Exhibit 3

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 unheal thful", "unheal thful" 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

h II p:1fo.lep .~l ale.c t. us

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

tltbrating Cunntcticuf Cua5faf Rt5uurct Managtmtnt; 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

Colt 12/8/98 F-M 38TDB-1/8 D~esel Diesel 8 9.0 8

MP Unit 2 Emergency Diesel

Colt 12/9/98 F-M 38TDB-1/8 Diesel

(12U) Diesel 10 10.96 8

MP Unit 2 Emergency Diesel

Colt 12/23/98 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

Cummins VT 12110/98 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 unheal thful", "unheal thful", 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 damagesi 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 hereunderI 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/O I
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 1 Emergency Diesel Colt F-M 38 ID8 I 28 Diesel

MP Unit I Emergency Turbine GE LM1500 Turbine 82 Kerosene

MP Unit 2 Emergency Diesel Colt F-M 38-TDB-I/8 27.58 Diesel

Diesel (12 U)

- MP Unit 2 Emergency Diesd Colt F-M 38-TDB-I/8 27.58 Diesel

Diesel (13 U)

MP Unit 3 Emergency Diesel Colt PC2 Diesel (A) 50A Diesel

MP Unit 3 Emergency Diesel Colt PC2 Diesel (B) 50.4 Diesel

Station Blackout Diesel Electro-Motive 2MW 2576 Diesel

Generator

Statioo Security Diesel 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

Emergency Engine "EOF" (Cummins) 2.1 Diesel
..

..

Exhibit :2
, ...

STATE OF CONNECTICUT

DEPARTMENT OF ENVIRONMENTAL PROTECTION

Updated February 27, 2001

Credit Trading for Sources with Irregular NOx Emissions

The following outlines the Department's concerns and methodology for dealing with peaking units

("peakers") that have maximum peak daily emissions that are substantially higher than their average daily

emissions and that choose [0 achieve NOx compliance via credit trading pursuant co §22a-174-22(j) of the

Regulations of Connecticut State Agencies ("Regulations"). For purposes of this protocol, peakers are

defined as sources with maximum peak daily NOx emissions greater than three times their average daily

emissions I during the ozone season.

The basic concept of the trading program is that sources with excess NOx emissions (a rate that exceeds

the rate limits in the Regulations) may obtain NOx discrete emission reduction credits ("DERCs") from

sources that have "over-controlled" their NOx emissions. Although typical sources can obtain credits on a

mass basis (one ton of DERCs to offset one ton of excess emissions) with an acceptable environmental

outcome, sources with large variations in emissions from day to day pose an additional problem for ozone

attainment planning.

The most common peakers are electricity generating units that run during times of high electricity

consumption. Electricity demand is often the highest during hot, humid days of the summer when the

potential for ozone fonnation is also high. Peakers frequently have high emission rates. To the extent that

these units produce emissions at exactly the time when emissions need to be reduced to limit ozone

formation, allowing peakers to continue to comply with new rate limits through the use of DERCs on a

ton-far-ton basis will exacerbate this effect.. On the other hand, if it can be demonstrated that the DERCs

being used by peakers were generated on a comparable basis (i.e.. during days of high ozone potential),

then ton-for·ton use by peakers would be appropriate.

The full impact of the NOx emissions from these types of facilities during summer operation must consider

temporal variability as well as mass of excess emissions. Any DERC trade must consider equivalency to

the NOx reductions that control equipment would produce on an ozone day on both a temporal and a mass

basis. The protocol below places appropriate requirements on peaking units to reflect the greater impact

of NOx emitted under this type of usage pattern. Attachment 1 provides a detailed example of how this

policy would be applied to a peaker. Attachment 2 provides an explanation of the calculations underlying

this policy.

NOx Emissions Reduction Credit Use Computation For Peakers

• Peakers are only considered to be a temporal issue for the ozone season months.

• All excess NOx emissions during the winter (non-ozone season) need only be offset by DERCs on

a mass basis.

• Prior to each ozone season there will be a prospective estimation to detennine how many tons of

DERCs must be "on hand" during the ozone season. A retrospective calculation will detennine

how many DERCs were actually "used" during the ozone season.

1 - For purposes of this analysis. average daily emissions are determined by dividing a source'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 Cuastal Rtsouru Managrmrnl: 1980 .1000
For ERe use during the ozone season:

I. Prospective estimation (pre-ozone season) will deterntine the number of DERCs that must be

provided for the ozone season. (Beginning in 1996. the DERCs must be in place no later than

May 1.)

DERCs required for the ozone season shall be calculated on the following bases:

(a) Mass basis: DERCs required will be equal to the total number of tons of estimated excess

NOx emissions over the entire ozone season. calculated in the same manner used for other

sources using DERCs (i.e.• including any discounts).

(b) Max·peak basis: DERCs required (in tons) will be calculated by dividing one-third of the

estimated maximum daily excess emissions (in pounds) for any day during the ozone

season by 13 pounds/(ton-day) '. (see Attachment 2 for an explanation of this

calculation):

DERCs required (tons) =[(Estimated Maximum Excess NOx in Ibslday) + 3]

• [131bsl(lono day)]

Sources will be required to hold credits equal to the greater of the amount calculated

on a mass or max-peak basis. The timing of actual credit possession will be governed by

the terms of the specific trading order issued for that source.

2. Retrospective calculation (post-ozone season) will deterntine the actual credit use and the DERC

surplus. if any. At the end of the ozone season, the calculations required in step I above will be

repeated using:

for (a). the actual (rather than estimated) total excess emissions for the ozone season. and

for (b). the (rather than estimated) maximum daily excess NOx emissions on any of the days

projected by the Commissioner to be ~moderate to.unhealthful n

• ~unhealthful\ or "very

unheahhfuln •

The number of DERCs required pursuant to this policy wiU be the greater of the number of

DERCs calculated on the mass basis or the max-peak day basis.

Of the total DERCs needed for the ozone season, a number of DERCs equal to the unit's actual

total excess emissions (on a mass basis) will be used to cover such actual excess emissions. The

number of DERCs equal to the difference between the total number needed pursuant to this policy

and total actual excess emissions shall be converted from ozone season DERCs to non-ozone

season DERCs. Any swplus DERCs (those purchased pursuant to the pre-ozone season

estimation and not used to cover actual emissions nor converted to non-Qzone season emissions)

may be carried forward for use as ozone season DERCs through April 30, 2003 except as may be

limiled by the trading agreement and order. or by regulation.

2· For the pre-ozone season estimation. the maximum daily excess NOx emissions (in lbslday) is the difference

between the maximum expected NOx emission rate and 95% of the allowable NOx emission rate under Section 22a174-22(e) of the Regulations (lbIMMBtu) multiplied by the unit's maximum raced capacity (MMBtulhr) and by the

estimated maximum hours of operation per day (hrslduy).

2
ANachment 1

Example ofthis policy being applied to a peaking unit

Before the ozone season, a peaker has estimated its total excess emissions to be 15 tons for the ozone

season. It is also estimated that the m:uimum excess emission on a day projected to be "moderate to

unhealthful" or worse will be 5000 pounds. Actual ozone season excess emissions are listed in the table

below. The analysis of how this policy would be applied to this peaker follows after the 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 Number of ozone season CERCs that need to be held no later than May 1

POST-OZONE SEASON CALCULATION

10256 Ozone Season Tons Needed (max-peak basis using

. 4000 pounds as actual maximum daily excess emissions)

-13.00 Actual Ozone Season Excess Emissions (mass basis)

89.56 Number 01 Ozone Season CERCs converted to Non-Ozone Season OERCs

102.56

max-peak basis

SUMMARY

Of the 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
Attachment 2

Explanation ofMax-Peak Basis Calculation

Unless it can be demonstrated otherwise. DERCs are assumed to be created by relatively small daily

reductions in NOx emissions over the course of an entire ozone season (153 days). The average daily NOx

emissions reduction represented by each ton of credit is 13 pounds/day calculated as follows:

2000 pounds/ton + 153 days =13 pounds/(ton·day)

Thus, one DERC (ton) would be equivalent to a reduction in NOx emissions of 13 pounds/day.

For example, if a peaker emits one ton of excess NOx per day when operating. but only operates for five

days during the ozone season, the owner/operator of that source would nominally need to obtain five tons

of DERCs on a mass basis. However, those DERCs used to offset this peaker's excess emissions are likely

to have been created by relatively small daily- reductions in NOx emissions from another source over the

course of an entire ozone season (153 days). In this example, assuming a purchase of five tons of DERCs,

that calculates out to a millx NOx reduction of approximately 65 pounds.

(5 tons x 2000 pounds/ton) + 153 days =65 pounds/day

Clearly, on any day that the peaker operates, there will be many more tons of excess NOx emitted than

NOx credits created (on the same day) to offset those excess emissions (on the order of 1,935 pounds in

this example).

(1 ton x 2000 pounds/ton) - (65 pounds credit) =1.935 pounds excess NOx emissions

While the total amount of NOx emitled by a peaker would be offset on a seasonal average basis, on the

"peaking" day there would be a potentially significant increase in NOx emiued. and thus an increase in

potential ozone creation. In order to achieve a commensurate reduction in ozone creation potential for

peakers, an adjustment in the calculation of required DERCs is needed. One approach would be to require

DERCs in a quantity that would ensure that the daily average reduction represented by those DERCs

would equal the maximum daily excess NOx emissions from the peaking source on any day that it ran. On

this basis, a peaking source with a maximum 24·hour excess NOx emission of one ton would be required

to purchase 153 tons ofDERCs.

I ton/day x 153 days/season = 153 tons/season

This 153 tons of DERCs would be adequate to offset excess emissions of one ton per day for as many days

as the source pperated during a particular ozone season. This has been deemed to be unduly stringent,

given the diversity in operation of some of the peakers. In light of the foregoing. this requirement has been

adjusted downward by two-thirds.

4