# STATE OF CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION

STATE OF CONNECTICUT AND PSEG POWER CONNECTICUT LLC TRADING AGREEMENT AND ORDER NO. 8244 MODIFICATION NO.2
TRADING AGREEMENT AND ORDER MODIFICATION In the matterofaTrading Agreement and Orderbetween the CommissionerofEnvironmental Protection ("Commissioner") and PSEG PowerConnecticut LLC ("PSEG"). WHEREAS, the Commissioner and PSEG, having agreed to the terms and conditions set forth in Trading Agreement and OrderNo. 8244 signedby the Commissioneron April 22, 2003, and Trading Agreement and Order 8244 Modification 1 issued March 21,2005 do now, by mutual agreement, modify said Trading Agreement andOrderNo. 8244 as follows: 1. Delete paragraph A.7. and substitute the following therefor: Reserved. 2. Delete the date May 1,2005, and substitute thereforMay 1,2009, in paragraphs C.3. and 

### CA. 3. Delete paragraph C.3.a.and substitute the following therefor: Have in its possession sufficient approvedDERCs for the current day for the peaking unit based on the following calculations; (i) At all times: Estimated DERCs (in tons) use

# =[«FLER in IbslMMBtu)

- (0.95 x NOx allowable rate in IbslMMBtu)) x (estimated fuel use in MMBtu)] -;- 2000 pounds/ton

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PSEG Power Connecticut LLC 2 Trading Agreement and OrderNo. 8244 Modification No.2
No laterthan the twentieth day ofeach month, PSEG shall calculate and permanently retire DERCs used in the preceding calendarmonth, as follows: Actual DERCs (in tons) = [((FLER in IbslMMBtu)

- (0.95 x NOx allowable rate in IbslMMBtu» x (actual fuel use in MMBtu)] .;- 2000 pounds/ton Where:
• NOx allowable rate = NOx RACT rate in IbslMMBtu shown in Table 1 ofthis Trading Agreement and Order.
• FLER = full load emission rate in IbslMMBtu as shown in Table I ofthis Trading Agreement and Order.
• Discount (0.95) = 5% design margin applied to the allowable limitrate. ii) During the ozone season only: No laterthan December 31 st each year, PSEG shall acquire and permanently retire seven ozone season DERCs for every actual ton ofexcess NOx emitted from the peaking unit during the previous ozone season based upon the actual emissions for each day that Connecticut one hour ozone levels were forecasted to be "moderate to unhealthful", "unhealthful", or "very unhealthful", until such time that the EPA revokes the I-hour standard. Upon such revocation, PSEG shall calculate and permanently retire seven ozone season DERCs for every actual ton ofexcess NOx emitted from the peaking unit during such ozone season based upon the actual emissions for each day that Connecticut eight hour ozone levels were forecasted to be "unhealthy for sensitive groups", "unhealthy", or "very unhealthy". Where: Actual ton ofexcess NOx emitted = [((FLER in IbslMMBtu)

- (0.95 x NOx allowable rate in IbsIMMBtu» x (actual fuel use in MMBtu)] .;- 2000 pounds/ton The total actual tons ofexcess NOx emitted from the peaking unit during forecasted ozone exceedance days shall be multiplied by seven and then rounded to the next greaterwhole ton, to determine the number ofDERCs to be permanently retired. This requirement is in addition to the PSEG's requirement to estimate excess emissions and subsequent permanent retirement ofa sufficient numberofapproved DERCs in accordance with paragraph C.3.a. ofthis Trading Agreement and Order.**r------------------------------------------.----~~-**

PSEG Power Connecticut LLC 3 Trading Agreement and OrderNo. 8244 Modification No.2

4. Delete paragraph C.3.b. and substitute the following therefor: During the non-ozone season: Until May 1, 2009, from October 1 through April 30, inclusive, each year, the peaking unit shall, in addition to meeting the 24-houremission limit in Table 22-1 ofSection 22a-174-22 ofthe Regulations, meet a non-ozone season emission limit of0.15 IbIMMBtu. Priorto October 1, 2006, 2007 and 2008, PSEG shall estimate and acquire the amount ofDERCs or allowances requiredfor such non-ozone season needed to comply with Section 22a-174-22(e)(3) ofthe Regulations as follows: Before the first day ofeach non-ozone season, PSEG shall estimate and acquire DERCs required for such non-ozone season for the peaking unit as follows: Estimated DERCs (tons) use

# =[Estimatedfuel use in MMBtu from October I through April 30 x (NOx allowable rate in IbslMMBtu

- (0.95 x 0.15 IblMMBtu))] + 2000 lbslton
No laterthan May 31 of2007,2008 and 2009, in addition to the DERCs retired pursuant to paragraph C.2.a. ofthis Trading Agreement and Order, PSEG shall calculate and permanently retire DERCs used in the preceding non-ozone season as follows: Actual DERCs (tons) used = [Actual fuel use in MMBtu from October 1 through April 30 x (NOx allowable emission rate in IbslMMBtu

- (0.95 x 0.15 IblMMBtu))] + 2000 Ibs/ton
5. Delete paragraph C.3.c. and substitute the following therefor: DERC Shortfall. At a minimum, DERCs required shall be adjusted upwards by 100% ifDERCs are not in PSEG's possession for use priorto the first day ofeach month or applicable season. However, nothing in this Trading Agreement and Order shall affect the Commissioner's authority to institute any proceeding ortake any other action to require additional upward adjustment, based on the gravity of any alleged noncompliance or violation oflaw. PSEG shall permanently retire the quantity ofDERCs equivalent to the excess emissions plus a 100% premium within sixty (60) days ofPSEG's discovery ofthe DERC shortfall. PSEG shall certify and report any such DERC retirement to the Commissionerin accordance with paragraph C.30. ofthis Trading Agreement and Order.PSEG PowerConnecticut LLC 4 Trading Agreement and OrderNo. 8244 Modification No.2
6. Delete paragraph C.3.d. and substitute the following therefor: Reserved.
7. Delete paragraph C.3.f. and substitute the following therefor: (i) Annual DERC Report. No laterthan March 1 ofevery year afterissuance of this Trading Agreement and Order, PSEG shall submit in writing to the Commissioner, arecord ofeach sale orothertransfer ofDERCs for the previous calendaryear. PSEG shall also include actual NOx emissions from the peaking unit and the amount ofall DERCs used (including serial numbers (ifassigned) and DERCs purchasedfrom otherfacilities). These reports shall be on forms prescribedby the Commissioner and shall be in monthly increments, and by ozone and non ozone seasons. (ii) Forthe Non-ozone season: No laterthan July 30 ofevery year afterissuance ofthis Trading Agreement and Order, PSEG shall submit in writing to the Commissionerthe non-ozone season fuel consumption and amount ofall DERCs used (including serial numbers (ifassigned) and approved DERCs purchased from otherfacilities) for the peaking unit during the Octoberthrough April time periodin the previous calendaryear. These reports shall be on a form prescribedby the Commissioner. 8. Delete paragraph C.3.j. and substitute the following therefor: Pursuant to Section 22a-174-22(d)(3) ofthe Regulations, PSEG may use NOx allowances, until May I, 2009, for the peaking unit pursuant to Section 22a-174- 22(j) ofthe Regulations to achieve all or aportion ofthe reductions required by Section 22a-174-22 ofthe Regulations. Any allowance used for compliance with Section 22a-174-22(e) ofthe Regulations shall be subject to all restrictions and/or requirements applicable to DERCs containedin this Trading Agreement and Order.
9. Delete paragraph C.6. and substitute the following therefor: FLER Exceedance. Noncompliance with an establishedFLER shall subjectPSEG to make restitution by matching the quantity ofemissions ("true up") caused by the exceedance plus a 100% premium. The true up in tons ofDERCs shall be equal to the FLER exceedance in IbslMMBtu, multipliedby the total heat inputPSEG Power Connecticut LLC 

### 5 Trading Agreement and OrderNo. 8244 Modification No.2 during the period ofnoncompliance divided by 2000 lbs/ton. 

### Ifthe period of noncompliance is not known, the time period from the completion ofthe last/previous Commissionerwitnessed emission test through the date the FLER compliance is achieved as approved by the Commissioner shall be used. However, nothing in this Trading Agreement and Order shall affect the Commissioner's authority to institute any proceeding ortake any other action to require additional upward adjustment, based on the gravity ofany alleged noncompliance or violation oflaw. PSEG shall permanently retire DERCs calculated in accordance with the above plus a 100% premium within sixty (60) days ofPSEG's discovery ofthe FLER exceedance. PSEG shall report anyFLER exceedance to the Commissionerin accordance with paragraph C.24. ofthis Trading Agreement and Order. 10. Delete paragraph C.9. and substitute the following therefor: Extension. No laterthan May I, 2009, with respect to the peaking unit, PSEG shall comply with the requirements ofSections 22a-174-22(d)(l) and 22a-174- 22(d)(2)(A) ofthe Regulations and amendments thereto. There is no assurance that the Commissionerwill grant awritten extension ofthis Trading Agreement and Order. II. Delete paragraph C.II. and substitute the following therefor: Definitions. As used in this Trading Agreement and Order, "ApprovedDERCs" are those for which the Commissionerhas provided written authorization for use in compliance with Section 22a-174-22 ofthe Regulations; "Commissioner" means the Commissioneror arepresentative ofthe Commissioner; "Non-ozone season" means the period from October I through April 30 in any given calendar year; "Ozone season" means the period May I through September 30 in any given calendaryear. 12. Delete paragraph C.12. and substitute the following therefor: Dates. The date of"issuance" ofthis Trading Agreement and Orderis the date the Trading Agreement and Orderis deposited in the U.S. mail orpersonally delivered, whicheveris earlier. The date ofsubmission to the Commissionerof any document required by this Trading Agreement and Order shall be the date such document is received by the Commissioner. The date ofany notice by the Commissionerunder this Trading Agreement and Order, including but not limited to notice ofapproval or disapproval ofany document or other action, shall be the date such notice is deposited in the U.S. mail oris personally delivered, whichever is earlier. Except as otherwise specifiedin this Trading Agreement and Order, thePSEG Power Connecticut LLC 

### 6 Trading Agreement and OrderNo. 8244 Modification No.2 word "day" as used in this Trading Agreement and Ordermeans calendarday. Any document or action which is required by this Trading Agreement and Order to be submitted orperformedby adate which falls on a Saturday, Sunday or a Connecticut orfederal holiday shall be submitted orperformedby the next day which is not a Saturday, Sunday or Connecticut orfederal holiday. 13. Delete the word "individual" and substitute therefore the word "Section" in paragraph C.24. 14. Delete the name "Ms. Wendy Jacobs" in paragraph C.25. 15. Include a new paragraph C.26. as follows: Future Compliance Report. On orbefore September 1, 2008, PSEG shall submit areport in writing to the Commissioner, as directed in paragraph C.25. ofthis Trading Agreement and Order, indicating how the facility shall comply with Section 22a-174-22 ofthe Regulations with respect to the peaking unit on and afterMay 1, 2009.

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PSEG Power Connecticut LLC 7 Trading Agreement and OrderNo. 8244 Modification No.2
All otherterms and conditions ofTrading Agreement and OrderNo, 8244 issued by the Commissioner acting under Chapter446c, Sections 22a-6, 22a-171, 22a-174, 22a-176, and 22a177 ofthe Connecticut General Statutes shall remain in effect. PSEG hereby consents to the entry ofthis modification to the Trading Agreement and Order without further notice,

## PSEGPOWER~ SIgnature: Type Name: Type Title: Date: 

### Robert 

### T. Parnell Director of Asset Operations August 2, 2006
Issued as a modification ofan Order ofthe CommissionerofEnvironmental Protection,

# ~{~ Commissioner
MAILED CERTIFIED MAIL, RETURN RECEIPT REQUESTED

## ~l\1A)o<o Date

Certified DocumentNo. 7001 2510 0000 6250 4748