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1 BEFORE THE ILLINOIS POLLUTION CONTROL BOARD 2 3 INTHE MATTER OF: 4 5 6 7 8 9 10 PROPOSED NEW 35 ILL. ADM. CODE 217, SUBPARTU, NOx CONTROLAND TRADING PROGRAM FOR SPECIFIED NOx GENERATINGUNITS, SUBPART X, VOLUNTARYNOx EMISSIONS REDUCTION PROGRAM, AND AMENDMENTS TO 35 ILL. ADM. CODE 211 ROl-17 (Rulemaking-Air)

11 The following proceedings were held 12 before MR. BOBB BEAUCHAMP, Hearing Officer for 13 the Illinois Pollution Control Board, taken 14 stenographicallybefore GEANNAM. IAQUINTA, CSR, 15 a notarypublic within and for the County of Cook 16 and State of Illinois, at the James R. Thompson 17 Center, Room 9-040, 100 West Randolph Street, 18 Chicago, Illinois, on the 29th day ofNovember, 19 A.D., 2000, commencing at 9:30 a.m. 20 21 22 23 24L.A. REPORTING (312) 419-9292

1 A P PEARAN C ES: 2 2

3 4 5 6 ILLINOIS POLLUTION CONTROL BOARD, 100 West Randolph Street Suite 9-040 Chicago, Illinois 60601 BY: MR. BOBB BEAUCHAMP, Hearing Officer

MEMBERS OF THE ILLINOIS POLLUTIONCONTROLBOARD 7 PRESENT: 8 Mr. Joel Sternstein 9 Mr. Nicholas Melas 10 Ms. Alisa Liu 11 Ms. Marili McFawn 12 Mr. Ronald Flemal 13 Ms. Kathy Glenn 14 MEMBERS OF THE ILLINOIS ENVIRONMENTAL PROTECTION 15 AGENCY PRESENT: 16 Mr. Richard Forbes 17 Mr. Dennis Lawler 18 19 20 21 22 Mr. Robert Sharpe Ms. Laurel Kroack Mr. ChristopherRomaine Mr. YoginderMahajan Mr. BerkleyMoore 23 OTHERAUDIENCE MEMBERS WERE PRESENTATTHIS 24 HEARING, BUTNOTNOTED ONTHIS APPEARANCE PAGE.1 2 L.A. REPORTING (312) 419-9292

I N D E X 3

3 PAGES 4 GREETINGBY HEARING OFFICER 4 5 PRESENTATIONBYMS. KROACK 18 6 QUESTIONAND ANSWER SESSION 14 7 CLOSINGBY 8 HEARING OFFICER 107 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 E X H I BIT SMarked for Identification Exhibit Nos. 1, 2, and 3 11 Exhibit No. 3A 1224

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1 HEARINGOFFICERBEAUCHAMP: Goodmorning. 2 Myname is Bobb Beauchamp, and I'mthe hearing 3 officer in this proceeding. I would like to 4 welcome you to this hearing being heldby the 5 Illinois Pollution Control Board in the matter of 6 ProposedNew 35 Ill. Adm. Code 217, Subpart U, 7 NOx Control and Trading Program for SpecifiedNOx 8 GeneratingUnits, Subpart X, VoluntaryNOx 9 Emissions Reduction Program, andAmendments to 35 10 Ill. Adm. Code 211. 11 Today's hearing is the first day of 12 the first of three scheduledhearings in this 13 rulemaking. Present today onbehalfof the 14 Illinois Pollution Control Boardand seated to my 15 right is Marili McFawn, the boardmember 16 coordinating rulemaking. We expect various other 17 boardmembers to be joiningus as they come in 18 during the break. 19 Also present today are several 20 members of the Board's staff. To Marili McFawn's 21 right is Alisu Liu of the Board's technical 22 staff. Seated at the endof the table onher23 right is Joel Sternstein, attorney assistant to 24 BoardMemberNickMe1as, and seated two seats to

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1 my left is Kathy Glenn, attorney assistant to 2 BoardMember Dr. Ronald F1ema1. It's F1ema1. I 3 apologize. 4 I have placed copies of the notice 5 and service list sign-up sheets overon the table 6 by the entrance. Please note that ifyourname 7 is on the notice list, you will only receive 8 copies of the Board's opinions andorders and all 9 hearing officerorders. Ifyourname is on the 10 service list, not only will you receive copies of 11 the Board's opinions and orders and all hearing 12 officerorders, but you will also receive copies 13 of all documents filed by all persons.in this 14 proceeding. 15 However, also keep inmind that if 16 your name is on the service list, you are also 17 required to serve all persons on the service list 18 with all documents you file with the Board. 19 Copies of the Board's October 19th, 2000, opinion 20 and ordercontaining the proposedrule and the 21 October 27th, 2000, hearing officerorder are 5

### 22 also located on that table. You can also find 23 copies ofthe current notice's service list and 24 theAgency's prefi1ed testimony as well.

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1 OnOctober 16th, 2000, the Illinois 2 Environmental ProtectionAgency filed this 3 proposal for a ru1emaking to add 35 Ill. Adm. 4 Code 217, Subpart U, NOx Control andTrading 5 Program for SpecifiedNOx Generating Units and 6 SubpartX, VoluntaryNOx Emissions Reduction 7 Programandvarious amendments to 35 Ill. 8 Administrative Code 211. 9 OnOctober 19thof 2000, the Board 10 adopted for first notice theAgency's proposal. 11 This proposal was published in the Illinois 12 Register onNovember 13thof 2000 at pages 16,452 13 and 16,467. This proposal was filedpursuant to 14 Section 28.5 ofthe Environmental ProtectionAct 15 entitledCleanAirAct Rules, Fast Track. 16 Pursuant to Subsection (g) of that 17 section, the Board is required to proceedwithin 18 set time frames toward the adoption ofthe 19 regulation. As stated in the Board's October 20 19th, 2000, opinion, the Boardhas no discretion 621 to adjust these time frames under any 22 circumstances. Pursuant to Section 28.5 of the 23 Act, the Board scheduled three hearings. As 24 announced in the October 27th, 2000, hearing

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1 officer order, today's hearing is confined to 2 testimonyby the Agencywitnesses concerning the 3 scope, applicability, andbasis of the rule. 4 Pursuant to Section 28.5, this 5 hearing will begin today and continue on the 6 record from day to day, ifnecessary, until 7 completed. The secondhearing is currently 8 scheduled for Wednesday, December 20th, 2000, at 9 9:30 a.m. in room2-025 of the James R. Thompson 10 Center in Chicago. It will be devoted to 11 economic impact considerations andpresentation 12 of testimony, documents, and comments by affected 13 entities and all other interestedparties. 14 Prefiling deadlines for the secondhearing maybe 15 found in the October 27th, 2000, hearing officer 16 order. 17 The thirdhearing is currently 18 scheduled for Wednesday, January 3rd, 2001, at 19 9:30 a.m. in room 9-040 of the James R. Thompson 7

### 20 center. It will be devoted solely to anyAgency 21 response to the materials submitted at the second 22 hearing. 23 The thirdhearing will be cancelled 24 ifthe Agency indicates to the Board that it does

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### 1 not intend to introduce any additional material. 2 Ifthe thirdhearing is cancelled, all persons 3 listedon the notice list will be so advised 4 through a hearing officerorder. 5 As stated in the October 19th, 2000, 6 opinion, the Board is holding today's hearing 7 consecutivelywith the hearings in docket number 8 ROl-16 in the matterofProposedAmendments to 35 9 Ill. Adm. Code 217, Subpart B, Electrical Power 10 Generation. The first hearing inROl-16 11 concludedyesterday evening and the second 12 hearing is scheduled to begin onDecember 19th, 13 2000. 14 Today's hearing will be governedby 15 the Board's procedural rules for regulatory 16 proceedings. All informationwhich is relevant 17 andnot repetitious orprivilegedwill be 18 admitted. All witnesses will be sworn and

### 19 subject to cross-questioning. Once again, the 20 purpose oftoday's hearing is to allow the Agency 21 to present testimony in support of its proposal 22 and to allow questioning ofthe Agency. 23 The Agencywill present any testimony 24 itmayhave regarding this proposal. At the

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### 1 conclusionof theAgency's testimony, we will 2 allow for questioning ofthe Agency regarding its 3 testimony. 4 I prefer that during the question 5 period, all persons with questions please raise 6 theirhandandwait forme to acknowledge you. 7 Once I have, please state yourname and the 8 organizationyou represent, ifany. 9 Are there any questions regarding the 10 procedure we will follow this afternoon

-- I'm 11 sorry, this morning? At this time then, I'd like 12 to askBoardMemberMcFawn if she has anything 13 else she would like to add to my comments? 14 MS. McFAWN: No. I justwant to welcome 15 those ofyou that returned fromyesterday and 16 those ofyou who are joiningus today for the 17 ROl-17 rulemaking. We hope to proceed

### 18 expeditiously, but to be most thorough, andwith 19 theAgency's help, I'm sure we're going to 20 accomplish that task so that we fully come to 21 understand theirproposal. Thankyou. 22 HEARINGOFFICERBEAUCHAMP: Thankyou. 23 Mr. Sharpe, do you have any opening 24 statements?

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1 

### MR. SHARPE: Just a briefone. Let me 2 introduce myself. Myname is Robert Sharpe. I'm 3 deputy counsel with theAgency andwill be 4 serving as the Agency attorney in this 5 proceeding. 6 Since you've already summarized the 7 proceeding, I don't want to go into anymore of 8 that. I would like to take time onbehalfof the 9 Agency to thank the hearing officerand the board 10 members for setting an expeditious hearing 11 schedule and coordinating with the otherhearings 12 to help us minimize our travel and inconvenience. 13 It's beenhelpful to us. 14 I'djust like to introduce the other 15 Agencypeople that are here. Tomy left is 16 Laurel Kroack, who's deputy chiefof the bureau17 of air. To my right is Dennis Lawler, who's 18 manager of the division of airpollution 19 control. To his right is Dick Forbes, who is 20 manager of the ozone regulatory unit and air 21 qualityplanning section. 22 Out on the left here is Chris 23 Romaine, who's manager of the utilities unit and 24 permit section, andbehindme are BerkleyMoore,

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1 in the middle, YoginderMahajan, and Bob Hutton. 2 Bob Hutton is with the source monitoring unit and 3 Berkley andYoginder are with the air quality 4 planning section of the Agency. 5 With that said, we have three sets of 6 prefiledtestimony that we have

-- that we have 7 submitted to the Board already and is available 8 backoveron the table. I'd like to move at this 9 time that that be

-- all three of those be 10 accepted as exhibits. I've already given them to 11 the hearing officer. 11

12 HEARINGOFFICERBEAUCHAMP: I have them 13 here. We will thenmark the testimony of 14 Mr. Forbes as Exhibit 1, the testimony ofDennis 15 Lawler as Exhibit 2, and the testimonyofLaurel16 Kroack as Exhibit 3. 17 (ExhibitNos. 1, 2, and 3 18 marked for identification, 19 11-29-00.) 20 MR. SHARPE: In addition to that, we do 21 have an overheadpresentation that Ms. Kroack is 22 going topresent, and I believe I've givenyou a 23 copy of that as well. I think youprobablywant 24 that in as an exhibit as well. So we move that

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1 you accept that as one as well. 2 HEARINGOFFICERBEAUCHAMP: It will be 3 accepted. We'll mark that as Exhibit 3Athen. 4 5 6 7 (ExhibitNo. 3Amarked for identification, 11-29-00.) HEARINGOFFICERBEAUCHAMP: The copy of 8 the slides are admitted as Exhibit 3A. 9 MR. SHARPE: Our intention at this point 10 thenwas just toproceedwith the presentation of 11 Ms. Kroack, whichwill summarize the proceeding 12 andhit on an explanationof the rulemaking. 13 HEARINGOFFICERBEAUCHAMP: Verygood. 14 Before we do that, we will need to swear in all

### 15 the witnesses. I know that you've got a fairly 16 large panel. So ifwe couldhave the court 17 reporter swear all ofthemin at once. 18 (Witnesses sworn.) 19 HEARINGOFFICERBEAUCHAMP: Mr. Sharpe, 20 theAgencymayproceedwith its testimony. 21 MS. KROACK: Goodmorning. I apologize 22 for the state ofmyvoice, but I'll 

### do mybest to 23 speakas loudly and as clearly as I can. 24 The presentation today is just going

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1 to cover the differences of Subparts UandXthat 2 weren'tpresent in SubpartW, whichhas already 3 beenbefore this Board andmost ofyou are 4 familiar with. Ifyouhave anyparticular 5 questions on that, we'll be happy to answer them, 6 butwe don't intend to go into detail on the 7 elements betweenUandWthat are similar. 8 Subpart Uprovides for the 9 non-electrical generatingunits ornon-EGUs to 10 participate in the same federal NOx Trading 11 Programas Subpart Wsources, but theyhave a 12 separatebudget, and thatbudget is allocated 13 differently. SubpartXis a voluntaryprogram.14 It provides for voluntary reductions ofNOx or 15 units not subject to the trading program andwas 16 requiredby Section 9.9(d)(3) of the Illinois 17 Environmental ProtectionAct. 18 These are the Subpart Uprovisions 19 that were common to Subpart W. It has the same 20 provisions

-- yes, Mr. Rieser. 21 MR. RIESER: Ms. Kroack, I had a 22 suggestion yesterday. I'd like to do it again. 23 Just so the transcript is clear, canyou indicate 24 at least that you're changing slides orwhen

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1 you're onto the next slide what the heading of 2 the next slide is? It's easier for people to 3 follow along for those who read the transcript to 4 see where you are. 5 HEARINGOFFICERBEAUCHAMP: Thankyou, 6 Mr. Rieser. I was just about tomake that 7 suggestion. 8 MS. KROACK: This is the next slide, and 9 it's called SubpartUprovisions common to 10 Subpart W. It provides as Subparts UandWboth 11 provide for small units to opt-in to the trading 12 program. It has provisions for allowing low13 emitters, those who emit less than 25 tons per 14 season, to opt-out of the program. It has 15 permitting requirements, monitoring, and 16 recordkeeping requirements, reporting 17 requirements, reconciliation requirements, 18 trading andbanking requirements, and 19 incorporations by reference. 20 In our rule, we intended to 21 incorporate by reference those provisions which 22 did not necessarilyneed to be within the text of 23 the rule to make the requirements clear, andwe 24 have a whole list of those if anyone has any

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1 questions on them. 2 The next slide. This slide, the next 3 slide, is entitled SubpartUapplicability. The 4 units subject to Subpart Uare fossil fuel-fired 5 stationaryboilers, combustion turbines, and 6 combined cycle systems that have the maximum 7 design heat input ofgreater than 250 millionbtu 8 perhour, and this is a complicated applicability 9 provision. 10 The next slide, please. SubpartU 11 applicability, continued. That's listed on12 Appendix E, andAppendix Erepresents those 13 existing units subject to this rule that we've 14 identifiedor ifa unit isn't listedon 15 AppendixE, it at no time serves a generator 16 producing electricity for sale orhas the 17 potential to use less than orequal to 50 percent 18 ofthe unit's potential electrical output 19 capacityor is part ofany source as defined in 20 Section 211.6135 listedonAppendix E. 21 HEARINGOFFICERBEAUCHAMP: Ms. Kroack, if 22 I couldjust interrupt for a moment. 23 24 MS. KROACK: Sure. HEARINGOFFICERBEAUCHAMP: The copies

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1 that we have onyour secondbullet point under is 2 not listed onAppendix E, we have a greater than 3 orequal tomark rather than a less thanmark. 4 MS. KROACK: Oh. This shouldbe less than 5 orequal to. I don't know what happened. 6 SubpartWhad a similarprovision. It should 7 have beengreater than, but not greater than or 8 equal to. So I'mnot sure where the confusion is 9 there. 10 Going through these for a minute,11 there are some units that are listedon 12 AppendixEthat do produce electricity for sale, 13 but in the development ofour rule, we decided or 14 determined that those units reallyweren't what 15 we would call electrical generating units. Their 16 primarypurpose tended to be to produce processed 17 steam for the plant internal operations, and 18 those units we listed onAppendixE, but they 19 also

-- some of them also sell electricity to the 20 grid, any excess capacity. The PEOC definition 21 was added to pickup units whose primarypurpose 22 appeared to be to generate electricity, but the 23 small units were less than 250 millionbtu, but 24 used enough capacity of that combustion turbine

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1 stationaryboiler combined cycle system such that 2 theywere pulled into the rule, andwe modified 3 the definition of source or added the definition 4 of source because we were concerned

-- actually, 5 the concernwas expressedby the traditional 6 electrical generating units that newunits who 7 were subject to SubpartUwould also be covered 8 under Subpart Wandwould come into their trading 9 budget. They were very concerned. The concern10 of the EGUs was very that theirbudget was 11 separate because the allocationmethodology is so 12 different, which is the next slide, I believe. 13 Not quite. 14 This slide is entitled 15 implementation. This rule, like SubpartW, 16 begins May 31st, 2004, and it goes through the 17 end of that control period, September 30th, 2004, 18 and thereafter is May 1st through September 30th 19 of eachyear. The reason for the change fromMay 20 1st to May 31st, again, was the decision of the 21 District

-- United States Court ofAppeals for 22 the D.C. Circuit. 23 Shannon, the next slide. Low 24 emitters is the title of the slide. These units

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1 mayopt-out of SubpartUrequirements. To 2 qualify, they're restricted to burning natural 3 gas and/or fuel oil. Theyhave to restrict their 4 mass NOx emissions in the control periodvia 5 FESOP or FederallyEnforceable State Operating 6 Permit to 25 tons or less during the control 7 period, and they're required to demonstrate 8 compliance with that mass NOx emission limits

### 9 through Part 75 monitoring. 10 Part 75 monitoring is shorthand for 11 describing Continuous Emissions Monitoring 12 Systems set forth in 40 CFR Part 75 or through 13 default emissionrates, which allows themnot to 14 use a CEMS, but to actually take a default 15 emission rate table and apply the maximumdefault 16 emission rate to their operating hours to 17 determine theirmass NOx emissions. 18 The next slide is called 19 low-emitters, continued. What's the effect on 20 the non-EGUbudget? That should actually say 21 non-EGUbudget, effect on the budget. Ifthe 22 Agency is ever allocated allowances to the unit 23 who is in the programand that unit opts-out, the 24 budget wouldbe reducedby the mass NOx emission

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1 limit included in that unit's FESOP. 2 If allowances were never allocated to 3 the unit, USEPAhas indicated the budget wouldn't 4 be reduced and the unit is treated as a small 5 EGU, and those allowances wouldbe available for 6 allocationunderthe Subpart Utrading budget. 7 

### Next slide. This slide is the8 allowance allocationmethodology. This is the 9 crux ofmost of the differences between SubpartU 10 and SubpartW. The non-electrical generating 11 units who are primarily inbusiness to create a 12 product andnot to generate electricitywere 13 concerned that they didn't want to be in an 14 updating allocation system. Theyneeded to be 15 able to rely onhaving allowances because they 16 weren't going to be in the business of trading in 17 the market revising the boilers to use lowNOx 18 burners orwhatever the control technology. 19 They reallywanted to knowwhat their 20 allowances were going to be so they couldplan 21 for the future, and afternegotiation with the 22 non-EGUs and the traditional EGUs, the 23 traditional EGUs basically indicated consent to 24 that arrangement as long as the non-electrical

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1 generating units never came into theirpool of 2 allowances for allocation. Essentially, didn't 3 playboth sides of that fence. 4 So what we've provided are the fixed, 5 permanent allocations to those units that we 6 identified as non-electrical generating units7 listed inAppendix E. I know, Ms. McFawn, that 8 you had a questionyesterday about whywe didn't 9 define electrical generating unit in the rule, 10 andwhile it wouldbe helpful, it became 11 difficult, ifnot an impossible process, to 12 define what the primarypurpose was. 13 Some units might have boilers that 14 were using a small portion of the processed steam 15 andwere actually selling a lot ofelectricityon 16 the grid, but actually needed that unit for 17 whatever reason for theirplant's purposes, and 18 they were really

-- the non-EGUs were really 19 concerned that they knewwhat their allocations 20 were andhere's how they treated it. 21 So we tried a number ofdefinitions 22 and none of them seemed to quite cover all of the 23 variations for the listedAppendixEunits. So 24 we chose not to define the difference betweenEGU

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1 andnon-EGU, and, in fact, that's consistent with 2 what USEPA indicated in the Federal Register, 3 that it was very difficult to separately define 4 EGU fromnon-EGU, and that's why they treated 5 them similarlyunder the NOx SIP call.6 The other thing about the allowance 7 allocationmethodology is the amount of 8 allowances that eachunit will be allocatedper 9 season is listed in column five ofAppendixE. 10 Column four ofAppendix Eis the maximumnumber 11 ofallowances they'll everbe entitled to receive 12 from the budget during a control season. It is 13 higher than column five because column five 14 includes a deduction for the New Source Set-Aside 15 for newunits. Ifthat New Source Set-Aside is 16 not used in a particular control season, those 17 allowances then wouldbe allocated to the 18 AppendixEunits. 19 Again, that's indicated in the third 20 bulletpoint where it says, the total number of 21 allowances that couldbe allocatedmaybe 22 adjustedupwardbyunused allowances from the New 23 Sorce Set-Aside, and the reason we use the term 24 may rather than shall is there maybe a situation

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1 where we have a newunit andwe have a handful of 2 allowances left, ten allowances, and it wouldbe 3 impossible to allocate those allowances and list 4 the Appendix Eunits on a whole allowance5 pro-ratabasis, and in that situation, we 6 determined it was fairest to retain the 7 allowances in the budget for use in the next 8 control period oruntil the budget grew large 9 enough to make a pro-rata allocationback to the 10 non-EGUs listed inAppendix E, and it makes it 11 very clear that Subpart Uunits may not 12 participate in the Subpart Wtrading budget. 13 Next slide, Shannon. Allowance 14 allocationmethodology, continued is the title of 15 this particular slide. This is how newunits 16 must obtain allowances. They can average amongst 17 the source or transfer units -- allowances 18 amongst units at the source. They can negotiate 19 for a permanent transfer from another Subpart U 20 unit, which we will recognize. They canmake a 21 purchase within the Federal NOx Trading Program. 22 To the extent that credible 23 reductions are createdunder Subpart X, they can 24 use those to demonstrate compliance, and for new

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1 units, those constructed after January 1st, 2000, 2 for three years they're entitled to purchase 3 allowances from the New Source Set-Aside.4 This slide is entitledNew Source 5 Set-Aside, NSSA. Again, units that are 6 constructedafterJanuary 1st, 2000, are 7 eligible. There's an annual three percentNew 8 Source Set-Aside which is 146 allowances. 9 Allowance mustbepurchased at the market rate 10 from the Agency, andwe must receive that request 11 to purchase allowances byNovember 1st. 12 The next slide. New Source 13 Set-Aside, continued is the title of this 14 particular slide. We will informeligible units 15 of the number ofallowances theymaypurchase by 16 April 1st. Ifa New Source Set-Aside is 17 oversubscribed in that there are more requests 18 for allowances than there are allowances 19 available, we will allocate allowances on a 20 pro-ratawhole allowance basis. Any allowances, 21 again, remaining in the New Source Set-Aside may 22 be returned to the quote, Appendix Eunits, 23 again, only ifthey canbe returned on a whole 24 allowance pro-ratabasis.

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1 That really concludes our 2 presentation on SubpartU, and those are the3 material ways in which it differs from Subpart 4 W. Subpart Xis different, substantially 5 different. Again, it was requiredby Section 6 9.9(d)(3) of the Act. This slide is entitled 7 Subpart X. 8 Again, it was requiredby Section 9 9.9(d)(3). It required the Agency to propose and 10 the Board to adopt a voluntaryNOx reduction 11 system that would create additional allowances. 12 The intent of this subpart is to transferNOx 13 reductions from the non-trading portion of the 14 state budtet to the trading portion. In the NOx 15 SIP Call, USEPA set a statewide NOxbudget for 16 each state that was subject to the SIP Call. 17 That includedmobile on-road and off-road 18 sources, area sources, the categories we just 19 listed, and a number ofother, what they call, 20 small sources that weren't coveredby the 21 applicability requirements. 22 The state of Illinois and the Agency 23 as its representative in this matterhas to make 24 a showing under the NOx SIP Call to USEPA

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1 triennially that we are meeting that state2 budget. We have proposed Subpart Xandwe are 3 going to be submitting it to USEPA as a SIP 4 revisionwith the intent that ifwe can 5 demonstrate that we have obtainedNOx reductions 6 from the non-trading portion, we shouldbe 7 allowed to remove those reductions or those 8 allowances, in effect, into the tradingportion 9 of the budget to help sources meet their 10 requirements under these rules. 11 9.9(d)(3) provided that any 12 reductions mustbe verifiable, quantifiable, and 13 federally enforceable. So this rule attempts to 14 address all of those requirements. 15 Next slide, Shannon. EligibleNOx 16 emissionreductionunits is the title of this 17 slide. The unit fromwhich reductions are 18 obtainedmust emitNOx, theymust be fossil-fuel 19 fired, and theymust discharge through the 20 stack. They cannot be subject to Subparts T, 21 which is the rule for cement kilns; U, the 22 proposal before you today for non-EGUs; V, which 23 is the rate-based rule for electrical generating 24 units; orW, which is the NOx SIP Call rule for

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### 1 electrical generatingunits of Part 217. They 2 cannotbe what is called a retiredunit under 40 3 CFR 96.5. They cannotbe an opt-inunit under 4 Subparts UorW. 5 So it's whatever other type of small 6 unit that emits through a stack that maybe out 7 there that isn't taking advantage or isn't 8 subject to one ofthese requirements. 9 Next slide, Shannon. This slide is 10 NOx emission reductionproposal. The way Subpart 11 Xhas been drafted is it requires whoeverwants 12 to participate in a Subpart Xreduction to submit 13 a proposal to the Agency for review and 14 approval. We have elements that must be 15 contained in that proposal. 16 First of all, the proposal must 17 obviously identify the reductionunit, unit from 18 whichNOx reductions will be obtained. It has to 19 identifyhow that reduction will be obtained, 20 whether it's through shutdown of that unit, 21 application of a control technology that reduces 22 emissions out ofthe stack, orwhether the 23 unit

-- unit oroperators ofthe unit accepts a 24 permit reducingNOxby taking a limit on the

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271 hours ofoperationoremissionrate. 2 This title is NOx emissionreduction 3 proposal, continued. The reductionproposal 4 requires that the owner/operator request a cap on 5 NOx emissions from similar emissionunits similar 6 to the reductionunit, and the theory in this was 7 we wanted to have a measure that prohibited 8 reduction shifting so that ifan owner/operator 9 came in that had two boilers, they simplyjust 10 didn't shut down one and ratchet up the 11 production ofa boilerright next to it, which 12 reallywouldn't reduce NOx emissions in the air 13 shed. 14 During negotiations, a number of 15 industrywho intended to orhoped to take 16 advantage of this proposal raised some concerns 17 about that. They saidwe -- initially, the 18 proposal said all NOx emitting units, and they 19 reallymade the point that it shouldbe limited 20 to similar emissionunits when what we were 21 concerned about was production shifting, andwe 22 agreedwith that. 23 So this provision excludes units that 24 are already subject to Subparts UorWon the

L.A. REPORTING (312) 419-92921 theory that they're already coveredby another 2 proposal. So whatever theirproduction limits 3 are, they're within one portion of the federal 4 cap, and an example that I gave, ifthe unit is a 5 boiler, include all otherboilers, turbines, or 6 combined cycle systems, turbine or combined cycle 7 system. 8 The next element of the NOx emission 9 reductionproposal is theyhave to identify 10 baseline emissions for both the reductionunit 11 and each of the cappedunits, and then they have 12 to demonstrate how they're going to show 13 compliance via emissions monitoring or testing. 14 Next slide. Theyhave to obtain a 15 FESOP to address the elements of the proposal. 16 This, again, is a new slide, NOx emission 17 reductionproposal, continued. It wouldbe the 18 thirdone with this same title. The 19 owner/operator also has to annually certify that 20 reductions were obtained. The way the proposal 21 is drafted, reductionwouldbe obtained in one 22 control period, but wouldnot be eligible to be 23 used following the control period, and theywould 24 be eligible once that owner/operator actually

L.A. REPORTING (312) 419-9292 281 certifiedthat those reductions were, in fact, 2 obtained. Again, this provides an element of 3 certainty to this process and hopefullywill make 4 this Subpart Xapprovable, that is, inUSEPA's 5 review. 6 Next slide, limit onNOx reductions. 7 There are -- we went through the proposal. We 8 made a determination that units had to meet 9 certain criteria to qualify other than the ones 10 we previously stated. One is that theyhad to 11 have beenoperatedbefore January ist, 1995, and 12 the reason for that is whenUSEPA set the 13 statewide budget for the NOx SIP Call, they used 14 1995 as the base year. They identified all 15 emissionunits that were out there in 1995. 16 They allowed for some growth, and 17 they also took into account that some units would 18 actuallybe shut down andwould reduce emission 19 andwouldgo out of service. So, again, that's 20 an element ofhopefullymaking this proposal 21 acceptable to USEPA. We felt that ifwe could 22 tie it to an emissionunit they actually 23 identified in that inventory, we wouldhave a 24 greater likelihood that this proposal wouldbe

L.A. REPORTING (312) 419-9292 291 accepted and, in fact, it's consistent with its 2 purposes of a budget shift. 3 The unit, going forward, if it 4 decided that it no longer wanted to keep that 5 limit on operatinghours or its NOx emission 6 rate, if for some reason it found the control 7 technologywas not meeting the reduction 8 requirements orwas interfering with its 9 operations for whatever reason, they can elect to 10 withdraw the proposal in theirpermit, but 11 there's a procedure for that. Since those 12 allowances have beenmoved into the trading 13 portion of the budget, there need to be some 14 mechanisms for reviewing the withdrawal of the 15 proposal as well. 16 Another element of limiting the use 17 of those NOx reductions is that 80 percent of the 18 NOx reductions are deemed credible under this 19 proposal and 20 percent are retired for air 20 quality. The reason for this is simply that 21 Subparts UandWalreadyprovide for small units 22 to opt-in, but theyprovide that they opt-in and 23 they use Part 75 monitoring whichUSEPAbelieves 24 is a verygood surrogate for comparing NOx 30L.A. REPORTING (312) 419-9292

1 emissions from one unit to another, andwe are 2 not requiring this in the proposal. 3 Part 75 monitoring is expensive, 4 especially ifyou're intending to shut down a 5 unit. It makes no sense to apply it for a year 6 andhave the unit operate whenyou have a number 7 for that unit in the 1995 inventory, but we 8 retired 20 percent of those reductions for air 9 quality orwe propose to do that because we 10 believe that that adds a measure of certainty to 11 this proposal for USEPA as well. Even though 12 Part 75 monitoring is not being used, they can 13 have some assurance that the NOx reductions that 14 we believe were being obtained are, in fact, 15 being obtained from these units. 16 The next slide is limit onNOx 17 reductions, continued. Again, this is just the 18 purpose of the 20 percent NOx reduction unit. 19 The units aren't required to conduct Part 75 20 monitoring. An additional element is that 21 shut-downunits are not limitedunder Subpart

## x. 22 Opt-in units under Subparts Wreally envision the 23 NOx SIP Call. These units would continue 24 operatingbecause theywould get an allocation 31L.A. REPORTING (312) 419-9292

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1 basedon heat input orUSEPA saidyou could do an 2 output based allocationmethodology ifyou 3 developed one, although they didn't develop one 4 in theirproposal, and in this situation, they 5 really envisioned that shut-downunits wouldjust 6 no longerbe eligible to receive allowances. It 7 wouldbe out of the system, and, in fact, they 8 accounted for that and said theywere statewide 9 budgets. 10 So this Subpart Xis significantly 11 different in that regard in that shut-down 12 reductions canbe used into the future as long as 13 that source maintains compliance with its cap on 14 similar emissionunits. 15 Next slide, Shannon. As I spoke 16 before -- this is titledbaseline emissions 17 determination. The owner/operatorhas to submit 18 a baseline emissions determination for each of 19 the units subject to the cap in the reduction 20 unit. We determined thatbased on the use of a 21 1995 inventory in setting the budget that that's 22 where we shouldbegin. We should look at 23 emissions during 1995, andwe determined that we24 would

-- the best source of information for that

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33

1 wouldbe as reportedby the owner/operator in the 2 annual emissionreport, andwe would take the 3 seasonal component of that or 5/12ths. 4 The next slide. This is baseline 5 emissions determination, continued, next slide. 6 There wouldbe some sources, though -- we lost 7 it. There wouldbe some sources, though, that 8 might not have an annual emissionreport in 1995 9 for one reason or another for whom that report 10 wouldn't have beenrepresentative and those would 11 be the capped emissionunits that aren't the 12 reductionunit. So we allowed for a procedure of 13 looking at what mayhave been included for that 14 source in the 1995 budget orwhat mayhave 15 been -- maybe able to be determinedby 16 subsequent annual emission reports. 17 If there were no emissions in 1995, 18 there was cappedunits that aren't the reduction 19 unit, and there was no inventory amount, we would 20 look at the average emission rate times the 21 average number ofhours ofoperation for two of 22 the three previous control periods prior to the23 proposal submittal, and that wouldbe the most 24 recent data that we wouldhave we wouldbe able

L.A. REPORTING (312) 419-9292

1 to justify that to USEPA andwe wouldbe able to 2 then hopefullymove that unit into the trading 3 portion of the budget. 4 I have a couple ofmore housekeeping 5 matters. We have been in discussions with 6 industry groups on a couple ofprovisions in 7 Subpart X, and they requested some changes after 8 theproposal was filed. We have agreed to make 9 two of the three. The thirdone we are still 10 negotiating. We do not have that language in 11 final form today to submit, but I wanted to 12 briefly state what the two elements are for the 13 record. 14 In Section 217.805(g), we have a 15 provision that says a NOx reductionunit can't be 16 one that generatedoffsets under the New Source 17 Review Programor 35 Ill. Adm. Code Part 203. 18 The theorywas we didn't want reductions to be 19 double-counted, both for the purposes of the SIP 20 Call and for the purposes ofnew source review. 21 However, we took a closer look at the NOx SIP 3422 Call, andUSEPA indicates, but does not formally 23 state, that theybelieve reductions could 24 probablybe used for bothpurposes and that they

L.A. REPORTING (312) 419-9292

1 intended to issue guidance a thirdday. 2 They, of course, have not done that, 3 but basedon that statement in the SIP Call, we 4 felt it was appropriate to go ahead and allow 5 those reductions to be double-counted to the 6 extent that that was applicable. 7 However, the A(20) provisionwould 8 still apply. So we'reproposing to delete 9 Section 217.805(g). Also, industry raised a 10 point that they felt there might be units who are 11 subject to SubpartWwho might want to be subject 12 to Subpart Uinstead, and the Agencyhas no 13 objection to that as long as the budget for 14 SubpartWis not decreased. We obviouslyprovide 15 forpermanent allocations under Subpart U. Ifwe 16 allowed every source that was subject to Wto 17 move, they wouldobviouslydo that and they'd 18 take their allocations with them ifthey felt 19 they could. 20 Obviously, that's not consistent with3521 SubpartWand its allocationmethodology. So 22 we've said to the extent a unit maywant to move, 23 it may do so as long as it realizes it's not 24 taking any allocation from SubpartWor Subpart

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36

1 U. Small chance that that provisionmight be 2 used, but industrywas concerned that it might 3 actually occur. So we have agreed to add the 4 language, and that would appear in Section 5 217.654, and we'll have that later. 6 We have another concern that industry 7 has raised that we have not quite worked out and 8 we hope to do that in the next week or so and 9 submit that to the Board. It's the revised 10 language in the motion to amend. We also will 11 have a rather lengthy errata sheet which are 12 basicallybecause we finished these rules in a 13 verybig hurrybased on time constraints and it 14 wasn't quite as neat as it needed to be. So we 15 have a number ofminor, minor revisions that 16 don't change the substance of the rule, but are 17 necessary to make consistent formatting and 18 consistent language throughout. That will be 19 following later in the week as well.20 We have one last item. We submitted 21 an economic andbudgetary analysis for Subparts U 22 andXto the Board, and I'd like toprovide some 23 supplemental information on that matter. We 24 typically state in those that there are no

. L.A. REPORTING (312) 419-9292

37

1 additional costs to the Agencybecause we find 2 costs for administering each of these regulatory 3 obligations difficult to assess in that they 4 cover so many areas. They cover the development 5 of the proposal. They cover computer support. 6 They coverpermitting. They cover compliance. 7 They cover enforcement. 8 Typically, we say that itprovides 9 there are no additional costs to the Agency, but 10 in that regard, this program is different in that 11 it's administratively complex and it will require 12 significant resources. We will have to set up a 13 systemfor tracking howwe make allowance 14 allocations and reporting those to USEPA. 15 Subpart Xwill require a whole provision of 16 monitoring budget shifts andwhether those are, 17 in fact, occurring that require permitting 18 permits to be issued covering all of these19 requirements for bothUandX. It will require 20 greater accuracy andmore detailed reporting by 21 the Agency to USEPA, and also the fact that this 22 Section 9.9, unlike other statutory authority for 23 the Agency, actually allows us to recoup those 24 costs, andmost of the rest of the Environmental

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1 ProtectionAct does not allowus to recoup costs 2 for anyparticular regulatoryprogram. 3 So we have gone through and done a 4 preliminaryestimate of the cost ofwhat we call 5 a full-time equivalent personnel time and an 6 estimation of administrative costs, andwe 7 believe that these costs will be approximately 8 $700,000 for the program, andwe will be 9 including that and some supporting information in 10 a document later in the proceeding. 11 HEARINGOFFICERBEAUCHAMP: Thankyou, 12 Ms. Kroack. 13 Is there anything further from the 14 Agency? 15 16 MR. SHARPE: Canwe have a moment? HEARING OFFICERBEAUCHAMP: Why don't we 17 go offthe record?18 19 20 21 (Discussionhad off the record.) (Briefpause.) HEARINGOFFICERBEAUCHAMP: Before we 22 continue, I'd like to note that at the beginning 23 ofMs. Kroack's testimony, we were joinedby 24 BoardMemberMelas, andwe have justbeenjoined

L.A. REPORTING (312) 419-9292

1 byBoardMember Flemal. 2 Does the Agencyhave anything 3 further? 39

4 MS. KROACK: We do have two things. I 5 misspoke when I was describing potential 6 electrical output capacity. I tied it to the 7 size ofthe boiler. It's actually tied to the 8 size ofthe generator. It applies ifthe 9 generator is less than 25 megawatts, andwe note 10 that there's some ambiguity in the rule on 11 whether Subpart Xcanbe used for reductions for 12 internal combustion engines and with respect to 13 opt-inunits that wemaybe clarifying in the 14 future. 15 As youmaybe aware, the NOx SIP Call 16 hadprovisions addressing reductions for internal17 combustion engines, but the Court remanded that 18 portion of the rule to USEPA for some 19 clarification. We actually expected that rule to 20 have been issuedbynow. We believe it's going 21 to be forthcoming shortly. However, internal 22 combustion engines will be one of those 23 categories that we don't believe could 24 participate in Subpart Xbecause theywill

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1 eventuallybe subject to the SIP Call ifthey're 2 not currently listed in those exclusions for 3 reductionunits at this point in time. So we'll 4 be addressing something on that inourmotion to 5 amend next week. 6 HEARINGOFFICERBEAUCHAMP: Thankyou. 7 Ms. Kroack, there were several slides in the 8 packet that you submitted to the Board as an 9 exhibit that you didnot touch on inyour 10 testimony. 11 Are those going to be addressed 12 later? 13 MS. KROACK: Well, we submitted themas a 14 package because we felt if there were questions 15 on those particular aspects inUthat are the16 same as W, we have slides that I will be speaking 17 from to answer questions that aren'tjust clear 18 through a verbal transcript. So we included them 19 in the package, but we didn'tpresent them, and 20 they're similar to the slides that wepresented 21 in ourhearings on SubpartW. 22 HEARINGOFFICERBEAUCHAMP: Thank

### you. 23 Mr. Sharpe, would the Agency like to 24 offer anything further in support of its

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1 proposal? 2 MR. SHARPE: No. Ourpresentation is 3 complete. We're available to answer questions on 4 Ms. Kroack's presentationor any of the prefiled 5 testimony. 6 HEARINGOFFICERBEAUCHAMP: Thank

### you. We 7 will thennowproceedwith questions for the 8 Agencywitnesses. As I previouslymentioned, if 9 you do have a question for the Agencywitnesses, 10 please raise yourhand andwait for me to 11 acknowledge

### you, andwhen I do, please state your 12 name and the organization

### you represent, if any. 13 This is kind of a large room. So it also might 14 be helpful if

### you were to come to the front and15 take one of the front seats so that it will be 16 easier for the boardmembers, the Agency 17 witnesses, and the court reporter to hearyou. 18 Are there anyquestions for the 19 Agencywitnesses? 20 MS. HIRNER: Thankyou. Myname is 21 Deirdre Hirner, and I'mthe executive director of 22 the Illinois Environmental Regulatory Group, 23 IERG, and, of course, as you know, IERG 24 represents 68 companies in the state of Illinois

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1 inmostly negotiations, andwe represent their 2 interests before the Agency andbefore the Board, 3 and I have a very few questions today that I 4 would like to ask of the Agency that will, for 5 us, clarify a little bit of the background and 6 the intent of the Agency on some of the 7 provisions that have been included. 8 I, fortunately, have very, very few 9 questions because we have had a verygood 10 cooperative working relationship with the Agency 11 throughout this regulatoryproceeding, andmost 12 ofmy questions, again, very few, I would like to 13 directprobably at Ms. Kroack.14 15 HEARINGOFFICERBEAUCHAMP; Please. MS. HIRNER: My first question is in 16 regard to proposed Part 217.805, emissionunit 17 eligibility, and inyour testimony atpage 17, 18 you indicated that the Agency's concernwas that 19
.post-1995 units are not included in the 1995 20 baseline and, thus, are not eligible for shifting 21 into the trading budget. 22 Is that a correct understanding of 23 that? 24

1 MS. KROACK: Yes.

L.A. REPORTING (312) 419-9292

MS. HIRNER: Thenmynext question would 43

2 be, wouldyou agree, though, that post-1995 unit 3 emissions reductions canbe made verifiable, 4 quantifiable, and federally enforceable or, to 5 the contrary, ifnot, couldyou explainwhy they 6 couldn't be verifiable, quantifiable, and 7 federally enforceable? 8 MS. KROACK: I guess that my response to 9 that is it depends onhowyou define verifiable 10 and quantifiable. What we're proposing orwhat 11 Section 9.9(d)(3) requiredwas a shift from the 12 trading budget ornon-trading budget. Since13 these units weren't included in the budget at 14 all, we believe that verifying and quantifying 15 reductions from those for the purposes of a shift 16 from one budget to the other is not possible and 17 probably not prudent for this proposal. 18 MS. HIRNER: But couldyou elaborate a 19 little bit on that by explaining why the Agency 20 is treating Subpart Xeligibility different than 21 Subpart Uor Subpart Wopt-inunit eligibility? 22 MS. KROACK: The reason for that is that 23 SubpartUand Wby requiring Part 75 monitoring 24 and the same set ofprovisions as UandWand

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1 USEPA and the NOx SIP Call, ifyou examine those, 2 it will indicate that they have confidence that 3 the emissions are -- that they canverify 4 emissions and emissions from that unit

-- one ton 5 ofNOx from that unit is the same as one ton of 6 NOx from anotherunit. 7 So, in essence, they're comparing 8 apples to apples rather than apples to oranges. 9 Because the monitoring provisions for Subpart X 10 are not as stringent and the whole host of the 11 Federal NOxTrading Programrequirements that are12 in the SIP Call are not applicable to Subpart X 13 units, we believe that we can't quantifymass NOx 14 emissions in the same regard, and, therefore, 15 this is sort of a safetyelement or a measure of 16 approvability for this proposal. 17 MS. HIRNER: I wouldnow like to turn your 18 attention to proposed 217.810, participation 19 requirements, and inyourprefiled testimony, at 20 page 18, you indicated that it was the Agency's 21 contention that an emission cap on like units 22 subject to exclusions, and there are a number of 23 exclusions laid out, is needed to assure the 24 integrityof the program.

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1 Now, proposed Part 217.835(a)(5) 2 allows for unit exclusions from the emission 3 cap. Couldyouplease explain the**proble~** or the 4 concerns regarding production shifting that the 5 Agency is attempting to address by imposing this 6 emissions cap? 7 MS. KROACK: The simplest example that I 8 can think of, and there are tons and there are 9 iterations upon iterations, wouldbe simply a 10 company that has two process boilers to create11 steam, running both of those at less than full 12 capacity, say one at 50 percent and one at 60 13 percent, and for whatever reason they elect to 14 shut down one unit and increase the capacity of 15 the otherunit, thereby, that the environment 16 doesn't see a net reduction inNOx emissions from 17 that source, only from one unit that has been 18 shifted to anotherunit and, therefore, the 19 integrity of the budget has not beenpreserved. 20 MS. HIRNER: Further on inyour testimony, 21 page 18, you had indicated that a primary 22 difference between opt-inunits versus Subpart X 23 units is Part 75 monitoring requirements for the 24 opt-inunits.

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1 MS. KROACK: That's one of the major 2 probably the critical difference. 3 MS. HIRNER: Is monitoring something 4 that's any type of a real issue if either a unit 5 shuts down or does not operate at all during the 6 control season? 7 MS. KROACK: The monitoringprovisions 8 essentially, the NOx SIP Call allowed for units 9 to opt-in, but it didn't envision a structure10 that those units wouldopt-in and then shut down 11 because they envisioned an allocationmethodology 12 based either onheat input oroutput based 13 allocations. So the unit would, in fact, have to 14 be operatedto receive an allowance, and they 15 also have the retiredunit exception that they're 16 not allowed toparticipate in the trading program 17 under40 CFR. I think 96.5 is the correct 18 reference. 19 Subpart Xis different in that we are 20 moving units inwho want to shut down and 21 allowing them to continue to receive an 22 allocation into the future, whichwas not 23 envisionedby the NOx SIP Call, andUSEPAmakes 24 it very clear in the SIP Call and in theirmodel

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1 rule that Part 75 monitoring is critical to the 2 trading program. 3 MS. HIRNER: Let's say a Subpart Xunit 4 that shuts down and transfers its emissions to a 5 SubpartUor a SubpartWunit, would the 6 verifiable and quantifiable reductionbe the 7 Subpart Xunits baseline minus zero and, if so, 8 howdoes monitoring enter into those9 calculations? 10 MS. KROACK: The credible reduction would 11 be that baseline determination, 80 percent of 12 that baseline determination, 20 percent ofwhich 13 wouldbe retired for air quality. Again, it's 14 because we haven't had Part 75 monitoring applied 15 to that unit for anyperiod of time to verify 16 that unit's mass NOx emissions during the control 17 season. 18 MS. HIRNER: Now, I'd like to turn your 19 attention to proposed 217.835 whichwould allow a 20 source to demonstrate that like units shouldnot 21 be subject to the cap by ensuring thatproduction 22 shifting would not occur. 23 Canyou elaborate onhow that 24 demonstration wouldbe made?

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1 MS. KROACK: Frankly, no. I mean, maybe 2 Mr. Romaine can, but let me justmake this 3 statement. We included this language because we 4 realized that in drafting a rule, we couldnot 5 envision every scenario that might occur in the 6 future, andwe didn't want to have a blanket 7 prohibition that didn't allowus to examine8 unique factors. So I can't come up with an 9 example, but Mr. Romaine feels he has an answer. 10 MR. ROMAINE: I think that the concept 11 would still apply, but we'dbe talking about a 12 more refined examination ofwhat is, in fact, a 13 like unit. 14 We might examine a facility that has 15 a number ofboilers, as Ms. Kroackhas given in 16 her example. We might simply start from our 17 perspective and say they are all like boilers. 18 However, the source would come in andpoint out 19 to us, in fact, that there are two boiler 20 systems, maybe a high-pressure boiler systemthat 21 is limited in its function and certain types of 22 activities as well as a low-pressure heating 23 boiler system, and they couldpoint out to us 24 that because the reduction only involves the

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1 high-pressure system, it's sufficient to 2 establish this cap on the high-pressure system so 3 that a more refined examinationofwhat are the 4 likelihoods shouldbe limited to focusing on the 5 high-pressure boilers. 6 Again, as Ms. Kroackhas said, this7 does provide room for further evaluation on a 8 case-by-case basis of the circumstances of a 9 particularproject to see howbroad a cap needs 10 to be to assure that we are getting real 11 reductions that were recognized through separate 12 ends. 13 MS. HIRNER: Andjust to, again, help me 14 think through this about the cap on the like 15 emissions, I'mgoing to give a very simple 16 example. Ifwe assume that a source adds a whole 17 newprocess, a whole newprocess plant to build 18 widgets, and that whole newprocess plant is a 19 carbon copy of the existingplant, but it's at 20 some point in the future and its growth

-- it's 21 related to growth and demand at that plant, that 22 newprocess plant requires a newboiler, the same 23 type ofboiler as the oldplant had, would this 24 newboilerbe exempt from the capbecause it was

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1 newproductionorwould it be boundby that cap? 2 MS. KROACK: Unless the source made some 3 unique demonstration, it wouldbe boundby the 4 cap, and the reason is is while there maybe a 5 separate plant, production shifting from that6 process to the otherprocess could still occur, 7 and ifyoumade 100 widgets overhere andyou 8 designed this one that you couldmake up to 200, 9 youmovedhalfofyourproduction fromhere to 10 halfof it here, and it wouldbe still be facing 11 the same situation. 12 So growth in and of itselfwill not 13 remove a unit from the cap. There wouldhave to 14 be a more refineddemonstration that could occur, 15 but I don't knowunderwhat circumstances it 16 wouldnecessarily occur. 17 MS. HIRNER: Now, I have some questions 18 about some different points. Inyour testimony 19 onpage 19 in regards to proposed 217.825 that 20 requires 80 percent of the verifiable, 21 quantifiable, and federally enforceable emissions 22 reductions will be allocated in a shut-downunit 23 while 20 percent will be retired in cases ofboth 24 reductions and shutdowns, canyouplease explain

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1 your rationale behind the 80/20? 2 MS. KROACK: The 80/20, again, is because 3 we are making a shift from the non-trading 4 portionof the state budget to the trading5 portion, andunder the Federal Trading Program, 6 because the trades are made on a regional basis 7 and not just within the state of Illinois, it is 8 not a programthat the Illinois EPA administers. 9 In fact, USEPAadministers all critical elements 10 of that program. 11 We felt to add an element of 12 approvability to basicallyencourage USEPA to 13 approve this program and the lackof Part 75 14 monitoring we had to have some reduction inwhat 15 emissions wouldbe usable and credible under the 16 trading programbecause we weren't necessarily 17 measuring mass NOx emissions pursuant to Part 75. 18 So, therefore, this was an element 19 that we felt was appropriate andnecessary to 20 help us inpushing this programwithUSEPA and 21 hopefully as a SIP revision. 22 MS. HIRNER: Even though as we reviewed 23 the proposal andwe have the opt-inprovisions 24 for UandWwhichdon't have an 80/20

L.A. REPORTING (312) 419-9292

1 requirement, what is the reasonbehind treating 2 these two types differently, the opt-ins inXand 3 the opt-ins inUandWwhenUSEPAhasn't required524 that 80/20? 5 MR. ROMAINE: As Laurel has explained, 6 it's important to remember that acid rain 7 monitoring under Part 75, by the way, canbe 8 requiredbefore the reduction and after the 9 reduction. For Subpart X, we're not requiring 10 Part 75 monitoring in eitherpoint. Under 11 SubpartU, Part 75 monitoring is requiredbefore 12 the fact to verify the amount of available 13 emissions. 14 So under Subpart X, there's no 15 subpart -- Part 75 monitoring to verify or 16 quantify the amount of reduction that's being 17 converted into allowances. 18 MS. HIRNER: Ifwe're looking at this, and 19 as I understand, you said that XandW 20 anticipated there wouldbe no shutdowns? 21 22 MS. KROACK: Uand W, correct. MS. HIRNER: Uand W, but that Xis a 23 shutdown. So if

-- it couldbe that there will 24 be a number of shutdowns.

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1 So thinking about that, does the 2 Agencybelieve that ifyou were to allocate 1003 percent of the verifiable, quantifiable, and 4 federally enforceable reductions from the Subpart 5 Xunits rather than 80 percent, do you see that 6 as having the potential to be in conflict with 7 the federal program? 8 MS. KROACK: Subpart X, as it stands, is 9 not -- is in conflict with the trading program. 10 It's notprovided for by the tradingprogram. 11 It's something different. It's something 12 unique. It's something that we are going to have 13 to sell to USEPA and obtain their acceptance of 14 to be able to use it effectively. 15 So we were trying to build in 16 elements to sort ofmake up for the lack of Part 17 75 monitoring, whichwe understood that sources 18 who were shutting downunits did not want to have 19 to do because of the cost of installing it for a 20 year and then taking it off, and they felt that 21 that was anunreasonable expenditure. 22 They also didn't want to use it for 23 units that were making reductions into the future 24 through control technology or limits on rates.

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1 We accepted that comment, but we felt that since2 we weren't going to require Part 75 monitoring, 3 we had to do something to sort of equalize those 4 NOx emissions so that the actual reductions that 5 we were presenting to USEPA theywould treat as a 6 ton of the NOx allowance, which is one ton ofNOx 7 under the trading program. We felt the 80/20 is 8 necessary for that element of the program. 9 WhetherUSEPAwill accept it ornot 10 remains to be seen, but we added it, we felt, as 11 an element to help us in getting this proposal 12 approvedbythem. 13 MS. HIRNER: This is my last question. 14 Inyour testimony onpage 14 15 regardingproposed rule 217.668, the New Source 16 Set-Aside for Subpart U, youhad said that this 17 was intended to assure that approval of 18 allowances wouldbe available forpotential new 19 sources. 20 Is it the Agency's beliefthen that 21 these allowances maybe difficult to come by and 22 that's why the pool is needed or if the 23 allowances will not be difficult to come by, then 24 what is the pool needed for?

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551 MS. KROACK: We do not believe that once 2 the program is up and running

-- the federal 3 programis up and running allowances will be 4 difficult to obtain. However, we felt that as a 5 matter of economic growth in this state, we had 6 to reserve a small pool, it's 146 allowances, in 7 the event that for one reason or another 8 allowances were difficult to obtain in anygiven 9 yearunder any given situation, and this was just 10 a decisionbecause we have a New Source Set-Aside 11 provided for the Subpart Wbudget where we know 12 we have growth. Subpart U, we're not sure that 13 we'll have growth, but we felt it was a 14 safeguard. 15 We do provide if these allowances are 16 not utilized that we will, in fact, reallocate 17 themback to the units listedonAppendix Eand 18 the portions fromwhich theywere taken. 19 MS. HIRNER: Those are my questions, and 20 I'd like to thankyou for givingme the 21 opportunity to be here today and for having these 22 proceedings. 23 MS. McFAWN: You're welcome, andyour 24 questions were very interesting andhelpful to

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### 1 the Board. 2 

### HEARINGOFFICERBEAUCHAMP: Thankyou, 3 Ms. Hirner. 4 Dowe have any otherquestions for 5 theAgencywitnesses? 6 

### MR. GRIFFITHS: Joe Griffiths and I'm 7 representing the University of Illinois, 8 Champaign-Urbana campus primarily, and, again, 9 thankyou for the opportunity to come today and 10 askyou a couple ofquestions. 11 Laurel, primarily, I justedwanted to 12 clearup on the question on the emission cap in 13 SubpartX. 14 Can itbe assumed that that wouldbe 15 based on allowable emissions? 16 

### MS. KROACK: No. It's based onbaseline 17 emissions, and that's as you report it inyour 18 annual emissionreport. 19 MR. GRIFFITHS: So all the units back in 20 1995 wouldhave to be

-- based on the cap would 21 be basedon those emissions? 22 

### MS. KROACK: It's based onwhat you report 23 as your actual emissions, correct, not 24 allowables.

L.A. REPORTING (312) 419-92921 MR. GRIFFITHS: The otherpoint is, and 57

2 this is more just for the record, the University 3 of Illinois hadnot beenparty to a lot of the 4 initial actions regarding the rule, and 5 HEARING OFFICERBEAUCHAMP: I'm sorry. 6 Will you hold onwhile we swearyou in ifyou're 7 going to be presenting testimony? 8 Wouldyou allow the court reporter to 9 swearyou in first? 10 MS. McFAWN: It sounded as ifyou were 11 about to testify, which is excellent, but you're 12 going to tell the conditions at the Uof Ii is 13 that correct? 14 15 point. 16 MR. GRIFFITHS: I just wanted to make a

MS. McFAWN: Let's have you sworn injust 17 in case we need to. 18 (Witness sworn.) 19 MR. GRIFFITHS: Just a point for the 20 record is that in the beginning a lot of the 21 development of the rule on this on the national 22 level and the development ofAppendixE, a list 23 of sources that were affected, was done in the 24 case ofUniversity of Illinois without their

L.A. REPORTING (312) 419-92921 knowledge. 2 The source that's affected at the 3 Champaign-Urbana campus is approximately 260 4 millionbtu. Theyhaveplans in the future to 5 derate the unit andbring it below 250 and their 6 hope hadbeen at one point to try to excuse the 7 unit out of theprogram. 8 In discussions with IEPA, and I must 9 say, you know, they've beenvery cooperative, it 10 is the positionof the state that USEPAwill not 11 allow sources out of the

-- what was established, 12 andmypoint is that it's going to add an 13 additional burden of cost to the university to 14 setup the Part 75 monitoring in the future for a 15 unit that's obviouslygoing to be cleanerbecause 16 of the cost they're going to spend to improve the 17 efficiency of that boiler. 18 So the point being that unfortunately 19 at the beginning of a lot ofnegotiations, some 20 of the sources that are affected here today 21 weren't necessarilyparty to the point where they 22 couldmake some initial effort to get out of the 23 program. 58

24 MS. KROACK: I'd like to respond to that.L.A. REPORTING (312) 419-9292

1 Mr. Griffiths is right, I believe. I wasn't 2 involved in the early negotiations either. This 3 process has beengoing on for several years and 4 it predatedmy involvement, but as far as the 5 limit on the size of the boiler, that's actually 6 set by the NOx SIP Call. We were not given any 7 discretion in that regard. 8 However, there are low-emitter 9 provisions that ifyou can establish that you 10 have less than 25 tons per seasonby other 11 monitoring or the application of the default 12 rate, thenyou canget out of the program. So 13 that's available to you if it meets your needs 59

14 HEARINGOFFICERBEAUCHAMP: Do youhave 15 anything further, Mr. Griffiths? 16 MR. GRIFFITHS: The university is aware of 17 that option. However, had they been involved 18 earlier, theyprobablywouldhave put in for 19 derating of 245 andbeen allowed their existing 20 emissionrate of approximately 200 to 300 per 21 season. 22 HEARINGOFFICERBEAUCHAMP: Thankyou. 23 You'll also have an additional opportunity to 24 testify at the secondhearing, ifyou choose, inL.A. REPORTING (312) 419-9292

1 greaterdepth. 2 Are there any other questions? 3 Mr. Rieser. 60

4 MR. RIESER: Yes. I justhave a very 5 few. The first one has to do with the first 6 definition in Section 211.4067, NOx trading 7 program, which looks suspiciously like a 8 suggestion I think I made in the last SubpartW 9 rulemaking, although I do have a question about 10 the language, and this maybe part of the speed 11 withwhich this was put together. 12 It says that the

-- forpurposes of 13 35 Illinois 0217, Subparts UandW, the NOx 14 tradingprogram, shall meet, m-e-e-t, the 15 requirements of35 Illinois Administrative Code 16 217, et cetera, and I'mwondering ifthat should 17 be mean, m-e-a-n? 18 19 20 MS. KROACK: It shouldbemeet. MR. RIESER: How is that? MS. KROACK: Well, wait a minute. Wait a 21 minute. No. Mean is the termused. It may not 22 be the most artful term, but basically we're 23 saying whenwe define NOx trading program, we're24 defining it as what's appearing in 35 Illinois

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1 Administrative Code 217 Subparts UandWand the 2 provisions of the federal trading programthat we 3 incorporatedby reference in Subparts UandW. 4 MR. RIESER: So would the wordbe mean, 5 andwhenyouuse the term, it means those 6 things 7 MS. KROACK: My

-- okay. The difference 8 is the Board's first notice, what we have. Ours 9 says mean. So that's why I was confused. It 10 should saymean. The first notice says meet, and 11 ourproposal says mean. So I'm sure that's just 12 one of those things that 13 MS. McFAWN: Wait a minute. I justwant 14 to make sure I understand the question, and I 15 notice that it didparallel what was prompted in 16 SubpartW, and I wonderedwhich came first. 17 Are you saying that the correct 18 language is mean as inm-e-a-n? 19 20 21 MS. KROACK: Correct. MS. McFAWN: Okay. Good. Thankyou. MR. RIESER: Andjust a couple ofbrief 22 follow-ups onMs. Hirner's questions.23 Has the Agencyhad any direct 24 discussions with USEPAwith regard to Subpart X?

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1 2 MS. KROACK: Yes, we have. MR. RIESER: Andwhat has has the USEPA 3 expressed a positionwith regard to Subpart X? 4 MS. KROACK: We've had discussions with 5 Region 5 staffwhere we presented it to them 6 briefly and describedhow it was going to work 7 and encouraged themto look at it in a positive 8 light and attempted to present it as positively 9 as possible. 10 We got what I would saywas positive 11 reaction to it from Region 5 staff. We intend to 12 set up anothermeeting with Region 5 staff to, 13 again, go through it and answer any questions 14 theymay have, but, obviously, we're not we 15 can't control whetherUSEPA accepts this in the 16 SIP revision or not. 17 MR. RIESER: Was the proposal that was 18 presented the one that's here before the Board? 19 MS. KROACK: The one that's here before 20 the Board. 21 MR. RIESER: Okay. So theyhad never22 reviewed a proposal that, for example, didn't 23 have the 80/20 split that Ms. Hirner asked 24 about?

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1 2 MS. KROACK: No. MR. RIESER: Okay. And that 80/20 split, 3 I think to characterize the testimony, was 4 intended to capture the uncertainty, ifyou will, 5 of the fact that the units that you were looking 6 at had not had the rigorous type ofmonitoring 7 that otherunits would require, otherunits that 8 are in the trading program? 9 10 MS. KROACK: Major reason for it, yes. MR. RIESER: There isn't, of course, any 11 objective connectionbetween those two elements? 12 I mean, there's nothing that says that the amount 13 of

-- the uncertainty factor for the calculation 14 ofNOx emissions for those units is 20 percent 15 less than the uncertainty as a result of Part 95 16 monitoring? 17 MS. KROACK: That's correct. 18 MR. RIESER: So that's just a figure that 19 the Agency came up with sort of out of the air to 20 be SO/50? It couldbe 90/10.21 MS. KROACK: I wouldmore appropriately 22 call it a surrogate for what we felt the 23 uncertaintywas. Obviously, we can't quantify 24 it. It wouldbe different from emissionunit to

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1 emissionunit, but it captures a level of 2 uncertainty that we felt was appropriate and 3 wouldmake theprogrammore attractive. 64

4 MR. RIESER: Ifyouhad informationwith 5 regard to the -- ifyou haddetailed information 6 with regard to the operation of those units 7 during that 1995 time frame, you coulduse that 8 information to develop a pretty accuratepicture 9 of the NOx emissions even though it doesn't have 10 NOxmonitoring pursuant to Part 95? 11 MR. MOORE: I don't think even ifone had 12 detailed operational characteristics ofan 13 emissionunit, such as a boiler, because the 14 unique configuration of an individual boilerhas 15 a tremendous

-- tremendouslyvarying impact on 16 the amount ofNOx emissions that a boilerwill 17 generate. 18 So what I'mreally saying is that the 19 base year estimates are probablyuncertain for20 individual units, but they're pretty accurate, we 21 believe, for the overall constellation of 22 sources -- ofunits included in the baseline 23 year. 24 MR. RIESER: What are some examples of

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65

1 units that wouldbe subject to Subpart X? 2 MS. KROACK: Basically, theywouldbe 3 small boilers, combustion turbines, combined 4 cycle systems, cement kilns that aren't already 5 subject to U, W, orT. 6 MR. RIESER: Does the Agencyhave any 7 estimate as to howmanyunits we're talking 8 about, the universe ofunits that wouldbe 9 subject to Subpart X? 10 MS. KROACK: Well, they're reallynot 11 subject to it, but who could take advantage of 12 Subpart X. I don't believe we've done any sort 13 of listing because it's a voluntaryprogram. I 14 don't believe we did that sort of technical 15 analysis. 16 MR. RIESER: Wouldn't these have been 17 sources that-- again, since we're talking about a 18 1995 base year, you wouldhave had some

### 19 calculation inorder to evaluate their 20 contributions to the emissions overall for that 21 baseline year? 22 MS. KROACK: The presumption is that the 23 unit wouldhave been included in the 1995 24 statewide inventory and there wouldbe some

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1 presumptionof its emissions. 66

2 

### MR. RIESER: And is that presumption 3 quantifiable? 4 5 

### MS. KROACK: Dick. MR. FORBES: Yeah. Yes, it is. It's 6 contained in the overall statewide budget. The 7 estimates ofthose emissions are included in 8 USEPA's, you know, statewide budget for the 9 state, but, again, those particularunits were 10 not the focus ofthe NOx SIP Call, and as you 11 stated, these sources are ones that wouldnot 12 have been subject to the more rigorous 13 monitoring. 14 Since that time frame has passed, 15 it's notpossible to go back in time and 16 remonitor those for those operational scenarios 17 that existedback in that time frame. So it's18 kind of an impossible situation to be able to do 19 an analysis to verifywhat the emissions would 20 have beenunder Part 75 monitoring versus 21 whatever existing estimates have beenused to 22 quantify those emissions. 23 MR. RIESER: But for that baseline year, 24 the IEPAdeveloped a number that represented the

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1 emissions from all these

-- this universe of 2 units that we're talking about; is that correct? 67

3 4 5 done? 6 MR. FORBES: Correct. MR. RIESER: Doyou rememberhow that was

MR. MAHAJAN: For the most part, the 7 emissions were calculatedbased on that unit for 8 the factors. That's just an average factor that 9 varies fromunit to unit. 10 MR. RIESER: But to do that, you would 11 have had to have had identification of each of 12 the units that were included in those factors 13 that added all of those up to come up with the 14 number -- come up with the number that you used 15 for the baseline emissions? 16 MR. FORBES: Yes.

### 17 MR. MAHAJAN: Like he said, those 18 emissions are in the budget calculations. It's 19 under the non-EGUportion of the budget. We have 20 those numbers. So I don't know exactlyhowmuch, 21 but we can find out. 22 MR. MOORE: I thinkwhat we're saying is 23 that we have muchmore confidence in the accuracy 24 ofthe total emissions from all of the small

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68



### 1 boilers, for example, thanwe do for the 2 emission, the precise magnitude of emissions from 3 an individual boiler. 4 5 

### MR. RIESER: Thanks verymuch. HEARINGOFFICERBEAUCHAMP: Thankyou, 6 Mr. Rieser. 7 Are there any otherquestions for the 8 Agencywitnesses? Sir. 9 

### MR. HANSON: I have one question. Myname 10 is Scott Hanson. I work for Cinergy, and I 11 appreciate the Board and theAgencyhearing my 12 questions today. 13 My question relates to Section

-- I 14 believe it relates to Section 217.6629, 15 methodology for obtainingNOx allocations. In16 Part B, it states that the owner/operatorof 17 budget units subject to this "subpart may 18 permanently transfer all orpart of the 19 allocations and allowances to anotherbudget unit 20 in Subpart Uor to a budget unit subject to 21 Subpart W, andmy question is how a budget unit 22 that is listed in Subpart

-- inAppendix Ewould 23 be affected if sometime in the future that 24 facility chose to become anEGU subject to

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69

1 SubpartWinstead ofnon-EGUs subject to Subpart 2 U? 3 MS. KROACK: I want to first, before you 4 answer that question, point out that there is a 5 typo in 217.662(b). It says column four. It 6 should say column five. Four is the total amount 7 and five is the amount less the New Source 8 Set-Aside. Units can't transfer theirportion of 9 the New Source Set-Aside. 10 Gettingback to your question, the 11 theory was ifyou had a unit that was listed in 12 Appendix E, anynewunit at your source wouldbe 13 subject to Subpart Uandwould not receive an 14 allocation. You wouldhave to find an15 allocation. 16 The reason for that is simple. We 17 have beenupdating allocationmethodology inW 18 where we have for some years existing units 19 get a portion of their allowances fixed and then 20 the rest they get it at a pro-rata basis, and 21 eventually it's all updating versus Subpart U 22 which is a permanent allowance. 23 The concern for the electrical 24 generating units was that somebody

-- a company

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1 who has process boilers who gets a permanent 2 allocationunder Subpart Uand then shuts them 3 downbuilds a cogeneration facility that meets 4 SubpartWbecause they serve a generatorgreater 5 than 25 megawatts would then go into the Subpart 6 Wpool and take allowances from there as well, 7 double-dipping. This is designed to prevent 8 that. 9 So ifyouhave a newunit andyou 10 were listed inAppendix E, you will have to find 11 an allocation eitheron the market or a permanent 12 transfer from a Uunit orhopefullypursuant to 13 Subpart X, and that's how the rule is structured 70

### 14 at this point in time. 15 MR. HANSON: But ifyou are an existing 16 unit

-- ifone ofthe existing units in 17 Appendix Echooses to sell electricity to the 18 grid andwouldbe classified then as anEGU, 19 would they still be entitled to the allowances 20 that are listed? 21 MS. KROACK: Yes. They're still subject 22 to SubpartU. They still get their allowances. 23 They get them into the future. 24 MR. HANSON: Okay. Very good. Thankyou

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1 verymuch. 2 

### HEARINGOFFICERBEAUCHAMP: Thankyou, 3 Mr. Hanson. 4 Otherquestions for the Agency 5 witnesses? Let's turn to the Board then to look 6 for questions. 7 

### MS. McFAWN: Well, I have some questions. 8 I was looking at the definition of source that's 9 proposed at Part 211. Forgive me if I didn't 10 find the explanation inyourpreparedtestimony, 11 butmy first question is rather elementary, and 12 that is that this title is the same as the13 definition already existing in Part 211. We now 14 have two sections called source. 15 Is that a typo or is that 16 intentional? 17 MS. KROACK: It was intentional. We 18 really couldhave included at the end of the 19 definition of source the previous definition or 20 we couldhave added a definition. We chose to 21 add it. We didn't know what else to call it. 22 We couldhave said Part 217 source, 23 but even that wouldn't have beendescriptive 24 because it isn't all Part 217. It's just these

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1 particular subparts. So we added the definition 2 andwe limited it in the first clause to Subparts 3 T, U, V, W, andX. 4 MS. McFAWN: Well, I'm certainlynot an 5 authority on the administrative rules, but I 6 cannot imagine the joint committee accepting 7 this. So ifyou guys couldput yourheads 8 together-- 9 10 MS. KROACK: And come up with a -- MS. McFAWN:

-- and come up with a 11 different title, it wouldbe helpful to us, and I

### 12 wouldn't want to nave to compose this, I'll 13 admit. 14 MS. KROACK: Okay. We will come up with 15 something. It maybe unique because of its 16 placement at 6135. They're done alphabetically. 17 

### 18 point. 19 MS. McFANN: Oh, that's true. I see your

MS. KROACK: We'll workon something. It 20 maybe more of an artifice than it is 21 descriptive. 22 MS. McFANN: We will try and think of 23 something as well. 24 The definitions are very different.

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1 So I do think it's important that we 2 distinguish. 73

3 

### This is, I believe, a definition 4 basedon the federal definition of source; is 5 that correct? 6 

### MS. KROACK: This is based on the federal 7 definition of source that we've included in 8 Section 39.5 ofthe Illinois Environmental 9 ProtectionAct. It's inclusive of support 10 operations, support facilities of that concept.11 MS. McFAWN: Well, in the definition, 12 there is no criteria about what constitutes a 13 support facility. 14 Is there such criteria anywhere else 15 in the Act or the Board's regulations? 16 MS. KROACK: There isn't in the Board 17 regulations. TheAct

-- we refer to this 18 definition at 39.5. There is USEPAguidance on 19 what constitutes a support facility and common 20 control, and this

-- as I said, this is the 21 definition that we added to 39.5 to include those 22 concepts, and it is necessarybecause of the 23 decision that came out and challenged the 24 definition of source and color communications.

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1 MS. McFAWN: So that amendmentpostdates 2 color communications? 3 4 MS. KROACK: Yes. MS. McFAWN: Also, I was wondering as it 5 reads, it says that source may mean a stationary 6 source that belongs to a single major industrial 7 grouping. 8 Is a stationary source a series of 9 units? I mean, when I look at that, common sense10 tells me that, of course, a source belongs to the 11 same SIC code. Am I missing something here? 12 13 MR. ROMAINE: Yes. MS. McFAWN: Doyou mean only ifthere's 14 multiple sources? 15 MR. ROMAINE: No. Asource commonly is 16 understood as a plant for purposes ofTitle 5, 17 for purposes ofnew source review, and for 18 purposes of this program. So it refers to the 19 collection of individual emittingunits on a 20 particularproperty, continued adjacent 21 properties, a campus. 22 As the termhas developed over the 23 years, the CleanAirAct, I guess USEPAhas made 24 it clear that you canhave sources within

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1 sources. So they canbe a source that has 2 emissionunits. It couldbe next to another 3 source that has emissionunits. It canbe 4 consideredoverall as a larger source or a group 5 of stationary sources. So it's a layered 6 definition, and I certainly agree that it is 7 confusing the way they've talked about a source 8 meaning a source or a group of sources, but 75

### 9 that's just the way the federal terminologyhas 10 evolved. 11 MS. McFAWN: I mean, I don't suppose we 12 can try to clarify it; that we're probablybetter 13 offusing this definition as is? Would that be 14 theAgency's opinion? 15 MR. ROMAINE: We're definitelymuchbetter 16 offnot creating another entirelydifferent 17 definitionof source. 18 

### 19 MS. McFAWN: Thankyou. I have kind ofa broad question. It 20 actuallymayhave been answered in SubpartW, 21 but, ifyou could, enlightenme. 22 I was reviewing Section 217.654, 23 applicabilityunder SubpartU, and subparagraph 24 (c) is about low-emitter status, and it is

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76

1 actually a three-page-Iong subparagraph. 2 Is there any reasonwhy this was not 3 segregatedout as a separate section of Subpart 4 U? Ifthat letmejustgo on. I see Ms. Kroack 5 shaking herhead, but ifwe did extract this, the 6 rule wouldwork a lot 7 

### MS. KROACK: More cleanly.8 9 10 MS. McFANN:

-- more cleanly. So couldwe extract it? MS. KROACK: We could as long as we had a 11 section to put it in that was open. Frankly, 12 what happened with these rules is we followed 13 sort of the federal setup andmodel that are 14 outlined and in some places we incorporatedby 15 reference. In some places, we put the language 16 inwhole scale. Whenwe put it inwhole scale, 17 we did it because eitherwe needed it to be 18 descriptive orwe were making a minor change like 19 we did in low emitters because we allowed them to 20 opt-out if theyusedmonitoring to opt-out in 21 addition to the default rate. So that was 22 something different from the SIP Call. 23 This is howUSEPA set it up in their 24 rule. This was how the rule started in the

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77

1 development long before I got to it, and thenby 2 the time I got to it, well, the decision was just 3 to leave it look the same way that USEPA set it 4 up as much as possible and, frankly, these set of 5 rules were rules that we didnot use, what we 6 would call, Illinois EPAdrafting style. We let7 the federal drafting style take this through, and 8 I agree probably it wouldbe cleaner somewhere 9 else. 10 MS. McFAWN: But you don't think it's 11 doable? 12 MS. KROACK: Well, as you know, JCAR says 13 that we have to have the sectionopened at first 14 notice to modify it. We canmodify it, but it 15 has to be actually opened, andunless we have 16 someplace else to put it, maybe one of the 17 reserve sections, perhaps. 18 We could refer to low emitters in 654 19 andput the provisions in 672 or 673, which we 20 reserved as opened. 21 MS. McFAWN: Well, that might be fortunate 22 that those were reservedbecause JCARusually 23 does not allow us to reserve things. So I'm sure 24 they'll want us to delete those at second

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78

1 notice. Somaybe we canuse it instead. Thank 2 you for the prompt. 3 Could the Agency consider doing 4 that? We will at our end, but it's always nicer 5 if the proponent does it because thenwe6 understand at this point in time you're more 7 conversant withhow this works and doesn't work, 8 andwe wouldn't want to inadvertentlymess it up. 9 MS. KROACK: I will look at it andhave 10 something to bothyou andBobb -- Mr. Beauchamp. 11 MS. McFAWN: Okay. Yes. Maybe at the 12 next hearing. 13 MS. KROACK: At the next
-- before the 14 next hearing. 15 MS. McFAWN: Oh, excellent. Thankyou. 16 I have kind of a broadquestion. The 17 budget

-- and you've been talking about this, the 18 trading budget. There is one -- as I understand 19 it, there's one trading budget that was defined 20 byUSEPA, is that correct, for allowances? 21 MS. KROACK: There was one budget defined 22 for the state of Illinois composed of so many 23 allowances, yes, and for purposes of Subparts U 24 andW, we have segregated them.

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1 2 MS. McFAWN: TheAgencyhas ordidUSEPA? MS. KROACK: The Agencyhas. USEPAwill 3 at the beginning of each control period or 4 actually every three years put in anAgency11 MS. McFAWN: Okay. Thankyou. 12 Andyourmethodology formaking that 13 division is not actually reflected in these 14 rules; is that correct? 15 MS. KROACK: It's reflected inWthat the 16 initial SubpartWtrading pool is 30,701 17 allowances subject to adjustment, and the 18 adjustments couldbe for low emitters or for 19 opt-ins or there's ongoing litigation over the 20 size of the budgets, and ifUSEPAwere to either 21 increase ordecrease that, then that budget for W 22 would therebybe increased ordecreased. 23 So it allows for that, and it allows 24 for division of that ifthose things happen. U

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80

1 is similar except that it's a smallerpool. It's 2 4,882. The allocationmethodology is different, 3 but it does provide for adjustment to the extent4 that there are opt-ins to the extent that there 5 are low emitters to the extent that USEPAwere to 6 adjust that portionof the budget, which isn't 7 expectedbecause I don't believe that those units 8 are included in the Appalachian Power 9 litigation. I think that was strictly limited to 10 the electrical generating units, but I couldbe 11 wrong. 12 MS. McFAWN: But just so I'm clear on 13 this, I understand how the division of the 14 budgets, parts of it, canbe changed in the 15 future, but as far as sayingWgets 30,000, U 16 gets 4,000, was that anAgency decision? 17 MS. KROACK: We looked at howmany, what 18 we would call, non-EGUs were within the state and 19 we proportioned the budget basedon that data, 20 howmanyEGUs, howmany non-EGUs, applied the 21 reductions from the base case, andDick couldgo 22 through this. Mr. Forbes could go through this 23 muchmore carefully, and that's howwe came up 24 with the division of those allowances.

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81

1 Mr. Forbes, do you want to explain 2 that a little bit further?

### 3 MR. FORBES: I thinkyou've done a pretty 4 goodjob of explaining it. The EPA is looking at 5 it as one -- as a tradingprogram, and it's going 6 to issue allowances for those units that it has 7 defined to be subject to the trading program 8 requirements under the NOx SIP Call. 9 We have kind of looked in our rules 10 at that subdivision, and so we've defined it from 11 the overall budget that exists that EPAhas 12 identified in the NOx SIP Call. 13 14 MS. McFAWN: Thank

### you. Ifwe couldjust revisit, again, the 15 questionofdefining EGU. When

### you spoke about 16 it earlier this morning, 

### you were saying, well

-- 17 what I have heard orwhat I wouldparaphrase 

### you 18 having said is that it wouldbe like defining a 19 negative. 20 So I thinkyour focus was on a 21 definition of a non-EGU. What I'mcurious is why 22 we don't have a definition ofEGUeither inWor 23 in Part 211 because isn't an EGU for the purpose 24 ofWandUthe same, SubpartWand Subpart U?

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1 

### MS. KROACK: No. We have units that are2 combined cycle systems at what we would call 3 non-EGU sources. Theybothmake processed 4 steam. Theyboth serve a generatorgreater than 5 25 megawatts, some ofwhich is then sold to the 6 grid, okay, whatever excess capacity they have, 7 but the primarypurpose of that source is not to 8 generatepower for the public consumption. It's 9 to generate processed steam and as a matter of 10 efficiency, there is some additional electrical 11 capacity that's generated. 12 MS. McFANN: This wouldbe whatADM 13 described at SubpartW? 14 MS. KROACK: This wouldbeADM, correct, 15 for example. Theyhave a cogen system. 16 But there are some plants we know of 17 that will be constructing large, very large, 18 combined cycle systems where theywill use a 19 portionof the processed steam, but the majority 20 of those units will actuallybe operating to 21 create electricity that's sold on the grid, this 22 area ofderegulation, but those units wouldn't 23 exist if they didn't have a processed steam 24 purpose, okay, but they wanted to be included

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83

### 1 under the Subpart Ubudget. Theywanted a 2 permanent fixed allocation. 3 They agreed not to participate in the 4 SubpartWpool ofallowances. The traditional 5 EGUs hadno objection to that as long as they 6 didn't get allowances fromboth sides, and 7 basically the Agency acquiescedbecause it's 8 reallyjust a matterofdivvying up those 9 allowances in a way that they felt made sense for 10 their company. 11 MS. McFAWN: Thankyou. That helped. 12 I still am concerned that whenyou 13 use the termEGU, non-EGUs, budget units, all 14 these terms, and they're not defined anywhere. 15 MS. KROACK: I thinkwe definedbudget 16 unit inboth Subparts WandUin the text of some 17 ofthe sections as opposed to 211, again, because 18 we knewwe'd have two definitions ofbudget unit, 19 one forWand one forU. 20 Sowe kept those definitions in total 21 to those sections, andwe -- you know, we don't 22 define electrical generatingunit. We could say 23 an electrical generation is anyunit subject to 24 SubpartWor Subpart V. We didn't say that.

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841 I mean, at the time whenwe were 2 proposing definitions, again, we knewwhat shape 3 Uwas going to have generally, but we didn't know 4 the specifics, and it was one of those issues 5 where we're drafting under real deadlines, real 6 pressures, and it's an interactive process, and 7 there are going to be a number of cleanups, we've 8 already identified, that are going to have to be 9 done to make all of these mesh completely. 10 MS. McFAWN: All right. I am 11 sympathetic. I raise these points to keep you 12 thinking about simplifying what I understand is a 13 very complex concept to describe inwords and in 14 rules, I should say. 15 Well, I have otherquestions that go 16 to the finer points of the rule and the language 17 used. I won't belabor those. I, instead, will 18 hold themoffuntil the next hearing and see if 19 anything comes to mind at those or inyour errata 20 sheet, and I would

-- I will pause now and see if 21 anyone else has any questions. 22 HEARINGOFFICERBEAUCHAMP: Are there any 23 otherquestions for the Agency witnesses? 24 Mr. Rieser.

L.A. REPORTING (312) 419-92921 MR. RIESER: I have one more, if that's 85

2 all right. 3 Followingup onBoardMemberMcFawn's 4 questions regarding 211.6135, the definition of 5 source, what's the Agency's understanding ofwhat 6 contiguous means? 7 MS. KROACK: Contiguous means adjacent or 8 lying near. It does not necessarilyhave to 9 touch. How far apart it has to be is obviously a 10 case-by-case decision, but it does not 11 necessarily

-- contiguous does not mean it has to 12 touch. It doesn't mean that it's merely 13 separatedby a roadway. It canmean -- adjacent 14 wouldbe touching. Contiguous wouldmean lying 15 near. 16 MR. RIESER: What factors are used in 17 those case-by-case decisions? 18 19 MS. KROACK: Chris. MR. ROMAINE: Case-by-case factors. 20 That's something that is much easier to address 21 with a specific situation than to address in 22 generalities, and, obviously, the Boardhas gone 23 through the decision for telecommunications, 24 which is one of the Seminole cases in Illinois

L.A. REPORTING (312) 419-9292Ion. We would have some other examples of 2 circumstances where plants are considered that 3 are adjacent. 4 One of the examples is Acme Steel 5 whichhas two parts of an integrated steel mill 6 that are located sevenmiles away or something, 7 but because they operate in an integrated fashion 8 shipping hot metal from one facility to the other 9 andhaving other relationships, they have been 10 considered a single source. 11 We have sources that are much closer 12 together, but because they don't have that 13 functional relationship, theyhave been 14 considered separate sources. We have a 15 representative from the University of Illinois 16 present. Clearly, we have sort ofa working 17 understanding that the University of Illinois is 18 a campus and notwithstandingparticular streets, 19 the overall entity inChampaign is, in fact, a 20 single source. 86

21 MR. RIESER: Followingup on the question 22 about allowances, is it accurate that there are 23 othergroups of allowances, other thanjust the U 24 andWallowances, allowances that have been

L.A. REPORTING (312) 419-92921 segregated out forUandW? 87

2 3 MS. KROACK: There are not. MR. RIESER: You talked about trading and 4 non-trading allowances. 5 MS. KROACK: I talked about a trading

-- 6 what I refer to as the trading budget and the 7 non-trading budget. No allowances are issued 8 for, quote, the non-trading budget. It is 9 assigned a number of tons ofNOxper season. 10 MR. RIESER: So there are allocations in 11 the non-trading budget? 12 MS. KROACK: There are no -- it's not
-- I 13 wouldn't determine it

-- I woulduse the word 14 allocation and allowance to denote what happens 15 in the tradingportionof the budget. The other 16 portion is what the SIP Call recognizes as 17 statewide emissions from all units emitting NOx 18 across the state, and they've recognized it and 19 identified it, but theydon't make an allocation 20 for it nor do they give us any allowances for 21 that that we divvy up. Those terms are strictly 22 limited to UandW, the trading portion. 23 24 MR. RIESER: Thankyou. HEARING OFFICERBEAUCHAMP: Thankyou,L.A. REPORTING (312) 419-9292

1 Mr. Rieser. 88

2 MS. McFAWN: What you were just 3 describing, is that what comes into play in 4 Subpart X? 5 MS. KROACK: Yes. That's exactly what 6 comes into play. We haven't received any 7 allocation for any reductions that come under 8 Subpart X. We will have to receive an allocation 9 for USEPA to effectuate that process. 10 MS. McFAWN: And afteryou received it is

MS. KROACK: Correct. MS. McFAWN: Andjust so I cankind of close the loop

### -

## - MS. KROACK: Pardon? MS. McFAWN: Just so I cankind of close 11 when you can then transfer it or assign it 12 elsewhere? 13 14 15 16 17 18 the loop, does that deduct from any of the 19 allowances that the recipient has assignedunder 20 WorU? 21 MS. KROACK: That is a point of 22 negotiation that we're engaged in right now with 23 industrygroups onX, and we haven't quite 24 resolved that language orhow that's going toL.A. REPORTING (312) 419-9292

1 workyet, but essentiallywe can only allocate 2 what we are given, andwe hope to be givenmore 3 basedon Subpart X. 4 Ifwe are not, then the question is 5 what happens to those Xreductions? Are they 6 effectuatedby a reduction from ourwhole pool or 7 does something else happen? That's an element 8 that we're still negotiating with industry on 9 and, frankly, because of the Thanksgiving holiday 10 andhow these were scheduled, we were not quite 11 able to get that resolvedbefore today, but we 12 will be addressing that before the second 13 hearing. 89

14 MS. McFAWN: Is your negotiation only with 15 industry on that or is it also withUSEPA? 16 MS. KROACK: Well, the next step is with 17 USEPA. Obviously, our intent, I believe, is when 18 we meet withUSEPAto present a unified front on 19 this issue and full support for Subpart Xbecause 20 actuallywe do believe it canwork. You know, we 21 do believe it canwork, andwe hope to convince 22 themof that. So we're working veryhard on 23 achieving that.24 MS. McFAWN: I'll be most interested in

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1 the outcome ofyournegotiations. 2 3 MS. KROACK: So will I. MS. McFAWN: Perhaps, you canput it on 4 the record for us at the next hearing. 5 HEARINGOFFICERBEAUCHAMP: Again, Mr. Rieser. 6 MR. RIESER: I think this is follow up on 7 Ms. Kroack's last statement. I think there was a 8 discussion that was contained in the prefiled 9 testimony, on the lastpage ofherprefiled 10 testimony, and I believe it was page 21, and the 11 last sentence ofwhat the testimony says is, 12 quote, since allowance allocations, except for 13 the New Source Set-Aside inboth Subparts UandW 14 are made three years in advance, ifUSEPAdidnot 15 recognize the reductions, allocations by the 16 Agency for Subpart Xreductions wouldbe taken 17 from the state's unadjusted trading budget, in 18 effect, coming from the amount reserved for the 19 NSSA, New Source Set-Aside, and opt-inunits. 20 Couldyou explain that a little bit 21 and expand on that? 22 MS. KROACK: The details ofhowUSEPA are23 going tomake

-- the mechanics, actually, of the 24 trading programare not all worked out/ but it's

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lourunderstanding that USEPAwill give the state 2 ourpool ofallowances to divide, which is 30/701 3 and 4/882/ what is that, 35-something? Let's say 4 36/000 allowances forpurposes of this 5 discussion. We are then allowed to direct how 6 those are to be allocated to the unit subject to 7 the rule, andwe couldhave done it literally 8 anyway that we wanted to. 9 We hadwide discretion in this 10 regard, butwe do have to make them for the, 11 quote, existing units three years in advance. So 12 we will be tellingUSEPA allocate for 2004/ 2005/ 13 and 2006 Xnumber of allowances for '04/ '05/ 14 and '06 to this unit, to that unit, identifying 15 specific units reserving a portion for the New 16 Source Set-Asidebecause it's done annually as 17 new sources roll into the program, and those will 18 be retained inour account until such time as 19 they are distributed. 20 The concernwe were addressing here 21 was that, andwe haven't quite resolved it, is22 that ifUSEPA fails to make an allocation of 23 allowances for Subpart Xreduction, but we 24 authorize an allocation and there's something in

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lourbank to give, it would come from allowances 2 that have alreadybeenunder Subparts WandU, if 3 notpromised, at least referred to as what we 4 were making available for that purpose, andwe 5 couldbe caught, in essence, withnothing else to 6 give and having made a commitmentunderWandU, 7 whether enforceable ornot, to generate 8 allowances for the New Source Set-Aside. 92

9 MR. RIESER: How does it follow that it 10 comes fromUandWandnot from the New Source 11 Set-Aside? 12 MS. KROACK: I'm sorry. I don't 13 understand, Mr. Rieser. 14 MR. RIESER: I'mtrying to understand how 15 it follows that ifyou have to give allocations 16 it comes out of the UandWbudgets andnot the 17 New Source Set-Aside for UandW. 18 MS. KROACK: It wouldbe

-- the mechanics 19 of this aren't exactlyworked out withUSEPA. 20 They didn't address it in this fine ofdetail,21 but ifwe direct USEPA to move anXnumber of 22 allowances from our allocation, the trading 23 budget allocation, to anXsource or to whomever 24 the Xsource gives it to, we don't believe, but

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1 we don't know this for this sure, that they're 2 going to inquire fromwhat pool those allowances 3 should come from. 93

4 They don't really care. For them, a 5 ton ofNOx is a ton ofNOx, an allowance is an 6 allowance, and the way I would describe it is 7 USEPA is the company that issues the stock, but 8 once the stock is in the trading, it is on the 9 NASDAQ, and it gets traded freely, but you only 10 get what the companygave you, and to the extent 11 that we've retained anything and we say, give X 12 number of allowances or shares to such and such a 13 company, to the extent they've created themand 14 they recognize them, they don't really care where 15 they're going to. Theydon't care whether they 16 are beingmade for Subpart W, Subpart U, Subpart 17 X. They're not going to engage in that level of 18 inquiry. 19 MR. RIESER: But under the Subpart U20 regulations, whichwere secondnotice by the 21 Boardunder the Subpart Wandunder the U 22 regulations which are being discussedhere, in 23 certain -- in the appendices to those two 24 regulations, a certain number of shares of stock,

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1 ifyou will, or allocations have beenvery 2 specifically assigned to specific companies by 3 regulation. By regulation, they've been assigned 4 to those companies. 5 Acertain additional number, five 6 percent for each rule, regulation, have been set 7 aside and left in the pool for the Agency to 8 assign to new sources. 9 I guess my question is, in the 10 situationwhere the USEPA doesn't provide 11 additional allocations to matchup with the 12 Subpart Xgenerated allocations, if I could call 13 them that, why would that come from the 14 designated -- from the allocations that have 15 alreadybeen designatedunderAppendix F and 16 Appendix Eand not from the New Source 17 Set-Aside? 18 MS. KROACK: What wehave

-- what I'm19 concerned that we have, but I don't know that we 20 have, is a disconnect betweenwhat we've agreed 21 to do in rules versus the mechanics of the 22 trading programwhichwe neither administernor 23 direct. We merely authorize USEPA to make an 24 allocation. They don't engage in this level of

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1 inquiry. 95

2 MR. RIESER: But the mechanics of the 3 trading programwouldn't modify what the Board 4 assigns in its regulations other than as the 5 Boardhas laidout? In otherwords, the 6 Appendix F andEallocations are established 7 except for that one condition that says 8 essentially ifthe Appalachian Power is more or 9 less, thenyou adjust that pro-rata. Those are 10 assigned at least for the first three years. 11 So I'm still unclear as to how 12 anything dealing withXwould change the 13 assignment of those allocations that have already 14 beenmade or are about to be? 15 MS. KROACK: Again, I'mnot sure that it 16 would. I'mnot sure that it would. The problem 17 is you would have U, W, andXwhich couldbe

### 18 inconsistent or couldbe read consistently to 19 have Xmodify the allocations or the allowances 20 that we committed or agreed orwhatever level of 21 commitment are made in those rules have saidthat 22 we were going to distribute. I don't know that 23 that's going to happen. I just believe that we 24 have a bit of a disconnect betweenU, W, andXon

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### 1 this point. 2 

### MR. RIESER: Is there specific language 3 underXthat would cause this thing that you're 4 concerned about happening? Is there specific 5 language you're looking to that would tell 6 USEPA -- I'm sorry, that would tell the IEPAthat 7 theyhad to assign allocations in a certainway 8 that is inconsistent withUandW? 9 MS. KROACK: The way the proposal is 10 currentlydrafted, we tried to avoid that 11 situation. However, those provisions are still 12 under discussion. I don't know what the final 13 language is going to look like. So I can't 14 answer that questionwith confidence. 15 MR. RIESER: Okay. Thankyou. 16 HEARINGOFFICERBEAUCHAMP: Thankyou,

### 17 Mr. Rieser. Furtherquestions for theAgency 18 witnesses? 19 MS. LIU: I had a question. Good 20 morning. To follow up onwhat MemberMcFawn and 21 Mr. Rieserhad asked earlier andkind ofprovide 22 the biggerperspective, howmany total number of 23 NOx allowances or allotments were given to 24 Illinois, including the trading and the

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1 non-tradingportion? 97

2 3 

### MR. LAWLER: 35,583. MR. ROMAINE: That's the number of 4 allowances for the tradingprogram 5 MR. LAWLER: For the trading program. 6 7 

### MS. LIU: How about the non-trading? MR. ROMAINE: That's the only allowances. 8 The other is simply the budget. Doyou want to 9 knownow the overall statebudget ofNOx? 10 

### 11 12 MS. LIU: Yes. MS. KROACK: It's a big number. MR. FORBES: The statewidebudget is 13 270,560 tons per season. That's USEPA's 2007 14 budget for the state of Illinois. 15 MS. LIU: So the non-tradingportionwould16 be that numberminus the 30,701 minus the 4,882? 17 18 MR. ROMAINE: That's correct. MR. FORBES: Yes. 19 MS. LIU: What types of sources wouldbe 20 included in the non-trading budget? 21 MR. FORBES: Well, the total statewide 22 budget includes emissions from all sectors, that 23 is, area sources, the mobile source on-road and 24 off-road emission sectors, as well as the point

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1 source sector, which includes EGUs andnon-EGUs. 98

2 MS. LIU: Would some practical examples of 3 those be cars, airplanes, lawnmowers? 4 MR. FORBES: Area sources wouldbe such 5 things as householdpainting, use ofvarious 6 kinds ofvolatile organic materials by 7 households. Formobile sources, on-road 8 emissions wouldbe cars, buses, trucks. Off-road 9 sources wouldbe things like airplanes, trains, 10 and other equipment, construction equipment, 11 things that wouldnot be driven on the highway. 12 I thinkpoints

-- the stationary sources, you're 13 aware ofwhat those wouldbe. 14 MS. LIU: Okay. Does the Agency15 anticipate addressing those kinds of sources 16 through the NOx SIP Call or is that what the 17 provisionunder Subpart Xis trying to do? 18 MR. FORBES: We're not anticipating doing 19 specific control measures for those other 20 categories. USEPA, when it did the NOx SIP Call, 21 it reviewed all of those emission categories and 22 focused on the stationary sources as being the 23 primary sources ofNOx that it felt it needed to 24 control.

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99

1 Mobile sources are controlledunder a 2 whole federal motorvehicle control program. 3 Generally, we talk about it in terms ofVOC, but 4 NOx emissions are alsopart of that control 5 program, cleanervehicles, cleaneremissions 6 through cars andbuses and trucks. There's a lot 7 of -- justmultiple numbers of federal 8 regulations that are on the books and are 9 currently coming onto the books to control diesel 10 emissions and other things that will affect NOx. 11 So at this point in time, Illinois is 12 following the federal lead in looking at those 13 categories that it identified as being the

### 14 primary sources that needed to be controlled for 15 this particularprogram. 16 

### MS. LIU: Thankyou. 17 Whatprocedures would a non-source 18 have to follow inorder to purchase their 19 allowances? 20 MS. KROACK: There are -- a non-source 21 doesn't have to purchase allowances. If they're 22 not subject to the tradingprogram, they're not 23 required to hold allowances, but environmental 24 groups, for example, could open an account.

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100

1 They'dhave to get an account representative. 2 They'dhave to make certain certifications. They 3 couldbuy allowances in the trading programand 4 retire them for the benefit of air quality if 5 they so elected and a private citizen coulddo it 6 as well. It's not envisioned that that's 7 probablygoing to happen, but it's certainly 8 appropriate in theprogram. 9 

### MS. McFAWN: Couldthey do that under the 10 rules as drafted? 11 MS. KROACK: Theywouldn't need to under 12 ourrules. Our rules don't require themto hold13 an allowance. So their decision to purchase 14 allowances wouldnot be subject to any 15 regulation, but they could certainly do it under 16 the federal trading program. 17 MR. ROMAINE: And that wouldbe the point 18 is that the purchase and the transfer of 19 allowances is addressedby the federal trading 20 program, not by the individual states. 21 22 23 24

1 2 3 MS. McFAWN: And that's in Part 96? MS. KROACK: Correct. MR. ROMAINE: Yes. MS. McFANN: Thankyou.

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MS. LIU: That's all I have. HEARING OFFICERBEAUCHAMP: Thankyou, Ms. Liu. Are there any further questions for 4 the Agencywitnesses? Again, Mr. Rieser. 5 MR. RIESER: I'm sorry. I hate to keep 6 comingback to this, but going back to the 7 discussion that Ms. Kroack and I had about 8 SubpartX, is there a language in -- is there 9 language or a section in Subpart Xas it's 10 currently drafted that talks about 11 how

-- the mechanismbywhich the reductions that

### 12 occur, voluntary reductions that a SubpartX 13 source has, how they get translated into 14 allocations? 15 

### MS. KROACK: Yeah. There are a couple of 16 provisions actually, and I'mtrying to findmy 17 cheat sheet on that. If I have to look through 18 it, I will. I just had this slip ofpaper. 19 HEARING OFFICERBEAUCHAMP: Wouldyou like 20 a fewmoments to find it, Ms. Kroack? 21 MS. KROACK: Yeah. Ifyou give me one 22 minute, I'll be able to locate it. 23 HEARINGOFFICERBEAUCHAMP: Let's go off 24 the recordwhile she looks briefly.

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1 2 

### (Briefpause.) HEARINGOFFICERBEAUCHAMP: We can goback 3 on the record then. Ms. Kroack. 4 MS. KROACK: I believe the last question 5 was where in SUbpart Xwe attempt to address the 6 issue ofUSEPAbeing necessary -- a precondition 7 for USEPA to give us allowances before we can 8 allocate them. 9 We address it in four separate 10 sections. In 217.800, we sayverifiable,11 quantifiable, and federally enforceable emission 12 reductions, meaning the requirements of the 13 subpart and for which allowances are allocated 14 will be transferredby the Agency from a 15 non-tradingportion of the statewide budget as 16 established in the so-calledNOx SIP Call site to 17 either the EGU ornon-EGUportion of the NOx 18 trading budget as applicable. We say it there. 19 We say it in section 805 in the 20 introduction. We don't say it in 805. I think 21 that's a misstatement. I'm sorry. We say it in 22 Section 815 in the introduction. Again, 23 quantifiable, verifiable, and enforceable NOx 24 emission reductions for which allowances are

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103

1 issuedwill be shifted from the non-trading 2 portionof the statewide NOxbudget to the NOx 3 trading budget only for those NOx emission 4 reductions that meet one ormore of the following 5 criteria. So we say it there as well. 6 We say it, again, in Section 7 217.840(c). Ifthe Agency approves the proposal, 8 and that's referring to the NOx emission 9 reductionproposal, and suchprovisions of10 Subsection (b) of the section, the Agency shall 11 allocate any allowances issuedbyUSEPA in 12 accordance with either Subpart Wor Subpart Uof 13 this part in the following. So we say it in 14 three places for which you are given allowances. 15 We will make these allocations, and those are the 16 provisions, Mr. Rieser, that address yourpoint. 17 18 MR. RIESER: Okay. Thankyou very much. HEARING OFFICER BEAUCHAMP: Thankyou, 19 Mr. Rieser. 20 I'm looking for any more questions 21 for the Agency witnesses. 22 MS. McFAWN: I have a couple clean-up 23 questions, ifyou'll bearwith me. 24 At Section 217.672, I believe it is,

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1 early reduction credits for budget

-- yes. 2 That's 670. I'm sorry. The very last paragraph, 3 subparagraph (j), you talk about banked 4 allowances. 5 6 MS. KROACK: Yes. MS. McFAWN: Now, it's very likely that I 7 didn't find it, but this is the first time I ran 8 into this term andwondered ifwe need a

### 9 definition or an explanation ormaybe not? 10 You can defer that until a later 11 time, ifyou like. 12 MS. KROACK: We didn't define it because 13 we were referring to the sectionof the Code of 14 Federal Regulations that addresses this, and so 15 we didn't define, quote, what a banked allowance 16 was. 17 MS. McFAWN: All right. I suspected that 18 was why. 19 Rightunder that in Section 217.674, 20 opt-inunit, youuse the term stationary internal 21 combustion engine, andwe've been told today that 22 that has been deferreddue tojudicial decision, 23 but do we need a definition of that? Is there 24 one?

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1 2 3 

### MS. KROACK: There maybe one. MS. McFAWN: I didn't check. MS. KROACK: We will checkon that andget 4 back to you. 5 

### MS. McFAWN: All right. 6 MS. KROACK: But I can say that we didn't 7 define it for purposes of the NOx SIP Call

### 8 because of the whole discussions that I see 9 mentioned and how to define it for purposes of 10 applicability. So that's the reasonwe didn't go 11 into a more expansive definition. 12 MS. McFAWN: Okay. Under Subpart X, there 13 are provisions for the Agency to deny or 14 withdraw. 15 Underwhat conditions wouldyou deny 16 orwithdraw one ofthese alternatives? 17 MS. KROACK: We had initiallyhad language 18 in there that was a lot simpler, but industry 19 presentedus withprovisions if theywanted to 20 withdraw orderly and subject to some requirements 21 because those allowances may, in fact, be relied 22 uponby a source for compliance with their 23 SubpartUorWobligations. 24 So while we'll let a source withdraw,

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1 we want to make sure that that source who has 2 been relying on those reductions has some notice 3 of it, has some -- knows that the withdrawal is 4 going to take place so that they can account for 5 those reductions, and that the permit was 6 withdrawn and all the provisions affecting the7 source to which theymayhave been transferred to 8 is also on the same page as the source that was 9 making the reductions. 10 MS. McFAWN: Okay. So this was really to 11 anticipate the disagreement between the entity 12 making the reduction and the entity

-- a 13 different entity receiving the benefits of that 14 reduction? 15 16 MS. KROACK: Correct. MS. McFAWN: Andmy last question is, I'm 17 most curious to see your errata sheet, and I 18 wondered ifyou knew if that wouldbe provided 19 shortly? 20 21 MS. KROACK: I would saybefore Friday. MS. McFAWN: Oh, excellent, because I 22 found some typos and things that I thinkmightbe 23 in error. 24

1 MS. KROACK: There are a number of them.

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MS. McFAWN: And then rather thanbelabor 107

2 those here, I would like to cross-check it 3 against your errata sheet, and then wouldyou 4 I know that the purpose ofour next hearing is to 5 take questions and testimony fromparticipants or6 the affected entities. 7 Are you going to be available to 8 answer further questions from the Board, not the 9 entire panel here, but some ofyou? 10 MS. KROACK: Ifthat's necessary, I'll be 11 available andMr. Lawlerwill be available. I'm 12 not sure how manymembers of the panel, but at 13 least the two ofus. 14 MS. McFAWN: That wouldbe nice ifyou 15 were just to tie up some loose ends since we're 16 on such a tight time frame on this. 17 18 19 MS. KROACK: Sure. MS. McFAWN: That was all I had. HEARING OFFICERBEAUCHAMP: Thankyou, 20 MemberMcFawn. Are there any other questions for 21 the Board

-- I'm sorry, for the Agency today? 22 Seeing none, I guess we'll move to 23 conclude the proceedings. Please note that the 24 secondhearing for this rulemaking is scheduled

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1 for Wednesday, December 20th, 2000, beginning at 2 9:30 a.m. in room2-025 in the James R. Thompson 3 Center. The address is 100 West Randolph Street 4 in Chicago.5 

### The thirdhearing is scheduled for 6 Wednesday, January 3rd, 2001, at 9:30 a.m. in 7 room 9-040 ofthe James R. Thompson Center. The 8 hearing officerorder contains the prefiling 9 deadlines for bothof those hearings. 10 Just note that for the second 11 hearing, prefiledtestimony is required to be 12 filed with the Board at least ten days before the 13 hearing. That wouldmake it the 10th, which is a 14 Sunday. Soprefiled testimony for the second 15 hearing will be required to be filed with the 16 BoardonDecember 8th. 17 IftheAgency does not request a 18 thirdhearing, the Boardwill cancel the third 19 hearing. We have requested an expedited 20 transcript for today's hearing. That will be 21 available onMonday. You can get a copy from the 22 court reporter oryoumay request a hard copy 23 from the Board. The Board charges 75 cents per 24 page.

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1 Additionally, the Boardwill post the 2 transcript to ourweb site located at 3 www.ipcb.state.il.us. We expect to have the

### 4 transcript postedto the web site next Tuesday or 5 Wednesday of next week. 6 I'd like to take a moment to remind 7 theAgency that any issues which theAgencyhas 8 agreed to address at some ofthe parties shall 9 be

-- or at the request of some ofthe parties 10 shall be answered at the beginning of the second 11 hearing on December 20th. I hope to see you all 12 again on that date in Chicago. 13 Are there any matters that need to be 14 addressed at this time? Seeing none, this matter 15 is hereby adjourned. Thankyou for your 16 attendance andparticipation at this hearing. 17 (Whereupon, these were all the 18 proceedings held in the 19 above-entitledmatter.) 20 21 22 23 24

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1 STATE OF ILLINOIS 2 COUNTYOF COO K SS.

# r

3 4 I, GEANNAM. IAQUINTA, CSR, do 5 hereby state that I am a court reporter doing 6 business in the City of Chicago, County of Cook, 7 and State of Illinois; that I reported by means 8 ofmachine shorthand the proceedings held in the 9 foregoing cause, and that the foregoing is a true 10 and correct transcript ofmy shorthand notes so 11 taken as aforesaid. 12 13 14 15 16 GEANNAM. IAQUINTA, CSR Notary Public, Cook County, IL Illinois License No. 084-004096

17 SUBSCRIBED AND SWORN TO before me this day 18 of , A.D., 2000. 19 Notary Public 20 21 22 23 24

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