# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

STATE OF CONNECTICUT AND MIDDLETOWN POWER liC TRADING AGREEMENT AND ORDER NO. 8182A MODlFlCATION NO.2
TRADING AGREEMENT AND ORDER MODlFlCATION In the matter ofaTrading Agreement and Orderbetween the Commissioner ofEnvironmental Protection ("Commissioner") and Middletown Power liC ("MP"). WHEREAS, the Commissioner and MP, having agreed to the terms and conditions set forth in Trading Agreement and OrderNo. 8182A signed by the Commissioneron April 22, 2003, and Trading Agreement and Order 8182A Modification 1 issued March 21, 2005 do now, by mutual agreement, modify said Trading Agreement andOrder No. 8182A as follows: 1. Delete paragraph A.!. and substitute the following therefor: This Trading Agreement and Order supersedes Trading Agreement and Order 8182 issued on January 12,2000. 2. Delete paragraph A.5. and substitute the following therefor: Reserved. 3. Delete the date May 1, 2005, and substitute thereforMay 1, 2009, in paragraphs A.6. and c.!. 4. Add "2. DERC use" afterparagraph 

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.. 5. Delete paragraph C.2.a. and substitute the following therefor: Until May 1,2009, before the first day ofeach month MP shall have in its possession sufficient approved DERCs for the current day for the peaking unit based on the following calculations; Before the first day ofeach month, MP shall estimate DERCs required for such month for the peaking unit as follows: (i) At all times:

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# .. Middletown PowerLLC 2 Trading Agreement and Order No. 8I82A Modification No.2
Estimated DERCs (in tons) use = [((FLER in IbslMMBtu)

- (0.95 x NOx allowable rate in IbslMMBtu» x (estimated fuel use in MMBtu)] .;. 2000 pounds/ton No laterthan the twentieth day ofeach month, MP shall calculate and permanently retire DERCs used in the preceding calendarmonth, as follows: Actual DERCs (in tons) = [((FLER in IbslMMBtu)

- (0.95 x NOx allowable rate in IbslMMBtu» x (actual fuel use in MMBtu)] .;. 2000 pounds/ton Where:
• NOx allowable rate = allowable limitrate in IbslMMBtu shown in Table I of this Trading Agreement and Order.
• FLER = full load emission rate in IbslMMBtu as shown in Table I ofthis Trading Agreement and Order.

• Discount (0.95) = 5% design margin applied to the allowable limitrate. ii) During the ozone 

### season only: No laterthan December 31 st each year, MP shall acquire and permanently retire seven ozone season DERCs for every actual ton ofexcess NOx emitted from the peaking unit during the previous ozone season based upon the actual emissions for each day that Connecticut one hour ozone levels were forecasted to be "moderate to unhealthful", "unhealthful", or "very unhealthful", until such time that the EPA revokes the I-hour standard. Upon such revocation, MP shall calculate and permanently retire seven ozone season DERCs for every actual ton ofexcess NOx emitted from the peaking unit during such ozone season based upon the actual emissions for each day that Connecticut eighthour ozone levels were forecasted to be "moderate to unhealthy for sensitive groups", "unhealthy for sensitive groups", "unhealthy", or "very unhealthy". Where: Actual ton ofexcess NOx emitted = [((FLER in IbslMMBtu)

- (0.95 x NOx allowable rate in IbslMMBtu» x (actual fuel use in MMBtu)] .;. 2000 poundslton The total actual tons ofexcess NOx emitted from the peaking unit during forecasted ozone exceedance days shall be multiplied by seven and then rounded to the next greater whole ton, to determine the number ofDERCs to be permanently retired. This requirement is in addition to the MP's requirement to estimate excess emissions and subsequentpermanentretirement ofa sufficientMiddletown PowerLLC 

### 3 Trading Agreement and Order No. 8182A Modification No.2 number ofapproved DERCs in accordance with paragraph C.2.a.(i) ofthis Trading Agreement and Order. 6. Delete paragraph C.2.b. and substitute the following therefor: Reserved. 7. Delete paragraph C.2.c. and substitute the following therefor: During the non-ozone season: Until May 1, 2009, from October 1 through April 30, inclusive, each year, the peaking unit shall, in addition to meeting the 24-houremission limit in Table 22-1 ofSection 22a-174-22 ofthe Regulations, meet a non-ozone season emission limit of0.15 IblMMBtu. Priorto October 1, 2006,2007, and 2008, MP shall estimate and acquire the amount ofDERCs or allowances required for such non-ozone season needed to comply with Section 22a-174-22(e)(3) ofthe Regulations as follows: EstimatedDERCs (tons) use = [Estimated fuel use in MMBtu from October 1 through April 30 x (allowable emission rate in IbslMMBtu

- (0.95 x0.15IbIMMBtu))] + 2000 lbs/ton 8. Delete paragraph C.2.d. and substitute the following therefor: No laterthan May 31 of2007, and 2008, in addition to the DERCs retired pursuant to paragraph C.2.a. ofthis Trading Agreement and Order, MP shall calculate and permanently retire DERCs used in the preceding non-ozone season as follows: Actual DERCs (tons) used = [Actual fuel use in MMBtu from October 1 through April 30 x (allowable emission rate in Ibs/MMBtu

- (0.95 x 0.15 IblMMBtu))] + 2000 Ibs/ton 9. Delete paragraph C.6. and substitute the following therefor: (a) Annual DERC Report. No laterthan March 1 ofevery year afterissuance of this Trading Agreement and Order, MP shall submit in writing to the Commissioner, arecord ofeach sale orother transfer ofDERCs forthe previous calendaryear. MP shall also include actual NOx emissions from the peaking unit and the amount ofall DERCs used (including serial numbers (if assigned) and DERCs purchased from otherfacilities). These reports shall be on forms prescribed by the Commissioner and shall be in monthly increments, and by ozone and non ozone seasons.

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(b) Forthe Non-ozone season: No laterthan July 30 ofevery year afterissuance ofthis Trading Agreement and Order, MP shall submit in writing to the Commissionerthe non-ozone season fuel consumption and amount ofall DERCs used (including serial numbers (ifassigned) and approved DERCs purchased from otherfacilities) for the peaking unit during the Octoberthrough April time periodin the previous calendaryear. These reports shall be on a form prescribedby the Commissioner. 10. Delete paragraph C.7. and substitute the following therefor: Allowance Use. Pursuant to Section 22a-174-22(d)(3) ofthe Regulations, MP may use NOx allowances, until May 1,2009, for the peaking unitpursuant to Section 22a-174-22U) ofthe Regulations to achieve all or a portion ofthe reductions required by Section 22a-174-22 ofthe Regulations. Any allowance used for compliance with Section 22a-174-22(e) ofthe Regulations shall be subject to all restrictions and/orrequirements applicable to DERCs containedin this Trading Agreement and Order;
a. In orderfor MP to use NOx allowances, MP shall create a general account oruse an existing compliance account oroverdraft account in EPA's NOx Allowance Tracking System ("NATS"); and b. Each allowance used for compliance with Section 22a-174-22 ofthe Regulations shall be equivalent to one discrete emission reduction credit. Allowances shall be considered used for compliance with Section 22a174-22 ofthe Regulations when they are transferred from the facility's NOx general account in the NATS orthe facility's NOx compliance account in the NATS to the CT State NOx Retirement Account (Account ID CT0000000300 in the NATS). 11. Delete paragraph C.8. and substitute the following therefor: DERC Shortfall. At aminimum, DERCs required shall be adjusted upwards by 100% ifDERCs are not in MP's possession for use priorto the first day ofeach month or applicable season. However, nothing in this Trading Agreement and Order shall affectthe Commissioner's authorityto institute any proceeding ortake any other action to require additional upward adjustment, based on the gravity of any alleged noncompliance orviolation oflaw. MP shall permanently retire the quantity ofDERCs equivalentto the excess emissions plus a 100% premium within sixty (60) days ofMP's discovery ofthe DERC shortfall. MP shall certify and report any such DERC retirement to the Commissionerin accordance with

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### 5 Trading Agreement and Order No. 8182A Modification No.2 paragraph C.30. ofthis Trading Agreement and Order. 12. Delete paragraph C.lO. and substitute the following therefor: FLER Exceedance. Noncompliance with an establishedFLER shall subject MP to make restitution by matching the quantity ofemissions ("true up") causedby the exceedance plus a 100% premium. The true up in tons ofDERCs shall be equal to the FLER exceedance in IbslMMBtu, multipliedby the total heat input during the period ofnoncompliance divided by 2000 lbs/ton. 

### Ifthe period of noncompliance is not known, the time periodfrom the completion ofthe last/previous Commissionerwitnessed emission test through the date the FLER compliance is achieved as approved by the Commissioner shall be used. However, nothing in this Trading Agreement and Order shall affect the Commissioner's authority to institute any proceeding ortake any other action to require additional upward adjustment, based on the gravity ofany alleged noncompliance orviolation oflaw. MP shall permanently retire DERCs calculatedin accordance with the above plus a 100% premium within sixty (60) days ofMP's discovery ofthe FLER exceedance. MP shall report any FLER exceedance to the Commissionerin accordance with paragraph C.30. ofthis Trading Agreement and Order. 13. Delete paragraph C.13. and substitute the following therefor: Extension. No laterthan May 1,2009, with respect to the peaking unit, MP shall comply with the requirements ofSections 22a-174-22(d)(l) and 22a-174- 22(d)(2)(A) ofthe Regulations. There is no assurance thatthe Commissionerwill grant a written extension ofthis Trading Agreement and Order. 14. Deleteparagraph C.14. and substitute the following therefor: Future Compliance Report. On orbefore September 1, 2008, MP shall submit a report in writing to the Commissioner, as directed in paragraph C.31. ofthis Trading Agreement and Order, indicating how the facility shall comply with Section 22a-174-22 ofthe Regulations with respect to the peaking unit on and afterMay 1,2009. 15. Delete paragraph C.l7. and substitute the following therefor: Definitions. As used in this Trading Agreement and Order, "ApprovedDERCs" are those for which the Commissionerhas provided written authorization for use in compliance with Section 22a-174-22 ofthe Regulations; "Commissioner",', , 

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### 6 Trading Agreement and Order No. 8182A Modification No.2

means the Commissioneror arepresentative ofthe Commissioner; "Non-ozone season" means the periodfrom October 1 through April 30 in any given calendar year; "Ozone season" means the periodMay 1 through September30in any given calendaryear.

16. Delete paragraph C.18. and substitute the following therefor: Dates. The date of"issuance" ofthis Trading Agreement and Orderis the date the Trading Agreement and Orderis deposited in the U.S. mail orpersonally delivered, whicheveris earlier. The date ofsubmission to the Commissionerof any document required by this Trading Agreement and Order shall be the date such document is received by the Commissioner. The date ofany notice by the Commissioner underthis Trading Agreement and Order, including butnot limited to notice ofapproval ordisapproval ofany document orother action, shall be the date such notice is deposited in the U.S. mail oris personally delivered, whichever is earlier. Except as otherwise specified in this Trading Agreement and Order, the word "day" as used in this Trading Agreement and Ordermeans calendarday. Any document or action which is required by this Trading Agreement and Order to be submitted orperformedby adate which falls on a Saturday, Sunday or a Connecticut orfederal holiday shall be submitted orperformedby the next day which is not a Saturday, Sunday orConnecticut orfederal holiday. 17. Delete the word "individual" and substitute therefore the word "Section" in paragraph C.30. 18. Delete the name "Mr. Michael LaFleur" in paragraph C.3!. All otherterms and conditions ofTrading Agreement and Orderno. 8182A and Modification 1 issuedby the Commissioneracting under Chapter446c, Sections 22a-6, 22a-171, 22a-174, 22a176, and 22a-177 ofthe Connecticut General Statutes shall remain in effect.**I~** ,., •• 

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Date Trading Agreement and Order No. 8182A Modification No.2

.June .; ; ,200("· 

### Daniel H. Bergeron Plant Manaser 7

Date: Type Title: Type Name: Signature: Middletown PowerLLC

MAILED CERTIFIED MAIL,

RETURN RECEIPT REQUESTED CertifiedDocumentNo. Issued as a modification ofan Orderofthe CommissionerofEnvironmental Protection. MP hereby consents to the entry ofthis modification to the Trading Agreement and Order without further notice. Middletown PowerLLC