September 6, 2002

Ms. Sally Shaver, Co-Chair

Mr. John Paul, Co-Chair

U.S. EPA Mercury Work Group

Permits/New Source Review/Air Toxics Subcommittee

Clean Air Act Advisory Committee

Washington, D.C.

(via e-mail)

Re: The Clean Energy Group's Position on the Utility MACT Issues

Dear Ms. Shaver and Mr. Paul:

The Clean Energy Group (CEG) appreciates the opportunity to convey its
positions to EPA on the issues that the Agency must resolve in setting
MACT standards for electric utility steam generating units.

[1. HAPs To Be Regulated]{.underline}

Section 112(c)(2) of the Clean Air Act (the Act) requires EPA to
establish emission standards for listed categories and subcategories of
hazardous air pollutants (HAPs). However, Congress elected to address
the electric utility steam generating unit category separately under
§ 112(n)(1)(A) of the Act. Under this subsection, EPA is authorized to
regulate HAP emissions emitted from electric utility steam generating
units only if the Agency finds that it is "appropriate and necessary" to
do so in order to protect public health. To date, EPA has concluded that
such regulation is necessary with respect to mercury emissions from
coal-fired units and, potentially, with respect to nickel from oil-fired
units. Although EPA has indicated that other pollutants may be cause for
concern, it has not made a formal determination that it is "appropriate
and necessary" to regulate other HAPs associated with electric utility
steam generating units. The CEG members would be pleased to work with
the agency in developing the data and analysis required for EPA to reach
a decision on these other HAPs, but -- in contrast to the determination
to regulate mercury -- we do not believe that EPA has currently made the
case to proceed with regulating other HAPs.

That said, it is also true that many of the emission reduction
strategies necessary to reduce mercury emissions from electric utility
steam generating units will have beneficial effects in reducing other
HAPs from these units. Likewise, emission reduction strategies likely to
be employed to meet coming requirements associated with the federal
health standard for fine particulates and federal regional haze
requirements may also have beneficial effects in reducing utility HAPs.
Irrespective of EPA's decision to proceed with a determination on the
need to regulate other electric utility HAPs, we encourage the Agency to
think about the multi-pollutant effects of any emission reduction
requirement imposed upon our industry and incorporate both the benefits
and costs of these multipollutant effects in the Agency's regulatory
decision making.

During the course of FACA discussions it has been suggested that EPA
address the broader category of electric utility HAPs through the use of
"surrogates." If EPA decides to regulate other HAPs from coal and
oil-fired utility generating units, CEG believes that the Agency should
use appropriate "surrogates" for certain classes of HAPs emitted from
these units, including metals, acid gases and organic compounds. It is
important that these surrogates be used not only in the MACT
determination process, but also in the determination of compliance .

[2. Subcategorization]{.underline}

As a general rule, CEG members oppose subcategorization. Although the
notion of a regulatory regime that customizes an emission standard for
each coal type consumed and technology employed is attractive, we
believe that the practical reality of such a regulatory regime would be
the worst form of command-and-control regulation. As companies that are
active in competitive wholesale energy markets, we cannot tolerate
environmental regulations that constrain our flexibility to find the
most effective solutions to environmental problems.

Over the past ten years, there has been a tremendous change in our
industry as a result of FERC Order 888 and other federal and state
initiatives to encourage competition in both wholesale and retail
electricity markets. In many jurisdictions, operating costs that were
once directly passed on to retail customers through periodically
adjusted fuel tariffs incorporated into retail rates are now borne
solely by wholesale generation companies, which have no other mechanism
for recovering costs other than through the wholesale price of energy
determined in a competitive market. Among all companies doing business
in these markets, this new dynamic has heightened attention to fuel
costs, which account for approximately 75 percent on any generating
unit's variable cost. The trend in the industry has been away from
long-term fixed price contracts for coal and other fuels toward
contracts of a year or two - at most - as companies strive to capture
these subtle changes in fuel price while using newly developed financial
strategies to hedge against fuel price risk.

At the same time, the compliance flexibility afforded companies through
the federal Acid Rain Program and other emission trading programs has
encouraged companies to think of fuel supply as a compliance option, and
today many companies use various blends of coals to optimize their
emission performance. The variability we see in EPA's mercury ICR data,
and the role that chlorine content, sulfur content, and other
constituents in coal may play in optimizing the effectiveness of various
control technology options suggest to us that fuel switching and fuel
blending may become even more common in the years ahead. We would oppose
any regulation that hampers our ability to quickly optimize performance
and cost as necessary to meet the economic demands of the market and the
environmental expectations of the public.

Today, in most jurisdictions, we enjoy the ability to shift among fuel
supplies and suppliers at will, without the need to seek the
time-consuming approval of regulators to switch. Schemes that tie
emission rate to fuel type imply a regulator's interest in the fuel
being used. We can only imagine the permit conditions surrounding fuel
choice that will be written and the reports on fuel use that will be
required to provide the regulatory community with comfort that the
regulatory obligation is being met. This may be particularly problematic
in cases where a unit utilizes more than one fuel category, such as
those facilities that burn blends of bituminous and sub-bituminous coal.
In sum, from the perspective of the electric utilities a large number of
subcategories may significantly limit the flexibility to manage a
facility's operational conditions and fuel choice. In the context of a
competitive market for supplying electric generation, operational
flexibility and fuel choice are of paramount importance. Overly
prescriptive emissions standards are not consistent with these
objectives.

At the same time, we concede that the design and operation of electric
utility steam generating units differ such that certain subcategories
should be established before MACT limits are set. CEG believes that one
such subcategory should be Fluidized Bed Combustion (FBC) technology
because it uses a unique combustion system that operates with cooler
combustion temperatures that result in much lower mercury emissions than
conventional pulverized coal (PC) boilers. A second subcategory should
be PC boilers that burn lignite coal, in recognition of the high mercury
content in lignite, and the reality that few boilers in limited
geographical areas make use of this low-BTU coal. The third subcategory
should be PC boilers that burn bituminous and/or sub-bituminous coal.
The grouping together of bituminous and subbituminous coals will provide
the flexibility needed for coal blending and coal switching.

[3. MACT Floor]{.underline}

A MACT floor for the three subcategories of existing sources identified
above (i.e., FBC, PC boilers burning lignite and PC boilers burning
bituminous and/or sub-bituminous coal) must be established through a
determination of the "average emission limitation achieved by the best
performing 12 percent of the existing sources" for which emission test
data is available. The issue is how to determine the average performance
of the top 12 percent of existing facilities, considering the
variability in emissions at the best performing sources under the worst
foreseeable circumstances.

We propose the following approach:

-   For existing sources, EPA should first identify the top 12 percent
    of facilities from the available database.

-   The Agency should then identify the primary emissions control
    technology used by the facilities in that group with emission levels
    at or better than the average for the group.

-   EPA should then look to all sources in the database using the
    identified control technology, provided the control was well
    designed and operated.

-   Finally, EPA should set the MACT floor such that the floor accounts
    for operational variability. CEG does not currently have a view as
    to how best to account for variability, but believes that the
    approach outlined sets forth a reasonable strategy for establishing
    a mercury MACT floor for coal-fired power plants that reflects
    emissions variability under worst-case operating conditions.

With respect to new sources, the Act requires that MACT standards not be
less stringent than the control level achieved in practice by the best
controlled similar source. CEG suggests that a similar methodology to
the one described above for setting the MACT floor for existing
coal-fired units be applied to new units. In the case of new sources,
however, instead of identifying the control technology used by the best
12 percent of facilities, the emission control technology used by the
*best* performing plant would be identified. Then, considering all
facilities in the database using that technology, the floor would be set
based on some mathematical or statistical measure that reflects inherent
operational variability, using, for example, an average, a median or a
95 percent confidence interval value.

[4. Beyond-the-Floor Regulation]{.underline}

Beyond-the-floor analyses will require EPA to weigh cost, energy
requirements, and non-air quality impacts to determine whether a mercury
MACT standard stricter than the floor level is achievable. A number of
new technologies for reducing mercury emissions from coal-fired boilers
are in various stages of research and development. Some of these new
technologies may prove to be attractive control options for mercury,
based on the results of studies performed thus far. For example,
activated carbon injection is a potentially cost-effective technology
for achieving high levels of mercury reduction from coal-fired electric
utility generating units.

[5. Format of Standard]{.underline}

As indicated earlier, MACT standards should provide facilities with
operational flexibility in demonstrating compliance with the standards,
including flexibility with regard to fuel choice. One option for the
format of the MACT standard for electric utility steam generating units
is an emission rate; another is an emission control efficiency level.
One advantage of an emission rate approach as opposed to an emission
control efficiency approach is that the former gives a greater degree of
certainty in terms of emissions. In addition, an emission rate standard
would be administratively simple to implement. On the other hand, if a
facility installs MACT controls, the public will expect it to operate at
optimal performance efficiency even if the current coal stock is low in
mercury content. A control efficiency standard could be a better
alternative for the utilities if there is a wide variability in the
mercury content of the coal purchased. A third option is a combined
standard that allows the opportunity to meet either the emission rate or
the control efficiency. Without specifying the appropriate rate or
control efficiency, CEG supports the either/or approach, since it is
most responsive to the need for operational flexibility in achieving
compliance. Additionally, CEG generally supports output-based standards.

With respect to the averaging time for a mercury MACT standard, CEG
recommends that a long-term (i.e., annual) averaging time be adopted.
The potential health concerns identified by EPA in its December 2000
listing decision for mercury and in the extensive studies on which that
decision is based are believed to arise from the long-term accumulation
of mercury in the environment; thus, there is no demonstrated need for a
short-term averaging period.

[6. Compliance Monitoring Method]{.underline}

The ability to comply with a long-term standard typically involves the
use of a continuous emission monitoring (CEM) system. Currently, work is
on-going to develop mercury CEMs. To date, however, mercury CEMs have
not been proven to have the necessary accuracy and reliability to be
used as a compliance tool. Until the CEM accuracy and reliability issue
is resolved to EPA's satisfaction, compliance should be monitored using
EPA Method 101A for total mercury. This testing should be performed on
an annual basis in conjunction with annual RATA (relative accuracy test
audit) testing. To ensure compliance prior to the availability of
mercury CEMs, in addition to annual testing using method 101A,
parametric monitoring of pollution control equipment could be required
on a reasonably frequent basis. For example, appropriate parametric
measures such as scrubber slurry rates (gpm) for scrubbed units or, for
units with ESPs, appropriate amp rate, spark rate and/or rapping rate
could be considered. There should be an initial compliance demonstration
using Method 101A, as a means to calibrate the CEM, followed by
additional testing that would become less frequent as the accuracy of
the CEM is validated and the transition to this monitoring method
occurs.

[7. The Compliance Unit]{.underline}

Compliance with MACT limits should be on a *facility* basis rather than
on a boiler-by-boiler basis. In many cases, the emission control
equipment handles multiple units at a facility. A facility-based limit
would allow some flexibility in unit operation without any adverse
impact on total emissions.

[8. Oil-Fired Units (Nickel)]{.underline}

If EPA finds it appropriate and necessary to regulate nickel from
oil-fired units, we recommend, consistent with the views put forth
above, that MACT standards provide facilities with operational
flexibility for compliance, including flexibility with regard to fuel
choice. In that regard, we recommend a rate-based standard, regardless
of fuel burned. In many cases, oil-burning units have the ability to
burn natural gas. Use of natural gas as a means to comply with a
rate-based MACT standard will increase operational flexibility while
decreasing the amount of nickel emitted.

As mentioned above with respect to the averaging time for a mercury MACT
standard, CEG recommends a long-term (i.e., annual) averaging time for
any nickel standard. Possible health effects from nickel, as from
mercury, are believed to arise from the long-term accumulation of nickel
in the environment, thus obviating the need for a short-term averaging
period.

That said, CEG shares the views of other stakeholders that the database
for nickel raises serious concerns, both because of its small size and
because of the apparent absence of discernable trends.

Sincerely,

Robert LaCount

for The Clean Energy Group and

PG&E National Energy Group