1 Coal Combustion Byproducts Management

This overview includ es discussions of Consumers Energy’s proactive coal combustion byproduct (CCB) management and the structural integrity of its land disposal areas.

Coal

- fired electrical generation produces two types of ash

– fly ash and bottom ash

— that are collectively labeled as CCBs. Fly ash is fine particulate in the flue gas that is collected by electrostatic precipitators and filter bags. Bottom ash, with g r a i n s i z e s r a n g i n g f r o m f i n e s a n d t o f i n e g r a v e l

, i s c o l l e c t e d f r o m t h e f l o o r o f c o a l b u r n i n g f u r n a c e s

.

More than 90 percent of the mineral component of coal fly ash consists of oxides of four common elements that make up soil and rocks: silicon, iron, alu minum and calcium. Like soil and rock, coal ash also contains trace elements that can pose potential public health concerns under condi tions of high exposure. Collectively, the trace elements comprise less than 1 percent of the weight of the fly ash. Because all of the elements con tained in coal ash exist naturally in the environ ment, humans are exposed to some form of them every day

.

Information related t he Environmental Protection Agency’s (EPA) proposal to regulate CCB disposal under the Resource Conservation Recovery Act (RCRA ) also is discu ssed in the context of Consumers Energy’s management of CCBs.

CCB Land Disposal Area Management

The c ompany has four licensed land disposal areas located at the Karn/Weadock

, Campbell and Whiting plants that receive CCBs from the coal

- fired units. Th e land disposal area at the Cobb plant was closed permanently in 2008 in accordance with its state

- approved closure plan.

T hese land disposal areas are regulated under Michigan’s Natural Resources and Environmental Protection Act Part 115 , which is enfor ced by the Michigan Department of Natural Resources and Environment (DNRE). Part 115 rules are modeled after the EPA’s regulations for municipal solid waste landfills. The Part 115 regulations require engineering plans, construction permits for new facilit ies or existing facility expansions, and closure plans and operating licenses, which are reviewed and reissued on a five

- year basis by the Michigan DNRE. The closure plans, which are certified by an independent registered professional engineer, contain spe cific requirements for the final cover material, long

- term maintenance and monitoring. The long

- term monitoring continues on land disposal areas well past closure.

These land disposal areas each have a $1 million letter of credit that serves as a performa nce bond to en sure funding is available for any corrective action s that become necessary during the post

- closure period. The land disposal areas also have p erpetual c are funds held by Bank of New2 York Mellon that the company contribute s to on a quarterly b asis to en sure the funding of the land disposal area maintenance for a minimum of 50 years after closure.

Part 115 rules also require annual characterization of the waste through leachate testing. The CCBs produced by the c ompany’s coal

- fired plants mee t the requirements for low

- hazard industrial wastes

— concentrations of potentially hazardous materials that are less than 10 percent of EPA’s hazardous waste thresholds.

Ground water monitoring is required quarterly at active CCB land disposal areas and is required semiannually at closed land disposal areas under Part 115. Quarterly ground water monitoring and reporting of the company’s land disposal areas began in 1982.

Land Disposal Area Descriptions

Campbell

At the Campbell p lant, the 138

- acre l andfill has a double high

- density polyethylene liner that meets the design requirements under the Resource Conservation and Recovery Act (RCRA) Subtitle D requirements. The land disposal system includes a leachate collection system for monitoring landfill performance. The fly ash is transported and stored in the dry state, significantly reducing the amount of water in the land disposal area. The fly ash is moistened with water and placed and compacted in the landfill according to landfill and engineering d esign standards. Compliance with environmental requirements is assured through implementation of the land disposal area’s hydrogeological monitoring requirements, solid waste area operating license and construction permit

.

Karn/Weadock

The Karn plant la nd disposal area is a 174

- acre former surface impoundment that is being dewatered and closed as a landfill under Part 115 rules. The fly ash is transported and stored in the dry state, significantly reducing the amount of water in the land disposal area. T he fly ash is moistened with water and placed and compacted in the landfill according to landfill and engineering design standards

. Compliance with environmental requirements is assured through the implementation of the land disposal area’s hydrogeologica l monitoring plan, solid waste area operating license and construction permit

.

The Weadock plant land disposal area is a 292

- acre former surface impoundment that is being dewatered and closed as a landfill under Part 115 rules. The fly ash is transported and stored in the dry state, significantly reducing the amount of water in the land disposal area. The fly ash is moistened with water and placed and compacted in the landfill according to landfill and engineering design standards

. Compliance with environ mental requirements is ass ured through the implementation of the land disposal area’s hydrogeological monitoring plan, solid waste area operating license and construction permit

.3 Consumers Energy has a ground water discharge permit unique to the Karn and Weadock land disposal areas. The permit provides an additional level of monitoring for impacts to ground water at this site.

Whiting

The Whiting plant land disposal area is a 152

- acre former surface impoundment that is being dewatered and closed as a la ndfill under Part 115 rules. The fly ash is transported and stored in the dry state, significantly reducing the amount of water in the land disposal area. The fly ash is moistened with water and placed and compacted in the landfill according to landfill an d engineering design standards

. Compliance with environmental requirements is ass ured through the implementation of the land disposal area’s hydrogeological monitoring plan, solid waste area operating license and construction permit

.
At Whiting, t he Michi gan DNRE recently has granted a ground water monitoring waiver because the c ompany has demonstrated the site’s geologic conditions make it impossible for leachate from the landfill to contaminate ground water. The landfill is constructed on a 60

- foot thick clay layer that lies above limestone that caps a confined, artesian aquifer.

Ground Water Monitoring

Ground water monitoring has been required on a quarterly basis at all other active CCB facilities since 1982. Many parameters such as heavy metals are monitored. Discharges to all surface waters are under the p lants’ National Pollut ant Discharge Elimination System (NPDES) permits, which require monitoring and reporting and establish limits protective of the environment, such as drinking water, aquatic l ife and human body contact. Water streams discharged under these permits include ash sluice water, storm water and miscellaneous wastewaters

.
Conversion to Dry Fly Ash Handling

Part 115 regulations require surface impoundments used for CCB disposal to b e de

- watered and closed as landfills. In anticipation of the closure of the surface impoundments and in anticipation of more stringent regulations governing discharges from wet CCB handling systems, the

c ompany converted all fly ash handling systems to dry systems over the last decade at a cost of about $80 million. The original wet

- handling systems mixed water with CCBs to create a wet mixture that could be pumped to the land disposal areas. The wet systems required significant amounts of water and had a g reater potential to release contaminants into the environment than the dry systems now in use. Dry fly ash systems reduce water consumption for ash handling by 90 percent and significantly reduce the potential to release contaminants through leaching or d irect discharge. Dry fly ash systems have the additional benefit of producing ash suitable for beneficial use in concrete and cement

. F ly ash from wet disposal settings cannot be used in most beneficial use applications.

Bottom ash continues to be handled “wet” at all facilities for several reasons. Primarily, it is very difficult to remove bottom ash from the bottom of the boiler without water as a conveyance mechanism. The bottom ash ponds, created for temporary storage of bottom ash, serve as a4 reservoi r for water from the plant water treatment facilities and other liquid wastes regulated under the p lant’s NPDES permit. The bottom ash ponds are not lined, since bottom ash does not pose a leaching threat.

CCB Beneficial Use

The c ompany has been proactiv e in CCBs management for many years. Beneficial use results in significant cost savings to our customers by not having to landfill CCBs ( more than $2 million annually) and provides useful products that minimize the use of other natural resources and reduce carbon emissions. For example, Consumers Energy produces about 500,000 tons of fly ash annually , of which 25 to 30 percent is used beneficially in concrete or in Portland cement manufacturing. The use of fly ash rather than limestone avoids the mining and transportation impacts and fossil fuel use associated with limestone mining and delivery. Consumers Energy produces roughly 100,000 tons of bottom ash, all of which is used in land disposal area construction or for cement manufacture.

The c ompany contract s with Headwaters Resources, Inc., America’s largest manager and marketer of coal combustion by products, to en sure that CCBs are not used for structural fills except within landfills, are not used for land or other agricultural applications

, and are not us ed for mine fill or to fill quarries or sand pits.

Land Disposal Area Integrity

— Current Status

After the coal fly ash slurry spill at the Tennessee Valley Authority’s Kingston Fossil Plant in December 2008, Consumers Energy initiated an assessment of disposal area dike/embankment stability. The assessment determined that none of the disposal structures at Consumers Energy’s facilities presented significant safety issues. Nonetheless, t he reviewing team made some recommendations to improve operations a nd reliability of the structures. Th e se recommendations are being implemented in 2010 and 2011. We also are developing a vegetation management plan

. These practices will help ensure that our disposal areas continue to be safe and well maintained.

Current Issues

There is a ground water issue at the Karn land disposal area (landfill) that warrants discussion. The Karn landfill was constructed over Saginaw Bay sediment in 1959. The water between grains of sediment under this landfill and in Saginaw Bay, dir ectly adjacent to the landfill, exceeds the drinking water standard for arsenic. Yet tests on the water flowing directly out of the Karn landfill meets the drinking water standard for arsenic. At the nearby Weadock landfill, where water flowing out of the landfill also meets the arsenic drinking water standard, there is no arsenic exceedance in the water between grains of sediment under that landfill. We also note that in many other areas not associated with either landfill, water between grains of Saginaw Bay sediment exceed the arsenic standard. This suggests a different source for the arsenic contamination in the sediment than the Karn landfill.

The company believes the arsenic contamination is due to a number of sources, including natural arsenic concen trations in local soils, agricultural pesticides and industrial waste transported by the Saginaw River and deposited in Saginaw Bay. There also is evidence of the natural venting5 of metals from naturally contaminated ground water from deep salt brine form ations. The Michigan DNRE believed the company was not in compliance, but then found an error and proceeded with issuing the operating license for the facility. Today, all requirements are being
met.

EPA Regulation of CCBs

On June 21, 2010 , the EPA so ught comments on a range of alternatives to regulate CCBs:

o Alternative 1. Subtitle C regulations: CCBs would be regulated as a special waste under the hazardous waste regulations and be subject to EPA and s tate enforcement. Subtitle C regulation effectiv ely phases out the use of surface impoundments. New landfills would have to be constructed and all existing CCB impoundments emptied out and CCBs disposed of in a Type 1 hazardous waste landfill. Under this alternative beneficial use likely will decline d ue to liability issues, even though the EPA would exempt CCBs that are wholly contained or encapsulated in a product.

o Alternative 2. Subtitle D regulations: CCBs would be regulated as a solid waste and would be self

- implemented and enforced through citi zen law suits. Existing impoundments would have to remove solids and line or close the facility within five years. Subtitle D regulation would be based on engineering and design as opposed to performance standards.

o Alternative 3. Subtitle D Prime regulati ons: Existing CCB impoundments could continue to operate if required ground water monitoring demonstrates that the facility is in compliance

.

The EPA ’ s Subtitle C proposal is surprising because on four separate occasions the EPA determined CCBs were not hazardous. I n 2000, the EPA recommended to Congress that CCBs be regulated as non

- hazardous solid wastes under RCRA Subtitle D and determined that “ States have the regulatory structure in place at the State level to assure adequate management of these
wast es.” EPA further determined that regulating CCBs under Subtitle C “would adversely impact beneficial use.”

The Subtitle C proposal, if enacted, could have a significant impact on the costs of electric generation and even the continued operation of coal

- fir ed electric units. The company and the utility industry view proposed regulation of CCBs under Subtitle C as both technically difficult from a compliance perspective and costly relative to the potential benefit. Because of the high cost of regulation and t he potential impact on plant closures and regional electric reliability, regulation under Subtitle C as proposed is not viewed as likely.

We believe that regulation under a Subtitle D with s tates implementing the programs according to EPA standards, much like the existing regulatory structure for municipal solid waste landfills under Subtitle D, is favorable. The other current proposal, with self

- implementation of the requirements and enforcement by citizen suit

, is an awkward and very costly scenario rela tive to traditional solid waste regulation.6 Consumers Energy’s land disposal areas are currently in compliance with Part 115 and are based on municipal solid waste landfill rules developed under Subtitle D. The c ompany would be well positioned to comply with the EPA’s proposed Subtitle D regulatory requirements for CCBs because of its history of compliance with Michigan’s Subtitle D

- based solid waste regulations that contain many of the elements of EPA’s proposed rule, and its conversion from wet to dry f ly ash management.

Summary

As can be seen, the company proactively and safely manages CCBs. The conversion to dry fly ash handling has had a significant impact on our operations, significantly reducing the amount of water used as well as minimizing the potential for storage area failure and release. Additionally, the dike/embankment assessment determined that none of the disposal structures at Consumers Energy ’ s facilities presented immediate safety issues. Nonetheless, t he reviewing team made

some reco mmendations to improve operations and reliability of the structures which we are currently implementing. We will continue to actively participate in policy development to assure reasonable regulations of CCBs.