CAIR Replacement Rule

Discussions between the Electric Power Generation Industry and EPA

April 17, 2009

I.  Introduction

	On Friday, April 17, 2009, EPA met with the Edison Electric Institute
(EEI) and other electric power generation associations and companies to
discuss the CAIR replacement rule.  The following summary covers the key
issues discussed during the call.  Appendix A is a list of participants
that attended the meeting at EEI’s office.  Additional individuals
participated by Webinar and conference call.  Copies of several
presentations and other handouts distributed at the meeting can be found
at the end of these notes.

II.  EEI Opening Remarks

	John Kinsman, EEI, began the session by thanking EPA for meeting with
the power generation interests, and indicated that EEI was pleased to
serve as host and to have planned the meeting with the assistance of the
American Public Power Association (APPA), Electric Power Supply
Association (EPSA), Large Public Power Council (LPPC), Midwest Ozone
Group (MOG), National Mining Association (NMA), National Rural Electric
Cooperative Association (NRECA), Utility Air Regulatory Group (UARG),
and United Mine Workers of America (UMWA).   Kinsman asked that
in-person attendees use the microphones for all discussion and include
their name and affiliation before each remark.  Dan Chartier, EEI,
explained the workings of the webinar portion of the meeting.

	Kinsman noted the importance of the CAIR rule and said that EPA did an
excellent job in the original CAIR proceeding by recognizing real world
circumstances, setting aggressive but attainable emission reduction
requirements, and allowing flexibility and thus cost-effectiveness. 
There will be a greater challenge with the remand rule given potential
constraints levied by the D.C. Circuit Court of Appeals.  EPA should
attempt to mesh the schedule for new SO2 and NOx emission reduction
requirements with the policy-making schedule for other crucial national
decisions regarding greenhouse gases, renewable energy strategies, and
energy efficiency standards.  Large amounts of SO2 and NOx emission
controls forced on a very aggressive timeline may become stranded as the
nation moves to a new electric power future.   

	EPA should allow flexibility to the extent possible, including
emissions trading.  The Agency should not force command-and-control
reductions on small peaking or load-following units.  EPA should
consider cost and cost-effectiveness; limits on emissions trading will
in effect increase the cost of compliance.  Current economic conditions
are especially challenging for electricity generators, given the large
expenditures needed for transmission, distribution, new generation, new
efficiency efforts, smart grid, plug-in hybrid infrastructure, and
environmental controls.  

III.  EPA Opening Remarks

	Sam Napolitano, CAMD, and Bill Harnett, OAQPS, spoke on behalf of EPA. 
Napolitano m noted that EPA would produce a written account of the
meeting, as it is doing for other stakeholder meetings.  Harnett
emphasized that one key goal of the rulemaking will be to finalize a
rule that will not be overturned in court.  Napolitano presented slides
showing preliminary 2008 national Title IV SO2 emissions and eastern
U.S. NOx Budget Control Program ozone season NOx emissions.  The
preliminary 2008 SO2 emissions of 7.7 million tons are substantially
below emissions of 8.9 million tons of SO2 in 2007.  

	Kinsman asked EPA to discuss highlights of its other stakeholder
meetings.  Harnett responded that states have asked EPA to keep the
remand rule schedule in synch with the schedules for meeting ozone and
particulate matter NAAQS.  Environmental groups suggested that EPA
should consider new ozone and particulate matter NAAQS.  They also
stressed that EPA should jointly look at SO2, NOx, hazardous air
pollutants, and carbon for the power industry, and provide an integrated
approach with significant emission reductions across the industry.

	John Quinn, Constellation Energy, asked whether EPA will ask Congress
to codify the CAIR trading system.  Napolitano responded that at this
time EPA staff are collecting information and analyzing options to
present to the new Assistant Administrator for Air and Radiation, who
should start soon.  EPA management, working with others in the
Administration, can then decide how the Agency will proceed.  At this
stage, EPA will provide Congress with technical assistance as requested,
but it is not asking for Congress to take any specific course of action.

IV.  Presentations in the Morning Session

A.	Bill Bumpers, Baker Botts L.L.P., representing Entergy Corporation 

1.	Presentation Overview

●	Entergy supports emissions trading;

●	Entergy believes the D.C. Circuit Court of Appeals decision does not
allow EPA much latitude in responding on the NOx fuel factor adjustment;

●	EPA should produce a direct final rule and resolve this particular
issue because the computational response is straightforward and does not
affect other decisions; and

●	EPA should act quickly to avoid lawsuits.

2.	Discussion

	Napolitano noted that the Agency is sensitive to the NOx fuel factor
situation. CAMD has released a letter to Designated Representatives
indicating that it is unclear what will happen with the annual NOx
allowance market after 2009/2010.  EPA is working to resolve this
matter. 

Sonja Rodman, OGC, explained that EPA cannot say that it will respond to
the NOx fuel factor issue in the manner Bill Bumpers proposes.  She
added that EPA is concerned about its ability to use cost in determining
significant contribution and, thus, state budgets.

Peter Glaser, NMA, indicated that not everyone endorses the approach
suggested by Bill Bumpers.

Theresa Pugh, APPA, asked for clarification regarding to whom EPA sent
the letter regarding annual NOx allowances.  Napolitano replied that the
letter was sent to Designated Representatives and is posted on the EPA
CAMD website.  

Norm Fichthorn, Hunton & Williams L.L.P., representing UARG, asked
Rodman to discuss further EPA's views regarding consideration of costs. 
Rodman stated that the court decision is very complicated and more a
minefield than a roadmap.  The NOx SIP Call decision (Michigan v. EPA)
holds that EPA can consider cost but one underlying theme in the CAIR
decision (North Carolina v. EPA) is the Court’s discomfort with the
way EPA relied on cost in the CAIR analyses.

Ray Butts, Florida Power & Light, expressed support for Bumper's
suggestion for a direct final rule on the NOx fuel factor issue.  He
also urged EPA to provide guidance to states that had adopted
regulations on this part of the rule.

Brian Trower, Ames (IA) Electric Department, asked if the current CAIR
would be in place in 2010.  Sonja said that it would and explained that
EPA has indicated it will take approximately two years to finalize a
replacement rule.  Thus, it is unlikely a final replacement rule would
be issued in 2010.

B.	Stephen Fotis, Van Ness Feldman, representing LPPC 

1.	Presentation Overview

●	Move as quickly as possible to craft a simple resolution;

●	Many aspects of the original rule are "salvageable"; 

●	Do not prohibit emissions trading; and 

●	Conduct modeling relating trading to significant contribution.

2.	Discussion

	Gene Trisko, UMWA, stated that Michigan v. EPA supports consideration
of cost-effectiveness and withstood the court's scrutiny in North
Carolina v. EPA.  In terms of developing a rule that will withstand
legal challenges, it is more likely that consensus can be reached on
cost effectiveness than on environmental effectiveness.

Rodman replied that parts of the cost effectiveness analysis were
challenged in oral argument by counsel for petitioners that challenged
EPA's use of the NOx fuel factor adjustment (Entergy and FPL).  Bumpers
said that he supports Trisko's statement and that the NOx fuel factor
petitioners (Entergy and FPL) did not oppose the cost-effectiveness
test, but rather addressed EPA's method of applying the
cost-effectiveness test in the context of the NOx fuel factor issue.

Farzie Shelton, Lakeland Electric, asked about new modeling given the
now lower emissions of SO2 and NOx compared to the original rule. 
Harnett replied that numerous factors such as baseline year and controls
in place require a new look.

C.	Mike Cashin, Minnesota Power

1.	Presentation Overview

Minnesota Status

●	October 31, 2008 administrative agreement granting stay of CAIR;

●	EPA will determine through rulemaking whether Minnesota should be in
CAIR;

●	EPA has not yet published the Minnesota stay in the Federal
Register; and

●	Minnesota sources should not be compelled to make further CAIR
compliance expenditures until EPA resolves this issue.

Baseline

●	Using 2015 as air quality modeled reference year for revised rule
allows for consideration of utility control retrofit measures under
construction;

●	Possible to retain 2010 reference year for non-attainment modeling;

●	However, a 2010 baseline would likely overstate emissions relative
to 2015;

●	Inventory and modeling should reflect most recently available,
quality-controlled resources; and

●	Use 2015 as first compliance year in CAIR replacement rule.

Significant Contribution

●	Correlation between air quality models and ground level air quality
monitor results should limit significance level used to include a state
in CAIR replacement rule;

●	CAIR TSD NOx model results vs. monitors demonstrated variability at
over +/- 10 percent of the annual PM2.5 NAAQS standard;

●	EPA already established CAIR significance levels much more stringent
than supported by EPA's correlation analysis; and

●	Retain current CAIR significance levels for revised CAIR replacement
rule until correlation analysis can justify a change.  

Significant Contribution Remedies

●	Court concerned that sources near nonattainment areas could buy
allowances, leaving significant contribution issues unresolved;

●	Independent of CAIR replacement rule, continue to require local
source reductions in nonattainment areas in accordance with the Clean
Air Act (CAA);

●	Allow intrastate trading; and

●	States able to demonstrate elimination of significant contribution
should be able to leave program upon filing an accepted emission control
maintenance plan.  

Coverage and Timing Issues

●	Eliminate significant contribution to nonattainment from upwind
states;

●	CAA provisions for addressing local nonattainment should dominate
local emission reduction requirements;

●	Significance level rather than NAAQS stringency is key to
determining whether state should be in program;

●	Determination of significant contributions will drive control
requirements more than relative stringency of NAAQS; and

●	Revisions of NAAQS should primarily impact local control measures
imposed under CAA nonattainment requirements.  

Allowance Allocation Equity

●	Sources should be allocated allowances at no cost;

●	Remedy allocation equity concerns raised by the court;

●	Attainment state sources that are "well controlled" should at
minimum receive allowances sufficient to support operations without
requiring allowance purchases;

●	Nonattainment area sources should receive allowances needed to
support compliance from residual emissions, post control retrofits that
meet "highly cost-effective" control criteria; and

●	Consider diminishing returns (cost-effectiveness) of emission
control retrofits on units in attainment area states when establishing
allowance allocations.  

B.	Discussion

	Fotis asked about the geographic scope of CAIR and whether it could
change.  Harnett replied that there could be changes, but that whatever
criteria EPA uses to decide scope would be applied even-handedly among
states.  Rodman added that significant contribution and interference
with maintenance both must be addressed. 

	Reid Clemmer, PPL, suggested that just as Title IV ratcheted down SO2
based on 2.5 and 1.2 lb/mmBtu emission rates, CAIR could continue with
something like 0.6 lb/mmBtu for allocating allowances.

V.  Presentations in the Afternoon Session

A.	David Flannery, Jackson Kelly PLLC, representing MOG
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●	Regional, limited to addressing regional transport, which states
cannot do alone;

●	Use state SIP process to resolve any residual non-attainment issues;

●	Preserve as much of original CAIR as possible, consistent with court
decision; and

●	Addressing newer NAAQS is important for states, but MOG reluctant to
suggest that replacement CAIR rule do so. 

	(b)  Relationship to other Programs

●	Allow covered sources to satisfy BART and RACT requirements by
participating; and

●	Eliminate any possible basis for section 126 petitions.

	(c)  Cost-Effectiveness

●	Highly cost-effective and account for adverse economic impacts on
sources; and

●	Consider cost and availability of capital required to install
controls.  

	(d)  Trading

●	Use IPM and other models to assess viability of different types of
trading programs – intrastate trading, ISO trading, and CAIR regional
trading;

●	Compare modeled results with those from a no-trading scenario; and

●	Select broadest trading program that can satisfy the court. 

 Allowance Allocations

●	Need to develop new system for allocations given rejection of Title
IV;

●	Unsure exactly how to develop new allocation methodology, but should
seek public comments on how to develop alternative allocation
methodology; and

●	Allocations should not be auctioned.

Modeling

●	Must validate state emission inventories; EPA should indicate types
of controls that can be assumed;

●	Assess both 2007 and 2008 and establish base year.  2005 used in
recent modeling and questions being raised about meteorological
relevance of 2008.  May need to combine 2007 and 2008 data;

●	Take advantage of recent scientific development in biogenics;

●	Stakeholder group should agree on MET data;

●	Domain size should be consistent among modelers;

●	MOG has a modeling contractor; other RPOs also modeling.  Given
expense and difficulty, results should be shared and coordinated under
EPA's leadership;

●	Review and revise boundary conditions as necessary;

●	Pick nonattainment deadline years.  2012 and 2015 suggested, also
2018;

●	Pick maintenance year.  2025 suggested; and

●	Use stakeholder process to explain which dates should be used and
why. 

2.	Discussion

	Napolitano asked how many members MOG represents.  Flannery replied
that MOG represents over 90,000 megawatts of generating capacity, with
members including First Energy, EON, Duke, City of Springfield,
Illinois, and others.  Napolitano sought and received clarification that
MOG represents both municipal and investor-owned utilities. 

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●	Develop CAIR replacement/transport rule that achieves significant
progress towards the most “rule-concurrent” defined NAAQS,
facilitates cost effective compliance, and will survive legal scrutiny;

●	Make every effort to create market-based cap and trade program;

●	Trading program alone might not satisfy court, but leveraging market
will drive deeper, far more cost-effective, reductions;

●	Once caps have been established, EPA can work with states to address
any residual nonattainment issues;

●	Develop a CAIR replacement rule, based on existing Acid Rain
Program, to include EGUs and other industrial sources. Consider
obtaining a targeted amendment to the Clean Air Act that would allow EPA
to change the retirement ratio for the purpose of reducing the cap഻

●	Court-imposed limitations may be an issue and legislative amendment
may be required to allow for changes in retirement ratios;

●	Building program from scratch would disrupt marketplace; and

●	Use of distant, future year baseline will create legal uncertainty.

2.	Discussion

Power sector attendees also expressed concern about using predicted data
to create the baseline and recommended that EPA create a baseline using
monitored data.  They suggested that EPA might use other data to help
inform the Agency during the creation of the baseline.  

Responding to Napolitano’s question about the year that should be
used, Cunningham suggested 2012.

Flannery noted that MOG has been looking at 2012 and 2015, which are
clearly within the range of years that need to be examined.  However, it
is unclear by which year sources would need to be controlled.  

Napolitano asked Flannery to discuss capital considerations further. 
Flannery noted that it is difficult for utilities to get the necessary
capital because the money supply is tighter.  Thus, it is a lot harder
for projects to go forward.  Harnett asked whether capital concerns were
driven more by a lack of availability or by the higher cost of capital. 


	Robbie Laborde, Cleco, asked what other source categories had been
suggested to EPA for inclusion in the replacement CAIR program.  Harnett
replied that industrial boilers and cement kilns had been suggested, and
that EPA had considered these sources during the original CAIR
rulemaking process but had decided not to include them.

	William Slade, Con Edison Co. of New York, indicated that not all agree
that industrial boilers should be included, and he urged EPA to take a
careful look at the cost and difficulty of installing controls on
industrial boilers.   

C.	Norm Fichthorn, Hunton & Williams L.L.P., representing UARG 

1.	Presentation Overview

	(a)  Procedural Issues

●	Issue ANPR so stakeholders and other interested parties can submit
comments earlier; and

●	Allow stakeholders and public to review modeling plans and analyses.
 

	(b)  Framework for Analysis

●	Use established two-step analysis for significant contribution to
nonattainment:

1.	Determine air quality contributions to identify states to be covered;
and

2.	Apply "highly cost-effective" test to determine state emissions
budgets.  As part of the highly cost-effective test, evaluate
feasibility and availability of controls and cost of finance.  May have
to apply the cost-effectiveness analysis on a state-by-state rather than
region wide basis, or
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●	Analyze interference with maintenance using same two-step framework.
 Perhaps consider modeling years that are further out than those used
for significant contribution to nonattainment. 

	(c)  Principles for Air Quality Analysis

●	Use established "current-monitored-plus-future-modeled" test for
nonattainment;

●	Use most current and accurate emissions inventory.  Both before and
after EPA’s issuance of proposed rule, states and sources should be
able to review, comment on, and provide corrections to emissions data
and modeling results, including any results from IPM if that model is
used;

●	Modeling must meet model performance criteria, and compliance with
those criteria should be documented in transparent model studies; and

●	Do not attempt to address possible future NAAQS that have not been
promulgated. 

	(d)  Principles for Highly Cost-Effective Analysis and Remedy

●	Emissions budgets should reflect trade-off between tons and trading.
 Program that allows less scope for trading should also require smaller
reductions because lack of or restrictions on trading drive up cost of
reductions, meaning that fewer reductions can be deemed highly
cost-effective;

●	Emissions budgets should reflect trade-off between tons and timing. 
More ambitious compliance dates must be coupled with smaller emissions
reduction targets because a faster compliance schedule means that fewer
emissions can be deemed highly cost-effective;

●	Flexibility is necessary in addressing whether and how to align a
CAIR replacement rule’s compliance dates with NAAQS attainment dates. 
For example, compliance years cannot possibly match all conceivable
attainment dates for NAAQS, especially if EPA addresses 2006 and 2008
NAAQS.  As with original CAIR rule, more than one phase of compliance
may be required;

●	States must retain discretion in deciding how to achieve emission
budgets.  States should, for example, be able to allow, at a minimum,
intrastate trading;

●	EPA should propose for public comment back-up federal implementation
plan (FIP), which states that do not want to adopt, or fail to adopt, a
SIP could use to satisfy program requirements; and

●	Sufficient time is required for transition to new program.  UARG
does not believe compliance before 2015 would be possible. 

2.	Discussion

	EPA clarified that the current CAIR rule would probably be in effect in
the period between when the replacement rule is promulgated (probably in
2011) and the first compliance date for the replacement rule.

	Jim Ketcham-Colwill, OAR, noted that the court seemed to question the
use of one analytical method for determining inclusion in the CAIR
region and a second, different method for determining the required
reductions.  The court seems to be concerned that the actual remedy was
not directly connected to the determination of whether a state was in
the program.

	Fotis agreed that additional time would be needed for a transition
especially before a more stringent phase of controls came into effect. 
He also clarified that there could be a process allowing for earlier
transition to the new program without having to wait until the first
compliance date.  Fichthorn noted that his comments were focused on
implementation of additional control requirements, i.e., the timing for
sources to achieve compliance with any more stringent emissions
reduction requirements that may be imposed by a replacement rule.  

	Tim Smith, OAQPS, asked what trading restrictions could be used to
ensure that the replacement program satisfied the court decision. 
Fichthorn replied that UARG did not have any specific proposals at this
time, but he suggested that EPA keep the issue open.  Other parties have
made a number of different proposals, and UARG hopes that EPA will look
at all the potential options.  In addition, he noted, it is clear that
the court decision in no way limited states' ability to have trading
programs on an intrastate basis.

	Napolitano asked why 2015 had been suggested as the earliest possible
compliance date.  Fichthorn replied that CAIR was finalized in 2005 and
that compliance was required about three-and-a-half years later,
beginning in January 2009 for NOx.  The same timeframe built upon an
early-2011 final CAIR replacement rule (EPA’s projected date for final
rulemaking action) does not permit an emission-control compliance date
for sources that is earlier than 2015.  Fichthorn clarified that 2015
was not a proposed effective date for a new rule but rather the earliest
possible compliance date that could be considered.

John McManus, American Electric Power, agreed with Norm and mentioned
that EGUs were already planning to get reductions for 2015.  He also
mentioned concerns with the availability of capital and with future
regulatory changes.  Regulations dealing with fly ash and carbon are
being looked at along with other issues like renewable portfolio
requirements.  With all the new regulations in the pipeline it is
important that EPA keep capital requirements in mind and the Agency
should be cautious in approach and timing.

Bumpers suggested that the court was more concerned that the modeling
did not show clearly enough that reductions would happen than it was
with trading as a concept.  He suggested that EPA try implementing a
rule based on modeling and then require each state to subsequently
demonstrate that the reductions were happening as the modeling had
predicted.  If the reductions were not close enough to the modeled
results a state could be required to implement further SIP reductions. 
This would allow EPA to avoid imposing state budgets that specifically
reflect levels of reductions that would eliminate significant
contribution.  

In response to questions, Napolitano explained that EPA had started some
preliminary analytical work but did not have any of it to share.  No
major decisions have been made on technical details and nothing is firm.
 Rather staff is trying to set up analyses and get the groundwork laid
for when the new Assistant Administrator arrives.  

Napolitano was then asked about how the response to section 126
petitions would work in conjunction with the anticipated two-year CAIR
revision rulemaking schedule.  He replied that, although the court did
not impose a specific time limit for EPA’s response to North
Carolina’s section 126 petition, EPA is working to determine how to
move forward and understands the time-sensitive nature of the issue.  

Delaware's more recent petition is a different situation, and EPA will
be engaging in conversations with Delaware to attempt to resolve the
issues raised in the petition.  

Lou Pocalujka, Consumers Energy, suggested that EPA should pay close
attention to the baseline year for the emissions inventory.  He
suggested that technical discussions on which emissions inventory to use
have included arguments that the 2008 emissions inventory might be
unrepresentative, due to a temporary economic downturn.  In Michigan,
these emission reductions are not temporary.  They are looking at
reductions due to permanent shutdowns of major sources, which are not
coming back.  Calendar year 2009 is likely to be worse.  A 2007
emissions inventory would be unrepresentative.  EPA is urged to use an
emissions inventory that is representative of current emissions.

VI. Concluding Remarks 

Harnett explained that coordinating with the Assistant Administrator for
Air and Radiation is important.  However, the D.C. Circuit Court's
mandate and remand are premised, at least in part, on EPA's
representations to the court that a CAIR replacement rule would take
about two years to finish.  Depending on timing considerations, EPA
staff might turn, as necessary, to EPA Administrator Lisa Jackson for
decisions.  

Napolitano thanked everyone for their suggestions and participation.  



                     

PRESENTATIONS  AND  HANDOUTS

PSEG Services Corporation

80 Park Plaza, 

Newark, NJ 

07102

Edison Electric Institute (EEI) April 17, 2009, Discussion Meeting with
EPA

Subject: CAIR Replacement Rule:  PSEG discussion points

As EPA considers it options in responding to the court’s decision in
NC v. EPA, PSEG would encourage the Agency to establish a
“transport” rule that will (1) achieve substantial progress toward
the national air quality standards for PM and ozone, (2) stand up to
legal scrutiny, and (3) facilitate cost-effective compliance.

EPA should make every effort to rely on a market-based, cap-and-trade
approach to minimize the contributions from transported air pollution. 
It may not be appropriate to rely on a trading program alone to address
all incidents of significant contribution, but given the economic
advantages, it should certainly play a central role.  

Once the overall NOx and SO2 emissions caps have been established, EPA
and the states can work to address any residual emissions that might be
contributing to nonattainment.  

In implementing a NOx cap-and-trade program, EPA should include power
plants and other major industrial sources to facilitate cost-effective
compliance.  We suggest it was a mistake to exclude industrial boilers
from the CAIR rule, given that they were included in the NOx SIP call.

Building off the existing SO2 trading program would be the most
efficient method for reducing future SO2 emissions.  However,
recognizing the limitations imposed by the court decision, consider the
possibility to obtain a targeted amendment to the Clean Air Act that
would allow EPA to change the retirement ratio for the purpose of
reducing the cap.  Companies have purchased or sold future vintage
allowances.  Starting a program from scratch would be very disruptive to
the market.

In terms of establishing a baseline for determining a state’s
contribution to nonattainment, we would be concerned with the Agency
using a distant future year baseline because the assumptions would
become more-and-more speculative leaving the rule vulnerable to legal
challenge.  For example, predicting the SO2 reductions that might result
from a future MACT standard for mercury would place the Agency on shaky
legal ground.

We recognize the challenges that the Agency faces in trying to navigate
the court the decision.  We don’t envy your task, but we look to be
helpful and responsive to the Agency as you develop your response.

If you have any questions on these discussion points, please call me

Daniel Cunningham

(973) 430-6307

Daniel.Cunningham2@PSEG.com

 

EPA Public Input about CAIR Replacement Rule

Minnesota Power (ALLETE) Key Points

April 17, 2009

Contact:  Michael Cashin, 218-355-3339

Minnesota Status.  On October 31, 2008 the Environmental Protection
Agency (EPA) issued a letter to Minnesota Power indicating its intention
to publish in the Federal Register a rule amending the Clean Air
Interstate Rule (CAIR) to stay the effectiveness of the rule with
respect to sources located in the State of Minnesota. The administrative
stay was to remain in effect until such time as EPA determines through a
rulemaking under the Clean Air Act whether Minnesota should be included
in the CAIR region for fine particulate matter. The stay has not yet
been issued, creating great uncertainty for sources within Minnesota.
Minnesota sources should not be compelled to make further expenditures
to address CAIR compliance until EPA has resolved the Minnesota issues
as directed by the U.S. Court of Appeals for the District of Columbia. 
Minnesota Power encourages EPA to expeditiously publish the rule staying
CAIR as to Minnesota sources.  

Baseline.  Minnesota Power (MP) suggests that EPA assess significant
contributions to nonattainment referencing modeling projected for 2015. 
The original CAIR initiated utility actions for control retrofits that
targeted a more stringent emission cap in 2015.  Utilities that
subsequently provided for emission controls in anticipation of CAIR
requirements should have the benefit of such controls given
consideration in significant contribution to nonattainment modeling
assessments.   Nonattainment contribution modeling could retain the
previous 2010 reference year, but much is in transition, likely
resulting in a 2010 baseline overstating the impacts of utility
emissions relative to a 2015 outlook.   

Significant Contribution Issues.  On several occasions Minnesota Power
submitted comments to EPA that there appeared to be modeling
deficiencies in CAIR. MP noted how both the CMAQ and REMSAD models
overstated the impact of NOx on PM2.5 compared to IMPROVE Monitor and
STN Particulate Monitor Observations, as was indicated in EPA’s
technical support documentation.  For higher NOx concentrations modeling
results and monitor results deviated by +/- 2 ug/m3, which is over ten
percent of the annual PM2.5 standard.  Similar deviations were evident
for ozone modeling results vs. monitor measurements.  MP does not
consider it reasonable that a State’s significant contribution to
nonattainment be based on modeled contributions any less than the 90th
percentile correlation between computer models and monitor results. 
However, EPA has already established CAIR significance values at lower
levels than would be supported by EPA’s correlation analysis. 
Consequently, MP suggests that EPA retain the current CAIR analysis,
State significant contribution levels of 2 ppb ozone and 0.20 ug/m3
annual PM2.5 until which time EPA can demonstrate through correlation
analysis justification for different significant contribution values. 
MP also notes that electric utility emissions are the primary target for
control by the CAIR replacement rule, so it is suggested that EPA
consider establishing significant contributions from a state assigning
EPA’s significant contribution levels to modeled, CAIR controlled
source emissions only.  Air quality models and emission inventories used
by EPA for significant contribution modeling should reflect the most
recent, quality controlled resources available to EPA to help assure EPA
methods are best suited to accurately and equitably support achievement
of air quality improvement goals.  

Significant Contribution Remedies.  The DC Circuit Court of Appeals
identified how sources near a nonattainment state might continue to make
a significant contribution to nonattainment if such sources were allowed
to buy emission allowances allocated to distant sources.  EPA modeling
also established that close proximity sources both within the
nonattainment state and in nearby states, including sources not subject
to CAIR controls (e.g. transportation emissions) dominated local
nonattainment contributions.  In some cases, emissions within the
nonattainment state were of sufficient magnitude to interfere with local
attainment, regardless of out of state source reductions.  MP suggests
that EPA allow states the option to implement in-state trading to meet
CAIR replacement rule state emission reduction targets while continuing
to require local source reductions in nonattainment areas in accordance
with the Clean Air Act.  

 

 

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8lacement rule controls should be dominated by their significant
contribution to nonattainment analysis and related significant
contribution levels.  Consequently, the determination of a state’s
significant contribution to nonattainment will drive control
requirements more so than the relative stringency of the NAAQS being
applied.  In turn, Clean Air Act provisions that require local source
emission reductions in nonattainment areas should adequately address
coverage and timing issues, leaving the CAIR replacement rule to focus
on elimination of a state’s significant contribution to a neighboring
state’s nonattainment with the NAAQS.  

Other.  MP notes that equitable allocation of SO2 and NOx allowances was
a key issue that was brought before the Court and that helped lead to
the need for EPA to establish a CAIR replacement rule. MP emphasizes
that EPA should continue to provide for a free allocation of allowances
to emission sources based on their historic emissions, but also notes
that facilities that have provided for lower emissions through controls
operation, control retrofits or fuel switching should have assurance
that they are not disadvantaged in allowance allocations relative to
sources that have historically high emission rates.  Consequently, EPA
should establish allowance allocations that give consideration to local
nonattainment status within a state as well as the emissions performance
for sources determined to be significantly contributing to nonattainment
in other states.  At a minimum, sources in upwind states that are
“well controlled” should receive an emission allowance allocation
sufficient to assure that they are not compelled to buy allowances
released from local nonattainment area sources that are retrofitting
controls as required under the Clean Air Act.      

Minnesota Power (ALLETE)

Key Points

EPA CAIR Replacement Rule

April 17, 2009

Mike Cashin, 218-355-3339

Minnesota Status, CAIR RR

Oct. 31 Administrative Agreement, EPA and MP 

Stay of CAIR in effect until EPA determines through rulemaking under the
CAA whether Minnesota should be included in CAIR

EPA has not yet published the Minnesota stay in the Federal Register

MN sources should not be compelled to make further CAIR compliance
expenditures until EPA has resolved MN issues as directed by the US
Court of Appeals for District of Columbia

Baseline, CAIR RR

2015 air quality modeled reference year for the CAIR RR allows original
CAIR initiated utility control retrofit measures under construction to
receive consideration for significant contribution to nonattainment
analysis.  

2010 reference year is crossed over during the CAIR Phase 1
implementation under the stay. “Outdated” 

Inventory and modeling should reflect most recently available, quality
controlled resources.  

EPA should also establish 2015 as the target year for the next phase of
new controls under the CAIR Replacement Rule 

Significant Contribution, CAIR RR

Correlation between air quality models and ground level air quality
monitor results should limit the significance level used to subject a
State to the CAIR RR.

CAIR TSD NOx model results vs. monitors demonstrated variability at over
+/- 10% of the annual PM2.5 NAAQS standard.

EPA already established CAIR significance levels much more stringent
than supported by EPA’s correlation analysis.

EPA should retain the current CAIR significance levels for the CAIR RR
until which time correlation analysis can justify a change.  

Significant Contribution Remedies, CAIR RR

The DC Circuit Court of Appeals identified concerns where sources near
nonattainment areas could buy allowances from distant sources, not
resolving their significant contribution to nonattainment. 

EPA should continue to require local source reductions in nonattainment
areas in accordance with the Clean Air Act independent of the CAIR RR

EPA should allow States subject to the CAIR RR the option for intrastate
trading of allowances to meet their CAIR RR state target.  

States determined to be significant contributors to nonattainment under
the CAIR RR analysis that later demonstrate they have eliminated their
significant contribution to nonattainment should be able to petition out
of the CAIR RR upon filing of an accepted emission control maintenance
plan.  

Coverage and Timing Issues, 

CAIR RR 

The focus of the CAIR RR should be to eliminate the significant
contribution to nonattainment from upwind states.  

The CAA provisions for addressing local nonattainment should dominate
local emission reduction requirements, not the CAIR RR.  

The significance level dominates determination of states subject to CAIR
RR controls, not the NAAQS stringency.  

EPA revision of NAAQS standards should primarily impact local control
measures imposed under the CAA nonattainment area requirements.  

Other: Allowance Allocation Equity

CAIR RR

All allowances should be allocated at no cost to the emission sources
subject to compliance with allowances.  

The DC Circuit Court of Appeals identified allowance allocation equity
concerns for EPA action under the CAIR remand that EPA should remedy
with the CAIR RR.  

Attainment state sources that are “well controlled” should at
minimum receive allowances sufficient to support operations without
requiring allowance purchases.  

Nonattainment area sources should receive allowances needed to support
compliance from residual emissions, post control retrofits that meet
“highly cost effective” control criteria.    

Diminishing returns (cost effectiveness) of emission control retrofits
on units in attainment area states should receive consideration when
establishing allowance allocations.  

MIDWEST OZONE GROUP

Preliminary Comments on the CAIR Replacement Rule

April 17, 2009

David M. Flannery

Jackson Kelly PLLC

Charleston, West Virginia 

Scope

Limit to regional transport

Use state SIP process to resolve residual non-attainment 

Preserve as much of initial CAIR rule, as possible, consistent with
Court decision 

Relationship to Other Programs

For covered sources, CAIR should be structured in a way that:  

	-	allows BART and RACT to be satisfied through CAIR compliance and

	- 	eliminates any possible basis for §126 petitions 

Cost Effectiveness

CAIR controls:  

	-	should be “highly cost effective”

	-	account for adverse economic impact on sources  

	-	account for the lack of availability of capital 

Trading

Examination of various trading options 

	-	intrastate trading 

	-	ISO trading 

	-	CAIR region trading

Comparison to no trading scenario

Evaluate IPM and alternative approaches to assessing policy alternatives

Select broadest possible trading program 

Allowance Allocations

Develop a new system of allocations (given rejection of Title IV) 

Seek public comment on alternative allocation methods

Allocations should not be auctioned

Modeling

Validate state emission inventories 

Establish the base year (assess both 2007 and 2008) 

A stakeholder group should agree on MET data 

Domain size should be consistent among modelers 

Modeling (continued)

Encourage use of best science in air quality and biogenics models 

Review boundary conditions and revise as appropriate 

Select representative future years most relevant to non-attainment
deadlines (2012, 2015, other?) 

Select the year to be examined for maintenance (2025) 

CAIR Remand Issues:  Principles that Should Guide EPA’s Upcoming
Rulemaking

The Perspective of

the Utility Air Regulatory Group

April 17, 2009

Norman W. Fichthorn

Hunton & Williams LLP

Procedural Issues

EPA should issue an Advance Notice of Proposed Rulemaking

EPA should allow stakeholder and public review of modeling plans and
analyses

Substantive Issues

Framework for Analysis

EPA should use the established two-step analysis for significant
contribution:

(1) Determine air quality contributions to identify states to be covered
by the rule; then

(2) Apply the “highly cost-effective” test to determine state
emission budgets

The “interference with maintenance” analysis should also follow the
basic two-step framework

Substantive Issues

Principles for the Air Quality Analysis

EPA should use the “current-monitored-plus-future-modeled” test for
nonattainment

EPA should use the most current, accurate emission inventory

Modeling must meet model performance criteria

EPA should not address possible future NAAQS  

Substantive Issues

Principles for the “Highly Cost-Effective” Analysis and
Determination of the Remedy

Emission budgets should reflect the trade-off between tons and trading

Emission budgets should reflect the trade-off between tons and timing

Flexibility will be needed in aligning compliance dates with attainment
dates

Substantive Issues

Principles for the “Highly Cost-Effective” Analysis and
Determination of the Remedy (cont’d)

States must retain discretion in deciding how to achieve emission
budgets

EPA should propose a “back-up” federal implementation plan for
public comment

Adequate time for transition to a new program is needed



CAIR REPLACEMENT RULE DISCUSSION WITH EPA 

ATTENDING IN PERSON

FIRST NAME	LAST NAME	COMPANY NAME

 	 	 

John	McManus	American Electric Power

David	Arthur	Calpine 

William	Slade	Con Edison Co. of NY

John	Quinn	Constellation

Lou	Pocalujka	Consumers Energy

Lenny	Dupuis	Dominion

Heather	Eades	Dominion

Daniel	Chartier	Edison Electric Institute

John	Kinsman	Edison Electric Institute

Chuck	Barlow	Entergy

Bill	Bumpers	Entergy (Baker Botts)

Bruce	Alexander	Exelon

Michael	Krancer	Exelon

Ray	Butts	FPL

John	Hampf	FPL

Stephen	Fotis	Large Public Power Council (Van Ness Feldman)

Usha	Turner	Luminant

Sara	Orr	Midwest Generation (Latham & Watkins)

Michael	Cashin	Minnesota Power

William	Butler	Mirant 

David 	Flannery	Midwest Ozone Group (Jackson Kelly)

Ben	Brandes	National Mining Association 

Peter	Glaser	National Mining Association (Troutman Sanders)

Rae	Cronmiller	National Rural Electric Cooperative Association

Verne	Shortelle	NRG

Reid	Clemmer	PPL 

Daniel	Cunningham	PSEG

John	Shimshock	Reliant 

John	Jansen	Southern Company

Norm	Fichthorn	Utility Air Regulatory Group (Hunton & Williams)

Eugene 	Trisko	United Mine Workers of America

 	 	 

Dwight	Alpern	EPA

Kevin	Culligan	EPA

Bill	Harnett	EPA

Jim	Ketcham-Colwill	EPA

Sam	Napolitano	EPA

Sonja	Rodman	EPA

Tim	Smith	EPA

Gabrielle	Stevens	EPA

Meg	Victor	EPA



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