RECEIVEDCLERK’SOFFICEILLINOISPOLLUTIONCONTROLBOARDJAN312013January31,2013STATEOFIWNOISPollutionCofltrolBoardMIDWESTGENERATIONLLC.,))Petitioner,)PCB13-24ORIGINALILLINOISENVIRONMENTALPROTECTON)(Variance-Air)AGENCY,))Respondent.))HEARINGOFFICERORDEROnJanuary29,2013,ahearingwasheldintheabove-captionedmatter.Apost-hearingbriefingschedulewasdiscussedatthehearing.ItwasnotedthatthetranscriptwillbeavailableandfiledwiththeClerkofthe BoardonorbeforeFebruary8,2013.Itwasagreedthatpetitioner’s post-hearingbriefisduetobe filedonorbeforeFebruary18,2013.Respondent’sresponsebriefisduetobefiledonorbeforeFebruary28,2013.Petitioner’sreply,ifany,isduetobefiledonorbeforeMarch4,2013,atwhichtimetherecordcloses.PublicCommentisduetobefiledon orbeforeFebruary18,2013.The“mailboxrule”(35Ill.Adm.Code 101.300(b)(2))doesnotapplytoanyofthesefilingsandallelectronicorapprovedtelefaxfilingsmustbereceivedbytheClerk’sOfficenolaterthan4:30p.m.oftheduedate.AHearingOfficer Reportregardingthehearing, includingExhibitlist,willbeissuedwhenthetranscriptisfiled.ITISSOORDERED.BradleyP.HalloranHearingOfficerIllinoisPollutionControl BoardJamesR.ThompsonCenter,Suite11-500100W.Randolph StreetChicago,Illinois60601312.814.8917Attachment 132CERTIFICATEOFSERVICEItisherebycertifiedthattruecopiesoftheforegoingorderwere mailed,firstclass,onJanuary31,2013,toeachofthepersonsontheservicelist below.Itisherebycertifiedthatatruecopyoftheforegoingorderwashanddeliveredto thefollowingonJanuary31,2013:JohnT.TherriaultIllinoisPollutionControl BoardJamesR.ThompsonCenter100W.RandolphSt.,Ste.11-500Chicago,Illinois60601?BradleyP.HalloranHearingOfficerIllinoisPollutionControlBoard100W.RandolphStreet,Suite11-500Chicago,Illinois60601(312)814-8917SERVICELISTPCB2013-024StephenJ.BonebrakeSchiffHardin,LLP6600WillisTower233S.WackerDriveChicago,IL60606-6473PCB2013-024JulieK.ArmitageDanaVetterhofferJEPA1021NorthGrandP.O.Box19276Springfield,IL62794-9276AvenueEastPCB2013-024KathleenC.BassiSchiffHardin,LLP6600WillisTower233S.WackerDriveChicago,IL60606-6473PCB2013-024AndrewN.SawulaSchiffHardin,LLP6600WillisTower233S.WackerDriveChicago,IL60606-6473I L LINOIS POLLUTION CONTROL BOARD April 4, 2013

MIDWEST GENERATION, LLC

Petitioner,

v.

ILLINOIS ENVIRONMENTAL PROTECTION AGENCY,

Respondent. ) ) ) ) ) ) ) ) ) ) PCB 13 -24 (Variance

- Air)

KATHLEEN BASSI, STEPHEN BONEBRAKE, AND ANDREW SAWULA, SCHIFF HARDIN LLP, APPEARED ON BEHALF OF PETITIONER; AND

DANA VE TTERHOFFER, ASSISTANT COUNSEL, APPEARED ON BEHALF OF

RESPONDENT.

OP INION AND ORDER OF THE BOARD (By J.D. O’Leary) :

M idwest Generation, LLC (Midwest Generation) has petitioned th e Board for a variance from certain air pollution control requirements applicable to specified electric generating units (EGUs) at several of the company’s coal -fired power plants. Under the Environmental Protection Act (Act) (415 ILCS 5/35-38 (2010)), the Board is responsible for granting a variance when a petitioner demonstrates that compliance with a Board regulation or order would impose an “arbitrary or unreasonable hardship” on the petitioner. See 415 ILCS 5/35(a) (2010).

Midwest Generation asks fo r relief both from provisions of the Combined Pollutant Standard (CPS) regulations (35 Ill. Adm. Code 225.295, 225.296) and from a condition of the Board’s order in Midwest Generation, LLC - Waukegan Generating Station v. IEPA, PCB 12-121 (Aug. 23, 2012) (Waukegan Order ). Five of Midwest Generation’s electric generating stations with

coal -fired boilers are at issue in this proceeding: Crawford Generating Station (Cook County); Joliet Generating Station (Will County); Powerton Generating Station (Tazewell County); Waukegan Generating Station (Lake County); and Will County Generating Station (Will County).

I n its petition filed November 30, 2012 (Pet.), Midwest Generation asks for a variance from three requirements. First, the company seeks relief from the system

- wide average annual sulfur dioxide (SO 2 ) emission rates set forth in Section 225.295(b) (35 Ill. Adm. Code 225.295(b)) for the two-year period of January 1, 2015 through December 31, 2016. Pet. at 1, 52. Second, Midwest Generation seeks relief from Section 225.296(a)(2) (35 Ill. Adm. Code 225.296(a)(2)) for a period of five months, delaying that requirement until May 31, 2015. Id . at 1, 6. Section 225.296(a)(2) requires Midwest Generation to install flue gas desulfurization equipment on, or permanently shut down, Waukegan Unit 8 by December 31, 2014. Id. at 8. Third, Midwest Generation seeks relief from Condition 1(a) of the Waukegan Order

. Id . at 1 -2. Attachment 142

The condition requires Midwest Generation to meet, from December 31, 2013 until December 31, 2014, the system

- wide SO 2 emissions rate set forth in Section 225.295(b). Waukegan Order

, slip op. at 20.

The Illinois Environmental Protection Agency (Agency) is required by the Act to “ make a recommendation to the Board as to the disposition of the petition.” 415 ILCS 5/37(a) (2010). In its recommendation, the Agency states that it “neither supports nor objects to” the Board granting Midwest Generation’s petition. Agency Rec. at 15. Based upon its investigation of the petition, however, the Agency concludes that “the emission reduction credits available as a result of [Midwest Generation’s] proposed mass emission limitations are quantifiable and creditable,” and that Midwest Generation’s showing of “a net environmental benefit in SO 2 emission s over the term of the variance is consistent with the method utilized in similar previous variance requests.” Id . at 8.

The Board received 4,221 timely public comments in favor of granting Midwest Generation’s variance petition, and 4,326 timely comme nts opposed. Most public comments were filed with the Board but some were made verbally at hearing. The Board appreciates the extraordinary participation of all non

- parties to this proceeding, including State and local officials, individual citizens, and citizens groups.

For the reasons detailed in this opinion, the Board finds that Midwest Generation has proven that compliance with the CPS regulations at issue would impose an arbitrary or unreasonable hardship on the company. This record supports the f inding that the requested variance from those regulations will cause no significant negative impact on the environment and, in fact, will result in an overall reduction in emissions of several pollutants, including SO 2

. Further, the relief sought from the CPS is consistent with federal law and Illinois’ obligation to comply with the federal Clean Air Act’s regional haze requirements , as well as to attain and maintain compliance with the National Ambient Air Quality Standards (NAAQS).

The Board therefor e grants Midwest Generation the requested variance from Sections 225.295(b) and 225.296(a)(2) of the CPS (35 Ill. Adm. Code 225.295(b), 225.296(a)(2)), subject to the conditions set forth in the order following this opinion. Accordingly, Midwest

Generatio n’s CPS Group is not subject to the average annual SO 2 emission rates of 0.28 pounds per million British thermal units (lb/mmBtu) in 2015 and 0.195 lb/mmBtu in 2016, set forth in 35 Ill. Adm. Code 225.295(b), until January 1, 2017, at which point the CPS e mission rates of 35 Ill. Adm. Code 225.295(b) apply, beginning with 0.15 lb/mmBtu for 2017. Further, Midwest Generation is not subject to the requirement to install and have operational flue gas desulfurization (FGD) equipment on, or permanently shut down , Waukegan Unit 8 by December 31, 2014, set forth in Section 35 Ill. Adm. Code 225.296(a)(2), for a period of five months, i.e.

, until May 31, 2015, at which point Waukegan Unit 8 must have FGD equipment installed and operational or be permanently shut dow n.

The conditions to which the variance is subject include a requirement to not operate the

coal

- fired boilers at the Crawford Station from the date of this order through December 31, 2014, which is when they are required to be permanently shut down. Al so included are conditions limiting system

- wide emissions of SO 2 to no more than 57,000 tons in 2013, 54,000 tons 2014,3

39,000 tons in 2015, and 37,000 tons in 2016. For the purposes of this variance, “system

- wide” entails the following coal

- fired units: Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8; and Will County Units 3 and 4.

The Board denies as unnecessary Midwest Generation’s request for relief from Condition 1(a) of the Waukegan Order . Condition 1(a) only requires comp liance with Section 225.295(b) during the one

- year variance period of the Waukegan Order

, i.e. , from December 31, 2013 through December 31, 2014. Midwest Generation has no need to be relieved of the Condition 1(a) requirement because the company proposes here in PCB 13

- 24 to comply with Section 225.295(b) in 2013 and 2014.

In this opinion, the Board first provides the procedural history of this case (pp. 3

- 4 ), followed by the legal framework for variances under the Act (pp. 4

- 5 ). The Board then gives

b ackground on the CPS (pp. 5

- 7 ), after which the Board discusses Midwest Generation’s variance request (pp. 7

- 40 ) and the Agency’s recommendation (pp. 40

- 43 ), setting forth the relevant hearing testimony and documentary evidence. Next, the Board describes the verbal public comment received at hearing (pp. 43

- 47 ), as well as the written public comments filed with the Board (pp. 47

- 56 ). The Board then addresses the issues and applies the legal standards in making its findings and rulings on the variance requ est and the conditions of the granted relief (pp. 57

- 80 ). After the Board’s conclusion to this opinion, which sets forth the Board’s ultimate decision (pp. 80

- 81 ), the Board issues its order specifying the terms and conditions of the variance (pp. 81

- 85 ).

PROCEDURAL HISTORY

On November 30, 2012, Midwest Generation filed its petition for variance. Attached to the petition are nine exhibits (Pet. Exh.). On December 12, 2012, Midwest Generation filed a waiver to April 4, 2013, of the statutory 120

- day de adline for the Board to decide this case (415 ILCS 5/38(a) (2010)).

Midwest Generation ’s coal

- fired power plants at issue are located in four counties: Cook; Lake; Tazewell; and Will. On December 13, 2012, the Agency filed its certification that

notic e of the variance petition was published the Joliet Herald News on December 12, 2012; the

Peoria Journal Star on December 11, 2012; the Waukegan News

- Sun on December 12, 2012;

and the Lawndale News/Westside Times on December 13, 2012. See 415 ILCS 5/37(a) (2010); 35 Ill. Adm. Code 104.214(a). The Agency also mailed, on December 11, 2012, notice of the variance petition to each County State’s Attorney and County Board Chairman for the county in which a facility is located; each member of the General Assemb ly from the legislative district in which a facility is located; and any person in a county in which a facility is located who has in writing requested notice of variance petitions. See 415 ILCS 5/37(a) (2010); 35 Ill. Adm. Code 104.214(b).

On January 10, 2013, the Agency filed its recommendation (Agency Rec.) on the variance petition. Within 14 days after service of an Agency recommendation, the variance petitioner may file a response to the Agency recommendation or an amended petition. See 35 Ill.

A dm. Code 104.220. Midwest Generation made no such filing.4

Midwest Generation requested that the Board hold a public hearing on the variance petition. Pet. at 54. In advance of the hearing, the Board’s hearing officer, Bradley Halloran,

issued two sets of questions to Midwest Generation. The hearing officer issued the first set of questions on December 24, 2012. Midwest Generation filed its response to the questions on January 18, 2013 (Resp.), along with a motion for extension of time to file a supple mental response to the questions. On January 24, 2013, the hearing officer denied Midwest Generation’s motion for extension of time. The second set of questions was issued by the hearing officer on January 25, 2013, and Midwest Generation was directed to respond to these questions at hearing.

The Board held the public hearing on January 29, 2013, in Joliet, Will County. The hearing transcript (Tr.) was received by the Board on February 8, 2013. Midwest Generation presented four witnesses at hearing: ( 1) Doug McFarlan, President of Midwest Generation and Senior Vice President of Public Affairs of Edison Mission Energy, LLC (EME), Midwest Generation’s Parent Company; (2) William Petmecky, Vice President and Treasurer of EME; (3) Fred McCluskey, Vice Pres ident of Technical Services for EME and Midwest Generation; and (4) Lucy Fraiser, PhD, Senior Consulting Toxicologist with AECOM. Midwest Generation offered 12 hearing exhibits (Hrg. Exh.), each of which was admitted into the record. The Agency offered n o hearing exhibits but made a witness available to answer Board questions: Jim Ross, Manager of the Agency’s Division of Air Pollution Control, Bureau of Air.

In addition to hearing testimony, the Board received 45 verbal public comments during

the hea ring. Midwest Generation filed a post

- hearing brief (Post Br.) on February 19, 2013. Midwest Generation’s post

- hearing brief includes three exhibits (Post Br. Exh.). The Agency was given permission to but did not file a post

- hearing brief. Midwest Gene ration filed a reply brief on March 4, 2013 (Reply Br.).

In addition to the verbal public comments received at hearing, 8,502 written public comments (PC) were timely filed with the Board. Some public comments were signed by more

than one individual. See

, e.g. , PC 5752 (signed by 44 individuals). One comment was submitted to the Agency and attached to the Agency’s recommendation. The deadline for filing public comments was February 18, 2013. The Board received an additional 22 public comments

follow ing the deadline. 1 The Board has received no objection to the late

- filing of these comments, which the Board allows in the interests of having a complete record.

LEGAL FRAMEWORK

A “variance is a temporary exemption from any specified rule, regulation , requirement or

order of the Board.” See 35 Ill. Adm. Code 104.200(a)(1). Under Title IX of the Act (415 ILCS

5/35

- 38), the Board is responsible for granting variances when a petitioner demonstrates that

1 Public comments 8,506 through 8,527 consist of 939 individual letters. In the interests of administrative economy, the Clerk’s Office batched a number of late

- filed public comments, assigning one number to each group of comments.5

immediate compliance with a Board regulation woul d impose an “arbitrary or unreasonable hardship” on petitioner. 415 ILCS 5/35(a) (2010) . Specifically, the Act provides:

The Board may grant individual variances beyond the limitations prescribed in this Act, whenever it is found, upon presentation of a dequate proof, that compliance with any rule or regulation, requirement or order of the Board would impose an arbitrary or unreasonable hardship. However, the Board is not required to find that an arbitrary or unreasonable hardship exists exclusively beca use the regulatory standard is under review and costs of compliance are substantial and certain. 415 ILCS 5/35(a) (2010) ; see also 35 Ill. Adm. Code 104.200, 104.208,

104.238.

The Board may grant a variance, however, only to the extent consistent with ap plicable federal law, including the federal Clean Air Act and its regulations. See 415 ILCS 5/35 (2010). Further, the Board may issue a variance from any regulation with or without conditions, and for a period of time not exceeding five years. See 415 I LCS 5/36(a), (b) (2010).

The burden of proof is on the petitioner. 415 ILCS 5/37(a); 35 Ill. Adm. Code 104.200(a)(1), 104.238(a). The petitioner must prove that immediate compliance with Board regulations would cause an arbitrary or unreasonable hardsh ip that outweighs public interest in compliance with the regulations. See Willowbrook Motel v. PCB , 135 Ill. App. 3d 343, 349

- 50, 481 N.E.2d 1032, 1036

- 37 (1st Dist. 1985).

BACKGROUND ON THE COMBINED POLLUTANT STANDARD

On December 21, 2006, the Board a dopted Proposed New 35 Ill. Adm. Code 225 Control of Emissions from Large Combustion Sources , R06

- 25 (Mercury Rule). Pet. at 20. The Mercury Rule consists of (1) some provisions within Subpart A of Part 225 and (2) all of Subpart

B of Part 225. Id. On May 22, 2006, the Agency submitted a proposed rulemaking to the Board

titled Proposed New CAIR SO 2 , CAIR NO

x Annual and CAIR NO

x Ozone Season Trading Programs, 35 Ill. Adm. Code 225, Control of Emissions from Large Combustion Sources, Subparts A, C, D, and E , R06

- 26 (CAIR Rulemaking). Pet. at 20. “CAIR” refers to the “Clean

Air Interstate Rule” and “NO

x ” refers to “nitrogen oxides

, ” including nitrous acid, nitric acid, and nitrogen dioxide. 2

On January 5 and 10, 2007, the Agency and Midwest Generation fi led joint comments in the CAIR Rulemaking, proposing rules “for control of mercury and certain other emissions” as a new Subpart F to Part 225. Pet. at 20. The Board proceeded through first and second notice, proposing the addition of Subpart F, referred to as the CPS rules. Id. at 20

- 21. The CPS rules became effective on August 31, 2007. Id. at 21. The Board subsequently moved the CPS from Subpart F of Part 225 to Subpart B of Part 225, Sections 225.291 through 225.299. Id. ; see Amendments to 35 Ill . Adm. Code 225: Control of Emissions from Large Combustion Sources (Mercury Monitoring) , R09

- 10 (June 18, 2009).

2 http://www.epa.gov/oar/nitrogenoxides/6

The CPS provides “an alternative to compliance with the emissions standards of Section 225.230(a)” through which:

the owner or operator of specified EGUs in the CPS located at Fisk, Crawford, Joliet, Powerton, Waukegan, and Will County power plants may elect for all of those EGUs as a group to demonstrate compliance pursuant to the CPS, which establishes control requirements and emissions st andards for NO

x , [particulate matter (PM)], SO 2 , and mercury. 35 Ill. Adm. Code 225.292(a).

A “specified EGU” is a “coal

- fired EGU listed in Appendix A, irrespective of any subsequent changes in ownership of the EGU or power plant, the operator, unit designation, or name of unit.” 35 Ill. Adm. Code 225.292(b). “Such EGUs are referred to as a Combined Pollutant Standard (CPS) group.” 35 Ill. Adm. Code 225.292(d).

Midwest Generation elected to become subject to the CPS on December 27, 2007,

pur suant to Section 225.292, and identified the following coal

- fired EGUs to be the company’s CPS Group: Joliet Units 6, 7 and 8; Powerton Units 5 and 6; Waukegan Units 6, 7, and 8; Will County Units 1, 2, 3, and 4; Fisk Unit 19; and Crawford Units 7 and 8. Pet. at 21; 35 Ill. Adm. Code 225.Appendix A.

In the Waukegan Order , the Board observed that “Midwest Generation committed to reducing emissions earlier than required at two other facilities [Crawford and Fisk] by permanently shutting down the faciliti es.” Waukegan Order , slip op. at 20. Midwest Generation ceased operating Crawford Units 7 and 8 by the end of August 2012 (Pet. at 12), though t he Waukegan Order does not require that the two Crawford Units be permanently shut down until

the end of 2014 ( Waukegan Order , slip op. at 20

- 21) . Fisk Unit 19 was shut down at the end of August 2012 (Pet. at 9)

, though the Waukegan Order did not require permanent shutdown until the end of 2012 ( Waukegan Order , slip op. at 20

- 21 )

. Waukegan Unit 6 was permanently shut down by December 31, 2007. Pet at 14; see also 35 Ill. Adm. Code 225.297(a)(1) (requiring that EGU to permanently shut down by that date). In December 2010, Will County Units 1 and 2

were permanently shut down. Pet at 15; see also 35 Ill. Adm. Cod e 225.297(a)(2) (requiring those two EGUs to permanently shut down by December 31, 2010).

On June 24, 2011, the Agency submitted portions of the CPS, including 35 Ill. Adm. Code 225.295(b), 225.296(a)(2), to the United States Environmental Protection A gency (USEPA) for inclusion in the Illinois State Implementation Plan (SIP) addressing regional haze.

See 77 Fed. Reg. 3966 (Jan. 26, 2012); Pet. at 50; Pet. Exh. 6, 7. Illinois’ regional haze plan

includes calculations for the federal Best Available Ret rofit Technology (BART). USEPA approved Illinois’ SIP submittal, including Sections 225.295(b) and 225.296(a)(2), effective August 6, 2012. See 77 Fed. Reg. 39943 (July 6, 2012); Pet. Exh. 8. USEPA stated:

In the notice of proposed rulemaking, [US]EPA proposed to conclude that the emission reductions from the [Multi

- Pollutant Standards (MPS)] and the [CPS] would be greater than the reductions that would occur with unit

- specific implementation of BART on the subset of these sources that meet the criteri a for being subject to BART. Therefore, [US]EPA proposed to find that the [MPS] and7

the [CPS] suffice to address the BART requirement for the power plants of these three utilities [Midwest Generation, Dynegy, and Ameren]. 77 Fed. Reg. at 39944 (July 6, 2 012); Hrg. Exh. 8.

Midwest Generation specifically seeks variance relief from the following CPS provisions:

Section 225.295 Combined Pollutant Standard: Emissions Standards for NO

x and

SO 2

b) Emissions Standards for SO 2 . Beginning in calendar year 20 13 and continuing in each calendar year thereafter, the CPS group must comply with the applicable CPS group average annual SO 2 emissions rate listed as follows:

Year lbs/mmBtu

***

2015 0.28

2016 0.195

***

Section 225.296 Combined Pollutant Standa rd: Control Technology Requirements

for NO

x , SO 2 , and PM Emissions

a) Control Technology Requirements for NO

x and SO 2

*** 2) On or before December 31, 2014, the owner of operator must either permanently shut down or install and have operational FGD equipment on Waukegan 8 . . . .

35 Ill. Adm. Code 225.295(b), 225.296(a)(2).

MIDWEST GENERATION’S VARIANCE REQUEST

Corporate Structure

At the time of the variance petition’s filing, Midwest Generation’s parent company, EME, had begun negotiations with advisor s to its noteholders on financial restructuring and had indicated that such restructuring could be implemented by filing for Chapter 11 protection under the United States Bankruptcy Code. Pet. at 18. Midwest Generation states that the need for

financial restructuring and the current market outlook for energy prices “place an urgent premium on conserving cash in the 2013

- 2014 timeframe,” which is the time that Midwest Generation would have to expend funds to accomplish equipment installations to comply wit h

the CPS. Id. at 19. EME’s parent company is Edison International. Id . at 39.8

Bankruptcy

On December 17, 2012, EME and certain of its subsidiaries, including Midwest Generation, filed voluntary petitions for relief under Chapter 11 of the Bankruptc y Code in the United States Bankruptcy Court for the Northern District of Illinois. Post Br. at 33; PC 3 at 1. The Chapter 11 c ases are pending before the Honorable Jacqueline P. Cox, United States Bankruptcy Judge, and are being jointly administered und er the lead case, In re Edison Mission Energy

, Case No. 12

- 49212 (PJC). PC 3 at 1. Section 362(a) of the Bankruptcy Code (11 U.S.C. § 362(a)) states that a debtor’s filing of a voluntary petition acts as a stay, applicable to all entities, of certain jud icial, administrative, or other actions or proceedings against the debtor. Id. at 2. Midwest Generation’s variance petition, however, is not an action against Midwest Generation and therefore is not subject to a stay under Section 362(a) of the Bankruptc y Code.

Id .; see also Post Br. at 35. Chapter 11 of the U.S. Bankruptcy Code “contemplates that the party filing for bankruptcy will continue to operate through and after the bankruptcy process.”

Pet. at 39.

Midwest Generation asserts that the bankrup tcy filing “was a measure of last resort” driven by current financial circumstances. Post Br. at 34. The company contends that the bankruptcy was not a self

- inflicted hardship, but was caused by “changes in market conditions, such as energy prices, and o ther external drivers.” Id. Midwest Generation maintains that the bankruptcy filing underscores the reason for the variance request, and argues that waiting for the bankruptcy proceeding to end would not provide the variance relief the company seeks. Id

. at 35. Midwest Generation states that waiting for completion of the bankruptcy proceeding will not provide it with the funding required by April 2013 to move forward with construction of controls to comply with 2015 and 2016 SO 2 rates “without substanti al curtailment.” Id. Similarly, the bankruptcy proceeding does not “address the challenges posed by the current, overlapping outages scheduled for installation of controls on Waukegan Unit 7 and Unit 8.” Id. at 36.

Facilities

As of 2013, Midwest Ge neration states that it will or could legally generate electricity

from coal

- fired units at five electric generating stations in Illinois, all of which are subject to the CPS. Pet. at 11. These stations are (1) the Crawford Generating Station in Cook Cou nty, (2) the Joliet Generating Station in Will County, (3) the Powerton Generating Station in Tazewell County, (4) the Waukegan Generating Station in Lake County, and (5) the Will County Generating Station in Will County. Id. A sixth electric generating station, Fisk Station in Cook County, formed a part of Midwest Generation’s CPS Group, consisting of Fisk Unit 19 (Unit 19 Boiler BLR19). See 35 Ill. Adm. Code 225.Appendix A. However, Fisk Unit 19 was permanently shut down by the end of August 2012. Pe t. at 9. It was required to be permanently shut down by December 31, 2012. See Waukegan Order , slip op. at 19

- 20.

The Crawford Station is located at 3501 South Pulaski Road in Chicago and contains two

coal

- fired EGUs: Crawford Unit 7 (Unit 7 Boiler BL R1); and Crawford Unit 8 (Unit 8 Boiler BLR2). Pet. at 12; 35 Ill. Adm. Code 225.Appendix A. The Waukegan Order requires Midwest Generation to permanently shut down these coal

- fired units at the Crawford Station by December 31, 2014, but the company ceas ed operating the units by the end of August 2012. Pet. at 12. The9

Crawford Station employed approximately 108 people. Id. Midwest Generation states that it maintains the permits issued to the Crawford Station and could legally generate electricity from

those coal

- fired units through the end of 2014. Id.

The Joliet Station is located at 1800 Channahon Road in Joliet and employs 253 people.

Pet. at 12

- 13. The Joliet Station operates three coal

- fired EGUs: Joliet Unit 6 (Unit 6 Boiler BLR5); Joliet U nit 7 (Unit 7 Boiler BLR71, Unit 7 Boiler BLR72); and Joliet Unit 8 (Unit 8 Boiler BLR81, Unit 8 Boiler BLR82). See 35 Ill. Adm. Code 225.Appendix A. The Powerton Station is located at 13082 East Manito Road in Pekin and employs approximately 181 people. Pet. at 13. The Powerton Station operates two coal

- fired EGUs: Powerton Unit 5 (Unit 5 Boiler BLR 51, Unit 5 Boiler BLR 52); and Powerton Unit 6 (Unit 6 Boiler BLR 61, Unit 6 Boiler BLR 62). See 35 Ill. Adm. Code 225.Appendix A

.

The Waukegan Statio n is located at 401 East Greenwood Avenue in Waukegan and employs approximately 149 people. Pet. at 14. Midwest Generation operates two coal

- fired EGUs at the Waukegan Station: Waukegan Unit 7 (Unit 7 Boiler BLR7); and Waukegan Unit 8 (Unit 8 Boiler BLR 8). Id. ; 35 Ill. Adm. Code 225.Appendix A. Waukegan Unit 6 (Unit 6 Boiler BLR17) has been permanently shut down. Pet. at 14 ; 35 Ill. Adm. Code 225.297(a)(1), 225.Appendix A. The Will County Station is located at 529 East 135th Road in Romeoville and

em ploys approximately 156 people. Pet. at 14

- 15. The Will County Station operates two coal

fired EGUs: Will County Unit 3 (Unit 3 Boiler BLR3); and Will County Unit 4 (Unit 4 Boiler BLR4). Will County Unit 1 (Unit 1 Boiler BLR1) and Will County Unit 2 (U nit 2 Boiler BLR2) have been permanently shut down. Pet. at 15 ; 35 Ill. Adm. Code 225.297(a)(2), 225.Appendix

A.

Midwest Generation states that each of its generating stations is a major source subject to the Clean Air Act Permitting Program (CAAPP) , and that the Agency has issued a number of operating and construction permits relative to air pollution control. Pet. at 16. Midwest Generation states that if the Board grants the requested relief, Midwest Generation will seek

extensions of constructio n permits from the Agency. Id.

Relief Requested

Midwest Generation seeks variance relief from the system

- wide SO 2 emission rates of Section 225.295(b) (35 Ill. Adm. Code 225.295(b)) for the two

- year period of 2015 and 2016. Pet. at 1, 52; Post Br. at 6 . This relief would apply to the company’s nine operating EGUs: Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8; and Will County Units 3 and 4. Specifically, Midwest Generation seeks variance relief from “the CPS requirements [3 5 Ill. Adm. Code 225.295(b)] that it comply with the system

- wide SO 2 annual emissions standards of 0.28 lb/mmBtu and 0.195 lb/mmBtu in 2015 and 2016, respectively.” Pet. at 22. Midwest Generation instead proposes that it comply with a system

- wide average

annual SO 2 emission rate of 0.38 lb/mmBtu during each of those two years. Id. ; Post Br. at 6.

Midwest Generation also seeks variance relief from Section 225.296(a)(2) (35 Ill. Adm. Code 225.296(a)(2)) for a period of five months, delaying that require ment until May 31, 2015. Pet. at 1, 6, 23; Post Br. at 7. Section 225.296(a)(2) currently requires Midwest Generation to10

install FGD equipment at, or to permanently shut down, Waukegan Unit 8 by December 31, 2014. Pet. at 8. Midwest Generation requests this relief due to its current financial situation and the need to coordinate outages, and in turn commits to not operating Waukegan Unit 8 after December 31, 2014, until installation of the FGD equipment is complete. Id.

Midwest Generation describes its relief request as “a brief pause” in (1) the pace of the decline in system

- wide SO 2 emission rates for 2015 and 2016 and (2) the requirement to install FGD equipment on Waukegan Unit 8 by December 31, 2014. Pet. at 23. In turn, Midwest

Generation com mits to (1) not operating the Crawford coal

- fired units in 2013 and 2014 and (2) emitting no more than 57,000 tons of SO 2 in 2013 and no more than 54,000 tons of SO 2 in 2014. Pet. at 22; Post Br. at 6. Midwest Generation further commits to achieving mass SO 2 emission levels no greater than 39,000 tons in 2015 and 37,000 tons in 2016. Id . Midwest Generation contends that these commitments “would yield early SO 2 emission reductions and cumulative net

reductions in mass SO 2 emissions of 3,181 tons through the end of the four

- year (2013

- 2016) period,” noting that emissions of other pollutants would be significantly reduced during this period as well. Id. at 22

- 23, citing Pet. Exh 5 (Mr. McCluskey’s Affidavit). Midwest Generation proposes to comply with the CPS system

- wide average annual SO 2 emission rate of 0.15 lb/mmBtu in 2017, as set forth in Section 225.295(b). Pet. at 23; see 35 Ill. Adm. Code 225.295(b).

Mr. McFarlane, President of Midwest Generation and Senior Vice President of Public

Affairs of EM E, testified that Midwest Generation’s variance request is based on five principles that are intended to maintain the spirit and intent of the CPS. First, Midwest Generation would continue to invest in design, planning, and installation of pollution contr ol equipment every year through 2019. Second, the variance does not seek to extend the CPS implementation timeline. Third, by seeking relief only during 2015 and 2016, the variance will not pose any hindrance to the State in demonstrating attainment of t he NAAQS for SO 2 , particulate matter, and ozone. Fourth, the requested relief results in a “ net environmental benefit ” based on the actual emissions for years 2013 through 2016. Fifth, the requested variance provides additional safeguards by limiting the actual tons of SO 2 emissions each year from 2013 through 2016, in addition to

alternative SO 2 emission rates. Tr. at 23, 26

- 29.

Additionally, Midwest Generation seeks variance relief from the Waukegan Order , so as to be, in the company’s view, consiste nt with the relief requested from Section 225.295(b). Pet. at 23. Specifically, Midwest Generation asks for relief from Condition 1(a) of the Waukegan

Order :

at page 20, where the Board ordered Midwest Generation to comply with the

system

- wide emission rates for sulfur dioxide (SO 2 ), or, in the alternative, Midwest Generation requests that the Board adjust that portion of the Waukegan Order to be consistent with the relief requested herein or specifically find that the variance requested here supersedes only that provision of the Waukegan Order that requires compliance with the system

- wide SO 2 emission rate but not the provisions regarding the retrofit of the hot

- side precipitator and the installation of the flue gas desulfurization equipment or the shut down deadline as applicable to Waukegan Unit 7. Id . at 1

- 2.11

Midwest Generation maintains that it “seeks the least obtrusive path it possibly can” through the requested variance provisions and proposes to maintain the original schedule for completing “th e significant step

- down” in its fleet

- wide SO 2 emission rates in 2017 and

thereafter. Pet. at 26.

Arbitrary or Unreasonable Hardship

Midwest Generation claims that the economic and market circumstances surrounding its request for variance could not have been foreseen when the CPS was negotiated with the Agency in 2006 and adopted by the Board in 2007. Pet. at 29; Tr. at 23

- 24, 55

- 56. These circumstances include “significant recent deterioration in Midwest Generation’s cash flow,” caused by an

unexpecte d and significant decline in energy prices and capacity markets. Pet. at 29; Tr. at 56

. Midwest Generation states that these circumstances are exacerbated by higher delivered coal costs and an “uneven playing field” created by the imposition of stringent Illinois requirements coupled with the deferral of comparable federal requirements. Pet. at 29.

Midwest Generation is currently working through financial restructuring, which included Midwest Generation’s filing of a petition under Chapter 11 of the B ankruptcy Code. Pet. at 29; Post Br. at 33. William Petmecky, Vice President and Treasurer of EME, testified that in the past, funding for installation of emissions control came from either Midwest Generation’s operations or EME. 3 Other possible fundin g sources have included EME’s parent, Edison International, and third party lenders. Tr. 52

- 53. Mr. Petmecky testified that none of these possible sources of funding are currently available.

Midwest Generation is unable to generate funds for the retro fits necessary for 2015 and 2016 because of expected operating losses in 2013 and 2014. Tr. at 53. According to Mr. Petmecky, because EME recently filed for bankruptcy, EME will not be in a position to address retrofit costs until resolving past debts an d completing reorganization. Further, Edison International has stated that it will not invest in EME because Edison International plans to divest its equity in EME under the bankruptcy plan. Mr. Petmecky testified that raising funds from third party lend ers will be very difficult until a plan to demonstrate the financial viability of Midwest Generation is put in place. Tr. at 54

- 55. If the variance is granted, however, Mr. Petmecky expects improvements in Midwest Generation’s operating revenues, and an ability to secure funding for additional controls to comply with the CPS. Tr. at 48, 57; see also Pet. at 29.

Midwest Generation asserts that it:

faces clear financial hardship as it continues to execute pollution control work based on the CPS, a hard ship that it seeks to mitigate, not by undoing the CPS, but by obtaining modest relief to the SO 2 emission rate requirements for only two years and a modest extension of just five months to the deadline for completing retrofit work at Waukegan Unit 8. Pet . at 34

3 Mr. Petmecky is responsible for “treasury activities, including corporate and project financing, financial pl anning and analysis, cash management and treasury operations.” Tr. at 48.12

Granting the requested variance would give Midwest Generation “a two

- year pause to work through its financial constraints and operating revenue issues so that it can either borrow or otherwise generate the funds needed for CPS compliance.” Id . at 40. Midwest Generation maintains that denial of its request for variance would create an arbitrary and unreasonable hardship. Id . at 29. The company contends that, absent a variance, it “would likely be forced to substantially curtail operation from th e fleet.” Post Br. at 8.

As discussed below, several public commenters suggest that the Board delay decision on the variance petition until the completion of the Chapter 11 financial restructuring. Mr. McFarlane testified, however, that the very reaso n Midwest Generation is seeking a variance is because of financial hardship. He maintained that the proposed variance is critical to Midwest Generation for developing a reorganization plan and new capital structure. Tr. at 32

- 33. Regarding this being Mi dwest Generation’s second variance request from the CPS in a year, Mr. McFarlane reiterated that this petition is a last resort to allow Midwest Generation the best opportunity to continue to reduce emissions and conclude a successful financial restructuri ng. Tr. at 34; see also Tr. at 57.

Uneven Playing Field and Regulatory Uncertainty

Midwest Generation argues that Illinois has adopted emission reduction requirements “significantly more stringent” than other states. Pet. at 29. Midwest Generation states that the mercury reduction requirements of the CPS continued to apply after vacatur of the federal Clean Air Mercury Rule (CAMR), and that the NO

x , SO 2 , and PM reduction requirements of the CPS continue to apply in Illinois al though they are not nec essary for compliance with current NAAQS or other federal requirements. Id. at 30. Midwest Generation also states that the CPS and MPS curtail emissions trading otherwise allowed by CAIR. Id.

Midwest Generation further contends that Illinois’ deregula ted energy market places Illinois facilities “at a competitive disadvantage” with facilities located in regulated states. Pet. at 31. Midwest Generation states part of the reason for this as due to Illinois’ deregulated electricity generators having to i nstall controls generally not required in surrounding states and not being able to recover the costs of these additional controls through a regulated rate regime

and consumer rates. Id. Unlike regulated states, according to Midwest Generation, Illinois

e lectricity generators “are entirely dependent on wholesale prices in the competitive power price

market for their revenue stream.” Id.

Midwest Generation argues that there is substantial uncertainty regarding future regulatory requirements that apply to all coal

- fired power generators. Pet. at 32. This is in part due to CAMR being vacated, and the D.C. Circuit’s finding that CAIR is “fatally flawed.” Id. Midwest Generation states that, since the Board’s adoption of the Mercury Rule and CAIR,

USEPA has promulgated two major rules: Cross

- State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS). Id. at 31. CSAPR, which was adopted to replace CAIR, presented an entirely different allowance allocation methodology and an entirely n ew SO 2 allowance trading program , according to Midwest Generation

. Id. at 32. CSAPR, continues Midwest Generation, includes “a number of feature s that are significantly more stringent than the13

CAIR” and was vacated in its entirety on August 21, 2012, wit h the court ordering that CAIR remain the active transport control program while USEPA works on a program to replace it. Id.

Midwest Generation states that USEPA and a number of appellants have since sought a rehearing

en banc of the appellate panel’s de cision. Id. at 33. Midwest Generation asserts th e following:

[T] he regulatory ambiguity inherent in knowing that the current program, i.e. , the CAIR, is legally insufficient and not knowing what will replace it creates significant uncertainty for fundi ng pollution control work, since sources of financing prefer certainty rather than the risk created by regulatory uncertainty.

Id.

Midwest Generation contends that many of its competitors, who are not subject to the Illinois

specific CPS, are able to awa it certainty before making some of the capital decisions and expenditures that Midwest Generation has begun to make. Id.

Midwest Generation further states that the Mercury Rule, which contains the CPS, is a state rule that continues to require NO

x and S O 2 reductions when surrounding states are not subject to such limitations. Pet. at 34. Midwest Generation believes this places them at a competitive disadvantage in the power marketplace. Id.

Midwest Generation asserts that it complies with the mercur y emission limitations applicable under the Illinois Mercury Rule and will also comply with the less

- stringent mercury

emissions limitations set forth in MATS. Pet. at 35. Midwest Generation maintains that it will comply with the MATS’ filterable PM emis sions limitation with its improved electrostatic precipitators (ESPs). Id. Midwest Generation does not believe that a system

- wide annual SO 2 emission rate of 0.38 lb/mmBtu in 2015 and 2016 will interfere with its ability to comply with the MATS’ hydrogen chloride (HCI) limit, asserting that Midwest Generation complies with this

HCI limit. Id. Midwest Generation states that the MATS was appealed, and that the uncertainties inherent in the appeal, including what changes in the relevant requirements might arise as a result, make planning more difficult for Midwest Generation and “suggest the need for control plan flexibility.” Id.

Midwest Generation describes its current operational plans as follows:

[C]omply with the SO 2 emission rates contained in the CPS through the use of

ultra

- low sulfur coal and injection of the dry sorbent, Trona, and to ensure continuing compliance with PM emissions limits through improvements to the

ESPs on each unit. Pet. at 35.

Midwest Generation contends that this control pl an enables the company to remain compliant

with the MATS and the CAIR. Id. Midwest Generation believes that “a two

- year slowdown in the pace at which emission rate limits are ratcheted down” will allow it to gain some level of certainty and provide a rea sonable timeframe for creating a more level competitive playing field.

Id. ; Post Br. at 10.14

At hearing, Mr. McFarlane addressed the claims of Dynegy Midwest Generation, LLC and Dynegy Kendall Energy, LLC (collectively, Dynegy), discussed below, that gran ting this variance request would place Dynegy at a competitive disadvantage in the energy markets. Mr. McFarlane testified that Midwest Generation and Dynegy compete in different energy markets;

i.e. , Midwest Generation competes in the PJM (Pennsylvania

- New Jersey

- Maryland) interconnection marketplace

, stretch ing from northern Illinois to the east, while Dynegy competes in the Midwest interconnection system

, stretch ing from central and southern Illinois to the west and north. Tr. at 31. As for Dynegy ’s claims about its timely compliance with its MPS requirements, Mr. McFarlane stated that Dynegy’s MPS compliance resulted from a federal consent decree regardless of how Midwest Generation is regulated. Tr. at 32

- 33.

Unrecoverable Costs of Compliance a nd Midwest Generation’s Current Financial

Condition

Midwest Generation asserts that it has spent more than $200 million in capital costs for CPS compliance and that it continues to incur significant operating costs on an ongoing basis. 4

Tr. at 50, 61. T hese costs include equipping Midwest Generation’s fleet of coal

- fired units with controls adequate to comply with the CPS requirements for SO 2 , mercury and NO

x , switching its

fleet to ultra

- low sulfur coal, and commencing Trona injection system installatio n work at

Powerton Unit 6. Id.

, see also Hrg. Exh. 5 at 2

- 6. Added to the capital expenditures identified above is the shutdown of several units. Waukegan Unit 6 and Will County Units 1 and 2 were permanently shut down to comply with the CPS; and three coal

- fired units at the Fisk and Crawford Stations also ceased operation. Hrg. Exh. 5 at 3; see also 35 Ill. Adm. Code 225.297(a) ; Waukegan Order , slip op. at 20

- 21 . Midwest Generation asserts that since December 2007 when Midwest Generation opted into t he CPS, the company has achieved compliance with CPS rate requirements for NO

x , and has “ achieved compliance ” with mercury and SO 2 rates “more quickly than required by the CPS. ” Hrg. Exh. 5 at 2

- 3.

To comply with the CPS NO

x rate of 0.11 lb/mmBtu, Midw est Generation spent over $100 million to install selective non

- catalytic reduction equipment (SNCR) at most of its units, including Crawford before operations ceased there. To further reduce NO

x emissions, Midwest Generation also incurred expenses to opt imize combustion at all of its coal

- fired units. Hrg. Exh.

5 at 2

- 3.

To comply with the CPS mercury rate of 0.0080 lb/Gwh, Midwest Generation installed Activated Carbon Injection (ACI) on all of its coal

- fired units and opted all of its units except

two into the CPS in 2012, more than two years before required: Joliet Units 6, 7 and 8 ; Powerton Units 5 and 6 ; Waukegan Unit 8 and Will County Unit 4. Hrg. Exh. 2

- 4. Midwest

Generation asserted that Waukegan Unit 7 and Will County Unit 3, which have hot

- si de ESPs, are currently meeting the CPS mercury rate, as well as the rate under the federal MATS, both of which do not take effect until 2015. Hrg. Exh. 5 at 4.

4 In the petition, Midwest Generation stated $170 million, but later revised this figure to $200
million. Pet. at 36; Tr. at 61.15

T o comply with the CPS SO 2 rates, Midwest Generation selected a combination of ultra

low sul fur coal and Trona injection FGD. Midwest Generation estimated the capital cost of the FGD equipment at an average of $38 million per unit. To this, Midwest Generation adds the costs associated with operating the Trona FGD and procuring ultra

- low sulfur coal. Hrg. Exh. 5

at 6.

To comply with the CPS SO 2 rates, Midwest Generation plans to invest in PM controls to avoid increases in PM emissions resulting from new SO 2 controls. To control PM, Midwest Generation plans to couple the Trona FGD installations with associated ESP upgrades at an average cost of $55 million per unit. Hrg. Exh. 5 at 6. In addition, Midwest Generation is required to convert the hot

- side ESPs to cold

- side ESPs on Waukegan Unit 7 and Will County Unit 3 to control PM by December 31, 2012 and December 31, 2015, respectively. Hrg. Exh. 5 at 4; see also Waukegan Order . Midwest Generation has begun engineering work for these hot

to

- cold conversions. Hrg. Exh. 5 at 4.

To satisfy the CPS FGD equipment requirements for Waukegan Units 7 and 8 (35 Ill. Adm. Code 225.296(a)(1) and (a) (2)) and meet the 2015 and 2016 SO 2 system

- wide rates (35 Ill. Adm. Code 225.295(b)), Mr. McCluskey estimated that Midwest Generation would need to spend $440 million from 2013 through 2014. Hrg. Exh. 5 at 7 ; Tr. at 50 (Mr. Petmecky: “about a half a billion dollars”). From 2015 through 2018, according to Mr. McCluskey, Midwest Generation would need to spend hundreds of millions of dollars more to install controls on its remaining units to attain the declini ng CPS annual SO 2 rates in the later years. Hrg. Exh. 5 at 7. Mr. McCluskey estimated overall costs for CPS compliance at roughly $800 million. Tr. at 81; Tr. at 50 (Mr. Petmecky: “total cost of complying with CPS is forecast to be just over $1 billion dollars”).

Midwest Generation further plans to install a Trona injection system and to convert the

ESP from a hot

- side to a cold

- side precipitator at Waukegan Unit 7. Pet. at 36. Midwest Generation quotes its 2013 and 2014 costs to be around $230 mil lion (of the $440 million noted above) to meet 2013 and 2014 CPS requirements. Id. ; Tr. at 50. These costs include the Trona and ESP work, as well as continued engineering and procurement of long lead material

associated with controls for other units. P et. at 36. Midwest Generation states that an additional $210 million (of the $440 million noted above) in 2013 and 2014 capital expenditures are necessary to comply with the 2015 and 2016 CPS SO 2 system

- wide emission rates and the installation of FGD equi pment at Waukegan Unit 8. Pet. at 37; Tr. at 50. Mr. Petmecky testified that the cost of complying with CPS emission rates for 2015 and 2016 are at issue in the requested variance because Midwest Generation needs to have funding for installation of those emissions control no later than April 2013. Tr. at 51.

Midwest Generation contends that, without the requested relief, the company, its stations, its employees, and others that rely on the stations, as well as compliance investments to date, are

at risk. Pet. at 37. Midwest Generation asserts that it currently faces significant financial challenges relating to constriction of revenues, increased costs, and debt at its indirect parent,

EME. Id. ; Exh. 4.16

Midwest Generation states that market energ y prices between 2008 and 2012 have declined by roughly 45%, which has driven down Midwest Generation’s revenues. Pet. at 37; Tr. at 56. The company claims that this results in part from weak demand and unprecedented exploration and production of shale g as that has caused steep reductions in the price of natural

gas. Pet. at 37. According to Midwest Generation, t hese lower energy prices have also caused a decrease in Midwest Generation’s energy generation, further reducing the company’s revenues.

Id. Midwest Generation claims to have also experienced lower capacity prices and revenues. Id. Midwest Generation contends that these capacity prices and anticipated revenue “will fall to strikingly low levels in 2013.” Id. Midwest Generation expects capac ity revenues in 2013 to decline by more than 85% from the 2010 and 2011 revenues. Id. at 38. However, Midwest Generation expects capacity revenues to increase in 2014 and 2015, based on increasing capacity prices in those years. Id.

Midwest Generation also asserts that it has experienced a recent substantial increase in

fuel costs. Pet. at 38. According to Midwest Generation, t his is because a favorable long

- term coal rail contract expired in 2012, with the new, higher

- priced contract resulting in as

- delivered fuel costs being approximately 60% higher than in 2008. Id. ; Tr. at 56. The constriction of

revenues and increased costs , continues the company, has resulted in Midwest Generation “entering a period of negative earnings,” which has affected Mi dwest Generation’s ability to secure financing. Pet. at 38. Midwest Generation expects operating losses and deficits to continue through 2014. Id.

Midwest Generation claims that it has been largely dependent on EME to fund its cash

flow deficits and e nvironmental retrofits. Pet. at 39. Midwest Generation contends, however, that EME is facing its own financial challenges that create doubt regarding EME’s ability to provide funding to Midwest Generation to install additional controls required to comply with the CPS system

- wide rates in 2015 and 2016. Id. Midwest Generation had $1.323 billion of notes receivable from EME as of September 2012. Id. at 40. At the time of its petition, Midwest Generation stated that it may need to file for protection und er Chapter 11 of the U.S. Bankruptcy Code if it is unable to obtain financial support from EME. Id. Midwest Generation’s petition states that it and EME have been engaged in negotiations with creditors concerning potential financial restructuring . Id

. Midwest Generation subsequently filed for bankruptcy as a subsidiary of EME on December 17, 2012. Post Br. at 2.

Midwest Generation states that it “has been unable, to date, to identify any other sources of funding for the roughly $210 million needed in 2013 and 2014 to install additional controls required to achieve the 2015 and 2016 CPS system

- wide emission rates.” Pet. at 40. The $210 million would cover work associated with the installation of Trona FGD equipment and ESP upgrades on Waukegan Uni t 8, Powerton Unit 5, and Joliet Unit 7 or 8. Without the variance, Midwest Generation would need to begin this work and incur related expenses no later than April 2013 because of necessary lead times. The petition therefore stresses that granting the

va riance by April 2013 is critically important to Midwest Generation. Pet. Exh. 5 at 8.

Midwest Generation claims that Edison International has publicly stated that it will not invest new funds in Midwest Generation given the challenging market conditions . Further, neither Midwest Generation nor EME has “a reasonable likelihood of securing financing for17

these additional control costs from an unrelated third party in time to comply with the current

CPS schedule.” Pet. at 40

- 41.

Midwest Generation contend s that, absent the variance, it would be forced to curtail operations at uncontrolled units. Midwest Generation estimates that it would need to curtail operations by roughly 35% in 2015 and 75% in 2016 from the average generation of its

uncontrolled units over the past five years. Tr. at 67. Midwest Generation claims that such levels of operation would not be sustainable, substantially reducing revenues that could lead to temporary or permanent shutdowns of some units and possibly resulting in penalties under its capacity contracts. Hrg. Exh. 5 at 10; Tr. at 68. Midwest Generation cautions:

The cumulative impact of the curtailments could threaten the continued existence of Midwest Generation and the future viability of its stations. Shuttering Midwes t Generation’s plants would have devastating impacts on hundreds of workers and their families, and would drain literally hundreds of millions of dollars from the economy. Hrg. Exh. 5 at 10.

Midwest Generation states that it is planning to spend $230 mil lion in 2013 and 2014 to install controls on Powerton Unit 6 and Waukegan Unit 7, along with engineering and procurement for controls on other units. Hrg. Exh. 5 at 8 ; Pet. at 3.

Midwest Generation states that these financial conditions were not anticip ated at the time the CPS was adopted, claiming that similar constraints have been felt by other power generators

such as Ameren and Exelon. Pet. at 41. Midwest Generation asserts that the changed financial

circumstances have resulted in Midwest Generatio n needing to defer these additional control costs and that the company would suffer unreasonable and arbitrary hardship absent a variance from the CPS 2015 and 2016 rates, as well as the requirement to install FGD equipment on Waukegan unit 8 by the end of 2014. Id.

Adverse Consequences of Denial

Midwest Generation foresees two possible compliance scenarios in the event that its variance request is denied. Pet. at 42. First, the company believes requiring it to fund the additional $210 million in nece ssary control costs at the same time that it expects to fund approximately $230 million in other CPS control projects “could threaten Midwest Generation’s viability and that of its Stations.” Id. Second, Midwest Generation believes it would be forced

“to substantially curtail its generation.” Id. ; Post Br. at 8. Midwest Generation contends this

curtailment would result in “substantial reduction in Midwest Generation’s revenues at a critical

time and are not sustainable.” Pet. at 42. According to the c ompany, t hese curtailments may further result in penalties under Midwest Generation’s capacity contracts and may require regulatory approval “in light of grid reliability concerns.” Id. Midwest Generation asserts that the level of generation curtailment required to comply with the CPS “would threaten the continued existence of Midwest Generation and the future viability of its Stations.” Id. ; Post Br.

at 9. This would in turn , according to the company, threaten Midwest Generation employees and

others wh o rely on the operation of the Stations. Pet. at 43; Post Br. at 10.18

Midwest Generation claims that, as of October 31, 2012, its plants and supporting operations employed 845 people, 64% of whom are represented by Local 15 of the International

Brotherho od of Electrical Workers. Pet. at 43; Post Br. at 9. In 2011, continues Midwest

Generation , the company provided annual payroll and benefits totaling $145 million; paid over $100 million for contracted labor to perform special project work; spent $379 mi llion to purchase goods and services from Illinois businesses, to pay for various licenses and regulatory fees, and to support Illinois

- based organizations; and paid $4.7 million in property taxes to local units of government in Will, Tazewell, Lake and Co ok counties. Id. ; Tr. 44.

Midwest Generation further contends that significant curtailment or the cessation of generation would adversely impact state tax revenues, noting that at the time of its petition filing it had paid over $2.3 million in use ta x on sorbent purchases. Pet. at 43. Midwest Generation therefore concludes that denial of the variance would result in dire consequences to the company, its employees, their communities, and the State generally. Id. at 44.

Midwest Generation maintains that “[d]enial of the variance would force additional major expenditures that may be impossible to fund or substantial curtailments that would threaten the survival of Midwest Generation.” Pet. at 49. According to Midwest Generation, “[s]huttering

the St ations would have devastating impacts on hundreds of workers and their families and would drain hundreds of millions of dollars from the economy.” Id

.

Midwest Generation states that in a variance proceeding, a petitioner must demonstrate

that the hards hip resulting from not granting the variance request would “outweigh any injury to the public or the environment” from granting the relief. Pet. at 48, citing Marathon Oil Co. v.

IEPA , 242 Ill. App. 3d 200, 206, 610 N.E.2d 789, 793 (5th Dist. 1993). Midw est Generation asserts that its proposed compliance plan satisfies the environmental component of this showing in that it would result in approximately 15,000 tons of SO 2 less than anticipated under the CPS during the years 2013 through 2014 and 3,181 tons overall from 2013 through 2016. Pet. at 48. In addition, the proposed cap on mass emissions for SO 2 and the resulting reduction in the average annual heat input under the variance would also effectively reduce emissions of NO

x , PM, mercury, and carbon d ioxide (CO 2 ) during the variance period. Pet at 49, Exh. 5 at 11.

Therefore, Midwest Generation argues that the hardship rises to the level of “arbitrary and unreasonable,” consistent with Section 35(a) of the Act and Board precedent in variance proceedi ngs. Pet. at 49.

Compliance Plan

Compliance Efforts to Date

Fred McCluskey, Vice President of Technical Services for EME and Midwest Generation, testified at the hearing, summarizing Midwest Generation’s efforts to comply with

the CPS since the CP S was adopted in 2007. 5 Mr. McCluskey stated that all mercury control

5 Fred McCluskey is also as a member of EME’s ex ecutive management committee. Mr. McCluskey’s principal responsibilities include the oversight of all major capital project19

systems have been completed and are operating in compliance with the CPS, and all but two EGUs are meeting the CPS mercury rate of 0.008 lb/gigawatt hour two years earlier than required . Tr. at 59. Mr. McCluskey a lso stated NOx

- related controls have been completed and are operating in accordance with the CPS. Tr. at 60. As for SO 2 , Mr. McCluskey stated that Midwest Generation achieved the 2013 CPS emission rate of 0.44 lb/mmBtu two years earlier than required. T r. at 60. Since opting into the CPS in 2007, Mr. McCluskey stated that Midwest

Generation has reduced NO

x by 74%, mercury by roughly 84%, PM by roughly 23%, SO 2 by roughly 35%, and CO 2 by 20%. Tr. at 61; Hrg. Exh. 5 at 3. Mr. McCluskey testified that “[ i]n short, we’ve met or exceeded all of our original commitments under the most difficult of

circumstances.” Tr. at 60.

Mr. McCluskey stated that “[t]hose achievements have come at a considerable cost.” Tr. at 60. To date, Midwest Generation has spe nt more than $200 million to install control equipment to ensure compliance with the CPS. Midwest Generation has also permanently shut down Waukegan Unit 6 and Will County Units 1 and 2. In addition, Midwest Generation accepted obligations under the var iance for Waukegan Unit 7 in PCB 12

- 121 to shut down three

coal

- fired units at Fisk and Crawford Stations. Mr. McCluskey stated that “[t]he decision to shut down Fisk and Crawford was a difficult one and had a significant impact on many of the employees w ith us today [at the hearing].” Tr. at 61.

To comply with the CPS going forward, Mr. McCluskey outlined Midwest Generation’s compliance plan, which relies on the use of ultra

- low sulfur coal (less than 0.55 lb sulfur/mmBtu) and Trona dry sorbent injecti on. Mr. McCluskey explained that the combination

of ultra

- low sulfur coal and Trona dry sorbent injection was the least expensive yet effective method for complying with the CPS SO 2 requirements, and would allow Midwest Generation to stagger capital inves tments over time. Tr. at 63.

With respect to whether the company’s proposed plan fails to provide assurance of timely compliance, Mr. McFarlane testified that even if Midwest Generation did not invest in control technology, the company would comply with the CPS either by curtailing generation or shutting down generating units. Tr. at 29. He emphasized that “[n]oncompliance is not an option or a strategy” in the compliance plan. Tr. at 30. Mr. McFarlane also acknowledged concerns that the Chapter 11 ba nkruptcy proceedings could hinder Midwest Generation’s ability to comply with the CPS or the variance. This issue, however, according to Mr. McFarlane, is addressed by designing the variance:

specifically to compl[e]ment our financial restructuring and s upport emergence from Chapter 11 by the end of 2014, as a company that is more stable and secure for long

- term operations and growth. Tr. at 36; see also Tr. at 57.

management engineering and construction activities, such as installation of environmental

controls for Midwest Generation and EME. Mr. McCluskey has worked in the electric industry for about 30 years, with experience in strategic planning, asset development, and carrying out large projects. Tr. at 58.20

Installation of Trona Dry Sorbent Injection FGD

The CPS requires Midwest Generati on to achieve average annual SO 2 emissions rates for the years 2013 through 2019, as well as install FGD equipment on specified EGUs or permanently shut down those units. See 35 Ill. Adm. Code 225.295(b), 225.296(a), (b), 225.Appendix A. In effect, the C PS requires the installation of FGD equipment at most of

Midwest Generation’s coal

- fired units. Midwest Generation states that it:

extensively investigated available pollution control technologies to satisfy these requirements. Ultimately, Midwest Gener ation selected a program consisting of

ultra

- low sulfur coal and Trona injection for flue gas desulfurization at its units. Pet. Exh. 5 at 5; see also Pet at 15.

Midwest Generation explains that Trona is a mineral used in the production of sodium

bicarb onate or baking soda. The dry sorbent injection system would inject Trona into the flue gas upstream of a PM control device, such as an ESP. The injected material neutralizes acidic gases, such as SO 2 , forming a dry powder. The powder can then be remove d by the PM control

device. Pet. at 15. PM emissions from each of Midwest Generation’s coal

- fired boilers are controlled by an ESP. Id . Because the Trona injection systems increase the particulate loading to the ESPs, Midwest Generation found that upgr ading the ESPs on the affected EGUs would also be necessary. Id . at 15

- 16; Resp. at 3. Overall, Midwest Generation determined that Trona injection systems are effective and provide a cost

- effective means for complying with the

system

- wide SO 2 emission ra tes in the CPS. Resp. at 2

- 3.

In addition to the Trona systems, ESP upgrades, and ultra

- low sulfur coal, Midwest

Generation states that to reduce SO 2 emissions, the company plans to curtail generation and perhaps shut down one or more units. Post Br. at 20.

Midwest Generation outlines various construction activities that would be involved during the variance period. For the dry sorbent FGD installations, Midwest Generation explains that the Trona injection systems require bulk storage silos to hold the Trona sorbent, a metered system to convey and blow the sorbent through a mill, and injection lances to inject the sorbent into the flue gas duct work. Installation of the Trona injection systems would require various

construction activities at the St ations, including constructing storage silos, mills, and injection ports. Pet. at 15.

For the ESP upgrades, Midwest Generation notes that work would vary from unit to unit, but in general, measures would include the following:

increasing the PM collec tion area, [increasing] the heights of the collection plates and the distance between the plates, installing high

- frequency transformer rectifier sets, adding new fields of collection plates, redesigning air baffles and updating computer control systems. Hrg . Exh. 5 at 6.21

Compliance Plan Schedule

Midwest Generation estimates that a typical installation of Trona FGD equipment and the associated ESP upgrades would take 18 to 24 months from preliminary engineering to start

- up to performance testing of th e completed systems. Of that time, preliminary engineering would account for about two to four months, lead times for major materials would be up to one year, and outages associated with the ESP upgrades would last 16 to 20 weeks. Hrg. Exh. 5 at 6; Tr. a t
63

- 64, 73

- 74; Post Br. Exh. C. Mr. McCluskey explained that Midwest Generation is working on all of the FGD projects. Midwest Generation has selected common equipment and key vendors and come up with the underlying design for virtually all the units. Tr. at 78.

To comply with the CPS system

- wide SO 2 emission rates for 2013 and 2014, Midwest Generation found that installation of the Trona injection system would be necessary at Powerton Unit 6, along with the use of ultra

- low sulfur coal at other unit s. Midwest Generation states that it has obtained a construction permit and that installation and related ESP work at Powerton Unit 6 is underway. Completion of the ESP upgrades is expected by June 2013, and completion of

the Trona FGD installation is ex pected around June 2014. Hrg. Exh. 5 at 7; Resp. at 3.

Then, to comply with the CPS system

- wide SO 2 emission rates for 2015 and 2016, Midwest Generation determined that installation of Trona injection systems would likely be necessary at five of its oth er coal

- fired units: Joliet Units 7 and 8; Waukegan Units 7 and 8; and Powerton Unit 5. Resp. at 3.

For Waukegan Unit 7, Midwest Generation plans to complete installation of a Trona injection system and conversion of the ESP from a hot

- side to cold

- si de precipitator by December 2014, as required by the variance by the Waukegan Order . Midwest Generation

asserts that the timing is subject to resolving any concerns PJM Interconnection, LLC has regarding electricity reliability related to the outage requi red to complete the work. 6 Hrg. Exh. 5

at 7.

If the variance relief is granted with respect to the Waukegan Unit 8 FGD construction schedule deadline, Midwest Generation plans to complete Trona injection system installation and ESP upgrades by May 31, 20 15. Currently, Section 225.296(a)(2) of the CPS (35 Ill. Adm. Code 225.296(a)(2)) requires by December 31, 2014, either the permanent shut down of Waukegan Unit 8 or the FGD equipment to be installed and operational on Waukegan Unit 8. Midwest

Generation seeks relief from that date here to take advantage of the economies associated with working on both Waukegan Units 7 and 8 at the same time and because of the need to stagger the outages associated with the work. Resp. at 4.

By 2019, to comply with the annual CPS system

- wide SO 2 emission rate and the requirement to install FGD equipment on specified EGUs or shut them down, Midwest

Generation determined that all of its coal

- fired operating units will require Trona systems, except

6 Midwest Generation states that “PJM Interconnection, LLC is the regional tran smission system operator that must protect reliability of the grid and review the removal for any extended period of time any generating units within the scope of PJM’s authority and responsibility.” Pet. at 25.22

Joliet Unit 6. Resp. at 3; see 35 Ill. Adm. Code 225.295(b), 225.296(a), (b). When asked through the December 24, 2012 hearing officer order to provide more specific information in the compliance plan, including types of equipment, a time schedule for implementing all phases of the compliance plan from initiation of design to program completion, and costs for each phase, Midwest Generation responded that unit

- specific control details would constrain the flexibility inherent in the CPS. Resp. at 2, 8, 17. Midwest Generation stat es:

The CPS was designed to afford compliance flexibility for Midwest Generation with emphasis on protecting the public health by establishing system

- wide emission rate limits and allowing the company to determine the type of technology and time of instal lations to achieve compliance.

*** That flexibility should be retained, particularly in the currently changing and dynamic power, labor, and equipment markets. Resp. at 5

- 6.

Midwest Generation goes on to state that the CPS does not set forth unit

- specifi c requirements for the type of FGD equipment to control SO 2 , but rather only that FGD equipment must be installed and operated or the unit shut down. Resp. at 5

- 6, citing 35 Ill. Adm. Code

225.296. Midwest Generation further states that the CPS only spe cifies that SO 2 emission rates be achieved on a system

- wide basis, not how the emissions must be balanced among the units. Lastly, Midwest Generation states that the CPS does not specify the use of any particular coal or when permit applications must be s ubmitted for equipment installation. Resp. at 5.

Midwest Generation argues that flexibility in the CPS can help the company address its

on

- going restructuring efforts in light of changes in the energy market and the markets for control equipment and la borers performing installations. Resp. at 6; Tr. at 64. Such markets directly impact decisions regarding what equipment will be installed at which units and when or whether some units will shut down instead. Resp. at 6. Just recently, for example, Midw est Generation found that converting the hot

- side precipitator on Waukegan Unit 7 might now be economically feasible, which would enable the unit to continue to operate. Previously, the conversion was found likely to be uneconomical. Id . If the complian ce plan were to contain

unit

- by

- unit control requirements, Midwest Generation argues that it would interfere with the company’s ability to adjust its plans in response to market changes and ensure the most cost

effective approach to compliance. Id . at 6

- 7

.

Mr. McCluskey testified that Midwest Generation must balance compliance with available cash. Tr. at 76. Even given the provision under Section 104.212 (35 Ill. Adm. Code 104.212) to modify internal variance compliance dates, Mr. McCluskey stated that under the bankruptcy, Midwest Generation has significant limitations on information that can be provided regarding pending future investments. Tr. at 77

- 78.

As to the importance of flexibility, Mr. McCluskey recalled that when the CPS was adopted in 20 07, Midwest Generation estimated compliance with the CPS overall would be close to $3 billion. This estimate was based on significantly different technology at the time. Because of the flexibility in the CPS, Midwest Generation was able to manage its tec hnology selections23

since then to reduce capital exposure and change its plans, going from close to $3 billion to roughly $800 million for overall CPS compliance costs. Tr. at 81.

Instead of unit

- by

- unit control requirements, Midwest Generation suggests additional reporting requirements be included as conditions of the variance so that implementation of its proposed compliance plan could be tracked by the Agency. Resp. at 8. Midwest Generation also asserts that it should be able to “retain the ability to adopt alternate or emerging technologies in order to comply.” Id . at 6. Mr. McCluskey added that the company continues to work with technology providers to identify if something better comes along that would provide long

- term opportunity and reduce ca pital exposure. Tr. at 70

- 71.

In its post

- hearing brief, Midwest Generation proposed a revised compliance plan table, incorporating consideration of the Board’s questions posed in written and at hearing, as well as comments from the Agency. Post Br. at 15

- 16, 19. The revised compliance plan, presented under “Compliance Plan Activities” below, contains “core milestones for engineering, planning, permitting and construction of any FGD equipment that the company will rely upon to achieve

the 2017 SO 2 e mission rate.” Id . at 28. Also included are provisions for quarterly progress reports to the Agency, as well as meetings with the Agency if the Agency so requests. Midwest Generation states that the reports and meetings are intended to provide the Board with assurance that Midwest Generation is and will remain on track to comply with the 2017 CPS emission rate.

Id . at 16. Mr. McCluskey stated that through the progress reports and emissions reports included under the variance conditions, the compliance plan would demonstrate progress. Tr. at 83. Midwest Generation asserts any further detail concerning scheduling is neither possible nor necessary for its compliance plan. Post Br. at 18

- 19.

Interim SO 2 Emission Rates

During the 2015 and 2016 variance period, Midwest Generation proposes an interim emission rate that would “step down” from the CPS rates of 0.44 lb/mmBtu in 2013 and 0.41 lb/mmBtu in 2014. The proposed variance rate is 0.38 lb/mmBtu in 2015 and 2016. In 2017, the

CPS rate of 0.15 lb/mmB tu would apply, as required by 35 Ill. Adm. Code 225.295(b). Pet. at 12, 47. Midwest Generation states that “[t]his step down helps mitigate any impact from the variance request.” Pet. Exh. 5 at 11. Midwest Generation points out that the proposed rate of

0.38 lb/mmBtu in 2015 and 2016 is l ess than the CPS 2014 rate. Post Br. at 6. Midwest Generation states the interim emission rate can be achieved through the use of ultra

- low sulfur coal and planned upgrades to emission controls at Powerton Unit 6 and Waukegan Unit 7. Pet.

at 47.

The 2015 SO 2 reductions under the variance rate of 0.38 lb/mmBtu are less than what might be realized under the 2015 CPS rate of 0.28 lb/mmBtu. Midwest Generation notes, however, that the reductions are greater than the pre sumptive BART reductions. Pet. at 51. Midwest Generation presented a table comparing SO 2 reductions under presumptive BART, the CPS, and this proposed variance. Pet. at 51; Hrg . Exh. 9. The table includes information from the BART Technical Support Doc ument (TSD) used by the Agency to develop the regional haze

SIP. Pet. at 51.24

TSD Table 4.7 lists Midwest Generation’s 19 coal

- fired EGUs located at six separate locations in Illinois, nine of which are subject to BART. Hrg . Exh. 6 at 30

- 32. Based on Table 4.7, the presumptive BART reductions in SO 2 emissions for the nine Midwest Generation EGUs is 31,440 tons per year. In comparison, the TSD predicted SO 2 emissions reductions under the CPS of 35,465 tons in 2015; 55,140 tons in 2017; and 61,194 tons in the final part of the CPS. Under Midwest Generation’s analysis, the reductions based on the variance emission rate would

result in SO 2 emissions reductions of 33,458 tons in 2015; 60,354 tons in 2017; and 65,032 tons

in 2019. Hrg . Exh. 9. 7

Addition ally, Midwest Generation’s analysis shows that because of Midwest Generation’s proposed actions, the SO 2 emissions reductions expected for 2017 and 2019 would be greater than those anticipated by the Agency when it developed the regional haze SIP. Pet. at 51. Specifically, the predicted SO 2 emissions reductions under the CPS total 35,465 and 55,140 tons for 2017 and 2019, respectively, while the reductions Midwest Generation predicts total 60,354 and 65,032 tons for the same years. Hrg . Exh. 9.

SO 2 Em ission Caps

In addition to proposing a variance emission rate that would continue the CPS step down, Midwest Generation commits to declining caps on annual SO 2 mass emissions. The caps would help achieve lower emissions over the 2013 through 2016 period than would be expected under the CPS based upon the 2008

- 2011 heat input. Pet. at 11. As part of its compliance plan, Midwest Generation agrees to meet annual system

- wide caps on SO 2 mass emissions of 57,000 tons in 2013; 54,000 tons in 2014; 39,000 ton s in 2015; and 37,000 tons in 2016. Id . 52

- 54; Post Br. Exhs. A, B. Midwest Generation states that because of its commitment to comply with mass

emission levels of SO 2 , “[i]n no year during the term of the variance would emissions increase over the previ ous year.” Resp. at 13.

Compliance Plan Costs

For the Trona injection FGD equipment, Midwest Generation estimates the capital cost at an average of $38 million per unit. Added to this are costs associated with operating the Trona FGD and procuring ul tra

- low sulfur coal. Pet. Exh. 5 at 6; Tr. at 64

- 65. For the ESP upgrades, Midwest Generation estimates an average cost of $55 million per unit. Id

.

Further breaking down the cost estimates, Midwest Generation estimates the following typical costs as sociated with its compliance plan on a per unit basis: $2 to $5 million for preliminary engineering and planning; $20 to $45 million for long lead fabrication; $18 to $45 million for construction; and $17 to $40 million for outage. Post Br. Exh. C.

7 Midwest Generation contends that, althoug h the SO 2 emissions reductions under the variance in 2015 of 33,458 tons (with the emissions rate of 0.38 lb/mmBtu) would be less than those under the CPS for 2015 of 34,465 tons (with the emissions rate of 0.28 lb/mmBtu), the SO 2 emissions

reductions are greater than the presumptive BART reductions of 31,440 tons per year. Pet. at 51; Hrg. Exh. 9

.25

Co mpliance Plan Activities

Midwest Generation presented a compliance plan table with dates and activities in its original petition. Pet. at 52

- 54. In its post

- hearing brief, Midwest Generation proposes a revised compliance plan table, reflecting consider ation of Board questions and Agency comments. Post

Br. at 15

- 16, 19; Post Br. Exhs. A, B; Reply Br. at 1.

Midwest Generation states that the company:

has proposed to commit, in the enhanced compliance plan, to core milestones for engineering, planning, permitting and construction of any FGD equipment that the company will rely upon to achieve the 2017 SO 2 emission rate. Post Br. at 28.

Among Midwest Generation’s proposed revisions is the company’s agreement to provide quarterly progress reports to th e Agency, as well as to meet with the Agency if so requested by the Agency. Midwest Generation states that the reports and meetings are intended to provide the Board with assurance that Midwest Generation is and will remain on track to comply with the

201 7 CPS SO 2 emission rate. Id . at 16. Midwest Generation asserts that providing any further detail in its compliance plan is neither possible nor necessary. Id . at 18

- 19.

Midwest Generation’s revised compliance plan is as follows:

Date Activity

2013

- 2016 Midwest Generation will not operate the coal

- fired boilers

at the Crawford Station.

January 1

- December 31, 2013 Midwest Generation will limit system

- wide 8 emissions of

SO 2 to no more than 57,000 tons.

By the end of each calendar quarter, begi nning with the second quarter of

2013 and continuing through the fourth quarter of

2016 Midwest Generation will submit a quarterly progress report to the Agency, and upon request, meet with the Agency to apprise the Agency of actions taken related to compl iance with the variance, and in particular its progress toward compliance with the CPS annual average system

- wide

2017 SO 2 emission rate. In the first such quarterly report, Midwest Generation will discuss the compliance scenarios outlined in its post

- hea ring brief in support of its Petition for Variance, including in Exhibit C to that brief.

On or before

December 31 of each year from Midwest Generation will submit annual progress reports to the Agency generally describing the work comp leted that year ( i.e. , the progress report due by December 31, 2013,

8 Midwest Generation characterizes “system

- wide” for the compliance plan to entail the following coal

- fired units: Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8; and Will County Units 3 and 4. Post Br. Exh s . A, B at 1.26

2013 through 2016 shall describe work completed in 2013) and progress made to comply with the timelines specified in the compliance plan. The annual progress report will also include a general description of the activities related to installation of the Trona systems and related PM control work Midwest Generation anticipates will be conducted the following year, including the status of the engineering for the projects and whether such projects have been in cluded in the year’s budgeting.

January 1

- December 31, 2014 Midwest Generation will limit system

- wide emissions of

SO 2 to no more than 54,000 tons.

On or before May 1, 2014 Midwest Generation will report to the Agency its system

wide mass SO 2 emissio ns for 2013 with its Annual Emissions Report.

On or before December 31, 2014 Midwest Generation will inform the Agency of the compliance scenario, including any emission controls, that Midwest Generation will implement in order to achieve compliance with the CPS system

- wide SO 2 rate in 2017 (the “Compliance Scenario”), and will initiate any preliminary engineering and project planning for the installation of any such controls.

On or before January 1, 2015 Midwest Generation will initiate preliminary eng ineering and project planning for the installation of all emission controls identified in its Compliance Scenario (as defined above).

January 1, 2015,

and thereafter until completion of

installation of FGD equipment Midwest Generation will not operate Wa ukegan Unit 8.

2015

- 2016 Midwest Generation will comply with a system

- wide annual average SO 2 emission rate of 0.38 lb/mmBtu.

January 1

- December 31, 2015 Midwest Generation will limit its system

- wide mass

emissions of SO 2 to no more than 39,000 ton s.

On or before March 31, 2015 Midwest Generation will file permit applications, as necessary, for the installation of any emission controls identified in its Compliance Scenario (as defined above).

On or before May Midwest Generation will repo rt to the Agency its system

-27

1, 2015 wide mass SO 2 emissions for 2014 with its Annual Emissions Report.

May 31, 2015 Midwest Generation must have completed the installation of and have operational FGD equipment on Waukegan Unit 8 or permanently shut down the unit

.

On or before December 31, 2015 Midwest Generation will commence construction of all emission controls identified in its Compliance Scenario (as defined above).

On or before May 1, 2016 Midwest Generation will report to the Agency its system

wide ma ss SO 2 emission s for 2015 with its Annual Emissions Report.

January 1

- December 31, 2016 Midwest Generation will limit its system

- wide mass

emissions of SO 2 to no more than 37,000 tons.

On or before May 1, 2017 Midwest Generation will report to the A gency its system

wide mass SO 2 emissions for 2016 with its Annual Emissions Report.

2017 Midwest Generation will comply with the rate set forth in Section 225.295(b) for 2017 of 0.15 lb/mmBtu.

Continuously during the pendency of the

variance a. Midwest Ge neration will comply with the CAIR and any replacement rule for CAIR.

b. Midwest Generation will comply with the Acid Rain Program at 40 CFR 72.

c. Midwest Generation will comply with all other applicable requirements.

d. Midwest Generation shall promptly provid e the Agency with additional information related to the compliance plan upon request.

Midwest Generation will notify the Agency if completion of the Trona system installations and associated PM controls necessary for compliance with the CPS becomes

infe asible.

Post Br. Exh. A.

Midwest Generation proposes January 1, 2017, as the deadline for returning to compliance with the CPS system

- wide average annual SO 2 emission rates of 35 Ill. Adm. Code28

225.295(b). However, Midwest Generation is willing to stagg er dates if the Board believes that the CPS emission rates for 2015 and 2016 must be made applicable to the company for some period of time. If so, instead of immediate compliance with the CPS 2017 emission rate of 0.15 lb/mmBtu rate on January 1, 2017, M idwest Generation would comply with the emission rates of Section 225.295(b) on the following schedule:

Jan. 1

- 15, 2017 0.28 lb/mmBtu ( i.e. , the CPS 2015 rate)

Jan. 16

- 31, 2017 0.195 lb/mmBtu ( i.e. , the CPS 2016 rate)

Feb. 1

- Dec. 31, 2017 0.15 l b/mmBtu ( i.e. , the CPS 2017 rate)

Pet. at 53; Post Br. Exh. A at 3; Post Br. Exh. B at 3.

Schedule for One Possible Compliance Scenario

To illustrate a possible compliance scenario, Midwest Generation provided a possible

schedule of unit

- by

- unit retrof it activity from planning and engineering through completion of construction. Post Br. at 16, see Exh. C. The possible schedule assumes all generating units will be in operation as of January 1, 2017, and will be equipped with FGD to achieve the 2017 SO 2 emission rate in the CPS. Midwest Generation stated the schedule will depend on a number of

variables. One main variable would be the economic decision as to whether units will be retired or retrofitted. Other variables include fuel variability, changes in regulatory requirements, changes in technology and control costs, lead times for equipment, capital availability, and vendor availability to provide engineering, parts, and labor. Because of these and other variables, Midwest Generation requests that the schedule presented in Exhibit C not be included as an element of the compliance plan to be codified in the variance if granted. Post Br. at 16

- 17, Exh. C. Midwest Generation states that it will communicate any changes to Exhibit C to the Agency to en sure satisfactory progress toward compliance by the end of the variance period.

Post Br. Exh. C.

The possible compliance scenario in Exhibit C shows scheduling milestones for preliminary engineering and project planning, long lead fabrication, constru ction, and ESP retrofit outage. Units with dates included in the schedule are Joliet Units 7 and 8, Powerton Unit 5, Waukegan Units 7 and 8, and Will County Units 3 and 4. The possible schedule from beginning through end ( i.e. , preliminary engineering an d project planning through the completion of construction) shows Powerton Unit 5 currently in progress through the fourth quarter of 2016, Waukegan Unit 7 currently in progress through the end of 2014, Waukegan Unit 8 from just before the start of 2014 thr ough the second quarter of 2015, Will County Unit 3 from the third quarter of 2014 through the third quarter of 2016, Will County Unit 4 from the beginning of 2015 through the fourth quarter of 2016, and Joliet Units 7 and 8 from the beginning of 2015 thro ugh the fourth quarter of 2016. Post Br. Exh. C.

In addition to the possible compliance scenario presented in Exhibit C, Midwest Generation discusses other possible scenarios. In another possible scenario, FGD installations may be found unnecessary depe nding on the effectiveness of using ultra

- low sulfur coal over the years. Another scenario might involve Midwest Generation deciding to retire one or more of its smallest units, negating the need to install FGD equipment on those units. A different scena rio29

might involve curtailing output from smaller units combined with maximum reductions at the larger units. Post Br. at 17

- 18. Midwest Generation emphasizes that “[t]he core tenet of any scenario is that Midwest Generation will comply with the CPS in 20 17.” Post Br. at 18.

Proposed Variance Terms and Conditions

Midwest Generation suggested language for the variance, including having the revised compliance plan’s provisions as conditions of the variance. The company’s proposed language

for relief from requirements reads:

Midwest Generation shall not be subject to the system

- wide emission rates of 0.28 lb/mmBtu in 2014 and 0.195 lb/mmBtu in 2015, as set forth in Section 225.295(b). 9

Midwest Generation shall not be subject to the requirement to instal l and have operational FGD equipment on Waukegan Unit 8 by December 31, 2014, as set forth in Section 225.296(a)(2). Pet. at 52.

Additionally, Midwest Generation seeks relief from the prior variance granted in PCB

12

- 121 where the Board ordered complianc e with system

- wide emission rates for SO 2 . Midwest Generation requested the Board grant either a variance from the prior variance, adjust that portion of the prior variance, or find that the variance requested here supersedes that provision of the prior v ariance. Pet. at 1

- 2. Relief from the system

- wide SO 2 emission rates in the prior

variance would entail a one

- year period from December 31, 2013 until December 31, 2014

. Waukegan Order , slip op. at 20.

In its petition, Midwest Generation requested th at its proposed compliance plan serve as

variance conditions. Pet. at 52

- 54. Midwest Generation asserted that establishing unit

- specific control details in the conditions of the variance would constrain the flexibility provided by the CPS when adopted. Resp. at 17

- 18. However, Midwest Generation agreed to use annual progress reports to confirm that activities planned for the next calendar year are included in the company’s budget. Id . In addition, Midwest Generation suggested that the report could inc lude “an analysis of the progress toward compliance with the CPS that the planned activities for the upcoming year will provide.” Id . at 8.

In proposing a revised compliance plan in its post

- hearing brief, Midwest Generation

commits to milestones for e ngineering, planning permitting and construction of FGD equipment that the company will rely upon for compliance with the 2017 SO 2 emission rate. In addition to the annual progress reports, Midwest Generation also commits to providing quarterly progress

r eports to the Agency, as well as meetings with the Agency if the Agency so requests. Post Br.

at 18

- 19.

9 The reference to 2014 and 2015 is a typographical error because Midwest Generation seeks

variance relief for 2015 and 2016 and the emission rates of 0.28 lb/mmBtu and 0.195 lb/mmBtu correspond to 2015 and 2016, respectively. See 35 Ill. Adm. Code 225.295(b).30

Environmental and Health Impact

Environmental Impact of SO 2 in General

In general, Midwest Generation explained that emissions of SO 2 contribute to the formation of acid rain and fine particulate matter. Acid rain has been associated with the eutrophication of water bodies far downwind of an SO 2 source. Resp. at 12. Dr. Lucy Fraiser, Senior Consulting Toxicologist with AECOM testifying on behal f of Midwest Generation, added

that SO 2 can result in damage to foliage of trees and agricultural crops, formation of acid rain resulting in acidification of lakes and streams, corrosion of buildings and monuments, and impairments to visibility. 10 Tr. at 1 18.

Health Impact of SO 2 in General

In terms of the general human health impact of SO 2 emissions, Dr. Fraiser stated that the major health concerns typically associated with high SO 2 concentrations include “effects on breathing, respiratory illness, al terations in pulmonary defenses, aggravation of existing cardiovascular disease and asthma.” Tr. at 115, 117. Populations most sensitive to SO 2 include people with asthma, cardiovascular disease, and chronic lung disease, as well as children and the

elde rly. Tr. at 117

- 118.

Midwest Generation and Dr. Fraiser described the development of USEPA’s new one

hour SO 2 primary NAAQS of 75 parts per billion (ppb) that was established on June 22, 2010. Reply Br. at 12; Tr. at 118

- 120; 75 Fed. Reg. 35520 (June 22, 2010). In general, Midwest Generation stated that according to USEPA, short

- term exposure to SO 2 has been linked through clinical studies to adverse respiratory effects, such as bronchoconstriction and increased asthma symptoms. USEPA identified popu lations at risk for respiratory illness linked to short

- term SO 2 exposure to include children, the elderly, and asthmatics. As to long

- term exposure, USEPA concluded there is insufficient evidence to infer a causal relationship between long

- term

exposure to SO 2 and adverse health effects. Resp. at 12

, citing 75 Fed. Reg. 35520, 35526, 35527 (June 22, 2010), http://www.epa.gov/air/sulfurdioxide/health.html (January 10, 2013).

Dr. Fraiser tes tified that 9 of the 10 primary epidemiological studies ( i.e

. , studies based on health statistics, such as emergency room visits, and regional air monitoring data, rather than individual exposure data from clinical studies) USEPA relied upon in setting the new one

- hour

SO 2 NAAQS did not find statistically significant associations between long

- and short

- term SO 2 exposures and respiratory effects. Tr. at 118

- 119. Based on the epidemiological studies, USEPA concluded no causal relationship between long

- term SO 2 exposure and respiratory effects for mortality. For short

- term exposure, USEPA concluded that evidence from epidemiological studies is “suggestive” of a causal relationship with mortality , according to Dr. Fraiser . Tr. at 119. USEPA, however, did f ind that evidence from clinical studies ( i.e. , controlled human

10 Lucy Fraiser, PhD, is certified by the American Board of Toxicology. Dr. Fraiser testified that she has over 20 years of experience in the areas of human h ealth risk assessment and evaluation of human health effects associated with environmental pollutants. Within these areas, Dr. Fraiser specializes in air pollutants in particular. Tr. at 113

- 114.31

studies), where asthmatics are exposed to SO 2 concentrations much higher than found in the ambient air, did support a “causal” relationship between short

- term SO 2 exposure and respiratory

effe cts. Tr. at 120. Dr. Fraiser testified that the studies USEPA relied upon in setting the one

hour SO 2 NAAQS used SO 2 concentrations higher than the one

- hour SO 2 NAAQS to illicit a statistically significant respiratory response in a sensitive subpopulatio n of exercising asthmatics. Tr. at 120. Dr. Fraiser explained:

[T]here is a threshold concentration below which [SO 2 ] does not cause toxic effects. And what that means is that concentrations of [SO 2 ] have to be greater

than this threshold to cause an y adverse health effects. Therefore, the fact that a power plant or any other source emits [SO 2 ], does not necessarily mean that

adverse health effects will occur. Tr. at 120

- 121

Dr. Fraiser also made the distinction “that most epidemiological evidence points to particulate matter as a stronger causal agent in causing both mortality in most cardio respiratory effects than gaseous sulfur dioxide.” Tr. at 117. SO 2 is a PM precursor. See 77 Fed. Reg. at 3967, 3973 (Jan. 26, 2012). Because sulfur dioxide is most of the time found in association with particulate matter, Dr. Fraiser explained that separating the health effects of these two pollutants

has been difficult. Tr. at 117. USEPA stated that PM 2.5 is related to premature mortality as well

as chron ic bronchitis, non

- fatal heart attacks, acute bronchitis, lower respiratory symptoms, upper respiratory symptoms, and asthma exacerbation. Resp. at 12, citing 76 Fed. Reg. 48208, 48309, 48310 (Aug. 8, 2011). Emissions of fine particulate matter are curre ntly regulated by

CAIR. Pet. at 48. USEPA stated:

[A]lthough recognizing the uncertainties associated with separating the effects of

SO 2 from those of co

- occurring pollutants, the [Integrated Science Assessment for

Oxides of Sulfur

- Health Criteria] ISA concluded that the limited available

evidence indicates that the effect of SO 2 on respiratory health outcomes appears to be generally robust and independent of the effects of gaseous co

- pollutants, including NO 2 and O 3 , as well as particulate co

- pollutant s, particularly PM 2.5 (citations omitted). 75 Fed. Reg. 35531 (June 22, 2010).

Mr. McFarlane testified that in the Agency’s recommendation, discussed below, the Agency “finds no evidence of injury to public from granting of the variance.” Tr. 33.

Envir onmental and Health Impact of Variance

As to the potential impact of the variance on the environment, Midwest Generation noted

that emissions of SO 2 can generally contribute to the formation of acid rain and fine particulate

matter. Midwest Generation as serts that it complies with both the Acid Rain permits issued for each station as well as the requirements of CAIR and will continue to do so during the period of the variance if granted. Pet. at 48. Midwest Generation adds that the level of SO 2 emission s in 2015 and 2016 should have no significant impact on water quality. Pet. at 49.

As to the potential impact of the variance on human health, Dr. Fraiser presented a graph comparing emissions under the CPS to those under the proposed variance. Tr. at 1 22

- 123; Hrg.32

Exh. 12. Dr. Fraiser pointed out that emissions under the variance would decrease over the

entire four

- year period, with emissions for each successive year lower than the previous year. Tr. at 123. The graph represents the overall net decre ase in SO 2 under the variance of 3,181 tons.

Tr. at 124. Dr. Fraiser observed that with this “net decrease in SO 2 emissions would also come a corresponding net health benefit, if you assume that the emissions from the plants are capable of causing health effects in the first place.” Tr. at 124. Dr. Fraiser also testified that the decrease in

SO 2 emissions would be accompanied by reductions in other air pollutants, which would also be expected to result in the avoidance of potential health effects. Tr. at 124

- 125.

Under the terms of the variance and assuming Midwest Generation’s SO 2 emissions are associated with a health effect, Dr. Fraiser testified that “granting this variance would provide greater reductions in health effects now in exchange for smal ler reductions in health effects

later.” Tr. at 125

- 126. Dr. Fraiser added that any effect on human health resulting from the smaller reductions in 2015 and 2016 would be more than offset by the net emission decrease

over the four

- year variance period, t hus providing health and environmental benefits. Tr. at 125

- 126. Dr. Fraiser went on to point out that al though reductions in SO 2 emissions would be less than contemplated under the CPS in 2015 and 2016, emissions in those years would be less than

emissi ons in 2013 and 2014 and “would theoretically be accompanied by additional health benefits above and beyond those resulting from fewer [SO 2 ] emissions made in 2013 and 2014.”

Tr. at 126.

Dr. Fraiser concluded that “for these reasons, it is my opinion tha t the proposed variance, if granted, will result in a health and environmental benefit.” Tr. at 129.

Emissions Under the Variance

Midwest Generation stated that overall, SO 2 emissions would decline during the term of the variance. Resp. at 13. Midw est Generation has proposed a declining cap for annual mass

emission levels of SO 2 under the variance, such that in no year during the variance would emissions increase over the previous year. Resp. at 13. The declining cap would limit annual

SO 2 mass em issions under the variance by year as follows: 57,000 tons in 2013; 54,000 tons in 2014; 39,000 tons in 2015; and 37,000 tons in 2016. Pet. at 52. Midwest Generation points out that the proposed cap on mass emissions for SO 2 and the resulting reduction in the average annual heat input under the variance for 2013 through 2016 would also effectively reduce NO

x , PM, mercury, and CO 2 as described below. Hrg. Exh. 5 at 11.

Compared to what might have been anticipated under the CPS rates of 0.28 lb/mmBtu i n 2015 and 0.195 lb/mmBtu in 2016, Midwest Generation explained that the proposed rate under the variance of 0.38 lb/mmBtu would result in slightly more SO 2 emissions for those two years. However, “[a]ny effect on human health and the environment of that difference would be minimal and would be more than offset by the overall net emission decrease and resulting environmental benefit arising from early emission reductions due to the variance as proposed.” Resp. at 13

- 14. Midwest Generation calculated that the net emission decrease over the 2013 through 2016 duration of the variance would be 3,181 tons of SO 2 less than emissions expected based upon the allowable CPS rates and historic heat input. Hrg. Exh. 5 at 11, Table 5.1.33

As to the impact on emissions from extending the deadline of December 31, 2014 under Section 225.296(a)(2) for five months, Midwest Generation states that the deferral to install FGD equipment on Waukegan Unit 8 or shut it down would have no adverse impact. Under the proposed varianc e, Midwest Generation would not operate Waukegan Unit 8 after that date beginning January 1, 2015 until the FGD installation is completed. Pet. at 45. As a condition of the variance, Midwest Generation proposes that FGD equipment will be operational on

W aukegan Unit 8 by May 31, 2015, or the unit will be permanently shut down. Pet. at 53.

As described below, in addition to SO 2 , Midwest Generation points out that emissions of other pollutants, including NO

x , PM, mercury and CO 2 , would also be reduced under the proposed variance, providing additional reductions for those pollutants on top of those achieved by the CPS controls alone. Pet. at 45.

Sulfur Dioxide (SO 2 ). Under the variance, Midwest Generation is proposing a “step

down” in the SO 2 emissio n rate to mitigate any impact from the variance. Midwest Generation proposes stepping down from the 2014 CPS rate of 0.41 lb/mmBtu to the proposed variance rate of 0.38 lb/mmBtu in 2015 and 2016, then to the 2017 CPS rate of 0.15 in 2017. Hrg. Exh. 5 at 11; Pet. at 53.

In addition, Midwest Generation is proposing caps on mass SO 2 annual emissions as a part of the variance. Midwest Generation states that this serves to ensure lower emissions over the period from 2013 through 2016 than would be expected based upon the allowable CPS rates for these years under 35 Ill. Adm. Code 225.295(b) and average heat input for 2008

- 2011 for units legally permitted to operate during the proposed variance term. Based on the Section 225.295(b) CPS rates for 2013 throug h 2016 and the average heat input for 2008

- 2011 for units legally permitted to operate during the proposed variance term, Midwest Generation calculated that expected emissions under the CPS would be 190,181 tons for the 4 year period from 2013 through 2016 . Based on the proposed SO 2 emission rates and mass emission caps under the variance, Midwest Generation calculated emissions of 187,000 tons over the 4 year period from 2013 to 2016. Midwest Generation states, therefore, the impact of the variance would thus be a net reduction of 3,181 tons of SO 2 , as compared to emissions expected based upon the allowable CPS rates and historic heat input. Hrg. Exh. 5 at 11, Table 5.1.

For the sake of comparison, Midwest Generation presents a table depicting the propo sed emission rates and mass emissions under the variance alongside the CPS emission rates and expected emissions for the term of the variance. Hrg. Exh. 5, Table 5.1.

Table 5.1 (Attachment to Affidavit of Fred McCluskey)

2013 2014 2015 2016 Totals

1 CPS emission rates (lb/mmBtu) 0.44 0.41 0.28 0.195

2 SO 2 emissions (tons)* 65,341 60,886 37,699 26,255 190,18134

3 Proposed CPS emission rates (lb/mmBtu) 11 0.44 0.41 0.38 0.38

4 SO 2 emissions (tons)** 65,341 60,886 51,163 51,163

5 Propo sed SO 2 mass emission level limits (tons) 57,000 54,000 39,000 37,000 187,000

6 Delta per year comparing proposed mass limits (row 5)

with emissions at CPS rates (row 2) 8,341 6,886 <1,301> <10,745>

7 Cumulative reduction (based on row 6) 8,341 15,227 13,926 3,181 3,181

* Based on average 2008

- 2011 heat input for the units legally permitted to operate in 2013

- 2016, respectively, and the emission rates indicated in row 1.

** Based on average 2008

- 2011 heat input for the units legally permitte d to operate in 2013

- 2016, respectively, and the emission rates indicated in row 3.

Hrg. Exh. 5, Table 5.1 (emphasis in original).

In its comparison, Midwest Generation calculated the mass emissions for each year from 2013 through 2016 under the CPS by m ultiplying the CPS rate for that year by the annual average heat input from 2008 through 2011 for each unit that Midwest Generation is not prohibited from operating during that year. These units, which Midwest Generation is permitted to operate during 201 3 through 2016 under the CPS and PCB 12

- 121, are Crawford Units 7 and 8 (only in 2013 and 2014); Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8: and Will County Units 3 and 4. Midwest Generation added up the calculated emissions

for each of those units to form a “CPS Baseline” for SO 2 , NO

x , PM, CO 2 , and mercury. Resp. at

10

- 11. Hrg. Exh. 10 12 , 11.

Then Midwest Generation calculated the SO 2 emission for the same years by multiplying the proposed SO 2 rates under the variance by the same annual average heat input used above. This resulted in potential annual SO 2 emissions of 65,341 tons, 60,886 tons, 51,163 tons and 51,163 tons for the years 2013 through 2016. Next, Midwest Generation tallied these potential

annual mass emission s alongside the declining cap proposed in the variance, showing how the

11 The 2013 and 2014 rates indicated are from the CPS reg ulations (35 Ill. Adm. Code 225.295(b)), but the 2015 and 2016 rates indicated are proposed by Midwest Generation in its variance request.

12 Midwest Generation notes that emission limits in Exhibit 10 are system

- wide and not intended

to reflect unit

- spe cific emission rates or mass emission levels. Resp. at 11.35

proposed cap would keep mass emissions lower than SO 2 emissions based on the variance rate

alone. Hrg. Exh. 5, Table 5.1.

Midwest Generation then calculated the difference between th e annual SO 2 mass emissions under the CPS Baseline and the caps for each year of the proposed variance and for all four years cumulatively, showing a cumulative net reduction of 3,181 tons of SO 2 during the term of the variance. Hrg. Exh. 5

, Table 5.1; Hr g. Exh. 10, 11.

As explained below, to quantify the cumulative net reduction for other pollutants (NO

x , CO 2 , mercury, and PM), Midwest Generation used the heat input based on the proposed caps for

SO 2 to calculate cumulative mass emissions that were compa ratively less than anticipated under the CPS over the proposed variance period using the heat input based on the average heat input from 2008 through 2011. Hrg. Exh. 10.

For the prior years 2000 to 2012, Midwest Generation points out that annual emissi ons of

SO 2 have been reduced by approximately 40%, from 94,195 to 56,395 tons per year (tpy). Pet. at 47. In 2012, Midwest Generation contends that it ceased operations of the coal

- fired units at Fisk and Crawford Stations earlier than required by the Wa ukegan Order variance. Pet. at 44

- 45. With these early shutdowns, Midwest Generation realized reductions of 734 and 1,249 tons of

SO 2 in 2012 from Fisk and Crawford, respectively. 13 Pet. at 44

- 45; Hrg. Exh. 5 at 11. Mr. McFarlane testified that the Agen cy, in its recommendation discussed below, found that the company’s “calculation and demonstration of net environmental benefit is consistent with past variances the [B]oard has granted.” Tr. at 33.

Nitrogen Oxides (NO

x ). The proposed cap on mass em issions for SO 2 under the variance would also effectively reduce NO

x in the years 2013 through 2016 by 2,085 tons, 1,847 tons, 3,521 tons, and 4,100 tons, respectively, for a cumulative net reduction of 11,553 tons NO

x . Hrg. Exh. 5 at 11; Resp. at 11; Hrg . Exh. 10; Tr. at 69.

Midwest Generation points out that its annual emissions of NO

x have been reduced by approximately 74% from 2007 to 2012. Hrg. Exh. 5 at 3. From 2000 to 2012, Midwest

Generation reduced NO

x emissions by 83%, from 72,283 to 12,526 tp y. In 2012, early

shutdowns of the coal

- fired units at Fisk and Crawford resulted in a reduction of 461 tons of

NO

x . Pet. at 45, Exh. 5 at 11. Midwest Generation states that it achieved a system

- wide NO

x emission rate 10% better than the required 2012 C PS NO

x limit. Hrg. Exh. 5 at 3.

Mercury. Midwest Generation asserts notes that during the period of the variance, it will continue to operate its ACI systems and comply with the mercury emission rates set forth in the Section 225.294 by the January 1 , 2015 deadline or sooner. Midwest Generation claims that the requested variance would accordingly have no negative impact on system

- wide reductions in mercury. Pet. at 47.

13 Midwest Generation asserts that it “conservatively did not include any of these early reductions in its calculation of net environmental benefit.” Post Br. at 13, n.6 (1,983 tons of SO 2 , 461 to ns of NO

x , 299 tons of PM, 3 pounds of mercury, 904,477 tons of CO 2 ).36

Under the variance, according to Midwest Generation, the proposed cap on mass

emissions for SO 2 would also reduce mercury emissions in the years 2013 through 2016 by 33 lbs, 29 lbs, 56 lbs, and 65 lbs, respectively, for a cumulative net reduction of 183 lbs mercury. Hrg. Exh. 5 at 11, Resp. at 11, Exh. 10.

Annual emissions of merc ury have been reduced by approximately 84% from 2007 to 2012 by Midwest Generation, from approximately 1,345 pounds per year to 221 pounds per year.

Pet. at 46 ; Hrg. Exh. 5 at 3

- 4. In 2012, early shutdowns of the coal

- fired units at Fisk and

Crawford res ulted in a reduction of 3 lbs of mercury. Pet. at 45 ; Hrg. Exh. 5 at 11.

Greenhouse Gases (CO 2 ). The proposed variance according to Midwest Generation, would also effectively reduce CO 2 emissions in the years 2013 through 2016 by 4,018,889 tons, 3,56 0,574 tons, 6,785,534 tons, and 7,901,324, respectively, for a cumulative net reduction of 22,266,320 tons CO 2

. Hrg. Exh. 5 at 11; Resp. at 11; Hrg. Exh. 10; Tr. at 69.

Annual emissions of CO 2 have been reduced by approximately 20% from 2007 to 2012 by M idwest Generation. Hrg. Exh. 5 at 3. In 2012, early shutdowns of the coal

- fired units at Fisk and Crawford resulted in a reduction of 904,477 tons of CO 2 . Pet. at 45, Exh. 5 at 11.

Midwest Generation mentions that these reductions in CO 2 were not requi red by any applicable law or regulation. Pet. at 47.

Particulate Matter (PM). According to Midwest Generation, u nder the variance, the proposed cap on mass emissions for SO 2 would also reduce PM emissions in the years 2013 through 2016 by 777 tons, 689 tons, 1,312 tons, and 1,528 tons, respectively, for a cumulative

net reduction of 4,306 tons PM. Hrg. Exh. 5 at 11; Resp. at 11; Hrg. Exh. 10; Tr. at 69. Annual emissions of PM have been reduced by approximately 23% from 2007 to 2012 by Midwest

Generati on. Hrg. Exh. 5 at 3. In 2012, early shutdowns of the coal

- fired units at Fisk and Crawford resulted in a reduction of 299 tons of PM. Pet. at 45, Exh. 5 at 11.

While the CPS does not contain PM reduction requirements for Midwest Generation, except f or the two units with hot

- side ESPs at Waukegan Unit 7 and Will County Unit 3, Midwest Generation is investing in PM controls associated with the planned Trona SO 2 controls to ensure compliance with the federal MATS. Hrg. Exh. 5 at 4

- 5. Additionally, acc ording to the

company, the PM limitations at Section 212.203 (35 Ill. Adm. Code 212.203) also apply, and

Midwest Generation claims that its stations are currently in compliance with these requirements

and will remain so. Pet. at 48. Midwest Generation e xplains that the injection of Trona to

control SO 2 emissions will increase the PM loading to the existing ESPs on the EGUs, but the company contends that improvements to the ESPs will allow Midwest Generation to maintain

the current levels such that PM emi ssions will not increase as a result of the variance. Pet. at 48.

Examined Alternatives for Timely CPS Compliance

Midwest Generation examined several alternative compliance strategies to avoid the need

for a variance. Pet. at 27.37

Dry and Wet Scrubbe rs

Besides the Trona injection systems, Midwest Generation looked at other types of dry scrubbers. Midwest Generation stated that with other types of dry scrubbers, a baghouse must be installed, resulting in costs on the order of at least three times mo re than the Trona system. At this point, engineering and installing other types of dry scrubbers would take approximately two and a half years. Hrg. Exh. 5 at 9; Tr. at 67.

As for wet scrubbers, Midwest Generation explained that wet scrubbers would not be an appropriate control technology for the low sulfur coal Midwest Generation is under contract to procure. Additionally, wet scrubbers would be more expensive and more time consuming to install than the Trona systems. Pet. at 27; Exh. 5 at 9.

Natura l Gas

Midwest Generation also evaluated the option of converting its coal

- fired units to natural gas, but found that none of the units could survive in the marketplace if they were converted. The only units that have access to natural gas sufficient to operate at full load would be Fisk Unit 19 and Crawford Units 7 and 8, however, these units have been shut down. To provide sufficient gas for full load operation for units at other plants would require significant investment. Based on industry experienc e in the construction and operation of both conventional boiler fired and new combustion turbine gas plants as well as in economics of coal and natural gas, Midwest Generation determined that a gas conversion would not be an economically viable compliance option. Pet. at 27

- 28, Exh. 5 at 9

- 10.

In terms of the framework of the CPS, Midwest Generation states that if the units were converted to natural gas, they could no longer be included in the CPS system

- wide rate average. Section 225.292(b) provides th at “[a] specified EGU is a coal

- fired EGU listed in Appendix A.” 35 Ill. Adm. Code 225.292(b) (emphasis added). Midwest Generation maintains therefore that even if some units were converted to natural gas, it would not help Midwest Generation comply

with the CPS system

- wide rate. Pet. at 28.

Generation Curtailment

Midwest Generation also considered the feasibility of complying with the CPS rates by curtailing generation at the coal

- fired units that would not have the Trona injection systems during the 2015 to 2016 compliance timeframe. Pet. at 28. Midwest Generation stated that generation would need to be curtailed by as much as 75% by 2016 on the units where Trona systems have not been installed. Midwest Generation states that such action could resu lt in penalties under its capacity contracts and might require regulatory approval due to concerns with reliability of the electrical grid. With this level of curtailment, Midwest Generation found that

the loss in revenue would threaten the continued exis tence of the entire fleet and Midwest Generation itself. Mr. McCluskey stated that “[s]huttering Midwest Generation’s plants would have devastating impacts on hundreds of workers and their families, and would drain literally

hundreds of millions of dollar s from the economy.” Pet. at 28; Hrg. Exh. 5 at 10.38

Operational Management Measures

Midwest Generation was asked whether other operational management measures, such as temporarily optimizing existing control systems, could be pursued to reduce emission s further than proposed in the petition during the time of the variance. The company responded that “the company always seeks to optimize existing controls and considers such to be a key component of compliance planning.” Resp. at 16. Midwest Generation asserted, however, that “[o]ther than burning [ultra

- low sulfur coal], which Midwest Generation is already doing, there is no emission control that Midwest Generation can adjust to optimize reduction of SO 2 emissions.” Id . at 16

- 17. Midwest Generation a dded that no other operational management measures could be

undertaken to further reduce SO 2 emissions during the period of the variance beyond what is proposed. Id . at 16.

Ultra

- Low Sulfur Coal

Midwest Generation states that the first component of its SO 2 control program is the use

of ultra

- low sulfur coal, typically containing less than 0.55 lbs sulfur per mmBtu. Midwest Generation has found that combusting ultra

- low sulfur coal is an effective way to reduce SO 2 emissions. Hrg. Exh. 5 at 5.

Mid west Generation is using ultra

- low sulfur coal and asserts that it has not found an alternative supply that would allow it to meet the 2015 and 2016 CPS rates. Hrg. Exh. 5 at 10. The portfolio of fuel supplies for which Midwest Generation contracts varie s as do the sources of

coal and the sulfur content of the coal from the same source. Midwest Generation asserts that it continuously evaluates its coal mix to ensure compliance in the most cost

- effective manner. The

use of ultra

- low sulfur coal is part o f Midwest Generation’s strategy to comply with the CPS

system

- wide SO 2 emission rates, particularly in the early years for units where Trona systems

have not been installed. Midwest Generation states that a s more units in the fleet are fitted with

SO 2 con trols, the need for ultra

- low sulfur coal will decrease.

Under the variance, Midwest Generation plans to continue using ultra

- low sulfur coal on units where Trona systems have not yet been installed, but the percentage will vary depending on

the sulfur content of other coal obtained and actual emissions. Depending on what is needed to ensure compliance with the CPS, Midwest Generation might potentially use ultra

- low sulfur coal on units with Trona systems as well. As for including a requirement to use ultra

- low sulfur coal in the compliance plan, Midwest Generation asserts the varying market conditions and sources do not lend themselves to a tight fuel requirement. However, Midwest Generation commits to

use as much ultra

- low sulfur coal is necessary, in conjunction with the Trona system installations to ensure compliance with the applicable system

- wide SO 2 emission rates. Resp. at 14

- 16.

Dry Sorbent Injection FGD

To meet the requirement for Midwest Generation to install FGD equipment at most of it s coal

- fired units, Midwest Generation selected a combination of ultra

- low sulfur coal and Trona injection FGD as the least expensive yet effective method for SO 2 control. Midwest Generation39

found that this would allow the company to stagger its capital i nvestments over time. Hrg. Exh. 5 at 5; Tr. at 66

- 67.

Midwest Generation explains that Trona is a mineral used in the production of sodium bicarbonate (baking soda). Under the FGD application, Trona is injected into the flue gas upstream of a PM contr ol device, such as an ESP. Trona reacts with acid gases, such as SO 2 , and neutralizes them, forming a dry powder that can be removed by the PM control device. Hrg.

Exh. 5 at 5

- 6.

Consistency with Federal Law

Midwest Generation contends that the prop osed variance “is consistent with

- and even more stringent than

- applicable provisions of the federal Clean Air Act.” Post Br. at 14. The company asserts the Board may grant the requested variance consistent with federal law.

Midwest Generation states that granting the variance would have no impact on Section 110(a) of the Clean Air Act or 40 C.F.R. Part 51. Section 110(a)(2)(D) of the Clean Air Act is currently addressed through CAIR, with which Midwest Generation asserts that it complies and will

co ntinue to do so as long as CAIR is applicable.

Midwest Generation asserts the variance would not negatively impact the Agency’s calculations for the federal BART requirements under Illinois’ SIP for the Regional Haze Rule. Pet. at 50. The Illinois reg ional haze plan addresses Section 169A of the Clean Air Act (42 U.S.C. § 7491) to remedy impairment of visibility in Class I areas such as national parks and wilderness areas. 77 Fed. Reg. 3966. On June 24, 2011, the Agency submitted a revision to the

Il linois SIP addressing regional haze. Pet. at 50, citing 77 Fed. Reg. 3966 (Jan. 26, 2012). Midwest Generation explained that the Agency included portions of the CPS in its submittal to USEPA for approval. These portions include Sections 225.295(b) and 2 25.296(a)(2) from which Midwest Generation requests a variance. USEPA approved Illinois’ submittal as part of the SIP on July 6, 2012, which included those portions of the CPS that establish annual system

- wide SO 2 emissions rates. Pet. at 50

- 52, citing 7 7 Fed. Reg. 3966 (January 26, 2012), 77 Fed. Reg. 39943 (July 6, 2012); Hrg. Exhs. 7, 8.

To demonstrate that the requested variance would not interfere with federal law, Midwest Generation provided a table comparing emission reduction levels under the var iance to the presumptive BART levels and the CPS levels. Hrg. Exh. 9

. 14 Reductions under the variance were calculated based on the proposed variance rate of 0.38 lb/mmBtu in 2015 and 2016 using the same heat input data from the Agency’s SIP submittal to U SEPA and also reflected

reductions associated with the shutdowns of Crawford Units 7 and 8 and Fisk Unit 19. Pet. at 51; Hrg. Exh. 6 at 33; Hrg. Exh. 9. For Midwest Generation’s EGUs subject to BART, reductions under the presumptive BART totaled 31,440 S O 2 tons per year (tpy). Hrg. Exh s . 6, 9. Reductions calculated by the Agency under the CPS totaled 35,465 tpy for 2015; 55,140 tpy for 2017; and 61,194 tpy for CPS Final. Reductions calculated by Midwest Generation under the

14 Midwest Generation notes that emission limits in Exhibit 9 are system

- wide and not intended

to reflect unit

- specific emission rates or mass emission levels. Resp. at 11; Hrg. Exh. 6 at 33.40

proposed variance rate of 0. 38 lb/mmBtu totaled 33,458 tpy in 2015; 60,354 tpy in 2017; and 65,032 tpy in 2019. Hrg. Exh. 9.

For 2015, Midwest Generation notes that although the reductions under the variance rate

of 0.38 lb/mmBtu would be less than those under the CPS rate of 0.2 8 lb/mmBtu for that year, the variance would achieve reductions greater than the presumptive BART reductions. Midwest Generation stresses that “the reductions that can be expected for 2017, the compliance year, and 2019, the final year of the CPS step

- dow ns in SO 2 emission rates, are significantly greater than [the Agency] anticipated when it developed the BART SIP because of Midwest Generation’s

actions to reduce emissions.” Pet. at 51.

Midwest Generation points out that compliance with the limit refle cting BART in the Illinois SIP is due no later than five years after the SIP was approved. As USEPA approved Illinois’ submittal in July 2012, compliance would be required by mid

- 2017, approximately six months after the end of the requested variance perio d. Pet. at 50

- 51, citing 42 U.S.C. § 7491(g)(4) and 40 C.F.R. § 51.308(e)(1)(iv). Midwest Generation asserts that by then, the

company will comply with the CPS 2017 system

- wide annual SO 2 limit of 0.15 lb/mmBtu. Pet.

at 51.

Prior to the BART complia nce date, Midwest Generation states that if the variance were granted, the Agency would need to submit the variance to USEPA as an amendment to Illinois’ BART SIP for approval. The Agency’s submittal would only involve the proposed variance rate

of 0.38 l b/mmBtu in 2015 and 2016, not the mass emissions caps because Illinois’ approach to the BART SIP only involves emission rates. Pet. at 51

- 52.

Mr. McFarlane testified that Midwest Generation is aware of the Agency’s plans to

include CPS reductions in the attainment demonstration for the new SO 2 NAAQS required by 2017. He explained that the proposed compliance plan requires Midwest Generation to be in compliance with the CPS limits that are effective in 2017. Tr. at 37

- 38. Mr. McFarlane added that by re turning to compliance in 2017 and seeking relief only during 2015 and 2016, the variance would impose no hindrance to the State in demonstrating attainment of the NAAQS for

SO 2 , particulate matter, and ozone. Tr. at 26

- 27.

AGENCY RECOMMENDATION

Section 37(a) of the Act requires the Agency to investigate any petitions for variance filed with the Board and to make a recommendation to the Board as to the disposition of the petition. See 415 ILCS 5/37(a) (2010). On January 10, 2013, the Agency filed its

r ecommendation with the Board, stating that the Agency “neither supports nor objects to the Board granting [Midwest Generation’s] Petition as specified in this Recommendation.” Agency

Rec. at 1. 15

15 The Agency states that it received one written comment regarding the variance petition, on behalf of Uhlman Farms of Morton, which supports the variance request. Agency Rec. at 3, citing Agency Rec. Exh. A.41

Agency Investigation of Facts in the Petition

The Agency states that it is unaware of any state enforcement actions against Midwest Generation currently pending before the Board. Agency Rec. at 4. The Agency notes that air permits associated with Midwest Generation’s facilities are set forth in Exhibit 2 of th e company’s variance petition, and incorporates that exhibit by reference into its recommendation.

Id.

The Agency’s investigation of facts alleged in Midwest Generation’s petition included holding discussions with representatives of the company. Agency Rec. at 6. The Agency states that it does not disagree with the petition’s facts, expect as otherwise specified in its

recommendation. Id.

Environmental and Health Impact

The Agency confirms the 2010 locations of the air monitoring stations relative to Midwest Generation’s facilities, as set forth in the petition. Agency Rec. at 6. However, the Agency notes that several monitors and sites included in Midwest Generation’s petition have

been shut down. Id. Those specific shutdowns include an ozone m onitor and site and a PM 2.5 monitor in Lake County, and a SO 2 monitor and site and PM 10 monitor in Will County. Id. The Agency states that the 2011 Illinois Annual Air Quality Report reflects the current locations of the air monitoring stations in Lake, Will, and Tazewell Counties, and attaches pertinent parts of that report as Exhibit C to the recommendation. Id.

The Agency states that “the calculated net environmental benefit is smaller than that calculated for previous variances granted [by the Boar d in Ameren Energy Resources v. IEPA

, PCB 12

- 126 (Sept. 20, 2012) and the Waukegan Order ].” Agency Rec. at 7

- 8. Midwest Generation proposes 3,181 tons of SO 2 reduction in this variance request, compared to the 64,964 and 8,385 tons of SO 2 reductions prop osed in the respective 2012 requests of Ameren Energy Resources (AER) and Midwest Generation. Id. at 8, citing Ameren , PCB 12

- 126, slip op. at 25; Midwest Generation, LLC

- Waukegan Generating Station v. IEPA , PCB 12

- 121, Petition at 21. The Agency conti nues:

As this is [Midwest Generation’s] second variance request in the same year, it would be preferable that a stronger case be made to again amend a voluntary agreement and expend the considerable resources required by numerous parties to

review the mer its of the variance request. Id.

The Agency concedes, however, that the amounts of SO 2 emission reductions set forth by Midwest Generation are consistent with data currently available to the Agency, and that Midwest Generation’s determination showing a “ net environmental benefit in SO 2 emissions over the term

of the variance ” is consistent with the method used in similar prior variance requests. Id.42

Arbitrary or Unreasonable Hardship

The Agency “does not disagree” with Midwest Generation’s position t hat certain Illinois emission reduction requirements are more stringent than those required by other states or under federal rules. Agency Rec. at 13. However, the Agency contends that Midwest Generation was aware of several of these requirements when th e CPS was promulgated and that such provisions “in fact formed the backdrop for negotiations between the [Agency] and power generators.” Id. The Agency states that it is unable to estimate the cost of Midwest Generation’s compliance with the CPS provisio ns at issue based on currently available information and the Agency’s own level of expertise. Id

.

The Agency “does not believe that any injury to the public would result from the granting of the variance.” Agency Rec. at 13. However, the Agency notes the uncertainty associated with the Chapter 11 bankruptcy proceedings entered into by Midwest Generation and EME in December 2012, and believes that, while such proceeding may aid Midwest Generation’s compliance with current regulations, “it could also po tentially hinder [the company’s] ability to comply both with the CPS and with any Board Order issued regarding [the company’s] requested

variance.” Id.

Consistency with Federal Law

The Agency agrees with Midwest Generation that there is currently no fe deral authority that precludes granting this variance request, and that if the request is granted, the Agency will submit the variance order to USEPA for approval as a SIP revision. Agency Rec. at 14. Jim Ross, Manager of the Agency’s Division of Air Pol lution Control, Bureau of Air, testified on whether the variance request would jeopardize the State’s ability to meet its current obligations under the Illinois SIP or regarding NAAQS compliance:

[The Agency] believes that granting the variance request wi ll not jeopardize its current obligations under the Illinois SIP. Current obligations to attain and maintain the NAAQS will not be jeopardized due to the net environmental benefit

over the term of the variance.

[The Agency’s] obligations for the 2010 SO 2 NAAQS will not be jeopardized, since the variance ends December 31st 2016, while the attainment date of the

2010 SO 2 NAAQS is no sooner than July, 2017. The variance will end prior to

the 2010 SO 2 NAAQS attainment date, and, therefore, no impact is expec ted. Tr.

at 136

- 137.

Compliance Plan

The Agency did not suggest variance conditions in any of its filings with the Board. However, Midwest Generation represents that the revised compliance plan in the company’s

post

- hearing brief reflects comments fro m the Agency. Reply B r. at 1.43

Agency Conclusion

The Agency notes that the burden of proof in a variance proceeding is on the petitioner to demonstrate that compliance with the rule or regulation would impose an arbitrary or unreasonable hardship. Agency Rec. at 15. The Agency concludes its recommendation by stating that it “neither supports nor objects to the Board granting [Midwest Generation’s] petition as specified in this Recommendation.” Id.

VERBAL PUBLIC COMMENT AT HEARING

At the January 29, 2013 public hearing in Joliet, Will County, in addition to the testimony and documentary evidence discussed above, verbal public comment was provided from 45

individuals.

Hearing Comments Supporting Variance

The Board received twenty comments at hearing in support of granting the variance petition. See Attachment A

– Hearing Commenters in Support of Midwest Generation’s Requested Variance.

These commenters included Senator Pay McGuire (Tr. at 7) and Representative Larry Walsh, Jr. (Tr. at 9). The Board also received comments from Will County (Tr. at 12), the Illinois Chamber of Commerce (Tr. at 92), and the Joliet Region Chamber of Commerce (Tr. at 97). Other public comments were given by representatives of organizations such as Illinois

AFL

- C IO (Tr. at 15) and the International Brotherhood of Electrical Workers Local 15 (Tr. at 88). Representatives of Midwest Generation and its stations ( See

, e.g. , Tr. at 137, 143) as well as employees ( See

, e.g. , Tr. at 182) provided comments. Organizations in the area ( See

, e.g. , Tr. at 99) as well as businesses that work with Midwest Generation ( See

, e.g. , Tr. at 199) gave support for the granting of Midwest Generation’s request.

A number of commenters stressed their concern for the environment ( See

, e.g

. , Tr. at 10), while praising Midwest Generation’s commitment to meeting environmental emission requirements. See

, e.g. , Tr. at 12, 142. Representative Walsh stressed that the company “has done nothing but reduce emissions at its plants since they bought them.” Tr. at 10. John Kennedy, Senior Vice President for Midwest Generation, discussed how the company is “well ahead of meeting federal standards for nitrogen oxide” and that it has “continued to improve

sulfur dioxide emissions.” Tr. at 138.

Commen ters also focused on the financial hardships currently facing the company. See

, e.g. , Tr. at 8, 10, 89, 187. Commenters stressed the financial contributions made by Midwest Generation in the local communities, whether through charitable contributions (Tr . at 99), or area property taxes ( See

, e.g. , Tr. at 8, 13). Will County Executive Larry Walsh stated that annual salary from wages and benefits at the Joliet and Will County plants is fifty million dollars, while these plants provide $1.7 million in annua l local property taxes. Tr. at 13. Others focused on Midwest Generation’s position as a reliable provider of electricity to the residents of Illinois (Tr. at 106) and its important role in the local communities ( See

, e.g. , Tr. at 141, 190).44

Some comme nters discussed the number of employees impacted by Midwest Generation, whether employed by the company itself or from area businesses that work together with the

company. See

, e.g. , Tr. at 8, 16. Russ Slinkard, representing the Joliet Region Chamber of Commerce and Industry, believes that

[i]f granted, this request will benefit our communities with continued jobs and with dollars that are injected into our economy, and tax revenues for our schools

and services. Tr. at 97

- 98.

Generally, commenters re cited concerns and positions similar to Tom Wolf, representing the Illinois Chamber of Commerce, who stated

[t]he company’s request is straightforward, reasonable and it falls in line with our support for rational regulatory flexibility, while still leavi ng intact the overall goal and timeline established by the Board.

The adjustment will still provide positive benefits for the people of Illinois and predictability for the energy marketplace. Tr. at 92

- 93.

Hearing Comments Opposing Variance

The Boar d received twenty five comments at hearing opposing the variance request. See

Attachment B

- Hearing Commenters Opposing Midwest Generation’s Requested Variance. Environmental groups, including the Citizens Groups, commented against granting the variance

. The Board also heard comments from organizations that are not environmental groups. See

, e.g. , Tr. at 90, 172. Additionally, individuals from throughout Illinois voiced opposition to the variance request.

Citizens Groups. Members of the Environment al Law and Policy Center (Tr. at 144, 148), Natural Resources Defense Council (Tr. at 150), Citizens Against Ruining the Environment (Tr. at 156, 191), Sierra Club (Tr. at 157), and Respiratory Health Association (Tr. at 172) made comments at the Board hea ring.

Faith Bugel, on behalf of Environmental Law and Policy Center, draws similarities between Midwest Generation’s variance request and one granted by the Board in Ameren , PCB

12

- 126 (Sept. 20, 2012). Tr. at 144

- 145. Ms. Bugel believes that Midwest G eneration is unable to present the Board with any assurances that it will continue to operate its plants even if the variance is granted, in part because of financial and bankruptcy concerns. Id. at 145

- 146. Ms. Bugel also disagrees with Midwest Generation ’s environmental benefit assessment, stating

if we look at the CPS base case the tons of emissions for 2013 are claimed to be 65,341 tons. And this is based on a 2008 to 2011 average. If we look at 2011 actuals, . . . actuals in 2011 were 56,395 tons . . . which makes the real environmental benefit disappear. Tr. at 147

- 148, referring to Hearing Exh. 12.45

Andrew Armstrong, on behalf of Environmental Law and Policy Center, focused on what he described as Midwest Generation’s “refusal to provide a legall y sufficient compliance plan.” Tr. at 148. Mr. Armstrong contends that the company’s request for flexibility in its compliance plan is inconsistent with the Board’s variance grant in Ameren , PCB 12

- 126. Id. at 148

- 149. Mr. Armstrong believes Midwest Ge neration’s position is that this flexibility is consistent with the “spirit” of the CPS, but that it is not consistent with the legal requirements of a variance. Id. at 149. Mr. Armstrong contends that Midwest Generation’s request is “an outright amendme nt of the CPS that should be made . . . through a rule making, not a variance proceeding.” Id.

Susie Shutts, on behalf of Natural Resources Defense Council, believes that Midwest Generation should be held to the previously agreed emission standards for t hree reasons. First,

Ms. Shutts states that Midwest Generation’s commitment to reduce SO 2 was part of a larger settlement agreement in 2006 which the company opted into and which it should not now be allowed to avoid. Tr. at 151. Second, Ms. Shutts does not believe that the company has provided adequate assurance that it will comply with its proposed schedule and not seek another

variance in the future. Id. at 152. Ms. Shutts states the difficulty in predicting the outcome of bankruptcy proceedings and the financial situation that Midwest Generation will find itself in.

Id. Third, Ms. Shutts contends there is no reason to believe that decreasing revenues and increasing costs will change to allow the company to fund pollution controls in the future. I d. at
153

- 154.

Sandy Burcenski, a member of Citizens Against Ruining the Environment (CARE), questioned Midwest Generation’s commitment to Will County and changes in the company’s “good faith plans” to implement pollution controls at its facilities. Tr. at 156

- 157. Jennifer McElroy, another member of CARE, voiced concern about a family member suffering from asthma, and believes that communities should be focusing on renewable energy sources. Id. at
191

- 192.

Verena Owen, a volunteer with Sierra Club, d escribed the passing of a friend due to a lung ailment. Tr. at 158. Ms. Owen questioned Midwest Generation’s financial predicament and does not believe that the variance will resolve any of the company’s financial problems. Tr. at

159

- 161.

Brian Urbas zewski, on behalf of Respiratory Health Association, described the relationship between air pollution and health effects such as asthma and heart attacks. Tr. at 172

- 173. Mr. Urbaszewski contends that Midwest Generation has begun dismantling the Crawford Station, causing the plant to be inoperable. Id. at 174. Mr. Urbaszewski believes this inability to run the Crawford Station should be given allowance as a credit for SO 2 emissions avoided. Id. at
175. Mr. Urbaszewski contends that Midwest Generation b enefitted from the CPS agreement and now the company does not “want to invest in cleaner emissions they promised Illinois

residents.” Id.

Other Organizations and Individuals. The Board heard from a number of environmental organizations throughout Illin ois, including Greenpeace (Tr. at 110, 209), Peoria Families Against Toxic Waste (Tr. at 165), and the Illinois Environmental Council (Tr. at 179). Student organizations, including Progressive Student Union (Tr. at 90) and Illinois Student46

Environmental C oalition (Tr. at 195) were represented at the hearing. A number of individuals also described why the Board should deny Midwest Generation’s variance request.

Commenters generally presented sympathy for Midwest Generation’s employees ( See

, e.g. , Tr. at 91) and the company’s own bankruptcy proceeding ( See

, e.g. , Tr. at 104). However, these commenters believed that these were not proper grounds for granting a variance request.

A number of organizations and individuals raised concerns over the health an d environmental effects that granting the variance would cause on surrounding communities and the State in general. ( See

, e.g. , Tr. at 90, 104, 189). Some commenters presented their own struggles with respiratory health problems in requesting that the Bo ard deny the request. See

, e.g. , Tr. at 177, 203, 218.

Some commenters questioned Midwest Generation’s past compliance. See

, e.g. , Tr. at 162. Others challenged Midwest Generation’s business choices in preparing the company’s

environmental commitments. See

, e.g. , Tr. at 110, 166, 168. Mike Johnson, on behalf of Greenpeace, stated that Midwest Generation:

has just not really taken on a lot of those challenges [regarding business choices] in a very forthcoming way and in a way that’s really been in th e best interest of its own employees and the residents that live near the plants. Tr. at 110

- 111.

Tameka Gibson, on behalf of the Illinois Environmental Council, stated that “Midwest Generation voluntarily opted into the combined pollutant standard in 20 07, knowing full well the benefits, risks and obligations that came with that choice.” Tr. at 180. Some commenters also questioned the viability of coal

- fired power plants in general in light of other emerging energy technologies. See

, e.g. , Tr. at 210.

Commenters contended that Midwest Generation’s financial hardships were not

unforeseen. See

, e.g. , Tr. at 166. Commenters also did not believe that granting the variance would remedy Midwest Generation’s economic difficulties. See

, e.g. , Tr. at 164.

Some commenters believe that the Board should await the outcome of Midwest Generation’s bankruptcy proceedings before granting the company a variance. See

, e.g. , Tr. at169, 181.

Concerns were raised regarding Midwest Generation’s compliance plan, with commenters requesting that the Board “deny [the company] any flexibility whatsoever and get a scheduled roll out so that all of the dirty plants are taken care of.” Tr. at 170; see also Tr. at 185. Jerry Mead

- Lucero, on behalf of the Pilsen Environmental Rights and Reform Organization, addressed emission offsets from the closing of the Fisk and Crawford Stations, stating that:

trying to use the offsets that are happening to get that part that has shuttered to basically reduce the requirements who meet s imilar pollution controls on plants in other parts of the state, and that really concerns us. Tr. at 194.47

Mr. Mead

- Lucero does not believe that “reducing pollution on Chicago, should then lead to people in other communities in Illinois having to breathe in those kinds of pollutants.” Id.

WRITTEN PUBLIC COMMENTS

Written Comments Supporting Variance

The Board received 4,201 timely

- filed comments in support of Midwest Generation’s variance request. The Board received an additional 18 comments in suppor t of the request after the public comment deadline. These 18 comments grouped together 855 individual requests that the variance be granted. 16

The Board received ten comments from State congressional representatives in support of

Midwest Generation’s var iance request. These include comments filed by State Representatives Michael Unes, 91st District (PC 4A), Elaine Nekritz, 57th District (PC 6), Lawrence M. Walsh, Jr., 86th District (PC 113), Brandon W. Phelps, 118th District (PC 513), Patrick J. Verschoo re, 72nd District (PC 514), Louis Lang, 16th District (PC 535), and State Senators Terry Link, 30th District (PC 530), Pat McGuire, 43rd District (PC 4515), Mike Jacobs, 36th District (PC 4784 and PC 4785).

The Board also rec eived public comments from th e Mayors of Bol ingbrook (PC 5A), Pekin (PC 518), Joliet (PC 520), Waukegan (PC 4787) and the P resident of the Village of Minooka (PC 90). Comments were submitted by local alderman ( See

, e.g. , PC 5783 through 5788) and government officials ( See

, e.g. , PC 9 0, PC 4516, PC 4786). The Board also received comments from various trade and union organizations ( See

, e.g. , PC 95, PC 4788) and many individuals ( See

, e.g. , PC 4, PC 5125) and businesses ( See

, e.g. , PC 8511, submitted late).

Commenters generally discu ssed the positive economic impact that Midwest Generation has on the state and local economies, whether through its own employees or the companies that it

contracts business with. See

, e.g. , PC 4A. Commenters emphasized Midwest Generation’s

intent to emi t lower emissions from 2013 through 2016 than it would under the CPS, as well as the company’s intent to meet state

- mandated emission targets by the end of 2019. Id.

Commenters also brought up “the issue of fundamental fairness,” stating that the Board recently granted a similar variance in Ameren , PCB 12

- 126 (Sept. 20, 2012), adding that “the major difference is that Midwest Generation’s request is more limited in scope than Ameren’s .”

See

, e.g. , PC 521.

Many individual commenters noted Midwest Gener ation’s impact on local jobs and stated that “[g]ranting the variance can help sustain the positive impact of the company’s operations on local communities and businesses,” while preserving property tax revenues. See

, e.g. , PC 462. As described by State Senator Pat McGuire, 43rd District, the temporary relief sought by Midwest Generation would allow the company the flexibility it needs to achieve “long

- term commitment to meeting air quality regulations,” “reliable supply of electricity to

16 See, e.g. , PC 8517 (100 commenters) and PC 8526 (5 commenters).48

millions of Illi nois households,” “continued employment of hundreds of area residents,” and “payment of valuable property taxes.” PC 4515.

Written Comments Opposing Variance

The Board received 4,301 timely

- filed comments opposing Midwest Generation’s variance request. The Board received an additional six comments opposing the request after the public comment deadline, consisting of 85 individual commenters. 17

Individual commenters generally requested that the Board “[h]old the company to its previous commitment” and c ontended that “a variance doesn’t guarantee jobs or that plants will stay open.” PC 4357. Others requested that the Board deny the variance “[i]n order to reduce dangerous pollution and save lives in Illinois.” PC 3008. Some commenters discussed the ef fect of the emissions from Midwest Generation’s stations on their or their family members’ health.

See

, e.g. , PC 5707, PC 5754.

Commenters also contested Midwest Generation’s compliance plan, stating for example that the company “has provided no clear p lan for how it will stay in compliance with the changes they have asked for,” and that the company “[l]ike Ameren, . . . may well abandon operations in

the near future.” See

, e.g. , PC 4756.

Dynegy Midwest Generation, LLC and Dynegy Kendall Energy, LLC

D ynegy’s involvement in Illinois includes seven power generation facilities, nearly 500

full

- time employees, annual investments of over $200 million in local economies, and the capacity to produce approximately 4,300 megawatts of energy for consumers. PC 1 at 2. Dynegy contends that it directly competes with Midwest Generation in the power generation

markets. Id.

Granting Variance Would Create Unlevel Playing Field. Dynegy contends that Midwest Generation’s argument, that the CPS places it at a compet itive disadvantage relative to

out

- of

- state competitors, ignores the fact that an approved petition would impose a material competitive disadvantage on Midwest Generation’s in

- state competitors who have not been granted similar relief from emission reducti on technology investment obligations. PC 1 at 3

- 4. Dynegy describes this scenario as an unlevel playing field between power generators in Illinois that have made significant financial investments to comply with Illinois environmental regulations, and Mid west Generation who now seeks to avoid those same commitments and

financial investments. Id. at 4. Dynegy argues that the Board would be putting it at a competitive disadvantage if the Board were to allow Dynegy’s competitors to avoid meeting their oblig ations. Id. Dynegy also believes that a grant of Midwest Generation’s petition would “chill the business environment in Illinois by sending mixed and unequal signals to businesses

17 Three of the late

- filed public comments grouped together a number of similar letters from multiple individuals. These include PC 8506 (2 commenters), PC 8507 (4 commenters), and PC 8524 (76 commenters).49

considering similar investments” and that significant capital

- intensive bu siness investments will only continue in a stable regulatory environment. Id. Dynegy believes that granting the variance would impose an arbitrary and unreasonable hardship on Midwest Generation’s competitors in Illinois that have worked in good faith wi th State authorities and made the agreed upon financial investment in pollution controls. Id. Dynegy states that approval of Midwest Generation’s petition would “put Dynegy (and other merchant generators), Dynegy’s employees in Illinois, and Dynegy’s loc al communities in Illinois at risk.” Id. at 5.

Midwest Generation Should Not Be Allowed to Renege on CPS Emission Reduction

Commitments. Dynegy believes the petition should be denied because Midwest Generation negotiated and agreed to the CPS emission reduction requirements it now seeks to avoid. PC 1 at 5. Dynegy further believes that Midwest Generation has benefited from the flexibility that it previously negotiated and that Midwest Generation should not now be able to avoid the 2015 and

2016 CPS SO 2 emission rates because current market conditions and the company’s financial hardships were not foreseen. Id. Dynegy contends that a grant of the variance would delay

environmental and health benefits to the citizens of Illinois and break Midwest Gener ation’s

commitment to emission reductions at its sites. Id. at 5

- 6.

Claimed Reductions for Units Shut Down Due to Market Conditions. Dynegy contends that Midwest Generation’s proposal to not operate the Crawford Station in 2013 and

2014 offers little t o no benefit to Illinois. PC 1 at 6. Dynegy states that Midwest Generation ceased operation of the Crawford Station in August 2012 and that, while Midwest Generation could legally operate those units through the end of 2014, the units are not operating d ue to poor market conditions repeatedly cited in the petition. Id. Dynegy states that any credit given Midwest Generation for reducing emissions from the Crawford Station in 2013 and 2014 “should be tied to the plant’s anticipated operating levels and no t its permitted emission levels or its historic average heat input.” Id.

Citizens Groups

- PC 2

Citizens Against Ruining the Environment, Environmental Law & Policy Center, Natural Resources Defense Council, Respiratory Health Association, and Sierra Cl ub (collectively “Citizens Groups”) collectively filed a public comment objecting to the grant of Midwest Generation’s variance petition.

Midwest Generation Should Be Required To Comply with the Standards It Negotiated, Opted Into, and Benefitted From. The Citizens Groups argue that the CPS Midwest Generation is attempting to avoid was part of a “package deal” negotiated as part of its 2007 CPS agreement, and which Midwest Generation ultimately proposed, agreed to, opted into,

and benefitted from. PC 2 at 3. The Citizens Groups assert that in exchange for more lenient mercury limits, Midwest Generation negotiated its current CPS requirements for SO 2 and NO

x in the 2007 CPS agreement. Id. Having benefitted from the lower mercury limits for years,

Mid west Generation now wants to avoid compliance with the negotiated SO 2 and NO

x limits. Id. Under these conditions, the Citizens Groups argue that granting Midwest Generation’s variance request would thereby constitute a breach of the negotiated CPS agreem ent, undermine the entire settlement and negotiation process, and betray public trust. Id. at 4.50

Midwest Generation Presented No Assurances That It Will be Able to Comply with Schedule Proposed under Variance. The Citizens Groups maintain that it is un likely the financial problems cited by Midwest Generation as the reason for variance will be sufficiently abated to allow new capital investments in 2015 and 2016. PC 2 at 5. The Citizens Groups remind the Board that Midwest Generation predicts that an i ncrease in natural gas and energy costs, coupled with a decrease in coal transportation costs, will help Midwest Generation’s financial situation and enable them to follow their proposed compliance schedule. Id. at 6. However, the Citizens Groups cite U. S. Energy Information Administration data to argue that, contrary to Midwest Generation’s predictions, continued increases in natural gas production will likely not increase energy costs. Id. Additionally, the Citizens Groups argue Midwest

Generation has provided no significant evidence to suggest that its highly

- priced coal transportation contract will be renegotiated to a lower rate. Id. The Citizens Groups also argue that, in light of the variance Midwest Generation was granted just four months prior to its current variance request, the company has made no indication that it will not resort to seeking another

variance in the future. Id. at 6

- 7

Board Should Defer Decision on Variance until Resolution of Midwest Generation’s Bankruptcy Proceeding. The Citizens Groups contend that granting the variance before the bankruptcy proceeding is completed would be premature for various reasons. PC 2 at 7. They argue that bankruptcy status should not be a valid excuse for noncompliance with the

environmental s tandards which Midwest Generation has negotiated and opted into. Id. The Citizens Groups maintain that in a bankruptcy proceeding, a debtor must still comply with applicable state and federal environmental laws. Id. Additionally, the Citizens Groups ur ge the Board to rely on the bankruptcy proceeding to determine the seriousness of Midwest Generation’s financial status, rather than basing its decision on Midwest Generation’s own

financial self

- assessment. Id. at 7

- 8. The Citizens Groups also state tha t the bankruptcy proceeding may result in an ownership change in the units covered by the variance and that it is not possible to determine the new owner’s financial ability to fund pollution control equipment installations until resolution of that proceed ing. Id. at 7. Finally, the Citizens Groups assert that it is traditional in bankruptcy proceedings to stay any actions that may affect or interfere with the debtor’s property. Id. at 8. In this case, the Citizens Groups view the granting of a variance

, which affects Midwest Generation’s capital investments and procurement of pollution control equipment, as a direct interference with Midwest Generation’s property. Id.

Health Professionals

The Board also received 38 separate public comments from heal thcare professionals requesting that the Board deny the variance request. 18 These commenters praised the CPS’ ability to protect human health and the environment and raised concerns over Midwest Generation’s “present effort to weaken the CPS.” PC 5752 at 1. The commenters discussed health and environmental effects caused by SO 2 , NO

x , mercury, and PM 2.5 released by coal

- fired

18 One of these publi c comments, PC 5752, was signed by 44 individuals, some of whom also submitted their own separate public comments.51

power plants. Id. The commenters believe that exposure to these emissions can result in developmental delays in children, respira tory symptoms, reproductive impacts, premature mortality, cardiovascular effects, and acid rain. Id.

The commenters cite a 2010 report by the National Research Council that stated, in 2005

alone :

annual health and related damages from particulate, NO x, and SO 2 cost the public $62 billion . . . . The vast majority ($53 billion) of these costs were due to health damages associated with the transformation of SO 2 into PM 2.5

. PC 5752 at 1

- 2.

The commenters contend that the CPS “is designed to require su bstantial reductions in

the emission rates of SO 2 , NO

x , and mercury” and that these reductions “will allow for substantial gains in the public health of our state and surrounding regions,” particularly areas not meeting federal air quality standards. PC 5 752 at 2. The commenters believe that by maintaining the present CPS emission rate requirements for each of the pollutants, the Board “will ensure that the health improvements behind the spirit of the law remain intact.” Id.

Citizens Groups

- PC 5728

T he Citizens Groups filed post

- hearing comments requesting that the Board deny the variance petition, reiterating earlier concerns and raising new ones. PC 5728. As reasons for denial, the Citizens Groups state that (1) Midwest Generation has not provided a detailed compliance plan; (2) Midwest Generation seeks permanent rather than temporary relief; and (3) the variance would have a negative environmental and health impact.

Compliance Plan. The Citizens Groups argued that Midwest Generation’s proposal lacks a sufficient compliance plan. PC 5728 at 2; Tr. at 148

- 150. Citing previous cases before the Board, the Citizens Groups stated that the Board has maintained that a “firm and adequate” compliance plan is the “essence of a variance.” PC5728 at 2, ci ting Metropolitan Sanitary District of Greater Chicago v. IEPA , PCB 71

- 183, slip op. at 3

- 38 to 3

- 59 (Nov. 11, 1971). 19
The Citizens Groups also recap variance requests that were denied by the Board because they lacked detailed compliance plans. In compa rison, the Citizens Groups referred to the conditions assigned to the variance granted in PCB 12

- 126 for AER where the Board found AER’s compliance plan must include “specific dates to demonstrate progress toward achieving compliance with the applicable re quirements.” PC 5728 at 3

- 4, citing Ameren , PCB 12

- 126, slip op. at 66 (Sept

. 20, 2012). The Citizens Groups asserted the compliance plan in Midwest Generation’s petition does not provide the level of detail equivalent to that required of AER in

PCB 12

- 1 26. Given the uncertainty surrounding Midwest Generation’s fleet under bankruptcy, the Citizens Groups argued that a detailed compliance plan is particularly necessary. PC5728 at

19 The full excerpt reads: “The essence of a variance, as we have pointed out before (e.g., Swords

v. EPA , #70

- 6, Sept. 2, 1970; Mt. Carmel P ublic Utility Co. v. EPA , #71

- 15, April 14, is a firm and adequate program for achieving compliance with the regulations in the shortest practicable

time.” Metropolitan Sanitary District , PCB 71

- 183, slip op. at 3

- 58 to 3

- 59.52

4

- 6. The Citizens Groups argued that because Midwest Generation is seeking relief from the CPS, the company’s contention that it should continue to be afforded the flexibility offered by

the CPS is without merit. PC5728 at 4.

The Citizens Groups assert that Midwest Generation’s plans to meet the proposed 2015

and 2016 mass e mission limits at the proposed rate of 0.38 lbs/mmBtu are unclear. The Citizens Groups assert that “[t]his heat input reduction [of about 65 million mmBtu from 2013 levels] would be the equivalent of closing a quarter of [Midwest Generation’s] fleet.” PC 5728 at 5, referring to Hrg. Exh. 10.

In looking at options under the bankruptcy, the Citizens Groups suggested a sale of assets could provide new capital that could be used to install pollution controls on the schedule required by the CPS. The Citize ns Groups cited to a statement by Midwest Generation’s President Doug McFarlan in a publication: “As we look to restructure our debt, selling assets is always an option.” PC 5728 at 6, Exh. A, citing “Midwest Generation Ponders Retrofit vs. Retire Decisi on for Four Illinois Merchant Generators,” Industrial Info Resources (Oct. 2, 2012). PC 5728 at 5

- 6.

Permanent Relief. The Citizens Groups argued that Midwest Generation’s petition for variance should be denied because it seeks permanent rather than te mporary relief. The Citizens Groups stated that with the variance, Midwest Generation would never comply with the annual emission rates for which it sought a variance, but rather the 2015 and 2016 CPS rates would be replaced completely by the alternative emission rates under the variance before Midwest Generation would resume compliance with the 2017 CPS rates. The Citizens Groups argue that this would be permanent, not temporary relief and cannot be accomplished through a variance proceeding. The Citi zens Groups cite a prior Board decision in which the Board denied a request for variance because the petitioners did not plan to comply with the regulation from which they sought a variance, but rather replace the requirements completely by the proposed

va riance. The Board found that the “request is not a variance as contemplated either in the Act or by the case law implementing Title IX of the Act (415 ILCS 5/35

- 38.)” PC 5728 at 7

- 8, citing Ameren Energy Generating Co., Ameren Energy Resources Generating Co, and Electric Energy,

Inc. v. IEPA , PCB 09

- 21 (Jan. 22, 2009).

Although Midwest Generation offered to comply with the 2015 and 2016 CPS rates for two weeks each in January 2017, the Citizens Groups argue that the CPS requires annual average

emissio ns rates. The Citizens Groups reasoned that using three different annual average emission rates in one calendar year would render the CPS 2015 and 2016 rates meaningless. Instead of a variance, the Citizens Groups suggested that Midwest Generation should pursue permanent regulatory relief. PC 5728 at 8.

Negative Health and Environmental Impact. The Citizens Groups assert that the proposed variance would actually have a negative environmental impact. The Citizens Groups state that “[t]he variance woul d allow [Midwest Generation] to actually increase its SO 2 emissions in the short term, and to continue to cause and contribute to existing State air quality problems.” PC 5728 at 9. While Midwest Generation used an average annual heat input based

on the years 2008

- 2011 to calculate an environmental benefit, the Citizens Groups stated that53

Midwest Generation’s calculations are unreasonable because they exclude emissions from the year 2012. The Citizens Groups note that the Fisk and Crawford plants did not operate the full year in 2012, and should not be expected to operate in 2013 or thereafter or be regarded as providing any environmental benefit for not operating. The Citizens Groups provided photos showing the stack being dismantled at the Crawford pla nt and argued that Midwest Generation cannot claim that the plant can be legally operated. PC 5728 at 11

- 12.

The Citizens Groups state that the 2012 SO 2 emissions of 56,395 tons are less than the 57,000 tons that would be allowed in 2013 under the vari ance. PC 5728 at 10

- 11, citing Pet. Exh. 3 at 5. The Citizens Groups make this point in response to Midwest Generation’s statement that “[i]n no year during the term of the variance would emissions increase over the previous year...” PC 5728 at 13, citing Pet. at 13. The Citizens Groups argue that by excluding 2012,

Midwest Generation has inflated its base case “to show an artificial decrease in SO 2 emissions

under the variance.” PC 5728 at 10

- 11.

To demonstrate a negative environmental impact, the Ci tizens Groups compared Midwest Generation’s 2013 and 2014 mass emission limits proposed under the variance to the mass emissions from 2012 instead of using the average annual heat input from 2008

- 2011 that

Midwest Generation used to calculated the baseline CPS emissions for those years. PC 5728 at

10

- 11. The Citizens Groups stated,

When measured against 2012 SO 2 emissions of 56,395 tons, [Midwest Generation’s] proposed 2013 and 2014 mass emission limits lead to a combined reduction of only 1,795 tons ov er 2013 and 2014. This is far less than the 12,047

additional tons of SO 2 that [Midwest Generation] itself calculates would be emitted during 2015 and 2016. Thus, the variance would have a negative environmental impact. PC 5728 at 12.

The Citizens Grou ps found that Midwest Generation’s testimony of Dr. Fraiser “inappropriately minimized the legal requirement for the NAAQS to protect vulnerable populations.” PC 5728 at 16. The Citizens Groups state the NAAQS is designed to protect the

health of sensiti ve subpopulations as well as the general population. PC 5728 at 16.

The Citizens Groups also argue that Midwest Generation did not address the effects of

PM 2.5 as a by

- product of SO 2 emissions in the atmosphere. The Citizens Groups cite to a 2005

stud y attributing 50% of the PM 2.5 formation in central Illinois to sulfur or SO 2 . The Citizens Groups also cite to a 2009 USEPA assessment linking short

- and long

- term exposures to PM 2.5 with cardiovascular events ( e.g. , heart attacks) and mortality in a cau sal relationship and with respiratory illness ( e.g. , asthma attacks and chronic obstructive pulmonary disease (COPD) episodes) in a likely causal relationship. PC5728 at 13

- 15. According to the Citizens Groups, another study shows that “[e]ven increme ntal increases in PM 2.5 can result in additional asthma attacks, missed school and work days, and avoidable [emergency room] visits.” PC 5728 at 15.

Looking to the new primary one

- hour SO 2 NAAQS, the Citizens Groups asserted that the

Board “should not grant the variance because it would increase the risk of SO 2 harming public health when public health is being harmed as a result of ongoing violations of the SO 2 one

- hour54

NAAQS.” PC 5728 at 14. The Citizens Groups state that the CPS requirements were de veloped under an older, less stringent SO 2 air quality standard, consequently allowing Midwest Generation to average SO 2 reductions over large air quality regions. Under the new 1

- hour SO 2 standard, the Citizens Groups allege there are also new public hea lth concerns over air quality where Midwest Generation’s Powerton and Will County facilities are located. Based on the Agency’s 2011 Annual Air Quality Report, the Citizens Groups state that SO 2 monitoring data

indicated violations of the one

- hour SO 2 NAA QS in Pekin and Lemont. Id . at 18.

The Citizens Groups filed a copy of the Agency’s “Technical Support Document: Recommended Nonattainment Designations in Illinois for the 2010 Revised Primary 1

- Hour SO2 National Ambient Air Quality Standard” dated Ju ne 2, 2011. PC5728 Exh. F. In the document, the Citizens Groups note that the Agency identified Midwest Generation’s Will County and Powerton plants among the likely sources contributing to the violations in the vicinity of Pekin and Lemont, and that the Agency proposed that townships in proximity to Pekin and Lemont be designated as nonattainment with the new 1

- hour SO 2 NAAQS. PC 5728 at 19.

The Citizens Groups also filed a copy of USEPA’s response to the Agency’s

recommendation for SO 2 designations un der the new 1

- hour standard dated February 6, 2013. PC5728 Exh. G. The Citizens Groups noted that USEPA also identified Midwest Generation’s Will County and Powerton plants among the likely sources contributing to the violations in the vicinity of Pekin and Lemont. PC 5728 at 19.

Referring to facility

- specific modeling of the emissions from Midwest Generation, the Citizens Groups requested “IPCB to incorporate Sierra Club’s Complaint [in PCB 13

- 27 Sierra

Club v. Midwest Generation ] and the attachments t o its Complaint into the record of this variance proceeding...” PC 5728 at 21.

The Citizens Groups conclude that the Board “should not grant a variance based on new evidence that public health is already being harmed as a result of ongoing violations of federal air quality standards to which Midwest Generation is a prime contributor.” PC 5728 at 17.

Midwest Generation’s Reply to Citizens’ Groups PC 5728

The hearing officer’s order on post

- hearing briefing allowed for opening and reply briefs

from M idwest Generation and a response brief from the Agency. The Agency did not file a brief in response to Midwest Generation’s opening brief. Midwest Generation did, however, file a brief in reply to the post

- hearing public comment of the Citizens Groups (P C 5728). Midwest Generation states that its opening brief included “an enhanced compliance plan

, ” which was presented to the Agency, whose “comments were incorporated prior to submittal to the Board.” Reply Br. at 1. Midwest Generation states that PC 57 28 was served on the company only after its opening brief was filed. Further, according to Midwest Generation, PC 5728 includes “new arguments raised for the first time” and warrants “a brief reply to avoid any confusion.” Id . The

Board has not received any objections to Midwest Generation’s reply. The Board allows the filing in the interests of having more fully developed arguments to consider.55

Temporary Relief. Midwest Generation contends that the Citizens Groups are describing the company’s reques ted relief as permanent relief from the CPS because Midwest Generation did not request that the 2015 and 2016 system rates go into effect in 2017 or after. Reply Br. at 2. Midwest Generation argues that its requested relief, however, is consistent with

t he variance granted by the Board in Ameren , PCB 12

- 126 (Sept. 20, 2012). Id. The company argues that, in that case, the Board granted relief to A ER by subsuming an interim rate with a more stringent end rate at the end of the term of the variance. 20 Id. at 3. Midwest Generation contends that the Citizens Groups ignore the Board decision in Ameren , PCB 12

- 126 (Sept. 20, 2012) to instead focus on an older Board decision, Ameren , PCB 09

- 21 (Jan. 22, 2009). Reply

Br. at 3. Midwest Generation describes the Board’s decision in that case as denying the relief on the grounds that A ER sought permanent relief from a standard. Id

.

Midwest Generation further describes the Citizens Groups’ position as “an illogical result.” Reply Br. at 4. Midwest Generation be lieves that it selected “the most stringent” compliance option by requesting to come into compliance with CPS rates beginning immediately after the period of the variance n 2017. Id. Midwest Generation describes the Citizens Groups’ position as “the leas t stringent approach,” i.e. , to impose the 2015 and 2016 rates for one full year each after the period of the variance. Id. The company describes this position as applying the 2015 rate in 2017 and the 2016 rate in 2018, which in turn would shift the 201 7 and 2018 rates to 2019 and 2020, respectively, and deferring the 2019 rate until 2021. Id. Midwest Generation contends that the Citizens Groups’ “interpretation of ‘temporary’” would take the longest period of time for the company to return to complian ce with CPS rates, which the company contends is “illogical and inconsistent with Board requirements.” Id.

“ Enhanced ” Compliance Plan

. Midwest Generation acknowledges the Citizens Groups’ criticism of the company’s original compliance plan proposed in the petition. Reply Br. at 4. However, Midwest Generation notes that it has since proposed additions to the plan in response to Board questions on January 18, 2013, and claims to have “ enhanced ” the compliance plan in the company’s post

- hearing brief. I d. at 5. Midwest Generation states that this amended compliance plan was reviewed with the Agency and incorporated the Agency’s comments. Id.

The company addresses two points raised by the Citizens Groups in their public comment. First, Midwest Gener ation describes the Citizens Groups’ comment as stating that the company does not explain how it will be able to achieve the 2015 and 2016 proposed mass emission limits in light of the substantial requisite reduction in annual heat input. Reply Br. at 5. Midwest Generation believes that it adequately explained that the company would meet these limits by undertaking one or more of the following actions: over

- comply with the emission rate, curtail generation, or shut down units. Id.

20 In Ameren , PCB 12

- 126 (S ept. 20, 2012), A ER sought system

- wide relief for its 21 EGUs

from two standards: a 0.25 lb/mmBtu SO 2 rate that applies in 2015 and 2016; and a 0.23

lb/mmBtu SO 2 rate that applies in 2017 and thereafter. Ameren , PCB 12

- 126, slip op. at 7 (Sept. 20, 2012) . A ER proposed to come into compliance with the 0.25 rate beginning January 1, 2020, and with the 0.23 rate beginning January 15, 2020. The Board ultimately granted relief from both rates through December 31, 2019, and ordered that A ER comply with the mo re stringent

SO 2 rate of 0.23 beginning January 1, 2020. Reply Br. at 2

- 3.56

Second, Midwest Gener ation notes the Citizens Groups’ speculation that the plants may be sold to new owners that can afford to install pollution controls on the required CPS schedule. Reply Br. at 5. However, Midwest Generation contends that this approach is grounded in

spec ulation and only relates to one possible future scenario. Id. at 5

- 6. The company states that

there is no time for this “wait

- and

- see” approach because, absent a variance, it must begin making “irrevocable decisions” initiating control work and expenditu res necessary to comply with the 2015 and 2016 CPS rates by April, 2013. Id.

Not Adversely Impact ing Human Health or the Environment. Midwest Generation contends that, while the Citizens Groups’ assail the company’s “ net environmental benefit ”

calculat ion, the Agency has stated that these calculated credits are “quantifiable and creditable.” Reply Br. at 6, citing Agency Rec. at 8. Midwest Generation also cites the Agency’s position that the company’s calculation of “‘ net environmental benefit in SO 2 emissions over the term of the variance is consistent with the method utilized in similar previous variance requests. ’ ” Reply

Br. at 6

- 7 , quoting Agency Rec. at 8

.

Midwest Generation next contends that the Citizens Groups incorrectly criticize the

hea ring testimony of Dr. Fraiser and notes that the Citizens Groups “offer no expert of their own.” Reply Br. at 7. The company believes that the Citizens Groups’ assertion that Dr. Fraiser focuses solely on SO 2 emissions while ignoring fine particulate mat ter is misplaced. Id. Midwest Generation quotes Dr. Fraiser’s testimony that “the fact that a power plant . . . emits sulfur dioxide, does not necessarily mean that adverse health effects will occur,” and that with a

net decrease in SO 2 emissions would also come a corresponding net health benefit, if you assume that the emissions from the plant are capable of causing health effects in the first place . . . . [T]he variance will also result in reductions in emissions of a variety of other air pollutants as well . . . [which] would be expected to result in the avoidance of potential health effects, in addition to the

sulfur dioxide reductions. Id.

, citing Tr. at 121, 124

- 125.

Midwest Generation states that these “other air pollutants” include particulate matter reductions, and notes that the Agency did not dispute Dr. Fraiser’s conclusions. Reply Br. at 7.

Midwest Generation addresses the Citizens Groups’ assertion that “all of [Midwest Generation’s] facilities contribute to non

- attainment of the 1

- hr NAAQS in the regions in which they operate.” Reply Br. at 7, citing PC 5728 at 20. Midwest Generation notes that the Citizens Groups incorporate into this proceeding the allegations they have raised in a separate proceeding

before the Board which has bee n stayed. Reply Br. at 7. Midwest Generation does not believe that this variance proceeding is “the proper time [or] place to answer the erroneous allegations in

another matter.” Id. at 8. However, the company asserts that the Citizens Groups’ allegati ons “are just assertions . . . . They are untested at this point, and they do not establish anything but the [Citizens Groups’] views.” Id. Midwest Generation also believes that these assertions are inconsistent with the Agency’s testimony in this procee ding. Id.

, citing Tr. at 136

- 137.57

BOARD DISCUSSION

“To the extent consistent with applicable provisions of . . . the Clean Air Act as amended in 1977 . . . and regulations pursuant thereto,” the Act authorizes the Board to “grant individual

variances beyond the limitations prescribed in this Act, whenever it is found, upon presentation of adequate proof, that compliance with any rule, regulation, requirement or order of the Board

would impose an arbitrary or unreasonable hardship.” 415 ILCS 5/35, 35( a) (2010). “In granting a variance the Board may impose such conditions as the policies of this Act may require.” 415 ILCS 5/36(a) (2010). Any variance granted:

shall be granted for such period of time, not exceeding five years, as shall be specified b y the Board at the time of the grant of such variance, and upon the condition that the person who receives such variance shall make such periodic progress reports as the Board shall specify. 415 ILCS 5/36(b) (2010).

This part of the opinion has th e following main sections: (1) the scope of, and threshold issues with, Midwest Generation’s requested variance; (2) compliance alternatives; (3) the hardship to Midwest Generation from denying requested variance; (4) the environmental impact of granting requested variance; (5) weighing Midwest Generation’s hardship from a variance denial against the environmental impact from a variance grant; (6) whether the variance can be granted consistent with federal law; and (7) c onditions of the variance, including the sufficiency of Midwest Generation’s revised compliance plan.

Requested Variance’s Scope and Threshold Issues

Relief from CPS and Waukegan Order

Midwest Generation requests a variance from two regulations and one Board order. Specifically, Midwest Generation seeks relief from the CPS requirements to comply with the CPS group average annual SO 2 emission rate in 2015 and 2016 (35 Ill. Adm. Code 225.295(b)) and to install FGD equipment on or permanently shut down Waukegan Unit 8 by December 31, 2014 (3 5 Ill. Adm. Code 225.296(a)(2)). Midwest Generation asks that the relief from Section 225.295(b) last from January 1, 2015 through December 31, 2016, and that the relief from Section 225.296(a)(2) last from January 1, 2015 through May 31, 2015. Additiona lly, Midwest Generation seeks relief from a condition of a variance granted by the Board on August 23, 2012,

in PCB 12

- 121, i.e. , Condition 1(a) of the Waukegan Order , which requires compliance with the Section 225.295(b) emission rates during the term of that variance.

No Relief Necessary from Waukegan Order

Midwest Generation requests that the Board grant a variance from Condition 1(a) of the Waukegan Order , adjust Condition 1(a), or find that the variance requested here supersedes Condition 1(a). P et. at 1

- 2. Condition 1(a) of the Waukegan Order requires that “[d]uring the period of the variance,” Midwest Generation “comply with the system

- wide SO 2 emissions rate set forth in Section 225.295(b).” Waukegan Order , slip op. at 20. The period of the variance granted in the Waukegan Order is “December 31, 2013 until December 31, 2014.” Id . As58

Midwest Generation presently seeks no relief from Section 225.295(b) of the CPS for 2013 or 2014, the Board finds that there is no need to grant a variance from or modify Condition 1(a) of

the Waukegan Order . The Board therefore denies as unnecessary this portion of Midwest Generation’s petition for variance relief.

CPS “Agreement”

The Citizens Groups raised concern over Midwest Generation’s “agreement” to abide by the CPS, suggesting that the company cannot now “breach the agreement

. ” PC 2 at 4 (“[t]he final CPS . . . represented a laboriously

- negotiated agreement among diverse parties”) ; see also PC 1 at 2, 5 (Dynegy argued that the Board “should not now reopen Midwest Gen’s negotiated agreement” or allow Midwest Generation to “renege” on its CPS commitments) . The Board recently ruled on a similar issue with respect to AER and the MPS in Ameren , PCB 12

- 126 (Sept. 20, 2012). There, the Board found that th e MPS is a rule and that the Act authorizes the Board to grant variances from rules. See Ameren , PCB 12

- 126, slip op. at 48. The same analysis applies to the CPS, from which Midwest Generation has received a variance. See Waukegan Order , slip op. at 20

- 21.

Relief from “Interim” Emission Rates of Section 225.295(b)

Section 225.295(b) reads as follows:

Emissions Standards for SO 2 . Beginning in calendar year 2013 and continuing in each calendar year thereafter, the CPS group must comply with the applic able CPS group average annual SO 2 emissions rate listed as follows:

year lbs/mmBtu

2013 0.44

2014 0.41

2015 0.28

2016 0.195

2017 0.15

2018 0.13

2019 0.11

35 Ill. Adm. Code 225.295(b).

Section 225 .295(b) therefore requires that CPS group average SO 2 emission rates decline over time in annual increments from 2013 through 2019. Midwest Generation’s proposed variance would adjust these average annual SO 2 emission rates during 2015 and 2016, requiring that the company return to compliance in 2017.

The Citizens Groups argue that the requested relief would provide permanent relief from the CPS because Midwest Generation does not propose any time period during which the 2015

and 2016 SO 2 system

- wide ra tes would ever be in effect. PC 5728 at 7

- 8. Instead of a variance,59

the Citizens Groups suggest that Midwest Generation should pursue permanent regulatory relief. The Citizens Groups cite a prior Board decision in which the Board denied a request for

va riance, Ameren Energy Generating , PCB 09

- 21 (Jan. 22, 2009). The Board found that petitioners did not plan to comply with the regulation from which they sought relief, but rather replace the requirements of the regulation completely with the proposed vari ance. The Board ruled that the “request is not a variance as contemplated either in the Act or by the case law implementing Title IX of the Act (415 ILCS 5/35

- 38.)” PC 5728 at 7

- 8, quoting Ameren Energy Generating , PCB 09

- 21, slip op. at 15.

Midwest G eneration suggests, in the alternative, that it could comply with the interim CPS 2015 and 2016 annual emission rates for two weeks each during January 2017. Pet. at 53, n.36. The Citizens Groups state, however, that the CPS requires annual average emiss ion rates and that compliance is based on annual emissions data. If Midwest Generation were to be subject to three different annual average emission rates in one calendar year, the Citizens Groups argue that the CPS 2015 and 2016 annual emission rates wou ld be rendered meaningless. PC 5728 at 8, n.2.

Midwest Generation replies by citing a more recent Board decision, Ameren , PCB 12

- 126 (Sept. 20, 2012), in which the Board determined that a separate period for compliance with an interim regulatory emission rate before compliance with the more stringent regulatory rate at the end of the variance was unnecessary. Reply Br. at 2. Nonetheless, Midwest Generation, in its revised compliance plan, proposes the option of staggering dates for compliance with Secti on 225.295(b), if the Board believes that the CPS emission rates for 2015 and 2016 must be in effect for some period of time. If so, instead of immediate compliance with the CPS rate of 0.15 lb/mmBtu on January 1, 2017, Midwest Generation would comply wit h the CPS system

- wide

annual SO 2 emission rates on the following schedule:

Jan. 1

- 15, 2017 0.28 lb/mmBtu

Jan. 16

- 31, 2017 0.195 lb/mmBtu

Feb. 1

– Dec. 31, 2017 0.15 lb/mmBtu

Pet. at 53; Post Br. Exh. A at 3; Post Br. Exh. B at 3.

Midwest Generati on maintains that if compliance with the CPS interim annual rates were required for a full year at the end of 2016, such that the 2015 rate would apply in 2017 and the 2016 rate would apply in 2018 and so on, the 2019 rate would be deferred until 2021. Mi dwest

Generation characterizes this as the least stringent approach. Instead, Midwest Generation states that the petition relies upon the most stringent option by proposing the quickest return to the applicable CPS rates following the variance period ( i.e

. , apply 2017 CPS rate as of Jan. 1, 2017). Reply Br. at 3

- 4.

The Board finds that Midwest Generation’s proposed variance is in accord with the Board’s most recent precedent on variance relief from so

- called “interim” emission rates. In

Ameren , PCB 12

- 126 (Sept. 20, 2012), AER sought variance relief from two provisions of the

Multi

- Pollutant Standards (MPS). The first MPS provision was Section 225.233(e)(3)(C)(iii), the only requirement of which is that AER meet an overall SO 2 annual emission rate of 0 .2560

lb/mmBtu in 2015 and 2016

. See 35 Ill. Adm. Code 225.233(e)(3)(C)(iii). The second MPS provision was Section 225.233(e)(3)(C)(iv), the only requirement of which is that AER meet an

overall SO 2 annual emission rate of 0.23 lb/mmBtu in 2017 and thereaf ter

. See 35 Ill. Adm. Code 225.233(e)(3)(C)(iv).

AER did not seek variance relief from MPS Section 225.233(e)(3)(C)(ii), the only requirement of which is that AER meet an overall SO 2 annual emission rate of 0.43 lb/mmBtu in

2014

. See 35 Ill. Adm. Code 225.233(e)(3)(C)(ii). Under these MPS provisions, the 0.25 lb/mmBtu rate applies in the “interim” ( i.e. , 2015 and 2016) between the 0.43 lb/mmBtu rate ( i.e. , 2014) and the 0.23 lb/mmBtu rate ( i.e. , 2017 and thereafter).

The Board granted AER vari ance relief from the 0.25 and 0.23 lb/mmBtu rates, subject to conditions. Specifically, conditions of the variance require AER to comply with an overall SO 2 annual emission rate of 0.35 lb/mmBtu from 2013 through 2019 ( i.e. , a step

- down from the 2014

MPS rate), and an overall SO 2 annual emission rate of 0.23 lb/mmBtu ( i.e. , the 2017 MPS rate) in 2020 and thereafter. Accordingly, the Board granted the variance despite the fact that the 2015 and 2016 emission rate of 0.25 lb/mmBtu in Section 225.233(e)(3)(C )(iii) is never applied to AER. The Board did not find it necessary in Ameren , PCB 12

- 126, that the interim emission rate of 0.25 lb/mmBtu be applicable for some period of time after the variance ( i.e. , in 2020), which would only have delayed requiring AE R to meet the more stringent MPS rate of 0.23 lb/mmBtu in Section 225.233(e)(3)(C)(iv).

Likewise here, the Section 225.295(b) emission rates for 2015 ( i.e. , 0.28 lb/mmBtu) and 2016 ( i.e. , 0.195 lb/mmBtu) would not be applied to Midwest Generation under the variance petition. However, Midwest Generation seeks no relief from the Section 225.295(b) emission rate for 2013 ( i.e. , 0.44 lb/mmBtu) or 2014 ( i.e. , 0.41 lb/mmBtu). The proposed variance rate of 0.38 lb/mmBtu would apply to Midwest Generation in 2 015 and 2016 and is more stringent than ( i.e. , is a step

- down from) the CPS rates for 2013 and 2014. In 2017, Midwest Generation would have to comply with the Section 225.295(b) emission rate for 2017 ( i.e. , 0.15 lb/mmBtu).

The Board finds that Midwest Generation’s proposed approach would reduce SO 2 emissions over time and provide only temporary relief from CPS emission rates, as the Board in

Ameren , PCB 12

- 126 granted a variance that would reduce SO 2 emissions over time and provide only temporary relie f from MPS emission rates. Further, requiring an annual rate of 0.15 in 2017 is more stringent than requiring 0.28 in 2017 and 0.195 in 2018, and not requiring 0.15 until

2019.

Alternatives Considered for Timely Compliance with CPS

The Board’s procedura l rules require that a variance petition describe “the efforts that would be necessary for the petitioner to achieve immediate compliance with the regulation, requirement, or Board order at issue,” including costs and availability of alternate methods of

c ompliance and “the comparative factors leading to the selection of the control program proposed for compliance.” 35 Ill. Adm. Code 104.204(d).61

Midwest Generation plans to comply with CPS SO 2 emission rates in 2013 and 2014, and in 2017 and thereafter, by firing ultra

- low sulfur coal throughout its operating coal

- fired fleet and installing Trona injection systems for flue gas desulfurization at some units. Hrg. Exh. 5. Trona installation has begun at Powerton Unit 6, the complete installation of which, when combined with using ultra

- low sulfur coal, is expected to result in compliance with 2013 and 2014 CPS

SO 2 emission rates. Midwest Generation anticipates incurring about $230 million in 2013 and

2014 on Trona and related ESP controls at Powerton Unit 6 and Waukegan Unit 7, and continued engineering and procurement of long lead material for controls on other units.

However, for the company’s fleet to comply with CPS SO 2 emission rates in 2015 and 2016 without dramatically curtailing generation, ano ther roughly $210 million would need to be incurred in 2013 and 2014 for Trona installation and related ESP upgrades at several additional units, likely including Powerton Unit 5, Waukegan Unit 8, and Joliet Unit 7 or 8. Midwest

Generation seeks additiona l time to perform this further control work through the variance petition.

Midwest Generation considered numerous ways to try to comply with CPS SO 2 emission rates in 2015 and 2016, but none were considered viable. Pet. at 27

- 28; Hrg. Exh. 5 at 5

- 6, 9

- 10; Resp. at 14

- 16. First, installing other forms of dry scrubbing, which requires adding baghouses, would cost at least three times more than Trona and take longer to implement, at least 2.5 years to design and install. Second, wet scrubbers would cost more, take longer to install, and not be an appropriate control technology for the coal that Midwest Generation is under contract to buy. Third, converting one or more units to natural gas would not be economically viable because

none of the coal

- fired s tations, except Crawford and Fisk, has a sufficient natural gas supply and none of the units, if converted, would be economically competitive with either natural gas turbines or comparable coal

- fired boilers.

Fourth, curtailing generation at the coal

- f ired units that would not have Trona injection systems in 2015 and 2016 ( i.e. , all but Powerton Unit 6 and Waukegan Unit 7) would require drastic curtailment (about 75% in 2016) and put the company at serious risk given the corresponding extreme reduction in revenue. Fifth, Midwest Generation is using ultra

- low sulfur coal and has not identified an alternate coal supply that would enable the company to meet the

2015 and 2016 CPS SO 2 rates without installing Trona on additional units. Moreover, installing

F GD equipment, such as Trona, is eventually required by the CPS absent permanent shut down.

See 35 Ill. Adm. Code 225.296(a), (b). Sixth, when asked by the Board, Midwest Generation confirmed that there are no operational measures not already being undert aken to optimize SO 2 emission reductions.

Seventh and finally, the Citizens Groups quote Midwest Generat ion’s President, Doug McFarlan, from a publication: “As we look to restructure our debt, selling assets is always an option.” PC 5728 at 6, Ex h. A, citing “Midwest Generation Ponders Retrofit vs. Retire Decision for Four Illinois Merchant Generators,” Industrial Info Resources (Oct. 2, 2012). The Citizens Groups suggest that in bankruptcy, a sale of assets could provide new capital that in turn could be used to install pollution controls. PC 5728 at 5

- 6. Midwest Generation replies that such an approach is only speculative, but what is certain is that the company must begin making irrevocable decisions by about April 2013 to initiate work and i ncur expenses necessary to meet62

the CPS. Midwest Generation maintains that “[t]here simply is no more time to wait.” Reply Br.

at 6.

The Board finds that Midwest Generation has adequately addressed alternatives for complying with the current CPS requir ements. On this record, the Board agrees with Midwest Generation that none of these alternatives presents a feasible means for the company to comply

with CPS SO 2 emission rates in 2015 and 2016. Midwest Generation’s proposes Trona FGD installations, ESP upgrades, and ultra

- low sulfur coal usage to allow the company to stagger its capital investments over time in the face of the deterioration of its financial condition and the electricity market, as discussed below. Were the Board to delay its decision on this variance petition to see if asset sales unfold in the bankruptcy proceeding, the Board would fail to meet its statutory decision deadline, which would result in the requested variance being issued by operation of law for one year. See 415 ILCS 5/38( a) (2010).

Hardship to Midwest Generation from Denying Variance

Midwest Generation claims that it needs more time to secure financing for the roughly $210 million in costs for work necessary to comply with CPS SO 2 emission rates and control requirements . Midwest Generation explains that it faces significant cash flow loss due to unexpected and significantly declining energy prices (fallen 45% between 2008 & 2012) and capacity revenues (fallen 85 % in 2013 from 2010 & 2011 ). Midwest Generation had a net income of $87 million during the first three quarters of 2011, but a net loss of $63 million for that period in 2012, hindering the company’s ability to secure financing. This financial condition has been exacerbated by higher costs for low sulfur coal ( 60% higher than 2008 ) and the debt of its parent company, EME ( e.g. , $500 million in unsecured notes mature in June 2013 ). Midwest Generation and EME are now in Chapter 11 bankruptcy. The company also asserts that the deferral of federal requirements (CA IR, CAMR, CSAPR) due to court challenges has created an uneven playing field with out

- of

- state competitors that are neither subject to a deregulated energy market as in Illinois ( i.e. , they can recover control costs through regulated rates) nor subject to air pollution regulations as stringent as those of Illinois.

These circumstances, according to Midwest Generation, were not and could not have reasonably been foreseen in 2007 when the CPS was adopted. For example, energy prices have fallen every year since 2008 due in part to unprecedented shale gas exploration and production, dramatically reducing the natural gas price and, in turn, energy prices. Midwest Generation states installing emission controls at the Crawford Station in late 2011, “only to ce ase operation of that station by the end of August 2012, provides clear evidence of the unforeseen economic circumstances now facing the company.” Pet. at 2. Similar financial constraints have been experienced by other power generators “such as Ameren, w hich came before this Board for similar relief earlier this year, or Exelon, which has publicly disclosed that it is deferring significant capital expenditures from 2012 to 2015.” Id . at 41. Given Midwest Generation’s

current financial condition as it wo rks through financial restructuring, the company maintains that it must conserve cash in 2013 and 2014. Midwest Generation expects operating losses and deficits to continue through 2014.63

Midwest Generation has spent approximately $200 million in capital costs toward CPS compliance, including costs to control mercury and NO

x emissions as required by the CPS and to start installing the Trona injection FGD equipment at Powerton Unit 6. If the variance is not granted, Midwest Generation argued that its prev ious investments in compliance would be at

risk. Pet at 37.

The capital cost of the Trona FGD equipment is estimated to be an average of $38 million per unit. Additional costs are associated with operating the Trona FGD and procuring ultra

- low

sulfu r coal. Midwest Generation is also investing in ESP upgrades at an average cost of $55 million per unit to avoid increases in PM emissions resulting from the FGD. To comply with the CPS FGD equipment requirements for Waukegan Units 7 and 8 and meet the 2 015 and 2016 SO 2 system

- wide emission rates, Midwest Generation claims that it would need to spend $440 million from 2013 through 2014. Then, from 2015 through 2018, the company would need to spend

hundreds of millions of dollars more to install controls on its remaining units to meet the declining CPS annual SO 2 emission rates.

Midwest Generation plans on spending approximately $230 million in 2013 and 2014 to install FGD controls on Powerton Unit 6 and Waukegan Unit 7 and to continue engineering and

p rocurement of long lead material for controls on other units. However, due to changed financial conditions, Midwest Generation “needs to defer still more control costs that would be required in

2013 and 2014 to achieve the CPS SO 2 rates in 2015 and 2016 a nd to install the FGD equipment at Waukegan Unit 8.” Pet. at 41. Specifically, an additional $210 million would be necessary in

2013 and 2014 to comply with the CPS requirement for (1) installing FGD at Waukegan Unit 8 by the end of 2014 and (2) system

- w ide SO 2 emission rates in 2015 and 2016 (by installing Trona FGD and ESP upgrades on Waukegan Unit 8, Powerton Unit 5, and Joliet Unit 7 or 8).

Pet. Exh. 3 at 7

- 8. The company has been unable to identify any other funding sources.

Midwest Generation con tends that not granting the requested variance relief would put at risk the company, its generating stations, its employees, and others that rely on the stations, as well as the compliance investments already made.

The five

- month delay of the Section 225 .296(a)(2) deadline of December 31, 2014 would allow Midwest Generation to take advantage of the economies associated with working on both Waukegan Units 7 and 8 at the same time and account for the need to stagger the outages

associated with the work. Th e Board has granted variances, in part, to allow sources to coordinate required retrofits with other construction projects at a facility. See ExxonMobil Oil Corp. v. IEPA , PCB 11

- 86, 12

- 46 (consol.) (Dec. 1, 2011); Dynegy Midwest Generation, Inc. v.

IEPA

, PCB 09

- 48 (May 7, 2009). Midwest Generation also commits to not operating Waukegan Unit 8 after December 31, 2014, until installation of the FGD equipment is complete.

Midwest Generation asserts that without variance relief, it would be forced to c urtail operations at uncontrolled units by about 35% in 2015 and 75% in 2016, compared to average generation levels over the last five years. The company explains that this substantial curtailment in generation (and in resulting revenue) could result not only in penalties under capacity contracts and regulatory scrutiny over grid reliability, but also could threaten the continued viability of Midwest Generation and its generating stations. Alternatively, requiring Midwest

Generation to somehow fund the ad ditional $210 million in necessary control costs at the same64

time the company funds $230 million in other CPS controls could pose the same threat. Pet. Exh. 3 at 8. Midwest Generation also claims that closing the stations would have devastating impacts o n hundreds of workers and would remove hundreds of millions of dollars from the

economy.

Environmental and Health Impact of Granting Variance

Variance Period

Midwest Generation seeks relief from the system

- wide emission rates of 0.28 lb/mmBtu

in 2015 a nd 0.195 lb/mmBtu in 2016, as set forth in 35 Ill. Adm. Code 225.295(b), i.e. , a two

year period from January 1, 2015 through December 31, 2016. Midwest Generation also seeks relief from the CPS requirement to install and have operational FGD equipment on , or to permanently shut down, Waukegan Unit 8 by December 31, 2014, as set forth in Section 35 Ill. Adm. Code 225.296(a)(2); the company asks for a 5

- month delay, beginning on January 1, 2015 and extending through May 31, 2015. Pet. at 1.

Section 1 04.204(g) of the Board’s procedural rules requires Midwest Generation to provide “[t]he nature and amount of emissions . . . of the constituent in question if the requested variance is granted, compared to that which would result if immediate compliance is required.” 35 Ill. Adm. Code 104.204(g). Midwest Generation provided this information in various formats

for the four

- year period of 2013 through 2016. Hrg. Exh. 5 Table 5.1; Hrg. Exh. 10. The year 2013 is the appropriate start point because the propo sed variance would require that Midwest Generation comply with an annual SO 2 mass emissions cap in 2013 and 2014 to achieve reductions greater than anticipated under the CPS. Crawford Units 7 and 8 would have to remain shut down in 2013 and 2014. Regulat ory relief would be provided only in years 2015 and 2016,

each of which would also have an annual SO 2 mass emissions cap. Midwest Generation proposes to be in CPS compliance as of 2017. The Board finds that the relevant period for analyzing the environme ntal impact of the variance is 2013 through 2016.

Environmental Impact

Midwest Generation asserts that granting its petition would cause no “ net adverse environmental impact, ” but rather would result in a “ net environmental benefit ” over the years

2013 through 2016. Pet. at 10. The Citizens Groups disagree. They argue that the proposed variance “would allow [Midwest Generation] to actually increase its SO 2 emissions in the short term, and to continue to cause and contribute to existing State air qual ity problems.” PC 5728 at 9. The Citizens Groups assert that the increase is obscured because Midwest Generation’s “SO 2 CPS Baseline” is based upon the average annual heat input from 2008

- 2011 and excludes 2012.

The Citizens Groups emphasize that Mi dwest Generation’s projected 2012 SO 2 emissions of 56,395 tons are less than the proposed mass emissions caps for 2013 (57,000 tons) and the 2013 CPS Baseline (65,341 tons). PC 5728 at 10

- 11, citing Pet. Exh. 3 at 5. The Citizens Groups present net SO 2 e missions calculations that differ from those of Midwest Generation. PC

5728 at 11

- 12.65

The calculations of both Midwest Generation and the Citizens Groups use the units legally permitted to operate in 2013 through 2016: Crawford Units 7 and 8 (only in 2013 and 2014); Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8; and Will County Units 3 and 4. However, Midwest Generation compares the proposed 2013 and 2014 mass emission caps (57,000 tons + 54,000 tons) to the SO 2 emissions ba sed on the average 2008

- 2011 annual heat input . The Citizens Groups, on the other hand, compare the proposed 2013 and 2014 mass emission caps to the projected 2012 SO 2 emissions . Midwest Generation shows a reduction of 15,227 21 tons of SO 2 emissions in 20 13 and 2014 under the variance (Hrg. Exh. 12), but the Citizens Groups show a reduction of only 1,795 22 tons of SO 2 emissions in 2013 and 2014 under the variance (PC 5728 Exh. C).

The calculations of both Midwest Generation and the Citizens Groups reflec t that the proposed cumulative 2015 and 2016 mass SO 2 emissions under the variance are 12,047 tons greater than the CPS baseline (76,000 tons

- 63,954 tons). Midwest Generation calculates a net

environmental benefit from the variance: 3,181 tons less SO 2 emitted during 2013 through 2016 ( i.e. , 15,227 ton reduction in 2013 and 2014 minus 12,047 ton increase in 2015 and 2016 equals

a net reduction in SO 2 emissions of 3,181 tons). However, using the smaller 1,795 ton reduction in 2013 and 2014, the Citizens Groups assert that there is a negative net environmental impact from the variance: 10,252 tons more SO 2 emitted during 2013 through 2016 ( i.e. , 1,795 ton reduction in 2013 and 2014 minus 12,047 ton increase in 2015 and 2016 equals a net increase in

SO 2 e missions of 10,252 tons). PC 5728 at 11

- 12.

Midwest Generation counters that the Citizens Groups’ net emissions calculation seeks to penalize early emission reductions. Midwest Generation states that this approach is not consistent with the Agency’s p osition or prior variance precedent for these types of calculations. Reply Br. at 6. Midwest Generation notes that its analysis calculated emissions that would reasonably be anticipated under the CPS in a “business

- as

- usual” scenario, including emissions

from Crawford Units 7 and 8 in 2013 and 2014. Id . at 11; Pet. at 21.

The Board observes that the CPS (35 Ill. Adm. Code 225.296(a)) does not require the

shutdown of Crawford Units 7 and 8 in 2013 or 2014. In the Waukegan Order , the Board

ordered thes e two units shut down by December 31, 2014. However, Midwest Generation ceased operation of the Crawford coal

- fired units at the end of August 2012, over two years earlier than required. Pet. at 2, 9. The Board finds that these early shutdowns at the Cr awford station prevent the 2012 emissions from being considered typical.

21 This value is derived from the 2013 and 2014 SO 2 emissions based on the CPS emission rates and average 2008

- 2011 heat input for units legally permitted to operating in 2013

- 2 016, minus the proposed SO 2 mass emission caps for 2013 and 2014: (65,341 + 60,886)

- (57,000 + 54,000) = 15,227 tons. Hrg. Exh. 5, Table 5.1.

22 This value is derived from the 2012 projected SO 2 mass emissions multiplied by two, minus the proposed SO 2 m ass emission caps for 2013 and 2014: (56,395 x 2)

- (57,000 + 54,000) = 1,790 tons. This figure is slightly different than the 1,795 figure presented by the Citizens Groups. PC 5728 at 12; PC 5728 Exh. C.66

The Board finds further support for Midwest Generation’s calculations, including use of average 2008

- 2011 heat input, in the Agency’s recommendation, where the Agency state s:

[T]he amounts of creditable SO 2 emission reductions set forth by [Midwest Generation] . . . are consistent with the data currently available to, and reviewed by, the Illinois EPA during the course of its investigation of [Midwest Generation’s] Petitio n. In particular, the emission reduction credits available as a result of [Midwest Generation’s] proposed mass emission limitations are quantifiable and creditable. Furthermore, the determination by [Midwest Generation] showing a net environmental benefi t in SO 2 emissions over the term of the variance is consistent with the method utilized in similar previous variance

requests. Agency Rec. at 8.

From 2013 through 2016, Midwest Generation’s anticipated SO 2 emissions equal 190,181 tons under the CPS. Hrg . Exh. 5 Table 5.1. Based upon CPS SO 2 emission rates (0.44 lb/mmBtu for 2013 and 0.41 lb/mmBtu for 2014), along with the proposed variance SO 2 emission rate (0.38 lb/mmBtu for 2015 and 2016), Midwest Generation’s calculated total SO 2 emissions equal 228, 553 tons for 2013 through 2016. This figure is based upon the average 2008

- 2011 heat input for the units that Midwest Generation is legally permitted to operate in 2013 through 2016. Resp. at 10

- 11. However, the proposed annual caps on SO 2 mass emissi ons would limit the total SO 2 emissions to 187,000 tons for the same period of time.

The Board accepts Midwest Generation’s calculations. Comparing the mass emissions anticipated under the CPS to those proposed here reveals that the variance would resu lt in a net 3,181

- ton reduction in SO 2 emissions over the time period of 2013 through 2016. To achieve

this net reduction , critical to Midwest Generation’s proposal is a commitment to SO 2 mass emissions caps. For the years 2013 and 2014, while Midwest Ge neration proposes to meet the

CPS SO 2 emission rates, the proposed annual caps on SO 2 mass emissions for those years provide reductions in excess of those anticipated under the CPS. While the SO 2 mass emissions

under the variance in 2015 and 2016 would be greater than anticipated under the CPS, the cumulative emissions for the years 2013 through 2016 would be less under the variance.

Midwest Generation adds that because of its commitment to comply with mass emission

levels of SO 2 , “[i]n no year during t he term of the variance would emissions increase over the previous year.” Resp. at 13. As Dr. Fraiser testified, SO 2 mass emissions decrease continuously

over the four

- year variance period “such that each successive year result[s] in lower SO 2 emissions than the previous year.” Tr. at 123.

Midwest Generation points out further that the proposed variance SO 2 emission rate of

0.38 lb/mmBtu for 2015 and 2016 is lower than the CPS 2014 rate of 0.41 lb/mmBtu. Post Br. at 6. Although SO 2 reductions unde r the variance in 2015 (33,458 tons from emission rate of 0.38 lb/mmBtu) would be less than those under the CPS for 2015 (34,465 tons from emission rate of 0.28 lb/mmBtu), the reductions are greater than the presumptive BART reductions of 31,440 tons

per y ear. Pet. at 51; Hrg. Exh. 9.67

Midwest Generation states that the variance emission rate of 0.38 lb/mmBtu, along with the mass emissions caps under the variance, would result in SO 2 levels below those from Illinois’ BART SIP submittal, which demonstr ated that the system

- wide CPS rates produce greater reductions that BART. Pet. at 51; Hrg. Exh. 9.

The Board finds that Midwest Generation has demonstrated that it will emit 3,181 tons

less SO 2 under the variance than under the CPS from 2013 through 20 16. This is to be accomplished by (1) complying with an average annual SO 2 emission rate of 0.44 lb/mmBtu in 2013, 0.41 lb/mmBtu in 2014, and 0.38 lb/mmBtu in 2015 through 2016; and (2) abiding by declining SO 2 mass emission caps of 57,000 tons in 2013, 5 4,000 tons in 2014, 39,000 tons in 2015, and 37,000 tons in 2016.

The Board recognizes that Midwest Generation’s emission estimates show that it will

emit more SO 2 under the variance than under the CPS in years 2015 and 2016. Specifically,

Midwest Gene ration would emit 76,000 tons of SO 2 under the variance compared to 63,954 tons

of SO 2 under the CPS. 23 In other words, Midwest Generation would emit 12,047 more tons of

SO 2 during years 2015 and 2016 under the variance. However, the Board finds that the higher

SO 2 emissions during 2015 and 2016 are offset by the reduced SO 2 emissions during years 2013 and 2014. Specifically, in 2013 and 2014, Midwest Generation would emit 111,000 tons of SO 2 under the variance, compared to 126,227 tons of SO 2 under the C PS. 24 Accordingly, Midwest Generation would emit 15,227 fewer tons of SO 2 during the years of 2013 and 2014 under the variance. This results in 3,181 more tons in SO 2 emission reductions over the length of the variance, from 2013 through 2016, than requir ed under the CPS.

By committing to caps on annual SO 2 mass emissions in addition to the proposed step down in emission rates, the Board finds that Midwest Generation provides a means of assuring that cumulative emissions over the period of 2013 through 20 16 would be lower than anticipated under the CPS rates based on the 2008 to 2011 heat input. Pet. at 11; Hrg. Exh. 5, Table 5.1. The Board also finds that under the conditions of the variance, the SO 2 reductions would be greater than expected under the p resumptive BART for 2015 and 2016. Hrg. Exh. 9.

Additionally, the Board recognizes that Midwest Generation’s compliance plan would also result in fewer emissions of other pollutants over the 2013 through 2016 timeframe: 11,553

tons of NO

x , 183 pounds of mercury, 22,266,320 tons of CO 2 greenhouse gases, and 4,306 tons of PM. Hrg. Exh. 5 at 11; Resp. at 11; Hrg. Exh. 10; Tr. at 69.

23 Proposed variance SO 2 mass emission level ca ps for 2015 and 2016: 39,000 + 37,000 = 76,000 tons. CPS SO 2 mass emissions for 2015 and 2016: 37,699 + 26,255 = 63,954 tons. Hrg. Exhs. 5, 10.

24 Proposed SO 2 mass emission level caps for 2013 and 2014: 57,000 + 54,000 = 111,000 tons.

CPS SO 2 mass emissions for 2013 and 2014: 65,341 + 60,886 = 126,227 tons. Hrg. Exhs. 5, 10.68

Health Impact

The health professionals voiced concern that granting the variance would weaken the CPS. They cite to hea lth and environmental effects from high levels of SO 2 that can “exacerbate respiratory symptoms in at

- risk individuals (including children and the elderly), including asthma and COPD attacks,” and cause “SO 2 - derived acid rain damage to foliage.” PC 5752 at 1. In addition, the health professionals state that SO 2 is among the precursors to PM 2.5 5 and ground

level ozone and refer to scientific studies identifying PM 2.5 as harmful to human health based on causal linkages found between short

- and long

- term e xposures with premature mortality and

cardiovascular effects. Id. The health professionals state that “[b]y maintaining the present CPS emission rate requirements for each of the pollutants, you will ensure that the health improvements behind the spirit of the law remain intact.” Id. at 2

The Citizens Groups argue that Midwest Generation did not address the effects of PM as a by

- product of SO 2 emissions in the atmosphere. The Citizens Groups cite to a 2005 study attributing 50% of the PM 2.5 formation in central Illinois to sulfur or SO 2 . The Citizens Groups also cite to a 2009 USEPA assessment linking short

- and long

- term exposures to PM 2.5 with cardiovascular events ( e.g. , heart attacks) and mortality in a causal relationship and with respiratory ill ness ( e.g. , asthma attacks and episodes of COPD ) in a likely causal relationship.

PC 5728 at 13

- 15.

The Agency “does not believe that any injury to the public would result from the granting of the variance.” Agency Rec. at 13.

Midwest Generation r eiterates Dr. Fraiser’s testimony regarding SO 2 and PM. Dr. Fraiser made the distinction “that most epidemiological evidence points to particulate matter as a stronger causal agent in causing both mortality in most cardio respiratory effects than gaseous

sulfur dioxide.” Tr. at 117. Because sulfur dioxide is found most of the time in association with particulate matter, Dr. Fraiser explained that separating the health effects of these two pollutants

has been difficult. Tr. at 117. Dr. Fraiser went on t o explain that with “the net decrease in SO 2 emissions under the variance would also come a corresponding net health benefit, if you assume that the emissions from the plants are capable of causing health effects in the first place . . . . [T]he variance will also result in reductions in emissions of a variety of other air pollutants as well . . . [which] would be expected to result in the avoidance of potential health effects, in addition to the sulfur dioxide reductions.” Reply Br. at 7

, citing Tr. at 1 24

- 125. Midwest Generation points out that these other pollutant emission reductions include PM. Reply Br. at 7. Under the variance, the proposed cap on mass emissions for SO2 would also reduce PM emissions in the years 2013 through 2016 by 777 tons, 68 9 tons, 1,312 tons, 1,528 tons, respectively, for a cumulative net reduction of 4,306 tons PM. Hrg. Exh. 5 at 11 ; Resp. at 11, Hrg. Exh. 10 ; Tr. at 69.

Regarding the Citizens Groups’ concern over health effects linked to SO 2 contributions to

PM 2.5 for mation, the Board observes that CAIR and the new primary SO 2 NAAQS address this issue. In establishing the new 1

- hour SO 2 NAAQS, USEPA discussed the federal regulations currently in effect that address the contribution of SO 2 to the formation of PM 2.5 :69

[ US]EPA has also promulgated the Clean Air Interstate Rule (CAIR) to define

additional SO 2 emission reductions needed in the Eastern United States to eliminate significant contribution of upwind States to downwind States' nonattainment, or inability to main tain, the PM 2.5 NAAQS pursuant to [Clean Air Act] section 110(a)(2)(D), 42 U.S.C. 7410 (a)(2)(D), a rule which EPA is

reeva luating pursuant to court remand. 75 Fed. Reg. 35571

- 35572 (June 22, 2010)

In terms of how the SIPs for the new primary SO 2 NAAQS would be able to incorporate efforts to address PM 2.5 formation, USEPA also stated:

These section 110(a)(1) SIPs would be ab le to rely on modeling reflecting any

SO 2 reductions that we expect to result before the attainment date from compliance with the rules EPA expects to promulgate before 2013, (including technology

- based standards under [Clean Air Act] section 112(d) for ce rtain source categories emitting large amounts of SO 2 such as Electric Generating Units and industrial boilers, and revised rules establishing further limits on SO 2 emitted by sources in upwind States which contribute significantly to downstream States'

in ability to attain or maintain the PM 2.5 [NAAQS] (the so

- called Clean Air Interstate Replacement rule)). 75 Fed. Reg. 35553 (June 22, 2010)

Among the conditions of the variance, Midwest Generation proposes to comply with CAIR or its replacement during the variance period, as well as the Acid Rain Program at 40 C.F.R. 72, and all othe r applicable requirements. Post Br. Exh s . A, B. The Board finds that granting Midwest Generation’s petition for variance, subject to the conditions in the order below,

would be consistent with Illinois’ obligations under the Clean Air Act.

Illinois’ State Implementation Plan

- Regional Haze

As noted above, USEPA approved the revisions to the Illinois SIP addressing regional haze on July 6, 2012. 77 Fed. Reg. 39943 (July 6, 2012). Generally, for visibility protection, each source subject to BART must install and operate BART as “expeditiously as practicable,” but in no event later than five years after approval of the SIP revision. See 42 U.S.C. § 7491(g)(4); 40 C.F.R. § 51.308(e)(1)(iv). Because USEPA approved the Illinois regional haze SIP submittal in July 2012, the attainment date in Illinois would be no later than July 2017.

If the Board grants this variance petition, the Agency will submit the variance order as a SIP revision. Agency Rec. at 14. The Agency believes that granting the variance “ will not jeopardize its current obligations under the Illinois SIP ,” and “[c]urrent obligations to attain and maintain the NAAQS will not be jeopardized due to the net env ironmental benefit over the term

of the variance. ” Tr. at 136

- 137. Midwest Generation points out that the variance would end six months before the attainment date of July 2017, which would be five years after USEPA’s July 6, 2012 SIP approval. Pet. at 5 0

- 51; 77 Fed. Reg. 39943; Hrg. Exh. 8. Compliance with the limits reflecting BART in the Illinois SIP would therefore also not be affected. At the end of the variance period, Midwest Generation would be required to comply with the CPS 2017 system

wide SO 2 limit of 0.15 lb/mmBtu. Pet. at 50

- 51.70

USEPA explained the nature of the regional haze problem and its relationship with SO 2 in USEPA’s proposed approval of Illinois’ regional haze SIP:

Regional haze is visibility impairment that is produced by a multitude of sources and activities located across a broad geographic area that emit fine particles (PM 2.5 ) (e.g., sulfates, nitrates, organic carbon, elemental carbon, and soil dust) and its precursors

— [SO 2 ], [NO

x ], and in some cases ammonia (NH 3 ) and vol atile organic compound (VOCs). Fine particle precursors react in the atmosphere to form fine particulate matter. Aerosol PM 2.5 impairs visibility by scattering and absorbing light. Visibility impairment reduces the clarity and distance one can

see. PM 2 .5 can also cause serious health effects and mortality in humans and contributes to detrimental environmental effects such as acid deposition and eutrophication.

*** The MPS and CPS provide emission reduction well in excess of simply implementing BART on subject units . . . . Illinois estimated that its plan will require 96,927 [tons per year (TPY)] lower SO 2 emissions than simply requiring BART. [US]EPA believes that Illinois has thereby demonstrated that the emission limits on the subject BART units c overed by MPS and CPS satisfy the BART requirements. 77 Fed. Reg. at 3967, 3973 (Jan. 26, 2012).

Midwest Generation states that the proposed emission rate of 0.38 lb/mmBtu, along with the mass emissions limits, would result in levels below those incl uded in Illinois’ BART submittal for the regional haze SIP. Pet. at 51; Hrg. Exh. 9.

Illinois’ State Implementation Plan

- Primary SO 2 NAAQS

As referenced by Midwest Generation, the Agency, Dr. Fraiser, the Citizens Groups, and others, USEPA establish ed the new primary NAAQS for SO 2 of 0.75 ppb on June 22, 2010, which became effective on August 23, 2010. See 75 Fed. Reg. 35520 (June 22, 2010). In so doing, USEPA set into motion requirements and a timeline for the states to develop their designation r ecommendations and SIPs for attainment, maintenance, and enforcement of the NAAQS. 77 Fed. Reg. 46295 (Aug. 3, 2012). Initially, USEPA intended to complete the initial area designations on a 2

- year schedule, by June 3, 2012. 77 Fed. Reg. 46295

- 46296 (Au g. 3, 2012).

Later, however, USEPA was persuaded to take the extra year allowed under the Clean Air Act to issue designations because of insufficient information, and extended the latest date until June 3, 2013 to promulgate initial area designations fo r attainment. 77 Fed. Reg. 46295 (Aug. 3, 2012). On June 2, 2011, the Agency issued its recommendations for attainment/ nonattainment designations for the 2010 one

- hour SO 2 NAAQS. PC5728 Exh. F. On February 15, 2013, USEPA published a “Notice of Availa bility and Public Comment Period” for its responses to the states’ SO 2 designation recommendations. USEPA plans to make final designation decisions by June 3, 2013, although USEPA stated that it may proceed sooner in some areas. 78 Fed. Reg. 11124

- 11126 (Feb. 15, 2013) ; 77 Fed. Reg. 46297 ; PC5728 Exh. G.71

USEPA stated that w ithin 18 months after the effective date of an area’s designation as nonattainment, states would need to develop a SIP providing for attainment by the applicable statutory attainment d ate. 75 Fed. Red. 35577 (June 22, 2010). USEPA stated that “such plans would need to provide for attainment and maintenance of the new 1

- hour SO 2 NAAQS as expeditiously as practicable, which we expect to be no later than five years after initial designat ion

. . . in all areas of the State

. . . . ” 75 Fed. Reg. 35553 (June 22, 2010).

If in June 2013, USEPA makes its final decision on the initial Illinois attainment/

nonattainment area designations for the new primary SO 2 NAAQS, five years later would b e June 2018. The attainment deadline then would be June 2018. T he variance would end approximately one year and six months before the attainment deadline . Although the Agency

stated the attainment date of the 2010 SO 2 NAAQS is no sooner than July 2017 ( Tr. at 137), the Board notes that this date appears to hinge up on USEPA’s prior intention to issue designations by June 3, 2012

, or the attainment date for the Illinois’ regional haze SIP.

The Board finds that granting Midwest Generation’s petition for va riance, subject to the conditions in the order below, would be in accord with requirements to attain and maintain NAAQS compliance.

Weighing Hardship to Midwest Generation from Denying Variance Against Environmental and Health Impact from Granting Varia nce

Midwest Generation must establish that the hardship from denying the variance “outweighs any injury to the public or the environment” from granting the variance. Marathon

Oil , 242 Ill. App. 3d at 206, 610 N.E.2d at 793. If Midwest Generation only s hows that compliance will be difficult, “that proof alone is an insufficient basis” for granting the variance.

Id. Thus, “only if the hardship outweighs the injury does the evidence rise to the level of an arbitrary or unreasonable hardship.” Id.

Based upon this record, granting the variance would result in a 3,181

- ton decrease in SO 2 being emitted from 2013 through 2016 as compared to requiring CPS compliance. The Board acknowledges that the net reduction here in SO 2 emissions would be much smal ler than in

Ameren , PCB 12

- 126, but so is the term of the relief from emission rates, two years here as compared to dual terms of five years and three years. See Ameren , PCB 12

- 126, slip op. at 54,

56 (reductions over greater time period with larger fleet ). The variance here would also be subject to annual SO 2 mass emission caps in 2013, 2014, 2015, and 2016, as well as an SO 2 emission rate of 0.38 lb/mmBtu in 2015 and 2016. Crawford station’s units would have to remain out of operation in 2013 and 2014. Additionally, by reducing the average annual heat input, the proposed caps on mass emissions for SO 2 would effectively reduce emissions of other pollutants, as noted above: 11,553 tons of NO

x ; 183 pounds of mercury; 22,266,320 tons of CO 2 greenhouse gas es; and 4,306 tons of PM.

The Agency takes no issue with Midwest Generation’s manner of calculating a “ net
environmental benefit ” and does not believe that any injury to the public would result from the Board granting the requested variance. Jim Ross, Manager of the Agency’s Division of Air Pollution Control, Bureau of Air, testified that the variance request would not jeopardize the72

State’s ability to meet its obligations under the Illinois SIP or regarding NAAQS compliance. The primary NAAQS are set to protect public health, including sensitive populations. The record supports finding that the requested variance will result in a net reduction in pollutant emissions over the variance period of 2013 through 2016 and is consistent with Illinois’ obligat ions under the C lean A ir A ct , as discussed below.

In considering the hardship to Midwest Generation from denying the variance, the record supports finding that the company is in such an extremely difficult financial position as to preclude it from spend ing an additional $210 million in 2013 and 2014 to be in compliance with the CPS in 2015 and 2016. Midwest Generation’s claims that significant negative developments in energy prices and capacity markets were not reasonably foreseeable in 2007 when the CP S was adopted have not been directly refuted by commenters opposing the variance petition. The Board takes into account that Midwest Generation has spent $200 million on emission controls and plans to spend another $230 million in 2013 and 2014.

Weighi ng these considerations, the Board finds that requiring Midwest Generation to comply with Sections 225.295(b) in 2015 and 2016 and Section 225.296(a)(2) by December 31, 2014, would impose an arbitrary or unreasonable hardship on the company.

Variance’s Co nsistency with Federal Law

The Board has authority under Section 110 of the Clean Air Act to adopt regulations that are part of the State’s plan for implementation, maintenance, and enforcement of air quality standards. The variance procedure to grant re lief from a Board regulation is consistent with the authority granted to the states under Section 110 of the Clean Air Act. The Agency explains that there is currently no federal authority that would preclude granting the variance request. The Agency wil l submit the variance order, if granted, for approval as a revision to the Illinois SIP. Agency Rec. at 14.

As noted above, USEPA adopted a new primary NAAQS for 1

- hour average SO 2 concentrations of 0.75 ppb on June 22, 2010, which became effective on August 23, 2010. 75 Fed. Reg. 35520 (June 22, 2010). USEPA set a date of June 3, 2013 by which to promulgate initial area designations for attainment. 77 Fed. Reg. 46295 (Aug. 3, 2012). Within 18 months after the effective date of an area’s designation as nonattainment, states would need to develop a SIP providing for attainment by the applicable statutory attainment date, no later than five years after initial designation. 75 Fed. Red. 35553, 35577 (June 22, 2010). On June 29, 2012, USEPA also propos ed to make revisions to the primary and secondary NAAQS for particulate matter (PM 2.5 and PM 10 25 ). 77 Fed. Reg. 38890 (June 29, 2012).

The Citizens Groups filed a copy of the Agency’s “Technical Support Document: Recommended Nonattainment Designations in Illinois for the 2010 Revised Primary 1

- Hour SO 2 National Ambient Air Quality Standard,” dated June 2, 2011. PC 5728 Exh. F. The Citizens Groups also filed a copy of USEPA’s response to the Agency’s recommendation for SO 2

25 Particles generally less than or equal to 2.5 and 10 micrometers in diameter, respectively. See 77 Fed. Red. 38890 (June 29, 2012).73

designations under the new 1

- ho ur standard, dated February 6, 2013. PC5728 Exh. G. USEPA stated that it intends to designate the following areas as nonattainment for the 2010 SO 2 standard: (1) Lemont: Cook County, IL (Lemont Township) and Will County, IL (DuPage and Lockport

Townshi ps); and (2) Pekin: Tazewell County, IL (Cincinnati and Pekin Townships) and Peoria County, IL (Hollis Township). PC5728 Exh. G at 1. USEPA published a “Notice of Availability and Public Comment Period” for its responses to the states’ SO 2 designation r ecommendations on February 15, 2013. Comments were due by March 18, 2013. 78 Fed. Reg. 11124

- 11126 (February 15, 2013).

The Citizens Groups state that the CPS requirements were developed under an older, less stringent SO 2 air quality standard, allowing Midwest Generation to average SO 2 reductions over large air quality regions. Under the new 1

- hour SO 2 standard, the Citizens Groups allege localized public health concerns with air quality in the areas where Midwest Generation operates

the Powerton and Wi ll County stations. PC 5728 at 17

- 18. USEPA’s proposal to designate the

Lemont and Pekin non

- attainment areas would encompass Cincinnati and Lockport Township where the Midwest Generation’s Powerton and Will County stations are located, respectively.

PC 5728 Exh. G at 1, Exh. F at 16, 27. The Citizens Groups state that “public health is already being harmed as a result of ongoing violations of the SO 2 one

- hour NAAQS.” PC5728.

The Citizens Groups ask that the Board “incorporate Sierra Club’s Complain t and the attachments to its Complaint [ Sierra Club v. Midwest Generation, LLC , PCB 13

- 27] into the record of this variance proceeding.” PC 5728 at 21. The Board observes that the referenced enforcement action remains automatically stayed pursuant to Sec tion 362(a) of the Bankruptcy Code (11 U.S.C. § 362(a)). See Sierra Club , PCB 13

- 27, slip op. at 3

- 4 (Feb. 7, 2013). The Board has made no determination on the merits of Sierra Club’s complaint against Midwest

Generation in PCB 13

- 27 and finds that it wo uld be inappropriate to do so in this variance proceeding. The Board therefore denies the Citizens Groups’ request for incorporation.

As discussed above, the Agency believes that granting the variance will not jeopardize the State’s current obligations under the Illinois SIP or to attain and maintain the NAAQS . Tr. at

136

- 137. Additionally, the Agency explains that because the variance period would end approximately six months before the regional haze SIP attainment date of July 2017 and 1.5 years bef ore the primary SO 2 NAAQS SIP attainment date of around June 2018, no impact on the State’s obligations for the new primary SO 2 NAAQS is expected. Tr. at 137.

The Board finds that granting Midwest Generation’s petition for variance, with the

conditions in the order below, would not compromise Illinois’ obligation to comply with the Clean Air Act’s regional haze requirements or to attain and maintain compliance with the NAAQS. The Board therefore finds that Midwest Generation’s requested variance can be granted consistent with federal law.

Conditions of Variance

For the reasons below, the Board finds that Midwest Generation’s revised compliance plan is sufficiently definite to support granting the requested variance. The Board sets forth the require ments of the revised compliance plan as conditions of this variance.74

Sufficiency of Petition’s Compliance Plan

The Board’s procedural rules for variances provide, in part, that the petition must include:

f) A detailed description of the compliance plan, including:

1) A discussion of the proposed equipment or proposed method of control to be undertaken to achieve full compliance with the regulation, requirement, or order of the Board;

2) A time schedule for the implementation of all phases of t he control program from initiation of design to program completion; and

3) The estimated costs involved for each phase and the total cost to achieve compliance . . . . 35 Ill. Adm. Code 104.204(f).

In its petition, Midwest Generation proposed the foll owing compliance plan: (1) limiting

system

- wide emissions of SO 2 to no more than 57,000 tons in 2013; 54,000 tons in 2014; 39,000 tons in 2015; and 37,000 tons in 2016; (2) reporting to the Agency its system

- wide mass SO 2 emissions for 2013, 2014, 2015, a nd 2016 with each applicable Annual Emissions Report; (3) not operating the coal

- fired boilers at Crawford in 2013 and 2014; (4) not operating Waukegan Unit 8 from January 1, 2015, until completion of installation of FGD equipment; (5) completing

installat ion and having operational FGD equipment on Waukegan Unit 8, or permanently shutting down such unit, by May 31, 2015; (6) complying with system

- wide annual SO 2 emission rate of 0.38 lb/mmBtu in 2015 and 2016; and (7) complying with the CAIR, Acid Rain Prog ram, and all other applicable requirements during the term of the variance. Pet. at 52

- 54.

The petition’s compliance plan does not specify the proposed equipment, a time schedule for the various phases of design to completion, or costs for each phase . Although not part of the company’s proposed compliance plan, Midwest Generation plans to spend $230 million on SO 2 emission controls and related PM controls in 2013 and 2014, naming Powerton Unit 6 and Waukegan Unit 7. Pet. at 3. Midwest Generation id entifies an additional $210 million in necessary expenditures to comply with the 2015 and 2016 CPS group average annual SO 2 emissions rate, which it seeks to defer with the variance. Id . at 7

- 8. Midwest Generation also gave a typical time frame for insta llation of Trona FGD equipment and ESP upgrades of 18 to 24 months, with outages lasting 16

- 20 weeks. Pet. at 6.

In written questions to Midwest Generation, the Board requested that the company provide more specific information in the compliance plan on the activities involved in implementing the SO 2 and related PM controls, including types of equipment to be installed and upgrades to be made and which activities would occur at which units. The Board requested a time schedule for implementing all phases of the compliance plan, from initiation of design to program completion. The Board also requested the estimated costs involved for each phase. See Hearing Officer Order, PCB 13

- 24 (Dec. 24, 2012).75

Midwest Generation responded that unit

- specific contro l details would constrain the flexibility inherent in the CPS. Resp. at 2, 8, 17. The company stated that the CPS neither sets

forth unit

- specific requirements for the type of FGD equipment nor specifies how the emissions must be balanced among the units . Resp. at 5. Midwest Generation also asserted that it should be able to “retain the ability to adopt alternate or emerging technologies in order to comply.” Resp. at 6. Midwest Generation stated that flexibility in the CPS can help the company address its ongoing restructuring efforts in light of changes in the energy market, as well as the market for control equipment and laborers doing installations. Resp. at 6. Later at hearing, the Board asked further questions about the timeframe and costs for a dding or upgrading controls at each

unit. Tr. at 69

- 78.

Citizens Groups’ Concern Over Sufficiency of Petition’s Compliance Plan

After the hearing, the Citizens Groups argue that Midwest Generation’s proposal lacks a sufficient compliance plan. PC 57 28 at 2. The Citizens Groups compare the compliance plan proposed in Midwest Generation’ petition to the conditions of the variance granted in PCB 12

- 126 for AER. PC 5728 at 4, citing Ameren , PCB 12

- 126. The Citizens Groups assert the compliance plan in Midwest Generation’s petition does not rise to the level of detail the Board required of AER in Ameren , PCB 12

- 126, where the Board found AER’s compliance plan must include “specific dates to demonstrate progress toward achieving compliance with the appli cable requirements.” PC 5728 at 3

- 4, citing Ameren , PCB 12

- 126, slip op. at 66.

Because Midwest Generation is seeking relief from the CPS, the Citizens Groups argue that the company’s plea to maintain the flexibility offered by the CPS is without meri t. The Citizens Groups also question how the company intends to meet the proposed 2015 and 2016 mass emission limits at the proposed rate of 0.38 lbs/mmBtu. The Citizens Groups assert that “[t]his heat input reduction [of about 65 million Btu 26 from 2013 levels] would be the equivalent of closing a quarter of [Midwest Generation’s] fleet.” PC 5728 at 5, referring to Hrg. Exh. 10. Additionally, with bankruptcy proceedings still pending, the Citizens Groups raise concerns over the uncertainty surrounding M idwest Generations fleet and emphasize that the company must provide a detailed compliance plan. PC 5728 at 4

- 6.

Revised Compliance Plan

In its post

- hearing brief, Midwest Generation proposed a revised compliance plan.

Midwest Generation stated that the proposed enhanced compliance plan was reviewed by the Agency and incorporated comments from the Agency and reflects consideration of the Board’s questions in writing and at hearing. Reply Br. at 1, 4

- 5; Post Br. at 15

- 16, 19; Post Br. Exh s . A,

B. In response to continued concerns from Citizens Groups, Midwest Generation replies by pointing to its revised compliance plan. Reply Br. at 4

- 6.

26 The Citizens Groups’ reference to “65 million Btu” appears to be a typographical error, rather meaning 65 million mmBtu, where “mmBtu” stands for million British thermal units or 1,000,000 Btu.76

As discussed below, Midwest Generation’s revised compliance plan includes provisions for quarterly and annual progress reports and meetings with the Agency, as well as specific dates for initiating preliminary engineering and project planning, filing for permit applications, and commencing construction to install emissions controls.

One Possible CPS Compliance Scenario

Along with the revised compliance plan in its post

- hearing brief, Midwest Generation included, as Exhibit C to the brief, a detailed “CPS Compliance Scenario Through 2017 Assuming All Units Operate and Receive Controls.” Post Br. Exh. C. Midwe st Generation emphasizes that this compliance scenario is one of a few other possible scenarios. Post Br. at 17

- 18. Exhibit C lists specific units and associated equipment Midwest Generation has identified in one compliance scenario to demonstrate progre ss toward compliance with the CPS by 2017. Units included in Exhibit C are Joliet Units 7 and 8, Powerton Units 5 and 6, Waukegan Units 7 and 8, and Will County Units 3 and 4. Equipment associated with each unit includes FGD, DSI (dry sorbent injection), and ESP upgrades. Post Br. Exh. C.

Exhibit C also presents detailed timelines and schedules for each unit and each phase: preliminary engineering and project planning; long lead fabrication; construction; and ESP retrofit outage. The possible schedu le from preliminary engineering and project planning through the completion of construction shows the following: Powerton Unit 5 from the first quarter of 2015 through the fourth quarter of 2016; Powerton Unit 6 currently in progress through the end of 20 14; Waukegan Unit 7 currently in progress through the end of 2014; Waukegan Unit 8 from just before the start of 2014 through the second quarter of 2015; Will County Unit 3 from the third quarter of 2014 through the third quarter of 2016; Will County Unit 4 from the beginning of 2015 through the fourth quarter of 2016; and Joliet Units 7 and 8 from the beginning of 2015 through the fourth quarter of 2016. Post Br. Exh. C.

Although the petition provided estimated average capital costs of $38 million per un it for the Trona FGD equipment and $55 million for the ESP upgrades, Exhibit C further broke down these cost estimates on a per unit basis. Pet. Exh. 5 at 6. Exhibit C estimates: $2 to $5 million for preliminary engineering and planning; $20 to $45 mill ion for long lead fabrication; $18 to $45 million for construction; and $17 to $40 million for outage. Post Br. Exh. C. Additionally,

Midwest Generation asserted that the ongoing work at Powerton Unit 6 and Waukegan Unit 7 for

the installation of the SO 2 emissions controls and related PM controls in 2013 and 2014 involves an expenditure of $230 million. Pet. at 3. Midwest Generation did not include Powerton Unit 6 and Waukegan Unit 7 as a part of the proposed compliance plan. However, the Board finds t hat

those units should be part of the compliance plan

, as discussed below.

The Board recognizes that Midwest Generation provided the Exhibit C compliance scenario for information purposes and not as a part of its proposed plan to comply with the CPS

emiss ion rates. However, Midwest Generation does propose that its first quarterly progress report to the Agency must discuss the compliance scenarios outlined in Midwest Generation’s opening brief, including Exhibit C. Further, Midwest Generation must inform the Agency by December 31, 2014, of the company’s selected approach for achieving compliance with the 2017

SO 2 emission rate of 35 Ill. Adm. Code 225.295(b), including any emission controls that77

Midwest Generation will implement. There are also provisions for progress reports and meetings with the Agency and specific dates for initiating preliminary engineering on emission controls (January 1, 2015), filing for permit applications ( March 31, 2015 ), and commencing construction ( December 31, 2015). Of cours e, by May 31, 2015, Waukegan Unit 8 must have installed and operational FGD equipment or be permanently shut down.

The Board finds that Midwest Generation’s revised compliance plan, along with the conditions added by the Board, is sufficiently definite to support granting this variance.

Finally, the Board acknowledges that the variance granted in Ameren , PCB 12

- 126, includes a more detailed construction schedule. However, A ER has only one construction project to perform, the Newton FGD, as its compl iance plan. Midwest Generation, on the other hand, has up to nine FGD construction projects across as many as four power plants. Nevertheless, as detailed below, the Board finds that this record supports the imposition of a condition requiring that emiss ion controls be installed on Powerton Unit 6 and Waukegan Unit 7 by the end of 2014.

Powerton Unit 6 and Waukegan Unit 7

Midwest Generation stated in its variance petition that “[n]otwithstanding its current cash flow and credit challenges,” the co mpany:

is not asking for relief from CPS provisions that will require it to spend approximately $230 million in 2013 and 2014, including for planned controls at Powerton Unit 6 and Waukegan Unit 7 to comply with the CPS 2013 and 2014

SO 2 emission rates an d the Waukegan Unit 7 control equipment requirements.

Pet

. at 5

- 6.

Since filing for Chapter 11 bankruptcy, Midwest Generation has not represented to the Board that the company cannot now perform this emission control construction work as planned.

Em ission control w ork at Powerton Unit 6 and Waukegan Unit 7 is “[i]n progress.” Post

Br. Exh. C. Midwest Generation claims that the controls at these two units are designed for compliance with CPS 2013 and 2014 SO 2 emission rates. The Waukegan Order prov ides that Midwest Generation, by December 31, 2014, must “either permanently shut down [Waukegan] Unit 7; or install and have operational FGD equipment, and convert the hot

- side ESP to a cold

side ESP or install an appropriately designed fabric filter.” W aukegan Order , slip op. at 21 (Condition 3)

. The Waukegan Order provides a one

- year extension on both SO 2 (35 Ill. Adm. Code 225.296(a) (1) ) and PM ( 35 Ill. Adm. Code 225.296(c)(1) ) control requirements with respect to Waukegan Unit 7. Id

. For EGUs like Powerton Unit 6, Section 225.296(b) on SO 2 control technology provides that the owner or operator “must either permanently shut down or install FGD equipment on each specified EGU (except Joliet 5), on or before December 31, 2018

. . . .” 35 Ill. Adm. Cod e 225.296(b). The CPS regulations do not impose a PM control requirement on Powerton Unit 6.78

T he Board finds that the emission control work at Powerton Unit 6 and Waukegan Unit 7

should be part of Midwest Generation’s compliance plan. The main reason for Midwest Generation’s variance request is the company’s inability to fund $210 million in 2013 and 2014 for the controls needed to comply with the CPS 2015 and 2016 SO 2 emission rates. As Midwest Generation has represented to the Board, this lac k of funding is due in part to the company ’s

need to separately spend $230 million in 2013 and 2014 for controls to comply with the CPS

2013 and 2014 SO 2 emission rates, from which Midwest Generation seeks no variance relief. Tr.

50

- 51.

Midwest Generat ion has explained that to control SO 2 emissions, the company is installing Trona FGD, necessitating upgrades of its ESPs to control PM emissions. Pet. at 3. The company stated that ESP upgrades would generally include increasing the PM collection area, i ncreasing the heights of the collection plates and the distance between the plates, installing high

- frequency transformer rectifier sets, adding new fields of collection plates, redesigning air baffles, and updating computer control systems. Pet. Exh. 5 a t 6. The Board finds that including a condition requiring FGD equipment and related ESP upgrades to be installed and operational at Powerton Unit 6 and Waukegan Unit 7 by the end of 2014 will help to ensure Midwest Generation’s progress toward timely meet ing the CPS 2017 SO 2 emission rate.

The Board clarifies the relationship between t his condition and Condition 3 of the Waukegan Order

. In today’s order, Condition 3(B) reads as follows: “ By December 31, 2014, for both Waukegan Unit 7 and Powerton Unit 6, Midwest Generation must install and have operational FGD equipment and related electrostatic precipitator (ESP) upgrades .” As stated above, Condition 3 of the Waukegan Order provides that Midwest Generation, by December 31, 2014, must “either permanent ly shut down [Waukegan] Unit 7; or install and have operational FGD equipment, and convert the hot

- side ESP to a cold

- side ESP or install an appropriately designed fabric filter.” Waukegan Order , slip op. at 21. Accordingly, b oth conditions affect Waukeg an Unit 7 and have a December 31, 2014 deadline. Condition 3(B) of today’s order

, however, has the effect of eliminating the following option allowed by the Waukegan Order :

pe rmanently shutting down Waukegan Unit 7 in lieu of installing and having operat ion al FGD equipment on that unit. Condition 3(B) requires that Waukegan Unit 7 have installed and operational FGD equipment by the end of 2014. Lastly, t he Board understands that Condition 3(B)’s “related [ESP] upgrades” for Waukegan Unit 7 are distinct from the work in the Waukegan Order described as “convert the hot

- side ESP to a cold

- side ESP or install an appropriately designed fabric filter.”

Quarterly and Annual Progress Reports and Meetings

As discussed, Midwest Generation proposes to pr ovide quarterly and annual progress reports to the Agency, as well as to meet with the Agency if the Agency so requests. The quarterly reports and any meetings would cover actions taken related to compliance with the variance and the company’s progress to ward compliance with the 2017 CPS SO 2 emission rate. The annual progress reports would describe work completed on the Trona systems and PM controls, as well as work projected for the following year and whether such projects have been

included in the next year’s budget. Additionally, the first quarterly progress report would discuss the compliance scenarios outlined in the post

- hearing brief, including Exh ibit C to that brief

.79

Post Br. Exh s . A, B. Midwest Generation states that the reports and meetings a re intended to provide the Board with assurance that Midwest Generation “ is and will remain on track to comply with the 2017 CPS emission rate. ” Post Br. at 16.

Annual SO 2 Mass Emissions Caps

Where the Citizens Groups question how Midwest Generation i ntends to meet the proposed 2015 and 2016 SO 2 mass emission limits with heat input reductions equivalent to closing a quarter of Midwest Generation’s fleet, Midwest Generation reiterates its plans. Reply Br. at 5. To achieve the 2015 and 2016 proposed ma ss emission caps, the company plans to undertake one or more of the following actions: “over

- comply” with the proposed emission rates ( i.e. , achieve lower rates); use low sulfur coal; curtail generation; or shut down units. Id

., referring to Post Br. at 15

- 20.

The Citizens Groups’ calculations are based upon subtracting the projected 2016 heat input from the projected 2013 heat input: 259,090,909

- 194,736,842 = 64,354,067 mmBtu. Dividing that result by the 2013 projected heat input gives the ratio o f the 2016 to 2013 heat input of about 25%: 64,354,067 / 194,736,842 = .248 or 25%. Some of the reduction in heat input could be attributed to planned outages during ESP upgrades. Additionally, the Board notes that basing heat input on the proposed SO 2 caps is dependent upon the sulfur content of the coal. Midwest Generation can adjust the heat input necessary to meet the proposed SO 2 mass emission caps by varying the sulfur content of the coal blend. Midwest Generation stated that it continuously eval uates its coal mix to ensure compliance and that the use of ultra

- low sulfur coal is part of Midwest Generation’s strategy to comply with the CPS system

- wide SO 2 emission rates, particularly in the early years for units where Trona systems have not been i nstalled.

The Board emphasizes that Midwest Generation must report to the Agency its system

wide mass SO 2 emissions for 2013, 2014, 2015, and 2016 with each applicable Annual Emissions Report. For example, by May 1, 2014, Midwest Generation must report i ts system

wide mass SO 2 emissions to the Agency for 2013 with the company’s Annual Emissions Report.

The annual SO 2 mass emission caps apply “system

- wide,” which for the purposes of the variance would entail the only following nine coal

- fired units: Joli et Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8; and Will County Units 3 and 4. To avoid any uncertainty, the Board adds a condition stating that to the extent any other units specified in the CPS Group (35 Ill. Adm. Code 225.Appendix A) could operate, no such other coal

- fired units are allowed to operate from the date of this order through December 31, 2016. This added language is especially warranted as Midwest Generation would receive variance relief from Section 225.295(b), which applies to the CPS Group, meaning all coal

- fired units specified in Appendix A of Part 225. See 35 Ill. Adm. Code 225.292.

Ceasing Operations at Crawford Units 7 and 8

The Citizens Groups argue that Midwest Generation’s commitment not to operate

Cr awford Units 7 and 8 under the variance should not be considered as contributing to any environmental benefit. The Citizens Groups state that Midwest Generation has already begun80

dismantling the stack at the Crawford Station, and should not be able to cre dibly claim that the units can still be legally operated. The Citizens Groups assert that the company will not be operating Crawford Units 7 and 8 regardless of whether the variance is granted. PC 5728 at 12

- 13.

In reviewing the data presented by Midwes t Generation, the Agency concluded that the emission reduction credits that Midwest Generation used to propose the mass emission limitations are “quantifiable and creditable.” Agency Rec. at 8. This includes credits for the early shutdown of Crawford Uni ts 7 and 8. The Board previously considered SO 2 emission reductions due to unit shutdowns in analyzing the environmental impact of a requested variance.

See Waukegan Order , slip op. at 16.

The Board finds it appropriate to impose conditions to account not only for the interim

SO 2 emission rates and mass emission caps, but also for not operating the Crawford Units 7 and 8 in 2013 and 2014. Because there is no requirement in the CPS or any Board order that these

two units remain inactive in 2013 and 2014 , the SO 2 emission reductions achieved through not operating Crawford Units 7 and 8 in those two years are properly credited to the variance

.

CONCLUSION

To grant a variance, the Board must decide whether there has been a “presentation of adequate proo f” that “compliance with any rule or regulation, requirement or order of the Board would impose an arbitrary or unreasonable hardship.” 415 ILCS 5/35(a) (2010). Even then, the Board may grant a variance only to the extent consistent with applicable feder al law. Id . After carefully analyzing this record, the Board finds that Midwest Generation has demonstrated that requiring timely compliance with the CPS Group average annual SO 2 emission rates in Section 225.295(b) (35 Ill. Adm. Code 225.295(b)) for 201 5 and 2016, and requiring that Waukegan Unit 8 either have installed and operational FGD equipment, or be permanently shut down, by December 31, 2014, will impose an arbitrary or unreasonable hardship on the company. The

Board also finds that variance rel ief from these CPS requirements can be granted consistent with

federal law and that Midwest Generation’s revised compliance plan , as modified by the Board, is adequate for requiring progress toward timely compliance with the CPS 2017 SO 2 emission rate

.

Accordingly, the Board grants Midwest Generation a variance from the following:

• The CPS Group average annual SO 2 emission rates of 0.28 lb/mmBtu in 2015 and 0.195 lb/mmBtu in 2016, set forth in 35 Ill. Adm. Code 225.295(b), until January 1, 2017, at whi ch point the CPS emission rates of 35 Ill. Adm. Code 225.295(b) apply, beginning with 0.15 lb/mmBtu for 2017; and

• The requirement to install and have operational FGD equipment on, or permanently shut down, Waukegan Unit 8 by December 31, 2014, set forth in Section 35 Ill. Adm. Code 225.296(a)(2), for a period of five months, i.e. , until May 31, 2015, at which point Waukegan Unit 8 must have FGD equipment installed and operational or be permanently shut down.81

The variance relief here is subject to numer ous conditions in the order below , including the following :

• Midwest Generation must meet an average annual SO 2 emission rate of 0.38 lb/mmBtu for

2015 and 2016 ;

• Midwest Generation must meet an annual declining SO 2 mass emissions caps for 2013 through 201 6 of 57,000 tons, 54,000 tons, 39,000 tons, and 37,000 tons, respectively ;

• T hough Crawford Units 7 and 8 ceased operation in 2012 and, pursuant to the Waukegan

Order , must permanently shut down by the end of 2014, today’s order further requires that

th ese units stay out of operation until their permanent shutdown ;

• Both Waukegan Unit 7 and Powerton Unit 6 must have installed and operational FGD equipment and related ESP upgrades by the end of 2014.

The Board finds that based upon the record, this compl iance plan will result in a net reduction of

SO 2 and other pollutant emissions from 2013 through 2016.

The Board denies as unnecessary Midwest Generation’s request for relief from Condition 1(a) of the Waukegan Order . Condition 1(a) only requires complia nce with Section 225.295(b) during the one

- year variance period of the Waukegan Order

, i.e. , from December 31, 2013 through December 31, 2014. Because Midwest Generation proposes to comply with Section 225.295(b) in 2013 and 2014, the company does not nee d relief from the Condition 1(a) requirement.

Although the Board grants Midwest Generation’s request for variance from the CPS regulations at issue, the Board is cognizant that Midwest Generation is receiving its second grant

of variance relief from the C PS in less than a year. Of course, these grants delay regulatory requirements that were adopted as a direct result of the joint request made by Midwest Generation and the Agency during the Board’s R06

- 26 CAIR rulemaking. Further, the CPS is

itself “an al ternative to compliance with the emissions standards of Section 225.230(a)” into which Midwest Generation opted. 35 Ill. Adm. Code 225.292(a), referring to 35 Ill. Adm. Code 225.230(a). Midwest Generation has therefore been given multiple opportunities t o comply with

SO 2 emission requirements.

This opinion constitutes the Board’s findings of fact and conclusions of law.

ORDER

1. The Board denies Midwest Generation, LLC (Midwest Generation) a variance from Condition 1(a) of the variance granted in Midwest Generation, LLC

- Waukegan Generating Station v. IEPA , PCB 12

- 121 (Aug. 23, 2012).

2. The Board grants Midwest Generation a variance from the following:82

A. The requirement of Section 225.295(b) of the Combined Pollutant Standard (CP S) (35 Ill. Adm. Code 225.295(b)) that the CPS Group comply with the average annual sulfur dioxide (SO 2 ) emission rates of

0.28 lb/mmBtu in 2015 and 0.195 lb/mmBtu in 2016. This relief lasts until January 1, 2017.

B. The requirement of Se ction 225.296(a)(2) of the CPS (35 Ill. Adm. Code 225.296(a)(2)) that by December 31, 2014, Waukegan Unit 8 either be permanently shut down or have installed and operational flue gas desulfurization (FGD) equipment. This relief lasts until May 31, 2015.

3. The variance granted under Paragraph 2 of this Order is subject to the following

Conditions:

A. From April 4, 2013 through December 31, 2014, Midwest Generation must not operate coal

- fired Unit 7 or 8 at the Crawford Station.

B. By December 31, 2014, for both Waukegan Unit 7 and Powerton Unit 6

, Midwest Generation must install and have operational FGD equipment

a nd related electrostatic precipitator ( ESP ) upgrade s

.

C. From January 1, 2013 through December 31, 2013, Midwest Gener ation must limit system

- wide emissions of SO 2 to no more than 57,000 tons. For the purposes of this variance, “system

- wide” entails the following

coal

- fired units: Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan Units 7 and 8; and Will County Units 3 and 4. To the extent any other units specified in the CPS Group (35 Ill. Adm. Code 225.Appendix A) could operate, no such other coal

- fired units are allowed to operate from April 4, 2013 through December 31, 2016.

D. Beginning with the second qua rter of 2013 and continuing through the fourth quarter of 2016, Midwest Generation must submit quarterly

progress reports to the Illinois Environmental Protection Agency (Agency) within two weeks following the end of each calendar quarter, and upon

reques t, meet with the Agency to apprise the Agency of actions taken related to compliance with the variance, and in particular Midwest Generation’s progress toward compliance with the 2017 SO 2 emission rate of 35 Ill. Adm. Code 225.295(b). In the first quarter ly report, Midwest Generation must discuss the compliance scenarios outlined in its post

hearing brief filed with the Board on February 19, 2013, in docket PCB

13

- 24, including Exhibit C to that brief. Midwest Generation’s quarterly reports must include a n itemization of activities completed during the quarter, activities planned to be completed in the forthcoming quarter, and progress of projects to comply with the deadlines specified in these

Conditions

.83

E. By December 31 of each year from 2013 throug h 2016, Midwest Generation must submit annual progress reports to the Agency generally describing the work completed that year ( i.e. , the progress report due by December 31, 2013, must describe work completed in 2013) and progress made to comply with the d eadlines specified in these Conditions. The annual progress report must also include a general description of the activities related to installation of the Trona systems and related particulate matter (PM) control work that Midwest Generation anticipates will be conducted the following year, including the status of the engineering for the projects and whether such projects have been included in the year’s budgeting.

F. Midwest Generation must submit quarterly and annual progress reports

under Conditions 3 (D) and 3(E) above to:

Illinois Environmental Protection Agency

Attn : Ray Pilapil, Manager

Bureau of Air

- Compliance Section

1021 N. Grand Ave. East

P.O. Box 19276 Springfield, IL 62794

- 9276

and Illinois Environmental Protection Agency

Attn : Dana Vett erhoffer, Assistant Counsel Division of Legal Counsel

- Air Regulatory Unit

1021 N. Grand Ave. East

P.O. Box 19276 Springfield, IL 62794

- 9276

G. From January 1, 2014 through December 31, 2014, Midwest Generation must limit system

- wide emissions of SO 2 to no more than 54,000 tons.

H. By May 1, 2014, Midwest Generation must report to the Agency its

system

- wide mass SO 2 emissions for 2013 with its Annual Emissions Report.

I. By December 31, 2014, Midwest Generation must inform the Agency of the company’s s elected approach for achieving compliance with the 2017

SO 2 emission rate of 35 Ill. Adm. Code 225.295(b) (Compliance Scenario), including any emission controls that Midwest Generation will implement.

J. By January 1, 2015, Midwest Generation must initiat e preliminary engineering and project planning for the installation of all emission controls identified in its Compliance Scenario under Condition 3(I).84

K. On January 1, 2015, and thereafter until completion of installation of FGD equipment on Waukegan Un it 8, Midwest Generation must not operate Waukegan Unit 8.

L. From January 1, 2015 through December 31, 2016, Midwest Generation must comply with a system

- wide average annual SO 2 emission rate of 0.38

lb/mmBtu.

M. From January 1, 2015 through December 3 1, 2015, Midwest Generation must limit its system

- wide mass emissions of SO 2 to no more than 39,000

tons.

N. By March 31, 2015, Midwest Generation must file permit applications, as necessary, for the installation of any emission controls identified in its Compliance Scenario under Condition 3(I).

O. By May 1, 2015, Midwest Generation must report to the Agency its

system

- wide mass SO 2 emissions for 2014 with its Annual Emissions Report.

P. By May 31, 2015, Midwest Generation must have completed the

instal lation of and have operational FGD equipment on Waukegan Unit 8

or have permanently shut down the unit.

Q. By December 31, 2015, Midwest Generation must commence construction of all emission controls identified in its Compliance Scenario under

Condition 3 (I).

R. By May 1, 2016, Midwest Generation must report to the Agency its

system

- wide mass SO 2 emissions for 2015 with its Annual Emissions Report.

S. From January 1, 2016 through December 31, 2016, Midwest Generation must limit its system

- wide mass emi ssions of SO 2 to no more than 37,000

tons.

T. By May 1, 2017, Midwest Generation must report to the Agency its

system

- wide mass SO 2 emissions for 2016 with its Annual Emissions Report.

U. From January 1, 2017 through December 31, 2017, Midwest Generation must comply with the rate set forth in Section 225.295(b) of the CPS (35 Ill. Adm. Code 225.295(b)) for 2017 of 0.15 lb/mmBtu.

V. Continuously during the period of the variance, Midwest Generation must do the following:85

i. Comply with the Clean Air Inte rstate Rule (CAIR) and any replacement rule for CAIR.

ii. Comply with the Acid Rain Program at 40 C.F.R. 72.

iii. Comply with all other applicable requirements.

iv. Upon the Agency’s request, promptly provide the Agency with

additional information relat ed to the Compliance Scenario under Condition 3(I).

v. Notify the Agency promptly if completion of the Trona system installations and associated PM controls necessary for compliance

with the CPS becomes infeasible.

IT IS SO ORDERED.

Member D. Glosser co ncurred.

Chairman T.A. Holbrook abstained.

If petitioner chooses to accept this variance, petitioner must, within 45 days after the date of this opinion and order, file with the Board and serve on the Agency a certificate of acceptance and agreement to b e bound by all the terms and conditions of the granted variance. “A variance and its conditions are not binding upon the petitioner until the executed certificate is filed with the Board and served on the Agency. Failure to timely file the executed certi ficate with the Board and serve the Agency renders the variance void.” 35 Ill. Adm. Code 104.240. The form of the

certificate follows on the next page :86

CERTIFICATE OF ACCEPTANCE

I (We), __________________________________________, having read the opi nion

and order of the Illinois Pollution Control Board in docket PCB 13

- 24, dated April 4, 2013, understand and accept the opinion and order, realizing that this acceptance renders all terms and conditions of the variance set forth in that order binding an d enforceable.

Petitioner: MIDWEST GENERATION, LLC

By:

_________________________________ Authorized Agent

Title:

__________________________________

Date:

__________________________________

Section 41(a) of the Environmental Prote ction Act provides that final Board orders may be appealed directly to the Illinois Appellate Court within 35 days after the Board serves the order. 415 ILCS 5/41(a) (2010); see also 35 Ill. Adm. Code 101.300(d)(2), 101.906, 102.706. Illinois Supreme Cou rt Rule 335 establishes filing requirements that apply when the Illinois Appellate Court, by statute, directly reviews administrative orders. 172 Ill. 2d R. 335. The Board’s procedural rules provide that motions for the Board to reconsider or modify its final orders may be filed with the Board within 35 days after the order is received. 35 Ill. Adm. Code 101.520; see also 35 Ill. Adm. Code 101.902, 102.700, 102.702.

I, John Therriault, Assistant Clerk of the Illinois Pollution Control Board, certify tha t the Board adopted the above opinion and order on April 4, 2013, by a vote of 4

- 0

.

___________________________________ John Therriault, Assistant Clerk

Illinois Pollution Control BoardAttachment A

- Hearing Commenters in Support of

Midwes t Generation’s Requested Variance

The following list consists of commenters who supported the variance request of Midwest Generation, LLC at the Board’s public hearing. The commenter’s name appears on the left, with the citation to the hearing transcript appearing on the right.

Name Transcript Page Number

Senator Pat McGuire, 43rd District 7 Representative Larry Walsh, Jr., 86th District 9 Larry Walsh, Chief Executive Officer, Will County 12 Michael Carrigan, President, Illinoi s AFL

- CIO 15 Terry Goldrick, Vice President,

International Brotherhood of Electrical Workers Local 15 88 Tom Wolf, Executive Director, Energy Council,

Illinois Chamber of Commerce 92 Jerry Caamano, Executive Director, Three Rivers Manufacturin g Association 94 Russ Slinkard, President and Chief Executive Officer, Joliet Region Chamber of Commerce and Industry 97 Mike Hennessey, on behalf of United Way of Will County 99 Robert Schwartz, President, Boilermakers Union ,

and on behalf of Wil l

- Grundy Building Trades Council 105 John Kennedy, Senior Vice President of Generation, Midwest Generation 137 William Naglosky, Station Director, Joliet Generating Station 140 William Burke, Director of Procurement and Supply Chain Management,

Midwe st Generation 142 Scott Perry, Plant Director, Will County Generating Station 143 Sabrina Lee, Employee, Midwest Generation 182

Tom Lambert 185 Scott DeGroate, Owner, DeGroate Petroleum Services 187 Don Gregory, Vice

- President, Wi ll

- Grundy Building Trades Council, and Business Representative, Pipefitters 597 190 James Harrod, on behalf of Hayes Mechnical 199

James Thorne 207Attachment B - Hearing Commenters Opposing Midwest Generation’s Requested Variance

The following list consists of commenters who opposed the variance request of Midwest Generation, LLC at the Board’s public hearing. The commenter’s name appears on the left, with the citation to the hearing transcript appearing on the right.

Name Transcript Page Number

A ntonio Franco, Co-Chair, Student Group, Joliet Junior College 90 Gail Snyder 101

Susan Klen 108 Mike Johnson, on behalf of Greenpeace 110 Faith Bugel, on behalf of Environmental Law and Policy Center 144 Andrew Armstrong, on behalf of Environmental Law and Policy Center 148 Susie Shutts, on behalf of Natural Resources Defense Council 150 Sandy Burcenski, Member, Citizens Against Ruining the Environment 155 Verena Owen, Volunteer, Sierra Club 157 Barbara Klipp, on behalf of Incinerator Free Lake County 162 Tracy Fox, Member, Peoria Families Against Toxic Waste 165 Brian Urbaszewski, on behalf of Respiratory Health Association 172 Judy Weimer 177 Temeka Gibson, on behalf of Illinois Environmental Council 179 Joyce Blumenshine 182 Kathy Kaiser, Member, Cool Joliet 188 Jennifer McElroy, Member, Citizens Against Ruining the Environment 191 Jerry Mead -Lucero, on behalf of Pilsen Environmental Rights and Reform Org anization 192 Kimberly Rowan, Director, Illinois Student Environmental Coalition 195 Randy Juras, on behalf of the Homer Glen Environmental Committee 201 Mary Burnitz, on behalf of Ardis Doolin 203 Edyeta Sitko, on behalf of Greenpeace 209

Ma rvin Pickering 212 Ellen Rendulich, on behalf of Citizens Concerning the Environment 215 Mary Burnitz 218IL LINOIS POLLUTION CONTROL BOARD April 4, 2013

MIDWEST GENERATION, LLC

Petitioner,

v.

ILLINOIS ENVIRONMENTAL PROTECTION AGENCY,

Respondent. ) ) ) ) ) ) ) ) ) ) PCB 13 -24 (Variance

- Air)

CONC URRING OPINION ( b y D. Glosser ):

I ag r ee with the majority opinion and concur in order to address my concerns with Midwest Generation, LLC (Midwest Generation)’s request for a variance. I agree that Midwest Generation will suffer an unreasonable economic hardship such that granting a varianc e is legally justified . Given the majority’s inclusion of a comprehensive compliance plan, the variance as granted is consistent with the Board’s previous actions, and I agree with granting this variance. However, I have several concerns about Midwest Ge neration’s request that I believe

need to be voiced.

I am concerned with the scale of this variance, which includes nine EGUs involving multiple facilities

. Midwest Generation seeks variance relief from the system -wide sulfur dioxide (SO 2 ) emission rat es of Section 225.295(b) (35 Ill. Adm. Code 225.295(b)) for the twoyear period of 2015 and 2016. Pet. at 1, 52; Post Br. at 6. This relief would apply to the company’s nine operating EGUs: Joliet Units 6, 7, and 8; Powerton Units 5 and 6; Waukegan

Unit s 7 and 8; and Will County Units 3 and 4. Midwest Generation has not identified specifically which units will achieve the SO 2 reductions. Given that many of these EGUs are located in the Chicago Area which has air quality issues, I find the scale of the variance problematic.

The Illinois Environmental Protection Agency noted that with the Midwest Generation

v ariance, “the calculated net environmental benefit is smaller than that calculated for previous variances granted [by the Board in Ameren Energy Resources v. IEPA, PCB 12-126 (Sept. 20, 2012) and the Waukegan Order].” Agency Rec. at 7 -8. Even though the Ameren variance was for a longer period of time (five years) , the fact that Ameren addressed only two EGUs and had larger SO 2 emission reductions , I believe makes the Board’s decision in Ameren less problematic

than a variance for nine EGUs involving multiple facilities with substantially less net SO 2 emission reductions.

Mi dwest Generation asserts that its proposed compliance plan would result in approximately 15,227 tons of SO 2 less than anticipated under the CPS during the years 2013 Attachment 152

thr ough 2014, 12,046 tons more in the years 2015 and 2016, with a net reduction of 3,181 tons overall from 2013 through 2016. Pet. at 48. Midwest Generation also claims that the proposed cap on mass emissions for SO 2 and the resulting reduction in the average annual heat input under the variance would also effectively reduce emissions of NO

x , PM, mercury, and carbon dioxide (CO 2 ) during the variance period. Pet at 49, Exh. 5 at 11.

Al though the majority finds support for Midwest Generation’s calculations and accepts those calculations, I am concerned that the reduction of SO 2 over the life of the variance is marginal at best and not as significant as portrayed by Midwest Generation

.

Another area of unease I have is reflected by t he Citizens Groups, who argue that, in light of the variance Midwest Generation was granted just four months prior to its current variance

request (Midwest Generation, LLC - Waukegan Generating Station v. IEPA, PCB 12-121 (Aug. 23, 2012)), the company has made no indication that it will not return to the Board seeking

another variance in the future. PC 2 at 6 -7. Midwest Generation’s own president indica ted that

the Chapter 11 bankruptcy proceedings could hinder Midwest Generation’s ability to comply with the CPS or the variance. This issue, however, according to Mr. McFarlane, is addressed by designing the variance to compliment Midwest Generation’s financial restructuring . Tr. at 36;

see also Tr. at 57. I believe the potential exists for Midwest Generation to need to file additional variance requests from the CPS and this is a grave concern. The CPS provides an alternative to compliance from certain emission standards and Midwes t Generation has already twice sought

an alternative to the alternative.

My remaining concern relates to the potential for adverse impacts to public health as a

result of the increase in SO 2 emissions in 2015 and 2016 as compared to that allowed by the CPS, although the record did not provide sufficient data to draw definitive conclusions.

For the foregoing reasons I concur in the majority opinion and order.

__________________________ Deanna Glosser

I, J ohn Therriault, Assistant Clerk of the Illinois Pollution Control Board, certify that the Board adopted the above concurring opinion on April 4, 2013.

___________________________________ J ohn T. Therriault, Assistant Clerk

Illinois Pollution Control BoardAttachment 16

# 2013



# I I I

R E G I S T’ E Governmental Agencies



# R Rules of

Volume 37, Issue 39



# _____ September 27, 2013



# __ Pages 15464-15558

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# _____ Index Department



# ________ Administrative Code Division

111 

### E.MonroeSt. Springfield, IL 62756

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# :



# _____ 217-782-7017

Printed by authority of the State of Illinois. September—go 

# PUBLISHED BY JESSE WHITE

• 

# SECRETARY OF STATE Attachment 17TABLE OF CONTENTS

September 27, 2013 Volume 37, Issue 39

PROPOSED RULES REVENUE, DEPARTMENT OF

Income Tax

86 111. Adm. Code 100 15464
SECRETARY OF STATE Dealers, Wreckers, Transporters and Rebuilders

92111. Adm. Code 1020 15503 TRANSPORTATION, DEPARTMENT OF Disadvantaged Business Revolving Loan Program

92111. Adm. Code 5 15513
ADOPTED RULES
STATE UNIVERSITIES RETIREMENT SYSTEM
Universities Retirement

80111. Adm. Code 1600 15517 EMERGENCY RULES TRANSPORTATION, DEPARTMENT OF Disadvantaged Business Revolving Loan Program

92111. Adm. Code 5 15531 NOTICE OF CORRECTION TO NOTICE ONLY
GAMING BOARD, ILLINOIS Riverboat Gambling
86111. Adm. Code 3000 15549
SECOND NOTICES RECEIVED
JOINT COMMITTEE ON ADMINISTRATIVE RULES
Second Notices Received 15551
OTHER INFORMATION REQUIRED BY LAW TO BE PUBLISHED IN
THE ILLINOIS REGISTER
ENVIRONMENTAL PROTECTION AGENCY

Notice of Public Information 15552 REVENUE, DEPARTMENT OF
2013 Second Quarter Sales & Miscellaneous Tax Sunshine Index 15554ILLINOIS REGISTER 15552

13 ENVIRONMENTAL PROTECTION AGENCY

NOTICE OF PUBLIC INFORMATION

The Illinois Environmental Protection Agency (“Illinois EPA”) Bureau of Air is accepting public

comment on a variance granted by the Illinois Pollution Control Board (Board’) to Midwest Generation, LLC (“Midwest Generation) for the purpose of submitting such variance to the
United States Environmental Protection Agency (“USEPA”) as a revision to Illinois’ State Implementation Plan (SIP) under the Clean Air Act (“CAA”), 42 USC 

### § 7401 etseq. In order
for a variance to be considered for approval as a revision to the SIP, the State must submit it in
accordance with the requirements of 40 Code of Federal Regulations (“CFR”) 

### § 51.104.

On November 30, 2012, Midwest Generation, with power plants in Cook, Will, Tazewell, and
Lake Counties, requested a variance from portions of the Illinois Combined Pollutant Standard (“CPS”) Midwest Generation, LLC v. Illinois Environmental Protection Agency, PCB 13-024. Specifically, Midwest Generation requested relief from the system-wide sulfur dioxide (‘SO2”)
emission rates set forth in 35111. Adm. Code 225.295(b) from January 1,2015, to December 31,
2016. With respect to its Waukegan Generating Station, Midwest Generation also requested a variance from the requirement set forth in 35 III. Adm. Code 225.296(a)(2) regarding installation
of certain SO2 control equipment on Waukegan Unit 8 by December 31, 2014; Midwest
Generation requested a five-month delay of such requirement, to May 31, 2015. On April 4, 2013, the Board granted the variance, subject to certain conditions.

The CPS is a multi-pollutant comprehensive approach to reduce emissions of nitrogen oxides, SO2, and mercury. On July 6, 2012, USEPA approved Sections 225.295(b) and 225.296(a)(2) as revisions to Illinois’ SIP as part of Illinois’ plan to address the visibility protection requirements
of Section 169A of the CAA, 42 U.S.C. 

### § 7491, and the Regional Haze Rule, as codified in 40
CFR 

### § 5 1.308. See, 77 Fed. Reg. 39943 (July 6,2012). As Midwest Generation’s Petition for
Variance sought relief from these provisions of the CPS and such relief was granted by the Board, the variance must be submitted to the USEPA for approval as a SIP revision addressing
the visibility requirements under the CAA and the Regional Haze Rule.

The Illinois EPA will accept written comments from the public. The written comments must be received by Illinois EPA by October 28, 2013, unless a public hearing is requested. Comments
and requests for hearing should be mailed to:

Dean Studer, Hearing Officer
Illinois EPA

1021 North Grand Avenue East
P.O. Box 19276 Springfield, Illinois 62794-9276 Telephone: 217/558-8280 or TDD: 217/782-9143ILLINOIS REGISTER 15553

13 ENVIRONMENTAL PROTECTION AGENCY

NOTICE OF PUBLIC INFORMATION

If a timely request for a public hearing is received by Illinois EPA by October 28, 2013, a public hearing will be scheduled through a separate notice and held to receive comments regarding the proposed SIP revision. If a public hearing is conducted, the written public comment period will
be extended as provided for in the separate notice.

If no request for a public hearing is received by the Illinois EPA by U.S. Mail, carrier mail, or hand delivered by October 28, 2013, no hearing will be scheduled. Verification as to whether a public hearing will or will not be held will be posted by November 8, 2013, on the Illinois EPA’s
website at http://www.epa.state.il.us/public-notices/. Interested persons may also contact Dean Snider, the Illinois EPA’s Hearing Officer, at the phone number listed above to inquire as to the

status of a public hearing.

Copies of the proposed SIP revision may be viewed by the public during regular business hours (Monday through Friday 8:30 a.m. to 4:30 p.m, except for State holidays) at the following
Illinois EPA offices: 1021 North Grand Avenue East, Springfield, Illinois; 9511 W. Harrison St., Des Plaines, Illinois; and 5407 N. University St., Arbor 113, Peoria, Illinois. No walk-in requests for copies of this material will be accommodated, unless advance notice is provided. Requests and public inquiries should be directed to Dean Studer, the Illinois EPA’s Hearing Officer, at the address and phone number listed above.

If a timely hearing request is received, the hearing will be held in accordance with the provisions
of the Illinois EPA’s “Procedures for Informational and Quasi-Legislative Public Hearings,” set forth at 35 III. Adm. Code 164. This notice is intended to satis~’ the requirements of Section 1100) of the CAA (42 USC 

### § 74100) (public notice for SIP revisions)).

### Verification that No Public Hearing Will Be Held

On Sep t ember 27, 2013, a Notice of Public Information was published in the Illinois Register
noticing a public comment period for a variance granted by the I llinois Pollution Control Board

to Midwest Generation, LLC for the purpose of submitting such variance to the United States

Environmental Protection Agency as a revision to I llinois' State Implementation Plan under the

Clean Air Act, 42 USC§ 7401 et seq. The notice specified t hat a public hearing would be

scheduled in this matter if a timely request for a public hearing was received by October 28,

2013. No requests for a public hearing were received.

Pursuant to the published notic e
, the I llino i s EPA i s required to verify whether a public hearing

will or will not be held on its website by November 8, 2013. Since no request for a public
hearing has been received, no hearing will be held in this matter.

Dean Studer
Hearing Officer Dated: November 4, 2013 Attachment 18Attachment 19

Technical Support for SIP Amendments Regarding Variance Granted to Midwest Genteration

Prepared by Illinois EPA, Bureau of Air

Illinois is proposing to amend its State Impl e mentation Plan (“SIP”) for Regional H aze to include a variance recently
granted to Midwest Generation by the Illinois Pollution Control Board . The variance provides Midwest Generation
relief from the system -wide average annual sulfur dioxide (SO 2 ) emission rates set forth in 35 Ill. Adm. Code
225.295(b) for the two-year period of January 1, 2015, through December 31, 2016. The rates set forth in
225.295(b) are fleet-wide averages of 0.28 lb/mmBtu in the year 2015 and 0.195 lb/mmBtu in 2016 . The variance

allow s for an average emission rate of 0.38 lb/mmBtu in 2015 and 2016.

The variance also provides relief from 35 Ill. Adm. Code 225.296(a)(2) for a period of five months, delaying that
requirement until May 31, 2015. Section 225.296(a)(2) requires that flue gas desulfurization equipment be installed
on the Waukegan 8 unit by Dec ember 31, 2014, unless the unit is shut down by that date. While this variance
extends this date by five months, it is important to note that u nder the conditions of the variance, t he unit will not be
operational for the five -month duration of the relief.

Illinois’ State Implementation Plan for Regional Haze included a plan for EGUs state

- wide that resulted in greater

reductions of SO 2 emissions than would have occurred had the state implemented Best Available Retrofit
Technology (“BART”) requirements at E GUs that were subject to BART under the requirements in the Clean Air
Visibility Rule (“CAVR”). Illinois demonstrated that emission reductions from the Multi- Pollutant Standard
(“MPS”) and Combined Pollutant Standard (“CPS”) in 35 Ill. Adm. Code Section 225 would be far greater than the
reductions obtained by requiring BART at subject

- to

- BART units. The proposed amendments to the Regional Haze

SIP to incorporate the previously discussed variance will not change this result.

Regional haze rules [40 C.F.R. § 51.308(e)(2)(i)] require that a state must “demonstrate that an emissions trading
program or other alternative will achieve greater reasonable progress than would have resulted from the installation
and operation of BART at all sources subject to BART in the State and covered by the alternative program.” The
regional haze rules [40 C.F.R. § 51.308(e)(2)(iii)] also require that “all necessary emissions reductions take place
during the period of the first long- term strategy for regional haze,” and that “the emissions reductions resulting from
the . . . alternative measure will be surplus to those reductions resulting from measures adopted to meet requirements

o f the CAA as of the baseline date of the SIP.” Illinois’ alternat ive approved plan met all three criteria at the time of
its approval. The proposed amendments to the SIP do not interfere with any of these requirements.

The table below was taken from Illinois’ Technical Support Document for Best Available Retrofit Technology
Under the Regional Haze Rule (AQPSTR 09-06, April 29, 2011), and has been modified to illustrate the effect of the

variance on SO 2 emission reductions. The table includes the 2002 base year emissions, emission reductions under a
presumptive BART scenario, emission reductions in 2015 under Illinois’ alternative plan, emission reductions in
2018 at the end of the first long-term strategy period under Illinois’ alternative plan, and emission reductions from
2019 and forward under Illinois’ alternative plan. It should be noted that the 2015 data reflects the fleet- wide
average emission rate of 0.38 lb/mmBtu included in the variance. Illinois’ plan also included provisions for the

installation o f flue gas desulfurization or shutdown of the Crawford and Fisk units. The table reflects the shutdown

of these units in 2012.

1Illinois EPA estimated that applying BART to Midwest Generation’s subject

- to

- BART units would result in a

reduction of 31,440 to ns of SO 2 annually from baseline emissions at the end of the first long -term strategy period in

2018 . Illinois EPA estimates that applying a fleet-wide average of 0.1 3 lb/mmBtu to all remaining Midwest

Generation units, per the CPS, would result in a redu ction of 61,100 tons of SO 2 annually in 2018 from baseline

emissions. This clearly satisfies the criteria that “greater reasonable progress” toward natural visibility is achieved.

Th is Midwest Generation variance only applies to the years 2015 and 2016, and so does not interfere with the

criteri on that “all necessary emissions reductions take place during the period of the first long- term strategy for
regional haze.” Finally, Illinois’ alternative plan, at the time of its original approval, met the crite ri on that “the
emissions reductions resulting from the . . . alternative measure will be surplus to those reductions resulting from
measures adopted to meet requirements of the CAA as of the baseline date of the SIP.” The proposed amendments

to the SIP to include the Midwest Generation variance do not interfere with Illinois’ compliance with this third

criteri on.

SO 2 reductions from Midwest Generation EGUs BART vs. C PS

Base Year Presumptive BART CPS 2015

- Adjusted

for Variance CPS 2018 CPS Fina l

- 2019

Plant Unit 1000

mmBTU Lbs/

mmBTU Tons Lbs/

mmBTU Tons/Year

Reduction Lbs/

mmBTU Tons/Year

Reduction Lbs/

mmBTU Tons/Year

Reduction Lbs/

mmBTU Tons/Year

Reduction

Crawford 7 11,627 0.54 3,142 NA NA 0.00 3,142 0.00 3,142 0.00 3,142

Crawford 8 17,348 0.51 4,453 NA NA 0.00 4,453 0.00 4,453 0.00 4,453

Fisk 19 14,650 0.52 3,843 NA NA 0.00 3,843 0.00 3,843 0.00 3,843

Joliet 29 71 15,034 0.7 5,276 0.15 4,134 0.38 2,420 0.13 4,299 0.11 4,449

Joliet 29 72 13,824 0.7 4,828 0.15 3,802 0.38 2,201 0.13 3,929 0.11 4,068

Joliet 29 81 15,585 0.68 5,300 0.15 4,130 0.38 2,339 0.13 4,287 0.11 4,443

Joliet 29 82 15,403 0.68 5,260 0.15 4,082 0.38 2,333 0.13 4,259 0.11 4,413

Joliet 9 5 14,369 0.63 4,559 NA NA 0.38 1,829 0.13 3,625 0.11 3,769

Powerton 51 20,936 0.42 4,444 0.15 2,826 0.38 466 0.13 3,083 0.11 3,293

Powerton 52 21,137 0.43 4,497 0.15 2,959 0.38 481 0.13 3,123 0.11 3,334

Powerton 61 18,293 0.43 3,964 0.15 2,561 0.38 488 0.13 2,775 0.11 2,958

Powerton 62 18,088 0.43 3,909 0.15 2,532 0.38 472 0.13 2,733 0.11 2,914

Waukegan 17 7,502 0.44 1,642 NA NA 0.38 217 0.13 1,154 0.11 1,229

Waukegan 7 16,117 0.47 3,754 NA NA 0.38 692 0.13 2,706 0.11 2,868

Waukegan 8 21,950 0.49 5,385 NA NA 0.38 1,215 0.13 3,958 0.11 4,178

Will County 1 9,398 0.42 1,969 NA NA 0.38 183 0.13 1,358 0.11 1,452

Will County 2 8,293 0.39 1,617 NA NA 0.38 41 0.13 1,078 0.11 1,161

Will County 3 15,559 0.47 3,636 NA NA 0.38 680 0.13 2,625 0.11 2,780

Will County 4 27,585 0.47 6,462 0.15 4,414 0.38 1,221 0.13 4,669 0.11 4,945

0.515 31,440 28,716 61,100 63,691

2