1. Engineering Assessment of Hydrogen Sulfide Issues Confirmed industry cost estimates Relative costs & performance of WWTS controls Emerging activated sludge trend Cost impact of activated sludge in other states Phasing-in new activated sludge units Reporting and controlling H 2 S from WWTS in other states Methyl mercaptan issues from WWTS?

2. Confirmed Paper Industry Cost Estimates Published cost data for activated sludge in close agreement with industry aggregate capital cost estimate; based on M. Fels Optimized design of WWTS, 1997; referenced in Feb. 6 DAQ package Also confirmed by WWTS consultant No clear cost differences for 3 AALs

3. Paper Industry Cost Estimates for Activated Sludge Paper industry estimate $ MillionProposed AALs Capital cost increment 340All 3 Operating cost increment 12 - 15All 3

4. Fertilizer Facility Cost Estimates for 3 Proposed AALS Relative costProposed AALSources controlled 1.0 X 1.8 X 2.1 X 120 ug/m 3 24-hr 33 ug/m 3 24-hr 56 ug/m 3 1-hr 246246

5. Relative Cost & Performance: Aerated basin vs Activated sludge Aerated stabilization basin - More cost effective - Comparable but slightly less performance - 2 of 3 US mills installed aerated basins - 4 of 5 NC mills installed aerated basins, typical of southern mills - Most installed 20-40 years ago

6. Relative Cost & Performance: Activated sludge vs Aerated basin Activated sludge Better wastewater treatment performance Less space, more effective in colder climates Irony that the following not air quality driven - 2 of 3 Canadian mills with AS due to improved water quality discharge, especially during winter - 1 of 3 US mills with AS due to space constraints, - Trend of US & Canadian mills switching to AS

7. Relative cost & performance: Activated sludge vs Aerated basin ParameterActivated Sludge Aerated Basin Relative annualized cost1.91.0 BOD treatment performance - Warm weather - Cold weather 90% 75% 50% Relative cost / performance - Warm weather - Cold weather $/BOD 2.1 $/BOD 1.3 2.0

8. Cost Impact in Other States Paper mills able to bear costs for installing / switching to activated sludge in 6 states: Florida, Michigan, Minnesota, North Carolina, Washington, Wisconsin, Canada

9. Phasing-in New Activated Sludge Few mills in south have limited success combining AS with AB In contrast, 3 mills in Washington successfully combined AS with AB - Most concentrated wastewaters to AS - Less concentrated wastewaters to AB

10. Reporting & Controlling Air Emissions from Paper Mills WWTS Based on states contacted, common practice for most mills not to report air emissions from WWTS Measured air emission data limited from WWTS - So limited any generalizations are indefensible Paper industry uses computerized model to predict/estimate emissions No incentive to report, yet alone control emissions Limited experience in cost effective controls

11. Methyl Mercaptan from WWTS One NC mill indicates MM emissions 10% of H 2 S - Suggests 1,500 ug/m 3 at property line - 30 times AAL - Methyl Mercaptan current AAL = 50 mg/m 3 NCASI data shows MM emissions 100% of H 2 S - Suggests 15,000 ug/m 3 at property line - 300 times AAL Another NC mill shows MM emissions non issue

12. Summary ( page 1 of 2 ) Industry capital cost estimates confirmed - Paper industry -- $340 million across range of 3 AALs if WWTS not exempt - Paper industry -- $5-10 million across AAL range if WWTS exempt - Fertilizer plant $ range 2-fold across AAL range Aerated basins more common / cost-effective Activated sludge cost more / perform better Emerging trend for activated sludge for sensitive waters in at least 6 states and Canada

13. Summary (page 2 of 2) Phasing-in - Mixed results, good and bad NC paper mills reporting consistent w/industry Methyl mercaptan may be air quality issue with paper mill WWTS DAQ recommends exempting paper mill WWTS: - Incomplete understanding of extent & control of emissions as well as factors affecting emissions - Need time to further study complex issues - Economic hardship argument