### Exhibit3



### THE MATTER OF STATE OF CONNECTICUT AND DOMINION NUCLEAR 

### CONNECTICUT, INC. ' 

# . '" 

# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

TRADING AGREEMENT AND ORDER NO. 8221

Whereas ( the Commissioner of Environmental Protection ("Commissioner") and DOffilnion Nuclear Connecticut, Inc. ("DNe") agree that it is in the public interest that they work cooperatively to**~mprove** the air quality within the State of Connecticut and that the use of discrete emission reduction credit ("DERC") trading to reduce nitrogen oxide ("NOx") 

### emissions will 

### achieve this result in a timely and cost-effective manner;

A. At the request and with the agreement of DNe, the Commissioner finds the following: 1.

2.

3.

4.



### 5.

6. On or about March 30, 2001, 

### DNe will acquire from Northeast Nuclear Energy Company ("NNECO") and then own and operate the Millstone Nuclear Power Station at Rope Ferry Road, Waterford, Connecticut ("facility")

. At the facility, ONC will operate eleven (11) emergency generators for the three (3) nuclear reactors to provide electricity to the reactors' operating equipment when normal electricity is unavailable. These emergency generators are identified in Exhibit 1 attached hereto and incorporated by reference into this Trading**Agreemen~** and Order. Due to the stringent Nuclear Regulatory Commission ("NRC") requirements for emergency generator readiness, NNECO has in the past, and ONC may be required in the future, to perform scheduled testing of the emergency generators on days for which the Commissioner has forecast that ozone levels will be "moderate to unhealthful", "unhealthful" or "very unhealthful". Due to the above mentioned testing requirement, pursuant to Subdivision (5) of Subsection (b) of Section 22a-174-22 of the Regulations of Connecticut State Agencies ("Regulations") eight of the emergency generators are subject to Subsections (d) through (k) of**Sect~on** 22a-174-22 of the Regulations pertaining to the control of NOx emissions. Three of the emergencz generators, the MP Unit 1 Fire Diesel, the Emergency**Eng~ne** EOF" (Cwnmins) and the Meteorological Tower generator, have maximum rated capacities below three (3) MMBtu/hr and potential emissions of NOx of less than 274 lbs/day. Because of this and because the facility is not located in a severe nonattainment area for ozone, these three engines are not subject to the requirements of Section 22a174-22 of the Regulations. NNECO completed NOx emissions testing of the remaining eight (8) emergency generators in accordance with the approved test protocol and Section 22a-174-22 of the Regulations. The results of such testing have been accepted by the Department of Environmental Protection ("Department n ). The MP Unit 1 Emergency Turbine GE LM1SOO, the MP Unit 3 Emergency Diesel Colt PC2 Diesels (A) and (B) had emissions below the Reasonably Available Control Technolo!;JY ("RACT n ) levels established in Subsection (el of**Sect~on** 22a-l74-22 of the Regulations and do not require emissions trading to comply with Section 22a-174-22 of the Regulations.



### Initials**(Prinl~o.l** un Recydeo.l**Pap~r)** 79 Elm Street • Hartforo.l. CT 0610()· 5127 hIIp:1fo.lep**.~l** ale.c t.us

"" 1:."'111(,1 Opp"'+"'lil.,· l;""'I'I".'"rr 

## r=§. tltbrating CunntcticufCua5fafRt5uurctManagtmtnt; 1980·1000

# i£d

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND 

### ORDER NO. 8221

2. 

### 7. Pursuant to the Department's policy statement entitled; "Credit Trading for Sources With Irregular NOx**Emissions~** 

### revised on February 27, 2001, attached hereto and incorporated by reference into**th~s** 

### Trading Agreement and Order as Exhibit 2, the five (5) emergency generators listed in Table 1 of this Trading Agreement and Order have peak daily NOx emissions greater than three times the average daily emissions during the ozone season and are therefore considered sources with irregular NOx emissions. 8. 

### Pursuant to Subsection (j) 

### of Section 22a-174-22 of the Regulations, on and after the date that ONC acquires the emergency generators, ONC will acquire approved OERCs to offset excess NOx**em~ssions** 

### from the emergency generators. ONC intends to continue purchasing approved OERCs as needed. 9. 

### Approved DERCs are defined for purposes of this order as those for which the Commissioner has**~rovided** 

### written authorization for use in compliance with**Sect~on** 

### 22a-174-22 of the Regulations. B. 

### The Commissioner, in accordance with the provisions of this trading agreement and order, and pursuant to Subsection (j) 

### of Section 22a174-22 of the Regulations hereby allows ONC to comply with Section 22a-174-22 of the Regulations through use of DERC trading referenced in Section A, 

### herein, to achieve the NOx emission reduction required by Subdivision (1) 

### of Subsection (d) of Section 22a-174-22 of the Regulations. C. with the agreement of ONC, the Commissioner, acting under Connecticut General Statutes Sections 22a-6, 22a-171, 22a-174, 22a176, and 22a-177, orders ONC as follows: 1. 

### The terms and conditions established by this Trading Agreement and Order shall become effective on the date ONC acquires the emergency generators, and when this Trading Agreement and Order has been issued. Based on the completion of approved NOx emissions testing and the approval of such NOx emissions testing results, the Full Load Emission Rates ("FLERs") listed in Table 1 of this Trading Agreement and Order have been established for the identified pieces of equipment. Upon issuance of· this Trading Agreement and Order, and continuing until May 1, 2003, 

### DNe shall comply during operation of each generator with the FLERs listed in Table 1 

### of this Trading Agreement and Order:



### Initials -2-

# Date~

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND ORDER NO. 8221 

### Table 1 DNC

- FLERs and NOx RACT Emission Rates
Stack**¥t;~k** NOx RACT Test 

### Dare FLER Rate GENERATOR FUEL Result (g/BHp- (g/BHp-Hr) TYPE (g/BHp-Hr) Hr) MP Unit 1 Emergency Diesel 12/8/98 Colt F-M 38TDB-1/8**D~esel** Diesel 8 9.0 8 MP Unit 2 Emergency Diesel 12/9/98 Colt F-M 38TDB-1/8 Diesel (12U) Diesel 10 10.96 8 MP Unit 2 Emergency Diesel 12/23/98 Colt F-M 38TDB-1/8 Diesel (13U) Diesel 9 10.0 8 Station Blackout Diesel 1/20/99 Electro-Motive 2MW Generator Diesel 13 .0 14.3 8 Station**securit~** Diesel 12110/98 Cummins VT 1710 S/GC Diesel 10.46 11.6 8
3. On and after the date that ONC acquires the emergency generators, ONC shall document and record the amounts and types of all fuel used and OERCs used by each generator each day, and shall maintain and provide such records in accordance with the following and Section 22a-174-4 of the**Regula~ions,** and until May 1, 2003, shall:

a. Have in its possession sufficient approved OERCs for the current day, based on the following calculations (described also in Exhibit 2); 

### At all**t~es** 

### (mass calculation): OERCs (in tons) 

# = (actual hours operated x Hp rating x (FLER (g/Bhp-hr)

- (0.95 x NOx RACT rate (g/Bhp-hr»)) x (1pound/454g)] + 2000 pounds/ton 

### During the ozone season only (peak day calculation): the maximum actual excess NOx emissions (in lbs) on any of the days**pro~ected** by the Commissioner to be Mmoderate to unhealthful, "unhealthful," or "very unhealthful," divided by 3 and then divided by 13 (with the result in tons) : OERCs (in tons) 

## = [(Maximum excess NOx in lbs) + 3] + [13 lbs/day/ton] b. No later than October 30 of 2001, 2002 and 2003, calculate the OERCs used in the preceding ozone season as the greater of: i. the actual total excess emissions for the ozone season in tons, as follows: DERCs (in tons) 

## = [actual hours operated x Hp rating x (FLER (g/BHp-hr)

- (0.95 x NOx RACT rate (g/BHp-hr») x (1 pound/454g)] + 2000 pounds/ton OR ii. the maximum actual excess NOx emissions (in lbs) on any of the days projected by the Commissioner to be "moderate to unhealthful", "unhealthful", or "very 

### Initials

# & -3- 

### Date] 

# tD(O\

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND 

### ORDER NO. 8221

d.**unhealthful~.** divided by 3 and then divided by 13 (with the result in tons): DERCs (in tons) 

# = [(Maximum excess NOx in lbs) + 3J + 

### [13 1bs/day/ton] As described in Exhibit 2 of this Trading Agreement and Order, to the extent that DERCs used to offset on peak day basis (method ii) exceed the total mass excess em1ssions (method I), remaining DERCs may be used in the non-ozone season in the same or subsequent years until 

### May 1, 2003;

c. No later than January 31, 2002, 2003 and 2004, calculate DERCs used for non-ozone season months in the previous calendar year, as follows: DERCs (in tons) 

## = (actual hours operated x Hp rating x (FLER (g/BHp-hrl

- (0.95 x NOx RACT rate (g/BHp-hr») x (1 pound/4s4g) 

### 1 + 2000 pounds/ton Adjust upwards by 100% the DERCs required if DERCs are not in ONe's possession prior to use. However, based on the gravity of the noncompliance, the Commissioner may requ1re additional upward adjustment;


### e.

f. Document and record daily fuel use and fuel type, excess NOx emissions and l during the ozone season, the daily ozone classificat10n as forecasted by the Commissioner on the previous day; DNe shall notify the Commissioner in writing, within thirty (30) days from the date of discovery of any defic1t in DERCs, and shall submit copies of supporting calculations for review and approval by the Commissioner;

j . h.



### 1. g. No later than March 1. 2002. 2003 and 2004. include with its annual emissions report to the Commissioner, OERCs used (calculated as described in sections C.3.b. and C.3.c. of this Trading Agreement and Order), by ozone and non-ozone seasons, for the previous calendar year; Retain records and supporting documentation as described in this paragraph for a minimum of five years, commencing on the date such records are created; Maintain documentation to attest to the fact that OERCs used during the ozone season were generated during the ozone season. Generator certification of this fact shall be sufficient; and Provide the records specified above to the Commissioner within thirty (30) days of receipt of a written request from the Commissioner. 4. No later than May 1. 2003, ONC shall comply with the requirements of Subdivision (1) of Subsection (d) of Section 22a-174-22 of the Regulations. However, after full program review of this and other Trading Agreements and Orders and, if determined to be appropriate, the Commissioner may grant a written extension of this Trading Agreement and Order. 5. The FLER may be adjusted upon satisfactory demonstration to the Department and written approval by the Commissioner. 6. Exceedance of an established FLER shall subject DNe to make restitution by matching the quantity of emissions**(~true up~l**  caused by the exceedance plus a 100% premium penalty. The true up in tons of DERCs shall be equal to the FLER exceedance in Lbs/MMBtu, multiplied by the total heat input during the period 

### Initials 

### -4- Date

# Q!:DjQ\

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND 

### ORDER NO. 8221

7.



### 8.

9.

10.

11. 

### of non-compliance divided by 2000 lbs/ton. If the period of**non-com~liance** 

### is not known( the time period from the**complet~on** 

### of the**last/prev~ous De~artment**  

### witnessed stack test through the date compliance is**ach~eved** 

### as approved by the Commissioner shall be used. However, based on the gravity of the noncompliance, the Commissioner may require additional upward adjustment. Pursuant to Subsection (k) of Section 22a-174-22 of the Regulations, ONC shall conduct NOx emission tests of the emergency generators to which Section 22a-174-22 of the Regulations applies at least once every five years. Such testing shall take place no later than five years from the date of the last test for the five (5) emergency generators identified in Table 1 of this Trading Agreement and Order. For the three (3) emergency generators not 1dentified in Table 1 of this Trading Agreement and Order but identified in**~aragraph** 

### A.6. of this Trading Agreement and Order, such test1ng shall take place no later than five years from the date of the last test. In no event shall such testing for the emergency generators to which Section 22a-174-22 of the Regulations applies be later than five years from the date that the previous test was required to be conducted by.**Approva~s.** 

### ONC shall use best efforts to submit to the**Comrniss~oner** 

### all documents required by this Trading Agreement and Order in a complete and approvable form. If the Commissioner**notif~es** 

### ONC that any document or other action is deficient I 

### and does not approve it with conditions or**modificat~ons(** 

### it is deemed disapproved, and ONC shall correct the**deficienc~es** 

### and resubmit it within the time specified by the Commissioner or, if no time is specified by the Commissioner, within 30 days of the Commissioner's notice of deficiencies. In approving any document or other action under this Trading Agreement and Order, the Commissioner may approve the document or other action as submitted or performed or with such conditions or modifications as the Commissioner deems necessary to carry out the purposes of this Trading Agreement and Order. Nothing in this paragraph shall excuse noncompliance or delay.**~efinitions.** 

### As used in this Trading Agreement and Order, "**omm~sslonerft** 

### means the Commissioner or a representative of the Commissioner; "Ozone season ft 

### means the period from May 1 through September 30 in any given calendar year. The date of "issuance" of this Trading Agreement and Order is the date the Trading Agreement and Order**~s** 

### deposited in the U.S. mail or personally delivered, whichever is earlier. Rates. The date of submission to the Commissioner of any

ocument required by this Trading Agreement and Order shall be the date such document is received by the Commissioner. The date of any notice by the Commissioner under this Trading Agreement and Order, including but not limited to notice of approval or disapproval of any document or other action, shall be the date such notice is deposited in the U.S. mail or is personally delivered, whichever is earlier. Except as otherwise specified**~n** 

### this Trading Agreement and Order, the word -day- as used in this Trading Agreement and Order means calendar day. Any document or action which is required by this Trading Agreement and Order to be submitted or performed by a date which falls on a Saturday, Sunday or a Connecticut or federal holiday shall be**subm~tted** 

### or performed by the next day which is not a Saturday, Sunday or Connecticut or federal holiday.**r~r~if~catiQn** 

### Qf**d9cume~~. ~y** **doc~ent,** 

### including. but not**~m~te** 

### to any**not~ce(** 

### w**~ch** 

### 1S**requ~red** 

### to be**subm~tted** 

### to the Commissioner under**th~s** 

### Trading Agreement and Order shall be signed by ONC or, if ONC is not an individual, by ONC's chief executive officer or a duly authorized representative of such officer, as those terms are defined in §22a-430-3(b) (2) of the Regulations of Connecticut State Agencies, and by the individua (s) responsible for actually preparing such document, 

### Initials: -5- Date:

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND ORDER NO. 8221

12.

13.

14.

15.

16.

17.

18.

19.

20. and DNC or DNC's chief executive officer and each such individual shall certify in writing as follows: "I have personally examined and am familiar with the information submitted in this document and all attachments thereto, and I certify, based on reasonable investigation, including my inquiry of those individuals**respons~ble** for obtaining the information, that the submitted 1nformation is true, accurate and complete to the best of my knowledge and belief. I understand that any false statement made in the submitted information is pun1shable as a criminal offense under $53a-157b of the Connecticut General Statutes and any other appl1cable law .•**NO~cornpria~ce.** This Trading Agreement and Order is a final**o~er** 0**~e** Commissioner with respect to the matters addressed herein, and is nonappealable and immediately enforceable. Failure to comply w1th this Trading Agreement and Order may subject DNC to an injunction and penalties.**F~e** statements. Any false statement in any information

S**m~tted** pursuant to this Trading Agreement and Order is punishable as a criminal offense under §53a-157b of the Connecticut General Statutes and any other applicable law. Notice of transter: liaAility of PNC. Until DNC has**ful~y** complied witn 

### t rs Trad1ng Agreement and Order, DNC shall not1fy the Commissioner in writing no later than 15 days after transferring all or any portion of the facility,' the operations, the site or the business which is the subject of this Trading Agreement and Order or after obtaining a new mailing or location address. DNC's obligations under this Trading Agreement and Order shall not be affected by the passage of title to any property to any other person or**munic~pality.** .**CQmmissio~er's** nower%. Nothing in this Trading Agreement and -oraer sha 

### 1 afrect**t~e** Commissioner's authority to institute any proceeding or take any other action to prevent or abate violations of law, prevent or abate pollution, recover costs and natural resource damages

## i and to impose penalties for past, present, or future vio ations of law. If at any time the Commissioner determines that the actions taken by DNC pursuant to this Trading Agreement and Order have not successfully corrected all violations, fully characterized the extent or degree of any pollution, or successfully abated or prevented pollution, the Commissioner may institute any proceeding to require DNC to undertake further investigation or further action to prevent or abate violations or pollution. PNC's**Obligation~under** law, Nothing in this Trading Agreement and Or er shall relieve ONC of other obligations under applicable federal, state and local law. No assurancejby Commissioner. No provision of this Trading Agreement anal Order and no action or inaction by the Commissioner shall be construed to constitute an assurance by the Commissioner that the actions taken by ONC pursuant to this Trading Agreement and Order will result in compliance or prevent or abate pollution. Access to facility. Any representative of the Department of Env1ronmental Protection may enter the facility without prior notice for the purposes of monitoring and enforcing the actions required or allowed by this Trading Agreement and Order.

. No e1fect on rights of other persons, This Trading Agreement and rder**ne~ther** creates nor aftects any rights of persons or municipalities that are not parties to this Trading Agreement and Order. No Creation of Property Rights, This Trading Agreement and Order does not create any property rights with respect to these DERCs. 

### Initials: -6- 

### Date:

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND 

### ORDER NO. 8221

. 21.

22.

23. Notite to Commissioner Qf changes. Within 15 days of the date ONC ecomes aware of a cnange ln any infQrmation submitted to the CommissiQner under this Trading Agreement and Order, or that any such information was inaccurate or misleading or that any relevant informatiQn was omitted, ONe shall submit the correct Qr Qmitted infQrmatiQn tQ the Commissioner. NQtificatiQn of**~oncQmpliance.** In the event that ONC becQmes aware that l.t 

### d1 nQt or may nQt comply, or did not or may not comply on time, with any requirement Qf this Trading Agreement and Order Qr of any document required hereunder I ONC shall immediately notify by telephone the individual ldentified in the next paragraph and shall take all reasonable steps to ensure that any noncompliance or delay is avoided Qr, if unavQidable, is minimized to the greatest extent possible. Within five (5) days of the initial notice, ONC shall submit in writing the date, time, and duration of the noncompliance and the reasons fQr the noncompliance or delay and propose, for the review and written approval of the CommissiQner, dates b¥ which compliance will be achieved, and ONC shall comply wlth an¥ dates which ma¥ be approved in writing by the CQmmiSSloner. Notificatlon by ONC shall not excuse noncompliance or delay, and the Commissioner's approval of any compliance dates propQsed shall nQt excuse nQncompliance Qr de+a¥ unless speclfically so stated by the Commissioner in wrltlog.**su~mission** of documents. Any document required to be su mltted to the Commissioner under this Trading Agreement and Order shall, unless otherwise specified in this Trading Agreement and Order or in writing by the Commissioner, be dlrected tQ: Wendy Jacobs Department of Environmental Protection Bureau of Air Management Emissions and Credlt Trading Section 79 Elm Street Hartford, CQnnecticut 06106-5127

Initials: 

### -7- Date: 

# 3!Jl/OI

### Dominion Nuclear Connecticut, Inc. TRADING AGREEMENT AND ORDER NO. 8221 

### DNC consents to the issuance of this Trading Order without further notice. The undersigned certifies that he/she is fully authorized to enter into this Trad1ng Order and to legally bind 

### DNe to the terms and conditions of the Trad1ng Order.
Do i 

### ion Nuc Connecticut, Inc.

## Signature:~~n:d~L~j(%~t£f]c..- _ Type Name:

## .,-!:"''-'-!¥''''--':-'-'-'''':'\':1P;;:I-,,;-::;-,.,---- Type Title,

# ;conrnen~\ Date, 

# e,

Issued as a final order of the Commissioner Protection

## on~, 2001.



### r.

MAILED CERTIFIED MAIL, RETURN RECEIPT REQUESTED Certified Document



### -8-

## EXHlBJI 1 MILLSTONE GENERATORS

Name/Unit :: 

### Rating (MMBru/hr)

# r. Fuel MP Unit 1Emergency Diesel ColtF-M 38 ID8 

# I 28 Diesel 

### MP Unit IEmergency Turbine GELM1500 Turbine 82 Kerosene 

### MP Unit2Emergency Diesel ColtF-M 38-TDB-I/8 27.58 Diesel 

### Diesel (12 U)



# - MP Unit2Emergency Diesd ColtF-M 38-TDB-I/8 27.58 Diesel 

### Diesel (13 U) MP Unit3 Emergency Diesel ColtPC2 Diesel (A) 50A Diesel 

### MP Unit 3Emergency Diesel ColtPC2 Diesel (B) 50.4 Diesel 

### Station BlackoutDiesel Electro-Motive2MW 

### 2576 Diesel 

### Generator 

### Statioo SecurityDiesel Cumrnins VT 1710 GS/GC 

# I 3.5 Diesel 

### MP Unit 1Fire Diesel (Atlantic Detroit Diesel) 

# I 2.1 Diesel 

### Meteorological Tower Generator 

### 0.68 Propane 

### EmergencyEngine "EOF" (Cummins) 2.1 Diesel

## .. ..

Exhibit:2

### , 

# ... 

# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION
UpdatedFebruary 

### 27, 2001 

## CreditTradingforSources with IrregularNOxEmissions

The following outlines the Department's concerns and methodology for dealing with peaking units ("peakers") thathave maximumpeakdailyemissions that are substantially higherthan theiraverage daily emissions and thatchoose [0 achieve NOx compliance via credittrading pursuant co §22a-174-22(j) ofthe Regulations ofConnecticutState Agencies ("Regulations"). Forpurposes ofthis protocol, peakers are defined as sources with maximumpeakdaily NOx emissions greaterthan three times theiraveragedaily 

### emissions I 

### during the ozone season. Thebasicconceptofthetradingprogram is thatsources withexcess NOx emissions (aratethatexceeds the rate limits in the Regulations) may obtain NOx discrete emission reduction credits ("DERCs") from sources thathave "over-controlled" their NOx emissions. Although typical sources can obtain credits on a mass basis (one ton ofDERCs to offset one ton ofexcess emissions) with an acceptableenvironmental outcome, sources with large variations in emissions from day today pose an additional problemforozone attainmentplanning.
The most common peakers areelectricity generating units thatrun during times ofhigh electricity consumption. Electricity demand is often the highestduring hot, humid days ofthe summerwhen the potential for ozone fonnation is also high. Peakers frequently have high emission rates. Totheextentthat these units produce emissions at exactly the time when emissions need to be reduced to limit ozone formation, allowing peakers tocontinue to comply with new rate limits through the use ofDERCs on a ton-far-ton basis will exacerbate this effect.. On the otherhand, ifitcan be demonstrated that the DERCs being used by peakers were generated on acomparable basis (i.e

.. during days ofhigh ozone potential), then ton-for·ton use by peakers would be appropriate.
The full impact ofthe NOx emissions from these types offacilities during summeroperation mustconsider temporal variability as well as mass ofexcess emissions. AnyDERC trade must considerequivalency to the NOx reductions that control equipment would produce on an ozone day on both atemporal and a mass basis. The protocol below places appropriate requirements on peaking units to reflect the greaterimpact ofNOx emitted under this type ofusage pattern. Attachment 1 provides adetailed example ofhow this policy would be applied to apeaker. Attachment2 provides an explanation ofthe calculations underlying this policy.


### NOx Emissions Reduction Credit Use Computation ForPeakers

• Peakers are onlyconsideredto be atemporal issue forthe ozone season months.

• All excess NOx emissions during the winter(non-ozone season) need only be offsetby DERCs on amass basis.

• Priortoeach ozone season there will be aprospective estimation todetennine how many tons of DERCs mustbe "on hand" during the ozone season. A retrospective calculation will detennine how many DERCs were actually "used" during the ozone season.

1

- For purposes ofthis analysis. average daily emissions are determined by dividing asource's total ozone season NOx emissions (pounds) by 153 days to calculate an average pound/day value.
( Printe<.l un**Re(;~c1e<.l** Paper) 7<) Elm Street • HJrlfor<.l. CT 06106·5117 hllp:/I<.Iep.stJte.\:(.US All t"I,,,,1 OPp,u/"lIi/I' /<,'mpl"y"r dtbran'ng Cunnecticut CuastalRtsouruManagrmrnl: 1980.1000For EReuseduring the ozoneseason:
I. Prospectiveestimation (pre-ozone season) will deterntine the numberofDERCs that mustbe provided forthe ozone season. (Beginning in 1996. the DERCs must be in place no laterthan 

### May 1.)
DERCs required forthe ozone season shall becalculated on the following bases: (a) Mass basis: DERCs required will beequal to the total numberoftons ofestimated excess NOx emissions overtheentireozone season. calculated in the same mannerused for other sources using DERCs (i.e.• including anydiscounts). (b) Max·peakbasis: DERCs required (in tons) will be calculatedby dividing one-third ofthe estimated maximum dailyexcessemissions (in pounds) for any day during the ozone season by 13 pounds/(ton-day) '. (see Attachment 2 for an explanation ofthis calculation):
DERCs required (tons)

## =[(EstimatedMaximum Excess NOx in Ibslday) + 3]



### • [131bsl(lono

### day)]
Sources will be required to hold credits equal to thegreater ofthe amountcalculated on amass or max-peakbasis. The timing ofactualcreditpossession will be governed by the terms ofthe specific trading orderissued forthat source.
2. Retrospective calculation (post-ozone season) will deterntine the actual credituseand theDERC surplus. ifany. At theend oftheozone season, thecalculations required in step I above will be repeated using: for (a). the actual (ratherthan estimated) total excessemissions forthe ozone season. and for (b). the (ratherthan estimated) maximum dailyexcess NOx emissions on anyofthe days projectedby the Commissionerto be**~moderate** to.unhealthfuln•**~unhealthful\** or "very unheahhfuln• The numberofDERCs required pursuantto this policy wiU be the greater ofthe numberof DERCscalculated on the mass basis orthe max-peakday basis.
Ofthe total DERCs needed fortheozone season, anumberofDERCs equal to the unit's actual total excess emissions (on amass basis) will be used to coversuch actual excess emissions. The numberofDERCs equal to thedifference between the total number needed pursuanttothis policy and total actual excessemissions shall beconverted from ozone season DERCs to non-ozone season DERCs. Any swplus DERCs (those purchased pursuantto the pre-ozone season estimation and not used to coveractual emissions norconverted to non-Qzone season emissions) may becarried forward foruseas ozone season DERCs through April 30, 2003 except as maybe limiled bythe trading agreementand order. orbyregulation.

2· Forthe pre-ozone seasonestimation. the maximum daily excess NOx emissions (in lbslday) is the difference between the maximum expected NOx emission rate and 95% ofthe allowable NOx emission rate under Section22a174-22(e) ofthe Regulations (lbIMMBtu) multiplied by the unit's maximum raced capacity (MMBtulhr) and by the estimated maximum hours ofoperation perday (hrslduy).

### 2

### ANachment1 

### Example of thispolicy beingappliedto apeaking unit
Before theozoneseason,apeakerhasestimated its total excess emissions tobe 15 tonsfortheozone season. Itis alsoestimatedthatthe m:uimumexcessemissiononadayprojected tobe "moderateto unhealthful" orworse willbe5000pounds. Actual ozoneseasonexcess emissionsarelisted inthetable below. Theanalysis ofhowthis policywouldbeapplied to thispeakerfollows afterthe table.
Date NOx Excess 

### NOx CERCs "Mod to 

### Peak Cay NOx Emissions needed (mass 

### Unhealthful" (or CERCs needed (pounds) basis) (tons) worse) forecast? 

### (tons)


### 5/1 1,000 0.50 no 

### 25.64 5/15 2,000 1.00 ves 

### 51.28 6/1 3,000 1.50 no 

### 76.92 6/15 4,000 2.00 ves 

### 102.56 7/1 1,000 0.50 ves 

### 25.64 7/15 5,000 2.50 no 

### 128.21 811 1,000 0.50 ves 

### 25.64 8115 3,000 1.50 no 

### 76.92 9/1 3,000 1.50 ves 

### 76.92 9/15 4,000 2.00 no 

### 102.56 

# I 13.00 

# I

SUM (mass basis)
ANALYSIS: PRE-OZONE SEASON ESTIMATION 12821 Estimated Ozone Season Tons Needed (max-peak basis using

• 5000 pounds as estimated maximum daily excess emissions) 15.00 Estimated Ozone Season Excess Emissions (mass basis) 

### 128.21 Numberof ozone season CERCs that need to be held no laterthan May 1



### POST-OZONE SEASON CALCULATION 10256 Ozone Season Tons Needed (max-peak basis using

. 4000 pounds as actual maximum dailyexcess emissions) -13.00 Actual Ozone Season Excess Emissions (mass basis) 89.56 Number01 Ozone Season CERCs converted to Non-Ozone Season OERCs 

### 102.56 max-peak basis



### SUMMARY 

### Ofthe 128.21 tons of ozone season DERCs that were reselVed by May 1, 13.00 tons were used to cover actual ozone season emissions on a mass basis 89.56 tons were converted to non-ozone season DERCs 

### 25.64 tons were carried forward as surplus ozone season DERCs



### 3

### Attachment2 Explanation of Max-PeakBasis Calculation
Unless itcan be demonstrated otherwise. DERCs areassumed tobe createdby relatively small daily reductions in NOx emissions overthe courseofan entireozone season (153 days). The average daily NOx emissions reduction represented byeach ton ofcreditis 13 pounds/daycalculated as follows:
2000 pounds/ton + 153 days

## =13 pounds/(ton·day) Thus, one DERC (ton) would be equivalentto areduction in NOx emissions of 13 pounds/day.
Forexample, ifapeakeremits one ton ofexcess NOx perday when operating. but only operates for five days during the ozone season, the owner/operatorofthat source would nominally need toobtain five tons ofDERCs on a mass basis. However, those DERCs used tooffsetthis peaker's excess emissions are likely to have been created byrelatively small daily-reductions in NOx emissions from another source overthe course ofan entire ozone season (153 days). In this example, assuming apurchase offive tons ofDERCs, thatcalculates outto a

## millx NOx reduction ofapproximately 65 pounds. (5 tons x2000 pounds/ton) + 153 days

## =65 pounds/day Clearly, on any day that the peakeroperates, there will be many more tons ofexcess NOx emittedthan NOx creditscreated (on the sameday) to offsetthoseexcessemissions (on the orderof 1,935 pounds in this example). (1 ton x2000 pounds/ton)

- (65 pounds credit)

## =1.935 pounds excess NOx emissions
While the total amountofNOx emitledby apeakerwould beoffseton a seasonal averagebasis, on the "peaking" day there would bea potentially significantincrease in NOx emiued. and thus an increase in potential ozonecreation. In orderto achieve acommensurate reduction in ozone creation potential for peakers, an adjustment in thecalculation ofrequired DERCs is needed. One approach would be torequire DERCs in aquantity that would ensure that the daily average reduction represented by thoseDERCs would equal the maximumdailyexcess NOx emissions from the peaking source on any day thatitran. On this basis, a peaking source with amaximum24·hourexcess NOx emission ofone ton would be required to purchase 153 tons ofDERCs.
I ton/day x 153 days/season = 153 tons/season
This 153 tons ofDERCs would beadequate tooffsetexcessemissions ofone ton perday for as manydays as the source pperatedduring aparticularozoneseason. This has been deemed to be unduly stringent, given the diversity in operation ofsome ofthe peakers. In light ofthe foregoing. this requirementhas been adjusted downward bytwo-thirds.



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