Air Permitting Strategies for New Coal-fired Power PlantsPresented for the Association of Corporate Counsel

on behalf of the ACC Environmental Health & Safety and Energy Committees

Pam Giblin & Derek McDonald, Baker BottsRobert Temple, CPS Energy

Wednesday, January 25, 2006

Resurgence of Interest in Development of New Coal Projects

DOE has Estimated 80 GW in New Coal Capacity by 2025 Approximately 135 New Coal-fired Plants Representing Over $100 Billion in InvestmentProposed Projects in 40 StatesMost Projects Will Be Developed in States that Have NotPermitted a New Plant in Many YearsTechnology Diversity: Majority Will Use Conventional Pulverized Coal TechnologyFuel Diversity: Western Coal, Eastern Coal, Lignite, Waste Coal & Petroleum Coke

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Project Obstacles

Many Proposed Plants Will Not Be DevelopedPower generation economicsFinancing hurdlesRegulatory approvals & delaysUncertainties of appeals & litigationEvolving environmental standards

National Anti-Coal Movement"Using the Department of Energy's own figures, citizen opposition and regulatory reviews stop about 30 percent of all proposed power plants from coming to fruition." Article on Sierra Club in Coal Americas dated 11/28/2005.

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Recent "Horror" Stories

Roundup Power Project in MontanaPermit issued 12/12/2003Administrative challenges; 3 lawsuitsPermit expired 06/12/2005No commencement of construction

Thoroughbred Project in KentuckyPermit issued 10/11/2002Administrative challenge [73 days of live testimony]; 1 lawsuitHearing Officer Adverse Proposal for Decision issued 08/09/2005No commencement of construction

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Develop Project TimelineIdentify Pre-construction Permits vs. Pre-operationPermitsIntegrate Permitting Timeline with Project Finance; Public Service Commission Approvals; OtherEnvironmental Assessment / Site Selection ApprovalsPermitting of a Coal-fired Project Takes at least 2 Years; Appeals / Judicial Reviews Take at least 3 YearsCommencement of Construction Under Air PermitRequired within 18 Months after Issuance, Subject to ExtensionWatch for Conditional Approvals; Approvals that are Not Effective until other Approvals are “Final and Unappealable”

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Successful Permitting Strategy Involves Three Critical Elements

Solid Science

Strong Politics

Sound Legal Strategy

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Air Permit is Key Pre-construction Approval that Will Be Challenged

Federal (and State) New Source Review will be Triggered for New Coal-fired Boilers

PSD thresholds @ 40 CFR § 52.21 CO 100 TPY NOx 40 TPYSO2 40 TPY Ozone 40 TPY VOC or 40 TPY NOx

PM 25 TPY Pb 0.6 TPYPM10 15 TPY Flourides 3 TPYPM2.5 15 TPY* H2SO4 7 TPY

Nonattainment thresolds varyFCAA § 165 Prohibits Commencement of Construction of a Major Emitting Facility prior to the Issuance of a PSD Permit

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Applying 3-Pronged Permitting Strategy to the Site and Project

Project ConsiderationsGenerating technology, size and fuel sourceControl technologiesDetailed process knowledgeUpstream / downstream impacts

Site ConsiderationsExtent of site / bufferAttainment / nonattainment / near nonattainmentNearby Class I areasNearby sensitive receptorsCompeting projects

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Applying 3-Pronged Permitting Strategy to the Site and Project, continued

Existing Site vs. Greenfield Site (Each has Advantages / Disadvantages)

Base of community supportScope of projectEnvironmental track recordCumulative impactsProcess knowledgeOpportunity for offsets/nettingNew permit vs. amendment

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Solid ScienceExperienced Environmental Professionals

Individuals, not firmsAssess witness potential up-frontIssue conflicts within organizations (IGCC)

Permit ApplicationCritical importance to permitting successApplication & permit are foundation of administrative record

Do you put it “all” in or hold something back?Interface with the regulator: how early and how often?

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Solid Science, continuedPermit Application, continued

Key componentsBest available control technology (BACT)Ambient air impacts

NAAQS SIL & increment analysisClass I area analysisAdditional impacts analysis (growth, soils & vegetation, visibility)

Must accurately describe site, project & documentcompliance w/ rulesMethod to stay continually apprised of developmentsDual purposes: regulatory compliance & advocacyDual audiences: regulator & publicPeer review (technical & legal)

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Strong Politics

Coal Projects Have Enormous Political ConsiderationsDecisions by municipal entities subject to changeElected officials carry great weight in community and with regulatorsLegislative enactments can affect pending applications

Politicians Must Answer to Both Economic Benefits and Environmental CostsKeep Governmental Relations InvolvedScope Issues that Have a Political SolutionMuster Industry Support

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Strong Politics, continuedPublic Relations Strategy is KeyWho?

Elected Officials (Federal, State, County, City), Community Leaders, Major Employers, Unions, Health Districts, School Districts, Water Districts, Parks / Wildlife Areas, NeighborhoodAssociations / Citizen Panels, Adjacent Landowners

What?Typical Permitting Issues: Site and Project Description, Review Process, Project Timeline, BACT, NAAQS, and Fine Particulate / Mercury Health ImpactsNonpermitting Issues: Site Selection, Need, Transportation, Control Technology Costs, Energy Efficiency Programs, Renewable Portfolios, Greenhouse Gas, IGCC, Contractor Issues (Unions), and Cumulative and Indirect Impacts

Confirm Accuracy of Public Statements

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Sound Legal Strategy

Identification of Applicable Legal Requirements

Evaluation of Key Permitting Issues

Due Diligence on Opposition

Permit Appeal / Litigation

Settlement Strategy

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Sound Legal Strategy, continuedIdentification of Applicable Legal Requirements

Applicable requirements not always clearSIP Gap

Pollutants; nettingNonattainment NSRFCAA § 112(g) / Clean Air Mercury Rule

Evaluation of Key Permitting IssuesProcedural errors

Defects in public noticeUnavailability of administrative recordTiming / sufficiency of response to comments

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Sound Legal Strategy, continuedEvaluation of Key Permitting Issues, continued

Substantive ErrorsBACT

Emission limitsStartup & shutdown emissionsIGCC

Permit enforceabilityCompliance methodsNetting

Regional impacts / transportOzonePM

Class I area impactsConsultation under Endangered Species ActState toxics

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BACTEmission Limits

Comfortable operating margins are tougher to obtainSomehow, somewhere, a lower emission limit, a shorter averagingperiod, will be foundMust be prepared to justify BACT in light of sameLowest permitted emission limits for criteria pollutants and mercuryfrom pulverized coal-fired boilers. See table.SIP programs have demonstrated that low NOx rates are achievable. Consider impact of attainment strategies, CAIR and CAMR before battling for higher limitControl technologies

SCR, Wet or Dry FGD, FF, Wet ESP & ACI or DSI Coal washing

Opacity

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BACT, continuedLowest Permitted Emissions Limits (lb/MMBtu)

Pulverized Coal Project Pollutant Permitted Emission Limit Emission Limit Achievable per Opposition Expert

CPS Energy Spruce 2; LG&E Trimble County 2

NOx 0.05 0.011

CPS Energy Spruce 2 SO2 0.06 0.014

Numerous PM10 (Filterable) 0.012 0.0088

Numerous PM10 (Filterable + Condensable)

0.018 0.0088

Peabody Thoroughbred; LG&E Trimble County 2

CO 0.10

Santee Cooper VOC 0.0024

Newmont Pb 3.4 X 10-6

Southwest Unit 2 H2SO4 1.84 X 10-4

Longview Power HF 1.0 X 10-5

Elm Road Hg 1.1 X 10-6

Opacity 10

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BACT, continuedStartup and Shutdown Emissions

BACT applies to SS emissionsIn re Indeck-Niles Energy Center, PSD Appeal No. 04-01 (EAB) (09/30/2004)

Key EPA region concernEmission limits, hours limit, emission minimization planStartup / stabilization fuel choice

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BACT, continuedIGCC

States requiring BACT analysis to include IGCC [Illinois, New Mexico, Montana, Kentucky, NESCAUM States(?)] States not requiring BACT analysis to include IGCC [Texas, Wisconsin, Missouri, West Virgina, Utah and Wyoming]State undecided?EPA Letter dated 12/13/2005 by Stephen D. Page, Director OAQPS, states that neither BACT nor LAER require consideration of IGCC

FCAA 165(a)(2) allows opponents to provide information on alternatives to proposed PSD sourceFCAA 173(a)(5) requires applicant to conduct analysis of alternative sites, sizes, and production processes

Opposition will opine that the following emission levels areachievable with IGCC (NOx @ 0.01; SO2 @ 0.02; PM @ 0.009; CO @ 0.05; VOC @ 0.0017; H2SO4 @ 0.00050)

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Permit EnforceabilityMany Challenges Based on Claims that Permit Conditions are Not EnforceableCompliance Methods

Averaging times vs. compliance methodsCoal quality

Definitions of Key TermsGood combustion practicesStartup / shut down

PSD Netting / Credible Decreases"Double dipping" claim Same qualitative significance

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Regional Impacts / TransportEvolving Science Regarding Long-range Transport of Ozone and Fine Particulate PrecursorsDemonstration that Emissions will not Cause or Contribute to a Violation of any NAAQS. Where?Ozone NAAQS

8-hr Ozone New Source ReviewFinal Phase 2 Ozone Implementation Rule [70 FR 71,612 (11/29/2005)]PSD: No concentration-based SIL for ozone; photochemical modeling typically not required if less than 100 TPY VOC and NOx per 40 CFR §52.21

PM NAAQSPM2.5 New Source Review

Proposed PM2.5 Implementation Rule [70 FR 65,984 (11/01/2005)]EPA Guidance, Stephen D. Page, Director, OAQPS 04/05/2005

Proposed PM NAAQS Revisions [71 FR 2,620 (01/17/2006)]

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Class I Area ImpactsClass I Areas

Entitled to special protection under FCAA § 165(d); 40 CFR §52.21(p)Increments and air quality related values (e.g., visibility & acid deposition)

A Part of Every State is Within 300 km of a Class I AreaCALPUFF Modeling Required?

Within 200 km - probably yesOver 300 km - probably not (consider impact of existingregional haze studies, however)20d Rule of Thumb: Background sources with emissions (in tons per year) less than 20 times the distance (in km) to the receptor of interest need not be considered in a PSD analysis

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Consultation under Endangered Species ActRequired under Section 7 of ESA when both:

Federal action andDiscretional Federal involvement or control

No Uniform EPA PolicyStates with a Delegated NSR Program

Region 9 requires consultationIllinois (Region 7) - Indeck-Elwood

States with a SIP-Approved NSR ProgramFederal action is the SIP-approval processKentucky Heartwood v. U. S. EPA, Cause No. 1:05-CV-00535-RBW, in the United States District Court for the District fo Columbia

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State ToxicsNature of Review for Toxic Substances Differs from State to StateDetermine Defensible Scope of Toxics Review

Human health, property, animals and/or plantsDirect impacts vs. secondary impacts (i.e., foodchain)

Non-criteria Pollutants of Concern: Mercury, Silica, Acid GasesObjective Standards: EPA IRIS Database; California EPA; ATSDR; TCEQ Effects Screening Levels

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Sound Legal Strategy, continuedDue Diligence on Opposition

Positions asserted in prior proceedingsExperts used in prior proceedingsSuccess / failure of prior positionsOrganizational documentsGrassroots effortsContacts with regulators

Permit Appeal / LitigationDiscoveryExpert witnesses

Settlement StrategySettlements do happen

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ConclusionGoals

Timely issuance of permitAcceptable permit conditionsPermit that will withstand challenge

The Ability to Achieve Goals Are Dependent on How Well You Pay Attention to All Three Legs of a Successful Permitting Strategy

ScienceLawPolitics

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Pam Giblin, Partner

Pam Giblin heads the environmental department at Baker Botts, and her broad environmental experience includes virtually all aspects of environmental practice, ranging from air and water quality to hazardous waste. As a fluent speaker of Spanish, Ms. Giblin helps clients understand and comply with Mexico's environmental laws and regulations, and she is a frequent speaker at seminars and conferences on U.S. and Mexican environmental law issues.

Ms. Giblin previously served as general counsel of the Texas Air Control Board. She is currently a member of the Environmental Protection Agency's Federal Clean Air Act Advisory Committee.

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Derek McDonald, Partner

Derek McDonald practices in the areas of environmental permitting, law and litigation. He frequently handles matters before the Texas Commission on Environmental Quality, the U.S. Environmental Protection Agency, and the Texas State Office of Administrative Hearings, including contested case proceedings on air quality, water quality, municipal, hazardous,and radioactive waste, and underground injection control permitting matters. Mr. McDonald's litigation experience includes representing clients in complex environmental litigation in state and federal courts in Texas and New Mexico.

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Robert Temple - Director, Legal Services

Bob Temple represents City Public Service (“CPS Energy™”), the nation’s largest municipally-owned electric and gas utility, as a senior member of its in-house legal staff. He oversees and addresses regulatory issues in courts and before administrative agencies and matters related tosignificant commercial. Bob also oversees the contracting, regulatory, customer service and labor relations attorneys at CPS Energy.

Bob previously was in private practice in the Chicago office of law firms with a national energy practice. In private practice, Bob represented clients in federal courts in commercial litigation, before federal and state agencies on energy and environmental matters, and counseled clients on the interpretation of rules and regulations issued by federal and state energy and environmental agencies and commissions.

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