As we noted in our comments on the proposed rule, the language of the Clean Air Act provides EPA with broad authority to implement allocation methodologies, and there is no strong policy or legal reason that the methodology for determining state budgets and the methodology for distributing allowances to units need to be the same. By maintaining the proposed methodology for determining the state budgets,EPA is consistent with the D.C. Circuit's decision requiring that state budgets be based on each state's significant contribution. [EPA-HQ-OAR-2009-0491-4002[1].1, p.2]
As we explained in our comments on the proposed rule, the Integrated Planning Model (IPM) used to project emissions under the proposed allocation approach does not consider a range of non-economic factors that may influence a company's decision to operate particular types of units or for the respective Independent System Operator (ISO) to call upon specific units. As a result, the modeling can create unrealistic scenarios for some individual units, such as ignoring dispatch requirements of EGUs subject to power purchase agreements, running natural gas combined cycle units at higher utilization than can be accommodated by the local natural gas pipeline network, and not running oil-fired units that are required to operate to meet load requirements. While these distortions of the electricity market are masked when data are aggregated at the state level for setting state budgets, the modeling results in unrealistic or infeasible outcomes when used at the unit level to allocate allowances. By contrast, a historic heat input basis for allocating the state budgets avoids these problems and thus strengthens the legal basis for the rule. [EPA-HQ-OAR-2009-0491-4002[1].1, p.2]
Response:
Thank you for your comment.Organization: Cleco Corporation
Comment:
Cleco Corporation
I. EPA Must Abandon Its Timeframe and Issue a Comprehensive Supplemental Proposed Rule for Comment.
With each new NODA, EPA increases the uncertainty surrounding its proposed replacement for CAIR  -  the proposed Transport Rule. NODA-3 further increases that uncertainty. Prior to NODA-3, EPA had proposed: (i) three different remedies; (ii) two different IPM versions; (iii) three different fuel cost assumptions; and (iv) revised emission inventories. These variables compound the uncertainty about what we are being asked to comment on. Additionally, EPA has not provided the information needed to understand how the NODAs (e.g., the revised fuel cost assumptions in the first NODA or the revised emission inventories in the second NODA) will impact the underlying rule. [EPA-HQ-OAR-2009-0491-4007[1].1, p.2]
With NODA-3, EPA adds to this list of variables three potential unit-level allocation methods. Each method would lead to widely divergent allocations for our generating units and would dramatically impact our compliance strategy. At this point, we cannot plan for future compliance. There is no comprehensive proposed rule sufficient to afford the public a meaningful opportunity to comment or to guide our compliance planning. Yet EPA has not expressly abandoned its ambitious rulemaking timeline and compliance schedule (i.e., a final rule this summer and the compliance periods beginning less than a year from now). The uncertainty is too great and EPA's timeline is unnecessary and unattainable. Less than a year from the intended compliance period, we do not know, among other things, whether Louisiana will be subject to the rule, which allowance trading programs will apply to Louisiana if it is subject to the rule, whether trading will be allowed and, if so, what the limitations on trading will be. We do not know what the Louisiana state budget will be or what our individual unit allocations will be. There is no meaningful way to plan a compliance strategy given the short timeframe and the level of uncertainty. All the while, CAIR is in place and continues to ensure emission reductions. EPA must abandon its timeframe, leave CAIR in place, and provide a comprehensive supplemental proposal for comment. [EPA-HQ-OAR-2009-0491-4007[1].1, p.2]
II. EPA Must Allow the States an Opportunity to Develop SIPs.
As outlined in our and many other comments on the proposed Transport Rule, EPA's FIP is premature, illegal and ill-advised. The Clean Air Act requires that states be afforded the opportunity to determine in the first instance how best to eliminate any significant contribution or interference with maintenance. States are best suited to determine where reductions are available and most familiar with the local mix of emission sources and with local economic matters. [EPA-HQ-OAR-2009-0491-4007[1].1, p.2]
III. EPA's Haste to Issue a Final CAIR-Replacement Rule Is Arbitrary and Capricious.
There is no rational basis for EPA's accelerated timeline. EPA took two years following the CAIR vacatur to issue a proposed rule. It expects to take almost another full year to issue a final rule and then allow the regulated community only a half year to plan for compliance. On this timeline, EPA will have taken three years to issue a CAIR-replacement rule and will afford the regulated community less than six months to comply. And, today, less than eleven months from the proposed compliance deadline, we have almost no idea what the rule or its emission reduction targets will be. Because CAIR is in place, EPA does not need to push unrealistic timeframes. There is simply no air quality basis for EPA's rush. In light of these points and others, EPA's haste is arbitrary and capricious and not in accordance with law. As soon as possible, EPA must let states know whether they are in or out of each program and, to the extent trading will be a part of the final rule, publish the state budgets and unit allocations. [EPA-HQ-OAR-2009-0491-4007[1].1, p.3]
A. EPA should use the emissions-based allocation method articulated in the proposed Transport Rule.
EPA should use the emissions-based allocation method articulated in the proposed Transport Rule, amended to reflect public comments on that method. As explained in our comments on the proposed rule, EPA should not rely too heavily on its own projections for state budget allocations and EPA should look at a longer baseline period. By reference to our initial comments, we reiterate those points here. [EPA-HQ-OAR-2009-0491-4007[1].1, p.3]
Emission-based allocations provide the most equitable distribution of allowances and more evenly distribute the compliance burden across all covered units. Further, they do not lead to windfall benefits for different types of generation. Allowance trading programs are designed to force cost effective emission reductions at the margins. [EPA-HQ-OAR-2009-0491-4007[1].1, p.4]
E. If EPA uses one of the NODA-3 Options, it must adjust the new unit set aside to account for substantial new generation in Louisiana.
Under the NODA-3 Options, EPA proposes to change the critical date that impacts whether a unit is new versus existing (from January 1, 2012 to January 1, 2009). Between January 1, 2009 and January 1, 2012 at least 1,100 MW of new generation will have been brought online in Louisiana. Under the proposed Transport Rule method, these units' allocations would come from the 97% of the state budget reserved for existing units. Under the NODA-3 methods, these unit's allocations would come from the 3% of the state budget reserved for new units. That would lead to significant under-allocations for these units. EPA must adjust the size of the new-unit set aside for Louisiana. [EPA-HQ-OAR-2009-0491-4007[1].1, p.6]
F. EPA Must Clarify Its Proposal for Determining New Unit Allocations.
In the proposed Transport Rule, EPA explains that new unit allocations will be based on the unit's reported emissions for the prior year. New units would be required to request allocations for their first full year of operations. It appears from the preamble or the regulatory language that this method would seriously under-allocate to new units. First, most new units will not come online on January 1 of a given year, rather they will come online somewhere in the middle of the year. Accordingly, they will only report partial year emissions. If reported emissions for the prior year are the basis for the unit's allocations, it will be under-allocated allowances to the extent it only reported partial year emissions. Additionally, EPA's method does not appear to account for the fact that new units will undergo a shakedown period, where they are operated at well below intended capacity. To correct this apparent oversight, EPA should set new unit allocations based on vender design values. For example, new unit allocations could be based on the vendor's heat-input rate design values and reasonable emission rates and capacity factors for the given technology and fuel type. [EPA-HQ-OAR-2009-0491-4007[1].1, p.6]
VII. Conclusion.
EPA must issue a supplemental proposed rule and extend its rulemaking and compliance timelines. There is simply too much uncertainty to continue with an extraordinarily aggressive timeline. Further, there is no need for such haste, because CAIR is in place. EPA must stop and take its time to assure that the public is afforded full and fair notice and an opportunity to comment and the states are afforded the opportunity to develop SIPs. [EPA-HQ-OAR-2009-0491-4007[1].1, p.7]
Response:
Thank you for your comment.Organization: Cogen Technologies Linden Venture, LP
Comment:
Cogen Technologies Linden Venture, LP
In our prior comments, Linden Cogen objected to the allocations of allowances for nitrogen oxides ('NOx') that were proposed for New Jersey under the Proposed Transport Rule because they were based upon projections of utilization generated by EPA's Integrated Planning Model ('IPM'), which have little or no correlation to the historical operations of power plants in the state and fail to reflect Linden Cogen's long-term contractual obligations. Due to several other errors in the model inputs, IPM wrongly projected the dispatch of Linden Cogen at only a fraction of its historical operating levels because IPM arbitrarily ignores the impact of long-term contracts on dispatch. See October 1, 2010 Comments, 5-9. The IPM inputs also incorrectly assumed that Linden Cogen dispatched all of its power into the PJM market. In reality, Linden Cogen dispatches most of its power to the New York City market and also supplies approximately 130 MW of electricity to ConocoPhillips' Bayway Refinery. In light of these erroneous results, Linden Cogen argued that EPA could not rely upon IPM's projections of dispatch unless and until it could fix the model so it appropriately predicted dispatch of cogeneration units. See October 15, 2010 Comments at section II.B.4. [EPA-HQ-OAR-2009-0491-3938[1].1, p.2]
Because of these problems with IPM's projections of future dispatch, Linden Cogen also could not support the alternative allocation methodology EPA proposed with the Proposed Transport Rule, wherein unit allocations would be based on each unit's share of projected statewide heat input. 75 Fed. Reg. at 45311. See October 1, 2010 Comment at 21. While this alternative would generally favor cleaner units, it still would face the same problems of basing allocations on IPM's erroneous projections of future dispatch for units like Linden Cogen. However, Linden Cogen also said that, 'if EPA's proposal were instead to allocate allowances based on each source's share of historical statewide heat input, irrespective of IPM's projections for same, Linden Cogen agrees that this would be a fair and equitable approach.' Id. (emphasis in original). Linden Cogen also suggested that, if EPA could not make changes to IPM so that it would accurately predict dispatch of facilities such as Linden Cogen, EPA should instead base NOx allocations for New Jersey on the same reported emissions data that were used to establish the state budget, as augmented by assumptions about operation of emissions controls. Id., at 20. [EPA-HQ-OAR-2009-0491-3938[1].1, p.2]
SUMMARY OF PRIOR COMMENTS ON PROPOSED TRANSPORT RULE'S PROPOSED ALLOCATIONS
As conveyed by Linden Cogen's October 1, 2010 Comments on the Proposed Transport Rule and October 15, 2010 Comments on the September 1, 2010 NODA, Linden Cogen objected to the allocations of annual and ozone season NOx allowances proposed under the Proposed Transport Rule for New Jersey because they were based upon projections of utilization generated by IPM that have little or no correlation to the historical operations of power plants in the state and fail to reflect Linden Cogen's long-term contractual obligations. See October 1, 2010 Comments, 5-9. EPA also made several errors concerning the underlying assumptions applied to Linden Cogen within IPM that also may have contributed to IPM's erroneous projections of future dispatch for Linden Cogen. See id., 10-11; October 15, 2010 Comments, 4-6. For example, the IPM inputs incorrectly assumed that Linden Cogen dispatched all of its power into the PJM market. In reality, Linden Cogen dispatches most of its power to the New York City market and also supplies approximately 130 MW of electricity to ConocoPhillips' Bayway Refinery. [EPA-HQ-OAR-2009-0491-3938[1].1, p.3]
Both the initial version of IPM released in August (v.3.02) and the revised version released with the September 1, 2010 NODA (vA.1.0) suffered from these errors. As a consequence, reliance upon either version of IPM as the basis for allocating NOx allowances in New Jersey would result in an allocation for Linden Cogen that represented only a small fraction of its historic emissions. Such a result would bear no relationship to real-world observations about how the facility has historically been operated or is required to continue operating under its contracts for the sale of steam and power. See October 15, 2010 Comments, 3. EPA cannot simply ignore these discrepancies in setting the unit allocations. To do so would run afoul of the D.C. Circuit's mandate that EPA explain disparities between IPM's projected future utilization rates and ''real world' evidence to the contrary. See Appalachian Power Co. v. EPA, 249 F.3d 1032, 1054 (D.C. Cir. 2001) ('Appalachian Power I'). As we noted in our October 1, 2010 Comments, the D.C. Circuit has twice previously thrown-out EPA's reliance upon IPM's projected future utilization rates, where IPM 'generated seemingly implausible results' and no attempt was made to explain 'what appear to be stark disparities between its projections and real world observations.' See Appalachian Power I, 249 F.3d at 1035; Appalachian Power Co. v. EPA, 251 F.3d 1026, 1035 (D.C. Cir. 2001). EPA's reliance upon IPM's projections to establish the unit-level allocations would be particularly egregious, when EPA rejected those projections as less reliable than actual data in setting the state budgets. See October 1, 2010 Comments, 16-17. [EPA-HQ-OAR-2009-0491-3938[1].1, pp.3-4]
In our October 15, 2010 Comments, Linden Cogen discussed how EPA might resolve the problems within IPM so that it accurately predicts dispatch of cogenerators subject to long-term contractual obligations, such as Linden Cogen. See October 15, 2010 Comments, 4-7. If EPA could not incorporate the highly complex contractual provisions governing dispatch into IPM, Linden Cogen concluded that EPA would need to 'set the dispatch for cogens within IPM at historic heat input levels using readily available information from EPA databases, and then let IPM solve for the dispatch of other electric generating facilities.' Id., at 7. [EPA-HQ-OAR-2009-0491-3938[1].1, p.4]
As Linden Cogen previously described, long-term contract generators such as Linden Cogen can be severely impacted by the requirement to purchase emissions allowances because, unlike a utility that can seek to recover allowance costs from its ratepayers or a merchant generator that can recover such costs through the market price of electricity, long-term contract generators are subject to contractual obligations that do not allow for full recovery of allowance costs. See id., at 22. Further, long-term contract generators typically must operate whenever dispatched by their counter-party or the grid operator. As we previously suggested, 'Congress has previously recognized the economic realities faced by long-term contract generators who have no way of recovering the cost of emissions allowances, both upon enacting the Acid Rain Program under the 1990 Clean Air Act Amendments and more recently as part of the development of a federal cap and trade program for emissions of greenhouse gases.' Id. Linden Cogen believes that EPA should also take these economic realities into account in developing an allocation methodology that avoids saddling long-term contract generators with unrecoverable costs. [EPA-HQ-OAR-2009-0491-3938[1].1, p.4]
COMMENTS ON ALTERNATIVE ALLOCATIONS PROVIDED BY THE NODA
In Linden Cogen's October 1, 2010 comments on the Proposed Transport Rule, Linden Cogen said it did not support the proposed alternative allocation methodology described by EPA in the preamble to the Proposed Transport Rule, wherein each facility would be allocated allowances based on its 'share of projected heat input.' 75 Fed. Reg. at 45311. See October 1, 2010 Comments at 21. Linden Cogen said that, although this alternative methodology would generally favor clean units such as Linden Cogen, it would still base unit-level allocations on the IPM's inaccurate projections for dispatch and, as a consequence, did not avoid the arbitrary results of EPA's proposed allocations. However, Linden Cogen also said that, 'if EPA's proposal were instead to allocate allowances based on each source's share of historical statewide heat input, irrespective of IPM's projections for same, Linden Cogen agrees that this would be a fair and equitable approach.' Id. (emphasis in original). If EPA could not resolve the problems with IPM so that it would accurately predict dispatch of facilities subject to long-term contractual agreements, such as Linden Cogen, we suggested that EPA should instead base NOx allocations for New Jersey on the same reported historic emissions data that were used to establish the state budget. Id., at 20. [EPA-HQ-OAR-2009-0491-3938[1].1, pp.4-5]
Response:
Thank you for your comment.
Organization: Cogentrix Energy, LLC
Comment:
Cogentrix Energy, LLC
Cogentrix submitted detailed comments regarding allocations in a September 2010 comment letter on the proposed Transport Rule. In addition to the allocations comments, Cogentrix also provided detailed comments in support of any opportunity to trade credits to promote economic efficiency and to improve the implementation process by giving the state agencies a more active role. [EPA-HQ-OAR-2009-0491-3916[1].1, p.2]
Response:
Congentrix's previously submitted comments are addressed elsewhere in the Response to Comment document.
Organization: Connecticut Department of Environmental Protection
Comment:
Connecticut Department of Environmental Protection
Although EPA did not open the question of allocation methods more broadly, CTDEP feels obligated to suggest that an energy output-based allocation is preferable because it would reward more efficient units and support a more efficient electric generation system overall. [EPA-HQ-OAR-2009-0491-3884[1].1, p.1]
Response:

Thank you for your comment.
Organization: Consolidated Edison Company of New York, Inc, (CECONY)
Comment:
Consolidated Edison Company of New York, Inc, (CECONY)
Con Edison believes it makes no sense to assign a 2012 EGU compliance requirement to units that have long-ceased functioning as EGUs, and which were not operating as EGUs even during the EPA-established baseline period. Moreover, even if these units were to be withdrawn from the CA TR, they will still be subject to the Acid Rain provisions of the Clean Air Act, and will continue to report their emissions, and surrender relevant allowances, under that program. Furthermore, the units do not derive any income from the sales of electricity so that any costs associated with their compliance with the CA TR would be borne only by the small number of steam system customers, and not by CECONY's vastly larger (three million plus) electric customer base. This disconnect between costs and revenues is contrary to the fundamental premises of the emission allowance market scheme, and militates in favor of determining that these 74th Street Steam Station units must not be subject to the CATR. [EPA-HQ-OAR-2009-0491-3910[1].1, p.3]
Response:
These units are currently being left in the list of potential existing Transport Rule units that receive final allowance allocations.  However, EPA notes that the inclusion of this unit in no way suggests that EPA has made a determination about the applicability of the proposed Transport Rule to any unit.  EPA is including the unit in the allocation tables finalized for the Transport Rule because based on its best available data and that submitted by the commenter, the sources' applicability status is unclear.  Therefore, EPA is including the unit so that it has allocations in the event that it a covered Transport Rule unit.  If the unit is subsequently determined not to be subject to the final Transport Rule, than EPA has established procedures for redistributing allowances that would otherwise have been allocated to that unit.  Therefore, their inclusion in the list of potentially covered Transport Rule units reflects a conservative approach by EPA to guard against the possibility of the units being subject to the Transport Rule without receiving any allowance allocation.
Organization: Constellation Energy
Comment:
Constellation Energy
We previously submitted comments on the proposed Clean Air Transport Rule on October 11 2010; our primary comment was that EPA should move forward quickly with full Implementation of the rule. The rule will appropriately level the regulatory playing field and provide the sector with enough certainty to plan operations for the future. The proposed rule will achieve Important air quality, health, and economic benefits utilizing EPA's current authority. It is critical that EPA implement the rule as expeditiously as practicable to ensure realization of these benefits. Constellation Energy is committed to working with EPA to ensure the Agency can implement the Transport Rule by January 1, 2012, and to that end, we offer these comments on the January 7 NODA. [EPA-HQ-OAR-2009-0491-4031, pp.1-2]
After identifying states contributing to the nonattainment or Interference with maintenance of future NAAQS, EPA should promulgate revised budgets as soon as reasonable and certainly within a timeframe that would allow companies to take account of future requirements in capital planning and positioning in the allowance and electricity markets. [EPA-HQ-OAR-2009-0491-4031, p.2]
Constellation Energy favored the original allocation plan In our October 1, 2010, comments; one criticism of this approach is that it rewards companies that delayed installing controls and penalizes companies who controlled early, or invested in low-emitting generation In anticipation of tightening emission limits. In response to the allocation Options 1 and 2 presented in the NODA, Constellation Energy offers the following: [EPA-HQ-OAR-2009-0491-4031, p.2]
Response:
Thank you for your comment.Organization: Consumers Energy
Comment:
Consumers Energy
Whatever approaches are ultimately adopted for allocating allowances or potential alternative means of satisfying states' emission reduction obligations under the proposed rule, there remains a pressing need for EPA to address the deficiencies discussed in Consumers Energy's previous comments with respect to the Proposed Transport Rule, NODA 1 and NODA 2. [EPA-HQ-OAR-2009-0491-4008[1].1, p.4]
Consumers Energy shares the concerns of the Michigan Department of Natural Resources and Environment (MDNRE) regarding EPA's abbreviated timelines for State Implementation Plans (SIPs) and Federal Implementation Plans (FIPs) to implement the programs called for under the Proposed Transport Rule. Historically, EPA has promulgated and finalized rules with adequate time allowed for the states to submit SIPs to implement programs. The Proposed Transport Rule dramatically shortens the time for the States to act, while NODA 3 affords the opportunity for an abbreviated SIP. Like the MDNRE, Consumers Energy believes that the schedule for program implementation can be modified in order to allow the states to adequately address the requirements of the final rule and submit approvable SIPs. FIPs should not be initiated for a minimum of 18 months after a final Transport Rule is in place. [EPA-HQ-OAR-2009-0491-4008[1].1, p.4]
EPA's Proposed Transport Rule is one of the most extensive and complicated rules that EPA has ever proposed under the Clean Air Act. EPA is proposing to limit the interstate transport of emissions of nitrogen oxides (NOx) and sulfur dioxide (SO2). In this action, EPA is proposing to both identify and limit emissions within 31 states and the District of Columbia, in the eastern United States that affect the ability of downwind states to attain and maintain compliance with the 1997 and 2006 fine particulate matter (PM 25) NAAQS and the 1997 ozone NAAQS. [EPA-HQ-OAR-2009-0491-4008[1].1, p.4]
As proposed, the rule would significantly affect the planning, spending and operations of Consumers Energy, as well as those for all utilities within the Transport Rule region. Our company's planning includes capital expenses and scheduling built around the final and still enforceable CAIR to create and maintain a balanced energy portfolio. As proposed, EPA's Transport Rule would force acceleration of spending and construction schedules (if even possible) and, in all likelihood, increase costs for capital expenditures that Consumers Energy currently projects to total in excess of one billion dollars The likely cost increases, coupled with accelerated retirements of units throughout the proposed Transport Rule region, including Michigan, have also caught the attention of the Michigan Public Service Commission (MPSC) which serves to protect the ratepayers in Michigan. [EPA-HQ-OAR-2009-0491-4008[1].1, p.5]
On October 1,2010, Consumers Energy submitted comments on EPA's proposed Transport Rule In those comments, we noted that: [EPA-HQ-OAR-2009-0491-4008[1].1, p.5]
:: EPA was not under any court or statutory mandated schedule to propose and finalize the proposed Transport Rule.
:: The proposal was developed using emissions inventory data that has no relevance to the situation that exists today.
:: The proposed rule has been developed using ambient air quality monitoring data that are not representative of air quality as it currently exists.
:: EPA's choices of emissions inventory and ambient air quality monitoring data result in allowance totals that will be inadequate to support even a limited emissions trading program.
:: EPA uses its choices of emissions inventory and ambient air quality monitoring data to propose an implementation schedule that is considerably more ambitious than the schedule in the rule it is designed to replace, CAIR. For reasons described in our comments and those of the UARG, EPA's schedule is impossible for the industry to meet.
:: EPA made a deliberate choice to isolate itself from the affected states and sources as the Agency crafted this rule.
We reiterated those points as part of our comments on NODA I and NODA2. [EPA-HQ-OAR-2009-0491-4008[1].1, p.5]
The combination of the short comment periods allotted, the lack of supporting data for NODA I, and the extreme difficulty encountered in being able to access and process the 500 MB of data files for NODA 2, have made it extremely difficult for us to conduct a full review, in order to provide meaningful comments on NODA 2 and how it affects the proposed Transport Rule. Consequently, we support and incorporate, by reference, the comments provided by UARG. [EPA-HQ-OAR-2009-0491-4008[1].1, p.5]
EPA freely concedes that the new EGU information supplied by companies in their comments on the Proposed Transport Rule, combined with changes to the NEEDS database, changes to the emission inventory and the IPM inputs identified in EPA's NODA I, NODA 2 and NODA 3, will likely result in a final rule that differs, significantly, from the proposal. Among other things, we expect to see changes in EPA's significant contribution analysis, the creation and evaluation of the cost curves, and the breakpoints selected based on the cost curves. It also is possible that NODA I, NODA 2, NODA 3 and comments received on the data contained in them will result in changes in EPA's determinations of which states are regulated under the Proposed Transport Rule, the emission budgets to which those states will be subject, and unit-level allowance allocations supporting the final Transport Rule. [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
The potential changes described above are indeed significant. The result of these changes, combined with the series of errors identified in comments to the Proposed Transport Rule and NODA I, is that EPA is placing companies, like Consumers Energy, in the position of revising plans for control projects that are currently being implemented, with associated costs in the billions of dollars. These revisions are being based on a proposed rule and three NODAs, with the expectation that a final rule will be significantly different. Such revisions will incur substantial cost penalties. [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
EPA has neither a Court mandated nor a statutory required date for completion of this rule. Consumers Energy joins many others in requesting that EPA now retract, revise and repropose the Transport Rule, allowing a reasonable comment period. [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
Consumers Energy makes the following recommendations: [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
:: The prudent course for EPA is to retract and rethink the Proposed Transport Rule, NODA I, NODA 2 and NODA 3. The process requires more upfront transparency and a greater degree of involvement by the States and affected sources. EPA has neither a court mandated nor a statutory required date for completion of this rule. EPA has stated that a revision to the final Transport Rule will be proposed to accommodate the final reconsidered 2008 ozone NAAQS, which is now slated to be released by the summer of 2011. Consequently, we recommend that EPA take this opportunity to make the necessary changes and repropose the rule for comment. We respectfully point out that CAIR will continue to remain in effect until a final Transport Rule is in place. Likewise, our Company's plans for implementing controls will also remain in place. [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
:: EPA must work with the states and affected sources to correct the numerous errors and assumptions, with respect to source emissions, control plans and decommissioning plans contained within the proposed rule. [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
:: Once EPA settles on final budgets for the states, the allocation of allowances should be handled by the states. The states know their jurisdictions and their sources best. A total allowance budget should be assigned to each state. They can handle the distribution schemes. [EPA-HQ-OAR-2009-0491-4008[1].1, p.6]
:: EPA must recognize that the affected sources have been making substantial plans and progress towards the implementation of controls, in accordance with CAIR, which remains final and enforceable. Any changes to CAIR must take these plans into account. The changes to the schedule contained in the Proposed Transport Rule are not attainable. Any attempt to meet them will result in limited success, substantial noncompliance across the region, with substantial cost penalties. [EPA-HQ-OAR-2009-0491-4008[1].1, p.7]
:: EPA must change the implementation schedule for the final Transport Rule to allow the states adequate time to prepare SIPs. No FIPs should be initiated for a minimum of 18 months following publication of a final Transport Rule in the Federal Register. [EPA-HQ-OAR-2009-0491-4008[1].1, p.7]
Response:
Thank you for your comment.Organization: CPS Energy
Comment:
CPS Energy
The implementation of SCR takes well over 36 months, from the time of contract award to the time of operation. There would not be enough time to install additional reduction technology. [EPA-HQ-OAR-2009-0491-3947[1].1, p.1]
Response:
Regarding installation of EGU controls and the timing of Transport Rule implementation (2012 and 2014), EPA received extensive comment and took these comments into consideration when designing the final Transport Rule.  For a detailed description of EPA's rationale for the final Transport Rule, please refer to section VII.C of the preamble for the final Transport Rule.
Organization: Dayton Power and Light Company (DP&L)
Comment:
Dayton Power and Light Company (DP&L)
The original proposed rule of August 2,2010 proposed methodologies for distributing allowances based on projected emissions. Since then, EPA has issued three NODAs to supplement the original proposed rule. DP&L submitted comments on the original proposed rule and incorporates those comments by reference. [EPA-HQ-OAR-2009-0491-3973[1].1, p.2]
B. Adoption of Comments by the Environmental Committee of the Ohio Utility Group
DP&L has also participated in the development of and hereby adopts and supports comments that are being submitted by the Environmental Committee of the Ohio Utility Group ('EC-OUG'). The Ohio Utility Group is a group of six electric utilities operating in Ohio, who actively participate in various State and Federal initiatives involving environmental regulation of utilities. DP&L's comments herein are to supplement the comments of the EC-OUG. [EPA-HQ-OAR-2009-0491-3973[1].1, p.2]
Response:
EPA thanks DP&L for their comments. Responses to previously submitted comments and comments from OUG can be found elsewhere in the Response to Comments document.
Organization: Dominion
Comment:
Dominion
Comments on the NODA Alternative Allocation Options
Relationship to Original Proposed State Budgets
We commend EPA for presenting additional allocation methodologies for consideration. However, the resultant allocations are still based on the state budgets established in the original CATR proposal and merely represent a redistribution of the originally-proposed state budgets. In our previous comments, we noted in detail numerous inaccuracies in the Integrated Planning Model (IPM) input assumptions specific to Dominion facilities and electric generating units that were used to determine the state emission budgets and individual unit allocations in the proposed rule, and provided detailed documentation for correcting the noted discrepancies. These inaccuracies led to significant underestimation of state emission budgets and insufficient unit allocations under those budgets. Based on our review of this NODA, these issues persist and the use of these alternative options to allocate allowances to units in states with insufficient state budgets (as currently proposed) are even more problematic. [EPA-HQ-OAR-2009-0491-3987[1].1, p.2]
Regardless of which allocation method is applied, there continues to be a pressing need for EPA to correct the deficiencies in the determination of state emission budgets under the proposed rule. Failure to do so could result in even fully controlled facilities that have spent or plan to spend significant capital for environmental controls not being allocated enough allowances to operate fully. An internal evaluation of potential compliance scenarios for CATR that the Company has performed for our Massachusetts facilities illustrates this possibility. The results of these potential scenarios are provided in the attached table and discussed in the following paragraphs. [EPA-HQ-OAR-2009-0491-3987[1].1, p.2]
[Table can be found on page 8 of this comment.]
Dominion owns and operates the Brayton Point and the Salem Harbor coal- and oil-fired power plants in Massachusetts. Since the Company acquired Brayton Point in 2005, the Company has installed substantial pollution control equipment to reduce emissions. These include Selective Catalytic Reduction (SCRs) on Units 1 and 3 in 2006 to reduce NOx, Activated Carbon Injection (ACI) on Units 1-3 in 2007 to reduce mercury, and Flue Gas Desulfurization (FGD) on Units I & 2 in 2008 to reduce SO2. In addition, the Company is in the process of installing FGD on Unit 3 and has completed 60 percent of the cooling tower construction needed to convert the full station to closed-cycle cooling. Capital spending to achieve all these environmental improvements will exceed $1.3 billion (plus additional annual operating costs) when all equipment is installed. The Company will continue to achieve SO2 emission reductions to comply with existing requirements under Massachusetts 310 CMR 7.29. [EPA-HQ-OAR-2009-0491-3987[1].1, p.2]
The proposed CATR assumes that the Brayton Point Unit 3 scrubber noted above will be installed and operational by 2012. This is not possible, as construction of the scrubber has just begun. This scrubber is required by the Massachusetts Department of Environmental Protection to begin commercial operation by the first quarter of 2014. CATR also assumes the installation of a scrubber at Salem Harbor Unit 3 by 2012. The Company currently has no plans to install this equipment. These assumptions have resulted in a significant underestimation of emissions from these facilities in 2012 and a subsequent significant underestimation of the state budget for Massachusetts applicable for 2012 and 2014. As a result, the stations would face a significant shortfall of SO2 allowances in 2012-2013 and for 2014 and beyond under the original set of proposed allocations and an even greater shortfall under the alternative options proposed in this NODA (see Potential Scenario #1). [EPA-HQ-OAR-2009-0491-3987[1].1, pp.2-3]
We analyzed several potential scenarios to reduce SO2 emissions at Brayton Point using fuel switching. We evaluated the four currently commercial available coals: Central Appalachian (CAPP) coals, Columbian coal, Powder River Basin (PRB) coal and Indonesian Adaro coal. The S02 emission rates for these coals range from 1.40 Ibs/MMbtu SO2 content to 0.43 Ibs/MMbtu SO2 content. The lowest sulfur fuels are the PRB and Indonesian Adaro coal. However, these would not be available at Brayton Point until the 2014 timeframe because burning either of these coals would require significant upgrades to the coal handling equipment at Brayton and Salem Harbor in order to safely handle these more volatile fuels. The coal handling upgrades required would require environmental permitting, which combined with the upgrades would take a minimum of two years. The coal handling upgrades can take a significant amount of time to complete because the schedule for the upgrades must be balanced against the plant's ability to continue to operate. This requires the upgrade of the coal handling system now in use. Dominion performed coal handling upgrades at our Salem Harbor Station (Massachusetts); that project took approximately two years to complete. [EPA-HQ-OAR-2009-0491-3987[1].1, p.3]
Switching fuels for a boiler designed for CAPP coal to a western PRB coal or the Indonesian Adaro coal also presents several technical issues. A typical PRB coal has a SO2 rate of 0.8 Ib/MMBtu and a HHV of 8,800 Btu/lb. Converting a boiler designed for CAPP coal to PRB coal would result in de-rating the unit by approximately 20 percent or more depending on unit specific design.. Indonesian Adaro coal will also significantly de-rate the units.' [EPA-HQ-OAR-2009-0491-3987[1].1, p.3]
In addition, switching to Indonesian or PRB coal poses logistical and economic issues. For example, there are no East Coast terminals for PRB coal. Indonesian coal comes from a politically unstable part of the world. Indonesian Adaro coal is also very expensive. The station would rarely dispatch if it were to switch to this coal. The Company would not choose an option that is not economically viable. [EPA-HQ-OAR-2009-0491-3987[1].1, p.3-4]
A fuel switch to Columbian coal (the only alternative fuel available in 2012) is insufficient to ensure that Brayton Point can meet the CATR caps, as shown in Potential Scenario #2 in the attached table). The station is still short allowances under the original CATR allocations and is even shorter under the alternative allocations in the NODA. Moreover, Columbian coals are more expensive and use of such coals would affect Brayton Point's ability to dispatch economically. [EPA-HQ-OAR-2009-0491-3987[1].1, p.4]
The station would still be short of allowances even if the station were to switch to Columbian coal and even if other potential options were pursued such as the retirement of Salem Harbor units and the use of Salem Harbor allowances for compliance at Brayton Point (Potential Scenarios #3 and #4), and after the Unit 3 scrubber is installed (Potential Scenario #5). Note that the analysis of these options assumes that the SO2 allowances from Salem Harbor would be allowed for use at Brayton Point in accordance with the EPA draft CATR rule (which allows retired units to retain their allowances for 6 years after a unit is retired). [EPA-HQ-OAR-2009-0491-3987[1].1, p.4]
The CATR rules are not intended to require facilities to install controls beyond what is already planned in the first two years of the program. The rules should allow controlled units such as Brayton Point I, 2 and 3 to bum the coals for which the emission control systems were designed. This will allow economic dispatch into the market. As illustrated in this example, the allowances allocated to Brayton Point both in the original proposal and in this NODA are significantly insufficient (largely due to the erroneously low state budget proposed for Massachusetts) to allow the station to comply economically with the CATR requirements even once the station is fully controlled for SO2. This is true for both the 2012 and 2014 allocations. [EPA-HQ-OAR-2009-0491-3987[1].1, p.4]
The outcomes described above are not consistent with the rationales that have been provided in the preamble to the Transport Rule for the proposed state budgets and unit-specific allocations in the early years of the program. The preamble to the proposed Transport Rule emphasizes that 2012 budgets are based on 'existing and planned controls,' and are intended mainly to ensure the operation of those controls. Further, EPA acknowledges that 2012 reductions from scrubbers 'can only reasonably be achieved if that scrubber exists today, or if it is currently under construction.' It is not possible to reconcile these statements with the budget and allocation issues outlined above. [EPA-HQ-OAR-2009-0491-3987[1].1, p.5]
Furthermore, as explained above, fuel-switching is not an adequate stopgap to make up for the shortfalls in allowances caused by incorrect data and assumptions about scrubber installation. The preamble acknowledges that there is 'some uncertainty about how quickly units potentially capable of switching fuels would actually be able to implement such fuel switching.' However, as the above discussion makes clear, the term 'uncertainty' significantly understates the obstacles involved in substantial fuel switching for the Company's facilities. [EPA-HQ-OAR-2009-0491-3987[1].1, p.5]
In addition, it is not clear how allowances available in the CATR banking and trading program which the agency itself refers to as 'Limited' - can make up for shortfalls as substantial as those outlined above. If, for example, there are other companies situated similarly to Dominion, then it would appear likely that the CATR market will be deeply 'short'- particularly, if even well-controlled units would have to be allowance buyers. EPA has not provided an adequate rationale for such an approach. If the real intent of CATR is to achieve substantial controls and/or retirements of units, then EPA should provide a full analysis of the economic and energy market impacts of such an approach that appears to deviate significantly from the intent for a more orderly implementation of emission controls stated in the preamble to the CATR proposal. [EPA-HQ-OAR-2009-0491-3987[1].1, p.5]
Conclusion
Regardless of which allocation methodology EPA ultimately chooses, it is crucial to Dominion that the program provide a sufficient amount of allowances that will allow the Company to continue to operate our generating units, particularly those that have already installed controls or will do so over the next few years. We respectfully submit that EPA should correct the issues identified in the original proposal and subsequent NODAs, and recalculate the state budgets before proceeding with further action to finalize this rule. [EPA-HQ-OAR-2009-0491-3987[1].1, p.7]
Response:
EPA notes that Massachusetts was not found to have emissions that significantly contribute nonattainment or interfere with maintenance in another state in the analysis for the final Transport Rule, as described in Preamble Section V.D.2.  This finding renders moot several of this commenter's concerns.
Organization: Dow Chemical Company
Comment:
Dow Chemical Company
Dow submitted comments on CATR on October 1, 2010. Dow does not waive its prior comments based on providing comments here. Dow reiterates its belief that Louisiana should not be included in the proposed Transport Rule. Dow also believes that EPA's method for allocations under the Transport Rule! FlP is flawed when compared to the allocations under CAlR via the State of Louisiana SlP. [EPA-HQ-OAR-2009-0491-4018[1].1, p.1]
Response:
EPA does not believe that it is appropriate to compare the Transport Rule FIP with a CAIR SIP, as CAIR was found to be unlawful and was remanded in the North Carolina court decision.
Organization: DTE Energy
Comment:
DTE Energy
EPA has proposed distribution of 97% of each state's budgeted allocation to existing sources, holding back 3% for new sources. DTE Energy supports this distribution, but there must be a mechanism to redistribute the unused portion of the 3% new source set aside to the existing (and new) sources at the end of each reporting period. If there are few, if any, new affected sources in a state, existing sources will still need to provide generation without having adequate NOx or S02 allocations to cover emissions from that generation. [EPA-HQ-OAR-2009-0491-3932[1].1, pp.2-3]
DTE Energy is also concerned that the deadlines for states to develop, process, and get SIPs finalized and submitted to EPA for approval is inadequate. An 18-month time frame is required for most states to get a SIP approved through the relevant legislative process. The Michigan Department of Natural Resources and Environment (DNRE) has submitted comments requesting implementation of the federal implementation plan (FIP) be delayed a minimum of 18 months to allow for state implementation. DTE Energy supports this recommendation. [EPA-HQ-OAR-2009-0491-3932[1].1, p.3]
Response:
Preamble section VII.D includes a description of how unallocated allowances in the new unit set-asides will be redistributed to existing units.
Organization: DTE Energy Services (DTEES)
Comment:
DTE Energy Services (DTEES)
If EPA does not increase the proposed allocations to DTE Stoneman to reflect reasonable maximum emissions it will likely cause significant economic hardship to the facility. There are no other units owned by DTEES within the state of Wisconsin with which DTE Stoneman could trade allowances. Additionally, if the allocations do not change DTE Stoneman will bear a disproportionate emissions reduction burden under both the Proposed Remedy (interstate trading) and First Alternative (intrastate trading) leading to potential economic hardship for the facility. While DTE Stoneman's power purchase agreement allows for limited cost sharing for a change in law it may not apply to this rulemaking or provide enough relief due to the large difference in allocations versus expected emissions. [EPA-HQ-OAR-2009-0491-3950[1].1, p.4]
Response:
EPA notes that DTEES is not limited to trading allowances only between its own units but may obtain allowances from any party throughout the relevant Transport Rule program's region.
Organization: Duke Energy
Comment:
Duke Energy
In addition, as Duke Energy noted in its comments on the PTR, EPA's IPM modeling for 2012 for that rule showed total SO2 emissions from the entire universe of oil and gas fired units (including steam units) across all PTR states to be less than 40 tons, with most of these emissions coming from just a few oil fired steam units. Clearly at such levels there is no reason to even regulate the SO2 emissions from combustion turbines and combined cycle units. [EPA-HQ-OAR-2009-0491-3965[1].1, p.4]
There does not appear to be any legitimate reason why EPA or the states should need to regulate SO2 emissions from these units under the Transport Rule, but if EPA is concerned about excluding such units from the program, it could develop realistic projections of future SO2 emissions that such units might collectively be expected to produce by state, and subtract those amounts of SO2 from final state SO2 budgets and allocate the remaining allowances. [EPA-HQ-OAR-2009-0491-3965[1].1, p.5]
While many gas- and oil-fired combustion turbines and combined cycle units are required to monitor, report, and provide SO2 allowances for emissions under the Title IV Acid Rain Program, that is not a compelling reason to continue including them in new programs like the Transport Rule, especially when there is no linkage between the Title IV Acid Rain SO2 Program and the Transport Rule SO2 program. The additional administrative requirements associated with permitting, allocation, monitoring, reporting, and market transactions for the Transport Rule are unwarranted for the very small amount of SO2 emissions these units produce. In addition, these units collectively received a small number of SO2 allowances under the Title IV Acid Rain Program so their inclusion in that program did not create the absurd SO2 allocations that would be created under Option 1 if they were to remain in the Transport Rule SO2 program. [EPA-HQ-OAR-2009-0491-3965[1].1, p.5]
This issue is fundamentally different from the court decision on fuel factor adjustments to NOx allocations in the Clean Air Interstate Rule litigation. All combustion sources create varying levels of NOx based on design and operation of the source and the use of add-on controls. SO2 levels from combustion turbines (simple cycle or combined cycle) do not depend on the design and operation of the sources. Rather the emissions are strictly a function of the sulfur in the fuel supplied to the facility. The resulting level of SO2 emissions from combustion turbines and combined cycle sources using these fuels is therefore very low and do not warrant any regulation or control. EPA and the states should have no interest in regulating these very low emissions of SO2, and regulation will serve no purpose. [EPA-HQ-OAR-2009-0491-3965[1].1, pp.5-6]
However, Duke Energy is not recommending, as it does for SO2, that NOx emissions from natural gas and fuel oil should eliminated from the Transport Rule. [EPA-HQ-OAR-2009-0491-3965[1].1, p.6]
Duke Energy agrees, and suggests that EPA exempt gas- and oil-fired combustion turbines and combined cycle units, as discussed above, rather than giving huge allocations away to these units when they have little need for the allowances. [EPA-HQ-OAR-2009-0491-3965[1].1, p.8]
Response:
Thank you for your comment.
.
Organization: Dynegy, Inc.
Comment:
Dynegy, Inc.
In our previously submitted comments (dated October I, 2010) on the proposed Transport Rule, Dynegy urged EPA to allocate allowances to all fossil fuel-fired EGUs based on each source's proportional share of historic total state heat input (or gross electrical output). As explained in those comments, EPA's originally proposed allocation methodology, which is based on a combination of adjusted historic and adjusted projected emission data, would inappropriately reward higher emitting EGUs by allocating them more allowances and punish well-controlled EGUs by allocating them fewer allowances. It also encouraged increased operation of higher emitting EGUs relative to well-controlled EGUs by allocating relatively more allowances to less operationally expensive units that either do not utilize emission control technology or utilize less emission control.   [EPA-HQ-OAR-2009-0491-3944[1].1, p.2]
Under the originally proposed allocation approach, well-controlled EGU systems would be more like ly to be subject to the assurance provision allowance surrender requirements than uncontrolled or under-controlled EGU systems. Because allocations to well-controlled units would be much lower than uncontrolled units, all things being equal, emissions from well-controlled EGUs would be more likely to exceed their allocations and, thus, subject the EGU system owner to the assurance provision penalties. In effect, the originally proposed approach would double penalize well-controlled EGU systems: first, by allocating fewer allowances to well-controlled units and, second, by imposing assurance provision penalties on systems with those well-controlled units when emissions from the system exceed its comparatively lower aggregate allowance allocation. [EPA-HQ-OAR-2009-0491-3944[1].1, p.3]
In the event EPA decides instead to adopt its originally proposed allocation methodology, the Agency must correct the erroneous technical data and assumptions regarding Dynegy's units as identified in our October 1, 2010 comments. [EPA-HQ-OAR-2009-0491-3944[1].1, p.4]
Finally, before issuing the final Transport Rule, we encourage EPA to publish a NODA providing an opportunity for public comment on the updated emissions inventories, budgets, and modeling. Given the importance of this rulemaking, we believe that an opportunity to comment on the updated data would help ensure that the rule is supported by the best possible information and ease implementation. [EPA-HQ-OAR-2009-0491-3944[1].1, p.4]
Response:
Thank you for your comment.
Organization: Edison Mission Energy (EME)
Comment:
Edison Mission Energy (EME)
On October 1, 2010, EME submitted comments on EPA's Proposed Rule to impose Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate Matter and Ozone. While supporting the overall emission reduction goals set forth in the Transport Rule as consistent with ongoing progress to achieve important air quality goals under the Clean Air Act, EME raised specific concerns with key components of the Proposed Rule including: (1) EPA's aggressive emission reduction timelines achieved through the implementation of Federal Implementation Plans ('FIPs') are contrary to law because Title I of the Clean Air Act ('CAA') gives states, not EPA, primary responsibility for attaining air standards within their borders; (2) EPA's emission reduction timelines are also technically infeasible; (3) EPA's state-level SO2 and NOX allowance allocations are flawed and penalize states that have already taken action to reduce emissions; (4) EPA's unit level SO2 and NOX allowance allocations are critically flawed as they make unrealistic assumptions about the control efficiency that can be obtained by existing emission controls; (5) EPA's proposed variability limits are too restrictive and do not account for the emissions variability seen under real world conditions; (6) EPA failed to indicate, as it had with respect to CAIR, that compliance with the Transport Rule would be sufficient to satisfy regional haze requirements; and (7) EPA should not seek additional NOX reductions from EGUs beyond those already contemplated by the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.1-2]
The Transport Rule NODA's heat input-based unit level allocations demonstrate the significant problems with Phase I implementation of the Transport Rule and show that the Phase I timeline for implementation should be abandoned. [EPA-HQ-OAR-2009-0491-3953[1].1, p.2]
EPA's Transport Rule NODA proposal is equally flawed for Phase II of the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, p.3]
Moreover, EPA's proposed methodology for unit level allocations does nothing to correct errors in the baseline or significant flaws in the state budgets. The state budgets must be re-proposed before any approach to unit-allocations is adopted. [EPA-HQ-OAR-2009-0491-3953[1].1, p.3]
Since states will need time to develop SIPs, Phase II of the Transport Rule should be postponed and should not begin in 2014. EPA should also follow the suggestions EME made in its October 1, 2010 comments on the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, p.3]
EPA has not made the statutorily-required findings to implement the Transport Rule directly through FIPs and its approach violates the cooperative federalism structure of Title I of the CAA. EPA should follow the procedural mandates of the CAA and allow states reasonable time to propose SIPs. [EPA-HQ-OAR-2009-0491-3953[1].1, p.3]
EPA's stated basis for the reductions it will require during-and the allocations it issued for-Phase I of the Transport Rule was that the emission limits represent NOx and SO2 reductions that can be obtained using existing controls already in place or that EPA believes will be installed and available by 2012. In support of this approach, EPA claimed that reductions can come from operating existing scrubbers and SCRs year-round that are currently operated less frequently and the potential use of coal with lower sulfur content or the installation of limited amounts of low NOx burners. EPA also assumes the installation of emission controls that are scheduled to go online by 2012. In other words, Phase I was designed to reflect the status quo of existing controls13 and its allocations to each unit were intended to be sufficient to cover that unit's actual emissions during Phase I.14 EPA based the Phase I reductions on the status quo of existing controls because EPA acknowledged 'that it is not possible to require the installation of post-combustion SO2 controls (scrubbers) or post-combustion NOx controls (SCRs) before 2014 (because it takes about 27 months to install a scrubber and 21 months to install an SCR) . . . .' By industry calculations, it would take even longer than EPA suggests for EGUs to install such controls. EME submits that it actually takes between 40 and 60 months to install an FGD system and make it fully operational and it would take 32 to 46 months to install an SCR.16 Thus, EPA concedes that it would be impossible for sources to install controls to meet emission reduction requirements in Phase I and EME submits that it is also very unlikely that it could be done in time for Phase II. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.5-6]
In addition to the fact that it will be impossible for these units to install new controls to achieve the emissions reductions required by EPA's proposed approach by the time the Transport Rule takes effect, there is also no assurance that they will be able to purchase allowances on the market to cover any shortfall. Since EPA's Transport Rule proposes a hybrid cap-and-trade approach with limitations on the extent to which EGUs within a state can cover emissions through purchasing additional allocations (particularly from out of state), EGUs will likely have difficulty purchasing additional allowances. [EPA-HQ-OAR-2009-0491-3953[1].1, p.7-8]
EPA's Transport Rule proposal included assurance provisions providing that if a state's emission cap is exceeded, then all EGUs in the state would be penalized on a 2-to-1 basis for their proportional share of the emissions exceeding the cap. Although EPA proposed in the Transport Rule that the penalties in EPA's proposed assurance provisions would not apply until 2014, the only way EGUs will have additional allowances to cover any potential penalties in 2014 and later is to begin saving them when the Rule takes effect. EPA's Transport Rule does not allow a carryover of CAIR allowances. Furthermore, there is no way for an EGU to predict whether or not the state cap will be exceeded; EPA proposed in the Transport Rule that variability be assessed retrospectively-first on an annual basis and then using a three-year variability limit. This uncertainty can create a disincentive for EGUs to trade excess allowances and may encourage them to hold extra allowances in reserve. Thus, if a loweremitting EGU has a windfall based on EPA's heat input-based allocation methodology proposed in the Transport Rule NODA, the EGU may save excess EGUs to cover any potential shortfalls in Phase II of the Transport Rule rather than trade them on the market. As such, allowances may not be available for EGUs to purchase to cover shortfalls during Phase I of the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, p.8]
Moreover, EPA's Proposal is punitive in nature. Under the proposed heat input approach to allocating unit level allowances, some EGUs will be unable to meet their emissions reductions because of timing and others will be given allowances that exceed their emissions. Thus, some EGUs will be penalized for historic decisions and others will get a windfall. EPA has acknowledged that EGUs will not be able to install new or additional controls until Phase II of the Transport Rule. Thus, EGUs that acted in good faith under existing regulations will be penalized because they cannot get controls in place in time for Phase I compliance. The most that these EGUs will be able to complete in the time they will have under EPA's proposal is to plan for whatever installation of controls is needed to reduce emissions in 2014, but it will be impossible for these EGUs to comply with required emission reductions in Phase I. EPA's Proposal unfairly punishes EGUs even if they have taken significant steps to reduce emissions in compliance with other regulatory requirements despite the fact that EGUs could not be expected to predict what EPA would require. As an example, on December 11, 2006, EME's subsidiary Midwest Generation EME, LLC entered into an agreement with the Illinois Environmental Protection Agency ('IL EPA') whereby it committed to aggressive fleet-wide reductions in emissions of mercury, NOX and SO2 from its Illinois-based coal-fired generation facilities. This commitment will help Illinois attain the PM2.5 and ozone NAAQS and advance the emission reduction goals of the Transport Rule and Clean Air Interstate Rule ('CAIR'). EME committed to a 4-fold reduction in its fleet-wide SO2 emissions rate, a two-fold reduction in its fleet-wide NOX emissions rate (these NOX reductions are on top of the 50% reduction made to comply with the NOX SIP Call) and a 90% reduction in its fleet-wide mercury emissions rate. As part of its commitment to achieve these reductions, EME agreed to install emissions controls on certain units to achieve the fleet-wide emissions rates. However, Midwest Generation phased installation of the controls based upon the state's priorities. The mercury controls were the first to be implemented, and were completed in 2009. While the NOX reductions will be fully implemented by 2012, the SO2 reduction measures will be phased in and completed by 2018 to allow staggered outages at plants and phased capital expenditures. Midwest Generation should not be penalized if the schedule of controls in the agreement does not line up with EPA's Proposal. Midwest Generation made an early commitment to significant emission reductions in exchange for regulatory certainty, but EPA's Proposal punishes Midwest Generation for this early commitment. Under EPA's Proposal, EGUs will be forced to pay-potentially significant sums of money-to competitors to purchase allowances (if allowance are even available) because EPA has not allowed for sufficient time to install controls. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.8-9]
Since EPA's Transport Rule proposes significant limitations on the extent to which EGUs within a state can cover emissions through purchasing additional allocations (particularly from out of state), EGUs will likely be forced to purchase allowances from EGUs within their state. The EGUs whose allocations exceed their needed allowances will be selling the allowances in a market where there are very few sellers and buyers have no other options (short of curtailment of operations) to comply with the Transport Rule. Thus, EPA's Proposal will distort the market and allow sellers to charge unreasonable prices for allowances resulting in a transfer of wealth among EGUs and monopolistic markets. [EPA-HQ-OAR-2009-0491-3953[1].1, p.10]
Another consequence of EPA's alternative methodologies in the Transport Rule NODA is that EGUs who need additional allowances to meet their shortfall will be required to invest their funds in the purchase of these allowances rather than investing in the installation of additional control technology to reduce emissions. If EGUs are unable to obtain additional allowances on the market, they will likely be forced to curtail operations, which would further limit the funds available to invest in the installation of new control technology. [EPA-HQ-OAR-2009-0491-3953[1].1, p.10]
Thus, EPA should abandon the timeline for Phase I implementation of the Transport Rule, re-propose the state budgets as discussed in section C.2 below, postpone Phase II and follow the other recommendations outlined in section IV and in EME's prior comments on the Transport Rule, and allow states to implement the Transport Rule through SIPs as described in section V.C below. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.10-11]
EPA's State Budgets are Based upon Incorrect Assumptions Regarding Control Rates
As noted above, the Transport Rule established Phase I emission reduction requirements based on what EPA deemed achievable if EGUs: (i) operate emissions controls year-round that are currently operated less frequently, such as NOx controls that have, until 2009, only been operated during the summer ozone season (May 1st - September 30th), and (ii) complete the installation of proposed controls that are scheduled to go online by 2012. In addition to assumptions about the emission controls which will be in place by 2012, EPA made assumptions about the level of NOx and SO2 removal provided by those controls. For example, EPA assumed that existing SCRs will achieve a NOx removal efficiency of 90%, resulting in an emissions rate of 0.058 lbs/MMBtu. EPA may presume this assumption is reasonable for newly installed NOx controls operating under ideal conditions (e.g., at peak load, with fresh catalyst, and not accounting for start-up and shut down periods; see below). However, EME does not believe EPA's assumption is accurate for existing SCR systems that may only achieve approximately a 0.1 lbs/MMBtu NOx emissions rate. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.11-12]
The Transport Rule assumed that all existing controls will continuously achieve state-ofthe- art control rates, even though this is not likely for many EGUs that have been operating existing SO2 and NOX controls over a number of years. The emission reduction assumptions made by EPA do not account for the full range of operational conditions that emission control systems experience. The control rates assumed by EPA for an FGD or SCR may be technically obtainable on a new system when it is operating at full capacity in prime condition (e.g., with fresh catalyst at peak power), but these assumptions are not representative of real world operational conditions as EGUs do not operate at peak capacity at all times. For example, EPA is well aware that SCRs operate at lower removal efficiencies when a plant is not functioning at peak load, such as during overnight periods. There may be periods of start-up and shut down throughout the day where a plant and its emissions controls are not operating under optimal conditions, and therefore emissions rates are higher. Similarly, for an SCR to achieve EPA's 0.058 lbs/MMBtu control rate the catalyst will have to be changed more frequently. However, when the catalyst is exchanged more frequently, there will be more periods when the emission control is bypassed so that the new catalyst can be installed. Finally, EGUs tend not to operate at peak load during the shoulder seasons - fall and spring - which means that SCRs will operate less than optimally during those seasons. All of the foregoing result in situations where a plant's emissions rate is higher than its optimal performance. Therefore, to achieve an average rate of 0.058 lbs/MMBtu for NOX, for example, an SCR has to achieve a much lower control rate than 0.058 lbs/MMBtu when it is operating under optimal conditions. EME submits that EPA's assumed control rates should have, but did not, account for these operational factors that affect average emissions rates; doing so would result in higher emissions rate assumptions and therefore a higher baseline. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.12-13]
Significant Errors in EPA's State Budgets Require Re-Proposal
The data and assumptions described above are central to EPA's determination of the state budgets for Phase I of the Transport Rule since EPA based the required emissions reductions in Phase I on what EPA deemed achievable without the installation of new controls. In addition, many states and companies have explained that EPA erred in its assumptions about which plants would have controls installed by 2012. All of the errors in EPA's data on existing controls and existing emissions and EPA's assumptions regarding the performance of controls directly impact the calculation of state budgets. [EPA-HQ-OAR-2009-0491-3953[1].1, p.13]
The comments submitted by the state environmental and air agencies highlight the magnitude of the flaws and the resulting errors in state budgets. For example, Illinois stated that 'the initial 2012 budgets are based on unrealistic expectations for optimization of controls for some emission units.' Florida commented that EPA's 'proposed allocations, especially for NOx, are very different than 2009 actual emissions, or what we anticipate emissions will be in 2012 and 2014,' and suggested that the 'NOx allocations seem to be random and will result in a great deal of intrastate trading to more closely align allocations with actual emissions in 2012.' Similarly in its request for an extension of time in which to respond to EPA's Transport Rule proposal, Georgia highlighted significant concerns identified on its 'very cursory review' of the proposal including 'the inclusion of non-EGUs' and 'incorrect emissions modeled for both 2012 and 2014.' Georgia emphasized that '[a]ll of these issues may lead to incorrect decisions regarding Georgia's contribution to the receptors EPA has linked us to, the amount of reductions that will actually need to be made, and what group we are placed in for SO2 reductions.' This is consistent with the findings of many other states including Indiana ('Indiana has several concerns regarding the accuracy of the data used for justifying the proposed rule [and] establishing state budgets. . . .'), Kansas ('we have identified several inconsistencies in the emissions modeling inputs that we believe could lead to a significant overestimation of contribution to nonattainment from Kansas sources.'), and Northeast States for Coordinated Air Use Management (NESCAUM) ('Over the years, we have repeatedly observed IPM predictions that do not reflect real world conditions because transmission constraints and reliability rules for our region are not always fully reflected in the model. . . . Due to such issues, IPM is therefore not our preferred model for use in establishing state budgets and allocations.'). [EPA-HQ-OAR-2009-0491-3953[1].1, pp.13-14]
Given that EPA stated both that it was updating the emissions inventories and modeling, and that was not proposing any changes to its approach to each state's emissions budget, it is not clear whether the state budgets will change or not. The proposed allocation methodology in the Transport Rule NODA does nothing to address the fundamental flaws in the state budgets. However, the state budgets are so flawed and so important to unit level allocations, and given that the proposed allocation methodology in the Transport Rule NODA uses the state budgets as a starting point, the NODA is inherently insufficient. EPA's attempt to gloss over the flaws by using heat input data does nothing to fix the defect. EME submits that EPA must reassess its assumptions regarding the status quo and achievable emissions in 2012 and re-propose the state budgets. [EPA-HQ-OAR-2009-0491-3953[1].1, p.14]
Since states will need time to develop SIPs, Phase II of the Transport Rule should not begin in 2014. Phase II should be postponed to allow states to craft methodologies for allocating allowances in the most effective manner and to allow states time to promulgate the SIPs-either through notice-and-comment rulemaking or the enactment of legislation as required. EPA should also follow the additional suggestions EME submitted in its October 1, 2010 comments on the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, p.15]
The CAA commits to the states 'the primary responsibility for assuring air quality within [the state] . . . by submitting an implementation plan . . . which will specify the manner in which national primary and secondary ambient air quality standards will be achieved and maintained . . . .' However, EPA may determine that a state's SIP does not meet the requirements of the CAA, and the CAA sets forth procedures EPA must follow in order to make these findings: (1) EPA may make a finding that that a SIP is 'substantially inadequate to attain or maintain' the relevant NAAQS, to 'mitigate adequately' interstate pollutant transport or otherwise fails to comply with requirements of the CAA under §110(k)(5) and EPA 'shall require the State to revise the plan as necessary to correct such inadequacies;' (2) EPA must notify the state of the inadequacies in the SIP and EPA may set 'reasonable deadlines (not to exceed 18 months after the date of such notice)' to submit SIP revisions; (3) if and when a state submits a SIP revision, EPA must make a determination of completeness-whether the revised SIP meets the minimum criteria established by EPA pursuant to § 110(k)(1)(A)-and EPA must make this determination within 60 days of receipt of the SIP revision, but the decision must be made no later than six months after receipt; (4) if EPA makes no determination within six months after receipt, the SIP revision is deemed to meet the minimum requirements established under § 110(k)(1)(A) by operation of law; (5) following submission of a completed SIP revision, EPA must act within 12 months and either approve or disapprove the revision. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.17-18]
Section 110(c)(1) requires EPA to promulgate a FIP any time within two years after EPA: '(A) finds that a State has failed to make a required submission or finds that the plan or plan revision submitted by the State does not satisfy the minimum criteria established under § 110(k)(1)(A), or (B) disapproves a State implementation plan submission in whole or in part' unless the state corrects the deficiency and EPA approves the SIP or SIP revision before it promulgates the FIP. Importantly, while the statute requires EPA to promulgate a FIP after making one of the required findings, the statute does not permit EPA to promulgate a FIP unless one of these three circumstances is met. In other words, EPA can only promulgate a FIP where: (1) the state failed to submit a SIP or SIP revision; (2) EPA finds the SIP submission to be incomplete; or (3) EPA disapproves the SIP in whole or in part, and the state fails to correct the deficiency. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.18]
EME submits that EPA has not made the statutorily-required findings, and the approach in the Transport Rule NODA, which would not allow SIPs by law under the 2014 control year at the earliest, is flatly contrary to the CAA's requirements, as well as being inconsistent with the cooperative federalism dictates of Title I. This is yet another reason why EPA should abandon the timeline for Phase I implementation of the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, p.18]
EPA noted in the Transport Rule's preamble that in 2005 it found certain states had failed to make submissions meeting the requirements of § 110(a)(2)(D)(i) regarding the interstate transport of pollution. EPA later promulgated CAIR and concluded that state SIP submissions satisfying CAIR would satisfy § 110(a)(2)(D)(i) requirements. Most states submitted SIP revisions complying with the CAIR requirements, and EPA approved most of those SIP revisions. Despite the fact that the CAA is clear that it is EPA's action in disapproving a SIP (or finding it incomplete) that triggers the FIP process, EPA inexplicably argued that the D.C. Circuit Court of Appeals' remand of CAIR in December 2008 somehow acted as a repeal of EPA's approvals of the CAIR-based SIP revisions and that the 2005 findings of failure to submit are now back into effect for the states in which EPA approved SIP revisions under CAIR. The preamble to the Transport Rule did not provide any legal basis for this conclusion nor did EPA argue that it made the required finding that a SIP is 'substantially inadequate to attain or maintain' the relevant NAAQS or to 'mitigate adequately' interstate pollutant transport under § 110(k)(5). [EPA-HQ-OAR-2009-0491-3953[1].1, p.18-19]
The CAA does not support EPA's conclusion that it may implement a FIP for these states. First, while EPA made a finding of failure to submit for these states in 2005, EPA's later action in approving each state's SIP as meeting the requirements of § 110(a)(2)(D)(i)(I) and expressly withdrawing the FIP in each state ended EPA's authority to dictate which control methods are necessary to meet the NAAQS. The D.C. Circuit's decision in North Carolina v. EPA did nothing to restore that authority to EPA. Second, while the D.C. Circuit remanded CAIR and the CAIR FIP, EPA's individual SIP approvals were not before the court in that case and, therefore, remain in place. Third, the fallacy in EPA's analysis is further demonstrated by the Agency's actions in continuing to approve SIP revisions under CAIR. EPA approved six SIPs to meet the requirements of CAIR after the D.C. Circuit's remand of the CAIR rule in December 2008. In these approvals occurring after the D.C. Circuit's remand, EPA acknowledged the remand of CAIR, but explained that it was moving forward in approving SIPs under CAIR requirements consistent with the D.C. Circuit's goal in remanding the rule to 'temporarily preserve environmental values covered by CAIR.' [EPA-HQ-OAR-2009-0491-3953[1].1, pp.19-20]
EPA's Rationale Regarding 2006 PM2.5 NAAQS is Flawed
In the preamble to the Transport Rule, EPA explained that it had separately issued a finding of failure to submit § 110(a)(2)(D)(i)(I) transport SIPs for the 2006 PM2.5 NAAQS. Twenty-nine states or territories were included in EPA's June 9, 2010 finding of failure to submit. [EPA-HQ-OAR-2009-0491-3953[1].1, p.20]
EPA's conclusion that the 2010 finding of failure to submit establishes EPA's authority to promulgate a FIP for those states is flawed because EPA did not give the states the opportunity to which they are entitled under law to comply with the 2006 PM2.5 NAAQS. EPA concluded that since it promulgated the final NAAQS September 21, 2006, states were required under § 110(a)(1) to make a SIP submission for the NAAQS by September 21, 2009. First, EME disagrees with EPA's interpretation that the deadline in § 110(a)(1) applies to the requirements of § 110(a)(2)(D)(i). Under § 110(a)(1) states must submit SIPs that provide 'for implementation, maintenance, and enforcement of such primary standard in each air quality control region (or portion thereof) within such State.' (emphasis added). Arguably, the requirement to prohibit emissions that contribute to nonattainment of the air quality standards in 'any other state' does not fall within this statutory deadline. Second, the finding did not take into account the fact that EPA was late in making its designations for the 2006 PM2.5 NAAQS. Under § 107(d)(1)(B)(i), EPA is directed to make its designations two years from the date of promulgation of new or revised NAAQS (with a clause that allows extension for up to one year if EPA does not have sufficient information to promulgate the designations). EPA published the final designations in the Federal Register on November 13, 2009,--more than three years after EPA promulgated the final 2006 PM2.5 NAAQS and nearly two months after EPA claimed states were required to submit their SIPs. It would have been impossible for states to hae submitted their SIPs when EPA argues they were due since they did not even know whether EPA would designate them as attainment or nonattainment. EPA should have given states reasonable time to comply after the final designations were made rather than rushing to make a finding of failure to submit seven months later. EPA's rush to find a failure to submit was an abuse of process and a transparent attempt to misappropriate the authority that Congress has vested in the states to determine how best to comply with the air quality standards. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.20-21]
The CAA commits to the states 'the primary responsibility for assuring air quality within [the state] . . . by submitting an implementation plan . . . which will specify the manner in which national primary and secondary ambient air quality standards will be achieved and maintained . . . .' Courts have consistently held that the CAA grants to states the primary authority to determine what measures are necessary to ensure that the NAAQS are met. For example, in Train v. Natural Resources Defense Council, the Supreme Court considered 'whether Congress intended the States to retain any significant degree of control of the manner in which they attain and maintain national standards' and found that EPA 'is relegated by the Act to a secondary role in the process of determining and enforcing the specific, source-by-source emission limitations which are necessary if the national standards it has set are to be met.' As the Seventh Circuit Court of Appeals has stated, '[t]he Clean Air Act is an experiment in federalism, and the EPA may not run roughshod over the procedural prerogatives that the Act has reserved to the states . . .' In Virginia v. EPA, the D.C. Circuit Court of Appeals cited Train and noted with approval other circuit precedent similarly establishing this division between EPA and state control over the manner in which air quality standards are met within states. The D.C. Circuit found that the CAA did not give EPA the authority to condition approval of a SIP upon adoption of a specific control measure. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.21-22]
EPA's Approach in the Transport Rule NODA Violates the Cooperative Federalism Structure of Title I of the CAA [EPA-HQ-OAR-2009-0491-3953[1].1, p.21]
These cases  -  all of which address the interplay between state and federal authority under Title I  -  have all found that Congress intended to give the states great discretion in developing SIPs, so long as those SIPs meet the minimum requirements set forth in the CAA. By implementing FIPs in Phase I (and potentially the 2014 control year and beyond), the Transport Rule NODA approach usurps the states' role, expressly provided for in the CAA and affirmed by the case law, as the entity Congress chose for deciding how air quality standards are to be met on a state-by-state basis. [EPA-HQ-OAR-2009-0491-3953[1].1, p.22]

13 While Phase I of the Transport Rule was designed to reflect existing controls, EPA made additional assumptions-such as controls that are currently in the planning phase being in place by 2012 or that EGUs could make required reductions by operating existing controls year round. Thus, even though EPA's Phase I approach is designed to reflect the status quo of existing controls, EME submits that EPA's state budgets (and resulting unit level allocations) do not do so.
14 In fact, however, EME-and many others in industry and the states-explained in their comments that the Phase I allocations did not accurately account for actual emissions.
Response:
Regarding SCR NOx rates, please see preamble section VII.C.2 and the "Transport Rule Engineering Feasibility Response to Comments" document in the docket.
EPA disagrees with the commenter's argument that EPA should re-propose the state budgets.  EPA provided an ample opportunity to comment on the data and methodology used to calculate the budgets, and an ample opportunity to comment on alternative methodologies for allocating allowances.  EPA included illustrative budgets in the proposal and illustrative unit level allocations in the proposal and the allowance allocation NODA, but as it was also requesting comment on the data and methodologies used to calculate these budgets and allowance allocations, it also put the public on notice that the final budgets and final allowance allocations could differ from the illustrative budgets and allocations provided in the proposal and NODAs.  Further, in the NODA, EPA emphasized that the unit-level allocations presented were only intended to "provide an indication of the proportional share of a State's budget that would be allocated to individual existing units if the alternative methodologies would be used."  76 FR 1111.  EPA explicitly noted that the illustrative allocations were based on the proposed state budgets and that the "final state budgets may differ from the proposed budgets."  Id.
EPA satisfied the applicable notice and comment requirements by providing a full opportunity for comment on whether the states identified in the proposal should be included in the Transport Rule programs, and a full opportunity to comment on the methodologies and data to be used to quantify the emissions in each state that must be prohibited pursuant to section 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS, the 1997 PM2.5 NAAQS, and the 2006 PM2.5 NAAQS.  EPA received numerous comments on the data and methodologies used to quantify each state's significant contribution and interference with maintenance and made updates and modifications to its data and methodologies in response.  The notice and comment process does not begin anew each time updates and modifications are made in response to comments received on a proposal.  A final rule need not be identical to the proposed rule, it need only be a "logical outgrowth" of the proposed regulations.  See Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 546-47 (D.C. Cir. 1983).  As the court has long recognized, a contrary approach would lead to the absurd result that "the agency can learn from the comments on its proposal only at the peril of stating a new procedural round of commentary," International Harvester Co. v. Ruckelshaus, 478 F.2d 615 (D.C. Cir 1973). As explained above, EPA provide an ample opportunity to comment on the methodology and data inputs to be used to calculate states' significant contribution, and explicitly provided notice to the affected states and sources in the affected states that EPA was considering including them in the final rule Transport Rule due to the impact of emissions within the state on downwind nonattainment and maintenance problems with respect to the 1997 PM2.5 NAAQS, 1997 ozone NAAQS and/or 2006 PM2.5 NAAQS.
EPA also disagrees with the commenter's assertion regarding EPA's authority to promulgate FIPs with respect to the 2006 PM2.5 NAAQS.  As explained in section IV.C.2 of the preamble to the final rule and section III.A. of this RTC, EPA has an obligation to promulgate each of the FIPs in this rule.
There is no basis for the commenter's argument that the deadline in § 110(a)(1) does not apply to the requirements of § 110(a)(2)(D)(i).  Under § 110(a)(1) states must submit, within three years of promulgation or revision of a NAAQS, SIPs that provide "for implementation, maintenance, and enforcement of such primary standard in each air quality control region (or portion thereof) within such State."  Section 110(a)(2) then lays out in greater detail what a the SIPs required to be submitted pursuant to 110(a)(1) must contain.  The Act, on its face, describes what these SIPs must contain and there is thus no basis for the commenter's suggestion that the requirements of 110(a)(2)(D) are outside the scope of the submissions required pursuant to section 110(a)(1) and thus not subject to the three year deadline provided therein.
Further, the commenter appears to confuse the 110(a)(1) SIPs known as infrastructure SIPs with the nonattainment SIPs that states with designated nonattainment areas are required to submit pursuant to other sections of the statute.   Pursuant to section 110(a)(1) the deadline for submitting 110(a)(1) infrastructure SIPs for a particular NAAQS runs from the date of promulgation or revision of that NAAQS.  The date on which EPA makes designations for the NAAQS thus has no impact on the 110(a)(1) SIP submittal deadline.  Further, the structure of the statutory scheme demonstrates that Congress did not intend to require EPA to finalize attainment designations before requiring the submission of 110(a)(2)(D)(i)(I) SIPs.   As noted above, these SIPs are due within three years of promulgation of the NAAQS, and section 107(d)(1)(B)(i) of the Act allows EPA to take that same length of time in some instances to make designations with respect to the NAAQS.  The structure of the statutory scheme suggests that Congress intended states to have, within a few years of the promulgation or revision of a NAAQS, information regarding the steps to be taken by upwind states to address transported emissions.  Having such information makes it easier for downwind states to develop the nonattainment SIPs required for each designated nonattainment area.  This structure makes sense given the difficulties faced by downwind states which have significant amounts of pollution coming from out-of-state sources.  Without information regarding steps taken in upwind states to address transported emissions, if is extremely difficult for downwind states to develop plans to bring nonattainment areas within the state into attainment.   Further, the fact that the time for submission of 110(a)(2)(D)(i)(I) SIPs runs, not from the date of designations but from the date of promulgation or revision of the NAAQS, and the fact that EPA in some instances is given the same length of time to complete designations, suggests that the designation status of an area should not be considered relevant to the 110(a)(2)(D)(i)(I) analysis.  EPA's approach is thus consistent with the plain language of the statute and the statutory structure.
--------------------------------------------------------------------------------
Finally, EPA's approval of CAIR SIPs and technical corrections to CAIR SIPs following the remand of the CAIR rule has no impact on EPA's authority to promulgate the FIPs in this rule.  The fact that court decided to keep the requirements of CAIR in place temporarily does not disturb the court's conclusion that CAIR and the CAIR SIPs/FIPs do not satisfy the requirements of 110(a)(2)(D)(i)(I).  Some CAIR related SIP submissions were approved after the remand for the limited purpose of implementing the D.C. Circuit's decision remanding the rule without vacatur to temporarily preserve environmental values covered by CAIR.  Given this mandate, EPA determined that it was appropriate to continue implementing the CAIR program, including promulgating SIP approvals, until the program could be replaced.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Edison Mission Electric, and several other commenters, expressed concern that allowance trading markets would not develop under the Transport Rule's air quality-assured trading programs. These commenters made the following arguments:

1) Commenters argue that it will take time to get markets started and functioning
EPA notes that SO2 and NOX trading are well established practices under ARP, NBP, and CAIR, with an existing knowledge base of compliance options and allowance market operations. The experience and familiarity that units, states, and EPA have with emissions trading programs will help speed development of a trading market for the Transport Rule programs.  The power sector and emission trading community have known that EPA was preparing this approach under the Transport Rule since its proposal in July 2010, leaving ample time for companies to prepare in advance of this final rule promulgation. Finally, while the first control periods begin on January 1 and May 1, 2012, trading activity may occur throughout the entire control period until the allowance transfer deadlines following the conclusion of the control periods.  Covered units can therefore anticipate the flexibility to conduct allowance transactions to cover emissions as the control period progresses.  Also, EPA will record allocations for the first control period by no later than 90 days after publication of the final rule and therefore in advance of the beginning of the first control periods, further promoting the development of the Transport Rule allowance markets.

2) Commenters argue that markets will not develop because units will bank excess allowances instead of trading
EPA disagrees with EME's assertion that allowance banking by some units will prevent other units from acquiring allowances in a given control period. Using or banking an allowance has an opportunity cost (i.e. the price a unit could receive if it sold the allowance in the current control period).  The raison d'etre of emission trading programs is that different units have different marginal costs of controlling emissions.  The difference between units in this marginal cost of control will lead some units to achieve more cost-effective emission reductions (related to the stringency of the state budgets) than other units.  Units are incentivized to make cost-effective reductions because they are then able to sell surplus allowances to other units who realize cost savings through allowance purchases to cover, rather than directly reduce, a portion of their emissions.  Any unit's decision to bank, rather than sell, a particular allowance reflects that current demand for that allowance is relatively low.  Therefore, rather than being an inhibitor of market activity, allowance banking would be a sign that the current market is oversupplied and the allowance price is relatively low at that time.

3) Commenters argue that uncertainty about future state-wide emissions will cause units to hold on to excess allowances.
EPA releases EGU emissions data quarterly, rapidly providing information to the market on state-wide emissions.  Consequently, EPA anticipates that sources will be able to factor the progression of a state's emissions throughout the year into their trading decisions, and that sources will not engage in "allowance hoarding" as they can collectively witness the ability of the state as the year progresses to respect its assurance level.

4) Commenters argue that the stringency of state budgets will prevent anybody from having excess allowances to trade
EPA disagrees with this argument and notes that it overlooks the foundation of emission trading programs.  It is not necessary to inflate emission budgets to enable an allowance market to develop.  At any stringency level (including those supporting the Transport Rule budgets), there is variation at the source level in the marginal cost of reducing emissions. Many sources will have emission reduction opportunities at costs below the market-wide allowance price. Those units can make those cost-effective emission reductions and sell excess allowances to units with higher marginal abatement costs.

5) Commenters argue that EPA's allocations to existing units will lead to monopolistic behavior
For reasons explained in section VII.D. of the preamble to the final rule, EPA believes that the allocation method selected for use in the FIPs is both reasonable and appropriate for use in this rule.  Commenters did not provide any evidence for the assertion that unit-level allocations, under any methodology, would result in the exercise of market power.  The Transport Rule's air quality-assured trading program structure was specifically designed to accommodate interstate allowance markets in each of the program.  Because units will have access to allowances from other units throughout all of the states included in the same Transport Rule program, the allowance markets are far too diffuse, under any unit-level allocation methodology, to permit any one allocation recipient in these interstate markets to exercise market power.
Organization: Empire District Electric Company (Empire District)
Comment:
Empire District Electric Company (Empire District)
CATR is not designed to force MACT or to specify/force one control technology above another. This approach could be litigated and we suggest EPA avoid unnecessarily provoking such wasted resources. Such additional control will be governed by EGU MACT and CATR II, thus providing electric utilities additional time for adequate planning, engineering, regulatory approval, bidding and construction. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
Empire District supports the new unit allocation methodology set-aside of 3% as outlined in the proposed CATR. The 3% set-aside is appropriate. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
Possible Options for States Wishing to Submit SIPs Providing for State Allocation of Allowances
The CATR has usurped the States ability to properly develop their SIPs according to the CAA and has shifted power to the EPA. Empire District encourages the EPA to delay the CATR, leave CAIR in place, and allow time for proper SIP development to address transport issues. In fact, for the state of Missouri to develop their SIP for the distribution of 2014 allowances, the Missouri rulemaking process and SIP must be completed by November of this year. Due to the extreme lack of time Missouri's distribution of even the 2014 allowances is impossible.  [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
The EPA is not under a consent decree or settlement agreement specifying the timing of CATR because of the wisdom of the court. Delaying the CATR would allow the EPA adequate time to refine its chemical modeling and provide corrected and adequate information which the States and industry need in order to comply. The current proposal requires utilities and States to utilize their crystal ball which is not a very scientific approach to planning. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
The greatly accelerated pace of CATR leaves inadequate time for `higher-emission-rate units' to reduce emissions. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
Instead of the piece-meal approach currently underway the EPA should complete its modeling and emissions inventories, re-propose the rule and then allow an adequate period for public comment.  [EPA-HQ-OAR-2009-0491-3883[1].1, p.3]
Further, Empire District believes that the EPA should allow adequate timing for utility compliance planning and should not use CATR to create winners or losers. In addition, the States should be provided with the time to properly develop their own allocation methodologies through the CAA SIP process. [EPA-HQ-OAR-2009-0491-3883[1].1, p.3]
Response:
Thank you for your comment.Organization: EquiPower Resources Corp.
Comment:
EquiPower Resources Corp.
EquiPower has been an active participant in this rulemaking. On October 1, 2010, EquiPower submitted comments on EPA's Proposed Rule to impose Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate Matter and Ozone. While applauding EPA's efforts to improve air quality, EquiPower identified a number of legal, technical and policy concerns with EPA's Transport Rule proposal including: (1) EPA's state budget caps and assurance provisions stand in the way of an effective emissions trading market; (2) The Transport Rule has co-opted state authority and adopted a regulatory approach that is flawed and contrary to law because under Title I of the Clean Air Act ('CAA'), states have the primary responsibility for attaining air quality standards through promulgation of State Implementation Plans ('SIPs'); (3) The Proposed Rule relies on flawed data and assumptions resulting in significant errors in unit-level allocations and state emission budgets, making compliance with the Phase I and Phase II emissions caps impracticable and causing the Transport Rule to penalize clean sources and those with existing emission controls; and (4) The Agency should not seek additional NOX reductions from electric generating units ('EGUs') beyond those already contemplated by the Transport Rule. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.1-2]
At a minimum, EPA should re-propose the Transport Rule after correcting its errors in data and assumptions. [EPA-HQ-OAR-2009-0491-3928[1].1, p.3]
First, facilities will not be able to install additional or new controls in time for Phase I of the Transport Rule in 2012. This may not even be feasible in Phase II for economic reasons or because of time constraints. EPA acknowledged in the Transport Rule that 'it is not possible to require the installation of post-combustion SO2 controls (scrubbers) or post-combustion NOx controls (SCRs) before 2014,' noting that 'it takes about 27 months to install a scrubber and 21 months to install an SCR . . . .' EquiPower believes that EPA has underestimated the time it actually takes to install controls. For example, the Utility Air Regulatory Group ('UARG') has indicated that it actually takes between 40 and 60 months to install an FGD system and make it fully operational. While EPA may believe that the installation of controls is an option to meet the emission reductions required in Phase II of the Transport Rule, industry experience suggests otherwise. Thus, installing controls will not be an option for EGUs that exceed their allowance allocations in Phase I and may not be an option in Phase II. [EPA-HQ-OAR-2009-0491-3928[1].1, p.5]
Second, there is no guarantee that allowances will even be available on the market if an EGU needs to obtain additional allowances to make up for its shortfall. EPA conceded in the Transport Rule that even its preferred option ('State Budgets/Limited Trading' - the option with the greatest flexibility) would only provide 'some limited flexibility to covered sources' because the provisions as drafted only provide for 'limited interstate trading.' EPA's proposed statewide caps (even accounting for the variability limits) represent a dramatic disincentive to trading because, under the Transport Rule, if a state cap is exceeded, then all sources within the state are penalized on a 2-to-1 basis for their proportional share of the emissions exceedance. Sources cannot know contemporaneously whether or not the state cap will be exceeded, as variability is assessed retrospectively on an annual basis initially and then using a three-year rolling average. These penalty provisions mean that, in addition to holding allowances equal to annual NOX and SO2 emissions, a source needs to hold extra emission allowances in reserve to account for the contingency that a state's emission cap (plus variability limit) will be exceeded and that the source will be subject to a penalty. The potential for the state cap to be exceeded creates strong disincentives to trading and encourages EGUs to hoard allowances. Thus, since EGUs will not likely have the option to install additional controls and allowances may not be available on the market, many facilities will only have the option of curtailing operations. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.5-6]
Many parties have predicted that the Transport Rule, combined with mercury regulations, could result in a significant percentage of the U.S. coal fleet being at risk for shut down. In addition to these regulations, EPA will also be promulgating new regulations governing cooling water intake structures at facilities such as power plants under Clean Water Act § 316(b) and potentially a new rule regulating coal combustion residuals under the Resource Conservation and Recovery Act. At the very least, these rules will cause many facilities to be forced to operate at reduced capacity. EPA should be mindful that if these shut downs or reductions in capacity should occur, combined cycle gas plants are the most likely source to make up for the lost baseload capacity provided by those coal-fired units. It is possible that gas plants would need to run at as high as 90% capacity factor in some areas to make up for shut downs in the coal fleet. However, many of these facilities have historically run at lower capacity, with capacity factors ranging from 30 to 70%. [EPA-HQ-OAR-2009-0491-3928[1].1, p.6]
In the immediate term, the supply shortages may lead to rolling blackouts. However, it also likely will lead to the hasty construction of new plants-which would be an inefficient solution. First, new plants may be inefficiently run due to time constraints in construction. Second, it is inefficient to build new, expensive plants when existing facilities are not permitted to run at full capacity. Third, because new plants will be limited to allowances available through the new plant set-aside proposed in the Transport Rule,18 new plants will also have constrained capacity. Thus, this may create a situation where you have an existing plant and a new plant both run at 40% capacity factor, even though it is far more efficient to have one plant running at 80% capacity factor. This would result in the same level of emissions, but would be a huge waste of capital in a time when the nation cannot afford it. [EPA-HQ-OAR-2009-0491-3928[1].1, p.7]
This absurd and inefficient result is also entirely inconsistent with President Obama's new executive order, 'Improving Regulation and Regulatory Review.' The executive order states the general principles of regulation, including that the regulatory system 'promote predictability and reduce uncertainty' and 'identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends.' The order directs an agency to 'tailor its regulations to impose the least burden on society' and to 'select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity).' However, EPA's Proposal adopts an approach that would impose the most burden on society-likely forcing an investment in the construction of new plants when existing plants could increase capacity and meet demand. This approach certainly does not maximize net benefits. [EPA-HQ-OAR-2009-0491-3928[1].1, p.7]
In contrast, states typically do regular re-allocations to adjust for changes in the source mix, capacity, etc. Re-allocations will be necessary to reflect the current and future status of statewide generation. However, neither the Transport Rule nor the Transport Rule NODA allow for re-allocations. This omission, in combination with EPA's reliance on historic heat input data, acts as a disincentive for greater utilization of these cleaner, more efficient gas plants. [EPA-HQ-OAR-2009-0491-3928[1].1, p.8]
EquiPower highlighted a number of significant flaws in the data and methodology that EPA used in the Transport Rule. For example, EPA's methodology for Phase I of the Transport Rule is based upon its estimate of the NOx and SO2 reductions that EPA believes could be obtained using existing controls or controls that EPA believes will be installed by 2012. However, there were fundamental problems with the underlying data and assumptions that EPA used to determine what NOx and SO2 reductions could be achieved without installing additional controls. [EPA-HQ-OAR-2009-0491-3928[1].1, p.10]
Aside from this error, Massachusetts' state budget would still be significantly short. EGUs in Massachusetts have had to make drastic NOx and SO2 reductions to meet the requirements of the NOx SIP Call, CAIR and Massachusetts regulations requiring the oldest, highest-emitting ("Filthy Five") plants in the state to significantly reduce their emissions. Therefore, the majority of EGUs in Massachusetts have already installed new control technology, and, therefore, cannot rely upon controls to reduce their emissions. While a few units are anticipated to retire, the state will still likely be short allowances because other EGUs will increase operations to make up for the retired sources. [EPA-HQ-OAR-2009-0491-3928[1].1, p.11]
Additionally, state budgets are inaccurate because EPA made assumptions about the level of control provided by existing controls which assumed that older, but still effective controls, obtained emissions rates that were equal to rates obtained by newly installed controls even though the Agency had (and should have used) data showing the actual level of performance achieved by those existing controls. Moreover, EquiPower does not believe that EPA's assumed control rates for new controls are necessarily achievable on a sustained basis because they only reflect the level of control obtained when a unit is operating at peak capacity and do not reflect the level of control obtained during periods of start-up, shutdown, or non-peak operation that occur throughout the year at most sources. Again, these inaccuracies led to underallocated state budgets because EPA has not determined the reductions that are actually achievable without installing additional controls. These problems, coupled with the inadequate time to install controls and likely lack of available allowances on the market (described in III.A.1 above), illustrate why Phase I implementation of the Transport Rule is infeasible and should be abandoned. [EPA-HQ-OAR-2009-0491-3928[1].1, p.11]
The Transport Rule NODA's Approach to Unit-Level Allocations Seeks to Obscure These Flaws by Using Heat Input Data, But This Is An Inadequate Solution
The Transport Rule NODA's proposed allocation methodology merely glosses over the flawed data and incorrect assumptions EPA relied upon in the Transport Rule by using heat input data rather than historic and projected emissions data. Thus, EPA's Transport Rule NODA shifts the emissions shortfall in the state budgets (described above) to higher-emitting facilities -- in EPA's own words "putting relatively greater burden on the higher-emission-rate units to reduce emissions or purchase additional allowances in order for the units to be in compliance with the proposed Transport Rule trading programs."  [EPA-HQ-OAR-2009-0491-3928[1].1, p.12]
However, under the Transport Rule NODA approach, all EGUs will still be penalized by the inaccuracies in the state budgets because the fundamental flaws in the initial state budget allocations will result in a lack of allowances available on the market and the assurance provisions will likely be triggered. When a state cap is exceeded, then all sources within the state will be penalized on a 2-to-1 basis for their proportional share of the emissions exceedance. Thus, EPA's attempt to gloss over its errors by using heat input data is no solution to the problem. [EPA-HQ-OAR-2009-0491-3928[1].1, p.12]
In contrast to the approach taken in the Transport Rule, EPA had previously given states the flexibility to determine unit-level NOx allocations under CAIR. Before that, EPA gave states the flexibility to determine unit-level NOx allocations under the NOx SIP call. These prior rulemakings confirmed the wisdom of giving the states a lead role in making unit-level allocation decisions. [EPA-HQ-OAR-2009-0491-3928[1].1, p.13]
If EPA does not allow states to implement the Transport Rule through SIPs, EPA must correct the underlying errors in its baseline data and assumptions and it must update state budgets.
The Transport Rule NODA suggested that EPA was updating emissions inventories and modeling, but did not provide any details, did not state that it was reconsidering any of the assumptions relied upon in determining state budgets, and did not propose any changes to its approach to establishing state emissions budgets. Thus, it is unclear whether EPA will address any of the significant flaws in its data and assumptions or whether EPA will re-propose state budgets. However, given the magnitude of EPA's errors in the data and assumptions, the significance of the data and assumptions to the development of state emissions budgets, and the significance of state emissions budgets to the unit-level allocations, EquiPower submits that EPA must both fix the errors and re-propose the state budgets. [EPA-HQ-OAR-2009-0491-3928[1].1, p.13]
Massachusetts highlighted the need to retain output-based allocations in its October 1, 2010 comments on the Transport Rule. The comments described Massachusetts' tailoring of its regulations to address "important state policy issues, including output-based allocations," and stated that it was "unfortunate" that the Transport Rule timeframe did not allow for implementation of a SIP to incorporate "these important state policy goals." Massachusetts urged EPA to include in the final FIP a provision allowing states the flexibility to retain output-based allocations. Massachusetts also explained the benefits of its output-based approach, including encouraging more efficient generation. [EPA-HQ-OAR-2009-0491-3928[1].1, p.14]
Additionally, a critical part of the unit-level allocation approach should be to provide for periodic re-allocation. As EGUs make adjustments to operations to meet the required reductions under the Transport Rule, there will likely be adjustments to the generation distribution in each state. Thus, regular re-allocations will be necessary to take into account the changing distribution of electricity supply in each state. [EPA-HQ-OAR-2009-0491-3928[1].1, p.14]
EPA's proposal does not allow states to implement the Transport Rule through SIPs at any point during Phase I of the Transport Rule. EPA's Proposal requires that the final allocations for existing units be issued two years before the control period in which the allowances would be distributed. EPA acknowledges in the Transport Rule NODA that it "assume[s] that the first year for which state allocations might be used, in lieu of EPA allocation, would be 2014." What EPA does not acknowledge is the fact that it is highly unlikely that states would be able to meet the deadline for submitting a SIP proposal for the 2014 control year because the deadline would be November 1, 2011. Since EPA has not even finalized the Transport Rule, this deadline is nearly impossible to meet -- particularly since all states must promulgate a rule through notice-and-comment rulemaking prior to submitting their SIP revisions and some states must even enact legislation to promulgate a SIP. Given the short time period between when EPA is likely to finalize the Transport Rule and November 1, 2011, neither of those actions would appear even to be feasible. Thus, under EPA's Proposal, states are precluded from implementing the Transport Rule through a SIP for the first two or three years of the Rule, making it a certainty that the Transport Rule will be implemented through FIPs. Not only does EPA not have the authority to do so (as described below), but EPA's act of imposing FIPs makes it even more unlikely that states, such as Connecticut, Massachusetts, and New Jersey, that currently use output-based allocation methods would switch back to their own methodology after being required to adjust to EPA's heat input-based methodology. (See section III.B supra). [EPA-HQ-OAR-2009-0491-3928[1].1, pp.15-16]
Even when states are able to submit SIPs under EPA's Proposal, they will have limited discretion to decide how best to achieve the emission standards for their state. A state submitting an abbreviated SIP under EPA's Proposal could substitute its own unit-level allocation provisions for EPA's unit-level allocations, but could not change other aspects of the Transport Rule trading program. A state submitting a "full SIP" under EPA's Proposal must adopt Transport Rule trading program regulations but may adopt its own unit-level allocation provisions like states submitting abbreviated SIPs. [EPA-HQ-OAR-2009-0491-3928[1].1, p.16]
EPA Did Not Make the Statutorily-Required Findings and Does Not Have Authority to Directly Implement FIPs
Congress recognized the wisdom of giving states the primary authority for the "on the ground" decisions about how air quality standards should be met. The CAA commits to the states "the primary responsibility for assuring air quality within [the state] . . . by submitting an implementation plan . . . which will specify the manner in which national primary and secondary ambient air quality standards will be achieved and maintained . . . in such state." The CAA limits EPA's authority to implement FIPs, requiring EPA first to make one of three findings: (1) that the state failed to submit a SIP or SIP revision; (2) that the SIP submission is incomplete; or (3) that EPA disapproves the SIP in whole or part and the state fails to correct the deficiency before EPA promulgates a FIP. Under Title I, EPA cannot implement a FIP until one of these statutorily-required findings is made. While EPA's Transport Rule NODA proposes the option for states to submit SIPs years after the Transport Rule actually goes into effect, this does not cure the fundamental defect in EPA's approach. Both the Transport Rule NODA and the Transport Rule ignore the procedural prerequisites in the statute by directly implementing FIPs without providing states the opportunity, to which they are entitled under law, to promulgate a SIP to meet the emission reductions required under the Transport Rule. As a result, EPA's implementation of FIPs in Connecticut, Massachusetts, and New York is contrary to law. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.16-17]
EPA has no authority to implement FIPs in any of these states to address the 2006 PM2.5 NAAQS transport requirements because EPA has not made a statutorily-required finding under § 110(c)(1). EPA bases its authority to issue a FIP, in part, upon a finding of failure to submit 2006 PM2.5 NAAQS SIPs for a number of states. That finding, however, did not include Connecticut, Massachusetts and New York. Thus, since EPA has not made the statutorily required findings for any of the three states, it may not implement a FIP addressing the 2006 PM2.5 NAAQS. [EPA-HQ-OAR-2009-0491-3928[1].1, p.17]
Additionally, EPA's explanation for its authority to implement FIPs to address the 1997 Ozone and PM2.5 NAAQS transport requirements is unsupported in law -- and it is particularly flawed for Massachusetts and Connecticut. As background, EPA made a finding in 2005 that states had failed to submit SIPs meeting the transport requirements for 1997 Ozone and PM2.5 NAAQS, but EPA later promulgated CAIR and determined that if states promulgated SIPs meeting CAIR requirements, the transport requirements would also be satisfied. Most states (including Connecticut, Massachusetts and New York) submitted SIPs, which EPA approved, and EPA withdrew the CAIR FIPs for those states. Despite these approvals, EPA argued in the Transport Rule (without any support in the CAA or case law), that the D.C. Circuit Court of Appeals' remand of CAIR in December 2008 in some way repeals EPA's approvals -- thus returning into effect the 2005 findings of failure to submit for the states in which EPA approved SIP revisions under CAIR. This is simply untrue. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.17-18]
EPA's approval of each SIP as meeting the transport requirements and withdrawal of the CAIR FIP ended EPA's authority to dictate how states meet the transport requirements of the CAA. As an example, in approving Connecticut's SIP (for ozone-season NOX) EPA stated, "[o]nce the SIP is fully approved, EPA no longer has authority for the FIP." The D.C. Circuit's decision in North Carolina v. EPA did nothing to restore that authority to EPA. The decision did not invalidate SIPs as they were not before the court, and even if they had been, the court remanded CAIR rather than vacating it. Thus, the D.C. Circuit's opinion does not satisfy any of the three statutory prerequisites to EPA being granted authority to implement a FIP as it does not constitute a state's failure to submit a SIP; it does not constitute an EPA determination that a SIP is incomplete; and it does not constitute an EPA disapproval of a SIP. [EPA-HQ-OAR-2009-0491-3928[1].1, p.18]
EPA's position is further undermined by its own inconsistent actions. EPA issued six additional SIP approvals after the D.C. Circuit's remand of the CAIR rule in December 2008. In these approvals, EPA explained that it was moving forward in approving SIPs under CAIR consistent with the D.C. Circuit's goal in remanding the rule to "temporarily preserve environmental values covered by CAIR." If EPA interpreted the D.C. Circuit's decision as repealing CAIR-approved SIPs, it would not have gone through the time and effort of approving the additional SIPs (as late as December 2009). [EPA-HQ-OAR-2009-0491-3928[1].1, pp.18-19]
Setting aside EPA's flawed argument regarding the effect of North Carolina v. EPA, EPA still would not have authority to directly implement FIPs in Connecticut and Massachusetts for the SO2 and annual NOX programs even under EPA's own interpretation of the law. Under CAIR, these states were only required to impose controls to address the interstate transport of ozone during the summer ozone-season (May to September). Connecticut and Massachusetts both complied with this requirement by promulgating SIPs that EPA approved as meeting CAIR's transport requirements. Since Connecticut and Massachusetts were not covered under the CAIR rule for 1997 PM2.5 transport, EPA may not directly implement a FIP for this NAAQS  -  i.e., for annual NOx and SO2 reductions.[EPA-HQ-OAR-2009-0491-3928[1].1, p.19]
Moreover, EPA's proposal to issue FIPs for Massachusetts and Connecticut is plainly inconsistent with what EPA did with respect to Kansas under the Transport Rule -- a state that was not covered under the original CAIR rule, either for ozone or PM2.5. There, EPA acknowledged that it never issued either an original SIP call (under CAIR) or a FIP for Kansas, and as such, EPA (implicitly) acknowledged that it does not have the authority to proceed directly to a FIP for Kansas, even under the (flawed) reasoning in the preamble to the Proposed Rule. As a result, EPA proposed to issue a SIP Call and establish a deadline for Kansas to submit a new transport SIP for the 1997 ozone NAAQS that complies with the Transport Rule's requirements. The reasoning employed by the Agency with respect to Kansas applies directly to Massachusetts and Connecticut at least with respect to the PM2.5 NAAQS, and thus, the annual NOx and SO2 components of the Transport Rule. As with Kansas, EPA's own reasoning in the Transport Rule provides it with no legal basis to issue a FIP for PM2.5 in Massachusetts and Connecticut, and thus, at minimum, those states should be subject to a SIP call deadline before being subjected to a Transport Rule FIP.[EPA-HQ-OAR-2009-0491-3928[1].1, pp.19-20]
EPA's approach is contrary to case law assessing EPA's authority under the CAA. The case law makes clear that when EPA usurps the authority Congress committed to the states, it contradicts the cooperative federalism dictates of the CAA. The regulatory framework is clear: EPA has the authority to set and enforce the air quality standards, but states have the primary role in determining how those air quality standards are met. Courts have consistently upheld this framework. For example, in Train v. Natural Resources Defense Council, the Supreme Court considered "whether Congress intended the States to retain any significant degree of control [over] the manner in which they attain and maintain national standards" and found that EPA "is relegated by the Act to a secondary role in the process of determining and enforcing the specific, source-by-source emission limitations which are necessary if the national standards it has set are to be met."  As the Seventh Circuit Court of Appeals has stated, the CAA "is an experiment in federalism, and the EPA may not run roughshod over the procedural prerogatives that the Act has reserved to the states . . ."  In Virginia v. EPA, the D.C. Circuit Court of Appeals cited Train and noted with approval other circuit precedent similarly establishing this division between EPA and state control over the manner in which air quality standards are met within states borders. For example, the D.C. Circuit has held that the CAA did not give EPA the authority to condition approval of a SIP upon adoption of a specific control measure.  The common theme in all these cases is that states have the discretionary authority to develop the SIPs, as long as those SIPs meet the standards established by EPA. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.20-21]
In sum, if EPA has made a finding that these states' SIPs are "substantially inadequate to attain or maintain" the relevant NAAQS, to "mitigate adequately" interstate pollutant transport or otherwise fail to comply with requirements of the CAA, the CAA requires that EPA notify the states of the inadequacies in the SIPs and allows EPA to set "reasonable deadlines" for states to submit SIP revisions. It does not allow EPA to immediately propose FIPs for those states. Thus, EquiPower recommends that EPA comply with the procedural requirements of the CAA and: (1) issue a SIP call; (2) allow states reasonable time to propose SIPs; and (3) then determine whether the SIPs meet the requirements of the CAA. Only after it takes those actions would the Agency be in a position, if necessary, to implement FIPs in the 32 states covered by the Transport Rule. [EPA-HQ-OAR-2009-0491-3928[1].1, p.21]
The Transport Rule NODA, like the Transport Rule, directly implements the regulations through FIPs, but EPA does not have authority to do so as it has not made the statutorily-required findings and EPA's approach is contrary to the cooperative federalism dictates of Title I of the CAA. [EPA-HQ-OAR-2009-0491-3928[1].1, p.21]
Therefore, EquiPower submits that EPA should: (1) issue a SIP call and allow states reasonable time to propose SIPs; (2) re-propose the Transport Rule after correcting its errors in data and assumptions; and (3) If EPA does not decide to implement the Transport Rule through SIPs, it should codify states' existing approaches to unit-level allocations and allow for periodic re-allocations. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.21-22]

18 Additionally, the Transport Rule does not provide for reallocation, so the new plant set-aside will be static in time.
Response: