EPA's claim is not entirely supported in all circumstances. For example, a geographically large state, such as New York, is upwind of Connecticut, a much smaller state that is most impacted by emissions from the greater New York City metropolitan area on high ozone days due :to wind direction and other factors. Two different allocation methodologies could result in large differences in emissions from the sources in the upwind corner of the larger state, with corresponding differences in impacts on the smaller state - potentially 'not eliminating significant contribution'. This is especially the case for sources located near state borders. EPA should ensure that any allocation methods chosen by states don't result in unintended consequences with respect to CAA section 110(a)(2)(D)(i)(I). [EPA-HQ-OAR-2009-0491-3884[1].1, p.2]
Response:
--------------------------------------------------------------------------------
EPA disagrees that different allocation methodologies would result in a large difference in the location of emissions because each unit faces the same costs to emit a ton of pollution regardless of allocation (using an allowance to cover a ton of emission has an opportunity cost equal to the payment the unit would receive if it sold the allowance), as discussed in the Allowance Allocation Final Rule TSD.

Organization: Consolidated Edison Company of New York, Inc, (CECONY)
Comment:
Consolidated Edison Company of New York, Inc, (CECONY)
If, however, EPA determines that the 74th Street Steam Station units are subject to the CATR, the Company requests that EPA ensure a sufficient allocation of allowances for these units based on historic heat input as currently provided under Options I and 2 of the NODA, described at 76 Fed. Register 1114-15. [EPA-HQ-OAR-2009-0491-3910[1].1, p.3]
Response:
Thank you for your comment.
Organization: DTE Energy
Comment:
DTE Energy
DTE Energy does object to the EPA distribution of S02 allocations to non-emitting sources. The various EPA proposed methods all allocate S02 proportionally across all affected units in each state. EPA has previously attempted to determine contribution from each state as a result of S02 emissions from each state. After using this determination to set an S02 budget for each state, it is only appropriate to allocate only to the sources that emit S02, EPA states that '[f]or the majority of units, the historic heat input-based allocation will not be sufficient to cover historic emission levels'. For this reason, it is even more critical for EPA to provide those allocations only to sources with S02 emissions. To provide to gas-fired sources with S02 allocations is clear preferential treatment by EPA for a specific fuel, something EPA has said it did not intend. Gas-fired sources should not receive S02 allocations. [EPA-HQ-OAR-2009-0491-3932[1].1, p.2]
Response:
Thank you for your comment.
Organization: Duke Energy
Comment:
Duke Energy
EPA requests comment on whether the allocation methodology chosen for each of the four trading programs must be the same or whether it would be reasonable to allocate using different methodologies for the different programs. Duke Energy does not see a reason why the allocation methodologies used for NOx and SO2 must be the same. In fact, because of the significantly differing SO2 emission characteristics among the affected units that result from the widely differing sulfur contents of coal and oil and natural gas, Duke Energy believes there is ample justification for using different allocation methodologies for SO2 and NOx to appropriately account for these differences. [EPA-HQ-OAR-2009-0491-3965[1].1, pp.10-11]
Response:
Further detail on the implementation of this approach, rationale, and response to comments on the allocation method is provided in Preamble Section VII.D. as well as in the Allowance Allocation Final Rule TSD in the docket for this rulemaking.
Organization: Dynegy, Inc.
Comment:
Dynegy, Inc.
Dynegy supports a consistent allocation approach for the four Transport Rule trading programs. A consistent allocation approach for all of the programs maximizes fairness, simplicity, case in understanding of the regulation by affected sources, and legality of the trading programs. In contrast, different allocation approaches for one or more of the Transport Rule trading programs would likely favor certain sources without any rational policy justification in terms of the requirements and goals of Clean Air Act Section 110(a)(2)(D)(i)(I). [EPA-HQ-OAR-2009-0491-3944[1].1, p.3]
Response:
Thank you for your comment.

Organization: EquiPower Resources Corp.
Comment:
EquiPower Resources Corp.
EPA should codify states' existing approaches to unit-level allocations and allow for periodic re-allocations. [EPA-HQ-OAR-2009-0491-3928[1].1, p.3]
EquiPower submits that if EPA declines to provide states the opportunity to implement the Transport Rule directly through SIPs, EPA should codify states' existing approaches to unit-level allocations (methods states have used to allocate allowances under CAIR and the NOx SIP Call). This would be the preferable approach to unit-level allocations as it would maintain the integrity of what states have already done and it would avoid the disruption of radical changes to allocation methodology. This is particularly true for Connecticut, Massachusetts and New Jersey since they adopted output-based allocations and EGUs in those states have invested in control technology based upon that methodology. [EPA-HQ-OAR-2009-0491-3928[1].1, pp.13-14]
Similarly, the allocation methodologies utilized in other states likely take into account state policy goals and state-specific considerations. Thus, EPA should codify these state approaches. [EPA-HQ-OAR-2009-0491-3928[1].1, p.14]
Response:
EPA notes that the CAIR SIPs were developed under a rule that was remanded by the Court. They remained in force for the limited purpose allowed by the Court, that is to achieve interim reductions until EPA promulgated a rule to replace CAIR.  Furthermore, states may not want to adopt the same allocation methodology they had under CAIR, given differences in the new Transport Rule. Please see Preamble Section IV.C.2 and section III.A. of this RTC for a discussion of EPA's authority to promulgate the FIPs in this final rule.
Organization: Exelon
Comment:
Exelon
Exelon commends EPA for considering one of the improvements to the proposed Transport Rule that Exelon and other Clean Energy Group companies suggested, namely an allocation based on historic heat input, and is pleased that EPA has appropriately allocated allowances to Exelon's fossil fuel fired facilities using that method. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.2-3]
Exelon is pleased that EPA is considering a method for the initial allocation of pollution allowances using historic heat input, as suggested in Exelon's Original Comments. Original Comments at 24-26, 30-42. Use of historic heat input will result in an allocation of allowances that will be less vulnerable to challenge, since such allocations are based on recent historic operating data and not upon the results of a forward looking model (IPM) that does not always properly calculate future year unit-level operations (particularly for generating units that provide system reliability and balancing services beyond basic energy). [EPA-HQ-OAR-2009-0491-3919[1].1, p.4]
Use of historic heat input is more consistent with the method used for calculating allocations in connection with prior trading programs, most notably the Ozone Transport Commission's ("OTC") original NOx trading program and the NOx Budget Trading Program under the NOx SIP Call. Use of historic heat input also results in a fairer allocation of allowances that will reward those who have previously taken action to reduce emissions, whether by closing and replacing older plants or by installing control equipment. Allowances have monetary value. Under the original proposed methodology, an owner who invested capital in pollution control equipment would receive fewer allowances and less value than an owner who had not installed control equipment on a similar EGU. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.4-5]
If allowance allocations were to be updated in future years, even if based on heat input, there would be a perverse incentive to keep older plants with higher pollution outputs operating to generate allowances. [EPA-HQ-OAR-2009-0491-3919[1].1, p.5]
Response:
EPA believes that the unit-level allocation method proposed is reasonable and that periodic updating of unit-level allocations is not necessary for the final Transport Rule.
Organization: Exxon Mobil Corporation
Comment:
Exxon Mobil Corporation
9. State allocation of allowance options- We support both the State allocation of allowance options EPA describes at FR 1119, where EPA notes that comments on the proposed CATR suggested that EPA provide state options similar to the two alternatives provided to states by EPA in the CAIR trading programs. We support EPA providing States the flexibility to choose how to participate. Our experience indicates that state agencies can work well with covered units to determine allocations that may result in improved allocation methods. A state can also better address special economic, historic operations, and electric reliability, electrical distribution, and cost distribution circumstances among Utilities and local areas via a state allocation program. We request that EPA develop timing that allows a state that wishes to choose this option to do so the first year of the CATR program operation. [EPA-HQ-OAR-2009-0491-3999[1].1, p.3]
Response:
Preamble Section VII.C and section III.A. of this RTC explain EPA's obligation to promulgate the FIPs in this rule.
Organization: GenOn Energy, Inc.
Comment:
GenOn Energy, Inc.
EPA should not ignore the actual emissions from natural gas-fired plants in developing the allocation scheme. [EPA-HQ-OAR-2009-0491-3996[1].1, p. 8]
As EPA develops the allocation schemes for the final Transport Rule, it should also consider the differences in the well-controlled NOx emission rates for different types of EGUs. Selective catalytic reduction (SCR) has been recognized as the best available control technology for reducing NOx emissions from virtually all types of fossil fuel generating plants, but this technology achieves different emission rates for coal-fired, gas-fired, and oil-fired units. If EPA uses some version of option 2, it should take this fact into account in developing the final allocation scheme for annual and ozone season NOx allowances. [EPA-HQ-OAR-2009-0491-3996[1].1, p. 8]
EPA believes it has 'significant discretion' to implement alternative allocation methods under the Clean Air Act. 76 Fed. Reg. 1109, 1113. It is true that, under the Clean Air Act, states have broad discretion in determining how to allocate the burden of reducing emissions. In interpreting the CAA, the Supreme Court has specifically stated: Congress plainly left with the States, so long as the national standards were met, the power to determine which sources would be burdened by regulation and to what extent. Union Electric Company v. EPA, 427 U.S. 246, 269 (1976) [EPA-HQ-OAR-2009-0491-3996[1].1, p. 8]
However, EPA does not simply step into the shoes of the state and cannot allocate the burden in any fashion of its choosing. Although the Agency may have some discretion in distributing allowances, it cannot exercise this discretion arbitrarily and must provide a defensible rationale for choosing an allocation method.  [EPA-HQ-OAR-2009-0491-3996[1].1, p. 8]
Response:
Thank you for your comment.Organization: Gulf Coast Lignite Coalition
Comment:
Gulf Coast Lignite Coalition
GCLC requests that the EPA factor in necessary characteristics of combustion type and fuel type, including subcategories of coal.
EPA's proposed NODA and allocation methodologies should factor in combustion technology and fuel type, particularly subcategories of fuel such as coal. Coal must be given equal treatment with other fuel sources, and lignite must be properly subcategorized within any proposed performance standards or emission guidelines. [EPA-HQ-OAR-2009-0491-3963[1].1, p.4]
Response:
Thank you for your comment.Organization: Hoosier Rural Electric Cooperative
Comment:
Hoosier Rural Electric Cooperative
It is also very difficult to comment on the merits of the allocations without knowing the available venues for trading.  One would look at all options differently based on whether intrastate or nearby interstate trading is permissible.  [EPA-HQ-OAR-2009-0491-3927[1].1, p.2]
In conclusion, Hoosier Energy REC, Inc. cannot support any of the allocation options proposed in the original CATR rulemaking as well as those allowance allocation options proposed in this NODA III.  Hoosier Energy believes that a more fair and equitable system, taking into account, fuel type and plant type, could be used to propose allowance allocations that are more representative of the current EUG landscape. [EPA-HQ-OAR-2009-0491-3927[1].1, p.2]
Response:
Thank you for your comment.Organization: Lakeland Electric
Comment:
Lakeland Electric
Therefore, if this regulation is finalized as proposed with either Option 1 or Option 2, Unit 3 will be restricted on how many hours it can run in any given year. Such a restriction will certainly affect Florida's electric power supply reliability. Unit 3 began operation in 1982, therefore, its age is approximately 30 years old. As it appears that Unit 3 may have to be shut down or operate only part of the year to comply with the Transport Rule under either Option 1 or 2, one can infer that many older coal units will have to do the same, at least temporarily if not permanently, to stay in compliance for the 2012 deadline. According to the below table published in this January's Power Engineering Magazine which cites the Edison Electric Institute as its source, coal units older than 30 years of age account for 66% of the total coal generation in the Unites States. Because this will surely affect units that are 21-30 years of age also, of which Unit 3 falls into this category, if we factor those units into the total coal generation equation, we see that coal units which are older than 21 years of age account for 95% of the total coal power generation in the United States. Now, the Transport Rule directly affects only 31 states plus the District of Columbia, so these percentages are not completely precise, however, a large percentage of the older coal units are east of the Mississippi, and will therefore be regulated under this Rule. [EPA-HQ-OAR-2009-0491-3892[1].1, p.2]
3) How many and which units does EPA believe will have to execute major modifications or shut down or operate at reduced load, even temporarily, to meet the emission limits under either option proposed? [EPA-HQ-OAR-2009-0491-3892[1].1, p.6]
We would like to finish our comment by stating that Unit 3 is our highest capacity generating unit in our system, and the shutting down or derating of this Unit will mean severe economic harm to our Utility and Lakeland customers. Unit 3 was built with and has been running a scrubber since its inception in 1982 along with an electrostatic precipitator and now operates a selective catalytic reduction system, ultra low NOx burners, and an overfire air system to reduce pollutants. Because it is obvious that Unit 3 does not have enough allowances to operate in its current state, we can't help but feel that we are being punished for adding pollution control devices and running a clean unit before this regulation was proposed. [EPA-HQ-OAR-2009-0491-3892[1].1, p.6]
Response:
Chapter 7 of the Regulatory Impact Analysis for the Federal Transport Rule details the impact on the electricity sector, including the number of controls projected to be installed by 2014. EPA also notes that in performing its modeling of the final Transport Rule, it assumed that most SO2 emission reductions in 2012 would come from running existing controls, including dispatchable controls that would not be run in the Transport Rule base case, and by units burning lower sulfur coal. Finally, EPA notes that units have a variety of compliance options, including running dispatchable controls, installing new emission controls, fuel switching, and buying and banking allowances.
Organization: Louisiana Chemical Association (LCA)
Comment:
Louisiana Chemical Association (LCA)
5. LCA does not support use of different methodologies to make CATR. allocations for different pollutants. The methodology should be consistent across trading programs. [EPA-HQ-OAR-2009-0491-4027, p. 6]
Response:
Thank you for your comment.
Organization: Manitowoc Public Utilities (MPU)
Santee Cooper
Buckeye Power, Inc.
Forest County Potawatomi Community
Alliance to Save Energy
Alliance for Industrial Efficiency
United States Clean Heat & Power Association (USCHPA)
Cogen Technologies Linden Venture, LP
Independence Power & Light (IPL)
Tenaska, Inc.
Comment:
Alliance for Industrial Efficiency
Instead, we urge EPA to adopt an output-based alternative allocation formula, which would help benefit WHR and CHP. Reducing energy demand through these investments would not only reduce NOx emissions from power plants, but also reduce compliance costs of the rule. What's more, output-based standards do not favor any particular emissions controls  -  one of EPA's stated goals in the NODA. [EPA-HQ-OAR-2009-0491-3941[1].1, p.3]
Alliance to Save Energy
The Alliance questions why EPA has not pursued emissions allocations on an output basis instead of on a heat-input basis. As the EPA itself recognizes, output-based emissions regulation provides greater incentives for pollution prevention, energy efficiency, and emissions reduction than do traditional input-based emissions regulations. (See, for instance, EPA Combined Heat and Power Output-Based Regulations web page at http://www.epa.gov/chp/state-policy/output.html and the linked 'Output-Based Environmental Regulations Factsheet' and 'Output-Based Regulations: A Handbook for Air Regulators' documents.) [EPA-HQ-OAR-2009-0491-3926[1].1, p.3]
The EPA and some states have adopted output-based emissions regulations in a number of cases. For example, the New Source Performance Standard (NSPS) for Electric Utility Steam Generating Units (40 CFR 60.40Da et seq.) includes an output-based emissions standard for mercury (Sec. 60.45Da Standard for mercury), and output-based standards are an option for several criteria pollutants (particulate matter, sulfur dioxide, and nitrogen oxides). The aforementioned 'Output-Based Environmental Regulations Factsheet' notes twelve states that have output-based emissions regulations, including four that recognize non-electricity thermal output, such as from combined heat and power systems. [EPA-HQ-OAR-2009-0491-3926[1].1, pp.3-4]
Buckeye Power, Inc.
While the CATR remains flawed for all the reasons set forth in these and Buckeye's prior comments, Buckeye supports the use of historic heat input as the basis for any emissions allocation scheme. [EPA-HQ-OAR-2009-0491-3900[1].1, p.2]
Using historic actual emissions as the basis for allowances punishes early adopters of emission controls. Obviously, baseline emissions will be lower for units equipped with pollution controls. EPA's original proposed CATR approach would penalize that facility by allocating to it fewer allowances. Moreover, EPA's original approach, which essentially required additional control from units that had already installed state-of-the-art Best Available Control Technology, raised issues of technical infeasibility, which in tum would require the purchase of offsets, if available, for the cleanest units in the country. This approach would force proactive companies to essentially subsidize the installation of control technology on facilities that were not proactive, rewarding such late-comers not only with the delayed costs of emission reductions, but also with subsidies in the form of allocations that could be sold by facilities that chose to procrastinate. This approach is antithetical to the goals, purpose, and spirit of the Clean Air Act. Conversely, a heat input approach, unlike an emissions-based approach, would eliminate perpetual allocations to the highest emitting units, and does not punish consumers who have paid for investments in emission control equipment, thereby effectuating a rational policy. Historic heat input data are emissions control-neutral and thus do not punish, through reduced allocations, units that have installed pollution control technology. [EPA-HQ-OAR-2009-0491-3900[1].1, p.2]
Furthermore, as indicated in the voluminous commerits submitted to date, historic heat input data are more likely to be accurate at a unit-level than projected unit-level emission and generally are based on quality-assured data reported by sources from continuous monitoring systems. [EPA-HQ-OAR-2009-0491-3900[1].1, p.2]
As EPA notes, the Clean Air Act provides the Agency with discretion to select an appropriate allocation methodology that meets the objective of curtailing emissions that significantly contribute to exceedences of a national ambient air quality standard or interfere with maintenance thereof. Neither the Act nor the court's opinion in North Carolina v. EPA specifies a particular methodology that EPA must use to allocate emissions. Buckeye concurs with EPA's determination that an allocation methodology based on historic heat input data meets the Clean Air Act's requirements. [EPA-HQ-OAR-2009-0491-3900[1].1, p.3]
EPA's now-contemplated historic heat input-based allocation methodology furthers sound public policy: The initial allocation of allowances under each state budget to existing units will yield a distribution of allowances putting relatively greater burden on the higher-emission-rate units to reduce emissions or purchase additional allowances. This pattern would result because heat input-based allocations would provide the same share of allowances to units with the same heat input even though the higher-emissions-rate units would require more allowances in order to cover their emissions than would lower-emission-rate units. Fairness would dictate that because higher-emission-rate units generally are responsible for a disproportionate share of state's total emissions, such units should bear a higher burden than well-controlled units. [EPA-HQ-OAR-2009-0491-3900[1].1, p.3]
Cogen Technologies Linden Venture, LP
Linden Cogen continues to believe, as suggested by our October 1, 2010 Comments, that an allocation methodology based on historical reported emissions data, as augmented by assumptions about operation of existing and planned controls, would also represent a sound approach. Id. [EPA-HQ-OAR-2009-0491-3938[1].1, p.3]
As discussed in our October 1, 2010 comments, Linden Cogen would also support the use of historic emissions data as the basis of the Transport Rule allowance allocation methodology. [EPA-HQ-OAR-2009-0491-3938[1].1, p.5]
Forest County Potawatomi Community
EPA has requested comment on proposed alternative allocation methodologies based on historic heat input to EGUs. 76 Fed. Reg. 1116. FCPC strongly supports EPA's potential use of the heat input allocation methodologies, as opposed to the originally proposed methodology based on projected source emissions. As EPA notes, use of the alternative allocation methodology is substantially preferable to the original methodology because (1) historic heat input data are fuel neutral and (2) historic heat input data are emissions-control-neutral. Moreover, determining allowances based on heat input - rather than projected emissions - will encourage more efficient power generation and the use of cleaner fuels, and does not punish units that installed or plan to install pollution control technology by reducing their allocation. [EPA-HQ-OAR-2009-0491-3882[1].1, p.3]
In addition, a heat-input-based methodology helps to avoid over-allocations to sources based on overly generous emissions projections, which might allow dirty sources to stay dirty or provide them with a windfall for relatively cheap pollution reductions. As EPA noted during the tribal consultation, there is a significant risk of over allocation under the original method, since the allocations are based upon EPA's best guesses of source emissions. For example, the Blount Street facility in Madison, Wisconsin was allocated over 9,000 tons of 802 for 2012 under the original method, even though its Wisconsin Department of Natural Resources emissions inventory report shows approximately 400 tons of S02 emissions in 2009. Since owners of EGUs do not have an incentive to correct EPA when it overestimates the EGUs emissions, and since EPA likely does not have the resources to confirm every EGUs emissions, it is critical that EPA avoid over-allocation problems by utilizing a heat-input based methodology rather than its originally proposed methodology. [EPA-HQ-OAR-2009-0491-3882[1].1, p.3]
Overall, the alternative allocation methodology should provide stronger incentives for the heaviest-polluting sources to reduce harmful emissions, benefiting not only downwind areas but also the local communities near those sources. Therefore, an allocation methodology based on heat input will better promote the mandate of Clean Air Act section 110(a)(2)(D)(i)(I), which prohibits sources from contributing significantly to nonattainment of air quality standards in other states. [EPA-HQ-OAR-2009-0491-3882[1].1, p.3]
Though FCPC strongly supports the use of a heat-input-based allocation, as opposed to the original allocation method, an allocation based on historic energy output would be more efficient yet. EPA should consider an allocation methodology based on historic energy output, which would go even farther in rewarding units which have clean fuels, efficient energy production, and effective pollution control technology. [EPA-HQ-OAR-2009-0491-3882[1].1, p.4]
Independence Power & Light (IPL)
Putting aside the problem that none of the allocations methodologies proposed are reasonable for IPL and attempting to place the allocation methodologies on a more general 'reasonableness scale' shows that the use of adjusted historic and adjusted projected emissions data for development of the Original Allocation methodology appears to be a more realistic approach for an industry-wide allocation. [EPA-HQ-OAR-2009-0491-3949[1].1, p.4]
There is scant effort in the NODA to justify a shift to use of historic heat input as a basis for allocation methodologies. [EPA-HQ-OAR-2009-0491-3949[1].1, p.4]
Manitowoc Public Utilities (MPU)
MPU believes that the alternative allocation methodologies proposed for existing units are a significant improvement over the original proposed allocation scheme. [EPA-HQ-OAR-2009-0491-3918[1].1, p.2]
Santee Cooper
Santee Cooper believes that both of the heat input-based allocation formulas presented in the NODA are far superior to the proposed Transport Rule approach. [EPA-HQ-OAR-2009-0491-3913[1].1, p.2]
Tenaska, Inc.
For the reasons provided in its previous comments, Tenaska believes that heat input is a far preferable means of allocation than historical emission data. [EPA-R03-OAR-2010-1027-DRAFT-0005.1[1], p.1]
United States Clean Heat & Power Association (USCHPA)
We are very disappointed by EPA's failure to include an output-based emissions formula in the NODA. EPA acknowledges that it 'received numerous public comments' on alternative allocation approaches. While it asserts that the alternative methodologies included in the NODA 'emerge from comments that EPA received during the comment period on the proposed Transport Rule', it does not account for a wide range of comments in the docket advocating for adoption of an output-based allocation formula. (see Appendix for comment excerpts) The result is a rule that will place EPA guidance in direct conflict with energy efficiency. [EPA-HQ-OAR-2009-0491-3955[1].1, p.2]
We recommend that EPA adopt an output-based formula that considers both thermal and electric output by regulated units. By setting pollution limits based on each unit of energy produced, rather than the amount of fuel consumed, output-based standards provide greater incentives for pollution prevention, energy efficiency, and emissions reduction. This approach would reward those facilities that produce larger amounts of electricity with less NOx or SOx emissions. [EPA-HQ-OAR-2009-0491-3955[1].1, [p.2]
By allocating allowances based on electricity and thermal energy produced, the Transport Rule would create greater incentives for facilities to incorporate such efficiencies into their design, perhaps encouraging utilities to collocate near industrial sources or buildings that would be able to benefit from their thermal output. The Oak Ridge National Laboratory projects that Combined Heat and Power can provide 20 percent of US electric capacity by 2030. Deployment of CHP at this scale could lower demand for conventional power and significantly reduce compliance costs under the Transport Rule. The NODA should incorporate provisions that encourage such investments. [EPA-HQ-OAR-2009-0491-3955[1].1, p.3]
Notably, an output-based approach is also consistent with other EPA rulemakings. For instance, in the recently issued BACT Guidance, EPA expressly 'encourage[d] permitting authorities to consider establishing an output-based BACT emissions limit, or a combination of output- and input-based limits, wherever feasible and appropriate.' By likewise embracing an output-based formula for allowance allocation of permits under the Transport Rule, EPA can provide greater consistency across its rulemakings. [EPA-HQ-OAR-2009-0491-3955[1].1, p.5]
Waste Heat Recovery and Combined Heat and Power hold tremendous promise to reduce electricity demand and lower Clean Air Act compliance costs. We urge EPA to incorporate an output-based approach as an alternative allocation mechanism to help stimulate greater investment by regulated entities in energy efficiency, including WHR and CHP. [EPA-HQ-OAR-2009-0491-3955[1].1, p.5]
Response:

Thank you for your comment.
Organization: Maryland Department of Environment (MDE)
Comment:
Maryland Department of Environment (MDE)
b. Whether the allocation methodology must be the same for each of the four NOx/SO2 trading programs
ARMA encourages EPA to use the same methodology for all four programs, for simplicity of calculations and data tracking for sources and states. [EPA-HQ-OAR-2009-0491-3972[1].1, p.2]
Response:
Thank you for your comment.
Organization: Massachusetts Department of Environmental Protection
Comment:
Massachusetts Department of Environmental Protection
Furthermore, in MassDEP's comments on the proposed Transport Rule, we encouraged EPA to calculate allocations using an output-based methodology to encourage energy efficiency. We reiterate that recommendation while noting that a historic heat-input based allocation method comes closer to approximating the output-based approach that MassDEP used in CAIR. [EPA-HQ-OAR-2009-0491-4017[1].1, p.3]
Response:
Thank you for your comment.
Organization: National Mining Association (NMA)
Comment:
National Mining Association (NMA)
Each of these methods results in vastly different allocations for most individual units. These different allocations have substantial consequences for compliance planning and the cost of compliance for regulated entities. [EPA-HQ-OAR-2009-0491-4013[1].1, p.3]
It is difficult to accurately gauge the exact effect of these different methodologies because the Transport Rule has been a moving target, with state budgets likely to change significantly as a result of the previous two NODAs in ways that are at this point unknown. [EPA-HQ-OAR-2009-0491-4013[1].1, p.3]
The following exhibit provides summary data and analysis on the allowance allocations under EPA's three proposed unit-level allocation methods  -  the PTR Method (emissions based), Option 1 Method (heat-input based) and Option 2 Method (heat-input based with an emissions constraint). The purpose of our analysis was to compare the impact each allocation method had on electric generating units categorized based on fuel type. EPA did not provide sufficient data to efficiently and comprehensively perform that analysis. However, as an appropriate surrogate, we were able to compare the allocations base on technology class/plant type (e.g., coal-fired boilers, combined cycle units). [EPA-HQ-OAR-2009-0491-4013[1].2, p.1]
Response:
Thank you for your comment.Organization: National Rural Electric Cooperative Association (NRECA)
Comment:
National Rural Electric Cooperative Association (NRECA)
Based on our comments below, NRECA strongly recommends EPA develop an alternative allocation methodology that is equitable and recognizes the different emission characteristics between fossil fuels and combustion designs.   It is within EPA's regulatory discretion to develop a sensible allowance allocation methodology.  [EPA-HQ-OAR-2009-0491-3943[1].2, p.4]
In view of the obvious inequities inherent with all the allowance allocation methodologies proposed thus far, it is evident that a clear rationale has not been proposed.  NRECA believes that a better rational allocation methodology would recognize different inherent emission reduction capabilities between units considering fuel type and combustion design.  The allocation methodology should be based on emission levels that units can reasonably be expected to achieve.   [EPA-HQ-OAR-2009-0491-3943[1].2, p.9]
In the alternative, NRECA suggests that reasonably achievable emissions rates be based on fuel (coal rank, gas, oil, gas/oil duel fuel) and unit design (coal boiler, combined cycle, turbine).   [EPA-HQ-OAR-2009-0491-3943[1].2, p.9]
NRECA cannot support any of the allowance allocation options thus far presented in the CATR rulemaking process. All of the proposed options present numerous impossibilities for unit compliance, inequities and design flaws that could be largely corrected if the allocation methodology appropriately and accurately allocated allowances recognizing different emissions characteristics and reduction capabilities between categories of fuel, including coal, coal rank, gas, oil, gas/oil duel fuel and categories of unit design including coal boiler, combined cycle and combustion turbine.   Additionally, the proposed options fail to accurately reflect that many unit emission reductions required to match unit allowance allocations are not achievable by 2012.   [EPA-HQ-OAR-2009-0491-3943[1].2, p.1]
In the initially proposed CATR, EPA stated that is has broad discretion in distributing allowances, mindful that a distribution methodology cannot in effect determine states' budgets in an effort to meet Clean Air Act Section 110 objectives to address interstate air pollution. To this end, EPA indicated that allowances could be distributed based on identified groups of units having similar emissions characteristics.  For example, in the proposed CATR preamble, EPA suggested the possibility of grouping units by size, fuel type and age. NRECA agrees with EPA that it has the discretion to develop a sensible allocation methodology to reflect unit fuel and combustion design. [EPA-HQ-OAR-2009-0491-3943[1].2, pp.8-9]
These rates should be applied to provide a reasonable distribution of allowances as EPA attempted but failed to achieve under NODA option 2.  [EPA-HQ-OAR-2009-0491-3943[1].2, p.9]
Response:
Thank you for your comment.Organization: New Jersey Department of Environmental Protection (NJDEP)
Comment:
New Jersey Department of Environmental Protection (NJDEP)
However, the USEPA should utilize a more dynamic method similar to the one New Jersey used for the NOx Budget Program and the CAIR trading programs, which annually updates the allocation for future years based on the emissions data available from the three most recent years. All of the methods proposed by the USEPA are static in that the allocations are the same every year for the same units. This is not realistic because emissions from the affected sources change every year due to many reasons, including shutdowns,. Utilizing a dynamic method such as New Jersey's rolling three-year average provides a better match to the unit's change in dispatch. If the USEPA is concerned that a rolling average method would not provide owners and operators the certainty needed, then a schedule as in CAIR can be provided as follows: [EPA-HQ-OAR-2009-0491-3891[1].1, p.1]
-Allocations are the same for the first three years, from the initial allocation. In New Jersey for CAIR, allocations for 2009,2010, and 2011 were the same and were submitted to the USEPA by April 2007. The allocations were based on 2003,2004, and 2005 data, which were available at the time of the submittal.
-Starting with the fourth control year, allocations were submitted annually using the rolling three year method. In New Jersey for CAIR, the allocations for 2012 were submitted in 2008 based on data from 2005 through 2007. 2013 allocations were submitted in 2009 based on data from 2006 through 2008. A schedule like this where companies are allocated four years in advance will provide plenty of certainty. Also, because the calculation method was publicly available, companies can produce their own estimation of the number of allowances they may receive. [EPA-HQ-OAR-2009-0491-3891[1].1, p.2]
The specifics on the calculations used for the rolling three year method is in the New Jersey CAIR NOx Trading Program Rule (NJ.A.C. 7:27-30), which was approved by the USEPA as New Jersey's abbreviated SIP for CAIR on July 3, 2007. [EPA-HQ-OAR-2009-0491-3891[1].1, p.2]
A key advantage to utilizing a dynamic allocation method is that it will allow new units to become part of the base allocation after three years worth of emissions data has been generated to be used in the allocation calculation. As new units become part of the regular pool of units and draw from the base state budget, this frees up the new unit allowances from the set-aside for future new units. Facilitating the introduction of new units is desirable to lower emissions of all air contaminants.  [EPA-HQ-OAR-2009-0491-3891[1].1, p.2]
Response:
Thank you for your comment.Organization: NRG Energy
Comment:
NRG Energy
 Recommended Improvements / Alternate Allocation Methodologies  -  NRG supports EPA's approach to have an independent allocation method for each pollutant and recommends that no facility receive allocations greater than its respective operating permit or state regulatory limitations.    [EPA-HQ-OAR-2009-0491-3933[1].1, p.2]
By contrast, with allocations that reflect emissions, every plant's compliance costs are buffered in a fair and comparable manner and program implementation impacts are "economically neutral." This allocation protects both investors and consumers, conserves capital needed for massive investments in emission control equipment and clean energy projects, and provides a stronger incentive to make those investments. An emission-based allocation approach achieves these objectives without sacrificing any environmental and public health benefits - in fact, it is likely to support greater benefits, because coal-fired fleet owners are disproportionately making the largest investments in clean energy technologies. [EPA-HQ-OAR-2009-0491-3933[1].1, pp.2-3]
Thus EPA can choose between two ways of achieving the same environmental benefits:
-a fair approach that buffers the cost impact on consumers and conserves scarce private sector capital needed for clean technology investment, or
-an unfair approach that dramatically increases costs for coal plant owners while creating pure windfalls for gas plant owners.   [EPA-HQ-OAR-2009-0491-3933[1].1, p.3]
The latter approach makes it far harder for the owners of coal plants to afford the clean technology investments our country needs. Further, as realized in Delaware, these investments support local economic recovery by providing many short term construction and engineering jobs and assuring long term jobs at each facility.  [EPA-HQ-OAR-2009-0491-3933[1].1, p.3]
While complex, we believe EPA "got it right" in its initial July 2010 program design based on using current and projected emission as a basis for allowance distribution and state budgets. The predicted allocation is technology neutral and based on known factors for current emitters including: their current emission profiles, projected profiles, and their direct contributions to downwind attainment and maintenance in current and emerging energy markets. It is aligned with current generation planning, the increasing deployment of renewables, changing markets, the depressed price of gas, and current generation planning. [EPA-HQ-OAR-2009-0491-3933[1].1, p.4]
Recommended Improvements / Alternate Allocation Methodologies  -  EPA requested comments on the application of different allocations for different groups and or programs. NRG supports EPA's approach to have an independent allocation method for each pollutant and recommends no facility receive allocations greater than their operating permit or state regulatory limitations. [EPA-HQ-OAR-2009-0491-3933[1].1, p.7]
 Improvement 1  -  EPA should consider different allocation methods for different pollutants. SO2 emissions are the result of sulfur concentrations in the fuel and NOx is formed in the combustion process predominantly from nitrogen and oxygen in the air. Because these are exclusive pollutants created differently, allocations based on applicable factors lend to approaching them independently. Allocations of SO2 allowances should, therefore, give consideration to the type of fuel, generation technology, and available compliance options. Allocations to gas units could be limited to 1 or 2 allowances (equal to their potential to emit) and the remainder divided among coal and oil generation. Another alternative is discussed in the next bullet, Improvement 2.   [EPA-HQ-OAR-2009-0491-3933[1].1, p.7]
Improvement 2  -  To better align allocations with emissions, a unit should not receive an allocation greater than its permit or regulatory limitations. This application should be based on current requirements and this information should be readily available from Title V Permits and/or NEEDS inventory. This improvement is a key component in assuring lower emitting units do not receive allocations greater than their allowable or potential emissions.   [EPA-HQ-OAR-2009-0491-3933[1].1, p.7]
EPA Question  -  Are the alternative methodologies clear and easy to understand?   In any option, no matter how simple or complex, it is important to have accurate data. It is recommended that EPA provide the revised databases and allocation tables for public review before the final rule is published.   [EPA-HQ-OAR-2009-0491-3933[1].1, p.8]
 EPA Question  -  Are these methods consistent with the goals of the CAA?  EPA's mission within the CAA is to protect human health and the environment which includes the attainment of ambient air quality standards designed to protect public health and the environment and the assurance that no state will contribute to the inability of another state to achieve or maintain attainment. We can agree with EPA's position that because higher emission rate units generally are responsible for a greater share of the states total emissions, the focus should be on these emitters and their ability to reduce emissions. Associated with this position, allocation programs should be designed around and for these facilities. However, the CAA does not include goals that penalize one sector over another, suggest economic penalties or hardship for emitters, or indicate economic windfall rewards for certain classes of emitters. Realistically, these judgments are left to energy and emissions markets. [EPA-HQ-OAR-2009-0491-3933[1].1, p.8]
 EPA Question  -  Do these alternatives yield a reasonable distribution of allowances?  By contrast, the July projected emissions method and Option 2 (with recommended improvements) better reflect emissions, and a plant's compliance costs are buffered in a fair and comparable manner. This protects both investors and consumers, conserves capital needed for massive investments in emission control equipment and clean energy projects, and provides a stronger incentive to make those investments. This maintains the proper balance in protecting health and the environment while promoting economic growth.   [EPA-HQ-OAR-2009-0491-3933[1].1, p.9] [[This comment can also be found in Section XX.A.1.b.]]
 EPA Question  -  Are these methods consistent with the goals of the CAA?  Therefore, the application of any allocation method that economically favors one source over another and acts as a transfer of wealth conduit is not in the spirit of the CAA or the CATR. Of all the options provided by EPA, only the projected emissions method greatly reduces this unintended consequence, where, in contrast, Option 1 yields the greatest economic disparity among the options.  [EPA-HQ-OAR-2009-0491-3933[1].1, pp.8-9]
 EPA Question  -  Should the same methodology be used for each of the proposed CATR programs or should a different methodology be used for one or more such trading programs?  As noted in Comment 4, different methodologies should be applied since the compliance obligations are independent and exclusive and the plant emission characteristics vary by fuel and combustion technology. Most significant is the impact on SO2 allowances distribution.   [EPA-HQ-OAR-2009-0491-3933[1].1, p.9]
Response:
Thank you for your comment.
Organization: Old Dominion Electric Cooperative
Comment:
Old Dominion Electric Cooperative
Based on our comments below, ODEC strongly recommends EPA develop an alternative allocation methodology that is equitable, recognizes the different emission characteristics between fossil fuels and combustion designs, and provides for reasonable and achievable emissions reductions. All of which could be accomplished within EPA regulatory discretion. [EPA-HQ-OAR-2009-0491-4004[1].1, p.2]
In view of the obvious inequities inherent with all the allowance allocation methodologies proposed thus far, it is clear that a rational one has not thus far been proposed. ODEC believes that a better, more equitable allocation methodology would recognize different inherent emission reduction capabilities between units considering fuel type and combustion design. In other words the allocation methodology should be based on well controlled emission levels based on what units can reasonably be expected to achieve. As referenced earlier in these comments, information from EPA's own database as part of the CATR rulemaking docket demonstrates the one size fits all approach does not produce sensible allowance allocations. [EPA-HQ-OAR-2009-0491-4004[1].1, p.4]
ODEC suggests reasonably achievable emissions rates be based on fuel (coal rank, gas, oil, gas/oil duel fuel) and unit design (coal boiler, combined cycle, turbine). These rates Should be applied to provide a reasonable distribution of allowances as EPA attempted but failed to achieve under the NODA option 2. [EPA-HQ-OAR-2009-0491-4004[1].1, p.5]
ODEC cannot support any of the allowance allocation options thus far presented fn the CATR rulemaking process. All of the proposed options present inequities and design flaws that could be largely corrected if the allocation methodology appropriately and accurately allocated allowances recognizing different emissions characteristics and reduction capabilities between categories of fuel (including coal, coal rank, gas, oil, gas/oil duel fuel) and unit design (including coal boiler, combined cycle and combustion turbine) such that well controlled emission levels are based on what units can reasonably be expected to achieve. Additionally, the proposed options fail to accurately reflect that many unit emission reductions required to match unit allowance allocations are not achievable by 2012. [EPA-HQ-OAR-2009-0491-4004[1].1, p.5]
Second, ODEC cannot support any of the proposed options for allowance allocations thus far proposed. [EPA-HQ-OAR-2009-0491-4004[1].1, p.2]
In the initially proposed CATR, EPA stated that it has broad discretion in distributing allowances, mindful that a distribution methodology cannot in effect determine states' budgets in effort to meet Clean Air Act Section 110 objectives to address interstate air pollution. To this end, EPA indicated that allowances could be distributed based on identified groups of units having similar emissions characteristics. For example EPA went on to suggest the possibility of grouping units by size, fuel type and age. ODEC agrees with EPA that it has the discretion to develop a sensible allocation methodology to reflect unit fuel and combustion design. [EPA-HQ-OAR-2009-0491-4004[1].1, p.4]
Response:
Thank you for your comment.Organization: PPG Industries, Inc.
Comment:
PPG Industries, Inc.
PPG supports the use of the two alternative heat input-based allowance allocation methodologies presented in the 2011 NODA over the allocation methodologies based on the Integrated Planning Model ('IPM') that were proposed in the initial CATR/FIP (IPM v. 3.02) or introduced in a previous September 1, 2010 NODA (IPM v. 4.10). PPG believes that the alternative allocation methodologies proposed in the 2011 NODA are superior to the IPM-based methodology originally offered by EPA. First, unlike the IPM methodology which is based upon assumptions about economic factors, projected fuel use, electrical demand and a host of other factors, and modeled emissions based upon those assumptions, the 2011 NODA alternative allocation methodologies are based upon a unit's own historic heat input data. This heat input data is quality assured data that has been reported from continuous monitoring systems or is otherwise subject to significant penalty for false reporting. As EPA indicated in the January 7, 2011 NODA, historic heat input data is 'more likely to be accurate' at a unit wide level than is modeled unit emissions. Second, historic heat input data is fuel-neutral and does not raise concerns regarding the use of fuel adjustment factors that were of concern during the CAIR rulemaking. Third, the heat input data is emissions control neutral and, therefore, does not result in reduced allocations for units that have installed, or plan to install, pollution control technology. This neutral approach is important as it does not penalize companies that have made, or plan to make, the capital investments needed to control emissions. [EPA-HQ-OAR-2009-0491-3911[1].1, p.2]
PPG notes that use of either of the heat input-based allocation options more equitably distributes the burden of compliance by placing a lesser burden on the cleaner, lower emitting units such as the two RS Cogen gas-fired combined cycle cogeneration units. A greater burden will be placed on the higher emitting, less efficient EGUS. PPG agrees that if it is demonstrated that reductions are required, these 2011 NODA heat-input based options are significantly more in line with the goals of Section 110(a)(2)(D)(i)(I) of the Clean Air Act, including improving long-term air quality and encouraging costeffective emissions reductions. PPG does not share EPA's position that the IPM-based methodologies meet these CAA goals, at least with respect to the allocations proposed by EPA in the original CATR/FIP or the September 1,2010 NODA. Those IPM-based allocations punished the cleaner, more efficient natural gas burning sources in Louisiana while favoring EGU s with greater emissions and less efficiency. [EPA-HQ-OAR-2009-0491-3911[1].1, p.2]
EPA requested comment on whether the allocation methodology chosen for each of the four trading programs (S022012, S02 2014, annual NOx, ozone season NOx) should be the same. PPG believes that the allocation methodology should be consistent across the trading programs. This promotes consistency and ease of administration. There is no logical reason to employ one methodology for one trading program, such as S02, pollutant and a different methodology for NOx. The goal of the annual S02 and annual NOx trading programs is the same - to prevent emissions form the EGUs regulated under the program from interfering with the ability of a downwind state to meet the PM2.5 NAAQS. A program that allocated S02 allowances differently than NOx allowances may interfere with this goal. Further, it would make little sense to allocate annual NOx or a basis completely different than ozone season NOx for the same set of EGUs. Such would make both allocations and planning more difficult. [EPA-HQ-OAR-2009-0491-3911[1].1, p.3]
Response:
Thank you for your comment.

Organization: Prairie State Generating Company, LLC
Comment:
Prairie State Generating Company, LLC
Using the alternative allocation methodology proposed in this NODA, three new coal-fired units currently constructed or being constructed in Illinois would be required to obtain their allowances from the NUSA pool. Having used 100% of the NUSA pool allowances, these units would be required to obtain additional allowances from the emissions trading market. These three units, at expected operating capacity factors and permitted emission rates, alone would consume 38% to 64% of Illinois' one year variability limit and 66% to 112% of Illinois' three year variability limit if they must obtain all of their purchased allowances from interstate trading. [EPA-HQ-OAR-2009-0491-3897[1].1, p.6]
Response:
EPA appreciates Prairie State Generating Company's comment and has addressed the issue with the method for determining the size of the new unit set aside for the final Transport Rule. Please see Preamble Section VII.D.2. for more information on how the size of the new unit set aside is determined.
Organization: Progress Energy Service Company
Comment:
Progress Energy Service Company
If EPA determines that a heat input-based approach will be used for allowance allocations and that the start of the program will be prior to 2014. then Progress Energy strongly urges the Agency to provide for additional allocations - that are based on projected emissions - to units that are not yet controlled and that cannot be controlled in the time remaining prior to the start year. [EPA-HQ-OAR-2009-0491-4011[1].1, p.4]
Response:
Thank you for your comment.
Organization: San Miguel Electric Cooperative, Inc.
Comment:
San Miguel Electric Cooperative, Inc.
San Miguel encourages the EPA to revise the methodology for unit allocations from the proposed methods to a historically based system that will adjust for fuel type (including subcategories of coal) and type of plant design. [EPA-HQ-OAR-2009-0491-3997[1].1, p.4]
EPA's final allocation method should adjust for fuel type, including coal subcategories, and type of plant design. Coal and lignite must be given equitable treatment with the other fuel types. The allocation method used should also provide for stable low cost electricity, which will help the economy grow. [EPA-HQ-OAR-2009-0491-3997[1].1, p.4]
Response:
Thank you for your comment.Organization: Southern Company
Comment:
Southern Company
In the NODA3, EPA requests comment on two alternative allocation methodologies, both of which are based on the outdated proposed Transport Rule state budgets. EPA already issued new versions of NEEDS and IPM in previous NODAs that would change the overall state budgets, yet has declined to issue any updated state budgets. Without the updated state budgets and subsequent allocations, utilities cannot plan for compliance. Further, the NODA3 asks stakeholders to compare the proposed Transport Rule allocations to two new allocation methodologies. This does not lead to a meaningful comparison since the underlying data and modeling files used to establish the proposed Transport Rule allocations contain numerous errors.1 Without both the updated state budgets and updated unit-level identifications and allocations from the proposed Transport Rule, we cannot provide a meaningful comparison of the impacts of each option on our generation planning and operations. [EPA-HQ-OAR-2009-0491-3946[1].1, p.6]

1 As noted in Southern Company's comments on the NODA1, EPA failed to illustrate how the new data in NODA1 would change the state budgets and unit-level allocations. Further, EPA failed to provide enough information for stakeholders to calculate these themselves.
Response:
As explained in the NODA, EPA was illustrating the proportion of a state's budget that units would receive, not the actual number of allowances units would receive under the final rule.
Organization: Southern IL Power Cooperative
Comment:
Southern IL Power Cooperative
SIPC strongly recommends EPA develop an alternative allocation methodology that is equitable and recognizes the different emission characteristics between fossil fuels and combustion designs.   This could be accomplished within EPA regulatory discretion. [EPA-HQ-OAR-2009-0491-3901[1].1, p.2]
In view of the obvious inequities inherent with all the allowance allocation methodologies proposed thus far, it is clear that a proper one has not been proposed.  SIPC believes that a better, rational allocation methodology would recognize different inherent emission reduction capabilities between units considering fuel type and combustion design.  In other words, the allocation methodology should be based on well-controlled emission levels based on what units can reasonably be expected to achieve.  As shown earlier in these comments, information from EPA's own database as part of the CATR rulemaking docket demonstrates the "one size fits all" approach does not produce sensible allowance allocations. [EPA-HQ-OAR-2009-0491-3901[1].1, ,p.5]
SIPC suggests reasonably achievable emissions rates be based on fuel (coal rank, gas, oil, gas/oil duel fuel) and unit design (coal boiler, combined cycle, turbine).  These rates should be applied to provide a reasonable distribution of allowances as EPA attempted (but failed) to achieve under NODA option 2.  [EPA-HQ-OAR-2009-0491-3901[1].1, p.5]
Response:
Thank you for your comment.Organization: State of Ohio Environmental Protection Agency (Ohio EPA)
Comment:
State of Ohio Environmental Protection Agency (Ohio EPA)
As intended, the new allocation proposals, based upon heat input rather than actual emissions, are fuel-neutral and control-neutral in an attempt to address commenters concerns. However, they obviously create an even greater disparity between allocations for units that are controlled compared to those that are not. [EPA-HQ-OAR-2009-0491-3915[1].1, p.3]
For example:1
:: Unit 12 at Avon Lake is uncontrolled unit and owners have indicated no planned S02 control. Under the original proposal this unit would have been allocated 33,578 tons of S02 emissions in 2012. Under Option 1 of this proposal this unit will be allocated 9,582 tons and under Option 2, 10,670 tons. The highest year of s02 emissions is 38,697 (2006).
:: Unit 1 at Cardinal is controlled by an FGD (2008). Under the original proposal this unit would have been allocated 2,975 tons of 802 emissions in 2012. Under Option 1 of this proposal this unit will be allocated 10,074 tons and under Option 2, 11,218 tons. The highest year of 8\S02 emissions is 52,481 (2003 before control) while post-control S02 emissions fell to 2,688 tons in 2009 (which was the highest year of heat input between 2005 and 2009).
:: Unit 5 at Eastlake is uncontrolled and owners have indicated no planned S02 control. Under the original proposal this unit would have been allocated 31,669 tons of S02 emissions in 2012. Under Option 1 of this proposal this unit will be allocated 12,658 tons and under Option 2, 14,096 tons. The highest year of S02 emissions is 49,293 (2005).
:: Unit 1 at Gavin is controlled by an FGD. Under the original proposal this unit would have been allocated 12,877 tons of S02 emissions in 2012. Under Option 1 of this proposal this unit will be allocated 30,273 tons and under Option 2, 16,439 tons. The highest year of S02 emissions is 16,439 (2004).
:: Unit 6 at Miami Fort is uncontrolled and owners have indicated no planned S02 control. Under the original proposal this unit would have been allocated 18,718 tons of S02 emissions in 2012. Under Option 1 of this proposal this unit will be allocated 3,473 tons and under Option 2, 3,868 tons. The highest year of S02 emissions is 22,918 (2003).  [EPA-HQ-OAR-2009-0491-3915[1].1, p.3]
For many uncontrolled units, like the examples above for Avon Lake, Eastlake and Miami Fort, there is a significant shortfall in the amount of S02 allocations that will be needed. [EPA-HQ-OAR-2009-0491-3915[1].1, p.4]
As demonstrated through U.S.EPA's latest allocation approaches, Ohio remains concerned that a fair and workable method can be found when it is apparent the issue lies within the State's S02 budget itself, especially given the very short time frame for implementation. The SO2 budgets for 2012 and 2014 are just not sufficient. [EPA-HQ-OAR-2009-0491-3915[1].1, p.5]

1 While Ohio EPA focus' its examples on S02 allocations and predominantly the 2012 control period our comments apply to both S02 and NOx allocations for all control periods as similar concerns are evident in all allocations.
Response:
For more information on how state emissions budgets were developed, please see Preamble Section VI.D and the Significant Contribution and State Emissions Budgets Final Rule TSD.
Organization: State of Wisconsin, Department of Natural Resources
Comment:
State of Wisconsin, Department of Natural Resources
We suggest that the following modifications should be incorporated into the historic based allocation method for at least the initial set of allowances allocated to existing generation units. [EPA-HQ-OAR-2009-0491-3969[1].1, p.2]
1. The historic operating baseline should reflect the most recent years for which data is available, from 2006 through 2010. Then according to EPA's proposed method calculate the heat input baseline as the average of the three highest years.
2. Allocations should reflect the emission limitations and consent decrees that are applicable to individual generation units in 2010. In this case however, if an emission limit is in a rule or consent decree but does not come into effect until after 2010 then these limits should not apply until becoming part of the historic baseline period in updating allocations.
3. Where pollution control equipment is in place with no emission limitation, the allowance should reflect a recent maximum emission rate for that equipment from 2009 and 2010 or a floor emission rate reflecting the same standard equipment and variability in operation. This approach can also be applied to determining an appropriate emission rate for fuels that will limit potential 502 emissions such as natural gas.
4. The emission limit or rate determined in step 2 or 3 is multiplied by the maximum heat input from the baseline years to determine a maximum allowance allocation. In this case the maximum heat input should likely be the historic maximum seen in the last five years. Other options include looking at a heat input capacity consistent with EPA's capacity factor capturing 95% of sources in that source type or using the unit's actual theoretical maximum heat throughput.
5. Any allocation of allowances in excess to step 4 should be rolled back into the allocation pool and distributed to other units based on the unit's proportion of heat input from EPA's TR AM method. At this point if the allocation of allowances, based on heat input, is in excess to the maximum potential emissions for all TR Alt 1 units, then EPA might consider placing such allowances into a state compliance pool. [EPA-HQ-OAR-2009-0491-3969[1].1, p.2]
Response:
EPA notes that it has used the best available data for its modeling and has made extensive updates to this data based on comments. For information about these updates, please see the EPA IPM v.4.10 documentation and the "Transport Rule IPM Assumptions Response to Comments" in the Appendix
EPA believes the allocation method in the final Transport Rule is reasonable. EPA notes that using heat input as a basis for allocations is fuel and control neutral.  The allocation methodology used in the final rule is based on heat input, which is not affected by consent decrees that limit emissions. For more information about the unit allocation method, please see Preamble Section VII.D. as well as in the Allowance Allocation Final Rule TSD in the docket for this rulemaking.
Organization: Texas Commission on Environmental Quality
Comment:
Texas Commission on Environmental Quality
Because the EPA has not proposed a state annual nitrogen oxide (NOx) or sulfur dioxide budget for Texas or unit-level allocations for units in Texas that may be subject to the Transport Rule's fine particulate matter (PM2.5) trading program, the TCEQ is unable to provide meaningful comment regarding whether either alterative methodology is adequate or fair or whether allocation methodologies could or should be different for different programs (ozone season versus annual trading or interstate versus intrastate trading). [EPA-HQ-OAR-2009-0491-4030, p.4]
Should Texas be included in the Transport Rule annual trading program for PM2.5, it would have been denied reasonable notice of and the opportunity to comment on the allocation methodology selected, unit-level allocations, and state budgets. [EPA-HQ-OAR-2009-0491-4030, p.4]
Response:
In the proposal EPA requested comment on whether Texas should be included in the Transport Rule for annual PM2.5.  EPA's analysis for the proposal showed that emissions in Texas would significantly contribute to nonattainment or interfere with maintenance of the annual PM2.5 NAAQS if Texas were not included in the rule for PM2.5.  The proposal did not include an illustrative budget for Texas or illustrative allowance allocations.  However, the budgets and allowance allocations provided in the proposal were included solely to illustrate the result of applying EPA's proposed methodology for quantifying significant contribution to the data EPA proposed to use.  EPA provided an ample opportunity for comment on this methodology and on the data, including data regarding emissions from Texas sources, used in the significant contribution analysis.  EPA received numerous comments on and corrections to Texas specific data.  The modeling conducted for the final rule demonstrates that Texas significantly contributes to nonattainment or interferes with maintenance of the annual NAAQS in another state.  EPA provided a full opportunity for comment on whether Texas should be included in the rule for annual PM2.5, as well as on the methodology and data used for the significant contribution analysis for the final rule.  EPA therefore believes its determination that Texas must be included in the rule for annual PM2.5 is a logical outgrowth of its proposal.
Regarding determination of states covered by the final Transport Rule, please see Preamble Section V. Regarding the determination of state budgets, please see Preamble Section VI. Regarding unit level allocations, please see Preamble Section VII.D.
Organization: Tri-State Generation and Transmission Association, Inc.
Comment:
Tri-State Generation and Transmission Association, Inc.
In addition, Tri-State is concerned that any allocation methodology finalized in this rulemaking process will set a precedent for future allocation mechanisms that would be implemented in the western United States in subsequent transport rules. [EPA-HQ-OAR-2009-0491-3902[1].1, pp.1-2]
Tri-State appreciates EPAs willingness to reconsider the allocation methodology laid out in the initial proposed rule by offering two additional heat rate input based allocation methodologies for consideration. Tri-State supports the use of a heat rate input approach to calculating allowance allocations as a substantially more reasonable and technically sound approach than that set forth in the initial proposed rule, but believes that additional work is necessary to develop a still more realistic methodology that does not penalize already well controlled coal fired electric generating units. [EPA-HQ-OAR-2009-0491-3902[1].1, p.3]
Tri-State believes that new sources should receive allocations from a new source set aside as proposed in the NODA However, Tri-State believes that the new source set aside should be set at 5% and this allocation should be available to existing sources if not used after a given amount of time in any allocation period. Tri-State believes that new sources should be in the 'new source' category for a period of 3 years and then should be transferred to the existing source category once they have established a sufficient baseline of emissions. Tri-State also believes that allowances set aside for new sources should be available to existing sources if new sources do not claim them within a six to nine month period. [EPA-HQ-OAR-2009-0491-3902[1].1, p.5]
Response:
EPA also notes it has broad authority under the Clean Air Act to choose an appropriate allocation method for the specific situation consistent with the goals of section 110(a)(2)(D)(i)(I), and chose the allocation approach for the final Transport Rule for the reasons described in Preamble Section VII.D.
Organization: we energies
Comment:
we energies
If EPA does not recognize in its allocation method the emission reductions that have already occurred at our units, then we may end up with a shortage of allocations on a system wide basis. We oppose an emission allocation method that would provide windfall emission allocations to large baseload units that have delayed adding emission controls.  [EPA-HQ-OAR-2009-0491-3976[1].1, p.2]
We are therefore not endorsing or offering specific comments on the alternative allocation methodologies since we are unable to determine how they would ultimately impact our prior investment decisions and early emission reductions. [EPA-HQ-OAR-2009-0491-3976[1].1, p.2]
Response:
Thank you for your comment.
Organization: West Virginia Department of Environmental Protection
Comment:
West Virginia Department of Environmental Protection
WVDAQ believes it is reasonable to use the same allocation methodology for each of the proposed Trading Rule programs. The use of the same allocation methodology results in an reasonable distribution of allowances in all programs, and results in trading programs that are clear, straightforward and transparent. It also would be simpler and easier to administer than other alternatives. [EPA-HQ-OAR-2009-0491-4000[1].1, p.2]
Response:
Thank you for your comment.
Organization: Xcel Energy Inc.
Comment:
Xcel Energy Inc.
Xcel Energy believes that both of the proposed allocation methodologies in the NODA are therefore inferior to the original CATR proposal. However, we strongly encourage EPA to consider an alternative approach that would combine the positive aspects of an historic (rather than forecast) basis with a more equitable balance in allocation outcome, as discussed further below. [EPA-HQ-OAR-2009-0491-3948[1].1, p.3]
EPA should replace the previously proposed CATR allocation methodologies with an historic, emissions-based allocation methodology.
Xcel Energy proposes that the CATR emission trading programs be implemented using an emission allowance allocation based on historic emissions data. An historic emissions-based allocation mechanism simply applies EPA's original proposal to the four new programs being promulgated via the CATR, but without the model forecast element. This solution would be simpler, more certain, and more workable. Consistent with our previous comments on the CATR, we also encourage EPA to allocate based on average emissions over a three-year period selected by each entity from the years 2005-2009. Allocations should also be made to units that have been retired or repowered during this timeframe in order to reward early emissions reduction projects. The comments Xcel Energy previously submitted illustrate in greater detail the importance of this procedure in recognizing and crediting significant early reductions already achieved by the company and funded by our customers. [EPA-HQ-OAR-2009-0491-3948[1].1, p.3]
Compliance with the CATR will require extensive and costly emission reduction measures regardless of the allocation mechanism EPA pursues. Historic emissionsbased allocations enable the most efficient and cost-effective compliance strategies while achieving the environmental goals set forth in the CATR. [EPA-HQ-OAR-2009-0491-3948[1].1, p.3]
Response:
Thank you for your comment.

XX.A.1. General Comments on the Two Alternative Allocation Methodologies

Organization: AES Corporation (AES)
Comment:
AES Corporation (AES)
AES appreciates the ability to view the underlying data utilized to develop this rule. In this particular situation, there are numerous errors identified in the data set used. The errors are evident but we are unsure as to the mechanism to verify and repair them. If the data is to be taken from EIA, that database may need to be updated. Additionally some data is missing altogether. Some data such as heat rate is inaccurate but the source is not identified. This will change the resulting allocations. [EPA-HQ-OAR-2009-0491-4016, pp. 3-4]
Finally some of the analysis were left incomplete and thus full evaluation was not possible. Examples of the data issues above are given below. [EPA-HQ-OAR-2009-0491-4016, p. 4]
AES Recommends that a process is pursued to correct all of the underlying data assumptions, disclosure of all of the sources used to acquire the data and this final data set be allowed to comment on in whole. [EPA-HQ-OAR-2009-0491-4016, p. 4]
The "reasonably foreseeable maximum emissions" calculation should be updated with accurate information such as actual plant heat rate, historical capacity factor and best reasonably achievable emission rates. The assumed emission rates (0.06 lb/mmbtu) used for this method is sometimes not achievable due to space constraints, physical barriers, process impediments, inability to pass on costs as well as other reasons. Alternate assumed emission rates need to be allowed on a case by case basis. [EPA-HQ-OAR-2009-0491-4016, p. 4]
Response:
Thank you for your comment.
.
Organization: America's Natural Gas Alliance
Comment:
America's Natural Gas Alliance
ANGA is pleased to see that the Agency is considering utilizing an input-based allocation methodology, which we believe would provide incentives for utilizing cleaner, more efficient sources, such as natural gas-fired units. Historic energy heat input methods also promote the early adoption of control technologies, which would be discouraged under an emissions-based allocation. [EPA-HQ-OAR-2009-0491-3939[1].1, p.2]
As discussed further below, ANGA also believes that the input-based methodologies set forth in the NODA are consistent with broader policy goals under the CAA. [EPA-HQ-OAR-2009-0491-3939[1].1, p.3]
ANGA also agrees with EPA that historic heat input based methodology is consistent with the goals of Section 110(a)(2)(D)(i)(I). Once the Agency has identified the 'budgets' that must be met by the states to eliminate significant contribution and interference with maintenance, the methodology by which states allocate allowances to meet that budget should be reasonable and equitable. [EPA-HQ-OAR-2009-0491-3939[1].1, p.3]
If the Agency chooses to allocate allowances using an historic input-based methodology, ANGA also suggests that the Agency reverse its decision to allocate allowances to existing units once. As we suggested in our October 15th comments on the first CATR NODA, ANGA believes that it would be appropriate to periodically update allowance allocations on a going forward basis. As the benefits of power generation with natural gas lead to greater use of natural gas in the power generating sector, it is good environmental policy to periodically update the allocation of allowances, as doing so would both avoid imposing a de facto penalty on companies that s',itch to cleaner burning fuels. [EPA-HQ-OAR-2009-0491-3939[1].1, pp.3-4]
ANGA recognizes that there needs to be some degree of predictability in allowance allocation for purposes of ensuring a robust and stable allowance trading market; however, we suggest that the Agency consider updating the allocation system every three years to allow the allowance market to take into consideration modernization of the power generating sector. [EPA-HQ-OAR-2009-0491-3939[1].1, p.4]
In terms of how the Agency will use the data for each of the units subject to the CATR to establish the allocations, ANGA believes that a five-year baseline period (2005-2009) is appropriate, and agrees with the Agency that use of such a baseline period will result in 'improved representation of a unit's normal operating conditions over time.' ANGA also supports the use of an in-service cutoff date of January 1, 2009 to ensure that the Agency will have at least one full year of data for all units subject to the program when it determines the unit-by-unit allocations. Finally, taking the average of the three highest 'nonzero years' within the baseline period also serves to ensure that the allocation will be based on a unit's normal operation, and will reduce the likelihood that the allocation to an individual unit could be skewed because of abnormal operational data from any single year (such as an extended shutdown or other circumstances). [EPA-HQ-OAR-2009-0491-3939[1].1, p.4]
Response:
Thank you for your comment.
Organization: American Electric Power
Comment:
American Electric Power
Allowance allocation mechanisms do not affect ultimate compliance obligations under the proposed Transport Rule, but are a key factor in determining the ultimate cost of the rule to electric generators and their customers. Therefore, allocation issues are better addressed at the end of the rulemaking process, once final data is available to support state and regional budgets and there is an accurate baseline for meaningful comparison. Knowing that the emission budgets are subject to change before final rule promulgation, it is hard to fairly assess the impacts of the new allowance allocation proposals in NODA-3 on AEP and its customers. Nonetheless, we offer the following comments on the general concepts embodied in NODA-3, as well as within the initial Transport Rule proposal, but request that these allocation issues be revisited for comment after revised state and/or regional budgets are published for comment, but before rule finalization. [EPA-HQ-OAR-2009-0491-3934[1].1, p.4]
We appreciate the fact that EPA has revisited the issue of allowance allocation, as we have serious concems with the initially proposed allocation system. While allocations based on historical data have significant merit, we feel that neither option 1 nor 2 in NODA-3 are ideal choices, and would prefer other approaches. [EPA-HQ-OAR-2009-0491-3934[1].1, p.4]
The primary reason that the alternative allocation methodologies presented in NODA-3 are not preferred options for allocation is because they are based on heat input without adjusting for differences in emissions based on fuel types. Natural gas generating units do not emit S02 and therefore do not have any need for S02 allowances. Any S02 allocation to natural gas units creates a 'windfall profit' for units that will already benefit from the additional dispatch cost on coal-fired units as a result of the allowance cap. In addition, natural gas units tend to have on average lower NOx emission rates than coal-fired units. Thus, an allocation predicated strictly on heat-input without adjusting for fuel type will further burden coal-fired generation and provide a subsidy for gas-fired generation. AEP cannot support allocations based strictly on heat input without differentiation by fuel type. However, a simple remedy for this issue would be to use historic emissions instead of heat input. [EPA-HQ-OAR-2009-0491-3934[1].1, pp.4-5]
In terms of the S02 allocation options for Phase II of the Transport Rule beginning in 2014, AEP feels the NODA allocation alternatives are a somewhat positive improvement to the inequities created by the original proposed allocation methodology, but do not go quite far enough. The original methodology contained a significant downward adjustment for units which the IPM modeling results predicted would install FGD, fuel switch, re-dispatch to a lower sulfur coal, or retire. Essentially, a computer model was picking winners and losers and taking the modeling process one step too far, given the considerable uncertainty surrounding the economics of future generation planning decisions. In this case, the losers were the owners and customers of the units that incurred the costs associated with any emissions reductions (by incurring costs to install controls, requiring recovery of remaining book balances for prematurely retired plants, and/or incurring costs associated with a fuel switch or change in dispatch), and also received a significantly reduced allocation. Thus, the two alternative allocation methods in NODA-3 are somewhat better approaches to 2014 allocations, as they do not penalize units based on a modeled outcome. However, they still allocate S02 allowances to natural gas units with no compliance obligations. [EPA-HQ-OAR-2009-0491-3934[1].1, pp.5-6]
AEP recommends an alternative, simplified allocation methodology. The easiest way to equitably spread costs associated with Phase II S02 compliance is to reduce individual unit allocations from 2012 to 2014 by the same percentage decrease as the overall decrease in state budgets from 2012 to 2014. This decrease should be moderated by including an exemption for 'controlled-units' (i.e. FGD) since there is no reasonable expectation that their emissions will decline from 2012 to 2014. In this way, the cost of additional S02 reductions within the state would be shared equally among all uncontrolled units, since each uncontrolled unit within the state would receive a reduced allocation. [EPA-HQ-OAR-2009-0491-3934[1].1, p.6]
Absent the adoption of AEP's preferred approach, AEP supports NODA option 2 or NODA option lover the original allocation methodology for Phase II of the Proposed Transport Rule, particularly if the heat input-based methodologies in the NODA are adjusted for fuel types. [EPA-HQ-OAR-2009-0491-3934[1].1, p.6]
Response:
Thank you for your comment.

Organization: Associated Electric Cooperative, Inc. (AECI)
Comment:
Associated Electric Cooperative, Inc. (AECI)
II. In the comments submitted by AECI on October 1, 2010, we stated that the proposed Federal Implementation Plan (FIP) was premature and preemptive of the process afforded the states in section 110 of the Clean Air Act.  As such, AECI cannot support either of the allocation plans of this NODA as we believe each state should be afforded due time to distribute allowances and amend their respective state implementation plans accordingly. However, allocation tables of this NODA based on historical heat input result in more equitable distributions compared to previous versions of this proposed rule. [EPA-HQ-OAR-2009-0491-3989[1].1, p.2]
Second, AECI cannot support any of the proposed options for allowance allocations thus far proposed. In the comments submitted by AECI on October 1, 2010, we stated that the proposed Federal Implementation Plan (FIP) was premature and preemptive of the process afforded the states in section 110 of the Clean Air Act.  As such, we cannot support either of the allocation plans of this NODA as we believe each state should be afforded due time to distribute allowances and amend their respective state implementation plans accordingly. However, allocation tables of this NODA based on historical heat input result in more equitable distributions compared to previous versions of this proposed rule.  To improve further, AECI strongly recommends EPA develop an alternative allocation methodology that is equitable and recognizes the different emission characteristics between fossil fuels and combustion designs.  This could be accomplished within EPA regulatory discretion. [EPA-HQ-OAR-2009-0491-3989[1].1, p.3]
II. The CATR NODA III proposed allowance allocation methodologies:
AECI agrees with EPA is its assertion that it has "significant discretion to select an allocation methodology that is reasonable and consistent with the goals of the CAA".  CATR NODA options 1 and 2, are both gas biased. [EPA-HQ-OAR-2009-0491-3989[1].1, p.4]
Response:
Thank you for your comment.
Organization: Association of Electric Companies of Texas (AECT)
Comment:
Association of Electric Companies of Texas (AECT)
The Method of Required Compliance Should Not Establish 'Winners and Losers'
EPA is taking comment on the options as described in the January 7, 2011, NODA to change the state allocation as proposed on August 2,2010. State budgets should be allocated fairly among sources so as to not disadvantage any category of sources against others in achieving compliance with the CATR requirements. [EPA-HQ-OAR-2009-0491-3981[1].1, p.2]
Rather than considering proven, market-based systems to allow sources to comply effectively with the CATR (if it is adopted), the proposed allocations in this NODA would significantly alter the allocations originally proposed, and would give unfair advantage to power plants that use certain fuels and penalize those that use coal, while providing no commensurate environmental benefit for doing so. [EPA-HQ-OAR-2009-0491-3981[1].1, p.2]
Response:
Thank you for your comment.
.
Organization: Buckeye Power, Inc.
Comment:
Buckeye Power, Inc.
The January 7 NODA seeks comment on two alternative allocation methodologies; two variations of historic heat input-based allocations. 'Option 1' would allocate a state's existing unit emissions budget based on each unit's proportionate share of the state's total historic heat input. 'Option 2' starts with the allocation derived under Option 1, but imposes a limit on allocations premised on the calculation of a unit's 'reasonably foreseeable maximum emissions.' [EPA-HQ-OAR-2009-0491-3900[1].1, p.3]
Both Option 1 and 2 employ the three highest, non-zero annual heat input values within the five-year 2005-2009 baseline period to create a unit's 'three-year average heat input' value. Buckeye supports this approach as it minimizes the chances that a unit's ultimate allocation is skewed by operational aberrations in any single year. [EPA-HQ-OAR-2009-0491-3900[1].1, p.3]
In order to remedy the over-allocation of allowances to natural gas-fired units, and under allocation of allowances to coal-fired units, under both Option 1 and Option 2, Buckeye suggests that, under both Option 1 and Option 2, EPA need not allocate S02 emission allowances to gas fIred units. As such units typically have no need for S02 allowances, it would be reasonable and appropriate to make all of the budgeted S02 allowances available to coal and oil-fired units. Buckeye also suggests that appropriate adjustments be made to both Option 1 and Option 2 to prevent the over-allocation of NO x allowances to natural gas-fired units. [EPA-HQ-OAR-2009-0491-3900[1].1, p.5]
Response:
Thank you for your comment.

Organization: Business Council for Sustainable Energy (BCSE)
Alliance for Industrial Efficiency
United States Clean Heat & Power Association (USCHPA)
Michigan Department of Natural Resources and Environment
Comment:
Alliance for Industrial Efficiency
We were surprised, however, to see that the proposed Alternative Allocation formula in the NODA discriminates against energy efficiency. Instead, by relying on an outmoded fuel-input formula, EPA simply locks in historic emissions and disadvantages sources that invest in efficiency.  [EPA-HQ-OAR-2009-0491-3941[1].1, p.1]
Yet, the proposed allocation formula does not provide any additional allowances to either utilities that incorporate WHR or CHP into their processes (e.g., by collocating near a source that can use its thermal output) or to industrial sources that use WHR or CHP. [EPA-HQ-OAR-2009-0491-3941[1].1, p.2]
Thus, by focusing exclusively on fuel inputs, the proposed allocation formula disregards the thermal benefits of WHR and CHP. In short, as EPA notes: "Allocation based on heat input gives more allowances to less efficient units." An output-based allocation strategy would credit these thermal benefits  -  putting more allowances in the hands of those who use WHR and CHP. The input-based measure EPA proposes does not account for this efficiency. It ignores the thermal output and looks only at the heat input of the fuel. [EPA-HQ-OAR-2009-0491-3941[1].1, p.3]
Business Council for Sustainable Energy (BCSE)
The Council has long supported the development and use of output-based emissions regulations as effective ways to promote long-term air quality and to encourage cost-effective emissions reductions. As EPA itself has noted, output-based regulations better reward and drive energy efficiency improvements than do input-based approaches. ii The heat input-based allocation methodologies presented in the NODA would not sufficiently recognize investments made in energy efficiency. This is particularly the case for facilities employing combined heat and power (CHP) and waste heat recovery (WHR). The alternative heat input-based allocation methodologies would have the added negative effect of locking-in emissions levels for inefficient facilities. The benefits of an input-based allocation methodology presented by the NODA, in our view, do not outweigh the lost potential efficiency gains encouraged by an output-based approach to allowance allocation. [EPA-HQ-OAR-2009-0491-3985[1].1, p.1]
Michigan Department of Natural Resources and Environment
In the NODA, the EPA offers two alternative options to determine the amount of allowances for an existing source. Option 1 utilizes the historical heat inputs and establishes a baseline heat input value for each subject unit. Option 2 uses the historical heat inputs but limits the maximum emissions levels so that the units will not be allocated excess allowances. [EPA-HQ-OAR-2009-0491-3890[1].1, p.2]
The DNRE would like to offer a third option; electricity output-based allowances. The DNRE determined under CAIR that an electricity output-based allocation would reward units that are energy efficient and still reduce emissions. The DNRE utilized an output-based method in our new source set-asides for CAIR NOx allowances. Since both currently proposed options in the NODA 'create' a value to be used to determine allowances, the DNRE believes the output method would work for the TR allowances as well. The DNRE utilized an emission factor of 1.0 pounds NOx per megawatt hour of electricity generation, which is recognized by several national organizations that are proponents of energy efficiency and renewable energy, as appropriate to reward sources for operating 'cleaner' units to generate electricity. [EPA-HQ-OAR-2009-0491-3890[1].1, p.2]
United States Clean Heat & Power Association (USCHPA)
Unfortunately, the alternative allocation mechanisms elaborated in the Notice of Data Availability do little to advance energy efficiency. Notably, there is no mention of efficiency goals in the NODA. Moreover, by embracing an input-based emissions formula, the proposal discriminates against efficiency. [EPA-HQ-OAR-2009-0491-3955[1].1, p.1]
In contrast, the alternative allocation strategy included in the NODA simply locks in historic emissions levels. By allocating allowances based on heat input, the NODA focuses on the amount of fuel consumed, rather than the amount of useful electricity (and thermal energy) produced by regulated facilities. This approach eliminates incentives for greater efficiency. [EPA-HQ-OAR-2009-0491-3955[1].1, p.2]
Response:
Thank you for your comment.

Organization: City of Ames, Iowa
Comment:
City of Ames, Iowa
Based on the allowances granted us under options 1 & 2 our immediate ability serve our customers would be greatly restricted without triggering assurance provisions.
As a municipal utility we do not have multiple and varied resources to shift generation to minimize the impact of the allocation.
Please consider the negative impact of the revised calculation methodologies on us and possibly others small municipal entities. We believe the original allocations best represent our historic emissions and least impact us and our customers. [EPA-HQ-OAR-2009-0491-3942-cp, p.1]
Response:
Thank you for your comment.

Organization: City of Hamilton
Comment:
City of Hamilton
That said, Hamilton did note that methodology option one and option two (for ozone season NOx) only used heat input data from 2005-2009. However, heat input data in option two (for annual NOX and S02) uses a longer baseline, from 2003-2009. Hamilton suggests that U.S. EPA utilize a consistent data set for purposes of heat input in both options. [EPA-HQ-OAR-2009-0491-3984[1].1, p.1]
Response:
As described in Preamble Section VII.D., EPA is using heat input data from 2006-2010 to allocate allowances under the FIPs. EPA believes that this time period provides a reasonable representative sample.

Organization: City of Springfield, Illinois, Office of Public Utilities
Comment:
City of Springfield, Illinois, Office of Public Utilities
In general, CWLP supports the underlying assumption that annual Heat Inputs over a five year look-back period, as described in both Option 1 and Option 2 of the NODA, provide the best means of producing an equitable model of allowance distribution. CWLP has great misgivings on the appropriateness of the original CATR proposal, whereby the decision-making and subsequent actions of private industry is modeled and predicted by a regulatory agency for the purpose of distributing essential and valuable allowances.  [EPA-HQ-OAR-2009-0491-3885[1].1, p.2]
Likewise, as described in both Options of the NODA, CWLP supports the use of the three largest annual Heat Input numbers from the look-back period. This would adequately capture and exclude years where planned or unplanned outages would have artificially reduced the average annual heat input, and thereby reduced the pro-rated allowance allocation of the individual state's budgeted total. [EPA-HQ-OAR-2009-0491-3885[1].1,p.2]
However, USEPA should clarify that, under the Options of the NODA, the new unit allocation methodology would mirror that of the existing unit methodology. Currently, the NODA states that allowance allocation would be based upon the provisions of the original proposed CATR. [EPA-HQ-OAR-2009-0491-3885[1].1, p.2]
Response:

The City of Springfield is correct that a different method is used to allocate allowance to new units, compared to the method used for existing units. It is reasonable to distribute allowances from the new unit set-aside to new units based on emissions because other existing regulations include emission standards for new units will require new units to be well controlled. Additionally, allocating based on emissions ensures that new units will not be allocated more allowances than they need, which ensures the most efficient distribution of new unit set-aside allowances.
Organization: City of Tallahasse
Comment:
City of Tallahasse
Over the last ten years, the City has made significant efforts to voluntarily initiate programs to reduce their emissions of NOx, S02, PM, and Ozone. Many of these efforts were done to reduce emissions prior to the implementation of different regulatory programs that at the time had not been adopted: mandatory greenhouse gas reduction programs, regional haze, and CAIR, just to name a few. Utilities like the City, that include environmental protection in all their decision making processes often initiate voluntary reductions prior to and often without regard to future potential enactment of environmental regulations. Specifically, the City has implemented a number of major electric generating improvements that have significantly improved the efficiency and environmental profile of its two power generating facilities. These include the construction of Combined Cycle Combustion Turbine Unit No.8 at the Sam O. Purdom Electric Generating Station (ORIS Code 689), two Sprint Combustion Turbines at the Arvah B. Hopkins (ORIS Code 688) Electric Generating Station (Hopkins), and the repowering of Unit No.2 at the Hopkins Plant from a conventional steam boiler to a combined cycle unit (renamed as Unit 2A). The City has installed SCR on the two combustion turbines and the combined cycle unit at Hopkins. Had the City chosen not to do so, it would have been 'rewarded' with additional allowances that the City could bank or sell. [EPA-HQ-OAR-2009-0491-3912[1].1, p.3]
Response:

Thank you for your comment.

Organization: Clean Energy Group
Comment:
Clean Energy Group
While many ofour companies have long supported allocation methodologies based on energy output (megawatt-hours), the Clean Energy Group supports allocating allowances for sulfur dioxide and nitrogen oxides to units based on historic heat input as contemplated under Options 1 and 2 in the January 7 NODA. [EPA-HQ-OAR-2009-0491-4002[1].1, p.1]
As we commented on the proposed rule, historic heat input-based allocation has a number of advantages over EPA's preferred approach. Most significantly, it is not based on modeled future emissions, which, while appropriate for developing the state budgets, have known inaccuracies at the unit level. For example, units that may dispatch for non-economic purposes would not be reflected in a modeled future emissions approach, but a historic heat input-based approach will reflect such realities and be based on verified data EPA has already collected. Additionally, the Clean Energy Group agrees with the advantages of a heat input basis cited by EPA and other commenters:
:: Historic heat input data are more likely to be accurate at a unit level than projected unitlevel emissions and are generally based on quality-assured data reported by sources from continuous monitoring systems.
:: Historic heat input data are fuel-neutral.
:: Historic heat input data are emissions-control-neutral and thus do not yield reduced allocations for units that installed or are projected to install pollution control technology. [EPA-HQ-OAR-2009-0491-4002[1].1, p.2]
Using a historic heat input basis for allocation corrects the proposed methodology's disadvantage for early actors that EPA acknowledged in the proposed rule and creates the right incentives to drive additional reductions. Thus, we agree with EPA that a heat input allocation meets the goals of section 110 of the Clean Air Act - to encourage the most cost-effective emissions reductions and to drive investment in the technologies necessary to address transport and non-attainment on a long-term basis.   [EPA-HQ-OAR-2009-0491-4002[1].1, p.2]
Response:
Thank you for your comment.

Organization: Cleco Corporation
Comment:
Cleco Corporation
By using historical emissions as the basis for determining a unit's proportionate share of the state budget, EPA properly sets up the trading program so that all regulated units are equally incented to achieve reductions. The alternative heat-input based allocations  -  particularly Option 2, which is completely unhinged from real world emissions  -  lead to significant over- and under-allocations. These over-/under-allocations are so severe they open the door to potentially monopolistic competitive practices. Particularly if EPA chooses the intrastate trading option, natural gas sources with significant over-allocations could refuse to sell allowances and expose competitors to Clean Air Act penalties, forced curtailment or forced retirement. Additionally, given the short timeframe EPA intends to allow for an allowance market to develop, significant under-/over-allocations are likely to lead to very volatile allowance markets. Finally, there is no basis for providing windfall profits to particular owners or operators based on the type of fuel they use. [EPA-HQ-OAR-2009-0491-4007[1].1, p.4]
Response:

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.  The commenter's assertion that it would lead to over/under-allocation of allowances is based on their own unstated assumptions regarding the appropriate method for allocating allowances.  For reasons explained in the preamble, EPA does not agree that allowances should be allocated based on projected future allowances.  Further, Cleco Corporation does not provide any evidence for their assertion that any over/under-allocations would be so severe they would result in "monopolistic competitive practices."
Organization: CPS Energy
Comment:
CPS Energy
CPS Energy prefers the allocation methodology in the original publication of the Transport Rule over the two methods proposed on January 7, 2011. However, CPS Energy would like to comment on the alternative allocation options (options 1 & 2). Both option 1 & 2 calculate out to lower Nitrogen Oxide (NOx) rates in units of lb/mmbtu than can be achieved by some of our units without significant modifications. The NOx rates in both options are as low as 0.08 lb/mmbtu. Although, CPS Energy has made improvements to lower NOx emissions from our units such as installing low NOx burners, neural networks, Separated Over Fire Air (SOFA) systems, and Induced Flue Gas Recirculation (IFGR) our units cannot reach the low rates of 0.08 lb/mmbtu or 0.10 lb/mmbtu without additional NOx reduction technology. The only technology available to get to those lower rates would be Selective Catalytic Reduction (SCRs). [EPA-HQ-OAR-2009-0491-3947[1].1, p.1]
Response:
Thank you for your comment.

Organization: Dominion
Comment:
Dominion
Improvements to Initial Proposal EPA has addressed in this NODA a number of inaccuracies we identified in our previous comments concerning heat rate information for several of our electric generating units (Brayton Point, Salem Harbor and North Branch). We believe it is important that information used in the development of regulations be as accurate as possible and appreciate EPA's inclusion of these data corrections. [EPA-HQ-OAR-2009-0491-3987[1].1, p.1]
Another issue identified in our previous comments that is addressed through this NODA is allowance allocations to oil-fired units. The alternative allocation options contained in the NODA provide allocations to oil-fired units, which did not receive allocations in the original proposal [EPA-HQ-OAR-2009-0491-3987[1].1, p.2]
Response:
Thank you for your comment.
Organization: DTE Energy
Comment:
DTE Energy
EPA requests comments regarding two possible alternative methodologies for allocation of S02 and NOx emission allowances. DTE Energy would support using historical operation as the basis for allocation distribution, rather than a combination of adjusted historic and projected emissions data. Historic heat input data will more likely reflect actual unit-level operation, and therefore emissions, than projections based on general industry-wide algorithms. [EPA-HQ-OAR-2009-0491-3932[1].1, p.2]
Response:
Thank you for your comment.
Organization: DTE Energy Services (DTEES)
Comment:
DTE Energy Services (DTEES)
Using historical heat input as proposed in this NODA is not appropriate for the units at DTE Stoneman because the resulting allocations do not reflect expected operation on woody biomass. This is true for Options 1 and 2. In effect, using historical heat input penalizes the facility for the timing of converting from coal-fired electricity generation to renewable energy generation combusting woody biomass. Using historical input does not allocate the number of allowances that will be needed for full utilization of the units in the future. Through the use of woody biomass, DTE Stoneman will do its share of emission reductions required to reduce interstate transport of pollutants but under the proposed allocation methodology using historic heat input the units will bear a disproportionate burden. [EPA-HQ-OAR-2009-0491-3950[1].1, p.3]
Response:

The final rule covers fossil-fuel-fired units serving generators with a nameplate capacity greater than 25 MWe producing electricity for sale and defines "fossil-fuel-fired" as combusting any amount of fossil fuel in 2005 or later.  The commenter claimed that biomass units that switch from burning some fossil fuel to burning no fossil fuel should be exempt just as new units that never burn fossil fuel are not covered by the Transport Rule trading programs.  EPA rejects the commenter's claim.  The approach in the final rule is consistent with the approach used in prior EPA trading programs covering the electric generation industry, e.g., the Acid Rain Program, the NOx Budget Trading Program, and the CAIR trading programs.  The commenter did not provide any basis for using a different approach in the Transport Rule trading programs covering the same industry.  Moreover, the commenter essentially suggested that the determination of whether a given biomass unit is subject to the Transport Rule trading programs should not be based on any historical information on whether the unit burned any fossil fuel, but rather only on what the unit is currently burning.  This approach would mean that, for all biomass units, owners and operators, and EPA, would not know at the start of the Transport Rule trading programs, whether the units were subject to the trading programs and that the units' regulatory status could change, and the units become subject to the trading programs, at any time that any fossil fuel was combusted.  Because all biomass units would not be reporting their fuel use to EPA until they became subject to the trading programs, the determination of whether specific units were subject to the trading programs, and assurance of compliance, would be problematic.  EPA believes that its approach is reasonable: biomass units that have recently (i.e., after 2004) operated burning some fossil fuel are treated differently than new biomass units that are initially designed to operate without combusting any fossil fuel and actually operate without any fossil fuel combustion.  The units burning fossil fuel after 2004 are more likely to continue to do so.  EPA maintains that it is reasonable to make these biomass units, like any other units burning at least some fossil fuel after 2004, subject to the Transport Rule trading programs.  Similarly, EPA believes it is reasonable to treat a biomass unit that has not burned and does not burn any fossil fuel (like any other units that have not burned and do not burn) any fossil fuel as not subject to the Transport Rule trading programs, unless and until they begin burning fossil fuel.
Organization: Edison Mission Energy (EME)
Comment:
Edison Mission Energy (EME)
While EME agrees that a re-evaluation of the methodology used to determine unit level allocations is needed and believes that states should implement the emission limitation goals of the Transport Rule through State Implementation Plans ("SIPs"), EME does not believe that the allocation methodology or the SIP provisions proposed in the Transport Rule NODA adequately address the flaws it has identified with EPA's approach to the Transport Rule. [EPA-HQ-OAR-2009-0491-3953[1].1, p.2] [[This comment can also be found in Section XX.E.]]
The heat-input approach to unit level allocations bears no rational connection to EPA's stated basis for the reductions required in Phase I -- 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. [EPA-HQ-OAR-2009-0491-3953[1].1, p.2]
Far from reflecting the status quo that is the basis for Phase I, the proposed approach would put a greater burden on units with higher-emission rates to reduce emissions despite the fact that EPA concedes that these EGUs would not be able to install new controls by 2012. There also is no assurance that they would be able to purchase allowances on the market to cover any shortfall. Thus, EPA's alternative methodologies for unit-level allocations are punitive in nature, they would improperly result in a transfer of wealth that would give some EGUs inordinate market power over EGUs who need to purchase additional allowances; and they would require EGUs with insufficient allocations to spend their limited funds on purchasing additional allowances rather than investing in the installation of control technology needed to meet required emission reductions under the Transport Rule. [EPA-HQ-OAR-2009-0491-3953-cp, pp.2-3]
EPA's proposed alternative allocation methodologies in the Transport Rule NODA, which are based on historic heat input data, bear no rational connection to EPA's stated basis for the emission reductions required by 2012 for Phase I of the Transport Rule -- the presence of existing controls. In fact, far from reflecting the status quo that is the basis for Phase I, the proposal explains that it would put a greater burden on units with higher emission rates to reduce emissions. EPA stated that "the initial allocation of allowances . . . [based upon] historic heat input would yield a distribution of allowances 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 justified this consequence of the allocation methodologies in EPA's Proposal stating that "because higher-emission- rate units generally are responsible for a greater share of a state's total emissions and thus bear greater responsibility for a states' significant contribution and interference with maintenance, this distribution of burden is consistent with the goals of CAA section 110(a)(2)(D)(i)(I)." [EPA-HQ-OAR-2009-0491-3953[1].1, p.6]
EPA cannot base the overall Phase I reductions on what is achievable in 2012 given existing controls and then allocate to units through a methodology that has no rational connection to existing controls or existing emissions. EPA's proposed approach would contradict its findings and would, by EPA's own admission, make it infeasible for many units to comply in Phase I absent the purchase of allowances (which, as discussed below, may not even be available). That is, EPA's proposed approach would require many units to install additional controls in order to continue at current operation levels and remain within their allocations. Yet, by EPA's own calculations, this is impossible to do before 2014. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.6-7]
While agencies are generally allowed deference in carrying out their statutory mandates, "the agency must examine the relevant data and articulate a satisfactory explanation for its action including a `rational connection between the facts found and the choice made.'" Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). EPA's proposed alternative allocation methodologies in the Transport Rule NODA do not meet this standard. The "facts found" by EPA are that it is impossible for EGUs to install new control technology in time for Phase I of the Transport Rule and that Phase I emission reductions should be based on existing controls. There is no "rational connection" between these facts and the "choice made" in the Transport Rule NODA to allocate allowances in a way that has no correlation to existing controls. In fact, the Transport Rule NODA is irrational in light of EPA's findings regarding reductions in Phase I, and this is unsupportable in law. See, e.g., Williston Basin Interstate Pipeline Co. v. FERC, 519 F.3d 497, 503 (D.C. Cir. 2008) ("however one characterizes prior policy, we do not think the Commission has yet articulated a `rational connection between the facts found and the choice made,' as required by State Farm . . . ."). A court will deem an agency's regulation "arbitrary and capricious if the agency has . . . offered an explanation for its decision that runs counter to the evidence before the agency . . . ." Motor Vehicle Mfrs. Ass'n, 463 U.S. at 43. Here, the evidence before EPA is that Phase I reductions must be based upon emission levels achievable with existing controls, but EPA's proposed allocation methodology runs counter to this evidence as many EGUs will not be able to operate within allocations with existing controls even if they operate them year round as EPA suggests. [EPA-HQ-OAR-2009-0491-3953[1].1, p.7]
EPA concedes in the Transport Rule NODA that its proposed approach to unit level allocations will place a greater burden on some units to reduce emissions or purchase additional allowances. [EPA-HQ-OAR-2009-0491-3953[1].1, p.7]
Furthermore, the alternative methodologies for unit level allocations in the Transport Rule NODA would result in a transfer of wealth that would give some EGUs disproportionate market power over the EGUs that will need additional allowances to cover their shortfall. [EPA-HQ-OAR-2009-0491-3953[1].1, pp.9-10]
EPA's proposed methodologies for unit level allocations in the Transport Rule NODA are entirely inconsistent with President Obama's recent executive order, "Improving Regulation and Regulatory Review." Among other things, the Executive Order directs an agency to "tailor its regulations to impose the least burden on society. . . ." EPA's Proposal, which punishes EGUs for historic decisions made in good faith, including early commitments to aggressive emission reductions, imposes the most burden because EPA concedes that many EGUs will be unable to install controls necessary to make the required emission reductions and EPA's hybrid cap-and-trade approach makes it uncertain that EGUs will be able to purchase additional allowances on the market to cover the shortfall and will give some EGUs disproportionate market power over others. [EPA-HQ-OAR-2009-0491-3953[1].1, p.10]
The Transport Rule NODA's proposed unit level allocations for Phase I are significantly flawed because EPA has made no attempt to correct substantial errors in its baseline allocation methodology for 2012. [EPA-HQ-OAR-2009-0491-3953[1].1, p.11]
Thus, the proposed allocation methodology in the Transport Rule NODA does not address EPA's incorrect assumptions about the level of emissions controls actually achieved by existing controls. [EPA-HQ-OAR-2009-0491-3953[1].1, p.11]
Response:

EPA disagrees that the achieving the 2012 state emissions budgets will require installing new controls. As EME notes, these budgets were designed specifically assuming that no new controls could be installed until 2014. Instead, unit's will be able to comply with the states' budgets though actions including: running existing controls, fuel switching and using lower sulfur coal, and buying and selling allowances.
EPA agrees that the allocation method does not match the method for determining state budgets. The state budgets were set to ensure the elimination of significant a contribution to non-attainment or interference with maintenance in other states.
Organization: Empire District Electric Company (Empire District)
Comment:
Empire District Electric Company (Empire District)
  Empire District supports the proposed CATR allocation methodology, as published in 75 Federal Register 45210, August 2, 2010, and does not support the alternative allowance allocation methodologies, option 1 or option 2, described in this NODA. The following are reasons that Empire District does not support these alternatives and does not believe they yield a reasonable distribution of allowances. [EPA-HQ-OAR-2009-0491-3883, p.1]
a) Allocation options 1 and 2 appear to be developed by utilities with a high percentage  of gas-fired units. EPA's selection of either option 1 or 2 creates winners in the gas industry. The key to CATR is each States' budget system, not a fuel preference promoted by EPA.
b) Selection of allocation option 1 or 2 will place coal-fired units at a severe disadvantage   due to the added liability should a State exceed its assurance level. Most coal-fired units will be forced to transfer allowances from their gas-fired units. The trigger point is unit allocation should the assurance level be exceeded. [EPA-HQ-OAR-2009-0491-3883[1].1, p.1]
f). Empire District believes that the allocation methodologies should be constant within all four trading programs (SO2 Group 1, SO2 Group 2, NOx Annual, and NOx Ozone Season). Empire District also supports using the same methodology for SO2 and for NOx allowance allocations. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
The SO2 and NOx allowance markets will be winners since a vast number of gas-fired  turbines will be given SO2 allowances they do not need. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
Response:

EPA notes that the penalty assurance penalties are not imposed at the unit level, but rather the designated representative level, as described in Preamble Section VII.E. Several units may choose to be represented by a single designated representative, which can help reduce units' risk of incurring a penalty if the covered sources in a state exceed that state's emissions budget.
Organization: Entergy Services, Inc.
Comment:
Entergy Services, Inc.
Allocations by States
In the unfortunate event the EPA elects not to finalize either Option 1 or Option 2 proposed in the NODA, Entergy strongly supports adding provisions to the Transport Rule that would allow states to replace the EPA's allowance allocation provisions by state-developed allocation provisions similar to what was established in the CAIR. [EPA-HQ-OAR-2009-0491-3986[1].1, p.2]
Response:
Thank you for your comment.

Organization: EquiPower Resources Corp.
Comment:
EquiPower Resources Corp.
EPA's alternative methodologies to unit-level allocation are inefficient and will increase the likelihood of supply disruptions and inefficient use of capital.
o The Transport Rule NODA approach will likely require curtailment of operations at higher-emitting EGUs, but will not allow lower-emitting EGUs to make up for the shortfall, leading to potential supply shortages or inefficient use of capital.
o The Transport Rule NODA approach will also cause further disruption in states that currently use output-based allocation methodologies. [EPA-HQ-OAR-2009-0491-3928[1].1, p.2]
The Transport Rule NODA's Unwise Distribution of Unit-Level Allocations Based Upon Historic Heat Input Data Will Likely Cause Supply Disruptions
The Transport Rule NODA unwisely distributes unit-level allocations based upon historic heat input data from 2005 to 2009 (and historic emissions data from 2003 to 2009) without taking into account the likely impacts of its regulations on the future supply distribution. This miscalculation could lead to significant supply disruptions. [EPA-HQ-OAR-2009-0491-3928[1].1, p.4]
The Practical Problem With EPA's Proposal
The Transport Rule will require many facilities to install additional controls to continue operating at current levels.11 The approach proposed in the Transport Rule NODA exacerbates the need for additional controls because EPA concedes that the historic heat input-based allocation methodology it proposes "would yield a distribution of allowances 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.4-5]
Unit-level allocations based upon historic heat input data will not allow these loweremitting gas facilities to ramp up capacity because allocations will correlate to the historic supply distribution. Additionally, EPA's Transport Rule NODA approach does not apply a growth factor in its methodology. Thus, under EPA's Proposal, these plants will be penalized for historically constrained operations. These plants will not likely have the allowances needed to substitute for the lost baseload capacity and, given the limitations on trading described above, are not likely to be able to acquire them. [EPA-HQ-OAR-2009-0491-3928[1].1, p.6]
Thus, EPA's proposed approach in the Transport Rule NODA: (1) will likely require curtailment of operations for certain higher-emitting EGUs; (2) will not allow lower-emitting EGUs to make up for the shortfall because EPA will not have allocated allowances in a manner that allows for adjustments in the supply distribution; and (3) will lead to supply shortages in many Transport Rule states. [EPA-HQ-OAR-2009-0491-3928[1].1, p.7]
EPA's policy is and should be to encourage greater utilization of cleaner, more efficient gas plants. However, the proposed allocation methodology in the Transport Rule NODA runs counter to that purpose -- it discourages greater utilization of cleaner, more efficient gas plants. [EPA-HQ-OAR-2009-0491-3928[1].1, p.8]
As described above, EPA's reliance on historic heat input data constrains gas plants' ability to make up for generating shortfalls that will result from likely supply disruptions in higher-emitting facilities that cannot comply with Transport Rule emissions reductions. This is particularly problematic given that the Transport Rule presents a one-time allocation that lasts throughout the duration of the Rule. [EPA-HQ-OAR-2009-0491-3928[1].1, p.8]
The Transport Rule NODA's Approach Will Cause Further Disruptions in States That Currently Allocate Allowances Based Upon Electricity Output
The Transport Rule NODA's proposal to make unit-level allocations based upon historic heat input data ignores the fact that some states, such as Connecticut, Massachusetts, and New Jersey, have already been using output-based allocations in emission trading programs for a number of years. Ironically, this system of output-based allocations is one that EPA itself has advocated for more than a decade. However, if EPA adopts the Transport Rule NODA approach -- mandating a switch to heat input-based unit-level allocations -- this would cause further disruptions that would likely lead to supply shortages and inefficient use of capital. [EPA-HQ-OAR-2009-0491-3928[1].1, p.8]
Output-based environmental regulations are calculated on the energy output of the process, which may be electricity, thermal, or mechanical output, and take into account the emissions benefits of efficiency. The use of a heat input-based calculation will lead to potentially substantially different allocations than an output-based calculation. [EPA-HQ-OAR-2009-0491-3928[1].1, p.9]
These differences in the allocations may have a significant impact on EGUs in output-based states because EGUs have made significant investments based on an output-based system of allocations. They will not have the time or options to adjust to the new methodology. As described above, installing new or different controls could take over 2 years in EPA's estimation and as many as 5 years in industry's estimation. Without the opportunity to install controls, EGUs in output-based states may likely have emissions that exceed their allowances. Additionally, as described above, there is a strong likelihood that EGUs would not have the option of purchasing allowances on the market. Therefore, their only option may be to curtail operations, leading to supply shortages and inefficient use of capital. [EPA-HQ-OAR-2009-0491-3928[1].1, p.9]
Furthermore, the heat input-based approach in the Transport Rule NODA also creates a considerable disincentive for an output-based state to promulgate a SIP to replace the Transport Rule FIP. If output-based states are forced to adopt EPA's heat input-based methodology, they would be unlikely to impose upon their sources the disruption that would result from changing the allocation method back to an output-basis. Thus, while EPA suggested in the Transport Rule that states may promulgate SIPs,26 and EPA claims to provide options for states to submit SIPs in the Transport Rule NODA, (see section VI.A), EPA cannot assume that states will be able to do so. In utilizing a heat input-based method of allocations, the Transport Rule NODA effectively throws Connecticut, Massachusetts, and New Jersey's investment and advances in emissions reductions out the window and will result in significant disruptions. [EPA-HQ-OAR-2009-0491-3928[1].1, p.9]
EPA's alternative methodologies to unit-level allocation are inefficient and will increase the likelihood of supply disruptions and inefficient use of capital --  particularly in states that currently use output-based allocation methodologies. [EPA-HQ-OAR-2009-0491-3928[1].1, p.21]

11 While EPA alleged that its methodology for Phase I of the Transport Rule was based upon reductions that EPA believed could be obtained using existing controls or controls that EPA believed would be installed by 2012, see 75 Fed. Reg. at 45,281, EquiPower believes that fundamental flaws in EPA's underlying data and assumptions led to significantly under-allocated state budgets (and resulting unit-level allowance allocations). See infra section IV.A. Therefore, many EGUs will exceed their Phase I allocations in 2012 and 2013 while operating with existing controls.
Response:

By allowing for some trading of allowances, along with the existence of a variety of compliance actions units can take, EPA believes that there will not be a shortage of electricity. This is demonstrated in the TR_Limited_Trading_Final Integrated Planning Model (IPM) run. Specifically, EPA notes that gas-fired units could generate more electricity than they had historically by buying allowances from other units which could add controls, change fuels, or curtail operations.
Organization: First Energy
Comment:
First Energy
FirstEnergy commends the EPA's use of historical QA'd CAMD data to establish unit allocations instead of the combined historical and future model prediction methods used in the original CATR and NODA I. [EPA-HQ-OAR-2009-0491-3904[1].1, p.1]
In the event all data and modeling errors are identified and corrected in EPA's efforts to finalize the CATR rulemaking, FirstEnergy would support Option 2 alternative allocation method over Option 1 and is completely opposed to the previously proposed IPM generated allocation methods. The EPA should adjust the allocation formulas that would address non-typical annual heat input (HI) and utilize actual three-year average data to establish an actual unit capacity factor. [EPA-HQ-OAR-2009-0491-3904[1].1, p.2]