference

2 between the cost of generation with respect -- by

3 using coal versus gas, that we might start to see a

4 shift in generation from one fuel to another?

5 There's a possibility?

A. Potentially for a certain market

7 segment in the electric power industry mesh more

8 consistent with certain fuel types than others.

Q. Do you agree that the State of

10 Illinois has a legitimate interest in encouraging

11 the use of Illinois coal?

A. Well, I understand that certainly the

13 natural resources that the state is blessed with and

14 I would understand their interest in supporting --

THE REPORTER: In supporting?

THE WITNESS: That industry.

17 BY MR. BONEBRAKE:

Q. Is it true that if the fuel

19 adjustments were eliminated from the proposed rule,

20 that that would have the effect of decreasing the

21 rule's impact on the company of -- at whose benefit

22 you are testifying today, but on the other hand,

23 further decreasing allowances that otherwise would

24 be available to coal-fired units?

L.A. REPORTING (312) 419-9292

A. Under a revised and fuel neutral

2 allocation, as we suggest, yes, Zion Energy would

3 have the opportunity to have a larger allocation

4 that would provide for additional assurance that

5 compliance could be maintained.

Q. On Page 7 of your testimony, and it's

7 the middle paragraph that I'm interested in, it's

8 the third sentence in that paragraph, and it reads,

9 "While of fuel weighting seems to equalize certain

10 considerations, including baseline emission rates

11 and generating efficiencies, it does not equally

12 apply to peaking combustion turbine units." And my

13 question for you is, what does the statement mean,

14 "While fuel weighting seems to equalize certain

15 considerations," and I didn't understand what you

16 meant by that phrase?

A. Well, the statement was offered as a

18 response to the justification provided in support of

19 the fuel weighting, which indicated that fuel

20 weighting was offered to help equalize and consider

21 the inherent differences in emission rates between

22 different generation fuel types.

My comment here is with respect to

24 the fact that in many applications in many states

L.A. REPORTING (312) 419-9292

1 where my company does business, gas-fired facilities

2 are predominantly combined cycle. And the inherent

3 improvement or benefit with respect to the improved

4 efficiency in combined-cycle facilities, that could

5 be used to justify a fuel-weighting away from

6 gas-fired facilities and not for simple-cycle

7 facilities, which are not able to achieve those same

8 efficiencies.

Q. At Page 7, again, and it's the next

10 paragraph down starting with the word, "First."

11 That first sentence in that first paragraph reads,

12 "First, as the NOX emission allowances are currently

13 proposed, peaking combustion turbine units will

14 barely receive enough allowances to cover

15 emissions." Is it true, therefore, Mr. Goodwin,

16 that Zion, under the Illinois Environmental Agency's

17 current proposal, would receive sufficient NOX

18 allowances to comply?

A. Based upon recent years, yes.

20 However, that certainly doesn't provide any sort of

21 firm indication about compliance status for future

22 years.

Q. And if Zion were to receive sufficient

24 NOX allowances to comply, the additional allowances

L.A. REPORTING (312) 419-9292

1 that might flow to Zion as a result of a fuel

2 neutral steam that may well be allowances that Zion

3 turn around and sell, and therefore, make some

4 money; is that correct?

A. Primarily, our focus would be to

6 utilize excess allowances, should there be any. And

7 other facilities that are affected by CAIR

8 throughout our other operations throughout the

9 history of the United States. So it's certainly to

10 mitigate shortfalls within our fleet first and

11 foremost.

Q. Whether they were used within your own

13 fleets or sold to third parties, they obviously have

14 an economic value to Zion; is that correct?

A. Presumably.

Q. Were you aware that a firm by the name

17 of ICF was commissioned by the Illinois

18 Environmental Protection Agency to perform an

19 economic analysis with respect to the CASA

20 set-aside?

A. I believe so, yes.

Q. And have you done any economic

23 analysis with respect to the economic impact of

24 removing fuel adjustment factors from the Illinois

L.A. REPORTING (312) 419-9292

1 proposal?

A. No, I haven't.

Q. A couple questions for you,

4 Mr. Goodwin, pertaining to your views on the

5 25 percent CASA set-aside. Is it correct it's your

6 testimony that the 25 percent set-aside in your view

7 is too high?

A. Yes.

Q. And do you have a view as to what the

10 CASA set-aside should be?

A. In terms of an actual percentage,

12 nothing specific. I don't have a specific

13 recommendation for the alternative size. My

14 comments and -- our comments were more intended

15 toward the overall sizing pool and the types of

16 sources that were allowed to request allocations

17 from that pool.

Q. And I had a follow-up question there.

19 It wasn't clear to me from your testimony to which

20 of the sources that would currently be eligible for

21 CASA set-asides are you asking to be eliminated from

22 eligibility?

A. Specifically the energy efficiency

24 demand side management related facilities. I

L.A. REPORTING (312) 419-9292

1 believe that additional investigation needs to be

2 done on any facility that would apply for an

3 allocation as an early adopter. My concern or our

4 concern there is that to the extent that facilities

5 may already be forced to comply with the NOX trading

6 program that, in many cases, emission reduction

7 opportunities and controls may already have been

8 installed. The concern there is with over applying

9 for facilities that are already compliant and

10 significantly below the emission reduction goals.

Q. I had a related question, I think, to

12 the answer that you just provided, and it relates to

13 your testimony on Page 11. And it's the last

14 sentence on that page, and it reads, "Therefore, the

15 Illinois EPA seems to have proposed a rule that will

16 incentivizes and reward sources for projects and

17 reductions that are already required by law to the

18 clear detriment of other types of EGUs in this

19 state." Is it your view, Mr. Goodwin, that the NOX

20 trading program requires sources to reduce NOX --

THE REPORT: To what?

THE HEARING OFFICER: Just for the

23 record, I think that's on Page 10.

MR. BONEBRAKE: Page 10. Sorry.

L.A. REPORTING (312) 419-9292

1 BY THE WITNESS:

A. You're asking about the last sentence

3 on Page 10?

4 BY MR. BONEBRAKE:

Q. The last sentence on Page 10 starting

6 with "Therefore"?

A. Yes. Okay.

Q. Let me put the question to you again

9 since I referred you to the wrong page.

There's a reference there to

11 projects and reductions that are already required by

12 law, what law is it that you're speaking of in that

13 phrase?

A. That goes back to the comment I made a

15 few minutes ago about our concern that under certain

16 portions of the CASA set-aside there may be an

17 opportunity for a company or facility that already

18 is required to make reductions, has already made

19 control technology upgrades or installations as a

20 result of complying with the NOX trading program,

21 that there may be an opportunity for obtaining

22 additional credits for reduction already made.

MS. BASSI: Just to follow-up on that

24 a bit. The NOX SIP call does not require any

L.A. REPORTING (312) 419-9292

1 particular -- that any particular reductions be

2 achieved; is that correct?

THE WITNESS: Yes, that's right.

MS. BASSI: And, in fact, the NOX SIP

5 call merely requires that a source surrender

6 allowances equal to its emissions in a given ozone

7 season?

THE WITNESS: Correct.

MS. BASSI: So then what emission

10 reductions would have been required by that law?

THE WITNESS: Well, it's for a company

12 that has a number of facilities that are affected

13 by the rule. There's certainly a system-average

14 approach, that's -- I think it's certainly a

15 reasonable way to approach things. Obviously,

16 controls are not meant to be installed on every

17 facility, otherwise there wouldn't -- they

18 wouldn't benefit to having a CAP and trade permit.

MS. BASSI: Is the system-average

20 approach required by the NOX SIP call?

THE WITNESS: Not in particular, but

22 it's the -- the net effect of reducing emissions

23 across the system of fleet that's selected in

24 emission control projects as the net effect of

L.A. REPORTING (312) 419-9292

1 having a system average for the affected

2 facilities.

MS. BASSI: I understand what you're

4 saying, but is that required by NOX SIP call? Is

5 that required by a law?

THE WITNESS: Just an average

7 acquiring controls on particular units, no.

MS. BASSI: And, in fact, does the

9 NOX SIP call require any kind of a system-wide

10 average within a state or within the eastern

11 United States or anywhere, does it not merely

12 require the surrender of allowances equal to

13 emissions during the ozone season?

THE WITNESS: Yes, that's correct.

MS. BASSI: Thank you.

16 BY MR. BONEBRAKE:

Q. In your opening presentation, I think

18 you referred to the fact that the Illinois proposal

19 would impact the electricity rates charged to

20 consumers. Did I understand you correctly?

A. I highlighted that as a potential

22 concern of the rule given as treatment for gas-fired

23 peakers.

Q. Is that because there's an expectation

L.A. REPORTING (312) 419-9292

1 on your part that gas-fired peakers will be required

2 to buy allowances under the proposal?

A. Yes.

Q. And, similarly, if coal-fired

5 generators were required to buy allowances under the

6 rule, that would increase their cost of generation;

7 is that correct?

A. Well, coal-fired facilities would have

9 the option of installing technological feasible

10 controls versus the cost of purchasing allowances.

11 My concern here is that simple-cycle peakers don't

12 have that opportunity.

Q. Whether coal-fired generators install

14 controls by allowance, they still incur costs in

15 either event, do they not?

A. They would incur costs, but they would

17 be allowed to decide which cost was cheaper.

Q. But none the less, incurring

19 additional costs?

A. Sure. Anyone that's having to make

21 reductions is presumably making -- is incurring some

22 sort of an additional cost.

Q. And those additional costs, likewise,

24 you would be expected to be passed onto consumers;

L.A. REPORTING (312) 419-9292

1 is that right, Mr. Goodwin?

A. Presumably, yes.

Q. Have you made any calculation of the

4 cost of the Illinois proposal to your client Zion?

A. I'm sorry. I didn't get the last part

6 of your question.

Q. Have you made any projections or

8 calculations of the cost of the Illinois proposal to

9 the company on whose behalf you are testifying

10 today?

A. No, I haven't.

Q. Have you made any calculation of the

13 CASA as a proposed impact on consumer cost for

14 electricity in Illinois?

A. No, I have not.

16 BY MS. BASSI:

Q. Could you walk us through

18 Attachments 1 and 2 to your testimony, please? Tell

19 us what information these attachments are providing

20 to us.

A. Yes. Attachment 1 is a printout from

22 USEPA's technology transfer network clearing house.

23 That database includes emission control technologies

24 present with respect to permits for facilities

L.A. REPORTING (312) 419-9292

1 throughout the US. Attachment 1 deals with an

2 electric peaking facility located in Rock Springs

3 Maryland. It was submitted for the purpose of

4 demonstrating a recent BACT determination for a

5 comparable and, in fact, identical facility to Zion

6 Energy.

Q. And I see a couple of dates on that

8 page. What -- when was this particular facility

9 added to the list?

A. This facility was added on Page 2

11 of 3. The application acceptance date was noted as

12 August 9, 1999.

Q. So does that mean that this Model --

14 GE Model 7FA was BACT or LAER?

A. Actually, this is LAER determination.

Q. A LAER?

A. Yes.

Q. And what is the emission rate?

A. Nine parts per million of NOX.

Q. What does that transfer into --

A. It depends on how you're asking it.

22 If you're asking for a pound per million from a

23 combustion turbine, it's point 0332. Now, it's

24 different compared to other types of generating

L.A. REPORTING (312) 419-9292

1 units because the calculations are different for a

2 boiler compared to a combustion turbine.

Q. And is that all about Attachment 1?

A. Yes, unless you have additional

5 questions.

Q. Attachment 2?

A. Attachment 2 is a BACT determination

8 for a facility proposed by gas electric, again,

9 using the GE 7FA combustion turbine. The emission

10 limit for that facility is indicated at 12 parts per

11 million NOX, which --

Q. Where does it tell us that?

A. For which attachment?

Q. Two.

A. For Attachment 2 it is on -- it is

16 actually two groupings -- actually three groupings.

17 We have a set of three pages. We have a single

18 page, and the final set of groupings, which is a set

19 of two.

Q. Okay.

A. If you look on Page 1 of 2, the third

22 grouping down towards the bottom.

Q. And you said this is a BACT

24 determination?

L.A. REPORTING (312) 419-9292

A. Yes, this is a BACT determination.

Q. Going back to Attachment 1, where is

3 this particular project located, the Rock Springs?

A. Rock Springs, Maryland is northeast of

5 Baltimore approximately 40 miles.

Q. So it's in that Baltimore

7 nonattainment area?

A. Correct.

Q. And then I had a couple questions

10 about your presentation.

MR. BONEBRAKE: If I may?

MS. BASSI: Oh, I'm sorry.

MR. BONEBRAKE: I had a follow-up

14 question for you on Attachment 2. You mentioned

15 the 12 part per million emission limit?

THE WITNESS: Yes.

MR. BONEBRAKE: And what I didn't see

18 in here and was wondering about is, do you know

19 what technology was identified by the Agency as

20 the technology that could be utilized or installed

21 to achieve that emission rate?

THE WITNESS: Yes, that's combustion

23 controls.

MR. BONEBRAKE: Is that specified

L.A. REPORTING (312) 419-9292

1 somewhere in Attachment 2? That's what I was

2 looking for.

THE WITNESS: Let me see. It doesn't

4 look like Attachment 2 has such an indication.

I believe Attachment 1 may have

6 that. Let me look. No, it's not indicated on

7 here. What I can tell you is, is that the 9 ppm

8 limit on Attachment 1 and the 12 ppm limit on

9 Attachment 2 are consistent with the emission

10 guarantee limits provided by General Electric on a

11 combustion turbine.

MR. BONEBRAKE: Is that the type of

13 combustion turban used by Zion?

THE WITNESS: Yes.

MR. BONEBRAKE: And I think you

16 referred to the combustion controls in your answer

17 as well. What type of the specific combustion

18 controls were you referring to?

THE WITNESS: The combustion controls

20 used for these facilities are what's called a

21 (inaudible) NOX combustion. It's an advanced

22 combustor technology that does a very good job of

23 mixing fuel and air during the combustion process,

24 which reduces the formation of NOX. So,

L.A. REPORTING (312) 419-9292

1 essentially, you prevent the formation of NOX in

2 the first place. So you don't have to actually

3 remove it through a post combustion technology.

MR. BONEBRAKE: And do you know if in

5 the case of either the facility addressed in

6 Attachment 1 or Attachment 2, whether USEPA made

7 an express determination that alternative

8 technologies were not available? And if so, do

9 you have a document to that affect?

THE WITNESS: Well, with respect to

11 the Rock Springs facility, I actually was the

12 permit engineer for the line energy, which was one

13 of the parts necessary on the project. So I'm

14 familiar with the control process. I believe that

15 EPA issued a determination indicating that

16 combustion controls, in fact, did represent LAER

17 through this type of technology.

18 BY MS. BASSI:

Q. I had a couple questions on your

20 presentation. And the first one is on Page 3 of the

21 presentation. This is the one that begins comments

22 focussed on the NOX portion of CAIR.

A. Yes.

Q. And I believe at this point in your

L.A. REPORTING (312) 419-9292

1 discussion of the shorter time frames, that was with

2 this particular slide, wasn't it?

A. Yes, I believe so. Shorter baseline.

Q. And as I understood it, what you were

5 saying was, with the shorter time frames for rolling

6 new sources into the existing source baseline, that

7 that was a good thing in your opinion; is that

8 correct?

A. Yes.

Q. With the shorter time frames for the

11 new source set-aside or the new unit set-aside, does

12 the new unit set-aside then need to be 5 percent?

A. I believe that a large new source pool

14 is not a bad thing. I believe, conceptually and

15 admittedly, Calpine has a great deal of new

16 facilities that have met bad requirements, and

17 therefore, we have very advanced pollution controls

18 in a vast majority of our fleet. So from our

19 perspective, certainly, we think that the newest and

20 cleanest facilities ought to have an adequate

21 opportunity to have enough additional allowances to

22 cover their obligations.

What we have seen in other

24 situations is that the new source pool is under

L.A. REPORTING (312) 419-9292

1 subscribed and leftovers, which would be in the

2 process of tipping roll back into the main pool for

3 distribution. We take no position on whether or not

4 that happens, but we do feel like the new source

5 pool is an important factor to have.

Q. Is your facility at Zion the only one

7 that Calpine has in Illinois?

A. Yes, it is.

Q. And is it correct that your

10 allocations will come from the, quote, existing pool

11 as opposed to the new pool?

A. Correct.

MS. BASSI: That's all I have.

THE HEARING OFFICER: Mr. Bonebrake,

15 are you finished?

MR. BONEBRAKE: I'm finished for now.

THE HEARING OFFICER: Yes, sir.

UNIDENTIFIED SPEAKER: Yes, if I

19 could, I'd like to direct your attention to --

THE REPORTER: I don't know who that

21 is.

THE HEARING OFFICER: Could identify

23 yourself for the court reporter, please?

MR. FORCADE: Bill Forcade,

L.A. REPORTING (312) 419-9292

1 Jenner & Block.

THE REPORTER: Thank you. I see your

3 card here.

4 BY MR. FORCADE:

Q. Page 12 of your prepared testimony,

6 the first full paragraph. I believe you identified

7 two sources of potential increase and electric

8 power prices to consumers. The first one is

9 the 25 percent NOX emission allocation set-aside for

10 CASA. And the second one is the complete retirement

11 of the compliance supplement pool. Is that correct?

A. Yes.

Q. And I believe you've made a statement

14 in your testimony in your outline that you believe

15 the CASA set-aside should be returned if unused.

16 You made that comment on the CASA pool?

A. Yes.

Q. I did not see a comment on the

19 compliance supplement pool. Do you support the

20 language in the Agency proposal relating to the

21 retirement of the compliance supplement pool?

A. If I understand correctly, the

23 compliance supplement pool is a pool of allowances

24 that is set aside and made available additionally as

L.A. REPORTING (312) 419-9292

1 needed for facilities that may have allocation

2 shortfalls; is that correct?

Q. Early reductions.

A. I'm not familiar with that pool. And

5 on the various rule-makings with respect to CAIR, we

6 have not taken a position on compliance supplement

7 pool retirement. So I'm not in the position right

8 now to comment effectively.

THE HEARING OFFICER: Anything

10 further? Anybody else have any questions for this

11 witness?

MS. BUGEL: I have questions, but you

13 go ahead.

THE HEARING OFFICER: Ms. Doctors?

15 BY MS. DOCTORS:

Q. Rachel Doctors for the Illinois

17 Environmental Protection Agency.

MR. FORCADE: I'm sorry. I can't hear

19 you.

MS. BASSI: You got to yell, Rachel.

MS. DOCTORS: Okay.

THE HEARING OFFICER: I think the only

23 one that heard you was the court reporter there.

MS. DOCTORS: Good.

L.A. REPORTING (312) 419-9292

1 BY MS. DOCTORS:

Q. Mr. Goodwin, did you or any other

3 representative of Zion attend the stakeholder

4 meetings on the proposed CAIR rule in January and

5 February of this year?

A. No, we did not.

Q. If no, why not?

A. Our company had filed for Chapter 11

9 Bankruptcy Protection late in 2005, and as a result

10 of that, our travel budgets were highly restricted.

11 And I requested an opportunity to attend and was

12 declined that opportunity by company management.

Q. Did you or any other representative of

14 Zion submit comments prior to this prefiled

15 testimony of the proposed CAIR rule either at the

16 stakeholder meeting via e-mail, in writing or

17 regular mail or at the first hearing on the proposed

18 rule in Springfield?

A. I believe we did. I apologize. I'm

20 trying to search for the comment letter in my head

21 for whether we submitted one to the Agency.

22 Obviously, we submitted written testimony, and I

23 can't recall specifically if we submitted comments.

Q. Would it surprise you if the Agency

L.A. REPORTING (312) 419-9292

1 hadn't received any comments from Zion?

A. No. And the reason being is that my

3 understanding of the process was that the former

4 rule-making process went -- moved very quickly from

5 the stakeholder process to the draft rule stage. I

6 had a conversation with Mr. Kaleel subsequent to

7 that, and he indicated to me that the administrative

8 process was -- would be moving forward soon

9 thereafter, and that that would be an opportunity

10 where we could submit comments on the rule-making.

Q. What NOX controls are currently

12 employed at Zion's gas turbine -- on Zion's gas

13 turbine units?

A. For natural gas combustion, our

15 facility uses dry, low NOX combustors. For periods

16 where we fire distill oil of water injections, we

17 usually use NOX emissions.

Q. Emissions data for Zion that Zion has

19 reported to use EPA Cambi shows that Zion's gas

20 turbines over the years from 2002 to 2005 have

21 average emissions between 0.05 and 0.06 pounds per

22 MMBTU, and that two of the three turbans have

23 achieved emission rates as low as 0.04 pounds MMBTU

24 on an annual basis. Would you characterize these as

L.A. REPORTING (312) 419-9292

1 relatively low emission rates?

A. In what context?

Q. In the context of the other units that

4 are required to comply with the CAIR rule?

A. Well, it's certainly lower compared to

6 a coal-fired unit. And I think within the context

7 of comparable emission sources and degenerating

8 technologies, it's fairly consistent.

Q. On average, how many tons of NOX have

10 Zion's turbines admitted since beginning operation

11 in 2002?

A. I don't have that data in front of me

13 right now.

Q. Would you be surprised that Cambi

15 reports that it's 20 on an annual basis, 20 tons of

16 NOX?

A. If you have the data, then you're

18 having the advantage, so...

Q. With respect to fuel-weighting,

20 each state's budget in both the annual and seasonal

21 programs were calculated using these fuel-weighting

22 factors -- the fuel-weighting factors

23 (inaudible) -- the CAIR final rule at Page 25231,

24 dated May 12, '05, it's Agency Exhibit A, also

L.A. REPORTING (312) 419-9292

1 states with respect to the fuel-weighing, "It's not

2 expected that this decision to include

3 fuel-weighting would disadvantage states with

4 significant gas-fire generation. One reason is that

5 the calculation of the adjusted heat input for

6 natural gas generation generally includes

7 significant historic heat input and emissions from

8 older, less efficient and dirtier steam gas units.

9 These units capacity factors are declining and are

10 expected to decline further over time as new,

11 cleaner and more efficient combined-cycle gas units

12 increase their generation." In light of this

13 information from USEPA on how state budgets were

14 calculated, wouldn't an output based regulation,

15 such as Illinois', be beneficial in the long-term to

16 gas-fired turbine units?

A. We have not taken issue with the

18 output based concept. In fact, we've supported

19 output based allocations in other opportunities. So

20 we don't take issue with the output based concept.

Q. I guess it was alluded to -- and maybe

22 I'll just follow-up with one more question on

23 fuel-weighting.

In Illinois, isn't it true that

L.A. REPORTING (312) 419-9292

1 the base load generation is coal-fired rather than

2 gas?

A. Yes.

Q. So the burden for emission reductions,

5 as well as the inherent financial burden, is on

6 coal-fired base load units?

A. The burden and the opportunity, I

8 believe, both lie with the coal-fired portion of the

9 generating fleet.

Q. Based on the answers -- on your answer

11 and in your testimony, a natural gas-fired peaker

12 would not need to add controls to meet the rule?

13 Because on Page 7 of your testimony you indicated

14 you get barely enough allowances; is that correct?

A. Based on the historical data that we

16 have, and as you indicate, historically designed

17 facility had a low capacity factor, we would

18 anticipate having a marginal excess above historical

19 values. However, should emissions increase

20 substantially in a short period of time, Zion could

21 be put in a position of having a significant

22 shortfall.

MR. COOPER: Do you foresee that as a

24 likely scenario? I mean, what would cause you to

L.A. REPORTING (312) 419-9292

1 think that sometime in the future there would be a

2 large ramp up of emissions?

THE WITNESS: Well, with respect to

4 development of PGAM market design, with respect to

5 development of the midwest independent system

6 operator and with our restructuring through

7 bankruptcy, we're hopeful that that would provide

8 additional opportunities for additional run time

9 and additional dispatch opportunities from the

10 Zion facility.

THE HEARING OFFICER: Ms. Bassi?

MS. BASSI: I'd like to follow-up on

13 that.

If there's additional run time,

15 would you also then be allocated additional

16 allowances based on your gross electrical output?

THE WITNESS: Yes, that would be a

18 consideration and a factor in the calculation.

19 However, what we're concerned about is that should

20 some -- at some point down the road EPA and IEPA

21 and other agencies determine that clean air goals

22 are not being met, there could be a situation to

23 where the state budget would be rationed down, and

24 in fact, reducing the emission allocation

L.A. REPORTING (312) 419-9292

1 opportunity for Zion and putting us in a position

2 where additional reductions were not feasible.

THE HEARING OFFICER: Ross Cooper?

MR. COOPER: I didn't glean this from

5 your testimony until you spoke now. The

6 impression I got from your testimony was that Zion

7 would be required to install an SCR. What I think

8 I've heard you state is that your concern is not

9 that you are being required to install an SCR,

10 it's that you have no option to install an SCR?

THE WITNESS: Correct.

MR. COOPER: So your concern is that

13 the structure of the rule has effectively

14 eliminated one compliance choice, and now you feel

15 your only option is to buy from the market?

THE WITNESS: In summary, yes.

17 BY MS. DOCTORS:

Q. As we've discussed -- I believe

19 Mr. Bonebrake brought this up, that the average cost

20 of allowances of 2000 tons is what they were

21 using -- $2,000 per ton was the average figure so --

22 of cost effectiveness. So that's the same cost

23 effectiveness figure that a coal-fired unit would

24 also be subject to that they have to make the

L.A. REPORTING (312) 419-9292

1 decision about whether to install additional

2 controls or pay $2,000 a ton for allowance, if they

3 didn't receive enough allowances; isn't that

4 correct?

A. Well, from the perspective of the cost

6 of the allowance, if you're assuming that the cost

7 is fixed, then certainly that'd be a comparison made

8 between the control cost. My assertion here is, is

9 that the consideration of the control cost is not an

10 option for us. We are totally required to -- we

11 have one option and one option only and are subject

12 to the whims of the emission credit market. If a

13 substantial shortfall were to develop through

14 reduction in state pools or some other factor, then

15 we are at the mercy of the market and would have to

16 bear those costs.

MR. COOPER: Admittedly, not a great

18 body literature, but most of the literature I've

19 looked at suggests that future allowance rates

20 somewhere between 2,000 and 2,500, do you think

21 purchasing a 2,500 would be an unduly burdensome

22 form of compliance, in lieu of, perhaps,

23 installing, say -- what does an SCR cost?

24 Millions?

L.A. REPORTING (312) 419-9292

MS. BASSI: Gazillions.

2 BY MR. COOPER:

Q. Gazillions. Thank you.

A. Well, I think with respect to most of

5 the air planning programs that I've been associated

6 with and experience with is that the cost per ton

7 reduction is the common metric for which to

8 determine whether certain measures are feasible and

9 others are not, and certainly in terms of grading of

10 those terms of preference. Obviously, there's a

11 bigger bank for the buck by installing controls on a

12 facility where we can get a 2,000 per ton on

13 reduction versus say a combined-cycled facility

14 brand new, which costs $7 and $8,000, and offers a

15 significantly lower corresponding --

Q. In speaking about Zion's -- these

17 particular facilities, even under worse case

18 scenario, say, $2,500 a ton, and you had to purchase

19 all 20 tons worth, are we still not talking about,

20 perhaps, a reasonable dollar amount?

A. And I guess maybe I misunderstood your

22 question. I think, fundamentally, we are opposed to

23 being required to purchase emission credits when our

24 facility represents the best available technology

L.A. REPORTING (312) 419-9292

1 for our particular generating type. So, no, I don't

2 believe it's a reasonable --

Q. As your own testimony states, though,

4 you'll receive barely enough. And as Ms. Bassi

5 pointed out, which was a follow-up to mine, for

6 every additional megawatt you generate to --

7 hopefully, through PGAM, you folks do well. Every

8 additional megawatt you generate, you'll be given

9 more allowances. I think it balances out.

A. Well, presuming that the rule stay

11 static and never changes, presuming that the

12 emission pool is never reduced, presuming that the

13 state CAP is never reduced, presuming that there's

14 no --

Q. Have other trading programs

16 historically been reduced on a whim?

A. I believe that the Title IV SO2

18 program implemented a CAP reduction.

Q. Is this a common event? I mean, is

20 this something that your business planning people

21 would not -- wouldn't account for?

A. I think it's incumbent upon any

23 company to plan for things of that nature, but

24 certainly, it's difficult to foresee air quality

L.A. REPORTING (312) 419-9292

1 goals and success with achieving those goals and be

2 able to project what's going to happen ten years

3 from now. So we're trying to insulate against that

4 type of concern.

Q. Sure. Onto a slightly different

6 topic.

A short time ago, we spoke briefly

8 on the 5 percent NUSA. I believe the question was,

9 is a 5 percent NUSA necessary, and I believe you

10 answered something to the effect of, yes, newer

11 plants are typically better, and therefore, we would

12 support somewhat larger NUSA. Did I paraphrase that

13 correctly?

A. I believe my comment was addressed to

15 the conceptual validity of the NUSA pool. And both

16 Zion and Calpine, both, strongly support the concept

17 of the NUSA pool.

Q. So if Illinois has several EGU

19 projects, either on the books now or in the near

20 future, a larger NUSA pool then would assist those

21 particular projects in actually coming on live; you

22 then would agree with that?

A. I believe the larger pool would

24 certainly help mitigate the control costs and

L.A. REPORTING (312) 419-9292

1 compliance costs.

MS. BASSI: What do you mean by larger

3 pool?

MR. COOPER: 5 percent versus

5 1 percent.

6 BY MR. COOPER:

Q. On Page 7 of your testimony, I

8 believe, the second paragraph, last sentence,

9 "Consequently, the fuel-weighting issue does not

10 have as devastating an impact on those combined

11 cycle sources." Can you describe to me what you

12 mean by that devastating in that context?

A. Well, from the perspective of having

14 control options and post combustion control

15 opportunities versus not having those. Combined

16 cycle, obviously, is well-suited to install an SCR

17 post combustion control technologies. Certainly,

18 with respect to a particular emission limit, SCR

19 provides the ability to incrementally reduce from a

20 starting point. And so that was the purpose of that

21 statement.

MR. RAO: I have a follow-up.

Does Zion have any plans to

24 convert the combined cycle in the near future?

L.A. REPORTING (312) 419-9292

THE WITNESS: No.

2 BY MR. COOPER:

Q. Page 10 of your testimony, the first

4 full paragraph, "However, such lower level

5 set-asides for renewable energy projects should

6 provide some encouragement in the Illinois'

7 regulated community." I'm curious why you feel that

8 the regulated community wouldn't be encouraged. I

9 would think a set-aside for a specific thing, such

10 as Wind, for example, would be an encouragement for

11 the regulated community. A perfect example of that

12 would be City Water, Light and Power in Springfield,

13 who I believe is somewhere in the stages of actually

14 contemplating installing Wind Power. It would seem

15 to me that the installation of the Wind Power --

MR. MURAWSKI: I want to stop right

17 here. Are we getting testimony, or are we getting

18 a question?

MR. COOPER: No, I asked a question.

THE HEARING OFFICER: Is that an

21 objection?

MR. MURAWSKI: Well, yes. Objection.

23 Ask a question.

THE HEARING OFFICER: Ms. Doctors, do

L.A. REPORTING (312) 419-9292

1 you have any response to the objection?

MS. DOCTORS: He'll rephrase.

3 BY MR. COOPER:

Q. Without elaborating, I want to know

5 why you believe the Illinois regulated community has

6 no encouragement through the set-asides?

A. I don't think that was -- that wasn't

8 how the comment was intended. I think that -- I

9 think that the comment was intended toward

10 indicating that there's a place in consideration for

11 new set-aside pools and encouraged development set

12 sources. However, I don't think it should be such a

13 large percentage of the pool or such a large

14 incentive that it becomes a substantial component of

15 revenue. It should be, in our opinion, offered as

16 an incentive, not as -- it may just be the way that

17 the statement was worded.

Q. That may be.

I have just a couple more. In the

20 next paragraph, it looks like the one, two, three,

21 fourth line, unreasonably drive up costs, is a

22 specific phrase I've got some interest in. Have you

23 done some studies to determine what that would be?

A. In terms of quantitative studies of

L.A. REPORTING (312) 419-9292

1 the specific financial impact?

Q. (Nonverbal response.)

A. No. This was offered more from a

4 quantitative standpoint of -- a qualitative

5 standpoint of saying that, obviously, if you take a

6 significant portion of the allowances away, simple

7 supply and demand indicates that remaining

8 allowances would be much more valuable.

Q. The next sentence, "Specifically, the

10 Illinois EPA's proposal will further remove

11 available NOX emission allowances from the overall

12 pool." Are those allowances that you're referring

13 to retired?

A. They could be.

Q. They could be, but are they?

A. Not necessarily.

Q. Do you have any feel --

A. Well, the intent of that was to remove

19 them from being allocated to the effected source

20 community and being used for a compliance purpose as

21 opposed to being sold to a source or facility or

22 company that will not need them for compliance and

23 be able to use them for a profitable venture.

Q. Exactly the point then. That

L.A. REPORTING (312) 419-9292

1 particular company who does not need those

2 allowances for compliance, who then would they

3 likely sell them to?

A. Well, typically, if you have excess

5 emissions to emission allowances to sell and you

6 don't need them for compliance purpose elsewhere --

Q. Let's pretend it's a Wind farm.

A. You'd sell them to an emissions broker

9 typically.

Q. Emissions broker or directly to a

11 company --

A. Yeah. Sure.

Q. -- a generating unit?

So then those -- again, based on

15 my reading, that's the much more likely scenario

16 than retirement. You then would characterize those

17 as not removed from the pool?

A. Well, again, I think the comment was

19 intended to speak to the issue of taking allowances

20 away from sources that need them for compliance.

Q. The allowances, though, are still

22 available?

A. They'd still be available for purchase

24 by others.

L.A. REPORTING (312) 419-9292

Q. Thank you.

THE HEARING OFFICER: Ms. Bassi?

3 BY MS. BASSI:

Q. Even though those allowances are still

5 available, wouldn't the cost of those allowances

6 essentially be doubled, in that the source is not

7 allocated the allowance valued at $2,000, and then

8 the source was paid $2,000 to get it?

A. I don't know if it's doubled, but I

10 think I understand your point, which is that there's

11 a shortfall when you compare the allocation versus

12 the compliance obligation, and then there's an

13 additional requirement to go and purchase allowances

14 to make up the shortfall.

Q. And would there be broker fees on

16 that?

A. Typically, when you work with an

18 emissions broker, there are fees associated.

19 BY MR. COOPER:

Q. I've got one last question for you.

The last sentence in that

22 paragraph, "Therefore, the Illinois EPA seems to

23 have proposed a rule that will incentivize and

24 reward sources for projects and reductions that are

L.A. REPORTING (312) 419-9292

1 already required by law." I think Mr. Bonebrake

2 already somewhat touched on this. That CAIR is a

3 CAP and trade; correct?

A. Yes.

Q. So there is no mechanism in CAIR or

6 Illinois CAIR that strictly imposes an effected

7 source to install controls; correct?

A. Right. No particular source --

THE REPORTER: No particular source,

10 what's that? I'm sorry.

THE WITNESS: Has to make a

12 specific -- meet a specific emission limit.

THE REPORTER: Thank you.

14 BY MR. COOPER:

Q. So if a source were to choose the

16 position of strictly purchasing allowances, those

17 allowances could come from any other effected state;

18 correct?

A. Potentially, yes.

Q. So from a policy-making standpoint,

21 with local attainment issues in mind, would

22 providing incentives that provide for local

23 reductions not be a good decision?

A. Could you repeat that question?

L.A. REPORTING (312) 419-9292

Q. Sure.

In light that allowances a/k/a

3 reductions could come from any other affected state,

4 specifically from a policy-making standpoint,

5 specifically taking into account local attainment

6 issues here in Illinois, would then providing

7 incentives, like through the CASA, specifically,

8 pollution control upgrades, for example, to provide

9 for local incentives not be a good decision?

A. Well, assuming that the control

11 technologies that you speak of would have an impact

12 on attainment issues that you're referring to, as

13 you said, there's no source specific requirement to

14 install controls, so there's no guarantee that a

15 facility or a project that applied for an allocation

16 under this program would actually be affecting

17 attainment in Chicago, for example. So I don't know

18 that I necessarily agree that there's a linkage.

Q. Thank you.

THE HEARING OFFICER: Mr. Bonebrake?

21 BY MR. BONEBRAKE:

Q. I have a follow-up.

Do you know, Mr. Goodwin, is the

24 federal CAIR program directed at local attainment

L.A. REPORTING (312) 419-9292

1 issues, or instead is it directed at regional issues

2 including regional transport?

A. I understand it's primarily a regional

4 transport issue.

THE HEARING OFFICER: Ms. Bugel?

6 BY MS. BUGEL:

Q. First of all, can you just tell me in

8 terms of energy generated, electricity generated,

9 what is cleaner, natural gas or coal?

A. Well, inherently, there's --

11 obviously, any type of facility can be controlled,

12 but inherently, if you're just talking about a

13 qualitative, obviously, natural gas is --

THE REPORTER: Don't forget about me.

THE WITNESS: I'm sorry. I said,

16 qualitatively, natural gas is a cleaner generating

17 technology for fuel than coal.

18 BY MS. BUGEL:

Q. And would you agree that one of the

20 benefits of a fuel neutral role is that it creates

21 incentives that lean in favor of cleaner fuels, such

22 as natural gas?

A. I would agree, yes.

Q. On Page 12 of your testimony, you

L.A. REPORTING (312) 419-9292

1 quote Illinois EPA's statement of reasons quoting

2 good environmental policy to provide more allowances

3 to sources that operate more efficiently, install

4 air pollution control equipment and upgrade their

5 equipment. I want to try to understand, by quoting

6 that in the context in which you quote it, are you

7 indicating that you're supportive of that policy?

A. Yes, we are.

Q. Why do you believe that is a good

10 environmental policy?

A. This statement coincides very strongly

12 with Calpine's emission statement. Zion Energy

13 certainly is a part of that. Our company has

14 centered its business plan on providing clean

15 efficient reliable electric power. And the vast

16 majority of our fleet has involved either

17 simple-cycled or combined-cycled combustion

18 turbines, which are primarily using natural gas. So

19 this statement is very consistent with our model.

20 We believe that it's -- we certainly don't -- well,

21 we believe that this is a consistent strong basis

22 for how environmental regulatory programs should be

23 structured.

Q. The section of your testimony in which

L.A. REPORTING (312) 419-9292

1 you include this quote is related to the Clean Air

2 Set-Aside Program, but do you feel that that good

3 environmental policy we just discussed also applies

4 to removing fuel-weighting from the rule and making

5 the rule fuel neutral?

A. Calpine and Zion Energy has

7 consistently taken the position in all of our state

8 level rule-makings on CAIR that we believe fuel

9 neutral is the appropriate way to structure

10 allocations, and that is consistent with this

11 statement. So, yes, we would support fuel neutral,

12 and that's the appropriate way to handle it.

Q. But would you then believe that it is

14 a good environmental policy to have a fuel neutral

15 rule?

A. Yes, we do.

Q. I'd like to now ask you a few

18 questions about your testimony on the Clean Air

19 Set-Aside. Specifically, we were just discussing

20 that quote on good environmental policy. Doesn't

21 your reasoning behind supporting the good

22 environmental policy also make the Clean Air

23 Set-Aside a good environmental as well?

A. I think conceptually we agree, and we

L.A. REPORTING (312) 419-9292

1 have no opposition to a clean unit set-aside or a

2 clean air set-aside. Our issue is with respect to

3 the size of the set-aside itself.

Q. I believe earlier in your testimony

5 you did not provide a percentage in terms of the

6 size of the set-aside that you would support; is

7 that correct?

A. Correct, we did not provide an

9 alternative percentage.

Q. And did you state that in terms of

11 current assessments of Zion's emissions, Zion, at

12 this time, will not need any additional allowances;

13 is that correct?

A. Based on historical generation and

15 based on projected allocations that I believe the

16 Agency has provided, we expect to have a marginal

17 surplus above our expected emissions.

Q. So if the size of a Clean Air

19 Set-Aside were reduced and the initial allocation

20 pool were increased, correspondingly, it would

21 simply provide Zion with additional excess

22 allowances above and beyond its emissions levels at

23 the current time; is that correct?

A. Based on our existing projections, it

L.A. REPORTING (312) 419-9292

1 would provide an additional surplus that could be

2 used to offset any unanticipated increases and

3 demand for compliance.

THE HEARING OFFICER: Mr. Goodwin, let

5 me just remind you when you're facing Ms. Bugel,

6 will you speak up for us?

THE WITNESS: I'm sorry.

THE HEARING OFFICER: We heard you.

9 It's just cautionary.

MS. BUGEL: I have no further

11 questions. Thank you.

MR. JOHNSON: Do you think that the

13 availability of those excess allowances then in

14 that scenario from a policy standpoint is a good

15 thing because it's rewarding you for having used

16 this best available control technology in the

17 first place?

THE WITNESS: To be blunt, yes. We

19 believe that by virtue of the fact that our

20 facilities, which are predominately new and

21 predominately constructed in the last ten years,

22 feature the best emission control technology

23 available, we believe that it's appropriate that

24 facilities like us and companies like us should

L.A. REPORTING (312) 419-9292

1 have primary consideration and allocations.

MR. RAO: In response to one of the

3 earlier questions, you mentioned that there were

4 eight or nine states that were in the process of

5 CAIR rule-making.

THE WITNESS: Yes.

MR. RAO: How many of these states are

8 using the fuel-weighting as a way to allocate NOX

9 allowances?

THE WITNESS: Let's see.

11 Fuel-weighting, there's --

MR. RAO: Are there any states that

13 are eliminating fuel-weighting?

THE WITNESS: There are three that I

15 can think of that have either implemented or in

16 the process of implementing the fuel neutral

17 regulation. Alabama EEM has implemented their

18 rule. Essentially, there's a carry rule from

19 their SIP call rule, which is a fuel neutral

20 basis. Wisconsin is pursuing a fuel neutral base

21 regulation, which is finished, I believe, and

22 public notice at this point, and is working toward

23 the legislative approval process. And Arkansas

24 has submitted a fuel neutral rule and their public

L.A. REPORTING (312) 419-9292

1 hearing process is next week.

MR. RAO: Are you aware of any states

3 that are considering fuel-weighting, which is not

4 different from what the CAIR model rule?

THE WITNESS: Yes, I believe that --

6 and I can't speak to specific details, but I

7 believe the Texas rule worked out -- the

8 stakeholders worked out a combination for

9 gas-fired units.

I can speak to the issue for the

11 rule developed for South Carolina. That process,

12 public notice ended on Monday. There was an

13 excessive stakeholder process that Calpine

14 participated in. The consensus agreement was that

15 fuel-weighting would be changed to a two-tier

16 system. It was 1.0 applied to coal-fired units

17 and 0.6 applied to fuels other than coal.

So, essentially, it was a

19 compromised position between coal and gas fired

20 interests, and it had the effect of avoiding some

21 sort of stakeholder controversy in the public

22 hearing process.

MR. RAO: You have recommended that

24 the Board eliminate fuel-weighting in this

L.A. REPORTING (312) 419-9292

1 proposed rule. Is there an alternative, like a

2 compromise weighting factor that you'd be willing

3 to support? If so, you can give us comments as to

4 what that would be or you can respond now?

THE WITNESS: I think we're certainly

6 willing to entertain a discussion with respect to

7 an alternative, in our view, a more equitable

8 balanced consideration. In terms of the specific

9 recommendation, I think we may need to evaluate

10 that and respond back formally.

THE HEARING OFFICER: Mr. Bonebrake --

12 could you identify yourself down there at the EPA?

13 Mr. Davis has been trying to ask a question for

14 awhile.

MR. DAVIS: You testified earlier in

16 response to Mr. Bonebrake about some other states

17 CAIR rules that Illinois has the largest set-aside

18 involvement.

THE WITNESS: Yes, largest CASA

20 set-aside.

MR. DAVIS: Sure.

Did any of these states that you

23 were involved with, did any of them have a

24 set-aside that was intended primarily for the

L.A. REPORTING (312) 419-9292

1 existing EGU units, or the majority of the CASA

2 was intended for the existing EGUs.

THE WITNESS: Not to my recollection.

4 I seem to recall it being the Wisconsin process at

5 a provision that had a portion of the allowance

6 pool set aside for early reductions. And,

7 certainly, there's the customary compliance

8 supplement pool concept. But if memory serves, I

9 don't recall any other specific provisions

10 dedicated to EGUs.

MR. DAVIS: Did any of them have

12 categories of their set-asides for pollution

13 control upgrades and existing EGUs for emission

14 reductions?

THE WITNESS: I think, perhaps, the

16 early reduction concept for the Wisconsin rule

17 would have been defined such that those such

18 projects could be included there. That's the only

19 concept that I can recall at this time.

MR. DAVIS: Did any of them -- of the

21 other states, were any of them -- the set-asides,

22 did they make the existing EGUs eligible for

23 demand side or supply side in the conservation

24 project?

L.A. REPORTING (312) 419-9292

THE WITNESS: The Illinois rule is the

2 only rule that I've seen that included energy

3 efficiency or demand side.

MR. DAVIS: Were any of the states --

5 have a category for IGCC or clean coal

6 technologies with generation, be it existing or

7 new?

A. Not distinct from any of the normal

9 new source set-aside pool.

Q. So comparing the numbers of

11 percentages between different types of set-asides

12 from other states being five, seven, I think 11 was

13 in there, it's not really comparing the same types

14 of set-asides to Illinois' 25 percent where the

15 majority is intended for existing EGUs to have

16 allocated them?

A. I think that's correct. I would like

18 to clarify. My understanding, and tell me if I've

19 got this wrong, is that the energy efficiency in

20 renewal energy portion is 12 percent; is that

21 accurate?

Q. Yes. And that's actually -- well, I'm

23 not testifying, but the renewable and energy

24 efficiency portion, which is also available to

L.A. REPORTING (312) 419-9292

1 existing EGUs --

THE HEARING OFFICER: We could swear

3 the Agency in, if you'd like? Because there has

4 been, as Mr. Murawski pointed out earlier, some

5 exceptionally detailed questions that borderline

6 testimony. So if you have things that you want to

7 say, we'd like them on the record and we'd like

8 them to be being said by people who have been

9 sworn in.

MR. DAVIS: He asked me a question.

THE HEARING OFFICER: Well, yeah. And

12 when you're asked a question, you're testifying.

13 So let's swear the Agency witnesses in. Unless,

14 Ms. Doctors, you have an objection to that? If

15 you have an objection, you can make it for the

16 record, but I'm going to ask that they be sworn in

17 anyway.

MR. KIM: I think that the Agency's

19 preference would be, aside from Mr. Davis

20 attempting to be helpful on directing to provide

21 the witness to the provision he was referring to,

22 unless we have questions that are specifically

23 posed to us, I would prefer we not have our people

24 sworn in unless it becomes necessary at that time.

L.A. REPORTING (312) 419-9292

THE HEARING OFFICER: Okay. It's duly

2 noted for the record, but I'm going to have them

3 sworn in now. Can you guys raise your hands?

4 Mr. Ross, Mr. Davis, Mr. Cooper and Mr. Kaleel.

(Witnesses sworn.)

THE HEARING OFFICER: And I do want to

7 note for the record that if you guys have -- you

8 guys, and by you guys, I, of course, mean the

9 Agency, have any problems with these people being

10 sworn in and offering testimony, you can direct

11 them not to speak. So, I mean, Ms. Doctors, you

12 can ask the questions as opposed to your

13 witnesses, if you'd like. If you don't want to

14 run the risk of them testifying unduly.

MS. DOCTORS: Okay.

THE HEARING OFFICER: Mr. Russell?

MR. RUSSELL: (Inaudible.)

THE HEARING OFFICER: And you're going

19 to have to speak up as well. I'm sorry.

MR. RUSSELL: If I may, our witness

21 came in from Omaha today for the hearing, and he

22 plans to return tonight, so --

THE HEARING OFFICER: You're

24 Mr. Kunkel; correct?

L.A. REPORTING (312) 419-9292

MR. RUSSELL: Yeah.

THE HEARING OFFICER: Yeah, I think

3 we're wrapping up with --

MR. RUSSELL: Well, if we're going to

5 get into Agency testimony, then --

THE HEARING OFFICER: No, that's not

7 my intention at all.

Mr. Davis, you were finished?

MR. DAVIS: Yeah.

THE HEARING OFFICER: Mr. Bonebrake?

11 He had his hand up, Ms. Doctors.

MR. BONEBRAKE: If I may just raise a

13 point of process. I think at the mercury hearing,

14 we sometimes had fellas who were asking questions

15 who were also, in my view, testifying, and it

16 became very difficult to know when they were

17 taking off one hat and putting on the other one.

18 So now that some folks have been asking questions

19 and can testify, can we make an effort to -- so

20 that everybody understands when they're doing

21 which of those functions? It would make the --

THE HEARING OFFICER: I would be all

23 for any clarification that we could get along

24 those lines. Do you have a suggestion along those

L.A. REPORTING (312) 419-9292

100

1 lines?

MR. BONEBRAKE: I think maybe we can

3 point those issues out as they arise.

THE HEARING OFFICER: Okay. And if

5 you think that anybody from the Agency is offering

6 testimony and is not just asking questions, I'd be

7 happy to hear that.

8 BY MR. BONEBRAKE:

Q. And as to my question, Mr. Goodwin,

10 you have pointed out a couple of times now that Zion

11 has installed what you'd view to be BACT; is that

12 correct?

A. Yes, we've installed BACT in

14 accordance with the emissions of the IEPA permit.

Q. And when was the Zion facility

16 constructed?

A. Construction began in August 2001 and

18 was completed in September 2003.

Q. So at the time that the facility was

20 constructed, it was subject to new source review?

A. Yes.

Q. And new source review regulations

23 dictate the use of BACT; is that correct?

A. Yes.

L.A. REPORTING (312) 419-9292

101

Q. So Zion had no choice, but to utilize

2 BACT; is that correct?

A. Correct.

Q. And you also mentioned, I think, that

5 there were a number of other peakers that have been

6 constructed in Illinois over the last several years;

7 is that correct?

A. Yes.

Q. And have they all been subject to new

10 source review, and therefore, subject to dictate the

11 BACT requirements of that program?

A. For the facilities that are considered

13 major source for new source review, yes.

Q. Do you know what BACT is with respect

15 to NOX emissions for coal-fired electric generators?

A. BACT in terms of the emission

17 limitation or the technology?

Q. Well, we can take either. If you know

19 the answer to the question in either respect, that

20 would be fine.

A. Well, BACT is an emission limitation

22 that's determined based on the considerations of

23 technical feasibility, cost effectiveness and

24 various other factors. So it would depend on the

L.A. REPORTING (312) 419-9292

102

1 particular application.

Q. Do you know if SCRs have been

3 identified in any other coal-fired electric

4 generating units as BACTs by state or federal

5 permitting agencies?

A. For new sources, yes. The Wisconsin

7 energy zone load generating facility requires SCR to

8 coal unit expansion.

Q. Do you know if companies subject to

10 the NOX SIP call in Illinois have installed NOX

11 controls?

A. Presumably some have, yes.

Q. And, again, that would have been

14 optional with respect to that program whether they

15 install controls or purchase allowances?

A. Absent any other requirement, yes.

Q. So there may well be many coal-fired

18 electric generating units in the state, as far as

19 you're concerned, that installed controls at their

20 option already to control NOX; is that correct?

A. Yes.

THE HEARING OFFICER: Yes, sir?

23 BY MR. FORCADE:

Q. Mr. Goodwin, I believe at one point

L.A. REPORTING (312) 419-9292

103

1 you indicated that the Zion plant installed

2 technology to represent BACT?

A. Yes.

Q. And I believe you also stated that

5 Zion objected to the concept of additional

6 reductions for a (inaudible) facility that had

7 installed BACT; is that correct?

A. I'm sorry?

Q. That the Zion facility objected to the

10 concept of additional NOX reduction facilities,

11 which installed the best available coal technology?

A. Conceptually, yes.

Q. Would that same concept apply to a

14 coal-fired power plant that installed the best

15 available coal technology?

A. It depends on when the BACT

17 determination was issued.

Q. Current BACT determination.

A. The current BACT determination isn't

20 above the -- I guess the question is how that

21 complies or works with the basis for issuing

22 allocations. If it's a BACT determination that's

23 twice the basis for issuing allowances, then no.

24 And certainly not if there's an opportunity to make

L.A. REPORTING (312) 419-9292

104

1 supplemental reductions based on installation of

2 controlled technology.

Q. But your original statement, am I

4 correct, was simply that Zion objected to additional

5 reductions because it installed BACT controlled

6 technology?

A. BACT controlled technology, which

8 cannot be improved upon based on the existing

9 technology of the facility. There's a distinction

10 that needs to be clarified.

THE HEARING OFFICER: Mr. Zabel?

12 BY MR. ZABEL:

Q. Mr. Goodwin, do you know, by chance,

14 which is more expensive on an output basis, natural

15 gas required by generation or coal-fired generation?

A. Well, based on the -- well, I'm going

17 to have to ask you to clarify the question. There's

18 a lot of different factors that configure into

19 that --

Q. Within Illinois?

A. Within Illinois, the only example I

22 could point to is a comparable case. Calpine

23 submitted and intervened on We Energies' process.

24 We offered a combined cycle gas-fired facility

L.A. REPORTING (312) 419-9292

105

1 generating product as an alternative to the

2 new-build coal-fired generation suggested by

3 We Energies. And the public service commission

4 staff report indicated that on a dollars per

5 megawatt basis, Calpine's combined cycle project

6 was, in fact, cheaper.

Q. On an output basis?

A. On a dollars per megawatt basis.

Q. Capital cost?

A. This was an all-end cost. This was an

11 all-end cost of capital plus fuel cost plus --

Q. And that's for a new facility?

A. Yes.

Q. And you don't know what the

15 differential cost is for electrical supply as

16 constructed in Illinois?

A. Meaning comparing a new source -- a

18 new-build combined cycle versus an existing

19 coal-fired facility?

Q. No. I'm talk about comparing one

21 existing facility to another right now.

A. Without any additional context, I

23 don't think I can answer the question.

Q. If gas were more expensive on an

L.A. REPORTING (312) 419-9292

106

1 output basis -- an electric output basis,

2 encouraging the use of gas would increase, with

3 other things being equal, the cost of electricity,

4 would it not?

A. Fuel cost is one component of the

6 question. Certainly, it's not the only

7 consideration. There's emission control policies.

8 There are equipment upgrades to older facilities

9 that are necessary by virtue of a higher -- or a

10 less favorable efficiency, then it becomes a less

11 clear question.

Q. My question was a hypothetical, is on

13 an output basis, which assumes some carrying charge

14 for the capital, cost of fuel, whatever other costs

15 go into that, assuming natural gas is more

16 expensive, is it encouraging the use of gas going to

17 result in other things being equal than an increase

18 in the cost of electricity to the consumer?

A. I'm afraid I can't answer the

20 question. I don't think that -- I don't agree that

21 absent of any other factors, that an increase in

22 natural gas prices is an encouragement to use

23 additional natural gas for power generation

24 necessarily means that it would cause natural gas

L.A. REPORTING (312) 419-9292

107

1 prices to go up.

Q. The other factors I was excluding

3 would be something such as the pending CAP or a

4 freeze on electric rates in Illinois, nothing

5 considering the cost of electricity, would your

6 answer be the same?

A. I'm afraid I can't answer that

8 question.

THE HEARING OFFICER: Any further

10 questions for Mr. Goodwin?

Ms. Doctors?

12 BY MS. DOCTORS:

Q. I just have a couple. I wanted to

14 follow-up on the set-aside. Wasn't your testimony

15 that you believed that Wisconsin had a high

16 set-aside at 7 percent?

A. That's my recollection at this point,

18 yes.

Q. Are you familiar with the set-asides

20 that Minnesota has proposed?

A. Minnesota, at last word, had declined

22 the additional pursuit on the state level

23 implementation and appears to be heading toward a

24 federal program implementation.

L.A. REPORTING (312) 419-9292

108

Q. So they've given up their state

2 program?

A. Our understanding is that the Agency

4 has declined to pursue that at this point based on

5 recent results.

Q. What had they proposed in terms of

7 their set-aside?

MS. BASSI: Objection. What's the

9 relevance?

THE HEARING OFFICER: Ms. Doctors?

MS. DOCTORS: We don't have any

12 knowledge of what he's saying happened, but we do

13 have knowledge of what was going on in Minnesota.

THE HEARING OFFICER: I'll allow the

15 question.

16 BY THE WITNESS:

A. The last effort that we participated

18 in with respect to the stakeholder process in

19 Minnesota was in June, that was the last turn of the

20 document. And, honestly, because the process had

21 bogged down at that point, and we really hadn't done

22 any additional work, I can't recall exactly what

23 their set-aside -- or their proposed set-aside pool

24 was.

L.A. REPORTING (312) 419-9292

109

1 BY MS. DOCTORS:

Q. Does 11 percent sound reasonable?

MR. MURAWSKI: I object. He just said

4 he didn't know.

THE HEARING OFFICER: I'll sustain

6 that one.

7 BY MS. DOCTORS:

Q. I've got a couple other questions, and

9 then we'll be done.

You addressed the potential of

11 increased (inaudible) throughout your testimony; is

12 that correct?

A. I'm sorry, the first part?

Q. You addressed the potential of

15 increased cost to peaker plants several times

16 throughout your testimony; is that correct?

A. Yes.

Q. You also state that the Illinois EPA

19 should consider these additional costs in

20 development of the rule; correct?

A. Yes.

Q. Are you aware that there's a cost

23 benefit analysis done for CAIR that demonstrated

24 substantial net economic benefits to society from

L.A. REPORTING (312) 419-9292

110

1 the emission reductions under CAIR and BACT. The

2 cost benefit analysis found that the benefits of

3 CAIR outweighed the cost. The USEPA estimates that

4 by 2015 the benefits --

MR. MURAWSKI: Again, I object.

6 Where's the question?

MS. DOCTORS: It's here.

8 BY MS. DOCTORS:

Q. Are you aware that the benefits are 85

10 to 100 million while the costs are only 3 -- billion

11 while the costs are only 3.6 billion?

A. I'm aware that economic studies have

13 been conducted. I'm not aware of the details of

14 those.

MS. DOCTORS: That's all the questions

16 I have.

THE HEARING OFFICER: Any further

18 questions for Mr. Goodwin?

MR. MURAWSKI: I just have one

20 clarifying a question by Mr. Cooper.

During Mr. Cooper's questioning,

22 he suggested a high end of $2,500 for the NOX

23 allowances. Is it your understanding that that

24 is, in fact, a high end that will be definitely

L.A. REPORTING (312) 419-9292

111

1 going forward once the CAIR rule is implemented?

THE WITNESS: To my knowledge, I know

3 of no such indication that there is any sort of

4 topic --

THE REPORTER: I'm sorry?

THE WITNESS: Purely a function of

7 supply and demand.

MR. MURAWSKI: That's all I have.

THE HEARING OFFICER: Thank you very

10 much for your time. You may -- I stand corrected.

11 Mr. Ross?

12 BY MR. ROSS:

Q. Very quickly. I mean, we've been

14 focusing on cost here; correct?

A. Yes.

Q. I assume you're also aware that USEPA

17 has estimated there would be substantial

18 health-related benefits as a result of the

19 implementation of CAIR and the SO2 and NOX

20 reductions; correct?

A. I know that EPA conducted studies and

22 assessed the value of the expected health benefits.

23 I'm not aware of the details.

Q. And with any health benefits, there

L.A. REPORTING (312) 419-9292

112

1 are some associated cost benefits; correct?

A. Presumably so.

Q. So these should also be considered by

4 the policy maker in the development of the rule

5 along with the cost to peaker plants and other

6 effected sources; correct?

A. Sure. But I think the health benefits

8 are based upon -- if I understand correctly, upon

9 the overall state pool of allowances and not on any

10 specific bases for how the allocations are going to

11 be divided up among the affected sources.

Q. So have you reviewed how the health

13 benefits were determined --

A. No, I haven't.

MR. ROSS: That's it.

THE HEARING OFFICER: Anything

17 further? Is there any follow-up to that? I see

18 none. So, again, thank you for your time and you

19 may step down. Let's take a short recess before

20 we talk to Mr. Kunkel. Let's do 15 minutes.

(Whereupon, a break was taken,

after which the following

proceedings were had.)

THE HEARING OFFICER: We are back on

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113

1 the record after a short recess. We finished the

2 testimony of Jason Goodwin, and we are moving on

3 per the pre-hearing status conference we had with

4 the testimony for Gregory Kunkel for Christian

5 County Generation. Mr. Russell?

MR. RUSSELL: Mr. Hearing officer,

7 respectfully, as I mentioned before, Mr. Kunkel

8 came in from Omaha for today's testimony. He was

9 second on the list by agreement pre-hearing

10 conference call. And I would ask for an order or

11 an agreement or an understanding that his brief

12 testimony, which everyone has a copy of, not be

13 allowed questions that are going to take him over

14 into tomorrow so that he can get back to Omaha

15 tonight. I believe he has a 7:00 or 8:00 plane,

16 but the building closes at 5:00. And I guess I

17 think that it wouldn't be good considering the

18 substantial latitude of questions that was given

19 and allowed in the prior witness, and I say this

20 respectfully and understandingly that that operate

21 to Mr. Kunkel's detriment.

The other thing is, Mr. Kunkel

23 does not have the Agency's motion filed yesterday,

24 and that's my fault. I have a copy of it, and

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1 there may be a change in here of which we are

2 unaware of. But that's my error for not pulling

3 up that motion. That would be my request, though,

4 on time for questions.

THE HEARING OFFICER: Well, let's see

6 if we have any response to Mr. Russell's request

7 or motion, I would take it. Anybody?

MS. DOCTORS: The Agency doesn't have

9 that many questions and really appreciates the

10 effort they've made to come and participate in

11 this hearing today.

THE HEARING OFFICER: Mr. Bonebrake?

MR. BONEBRAKE: And I don't have any

14 questions either. So I don't think we're going to

15 run into a problem, so...

THE HEARING OFFICER: Yeah. Let's

17 just take it under advisement for now. We'll see

18 what we can do. I do want to note that this is a

19 public proceeding, and by statute, anybody can ask

20 a question of any witness, and that's laid out in

21 the Environmental Protection Act as well as the

22 Board of Rules, so I hate to limit it, and I don't

23 think we're going to have to.

MR. RUSSELL: I understand.

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MR. JOHNSON: I would only express my

2 amazement that you want to leave Chicago to get

3 back to Omaha.

THE WITNESS: It's a long story.

THE HEARING OFFICER: Let's swear him

6 in.

(Witness sworn.)

THE HEARING OFFICER: Mr. Russell, do

9 you have any preliminary questions?

MR. RUSSELL: I do not. Except that I

11 would like to move that Mr. Kunkel prefiled

12 written testimony be admitted as file.

THE HEARING OFFICER: I take it you

14 would want to admit that as if read?

MR. RUSSELL: As if read.

THE HEARING OFFICER: Can we label

17 that Christian County Generation Exhibit No. 1?

MR. RUSSELL: That would be good, but

19 if Mr. Kunkel could read it?

THE HEARING OFFICER: Oh, you want him

21 to read through his testimony?

MR. RUSSELL: Yes.

MS. BASSI: Well, I'll object to that.

24 I mean, if we're in the process of saving time,

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1 I'm not sure why that's necessary.

THE HEARING OFFICER: Generally, what

3 we do -- and I will let you have your response,

4 Mr. Russell. But generally what we do is we

5 attach this to the transcript, and it's admitted

6 as if read by the witness.

MR. RUSSELL: If everyone has a copy,

8 and I have plenty of extra copies, that's fine.

THE HEARING OFFICER: That being said,

10 if you want your witness to read the testimony --

MR. RUSSELL: No, no. If someone is

12 without a copy, that's different.

THE HEARING OFFICER: And I have made

14 copies of all the prefiled testimony as well.

15 Does anyone need a copy? I'm seeing no -- just

16 for the record that nobody in the room here has

17 noted that they don't have a copy or are lacking

18 one.

MR. RUSSELL: Okay. Then we would

20 move to admit it as --

THE HEARING OFFICER: Are there any

22 objections to this testimony being admitted as if

23 read? I see none. This will be so admitted, and

24 that's Christian County Generation No. 1.

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117

Does anybody have any questions

2 for Mr. Kunkel? Or do you want to provide a

3 summary or anything before we get started on

4 questions?

MR. RUSSELL: I don't believe so. I

6 think the testimony speaks for itself. And if

7 we're moving along at this pace...

THE HEARING OFFICER: Any questions

9 for Mr. Kunkel?

MR. BONEBRAKE: I guess I will start

11 again.

THE HEARING OFFICER: Mr. Bonebrake.

13 BY MR. BONEBRAKE:

Q. Hello, Mr. Kunkel. My name is Steve

15 Bonebrake.

My first question for you is that

17 on Page 1 of your testimony, you refer to somebody

18 by the Taylorville Energy Center?

A. Yes.

Q. And is that -- I have been thinking of

21 that as a project that's kind of in the works in

22 terms of construction. Can you give us a brief

23 description of the status of the Taylorville Energy

24 Center?

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A. Well, I'm pleased to remark that

2 yesterday the PSD permit was -- the drafted PSD

3 permit was issued by the Illinois EPA, and that kind

4 of represents the status of it. There's also, and

5 Jim is holding it up, kind of a fact sheet about the

6 project. It is a proposed project, an IGCC project

7 near Taylorville, Christian County.

MS. BASSI: I'm sorry. You said IGCC?

THE WITNESS: Yes.

THE HEARING OFFICER: Mr. Russell has

11 just handed me something called Taylor Energy

12 Center-Facts. Mr. Russell, you want this for

13 distribution, you said?

MR. RUSSELL: This is in response to

15 Mr. Bonebrake's general question about the

16 facility.

THE HEARING OFFICER: These look to be

18 just general facts about the facility?

MR. RUSSELL: They are.

THE HEARING OFFICER: Are you offering

21 this as Christian County Exhibit No. 2?

MR. RUSSELL: We can.

THE HEARING OFFICER: Let's do that.

24 Take a look.

L.A. REPORTING (312) 419-9292

119

MR. RUSSELL: We would move that as

2 Exhibit No. 2.

THE HEARING OFFICER: Let's give

4 Mr. Bonebrake and everyone else a chance to look

5 this over real quick.

6 BY MR. BONEBRAKE:

Q. Just a preliminary question on this,

8 if I may. Mr. Kunkel, can you tell us who drafted

9 this document?

A. Well, I work for Tenaska, Inc., based

11 in Omaha, Nebraska. And as you may know, we're a

12 power generation developer, build, own and operate

13 power plants across the United States and some

14 international locations. We became involved earlier

15 this year with a group called ERORA here in

16 Taylorville in this IGCC development project, and

17 since that time, we've been working on that project.

18 But really it's both the people from that group,

19 that have changed their name to MDL Holdings, and

20 Tenaska personnel, like myself, that have been

21 involved in preparing this document.

Q. And have you had a chance to review

23 this document?

A. Yes.

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Q. And is it correct, to your knowledge?

A. To my knowledge, yes.

MR. BONEBRAKE: I have no objections

4 to it.

THE HEARING OFFICER: Anybody else

6 have any objections to this document? Seeing

7 none, this will be admitted as Christian County

8 Generation No. 2.

9 BY MR. BONEBRAKE:

Q. Mr. Kunkel, I think you mentioned that

11 the Taylorville project had just received a draft of

12 the PSD permit today; is that correct?

A. Yes, yesterday.

Q. And I'm assuming that means, at this

15 point, there's been no construction activity at the

16 facility?

A. That's correct.

Q. And from your perspective, are there

19 additional hurtles that need to be overcome in order

20 for this project?

A. Yes, indeed, there's a have variety of

22 additional hurtles: Development hurtles,

23 development of design, cost estimates and so on.

24 It's a very complicated undertake. And so, yes,

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1 there's a lot to do.

Q. So at this point, is it true that it

3 is possible that construction in the facility would

4 not take place?

A. It's entirely possible that it could

6 not take place if all the right economic and other

7 factors come into alignment.

Q. Have any IGCC facilities -- and

9 actually, let me stop here.

Can you tell us what IGCC is short

11 for?

A. That's Integrated Gasification

13 Combined Cycle, which is a mouth full. And just for

14 those not familiar with the technology, the simplest

15 idea is that we, under high pressure and

16 temperature, convert a coal feed stock into a gas, a

17 synthetic gas, and that's one whole process. We

18 cover heat from that process and make steam. We

19 clean up that gas, which is a whole series of

20 equipment. And then we utilize that gas in what you

21 may be more familiar with is essentially a

22 combined-cycle electric generation power item. But

23 there's integration, and that first part, the

24 integration in IGCC is important because steam from

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1 the gasification process also goes to the power

2 generation and so on, and it's fundamental to

3 achieving efficiencies.

Q. And are there any IGCC plants

5 currently in operation in the United States?

A. There are two that I know of

7 currently. There have been others in the past, and

8 there are currently various other internationally,

9 although, I probably can't list them all off the top

10 of my head. Germany, Spain, South Africa, there's

11 Wabash in Indiana and at the Polk (phonetic) plant

12 in Florida.

Q. And are those both in commercial

14 operation at this point in time?

A. They are in commercial operation.

16 They're smaller plants and of an older vintage than

17 what we have in mind today.

Q. You mention in your testimony at

19 Page 1 that the IGCC technology removes sulfur and

20 mercury from the coal derived gaseous fuel?

A. Yes.

Q. Is it also true that electric

23 generators burning coal in cyclone and pulverizer

24 units can remove sulfur and mercury through add-on

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1 control technologies?

A. Yes. I think the distinction that's

3 useful, anyway, is that in integrated gasification

4 combined cycle, you can clean the fuel as a gaseous

5 fuel, and there's a smaller volume of it. And so

6 you can achieve a greater removal, and it's -- you

7 know, it has different technical characteristics in

8 trying to clean all the exhaust post combustion. So

9 it's a precombustion, generally, although not

10 entirely. But, generally, we're looking at

11 precombustion control of mercury and sulfur. Post

12 combustion control of NOX. So it's a little

13 different than a boiler.

Q. You mentioned earlier a draft PSD

15 permit. Does that draft permit set a BACT emission

16 rate for NOX?

A. Yes, it would.

Q. And do you happen to know off-hand

19 what the specified emission rate is for NOX?

A. I would refer you to the draft permit,

21 rather than to try to cite it from my memory.

MR. RUSSELL: And we have copies.

THE WITNESS: Do you have it handy?

MR. RUSSELL: Yes. We got this

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1 yesterday.

MR. BONEBRAKE: You got a lot of

3 things yesterday.

MR. RUSSELL: We didn't get the

5 Agency's motion yesterday.

6 BY THE WITNESS:

A. Some of these numbers have four digits

8 so I'm hesitant.

MR. BONEBRAKE: Do you have just a

10 single copy of the --

MR. RUSSELL: This is -- that's all I

12 have, Steve. I'm sorry.

THE HEARING OFFICER: What is it, just

14 for the record, that we're looking at?

THE WITNESS: Table 3 of the

16 attachments to the draft PSD permit.

THE HEARING OFFICER: For?

THE WITNESS: Taylorville Energy

19 Center.

THE HEARING OFFICER: Ms. Doctors, do

21 you have a clarification?

MS. DOCTORS: Yes. It's available

23 in the Agency's -- my understanding is that copies

24 of these draft permits are available in the

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1 Agency's website.

MR. BONEBRAKE: Which Agency?

MS. DOCTORS: Our agency, Illinois

4 EPA.

5 BY THE WITNESS:

A. So on account per million BTU basis,

7 the value for NOX is 0.034. And this is million

8 BTUs of synthesis gas, not coal, but per million BTU

9 of synthesis gas entering the combustion turbines.

10 BY MR. BONEBRAKE:

Q. Does that standard apply to the

12 process that generates the gas from coal?

A. I'm sorry. I didn't quite hear you.

Q. I was trying to understand how that

15 standard applied, whether that -- whether that

16 emission rate applies to the process, which results

17 in the gas generation -- does that emission rate

18 apply to that process?

A. It applies to the stack of the

20 combined cycle of units. There's two units. It

21 applies to the emissions from that stack. There's

22 two stacks.

Q. Two stacks.

Mr. Kunkel, you mention in your

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1 testimony, I believe, that you're in favor of an

2 output based allocation methodology; is that

3 correct?

A. That's one of the features in my

5 testimony I would support, and we've been supportive

6 in other locations, but yes.

Q. If I understand it, at least part of

8 the reason for that support was a concern about how

9 to identify heat input for an IGCC; is that correct?

A. Yes, I think so. I mean, I think

11 that's -- it does make that simple to address.

12 Although, I realize it might make -- there's some

13 complexities to deal in combined heat and power

14 facilities, for example. But I think there's merit

15 in awarding allowances from the state on the basis

16 of what the people of the state receive from the

17 generators, which is output.

Q. The fuel feed stock for IGCC is coal;

19 is that correct?

A. The feed stock is coal or use Illinois

21 Number 6 coal.

Q. And if the feed stock is coal, would

23 the coal simply be used as the basis for a heat

24 input calculation to avoid the complexity of trying

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1 to assess input for IGCC?

A. It would introduce -- because of the

3 complexity of the process, it would -- you're

4 essentially -- it would be difficult, I would say,

5 and not straightforward. I can explain that a

6 little bit. But essentially, you'd be measuring an

7 input to this unit and measuring emissions from this

8 unit over here, which is in another place in the

9 facility. And a synthesis gas might be used not

10 just for generating power over here, but for other

11 purposes. So these inputs here may not all be going

12 over to here. So there's not necessarily a

13 straightforward relationship there.

Moreover, the gasification process

15 has various alternatives that affect its efficiency,

16 which are unrelated to this regulated emission unit

17 over here. So if you start regulating emission unit

18 based on this other fuel source, if you just think

19 of this as a source for generating clean fuel, then

20 there is a continuous relationship between an input

21 here and an output there.

MS. BASSI: May I follow-up, please?

THE HEARING OFFICER: Yes.

MS. BASSI: Mr. Kunkel, are you aware

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1 that there's a formula for converting heat input

2 into gross electrical output included in the

3 proposed rule?

THE WITNESS: Yes.

MS. BASSI: Would that formula or

6 some -- would that formula not work in the reverse

7 as well, in other words, convert gross electrical

8 output to heat input?

THE WITNESS: Well, the accurate

10 conversion, obviously, it is highly specific to a

11 given facility. If all the facilities were the

12 same, it would be, you know, not much of an issue,

13 I suppose. But we, in particular, I suppose, have

14 a facility that's not at all like some other

15 facilities. And I suppose the more unlike the

16 facilities we are, the more inaccurate just using

17 one fixed number ends up being.

MS. BASSI: Would it be possible to

19 develop such a formula to convert the gross

20 electrical output to heat input?

THE WITNESS: Not as just a single

22 number to represent all facilities. I just --

MS. BASSI: No. For your facility.

THE WITNESS: Not reliably. I mean, I

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1 think --

You're essentially asking about

3 heat rate?

MS. BASSI: Yes.

THE WITNESS: But in your case, for

6 example, we're considering using some of the

7 synthesis gas to make synthetic natural gas. So

8 the gasification plant heat inputs don't go to

9 power generation at all. So, you know, you can't,

10 in our instance, just simply use heat input to

11 represent what's going on in the power house.

MS. BASSI: So what you're saying is,

13 is that there's not a relationship between the

14 electricity generated and some measure of heat

15 input that goes into generating that electricity;

16 is that correct?

THE WITNESS: Not necessarily. Under

18 a single mode of operation, there would be. There

19 would be a heat rate, you know. And we hope to be

20 able to contract on the basis of a heat rate.

MS. BASSI: You will?

THE WITNESS: Yes, we would hope to do

23 that. But when you're operating in another mode

24 when the synthesis gas is going in another

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1 direction and not to power, obviously, that would

2 undue that relationship.

MS. BASSI: Are the emissions from

4 your facility -- are all of the emissions from

5 your facility related to the generation of

6 electricity?

THE WITNESS: It depends. If we only

8 make electricity, yes. If we also make a

9 synthetic natural gas product, no.

MS. BASSI: Do you know whether all of

11 the emissions from your facility, which will sell

12 electricity, as I understand it, are subject to

13 this rule regardless of the mode that you're

14 operating in?

THE WITNESS: That's a good question.

16 The regulated -- by CAIR, the stack of the

17 combustion turbines will be regulated. But there

18 are other emission sources in the plant that are

19 not covered by CAIR.

MS. BASSI: You said earlier there

21 were two stacks. Are those both the stacks with

22 the -- related to the generators or the --

THE WITNESS: To the combustion

24 turbines.

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MS. BASSI: The combustion turbans.

THE WITNESS: You know, there's

3 combustion turbines, heat recovery generators and

4 then a stack in that order. Two stacks.

MS. BASSI: And those are regulated by

6 the CAIR?

THE WITNESS: And those are regulated

8 by the CAIR and represent the great, you know,

9 majority of the emissions of the plant.

MS. BASSI: One other question along

11 this line. I understood you to say that there

12 are -- that you could not reliably determine heat

13 input, and the purpose that we're talking about

14 this, of course, is determined allowance

15 allocations at your facility you're converting

16 from gross electrical output. And if this is

17 outside the realm or the scope of your experience

18 and expertise, then fine. Would that same lack of

19 liability apply to converting heat input to gross

20 electrical output for the additional coal-fired

21 power plant?

THE WITNESS: Well, in my experience,

23 I've evaluated when we look at acquiring

24 coal-fired power plants, one of the -- maybe the

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1 main thing we studied, is its heat rate, how

2 efficient is it in generating electricity, and

3 there's a lot of variety, as you know. So heat

4 rates, you know, the conversion rate of coal or

5 different kinds of coal to electricity are highly

6 variant among those plants.

MS. BASSI: Would it be more prudent

8 then if there was going to be a conversion from

9 heat rate -- or heat input to gross electrical

10 output, then the formula reflect the type of fuel

11 that's used?

THE WITNESS: I know this about

13 calculated heat rate is that it's a very

14 complicated business. And, moreover, we monitor

15 it constantly for operating plants that we've

16 known and lived with for years, and it's changing

17 all the time. And it has to do with wear and tear

18 on the equipment, 100 other factors. So I can

19 understand in a rule-making where somebody would

20 want to just pick a number and go with that,

21 because if you don't, it's a very complicated

22 business.

MS. BASSI: Thank you.

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1 BY MR. BONEBRAKE:

Q. Mr. Kunkel, if you could turn with me

3 to Page 3 of your written testimony. There is a

4 section about two-thirds of the way down on that

5 page labeled Effect of Illinois CAIR on Use of

6 Illinois Coal; do you see that?

A. Yes.

Q. And the opening phrase, "Illinois CAIR

9 will promote, not discourage, the use of Illinois

10 coal." Is it correct that you're in favor of

11 promoting the use of Illinois coal?

A. I think it's a state interest to

13 develop that industry, that's my understanding, and

14 that I think the rule has been crafted to assist to

15 that.

Q. You were here for the earlier

17 testimony of Mr. Goodwin, were you not?

A. Yes.

Q. And we discussed with Mr. Goodwin, in

20 some detail, the proposed use of fuel adjustment

21 factors. Is it true then that you agree that the

22 proposed rule -- the rule that should be adopted

23 should contain the proposed fuel adjustment factors?

A. I think it's -- you know, I don't know

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1 if Christian County Generation has a policy position

2 on this. But looking at Illinois and its history

3 and the coal industry history here, certainly

4 there's an interest in coal in Illinois and finding

5 ways to utilize it in the future that are compatible

6 with environmental policy.

Q. The second paragraph above the heading

8 that I just read, and the paragraph starts,

9 "Frequent updating of the baseline data." The

10 second sentence reads, "In the federal model rule,

11 retiring units receive a windfall of surplus

12 allowances because of obsolete baseline data and the

13 time it takes for a new allowance to be actually

14 used." Do you see that sentence?

A. Yes.

Q. Is it true that the absence of

17 updating, and thus, the continued inclusion of

18 retired units in the allocation pool has the effect

19 of encouraging the retirement of older and perhaps

20 therefore less efficient and less controlled units?

A. Give me this question again, please.

Q. Sure.

Does the absence of updating, and

24 I think you referred in that sentence to the absence

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1 of updating in the federal model rule?

A. Right.

Q. Does the absence updating, and thus,

4 the continued inclusion of retired units in the pool

5 also have the affect of encouraging the retirement

6 of older and perhaps less efficient and less

7 controlled units?

A. Okay. I think this, if you have a

9 1950s vintage coal unit, and it's not controlled,

10 that CAIR -- and your emissions are high, that CAIR

11 presents an obstacle to a cost of operation for

12 continued operation of that unit, and it may be such

13 a burden that you'd consider retiring it. And that

14 will be true whether or not the owner of that unit

15 receives allowances.

In fact, generally, in the

17 operation of all units, the cost of operating them

18 really are kind of one issue, but quite separate

19 from the allocation of allowances on the other.

20 People will need allowances and have a cost for

21 expending them based on their emissions no matter

22 what we do in this ruling. But the allocation of

23 allowances is probably unrelated to the decision to

24 retire or not retire that unit.

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And, you know, we have looked at

2 acquiring units, what we would do with them, would

3 we retire them, can you clean them up, what's the

4 cost effectiveness of that, it's a very complicated

5 set of questions, as you must know. And it

6 doesn't -- that calculation does not, in my

7 experience, involve consideration of what your

8 allocation is going to be. Allocation is just some

9 grant that you're being given. It has nothing to do

10 with your costs.

MS. BASSI: Is a consideration of

12 allocations part of the decision-making in whether

13 or not to proceed with a new plant?

THE WITNESS: It can be very much so

15 because it can effect the economic -- it's an

16 economic factor. These allowances are worth

17 money. And so if there is that support in

18 allowance allocations for a project, then it makes

19 the economics of that project more feasible, less

20 feasible, depending on that branch. I mean, if

21 you're saying if I was going to put this income

22 into this project or not, would it effect the

23 feasibility of the project and its construction

24 cost and its desirability as an investment?

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1 Absolutely. But does it effect the cost of that

2 operation? No. The costs are just related to

3 what its emission rates are.

4 BY MR. BONEBRAKE:

Q. In the section that we had referred to

6 entitled, Effective Illinois CAIR on Use of Illinois

7 Coal, the last sentence reads, "Please also consider

8 this: If the regulation is stringent enough to

9 force the installation of scrubbers, then it further

10 expands the market for Illinois coal, not just in

11 Illinois, but in other states as well." Do you see

12 that?

A. Yes.

Q. And I didn't understand that sentence

15 because the SO2 portion of the CAIR rule is a CAP

16 and trade portion, is it not?

A. Yes.

Q. So is the SO2 portion of the CAIR rule

19 in any way imposing an emission rate on any

20 particular unit?

A. No.

Can I help you understand that? I

23 mean, I think what I'm trying to say there is that

24 when we have the acid rain program, you know, across

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1 a lot of coal units, it turned out that the cost

2 effective solution for reducing sulfur dioxide

3 emissions for many plants was conversion to western

4 coal and away from Illinois coal, and it impacted

5 the coal industry in Illinois.

If scrubbers are installed in more

7 locations, it's going to create -- those are the

8 market for Illinois coal, not the unscrubbed units,

9 but the scrubbed units. So to the extent that this

10 rule stimulates the investment in scrubbers at those

11 existing units and new units, then it expands the

12 market for Illinois coal. That's the intent of my

13 remark.

Q. So you're suggesting that to the

15 extent a company goes through an economic

16 calculation and says it's economically advantageous

17 to install scrubbers, then that decision promotes

18 the use of Illinois coal?

A. Part of their calculation coal prices,

20 and if it broadens what coals to use. And everybody

21 who owns coal units knows that.

Q. I think you mentioned in your

23 testimony something to the affect that you expect

24 that the new source set-aside would be

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1 oversubscribed. Do you recall that testimony?

A. Yes.

Q. Can you tell us the basis for that

4 conclusion?

A. Well, it's really related to

6 uncertainty. I think, as I look at the incentives

7 that are in this program, one of the concerns I have

8 is going to the lending community, the investing

9 community, and convincing them to invest in our

10 project. And to the extent, I can, I'd like to say,

11 here is a source of allowances that I can rely on.

12 And the thing that makes me uncomfortable about the

13 new source pool is it's relatively small compared to

14 the 95 percent of the rest of the pool, and I don't

15 know what other proposals will come up in Illinois,

16 and so I can't rely on it. So the longer I am in

17 that pool and the more I have those uncertainties,

18 the less I can rely on that stream of allowances in

19 my financing. So it makes my project more difficult

20 to finance and more expensive.

Q. So you have a concern, but your

22 particular statement about expectations being

23 oversubscribed is based upon some speculation on

24 your part in terms of other projects that might also

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1 be undertaken and eligible in the future?

A. That's right. I just think that it

3 may be oversubscribed. I don't know that it will be

4 oversubscribed.

MS. BASSI: But you say it would be

6 almost certainly oversubscribed.

THE WITNESS: Well, I guess I was

8 pretty confident that it would be.

9 BY MR. BONEBRAKE:

Q. But you're less confident today, are

11 you not?

A. Well, I think it's -- I'm reasonably

13 confident that it could be oversubscribed. If you

14 look at the demands of new coal-fired facilities,

15 and it doesn't take many to oversubscribe that pool,

16 and I think anyone can do that calculation.

THE HEARING OFFICER: Ms. Bassi?

18 BY MS. BASSI:

Q. You said in your testimony on Page 1

20 that Tenaska has announced that it plans to acquire

21 two additional electric generation facilities in

22 Illinois. Could you tell us, are these existing

23 facilities?

A. Yes.

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Q. Can you tell us which ones they are?

A. Tenaska Power Plant, which is an

3 affiliate of the Tenaska, Inc., and one of the main

4 affiliates, is in a process to acquire two plants

5 that are formally owned by Constellation of

6 Illinois.

Q. So are they peaker plants?

A. One is, and one is combined cycle,

9 both are natural gas-fired.

Q. Going to a different topic. Could you

11 tell me, please, how IGCC technology removes

12 mercury?

A. As I have studied this technology, I

14 realize that there is a lot of ways to skin a cat,

15 and so I will say right now there must be more than

16 one answer to this question.

The way we intend to do it is that

18 at the back end of the acid gas removal systems,

19 there will be a relatively cool synthesis gas stream

20 that will subject to an activated carbon bed filter.

21 And if the mercury survives the acid gas removal

22 systems, which probably will be very effective in

23 removing a very large percentage of the mercury

24 themselves without any active carbon, but in

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1 addition to that acid gas removal system, you have

2 activated carbon removal system in our design at the

3 present time.

Q. Do IGCC plants work best using

5 high-sulfur coal, or does it make a difference?

A. Actually, it would be better to have

7 lower sulfur content. The sulfur removal is a cost,

8 and the more there is, the more costs.

Q. So then does this entity, I don't know

10 if I should say Tenaska or maybe I should say TEC,

11 does it have then some relationship with the

12 Illinois coal company; is that why you're using

13 Illinois coal?

A. Well, the entire business of fuel

15 selection is a complicated question, I would say.

16 And even within Illinois, there is a lot of

17 variation in quality. And we have to design the

18 facility around a specific range of coal qualities.

19 This gets to be a very complicated question for

20 something as complex as an IGCC plant. So you have

21 to focus on a limited range of possible coal

22 characteristics, and so we're doing that in our

23 design work. And, you know -- but we are still

24 looking at a variety of coals from various sources

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1 within Illinois. And we want to keep competition in

2 our potential coal suppliers so that we can get the

3 lowest price for the fuel.

Q. At Page 4 of your testimony, you say,

5 "For early adopters, eliminate pro-rata reduction of

6 CASA allocations for the life of the project, or for

7 at least ten years." Could you explain this?

A. I think this is kind of my concern.

9 I'm one of the guys on the environmental team that

10 has to convince bankers that our project works. And

11 to the extent that these incentives are going to be

12 considered by our investors and lenders, then they

13 need to be able to predict what we're getting. So

14 what I'm suggesting is modifying the rule so that I

15 or any independent engineer who looks at this thing

16 can predict, okay, this is roughly the amount of

17 allowances you're going to get under this particular

18 incentive for a period of time. Now, if there's a

19 small portion of an incentive pool, and I don't know

20 who in the future who else would be in that pool,

21 then the value of the incentive diminishes because

22 of our uncertainty, and we just don't know what the

23 benefit of that would be. And, you know, there's

24 other uncertainties, like the price of allowances

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1 and so on, and this just adds to.

So, anyway, it would help me, is

3 what I'm saying, to make a case to our lenders and

4 investors that this is a solid proposal. If we

5 didn't have to adjust that share of a given pool, at

6 least for some period of time, like ten years, so

7 that the lenders and so on could look at that and

8 say, okay, we know basically what you're going to

9 get. This isn't just some variable who-knows

10 benefit.

Q. So what you would like -- if I

12 understand you correctly, what you would like --

13 when you apply and you're granted CASA allowances,

14 you would like the Agency to say you're going to get

15 1,000 allowances over ten years or something to that

16 effect?

A. That would be helpful.

Q. As opposed to, it might change from

19 year to year. And is that then consistent with your

20 view that a source should be in a new unit set-aside

21 for as short a period of time as possible, which is

22 also a pro-rata?

A. Yes, yes, because the new unit

24 set-aside also has lot of uncertainty among them.

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1 So the more uncertainty there is there, the less

2 anyone will rely on it for financial purposes.

Q. If the new unit set-aside also said

4 you're going to get a thousand allowances for

5 three years, does that eliminate that concern?

A. It would be helpful. It would be

7 helpful.

Q. I don't know why I'm asking that.

9 Sorry, wrong hat.

A. I mean, anything that increases the

11 certainty of what it is that this is going to do to

12 us, then I think that's helpful.

MS. BASSI: Thank you. That's all I

14 have.

THE HEARING OFFICER: Mr. Bonebrake?

MR. BONEBRAKE: Nothing further at

17 this time.

THE HEARING OFFICER: Ms. Bugel?

19 BY MS. BUGEL:

Q. I have a couple questions.

Is it correct to conclude from

22 your testimony that you are supportive of the size

23 of the CASA as it's set now?

A. We are. And we admit, I think in our

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1 testimony, that it is helpful to us in what we're

2 doing, and if it was -- and we think it's materially

3 helpful to -- in a financial analysis of this

4 proposed technology. And if it was less, it would

5 be less materially helpful. If it was more, it

6 would be more materially helpful.

Q. So is it correct then to say you would

8 also then support an increase in the size of the

9 clean air set-aside?

A. I think this is a balance that, you

11 know -- is a state interest balance that I'm not in

12 a position to just, but I think the Agency is trying

13 to make a judgment in this case, and we're

14 supportive.

Q. And you indicated in your testimony

16 that the clean air set-aside creates an incentive

17 for things like IGCC and use of Illinois coal and

18 clean modern technologies; is that correct?

A. Yes.

Q. And in your view, these are all

21 beneficial things?

A. Yes.

Q. I'd like to turn to this fact sheet,

24 and I believe this was Taylorville Energy Center

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1 Exhibit 2.

MR. RUSSELL: Christian County

3 Generation Exhibit 2.

MS. BUGEL: I'm sorry.

5 BY MS. BUGEL:

Q. And could you tell me again, I didn't

7 hear the answer of who wrote this fact sheet?

A. I think someone in our public

9 relations department drafted something, and then a

10 whole bunch of people gave them a whole bunch of

11 comments. And it's very much of a joint effort

12 here. There must have been ten or 12 people who

13 commented on this. And it was an interesting

14 process, what can we say -- well, we're not one to

15 say, but I think this is what we wanted to say.

Q. Were you involved in that process?

A. I was involved in this process.

Q. Are you familiar with what is stated

19 on this sheet under public policy, particularly the

20 first paragraph about Governor Rob Blagojevich's

21 efforts?

A. Yes.

Q. Are you then familiar with Governor

24 Rob Blagojevich's efforts to promote his energy

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1 policy in Illinois?

A. We're certainly aware of certain

3 aspects that affect our project. I doubt if I'm

4 aware of everything that he's doing.

Q. Are you familiar that his energy

6 policy promotes the development of renewable energy

7 and energy efficiency?

A. Yes.

Q. And is it your -- do you believe that

10 the proposed CAIR rule should be consistent with the

11 Governor's efforts regarding energy in Illinois?

A. I think it's in the discretion of the

13 state to control certain parts of the CAIR rule,

14 which this rule-making is all about. And I think

15 it's appropriate for the state to exercise that

16 discretion, and we're supportive of their approach

17 to it.

MS. BUGEL: Thank you. I have no

19 further questions.

THE HEARING OFFICER: Anything from

21 Ms. Doctors?

22 BY MS. DOCTORS:

Q. I have a couple questions. I'm

24 (inaudible.)

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MR. JOHNSON: Speak up, Rachel.

MS. DOCTORS: I'm sorry if you can't

3 hear me.

4 BY MS. DOCTORS:

Q. Could you briefly explain how IGCC

6 allows for combustion of high-sulfur coals, such as

7 Illinois', while still achieving superior

8 environmental performance?

A. We don't actually burn it. We convert

10 it through a chemical process, basically, but it's

11 not simple combustion. There is a certain amount of

12 combustion that goes on in a gasifier, but it's very

13 controlled combustion in a situation where there's

14 limited oxygen supply so that complete combustion

15 cannot occur. So that's step one, I guess.

The other part of that answer is

17 that this gasified product, synthesis gas, is

18 subjected to sulfur removal systems that are really

19 conventional sulfur removal systems that are used in

20 the natural gas industry for removing sulfur, for

21 example.

So there's conventional natural

23 gas removal systems for removing sulfur, H2S really.

24 It's not SO2 in this case, but H2S, from this

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1 synthesis gas. So those conventional technologies

2 are used downstream in a gasifier to remove the

3 sulfur before the fuel is then combusted in a

4 combustion turbine. So when the fuel arrives in the

5 combustion turbine, the sulfur is not in it. So

6 that's, basically -- I mean, how does any other

7 combined cycled natural gas-fired plant -- why do

8 they have such low sulfur emissions? There's no

9 sulfur in the fuel.

Q. Your testimony states that IGCC has

11 greater capital cost than conventional pulverized

12 coal generation. Can you provide a comparison?

A. I would -- well, this is a complicated

14 question and probably a moving target given

15 construction cost changes today.

General Electric, which is one of

17 the leaders of the technology providers in this area

18 and which would be our technology provider, has

19 talked about in public a 10 percent differential

20 relative to pulverized coal combustion, super

21 critical. Others have talked about 15 percent and

22 20 percent differential. We don't have fixed price

23 bids from contractors yet. And when we get them,

24 we'll know.

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THE HEARING OFFICER: Mr. Rieser?

MR. RIESER: I'm sorry.

Differential, which way?

THE WITNESS: It's higher, I assure

5 you.

MR. RIESER: Thank you.

7 BY MS. DOCTORS:

Q. Could this higher cost of capital be

9 the major reason why we have not seen more of these

10 advanced coal combustion processes built?

A. That's one reason, and there are other

12 reasons, technical reasons.

Q. Would providing incentives like NOX

14 allowances through the CASA, which can be translated

15 into a financial subsidiary, would that lower the

16 barrier entry?

A. Yes, I believe that would be a

18 meaningful assistance to the development and

19 implementation of this technology.

Q. Have you made any estimates under the

21 CASA how many allowances the facility could

22 potentially be eligible for?

A. I have. And there was a useful

24 exercise because I quickly ran into this

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1 uncertainty: You're part of a pool. You don't know

2 what other babies are in the pool with you. So, you

3 know, who are you sharing this thing with? And so

4 you can't know how high the water is until you know

5 how many babies are in the pool. And that's our

6 situation. We just have an estimate based -- you

7 can make some assumptions about how many other

8 projects there are, but that's something we cannot

9 know. So that's the difficulty I'm having with

10 taking this incentive to finance it.

Q. I guess my follow-up would be,

12 assuming that you were able to go into the pool, and

13 it wasn't a competitive pool?

A. Yeah, in that case, we could approach

15 the analysis with more certainty because we would

16 know at least our point in a queue, let's say. And,

17 you know, in this case, I think we're the first IGCC

18 project in the queue. So we would have the benefit

19 of that. And so then we'd know how much of the pool

20 is available and what portion of it we would qualify

21 for. So that would give us more certainty.

Q. Have you made that calculation?

A. We've made that calculation.

Q. Would you be willing to share it?

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A. It's a spreadsheet, and I don't have

2 it with me. And I was -- it's a complicated

3 spreadsheet. And it's probably based on some

4 assumptions too, and I'm not sure I've rigorously

5 looked at this. But I just kind of ran into the

6 uncertainties and focused on those.

Q. Is it a significant incentive?

A. It's a significant incentive.

Q. I'm going to switch to a couple

10 questions concerning output based allocations.

Does an output-based allocation

12 account for the operating efficiency of an IGCC as

13 compared to a heat input based allocation system?

A. Does it account for the variation in

15 efficiency; is that what you're saying?

Q. Yes.

A. It depends on -- well, there's two

18 places you could measure heat input. And it's

19 really the way the regulation is set up. It would

20 only be measured at the input to the combustion

21 turbans, not coal, synthesis gas. We'd be the only

22 people measuring synthesis gas heat input. So I

23 don't know what it means relative to everybody else.

24 But it would be a very different thing, you know.

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1 But the output is the same as everybody else is

2 producing. So I think, you know, there you have an

3 equal basis with us.

But if you put us on a synthesis

5 gas basis, it would put us at a disadvantage because

6 there's a cost of conversion of coal. This heat

7 input number here for coal is probably 30 percent

8 larger than the heat input of the combustion

9 turbines. In other words, there's a cost. There's

10 an energy cost of gasification. The way the rule

11 operates, we would have to use the heat input to the

12 combustion turbines to the units under this rule.

13 That's synthesis gas. So we would be at a

14 disadvantage to another coal unit, okay, that is

15 measuring up here at the coal end, okay, and we'd be

16 disadvantaged by 30 percent.

MR. COOPER: Do you know the relevant

18 efficiency in producing power in terms of an IGCC

19 versus a pulverized coal boiler?

THE WITNESS: Which boiler? An

21 average boiler, I mean, let's say -- these are

22 normally discussed in terms of heat rate, and

23 probably other people can chime in here, but you

24 have a range of the modern newest super critical

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1 units getting, you know, below 10,000, 9,500,

2 maybe even below 9,000, as the technology develops

3 here for a heat rate. 9,000 British thermal units

4 per kilowatt hour of electricity. So that's how

5 much fuel per kilowatt, and then they go up to

6 12,500 or 13,000 in the old timers, BTUs per

7 kilowatt hour of electricity produced.

So the IGCC is going to be on the

9 lower end of that range. It's going to be maybe

10 500 or -- when we get to our final design, I'll

11 tell you what we think it's going to be, but it

12 should be a somewhat improvement over super

13 critical. Although, super criticals are getting

14 pretty good, so...

MS. DOCTORS: The Illinois EPA

16 appreciates that the Christian County Generation,

17 LLC, generally supports its output based

18 allocation method frequently updating baseline

19 utilization of --

THE HEARING OFFICER: Ms. Doctors, can

21 you speak up a little bit, please? Give it your

22 all.

MS. DOCTORS: The Illinois EPA agency

24 appreciates that Christian County Generation, LLC,

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1 generally supports an output based allocation

2 method frequently updating the baseline and the

3 utilization of allowance. That is all the Agency

4 has.

MS. BASSI: Is that a statement?

6 She's not sworn in.

MR. RUSSELL: Yes, she is.

THE HEARING OFFICER: She's not sworn

9 in. I'm going to allow her statement to stand.

Any other questions? Mr. Rieser?

MR. RIESER: With respect to this

12 issue of the eliminating the pro-rata reduction

13 for early adopters, if -- in your analysis of what

14 happens if that is done for -- if it's eliminated

15 for -- let me ask it this way.

How are the allocations allocated

17 among all of the earlier adopters who submit

18 projects in a given year?

A. I don't think I've gone that far,

20 other than to think that it might be on a first come

21 first serve basis, you know, and that the Agency

22 would receive an application, analyze it, and make

23 an allocation that is fixed for some period of time

24 in some way. And I don't know what all the rule

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1 language has to be to accomplish that, but it

2 doesn't seem too complicated to me, and that it

3 would be first come first serve.

Q. So it's first come first serve within

5 a given year?

A. Well, or just in general, over any

7 number of years.

Q. So the -- what you're proposing would

9 have the impact of reducing allowances available for

10 other early adopters just because when they submit

11 their request for allowances?

A. It would be a benefit to the earliest

13 and less beneficial to later entries. But I guess

14 what I'm saying is that if we don't make some

15 commitment to people who are trying to invest in new

16 technologies, we may not get these new technologies.

17 There is some expense here that has to be dealt with

18 and some support is needed, and it's not going to

19 count for much if we can't quantify it.

Q. Would the same uncertainty be present

21 with respect to other areas of CASA where the

22 allocations were dependent on the number of people

23 in the pool?

A. What other areas? I mean, why don't

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1 you discuss them one by one?

Q. Well -- and this is just an example,

3 with respect to new technology, approaches new

4 technology?

A. Right. I guess my suggestion was that

6 if you qualify for this early adopter provision,

7 then an aspect of that provision is that in your

8 initial allocation, you get a fixed amount for some

9 period of time, and that you not be subject to

10 pro-rata reduction for whatever CASA categories that

11 early adopter qualifies for.

Q. So this fixed amount would translate

13 not just to the early adopter pool, but to whatever

14 pool this particular control -- whatever the control

15 strategy is being proposed by the early adopter. It

16 would translate throughout the life of a project

17 through whatever CASA categories it happens to fall

18 in?

A. Yeah. And I don't know about life of

20 a project because that might be 30 years or

21 something. But for some period of time, so that we

22 can count on it for some period of time, so it's

23 defined. If it's not defined, we won't count on it,

24 we won't be able to.

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Q. And so -- thank you.

THE HEARING OFFICER: Yes,

3 Mr. Bonebrake?

4 BY MR. BONEBRAKE:

Q. I had a couple follow-ups.

You were asked a question earlier

7 about why there hadn't been more IGCC, and I think

8 you identified economics as one of the reasons. And

9 so my follow-up is what are the others because you

10 suggested there were more than the economics?

A. I think, in part, it's technology

12 development. And the refiners, for example, have

13 been involved in this area of technology

14 development. Technology has come a long way.

15 There's greater experience now in use of these

16 gasification units. But, you know, we have to

17 realize there's only two of these operating in the

18 United States. There's these other selected

19 facilities around the world. There's quite a few

20 gasification facilities that refineries -- so

21 there's a fair amount of experience with

22 gasification technology, and that has matured over

23 the years. But in the -- the utility industry is a

24 conservative engineering group. And the experience

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1 with these smaller Wabash plants and so on, these

2 are somewhat developmental, experimental exercises,

3 and they've encountered a lot of problems that no

4 one foresaw. And so all those issues have to be

5 addressed as this technology moves forward.

Q. Mr. Rieser asked you a couple of

7 questions about the mechanisms that might be used to

8 establish a better sense of what allowances would be

9 under CASA. And I think you described a scenario,

10 perhaps, where they could be fixed based upon who

11 would apply first. And that would be a way then for

12 you to know what your allowances would be. Doesn't

13 that compare (inaudible) because how do you know

14 you're going to be first?

A. Well, we don't know that we're going

16 to be first. But let's say that in IGCC, Illinois

17 today stands at zero. There's only two others in

18 the whole country, and they're smaller, much smaller

19 than what we have in mind. So these proposals --

20 although there's a lot of discussion of IGCC, this

21 is one of the very few proposals that's as advanced

22 as it is. And, you know, we don't have hundreds of

23 opportunities like this. I think an overabundance

24 of good IGCC proposals is not Illinois' problem. I

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1 think assisting selectively some good projects that

2 can move forward successfully is something that has

3 to be focussed on. But there's an issue if we just

4 divide up the incentives, or in some indefinite way,

5 so that the developers can't really count on them.

6 We have to make it real and concrete for financing

7 purposes.

MR. JOHNSON: Is Future Gen (phonetic)

9 one of your competitors in the same?

THE WITNESS: I don't know if we would

11 regard them as an a competitor. I think they're

12 doing the entire industry a great service by just

13 kind of pushing all these technical issues, and

14 there's a whole variety of them, and seeing what

15 this technology can do. So this is more of a

16 common effort across the industry, cooperative

17 effort to try to resolve many of the technical

18 issues of this technology.

MR. JOHNSON: Essentially involved in

20 the --

(Simultaneous speaking.)

THE HEARING OFFICER: Can you hold on

23 a second?

THE REPORTER: Yeah, I can't get two

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1 people talking at once.

MR. JOHNSON: I talked over you. I

3 apologize.

Essentially, involved in the same

5 business.

THE WITNESS: We're generating power.

7 We're gasifying it in the same way and using the

8 same feed stock in Illinois.

THE HEARING OFFICER: Ms. Bassi?

MS. BASSI: I wanted to you ask a

11 question that you nicely evaded before.

MR. RUSSELL: Excuse me. Can I object

13 to that comment and move to strike it?

THE HEARING OFFICER: Mr. Bassi?

MS. BASSI: That's fine.

THE HEARING OFFICER: I think we'll

17 allow that.

MS. BASSI: Going back to your

19 spreadsheet where you estimated the number of

20 allowances that you might be able to use up for

21 CASA for your project. Looking at the rule at

22 Section 225-460-C2, it appears that IGCC plants

23 are a form of clean coal technology. Do you -- in

24 your estimate, did you anticipate that you would

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1 use up the 4,573 allowances that are included for

2 that category?

THE WITNESS: No.

MS. BASSI: Thank you.

THE HEARING OFFICER: Mr. Bonebrake?

MR. BONEBRAKE: With respect to the

7 Future Gen project Mr. Johnson asked you about, do

8 you know if department of energy is providing any

9 funding for that?

THE WITNESS: For Future Gen.

MR. BONEBRAKE: Yes.

THE WITNESS: I think the status of it

13 is that Texas and Illinois are in the running. Is

14 there anybody else? I'm not sure.

MR. RUSSELL: (Nonverbal response.)

THE WITNESS: No? So there's two

17 states in the running, two cites in the running

18 for citing it, and that decision process for

19 deciding of it is something like a year away.

MR. BONEBRAKE: But do you know if the

21 department of energy is providing any funding?

22 Has it made any commitments to provide funding for

23 the project?

THE WITNESS: I'm not familiar with

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1 Future Gen funding by the department of energy, I

2 mean...

MR. BONEBRAKE: Well, do you know if

4 the department of energy views IGCC to be

5 experimental technology?

THE WITNESS: I don't think -- well, I

7 don't know if they have a policy -- I guess I

8 would say I don't what their policy is or whether

9 they would label it that way. I don't think we

10 would label it an experimental technology. I

11 think -- because you have operating facilities of

12 substantial size that have been operating for

13 decades. So this is proven technology, but that

14 doesn't mean it's not without technical challenges

15 or that it's common.

THE HEARING OFFICER: Mr. Russell?

MR. RUSSELL: I could supply counsel

18 with some information later on DOA's involvement.

THE HEARING OFFICER: Anything further

20 from the Agency?

MS. DOCTORS: Not at this time, no.

THE HEARING OFFICER: Anything further

23 from anybody? Thank you, Mr. Kunkel, you can step

24 down.

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THE WITNESS: Thank you.

THE HEARING OFFICER: Off the record

3 for a second, please.

(Whereupon, a discussion

was had off the record.)

THE HEARING OFFICER: We're back on

7 the record after a short recess. We're going to

8 close things up for the day and start tomorrow.

9 And that will be with, and I've said the name

10 wrong twice, Mr. Saladino's testimony at

11 9:00 a.m. tomorrow here in this room. So we'll

12 see you all then. Thank you very much for your

13 attention and time.

(Whereupon, there were no

further proceedings had

at this time.)

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1 STATE OF ILLINOIS )

) SS

2 COUNTY OF COOK )

JULIA A. BAUER, being first duly

6 sworn on oath says that she is a court reporter

7 doing business in the City of Chicago; that she

8 reported in shorthand the proceedings given at the

9 taking of said hearing and that the foregoing is a

10 true and correct transcript of her shorthand notes

11 so taken as aforesaid and contains all the

12 proceedings given at said hearing.

JULIA A. BAUER, CSR

29 South LaSalle Street, Suite 850

Chicago, Illinois 60603

License No.: 084-004543

19 SUBSCRIBED AND SWORN TO

before me this 4th day

20 of December, A.D., 2006.

Notary Public

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