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Pennsylvania Electric Company (Pennelec)

July 12, 1996

R.P. Lantzy
Pennsylvania Electric Company
1001 Broad Street
Johnstown, PA 15907

Dear Mr. Lantzy:

EPA has completed its review of the proposal from Pennsylvania Electric Company (Pennelec), GPU Generation Corporation (Genco), and New York State Electric & Gas Corporation (NYSEG) for the Homer City, PA facility. As you know, participation in Project XL is limited and competitive. A critical factor in the selection of a proposal is the likelihood that the proposed project will provide superior environmental performance. While some of the cost savings resulting from the regulatory flexibility provided by Project XL will be reaped by shareholders and customers, EPA believes that some of the savings should be invested in improving the environment, both nationally and regionally. We have concluded that the project as proposed would not assure superior environmental performance. This letter clarifies what EPA would consider to be the baseline for defining superior environmental performance for this project, and we invite you to modify your proposal accordingly.

Superior environmental performance is one of the cornerstones of Project XL. Another is providing the flexibility to move away from one-size-fits-all regulations and develop approaches to environmental protection that address the particular circumstances of the facility, community and region. Accordingly, a determination of what constitutes superior environmental performance for a particular XL project is made on a case-by-case basis. For your particular proposal to provide superior environmental performance, you must make the following modifications or propose others which have environmental benefits that equal or exceed those resulting from the following:

  1. The project should achieve either a twenty percent reduction in actual SO2 emissions or environmental benefits that are demonstrably equivalent or better. Because the region around the Homer City facility suffers from air pollutant emissions other than SO2 emissions, the proposal could meet this goal by accomplishing voluntary reductions (over and above those required by law) in the emission of other air pollutants such as NOx or particulate matter. In addition, any percentage reductions in emissions over actual emissions must be sustained as the regulatory scheme changes. For example, after January 1, 2000, the Homer City facility will receive sulfur dioxide allowances equivalent to the emission of 1.2 lbs/mmBTU. The environmental benefits achieved by the porposal once the Homer City facility is eligible to receive allowances must be demonstrably equivalent to or better than a twenty percent reduction over the 1.2 lbs/mmBTU that the allowances would permit.
  2. To ensure that the region reaps environmental gains that are not forfeited due to increases in capacity, Pennelec-Genco-NYSEG should provide some assurance that the rate-based gains that would be guaranteed under this project translate into absolute reductions in pollution in the region. For example, the proposers could limit the emissions at the Homer City Station or provide a discussion of how the proposed XL project will or will not alter capacity utilization and resulting emissions at the affected Home City units or other power sources.
  3. Reductions in emissions should not be transferred elsewhere for use as emission credits. Therefore, Pennelec-Genco-NYSEG should commit to retiring allowances as you suggest in your letter of June 8, 1996 and to not designating any unit at the Homer City facility a substitute unit. In addition, if the facility's emissions rate or actual emissions exceed the caps set by the proposal, Pennelec-Genco-NYSEG should commit to retiring three SO2 allowances for every one ton of emissions that exceeds either of the caps.

As mentioned above, these three items are not the only way to achieve superior environmental performance; however, if your resubmission proposes alternatives to these three suggestions, you must demonstrate to EPA that your alternatives provide equivalent or superior environmental benefits.

In addition to improvements in environmental performance, EPA would like additional information to ascertain that the project is feasible and that the coal cleaning system will not generate its own environmental problems. EPA would also like information regarding any approaches that the coal cleaning system will use that differ from the approach taken in the early 1980s.

Absent improved performance of the type described above, EPA would not accept the Pennelec-Genco-NYSEG proposal for Project XL. As noted above, XL is highly competitive, and even proposals that have some merit will not be selected if they fail to provide superior environmental performance. EPA feels that this proposal presents an approach to environmental protection that warrants further consideration, and I hope that you will consider our comments and respond with appropriate improvements to your proposal. Please feel free to contact L. Nancy Birnbaum from my staff at 202/260-2601 or Nancy Cichowicz from Region 3 at 215/566-5390 if you have any questions.

cc: Michael McCabe
Mary Nichols

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