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PATTON BOGGS Squire Patton Boggs (US) LLP 4900 Key Tower 127 Public Square Cleveland, Ohio 44114

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Douglas A. McWilliams T +1 216 479 8332 douglas mcwilliams@squirepb.com



### PRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION

August 8, 2014

Alan D. Greenberg U.S. Department of Justice 999 18th Street, Suite 370 Denver, CO 80202 Matthew C. Marks U.S. Environmental Protection Agency Office of General Counsel Air and Radiation Law Office 1200 Pennsylvania Avenue, NW Washington, D.C. 20460

Re: Taconite BART FIP Settlement Information Containing Confidential Business Information

Dear Alan and Matt:

We are in receipt of the executed copy of the Non-Waiver Agreement negotiated between Cliffs, ArcelorMittal, and EPA to facilitate the sharing of documents to advance settlement of the pending challenge to the Federal Implementation Plan ("FIP") establishing the best available retrofit technology ("BART") for affected taconite furnaces to reduce NOx emissions for the benefit of regional haze improvement. This Non-Waiver Agreement clears the way for Cliffs to share confidential documents with EPA and DOJ without waiving privilege or protection. The documents also contain confidential business information ("CBI") and have been marked as such to ensure that EPA protects this information from public disclosure to the full extent required by law.

The attached documentation provides additional detail regarding the following categories of new information discussed at our settlement meeting in Chicago on July 28, 2014, with the assistance of Eric Wagner, Cliffs' furnace retrofit engineering expert from Metso Engineering.

Metso's evaluation of the "high-stoich" LNB technology applied to Cliffs' grate kiln furnaces

1) As indicated at the meeting, Metso conducted simulations of the process, pellet quality, and energy effects when retrofitting the United Taconite and Tilden furnaces with the high stoichiometric ("high-stoich") low-NOx ('LNB") technology that reduces NOx by adding substantially more primary air to cool the flame temperature. Metso's simulations relied on information provided by Coen, the high-stoich burner vendor for the Minntac 6 and 7 LNB retrofit

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Please visit squirepattonboggs corn for more information.Squire Patton Boggs (US) LLP Alan D. Greenberg Matthew C. Marks PRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION August 8, 2014 Page 2

project. Cliffs contracted Coen to design burners for the United Taconite Line 2 and the Tilden Unit 1 furnaces. The analysis for United Taconite Line 2 would also be used to evaluate United Taconite Line 1. Coen generated a Final Report on Sizing for each furnace that contained detailed burner information including the increased size of the burner and the additional primary air flow that would be needed to meet the FIP limits of 1.2 lb/MMBtu NOx on gas and 1.5 lb/MMBtu NOx on solid and mixed fuels. The Coen information was provided to Metso and used in the simulations to determine the effect of the burners on furnace operation and pellet quality. Coen's reports are identified as proprietary and required Coen's permission to disclose, which was received on August 7, 2014. Cliffs is submitting these reports to EPA as confidential business information ("CBI") and pursuant to the Non-Waiver Agreement.

2) Metso Engineering took the Coen burner design information and added it to the existing Metso simulation model for each furnace. Metso is uniquely qualified to conduct these simulations because it retains the proprietary license for the process technology and the simulation model for the grate kiln furnace design and provided the same expertise and simulation modeling to predict the process impacts for Keetac's grate kiln cooler process. These simulation models are detailed views of each indurating furnace used to evaluate the pellet quality, energy balance, and safety impacts of any process or equipment change to the furnace. Metso uses the model to evaluate the Coen burner design impacts to the process heat balance. Metso ran a baseline model simulation with the current furnace configuration. Metso then adjusts the inputs for the changes in primary air, temperature, etc. based on the Coen Final Sizing report. By comparing the model results, Metso can simulate the effects that result from the high-stoich LNB design on each furnace. Cliffs is providing Metso's simulation modeling results for the United Taconite Line 2 and the Tilden Unit 1 furnaces. These documents are marked CBI as they contain confidential information about Cliffs' furnaces and Metso's proprietary simulation model.

3) Cliffs asked that Metso run new simulations in response to questions by EPA at the July 28 meeting. EPA asked if a cooling water jacket could be used on portions of the furnace to mitigate excess temperature impacts to pellet quality. EPA also asked if the increased pressure could be mitigated in areas where air pressure and velocity are expected to deform pellets with increased primary air. Metso responded during the meeting that cooling and venting to mitigate the pellet quality concerns would increase the amount of fuel needed to sustain temperature in the furnace. Metso has since prepared a furnace simulation to determine the additional energy that would be required to mitigate pellet quality concern to the extent practicable. This simulation (attached) confirms that mitigating temperature and pressure will exacerbate the fuel penalty (increasing fuel use by >200%) and further increase the mass NOx emissions compared with the sub-stoich LNB option.

4) As described during our July 28 meeting, a study of the effects of increased primary air on United Taconite Line 1 demonstrated pellet fusing at the cooler and other furnace problems. During the late 2011 and early 2012 commissioning and initial operations of United Taconite Line 1 combination burner (which burns both gas and coal in one burner), Pete Suardini, the process engineer commissioning the burner noted that when shutting down the coal mill and cooling the coal system, the approximately 50-55% stoich ambient air being added to the gas burner (and simulating a higher stoich air operation) caused pellets to fuse in the cooler and significantly increased gas fuel consumption (>20%). During that commissioning and duringSquire Patton Boggs (US) LLP Alan D. Greenberg Matthew C. Marks PRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION August 8, 2014 Page 3

present plant operations, the plant staff often shortens the normal cooling time for the coal mill due to excessive pellet fusing in the cooler, excessive dust in the kiln, and increased fuel consumption that comes from the introduction of additional stoichiometric air. The present United Taconite L-1 operation is not sustainable with even 50-55% stoich ambient air going through the gas burner, and must often be prematurely returned to 15-20% stoich ambient air normal operation, due to problems incurred in the cooler and the kiln.

5) The Metso simulations determine that the increase in primary air will increase the pressure on green balls causing deformed pellets and will increase temperature causing green balls to break and degrade. When balancing the increase in primary air at the burner by reducing the amount of secondary air intake at the cooler, the pellet discharge temperature increases causing pellets to fuse and placing conveyor belts and other equipment at risk. These pellet quality effects are further supported by the following documents attached:

High-pressure causing deformed pellets:

o Declaration of Eric Wagner (2013) at paragraph 9 (United Taconite and Tilden)

o Metso PowerPoint Presentation (July 28, 2014) (United Taconite Lines 1 and 2 use weaker organic binders for customer specifications more easily deformed by pressure increases) o Accord -- Hatch Report, at Section 3.1 (Keetac) o Accord -- Declaration of Lawrence Sutherland, at paragraph 10 (Keetac)

• High temperature across green balls causing pellet degradation:

o Declaration of Eric Wagner (2013) at paragraph 9 (United Taconite and Tilden)

o Metso PowerPoint Presentation (July 28, 2014) (Tilden's fine hematite ore makes pellets most susceptible to trapped water vapor exploding pellets)

o Accord -- Hatch Report, at Section 3.1 (Keetac)

High temperature at pellet discharge creates pellet quality problems and safety risks:

o Report by Peter Suardini (2014) regarding United Taconite simulation of 50% primary air causing pellets to fuse at the cooler o Metso PowerPoint Presentation (July 28, 2014) (fused pellets are particularly problematic in up-draft drying at Tilden due to effect on bed permeability for cooling) o Accord -- Hatch Report, at Section 3.3 (temperature increase at the cooler can fluidize the bed resulting in risk of exceeding the belt maximum temperature)

o Accord -- Declaration of Lawrence Sutherland, at paragraph 11 (Keetac)

Mass emission rate comparison of high

- stoich and sub

- stoich LNB options

6) During the July 28 meeting, Eric Wagner presented an analysis that compared the amount of NOx that would be generated when a furnace is retrofitted with high-stoich LNB and sub-stoich staged combustion LNB options. His analysis demonstrated that it was misleading to compare the lb/MMBtu emission rates of these two technologies because the high-stoich LNB option will require significantly more Btu's. For instance, the additional primary air required for high-stoich LNB requires 60% more fuel to sustain temperature in the simulation performed for United Taconite Line 2. The sub-stoich LNB option does not require more fuel or primary combustion air. At the same lb/MMBtu NOx rate, the high-stoich LNB produces more NOx emissions on aSquire Patton Boggs (US) LLP Alan D. Greenberg Matthew C. Marks PRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION August 8, 2014 Page 4

mass basis. By comparing mass NOx emissions, Metso offers an apples-to-apples comparison of technologies based on their actual impact on the environment.

The mass NOx analysis is particularly valuable when comparing the NOx performance when simulating the mitigation measures for addressing pellet quality issues. One of the mitigation options for the high-stoich LNB technology is to reduce the amount of primary air to see if there is a point where NOx is reduced without pellet quality concerns. To properly evaluate this option, the mass amount of NOx emitted by the high-stoich LNB with primary air reduced("mitigated high-stoich") must be compared with the mass amount of NOx emitted by the lowstoich LNB option. Metso's analysis demonstrates that a lower stoich LNB retrofit technology such as the sub-stoich staged combustion for the Cliffs grate kiln furnaces (discussed below) will reduce more mass of NOx than will the high-stoich LNB with the excess air dialed back to mitigate pellet quality issues.

While any increase in primary air has the potential to cause pellet quality issues, Metsoanalyzed the effect of reducing the stoichiometric air from 110-115% to 50-55% ("mitigated highstoich") to determine if this would produce less NOx than the sub-stoich LNB option that requires no increase in primary air. Operating at 50-55% stoichiometric air is expected to reduce NOx by 33% from baseline NOx emissions based on the Minntac graph provided with the Metso PowerPoint presented during the July 28 meeting. Metso's simulation demonstratedthat 50-55% stoichiometric air would require 20-40% more Btu's than the sub-stoich stagedcombustion alternative. The vendor for the sub-stoich staged-combustion LNB predicts NOx reductions up to 50%. Even assuming performance at the low end of that range comparable towhat is expected from the mitigated high-stoich option, the table below indicates that the substoich LNB option will generate 60-90% less NOx mass emissions to the atmosphere. The substoich staged-combustion LNB option also provides upside potential that the actual NOx reduction for these furnace retrofits will be greater than 33%. Importantly, the sub-stoich LNB option also emits 20-40% less greenhouse gases (GHGs) and particulate emissions than the mitigated high-stoich LNB option because it does not require more fuel to reduce NOx.PRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION Alan D. Greenberg Matthew C. Marks August 8, 2014 Page 5 Squire Patton Boggs (US) LLP



### The new information provided by Metso and supported by others demonstrates that pellet quality issues arise due to the unique circumstances at Tilden Unit 1 and United Taconite Lines 1 and 2 when retrofitting these furnaces with the high-stoich LNB for NOx reduction. The simulations also demonstrate that mitigating the pellet quality issues related to high-stoich technology cannot reasonably be achieved without detrimental environmental and safety impacts. This includes up to 120% higher GHG emissions as compared with the installation of sub-stoich LNB technology that achieves comparable (or better) NOx performance.

The sub-stoich LNB retrofit option

7) We are also attaching the preliminary burner design specification from FCT for United Taconite Line 2. This document applies the proprietary Gyro-Therm burner design (sub-stoich staged combustion) that reduces flame temperature by mixing fuel and air to simulate the effects of staged combustion for NOx reduction. As applied, the FCT burner proposal would not require additional primary air, which eliminates the air velocity and pressure contributions to pellet quality problems. FCT’s proposal also does not require substantial additional fuel because it is not introducing cool primary air that must be heated to sustain critical furnace temperatures. The FCT vendor proposal produced inputs for Metso’s comparative analysis of burner designs presented at the July 28 meeting. This document has been marked as CBI as itPRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION Alan D. Greenberg Matthew C. Marks August 8, 2014 Page 6 Squire Patton Boggs (US) LLP



### contains confidential information about Cliffs’ furnaces. We are also attaching a Question and Answer exchange with FCT regarding the way their sub-stoich burner reduces NOx emissions.

In reliance on Metso’s comparative analysis, Cliffs is proposing to install an LNB technology that accomplishes NOx reductions without increasing the amount of primary air. This results in comparable NOx reductions when comparing the real environmental impact (mass amount of NOx reduced) instead of the misleading comparison of lb/MMBtu emission rates. The high stoichiometric LNB option requires more primary air and more Btu’s of energy, which multiplies the amount of NOx generated. Increased energy also means more GHG emissions and reduced energy efficiency per unit of production. Metso has evaluated FCT’s unique burner design simulating staged combustion and concluded that this LNB technology can achieve comparable NOx reductions without adverse pellet quality concerns. Since the FCT LNB option does not increase primary air, it offers the same or better fuel efficiency. This eliminates energy and other environmental impacts associated with the high-stoich alternative and allows Cliffs to mitigate NOx without increasing GHG emissions. If Cliffs were to install the high-stoich LNB option and mitigate the air flow to address pellet quality issues, the expected NOx mass emissions will be 60-90% higher than the sub-stoich staged-combustion technology and increase GHG emissions by 20-40%. Cliffs is continuing to evaluate other technologies and is collaborating with other grate kiln operators to better understand our best options going forward.

The unique circumstances demonstrated for the United Taconite and Tilden grate kiln furnaces dictate that the 1.2 lb/MMBtu NOx limit on gas is not reasonably achievable. Cliffs will commit to installing LNB technology as expeditiously as practicable and within five years on each of its three grate kiln furnaces. Cliffs will establish unique case-by-case NOx BART limits for each furnace based on what the technology can achieve in practice.

Straight Grate Furnaces

Cliffs’ straight grate furnaces are expected to meet the FIP limits. The Northshore furnaces will meet the limits with existing technology. Hibbing Taconite is pursuing an emerging LNB technology that is reasonably expected to meet FIP NOx performance at its three straight grate furnaces. EPA has indicated that furnaces capable of meeting the FIP NOx rates have flexibility in choosing the most appropriate technology. Cliffs intends to use vendor guarantees of the FIP NOx rates as a demonstration of a technology reasonably expected to meet the FIP NOx rates. If these technologies once installed fail to meet the guaranteed FIP NOx rates, Cliffs understands that EPA will be proposing a petition process for establishing an alternate NOx limit based on the achieved emission rate.Squire Patton Boggs (US) LLP Alan D. Greenberg Matthew C. Marks PRIVILEGED AND INADMISSIBLE SETTLEMENT COMMUNICATION August 8, 2014 Page 7

If you have any questions or would like to discuss the attached information, please contact me directly.

Sincerely,

Douglas A. McWilliams

DAM/crl Enclosures