UNITED STATES ENVIRONMENTAL PROTECTION AGENCY REGION 6 1445 ROSS AVENUE, SUITE 1200 DALLi',S, TX 75202-2733**f~1** 

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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 StallionEnergy Center, PSD PermitNos. PSD-TX-1l60, PAL 26, and HAP 28, Matagorda County, Texas

DearMr. 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 onthe merits", scheduled to begin on February 10, 2010. Ourcomments focus on aspects ofthe permit actions that appearto be inconsistent with the requirements ofthe federal Clean AirAct andthe implementing regulations, including the federally-approved Texas State Implementation Plan (SIP).

Ifthe issues detailed inthis letter are not appropriately responded to by TCEQ priorto final resolution ofthis permitting action, EPA may considerusing Clean AirAct authorities to objectto the subsequentTitle V operating permitfor this facility, or otherremedies underthe statute. Please contactme at (214) 665-7200, orJeffRobinson ofmy staffat (214) 665-6435, if you should have any questions concerning this matter.

Carl E. Edlund, P.E. Director MultimediaPlanning

and Permitting Division

Enclosure

cc: TCEQ Commissioners MarkVickery, 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 draftpermitfor the proposedWhite Stallion facility on April 14, 2009. In the Executive Director's response to comments (RTC), the TCEQ disagreed with ourcomments thatphotochemical modeling for ozone was needed to demonstrate thattheproposed source would cause or contribute to violation ofthe National Ambient 

### Air Quality Standards (NAAQS). TCEQ also disagreed with our commentthatthe ozone analysis performed bythe applicant was in direct conflict withNOx control strategies developedto reduce ozone inthe nearby Houston, Galveston, Brazoria (HGB) non-attainment area. TCEQ indicated ifan 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 mustbe conducted to clearly demonstrate thatthe 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 conductregional ozone analysis. OurPSD regulatons at 40 CFR 

### § 51 Appendix W 5.2.1 recommendmodels 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 systemto evaluate the relationship betweenprecursor species and ozone. In our April 14, 2009 commentletterto TCEQ onthe draft permitwe 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 effortto determine thatthe proposed source will not cause or contribute to an air pollution in violation ofozoneNAAQS standard, we have offered to work on a modeling protocol with TCEQ for this facility. To date, neither TCEQ nor the applicanthave elected to consult with us onuse ofa modeling protocol that would estimate potential ozone impacts from the proposed source despite EPA's direct commentto TCEQ on this matter.

In addition, the TCEQ RTC expressed concern thatthe scope ofthe modeling and associated reviewrequired for multiple episodes and monitors (and potential control scenarios for any monitors currently above the ozone standard) would be costly, take up to a yearto complete, and still not provide informationto definitively address EPA's concerns, sincethe EPA does not have an established significant impactlevel (SIL) for ozone. Otherpermit applicants and permitting authorities in Region 6 (including TCEQ) have worked with us to conduct photochemical modeling to demonstrate that aproposed source would not cause or contribute to
a violation ofthe ozone NAAQS. These projects have typically only taken a few months toconduct and the cost, when a contractorhas been used, is minimal with most analyses costing less than the other criteriapollutantmodeling.
TCEQ also stated that EPA does not have a requirement for photochemical modeling ofSIP attainment demonstrationmodeling techniques for NSR permitting purposes for sources ofVOC
orNOx within 100 and 200 kilometers, respectively ofthese precursors outside a non-attainment
area. However, the TCEQ has developed multiple ozone SIPs where sources ofNOx, thatwere atleast 100-200 

### kIn outside the non-attainment areas, have been controlled to yield ozone decreases inthe non-attainment areas (DFW and HGB SIPs in 2000/2001, DFW SIP 2007). TCEQ also commented that winds would nottransport the proposed source's emissions to the HGB nonattainment area, but consideringthe 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 Reportthat was submitted as an assessment ofthe ozone impacts from theproposed
source in its PSD permit application. Based onthe results ofthis guidance, TCEQ and the applicant determined that the projectis "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 permitrelies upon science that assumes thatthe 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 onthe 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 inthe nearby HGB non-attainment area. TCEQ and the applicants should utilize a technically appropriate modeling technique and should work with TIS (in accordance withPSD regulations and Appendix W) to determine whether a potential impactfrom this facility would
cause or contribute to a potential violation ofthe ozone NAAQS standards or impacts on nearby non-attainment areas. TCEQ has notprovided us a demonstration that this facility will not negatively impact ozone levels in Matagorda County orthe HGB non-attainment area. Ifsuch modelinghas beenprepared bythe applicant orTCEQ, we requestthat itbe 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 permitissued by TCEQ to a new major stationary source may be considered a non-SIP-approvedpermitby EPA. We identified in ourFederal RegisternoticethatPAL permits can only be issuedto 

### existing major stationary sources, which precludes applicability ofa 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 Centerhas 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 StallionEnergy Centerhas not established actual emissions to facilitate development ofa 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 demonstrationto supportthe 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 andElectric, PetitionNo. IV-2008-3 (Order on Petition). The additional information should either address PM2 .5 emissions directly or showhow compliance with the PSD requirements for PMIO will serve as an adequate surrogate for meeting the PSD requirements for PM2.5 inthis specific permit, after considering and identifying any remaining technical difficulties with conducting an analysis ofPM2.5 directly. The permitrecord must reflect a demonstrationto supportthe use ofPM1o as a surrogate for PM2 .5. We have worked with otherpermitting authorities andpermit applicants to establishan appropriate PM2.5 modeling protocol. Ifthe applicant chooses to model for PM2 .5 impacts directly, please contact
us to develop a methodology thatwill ensure that an appropriate analysis is performed.



### IV. Integrated Gasification Combined Cycle (IGCC) Consideration

The TCEQ indicated in its RTC on page 29 of61 inthe Executive Director's Response to Comments that neither the applicant nor TCEQ evaluated any other electrical generation methods such as IGCC orpulverized coal (PC) boilers. TCEQ indicatedthat inclusion ofIGCC in the BestAvailable Control Technology (BACT) evaluationwould 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 inthe 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 permitbecause it did not contain an adequatejustificationfor excluding IGCC from the BACT analysis for a coal fired powerEGU. See DesertRock Energy Company, LLC, PSD Appeal Nos. 08-03 et.al. Slip. Gp. at 76-77 (EAB Sept. 25, 2009). This EAB decision was followed inthe Title V orderfor the petition onthe 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 ofEnvironmental Quality (ADEQ) failed to provide an adequatejustification 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 criteriaunder 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 effortto address this issue consistent with priorEPA 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. BACTLimits Based on 

### Clean Fuels
It is unclear ifthe TCEQ orthe 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 offuels. 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 ofcleanerfuels as an alternative primary fuel source inthe RTC. At this time, TCEQ does not include a federally approved definition of BACT in its State rules. The CleanAir Act includes the term "clean fuels" in the defmition of BACT afterthe term "fuel cleaning." 42 U.S.C. 

### § 7479(1)

. Thus, when a potential pollution control strategy is not evaluatedin detail in a BACT analysis, the record shouldprovide a reasoned basis to show why that option is not "available" in a particularinstance. EPA has recognizedthat "available" options for a particularfacility do notnecessarily have to include options that would fundamentally "redefme" the source proposedby the permit applicant. See, e.g., In re: DesertRock Energy Company, LLC, PSD Appeal No. 08-03 et al, slip op. at 59-65 (EAB, September24, 2009). However, EPA interprets the Act to require a reasoned justification, based on an analysis ofthe underlying administrative record for eachpermit, to support a conclusion that an option is not "available" in a given case on the grounds that it would fundamentally "redefine the source." DesertRock, slip op. at 63-72, 76. Based on the record here, it does not appearthat TCEQ has provided a reasoned explanation demonstrating whythe option ofusing PRB coals is not "available" for this facility.

We believe TCEQ must clearlyprovide a rationale for why utilizing fuels otherthan Illinois coal and/orpetroleum coke, orblends from each ofthe proposed identified fuels constitutes "redefining the source". Further, the rationale should state ifthere are economic, environmental,
orenergy impacts from the use ofPRB coals (orlower sulfurpetroleum coke) thatweigh against its selection as BACT,. We acknowledge that States with SIP-approvedPSD programs have independent discretion and are notnecessarily reqniredto follow all EPApolicies or interpretations. See, e.g., 57 Fed. Reg. 28093, 28095 (June 24, 1992)

. However, states that issue PSD permits under SIP-approvedregulations are required to conduct a BACT analysis that isreasoned and faithful to the statutory framework. See Alaska Dept ofEnvt'l Conservationv. EPA, 540 U.S. 461, 484-91 (2004).

Onthe question ofwhether an option may be excludedbecause itredefines the proposed source, the EAB has developed an analytical frameworkthat EPA uses to assess this issue in its
ownpermitting 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 approachthathas beenupheld 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 presentpermit limits do notrepresent BACT

- onlythat the presentpermitrecord does not appearto provide a sufficientrationale to demonstrate the adequacy ofthe BACT determinations for this facility. 

### In addition, we are not expressing a policy preference for utilization ofa particular coal type, or coal from a particular coal basin. EPA supports the development and use ofa broadrange offuels and technologies
across the energy sectorincludingthose that will enable the sustainable use ofcoal. Ourprimary
concern is the adequacy ofTCEQ's response and rationale for excluding PRB orthe possibility ofutilizing lower sulfurcoal or lower sulfurpetroleum coke as fuel options.

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