## •• , , 

### Exhibit3 

# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

In the matter of The State of Connecticut and 

### Montville Power LLC ) ) ) ) ) ) ) Trading Agreement and Order No. 8183

Whereas, the Commissioner of Environmental Protection ("Commissioner") and Montville Power LLC ("MPLLC ll ) agree that it is in che public interest that they work cooperatively to improve the air**qualit~** within the State of Connecticut and that the use of emission reduction credit (".t.RC") trading to reduce nitrogen 

### oxide ("NOxt!) 

### emissions will achieve this result in a timely and cost-effective mafu'"'ler:

A. At the request and with the agreement of M?LLC, the Commissioner finds the following:
1.

2.

3.

4.

5. MPLLC 

### is an exempt wholesale electric generating comoany with its orincioal olace of business in Sewickley, PennsylvanIa. On or before becember 31, 1999 MPLLC will ourchase from The**COP_~ecticut** Light and Power Comoany and then own two (2) pieces of fuel-burning eOUloment**("peakin~·unltsn) ~denti~ied**  in**T~ble** 1 of this Trading Agreement and Order.**~hese** peaklng un1ts are dlesel generators. On or before December 31, 1999 NRG Montville Operations Inc. will operate both peaking units identified in Table 1 of this Trading Agreement and Order at MPLLC's facility. Official 

### U.S. Environmental Protection Agency 

### {"EPA") Reference Method 7E stack 

### testing performed on the date indicated 

### in Table 

### 1, resulted in 

### NOx emission rates set forth in 

### Table 1.

Table 1 Y.?LLC 

## - NOx EMISSION RATES A'iD RACT LIMITS (lbs/MM3tu) ?eaking Onit FUEL FLEit NOx RACT Stack Test Date of (lbs/MM3tu) Rate Rate Stack**T~st** (lbs/MM3tu) (lbs/MM3tu) "Montville 10 other 3.11 2.35 2.83 5/24./96 oil Montville 11 ot.her 2.96 2.35 2.69 5/24./96 oil The emission rates for the oeaking units and fuel soecified in Table 1 are in excess of Section 22a-174-22, Table 22-2,**of~the** Regulations of Connecticut State Agencies ("Regulations"), NOx emission rate limits (Reasonably Available Control Technology "RACT"). Pursuant to Section 22a-174-22(b) of the Regulations, both of**th~** peaking units are subject to Sections 22a-174-22(d) through (k) of the**~egula~ions,** pertaining to**~he** control of NOx emissions.


### Initials (Printed on Rec}:oled PIper) Elm Street • Hmford, CT 06106·5127
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__ , ••.• DateMontville Power LLC Trading Agreement 

### and Order No. 8183

6.

8.

9. 7.

10. In accordance with Section 22a-174-22(j) of the Regulations, MPLLC proposes that for both peaking units iaentified in Table 1, MPLLC shall use ERC trading when burning "other oil", as that term 1S defined in Section 22a-174-22 of the Regulations. Pursuant to the Department of Environmental Protection's "Credit Trading for Sources with Irreqular NOx Emissions" policy, with a revisea date of November 5, 1997, attached hereto and incorporated by reference into this Trading Agreement and Order as Exhibit 1, both peaking units have peak da11y NOx emissions greater than three times che average daily emissions auring the ozone season and are therefore considerea sources with irregular NOx emissions. Based on DEP approved stack test data, it has been determined that both of the peaking units' emissions will not meet the applicable requirements of RACT contained in Section 22a-174-22 of the Regulations. MPLLC proposes to use Full Load Emission Rates ("FLERs") identified in Table 1 for the purposes of calculating ERCs required. MPLLC intends to continue**~cquiring** approved ERCs as needed. Approved**~RCs** are defined for the purpose of this Trading Agreement ana Order as those for which the Comm1ssioner has provided written authorization for use in compliance with Section**22a~174-22** of the Regulations.

. The Commissioner, in accordance with the provisions of this Trading Agreement and Order, and pursuant to Section 22a-174-22 (j) of the Regulations hereby allows MPLLC to comoly with Section 22a-174-22 of the Regulat10ns through use of ERC trading· referenced in Section A, herein, to acn1eve the nitr9gen oxide emission reduction required by Section 22a-174- 22(d) (2) of the Regulations. With the agreement of MPLLC, the Commissioner, acting under**Cop~"~cticut** General Statutes Sections 22a-6, 22a-171, 22a-174, 22a-176, and 22a-177, orders MPLLC as follows: B.



### c.

1. Uoon issuance of during ooeration above. • this Trading Agreement and Order MPLLC shall comoly of each peaKing unit with the FLERs shown in Table 1

2.

3.

4.

5. On and after the date which MPLLC purchases both peaking units identified in Table 1 of this Trad1ng Agreement and Order, MPLLC shall have in its oossessioa sufficient approved ERCs to meet applicable**R~CT** requirements and the requirements of this Trading Agreement and Order. On and afcer the date which MPLLC purchases both peaking units identified in Table 1 of this**Trad~ng** Agreement and Order, MPLLC shall, on a daily basis, document ana record the amounts of all fuel used by each peaking unit each day and the number of ERCs used for the ozone season -(from lVlay 1 through September JO of each year) and nonozone season (the remainder of the year)

. . On and after the date which MPLLC purchases both peaking units identified in Table 1 of this Trad1ng Agreement and Order, oursuant to Section 22a-174-22(j) of the Regulat10ns{ MPLLC shall acquire from The Connecticut Light and Power Company suff1cient aporoved non-ozone season ERCs in order to meet applicable RACT requirements and the**re~irements** of this Trading Agreement and Order for the operation of both Deaking units identified 1n Table 1 of this Trading Agreement and Order-during the month of December, 1999. Except as proviged in paragraph.C.4. of this Trading**Agreeme~t** and, Order{ on and arter che date wh1ch MPLLC Durchases Dotn oeak1ng un1ts ident1fied in Table 1 of this Trading Agreement and Order, pursuant to Section 22a-174-22(j) of the Regulat1ons{ MPLLC will acquire from The Connecticut Light and Power Company suff1cient approved ozone and non-

'C""'.**~---'-­** 

### Initials**\«~** -2-Montville Power LLC 

### Trading Agreement and Order No. 8183

d.

ozone season ERCs in order to meet applicable RACT requirements and the**requiremen~s** of this Trading Agreement and Order Lor the**follo~ing** month's operat1on. 6. In accordance with Exhibit 1 of this Trading Agreement and Order, ozone season ERCs for use during the ozone season shall be purchased by CJP prior to the beginning or the ozone season.
. 7. On and after the date which MPLLC purchases both peaking**lL~its** identified in Table 1 of this Trading Agreement and Order, MPLLC shall maintain and provide the records**re~ired** by paragraph C.3. of this Trading Agreement and Order in accordance w1th the following and Section 22a-174-4 of the Regulations, and shall:

a. nave in its' possession sufficient approved ERCs for the current day, based on the following calculations (described also in Exnibit 1); At all times (mass calculation) : ERCs (in tons) • [«FLER in Ibs/MMBtu)

- (0.95 x NOx**~~CT** in Ibs/MMBtu)) x (actual fuel use in lbs/MMBtu)] + 2000 oounds/ton During the ozone season only (peak day calculation): the maximum actual excess NOx emissions (in Ibs) on any of the days projected by the Commissioner to be**~moderate** to unhealthrul," "uil.healthful," or "very unhealthful," divided by 3 and then divided by 13 (with the result in tons) :**~RCs** (in tons) 

## = [(Maximum excess NOx in Ibs) 3) [13 lbs/day/ton) ; b. At a minimum,**ad~ust** uowards by 100% the ERCs required if ERCs are not in MPLLC s possession prior to use;
c. As described in Exhibit 1 of this Trading Agreement and Order, to the extent that ERCs used to offset on a oeak day basis during the ozone season exceed the total mass excess em1ssions, remaining ERCs may be used in the non-ozone season in the same or subsequent years until May 1, 2003; Document and record daily fuel use, excess NOx emissions and, during the ozone season, the ozone classification as forecasted by the Commissioner on the previous day;

e.

f.

g.

h. No later than March 1( 2000, 2001, 2002, 2003 and 2004, include with its annual**emiss~ons** report to the Commissioner, ERCs used (calculated as described in section C.7.a. above), by ozone and non-ozone seasons, for the previous calendar year; Retain che records and**supporti~g documentat~on** **a~** described in this section for a minimum of flve years, commenc1ng on the date such records are created; Maintain documentation to attest to the fact that ERCs used during the ozone season were generated during the ozone season. The ozone season is from May I through September 30 in any calendar year. Generator certificat10n**o~** this fact shal be sufficient; and Provide the records specified above to the Commissioner within thirty f30) days of receipt of a written request from che CommlSSloner. 8. The terms and conditions established by this Trading Agreement and Order shall become effective on the dace MPLLC purchases both peaking



### Initials -3-Montville**Po~er** LLC Trading Agreement and Order No. 8183

9.

10.

11.

12. units identified in Table 1 of this Trading Agreement and Order, and upon issuance of this Trading Agreement and Order. No later than May I, 2003, MPLLC shall comply with the requirements of Section 22a-174-22(d) (2) of the Regulations. However, after full program review of this and other Trading Agreements and Orders and, if aetermined to be aporopriate, the Commissioner may grant a written extension of this**Trad~ng** Agreement and Order.**Defioit~ons.** As used in this order, "Commissioner" means the Camm1SS1oner of Environmental Protection or an agent of the Commissioner.**~Other** oilw means a fuel that is**Ii~id** at standard conditions and is not residual oil.**~Residual** oil means any fuel oil of NO.4, No. S, or No. 6**~rades,** as defined by Commercial Standard C.S. 12-48. "Ozone season means the period from May 1 through September 30 in any given calendar year.**~Issuancew** means the date**th~s** Trading Agreement and Order is deposited in the U.S. Mail or the date it is personally delivered, whichever is earlier.**N~tif;caa~Qn** of noncomol1ance. In the event that MPLLC becomes aware t at 1t1d not or may not comply, or did not or may not comply on time, with any requirement of th1s Trading Agreement and Order or of any document requ1red hereunder. MPLLC shall by telephone immediately notify the Bureau of Air Management and shall cake all reasonable steps to ensure that any noncomoliance or delay is avoided or, if unavoidable, is minimized to the greatest extent possible. MPLLC shall also notify the Commissioner in writing within ten days of becoming aware ot the noncompliance or potencial noncompliance stating the date( time, and duration· of the noncomoliance, the reasons for the noncomol2ance or delay and all activities which MPLLC and its agents, emoloyees and representatives took to avoid or repair the resulcs of the noncomoliance and prevent the noncomoliance,**~~d** propose l for the review and· written approval of the Commissioner, dates by Wh1Ch comoliance will be achieved. MPLLC shall comply with any dates which may·be aoproved in writing by the Commissioner. Notification by MPLLC shall not excuse noncompl2ance or delay, and the Commissioner's approval of any compliance dates proposed shall not excuse noncompliance or delay unless specifically so stated by the Commissioner in writing. Nothing herein shall negate MPLLC's obligation to comply w1th Section 22a-174-7 of the Regulations. To the extent that tne provisions of Section 22a-174-7 are inconsistent with the provisions of this Trading Agreement and Order. the more stringent of the provisions in the Trading Agreement and Order or Section 22a-174-7 shall control.**Certificat~on** of**Q~ents,** Any document, includino but not limited to any not1ce,**wh~c** 1S requirea to be submitted to-the Commissioner under this Trading Agreement and Order shall be signed by the**res~onsible** corporate officer of MPLLC or a duly authorized representative of such officer l as those terms are defined in**Sec~ion** 22a-430-3 (b) (2) of the**Regulat~ons** and by the individual or individuals responsible for actualiy preparing such document f each of whom shall examine and be familiar with the information suhm2tted in the document and all attachments thereto, and shall make inquiry of those individuals responsible for obtain2ng the information to determine that the inrormation is true, accurate, and complete, and each of whom shall certify in writing as follows: "I have personally examined and am familiar with the information submittea in this document and all attachments thereto, and I certify**~ha~** 9ased on**reaso~able investiga~ion,** **in~l~ding ~y**  inquiry of. those**~nd1v~duals respons~ble**  for obta2n2ng the 1nrormat10n, the subm1tted information is true, accurate and complete to the best of my knowledge and belief. I understand that any false statement made in che submitted information may be**p1L~ishable** as a criminal offense under Section 22a-17S of the Connecticut General Statutes or, in accordance with Section 22a-6 of the Connecticut General Statutes, under Section

Initials

# r~ 

# _ -4

-Montville Power LLC 

### Trading Agreement and Order No. 8183

13.

H.

15.

16.

17.

19.

20.
21.

22. 53a-157b of the**Co~~ecticut** General Statutes, and in accordance with any other applicable statute.- Final Aoreem§nt**~nd** grder. This Trading Agreement and Order is the final agreement an or er y and between the Commissioner and MPLLC with respect to the matters addressed herein, and shall not be modified without the written agreement of both parties.**;als~** st,tements.**.~y** false statement in any information submitted oursuant to c**~s rad~ng**  Agreement and Order may be ounishable as a criminal offense under Section 22a-175 of the Connecticut General Statutes or, in accordance with Section 22a-6, under Section 53a-157b of the Connecticut General Statutes.

... &" • •• • V

..... Until MPLLC has fully como**~e w~t** **tn~s lraQ~n9**  Agreement an raer, M LLC shall notify the Commissioner in writing no later than fifteen (IS) days after transferring all or any oortion of the facilitY t the operations, the site or the business which are the subject of this**Traa~ng** Agreement and Order, or obtaining a new mailing or location address. Any**l~cense** transfer shall be conducted in accordance with Section 22a-60 of the Connecticut General Statutes. MPLLC's obligations under this Trading**Ag~eement** and Order shall not be affected**~y** the passage of title to any property to any ocher person or municipality.**CQmmissipne~'s** cQwers, Nothing in this Trading Agreement and Order shall a!iect cne**omm~ss~oner's** authority to institute any proceeding or take any other action to prevent or abate**v~0lation9** of law, orevent or abate oollution, =ecover costs**~~d** natural resource damages,**~~d** to imoose penalties for violations of law which are willful or criminally negligent or for which oenalties have not been soecifically orovided in this Trading Agreement and Order, including but not limitea to violations of any Dermit issued by the Commissioner. If at any time the Commissioner determines that tne actions taken by MPLLC Dursuant to this Trading Agreement and Order have not fully achieved comoliance with Section 22a-174-22 of the Regulations, the Commlssioner may institute anv oroceeding against MPLLC and/or**re~Jire** M?LLC to undertake !urther investigation or rureher action.**M~Lr!'S ~Qlicat~~~~** **u~cier** law. Nothing in this Trading Agreement and Order sna re**~eve** 

# M:Z: or other obligations under applicacle federal, state and local law. Accgss te rete-cis and facilitv.**~~y** reoresentative of the Department of**;nv~ronmenta Protect~on**  may enter and insoect the facility and inspect and CODy records within normal Dusiness hours without Drior notice for the ourooses of monitoring and enforcing the actions required or allowed by this ?raaing Agreement and Order. No Iffect 9n richts of oth

# r r persons. This**Tradi~g Asreem~nt**  and Orde= sna**ne~tner** create nor a :ect any rights of oersons who or municipalities which are not parties to this**Trad~ng** Agreement and Order. No Creation of Prooertv Rights. This Trading Agreement and Order does not create any property**r~ghts** wlth respect to tnese**S~Cs.** N**~;** s**no~ h~pc..**  Within fifteen (15) days of the date MPLi becomes aware or a cnange**~n** any information submitted to the Commissioner under this Trading" Agreement and Order, or that any such information was inaccurate or misleading or that any relevant information was omitted, M?LLC shall submit the correct or omitted information to the Com."i\issioner.**~ubmiss~on** of dqcumepts. Any document required to be submitted to the

.**omm~ss~oner** unaer**tn~s** Tradlng Agreement and Order shall, unless**otherw~se** specified in writing by the Commissioner, be directed to: Mr. David Jawin**De~artment** of Environmental ?roteccion 3ureau of Air Management Compliance and Field Ooerations Division Emissions and Credit**T~ading** Section 79 Elm Street Hartford, Connecticut 05106



### Initials -5- 

### DateMontville Power LLC 

### Trading Agreement and Order No. 8183
MPLLC consents to the issuance of this Trading Agreement and Order without further notice. The undersigned certifies that fie/she is fully authorized to enter into this Trading Agreement and Order and to legally bind 

### M?LLC to 

### the terms and conditions or tne Trading Agreement and Order.


### LLC Signature: 

### Type Name: 

### Type Title:

Date: ,**flr:4Montvill~~** 

# Xnt3.d::::iii

# rf;')V,,\"I.9====--_.
Robert 5. Evans II Executive Director, Environmental Services 

### NEG Enerav, Inc.

12/29/99**Env~ronmental** Protection on

__**-=~**

TOWN OF 

### MONTVILLE LA."ID iBCORDS MAILED CERTIrIED MAIL, RETURN RECEIPT REQUESTED Certified Document

-6-

## /~ 

# ,Exhibit 1 

### TradingAgreement and OrderNo. 8183

# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

REVISED II/5/97 

### CreditTrading for Sources with Irregular NOx

### Emissions

The following outlines the Department's concerns and methodology fordealing 

### witl1 NOx compliance pursuantto §22a-174-22G), Regulations ofCOimecticutState Agencies ("Regulations"), emission trading for "peakers" and other sources thathave peak emissions that
are substantially higherthan their average dailyemissions. Forpurposes ofthis protocol, peaking units are defined as sources with peakdailyNOx emissions greaterthan three times their 

### averagedailyemissions duringtheozone season.

The basic concept ofthe trading programis that sources with excess NOx emissions (arate that exceeds the rate limits in the Regulations) mayobtain NOx emission reduction credits ("ERCs") from sources thathave "over-controlled" their NOx emissions. Although typical sources can obtain credits on a mass basis (one ton ofERCs to offset one ton ofexcess emissions) with an acceptable environmental outcome, sources with large variations in emissions from day to day pose an additional problem for ozone attainment planning.

The most common peaking units or "peakers" are electricitygeneratingunits thatrun during times ofhigh electricity consumption. Electricitydemand is often the highest duringhot, humid days ofthe summerwhen the potential for ozone formation is also high. Peakers frequently have high emission rates. To the extent that these units produce emissions at exactly the time \\'hen emissions need to be reduced to limit ozone fonnation, allowing peakers to continue to comply \vith newrate limits tlrrough theuse ofERCs on a ton-far-ton basis will exacerbate this effect. On the otherhand, ifitcan be demonstrated that the ERCs being used bypeakers were generated
on a comparable basis (i.e., during days ofhigh ozone potential), then ton-far-ton use bypeakers would be appropriate.

The full impact ofthe NOx emissions from these types offacilities during summeroperation must considertemporal variability as well as mass ofexcess emissions. Any ERC trade must considerequivalencyto the NOx reductions that control equipmentwould produce on an ozone day onboth atemporal and a mass basis. The protocol below places appropriate requirements
on peaking units to reflect the greater impact ofNOx emittedunder this typ.e ofusage pattern. Attachment 1provides a detailed example ofthis issue.



### NOx EmissionsReduction Credit Use Computation ForPeakers

• Peaking units are onlyconsideredto be a.temporal issue for the ozone season months.

• All excess NOx emissions during the winter (non-ozone season) need onlybe offsetby ERes on amass basis.
8 Priorto each ozone season there will be aprospective calculation to detennine how many tons ofERCs mustbe "onhand" during the ozone season. A retrospective calculation will detellnine how manyERCs were actually "used" during the ozone season.

(Printed on Rec)'cled Paper) 79 Elm Street • Hanford, CT 06106·5127 http://dep.Slate.Ct.us



### .......

### _. _. ",_....2

For EReuse during the ozone season:


### 1. Prosoective calculation detennines the number ofERCs thatmustbeprovided for the
ozone season. (Beginning in 1996, the ERCs mustbe in place no laterthan May I.)

ERCs required for the ozone season shall becalculatedbased on: (a) amass basis (total anticipated excess NOx emissions overtheozone season) and (b) apeak-day basis (maximum excess emissions for anyday duringthe ozone season). Sources will be required to provide credits equal to the greaterofthe amount calculated on amass or 

### peak-daybasis. Thetiming ofactual creditprovision will begoverned by

### the terms ofthe specifictrading orderissued forthat source. (a) Mass basis: ERCs requiredwill be equal to the total numberoftons ofanticipated 

### excessNOx emissions overtheentire ozone season, calculatedin the same mannerused for other sources using ERCs (Le., including anydiscounts).
(b) Peak (daily rate) basis: ERCs (intons) required will be calculated bydividing one-third ofthe maximum dailyexcess emissions" (in pounds) by 13 pounds/day/ton:

ERCs required (tons) [(MaximumEstimated Excess NOx in Ibs.) • 3J • (13 IbsJday/ton]
,*\Vheremaximum dailyexcess NOx emissions are the difference between the maximum estimatedhours ofoperation perday at the full-Ioad-emission-rate and 95% ofthe allowable NOx emissions under Section**22a-174~22(e)** ofthe Regulations.

2. RetrosDective calculation will determine the actual credituse and the 

### ERe surplus, ifany. At the end ofthe ozone season, the calculations required in item 1 abovewill berepeated using (a) the actual total excess emissions for the ozone season, and (b) the maximum actual excess NOx emissions on anyofthe days projected bythe Commissionerto be "modeiateto unhealthful", "unhealthful", or "very unhealthful". The actual "ERCs required" 

### will be the greaterofthe ERCs calculated on the basis oftotal mass or maximum (peak) day. To the extentthatthenumberof ERCs used to offsetpeakday emissions exceed the total mass ofexcess NOx emissions for the ozone season, the remaining mass value ofsuch ERCs maybe carried forward foruse 

### in the winter (nonozone season). Anyunused ERCsmaybe carried forward until :May 1, 1999, except as maybe limited bythe trading agreement and order, orbyregulation.3

Exhibit1 ERe CalculationforPeaking Units

Unless 

### itcan be demonstrated otherwise, ERCs are assumed to be created byrelatively small dailyreductions inNOx emissions overthe course ofan entire ozone season (153 days). The average dailyNOx emissions reduction represented by one ton ofcredit is 13 pounds/day calculated as follows: (I ton) x (2000 pounds/ton) + 153 days 13 pounds/day/ton
Thus, an ERe (ton) would be equivalentto areduction in NOx emissions of13 pounds/day.


### EX.4.MPLE. If

### a"peaking" sourcewereto emitoneton ofexcess NOx perdaywhenoperating, 

### butonlyoperates forfive days duringtheozone season, theowner/operatorofthe sourcewould nominallyneed to obtain five tons ofERes. However, those ERCs are likely to have been createdbyrelatively small daily reductions in NOx emissions overthe course ofan entire ozone Season (153 days). 

### In this example, assuming apurchase offive tons ofERCs, that calculates out 

### to a dailYNOx reduction ofapproximately 65 pounds.
(5 tons x 2000 pounds/ton) + 153 days = 65 pounds/day
Clearly, on anydaythat the "pea.lQng" unit operates, there is much moreexcess NOx emissions that will nothavebeen offset, on the orderof 1,935 pounds:
(1 ton x 2000 pounds/ton)

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

While the total amount ofNOx emitted would be controlled on a seasonal average basis, on the "peaking" day there would be apotentially significant increase in NOx emitted, and thus an increase in potential ozone creation. In orderto achieve a commensurate reduction in ozone creationpotential for peakers, an adjustment in the calculation ofrequired ERCs is needed. One approach would be to require ERCs in aquantitythat would ensure that thedaily average reduction represented by those ERCs would equal the maximum dailyexcessNOx emissions from the peaking**so~rce** on anydaythatitran. On this basis, apeaking**sourc~** with a maximum 24-hourexcess NOx emission ofone ton would be·required to purchase 153 tons ofERCs.

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

This 153 tons ofERCs would be adequate to "offset"**ex~ess** emissions ofone ton perday for as manydays as the source operated during aparticularozone season. This has been deemed to be unduly stringent, given some diversityin operation ofthese sources. In light ofthe foregoing, this requirementis adjusted downward bytwo-thirds.