### Exhibil3

Trading Agreement 

### and Order No. B180 ) ) ) ) I 

## 1 

# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

The State of Connecticut and Connecticut Jet Power LLC In the matter of

Whereas, the Commissioner of Environmental Protection ("Commissioner") and Connecticut Jet Power LLC ("CJP") agree that it is in the oublie 

### interest chat they work coopexatively to improve che air quality within the State of Connecticut ano that the use Ot emission reduction credit**(~ERC~)** trading to reduce nitrogen oxide**(~NOXH)** emissions will achieve this result in a timely and cost-effective manner;

A. At the**re~est** and with the agreement of CJP, the Commissioner finds the following: 1. CJP is an exemot wholesale electric generating comoany with its principal place of business in Sewickley, Pennsylvania. On or before December 31, 1999 CJP will purchase from The Connecticut Light and Power**ComDan~** and then own six (6) pieces of fuel-burning equinment ( peaking units H ) identified 1n Table 1 of this Trading Agreement and Order. All of these peaking units are combust1on turbines. 2. On or before December 31, 1999 NRG Middletown Qperations Inc. will operate the six peaking units identified in Table 1 of this Trading Agreement and Order at CJP's facilities_ 3. Official U. S. Environmental Protection Agency ("EPA") Reference Method 7E stack testing performed on the dates indicated in Table 1, resulted in NOx emission rates set forth in Table 1.

Table 1 (lbs/MMBtu) CJP 

## - NOx EMISSION RATES AND RAeT LIMITS Peaking Unit FUEL F'LER NOx RAeT Stack Stack Test Date of (1bs/MMBtu) Rate Test Rate Stack Test (1bs/MMBtu) Rate (lbs/MMBtu) (ppmvd) Branford 10 other 0.79 0.289 187.2 0.72 10/16/96 oil Co, Cob 10 other 0.74 0.289 174.6 0.67 10/31/96 oil Co, Cob 11 other 0_67 0.289 160.0 0.61 10/30/96 oil Co, Cob 12 other 0.80 0.289 189.4 0.73 10/29/96- oil Franklin other 0.68 0.289 158.2 0.62 05/15/96 Drive 10 oil Torr.inn.ton other 0.83 0.269 192.9 0.75 05/15/96 Term1na 10 oil
4. The emission rates for the peaking units and Table 1 are in excess of Section 22a-17'-22, l f'lIl1lti1 on Rtcyeltd Paper) 79 Elm Street • Hartford, CT 06106·5127 

### Initials**http://dcp7s~rt.ct.us** All Equal Opportunity Employu fuel specified in Table 22-2, 

### of the

Date 

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### connecticut Jet Power LLC Trading Agreement and Order No. 8180 Regulations Of Connecticut State Agencies**(~RegulationSd)i** NOx emlssion rate limits (Reasonably Available Control Techno ogy "RAeT")

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8. 6. 

### s. Pursuant to Section 22a-174-22(b) of the Regulations, all of the peaking units are subject to Sections 22a-174-22(d) through (k) of the Regulations. pertaining to the control of NOx emissions. In accordance with Section 22a-174-22(J) of the Regulations, CJP proposes that for all peaking units identified in Table 1, CJP shall use ERC trading when burning "other oil", as that term is defined in Section 22a-174-22 of the Regulations. Pursuant to the Department of Environmental Protection's ·Credit Trading for Sources with Irregular NOx Emissions* oolicy, with a revised date of November 5, 1997, attached hereto and**inco~orated** by reference into this Trading Agreement and Order as Exhiblt 1, these peaking units have peak dally NOx emissions greater than three times the average daily emissions during the ozone season and are therefore considered sources with irregular NOx emissions. Based on DEP approved stack test data, it has been determined that all of the peaklng units' emissions will not meet the applicable requirements of RACT contained in Section 22a-174-22 of the Regulations. CJP proposes to use Full Load Emission Rates ("FLERs") identified ln Table 1 for the purposes of calculating ERCs required. 9. CJP intends to continue acquiring approved ERCs as needed. 10. Aoproved ERCs are defined for the ourpose of this Trading Agreement and Order as those for which the Commissioner has orovided written authorization for use in compliance with Section 22a-174-22 of the Regulations. The**Commissioner~** in accordance with the orovisions of this Trading Agreement and Oraer, and pursuant to Section 22a-174-22 (j) of the Regulations hereby allows CJP to comply with Section 22a-174-22 of the Regulations through use of ERC trading referenced in Section A, herein, to achieve the nitrogen oxide emission reduction required by Section 22a-174-22(d) (2) of the Regulations. With the agreement of CJP, the Commissioner, acting under Connecticut General Statutes Sections 22a-6, 22a-171, 22a-174, 22a-176, and 22a-177, orders CJP as follows: 

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4. Upon issuance of this Trading Agreement and Order CJP shall comply during operation of each peaKing unit with the FLERs shown in Table 1 above. On and after the date which CJP ourchases the peakinq units identified in Table 1 of this Trading Agreement and Order, CJP shal+ have in its**po~session** sufficient approved**Efi~w ~O**  

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# QDpllC!bl@ jACT**'~~i~~men~s** and the requ>rements of this Trading Agreement and Order. On and after the date which CJP ourchases the peaking units identified in Table 1 of this Trading Agreement and Order, CJP shall, on a daily basis, document and record the amounts of all fuel used by eacn peaking unit each day and the number of ERCs used for the ozone season (from May 1 through September 30 of each year) and non-ozone season (the remainder OI the year)

_ On and after the date which CJP ourchases the oeaking units identified in Table 1 of this Trading Agreement and Order, pursuant to Section**22a-+74-22~j)** of the Regulations,**CJP.s~all** acquire from The Connectlcut Llght and Power comoany sufflclent aoproved non-ozone season ERCs 10 order to meet apo icable RACT requirements and the requirements of this Trading Agreement and Order for the operation of the six peaking units identified in

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### connecticut Jet Power LLC Trading Agreement 

### and Order No. 8180

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d. Table 1 of this Trading Agreement and Order during the month of December, 1999. Except as provided in paragraDh C.4. of this Trading Agreement and Order f on and after the date which CJP purchases the peaking units identlfied in Table 1 of this Trading Agreement and Order, pursuant to Section 22a-174-22(j) of the Regulations, CJP shall acquire from The Connecticut Light and Power Company sufficient approved ozone season and non-ozone season ERCs ln order to meet applicable RACT requirements and the requirements of this Trading Agreement and Order for the following month's operation. In accordance with Exhibit 1 of this Trading Agreement and Order, ozone season ERCs for use during the ozone season shall be purchased by CJP prior to the beginning of the ozone season. On and after the date which CJP purchases the peaking units identified in Table 1 of this Trading Agreement and Order, CJP shall maintain and provide the recorQS required by paragraph C.3. of this Trading Agreement and Order in accordance wlth the following and Section 22a-174-4 of the Regulations, and shall:

a. Have in its possession sufficient approved ERes for the current daYI based on the following calculations (described also in Exnlbit 1); At all times (mass calculation): ERCs (in tons) = {((FLER in Ibs/MMBtu)

- (0.95 x NOx 

### RACT in lbs/MMBtu» x (actual fuel use in lbs/MMBtu)J + 2000 pounds/ton During the ozone season only (peak day calculation) : the maximum actual excess NOx emissions (in lbs) on any of the days projected by the Commissioner to be "moderate to unhealthful, "unhealthful," or "very**up~ealthful,"** divided by 3 and then divided by 13 (with the result in tons): ERCs (in tons) : [(Maximum excess NOx in lbs) + 

### 31 + [13 lbs/day/tonJ; At a minimum, adjust upwards by 100% the ERCs required if ERCs are not in CJP's possession prior to use; 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 total mass-excess emissions, 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; No later than March 1, 2000, 2001, 2002, 2003 and 2004, include with its annual emissions report 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; 7. 5.

6.

f.

g. Retain the records and supporting documentation as described in this section for a minlmum of five years, commencing on the date such records are created; Maintain documentation to attest to the fact that ERCs used during the ozone season were qenerated during the ozone season. The ozone season is from May 1 through Seotemher 30 in any calendar year. Generator certification of this fact shall be sufficient; and



### Initials -3-connecticut Jet Power LLC Trading Agreement 

### and Order No. 8180

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13. h. Provide the records specified above to the Commissioner within**t~ir~y** (30) days of receipt of a written request from the CommlSSloner. Pursuant to the intent of Section 22a-174-22a(f) (4) of the Regulations, CJP maY l for a budget source, use allowances acquired pursuant to the provlsions of Section 22a-174-22a of the Regulations to comply with subsection (el of Section 22a-174-22 of the Regulations pursuant to the provisions of subsection (jl of Section 22a-174-22 of the Regulations as long as CJP remains an owner of that budget source for purposes of this Trading Agreement and Order. Any ailowance used for compliance with subsection (e) of Section 22a-174-22 of the Regulations shall be subject to all restrictions and/or**re~irements** agplicable to ERCs contained in this Trading Agreement and Order and70r Section 22a174-22a of the Regulations. The terms and conditions established by this Trading Agreement and Order shall become effective on the date CJP purchases all peaking units 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, CJP shall comply with the requirements of Section 22a-174-22(d) (2) of the**Re~latlons.** However, after full program review of this and other Trading Agreements and Orders and( if determined to be appropriate, the Commissioner may grant a wrltten extension of this-Traaing Agreement and Order. Definitlons. As used in this order, "Commissioner" means the CommlSSloner of Environmental Protection or an agent of the Commissioner. "Other oil n means a fuel that is**li~id** at standard conditions and is not residual oil. "Residual oil' means any fuel oil of No.4, No.5, or No.6 grades, as defined by Commercial Standard C.S. 12-48. "Ozone season ll means the**per~od** from May 1 through September 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**~s** personally delivered, whlchever is earlier. NotificgtiOp**o~.nQncompliancel** In the event that CJP becomes aware t at lt ld not or may not comply, or d1d not or may not**co~ly** on time, with any requirement of this Trading Agreement and Order or of any document required hereunder CJP shall by telephone immeaiately notify the Bureau of Air Management and shall take all reasonable steps to ensure that any noncompliance or delay is avoided or if unavoidable is minimized to the greatest extent possibie. CJP shall aiso notify the Commissioner ln writing within ten days of becoming aware of the noncomoliance or ootentlal noncompliance stating the date, time, and duration of the-noncompliance! the reasons for the noncompliance or delay and all activities**wh~ch** CJP and its agents, employees and representatives took to avoid or reoair the results of the noncompliance and prevent the noncompliance, and propose, for the review and written approval of the Commissioner, aates by which comoliance will be achieved. CJP shall comply with any aates which may be approved in writing by the Commissioner. Notification by CJP shall not excuse noncompliance or delay, and the Commissioner's approval of any compliance dates proposed shall not excuse noncompliance or delay unless specifically so stated by the Commissioner 1n writing. Nothing herein shall negate CJP's obligation to comoly with Section 22a-174-7 of the Regulations. To tfie extent that the provisions of Section 22a-174-7 are inconsistent with the provisions of this Trading Agreement and Order, the more stringent of the provisions in the Trading Agreement and Order or Section 22a-174-7 shall control.**!~rtif~catiQn** of**documen~$, ~y** **doc~ment,** including but not

lmlte to any nOtlce(**wn~ch** lS requlred to be submltted to the Commissioner under**th~s** Trading Agreement and Order shall be signed by the responsible corporate officer of CJP 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 actually oreparing such document, each of whom shall examine and be famillar wlth tfie 

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# \;y'!J.q/CJC\Connecticut Jet Power LLC Trading Agreement 

### and Order No. 8180

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20. information submitted in the document and all attachments thereto, and shall make inquiry of those individuals responsible for obtaining the information to determine that the information is trVe( accurate

### i and complete, and each of whom shall certify in**wr~t~ng** as fol ows: "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;**includ~ng** my inquiry of those individuals responsible for ootaining tne 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 tfie submitted information may be punishable as a criminal offense under Section 22a-l75 of the tonnecticut General Statutes or, in accordance with Section 22a-6 of the connecticut General Statutes, under Section 53a-l57b of the Connecticut General Statutes, and in accordance with any other applicable statute. n FEna

### l AOfeement and**or~er!** This Trading Agreement and Order is t e**r~na** agreement an order by and between the Commissioner and CJP with reSDect to the matters addressed herein, and shall not be modified without the written agreement of both parties.**F~Se st~tements,** **.~y** false statement in any information s**m~tte** pursuant to this Trading 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.**~ce** of**t~ansfer. l~ijbi+itv**  Qf CJP and**othe~s.** Until CJP has 

### ruDy comp**~ed w~th**  t**~srad~ng** Agreement ana Order, CJP shall notiry the Commissioner in**writ~ng** no later than fifteen (lS) days after transferring all or any portion of the facility the operations, the**s~te** or the business which are the subject of this Trading Agreement and Order, or obtaining a new mailing or location address, Any license transfer shall be conducted in accordance with Section 22a-60 of the Connecticut General Statutes. CJP's obligations under this Trading Agreement and Order shall not be affected by the**pa~sag~** of title to any property to any other person or**mun~c~pal~ty. gQ~mi9S~Q~frll** **power~** Nothing in this Trading Agreement and**r~r** s a a feet**t~ Commiss~oner's**  authority to institute any proceeding or take any other action to prevent or abate violations of law, prevent or abate pollution, recover costs and natural resource damages and tQ**~mOQse** penalties for violations of law which are willfui or criminally negligent or for which penalties have not been specificallr providea in this Trading Agreement and Order, including but not imited to violations of any oermit issued by the**Co~~issioner.** If at any time the**Comm~ssioner** determines that the actions taken by CJP oursuant tQ this Trading Agreement and Order have not fully achieved compliance with Section 22a-174-22 of the**Regulat~ons,** the**Comm~ssioner** may institute any oroceeding**aga~nst** CJP and/Qr require CJP to undertake further investigation or further**act~on.** CJ

# a '5**~blia~t1~ns** ¥Oder**~aw.** Nothing in this Trading Agreement anr er s al re**~eveJP** of other obligations under applicable federal, state and local law,

eccess to retords and**facili~v.** Any representative of the

epartment 0**Env~ronmentalrotect~on** may enter and inspect the facility and inspect and copy records within normal business hours without prior notice for the purpQses Qf monitoring and enforcing the actions required or allowed by this Trading Agreement and Order. No**effe~t ~n** **r~a~ts** of other**per~ons.** This Trading Agreement and 

### aider s a1**ne~t** er create nor aIfect any rights or persons whQ or municipalities which are not parties tQ this Trading Agreement and Order,

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## l),mlOiiconnecticut Jet Power LLC Trading Agreement and Order No. 8180
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22.**~o** Creation of Property Rights: This,Trading Agreement and Order oes not create any property**r~ghts** w2th respect to these ERCs. N§ti§e to somsissioner of Ch¥noes.**Wit~in fif~een**  (151 days of t e ate C P ecomes aware 0 a change 2n any 2nformat2on submitted to the Commissioner under this Traaing Agreement and Order, or that any such information was inaccurate or misleading or that any relevant information was omitted, CJP shall submit the correct or omitted information to the Commissioner. 23. 5Mbmissi9n 9f documants. Any document required to be submitted t e Comm2SS2oner un er this Trading Agreement and Order shall,**u~less** otherwise specified in writ2ng by the Commissioner, be d2rected to: Mr. David Jawin Department of Environmental Protection Bureau of Air Management Compliance and Field Qperations Division Emissions and Credit Trading Section 79 Elm Street Hartford. Connecticut 06106 to

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### connecticut Jet Power LLC Trading Agreement and Order No. 8180
CJP 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 CJP to the terms and conditions of the Trading Agreement and Order.

Connecticut Jet Power LLC 

### Signature: Type Name: Type Title: Date: Robert $, 

### Evans II Executive Director, Environmental Services NEG Energy. Inc. 12/29/99

Environmental Protection on 

# I'J, order of the Commissioner 

# -r- 

# 0"0 Issued as a final consent

TOWNS/CITIES OF 3ranford, Greenwich and Torrington LAND RECORDS MAILED CERTIFIED MAIL, RETURN RECEIPT REQUESTED Certified Document

-7-Exhibit I 

### TradingAgreement and Order

### No. 8180

# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

REVISED 11/5/97 

### CreditTrading for Sources with frreglllar NOx Emissions

The following outlines the Department's concerns and methodology for dealing with NOx compliancepursuant to §22a-174-22(j), Regulations ofConnecticut StateAgencies ("Regulations"), emission trading for "peakers" and other sources thathave peak emissions that
are substantiallyhigherthan their averagedailyemissions. Forpurposes 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.
Thebasic conceptofthe trading programis that sources with excess NOx emissions (arate that exceeds the rate limits in the Regulations) may obtain NOx emission reduction credits ("ERCs") from sources that have "over-controlled" theirNOx emissions. Although typical sources can obtain credits on amass basis (one ton ofERCs to offsetone ton ofexcess emissions) with an acceptable environmental outcome, sources with large variations in emissions from day to day pose an additional problem for ozone attainmentplanning.

The mostcommonpeaking units or "peakers" are electricity generating units thatrun during times ofhigh electricity consumption. Electricitydemand is often the highest during hot, humid days ofthe summerwhen the potential forozone [onnation is also high. Peakers frequently have high emission rates. To the extentthatthese units produce emissions at exactly the time when emissions need to bereduced to limit ozone fonnation, allowing peakers to continue to comply with new rate limits through the use ofERCs on aton-far-ton basis will exacerbate this effect. On the otherhand, ifitcanbe demonstrated that the ERCs being used bypeakers were generated
on acomparablebasis (Le., during days ofhigh ozonepotential), then ton-for-ton use by peakers would be appropriate.

The full impact ofthe NOx emissions from these types offacilities during summeroperation mustconsidertemporal variabilityas well as mass ofexcess emissions. AnyERC trade must considerequivalencyto theNOx reductions that control equipment would produce on an ozone day onboth atemporal and amass basis. The protocolbelow places appropriate requirements
on peaking units to reflect the greaterimpact ofNOx emitted underIhis type ofusage pattern. Attachment 1 provides adetailed example ofthis issue.

NOxEmissionsReductio" Credit Use Computation ForPeakers

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

• All excessNOx emissions during thewinter (non-ozone season) need only be offset by ERCs on a mass basis.

• Priorto each ozone season there will be aprospective calculation to determine how many tons ofERCs mustbe "on hand" during the ozone season. A retrospective calculation will detennine how many ERCs were actually "used" during the ozone season.

(Printed on Recycled Piper) 79 Elm Sueel·· Hartford, CT 06106

- 5127 http://dep.stlle.CI.IIS An EqllllI Opportllniry Emptoyer 

## _._po' ,...,LI

### 2

ForEReuse during the ozoneseason:
1. Prospectivecalculationdetennines the numberofERCs thatmust beprovided forthe
ozone season. (Beginning in 1996, the ERCs mustbe in placeno laterthan May 1.)

ERCs required for the ozone season shall be calculated based on: (a) a mass basis (total anticipatedexcess NOx emissions overthe ozone season) and (b) apeak-day basis (maximum excess emissions foranydayduring the ozone season). Sources willbe 

### required to providecredits equal to thegreaterortheamountcalculatedon amass or peak-daybasis. Thetiming ofactual creditprovision willbe governed by the terms ofthe specific trading orderissued for that source. (3) Mass basis: ERCs required will beequal to the total nwnberoftons ofanticipated
excess Ox emissions overthe entire ozone season, calculated inthe same mannerused forothersources using ERCs (i.e., including any discounts).
(b) Peak (daily rate) basis: ERCs (intons) required will becalculated bydividing one-third ofthe maximum dailyexcess emissions'" (in pounds) by 13 pounds/day/ton:

ERCs required (tons) = [(MaximumEstimatedExcess NOx in lbs.) + 3J + [13 lbs.lday/ton]

"'Where maximumdaily excess NOx emissions are the difference betweenthe maximumestimated hours ofoperationperdayatthe full-Ioad-emission-ratc and 95% ofthe allowable NOx emissions underScction22a-174-22(e) ofthe Regulations.

2. Retrospective calculationwill detemline the actual credit use and the ERC surplus, ifany. At the end ofthe ozone season, the calculations required in item 1 above will berepeated using (a) the actual total excess emissions for theozone season, and (b) the maximum actual excess NOx emissions on anyofthedays projected bythe Commissionerto be Mmoderateto unhealthful", "unhealthful", or "veryunhealthful". The actual "ERCs required" will be the greaterofthe ERCs calculated on thebasis oftotal mass or maximum (peak) day. To the extent that the numberof ERCs used to offsetpeakday emissions exceed the total mass ofexcess NOx emissions for the ozone season, the remaining mass valueofsuchERCs may becarried forward for use in the winter(nonozone season). Any unusedERCs maybecarried forward until May I, 1999, exceptas may be limited by the tradjng agreement and order, orbyregulation.

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### 3

Exhibit1 ERe CalculatioltforPeaking Units



### Unless it

### canbedemonstrated otherwise, ERCs areassumed tobecreated by

### relatively small dailyreductions inNOx emissions overtbecourseofanentireozoneseason (1 S3 days). The average dailyNOx emissions reductionrepresented

### byoneton ofcreditis 13 pounds/day calculated as follows:
(I ton) x(2000 pounds/ton) + 153 days 13 pounds/day/ton 

### Thus, an ERe 

### (ton) would be equivalentto areduction inNOx emissions of13 pounds/day. EXAI\1PLE. If

### aMpeaking" sourcewereto emitoneton ofexcessNOx perdaywhen operating, but onlyoperates for five days during the ozone season. the owner/operatorofthe source would 

### nominallyneed to obtain five tons ofERCs. However, thoseERCs are likelyto havebeen created byrelatively small daily reductions inNOx emissions overthecourse ofan entire ozone season (153 days). Inthis example, assuming apurchase offive tons ofERCs, thatcalculates out to a dailyNOx reduction ofapproximately65 pounds.
(5 tons x 2000pounds/Ion) + 153 days = 65 pounds/day Clearly, on anydaythat the "peaking" unitoperates, there is much more excess NOx emissions that will nothavebeen offset, on the orderofJ,935 pounds:
(I ton x 2000pounds/ton)

- (65 pounds credit) 1,935 pounds excess NOx emissions

Whilethe total amountofNOx emittedwouldbecontrolledon a seasonal averagebasis, on the "peaking" daythere wouldbe apotentiallysignificant increaseinNOx emitted, and thus an increase in potential ozonecreation. In orderto achieve acommensuratereduction in ozone creationpotential forpeakers, an adjustment in the calculation ofrequired ERCs is needed. One approach would be to require ERCs in aquantity thatwould ensurethatthe daily average reductionrepresentedby those ERCs would equal the maximum daily excess NOx emissions from the peaking source on anydaythatitran. On this basis, apeaking source with a maximum 24-hourexcess NOx emissionofone tonwouldberequired to purchase 153 tons ofERCs.

1(ton)/day X 153 days/season = 153 tons
This 153 tons ofERCs wouldbe adequate to "offset" excess emissions ofonetonperday for as many days as the source operated during aparticularozone season. This has been deemed to be unduly stringent, given some diversity in operation ofthese sources. In light ofthe foregoing, this requirementis adjusted downward bytwo-thirds.