1 

### State of Wisconsin 

### CORRESPONDENCE/MEMORANDUM

DATE: January 11 , 2013

TO: Review File for Permit No. 12

- SDD

- 047

FROM: Steve Dunn

– AM/7

SUBJECT: Response to Comments on Draft Permit No. 12

- SDD

- 047

Draft Permit No. 12

- SDD

- 047 was public noticed on October 10, 2012. During the public comment period comments were received on the draft permit form the applicant, USEPA and David Bender (representing the Sierra Club and Midwest Environmental Defense Cent er). The comments received from USEPA and Mr. Bender are summarized in this document along with the Department’s response to those comments. This memo also contains a list of significant changes made to the draft permit.

A. The following comments were r eceived from USEPA

Comment : Page 23 of the Preliminary Determination document indicates that that facility was allowed to use a different time period than the 24

- month period because... "the units are new (operating only since October 2009 for unit 1 an d July 2010 for unit 2) and they did not operate at a representative rate during the first few months to the first year of operation. The applicant has proposed the period of October 2010

- September 2011." WDNR granted this request since the units were "not operating normally due to the need for startup and shakedown work." However, the baseline period used to calculate the Best Available Control Technology (BACT) limit for Carbon Monoxide (CO) was from December 2009 until December 2011, which includes the t ime period that WDNR determined is not representative of normal operation for other pollutants in the netting analysis. Please explain why this time period is representative for CO and not representative for other pollutants, or make the necessary changes to your analyses to correct this discrepancy.

Response : The Department has examined the CO emission rates for the October 2010

- September 2011 period. Using only the CO rates from this time period yields an average CO emission rate of 0.017 lb/MMBTU with a standard deviation of 0.005. This is compared to the average rate of 0.018 lb/MMBTU and standard deviation of 0.006 using all of the available CO date. While this does lead to a slight reduction in the average CO emission rate, it does not change the Department’s BACT conclusion. As mentioned in the Preliminary Determination, the BACT emission rate is based on both the actual CO emissions from the boilers and on the Department’s conclusion that the use of subbituminous coal is likely to increase boile r CO emissions.2 Comment : Page 19 of the Preliminary Determination document states that an air quality analysis is not required because "[a]ll potential emissions for the emissions units covered in the draft permit are either the same or lower than the emissions rates which were modeled in previous construction permit for this facility." It seems that the construction permit referenced is permit #03

- RV

- 166

- R5, which was issued in October 2009. Under NR 405.09 the source must show that its allowable emiss ions and all other applicable emissions increases and decreases will not cause or contribute to a violation of National Ambient Air Quality Standards or increment. "All other applicable emissions" include an up

- to

- date inventory of emissions in the area of concern that were not included in the original modeling analysis. Additionally, since certain modeling requirements have changed since 2009, WDNR should ensure that the permit for this major modification adequately reflects all of the new requirements. Fo r example, since this modification will have a significant emissions increase in Volatile Organic Compounds (VOC) and Nitrogen Oxides (NOx) it should conduct an ozone impacts analysis. Please complete an ozone impact analysis and update the previous modeli ng to include the latest meteorological data, emissions data, and any new models required since the 2009 modeling (such as 1

- hr nitrogen dioxide and sulfur dioxide) or provide justification that no changes to the above have occurred since the previous mode ling.

Response : As stated in s. NR 405.02(1)( b), Wis. Adm. Code, “[t]he department may presume that source

- specific allowable emissions for the unit are equivalent to the actual emissions of the unit”. This has been the policy for Wisconsin since the early days of the PSD program, because this is se en as a conservative estimator of the impact of the increase. To maintain consistency with this policy, only those increases of allowable emissions would trigger a review of increment and NAAQS under the PSD program. In the specific case of We Energies

- E lm Road Generating Station, as there is no increase of allowable emission, the impact of the “increase” is less than the Significant Impact Level (SIL) for the respective pollutant and therefore the corresponding NAAQS. This is reflected in the department’ s April 2011 publicly available modeling guidance. http://dnr.wi.gov/topic/AirPermits/documents/ModelingReqsAllPollutantsMemo.pdf

Per guidance contained in the 1990 NSR manual and transmitted to Wisconsin in 1989 via a letter from USEPA Region V (presented below) , if a source demonstrates that the impact of the proposed project is below the SIL, the air quality analysis portion of the PSD review is satisfied.
Fo r We Energies

- Elm Road Generating Station, it has been demonstrated that the impact of the emissions regulated under the proposed permit will have an impact less than the SIL, so the zero allowable emission increase will not and cannot cause or contribute to a violation of the NAAQS. The analysis has not been ‘waived’; rather the zero pound per hour allowable emission increase was found to have an impact less than the SIL.3 ______________________________________________________________________________

I n addition, the Department has prepared an ozone impact analysis for the proposed project. However, the NOx increase from the project has been offset by decreases at the Oak Creek facility and the VOC emissions increase is only 35 tons/year.4 Comment: 1 73(a)(3) of the Clean Air Act states that the permit program required by 172(b)(6) shall provide that a permit may be issued if.."the owner or operator of the proposed new or modified source has demonstrated that all major stationary sources owned or opera ted by such person..in such state are subject to emission limitations and are in compliance, or on a schedule for compliance...". At this time the Paris Generating Station in Kenosha, which is also operated by WE Energies, is not in compliance and a compli ance schedule has not yet been finalized. The Paris Generating Station is not in compliance because of modifications done in 2000

- 2002 to replace turbine blades. The modifications were determined, after the fact, to be major modifications and may have trig gered PSD review. A draft permit incorporating the compliance schedule for the Paris Generating Station (#230094810

- P02) was public noticed on October 5, 2012 and has not yet been issued. Until the compliance schedule is finalized, the permit for WE Energi es Elm Road Generating Station (#12

- SDD

- 047) may not be issued.

Response: The Department concurs with the commenter that permit no. 12

- SDD

- 047 may not be issued until the WE Paris facility is in compliance or on a schedule for compliance with all applica ble emission limitations. In order to meet this requirement, the Department and WE Energies have entered in a Consent Order (agreement) that specifies that units 1 and 4 at the Paris facility may not operate until brought into compliance with ch. NR 428 a nd ch. NR 405, Wis. Adm. Code. In order to comply with these requirements as these units are presently configured, the units have been deactivated and will not operate until compliance with these Adm. Code requirements is achieved.

Units 2 and 3 at the P aris facility are on an enforceable schedule to achieve compliance with ch. NR 405, Wis. Adm. Code requirements. This schedule allow s the Units to continue operation while the Department processes the construction permit application for these facilities.

Based on the Paris facility meeting all emission limitations or being on an enforceable schedule to meet all such limitations, the Department concludes that permit no. 12

- SDD

- 047 may be issued in compliance with this requirement.

Comment : Page 13 of the Preliminary Determination document states that the GHG BACT analysis will include CO2, methane, and nitrous oxide, but there is only a proposed GHG BACT emission limit for CO2 and not for methane or nitrous oxide. Since the regulated NSR pollutant is defi ned as GHG, the GHG emission limit(s) should account for not only CO2, but for all of the GHGs that are emitted. Please also clarify how compliance will be demonstrated for the each of the GHGs.

Response: The three greenhouse gases of concern for this fa cility are carbon dioxide (CO2), methane and nitrous oxide. Of these pollutants, CO2 accounts for a minimum of 97.9% of the greenhouse gas potential based on USEPA emission factors for these pollutants. The Department has included a method for directly me asuring CO2 emissions (a CEM) as the compliance requirement for all greenhouse gas emissions. The Department is unaware of any continuous monitoring equipment available for measuring methane or nitrous oxide emissions from coal

-5 fired boilers. Thus, the D epartment determines that measurement of these emissions is infeasible for this boiler.

However, the Department is proposing to change the greenhouse gas emission limitation from only a CO2 limitation to include limitations for methane and nitrous oxide. For methane, the Department believes that methane emissions are related to poor or incomplete combustion. As a surrogate for poor combustion, the Department will require that the proposed CO BACT be achieved as part of the greenhouse gas BACT emission li mitation. For nitrous oxides, the Department is proposing the overall NOx emission limitation as a surrogate for nitrous oxides. Thus, complying with the NOx LAER limitation is now included as an emission limitation and compliance demonstration requireme nt for greenhouse gases.

Comment : Page 14 of the Preliminary Determination document states that building a CO2 pipeline would cost millions of dollars to construct and concludes that carbon capture and sequestration (CCS) is economically infeasible for controlling GHGs for this project. In order to support this conclusion, please include in the permit record your CCS cost analysis (e.g., an annualized cost per ton of CO2 removed, or a capital cost comparison to the total cost of the project) along with t he rationale for why the costs are economically infeasible.

Response : Based on information supplied by the applicant, the total capital cost of the two Elm Road boilers was approximately $750,000,000. The estimated cost of installing a carbon capture

sy stem is $3.54 billion and the cost of constructing a pipeline to ship the captured carbon dioxide to a final storage site would be $750 million. Even if these numbers are twice the actual costs, the cost of installing a carbon capture system would be app roximately $2 billion or more than twice the cost of the boilers themselves. The Department does not believe this represents an economically feasible control option both due to the cost being so much larger than the cost of the boilers and due to the shee r magnitude of dollars that would be required to control carbon dioxide emissions.

Comment : The permit contains a Lowest Available Emission Rate (LAER) emission limit for VOC, however the preliminary determination does not address how the LAER limit was selected. Please include the analysis used in preparing the LAER determination in the permit record.

Response : LAER is not required for this emission limitation. This was an error in the draft permit. The emission limitation is unchanged from the draft permit.

Comment : Please correct the typographical error in condition I.A.15.b.(3). Current language reads, "The permittee shall perform the compliance emission tests required under condition I.A.15.b.(l) every 60 within 60 days of the anniversary date o f the initial test as long as the permit remains valid." It appears that a unit of time is missing. If appropriate, please change the language to, "... every 60 months within 60 days of the...".

Response : This has been corrected.6 Comment : It appears that permit condition I.A.2.c.(7) is repeated in I.A.2.c.(l 1). If appropriate, remove condition I.A.2.c.(l 1) to avoid repetition.

Response : This has been corrected.

Comment : It appears that two permit conditions were both labeled I.A.2.b.(5). If appropriate, please change the label of the condition on page 7 to I.A.2.b.(6) to improve clarity

.

Response : This has been corrected.

B. The following comments were received from Mr. David Ben der

Comment : The Department did not adequately consider t he use of natural gas as BACT for the facility.

Response : The Department believes its analysis of natural gas is in conformance with USEPA policy and the PSD regulations. The Department believes that the basic design of this facility is a coal fired ele ctric utility boiler. The reasons for this conclusion are elaborated upon in the Preliminary Determination for this permit.

The Department does not concur that converting or simply using another type of coal justifies the evaluation of the conversion of this facility to natural gas as an option under the BACT analysis of alternative control technologies.

Comment : The Department needs to evaluate the use of only bituminous coal in lieu of the use of subbituminous coal as BACT for GHG’s from these boilers.

Response : The proposed project covered under this permit is use of and possible physical changes to the e xisting boilers to allow for the maximum use of subbituminous coal. This conversion may lead to higher CO emissions, lower NOx emissions and higher GHG emissions. In addition, the use of subbituminous coal is projected to be significantly less expensive than the use of bituminous coal. Based on information provided by the applicant, the use of subbituminous coal at a 50% mix with bituminous coal and at an 80% capacity factor yields a fuel savings of $40,000,000.

The applicant has stated that the primary of this project is to reduce operating costs by using subbituminous coal. Based on a review of the permit application and discussions with the applicant, the Department agrees that this is the primary purpose of the proposed project. A BACT that elimina tes subbituminous coal usage represents a change to the fundamental project and need not be further considered in any BACT analysis

Comment : WE’s methodology of using standard deviations is not statistically valid.7 Response : The Department has made no determination as to the validity of WE’s statistical methodologies. The Department has examined Elm Road’s measured emission rates and emissions rates achieved at other facilities and made a determination as to the emission rates it believes are achievabl e over the operational period of these units. The Department believes the emission rates selected represent BACT or LAER (as applicable) for all pollutants reviewed under this application.

Comment : WDNR must include limits sufficient to protect the 1

- ho ur NOx and SO2 NAAQS.

Response : The Department concurs with the commenter that the Department has not made a finding in this permit review or in a previous permit review that facility

- wide emissions will meet the 1

- hour N20 and SO2 NAAQS. The Departme nt does not concur that its actions are not in conformance with its own modeling guidance. In response, the response to USEPA’s comment on this matter is copied herein:

As stated in s. NR 405.02(1)(b), Wis. Adm. Code, “[t]he department may presume that

s ource

- specific allowable emissions for the unit are equivalent to the actual emissions of the unit”. This has been the policy for Wisconsin since the early days of the PSD program, because this is seen as a conservative estimator of the impact of the incr ease. To maintain consistency with this policy, only those increases of allowable emissions would trigger a review of increment and NAAQS under the PSD program. In the specific case of We Energies

- Elm Road Generating Station, as there is no increase of a llowable emission, the impact of the “increase” is less than the Significant Impact Level (SIL) for the respective pollutant and therefore the corresponding NAAQS. This is reflected in the department’s April 2011 publicly available modeling guidance. http://dnr.wi.gov/topic/AirPermits/documents/ModelingReqsAllPollutantsMemo.pdf

Per guidance contained in the 1990 NSR manual and transmitted to Wisconsin in 1989 via a letter from USEPA Region V (presented below) , if a source demonstrates that the impact of the proposed project is below the SIL, the air quality analysis portion of the PSD review is satisfied. For We Energies

- Elm Road Generating Station, it has been demonstrated that the impact of the emissions regulated under the proposed permit will have an impact less than the SIL, so the zero allowable emission increase will not and cannot cause or contribute to a violation of the NAAQS. The analysis has not bee n ‘waived’; rather the zero pound per hour allowable emission increase was found to have an impact less than the SIL.

Comment : WDNR must provide limits to protect the PM2.5 NAAQS.

Response : The area is which the Elm Road facility is located is presen tly a PM2.5 non

attainment area. Thus, no modeling can demonstrate that the PM2.5 NAAQS will be met. However, as required under ch. NR 408, Wis. Adm. Code, We Energies must offset the increases in PM2.5 from this proposed project with actual reductions in PM2.5 emissions from existing operations. Due to these offsets, the Department believes that this proposed project will8 not exacerbate the exceedance of an ambient air quality standard and meets the requirements of both ch. NR 408, Wis. Adm. Code and a pplicable state statutes

Comment : The NOx LAER/BACT emission rate is too high.

Response : NOx emissions are subject to a LAER control requirement under ch. NR 408, Wis. Adm. Code. LAER requires that the facility achieve the lowest emission rate achie ved within the same class of source. The Department concurs that there are 100% subbituminous coal fired boilers that are achieving a lower NOx emission rate than that required in the final permit. However, We Energies Elm Road boilers are mixed fuel boi lers, allowed and expected to burn a combination of bituminous and subbituminous coal.. The Department is unaware of any mixed fuel boilers that are achieving a lower emission rate than that required in this permit.

The Department expects that the boiler s in this permit will operate as mixed fuel boilers for the foreseeable future (based on the applicant’s submittals). Thus, the LAER needs to cover the NOx emissions expected from a boiler using mixed fuel. The Department has no empirical data that indic ates that NOx emissions are reduced in proportion to the percentage of subbituminous coal combusted relative to bituminous coal (i.e. a 50/50 coal mix does not necessarily yield an emission rate half way between a rate achievable with 100% subbit and 100% bituminous coal). In addition, the Department has attempted to set limits in this permit that are independent of the type of coal combusted. This was chosen based on the lack of data on the impact of mixed fuel on emissions and also to simplify complianc e demonstration.

However, the Department is also concerned that at high subbituminous coal combustion rates that the 0.065 lb/MMBTU NOx emission limitation would not represent the lowest achievable emission rate. For example, the permittee could operate the SCR at a lower efficiency by maintaining SCR operations at a level that meets the 0.065 lb/MMBTU rate when a higher control efficiency could be achieved. In order to address this concern, the Department has added a requirement to the NOx LAER that the applicant develop s, seek department approval for, and implement a plan for operating the SCR at maximum efficiency no matter what coal mix is combusted. This is designed to address the commenter’s, and the Department’s concern, that when higher amounts of subbituminous co al are combusted that the SCR operations can be reduced and the maximum emission reductions not be achieved.

Finally, the LAER determination for NOx also include a total tons/year of NOx emission limitation. This limitation is equivalent to 0.05 lb NOx/M MBTU at full boiler operation. This level was included in both the original and now final LAER determination to address the potential for reduced NOx emissions for combustion of subbituminous coal.

Comment : The PM2.5 limit does not represent LAER.

Resp onse : The Department has placed only a PM emission limitation on these boilers because there is no method for testing for PM2.5 or PM10 emissions alone. This is due to these boilers being equipped with a wet FGD. In order to achieve a LAER emission rate for PM2.5, the9 Department is requiring the operation of a baghouse and a wet ESP. In addition, the Department has established a total particulate matter emission limitation that is as low, to the best of the Department’s knowledge, as any that is require d for any coal

- fired utility in the U.S.. The Department believes that the control equipment in combination with the low PM emission rate represents LAER for PM2.5 emissions.

Comment : The CO BACT compliance margins are not justified.

Response : The CO BACT emission rate is based on actual boiler operations, the emission rates required of other facilities, and the fact that the use of subbituminous coal is likely to raise CO emission rates. This increase in CO emissions is likely due to the lower BTU co ntent of subbituminous coal in comparison to bituminous coal. The opposite affect is generally observed with NOx emissions as subbituminous coal combustion, as noted previously be the commenter, will generally lead to lower NOx emissions in comparison to bituminous coal combustion.

Comment : There is no basis for the proposed opacity BACT.

Response : The Department has proposed an opacity BACT of 10%. This is as stringent as the opacity BACT that has been proposed for other boilers in the State. Unlik e these other boilers, the WE Elm Road boilers are equipped with a wet FGD. The use of a wet FGD negates the use of a continuous opacity monitor on the exit from the stack due to interference from condensed moisture. Thus, compliance with this limitation is demonstrated prior to the wet FGD, which serves both as an SO2, and to a limited extent, particulate matter control device. This compliance demonstration methodology (i.e. measuring opacity prior to the wet FGD using a continuous opacity monitor) incr eases the stringency of the limitation since it is measured prior
to all emission control devices.

At the request of the applicant, the Department included a 6

- minute period per hour where the opacity would be allowed to rise to 20%. This was included to allow for incomplete control prior to the FGD. The Department believes this is reasonable given the unusual compliance demonstration methodology required for the Elm Road facility.

The Department is unaware of any similar boilers with more stringent opaci ty limitations then that proposed for the Elm Road facility.

Comment : The GHG limitation is too high and unsupported by any data or analysis.

Response : The Department has determined a BACT emissions rate for GHG by examining operational data form the E lm Road boilers, the Elm Road boilers themselves and the GHG BACT emissions rates required for other similar sources.10 The Department has identified add

- on controls and efficient operations as BACT options for GHG. The Department, as discussed in an earl ier comment response, is not examining the prohibition on combusting subbituminous coal as a BACT option for GHG. The Department believes that this would be a redefinition of the project since the sole purpose of this proposed project is to maximize combu stion of subbituminous coal to lower power generation costs.

A discussed in a previous response to comments made by USEPA, the Department has found that possible add

- on controls for CO2 emission controls are not cost

- effective. The Department
also examine d controls for methane emissions and N20 emissions. The Department found that
methane emissions controls are not cost

- effective. For N20, the Department has relied on its NOx LAER analysis as the control analysis for N20. This is done even though N20 is not a component of NOx. The Department is assuming that lowering overall NOx emissions should also lower overall N20 emissions. However, it is likely that this will have only a minimal impact, at best, on N2O emissions.

The next step in the BACT analysis is to evaluate what other emission control options are available. For CO2 and methane, the available control is efficient operation and good combustion (good combustion also yields efficient operation). For methane, the Department has
identified CO as a surrogate for good combustion. The Department has relied on its CO BACT analysis as the method of limiting methane emissions that may occur due to poor combustion. Thus, the CO BACT has been included as BACT emission limitation for methane.

For CO2, the remaining control option is efficient operation. The Elm Road boilers are less than 5 years old and are supercritical pulverized coal boilers. These boilers are equipped with the latest heat recovery, burner and operational control technology. The pape r cited by the commenter is from 1999 and applies to retrofits of older existing boilers. These types of retrofits are not relevant to a newer supercritical boiler. Thus, the Department concludes that the operations and construction of the boiler are suf ficient to generate efficient operation.

The final question in determining the GHG (CO2) BACT for these boilers is a determination as to the CO2 emission limitation for the boilers The CO and NOx emission rates are established by their respective BACT and LAER determinations.

The Elm Road boilers achieved an average GHG emission rate of 2,203 lb (net) MW

- hr and an average net heat rate of 10,795 BTU/KWh during the period examined in the permit review (calendar years 2010 and 2011; net output). This is base d on CEM data. As has been noted in the application , WE has demonstrated that the heat input rates determined using CEM data are

7

- 15% different than the rates determined using fuel input data. The fuel input data was used to develop the EIA (Energy Inf ormation Administration) data and it is not directly comparable to the CEM data used in this application.11 In order to determine an appropriate BACT emission limitation, the Department has examined both the operational data for Elm Road and the BACT determi nations made for other coal

- fired boilers. To the Department’s knowledge, the only two coal

- fired boilers that have GHG BACT determinations are two Iowa facilities. These determinations are a limitation of 2,927 lb CO2/MWh for one facility and 2,347 lb CO 2.MWh for the other facility. The Department has proposed an emission limitation of 2,570 lb CO2/MWh for the Elm Road facility. Based on these other determinations, the Elm Road GHGBACT determination is within the range of the
BACT determinations for oth er coal fired boilers.

In the permit application, the applicant has provided information that indicates that boiler efficiency and expected CO2 emission rates per unit of electrical output are dependent on boiler load. The implication of this information is that if the boilers do not operate at 100% or close to 100% rating that boiler efficiency will drop. Based on this information and the actual operating data, the Department has identified the 2570 lb CO2 BACT emission limitation. This limitation
allow s for boiler operational variability based on aging of the boiler and allows the boilers to operate at less than 100% load. This type of load factor is justified in that WE Energies does not control the dispatch of these boilers. These boilers, and all u tility boilers in WI, have their dispatch controlled by the Midwest ISO. Since the level of operation is outside of WE’s control, the Department has included this consideration in deciding the BACT emission limitation. The Department believes the limitat ion in the draft permit and the final permit represents BACT for GHG emissions. As mentioned previously, the CO2 limitation remains unchanged, but the limitations for CO and NOx have been included as part of the GHG BACT determination.

C. The following is summary of significant changes to the permit

- Facility name and responsible official

- the number of days allowed to complete particulate matter stack testing

- the performance monitoring for the wet ESP. Tis has been changed and enhanced in the final permit.

- a requirement to perform stack testing for PM10 and PM2.5 when an EPA approved test method is developed.

- compliance demonstration language for the PM2.5 em ission limitations has been added. The purpose of these additions is to clarify the compliance demonstration language.

- The ch. NR 417, Wis. Adm. Code, sulfur dioxide limitation was added to the permit

- compliance demonstration language for the SO2 emis sion limitations has been added. The purpose of these additions is to clarify the compliance demonstration language.12 - compliance demonstration language for the NOx emission limitations has been added. The purpose of these additions is to clarify the com pliance demonstration language.

- the NOx LAER permit requirement were changed to add the development of an SCR operation plan to the requirements.

- compliance demonstration language for the CO emission limitations has been added. The purpose of these ad ditions is to clarify the compliance demonstration language.

- BACT for greenhouse gases was changed to include emission limitations for CO and NOx

- compliance demonstration requirements for boilers B25

- B28 were clarified

Other than the change to the NOx LAER and greenhouse gas BACT requirements, these changes
have been made based on comments and discus sions with the permit applicant.