1. PENNSYLVANIA DRAFT MERCURY RULE Presented by Gail M. Conner, Esquire March 21, 2006

2. Background August 9, 2004 Citizens for Pennsylvanias Future (PennFuture) filed a petition with EQB requesting action to reduce mercury emissions from PA electric utilities. August 9, 2004 Citizens for Pennsylvanias Future (PennFuture) filed a petition with EQB requesting action to reduce mercury emissions from PA electric utilities. May 18, 2005, PADEP completed its report on the PennFuture petition and concluded that neither the groups suggested rule nor CAMR are best for PA. May 18, 2005, PADEP completed its report on the PennFuture petition and concluded that neither the groups suggested rule nor CAMR are best for PA. August 16, 2005, EQB approved PADEPs recommendation to develop a PA-Specific Mercury Rule to reduce emissions from EGUs with the commitment by PADEP to a HG Rulemaking public involvement process. August 16, 2005, EQB approved PADEPs recommendation to develop a PA-Specific Mercury Rule to reduce emissions from EGUs with the commitment by PADEP to a HG Rulemaking public involvement process.

3. Background The rulemaking process would The rulemaking process would Examine mercury emission reduction strategies for electric generating units (EGUs); Examine mercury emission reduction strategies for electric generating units (EGUs); Encourage the burning of cleaner PA coal Encourage the burning of cleaner PA coal Discourage fuel switching; and Discourage fuel switching; and Consider capacity and reliability concerns for delivery of power over the grid. Consider capacity and reliability concerns for delivery of power over the grid. The EQB approved the recommendation of PADEP to develop a state-specific Mercury Rule with a subsequent amendment for PADEP to confer with stakeholders, which included, but not limited to CAC. The EQB approved the recommendation of PADEP to develop a state-specific Mercury Rule with a subsequent amendment for PADEP to confer with stakeholders, which included, but not limited to CAC.

4. PRESUMPTIONS The federal Clean Air Mercury Rule (CAMR) for new and existing coal-fired EGUs is effective in PA. The federal Clean Air Mercury Rule (CAMR) for new and existing coal-fired EGUs is effective in PA. The EQB directed the PADEP to develop a PA-specific Mercury Rule. The EQB directed the PADEP to develop a PA-specific Mercury Rule. The State Plan for existing EGUs is due to the U.S.EPA, Region III by November 17, 2006 The State Plan for existing EGUs is due to the U.S.EPA, Region III by November 17, 2006 The State Plan must be at least as stringent as CAMR. The State Plan must be at least as stringent as CAMR.

5. PRESUMPTIONS Mercury removal will be attained through differing strategies as determined by specific combustion unit and fuel mix. Mercury removal will be attained through differing strategies as determined by specific combustion unit and fuel mix. PADEP will draft rule in consultation with CAC, Workgroup, and AQTAC. PADEP will draft rule in consultation with CAC, Workgroup, and AQTAC. CAC, Workgroup and AQTAC will consider the proposed rule prior to submission to the EQB. CAC, Workgroup and AQTAC will consider the proposed rule prior to submission to the EQB.

6. PUBLIC INVOLVEMENT Public involved began during the fall of 2005. Public involved began during the fall of 2005. Presentations from various parties was freely permitted during the public involvement process including, but not limited to topics such as atmospheric fate and transport of mercury, Hg deposition in PA, other state regulations and PA Fish Advisories in PA for Hg Presentations from various parties was freely permitted during the public involvement process including, but not limited to topics such as atmospheric fate and transport of mercury, Hg deposition in PA, other state regulations and PA Fish Advisories in PA for Hg Delaware River Basin – 8 waterways; Delaware River Basin – 8 waterways; Lake Erie Basin – 3 water bodies; Lake Erie Basin – 3 water bodies; Susquehanna River Basin – 38 waterways; Susquehanna River Basin – 38 waterways; Ohio River Basin – 29 waterways; Ohio River Basin – 29 waterways; Potomac River Basin – 2 waterways. Potomac River Basin – 2 waterways.

7. Public Involvement - Presentations Health Effects was another discussion during the Public involvement process which including the following information: Health Effects was another discussion during the Public involvement process which including the following information: Low dose prenatal methyl mercury exposure associated with poor performance on neurobehavioral tests in young children. Low dose prenatal methyl mercury exposure associated with poor performance on neurobehavioral tests in young children. About 600,000 children born in U.S. could have neurological problems because of prenatal methyl mercury exposure. About 600,000 children born in U.S. could have neurological problems because of prenatal methyl mercury exposure. Methyl mercury is also known to be a toxic to adults causing permanent damage to the brain, kidneys, and cardiovascular system. Methyl mercury is also known to be a toxic to adults causing permanent damage to the brain, kidneys, and cardiovascular system.

8. Other States with Mercury Regulatory Action Final Hg Action Final Hg Action Wisconsin Wisconsin Connecticut Connecticut New Jersey New Jersey Massachusetts Massachusetts Pending Hg Regulatory Action Pending Hg Regulatory Action Illinois Illinois Maryland Maryland Indiana Indiana Virginia Virginia North Carolina North Carolina Michigan Michigan Legislative Action Ohio New Hampshire Minnesota Illinois New York Montana Maryland

9. Hg Emissions from Coal-fired Electric Generating Units (EGUs) in PA 36 coal-burning power plants in PA 36 coal-burning power plants in PA In 2003 emitted a total of 3.392 tons In 2003 emitted a total of 3.392 tons 7.5% of national total 7.5% of national total Third to Texas and Ohio Third to Texas and Ohio

10. PA Lawsuit Challenging EPAs CAMR and Revised Appropriate and Necessary findings that regulation under §112 is neither appropriate nor necessary which established the U.S.EPA basis for the Cap and Trade program

11. PA Position CAMR is not the control technology approach contemplated under the hazardous air pollutant provisions of Section 112 of the CAA. CAMR is not the control technology approach contemplated under the hazardous air pollutant provisions of Section 112 of the CAA. CAMR disadvantages electric generating units burning bituminous and anthracite coals with the most stringent requirements established for units burning waste coal. CAMR disadvantages electric generating units burning bituminous and anthracite coals with the most stringent requirements established for units burning waste coal. Rulemakings do not adequately regulate a potent neurotoxin such as Hg. Rulemakings do not adequately regulate a potent neurotoxin such as Hg.

12. Status of PA Filed Petitions PA and others filed petitions for reconsideration on revision action and CAMR. PA and others filed petitions for reconsideration on revision action and CAMR. U.S.EPA granted reconsideration petitions on certain aspects of both final actions. U.S.EPA granted reconsideration petitions on certain aspects of both final actions. U.S.EPA took comments on those aspects. U.S.EPA took comments on those aspects. It is anticipated that U.S.EPA will take final action no later than May 2006. It is anticipated that U.S.EPA will take final action no later than May 2006.

13. General Principals of Draft PA MERCURY Rule No trading of Hg emission allowances. No trading of Hg emission allowances. Achieve greater reductions in Hg than EPAs CAMR. Achieve greater reductions in Hg than EPAs CAMR. Maximize the Hg reduction co-benefits from other SO 2 and NOx emission control programs such as CAIR. Maximize the Hg reduction co-benefits from other SO 2 and NOx emission control programs such as CAIR. Discourage fuel switching from bituminous coal. Discourage fuel switching from bituminous coal. No adverse impact on the capacity and reliability of power generation. No adverse impact on the capacity and reliability of power generation.

14. Components of Interim Draft PA Mercury Rule Phase I – Deadline January 1, 2010 Phase I – Deadline January 1, 2010 Mercury Emission Standard Mercury Emission Standard unit by unit basis, unit by unit basis, Allows emission averaging among units at the same facility. Allows emission averaging among units at the same facility. Compliance presumption – cold-side ESP, wet FGD and SCR where 100% bituminous coal is burned Compliance presumption – cold-side ESP, wet FGD and SCR where 100% bituminous coal is burned Alternative emission standard/compliance schedule Alternative emission standard/compliance schedule Annual Emission Limits Annual Emission Limits Established for each EGU on ounces per year basis Established for each EGU on ounces per year basis Based on CAMR allocation distribution Based on CAMR allocation distribution Unit annual emission limit in Phase 1 will be identical to the Phase 2 limit Unit annual emission limit in Phase 1 will be identical to the Phase 2 limit Provides regulatory assurance for PA to meet the EPA CAMR Hg budgets. Provides regulatory assurance for PA to meet the EPA CAMR Hg budgets.

15. Components of Interim Draft PA Mercury Rule Phase II – Deadline January 1, 2015 Phase II – Deadline January 1, 2015 Mercury Emission Standard – Mercury Emission Standard – unit by unit basis, unit by unit basis, Allows emission averaging among units at the same facility. Allows emission averaging among units at the same facility. Compliance presumption – cold-side ESP, wet FGD and SCR where 100% bituminous coal is burned Compliance presumption – cold-side ESP, wet FGD and SCR where 100% bituminous coal is burned Alternative emission standard/compliance schedule Alternative emission standard/compliance schedule Annual Emission Limits Annual Emission Limits Established for each EGU on ounces per year basis Established for each EGU on ounces per year basis Based on CAMR allocation distribution Based on CAMR allocation distribution Unit annual emission limit in Phase 1 will be identical to the Phase 2 limit Unit annual emission limit in Phase 1 will be identical to the Phase 2 limit Provides regulatory assurance for PA to meet the EPA CAMR Hg budgets. Provides regulatory assurance for PA to meet the EPA CAMR Hg budgets.

16. Components of Interim Draft PA Mercury Rule Alternative Emission Standard Compliance Application Alternative Emission Standard Compliance Application An EGU can apply to PADEP for an alternative emission standard or schedule. An EGU can apply to PADEP for an alternative emission standard or schedule.

17. Components of Interim Draft PA Mercury Rule Annual Emission Limitation Supplemental Pool Annual Emission Limitation Supplemental Pool PADEP will establish an annual emission limit supplement pool to monitor annual non-tradable mercury allowances as per §123.209 PADEP will establish an annual emission limit supplement pool to monitor annual non-tradable mercury allowances as per §123.209 The pool of annual non-tradable mercury allowances will be administered according to the requirements in § 123.210 (relating to petition process) by PADEP. The pool of annual non-tradable mercury allowances will be administered according to the requirements in § 123.210 (relating to petition process) by PADEP. There is an order of preference for additional allowances There is an order of preference for additional allowances

18. Components of Interim Draft PA Mercury Rule Exemptions EGU that enter into an Enforceable agreement with PADEP to shutdown and replace unit with integrated gasification combined cycle (IGCC) technology Results in exemption from Phase I emissions standards in §123.206 Results in exemption from Phase I annual emissions limitations in §123.208

19. Tentative Hg Rule Timeline May 3, 2006 – Submit proposed Hg rulemaking to EQB for consideration May 3, 2006 – Submit proposed Hg rulemaking to EQB for consideration May 17, 2006 – EQB action on the proposed rulemaking May 17, 2006 – EQB action on the proposed rulemaking Late June, 2006 – Publish Notice of Proposed Rulemaking in the PA Bulletin Late June, 2006 – Publish Notice of Proposed Rulemaking in the PA Bulletin July 2006 – Three public hearings in Southeast, Southcentral and Southwestern PA July 2006 – Three public hearings in Southeast, Southcentral and Southwestern PA July/August 2006 – Summarize public comments/develop final-form regulations. Meet with CAC/AQTAC/Workgroup to discuss final-form mercury regulation July/August 2006 – Summarize public comments/develop final-form regulations. Meet with CAC/AQTAC/Workgroup to discuss final-form mercury regulation September/October 2006 – EQB considers final-form mercury regulation September/October 2006 – EQB considers final-form mercury regulation November 2006 – Independent Regulatory Review Commission Meeting November 2006 – Independent Regulatory Review Commission Meeting November 2006 – Publish final mercury rulemaking. November 2006 – Publish final mercury rulemaking. November 2006 – Submit State Plan to EPA Region III November 2006 – Submit State Plan to EPA Region III