UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION 6

1445 ROSS AVENUE, SUITE 1200

DALLi',S, TX 75202-2733

f~1 0 311)

Mr. Richard Hyde, P.E.

Deputy Director

Office ofPermitting and Registration

Texas Commission on

Environmental Quality

P.O. Box 13087

Austin, TX 78711-3087

Re: White Stallion Energy Center, PSD Permit Nos. PSD-TX-1l60, PAL 26, and HAP 28,

Matagorda County, Texas

Dear Mr. Hyde:

Enclosed is the U.S. Environmental Protection Agency (EPA) analysis ofthe abovereferenced permit actions. We performed this analysis in light ofthe recent issuance ofthe

Texas Commission on Environmental Quality (TCEQ) Response to Comments (RTC) regarding

this matter on October 2, 2009, and the upcoming "Hearing on the merits", scheduled to begin on

February 10, 2010. Our comments focus on aspects ofthe permit actions that appear to be

inconsistent with the requirements ofthe federal Clean Air Act and the implementing

regulations, including the federally-approved Texas State Implementation Plan (SIP).

Ifthe issues detailed in this letter are not appropriately responded to by TCEQ prior to

final resolution ofthis permitting action, EPA may consider using Clean Air Act authorities to

object to the subsequent Title V operating permit for this facility, or other remedies under the

statute. Please contact me at (214) 665-7200, or JeffRobinson ofmy staff at (214) 665-6435, if

you should have any questions concerning this matter.

Carl E. Edlund, P.E.

Director

Multimedia Planning

and Permitting Division

Enclosure

cc: TCEQ Commissioners

Mark Vickery, TCEQ Executive Director

Steve Hagle, TCEQ

Internet Address (URL) • http://www.epe.gov

RecycledIRecyclable • Printed with Vegetable 011 Based Inks on Recycled Paper (Minimum 25% Postconsumer)
ENCLOSURE

I. Air Quality Impacts Analysis

We commented on the draft permit for the proposed White Stallion facility on April 14, 2009. In

the Executive Director's response to comments (RTC), the TCEQ disagreed with our comments

that photochemical modeling for ozone was needed to demonstrate that the proposed source

would cause or contribute to violation ofthe National Ambient Air Quality Standards (NAAQS).

TCEQ also disagreed with our comment that the ozone analysis performed by the applicant was

in direct conflict with NOx control strategies developed to reduce ozone in the nearby Houston,

Galveston, Brazoria (HGB) non-attainment area. TCEQ indicated if an evaluation ofozone

impacts on a non-attainment area is needed, that the non-attainment SIP process is best suited for

such an evaluation. As you are aware, 40 CFR § 51.165 and 51.166 requires permitting

authorities to demonstrate that the proposed source will not cause or contribute to violation ofthe

ozone NAAQS per 40 CFR 52.21(k). However, since this facility is proposed immediately

outside the HGB non-attainment area, we continue to believe that appropriate air quality

modeling must be conducted to clearly demonstrate that the project will not negatively impact

ozone concentratons at specific monitors in the HGB area.

The TCEQ also stated in its RTC that EPA has no preferred model to determine impacts from a

single source; no requirement for photochemical modeling; and no requirement for applicant to

conduct regional ozone analysis. Our PSD regulatons at 40 CFR § 51 Appendix W 5.2.1

recommend models for evaluating ozone impacts Specifically, control agencies with

jurisdiction over areas with ozone problems are encouraged to use photochemical grid models

such as Models-3/Community Multi-scale Air Quality (CMAQ) modeling system to evaluate the

relationship between precursor species and ozone. In our April 14, 2009 comment letter to

TCEQ on the draft permit we also discussed potentially using a CAMx based analysis, since

TCEQ has multiple episode databases that evaluate ozone levels in the Houston area. Appendix

W 5.2.1 also recommends that permitting authorities consult with EPA on estimating the impacts

ofindividual sources to determine the most suitable approach for estimating ozone impacts on a

case-by-case basis. In an effort to determine that the proposed source will not cause or

contribute to an air pollution in violation of ozone NAAQS standard, we have offered to work on

a modeling protocol with TCEQ for this facility. To date, neither TCEQ nor the applicant have

elected to consult with us on use ofa modeling protocol that would estimate potential ozone

impacts from the proposed source despite EPA's direct comment to TCEQ on this matter.

In addition, the TCEQ RTC expressed concern that the scope ofthe modeling and associated

review required for multiple episodes and monitors (and potential control scenarios for any

monitors currently above the ozone standard) would be costly, take up to a year to complete, and

still not provide information to definitively address EPA's concerns, since the EPA does not

have an established significant impact level (SIL) for ozone. Other permit applicants and

permitting authorities in Region 6 (including TCEQ) have worked with us to conduct

photochemical modeling to demonstrate that a proposed source would not cause or contribute to

a violation ofthe ozone NAAQS. These projects have typically only taken a few months to
conduct and the cost, when a contractor has been used, is minimal with most analyses costing

less than the other criteria pollutant modeling.

TCEQ also stated that EPA does not have a requirement for photochemical modeling of SIP

attainment demonstration modeling techniques for NSR permitting purposes for sources of VOC

or NOx within 100 and 200 kilometers, respectively ofthese precursors outside a non-attainment

area. However, the TCEQ has developed multiple ozone SIPs where sources ofNOx, that were

at least 100-200 kIn outside the non-attainment areas, have been controlled to yield ozone

decreases in the non-attainment areas (DFW and HGB SIPs in 2000/2001, DFW SIP 2007).

TCEQ also commented that winds would not transport the proposed source's emissions to the

HGB nonattainment area, but considering the proximity ofthe source to the HGB area, we are

concerned because previous modeling episodes have had multiple days with winds from the west

that could transport emissions towards the HGB nonattainment area.

We remain extremely concerned about the TCEQ guidance referenced by the applicant in the

Modeling Report that was submitted as an assessment ofthe ozone impacts from the proposed

source in its PSD permit application. Based on the results ofthis guidance, TCEQ and the

applicant determined that the project is "ozone neutral." In the past, TCEQ has relied upon large

NOx reductions to decrease ozone levels in ozone SIPs for the HGB and DFW areas. The

current TCEQ approach for this permit relies upon science that assumes that the source has to

emit VOCs at a sufficient level to chemically react with the source's NOx emissions to generate

ozone. We disagree that VOC emissions have to be co-emitted at the source to cause impacts on

ozone levels. Although TCEQ indicated this analysis is not based on the Scheffe Point Source

Screening Tables for determining ozone ambient impacts, the approach and interpretation does

not clearly demonstrate that the source will not adversely impact control strategies developed to

reduce ozone in the nearby HGB non-attainment area. TCEQ and the applicants should utilize a

technically appropriate modeling technique and should work with TIS (in accordance with PSD

regulations and Appendix W) to determine whether a potential impact from this facility would

cause or contribute to a potential violation ofthe ozone NAAQS standards or impacts on nearby

non-attainment areas. TCEQ has not provided us a demonstration that this facility will not

negatively impact ozone levels in Matagorda County or the HGB non-attainment area. Ifsuch

modeling has been prepared by the applicant or TCEQ, we request that it be made available to TIS

and the public for review.

II. Plantwide Applicability Limit (PAL)

Since EPA has not approved TCEQ's PAL provisions into the SIP and proposed disapproval of

such provisions on September 23, 2009, (74 FR 48474), any PAL permit issued by TCEQ to a

new major stationary source may be considered a non-SIP-approved permit by EPA. We

identified in our Federal Register notice that PAL permits can only be issued to existing major

stationary sources, which precludes applicability of a PAL to a new major stationary source, as

required under 40 CFR §§ 51.165(f)(l)(i) and 51.166(w)(I)(i). Without at least 2 years of

operating history, a potential source like White Stallion Energy Center has not established actual

emissions to facilitate development ofa PAL.
required under 40 CFR §§ 51.165(t)(I)(i) and 51.166(w)(I)(i). Without at least 2 years of

operating history, a potential source like White Stallion Energy Center has not established actual

emissions to facilitate development of a PAL.

m. Particulate Matter (PM) 2.5

We reviewed the TCEQ's Response No.4 in the RTC filed on October 2,2009, regarding PM2.5.

However, we have concerns regarding TCEQ's reliance on the PMIO surrogate policy. It is now

necessary to provide a demonstration to support the use ofPMIO as a surrogate for PM2.5. The

applicant should submit a revised application or demonstration addressing PM2.5 emissions. See,

In re Louisville Gas and Electric, Petition No. IV-2008-3 (Order on Petition). The additional

information should either address PM2.5 emissions directly or show how compliance with the

PSD requirements for PMIO will serve as an adequate surrogate for meeting the PSD

requirements for PM2.5 in this specific permit, after considering and identifying any remaining

technical difficulties with conducting an analysis ofPM2.5 directly. The permit record must

reflect a demonstration to support the use ofPM1o as a surrogate for PM2.5. We have worked

with other permitting authorities and permit applicants to establish an appropriate PM2.5

modeling protocol. Ifthe applicant chooses to model for PM2.5 impacts directly, please contact

us to develop a methodology that will ensure that an appropriate analysis is performed.

IV. Integrated Gasification Combined Cycle (IGCC) Consideration

The TCEQ indicated in its RTC on page 29 of61 in the Executive Director's Response to

Comments that neither the applicant nor TCEQ evaluated any other electrical generation

methods such as IGCC or pulverized coal (PC) boilers. TCEQ indicated that inclusion ofIGCC

in the Best Available Control Technology (BACT) evaluation would require substantial redesign

ofthe applicant's proposed facility. Later in the same response, TCEQ indicates that it does not

require a review ofIGCC as part ofthe BACT review for electric generating units (EGUs).

In at least one federal permitting action, IGCC was considered an available control option in the

BACT analysis for a facility proposed to generate electricity from coal. See Prairie State

Generating Company (Illinois). Further, in a recent decision, the EPA Environmental Appeals

Board (EAB) remanded the permit because it did not contain an adequate justification for

excluding IGCC from the BACT analysis for a coal fired power EGU. See Desert Rock Energy

Company, LLC, PSD Appeal Nos. 08-03 et.al. Slip. Gp. at 76-77 (EAB Sept. 25, 2009). This

EAB decision was followed in the Title V order for the petition on the American Electric

Power Service Corporation, Southwestern Public Service Company John W. Turk order

responding to a Title V petition (Petition Number VI-2008-1), where the EPA

Administrator found that the Arkansas Department of Environmental Quality (ADEQ)

failed to provide an adequate justification to support its conclusion in the PSD BACT

analysis that IGCC technology should be eliminated from consideration on the grounds

that it would "redefme" the proposed source. To meet the applicable legal criteria under

the PSD program, a BACT analysis for each pollutant must consider "application of

production processes or available methods, systems, and techniques ... for control ofsuch

pollutant." See 40 C.F.R. §§ 51.166(b)(l2) and 40 C.F.R. § 52.21(b)(l2). Therefore,
when a potential pollution control strategy is not considered in a BACT analysis, the

record should provide a reasoned basis to show why that option is not available in a

particular instance. We recognize that TCEQ has made a good faith effort to address this issue

consistent with prior EPA determinations. However, in light ofthe EAB's recent conclusions,

we strongly recommend that TCEQ and the permit applicant specifically address any IGCC

technology considerations as a part oftheir BACT analysis and provide a reasoned

explanation consistent with the EAB's position to support any decision to eliminate such an

option or to exclude it altogether from a BACT analysis for this proposed source.

V. BACT Limits Based on Clean Fuels

It is unclear ifthe TCEQ or the applicant considered "clean fuels" in its BACT analysis.

Comment 27 in the response to comments indicates that commenters stated that the

applicant and TCEQ failed to consider alternative fuels to reduce emissions such as using

only Powder River Basin (PRB) coals. TCEQ stated in its response that the "applicant

proposes the facility to accomplish its objective based upon its business decisions. Those

decisions include the applicant's choice of fuels. The applicant designed the plant using its

choice offuels and TCEQ reviewed the application as it was submitted. TCEQ does not

specify the type offuel to use in a fossil fuel electric generation plant because the cost of

fuel is a primary business decision consideration that is up to the applicant to determine."

We believe the TCEQ should analyze the possibility of cleaner fuels as an alternative primary

fuel source in the RTC. At this time, TCEQ does not include a federally approved definition of

BACT in its State rules. The Clean Air Act includes the term "clean fuels" in the defmition of

BACT after the term "fuel cleaning." 42 U.S.C. § 7479(1) . Thus, when a potential pollution

control strategy is not evaluated in detail in a BACT analysis, the record should provide a

reasoned basis to show why that option is not "available" in a particular instance. EPA has

recognized that "available" options for a particular facility do not necessarily have to include

options that would fundamentally "redefme" the source proposed by the permit applicant. See,

e.g., In re: Desert Rock Energy Company, LLC, PSD Appeal No. 08-03 et al, slip op. at 59-65

(EAB, September 24, 2009). However, EPA interprets the Act to require a reasoned

justification, based on an analysis ofthe underlying administrative record for each permit, to

support a conclusion that an option is not "available" in a given case on the grounds that it would

fundamentally "redefine the source." Desert Rock, slip op. at 63-72, 76. Based on the record

here, it does not appear that TCEQ has provided a reasoned explanation demonstrating why the

option of using PRB coals is not "available" for this facility.

We believe TCEQ must clearly provide a rationale for why utilizing fuels other than Illinois coal

and/or petroleum coke, or blends from each ofthe proposed identified fuels constitutes

"redefining the source". Further, the rationale should state ifthere are economic, environmental,

or energy impacts from the use ofPRB coals (or lower sulfur petroleum coke) that weigh against

its selection as BACT,. We acknowledge that States with SIP-approved PSD programs have

independent discretion and are not necessarily reqnired to follow all EPA policies or

interpretations. See, e.g., 57 Fed. Reg. 28093, 28095 (June 24, 1992) . However, states that issue

PSD permits under SIP-approved regulations are required to conduct a BACT analysis that is
reasoned and faithful to the statutory framework. See Alaska Dept ofEnvt'l Conservation v.

EPA, 540 U.S. 461, 484-91 (2004).

On the question ofwhether an option may be excluded because it redefines the proposed

source, the EAB has developed an analytical framework that EPA uses to assess this issue in its

own permitting decisions. See, e.g., Prairie State, slip op. at 26-37; Desert Rock, slip op. at 59-

65. Since the EAB has articulated a foundation for its approach that has been upheld by one U.S.

Court ofAppeals, we strongly recommend that SIP-approved States follow the framework

articulated by the EAB. We are not concluding that the present permit limits do not represent

BACT - only that the present permit record does not appear to provide a sufficient rationale to

demonstrate the adequacy ofthe BACT determinations for this facility. In addition, we are not

expressing a policy preference for utilization of a particular coal type, or coal from a particular

coal basin. EPA supports the development and use of a broad range offuels and technologies

across the energy sector including those that will enable the sustainable use of coal. Our primary

concern is the adequacy ofTCEQ's response and rationale for excluding PRB or the possibility

ofutilizing lower sulfur coal or lower sulfur petroleum coke as fuel options.

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