, ,••

Exhibit 3

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 ("MPLLCll ) 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/MM3 tu) 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

h np :f1d ep .Stat e. ct.uS

.~n Eouol ()"",,~..,~I'" r'__ , ••.•

Date
Montville 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 officerl 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 othr

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- Date
Montville 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::::iiirf;')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

Trading Agreement and Order No. 8183
STATE OF CONNECTICUT

DEPARTMENT OF ENVIRONMENTAL PROTECTION

REVISED II/5/97

Credit Trading for Sources with Irregular NOx Emissions

The following outlines the Department's concerns and methodology for dealing wi tl1 NOx

compliance pursuant to §22a-174-22G), Regulations of COimecticut State Agencies

("Regulations"), emission trading for "peakers" and other sources that have peak emissions that

are substantially higher than their average daily emissions. For purposes ofthis protocol,

peaking units are defined as sources with peak daily NOx emissions greater than three times their

average daily emissions during the ozone season.

The basic concept of the trading program is that sources with excess NOx emissions (a rate that

exceeds the rate limits in the Regulations) may obtain NOx emission reduction credits ("ERCs")

from sources that have "over-controlled" their NOx emissions. Although typical sources can

obtain credits on a mass basis (one ton ofERCs to offset one ton of excess emissions) with an

acceptable environmental outcome, sources with large variations in emissions from day to day

pose an additional problem for ozone attainment planning.

The most common peaking units or "peakers" are electricity generating units that run during

times of high electricity consumption. Electricity demand is often the highest during hot, humid

days ofthe summer when the potential for ozone 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 new rate limits tlrrough the use ofERCs on a ton-far-ton basis will exacerbate this effect.

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

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

would be appropriate.

The full impact of the NOx emissions from these types offacilities during summer operation

must consider temporal variability as well as mass of excess emissions. Any ERC trade must

consider equivalency to the NOx reductions that control equipment would produce on an ozone

day on both a temporal and a mass basis. The protocol below places appropriate requirements

on peaking units to reflect the greater impact of NOx emitted under this typ.e of usage pattern.

Attachment 1 provides a detailed example of this issue.

NOx Emissions Reduction Credit Use Computation For Peakers

• Peaking units are only considered to be a.temporal issue for the ozone season months.

• All excess NOx emissions during the winter (non-ozone season) need only be offset by

ERes on a mass basis.

8 Prior to each ozone season there will be a prospective calculation to detennine how many

tons of ERCs must be "on hand" during the ozone season. A retrospective calculation

will detellnine how many ERCs 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 ERe use during the ozone season:

1. Prosoective calculation detennines the number ofERCs that must be provided for the

ozone season. (Beginning in 1996, the ERCs must be in place no later than May I.)

ERCs required for the ozone season shall be calculated based on: (a) a mass basis (total

anticipated excess NOx emissions over the ozone season) and (b) a peak-day basis

(maximum excess emissions for any day during the ozone season). Sources will be

required to provide credits equal to the greater ofthe amount calculated on a mass or

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

specific trading order issued for that source.

(a) Mass basis: ERCs required will be equal to the total number oftons of anticipated

excess NOx emissions over the entire ozone season, calculated in the same

manner used for other sources using ERCs (Le., including any discounts).

(b) Peak (daily rate) basis: ERCs (in tons) required will be calculated by dividing

one-third ofthe maximum daily excess emissions" (in pounds) by 13

pounds/day/ton:

ERCs required (tons) [(Maximum Estimated Excess NOx in Ibs.) • 3J • (13 IbsJday/ton]

,*\Vhere maximum daily excess NOx emissions are the difference between the

maximum estimated hours ofoperation per day 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 credit use and the ERe surplus, if any.

At the end ofthe ozone season, the calculations required in item 1 above will be repeated

using (a) the actual total excess emissions for the ozone season, and (b) the maximum

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

"modeiate to unhealthful", "unhealthful", or "very unhealthful". The actual "ERCs

required" will be the greater ofthe ERCs calculated on the basis of total mass or

maximum (peak) day. To the extent that the number of ERCs used to offset peak day

emissions exceed the total mass of excess NOx emissions for the ozone season, the

remaining mass value ofsuch ERCs may be carried forward for use in the winter (nonozone season). Any unused ERCs may be carried forward until :May 1, 1999, except as

may be limited by the trading agreement and order, or by regulation.
3

Exhibit 1

ERe Calculation for Peaking Units

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

daily reductions in NOx emissions over the course of an entire ozone season (153 days). The

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

calculated as follows:

(I ton) x (2000 pounds/ton) + 153 days 13 pounds/day/ton

Thus, an ERe (ton) would be equivalent to a reduction in NOx emissions of 13 pounds/day.

EX.4.MPLE. If a "peaking" source were to emit one ton of excess NOx per day when operating,

but only operates for five days during the ozone season, the owner/operator ofthe source would

nominally need to obtain five tons ofERes. However, those ERCs are likely to have been

created by relatively small daily reductions in NOx emissions over the course of an entire ozone

Season (153 days). In this example, assuming a purchase of five tons ofERCs, that calculates out

to a dailY NOx reduction of approximately 65 pounds.

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

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

that will not have been offset, on the order of 1,935 pounds:

(1 ton x 2000 pounds/ton) - (65 pounds credit) = 1,935 pounds excess NOx emissions

While the total amount of NOx emitted would be controlled on a seasonal average basis, on the

"peaking" day there would be a potentially significant increase in NOx emitted, and thus an

increase in potential ozone creation. In order to achieve a commensurate reduction in ozone

creation potential for peakers, an adjustment in the calculation ofrequired ERCs is needed. One

approach would be to require ERCs in a quantity that would ensure that the daily average

reduction represented by those ERCs would equal the maximum daily excess NOx emissions

from the peaking so~rce on any day that it ran. On this basis, a peaking sourc~ with a maximum

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

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

This 153 tons ofERCs would be adequate to "offset" ex~ess emissions of one ton per day for as

many days as the source operated during a particular ozone season. This has been deemed to be

unduly stringent, given some diversity in operation of these sources. In light ofthe foregoing,

this requirement is adjusted downward by two-thirds.