Memorandum of Understanding Among the States of the Ozone Transport Commission Concer ning the Incorporation of High Electrical Demand Day Emissi on Reduct i on Strate gi es into Ozone Attainment State Implementation Planning

Whereas the Ozone Transport Commission (OTC) was established under Sections 176A and 184 of the federal Clean Air Act (CAA) to ensure the development and implem entation of regional strat egies to reduce ground-level ozone to healthful lev e ls; and

Whereas the adverse health effects of ground-level ozone are well documented, and in spite of significant reductions of ozone precursor emissions achieved t o date as a resu lt of our NO x MOU of 1994, the US Environme n tal Protec tion Age n c y (EPA) NOx SIP ca ll effective in 2003, an d expected r eductions t o be further achiev ed by federal and st ate programs over the next decade, a signific ant portion of the ozone pr oblem cont inues to be caused by nitrogen oxides (NO X ) transported into and generated within our region by electrical ge nerating units (EGUs); and

Whereas , high electrical demand day (HE DD) operat ion of EG Us generally have not been addres sed under existing ai r quality control requirements, and these units are called into services on the very hot days of summer when air pollution levels are highest, and

Whereas, HEDD unit operations are a s i gnificant contri butor to NOx emiss i ons on high oz one days; and

Whereas , the NOx cap and trade program, al though effective generally has, by its very nature, had limited suc c ess in reducing emis sions from HEDD unit s on HEDDs; and

Whereas , OTC staff, state environmental and utility regulator s, EPA staff, EGU owners and operator s and the independent regi onal systems operators have been meeting to assess emissions associated with HEDD during the

ozone seas on and to address exc e ss NOx emissions on HEDDs, and

Whereas , OTC is guided by its precepts to seek reductions in the most comprehensive, cost effective manner pos sible in order to maximiz e public health, environmental and economic benefits while ens uring an adequate electrical c apacity and reliability for the region; and ___________

Connecticut

Delaware

District of Colu mbia

Maine

Mar y land

Massachusetts

New Hampshire

New Jersey

New York

Penns y l van i a

Rhode Island

Vermont

Virginia

___________ Christopher R e cchia Execu tive Dire ct or

___________

444 N. Capitol St. NW Suite 638 W a shington, DC 20001 ( 202) 508- 384 0 FAX ( 202) 508- 3841 Em ail: ozone@ o tcair

. or g

___________Whereas , our investigations have found that NOx emissions are much higher on a high electrical demand day than on a typical summer day and there is the potential to reduce HEDD emissions by a pproximately 25% in the short term through the application of known cont rol technologies to HEDD combustion turbine, coal and residual oil burning units; and

Whereas , installing typically used NOx cont rol technologies may not be available to, or be the most cost effective met hod of, controlling HEDD NOx emissions from specific units; and

Whereas , energy efficiency is the most cost effective method to reduce HEDD NOx emissions, but cannot alone, nor in the short term, achieve sufficient emission reductions to achieve attainment of the ozone standar d in many areas; and

Whereas , demand response programs can be a very cost effective mechanism to reduce emissions if they result in clean behind the meter generation and are supported by appropriate market devices, including but not limited to dynamic pricing; and

Whereas , any strategy to address HEDD emissions must recognize and address the issue of high emitting behind the meter units; and

Whereas , EPA and State workgroups estima te that using a cap and trade mechanism alone to provide sufficient finan cial incentives to cause the clean up of HEDD units would need an 18:1 retirem ent ratio and such a strategy would consume 74% of all available CAIR allowances for 12 HEDD days;

Therefore , be it RESOLVED that

The OTC States identified in the following table commi t to pursue the following reductions in NOx emissions associated with HEDD units on high electrical demand days during the ozone season; such reductions to be achieved beginning with the 2009 ozone season or as soon as feasible thereafter, but no later than 2012:State NOx (tons per day) Percent Reduction from HEDD Units CT 11.7 25% DE 7.3 20% MD 23.5 32% NJ 19.8 28% NY 50.8 27% PA 21.8 32% Total 134.9

Furthermore , that such reduction commitment wi ll be included in each of the several states’ 8-hour ozone attainment State Implementation Plan submissions to EPA due in June 2007; and

Furthermore , that each state shall select the strategy or combination of strategies that provides both maximum cert ainty and appropriate flexibility for that state and its electric gener ators. Such mechanisms for achieving the reductions may include but are not limited to:

• regulatory caps for emissions from HEDD units on HEDDs;

• performance standards;

• State/generator HEDD par tnership agreements;

• energy efficiency programs;

• demand response programs, provided that such programs reduce and/or preclude the installation or us e of distributed generation with unacceptably high emissions;

• regulatory standards or controls for behind-the-meter generators;

• effective adjustment of the NOx retirement ratio to provide reductions on HEDDs; and

Furthermore, the undersigned states for whom no st ate-specific target emission reduction is specified above sign this MOU in support and appreciation of the listed states making this commitment, will continue to evaluat e the HEDD issue in their state and, as necessary and appropr iate, may choose to pursue additional emission reductions from the HEDD sector in their state.

Be it FURTHER RESOLVED that the OTC states will continue their work to establish long-term standards and progr ams to address emissions on HEDDs, such programs and standards to include:

• continued work with state energy and utility regulators as well as the regional transmission operat ors regarding energy efficiency, dynamic pricing and other market oriented in centives toward significant demand reduction and clean new or repowered supply• develo p ment of long-term perfo rmance standards that will ens ure reliable, clean future generation.

• development of emissi ons portfolio standards applicable to load serving entities, distribution companies, “ aggregators” and generators, according to the structure of the energy supply market

Executed by the undersigned Stat es this 2 nd day of March , 2007:

__________________ _____________ Connectic u t __________________ _____________ Dela ware

__________________ _____________ District of Columbia __________________ _____________ Maine

______//s//_________

________________ Maryland __________________ _____________ Massachusetts

__________________ ____________ New Hamp shire __________________ _____________ New Jerse y

__________________ _____________ New York __________________ _____________ Pennsylv a nia

__________________ _____________ Rhode Island __________________ _____________ Vermont

__________________ _____________ Virgin ia