EDE » Topics » Clean Air Interstate Rule (CAIR)

These excerpts taken from the EDE 10-K filed Feb 20, 2009.

Clean Air Interstate Rule (CAIR)

        The EPA issued its final CAIR on March 10, 2005. CAIR governed NOx and SO2 emissions from fossil fueled units greater than 25 megawatts in 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Units No. 1 and No. 2 are located and Arkansas where the Plum Point Energy Station is being constructed. Kansas was not included in CAIR and our Riverton Plant was not affected.

        On July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the CAIR Rule and remanded it back to the EPA. On September 24, 2008, the EPA filed a petition for rehearing with the United States Court of Appeals. The court vacated CAIR based on its interpretation that the Clean Air Act did not provide the EPA with the authority needed for CAIR implementation. However, the court stayed its vacatur on December 23, 2008. As a result, CAIR became effective for NOx on January 1, 2009 and will become effective for SO2 on January 1, 2010.

        The CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA, which were approved. We have received our full allotment of allowances as published in the Missouri CAIR Rule. Under the Arkansas CAIR rule, we will not receive allowances until approximately six years after Plum Point Unit 1 is operational. In the interim, we will transfer allowances from our Missouri units. Based on SIPs for Missouri and Arkansas, we believe we will have excess annual and ozone season NOx allowances. SO2 allowances must be utilized at a 2:1 ratio for our Missouri units as

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compared to our non-CAIR Kansas units beginning in 2010. As a result, based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.

        In order to meet CAIR requirements and to meet air permit requirements for Iatan 2, pollution control equipment is being installed on Iatan 1 with the in-service date expected to be late in the first quarter to early in the second quarter of 2009. This equipment includes a Selective Catalytic Reduction (SCR) system, an FGD scrubber and a baghouse, with our share of the capital cost estimated to be between $58 million and $60 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006, $12.1 million in 2007 and $27.3 million in 2008 with estimated expenditures of approximately $15.6 million in 2009. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC.

        Also to meet CAIR requirements, we constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008 at a total cost of approximately $31.0 million (excluding AFUDC). This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri.

        Air Permits.    Under Title V of the 1990 Amendments, we must obtain site operating permits for each of our plants from the authorities in the state in which the plant is located. These permits, which are valid for five years, regulate the plant site's total air emissions; including emissions from stacks, individual pieces of equipment, road dust, coal dust and other emissions. We have been issued permits for Asbury, Iatan, Riverton, State Line and the Energy Center Plants. We submitted the required renewal applications for the State Line and Energy Center Title V permits in 2003 and the Asbury Title V permit in 2004 and will operate under the existing permits until the Missouri Department of Natural Resources (MDNR) issues the renewed permits. A Compliance Assurance Monitoring (CAM) plan for particulate matter (PM) will be required by the renewed permit for Asbury. We estimate that the capital costs associated with the PM CAM plan will not exceed $2 million. We submitted the renewal application for the Riverton Title V permit in June 2008. A CAM plan for PM will also be required by the renewed permit for Riverton. No additional capital costs are anticipated. It is expected that the Kansas Department of Health and Environment (KDHE) will issue the renewal permit for Riverton in the first quarter of 2009.

        A new air permit was issued for the Iatan Generating Station on January 31, 2006. The new permit covers the entire Iatan Generating Station and includes the existing Unit No. 1 and Iatan Unit No. 2 currently under construction. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu per hour of heat input. The 6,600 MMBtu per hour heat input limit is in effect until the new SCR, scrubber, and baghouse are in place and fully operational, currently estimated to be late in the first quarter of 2009 to early in the second quarter of 2009.

        The Clean Air Act required companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in regulated emissions. The Sierra Club and Concerned Citizens of Platte County have claimed that modifications were made to Iatan 1 prior to the Comprehensive Energy Plan project in violation of Clean Air Act regulations. We own 12% of Iatan 1. As operator, KCP&L entered into a Collaboration Agreement with those parties that provide, among other things, for the release of such claims. In May 2008, a grand jury subpoena requesting documents was received by KCP&L. KCP&L continues to produce documents in response to the subpoena. The outcome of these activities cannot presently be determined, nor can the costs and other liabilities that could potentially result from a negative outcome presently be reasonably estimated.

Clean Air Interstate Rule (CAIR)

        The EPA issued its final CAIR on March 10, 2005. CAIR governed NOx and SO2 emissions from fossil fueled units greater than 25 megawatts in 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Units No. 1 and No. 2 are located and Arkansas where the Plum Point Energy Station is being constructed. Kansas was not included in CAIR and our Riverton Plant was not affected.

        On July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the CAIR Rule and remanded it back to the EPA. On September 24, 2008, the EPA filed a petition for rehearing with the United States Court of Appeals. The court vacated CAIR based on its interpretation that the Clean Air Act did not provide the EPA with the authority needed for CAIR implementation. However, the court stayed its vacatur on December 23, 2008. As a result, CAIR became effective for NOx on January 1, 2009 and will become effective for SO2 on January 1, 2010.

        The CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA, which were approved. We have received our full allotment of allowances as published in the Missouri CAIR Rule. Under the Arkansas CAIR rule, we will not receive allowances until approximately six years after Plum Point Unit 1 is operational. In the interim, we will transfer allowances from our Missouri units. Based on SIPs for Missouri and Arkansas, we believe we will have excess annual and ozone season NOx allowances. SO2 allowances must be utilized at a 2:1 ratio for our Missouri units as

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compared to our non-CAIR Kansas units beginning in 2010. As a result, based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.

        In order to meet CAIR requirements and to meet air permit requirements for Iatan 2, pollution control equipment is being installed on Iatan 1 with the in-service date expected to be late in the first quarter to early in the second quarter of 2009. This equipment includes a Selective Catalytic Reduction (SCR) system, an FGD scrubber and a baghouse, with our share of the capital cost estimated to be between $58 million and $60 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006, $12.1 million in 2007 and $27.3 million in 2008 with estimated expenditures of approximately $15.6 million in 2009. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC.

        Also to meet CAIR requirements, we constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008 at a total cost of approximately $31.0 million (excluding AFUDC). This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri.

        Air Permits.    Under Title V of the 1990 Amendments, we must obtain site operating permits for each of our plants from the authorities in the state in which the plant is located. These permits, which are valid for five years, regulate the plant site's total air emissions; including emissions from stacks, individual pieces of equipment, road dust, coal dust and other emissions. We have been issued permits for Asbury, Iatan, Riverton, State Line and the Energy Center Plants. We submitted the required renewal applications for the State Line and Energy Center Title V permits in 2003 and the Asbury Title V permit in 2004 and will operate under the existing permits until the Missouri Department of Natural Resources (MDNR) issues the renewed permits. A Compliance Assurance Monitoring (CAM) plan for particulate matter (PM) will be required by the renewed permit for Asbury. We estimate that the capital costs associated with the PM CAM plan will not exceed $2 million. We submitted the renewal application for the Riverton Title V permit in June 2008. A CAM plan for PM will also be required by the renewed permit for Riverton. No additional capital costs are anticipated. It is expected that the Kansas Department of Health and Environment (KDHE) will issue the renewal permit for Riverton in the first quarter of 2009.

        A new air permit was issued for the Iatan Generating Station on January 31, 2006. The new permit covers the entire Iatan Generating Station and includes the existing Unit No. 1 and Iatan Unit No. 2 currently under construction. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu per hour of heat input. The 6,600 MMBtu per hour heat input limit is in effect until the new SCR, scrubber, and baghouse are in place and fully operational, currently estimated to be late in the first quarter of 2009 to early in the second quarter of 2009.

        The Clean Air Act required companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in regulated emissions. The Sierra Club and Concerned Citizens of Platte County have claimed that modifications were made to Iatan 1 prior to the Comprehensive Energy Plan project in violation of Clean Air Act regulations. We own 12% of Iatan 1. As operator, KCP&L entered into a Collaboration Agreement with those parties that provide, among other things, for the release of such claims. In May 2008, a grand jury subpoena requesting documents was received by KCP&L. KCP&L continues to produce documents in response to the subpoena. The outcome of these activities cannot presently be determined, nor can the costs and other liabilities that could potentially result from a negative outcome presently be reasonably estimated.

Clean Air Interstate Rule (CAIR)



        The EPA issued its final CAIR on March 10, 2005. CAIR governed NOx and SO2 emissions from fossil fueled units greater than 25
megawatts in 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Units No. 1 and No. 2 are located and Arkansas where the Plum Point Energy Station is
being constructed. Kansas was not included in CAIR and our Riverton Plant was not affected.




        On
July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the CAIR Rule and remanded it back to the EPA. On September 24, 2008, the EPA filed
a petition for rehearing with the United States Court of Appeals. The court vacated CAIR based on its interpretation that the Clean Air Act did not provide the EPA with the authority needed for CAIR
implementation. However, the court stayed its vacatur on December 23, 2008. As a result, CAIR became effective for NOx on January 1, 2009 and will become effective for SO2 on
January 1, 2010.



        The
CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with
specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA, which were approved. We have received our
full allotment of allowances as published in the Missouri CAIR Rule. Under the Arkansas CAIR rule, we will not receive allowances until approximately six years after Plum Point Unit 1 is operational.
In the interim, we will transfer allowances from our Missouri units. Based on SIPs for Missouri and Arkansas, we believe we will have excess annual and ozone season NOx allowances. SO2 allowances must
be utilized at a 2:1 ratio for our Missouri units as



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compared
to our non-CAIR Kansas units beginning in 2010. As a result, based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and
will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.



        In
order to meet CAIR requirements and to meet air permit requirements for Iatan 2, pollution control equipment is being installed on Iatan 1 with the in-service date
expected to be late in the first quarter to early in the second quarter of 2009. This equipment includes a Selective Catalytic Reduction (SCR) system, an FGD scrubber and a baghouse, with our share of
the capital cost estimated to be between $58 million and $60 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006, $12.1 million in
2007 and $27.3 million in 2008 with estimated expenditures of approximately $15.6 million in 2009. This project was also included as part of our Experimental Regulatory Plan approved by
the MPSC.



        Also
to meet CAIR requirements, we constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008 at a total cost of approximately
$31.0 million (excluding AFUDC). This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri.




        Air Permits.    Under Title V of the 1990 Amendments, we must obtain site operating permits for each of our plants from the authorities in
the state in
which the plant is located. These permits, which are valid for five years, regulate the plant site's total air emissions; including emissions from stacks, individual pieces of equipment, road dust,
coal dust and other emissions. We have been issued permits for Asbury, Iatan, Riverton, State Line and the Energy Center Plants. We submitted the required renewal
applications for the State Line and Energy Center Title V permits in 2003 and the Asbury Title V permit in 2004 and will operate under the existing permits until the Missouri Department of Natural
Resources (MDNR) issues the renewed permits. A Compliance Assurance Monitoring (CAM) plan for particulate matter (PM) will be required by the renewed permit for Asbury. We estimate that the capital
costs associated with the PM CAM plan will not exceed $2 million. We submitted the renewal application for the Riverton Title V permit in June 2008. A CAM plan for PM will also be required by
the renewed permit for Riverton. No additional capital costs are anticipated. It is expected that the Kansas Department of Health and Environment (KDHE) will issue the renewal permit for Riverton in
the first quarter of 2009.



        A
new air permit was issued for the Iatan Generating Station on January 31, 2006. The new permit covers the entire Iatan Generating Station and includes the existing Unit
No. 1 and Iatan Unit No. 2 currently under construction. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu per hour of heat input. The 6,600 MMBtu per hour heat input
limit is in effect until the new SCR, scrubber, and baghouse are in place and fully operational, currently estimated to be late in the first quarter of 2009 to early in the second quarter of 2009.



        The
Clean Air Act required companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if
either is expected to cause a significant net increase in regulated emissions. The Sierra Club and Concerned Citizens of Platte County have claimed that modifications were made to Iatan 1 prior to the
Comprehensive Energy Plan project in violation of Clean Air Act regulations. We own 12% of Iatan 1. As operator, KCP&L entered into a Collaboration Agreement with those parties that provide, among
other things, for the release of such claims. In May 2008, a grand jury subpoena requesting documents was received by KCP&L. KCP&L continues to produce documents in response to the subpoena. The
outcome of these activities cannot presently be determined, nor can the costs and other liabilities that could potentially result from a negative outcome presently be reasonably estimated.



Clean Air Interstate Rule (CAIR)

        The EPA issued its final CAIR on March 10, 2005. CAIR governed NOx and SO2 emissions from fossil fueled units greater than 25 megawatts in 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Units No. 1 and No. 2 are located and Arkansas where the Plum Point Energy Station is being constructed. Kansas was not included in CAIR and our Riverton Plant was not affected.

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THE EMPIRE DISTRICT ELECTRIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

        On July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the CAIR Rule and remanded it back to the EPA. On September 24, 2008, the EPA filed a petition for rehearing with the United States Court of Appeals. The court vacated CAIR based on its interpretation that the Clean Air Act did not provide the EPA with the authority needed for CAIR implementation. However, the court stayed its vacatur on December 23, 2008. As a result, CAIR became effective for NOx on January 1, 2009 and will become effective for SO2 on January 1, 2010.

        The CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA, which were approved. We have received our full allotment of allowances as published in the Missouri CAIR Rule. Under the Arkansas CAIR rule, we will not receive allowances until approximately six years after Plum Point Unit 1 is operational. In the interim, we will transfer allowances from our Missouri units. Based on SIPs for Missouri and Arkansas, we believe we will have excess annual and ozone season NOx allowances. SO2 allowances must be utilized at a 2:1 ratio for our Missouri units as compared to our non-CAIR Kansas units beginning in 2010. As a result, based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.

        In order to meet CAIR requirements and to meet air permit requirements for Iatan 2, pollution control equipment is being installed on Iatan 1 with the in-service date expected to be late in the first quarter to early in the second quarter of 2009. This equipment includes a Selective Catalytic Reduction (SCR) system, an FGD scrubber and a baghouse, with our share of the capital cost estimated to be between $58 million and $60 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006, $12.1 million in 2007 and $27.3 million in 2008 with estimated expenditures of approximately $15.6 million in 2009. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC.

        Also to meet CAIR requirements, we constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008 at a total cost of approximately $31.0 million (excluding AFUDC). This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri.

        Air Permits.    Under Title V of the 1990 Amendments, we must obtain site operating permits for each of our plants from the authorities in the state in which the plant is located. These permits, which are valid for five years, regulate the plant site's total air emissions; including emissions from stacks, individual pieces of equipment, road dust, coal dust and other emissions. We have been issued permits for Asbury, Iatan, Riverton, State Line and the Energy Center Plants. We submitted the required renewal applications for the State Line and Energy Center Title V permits in 2003 and the Asbury Title V permit in 2004 and will operate under the existing permits until the Missouri Department of Natural Resources (MDNR) issues the renewed permits. A Compliance Assurance Monitoring (CAM) plan for particulate matter (PM) will be required by the renewed permit for Asbury. We estimate that the capital costs associated with the PM CAM plan will not exceed $2 million. We submitted the renewal application for the Riverton Title V permit in June 2008. A CAM plan for PM will also be required by the renewed permit for Riverton. No additional capital costs are anticipated. It is expected that the Kansas Department of Health and Environment (KDHE) will issue the renewal permit for Riverton in the first quarter of 2009.

        A new air permit was issued for the Iatan Generating Station on January 31, 2006. The new permit covers the entire Iatan Generating Station and includes the existing Unit No. 1 and Iatan Unit No. 2 currently under construction. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu per hour of

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THE EMPIRE DISTRICT ELECTRIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


heat input. The 6,600 MMBtu per hour heat input limit is in effect until the new SCR, scrubber, and baghouse are in place and fully operational, currently estimated to be late in the first quarter of 2009 to early in the second quarter of 2009.

        The Clean Air Act required companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in regulated emissions. The Sierra Club and Concerned Citizens of Platte County have claimed that modifications were made to Iatan 1 prior to the Comprehensive Energy Plan project in violation of Clean Air Act regulations. We own 12% of Iatan 1. As operator, KCP&L entered into a Collaboration Agreement with those parties that provide, among other things, for the release of such claims. In May 2008, a grand jury subpoena requesting documents was received by KCP&L. KCP&L continues to produce documents in response to the subpoena. The outcome of these activities cannot presently be determined, nor can the costs and other liabilities that could potentially result from a negative outcome presently be reasonably estimated.

Clean Air Interstate Rule (CAIR)

        The EPA issued its final CAIR on March 10, 2005. CAIR governed NOx and SO2 emissions from fossil fueled units greater than 25 megawatts in 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Units No. 1 and No. 2 are located and Arkansas where the Plum Point Energy Station is being constructed. Kansas was not included in CAIR and our Riverton Plant was not affected.

123


Table of Contents


THE EMPIRE DISTRICT ELECTRIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

        On July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the CAIR Rule and remanded it back to the EPA. On September 24, 2008, the EPA filed a petition for rehearing with the United States Court of Appeals. The court vacated CAIR based on its interpretation that the Clean Air Act did not provide the EPA with the authority needed for CAIR implementation. However, the court stayed its vacatur on December 23, 2008. As a result, CAIR became effective for NOx on January 1, 2009 and will become effective for SO2 on January 1, 2010.

        The CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA, which were approved. We have received our full allotment of allowances as published in the Missouri CAIR Rule. Under the Arkansas CAIR rule, we will not receive allowances until approximately six years after Plum Point Unit 1 is operational. In the interim, we will transfer allowances from our Missouri units. Based on SIPs for Missouri and Arkansas, we believe we will have excess annual and ozone season NOx allowances. SO2 allowances must be utilized at a 2:1 ratio for our Missouri units as compared to our non-CAIR Kansas units beginning in 2010. As a result, based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.

        In order to meet CAIR requirements and to meet air permit requirements for Iatan 2, pollution control equipment is being installed on Iatan 1 with the in-service date expected to be late in the first quarter to early in the second quarter of 2009. This equipment includes a Selective Catalytic Reduction (SCR) system, an FGD scrubber and a baghouse, with our share of the capital cost estimated to be between $58 million and $60 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006, $12.1 million in 2007 and $27.3 million in 2008 with estimated expenditures of approximately $15.6 million in 2009. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC.

        Also to meet CAIR requirements, we constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008 at a total cost of approximately $31.0 million (excluding AFUDC). This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri.

        Air Permits.    Under Title V of the 1990 Amendments, we must obtain site operating permits for each of our plants from the authorities in the state in which the plant is located. These permits, which are valid for five years, regulate the plant site's total air emissions; including emissions from stacks, individual pieces of equipment, road dust, coal dust and other emissions. We have been issued permits for Asbury, Iatan, Riverton, State Line and the Energy Center Plants. We submitted the required renewal applications for the State Line and Energy Center Title V permits in 2003 and the Asbury Title V permit in 2004 and will operate under the existing permits until the Missouri Department of Natural Resources (MDNR) issues the renewed permits. A Compliance Assurance Monitoring (CAM) plan for particulate matter (PM) will be required by the renewed permit for Asbury. We estimate that the capital costs associated with the PM CAM plan will not exceed $2 million. We submitted the renewal application for the Riverton Title V permit in June 2008. A CAM plan for PM will also be required by the renewed permit for Riverton. No additional capital costs are anticipated. It is expected that the Kansas Department of Health and Environment (KDHE) will issue the renewal permit for Riverton in the first quarter of 2009.

        A new air permit was issued for the Iatan Generating Station on January 31, 2006. The new permit covers the entire Iatan Generating Station and includes the existing Unit No. 1 and Iatan Unit No. 2 currently under construction. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu per hour of

124


Table of Contents


THE EMPIRE DISTRICT ELECTRIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


heat input. The 6,600 MMBtu per hour heat input limit is in effect until the new SCR, scrubber, and baghouse are in place and fully operational, currently estimated to be late in the first quarter of 2009 to early in the second quarter of 2009.

        The Clean Air Act required companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if either is expected to cause a significant net increase in regulated emissions. The Sierra Club and Concerned Citizens of Platte County have claimed that modifications were made to Iatan 1 prior to the Comprehensive Energy Plan project in violation of Clean Air Act regulations. We own 12% of Iatan 1. As operator, KCP&L entered into a Collaboration Agreement with those parties that provide, among other things, for the release of such claims. In May 2008, a grand jury subpoena requesting documents was received by KCP&L. KCP&L continues to produce documents in response to the subpoena. The outcome of these activities cannot presently be determined, nor can the costs and other liabilities that could potentially result from a negative outcome presently be reasonably estimated.

Clean Air Interstate Rule (CAIR)



        The EPA issued its final CAIR on March 10, 2005. CAIR governed NOx and SO2 emissions from fossil fueled units greater than
25 megawatts in 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Units No. 1 and No. 2 are located and Arkansas where the Plum
Point Energy Station is being constructed. Kansas was not included in CAIR and our Riverton Plant was not affected.



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THE EMPIRE DISTRICT ELECTRIC COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



        On
July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the CAIR Rule and remanded it back to the EPA. On September 24, 2008, the
EPA filed a petition for rehearing with the United States Court of Appeals. The court vacated CAIR based on its interpretation that the Clean Air Act did not provide the EPA with the authority needed
for CAIR implementation. However, the court stayed its vacatur on December 23, 2008. As a result, CAIR became effective for NOx on January 1, 2009 and will become effective for SO2 on
January 1, 2010.



        The
CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with
specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA, which were approved. We have received our
full allotment of allowances as published in the Missouri CAIR Rule. Under the Arkansas CAIR rule, we will not receive allowances until approximately six years after Plum Point Unit 1 is
operational. In the interim, we will transfer allowances from our Missouri units. Based on SIPs for Missouri and Arkansas, we believe we will have excess annual and ozone season NOx allowances. SO2
allowances must be utilized at a 2:1 ratio for our Missouri units as compared to our non-CAIR Kansas units beginning in 2010. As a result, based on current SO2 allowance usage
projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.



        In
order to meet CAIR requirements and to meet air permit requirements for Iatan 2, pollution control equipment is being installed on Iatan 1 with the
in-service date expected to be late in the first quarter to early in the second quarter of 2009. This equipment includes a Selective Catalytic Reduction (SCR) system, an FGD scrubber and a
baghouse, with our share of the capital cost estimated to be between $58 million and $60 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006,
$12.1 million in 2007 and $27.3 million in 2008 with estimated expenditures of approximately $15.6 million in 2009. This project was also included as part of our Experimental
Regulatory Plan approved by the MPSC.



        Also
to meet CAIR requirements, we constructed an SCR at Asbury that was completed in November 2007 and placed in service in February 2008 at a total cost of approximately
$31.0 million (excluding AFUDC). This project was also included as part of our Experimental Regulatory Plan approved by the MPSC and its cost is now in base rates in Missouri.



        Air Permits.    Under Title V of the 1990 Amendments, we must obtain site operating permits for each of our plants
from the authorities in the state in which the plant is located. These permits, which are valid
for five years, regulate the plant site's total air emissions; including emissions from stacks, individual pieces of equipment, road dust, coal dust and other emissions. We have been issued permits
for Asbury, Iatan, Riverton, State Line and the Energy Center Plants. We submitted the required renewal applications for the State Line and Energy Center Title V permits in 2003 and the Asbury
Title V permit in 2004 and will operate under the existing permits until the Missouri Department of Natural Resources (MDNR) issues the renewed permits. A Compliance Assurance Monitoring (CAM)
plan for particulate matter (PM) will be required by the renewed permit for Asbury. We estimate that the capital costs associated with the PM CAM plan will not exceed $2 million. We submitted
the renewal application for the Riverton Title V permit in June 2008. A CAM plan for PM will also be required by the renewed permit for Riverton. No additional capital costs are anticipated. It
is expected that the Kansas Department of Health and Environment (KDHE) will issue the renewal permit for Riverton in the first quarter of 2009.



        A
new air permit was issued for the Iatan Generating Station on January 31, 2006. The new permit covers the entire Iatan Generating Station and includes the existing
Unit No. 1 and Iatan Unit No. 2 currently under construction. The new permit limits Unit No. 1 to a maximum of 6,600 MMBtu per hour of



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HREF="#bg70901a_main_toc">Table of Contents





THE EMPIRE DISTRICT ELECTRIC COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)






heat
input. The 6,600 MMBtu per hour heat input limit is in effect until the new SCR, scrubber, and baghouse are in place and fully operational, currently estimated to be late in the first
quarter of 2009 to early in the second quarter of 2009.



        The
Clean Air Act required companies to obtain permits and, if necessary, install control equipment to reduce emissions when making a major modification or a change in operation if
either is expected to cause a significant net increase in regulated emissions. The Sierra Club and Concerned Citizens of Platte County have claimed that modifications were made to Iatan 1 prior
to the Comprehensive Energy Plan project in violation of Clean Air Act regulations. We own 12% of Iatan 1. As operator, KCP&L entered into a Collaboration Agreement with those parties that
provide, among other things, for the release of such claims. In May 2008, a grand jury subpoena requesting documents was received by KCP&L. KCP&L continues to produce documents in response to the
subpoena. The outcome of these activities cannot presently be determined, nor can the costs and other liabilities that could potentially result from a negative outcome presently be reasonably
estimated.



These excerpts taken from the EDE 10-K filed Mar 3, 2008.

Clean Air Interstate Rule (CAIR)

        The EPA issued its final CAIR on March 10, 2005. CAIR governs NOx and SO2 emissions from fossil fueled units greater than 25 megawatts and will affect 28 states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Plants are located and Arkansas where the future Plum Point Energy Station will be located. Kansas is not included in CAIR and our Riverton Plant will not be affected.

        The CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA for approval. The Missouri SIP was approved and became effective on December 14, 2007. We will receive our full allotment of allowances as published in the Missouri CAIR Rule. The Arkansas CAIR SIP has been approved but not finalized. Until the Arkansas SIP is finalized by the EPA, we cannot definitively determine the allowed emissions of ozone season NOx for the Plum Point Energy Station in Arkansas. However, based on the SIP for Missouri and the approved SIP for Arkansas, it appears we will have excess annual and ozone season NOx allowances. SO2 allowances must be utilized at a 2:1 ratio for our Missouri units as compared to our non-CAIR Kansas units beginning in 2010. Based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase additional SO2 allowances or build a scrubber at our Asbury Plant.

        In order to help meet anticipated CAIR requirements and to meet air permit requirements for Iatan Unit 2, pollution control equipment is being installed on Iatan Unit 1 which will be completed around the end of 2008. This equipment includes a Selective Catalytic Reduction (SCR) system, a Flue Gas Desulphurization (FGD) system and a baghouse, with our share of the capital cost estimated at $46 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006 and $12.1 million in 2007. Approximately $26.7 million in 2008, $1.4 million in 2009 and $0.3 million in 2010 are included in our current capital expenditures budget. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC.

        Also to help meet anticipated CAIR requirements, we constructed an SCR at Asbury during the fall of 2007 and placed it in service in early February 2008 at a total cost of approximately $31.0 million (excluding AFUDC), of which $28.1 million was expended through December 31, 2007 with the remainder expended in 2008. This project was also included as part of our Experimental Regulatory Plan approved by the MPSC.

        Additional pollution control equipment to comply with CAIR may become economically justified at the Asbury Plant sometime prior to 2015 and may include an FGD scrubber to control SO2 and a baghouse at an estimated capital cost of $100 million.

115


THE EMPIRE DISTRICT ELECTRIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Clean Air Interstate Rule (CAIR)



        The EPA issued its final CAIR on March 10, 2005. CAIR governs NOx and SO2 emissions from fossil fueled units greater than 25 megawatts and will affect 28
states, including Missouri, where our Asbury, Energy Center, State Line and Iatan Plants are located and Arkansas where the future Plum Point Energy Station will be located. Kansas is not included in
CAIR and our Riverton Plant will not be affected.



        The
CAIR is not directed to specific generation units, but instead, requires the states (including Missouri and Arkansas) to develop State Implementation Plans (SIPs) to comply with
specific NOx and SO2 state-wide annual budgets. Missouri and Arkansas finalized their respective regulations and submitted their SIPs to the EPA for approval. The Missouri SIP was approved
and became effective on December 14, 2007. We will receive our full allotment of allowances as published in the Missouri CAIR Rule. The Arkansas CAIR SIP has been approved but not finalized.
Until the Arkansas SIP is finalized by the EPA, we cannot definitively determine the allowed emissions of ozone season NOx for the Plum Point Energy Station in Arkansas. However, based on the SIP for
Missouri and the approved SIP for Arkansas, it appears we will have excess annual and ozone season NOx allowances. SO2 allowances must be utilized at a 2:1 ratio for our Missouri units as compared to
our non-CAIR Kansas units beginning in 2010. Based on current SO2 allowance usage projections, we expect to exhaust our banked allowances by the end of 2010 and will need to purchase
additional SO2 allowances or build a scrubber at our Asbury Plant.



        In
order to help meet anticipated CAIR requirements and to meet air permit requirements for Iatan Unit 2, pollution control equipment is being installed on Iatan Unit 1 which will be
completed around the end of 2008. This equipment includes a Selective Catalytic Reduction (SCR) system, a Flue Gas Desulphurization (FGD) system and a baghouse, with our share of the capital cost
estimated at $46 million, excluding AFUDC. Of this amount, approximately $3.9 million was incurred in 2006 and $12.1 million in 2007. Approximately $26.7 million in 2008,
$1.4 million in 2009 and $0.3 million in 2010 are included in our current capital expenditures budget. This project was also included as part of our Experimental Regulatory Plan approved
by the MPSC.



        Also
to help meet anticipated CAIR requirements, we constructed an SCR at Asbury during the fall of 2007 and placed it in service in early February 2008 at a total cost of approximately
$31.0 million (excluding AFUDC), of which $28.1 million was expended through December 31, 2007 with the remainder expended in 2008. This project was also included as part of our
Experimental Regulatory Plan approved by the MPSC.



        Additional
pollution control equipment to comply with CAIR may become economically justified at the Asbury Plant sometime prior to 2015 and may include an FGD scrubber to control SO2 and
a baghouse at an estimated capital cost of $100 million.



115








THE EMPIRE DISTRICT ELECTRIC COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



"Clean Air Interstate Rule (CAIR)" elsewhere:

IDACORP (IDA)
Mirant (MIR)
Xcel Energy (XEL)
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