1. PRIVILEGED & CONFIDENTIAL Reciprocating Internal Combustion Engine (RICE) Regulatory Update American Public Power Association June 8, 2010

2. PRIVILEGED & CONFIDENTIAL 2 Overview: RICE Regulated in 4 Stages 1.June 2004 Final Rule – New and reconstructed >500 HP at major sources – Existing 4SRB RICE >500 HP at major sources – No requirements for emergency or area sources 2.January 2008 Final Rule (new engines only) – area sources – <500 HP at major sources – proposal for existing engines not finalized because of decision in Sierra Club v. EPA ( brick/clay MACT )

3. PRIVILEGED & CONFIDENTIAL 3 Overview: RICE Regulated in 4 Stages 3.February 2010 Final Rule (March 2009 proposal for compression ignition engines) – NESHAPs for new, reconstructed and existing RICE – Many subcategories, based on size (HP) area Source or major source emergency or non-emergency use 4.August 10, 2010 Final Rule (March 2009 proposal for spark ignition engines)

4. PRIVILEGED & CONFIDENTIAL 4 Compliance Dates Existing compression ignition RICE must comply by May 3, 2013 New compression ignition RICE must comply by May 3, 2010 – mostly a manufacturer issue? Petition for review by Enernoc, Cpower, Energyconnect and Innovative Power

5. PRIVILEGED & CONFIDENTIAL 5 Major Sources and Area Sources A major source has potential to emit 10 tpy of any HAP or 25 tpy or more of all HAPs – probably all coal-fired power plants Area sources are sources that are not major sources – many nuclear plants, CT stations, hydro Cost/economic impacts are factors for area sources but not in setting MACT floor for major sources

6. PRIVILEGED & CONFIDENTIAL 6 Proposal Affected All Engine Sizes 4100 HP Generator Set Utility 4 HP Emergency Generator Residential

7. PRIVILEGED & CONFIDENTIAL 7 Basis for Proposed Limits Utilized emission data from 2000 database – no new data collected from 2000 to 2010 Based MACT floor emissions on insufficient data – utilized “best performing 12%” criterion  failed to consider total engines in population – some floor emission levels based on one engine – no variability in floor limit determination Generally poor technical work

8. PRIVILEGED & CONFIDENTIAL 8 Basis for Proposed Limits Based above-the-floor limits on oxidation catalysts – assumed oxidation catalyst achieves 90% reduction – assumed most RICE would not require catalyst  low proposed CO limit makes assumption inaccurate  most actually could not meet MACT floor

9. PRIVILEGED & CONFIDENTIAL 9 Proposal for Major Sources 2 ppm formaldehyde 4 ppm CO or 90% CO Reduction 40 ppm CO 2 ppm formaldehyde 40 ppm CO 100 50200300400500 HORSE POWER 0 NON- EMERGENCY

10. PRIVILEGED & CONFIDENTIAL 10 Proposal for Area Sources 500 Hr Inspection PERIODIC MAINTENANCE 500 Hrs - Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs - Inspect Air Cleaner PERIODIC MAINTENANCE 500 Hrs - Change Oil & Filter and Inspect Hoses and belts 1000 Hrs - Inspect Air Cleaner 40 ppm CO 500 Hr Inspection 4 ppm CO or 90% CO reduction 100 50200300 400 500 HORSE POWER 0 NON- EMERGENCY

11. PRIVILEGED & CONFIDENTIAL 11 Example of EPA’s Misinterpretation of Data 4SRB Spark Ignition Engines

12. PRIVILEGED & CONFIDENTIAL 12 Revised MACT Floor Analysis 5 new emission data reports – 11 new stationary engines plus 1 previous CSU engine Engines 100 ≥HP ≤300 MACT floor – based on 2 engines using CO from 6 runs – CO emission floor set at 230 ppm (previously 40 ppm)

13. PRIVILEGED & CONFIDENTIAL 13 Revised MACT Floor Analysis Engines 300 <HP ≤500 MACT floor – based on 2 engines using CO from 6 runs – CO floor set at 137 ppm (previously 40 ppm) Engines > 500 HP – Based on 1 test from data on 8 Engines – CO emission floor set at 38 ppm (previously 40 ppm)

14. PRIVILEGED & CONFIDENTIAL 14 Revised MACT Floor Dataset

15. PRIVILEGED & CONFIDENTIAL 15 Uncontrolled CO Emission Load Characteristics Average Emissions for 550 HP CI Engines 2 & 3

16. PRIVILEGED & CONFIDENTIAL 16 Emergency RICE Engines whose operation is limited to emergency situations and required testing and maintenance, for example: – produce power for critical networks or equipment when power is interrupted – pump water during a fire or flood Peak shaving engines do not qualify as emergency engines

17. PRIVILEGED & CONFIDENTIAL 17 Emergency RICE No time limit for emergency operations Minimize testing, but no time limit for routine testing and maintenance Engines >500 HP installed before June 2006 may operate 50 hr/yr in non-emergency situations If regional transmission authority determines need, may operate 15 hours/year while generating revenue to maintain system voltage or avoid potential blackout

18. PRIVILEGED & CONFIDENTIAL 18 Improvements at Area Sources Existing emergency engines located at residential, commercial and institutional facilities are exempt – were not included in 1990 baseline emissions for CAA amendments – eliminated 95% of engines for one utility – some engines may be ambiguous Requirements for many existing sources are work practices (periodic maintenance and inspections), not emission limits

19. PRIVILEGED & CONFIDENTIAL 19 Improvements for Major Sources Emergency RICE <500 HP have work practice standards only, no emission limits Non-emergency RICE <100 HP have work practice standards only, no emissions limits Work practices include periodic changes of oil and filters; periodic inspections of air cleaners, hoses, belts, etc.

20. PRIVILEGED & CONFIDENTIAL 20 CI RICE Catalyst Capital Cost

21. PRIVILEGED & CONFIDENTIAL 21 CI RICE Catalyst Annual Operating Cost

22. PRIVILEGED & CONFIDENTIAL 22 Start-up, Shutdown, Malfunction In 2008, D.C. Circuit invalidated EPA’s rules that exempted SSM from emissions standards -- NESHAPs must apply even during SSM EPA proposed NESHAPs for startup and malfunction (not shutdown) for all ZZZZ engines – shutdowns are short and can meet normal limit UARG objected to setting startup and malfunction NESHAPs at same levels as normal operations

23. PRIVILEGED & CONFIDENTIAL 23 Start-up, Shutdown, Malfunction Final rule eliminated NESHAPs for startup and set instead work practice standards – emissions significantly different from normal operations – minimize idle and startup time (maximum 30 minutes) No malfunction limits – EPA assumes engine would shut down immediately

24. PRIVILEGED & CONFIDENTIAL 24 Compliance Compliance for engines with numerical limits – initial and periodic tests (3 one-hour tests) Monitoring – engines > 500 HP must install continuous parameter monitoring systems (CPMS)  monitor CO reduction, catalyst inlet temperature and pressure drop  CO reduction demonstrated on 4-hour rolling average

25. PRIVILEGED & CONFIDENTIAL 25 COMPARISON OF PROPOSED & FINAL EMISSION REQUIREMENTS FOR COMPRESSION IGNITION ENGINES LOCATED AT MAJOR SOURCES * Above-the-Floor Used Highest CO 163ppmv ** Above-the-Floor Used Highest CO 77ppmv 230ppmCO Periodic Maintenance (See Below) 49ppmCO or 70 % CO Reduction Floor = 137ppmv * 23ppmCO or 70 % CO Reduction Floor = 38 ppmv ** 2 ppm formaldehyde 4ppmCO or 90 % CO Reduction Floor = 40ppmv 40ppmCO 2 ppm formaldehyde PERIODIC MAINTENANCE FOR EMERGENCY AND BLACK START ENGINES 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner 40ppmCO 100 50200300 400 500 HORSE POWER 0 NON - EMERGENCY FINAL PROPOSED FINAL PROPOSED EMERGENCY * Above-the-Floor Used Highest CO 163ppmv ** Above-the-Floor Used Highest CO 77ppmv 230ppmCO Periodic Maintenance (See Below) 49ppmCO or 70 % CO Reduction Floor = 137ppmv * 23ppmCO or 70 % CO Reduction Floor = 38 ppmv ** 2 ppm formaldehyde 4ppmCO or 90 % CO Reduction Floor = 40ppmv 40ppmCO 2 ppm formaldehyde PERIODIC MAINTENANCE FOR EMERGENCY AND BLACK START ENGINES 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner 40ppmCO 100 50200300 400 500 HORSE POWER 0 NON - EMERGENCY FINAL PROPOSED FINAL PROPOSED EMERGENCY

26. PRIVILEGED & CONFIDENTIAL 26 COMPARISON OF PROPOSED & FINAL EMISSION REQUIREMENTS FOR COMPRESSION IGNITION ENGINES LOCATED AT AREA SOURCES 500 Hr Inspection PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner 40ppmCO 49ppmCO, or 70 % CO Reduction 23ppmCO, or 70 % CO Reduction PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner (BOTH EMERGENCY AND NON-EMERGENCY BLACK START ENGINES) 500 Hr Inspection 4ppmCO, or 90 % CO Reduction 100 50200300 400 500 HORSE POWER 0 NON - EMERGENCY FINAL PROPOSED FINAL PROPOSED EMERGENCY 500 Hr Inspection PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner 40ppmCO 49ppmCO, or 70 % CO Reduction 23ppmCO, or 70 % CO Reduction PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner PERIODIC MAINTENANCE 500 Hrs-Change Oil & Filter and Inspect Hoses & Belts, 1000 Hrs-Inspect Air Cleaner (BOTH EMERGENCY AND NON-EMERGENCY BLACK START ENGINES) 500 Hr Inspection 4ppmCO, or 90 % CO Reduction 100 50200300 400 500 HORSE POWER 0 NON - EMERGENCY FINAL PROPOSED FINAL PROPOSED EMERGENCY

27. PRIVILEGED & CONFIDENTIAL 27 Metallic HAP for RICE >300 HP Non-emergency units not already equipped with a closed crankcase system must: – install a closed crankcase system OR – install an open crankcase filtration system to remove oil, mist, PM and metals Applies to both major and area sources

28. PRIVILEGED & CONFIDENTIAL 28 Closed Crankcase System Costs Capital Costs – $1,075 (300 HP) – $1,777 (3,000 HP) Annual Operating Costs – $275 (300 HP) – $450 (3,000 HP) Cannot assess accuracy of estimates

29. PRIVILEGED & CONFIDENTIAL 29 Low Sulfur Fuel Requirements Applies to both major and area sources Applies to RICE >300 HP with displacement of less than 30 liters per cylinder Maximum sulfur content of 15 ppm and Either a minimum cetane index of 40 or a maximum aromatic content of 35%

30. PRIVILEGED & CONFIDENTIAL 30 RICE Used to Start CTs Engines used to start up combustion turbines are deemed to be “black start” engines Back start engines must meet the same work practice standards as emergency engines Such engines typically operate <20 hours per year

31. PRIVILEGED & CONFIDENTIAL 31 Title V Permits for Area Sources Section 63.6585(d) All RICE located at area sources are exempt from Title V permits under parts 70 and 71 provided sources do not otherwise have to meet such requirements.

32. PRIVILEGED & CONFIDENTIAL 32 Assessment of Final Rule Greatly reduced need for above-the-floor controls – proposal would have required catalyst on most CI engines – MACT floor 6-12 times higher than proposed Engines < 300 HP may avoid oxidation catalyst Engines > 300 HP – some might comply w/o oxidation catalyst – oxidation catalyst must reduce CO by 70%, not 90%

33. PRIVILEGED & CONFIDENTIAL 33 Planning for Compliance With ZZZZ 1.Detailed inventory – make, model, rated HP, year in service, type (CI, SI [4/2 stroke, rich/lean burn], fuel type 2.Identify requirements for CI engine population a.> 300 HP that do not have closed crankcase systems b.those with low sulfur fuel requirements c. those required to install CPMS d. those subject to maintenance practices e. those potentially subject to oxidation catalyst

34. PRIVILEGED & CONFIDENTIAL 34 Planning for Compliance With ZZZZ 3.Review manufacturer’s recommended maintenance practices for maintenance practice-only engines – prepare a maintenance plan to meet RICE MACT requirements 4.Develop test plans for engines with numerical limits – assess availability of test contractors – schedule tests

35. PRIVILEGED & CONFIDENTIAL 35 Planning for Compliance With ZZZZ 5.Assess applicability of installation of oxidation catalyst – potential degree of installation difficulty, – assemble a list of catalyst vendors – assess whether installation can be performed in-house 6.Assess CPMS requirements for engines > 500 HP 7.Develop an implementation plan with timelines to ensure that all engines are in compliance by May 2013