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Exhibil3

STATE OF CONNECTICUT

DEPARTMENT OF ENVIRONMENTAL PROTECTION

In the matter of

The State of Connecticut

and

Devon ?ower LLC

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Trading Agreement and Order No. 8181

Whereas, the Commissioner of Environmental Protection ("Commissioner") and Devon

Power LLC ("Dpll) agree that it is in the public interest that they work

coooeratively to imorove the air auality within the State of Connecticut and that

the- use of emission- reduction credit ("E:RC") trading to reduce nitrogen oxide

("NOx") emissions will achieve this result in a timely and cost-effective manner:

A. At the request and with the agreement of DP, the Commissioner finds the

following:

1. DP is an exemot wholesale electric generating company with its

orincioal olace of business in Sewickley, Pennsylvan~a. On or before

uecember 31, 1999 DP will ourchase from The Connecticut Light and

?ower Comoany and then own-one (1) oiece of fuel-burning equioment ("oeaking·un~t") identified in Table 1 of this Trading Agreement and

Oraer. This peaking unit is a combustion turbine.

2. On or before December 31( 1999 NRG Devon Ooerations Inc. will ODerate

the oeaking unit identif~ed in Table 1 of this Trading Agreement and

Order at OP's facility.

3. Official u.s. Environmental Protection Agency ("EPAu) Reference

Method 7E stack testing oerformed on the date indicated in Table

1, resulted in a NOx emission rate set forth in Table 1.

4.

5.

Table 1

DP - NOx EMISSION RATE AND R.li.CT LIMIT (lbs/MMStu)

Peaking :?UEL FLER NO>: ::tACT Stack Stack Test Date of

Unit (lbs/MM3tu) Rate Test Rate Stack Tesc

(lbs/MlG tu) Rate (lbs/MY..3tu) (ppmvd)

Devon 10 other • ·0.74 0.289 176.5 0.67 10/25/96

oil

The emission rate for the peaking unit and fuel soecified in Table 1

is in excess of Section 22a-174-22, Table 22-2, oE the Regulations of Cop~ecticut State Agencies ("Regulations"), NOx emission rate limits

(Reasonably Available Control Technology "RACT").

Pursuant to Section 22a-174-22(b) of the Re~ulations, the peaking unit

is subject to Sections 22a-174-22(d) througn (k) of the Re~Jlations,

pertaining to the control of NOx emissions.

5. In accordance with Section 22a-174-22(jl of the Regulations, OP

proposes that for the peaking unit identified in Table 1, D? shall use

Initials (Printed on R~~'&led Paper) Date \:2!;:.n/qq

79 Elm Slree: • Hartford, CT 06106 - 5127

htt?:/Id ep.st'le.tl.us

An EQu,,1 O"ntnl'''''',u P_-I......
Devon Power LLC Trading Agreement

and Order No. 8181

3.

c.

ERC trading when burning nother oil", as that term is defined in

Section 22a-174-22 of tne Regulations.

7. Pursuant to the Department of Environmental Protection's "Credit

Trading for Sources with Irregular NOx Emissions H policy, with a

revisea date of November S, 1997, attached hereto and incoroorated by reference into this Trading Agreement and Order as Exhibit 1, the

oeaking unit has Deak daily NOx emissions greater than three times the

average daily emissions during the ozone season and is therefore

considered a source with irregular NOx emissions.

8. Based on DEP approved stack test data, it has been determined that the

oeaking unit's emissions will not meet the aoplicable requirements of ~CT contained in Section 22a-174-22 of the Regulations. DP proposes to use a Full Load Emission Rate ("FLER") identified in Table 1 lor

the purposes of calculating ERCs required.

9. D? intends to continue acquiring approved ERCs as needed.

10. Aoproved ERCs are defined for the ourpose of this Trading Agreement

ana Order as those for which the Comm~ssioner has provided written authori~ation for use in compliance with Section 22a-174-22 of the

Regu1aclons. .

The Commissioner, in accordance with the provisions of this Trading Agreement and Order, and pursuant to Section 22a-174-22 (j) of the ~egulations hereby allows-DP to comply with Section 22a-174-22 of the

Regulations through use of ERC trading referenced in Section Al herein, to

acnieve the nitrogen oxide emissio~ reduction required by Sect~on 22a-174-

22(d) (2) of the ~egulations.

With the agreement of DP, the Commissioner, acting under Connecticut General

Statutes Sections 22a-5, 22a-171, 22a-174, 22a-176, and 22a-177, orders DP

as follows:

1. Upon issuance of this Trading Agreement and Order OF shall comoly during operation of the peak~ng unit with the FLE~ sho~~ in Taole 1

above.

2. On and after the date which DP purchases the peaking unit identified

in Table 1 of this Trading Agreement and Order, D? shall have in its

possession sufficient approved ERCs to meet aoplicable ~~CT

requirements and the requirements of this Traalng Agreement and Order.

3. On and after the date which DF Du=chases the peaking ~~it identified

in Table 1 of this Trading Agreement and Order, DF shall, on a daily basis, document and recora tne amounts of all fuel used by the peak~ng

unit each day and the nu~ber of SRCs used for the ozone season lfrom

May + througn September 30 of each year) and non-ozone season (the rema~nder O~ the year) .

4. On and after the date which DP purchases the peaking lli~it identified

in Table 1 of this Trading Agreement and Order, pursuant to Section

22a-174-22(jl of the Regulat~ons, DP shall acquire from The.

Connecticut Light and Power Comoany sufficient approved non-ozone

season ERCs in order to meet apolicable RACT reqUirements and the

requirements of this Trading Agreement and Order for the operation of

the peaking unit identified in Table 1 of this Trading Agreement and

Order during the month of December, 1999.

5. Except as provided in paragraph C.4. of this Trading Agreement and

Order( on and after the dace which DP ourchases the peaking unit

ident2fied in Table 1 of this Trading ~areement and Order, pursua~t to

Section 22a-174-22(j) of che Regulat~onsl DP shall ac~ire Irom The

Connecticut Light and Power Company suff~cient approved ozone and nonozone season ERCs in order to meet apolicable ~~tT requirements and

the requiremen~s of this Trading Agreement and Order for t~e following month's operat~on.

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Devon Power LLC Trading Agreement

and Order No. 8181

d.

6. In accordance with Exhibit 1 of this Trading Agreement and Order,

ozone season ERCs for use during the ozone season shall be purchased by DP prior to the beginning of the ozone season.

7. On and after the date which DF purchases the Deaking unit identified

in Table 1 of this Trading Agreement and Order, DP shall maintain and

orovide the records required by paragraph C.3. of this Trading Aqreement and Order in accordance wich the following and Sectlon 22a174-4 of the Regulations, and shall:

a. Have in its possession sufficient approved ERCs for the current

day! based on the following calculatlons (described also in

Exnlbit 1);

At all times (mass calculation):

ERCs (in tons) = f«(FLER in lbs/MMBtu) - (0.95 x NOx ?~CT in

lbs/MM3tu) x (actual fuel use in lbs/MM3tu)] + 2000 pounds/ton

During the ozone season only (peak day calculation) :

the maximum actual excess NOx emissions (in Ibs) on any of the

days projected by the Commissioner to be ~moderate to

unnealthLul,n ~up~ealthful,n or ~very unhealthful,H divided by 3

and then divided by 13 (with the result in ton~) :

ERCs (in tons) = [(Maximum excess NOx in lbs) + 3] + [13 lbs!day!ton) ;

b. At a min~mum, adjust up~ards ~y 100% the ERCs required if ~RCs

are not In D?'s possesslon prlor to use;

c. As described in Exhibit 1 of this Trading Agreement and Order, to

the extent that ERCs used to offset on a oeak day basis during the ozone season exceed the to~al mass excess em~ssions

remaining ERCs may be used in the non-ozone season in the same or

subsequent years until May 1, 2003;

Document and record daily fuel use, excess NOx emissions and, during the ozone season, the ozone classification as forecasted

by the Commissioner on the previous day;

e.

f.

No later than March Ie 2000, 2001, 2002, 2003 and 2004, include

with its annual emiss~ons renort to the Commissioner, ERCs used

(calculated as described in section C.7.a. above), by ozone and

non-ozone seasons, for the previous calendar year;

Retain the records and supporting documentation as described in

this section for a minimum of five years, commencing on the date

such records are created;

g. Maintain documentation to attest to the fact that 3RCs·used

during the ozone season were generated during ~he ozone season.

The ozone season ~s from May 1 through Seotewber 30 in any calendar year. Generatbr certificatlon 01 this fact shall be

sufficient; and

h. Provide the records specified above to the Commissioner within

thirty (30) days of receipt of a written request from the

Commissioner.

8. Pursuant to the intent of Section 22a-174-22a(fl (4) of the

Regulations, DP may, for a budget source, use allowances acauired

pursuant to the orovisions of Section 22a-174-22a of the Regulations to comply with subsection {el of Section 22a-174-22 of the aegulations pursuant to the provisions of subsection (j) of Section 22a-174-22 of

ehe Regulations as long as D? remains an owner of that budget source, for pUrPoses of this Trading Agreement and Order. Any allowance used

for compliance with subsect~on (e) of Section 22a-174-22 of the ,

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Devon Po-wer LLC Trading Agreement

and Order No. 8181

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Regulations shall be subject to all restrictions and/or requirements applicable to ERCs conta~ned in this Trading Agreement and Order

ana/or Section 22a-174-22a of the Regulations.

The terms and conditions established by this Trading Agreement and

Order shall become effective on the date DP purchases the peaking unit

identified in Table 1 of this Trading Agreement and Order, and upon issuance of this Trading Agreement and Order.

No later than May I, 2003, DP shall comply -with the requirements of

Section 22a-174-22 (d) (.2) of the Regulat~ons. HO'",ever, after full

Drogram revie-w of this and other Trading Agreements and Orders and, if

aetermined to be aDorooriate, the Commissioner may grant a -written

extension of this TradIng Agreement and Order.

8efiU,it~ons. As used in this order, "Commissioner" means the omm~SS10ner of Environmental Protection or an agent of the

Commissioner. "Other oil# means a fuel that is li~uid at standard

conditions and is not residua-l oil. "Residual oil' means any fuel oil

of No.4, No.5, or No. 6 ~rades, as defined by Commercial Standard

C.S. 12-48. "Ozone season . means the period from May 1 through Seotember 30 in any given calendar year. "Issuance# means the date

this Trading Agreement and Order is deposited in the u.s. Mail or the

date it is personally delivered, whichever is earlier.

Ngtification of noncQIDoliance. In the event that DP becomes a-ware

t at ~t did not or may not comply, or did not or may not comply on

time, with any requirement of Eh1s Trading Agreement and Order or of

any document requ~red herelli~der, DP shall bi telephone immediately notify the Bureau of Air Management and sha I take all reasonable

steps to ensure that any noncompliance or delay is avoided or, if

unavoidable, is minimized to the greatest extent possible. DP shall

also notify the Commissioner in writing within ten days of becoming

aware of the noncomoliance or potential noncompliance stating the

date, time, and duration of the noncompliance,-the reasons for the

noncomoliance or delay and all activit1es which DP and its agents, employees and representatives took to avoid or repair the results of

the noncompliance and orevent the noncomoliance, and propose! for the

review and written approval of the Commissioner( dates by wh1ch

comoliance will be acnieved. DP shall comply w~th any dates which may be aporoved in writing by the Commissioner. Notificacion by DP shall

not excuse noncompliance or delay and the Commissioner's aporoval of

ani compliance daces proposed shail not excuse noncompliance-or delay

un ess specifically so stated by the Commissioner in writing. Nothing herein shall negate DP's obligation to comply with Section 22a-174-7

of the Regulations. To the extent that the orovisions of Section 22a174-7 are inconsistent -with the provisions oI this Trading Agreement and Order, the more stringent of-the provisions in the Trading Agreement and Order or Section 22a-174-7 shall control.

Certification of QQ§uments. .~"Y document, including but not limited

to any not~ce, wh~c. is required to be submitted to the Commissioner

under this Trading Agreement and order shall be signed by the

resPonsible corporate officer of DP or a duly authorized

representative of such officer, 'as those terms are defined in Section

22a-430-3 (b) (2) of the Regulations and by the individual or

individuals resoonsible for actualiy preparing such document! each of

whom shall examine and be familiar with the information subm1tted in

the document and all attachments thereto! and shall make inquiry of

those individuals resEonsible for obtain~ng the information·to

determine that the intormation is true, accurate, and complete, and

each of whom shall certify in writing as follows:

"I have personally examined and am familiar with the information

submittea in this document and all attachments thereto, and I certify that based on reasonable investigation, including my inquiry of those

individuals responsible for obta~ning the information, the submitted

information is true, accurate and complete to the best of my knowledge and belief. I understand that any false statement made in the

Initials -4- Date
Devon Power LLC Trading Agreement

and Order No. 8181

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submitted information may be punishable as a criminal offense ~~der

Section 22a-175 of the COrL~eccicut General Statutes or, in accordance

with Section 22a-6 of the Connecticut General Statutes, under Section

53a-157b of the Connecticut General Statutes, and in accordance with

any other applicable statute."

Final Agreement and or~er. This Trading Agreement and Order is the

rrnal agreement and or er by and between tne Commissioner and DP with

resoect to the matters addressed herein, and shall not be modified

without the written agreement of both parties.

False statemeRts, Any false statement in any information submitted

pursuant to t ~s Trad~ng Agreement and Order may be punishable as a

criminal offense under Section 22a-175 of the Connecticut General

Statutes or, in accordance with Section 22a-6, under Section 53a-157b

of the Connecticut General Statutes.

Notire §f tr~nsf;r; li~bilitv of PF and 0ah~rs, Until OP has fully

como ~e w~tn tn~s Traolng Agreement andraer, OP shall notify the

Commissioner in writing no later than fifteen (15) days after

transferring all or any portion of the facility~ the operations, the

site or the business wnich are the subject of cnis Traaing Agreement and Order, or obtaining a new mailing or location address. JL~y

license transfer shall be conducted ~n accordance with Section 22a-60

of the Connecticut General Statutes. DP's obligations under this T~ading Agreement and Order shall not be affecte~ ~y t~e passage of t~tle to any property to any other person or mun~clpal~ty.

c~~;sS~QnerIS PQwers, Nothing in this Trading Agreement and Order s~! a:recc the Commissioner's authority to inst~tute any oroceeding

or take any other action to nrevent or aoate violations o~ law, ~revent or abate oollution, recover costs and natural resource

aamages, and to impose penalties for violations of law which are will~ul or criminally negligent or for which oenalties have not been

specifically orovidea in th~s Trading Agreement and Order, including but not limited co violations of any oermit issued by the

Commissioner, If at any time the Commissioner determines that the

actions taken by DP oursuant to this Trading Agreement and Order have

not fully achieved comoliance with Section 22a-174-22 of the ~e~lationsl the Commissioner may institute any oroceeding against DF

ana/or requlre DP to undertake further investigation or furtner

action.

8P 's Ob~iOttiO~S und§T liw. Nothing in this Trading Agreement and

rcier s:al re leve~ or other obl~gations under appllcable federal,

state and local law,

Ayc.ss to recor~s and fa~ilitv. Pny repre~entative.of~th~ gepartment

or ~nv~ronmenta ?rotectlon may enter and ~nsoect tne rac~l~ty and

insoect and cooy records within normal business hours without prior notice for the-purposes of monitoring and enforcing the actions

required or allowea by this Trading Agreement and Order.

SO effe~t ~n r~aRts of other per~Qns, This Trading Agreement and

rder s~al nelt er create nor a:rect any rights or persons who or

municipalities which are not parties to chis Trading Agreement and

Order.

No Creation of Property Riopts. This Trading Agreement and Order does

noc create any property rlgnts with respect co these ERCs.

~oticB t9 Commissioner 9f ch~noes, Within fifteen (15) days of the

ate? Decomes aware or a c:ange in any information submitted to the Co~~issioner under this Trading Agreement and Order, or that any such

information was inaccurate or misleading or that any relevant

information was omitted c DP shall submit the correcc or omitted

information to the Comm~ssioner.

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Devon Power LLC Trading Agreement

and Order No. 8181

23. Subm~ss~on of d§cumen~s, Any document required to be submitted to the

Comm1ss1oner un er tn1s Trad~ng Agreement and Order shall, unless

otherwise specified in writing by the Commissioner, be directed to:

Mr. David Jawin

Deoartment of Environmental Protection

Bureau of Air Management Compliance and Field OPerations Division

Emissions and Credit Trading Section

79 Elm Street

Hartford, Connecticut 06106

Initials ~'~~ -6-
Devon Pow,=:r LLC Trading Agreem~nt

and Order No. 8181

DP consents to the issuance of this Trading Agreement and Order without

further notice. The undersigned certifies that he/she is fully authorized to

enter into this Trading Agreement and Order and to legally bind UP to the

terms and conditions of the Trading Agreement and Order.

Devon Power LLC

Signature:

Type Name:

Type Title:

Date:

Robert S. ~vaos II

12/29/99

Issued as a final consent order of the Co~~issioner

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CITY OF MILFORD

LAND ;{ECO~DS

~~!LED CERTIFIED ~~IL,

RETURN RECEIPT REQUESTED

Certified Document

Exhibit 1

Trading Agreement and Order No. 818!
STATE OF CONNECTICUT

DEPARTMENT OF ENVIRONMENTAL PROTECTION

REVISED ll/5/97

Credit Trading for Sources with Irregular NOx Emissions

The following outlines the Department's concerns and methodology for dealing with NOx

compliance pursuant to §22a-174-22(j). Regulations ofConnecticut State Agencies

("Regulations"), emission trailing for "peakers" and other sources that have peak emissions that

are substantially higher than their average daily emissions. For purposes ofthis protocol,

peaking units are defined as sources with peak daily NOx emissions greater than three times their

average daily emissions during the ozone season.

The basic concept ofthe trading program is that sources with excess NOx emissions (a rate that

exceeds the rate limits in the Regulations) may obtain NOx emission reduction credits ("ERCs")

from sources that have "over~controlled" their NOx emissions. Although typical sources can

obtain credits on a mass basis (one ton ofERCs to offset one ton of excess emissions) with an

acceptable environ.JTIental outcome, sources with large variations in emissions from day to day

pose an additional problem for ozone attainment plamling.

The most common peaking units or "peakers" are electricity generating units that run during

times of high electricity consumption. Electricity demand is often the highest during hot, humid

days oflbe summer when the potential for ozone [onnation is also high. Peakers frequently have

high emission rates. To the extent that these units produce emissions at exactly the time when

emissions need to be reduced to limit ozone fonnation, allowing peakers to continue to comply

with new rate lii-ruts through the use ofERCs on a ton-far-ton basis will exacerbate this effect.

On the other hand, if it can be demonstrated that the ERCs being used by peakers were generated

on a comparable basis (i.e., during days of high ozone potential), then ton-far-ton use by peakers

would be appropriate.

The full impact ofthe NOx emissions from these types offacilities during summer operation

must consider temporal variability as well as mass of excess emissions. Any ERC trade must

consider equivalency to the NOx reductions that control equipment would produce on an ozone

day on both a temporal and a mass basis. The protocol below places appropriate requirements

on peaking units to reflect the greater impact ofNOx emitted undl?T this type of usage pattern.

Attachment 1 provides a detailed example ofthis issue.

NOx Emissions Reduction Credit Use Computation For Peakers

• Peaking units are only considered to be a temporal issue for the ozone season months.

• All excess NOx emissions during the winter (non-ozone season) need only be offset by

ERCs on a mass basis.

• Prior to each ozone season there will be a prospective calculation to determine how many

tons ofERCs must be "on hand" during the ozone season. A retrospective calculation

will detennine how many ERCs were actually aused" during the ozone season.

(Prinled on Recycled Papet)

79 £1m Smel • Ha:l!ord, cr 06106·5127

hllp:lld ep. Stilt.Cl.us
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For ERe use during the ozone season:

1. Prosoective calculation detennines the number ofERCs that must be provided for the

ozone season. (Beginning in 1996, the ERCs must be in place no later than May 1.)

ERCs required for the ozone season shall be calculated based on: (a) a mass basis (total

anticipated excess NOx emissions over the ozone season) and (b) a peak-day basis

(maximum excess emissions for any day during the ozone season). Sources will be

required to provide credits equal to the greater ofthe amount calculated on a mass or

peak-day basis. The tinting of actual credit provision will be governed by the terms ofthe

specific trading order issued for that source.

(a) l\1ass basis: ERCs required \\'ill be equal to the total nwnber oftons of anticipated

excess NOx emissions over the entire ozone season, calculated in the same

manner used for other sources using ERCs (i.e., including any discounts).

(b) Peak (daily rate) basis: ERCs (in tons) required will be calculated by dividing

one·third ofthe maximum daily excess emissions'" (in pounds) by J3

pounds/day/ton:

ERCs required (tons) [(Maximum Estimated Excess NOx in lbs.) " 3J + [13 Ibs./day/tonJ

·Where maximum daily excess NOx emissions are the difference between the

maximum estimated hours ofoperation per day at the full-Ioad-emission-rate and

95% of the allowable NOx emissions under Section 22a-174-22(e) ofthe

Regulations.

2. Retrospective calculation will determine the actual credit use and the ERC surplus, if any.

At the end ofthe ozone season, the calculations required in item 1 above will be repeated

using (a) the actual total excess emissions for the ozone season, and (b) t,e maximum

actual excess NOx emissions on any ofthe days projected by the Commissioner to be

"moderate to unhealthful', 'unhealthful", or "very unhealthful". The actual "ERCs

required" will be the greater ofthe ERCs calculated on the basis oftotal mass or

maximum (peak) day. To the extent thll.t the number of ERCs used to offset peak day

emissio,ns exceed the total mass of excess NOx'emissions for th.e ozone season. the

remaining mass value ofsuch ERCs may be carried forward for use in the winter (nonozone season). Any unused ERCs may be carried forward until May 2, 1999, except as

may be limited by the trading agreement and order, or by regulation.
3

Exhibit 1

ERC Calculation/or Peaking Units

Unless it can be demonstrated otherwise, ERCs are assumed to be created by relatively small

daily reductions in NOx emissions over the course of an entire ozone season (153 days). The

average daily NOx emissions reduction represented by one ton of credit is 13 pounds/day

calculated as follows:

(l ton) x (2000 pounds/ton) + 153 days 13 pounds/day/ton

Thus, an ERe (ton) would be equivalent to a reduction in NOx emissions of 13 pounds/day.

EXA.1\1PLE. If a "pea1.'ing" source were to emit one ton of excess NOx per day when operating,

but only operates for five days during the ozone season, the owner/operator of the source would

nominally need to obtain five tons ofERCs. However, those ERCs are likely to have been

created by relatively small daily reductions in NOx emissions over the course of an entire ozone

season (153 days). In this example, assuming a purchase oftive tons ofERCs. that calculates out

to a dailv NOx reduction of approximately 65 pounds.

(5 tons x 2000 pounds/ton) + 153 days 65 pounds/day

Clearly, on any day that the "peaking" uriit operates, there is much more excess NOx emissions

that will not have been offset, on the order of 1,935 pounds:

(1 ton x 2000 pounds/ton) - (65 pounds credit) = 1,935 pounds excess NOx emissions

While the total amount of NOx emitted would be controlled on a seasonal average basis, on the

"peaking" day there would be a potentially significant increase in NOx emitted, and thus an

increase in potential ozone creation. In order to achieve a commensurate reduction in ozone

creation potential for peakers, an adjustment in the calculation ofrequired ERCs is needed. One

approach would be to require ERCs in a quantity that would ensure that the daily average

reduction represented by those ERCs would equal the maximum daily excess NOx emissions

from the peak'ing source on any day that it ran. On this basis, a peaking.source wiih a rnaxL..llum

24-hour excess NOx emission of one ton would be required to purchase 153.tons of ERCs.

1 (ton)lday X 153 days/season = 153 tons

This 153 tons ofERCs would be adequate to "offset~ excess emissions of one ton per day for as

many days as the source operated during a particular ozone season. This has been deemed to be

unduly stringent, given some diversity in operation ofthese sources. In light of the foregoing,

this requirement is adjusted downward by nNo-thirds.