BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
IN THE MATTER OF:
PROPOSED NEW CAIR
SOz, CAIR NOx
1
ANNUAL TRADING PROGRAMS,
1
R06-26
35
1LL.ADM.CODE 225,
(Rulemaking
-
Air)
CONTROL OF EMISSIONS FROM LARGE
)
COMBUSTION SOURCES,
SUBPARTS A, C, D, AND E
)
NOTICE OF FILING
Dorothy Gunn, Clerk
Illinois Pollution Control Board
James R. Thompson Center
Suite 11-500
100 West Randolph
Chicago, Illinois 60601
Persons included on the
ATTACHED SERVICE LIST
PLEASE TAKE NOTICE that we have today filed with the Office of the Clerk of the
Pollution Control Board a
RESPONSE TO MOTION TO AMEND RULEMAKING
PROPOSAL
on behalf of Dynegy Midwest Generation, Inc., Midwest Generation, LLC, and
Southern Illinois Power Cooperative, copies of which are herewith sewed upon you.
Dated: December 7,2006
Sheldon A. Zabel
Kathleen C. Bassi
Stephen
J. Bonebrake
SCHIFF
HARDIN, LLP
6600 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
3 12-258-5500
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
IN THE MATTER OF:
)
PROPOSED NEW CAIR SO2, CAIR NOx
ANNUAL TRADING PROGRAMS,
R06-26
35 1LL.ADM.CODE 225,
)
(Rulemaking
-
Air)
CONTROL OF EMISSIONS FROM LARGE
)
COMBUSTION SOURCES,
SUBPARTS A, C, D, AND E.
)
RESPONSE TO MOTION TO AMEND RULEMAKING PROPOSAL
NOW COME DYNEGY MIDWEST GENERATION, INC., MIDWEST
GENERATION, LLC, and SOUTHERN ILLINOIS POWER COOPERATIVE, participants in
this matter (collectively "Respondents"), by and through their attorneys, SCHIFF
HARDIN LLP,
and pursuant to
35 111.Adm.Code 5s 102.402 and 101.500(a), respond to the Illinois
Environmental Protection Agency's ("Agency") Motion to Amend Rulemaking Proposal, filed
November 27,2006. Respondents generally support the Agency's Motion to Amend but request
or suggest clarification in some sections,' as follows:
1.
Respondents intend that the discussions herein concerning sections contained in
Subpart D should also apply to the corresponding citations to sections in Subpart E, though
Respondents will for brevity, as a general matter here, cite to only Subpart D when discussing
the
NOx trading programs.
2.
The revision to the definition of
coal-jred
at Section 225.140 refers to Subpart B
of Part 225, but Subpart B is not part of this rulemaking and is not listed in the table of contents
I By responding to the Agency's Motion to Amend and suggesting or requesting
clarifications in this Response, Respondents do not waive their argument, as set forth in their
recently filed Motion to Dismiss, that the Board lacks authority to adopt the proposed rule.
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
for the rule attached to the Motion to Amend. Respondents note that Subpart B is not yet final
and could be appealed. Respondents merely want to confirm that inclusion of the reference to
Subpart
B is appropriate in this Docket.
3.
Regarding the new definition of
commence construction
at Section 225.140:
a.
It is not clear what entity -the Agency or the regulated party
-
determines
whether the commencement of construction occurs pursuant to subsection (a) or
subsection (b). We suggest that the Agency clarify this point.
b.
It is not clear whether the language "For purposes of this definition" at the
end of subsection (b) and subsections
(1) and (2) are intended to be qualifiers of
subsection (b) only, as the structure of the definition suggests. The context of the
definition suggests that the prefatory language and subsections (1) and (2) should apply
to both subsections (a) and (b).
c.
If the Agency intends that the prefatory language and subsections (1) and
(2) apply only to subsection (b), then this suggests that
construction
and
reasonable time
would mean something different for subsection (a). Those meanings are not set forth in
the definition and should be.
d.
There appears to be an errant colon in subsection (2) following
"A
reasonable time." The punctuation there should probably be a quotation mark.
e.
The definition's applicability is limited, by its terms, to Sections
225.460(f) and 225.560(f). The defined term,
commenced construction,
however, is used
in at least two other sections, Sections 225.470 and 225.570. The Agency should clarify
that this definition also applies in Sections 225.470 and 225.570 and in any other section
that uses the term.
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
4.
The definition of
compliance account
omits reference to Subpart C, the SOz
trading program, yet Section 225.3 10(d)(8), for example, refers to a compliance account.
Respondents suggest that the definition be expanded to include Subsection C.
5.
It does not appear that any language in the rule geographically limits the
applicability of the rule generally and, even more specifically, the extent of the CASA or the
sponsors for CASA projects. Typically, the Board's rules include some limitation on the
applicability of a rule, such as by geographic location for Parts 21 8 and 219 or by specifically
identifying the sources to whom a rule applies as in
Subparts U, V, and W of Part 217.
Respondents suggest that the Agency and the Board reconsider this element of the rule. Whether
the applicability of the general rule is sufficiently limited is a fairly straight-forward question,
but Respondents offer the following questions to further develop the issue with respect to CASA
projects:
a.
In order to be allocated allowances, must a CASA project be located in
Illinois? For example, if a power distributor purchased wind-generated power, must the
wind mills that provided the power be located in Illinois?
b.
Must the end benefit of a CASA project be located in Illinois? For
example, is the power distributor described in (a) above limited to distributing that power
in Illinois?
c.
Must the project sponsor be an Illinois entity or have some direct nexus
with Illinois? For example, could the major financier of a CASA project located in
Illinois be an out-of-state entity that has no direct nexus with Illinois,
i.e.,
no office here,
no contractual obligations here? If John Doe, living in New York, gave 50% of the
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
capital cost of a wind mill to a group who then constructed and operated the wind mill,
could John Doe qualify as a project sponsor and receive CASA allowances?
6.
There should be a comma following "If a stationary boiler or stationary
combustion turbine that" in the first line of Sections
225.305(a)(2), 225.405(a)(2), and
225.505(a)(2) in the attachment to the Motion to Amend.
7.
The organization of Sections 225.305(b), 225.405(b), and 225.505(b) is quite
awkward. The language in all three sections is substantively the same and identifies the types of
units to which the three trading programs are applicable. The awkwardness lies in designating
subsections
(b)(l), (b)(3), and (b)(4) as identifying units
subject to the rule, while subsections
(b)(2) and (b)(5) identify units that
subject to the rule. First, presenting those that are subject
to the rule and that are not subject to the rule in consecutive subsections would be extremely
helpful. Even better would be to separate subsection (b) into two major subsections,
(1) and (2),
where (1) identifies those units that are subject to the rule, perhaps in additional subsections, and
(2) identifies specific unit types that are not subject to the rule, again perhaps in additional
subsections.
8.
At Section 225.430(c), the Agency proposed to change the dates relative to NUSA
allocations, explaining in the text of the Motion to Amend that new units will not receive
allocations for their first year of operation. However, the language at Section
225.430(c) does
not make this clear. Respondents suggest that the rule simply state that new units will not be
allocated allowances for their first year of operation and that allowances for their second year of
operation will be based upon their operations during the first year, including the dates by which
new units' owners or operators must apply for the allowances for the second year, and so on.
Respondents note that if the allocation for the second year of operation is based upon the first
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
year that a new source operates, the allocation for the second year may be "short." Because of
the relatively short period of time that new units must obtain their allowances from the NUSA,
they may never receive sufficient allowances from that pool. Additionally, reliance upon the
beginning years of operation to determine a new unit's allowances in the "existing source" pool
will cause new units to be "short" for the first several years they are allocated allowances
fiom
that pool, as well. For example, if a new source commences commercial operation in August
2013, Respondents' understanding is that it will be allocated no allowances for 2013.
Allowances for 2014 will be based upon operation in 2013, and allowances for 2015 will be
based upon the average of operation in 2013 and 2014. Allowances for its first year
as an
existing source,
i.e.,
allowances from the main pool of allowances rather than from the NUSA,
will be based upon 2013, and allowances for its second year as an existing source would be
based upon the average of 2013 and 2014.
9.
Additionally, it is not clear that Section 225.430(c) is consistent with Section
225.445(b) in terms of the timing of NUSA allowances.
10.
The Agency explains in its Motion to Amend that CASA allowance requests will
be submitted to
USEPA by October 1 so that they will be available for use during the ozone
season. However, all other allowances are to be submitted to
USEPA by October 3 1.
Respondents question the inclusion of two dates for submittal of allowances simply because of
the added complexity it creates
-
an additional deadline.
11.
The Agency's explanation of the system required by Section 225.450 for
determining gross electrical output contained in the text of its Motion to Amend does not appear
to be fully consistent with the language contained in the proposed amendment. The Agency
states in the Motion, "This system may be a wattmeter or other system that meets either the
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
requirements of 40 CFR 60 or 75, as applicable." Respondents suggest that this statement be
incorporated into the language of the rule, as well, and that "install, calibrate, maintain, and
operate" and other ancillary words be deleted. If 40 CFR Parts 60 and 75 require installation,
calibration, maintenance, or operation, it should be sufficient that 40 CFR 60 and 75 are
incorporated by reference as to determining gross electrical output, rather than to impliedly limit
any flexibilities available to the regulated community that
the Agency apparently intends to
allow the regulated community. This approach would avoid any potential inconsistency between
federal and state requirements.
12.
If it is not the Agency's intent that sources submit both heat input and gross
electrical output data by June 1, 2008, Respondents suggest that "or" be inserted at the end of
Section
225.450(~)(1).
13.
Respondents still do not understand why the Agency requires gross electrical
output data on a quarterly basis and suggest that the frequency be extended to annually.
14.
One of the suggestions or requests that Respondents had made during the
Springfield hearing was to include improvements to the heat rate of coal-fired units in the CASA
category for supply-side energy efficiency projects. Respondents reiterate that request here to
the extent that such projects are not already included in
225.460(a)(3). The Agency should
clarify that such projects are included in
225.460(a)(3) or, if not, add a section that includes
them, perhaps in
225.460(~)(3). Supply side energy projects may reduce the demand for
electricity and thus emissions associated with electricity generation. Similarly, coal-fired unit
efficiency projects reduce emissions associated with the generation of a given level of electricity,
thus also reducing emissions. Accordingly, coal-fired unit efficiency projects should be eligible
for CASA allowances.
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
15.
The Agency has moved to amend Section
225.460(d) by carving projects
performed "pursuant to Section
225.233" from the exclusion in Section 225.460(d). Section
225.460(d) generally excludes from CASA eligibility projects "required to meet emission
standards or technology requirements under State or federal law or regulation.
. . ."
Respondents
understand that Section
225.460(d) does not exclude projects undertaken as part of a strategy to
comply with a cap and trade program, such as CAIR, or
any other program where specific
pollution control requirements are not enumerated in the regulation but merely that compliance
with some level of reduction is required. The Agency, however, should make this clear in
Section
225.460(d). In addition, the Agency has failed to explain and Section 225.460(d) does
not indicate how the determination will be made concerning whether a project is ineligible under
Section
225.460(d) because it is "required to meet" some other state or federal law or regulation.
The Agency should clarify how it would determine whether a project is "required to meet" some
other federal or state law or regulation including that the only relevant state or federal regulations
are those in effect at the time the CASA application is submitted, even though the CASA
allowance stream would continue into the future, including after a new federal or state law or
regulation requiring such controls goes into effect.
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
16.
The baselines to be used for allowance allocations for 2014,2015,2016, and so
on are not clear from the language in Section 225.435. Respondents suggest that the Agency and
the Board include specific years for the first several years to serve as examples going forward.
Respectfully submitted,
DYNEGY MIDWEST GENERATION,
INC.,
MIDWEST GENERATION, LLC, and
SOUTHERN ILLINOIS POWER COOPERATIVE
by:
Dated: December 7,2006
Sheldon A. Zabel
Kathleen C. Bassi
Stephen
J. Bonebrake
SCHIFF
HARDIN, LLP
6600 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
3 12-258-5500
Fax: 3 12-258-5600
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
CERTIFICATE OF SERVICE
I, the undersigned, certify that on this 7th day of December, 2006, I have served
electronically the attached
RESPONSE TO MOTION TO AMEND RULEMAKING
PROPOSAL
on behalf of Dynegy Midwest Generation, Inc., Midwest Generation, LLC, and
Southern Illinois Power Cooperative,, upon the following persons:
Dorothy
Gunn, Clerk
Illinois Pollution Control Board
James
R. Thompson Center
Suite 11-500
100 West Randolph
Chicago, Illinois 60601
and electronically and by first-class mail with postage thereon fully prepaid and affixed to the
persons listed on the
ATTACHED SERVICE LIST.
Sheldon A. Zabel
Kathleen C. Bassi
Stephen
J. Bonebrake
SCHIFF
HARDIN, LLP
6600 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
3
12-258-5500
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
SERVICE LIST
0106-26)
John Knittle
Hearing Office
Illinois Pollution Control Board
James R. Thompson Center
100 W. Randolph
Suite 1 1-500
Chicago, Illinois 60601
knittlej@,ipcb.state.il.us
Matthew J. Dunn, Division Chief
Office of the Illinois Attorney General
Environmental Bureau
188 West Randolph, 20" Floor
Chicago, Illinois 60601
mdunn@,atg.state.iI.us
David Rieser
James T. Hamngton
Jeremy R. Hojnicki
McGuireWoods LLP
77 West Wacker, Suite 4100
Chicago, Illinois 60601
drieser(iimcguirewoods.com
-
jharrin~on@,mc~uirewoods.com
jhoinicki@,mc~uirewoods.com
Katherine D. Hodge
N.
LaDonna Driver
HODGE DWYER ZEMAN
3150 Roland Avenue, P.O. Box 5776
Springfield, Illinois 62705-5776
khodge@,hdzlaw.com
nldriver@,hdzlaw.com
Faith E.
Bugel
Environmental Law and Policy Center
35 East Wacker Drive, Suite 1300
Chicago, Illinois 60601
fbugel@,elpc.org
Rachel Doctors, Assistant Counsel
John J. Kim, Managing Attorney
Air Regulatory Unit
Division of Legal Counsel
Illinois Environmental Protection Agency
1021 North Grand Avenue, East
P.O. Box 19276
Springfield, Illinois 62794-9276
rachel.doctors@,illinois.gov
john.i.kim@,illinois.gov
I
Virginia Yang, Deputy Legal Counsel
Illinois Department of Natural Resources
One
~atural Resources Way
Springfield, Illinois 62701- 1271
virginia.vang@,illinois.gov
William A. Murray
City of Springfield, Office of Public Utilities
800 East Monroe,
4th Floor, Municiual
Building
Springfield, Illinois 62757-0001
bmurray@,cwlp.com
S. David Farris
Manager, Environmental, Health and Safety
City Water Light
&
Power
201 East Lake Shore Drive
Springfield, Illinois 62757
dfarris@,cwlu.com
Keith I. Harley
Chicago Legal Clinic, Inc.
205 West Monroe Street,
4~ Floor
Chicago, Illinois 60606
kharlev@kenilaw.edu
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006
SERVICE LIST
(R06-26)
Sasha M. Reyes
Steven J. Murawski
Baker
&
McKenzie
One Prudential Plaza, Suite 3500
130 East Randolph Drive
Chicago, IL 60601
sasha.m.reyes@,bakemet.com
steven.i .murawski@bakemet.com
Daniel D.
McDevitt
General Counsel
MIDWEST GENERATION, LLC
440 South
LaSalle Street, Suite 3500
Chicago, Illinois 60605
dmcdevitt@mwgen.com
Bill S. Forcade
Katherine
M. Rahill
JENNER
&
BLOCK LLP
One IBM Plaza
Chicago, Illinois 6061
1
bforcade@,ienner.com
krahill@,ienner.com
Bruce Nilles
Sierra Club
122 West Washington Avenue, Suite 830
Madison, Wisconsin 53703
bruce.nilles@sierraclub.org
James H. Russell
Winston
&
Strawn LLP
35 W. Wacker Drive, 40" Floor
Chicago, Illinois 60601
jrussell@,winston.com
ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, DECEMBER 7, 2006