Unfortunately, the efficiency standards used in the CATR exclude legitimate cogeneration units as well, including the Northshore Units, from eligibility for the cogeneration exemption.  The efficiency standards are derived from the Public Utility Regulatory Policies Act ("PURPA") and were intended to apply to newer units where "installation began on or after March 13, 1980."  18 CFR 292.205(a)(2)(i).  The Northshore Units were constructed in 1955 and 1963 respectively, and are not units that would be covered by these PURPA efficiency standards.  In fact, it is unlikely that any coal-fired cogeneration system installed in the 1950s or 1960s would be capable of meeting the efficiency standards included in PURPA for post-1980 units.  In recent years the Northshore Units have achieved 25-30% efficiency, which is well below the 42.5-45% efficiency derived from PURPA and used in the cogeneration definition in the CATR. [EPA-HQ-OAR-2009-0491-3957[1].1,p.3]
EPA did not appear to anticipate that its adoption of the PURPA definition would result in cogeneration units, such as those at Northshore, becoming subject to this rulemaking.  When developing the CAIR, EPA concluded that all cogeneration units would meet the PURPA efficiency standard:
The EPA analyzed a range of solid fuel-fired cogeneration units and calculated their efficiencies to see if they would meet the proposed minimum efficiency standard.  All of the units selected satisfied the proposed efficiency standard.  As a result, EPA believes that most solid fuel-fired cogeneration units will meet the proposed efficiency standard.  [EPA-HQ-OAR-2009-0491-3957[1].1, p.3]
70 Fed. Reg. 25162, 25277 (May 12, 2005).  EPA failed to consider the impact on the older cogeneration systems, like the Northshore Units, which have historic efficiency rates that are well below the efficiency standard developed by PURPA for post-1980 cogeneration systems.  The historic cogeneration systems that had the foresight in the 1950s and 1960s to add electric generators to industrial steam systems appear to have been inadvertently caught in an overly-broad attempt to close a loophole.  These are not units that use a nominal or insignificant amount of thermal energy to qualify for the cogeneration exemption.  These are legitimate cogeneration systems by any measure.  EPA should exercise its discretion to allow these legitimate historic cogeneration units to qualify for the cogeneration unit exemption without meeting the PURPA efficiency criteria.  The Northshore units must be removed from the database now to ensure that the list of sources subject to CATR is accurate before applying the final allowance allocation methodology at issue in NODA III. [EPA-HQ-OAR-2009-0491-3957[1].1, pp.3-4]
To avoid an arbitrary and unreasonable result, EPA should allow the Northshore Units and other historic cogeneration systems that were built prior to 1980 and previously excluded from the Acid Rain program to qualify for the cogeneration exemption without meeting the PURPA efficiency standard.  If necessary to close the loophole, pre-1980 cogeneration systems should be able to meet a lower efficiency standard of 25% on an annual basis to sustain the exemption.  While legitimate cogeneration systems have every incentive to maximize efficiency without a regulatory obligation, we acknowledge that EPA may want some assurance that historic cogeneration systems continue to operate as legitimate cogeneration units to retain the exemption. EPA requested comment in NODA III on which units should be added or removed from the database of potentially affected units so that the final allowance allocation options can be applied accurately.  Northshore Units 1 and 2 should be removed from the CATR database as exempt cogeneration units.   [EPA-HQ-OAR-2009-0491-3957[1].1, pp.4-5]
Response:

EPA identified, and finalized TR FIP allocations for, potential existing Transport Rule units.  The methodology used to develop this inventory of units is described in Section VII.D of the Transport Rule Preamble and the TSD for Allowance Allocation.  This list was updated based on input provided by commenters on the proposed Transport Rule and the Transport Rule NODAs. However, EPA notes that the units presented in this list of potential existing Transport Rule units reflect only a preliminary assessment of the applicability of the proposed Transport Rule and in no way suggest that EPA has made a determination about the applicability of the proposed Transport Rule to any specific unit.  See section VII.B of the TR preamble for more information on applicability.
Organization: Occidental Chemical Corporation (OCC)
Comment:
Occidental Chemical Corporation (OCC)
We would again like to reiterate our position that the OCC-operated Ingleside Cogeneration facility should be exempt from the CATR. First, this facility meets the definition of 'cogeneration system' as defined in the August 2, 2010, proposal (75 Fed. Reg. 45210, 45393). Cogeneration system means 'an integrated group, at a source, of equipment (including a boiler, or combustion turbine, and a steam turbine generator) designed to produce useful thermal energy for industrial, commercial, heating, or cooling purposes and electricity through the sequential use of energy.' The Ingleside Cogeneration facility is commonly referred to as a '2 on1' configuration, which consists of two combustion turbines and associated heat recovery steam generators (HRSGs) and a steam turbine. Second, each of the units in the cogeneration system meet the definition of a cogeneration unit. (ld.) The specific requirements for topping-cycle units include the following:

:: Useful thermal energy not less than 5 percent of total energy output; and,

:: Useful power that, when added to one-half of useful thermal energy produced, is not less than 42.5 percent of total energy input, if useful thermal energy produced is 15 percent or more of total energy output, or not less than 45 percent of total energy input, if useful thermal energy produced is less than 15 percent of total energy output. [EPA-HQ-OAR-2009-0491-3951[1].1, p.2-3]

For Ingleside, since 1999 (the year in which the facility was brought on-line) the percentage of useful thermal energy compared to total energy output has always exceeded 5 percent (the lowest year being 2000 when this value was 22.7 percent), and the useful power, when added to one-half of the useful thermal energy always exceeded 42.5 percent (the lowest year being 2000 when this value was 51.6 percent}. Consequently, the Ingleside facility units qualify as cogeneration units. [EPA-HQ-OAR-2009-0491-3951[1].1, p.3]

In addition, the Ingleside facility is eligible for the cogeneration exemption proposed at 40 CFR § 97.504(b)(1)(i} (75 Fed. Reg. 45397). In order to qualify for the exemption, a cogeneration unit would need to supply in any calendar year - starting the later of November 15, 990 or the start-up of the unit's combustion chamber - no more than one-third of its potential electric output capacity or 219,000 MWh, whichever is greater, to any utility power distribution system for sale. Our data, as reported to the Department of Energy, shows that the percentage of power sold to the grid did not exceed 20 percent.  [EPA-HQ-OAR-2009-0491-3951[1].1, p.3]

Respectfully, we request that EPA expressly acknowledge in its response to comments that the Ingleside facility is exempt from the proposed rule.
Response:
EPA identified, and finalized TR FIP allocations for, potential existing Transport Rule units.  The methodology used to develop this inventory of units is described in Section VII of the Transport Rule Preamble and the Allowance Allocation Final Rule TSD.  This list was updated based on input provided by commenters on the proposed Transport Rule and the Transport Rule NODAs. However, EPA notes that the units presented in this list of potential existing Transport Rule units reflect only a preliminary assessment of the applicability of the proposed Transport Rule and in no way suggest that EPA has made a determination about the applicability of the proposed Transport Rule to any specific unit.  The facility listed above is not on EPA's final list of potential existing Transport Rule units.
Organization: PPG Industries, Inc.
Louisiana Chemical Association (LCA)
State of Louisiana, Department of Environmental Quality
Comment:
Louisiana Chemical Association (LCA)
6. LCA urges EPA to delete units from the CATR and from corresponding allocations where such units have submitted information to demonstrate they meet a proposed exemption under CATR. LCA believes that the following facilities are not subject to CATR and should be deleted, for the reasons stated in LCA's initial comments on October i, 2010 in this docket: Dow St. Charles Operations ; Georgia Gulf; Formosa; PPG Powerhouse C; Shell Chemical. [EPA-HQ-OAR-2009-0491-4027, p. 6]
PPG Industries, Inc.
In its prior comments on CATR, PPG provided information to demonstrate that the five combined cycle units in PPG's Powerhouse C (50489) should not be included under the scope of the proposed CATR/FIP. These five units are both owned and operated by PPG Industries at its Lake Charles Chemical Manufacturing Complex. These units are exempt cogeneration units that do not sell sufficient power to the grid to be within the applicability requirements of the proposed CATR/FIP. EPA is continuing to list these five PPG Powerhouse C units in this NODA despite PPG's prior comments that these units meet the exemption provisions of the proposed CATR/FIP. PPG Powerhouse C Units C 1 and C2 are similar units consisting of gas turbines with supplementally fired heat recovery steam generators (HRSGs). Units C4 and C5 are similar units consisting of gas turbines and unfired Heat Recovery Steam Generators ('HRSGs'). These units do not meet the applicability criteria under the Acid Rain program, CAIR, or the proposed CATR. All four units meet the exemption for cogeneration units that do not provide more than 1I3rd of their potential electrical output or 219,000 MWhs to the electrical grid for sale. Under the proposed CATR, with respect to the Annual NOx program, this exemption is found in proposed in 40 C.F.R. §97.404(b)(1)(i). For these reasons, PPG Powerhouse C1, C2, C4 and CS units are not subject to the proposed CATR and are not TR NOx Annual Units, TR NOx Ozone Units, or TR S02 Units. [EPA-HQ-OAR-2009-0491-3911[1].1, pp.3-4]
The Powerhouse C unit C3 is a steam turbine that does not, by itself fall within the definition of TR NOx Annual unit, the definition of TR NOx Ozone unit, or the definition ·of TR S02 unit under the proposed CATR because it is not a fossil-fuel fired limit. As Unit C3 is a steam turbine that does not fire any fossil fuel, the unit does not fall within these proposed definitions. Therefore, the PPG Powerhouse C3 steam turbine is not by itself subject to CATR. However, the definition of 'combustion turbine' in proposed §§ 97.402, 97.S02, and 97.602 states that 'If the device is combined cycle, the equipment described in paragraph (1) of this definition and any associated duct burner, heat recovery steam generator, and steam turbine.' (Emphasis added). The C3 steam turbine is only associated with combustion turbines which are part of a combined cycle unit that is exempt from CATR. As such, the C3 unit is also exempt. [EPA-HQ-OAR-2009-0491-3911[1].1, p.4]
Because none of the PPG Powerhouse C units (C1, C2, C3, C4 or C5) are subject to CATR, PPG requests that these units be removed from the allocation tables and all other technical support documents of the rule that would suggest that they are applicable units. [EPA-HQ-OAR-2009-0491-3911[1].1, p.4]
State of Louisiana, Department of Environmental Quality
Several cogenerations units that should be exempt from the transport rule were given allocations. These units include:
- Dow St. Charles Operations
- Formosa Plastics
- PPG Powerhouse C
- Shell Chemical
- Georgia Gulf [EPA-HQ-OAR-2009-0491-3977[1].1, p.2]
Response:
These units have been removed from the final Transport Rule list of potentially covered existing units and do not receive allocations.  EPA has removed the units based on information received from commenters that suggests, given the best data currently available to EPA, that they would not be subject to the final Transport Rule.  However, EPA notes that the units presented in this list of potential existing Transport Rule units reflect only a preliminary assessment of the applicability of the proposed Transport Rule and in no way suggest that EPA has made a determination about the applicability of the proposed Transport Rule to any specific unit.
Organization: Prairie State Generating Company, LLC
Comment:
Prairie State Generating Company, LLC
The alternative allocation methodologies presented also do not address issues with the size of the NUSA pools and in fact, by changing the defining date to January 1,2009 for existing versus new units, the problem of underfunding in the NUSA budget in Illinois is exacerbated. PSGC's two 800 MW pulverized coal units are well under construction, with the first unit scheduled to commence commercial operation in mid-July 2011 and the second unit following shortly thereafter. Under the proposed Transport Rule, although it was not issued allowances as an existing unit in the proposed Transport Rule, Unit 1 would be considered an existing unit, while Unit 2 would clearly meet the definition of a new unit. Under the current NODA with the existing unit definition adjusted to January 1,2009, both PSGC units would be treated as new units. New units still under construction and planning to commence commercial operations near the proposed rule January 1, 2012 deadline of new versus existing have the additional uncertainty of potentially being issued allowances as an existing unit and having those allowances revoked if they experience construction delays and no longer meet the deadline with no assurance the number of NUS A allowances will be adjusted accordingly. Not knowing whether one or both units will be in the new unit set side pool, leaves PSGC extremely concerned since the current NUSA pool leaves PSGC drastically short of the allowances needed to operate a one unit base-loaded operation, let alone a two unit base-loaded operation which would also include 'sharing' the NUSA allowances with another base-loaded 230 MW coal-fired unit which was recently constructed in Illinois under either of the alternatives in this latest NODA. [EPA-HQ-OAR-2009-0491-3897[1].1, p.3-4]
Furthermore, while new units are 'short-changed' allowances needed to operate, under this NODA gas turbine facilities are allocated permanent S02 allowances which they do not need to operate. PSGC cannot support a proposal which offers unneeded allowances to certain facilities simply because they are arbitrarily defined as 'existing' while a new, just as real facility, is not given allowances needed to operate simply because it is arbitrarily defined as 'new.' [EPA-HQ-OAR-2009-0491-3897[1].1, pp.4-5]
Response:
EPA has modified its final allowance allocation methodology in the final Transport Rule and has also modified the size of new source set-aside accounts (see section VII.D of the preamble).  The adjustment to the new source set aside was meant to reflect those scenarios identified by Prairie State Generating Co. and shift the budget portion based on emissions from planned-committed units from the existing unit budget to the new source set-aside account.  This gives new units access to a wider pool of allowances in a manner that would likely fully cover their future emissions.
Organization: Pratt & Whitney
Comment:
Pratt & Whitney
Pratt & Whitney notes that the Pratt & Whitney Cogeneration unit (Cogen), ORIS 54605, located in East Hartford, CT, is still included in the Alternative Allocation Tables, which are listed in the Technical Support Documents for the proposed Transport Rule. As communicated on 9/29/10 (comment 80b6357a), this unit should not be included in the documentation for the Transport Rule as it meets the cogeneration exemption of not 'supplying in any calendar year more than one-third of the unit's potential electric output capacity [104,292 Mwe-hrs] or 219,000 MWh, whichever is greater'. [EPA-HQ-OAR-2009-0491-3876[1].1, p.1]
The Pratt & Whitney Cogen permit was upgraded to allow a 32 MW unit at the end of 2002. The cogeneration unit provides a portion of the electrical power required by the facility and also provides steam for process and building heating and cooling. If at any time the cogeneration unit creates more power than the facility is using at the moment, the excess power is sold to the grid. The annual data since 2003 clearly indicates that Pratt & Whitney has consistently sold below the 219,000 MWh cogeneration exemption threshold: [EPA-HQ-OAR-2009-0491-3876[1].1, p.1] [[See Docket Number EPA-HQ-OAR-2009-0491-3876[1].1, p.1 for table.]]
Pratt & Whitney requests that our cogeneration unit, ORIS 54605, be removed from the proposed Transport Rule Allocation Tables and that the EPA confirms that this regulation will not apply to the Pratt & Whitney Cogen. [EPA-HQ-OAR-2009-0491-3876[1].1, p.1]
Response:
Connecticut is not subject to the final Transport Rule.  Consequently, neither are the Pratt  & Whitney units discussed above because they are located in Connecticut.  They have been removed from the list of potential existing Transport Rule units.
Organization: Public Power Generation Agency
Comment:
Public Power Generation Agency
EPA's NODA III proposes and seeks comment on two alternative allowance allocation methodologies, both of which are based on sources' historic heat input. In addition, and of particular relevance to WEC Unit 2, both alternatives would redefine the applicability criteria for an "existing unit." Under the NODA III, an "existing" unit must "meet the applicability criteria in the Transport Rule NPR (proposed §§ 97.404, 97.504, 97.604, and 97.704) and began commercial operation prior to January 1, 2009." 76 Fed. Reg. at 1111/2. Consequently, if EPA were to adopt either of the alternative allocation methodologies suggested in the NODA III, WEC Unit 2's status would change from that of an "existing unit" under the PTR to a "new unit" under the NODA III because it did not commence commercial operation before January 1, 2009. [EPA-HQ-OAR-2009-0491-3960[1].1, p.2]
PPGA thus finds itself in a fundamentally unfair position. PPGA is being asked to choose between two scenarios, both of which involve uncertainty and variability that, in combination, reflect arbitrary agency action due to the lack of adequate public notice. [EPA-HQ-OAR-2009-0491-3960[1].1, pp.2-3]
Conversely, under either of the alternatives proposed in the NODA III, WEC Unit 2 would be characterized as a new unit and would be subject to considerable uncertainty from year to year in terms of the numbers of allowances it would be allocated. Those numbers could vary greatly depending on a range of extraneous factors, including the number of new units competing for the allowances from the new unit set-aside for Nebraska in any given year, the size of that new unit set-aside both initially and in succeeding years, and the timing of retirements of existing units in the state and the number of allowances associated with those units that will be deposited at various times in the new unit set-aside (assuming that this new unit set-aside methodology as proposed in the PTR in fact is adopted by EPA in the final rule).2 [EPA-HQ-OAR-2009-0491-3960[1].1, p.3]
On the other hand, under the alternative allocation methodologies in the NODA III, WEC Unit 2 would be treated as a new unit and would, for the reasons discussed above, be subject to substantial uncertainty as to its allowance allocations from year to year, a circumstance that would make compliance planning exceedingly difficult. Unlike the child who said the bad word, PPGA has done nothing wrong and should not be forced to choose between two unpalatable alternatives. [EPA-HQ-OAR-2009-0491-3960[1].1, p.4]
EPA staff has made informal representations to counsel for PPGA that, under the PTR's original allocation methodology (assuming that that methodology, rather than, for example, either of the NODA III methodologies, is used in the final rule), EPA will make corrections to the IPM modeling such that WEC Unit 2 will receive allowance allocations based on a revised IPM run that will account for projected 2012 emissions from WEC Unit 2. Based on EPA staff's informal representations  -  and assuming that EPA properly implements and finalizes the corrections as they have been described by EPA staff to PPGA's counsel  -  PPGA would prefer the allocation methodology in the PTR, under which WEC Unit 2 would qualify as an existing source and be allocated allowances based on revised IPM modeling accounting for projected 2012 emissions from WEC Unit 2, as opposed to either of the NODA III allocation methodologies. [EPA-HQ-OAR-2009-0491-3960[1].1, pp.4-5]

2 The discussion in the text above assumes that the size of the new unit set-aside would be established based on the methodology described in the PTR, since there is no description in the NODA III of how the new unit set-aside would be established or administered if the allowance allocation methodology is based on heat input under either of the NODA III alternatives. PPGA questions whether it would be appropriate, under the NODA III alternatives, to establish the new unit set-aside based on an allocation methodology that primarily reflects historical and projected future emissions (i.e., the PTR's methodology) if the methodology used to allocate allowances to existing units is based on heat input as described in the NODA III. In any event, EPA has an obligation to explain, and to provide public notice on, how the new unit set-aside would be established and calculated if the allowance allocation methodology used for existing units is based on heat input, as proposed in the NODA III. The NODA III is unaccountably silent on this critical issue.
Response:
See section VII.D of the preamble for an explanation of the final Transport Rule allocation methodology.  EPA agrees that WEC 2's status would change from being considered an "existing unit" under the proposed methodology to a "new unit" under the final methodology.  However, in response to concerns about the uncertainty in allocation due to the size of the new source set-aside, EPA has modified the size of new source set-aside accounts in the final rule to appropriately reflect emissions from "new units".  This includes units, such as WEC Unit 2 that are under construction but that do not commence operation prior to January 1, 2010.  States that have planned units such as WEC 2, have large set-aside accounts that are intended to provide these units with access to a more reasonable size pool of allowances.  The additional allowances added to the new source set-aside to account for planned units being reclassified as "new" instead of "existing" is equal to their projected emission levels.
Organization: Weyerhaeuser Company
Comment:
Weyerhaeuser Company
Weyerhaeuser Company ("Weyerhaeuser") is filing this request to remove a unit belonging to the Weyerhaeuser - Flint River mill located in Oglethorpe, Georgia, from the analyses and allocations tables included in the support materials for this rulemaking. This filing is similar to one made during the comment period on the original proposed rulemaking to make the same request. See Docket ID EPA-HQ-OAR-2009-0491-2602.1 That earlier filing apparently was not acted upon by EPA as the subsequent alternative allocation NODA was developed. [EPA-HQ-OAR-2009-0491-3880[1].1, p.1]
The facility continues to be listed, this time in a key technical support document to the proposed NODA made available at http://www.epa.gov/airtransport/actions.html#jan11 and titled "Alternative allocation tables and underlying data (Excel File)" [Docket ID: EPA-HQ-OAR-2009-0491-3875]. In this support document the facility has the identifiers:
Weyerhaeuser Company  -  Flint River
ORIS ID: 50465
Unit ID: U500 [EPA-HQ-OAR-2009-0491-3880[1].1, p.1]
The listing and inclusion of this facility in the proposed Clean Air Transport rule (CATR) is an error, presumably due to residual records of the unit stemming from initial listings and preparation work prior to October 2007, due to its potential, but ultimately exempted, applicability under the Clean Air Interstate Transport Rule (CAIR). Amendments to CAIR in October 2007, modified how biomass fuel heat input is evaluated to qualify cogeneration units. Consequently, Weyerhaeuser determined this unit to meet the cogeneration definition and to be exempt from the current CAIR (see Exhibit 1). [EPA-HQ-OAR-2009-0491-3880[1].1, pp.1-2] [[See Docket Number EPA-HQ-OAR-2009-0491-3880[1].1, p.3 for Exhibit 1.]]
This unit is a pulp mill recovery furnace. Based on the definitions and applicability sections of proposed Subparts AAAAA -- TR NOX Annual Trading Program, BBBBB -- TR NOX Ozone Season Trading Program, CCCCC -- TR SO2 Group 1 Trading Program, and DDDDD -- TR SO2 Group 2 Trading Program, this unit will be exempt from the CATR for the same reason, which is that the unit meets the requirements to be an exempt cogeneration unit. That is: (a) it predominantly burns biomass (> 99.5 % on an annual average heat input basis) and therefore easily meets the criteria in the proposed definition for a topping cycle cogeneration unit, and; (b) per the applicability provisions it "...does not serve at any time, since the later of November 15, 1990 or the startup of the unit's combustion chamber, a generator with nameplate capacity of more than 25 MWe supplying in any calendar year more than one-third of the unit's potential electric output capacity or 219,000 MWh, whichever is greater, to any utility power distribution system for sale." [EPA-HQ-OAR-2009-0491-3880[1].1, p.2]
The unit therefore will not be subject to the CATR, and we request EPA eliminate the unit from further CATR analyses and actions under this rulemaking. [EPA-HQ-OAR-2009-0491-3880[1].1, p.2]
Response:
These units have been removed from the final Transport Rule list of potentially covered existing units and do not receive allocations.  EPA has removed these units based on information received from the commenter that suggests, given the best data currently available to EPA, that they would not be subject to the final Transport Rule.  However, EPA notes that the units presented in this list of potential existing Transport Rule units reflects only a preliminary assessment of the applicability of the proposed Transport Rule and in no way suggests that EPA has made a determination about the applicability of the proposed Transport Rule to any specific unit.

XX.B. Calculating Assurance Provision Surrender Requirement on Designated Representative (DR) Basis

Organization: Ameren Services Company
Comment:
Ameren Services Company
On page 1117 EPA requests comments on 'Whether the Assurance Provision Allowance Surrender Requirement Should be Calculated on a Designated Representative Basis.' The text in the description of this section is not totally clear. Ameren believes that using the Designated Representative for the surrender of allowances makes some sense if it is handled in the manner described below:
a) Assume that the sum of emissions from all affected sources in a state have exceeded the states' allocation of allowances (allocated allowances plus new unit set aside) plus the states variability limit. [EPA-HQ-OAR-2009-0491-3894[1].1, p.2]
b) In determining whether the DR's units would be subject to a surrender requirement: [EPA-HQ-OAR-2009-0491-3894[1].1, p.2]
1. For the units under the DR's control sum their respective allocations and their portion of the state's variability limit
2. Compare this sum in #1 above to the total emissions for all units under the DR's common control for that control period (i.e. annual or ozone season)
3. If the total emissions in #2 exceed those in #1 above the DR would be subject to surrender requirements.
4. If the total emissions in #2 are less than those in #1 above the DR would not be subject to surrender requirements.
c) If the calculation (b) above shows an excess emission as stated in b(3) above the DR's units in total would only be required to surrender allowances that exceed that calculated in b(1) above. [EPA-HQ-OAR-2009-0491-3894[1].1, p.2]
If it is EPA's intention to implement the surrender requirement on a DR basis as described above Ameren supports this change. [EPA-HQ-OAR-2009-0491-3894[1].1, p.2]
Response:
See sections VII.E and XI of the preamble.
Organization: American Electric Power
Comment:
American Electric Power
EPA has solicited comments regarding the proposed compliance demonstration and assurance provisions, proposing to allow compliance to be demonstrated based on groups of units that share a common designated representative within a single state, instead of requiting compliance demonstrations to be based on ownership. EPA notes the administrative convenience of this option, and its practical utility, and solicited comments on alternative assurance mechanisms that could accompany such a change. [EPA-HQ-OAR-2009-0491-3934[1].1, p.6]
AEP supports the alternative compliance demonstration proposal, and recommends expanding and refining the assurance provisions to remove arbitrary restrictions on allowance trading and promote economic solutions. Examination of each of the emissions trading programs adopted by Congress or EPA has demonstrated that the programs are cost-effective, and the stringency of the trading schemes has assured that regional air quality concerns are addressed. Indeed, the modeling performed by MOG confirms that simply relying on the existing CAIR program, with the substantial existing allowance banks and unlimited interstate trading currently authorized, will achieve the air quality goals identified by the agency. Therefore, the extremely restrictive assurance measures in the Proposed Transport Rule are unnecessary and will substantially increase the cost of compliance, and prevent the development of any viable emissions trading market. [EPA-HQ-OAR-2009-0491-3934[1].1, p.6]
If EPA chooses to use the assurance provisions as a means of responding to the concerns outlined by the court in the North Carolina decision, a much more limited and practicable alternative is available. Under no circumstances should the assurance provisions be expanded for use in 2012-2013. During this time the state budgets and unit allocations themselves are so stringent that only limited trading (if any) will occur. Moreover, by wiping the slate clean, and depriving operators of the allowance banks created under CAIR, operators have no ability to address excess emissions caused by the inherent variability in electricity markets. EPA needs to provide an alternative mechanism that accommodates the inherent variability in emissions even in these initial years, since the electricity markets are demand driven and weather dependent. Unlimited interstate trading as recommended by EPA is the only mechanism through which the region as a whole can comply, but some additional flexibility should be provided to recognize the inherently variable nature of the electricity system. AEP suggests that a compliance supplement pool be created for compliance years 2012 and 20l3, similar to the compliance supplement pool created initially under CAIR, in order to provide a more reasonable transition to the reduced budgets in the Proposed Transport Rule. Alternatively, sources should be authorized to borrow allowances from future years in 2012 and 2013, up to the proposed single year assurance levels without penalty, in order to offset the inherent variability in the electricity markets. [EPA-HQ-OAR-2009-0491-3934[1].1, pp.6-7]
In 2014 and beyond, EPA has acknowledged the substantial variability that has historically occurred in electricity demand and emissions, but has severely limited trading based on political borders. A simpler system could be fashioned that would allow owners and operators to achieve compliance in a manner that accounts for the way in which utility systems have developed and takes advantage of the existing reporting mechanisms. There are many multi-state utility systems like AEP, some having as few as two facilities, and others having many more facilities. Most of these systems provide service in adjoining states, but represent only a portion of the total capacity affected by the Proposed Transport Rule in any single state. Many of these systems have a single designated representative, in order to centralize their compliance obligations and achieve efficiencies in compliance planning and implementation. Accordingly, an assurance provision that would allow units located in adjacent states that have the same designated representative to demonstrate compliance by limiting emissions to the allocated level plus an assurance margin of ten percent on an annual basis would assure that all states are contributing reductions, would facilitate cost-effective compliance planning within utility systems, but would not arbitrarily limit trading based on political boundaries. Emissions reductions would be achieved across adjoining states, and often in closer geographic proximity than if trading is limited to the borders of a single state. So long as total emissions in the region affected by the Proposed Transport Rule also remain below the regional cap and the assurance percentage, utilities should be able to bank and trade allowances throughout the region. If emissions rise above the cap by more than the assurance percentage, only utility systems whose emissions also exceed their allocation plus the assurance provisions would be subject to an excess emissions penalty. Penalty assessments should be payable from banked or future year allowances. [EPA-HQ-OAR-2009-0491-3934[1].1, p.7]
Such an assurance mechanism preserves the cost-effectiveness of an interstate trading scheme throughout the program. A plant on one side of the liver that otherwise might be severely impacted by the assurance provisions in one state, forcing uneconomic reductions based on its unit-level budget, will be able to take advantage of the cost-effective reductions made at a unit on the other side of the river and have the same beneficial impact on air quality. Substituting an assurance scheme based on systems with the same designated representatives thus achieves the air quality goals of the Proposed Transport Rule without the uncertainties and inefficiencies associated with separate statewide assurance requirements. [EPA-HQ-OAR-2009-0491-3934[1].1, p.8]
In addition, there is no need for multiple layers of assurance, as originally proposed. Allowing a limited margin each year for the entire Transport Region, and allowing affected facilities to certify compliance based on a common designated representative will accommodate variability without compromising the air quality goals of the proposed rule. Inserting a three-year average assurance requirement merely introduces additional uncertainties into an already fragile market system. [EPA-HQ-OAR-2009-0491-3934[1].1, p.8]
Response:
See sections VII.E and XI of the preamble to the final Transport Rule.  The final rule adopts the assurance provisions, and applies them starting in 2012, in order to meet the requirements of North Carolina.
EPA rejects the commenter's position that sources should be allocated extra allowances (i.e., a compliance supplement pool) beyond the state trading budgets, or that owners and operators should be allowed to "borrow", i.e., use for compliance in a given year, allowances allocated for future years.  Both of these suggestions would result in covered sources having more allowances to use to cover emissions in a control period than the total state trading budget for that control period.  The commenter failed to state what should be the size of the suggested compliance supplement pool, much less any rationale for adopting any specific size.  EPA believes that the required reductions in 2012 are achievable (see section VII.C of the preamble) and therefore there is no need for any size of compliance supplement pool to make a " more reasonable transition" to the Transport Rule 2012 state trading budgets.  EPA therefore rejects these suggestions as vague and unsupported.  Moreover, EPA notes that the assurance provisions, coupled with other elements (such as the state trading budgets) of the Transport Rule trading programs, ensure that states' significant contribution and interference with maintenance, as identified in the final rule, are eliminated as required by CAA section 110(a)(2)(D)(i)(I) and North Carolina.  In particular, each state budget reflects projected emissions for covered sources in the state after achievement of emission reductions eliminating the state's significant contribution and interference with maintenance.  To the extent that covered sources in a state were allocated for a control period a total amount of allowances exceeding the state budget for that control period or were allowed to use for a control period part of the state budget for future years, this would increase the likelihood that the total state covered-source emissions would exceed the state budget plus variability limit for the control period and thus would threaten the state's elimination of significant contribution and interference with maintenance.  In short, either compliance supplement pool allocations or use of future-year allowances would undermine compliance with North Carolina.
The commenter also stated that the assurance provisions should be implemented based on utility systems (which often are multi-state), rather than on a state-by-state basis, and suggested that CAA requirements would be met so long as region-wide emissions were reduced so that a region-wide cap was met.  However, the Court in North Carolina stressed that CAA section 110(a)(2)(D)(i)(I) requires prohibition, within each state, of significant contribution and interference with maintenance and essentially rejected the commenter's approach of evaluating the amount of emission reductions on a region-wide basis.  See North Carolina, 531 F.3d 896, 907 (D.C.Cir. July 11, 2008).
Organization: Buckeye Power, Inc.
Comment:
Buckeye Power, Inc.
EPA requested comment on whether CATR's assurance provision's emissions surrender. requirement should be imposed on owners/operators of units, but calculated on a 'Designated Representative' -by-'Designated Representative' basis. Without further clarification, Buckeye opposes EPA's Designated Representative ('DR') approach. First, the DR approach fails to explain how such an approach would be implemented where a particular DR is responsible for facilities in separate states. For instance, if one state triggers surrender, it is unclear whether or not a DR's units in another state may be required to surrender allocations. Further complicating a DR approach, many power plants have percentage shares of ownership divided between various owners. Buckeye prefers a unit-by-unit approach to CATR's assurance/surrender provisions, with the ability for full trading within any particular state and limited interstate trading, so that adequate offsets can be purchased if required. [EPA-HQ-OAR-2009-0491-3900[1].1, p.5]
This approach is consistent both with CATR reduction and Congress' preference to allow an allocation market and market participants to determine where emission reductions should occur. This approach has proven itself time and time again under the Clean Air Act to be the shortest and most efficient approach to clean air. [EPA-HQ-OAR-2009-0491-3900[1].1, p.5]
Response:
See sections VII.E and XI of the preamble.  Under the assurance provisions in the final rule, if a state triggers the assurance provisions, responsibility for the assurance penalty will be divided up among the groups of units and sources in that state (not outside the state) with a common designated representative.  The owners and operators of each such group where the common designated representative's share of emissions exceeds the common designated representative's share of the state budget plus variability must surrender allowances to meet their share of the assurance penalty.  This means that the group's total emissions are compared to the group's total allocations plus share of variability, and units with fewer emissions than allocations plus variability can offset units with greater emissions than allocations plus variability.  No penalty is imposed on the owners and operators of any units and sources located in another state and having the same individual for a designated representative as a group of units and sources in the state where the assurance provisions are triggered (unless, of course, the second state also triggers the assurance provisions).
EPA recognizes that units at sources (plants) may have multiple owners and, in fact, the identity and percentage shares of the multiple owners may vary from unit to unit at the same source and can change during the year.  For this reason, the final rule requires that each source have one designated representative for all of the owners and operators and implements the requirement to hold allowances covering emissions on a source (i.e., designated representative) basis.  Similarly, because owners and operators (and not EPA) have access to information on an ongoing basis on the identity and percentage shares of multiple owners and already make decisions about the shares of emissions and allowances to be attributed among multiple owners with regard to the requirement to hold allowances covering emissions, the final rule implements the assurance provisions on a common-designated-representative basis.  Even under the commenter's suggested unit-by-unit approach, owners and operators would have to handle, in many cases, issues concerning the attribution of emissions and allowances among multiple owners of the unit. This approach also provides more flexibility for owners and operators of only one or a few units in a state -- as compared to implementation on a unit-by-unit basis -- because such owners and operators can use their grouping with any other units at their source (which necessarily have the same, i.e., common, designated representative) and can also decide to group their units with units at other sources in the state by selecting, in coordination with owners and operators of such other units, a common designated representative.
Organization: Cleco Corporation
Comment:
Cleco Corporation
B. Cleco supports a designated representative approach for assurance provision accounting.
Cleco supports EPA's proposed change with respect to assurance provision accounting at the designated representative level. Cleco, however, requests that EPA provide for comment the regulatory language EPA proposes to accomplish that change. It is imperative that EPA not, in its haste, undermine private agreements between owners with respect to allowance ownership and surrender obligations. It also must be clear that owners have a regulatory obligation to surrender through their designated representative. [EPA-HQ-OAR-2009-0491-4007[1].1, p.7]
Response:
See sections VII.E and XI of the preamble.  The commenter asserted that, but failed to explain how, the assurance provisions might "undermine" private agreements among owners.  The assurance provisions provide owners and operators of units and sources in a state flexibility to group their units under a common designated representative.  Independent of the assurance provisions, every covered source is required to have a designated representative.  The selection of a designated representative -- whether the one required for a source or a common designated representative for a group of units and sources in a state -- is always based on private agreements among owners and operators, as reflected in the certificate of representation where any designated representative must certify that he or she was selected "by an agreement binding on the owners and operators."  Also, independent of the assurance provisions, multiple owners and operators of a source generally use private agreements to determine ownership of allowances and responsibilities for surrendering allowances to cover emissions.  Multiple owners and operators of a source will be able similarly to use private agreements to determine responsibilities for surrendering allowances in the event that they are subject to an assurance provision penalty.  In short, the assurance provisions do not undermine the use of private agreements, but rather preserve the ability of owners and operators to use private agreements to select designated representatives and to determine allowance ownership and surrender.  Owners and operators, of course, have the option of amending their private agreements to address specifically the assurance provisions.
The commenter also asserted, without explanation or support, that the assurance provisions must required allowance surrender "through" the designated representative.  As with the requirement to hold allowances to cover emissions, the requirement to hold allowances for the assurance provision penalty is imposed on the owners and operators, not the designated representative.  Under both requirements, the surrendered allowances must be held in a specified account (the appropriate compliance account under the requirement to hold allowances covering emissions and the appropriate assurance account under the assurance provisions).  Any transfers of allowances to the assurance account, of course, will be made by the authorized account representative for the allowance account from which the allowances are transferred, and, if that allowance account is a source's compliance account, the designated representative is the authorized account representative for that allowance account.
Organization: Constellation Energy
Comment:
Constellation Energy
Constellation Energy supports the ownership method of assurance provisions.
Under the proposed Transport Rule, the assurance provisions would be triggered for a state for a given year if total emissions for covered units In the state for the year exceed the state assurance level (i.e., the state budget plus the state's variability limit). As proposed, if this level were exceeded, the assurance provision allowance surrender requirement would be imposed on certain owners of covered units in the state and calculated on an owner-by--owner basis. Specifically, each owner whose share of the state's total covered-unlit emissions exceeded the owner's share of the state assurance level would have to surrender a proportionate share of the state's exceedance, [EPA-HQ-OAR-2009-0491-4031, p.3]
While this approach may be somewhat more complicated in the case of multiple owners of the same facility, it is has the least inherent legal liability, an important consideration in the timely implementation of the Rule. While the umbrella of a common Designated Representative may afford additional compliance flexibility, it is easy to imagine potential exploitation of this flexibility and resultant unintended consequences, such as the formation of trading blocs under the guise of a common Designated Representative. The Ownership method of assurance provisions is ultimately the most straightforward approach. [EPA-HQ-OAR-2009-0491-4031, p.3]
Response:
See section VII.E of the preamble.  EPA rejects the commenter's claim that implementation of the assurance provisions on a common-designated-representative basis has more "inherent legal liability" as vague, speculative, and unsupported.   The commenter vaguely speculates that the flexibility provided by the common-designated-representative approach could result in "potential exploitation" and "unintended consequences", such as the "formation of trading blocs".  The commenter failed to explain, even using hypothetical scenarios, what such "exploitation" and "unintended consequences" could be, what is meant by "trading blocs", what would be the likelihood of such phenomenon occurring, and what would be the adverse effects if such phenomenon were to occur.
Organization: Exelon
Comment:
Exelon
EPA'S PROPOSED COMPLIANCE ASSURANCE MECHANISM, IF BASED ON EITHER AN OWNER SHARE OR A DESIGNATED REPRESENTATIVE SHARE,WILL BE DIFFICULT TO IMPLEMENT AND UNNECESSARILY COSTLY.
EPA's reliance on either an owner share or a designated representative share in its compliance assurance mechanism is problematic, in that these mechanisms will be difficult to implement and make compliance unnecessarily costly. As discussed in the following section, the problems with either approach could be solved by adoption of the compliance assurance mechanism suggested by Exelon in its Original Comments. See, Original Comments at 24-26, 30-42. Exelon's proposed compliance assurance mechanism would allow EPA to move to a compliance assurance mechanism based on individual facilities while not only providing for intrastate and interstate trading, but facilitating more robust and efficient trading. [EPA-HQ-OAR-2009-0491-3919[1].1, p.7]
Compliance assurance based on either an owner's share or a designated representative share departs from the structure of the Clean Air Act, which focuses enforcement and compliance at the permitted facility level, with the designated representative being the unit of compliance for the facility. If compliance is focused on the "owner's share," EPA and states will often need to negotiate a tangled web of ownership and operational arrangements, where many of the largest facilities have multiple owners and a different operator, and ownership shares frequently change. This will make the determination of compliance on a year to year basis difficult for EPA, the states and regulated entities alike and could make enforcement for noncompliance problematic. [EPA-HQ-OAR-2009-0491-3919[1].1, p.7]
Although EPA's proposal to base its compliance assurance mechanism upon a designated representative share may solve the foregoing problems, it will impede free trading and make compliance more costly for the regulated community. Single owners often use multiple designated representatives in a particular state. Moving from an owner compliance scheme to one based on designated representatives will impede the ability of owners to take advantage of pooling units' allowance allocations. This could have the negative effects of reducing trading, causing uneconomic decisions regarding whether to install or operate control equipment, and creating administrative burdens. As discussed below, Exelon's alternative compliance mechanism will avoid both of these problems, by allowing EPA to base compliance on a facility's share, but by still allowing the flexibility of pooling and trading, which is lost in the currently proposed designated representative approach. [EPA-HQ-OAR-2009-0491-3919[1].1, p.8]
Exelon Generation's situation in Pennsylvania exemplifies the problems with either approach. The majority of allowances to which Exelon, as an owner, would be entitled derive from its co-ownership of the Keystone and Conemaugh facilities. Exelon shares ownership in these baseload electric generating facilities with seven other companies. The facilities are operated by yet another company, which also serves as the designated representative, and is an affiliate of one of the eight owners. Exelon owns and operates a number of other fossil fuel fired intermediate electric generating units and peaker units in Pennsylvania, itself, and has two designated representatives in Pennsylvania, one for its Peaking Division units and a second for its other EGUs in Pennsylvania. [EPA-HQ-OAR-2009-0491-3919[1].1, p.8]
Determining Exelon's owners' share would require EPA and the Pennsylvania Department of Environmental Protection to develop information about ownership structure and percentages and to track that information over time, greatly complicating administration and enforcement. On the other hand, switching the compliance assurance mechanism to a designated representative share would undermine operational flexibility. In the event of increased market demand in any given year (e.g., due to weather or forced outages), Exelon's intermediate and peaking units in Pennsylvania could be called on to operate at higher capacity factors than normal. With an owner's share approach, Exelon would have a much larger pool of allowances from its co-ownership in the Keystone and Conemaugh Facilities, so that it could safely increase its emissions at the intermediate and peaking units by the full variability limit of 10% of the total emissions of all of its facilities in Pennsylvania, without being concerned about needing to surrender additional allowances if Pennsylvania exceeded its statewide share plus variability limit. However, with a designated representative approach, Exelon's operational flexibility would be limited to 10% of the far smaller number of allowances allocated to its intermediate and peaker units. Given the number of owners and the existence of a separate operator, Exelon could not solve this problem by using a single designated representative for all of its facilities, since there cannot be more than one designated representative at either Keystone or Conemaugh. Moreover, pooling under a single designated representative with little information or control of multiple facilities would undermine the primary purpose of the designated representative - - the creation of individual responsibility to ensure environmental compliance. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.8-9]
As discussed in the next section, with Exelon's proposed alternative compliance assurance mechanism, EPA could avoid both of these problems. Exelon would be able to transfer some of the Pennsylvania-specific allowances allocated to its co-owned Keystone and Conemaugh facilities to its peakers and intermediate units, and use banked or out-of-state allowances to assure that none of its facilities use more than 10% non-Pennsylvania, non-current year allowances. It could also go into the market to acquire Pennsylvania, current year allowances, and market signals would give all market participants the price signals necessary to assure that Pennsylvania stays within its state budget plus variability limit. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.9-10]
EXELON'S PROPOSED REVISION TO THE COMPLIANCE ASSURANCE MECHANISM WILL PROVIDE A BETTER MEANS TO ASSURE COST EFFECTIVE COMPLIANCE WITH ADMINISTRATIVE SIMPLICITY.5
The various revisions that EPA has proposed affecting allowance allocation mechanisms or compliance assurance militate strongly towards adoption of the improvement to the compliance assurance mechanism suggested by Exelon in its Original Comments. See, Original Comments at 24-26, 30-42. [EPA-HQ-OAR-2009-0491-3919[1].1, p.10]
Exelon has suggested that an owner's share (or designated representative's share) be based on the type of allowances that a source owner (or designated representative) surrenders for compliance, rather than the number of allowances that it initially receives for free. The "share" or "budget" will be equal to the number of surrendered allowances that were initially allocated to a source located in the same state during the current compliance year, i.e. the surrendered allowances are in-state and in-year, as indicated by the allowance registration number. Owners can freely trade allowances between the initial allocation and ultimate surrender, so that the assurance provision calculation will be independent of the allocation scheme. As a result, regulated entities will readily be able to secure rights to in-state, in-year allowances before running units and to make the appropriate decision of whether to buy allowances or to control emissions. This method will, therefore, better assure that EPA meets the mandate of North Carolina v. EPA, 531 F.3d 896, 929 (D.C. Cir. 2008), remedy modified on reh. 550 F.3d 1176 (D.C. Cir. 2008) ("North Carolina"). [EPA-HQ-OAR-2009-0491-3919[1].1, p.11]
While Exelon supports a heat input based allocation method, the allocation of allowances under that method is unrelated to a judgment regarding which facility should reduce its emissions in order to avoid incurring requirements for the surrender of excess allowances. The most economically efficient mechanism for a state to meet its emissions budget may be for a newer, more efficient facility (or a facility with a cleaner fuel such as gas) to run for more hours or to run its control equipment for more hours, thereby taking advantage of pollution reduction due to both efficiency and control equipment. Under the heat input allocation scheme, a facility might uneconomically decide to install and run unnecessary control equipment to avoid the surrender of double allowances, unless the owner's share calculation is revised. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.11-12]
The problem of the lack of an appropriate budget becomes even clearer when one considers what might happen if a state submits an alternative allocation program calling for use of an auction. If allowances are allocated by auction, an owner (or designated representative) will have no basis whatsoever upon which to determine whether it should buy allowances or install or run control equipment. With an auction, what will be the metric upon which the "owner's share" will be based? There will be no owner, designated representative or unit share or budget that can be used in the compliance assurance system. States clearly have the right to propose alternative allocation programs in their SIPs. However, combining alternative allocation methods with EPA's original assurance provision is even more likely to produce an outcome with states that exceed their budgets or meet their budgets at unnecessarily high costs. [EPA-HQ-OAR-2009-0491-3919[1].1, p.12]
The compliance assurance mechanism proposed by Exelon will provide an administratively simple mechanism to assure that emissions will not exceed State budgets. Exelon's method will not require a plethora of separate state trading programs for each pollutant, but a single trading program where the allowance certificates will simply include an identifier for the state to which they pertain and year in which they are issued. This is administratively simple to achieve because each allowance will require a certificate with a unique identifier in any case. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.12-13]
An owner's, a designated representative's or even, if EPA desires, a facility's budget for purposes of compliance assurance, would be equal to the number of allowances that it surrenders that are specific for that year and the state in which the facility is located or the facilities are located, rather than being set equal to the number of free allowances allocated to that entity. The owner/designated representative/facility could surrender out-of-state or banked allowances (identified by registration number) to meet its compliance obligations, but would become subject to the requirement for the surrender of excess allowances if the state exceeds its budget plus variability limit and the percentage of out-of-state, out-of-year allowances surrendered by the regulated entity (or entities) for that year exceeds the percentage of the variability limit. [EPA-HQ-OAR-2009-0491-3919[1].1, p.13]
If, therefore, the state's variability factor is 10% of its budget, each regulated party has a strong incentive to assure that ten out of every 11 allowances it surrenders are in-state, current-year allowances, or risk having to surrender excess allowances if the state exceeds its budget plus variability limit. In this case, the number of banked or out-of-state allowances that an owner/designated representative /facility used to satisfy its compliance obligation would not exceed the variability limit. The market for the current-year, in-state allowances would give facility owners the correct signals regarding whether to install or run control equipment or purchase allowances. Futures markets and bilateral agreements would allow facility owners or designated representatives to know the number of in-state, current year allowances that will be available and their cost. Based on that knowledge, the regulated parties will be able to make informed judgments as to whether it would be most economical to install control equipment, to close facilities, or to run control equipment. Moreover, when prices of a state's current-year allowances increase as a state approaches its budget, the price signals will affect the dispatch markets, encouraging dispatch from cleaner facilities or facilities located in states that are not at or near their budgets for the year. A further benefit is that Exelon's proposal will create greater incentives for emissions to remain within state budgets and provide an additional safeguard that EPA's Transport Rule will, indeed, result in the elimination of significant contribution as required by the Court in North Carolina v. EPA. [EPA-HQ-OAR-2009-0491-3919[1].1, pp.13-14]
Exelon's proposal will neither create separate trading programs nor create a program that is difficult to administer. For example, if the NOx budgets for Illinois and Pennsylvania are 100,000 tons each for 2013, EPA would issue 100,000 2012 Illinois NOx allowance certificates and 100,000 Pennsylvania 2012 NOx allowance certificates, which will be readily identifiable by their certificate numbers. An owner with a single Pennsylvania facility emitting 1,100 tons of NOx in 2012 would need to assure that it has at least 1,000 Pennsylvania 2012 certificates, but could use 100 banked or out-of-state allowances to meet its compliance obligation. If it decided to utilize more than 100 banked or out-of-state allowances, it would face the risk of being required to surrender excess allowances if Pennsylvania exceeded its budget plus variability limit. However, this would only be a consideration in states with projected emissions in excess of state budgets plus the state variability limit; generating units in states with emissions expected to be well within budgets would have more leeway to consider inter-state allowance purchases if needed at the inter-state market price. EPA and the states could readily determine compliance and enforcement of this program would be no more complex than EPA's original proposal. In fact, enforcement and compliance will be simplified under Exelon's proposal. [EPA-HQ-OAR-2009-0491-3919[1].1, p.14]
The practical advantages of the Exelon compliance assurance mechanism are exemplified by Exelon Generation's situation in Pennsylvania, described above. In the event of increased market demand in any given year (e.g., due to weather or forced outages) resulting in Exelon's intermediate and peaking units in Pennsylvania being called on to operate at higher capacity factors than normal, Exelon could go into the market for current year allowances and buy additional current year Pennsylvania allowances for each affected facility rather than trying to determine where and how it should shift allowances between units under an owner's share or designated representative share approach. More importantly, in that case, the price of Pennsylvania, current year allowances would increase, affecting the price at which plants would bid their electricity into the PJM market, so that an appropriate price signal would be introduced into the market. This would more efficiently and effectively drive dispatch of lower emission electricity on the system, so that all states would remain within their respective budgets. Because compliance could be based on a facility's emissions, EPA and states would also be relieved of the need to negotiate the tangled web of ownership and operational arrangements that an owner's share approach would entail, while avoiding the restrictions on free trading and pooling that a designated owner's share approach would entail. [EPA-HQ-OAR-2009-0491-3919[1].1, p.14-15]

5 Exhibit 1 presents additional materials prepared by the Northbridge Group for Exelon, entitled "EPA Transport Rule Assurance Provision Comments," that are intended to provide additional discussion and examples to support Exelon's proposed modifications to EPA's Assurance Provision methodology.  [[See Docket Number EPA-HQ-OAR-2009-0491-3919[1].1, pp.17-36 for Exhibit 1.]]
Response:
See sections VII.E and XI of the preamble.  The commenter expressed concern that implementing the assurance provisions on a common-designated-representative basis would limit the commenter's flexibility because of difficulties with selecting a single designated representative for all of its sources and the problem of having a single designated representative with little information about or control of the various sources.  However, a designated representative can be changed simply through submission of a superseding certificate of representation, and EPA has found that designated representatives for many sources are changed relatively frequently.  In light of this and other factors discussed in the preamble, the final rule bases the identification of groups of one or more units and sources with a common designated representative based on the identity of the designated representatives as of a specific date, i.e., April 1 after the control period for which a state triggers the assurance provisions.  This approach provides flexibility for owners and operators to continue to use the different individuals as the designated representatives for most purposes under the trading programs and to select a common designated representative for purposes of the implementation of the assurance provisions.
Under the common-designated-representative approach in the assurance provisions in the final rule, the common designated representative's assurance level is the common designated representative's share of the state budget with variability (which is defined as the total allocations and auctioned allowances for the group of units and sources having the common designated representative plus the group's share of the variability) and is compared with the common designated representative's share of emissions (which is defined as the total emissions of the units in the group).  Although the commenter asserted that allowances that are auctioned, rather than allocated, would not be considered in this comparison, the final rule expressly includes any auctioned allowances.  Specifically, in the final rule, the common designated representative's assurance level (i.e., share of the state budget with variability) includes, in addition to allocated allowances, any auctioned allowances submitted to the state or permitting authority for recordation by the Administrator in the compliance account of a unit in the group of units and sources having the common designated representative.
The commenter suggested an alternative approach to the assurance provisions under which emissions would be compared to the amount of allowances surrendered by a facility (or owner or designated representative, depending on whether the provisions were implemented on a source-by-source, owner-by-owner, or designated- representative-by-designated- representative basis) that were originally issued for the state in which the facility (or facilities) involved are located.  According to the commenter, this approach would not require the creation of independent "assurance" allowances because the same allowances would be used to meet the requirement to hold allowances covering emissions as to meet the alternative assurance provisions.  However, the alternative assurance provisions would still result in segregated allowance markets in that, for each state, the in-state allowances could be used to avoid or reduce the amount of allowances a facility was required to surrender if the assurance provisions were triggered and the out-of-state allowances could not be used in this way.  Consequently, these alternative assurance provisions resemble the intrastate trading option described in the proposal, which faced market concentration problems.  In many states, a single large utility controls a majority of the generation and would have control of the majority of allowances issued for that state, i.e., the majority of the in-state allowances.  While auctioning of in-state allowances in each state might address this problem, the final rule adopts allocation, rather than auctioning, of allowances in the Transport Rule trading programs because of, among other things, the complexity of administration and complexity and cost of participation in separate state auctions covering multiple pollutants in a large number of states.   Moreover, assurance provisions that would be dependent on the use of auctions could not be used because, once states (rather than EPA) start distributing allowances through full or abbreviated SIPs, those SIP revisions may or may not include auctions.  In the CAIR trading programs, only a few states used any auctions to distribute allowances.  Because the alternative assurance provisions would lead to serious market liquidity and allowance pricing concerns, EPA is not adopting these alternative assurance provisions.
Organization: Independence Power & Light (IPL)
Comment:
Independence Power & Light (IPL)
DESIGNATED REPRESENTATIVE
The NODA presents an alternative methodology for calculating the assurance provision allowance surrender requirement when total emissions for covered units in the state exceed the state assurance level. Under this alternative, the 'calculation of shares of covered-unit emissions and of the state budget plus variability would be performed for each group of covered units having a common [Designated Representative]' ('DR'), rather than on, as the Rule proposed, an owner-by-owner basis. 76 FR 1117/1-2. The owners and operators represented by a common DR whose collective share of state covered-unit emissions exceeded the DR's collective share of the State's assurance level would be jointly and individually liable for the DR's proportionate share of the State's exceedance allowance surrender requirement. Id. EPA offers that there is a benefit to units within a DR group of being able to balance excess emissions of some units against the excess allowances from other units within the group, and that the DR approach is 'more straightforward' and 'potentially provides owners and operators with more flexibility' than the owner-by-owner approach. Id. at 1117/3. Another claimed benefit is that the DR approach would 'eliminate the need to collect detailed ownership information and would also avoid the complications arising from having to divide up units' emissions and allocations among partial owners of the units.' Id. [EPA-HQ-OAR-2009-0491-3949[1].1, p.9]
IPL is in favor of the Rule providing as much flexibility and control as possible to states and to owners whose units would be subject to the Rule. However, IPL has concerns that the DR proposal allows EPA to delegate management of the assurance program to the unit owners and operators without consideration of some issues of fairness and implementation. For example, while switching to the DR program might well eliminate the need for EPA to collect ownership data and would allow EPA to avoid the complications of dividing emissions and allocations, switching to a DR program will not allow unit owners to avoid either difficulty. The DR proposal appears to shift the burdens of implementation to unit owners to allocate the loss of allowances. The loss of allowances has the potential to be the most difficult ramification of the proposed Rule and EPA's proposal leaves it to unit owners to deal with this difficulty. [EPA-HQ-OAR-2009-0491-3949[1].1, p.10]
EPA does not provide information as to whether and how units that choose not to join a DR will be assigned allowance surrender requirements. IPL is concerned that owners and units that choose not to join a DR might find themselves at an immediate disadvantage. For example, a DR member has less incentive to sell allowances to non-members (or, indeed, a DR could restrict such sales or trading) because it would be to the DR's advantage to hoard potential excess allowances as a hedge against triggering assurance provisions for the DR as a whole. The NODA does not raise, let alone address, whether such a result would be consistent with the objective of the Rule, which also raises the issue of whether adopting a DR approach constitutes an improper delegation of EPA's authority. IPL also is concerned that there will not be equal bargaining power within DR groups because larger, more efficient units might have the most bargaining power. This inequality could lead to private agreements that undermine the policy goals behind the allowance surrender requirements. [EPA-HQ-OAR-2009-0491-3949[1].1, p.10]
If EPA wishes to shift responsibility for compliance with the FIP assurance program from EPA to DRs EPA must reconsider the DR program as outlined and address issues of fairness and implementation. Although IPL is generally in favor of any opportunity to allow the private sector or regulated community more options and control over their own destiny, the DR proposal requires considerable refinement and IPL urges EPA not to adopt the DR alternative as presently described. [EPA-HQ-OAR-2009-0491-3949[1].1, p.11]
IPL further requests that EPA revisit the proposed DR and owner methodologies for allowance surrenders and propose a methodology that presents a level playing field and that has the requisite checks and balances and due process opportunities under the law. [EPA-HQ-OAR-2009-0491-3949[1].1, p.12]
Response:
See sections VII.E and XI of the final Transport Rule preamble.
The commenter expressed concern that EPA was "delegating" to designated representatives the ability to "allocate loss of allowances" through allowance surrender under the assurance provisions.  However, EPA is not delegating any authority.  Instead, the final rule makes the owners and operators of a group of units and sources responsible, as a group, for surrendering allowances under the assurance provisions when the state triggers the assurance provisions.  The owners and operators must decide, generally through private agreements, who will actually provide the necessary allowances, but all the owners and operators remain responsible regardless of how they internally divide up the actual provision of allowances.  This is analogous to the implementation of the requirement to hold allowance covering emissions, which has been implemented under the Acid Rain Program and CAIR trading programs and is implemented under the Transport Rule trading programs, on a source-by-source basis.  The owners and operators of the units at each source, as a group, are responsible for holding for surrender allowances covering the total emissions of these units and decide, generally through private agreements, who will actually provide the necessary allowances.  There is no delegation by EPA: all the owners and operators remain responsible regardless of how they internally divide up the actual provision of  allowances.  Consequently, EPA rejects the commenter's claims of "improper delegation" of authority.
The commenter also expressed concern about how units that "choose not to join a DR" will be assigned allowance surrender requirements under the assurance provisions.  Under the Transport Rule trading programs, like under the Acid Rain Program and the CAIR trading programs, every source must have a designated representative representing all the owners and operators of unts at the source.  Thus, all units at each source have the same designated representative (i.e., a common designated representative), but the owners and operators of multiple sources have the option to choose a common designated representative for the group of sources.  In short, every unit has a common designated representative, either at the source level or, if the option is taken by the owners and operators of multiple sources, at the group-of-sources level.
The commenter expressed concern that the common-designated-representative approach puts the burden on owners and operators to determine the identity and percentage shares of multiple owners and operators.  However, for purposes of dividing up ownership of allowance allocations and meeting the requirement to hold allowances covering the source's emissions, owners and operators already have to determine the identity and shares of multiple owners and operators of units at the same source.  Owners and operators have handled these situations under the Acid Rain Program and the CAIR trading programs through private agreements and can continue to do so under the Transport Rule trading programs.  Because, in addition, unit owners and operators (but not EPA)  have ongoing access to information on the identity and shares of multiple owners and operators of the units, EPA maintains that it is reasonable to implement the assurance provisions on a common-designated-representative basis, rather than on an owner-by-owner basis.
The commenter made vague claims about incentives for a common designated representative to "hoard" allowances "as a hedge against triggering the assurance provisions and about there not being "equal bargaining power" among units with a common designated representative.  However, the commenter failed to explain how "hoarding" allowances would create such a hedge.  In the final rule, for each group of units and sources with a common designated representative, total emissions are compared to total allocations plus share of variability, and whether the allocations continue to be held or are sold does not affect the determination of whether the owners and operators of the group are subject to the assurance surrender requirement if the state triggers the assurance provisions.  Further, the commenter speculated that "unequal bargaining power" could result in private agreements that would "undermine the policy goals behind the allowance surrender requirements", but failed to explain, even using hypothetical examples, how this could occur or what policy goals would be undermined.  The assurance provisions impose a penalty, if the state emissions exceed the state budget with variability, by making all owners and operators of the group subject to the surrender requirement regardless of their "bargaining power".   EPA rejects the commenter's claims about hoarding and bargaining power as vague, speculative, and unsupported.
Organization: Kansas City Board of Public Utilities (BPU)
Comment:
Kansas City Board of Public Utilities (BPU)
The claimed benefits are not ones, however, that inures to the benefit of unit owners, but, rather, allow EPA to delegate management of the assurance program to the unit owners and operators. For example, while switching to the DR program might well eliminate the need for EPA to collect ownership data and would allow EPA to avoid the complications of dividing emissions and allocations, switching to a DR program will not allow unit owners to avoid either difficulty. Switching merely means they do it among themselves in what could be relatively contentious negotiations involving how to allocate within each group a finite number of allowances among owners who likely compete against each other.[EPA-HQ-OAR-2009-0491-3978[1].1, p.10]
As the DR process is apparently voluntary, EPA offers no guidance as to whether an appeals process for disputes is available, or under whose aegis units that chose not to join a DR will be assigned allowance surrender requirements. Those owners and units that choose not to join a DR would likely find themselves at an immediate disadvantage. For example, a DR member has less incentive to sell allowances to non-members (or, indeed, a DR could restrict such sales or trading) because it would be to the DR's advantage to hoard potential excess allowances as a hedge against triggering assurance provisions for the DR as a whole. The NODA does not raise, let alone address, whether such a result would be consistent with the objective of the Air Transport Rule, which also raises the issue of whether adopting a DR approach constitutes an improper delegation of EPA's authority. It is also likely that parties will have unequal bargaining power within DR groups with larger, more efficient units likely having the most bargaining power. This inequality could lead to private agreements that undermine the policy goals behind the allowance surrender requirements. [EPA-HQ-OAR-2009-0491-3978[1].1, pp.10-11]
The NODA presents an alternative methodology for calculating the assurance provision allowance surrender requirement when total emissions for covered units in the state exceed the state assurance level. Under this alternative, the 'calculation of shares of covered-unit emissions and of the state budget plus variability would be performed for each group of covered units having a common [Designated Representative]' ('DR'), rather than on, as the Rule proposed, an owner-by-owner basis. 76 FR 1117/1-2. The owners and operators represented by a common DR whose collective share of state covered-unit emissions exceeded the DR's collective share of the state's assurance level would be jointly and individually liable for the DR's proportionate share of the state's exceedance allowance surrender requirement. Id. Despite the obvious benefit to units within a DR group of being able to balance excess emissions of some units against the excess allowances from other units within the group, EPA offers as additional benefits that the DR approach is 'more straightforward' and 'potentially provides owners and operators with more flexibility' than the owner-by-owner approach. Id. at 1117/3. Another claimed benefit is that the DR approach would 'eliminate the need to collect detailed ownership information and would also avoid the complications arising from having to divide up units' emissions and allocations among partial owners of the units.' Id. [EPA-HQ-OAR-2009-0491-3978[1].1, pp.9-10]The NODA fails to present a compelling case to shift responsibility for compliance with the FIP assurance program from EPA to DRs. By retaining control, EPA can assure that the program follows uniform guidelines for all participants based on fulfilling the stated objective of the Transport Rule, rather than a hodge-podge of differing allocation surrender schemes that are determined by the relative bargaining power of the parties to the various DRs. BPU submits that uniform treatment promotes a level playing field for all participants with a large degree of transparency. Such a program will give clear signals as to what is or is not acceptable practices and the consequences for not meeting allocated emissions levels. Those goals are much more important in establishing a sound program than the supposed flexibility and reduced complications claimed for DRs. BPU urges EPA not to adopt the DR alternative. [EPA-HQ-OAR-2009-0491-3978[1].1, p.11]
3. That the Designated Representative option for handling allowance surrenders be eliminated from further consideration. [EPA-HQ-OAR-2009-0491-3978[1].1, p.11]
Response:
See sections VII.E and XI of the preamble.  The commenter expressed concern that EPA was "delegating" to designated representatives the ability to "allocate loss of allowances" through allowance surrender under the assurance provisions.  However, EPA is not delegating any authority.  Instead, the final rule makes the owners and operators of a group of units and sources responsible, as a group, for surrendering allowances under the assurance provisions when the state triggers the assurance provisions.  The owners and operators must decide, generally through private agreements, who will actually provide the necessary allowances, but all the owners and operators remain responsible regardless of how they internally divide up the actual provision of allowances.  This is analogous to the implementation of the requirement to hold allowance covering emissions, which has been implemented under the Acid Rain Program and CAIR trading programs and is implemented under the Transport Rule trading programs, on a source-by-source basis.  The owners and operators of the units at each source, as a group, are responsible for holding for surrender allowances covering the total emissions of these units and decide, generally through private agreements, who will actually provide the necessary allowances.  There is no delegation by EPA: all the owners and operators remain responsible regardless of how they internally divide up the actual provision of  allowances.  Consequently, EPA rejects the commenter's claims of "improper delegation" of authority.
The commenter also expressed concern about how units that "choose not to join a DR" will be assigned allowance surrender requirements under the assurance provisions.  Under the Transport Rule trading programs, like under the Acid Rain Program and the CAIR trading programs, every source must have a designated representative representing all the owners and operators of unts at the source.  Thus, all units at each source have the same designated representative (i.e., a common designated representative), but the owners and operators of multiple sources have the option to choose a common designated representative for the group of sources.  In short, every unit has a common designated representative, either at the source level or, if the option is taken by the owners and operators of multiple sources, at the group-of-sources level.
The commenter expressed concern that the common-designated-representative approach puts the burden on owners and operators to determine the identity and percentage shares of multiple owners and operators.  However, for purposes of dividing up ownership of allowance allocations and meeting the requirement to hold allowances covering the source's emissions, owners and operators already have to determine the identity and shares of multiple owners and operators of units at the same source.  Owners and operators have handled these situations under the Acid Rain Program and the CAIR trading programs through private agreements and can continue to do so under the Transport Rule trading programs.  Because, in addition, unit owners and operators (but not EPA)  have ongoing access to information on the identity and shares of multiple owners and operators of the units, EPA maintains that it is reasonable to implement the assurance provisions on a common-designated-representative basis, rather than on an owner-by-owner basis.
The commenter made vague claims about incentives for a common designated representative to "hoard" allowances "as a hedge against triggering the assurance provisions and about there not being "equal bargaining power" among units with a common designated representative.  However, the commenter failed to explain how "hoarding" allowances would create such a hedge.  In the final rule, for each group of units and sources with a common designated representative, total emissions are compared to total allocations plus share of variability, and whether the allocations continue to be held or are sold does not affect the determination of whether the owners and operators of the group are subject to the assurance surrender requirement if the state triggers the assurance provisions.  Further, the commenter speculated that "unequal bargaining power" could result in private agreements that would "undermine the policy goals behind the allowance surrender requirements", but failed to explain, even using hypothetical examples, how this could occur or what policy goals would be undermined.  The assurance provisions impose a penalty, if the state emissions exceed the state budget with variability, by making all owners and operators of the group subject to the surrender requirement regardless of their "bargaining power".   EPA rejects the commenter's claims about hoarding and bargaining power as vague, speculative, and unsupported.
Organization: National Rural Electric Cooperative Association (NRECA)
Comment:
National Rural Electric Cooperative Association (NRECA)
The proposed   assurance provision allowance  surrender  requirement holding unit owners and operators collectively and    individually  liable  for   emissions exceedances  for  units under  a  common DR  imposes  broader  liabilities than exists under the existing acid rain program.   NRECA believes owner and operator liability under a common DR should be limited to unit exceedances at the source only, following the current acid rain program provisions.   [EPA-HQ-OAR-2009-0491-3943[1].2, p.1]
Third, NRECA believes the proposed assurance provision allowance surrender requirement imposing liabilities on all unit owners and operators under a common DR is a significant departure from the current owner and operator requirements under the acid rain program that limits such liabilities to unit owners and operators under a common DR at a source where the unit exceedance occurred.  There is no apparent overriding rationale to alter the existing liability apportionment between units under a common DR, and thus the current acid rain liability apportionment should be applied to the CATR allowance provisions.   [EPA-HQ-OAR-2009-0491-3943[1].2, p.4]
EPA proposes to broaden unit owner and operator collective and individual liabilities for unit allowance shortfalls to include unit owners and operators of all units within a state under a common DR. NRECA is opposed to extending joint and several liabilities for allowance  shortfalls beyond liability limits currently imposed within the existing acid rain program.  As EPA notes, acid rain allowance shortfall liabilities are limited to units at the source where the allowance shortfall occurs. The acid rain program has been ongoing for well over a decade with this current liability apportionment system in place. NRECA is not aware of any problems with this system.  Just as importantly, joint unit owners, source operators and DRs are all functioning under existing contractual relationships that comprehend the existing acid rain liability system.  NRECA fears that expanding and altering the current system now could present negative and unintended consequences.  EPA has offered no compelling rationale to expand the liability umbrella in this NODA III beyond that existing under the acid rain program, and thus NRECA opposes such expansion. [EPA-HQ-OAR-2009-0491-3943[1].2, pp.9-10]
Response:
See sections VII.E and XI of the preamble.  The commenter claimed that the common-designated-representative approach in the assurance provisions is a "significant departure" from the approach under the Acid Rain program because owners and operators of multiple units and sources with a common designated representative could be liable for an assurance penalty if the state involved triggers the assurance provisions.  However, in the final rule, the choice of what specific individual will be the designated representative for a source is made by the owners and operators, and thus the decision of whether to select someone who is also the designated representative for other sources and becomes a common designated representative for the group of sources under the assurance provisions is left entirely to the owners and operators.  If the commenter prefers to limit its unit's potential liability for assurance penalties to the owners and operators of units at the source where its units are located, the commenter can decide not to use the option of selecting a common designated representative with other sources.
Further, many units under the Acid Rain Program have multiple owners and, as the commenter noted, multiple owners of units at a single source have been successfully using private agreements to govern the selection of a designated representative for the source and for other matters, such as responsibility of individual owners to actually provide allowances necessary to cover the source's emissions or to meet excess emissions penalties.  The comment vaguely speculated that use of common designated representatives under the assurance provisions could have "negative and unintended consequences".  The commenter failed to explain, even using hypothetical scenarios, what such "negative and unintended consequences" could be, what would be the likelihood of such consequences being realized, and what would be the extent of the adverse effects.  Moreover, the commenter failed to explain why, if compliance issues among multiple owners of units at a single source have been successfully handled through private agreements, private agreements cannot similarly be used among multiple owners of multiple sources under the assurance provisions.  Moreover, common designated representatives have been, and still being used, in the NOx emission reduction program that is part of the Acid Rain Program.  Under this part of the Acid Rain Program, owners and operators have the option of grouping their units and sources into NOx Averaging Plans and meeting the NOx emission rate limitations of the Acid Rain Program as a group.  See 40 CFR 76.11.  In order to be included in a single group, the units must be "under the control of the same owner or operator" (but may have minority owners) and have the "same designated representative:"  40 CFR 76.11(a).  Each group must submit, and obtain EPA approval of, a NOx averaging plan for the group, and EPA has approved, and owners and operators (including minority owners) have operated under such approved plans, in some cases for many years.  See "Acid Rain Program NOX Averaging Plans Final Rule TSD".  While NOx averaging plans, obviously, impose different requirements than the assurance provisions in the final rule, the use of these plans demonstrates that owners and operators can successfully use the same designated representative for groups comprising multiple units and sources to meet regulatory requirements involving emission limitations and holding of allowances.  For all these reasons, EPA rejects the commenter's claims of "negative and unintended consequences" as vague, speculative, and unsupported.
Organization: NextEra Energy, Inc.
Comment:
NextEra Energy, Inc.
With respect to the issue of how the allowance surrender requirement should be calculated, NextEra Energy does not support the alternative approach to calculate the assurance provision allowance surrender requirements at the DR level. Rather, we support EPA's original proposal to determine assurance provisions' surrender requirements at the owner level. NextEra Energy has concerns about using the DR level because it could complicate a (non-DR) joint owner's ability to hedge against the two-for-one penalty associated with the assurance provision. For example, if the combined sources under one DR exceed that DR's allocation plus the variability limit, non-DR co-owners who otherwise would not have triggered the assurance provision (because their sources were below the assurance level) would potentially have to pay a portion of the two-for-one penalty. Alternately, if a source is long on allowances, a non-DR owner would not be able to use those additional allowances as a way to balance under-allocated sources. Thus, while the DR-based calculation may provide additional flexibility to some owners and operators (particularly majority owners of co-owned units), it may provide less flexibility to other owners and operators (particularly minority owners of co-owned units). [EPA-HQ-OAR-2009-0491-3962[1].1, p.4]
As an example, assume that Unit A is owned by two companies, Company 1 and Company 2. Company 1 owns 75% of Unit A and Company 2 owns 25% of Unit A. A representative from Company 1 is assigned as the DR of Unit A. If, during a particular control period, Unit A's emissions are less than its allowance allocation, Company 2 would not be able to use the surplus allowances from Unit A to offset allowance shortages at Units Band C, also owned by Company 2 that, without the surplus from Units A, would trigger assurance proviSions and 2: 1 compliance at Units Band C. Conversely, if facility A's emissions exceed its allocation but does not exceed its share of the state variability limit, it could still trigger assurance provisions for Owner 2 if total emissions from all of Company 1 's facilities exceed their share of the state variability limit. [EPA-HQ-OAR-2009-0491-3962[1].1, pp.4-5]
While the risks to a minority owner outlined above could be addressed and mitigated to a certain degree by contractual provisions in an owner's agreement, this is not as straightforward as it may sound. Co-owners agreements are complicated documents that are carefully crafted to protected each co-owners' interests. For this reason, the parties to these agreements are often reluctant to re-open these agreements unless absolutely necessary. [EPA-HQ-OAR-2009-0491-3962[1].1, p.5]
For the reasons above, NextEra Energy opposes the alternate DR-level approach to calculate the assurance provision allowance surrender requirements that EPA requests comment on in the NODA and urges EPA to retain the owner-level approach reflected in the August 2,2010 proposed Transport Rule. [EPA-HQ-OAR-2009-0491-3962[1].1, p.5]
Response:
See sections VII.E and XI of the preamble to the final Transport Rule .  The commenter expressed concerns about the role of minority owners when the assurance provisions are implemented on a common-designated representative basis.  However, many units and sources under the Acid Rain Program and CAIR trading programs (as will also be the case under the Transport Rule trading programs) have multiple owners, including minority owners.  For this reason, all these programs require each source to have one designated representative for all of the units at the source.  Under the Acid Rain Program and CAIR trading programs, multiple owners and operators of units at a single source have been successfully using private agreements to govern the selection of a designated representative for the source and the distribution of allowance allocations and for other matters, such as responsibility of individual owners to actually provide allowances necessary to cover the source's emissions or to meet excess emissions penalties.  The commenter stated that private agreements can also address the commenter's concerns about "risks" to minority owners under the assurance provisions.  However, the commenter speculated, without providing any support, that owners and operators may be "reluctant to re-open these agreements unless absolutely necessary".  Moreover, because owners and operators of units and sources with a common designated representative will be responsible, as a group, for surrendering allowances under the assurance provisions if the state triggers the provisions, there is no basis for assuming that owners and operators will not re-open private agreements to address the new surrender requirement.
The commenter discussed two hypothetical scenarios, one where the unit with a majority owner and a minority owner at a source has fewer emissions than allocated allowances and one where such  unit has more emissions than allocated allowances but less than allocated allowances plus share of variability.  According to the commenter, under the first scenario the minority owner cannot use the excess allocation to offset an excess of emissions over allocations plus variability that the minority owner has at two other sources owned by the minority owner.  However, this ignores the flexibility that the majority and minority owners have of agreeing to a common designated representative for all three sources so that the sources' total emissions will be compared to the sources' total allocations plus share of variability in determining the assurance penalty.  In fact,  this option will be available even if the owner of the second and third sources in this scenario was not a minority owner of the first source.  One could undoubtedly hypothesize some specific fact patterns where it would be more advantageous for an owner to have the assurance provisions implemented on an owner-by-owner basis rather than a common-designated-representative basis.  However, the common-designated-representative approach generally provides more flexibility by allowing owners and operators to combine their units and sources into groups with common designated representatives and thereby providing for their total emissions and total allocations plus share of variability to be compared.  For this reason, and the other reasons discussed in sections VII.E and XI of the preamble, EPA maintains that the implementation of the assurance provisions on a common-designated-representative basis is reasonable.
According to the commenter, under the second scenario where the multiple-owner unit has more emissions than allocated allowances but less than allocated allowances plus share of variability, the unit can "still trigger assurance provisions" for the minority owner if the majority owner's other sources have emissions exceeding allocations plus share of variability. This is the same type of issue that multiple owners and operators of a source already address in private agreements in connection with the requirement to hold allowances covering total source. For example, some sources have three or more units, with ownership varying among the units.  See "Acid Rain Program NOX Averaging Plans Final Rule TSD" (NOX averaging plan for San Juan plant showing four units with ownership varying among the units).  Since these units are subject to the Acid Rain SO2 trading program (as well as the Acid Rain NOX  Program in which the averaging plan is used), the owners and operators must to determine who will actually provide extra allowances to cover SO2 emissions if, for example, one unit's emissions exceed that unit's allocations but another unit has emissions equal to or less than allocations.  The commenter provided no basis for assuming that owners and operators cannot successfully address in private agreements similar issues with regard to to the assurance surrender requirements.
Organization: Northern Indiana Public Service Company (NIPSCO)
Comment:
Northern Indiana Public Service Company (NIPSCO)
USING DESIGNATED REPRESENTATIVES AS THE BASIS FOR DETERMINING SURRENDER AMOUNTS FOR EXCEEDING VARIABILITY LIMITS
NIPSCO believes that basing surrender amounts on a designated representative ('DR') by DR basis is an improvement over basing the amounts on an owner by owner basis as originally proposed. However, there are potential pitfalls in this new approach as well. Theoretically, a DR could represent more than one company within a state, which could have the effect under EPA's proposal to skew the prorating of the surrender amounts. [EPA-HQ-OAR-2009-0491-3995[1].1, p. 3]
NIPSCO believes a better approach is to determine the number of allowances to be surrendered on an EGU by EGU basis or source by source basis, leaving the responsibility for surrendering the requisite number of allowances to the DRs for the emitting EGUs or sources. This approach is the simplest and most straight-forward. EPA retains its ability to enforce against owners or operators of EGUs for which allowances were not timely surrendered, as owners and operators remain liable for the EGUs for which they are responsible. [EPA-HQ-OAR-2009-0491-3995[1].1, p. 3]
Response:
See sections VII.E and XI of the preamble.  The commenter suggested that the assurance provisions should be implemented on a source-by-source basis, rather than on the basis of a group of sources with a common designated representative who may represent more than one company in the state.  However, the choice of grouping sources together through a common designated representative is an option that the commenter is not required to select.  The option, which owners and operators are not required to use, provides the potential flexibility of grouping units and sources so that their total emissions does not exceed, or exceeds by less, their total allocations plus share of variability.  Units with greater emissions than allocations plus share of variability can be grouped with units with fewer emissions than allocations plus share of variability. The commenter alternatively suggested that the assurance provisions should be implemented on a unit-by-unit basis.  However, this approach would still involve multiple company-owners since many units have multiple owners, which would have to use private agreements to determine which owners must actually provide allowances for surrender under the assurance provisions.  Under the common-designated representative approach, multiple company-owners can similarly use private agreements to determine which owners must actually provide allowances for surrender.  In addition, the unit-by-unit approach would be inconsistent with the source-by-source approach used for the requirement to hold allowances covering emissions and would provide significantly less flexibility to owners and operators than the common-designated-representative approach in the final rule providing for compliance with the assurance provisions on a source-by-source basis or on the basis of a group of units and sources.  In summary, EPA maintains that implementation of the assurance provisions using common designated representatives (whether the common designated representative for the units at one source or the common designated representative for a group of units and sources) is reasonable.
Organization: Oglethorpe Power
Comment:
Oglethorpe Power
Under the proposed CATR, the assurance provisions would be triggered for a state in a given year if total emissions for covered units in the state for the year exceed the state assurance level (i.e., the state budget plus its variability limit). If this level were exceeded, the assurance provision allowance surrender requirement would be imposed on certain owners of covered units in the state (as we understand it, those EGU owners within the state that exceeded their share of the state budget, including variability, regardless of whether the unit had enough allowances to cover its emissions), and would be calculated on an owner-by-owner basis. In NODA 3, EPA requests comment on whether the surrender requirement should be imposed on certain owners and operators of covered units in the state but apportioned on a designated representative ('DR')-by-DR basis, rather than on an owner-by-owner basis. Under this alternative approach, the calculation of shares of covered-unit emissions and of the state budget plus variability would be performed for each group of covered units having a common DR. [EPA-HQ-OAR-2009-0491-3896[1].1, pp.4-5]
Assuming that some type of assurance provisions will become part of the final CATR, EPA must recognize that regardless of the method used by it for assurance apportionment (termed 'calculation' in NODA 3), the basis for liability in law or equity must be based on unit ownership. Here, EPA, states that:
The DR's share of the surrender requírement would equal the amount by which the DR's share of the state's total covered-unit emissions exceeded the DR's share of the state assurance level, divided by the sum of all such exceedances þr all DRs þr covered units in the state. The owners and operators would be collectively and individually liable þr making this allowance surrender and would determine themselves how to dívíde up the actual surrender. 76 Fed. Reg. at l l 17. Given this, it appears that EPA would use the DR as the basis for unit liability, not unit ownership. That approach ignores, however, the basis for liability. Only those covered units that have exceeded their share (i.e., their allocation) of the state budget (plus variability), independent of whom is their DR, can possibly be responsible for an exceedance of the state budget under the assurance provisions. Thus, any approach EPA might use for assurance must, at the outset, recognize which units exceeded their individual budgets. Once that determination is made, EPA could then apportion liability through the DRs for the offending units, and not merely the DR himself (who could also be the DR for units that have not exceeded their allowance budgets). Provided that the CATR requires that DRs for all units reach an agreement with all unit owners prior to assuming the representation, then perhaps EPA could implement its assurance provisions through the DR hierarchy. Under that approach, the provisions governing liability between the various units owners would be controlled by the agreements struck for the appointment of the DR and would not need to be addressed by EPA. [EPA-HQ-OAR-2009-0491-3896[1].1, p.5]
Response:
See sections VII.E and XI of the preamble.  The commenter stated that EPA must determine liability for assurance penalties on a unit-by-unit basis.  However, under the Acid Rain Program, the CAIR trading programs, and the final Transport Rule trading programs, liability for allowance surrender to cover emissions and for excess emissions penalties are determined on a source-by-source basis, not unit-by-unit basis, and multiple owners of units at a source use private agreements to select the designated representative for the source and to determine which owners must provide the necessary allowances for surrender.  In a similar fashion, the assurance provisions determine liability for allowance surrender under the assurance provisions on a group basis, where the group comprises one or more units and sources with a common designated representative.  Multiple owners of units and sources in such a group will use private agreements to select the designated representative who is common to the units and sources in the group and to determine which owners and operators must provide the necessary allowances for surrender.
Organization: Prairie State Generating Company, LLC
Comment:
Prairie State Generating Company, LLC
Allowance surrender determination process which is improved but not ideal [EPA-HQ-OAR-2009-0491-3897[1].1, p.1]
PSGC believes that EPA's recommendation to determine allowance surrender obligations on a designated representative ('DR') by DR basis, in the event of exceedance of the statewide assurance levels, is an improvement over the original proposal. However, theoretically, a DR could represent more than one company, thus implicating companies not responsible for the exceedance of the statewide assurance level unnecessarily and unfairly. Even if a DR represents only a single company, implicating units or sources not responsible for the exceedance of the statewide assurance level is equally unnecessary and unfair. PSGC suggests that the surrender obligation should be determined on a unit by unit or source by source basis, with the surrender of the additional allowances the responsibility of the DR (rather than individual owners). [EPA-HQ-OAR-2009-0491-3897[1].1, p.5]
This same concept has been applied in previous and existing trading programs. EP A is complicating a task which has precedence established in previous and existing programs and should be simple and straightforward. Each facility is required to maintain a compliance account and any exceedance of a state's assurance level should be based on the proportion a unit or facility has contributed to the exceedance of the variability limit. PSGC does not understand the benefit of adding the complicating factor of grouping facilities with a common DR. Although the DR may be the same for a group of facilities, the ownership for those facilities may differ. The assurance provision surrender requirements for variability exceedance should simply be made on a unit by unit or facility by facility basis with notification to the facility's DR as it occurs under previous and existing trading programs. The DR will then ensure allowances are surrendered accordingly. Including owners only complicates the matter and may even cause such confusion that allowances are not surrendered on time as required through no fault of the DR. As the EPA acknowledges, under the Transport Rule the owners and operators will be collectively and individually liable no matter how the allowance surrender requirements are calculated. [EPA-HQ-OAR-2009-0491-3897[1].1, pp.5-6]
Response:
See sections VII.E and XI of the preamble.  The commenter stated that, if a common designated representative represents multiple sources with multiple company-owners, implementation of the assurance provisions on a common-designated-representative basis may result in "implicating companies...unnecessarily and unfairly".  However, the assurance provisions leave the selection of each source's designated representative entirely up to the source owners and operators, and so having a common designated representative with other companies' sources is entirely optional.  The commenter also stated that there could be a similarly "unnecessary and unfair" result if a common designated representative represents only one source with multiple-company owners.  However, owners and operators already handle situations like this in the context of the requirement to hold allowances to cover emissions, which requirement is imposed in the final rule (and has also been in the Acid Rain Program and the CAIR trading programs) on source-by-source basis.  In fact, multiple owners and operators of units at a source generally use private agreements to determine who will actually provide the allowances that the group of owners and operators are required to surrender in order to meet the requirement to cover the units' emissions.  Similarly, multiple owners and operators of units at a source -- or of a group of units and sources that use the option of having a common designated representative -- can use private agreements to determine who will actually provide the allowances that the group of owners and operators are required to surrender in order to meet the assurance provision penalty.  In short, owners and operators have successfully addressed situations where liability is imposed on a group of multiple owners and operators in connection with the requirement to hold allowances covering emissions, and EPA maintains that there is no reason to assume that they cannot successfully handle these types of situations in connection with the assurance provisions.
The commenter stated that it saw no reason why the assurance provisions could not be implemented on a source-by-source basis rather than on the basis of a group of sources with a common designated representative.  However, the choice of grouping sources together through a common designated representative is an option that the commenter is not required to select.  The option, which owners and operators are not required to use, provides the potential flexibility of grouping units and sources so that their total emissions does not exceed, or exceeds by less, their total allocations plus share of variability.  The commenter also suggested that the assurance provisions could be implemented on a unit-by-unit basis.  However, this approach would still involve multiple owners since many units have multiple owners, would be inconsistent with the source-by-source approach used for the requirement to hold allowances covering emissions, and would provide significantly less flexibility to owners and operators than the approaches provided in the final rule of compliance with the assurance provisions on a source-by-source basis or on the basis of a group of units and sources.  In summary, EPA maintains that implementation of the assurance provisions using common designated representatives (whether the common designated representative for the units at one source or the common designated representative for a group of units and sources) is reasonable.
Organization: PSEG Services Corporation
Comment:
PSEG Services Corporation
PSEG recognizes that EPA is looking for opportunities to make the assurance provision allowance surrender requirement more straightforward and the NODA proposes to impose the requirement at the designated representative (DR) level. One reason EPA outlines for switching to the DR-basis is that it would be more consistent with other requirements under the proposed Transport Rule trading programs that are on a unit-by-unit or source-by-source basis. However, EPA designed the assurance provision to provide owners and operators more flexibility than the unit-by-unit or source-by-source compliance requirements. While the PSEG fossil remains in agreement with the intent of the assurance provisions, we caution EPA that the relative benefits of calculating assurance provisions at the DR level would minimize our flexibility. At PSEG, and perhaps other companies, we assign the DR responsibility consistent with direct control of plant operations - the plant manager. Assignment of DR to the plant manager is important to us for accountability and on-site operational availability. [EPA-HQ-OAR-2009-0491-3936[1].1, p.3]
PSEG Fossil recommends maintaining the assurance calculation at the owner level. [EPA-HQ-OAR-2009-0491-3936[1].1, p.3]
Response:
See sections VII.E and XI of the preamble.  The commenter expressed concern that implementing the assurance provisions on a common-designated-representative basis would minimize flexibility because the commenter assigns plant managers as the designated representatives.  However, a designated representative can be changed simply through submission of a superseding certificate of representation, and EPA has found that designated representatives for many sources are changed relatively frequently.  In light of this and other factors discussed in the preamble, the final rule bases the identification of the groups of one or more units and sources with a common designated representative on the identity of the designated representatives as of a specific date, i.e., April 1 after the control period for which a state triggers the assurance provisions.  This approach will provide flexibility for owners and operators to continue generally to select the plant manager as the designated representative and to select a common designated representative for purposes of the implementation of the assurance provisions.
Organization: Utility Air Regulatory Group (UARG)
Clean Energy Group
Santee Cooper
Tri-State Generation and Transmission Association, Inc.
First Energy
Gainesville Regional Utilities (GRU)
National Grid
Tennessee Valley Authority (TVA)
Florida Municipal Power Agency, Gainesville Regional Utilities, JEA, Orlando Utilities Commission, and City of Tallahassee
Kansas City Power and Light Company (KCP&L)
Great River Energy
Duke Energy
Dominion
Entergy Services, Inc.
Empire District Electric Company (Empire District)
Exxon Mobil Corporation
America's Natural Gas Alliance
West Virginia Department of Environmental Protection
NRG Energy
Xcel Energy Inc.
Maryland Department of Environment (MDE)
Dayton Power and Light Company (DP&L)
American Petroleum Institute (API)
Southern Company
Comment:
America's Natural Gas Alliance
With respect to the issue of the manner in which the Agency calculates the assurance provision allowance surrender requirements (in the event total emissions from a state in a given year exceed the state assurance level), ANGA believes that it is critically important that the calculation be done in such a way as to enhance both administrative ease (for both covered units and for the Agency) and flexibility. To the extent that the alternative approach outlined in the NODA - calculating it on a Designated Representative (DR) basis rather than on an owner/operator basis - would be simpler to understand and implement, and would provide owners and operators more flexibility than the initially proposed method, ANGA supports such an alternative. [EPA-HQ-OAR-2009-0491-3939[1].1, p.4-5]
American Petroleum Institute (API)
C. API supports the option for an owner to identify a Designated Representative as an alternate the owner-by-owner approach suggested in the proposed CATR. [EPA-HQ-OAR-2009-0491-3982[1].1, p.2]
C. Designated Representative option for allowance surrender
On page 1,117-8 in this NODA, EPA proposes to allow a Designated Representative (DR) as an alternate to the owner-by-owner approach suggested in the proposed CATR. We support the Designated Representative approach which we agree should provide owners with more flexibility to deal with allowance surrender if needed. [EPA-HQ-OAR-2009-0491-3982[1].1, p.4]
API also supports the option for an owner to identify a Designated Representative as an alternate to the owner-by-owner approach. [EPA-HQ-OAR-2009-0491-3982[1].1, p.5]
Clean Energy Group
The Clean Energy Group recognizes that EPA is looking for opportunities to make the assurance provision allowance surrender requirement more straightforward and the NODA proposes to impose the requirement at the designated representative (DR) level. One reason EPA outlines for switching to the DR basis is that it would be more consistent with other requirements under the proposed Transport Rule trading programs that are on a unit-by-unit or source-by-source basis. However, EPA designed the assurance provision to provide owners and operators more flexibility than the unit-by-unit or source-by-source compliance requirements. While the Clean Energy Group remains in agreement with the intent of the assurance provisions, we caution EPA that the relative benefits of calculating assurance provisions at the owner level or the DR level vary from company to company and depend on existing contractual relationships and ownership agreements. While the DR-based calculation provides additional flexibility to some owners and operators, it provides less flexibility to other owners and operators. Given the different ownership structures within the electric sector, individual Clean Energy Group companies will submit specific comments on EPA's proposal to change the basis for the calculation of assurance provision allowance surrender requirements. [EPA-HQ-OAR-2009-0491-4002[1].1, p.3]
Dayton Power and Light Company (DP&L)
E. Should the Assurance Provision Allowance Surrender Requirement be Calculated on a Designated Representative ('DR') Basis?
DP&L agrees with EPA that imposing the proposed assurance provision allowance surrender requirement at the DR level, rather than owner level, is more straightforward and consistent with information already provided to EPA. It also potentially provides owners and operators more flexibility than under the approach in the proposed Transport Rule. [EPA-HQ-OAR-2009-0491-3973[1].1, p.3]
A new program of providing and updating ownership share information to EPA would only increase administrative complexity for both utilities and EPA, without providing any additional compliance assurance. [EPA-HQ-OAR-2009-0491-3973[1].1, p.3]
Dominion
Assurance Provisions
EPA is considering applying the allowance surrender requirement for the proposed CATR 'assurance provisions' on a designated representative-by-designated representative (DR-by-DR) basis rather than on an owner-by-owner basis. Since this is more consistent with the approach taken in other aspects of the proposed CATR (such as reporting requirements) as well as other interstate trading programs (such as CAIR and the Acid Rain Title IV programs), we believe this approach is more straightforward. We support this change being incorporated into the final rule. [EPA-HQ-OAR-2009-0491-3987[1].1, p.7]
Duke Energy
EPA requested comments on whether the PTR assurance provision allowance surrender requirements should be calculated on a Designated Representative ("DR") basis rather than on an owner-by-owner basis. Duke Energy agrees with EPA that imposing the assurance provision allowance surrender requirements in the PTR at the DR level would be more straightforward than using owner level, and would be more consistent with information already provided to EPA. It would also be more consistent with other requirements of the PTR that would be imposed on a unit-by-unit basis. Another advantage of applying the assurance provisions at the DR level rather than owner level is it will allow the owners of co-owned units to determine amongst themselves how any potential allowance surrender requirements should be divided up rather than having EPA make this determination. [EPA-HQ-OAR-2009-0491-3965[1].1, p.11]
Empire District Electric Company (Empire District)
An Alternative Approach to Calculation of Assurance Provision Allowance Surrender
Empire District supports the EPA's proposed alternative calculation of the assurance provision surrender on a DR-by-DR basis rather than an owner-by-owner basis. This would help alleviate the problems caused where an owner, who is not the operator, is located in a G1 state and the joint-owned unit is located in a G2 state, or vice-a-versa. [EPA-HQ-OAR-2009-0491-3883[1].1, p.2]
Entergy Services, Inc.
Calculation Of Assurance Provision Allowance Surrender Requirements
Entergy supports the calculation of assurance provision allowance surrender requirements on a Designated Representative (DR) basis.  As the EPA has mentioned in the NODA, imposing the proposed assurance provision allowance surrender requirement at the DR level, rather than owner level, potentially provides owners and operators with more flexibility than under the approach in the proposed Transport Rule while ensuring that the issue of interstate transport is addressed. [EPA-HQ-OAR-2009-0491-3986[1].1, p.2]
Exxon Mobil Corporation
8. Designated Representative - At 76 Federal Register 1117-1118 in Section VI. EPA proposes to allow a Designated Representative (DR) as an alternate the owner-by-owner approach suggested in the proposed CATR. We support the Designated Representative approach which we agree should provide owners with more flexibility to deal with allowance surrender if needed. [EPA-HQ-OAR-2009-0491-3999[1].1, p.3]
First Energy
FirstEnergy supports the EPA's alternative approach to the assurance provisions on an Owner by Owner basis instead of the Designated Representative ("DR") by DR basis. The DR by DR assurance provision simplifies the responsibility of a utility to manage and track CATR allocations. [EPA-HQ-OAR-2009-0491-3904[1].1, p.3]
Florida Municipal Power Agency, Gainesville Regional Utilities, JEA, Orlando Utilities Commission, and City of Tallahassee
Assurance and Allowance Surrender Responsibilities: Several of our utilities currently have partial ownership or co-ownership in fossil-fuel units. We believe that having the DR for the facility or group of facilities, instead of potentially multiple owners, responsible for both assurance and allowance surrender requirements make the most sense from an administrative standpoint. [EPA-HQ-OAR-2009-0491-3907[1].1, p.2]
Gainesville Regional Utilities (GRU)
While GRU does not currently have partial ownership in any fossil-fuel units, it may be the case in the future. We believe that having the DR for the facility as opposed to multiple owners responsible for both assurance and allowance surrender requirements make sense from an administrative standpoint. [EPA-HQ-OAR-2009-0491-3922[1].1, p.2]
Great River Energy