STATE OF CONNECTICUT

DEPARTMENT OF ENVIRONMENTAL PROTECTION

STATE OF CONNECTICUT

AND

PSEG POWER CONNECTICUT liC

TRADING AGREEMENT AND

ORDER NO. 8253

MODIFICATION NO.2

TRADING AGREEMENT AND ORDER MODIFICATION

In the matter of a Trading Agreement and Order between the Commissioner of Environmental

Protection ("Commissioner") and PSEG Power Connecticut liC ("PSEG").

WHEREAS, the Commissioner and PSEG, having agreed to the terms and conditions set forth in

Trading Agreement and Order No. 8253 signed by the Commissioner on April 22, 2003, and

Trading Agreement and Order 8253 Modification I issued September IS, 2004 do now, by

mutual agreement, modify said Trading Agreement and Order No. 8253 as follows:

I. Delete the date May I, 2005, and substitute therefor May 1,2009, in paragraphs

A.4. and C. I.

2. Delete paragraph C.2 and C.2.a and substitute the following therefore:

DERC use. Before the first day of each non-ozone season, PSEG shall have in its

possession sufficient approved DERCs for the boiler based on the following:

a. During the non-ozone season:

During the period from October I through April 30, inclusive, each year

until May 1,2009, the boiler shall, in addition to meeting the 24-hour

emission limit in Table 22-I of Section 22a-I74-22 of the Regulations,

meet a non-ozone season emission limit of 0.15 IbsIMMBtu. Prior to

October 1, 2006, 2007 and 2008, PSEG shall estimate and acquire the

amount of DERCs or allowances required for such non-ozone season

needed to comply with Section 22a-174-22(e)(3) of the Regulations as

follows:

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PSEG Power Connecticut LLC 2 Trading Agreement

and Order No. 8253

Modification No.2

Estimated DERCs (tons) = [Estimated fuel use in MMBtu from October 1

through April 30 x (lower of the estimated seasonal

average NOx emission rate or the proportioned 24-

hour allowable emission limit in IbslMMBtu during

October 1 through April 30) - (0.95 x 0.15

IbslMMBtu)] .;. 2000 pounds/ton.

No later than May 31, 2007, 2008 and 2009, when the boiler has a non-ozone

seasonal average actual NOx emission rate exceeding .15 IbslMMBtu, PSEG

shall calculate and permanently retire the amount of DERCs used in the

preceding non-ozone season as follows:

Actual DERCs (tons) =[Actual fuel use in MMBtu from October 1 through April

30 x (lower of the actual seasonal average NOx emission

rate or the proportioned 24-hour allowable emission

limit in IbslMMBtu during October 1 through April 30)

- (0.95 x 0.15 IbsIMMBtu)] .;. 2000 pounds/ton.

3. Delete paragraph C.6. and substitute the following therefore:

Allowance Use. Pursuant to Section 22a-174-22(d)(3) of the Regulations, PSEG

may use NOx allowances, until May 1, 2009, for the peaking units pursuant to

Section 22a-174-22(j) of the Regulations to achieve all or a portion of the

reductions required by Section 22a-174-22 of the Regulations. Any allowance

used for compliance with Section 22a-174-22(e) of the Regulations shall be

subject to all restrictions and/or requirements applicable to DERCs contained in

this Trading Agreement and Order;

a. In order for PSEG to use NOx allowances, PSEG shall create a general

account or use an existing compliance account or overdraft account in

EPA's NOx Allowance Tracking System ("NATS"); and

b. Each allowance used for compliance with Section 22a-174-22 of the

Regulations shall be equivalent to one discrete emission reduction credit.

Allowances shall be considered used for compliance with Section 22a174-22 of the Regulations when they are transferred from the facility's

NOx general account in the NATS or the facility's NOx compliance

account in the NATS to the CT State NOx Retirement Account (Account

ill CT0000000300 in the NATS).
PSEG Power Connecticut LLC 3 Trading Agreement

and Order No. 8253

Modification No.2

4. Delete paragraph C.7. and substitute the following therefor:

DERC Shortfall. At a minimum, DERCs required shall be adjusted upwards by

100% if DERCs are not in PSEG's possession for use prior to the first day of

each month or applicable season. However, nothing in this Trading Agreement

and Order shall affect the Commissioner's authority to institute any proceeding

or take any other action to require additional upward adjustment, based on the

gravity of any alleged noncompliance or violation of law. PSEG shall

permanently retire the quantity of DERCs equivalent to the excess emissions

plus a 100% premium within sixty (60) days of PSEG's discovery of the DERC

shortfall. PSEG shall certify and report any such DERC retirement to the

Commissioner in accordance with paragraph C.26. of this Trading Agreement

and Order.

5. Delete paragraph C.9. and substitute the following therefor:

Extension. No later than May 1,2009, with respect to the boiler, PSEG shall

comply with the requirements of Sections 22a-174-22(d)(l) and 22a-174-

22(d)(2)(A) of the Regulations and amendments thereto. There is no assurance

that the Commissioner will grant a written extension of this Trading Agreement

and Order.

6. Delete paragraph C.lO. and substitute the following therefor:

Future Compliance Report. On or before September 1, 2008, PSEG shall

submit a report in writing to the Commissioner, as directed in paragraph C.27.

of this Trading Agreement and Order, indicating how the facility shall comply

with Section 22a-174-22 of the Regulations with respect to the boiler on and

after May 1, 2009.

7. Delete the word "individual" and substitute therefore the word "Section" in

paragraph C.26.

8. Delete the name "Ms. Wendy Jacobs" in paragraph c.n.
PSEG Power Connecticut LLC 4 Trading Agreement

and Order No. 8253

Modification NO.2

All other terms and conditions of Trading Agreement and Order No. 8253 and issued by the

Commissioner acting under Chapter 446c, Sections 22a-6, 22a-171, 22a-174, 22a-176, ancl22a177 of the Connecticut General Statutes shall remain in effect.

PSEG hereby consents to the entry of this modification to the Trading Agreement and Order

without further notice.

PSEG POWER~l~

SIgnature: ~~:-_'::'-':-'--.:1.\=~:L_

Type Name:

Type Title:

Date:

Robert T. Parnell

Director of Asset Operations

August 2, 2006

Issued as a modification of an Order of the Commissioner of Environmental Protection.

--R(GiI1aMC~hy Commissioner

MAILED CERTIFIED MAlL,

RETURN RECEIPT REQUESTED

$--eft. 1 ,700

Date

Certified Document No. 7001 2510 0000 6250 4274