Exhibil3

Trading Agreement and Order No. B180

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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

CJP - NOx EMISSION RATES AND RAeT LIMITS (lbs/MMBtu)

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 \;«JALqq
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") .

7.

8.

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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:

B.

c.

1.

2.

3.

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 mLet 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

InitialS~ -2-
connecticut Jet Power LLC Trading Agreement

and Order No. 8180

e.

b.

c.

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;

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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

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connecticut Jet Power LLC Trading Agreement

and Order No. 8180

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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 seasonll 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

Initials }fu,~- -4- Date \;y'!J.q/CJC\
Connecticut Jet Power LLC Trading Agreement

and Order No. 8180

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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( accuratei 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.

CJa'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,

Initials -5- Date l),mlOii
connecticut Jet Power LLC Trading Agreement

and Order No. 8180

21.

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

Initials ~- -6- Date tUf\(qtt
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

Trading Agreement and Order No. 8180
STATE OF CONNECTICUT

DEPARTMENT OF ENVIRONMENTAL PROTECTION

REVISED 11/5/97

Credit Trading for Sources with frreglllar 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 trading 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 of the 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 environmental outcome, sources with large variations in emissions from day to day

pose an additional problem for ozone attainment planning.

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 ofthe 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 limits through the use ofERCs on a ton-far-ton basis will exacerbate this effect.

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

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

would be appropriate.

The full impact of the NOx emissions from these types of facilities 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 under Ihis type of usage pattern.

Attachment 1 provides a detailed example ofthis issue.

NOx Emissions Reductio" 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 "used" during the ozone season.

(Printed on Recycled Piper)

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http://dep.stlle.CI.IIS

An EqllllI Opportllniry Emptoyer

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2

For ERe use during the ozone season:

1. Prospective calculation detennines the number of ERCs 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 orthe amount calculated on a mass or

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

specific trading order issued for that source.

(3) Mass basis: ERCs required will be equal to the total nwnber of tons of anticipated

excess Ox 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 of the maximum daily excess emissions'" (in pounds) by 13

pounds/day/ton:

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

"'Where maximum daily excess NOx emissions are the difference between the

maximum estimated hours of operation per day at the full-Ioad-emission-ratc and

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

Regulations.

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

At the end of the 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) the maximum

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

Mmoderate 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 that the number of ERCs used to offset peak day

emissions exceed the total mass of excess NOx emissions for the 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 I, 1999, except as

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

_. -- "? ........ ..,
3

Exhibit 1

ERe Calculatiolt for Peaking Units

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

daily reductions in NOx emissions over tbe course of an entire ozone season (1 S3 days). The

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

calculated as follows:

(I 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.

EXAI\1PLE. If a Mpeaking" 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 ofthe 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 of five tons of ERCs, that calculates out

to a daily NOx reduction of approximately 65 pounds.

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

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

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

(I 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 peaking source on any day that it ran. On this basis, a peaking source with a maximum

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

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

This 153 tons of ERCs 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 of these sources. In light of the foregoing,

this requirement is adjusted downward by two-thirds.