p.1 

OAR Box 1802 

Prepped by Charmelle Mathews 

Document Number: 

32) IV-E-27 

Docket Number: 

A-90-37 

Printed 11/4/200811:57:59 AM Sheet 32 of 117 
I 

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SEPA 

FACSIMILE COVER SHEET 

7 

OFFICE OF AIR AND RADIATION; 

OFFICE OF POLICY ANALYSIS AND REVIEW 

401M STREET, S.W. > 7 7 

WASHINGTON, D.C. 20460 

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'.PA Mfi CGCKET 

TELEPHONE: (202) 260-5580 FAX: (202) 260-9766 

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TELEPHONE: FAX: 

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FROM: 

MESSAGE: 

f\\hjM'^iAz 0<AtL. by* MLbtUrl i 

The EPA is taking steps NOW to ensure no disruption in service or environmental 

protection occurs waen our data systems convert to the year 2000. We are preparing for 

the year 2000 -areyou? ..f.,./........ '.•..-

TOTAL V AGES (INCLUDING THIS COVER SHEET) ^ 

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P.3 

GOAL STATEMENT-Evaluate regulatory roadblocks and initiatives that impede the ability to 

reduce climate gas emissions in an efficient manner. 

EPA GOAL STATEMENT-Develop more co^-effective ways of achieving the Clean Air Act 

regulations. -'••-.. ' 7 ••, 

SUGGESTION 

- Start out the next meeting with: 

1. Some CAPI lessons learned. - ;\r7*] ••••;.•'•'•' 

2. EPRI presentation on the Energy Policy Integration and Coordination: Integrated 

Assessment of Air Quality and Climate Change Regulations in the Electric Power Industry 

and Their Impact on the U.S. Economy. , ", 

APPROACH '7777.V-, .-.;•.. 

I would like to suggest a mutual gains process'as an approach to working through the following 

issues (please add to or delete): 

1. WEPCO (EPA suggests deletiBg.WEPCO and. using the comment period to document issues.) 

2. Enforcement Initiative 

3. Hg and any other toxic onregulatory developments 

4. PM2.5/regionalhaze 

5. -- • 7 2.7 .-2.ii^4'-- ^7: . 

It would go something like this: 

A. Each meeting would focus on one issue with the meeting objective of thoroughly 

understanding each parties perspective and would answer questions like... 

1. How does this facilitate or interfere with CO2 emissions reduction? 

2. What impact does this have on energy cost, industry, future asset management (any data 

to support)? 

. 3. What is the basis of this regulation on regulatory interpretation? 

4. What is the range of flexibility possible from the regulators' perspective? 

B. The end of the meeting would focus on expanding the pie: Are there other ways to 

accomplish the same thing? Getting creative with out of box thinking. 

2-
P.4 

C. When x... number of meetings have taken place* and each party's perspective on mdividual 

issues are understood, then the three parties convene independently. 

1'. Utilities 7 

2. Admin climate change representatives/EPA 

Each coming back with a win/win proposal. 

D. If there is workable common ground or clearly a best proposal, we would continue. If three 

parties are unwilling to yield for a win/win sobtion, then we throw in the towel. 

Other Issues ' 7 

Does this need to be legislative fix? "•'-••:*/ V 77* 7 

Do we need a mediator to run the meetings? 

How do we incbde the Environmental, Fuel Community, Nucs, and IPPs? 

Are there any waste or water issues to add? 

FACA?? —•<-

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Examples of Environmental Permitting Issues Facing CHP Projects 

A Discussion Paper for: 

EPA/White House Climate Change Office/Utilities Informal Working Group 

Combined Heat and Power (CHP) uses integrated generation ol*thermal and electric 

energy to provide heat to industrial processes or space heating and cooling while also 

generating electricity at twice tbe efficiency of conventional dearie generating stations. 

Because these facilities also have low emissions to begin with, they provide the 

combination of low emissions and high efficiency that will be required to meet future 

environmental constraints, including carbon limits. CHP is one of the few currently 

commercial technologies that can significantly reduce emissions of all pollutants 

including carbon when using any fuel, including coal 

One of the most important opportunities for expanding CHP's share of electric and 

thermal energy markets is adding CHP to existing facilities to reduce emissions. While 

there is a large potential to apply CHP systems, the potential is constrained by a variety of 

regulatory barriers which discourage its use. These include regulations related to electric 

restructuring, tax codes and state and local building and safety codes. There are also 

environmental regulations, in particular related to New Source Review, which are 

slowing the pace of emissions reductions achievable through the use of CHP. Some of 

these barriers are listed below. 

Netting with Off-Site Sources 

Problem: CHP often involves increasing emissions at one site in order to effect a larger 

decrease at another site. The current rules to not allow for these effects to be linked 

which can trigger NSR for the project and discourage projects that have a net 

environmental benefit 77'. 

Background: One of the most typical applications of CHP is to retrofit an existing steam 

or electric generator to provide both thermal and electric energy. This may involve 

construction of a new combustion unit or simply adding equipment to recover unused 

thermal or electric capacity. The modified facility typically consumes more fuel and may 

have higher emissions than a conventional single-use facility. But the facility will 

consume less fuel and may have substantially lower emissions than the two conventional 

facilities that would otherwise be required to provide the same energy service. Although 

the net environmental impact is clearly beneficial, because the conventional electric and 

steam generating facilities are normally in different locations, NSR. does not recognize 

this net benefit and penalizes the CHP source for ihe increase at One site without crediting 

ihe reduction at the second ate. For some pollutants such as SO, and C02, tliere is 

clearly no reason not to make this connection. Even for NO,, given EPA's current focus 

on regional solutions, it seems reasonable to credit the overall reduction as long as there 

is no local violation of the NO, ambient standard:' ' '"": 

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Discussion Paper .^... . • I - 7 Trigen Energy Corporation 

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Another common CHP application is district energy. These projects frequently 

interconnect multiple large and small sources into a network that provides thermal and 

electric energy. The central boiler or CHP facility is usually a major source of air 

emissions. When developing a new district energy system, the new central boiler or CHP 

facility may be subjected to NSR or PSD even though there is significant net 

environmental benefit through substantial emission reductions for the area. In this case 

the CHP facility often can not net out even against the existing local emission source 

emissions without those sources being permanently shut down. This is often not feasible 

because the distributed plants are necessary as emergency backup to the central boiler or 

CHP facility. 

An example is given below of a CHP project and its net benefits. As noted previously 

there is a local increase but an overall decrease in emissions and considering the total 

environmental impact would allow the project to net out and avoid NSR. Forcing the 

project to undergo NSR increases the cost and decreases the attractiveness of these 

projects. .-. .;v ; .-. • '. . 

Example 1: - '7 -•••••--"•'•_'•.•'•• 

3S5 MMBiu/hr input industrial boiler is retrofit provide same steam output plus 26 MW 

of electric output. Heal input increases to SOO MMBtu/hr. On-site NO, emissions 

increase by 41 tons/yr but total impact is a 95 tpy decrease, assuming that displaced 

electricity was generated at SIP call rate of 0.15 ib/MMBtu. Similar results for carbon. 

• : * ' ** • * " '" ' 

Base Plant /7r v 

CHP System'"'' •.• 7777: " 

On Site Increase ITCTTU 

Emissions Avoided Offsite 

Net Environmental Effect 

NOx 

(Tons/yr) 

,7^7-

l$..WX 

7:U40,^: 

• ;. 136:7. 

-96 

Carbon 

(WOO Tonsfyr) 

•->•<-- 4$.- * 

"£*&:&•?' 

7 •- \:i'.lA119 

-105 

Notes: Industrial/CH? boiler is a.gas-f»Ttd boUeremininj NO, at 0.1 lb/MMBtu. Offsite electricity is 

generated at NO, rate of 0.15 lb/MMBtu and car-boa emissions of 1314 Ib/MWJj (U.S. average for all 

sources). ." •'•"•-- '-'-. •; *:* • ^ * ••v**-*'- •-•'•-•:' 

",'. • ,.i .' ' . • '•'*' ' :. . • . ''.•*.»•;'•'';.:. • .. i •.. 

Solution: Develop permitting approaches that would allow sources to get credit for real, 

verifiable offsite reductions associated witi CHP projects.,, .,_. 

"Wepco" Issue* . '.'7 • ^'''^ ^'T^T^fTij-fc-r.' 

••'••v*-: ': TT •'' 'TrT 7-[\7y7 '••''• 7,7^7".'• . 

Problem: Modification of existing units may triggerNSR if capacity increases. 

:K:'- -fJ-V-'i *'>:'r i W'-'. ''?'*.<,', •.•;'•'•.-)•«' 

Background: Adding CHP capacity isa modification that could trigger a new source 

review evaluation. In particular, if the CHP capacity is added to a previously 

underutilized unit, there could be NSR-h^Hc>ti,^,\Vhfl^M*'^.* tro«d« question, the 

case of CHP is special because it is creating a net environmental henefit When total 

•'•• ..••.,:••. - •;•> T •••.. .• -^ i i.„.i ; ',• •... • ~: \ ,.i*^ r . 

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7^7727-!7'<'T:*>-277••... 

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impacts are accounted for-/as described above, increasing capacity utilization actually 

increases environmental benefits. Thus we should encourage these projects and we 

should encourage them to increase utilization. In effect, the CHP project is decreasing 

emissions by increasing efficiency, but this is not picked up withinbur current regulatory 

system. ^*- -^-r* -i4^.--p-->!?*s;^-:^v ^-U: i.-M-^^'ivi-isiis*?*' 

k:i':

 i 74Mi£7* s 27 *&-Tl\%»fe$<$4ZiSolution: Solving prior problem helps this one since there is no emissions increase. 

Alternatively, provide "WEPCO" type exemption for CHP projects.: 

The Focus On New Source Control Inhibits Penetration Of New, Cleaner 

Technology 

Problem: Focusing emission control requirements on new sources while grandfathering 

existing plants puts an unsupportable burden on new pianttV Ti e excessive cost of 

building and permitting plants to meet uneconomic new "source standards actually 

perpetuates the use of high emitting'plants'arid discourages their replacement or clean-up. 

Background: The regulatory system of grandfathering existing emission sources has 

blocked new, clean technology from the marketplace. In most areas it is significantly less 

expensive to creatively life-exiead older, existing facilities than to build new facilities 

subject to a NSR or PSD permitting process that would trigger BACT or LAER 

requirements. In addition, many local jurisdictions do not recognize pollution prevention 

in performing BACT and minor source analysis. By using the total economic impact 

instead of incremental cost c-f add-on control technology, states force the use of 

excessively expensive clean-up equipment on top of P2 technologies. The high ccst 

forces the cancellation of projects that would otherwise result'.iii decreased pollution and 

replacement of old, inefficient'equipment It plates'contimioui'^wnward pressure on 

each new potential market entrant to draiM'ticafl^ compete with 

other facilities which do not have to employ the 'iame pollutioh'cbntrol requirements. 

Example2: '•;• ...7--;i> 7;7^7;v 7-7. .T-TTT T 

Combustion turbines are currently 'available With! highly ciTc&ye cfry low-NO, 

combustors which are a form of pollution preventiotuM^y states', however require 

sources to apply add-on controls (SCR) and calculate the costbased on an uncontrolled 

system, rather man on the incremental cost of the SCR.'litis ignores the value of the P2 

and fails to recognize the excessively high control cost being imposed. 

Control Costs for Combustion Turbines ' 

Uncontrolled NO, JNSPS] (fipm)7277 •'; 

NO,rate with:c^low^O,'(^m):J'*£f.l 

Control cost with DLN ($/tpn)'^*:7 J ; 

NO, rate with DLN and SCR'(ppm)y *i: 

Total control cost at SCR level (S/ton), 

Incremental cost of SCR ($/toh)7 77': 

20 MW 7 100 MW 

77ST7T7T1S 

'SS' 9 

.v%60§!!-IS:- S350 

$3,2007 $2,000 

$16,000 7 $19,000 

'•• ;hr4/'!T .;. 

-• W;^<V-V-.-.---T ;.-•>•,*• -\7-rvs ;r7 ;')*•!?'(* 

Discussion Paper '.im^jMiiTUTT^ )Ml&* EnerSy Corporation 

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Solutions: ^--v/W-irV^^f1 •:••'••= x^l*^ -

• Provide guidance to states on^ogmi ^ w and 

properly •\:7Y7 "'"''-'-' calculating incremental cost of control.;' 

Move from technology standard/offset system toreliance pri'cap and trade program to 

deal with new sources. This system will drive new technology at a pace consistent 

with the Tn?rgi"»- cost of control for the whole region and will encourage the lowest 

cost reductions from existing sources and associated efficiency improvement as old) 

sources are replaced with more efficient, lower emitting equipment I 

• ':';•';

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'• •'•.'T : -'*• y.%..'• "-•.• ' •'• , '.'.:" ,'".,•••*!v'-,7;."' • *i. :- ••';• 

Efficiency as Emfasioiu Control . - A ,,; 

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Problem: Current regulations do not recognize or encourage efficiency. 

7:77 

Background: The EPA has stated m^y times/that in^royed efficiency is a critical 

component of meeting future ehvirormenlalcbmini^to EPA has 

been slow to incorporate efficiency directly into itsiregulatoty program by adopting 

output-based standards. This approach would automatically rewaid and encourage 

increased efficiency. This is a good time to be looking at a move to output-based 

standards because there are so many new standards being promulgated under the CAAA, 

new o*ione/PM standard, SIP call, etc. Even in the current caise where the new NOx ! 

NSPS for Subpart Da boilers is being promulgated as an output standard, only 50% of the 

thermal output is being credited which inappropriately discounts the environmental value 

of using thermal energy.

 v"-:

->-:.', <••. 7;.;7-. .v.' 

Solution: Widespread application of 6iitput:based envu-onmental regulations. 

Title V Source Separation 

Problem: Limitations of Title V na^ltfliffi^td'^e^^^^'CJIP projects to 

reduce emissions at existing facilities./*. -.•:o ?- •• -,.- *• -i'-ov. 7*-,-; 

•••': -V-V ' .*•• '•"•, :. 'i' ).. ' '''••• 7 * ''.'•]]'-'• ? 

Background: The outsourcing of energy assets is becoming' comrnbn throughout the » 

nation. A number of energy companies are purchasing the energy assets of industrial • 

facilities, hospitals, \utivenities,'etc.'Wd u hxany cases are improving these facilities ? 

through the addition of cogeneraitiioh and/or other new technologies. These modified • 

facilities, often subject to various new source standards, incorporate some of the most ' 

innovative energy efficiency techniques. On an^utput basis, these plants are some of 

lowest polluting in the country. 7 ^^jT^Tyf 7020:7 

tiV^'^'eV^ 

The ability for third party companies to tike over apd improve, energy infrastructure is 

being impeded in many EPA regions due to differing interpretations of the term 

"stationary source". A key element tif outsoiiircing is a^ufual'interest between the 

'customer" and the energy provider to transfer ownership and legal responsibility. Like 

Discussion Paper ^4:*i3ii4^"-^;l^i^^J ^

 Ener ^ Corporation 

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the electric utility which has historically provided service'to a facility, the energy 

provider may be an mdependentiy b^ed,^ often pubUcly^a4ed company. 

• 2 7-2. 27,:7Ty:.'rT^r-r^i^ 

When an energy company, for example, purchases the boiler plant at an industrial facility, 

it needs to get possession of the emission nghU7and.respoiisibilities as well Without

 ; 

them, the energy company will have a difficult timetravrobig mefermit process to j 

upgrade and improve the facility to produce more energy with lower emissions. i 

r--'- •• 7 7 T;72 '\7' 7 -. '7-72 pk7;7- ? 

Some EPA regions have interpreted the'definition of stationary source so as to prevent an. 

energy company from taking control of the emission permit This makes any 

improvements very difficult and can also make upgrades at the industrial facility more 

difficult They have done this by including the concept of "expanded common control", 

where the sharing of products and byproducts constitute control (even if they are a 

purchased commodity) or where>6meJiet^«ic1tritajge of Ae.&rninbdity produced and 

sold to a single end-user is considered tbbe ah,exeruon ^ actual definition 

from the Code of Federal Regulations is 'printed 'Wdwyj-v^!*^'' 

2'7\2:77): rt77772\::7: 

40 CFR Part 51 Jtiquire^ri^M^^^ion. ffltifitieMapd Submittal of f 

Implementation Plans, Section 165'Permitrequire/^^x^itmes a stationary \ 

source as follows:.'' ^:;T'7:-*7fT T^7^^:7^^7^' 

(a) Sate Implementation Plan provisions satisfying sections.172(b)(6) aad 173 of the Act 

shall meet the following conditicins:--: :-'.2^7>i\T 72±i~ 

(1) All such plans shall use the specific definitions. Deviations from the following 

wording will be approved only if the state specifically demonstrates that the 

submitted definition is mort stringent, or at least as stringent, in all respects as 

the corresponding definition below: 

(i) Stationary source means ahy;b^ding,'itructure. facility, or installation 

whichI enute'br.may-eBnninyaihj^llu^t Subject to regulation under 

lhe ;Aot7:!'^ 

(ii) Building, structure, ijcility, or installation means all of the 

poliutant-emitting activities which belong to the same industrial 

grouping, are located on one or more contiguous or adjacent properties, 

•./r.*" ?'•&.-* IS'Sn-VY. '^.•*!VJ 7:»*«::f VfX-i- r. ,, . . 

nnd lire under ihe control of the same person (or persons under • 

- --;' • -•- common control} except thejictiyUitti Wtmy vessel. \ 

Pollutant-emitting activities shall be considered as part of the same 

....... indujtnal grouping if they belong to the same Major Group (I* , 

':. which have the sunt two-digit code) as described in the Standard 

... Industrial (Classification Manual, .1972* as amended by the 1977 • 

. • Supplement (U.S. Government Printing Office stock numbers 

74L01-ppiS5 and1 .^3-W)5-P017^Tespeenvely). 

(iii) .Potempal to emit means the maximum capacity of a sxartonaiy source ro 

emit a pollutscot juider its physical and operational design. Any physical 

or operational. limiarion*» the capacity cf die source to emit a 

pollutant, including air polfotion control equipment and restrictions on 

hours,ofoperationor oni the t ^ pr.ainount of material combusted, 

storedl'sr processed, sM:b9..frearid assart of its de-sign only if the 

limitation or the effect it would have on emissions is federally 

enforceable. Swojiidary. emissipnsjc^-not^ounl in determining the, 

• .-••' potentialtt.einitofa^tetion^.s^^e^.^i.^,. 

. :.:• ;^vy-ji;J'^ii«i«J?.isi'^.^'»:,<' jj-fc-ter-vJilflfc & 

Discussion Paper ." ;>7!f TSLCI^ - '•.'* ^r\T'. 117*7- -trisen Energy Corporation 

•.— : :'..v. .v r. 
P.11 

:*•*•!•.*•• • :»(• T.*.-.*-v: 

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The definition is clear that a, stationary source must be of the same industrial grouping . 

(SIC Code) and under tiie control of the same person. Responsibility for all aspects of tiie 

operation, including environmental permits should not, and in many cases can not be 

shared between the "customer" and the energy provider. Indeed, if there is no common 

control and only a contract to provide energy service, it is unreasonable to expect that the 

legal responsibility for ensuring that tiie provisions of ^e entire permit can be shared 

when neither party have the legal right to "affectthe other-party's behavior. 

•2)••7.2'. V"' •• •'•'7.'2--r.

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To take it a step further, the -tstablishment of this shared permit requirement could be 

construed as anti-competitive. Certainly the requirement for a.shared permit which might 

limit the number of outsourcing efforts undertaken is contrary' tq^he purpose of the Clean 

Air Act whereby older, less efficient sources are encouraged rad new, efficient sources 

are discouraged. 'ir' 

..M:y:-rT27^ Solution: The mechanism to separate axi 'ewstir^'e'mis^bhi's^uircelnto multiple sources 

seems clear. If a transfer of ownership of ah emissions source occurs and the new owner 

is a separate entity of a differeiit industrial grouping; then anew permit should be issued. 

Emissions should be transferred vnth the equipment thai is sold and a new Operating 

Permit should be applied for and issued.'If the "customer5' still retains emission sources 

* • , .*('• • ••*••- . '*••".•. V"*' " ' ' / 

then they too must be able to revise their existing operatingperinit to eliminate the 

emissions sources that were sold. This issue must be clarified to allow new, efficient 

technology investments to le made by ri^parte^!'^^"!-^*:?r 

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Environmental Affairs 

Hit X SSCrt 

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NSN 7640.01-317-7361 5086-101 GENERAL CEWIOES ADMINISTRATION • 

„ v ieloo e SOUTHERN JL^ 

October 19,1998 COMPANY 

Mr.RobertPerciasepe A^.^^iw r 

Assistant Administiaxor for Air and Radiation 

U.S. Environmental Protection Agency 

Washington, DC 20460 

Dear Mr. Pcrciasepe: 

When we met on September 30,1998, we expressed considerable concern that 

recent actions taken by the Agency under its New Source Review (NSR) program might 

discourage "energy efficiency" projects from being undertaken. You asked for specific 

examples. This letter, which is submitted in my capacity as the Chairman of the Utility 

Air Regulatory Group (UARG), and on behalf of UARG members attending the meeting 

with you, is in response to your request 

Background 

Within the past few months, the Agency has begun an "enforcement initiative" 

against coal-fired power plants in the Mid Atlantic Region, Southeast, and Midwest So 

far, this '•initiative" has led to site visits and § 114 requests to boiler manufacturers and 

utilities asking for information on capital projects undertaken at existing plants going 

back as tar as 60 years. In response to an inquiry from the Office of Management and 

Budget (OMB), the Agency has stated that it has active enforcement files opened for all 

of the utilities that are covered by the enforcement initiative. 

At the same time this is going on, the Agency has proposed to repeal important 

elements of the so-called "WEPCo" rule, which allows utility units to undertake projects 

that improve efficiency or restore reliability without prior Agency NSR review. Contrary 

to past guidance, the Agency has also recently suggested that any significant project that 

might improve efficiency or reliability or reduce costs might trigger NSR, while 

encouraging source owners to seek time-consuming "applicability" determinations before 

initiating such projects. These pronouncements affect potentially tens of thousands of 

projects that are undertaken in the industry every year. 

Discussion 

Until recently, electric utilities have operated at regulated monopolies. We have 

been under, and in most jurisdictions are still under, a legal obligation under state law to 

undertake projects that assure reliable, efficient and low cost electric service in a 

/ / 
P.13 

transparent environment (i.e., every significant capital project is disclosed to federal and 

state regulators). This has led the industry to pursue projects that would enhance 

operations, including those that would improve efficiency. Certainly, restructuring will 

not change the incentive to pursue such projects. But EPA's proposed changes to its 

^NSR policies, and the "enforcement initiative," definitely will. 

The recent EPA regulatory proposals and administrative/enforcement 

pronouncements pose two lands of regulatory threats to energy efficiency projects. The 

first regulatory threat is EPA's repeated recent statemems and suggestions, including 

those in its July 24 WEPCo "notice of availability," tiiat any significant efficiency or 

reliability project constitutes a "change" that could trigger NSR. The second is the 

proposal from the July 24 notice that any "change" to an existing unit will be irrebuttably 

presumed to result in an increase in future annual emissions triggering NSR requirements. 

The WEPCo rule that applies to utility units (and its preamble that interprets the 1981 

NSR rules that apply to all other units) does sot establish such a presumption and only 

requires NSR if there is an actual projected increase caused by the project1 

Turbine blade replacements illustrate how efficiency improvement projects are 

threatened by recent EPA pronouncements. Turbine blades are replaced at a given unit 

every 5 to 10 years due to the corrosive effect of superheated steam. We have always 

viewed replacement of these blades as routine in the electric utility industry. In recent 

years, suppliers have offered replacements that due to improved design, allow turbines to 

produce more electricity (by as much as 10%) without any increase in fuel burned and, 

therefore, without any increases in emissions. EPA Region VII has specifically found 

that to replace deteriorated blades with the improved-efficiency blades is not "routine" 

because the new blades are designed differently from the old blades. The Region has 

further concluded that this "change" would trigger NSR based on the regulatory 

presumption that the boiler would operate 365 days a year at maximum capacity after the 

blades were installed. While we fundamentally disagree with the Region's conclusions, I 

believe you can understand that ihis decision, and the threat that others in the Agency 

may follow it, will discourage innovation in equipment design to achieve state-of-the-art 

efficiency improvements. 

The project described above would produce improvements in efficiency, with no 

corresponding increase in the rate of emissions. However, the economic savings derived 

from such improvements fade to insignificance when compared to the cost of having to 

undergo NSR or limiting annual emissions to past levels in order to avoid NSR- As a 

result, given the choice between such a project and meeting NSR requirements (or 

accepting limitations to avoid them) the resolution will always be to forego the project 

and its environmental and energy benefits. Other efficiency improvement projects 

1

 Other industries commenting on the "notice of availability" agree with UARG's 

view that the notice misrepresents current law regarding units not subject to the WEPCo 

rule (which include units in our industry, such as combustion turbines). 

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threatened by the Agency's NSR policies could be cited, but the ultimate analysis would 

be fhe same. If the "notice of availability" becomes the law, or if the "enforcement 

initiative" continues and results in claims that past efficiency or reliability-improvement 

projects triggered NSR, these types of projects, as well as projects simply designed to 

prevent a deterioration in efficiency, will be severely curtailed throughout the country. 

The result will be more costly electricity and more pollution per unit of electricity 

produced. This is not in the public interest 

Conclusion 

These are obviously complex issues of regulatory policy that we will not be able 

to explore in any detail at our October 22 meeting. What we need, I believe, is a separate 

meeting later this month or early next month with you. Dirk and Karen, counsel for our 

industry and selected company personnel involved in the kinds of projects that we believe 

will be inhibited by what we view as a fundamental shift in Agency NSR policy. You 

need to hear the give and take between your staff and our experts on these matters and 

decide whether this change in direction U appropriate. 

Sincerely yours, 

Charles H. Goodman 

cc: UARG Policy Committee 

Dirk Forrister , 

Janet Anderson 

TOTRL P.02 

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P.15 

Examples of Environmental Permitting Issues Facing CHP Projects 

EPA/White House Climate Change Office/Utilities Informal Working Group 

ADDITIONAL INFORMATION FOR TR1GEN CASES 

Examples and Proposed Solutions 

A Note on Examples: 

It is difficult to find specific citable examples that illustrate each point. Any projects that are up 

and running have, by definition found ways to avoid the cited barriers. Projects in which there 

may still be issues to resolve are either in a sensitive regulatory process and/or part of 

confidential development negotiations and cannot be specifically cited. We will give examples 

of specific existing projects thai generically illustrate the problem and anonymous examples of 

projects at which the problem might be a significant banrier. 

Projecting the potential value of removing barriers is at once difficult and simple. The issues 

cited come up in one form or another in almost every project Often they can be avoided, but 

that does not mean they are not important A joint EPA/DOE analysis found that CHP can 

provide 34 MMTCE of reductions in carbon emissions annually by 2010 and similar reductions 

in other pollutants. Addressing these issues is a necessary, though not sufficient requirement to 

achieving that potential. We believe that the point of this exercise is to make these reductions 

possible by removing barriers. 

Netting with OIT-Site Sources 

There are two sub-cases here. One is the district heating example where thermal energy is 

produced at an electric generator and displaces end-use thermal generators. The other is the 

industrial cogeneration case where electricity generated off-site is displaced. 

District Energy 

Trigen Trenton, Grays Ferry and a project currently under development in the Mid-Atlantic 

region are all examples of using heat from a central electric generating station to provide thermal 

energy to distributed end users. The thermal energy replaces many individual heating and 

cooling plants and therefore creates area! reduction in emissions. At Grays Ferry, the gasturbine based CHP project results in annual reductions of 1.1 million tons of CO,, 8,500 tons of 

NO, and 4,500 tons of SO,. The Trenton dual-fuel engine based CHP plant provides over 48,000 

tons of annual C02 reductions. 

Although the net effect of the system installation is to decrease total emissions, Trigen has not 

been able to get credit for these reductions in order to net out or offset emission increases at the 

central station. In the case of the Trenton plant Trigen was told it could take credit for the 

Discussion Paper Trigen Energy Corporation 
P.16 

' } -

reductions in its construction permit only if the individual boilers were destroyed before 

construction began. This would leave the end users with no service during tiie 18 month 

construction period and with no back-up in case of damage to thermal distribution equipment. 

Solution: The central station should get credit for avoided end-user emissions if the end-user 

equipment takes a permit limit after system start-up to operate only during emergency conditions 

for a limited number of hours. 

Reduced Emissions Through Grid Displacement 

In this application, equipment at a commercial, institutional and industrial facility provides onsite thermal energy sendee and also provides electricity to the local grid, thereby displacing offsite electric generation. The high efficiency and low emissions of the CHP plant result in the 

electricity being-supplied at emission rates below the normal levels. Trigen operates many 

facilities of this type including Nassau County (Nassau Coliseum, Nassau County Medical 

Center, Nassau Community College, Hyatt Hotel plus 57 MW to LILCO) and the McCormick 

Place Project which supplies heating and cooling to the 5 million sq foot convention center plus 

3 MW displaced from the grid. Annual emission reductions for the two projects are: 

Emissions Avoided by Trigen CHP Projects 

(Tons/year) 

Nassau County* 

McCormick Place 

CO2 NOx SOx 

155,000 900 2,000 

24,327 59 126 

* tee attached paper entitled "Comparing Combined Heal and 

Power Emissions to Conventional Energy Qenenttaf 

There are also many similar industrial projects. Although each project has significant net 

environmental benefits, Trigen is not able to get credit for emissions offset by displacing off-site 

generation. Aside from the institutional unwillingness to include these benefits, there are 

questions about how to show these reductions are real. 

Solution: The end-use facility will take a pennit requirement to offset a minimum portion of its 

electric consumption. This offset/avoided amount might be more than 100 percent of its electric 

consumption- An emissions value in )b/MWh avoided would be developed and applied based on 

the emissions characteristic of the local utility or other source of offset electricity. 

WEPCO Issues 

The critical point is that the WEPCO situation can be triggered by changes to the plant which do 

not directly affect the boiler and which do not increase plant emissions above the currently 

permitted level. For example, at an industrial facility for which Trigen has purchased the boiler 

house, the boilers are permitted to emit at a certain level. Trigen can operate at the maximum 

Discussion Paper Trigen Energy Corporation 

«r 
P.17 

level without triggering any review. As it happens; there is unused boiler capacity which has not 

been used for several years. Trigen would like to add steam turbines at the plant which could 

generate electricity but would not change the emission rates or the maximum potential emissions 

at the plant. The use of the turbines to displace off-site generation would result in a net reduction 

in regional emissions. Making that environmentally beneficial change, however, could trigger a 

WEPCO type PSD review that would require Trigen to make significant additional investments 

in the existing boilers. We can run the boilers as hard as we want if we don't try to make the 

system more efficient If we make it more efficient we are penalized. 

Solution: Provide WEPCO exemption for CHP systems that provide demonstrable 

environmental benefits and/or allow credit for off-site emissions reductions. 

Permit Separation 

Trigen owns and operates facilities which were previously owned and operated by another entity. 

In a number of cases, these facilities were older boiler plants which provided only energy to a 

single-owner industrial complex. Trigen has purchased, or has proposed to purchase these 

facilities and make substantial investments to improve the efficiency of the operations through 

the addition of cogeneration equipment In some cases, all of the electricity that is now 

generated is delivered to the single-owner industrial complex. In other cases some of the 

electricity is sold to the local utility. Additional thermal energy customers (steam, hot water or 

chilled water) may also be added either immediately or over time. 

The treatment of these facilities by regulatory agencies with regard to permits has been erratic. 

In most cases where a large IPP has constructed a new, large independent power plant serving the 

local utility (or the wholesale power market) and providing steam to one industrial user, typically 

in order to obtain Qualified Facility (QF) status, tiie IPP has obtained their own, separate air 

permit However, in cases where existing energy assets were purchased, improved, and 

expanded to either provide energy service to others or to offer energy products not previously 

produced, it appears that differing regional interpretations allow about half of these facilities to 

obtain their own permit and half to be required to share a permit with the historic single-owner 

industrial complex. 

The opportunity to substantially invest in efficiency improvements in existing energy facilities 

and the many new opportunities to sell power in a competitive marketplace make it very 

important for legally separate entities to obtain their own operating permits which allow each 

entity to focus on their core business. The recent focus of several EPA regions to interpret the 

term "control" in the context of the definition of a stationary source has led to a principle of 

presumptive control if one facility is co-located on the property of another. To refute the 

presumption, facilities are being asked to submit copies of contracts,-vendor and fuel supply 

agreements, etc. As an example, one recent interpretation letter characterised the sharing of • 

intermediates, byproducts and products as a possible example of exertion of control and yet EPA 

is strongly encouraging entities to join together to form eco-parks relying on industrial ecology 

Discussion Paper 3- Trigen Energy Corporation 

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P.18 

principals where one company's waste becomes another's input In addition, trying to force 

more separate facilities requires more land use and more pollution from transporting products, 

byproducts and intermediaries. 

In the face of a fluid energy marketplace where new energy supply arrangements will become 

popular, the arbitrary and arduous process should be eliminatrd 

Solution: Develop national guidance that makes it clear mat legally separate entities of a 

separate industrial grouping can not be a single stationary source. Eliminate the opportunity for 

broad interpretation of the term control by defining it in legal terms without limiting creative 

uses of byproducts and intermediary products. 

Discussion Paper Trigen Energy Corporation 

TOTAL P.85 

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..•••••- • 

Docket No. A-ty-lTI 

Subcategory 

The enclosures with this document are 'V- 0" 32H ^ v"*-' 

I*