EPA-456/R-05-003
June 6, 2005
Technical Support Document for the
Equipment Replacement Provision of
the Routine Maintenance, Repair and
Replacement Exclusion:
Reconsideration
By:
Office of Air Quality Planning and Standards
U.S. Environmental Protection Agency
Research Triangle Park, North Carolina
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Information Transfer and Program Integration Division
New Source Review Group
Research Triangle Park, NC
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v>EPA
United Safes
EnvironniEntal Protection
Technical Support Document for the
Equipment Replacement Provision of the
Routine Maintenance, Repair and
Replacement Exclusion: Reconsideration
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This document has been reviewed by the Information Transfer and Program Integration Division
of the Office of Air Quality Planning and Standards, EPA, and approved for publication.
Mention of trade names or commercial products is not intended to constitute endorsement or
recommendation for use. Copies of this report are available through the Library Services Office
(MD-35), U.S. Environmental Protection Agency, Research Triangle Park NC 27711, (919) 541-
2777, or from National Technical Information Service, 5285 Port Royal Road, Springfield VA
22161. You may also access this document on EPA's website at http://www.epa. gov/.
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Table of Contents
Chapter 1 - Introduction 1
Chapter 2 - Standard for Reconsideration 3
Chapter 3 - Issues on Which We Denied Reconsideration 4
3.1 Retroactive Application 4
3.2 Opposes the Procedure For Incorporating a FIP into State Plans 5
3.3 EPA not Receptive to Comments 7
Chapter 4 - Reconsideration Issues 8
4.1 Basis for determining that the ERP was allowable under the Clean
Air Act 8
4.1.1 General Agreement that EPA Has Demonstrated Adequate
Legal Basis for the ERP 8
4.1.2 EPA Has Discretion to Interpret Ambiguous Terms 9
4.1.3 Interpretation of Ambiguous Terms - Chevron Comments 10
4.1.4 Relationship to NSPS • H
4.1.5 NSR Not Intended to Prevent All Emissions Increases 13
4.1.6 Large-scale Equipment Replacement 16
4.1.7 Comments Related to State Programs 17
4.1.8 Examples of RMRR Projects 18
4.1.9 Opportunity for Comment on the Legal Basis 1_8
4.1.10 Inadequate Enforcement Provisions 19
4.1.11 Inadequate Supporting Data 20
4.1.12 Assertions that the ERP Rule Will Lead to Emissions
Increases 22
4.1.13 Whether the Final Rule Contravenes Clean Air Act or
Congressional Intent 23.
4.1.13.1 Final Rule is in Accord with the CAA and Congressional
Intent 23
4.1.13.2 Final Rule is not in Accord with the CAA and
Congressional Intent 25
4.1.14 Interpretation of the Definition of "Modification" 28
4.1.15 Purpose of NSR 33
4.1.16 Economic Considerations 34
4.1.17 Comments Specific to Court Cases 3_8
4.1.17.1 Nixon v. Missouri Municipal League 3_8
4.1.17.2 American Trucking Association 43
4.1.17.3 Ohio Edison ....43
4.1.17.4 WEPCO 44
n
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4.1.17.5 Alabama Power 45
4.1.18 Applicability of Using of Building Codes 48
4.1.19 De Minimis Increase 5_1
4.1.20 Interpretation of "Routine" 53
4.1.21 ERP Imposes Greater Administrative Requirements 54
4.2 Basis for Selecting 20 Percent of the Process Unit Replacement
Cost as the Threshold to Determine if a Replacement was Routine
55
4.2.1 Supports EPA's Selection of the 20 Percent Replacement
Cost to Determine if a Replacement was Routine 55.
4.2.1.1 The Basis for EPA's Selection 55
4.2.1.2 Petitioners Had Adequate Opportunity/Notice to Comment
on the 20 Percent Cost Threshold 65
4.2.2 Supports 50 Percent Threshold 66
4.2.3 Supports a Different Threshold Value 68
4.2.4 Supports an Alternative to an Equipment Replacement Cost
Percent Threshold 69
4.2.5 Supports the Development of RMRR Activities Guidance 71
4.2.6 Future Rulemaking Recommendations 71
4.2.7 EPA Does Not Have An Adequate Legal Basis 72
4.2.8 Six Modification Activity Case Studies Do Not Support the
20 Percent Replacement Cost Threshold Exclusion 74
4.2.9 No Basis for Selecting 20 Percent 76
4.2.10 WEPCO Case Does Not Support Using a 20 Percent Cost
Replacement Threshold 79
4.2.11 Miscellaneous Objections To the Use of a 20 Percent
Replacement Cost Threshold 80
4.3 Support for the simplified procedure for incorporating a FIP into
State plans to accommodate changes to the NSR rules 82
in
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Acronym List
AAGR
AEP
BACT
CAA
CAIR
CFR
CHP
DOE
EAB
EGUs
EIA
EIS
EPA
ERP
ERV
ESP
FCCU
FEMA
FERC
FTP
FR
GAO
HAP
HUD
INGT
IPM
MACT
NAAQS
NAIMA
NEMS
NERC
NESCAUM
NESHAP
NGT
NOX
NSPS
NSR
OAQPS
PM
Annual Asset Guideline Repair
American Electric Power
Best Available Control Technology
Clean Air Act
Clean Air Interstate Rule
Code of Federal Regulation
Controlled Heat and Power
Department of Energy
Environmental Appeals Board
Electric Generating Units
Energy Information Administration
Economic Impact Statement
United States Environmental Protection Agency
Equipment Replacement Provision
Equipment Replacement Value
Electrostatic Precipitators
Fluid Catalytic Cracking Unit
Federal Emergency Management Agency
Federal Energy Regulatory Commission
Federal Implementation Plan
Federal Register
General Accounting Office
Hazardous Air Pollutant
Housing and Urban Development
Interstate Natural Gas Association of America
Integrated Planning Model
Maximum Achievable Control Technology
National Ambient Air Quality Standards
North American Insulation Manufacturers Association
National Energy Modeling System
Nuclear Energy Regulatory Commission
Northeast States for Coordinated Air Use Management
National Emission Standards for Hazardous Air Pollutants
Natural Gas Transmission
Nitrogen Oxides
New Source Performance Standards
New Source Review
Office of Air Quality Planning and Standards
Particulate Matter
IV
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PM10
PSD
RIA
RMRR
SCR
SCAQMD
SIGECO
SIP
S02
STAPPA/ALAPCO
TPY
VOC
WEPCO
Particulate Matter less than 10 microns in diameter
Prevention of Significant Deterioration
Regulatory Impact Analysis
Routine Maintenance, Repair and Replacement
Selective Catalytic Reduction
South Coast Air Quality Management District
Southern Indiana Gas and Electric Company
State Implementation Plan
Sulfur Dioxide
State and Territorial Air Pollution Program Administrators/Association of
Local Air Pollution Control Officials
tons per year
Volatile Organic Compound
Wisconsin Electric Power Company
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Chapter 1 - Introduction
On October 27, 2003, EPA promulgated the Equipment Replacement Provision ("ERP"),
a rule for the NSR permitting program that prospectively defined what types of equipment
replacements are excluded from major NSR under the RMRR exclusion. The ERP rule would
simplify the permitting process and help preserve the nation's productive capacity (see CAA,
Section 101 (b)(l)) without compromising air quality.
On November 14, 2003 State and local governmental groups1 challenging the final rule
asked the U.S. Court of Appeals for the District of Columbia Circuit to stay the final ERP (i.e.,
prevent the rules from taking effect) until the challenges are resolved by the Court. Several
environmental groups2 filed a similar request on November 17, 2003. On December 24, 2003,
the Court granted the requests and issued an order to stay the effective date of the ERP.
Also on December 24, 2003, EPA published a rule amending its PSD provisions for State
programs that did not have approved State PSD rules. Prevention of Significant Deterioration is
a permitting program designed to protect air quality in areas meeting national air quality
standards. In each of these States, EPA previously had made the area subject to the PSD rules in
the Federal Implementation Plan FIP. The rule simplified the procedure for incorporating
changes.
On July 1, 2004, EPA granted reconsideration of certain aspects of the ERP. (See 69 FR
40278) In granting reconsideration, we requested public comment on three issues. The issues
for reconsideration were: (1) the basis for determining that the ERP was allowable under the
Clean Air Act; (2) the basis for selecting the cost threshold (20 percent of the replacement cost of
the process unit) that was used in the final rule to determine if a replacement was routine; and
(3) a simplified procedure for incorporating a FIP into State plans to accommodate changes to the
NSR rules. We did not take action on the remaining issues for which petitioners requested
reconsideration, but we indicated our intent to issue a final decision no later than 180 days after
1 State petitioners were New York, California, Connecticut, Illinois, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New Mexico, Pennsylvania, Rhode Island,
Vermont, Wisconsin, as well as the District of Columbia. Local government petitioners were
City of New York; City of San Francisco; Connecticut Cities of Hartford, New Haven, New
London, Groton, Middletown, and Stamford, and Towns of Waterbury, Westport, Cornwall, East
Hartford, Easton, Greenwich, Hebron, Lebanon, Newtown, North Stonington, Pomfret, Putnam,
Rocky Hill, Salisbury, Thompson, Wallingford, Washington, Westbrook, Weston, and
Woodstock.
2 Environmental group petitioners were Natural Resources Defense Council,
Environmental Defense, Sierra Club, Communities for a Better Environment, American Lung
Association, United States Public Interest Research Group, Clean Air Council, Michigan
Environmental Council, Group Against Smog and Pollution, and Scenic Hudson.
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publication of the July Federal Register notice. The public comment period ended on
August 30, 2004. There were 367 comment letters received, not including attachments (see
Appendix A) submitted to the EDOCKET (OAR-2002-0068) in response to the July 1, 2004
notice of reconsideration. The breakdown of commenters is: 307 citizen letters (some
representing mass mailing campaigns), 44 industry comment letters, 9 State comment letters
representing 16 entities, 1 Legislative comment letter, and 6 environmental group comment
letters representing 14 entities. No comments from Tribal organizations were submitted.
For the reasons discussed in Chapter 4 of this document, EPA is taking final action on
petitioners' request for reconsideration on these three issues. In addition, many commenters
submitted comments on issues unrelated to the three reconsideration issues. We have not
responded to comments on these issues because they were not open for reconsideration.
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Chapter 2 - Standard for Reconsideration
Section 307(d)(7)(B) of the CAA strictly limits petitions for reconsideration both in time
and in scope.3 Specifically, it provides that EPA shall convene a proceeding to reconsider a rule
if a person raising an objection can demonstrate that: (1) it was impracticable to raise the
objection during the comment period, or that the grounds for such objection arose after the
comment period but within the time specified for judicial review (i.e., within 60 days after
publication of the final rulemaking notice in the Federal Register); and (2) the objection is of
central relevance to the outcome of the rule.
On July 1, 2004 (69 FR 40278), EPA granted the petitions for reconsideration'with
respect to three issues. In Chapter 4 of this document we address those issues based on the
record on reconsideration.
hi the accompanying notice of final action, we deny reconsideration on the remaining two
issues raised in the petitions for reconsideration. We denied two issues contained in petitioners'
requests for reconsideration because they failed to meet the standard for reconsideration under
section 307(d)(7)(B) of the CAA. Specifically, on these issues, the petitioners have failed to
show: that it was impracticable to raise their objections during the comment period, or that the
grounds for their objections arose after the close of the comment period; and/or that their concern
is of central relevance to the outcome of the rule. An explanation of the denials is provided in
Chapters.
3 Section 307(d)(7)(B) of the CAA, 42 U.S.C. 7607(d)(7)(B), provides:
Only an objection to a rule or procedure which was raised with reasonable specificity during the
period for public comment (including any public hearing) may be raised during judicial review.
If the person raising an objection can demonstrate to the Administrator that it was impracticable
to raise such objection within such time or if the grounds for such objection arose after the period
for public comment (but within the time specified for judicial review) and if such objection is of
central relevance to the outcome of the rule, the Administrator shall convene a proceeding for
reconsideration of the rule and provide the same procedural rights as would have been afforded
had the information been available at the time the rule was proposed. If the Administrator
refuses to convene such a proceeding, such person may seek review of such refusal in the United
States court of appeals for the appropriate circuit (as provided in subsection (b) of this section).
Such reconsideration shall not postpone the effectiveness of the rule. The effectiveness of the
rule may be stayed during such reconsideration, however, by the Administrator or the court for a
period not to exceed three months.
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Chapter 3 - Issues on Which We Denied Reconsideration
3.1 Retroactive Application
Comment:
One commenter (Environmental Groups, @2620) stated that the EPA has unlawfully and
arbitrarily failed to grant reconsideration on an issue raised in their petitions for reconsideration
of the ERP, namely, their objection to the EPA's retroactive application of the ERP. The
commenter renewed their request that the EPA reconsider its decision to apply the ERP
retroactively, and directed the agency's attention to the relevant portions of their reconsideration
petitions and to the entirety of the letter that environmental organizations sent to Administrator
Leavitt on February 5, 2004.
In its reconsideration petition, the commenter cited an EPA spokeswoman's remarks in a
press report dated November 7, 2003, and a report dated November 13, 2003, regarding another
EPA official's briefing to a legal group as the basis for the claim that the EPA intended to
retroactively apply the ERP and no longer pursue past RMRR violations if the cases had not been
filed and the activities in question would not violate the ERP. While acknowledging that the
EPA had stated in the rule preamble that the ERP would not retroactively apply, the commenter
claims the remarks attributed to the EPA officials constitute an illegal retroactive rulemaking, in
contravention of the CAA, the APA, our own stated intent, and contemporaneous understanding
of Supreme Court precedent. The commenter argues that these statements invite violations of the
pre-ERP RMRR provisions that remain in effect in SIP-approved States, and thus violate State
law as well.
Response:
The commenter has failed to establish that the issue of the potential retroactivity of the
ERP was not one on which the commenter could have commented during the comment period.
Some of the groups associated with the petition for reconsideration joined in comments that
extensively discussed how certain percent thresholds would impact ongoing enforcement actions
such as the one filed against the Tennessee Valley Authority. Thus, as a general matter, the issue
of the impacts of the upcoming rule on fact scenarios that violated the pre-ERP RMRR rule was
clearly before the public in the proposal. The mere fact the quotes on which the commenter
relies were dated after promulgation but before the deadline for filing a petition for review does
not mean that the issue of post-promulgation enforcement policy was impracticable to raise
during the comment period.
By the terms of the petition, the commenter does not object to the outcome of the rule on
the issue of retroactivity. The commenter presents more of a request for reaffirmation of
statements in the rule preamble rather than a revision of the position taken in the rulemaking
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before the Court. We acknowledge that we cannot claim that the ERP is the applicable "rule" for
past conduct.
Substantively, the commenter's inferences about our abandonment of our position taken
in the rulemaking are not borne out by the facts. Our conduct subsequent to the quoted
statements has plainly established that we have not adopted a rule of retroactive application. We
have not sought the dismissal of any enforcement action for violation of the RMRR provisions
filed by the US, any State, or any private party in Federal or State court on the basis of the stayed
ERP. Future conduct in SIP-approved States that retain the pre-ERP RMRR provision of course
remains subject to State and citizen enforcement, regardless of the ERP.
We are, and have been, pursuing all filed cases and will continue to file new cases as
appropriate. Our decisions on which cases to file are guided by a myriad of factors, including
available resources and environmental protection. We acknowledge that the ERP is stayed and
not currently effective in any jurisdiction. We continue to request information and put violators
on notice when they violate our rules and policies. We note that none of the ERP rule revisions
apply to any changes that are the subject of existing enforcement actions that the Agency has
brought, and none constitute a defense thereto.
As discussed in the final ERP preamble (68 FR 61263), according to the U.S. Supreme
Court, an agency may not promulgate retroactive rules absent express Congressional authority.
See Bowen v. Georgetown Univ. Hosp.. 488 U.S. 204, 208, 102 L. Ed. 2d 493, 109 S. Ct. 468
(1988). The CAA contains no such expressed grant of authority, and we do not intend by our
actions today to create retroactive applicability to the ERP. The promulgated ERP will apply
only to conduct that occurs after the rule is effective.
3.2 Opposes the Procedure For Incorporating a FIP into State Plans
Comment:
Two commenters (NYSDEC, @2521; New York et al., @2555) opposed EPA modifying
a State's FIP without a finding of deficiency.
One commenter (NYSDEC, @2521) stated that EPA cannot modify a State's SIP without
a finding of deficiency or notice of such deficiency as required under Section 110(k)(5), 42 USC
§7410(k)(5). The commenter noted that, in order to require a State to revise its SIP, the EPA
must find that a SIP is "inadequate to attain or maintain the relevant national ambient air quality
standard, to mitigate adequately the interstate pollution described in Section 7506a of this Title
or Section 751 Ic of this Title, or to otherwise comply with any requirement of this chapter." The
commenter noted that the EPA can only require a SIP revision upon the finding that a particular
SIP is deficient. The commenter added that if the EPA makes a deficiency finding, it must notify
the State and the public of the inadequacies, and then the State has a reasonable period, not to
exceed 18 months, to correct the inadequacy. The commenter cited several court cases. Second,
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the commenter stated, the EPA must provide the State with the opportunity to submit comments
on EPA's proposed findings to afford the State the chance to correct the purported deficiencies in
its SIP. The EPA's indication in the preamble of the ERP rule that it was adding sections to the
PSD regulations and thus would be "revising the references in subparts C through DDD to
appropriately reflect the program that applies" is not sufficient notice of an allegedly deficient
SIP in need of revision. The EPA cannot rely upon a prior, outdated finding of deficiency made
in 1980. In addition to the fact that there have been substantive changes to the PSD program
since 1980, the ERP rule is a relaxation of the prior rules. Under such circumstances, it is
important that the EPA make a current finding of inadequacy and provide adequate notice of its
theory of deficiency.
One commenter (New York et al, @2555) stated that the EPA's request for comment on
the new format for incorporating FIPs into State SIPs ignored the primary issue for which the
commenter requested reconsideration: the EPA's authority to issue a FIP without finding that the
existing SIP is defective. On that point, the commenter reincorporated the arguments raised in
their petition for reconsideration.
Response:
These commenters have failed to establish that it was impractical to raise during the
comment period the issue of whether we need to make a new finding of deficiency before we
amend a FIP. We note that many of the states who joined in filing the comment @2555 raised
this issue with respect to the incorporation into FIPs of the 2002 NSR rule amendments in a
petition for reconsideration filed on April 4, 2003. The comment period for the RMRR
amendments proposed rule did not close until May 2, 2003. The issue of implementation in
States subject to 40 C.F.R. 52.21 in general, and the issue of the need for a deficiency finding in
particular, plainly could have been anticipated because these parties were raising the issue in the
context of the 2002 amendments. The arguments in the 2002 rule litigation on this point are
identical.
Because the FIP is a Federal program, it is inherent to its regulatory nature that we retain
the authority to make appropriate changes to the Federal Program and that these changes will
automatically apply in any jurisdiction in which the Federal FIP applies whether or not we
delegate authority to a State to implement the PSD FIP. We believe that the ERP improves the
ability of a State to "attain or maintain the relevant NAAQS, or to mitigate adequately the
interstate pollution transport."
The EPA acknowledges that New York State is currently developing their own PSD
program that they hope will obtain approval by the EPA and incorporated into their SIP in lieu of
the Federal PSD. As noted in the preamble to the final ERP (68 FR 61255), nothing in the
promulgated ERP would prevent a State or local program from imposing additional requirements
necessary to meet Federal, State or local air quality goals.
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Finally, the EPA incorporates pages 128 -138 of its brief in State of New York v. EPA.
No. 02-1387 (D.C. Cir), as part of its response to this issue.
3.3 EPA not Receptive to Comments
Comment:
One commenter (New York et al., @2555) stated that rather than taking the opportunity
to withdraw or amend the ERP, in response to the D.C. Circuit's stay of the ERP rule, the EPA
indicated that it does not intend to change the final rule. The EPA's failure to be receptive to
additional public comments has been held by the D.C. Circuit to violate the Administrative
Procedure Act's notice and comment requirements. In Spirit of the Sage Council v. Norton. 294
F.Supp.2d 67, (D.C. Cir. 2003) [sic], the D.C. Circuit held that when an Agency promulgates a
final rule that suffers from notice deficiencies, the Agency must "make a compelling showing"
that it is "receptive" to comments solicited after a final rule. In the context of regulations
implementing the CAA, a statute that requires the EPA to follow additional, stricter notice
requirements, it is even more critical that the EPA keep an open mind and be receptive to public
comments.
Response:
As the notice for this reconsideration makes clear, and as the commenter seems to agree,
this proceeding for reconsideration is to remedy an alleged lack of an opportunity to comment on
certain data and interpretations we adopted in the final ERP rule. Such alleged errors are in the
nature of procedural deficiencies. The CAA has an unambiguous provision regarding
invalidation of a Section 307(d) rule based on procedural errors. Section 307(d)(8) provides,
"[i]n reviewing alleged procedural errors, the [reviewing] court may invalidate the rule only if the
errors were so serious and related to matters of such central relevance to the rule that there is a
substantial likelihood that the rule would have been significantly changed if such errors had not
been made." Therefore, as a legal matter, the commenter's assertion that the EPA has a
heightened burden to show receptivity to changing its prior position is contrary to the CAA.
Moreover, in substance the language in the EPA's comments solicitation merely indicated
that its preliminary position based on the record before it was that its original decisions on the
issues under reconsideration were not inappropriate or erroneous. The Agency explicitly
declared that it was not prejudging any information that would be provided in response to the
comment solicitation. We were simply informing the public about our view of the state of the
record so that the public comments would be focused on providing additional information and
new arguments to support (or oppose) changing the ERP, rather than merely repeating matters
already before us. This comment response document and the EPA's reconsideration of the ERP
rule is the Agency's "showing" that it is "receptive" to public comments.
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Chapter 4 - Reconsideration Issues
4.1 Basis for determining that the ERP was allowable under the
Clean Air Act
4.1.1 General Agreement that EPA Has Demonstrated Adequate Legal
Basis for the ERP
Comment:
Many commenters agreed with the EPA's discussion in the preamble to the final rule
concerning the legal basis for the ERP. One commenter (Grocery Manufacturers of America,
@2520) believed that EPA provided necessary and accurate justification for the final rule and
hopes that the Agency will be permitted to go forward with the rule. Another commenter
(Cinergy Corp., @2572) agreed that the EPA had adequate authority under the CAA, while a
third commenter (CAA Services Steering Committee, @2522) supported the EPA's authority to
conclude that routine equipment maintenance, repair, and replacement fall outside the scope of
NSR. Another commenter (Interstate Natural Gas Association of America, @2656) also agreed
that the legal basis articulated in the preamble to the final rule is sound and endorsed the legal
basis comments prepared by the ERRC (see Docket No. OAR-202-0068). Another commenter
(The Large Public Power Council, @2563) said that the EPA exercised its discretion in a manner
that is consistent with the goals and objectives of the CAA by adopting several important
environmental safeguards that must be satisfied to qualify for the ERP exclusion. One
commenter (UARG, @2615) said that the ERP rule returns the NSR program from the uncertain
and counterproductive interpretations that some have sought to apply in recent enforcement
actions to a rational program that is faithful to its original intent and its historic application for
two decades before 1999.
One commenter (Edison Electric Institute, @2567) agreed that the EPA possesses ample
legal authority to promulgate and implement the final ERP rule. In fact, the EPA is known as a
"regulatory" agency because it is empowered to create and enforce rules that carry the full force
of law. Regulatory agencies create regulations according to rules and processes defined under
the Administrative Procedure Act, which defines a "rule" or "regulation" as: "[T]he whole or a
part of an agency statement of general or particular applicability and future effect designed to
implement, interpret, or prescribe law or policy or describing the organization, procedure, or
practice requirements of an agency." Given that the EPA possesses the authority to fine,
sanction, shut down, and even jail individuals, businesses, and private and public organizations
for violating NSR regulations, it is incumbent upon the agency to put forth lucid NSR
regulations. According to the commenter, not only does the EPA possess the authority to
implement the ERP rule, the EPA had been remiss in not doing so previously.
One commenter (Hawaiian Electric Company, Inc., @2586) reviewed and analyzed the
legal basis for the ERP and concluded that the EPA has ample authority to promulgate the
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provision. The commenter reviewed the legal analyses provided by other commenters and
believed that the Utility Air Regulatory Group (UARG) (see @2615) submitted a detailed,
cogent legal analysis of the NSR program, the RMRR exclusion, and the EPA's authority to
develop and issue the ERP.
One commenter (TXU Power, @2571) supported the ERP rule and urged the EPA to
reaffirm it as finalized in October 2003. The petitioners appear to believe that the only test for
qualifying an equipment replacement project or projects as routine is the 20 percent of process
unit replacement value test. The commenter pointed out that three other tests must also be met.
The commenter believed that these hurdles are more than adequate to prevent abuse of the
equipment replacement provision. Another commenter (Cinergy Corp., @2572) expressed a
similar view concerning the effect of the additional tests that must be met in addition to the 20
percent threshold.
One commenter (NPCA, @2732) stated that though they would like to see further
improvements made to NSR, they supported moving forward with the ERP rule and believed that
it was both reasonable and supported by law.
Response:
We agree that we have the legal authority under the CAA to develop an equipment
replacement exemption within the NSR program. For the reasons articulated in these responses
to comments, we have decided to leave the ERP unchanged from the final rule promulgated on
October 27, 2003 (68 FR 61248).
4.1.2 EPA Has Discretion to Interpret Ambiguous Terms
Comment:
Two commenters (S. C. Johnson & Son, Inc., @2368; ATOFINA, @2523) agreed with _
the EPA's contention that expert agencies have the discretion to interpret ambiguous statutory
terms. For nearly three decades, the EPA's NSR rule "modification" provisions have specified
that RMRR activities are excluded from NSR applicability. According to the commenter, the
Agency has now merely sought to define these types of activities to clarify how this exclusion
should be implemented. Agencies must be granted discretion to interpret statutory provisions
when implementing regulations designed to carry out legislative intent and clearly communicate
their interpretations to the regulated community. Clarification of the definition of RMRR is well
within the EPA's authority and refining the definition is well justified within the CAA.
One commenter (NEDA/CAP, @2670) pointed out that the United States Attorney
General's findings on NSR in 2000 [sic] underscores the EPA's rulemaking responsibility with
respect to the NSR exclusion for RMRR. When the Attorney General of the United States was
asked to comment on the legality of the EPA's NSR enforcement cases, he made clear that the
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definition of RMRR could be construed in a number of ways and that the EPA could no longer
legally flip around on the definition of RMRR without undertaking rulemaking on its meaning.
Response:
As discussed in detail in responses to other comments, we agree that we have discretion
to interpret ambiguous terms in the statutory language we must implement. Additionally, we
concur with the Attorney General's comments that, in this particular case, the regulated
community and the public are best served if this interpretation is carried out through formal
rulemaking procedures.
4.1.3 Interpretation of Ambiguous Terms - Chevron Comments
Comment:
Several commenters (American Gas Association, @2539; Dominion, @2523; Class of
'85 Regulatory Response Group, @2568; American Public Power Association, @2630; Xcel
Energy, @2551; Dairyland Power, @2553, Iron and Steel Industry Trade Groups, @2544;
PacifCorp, @2546) believed that EPA's authority rests squarely on the Chevron authority to
interpret the term "physical change or change in the method of operation." One commenter
(American Gas Association, @2539) disputed petitioner's claim that the ERP rule departs from
the clear meaning of that term. The commenter noted that even the petitioner did not claim that
everything that could literally be a change at a facility (e.g., repairing a broken pipe) should
trigger NSR. The commenter went on to note that the EPA regulations have always rejected such
a literal reading. Another commenter (Dairyland Power, @2553) added that if the EPA did not
have the discretion to interpret this term, then any activity, regardless of size, intent, or scope,
would have to be evaluated for NSR applicability, and the EPA would have possessed no
authority to promulgate the nine existing exclusions to the definition of physical change in the
method of operation under the NSR program.
Other commenters disagreed that Chevron supported the EPA's position. Two
commenters (SCAQMD, @2538; New York et al., @2555) stated that the EPA's definition of
"modification" is improper even if the statute is ambiguous. An agency interpretation is
improper if it is not "based on a permissible construction of the statute" or if "it appears from the
statute or its legislative history that the accommodation is not one that Congress would have
sanctioned." Another commenter (NYSDEC, @2521) cited cases related to the definition of
"modification" and believed the substantial body of judicial precedent clearly demonstrates wide
acceptance of the notion that Congress intended the CAA term to have broad application to
physical and operational changes. Moreover, according to the commenter, the EPA's public
policy statements and litigation positions throughout the years confirm it understood the same.
Response:
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The kind of replacements that automatically fall within the ERP are not expected to result
in an overall emissions increase or result in a violation of the NAAQS. We believe that the
activities that are included in the ERP are well within our discretion to exclude from the meaning
of "change."
4.1.4 Relationship to NSPS
Comment:
Several commenters (Gas Turbine Association, @2519; American Gas Association,
@2539; Southern Company, @2569; WEST Associates, @2573; NEDA/CAP, @2670; National
Petrochemical & Refiners Association, @2545; Clean Air Implementation Project, @2581;
Council of Industrial Boiler Owners, @2675) believed that the NSPS program provided support
for the EPA's position on the legal basis of the ERP rule. Two commenters (Gas Turbine
Association, @2519; Council of Industrial Boiler Owners, @2675) stated that the EIS for the
stationary gas turbines NSPS says ongoing maintenance, repair and replacement activities are
routine and thus excluded from the NSPS modification and reconstruction provisions. The NSPS
document says major overhauls or major disassembly inspections on turbines occur routinely and
are exempt from NSPS under the RMRR exclusion. The NSR term "modification" came from
the NSPS definition. Since the NSR program, like the NSPS program, exempts RMRR activities
from NSR, most agencies have appropriately considered major overhauls and other turbine
maintenance to be RMRR for purposes of both NSPS and NSR. If these operations were not
exempt from NSPS and NSR, many critical industrial operations would be severely impacted. If
normal gas turbine overhauls were not exempt from these provisions, neither turbines nor
valuable cogeneration installations would have been installed in the first place, since the
economic recovery period for such an installation is usually longer than 2 to 3 years. One
commenter (WEST Associates, @2573) added that they.supported the comments on this topic
submitted by UARG (see @2615).
One commenter (American Gas Association, @2539) stated that the ERP rule is simply a
variation on the NSPS approach, which allowed a facility to make expenditures to increase
production without triggering NSR The commenter pointed out that the ERP rule is tighter in
significant respects than the Congressionally-endorsed NSPS regulation. According to the
commenter, the ERP forbids any increase in emissions limits or fuel or raw material input
specifications, while the NSPS regulation would allow each of these to increase as long as that
could be accomplished without a "capital expenditure." Another commenter added that in light
of the EPA's use of a 50 percent threshold in the NSPS permitting context, the 20 percent
threshold is well within the bounds of the EPA's authority to define the cost threshold for
presumed RMRR activities.
One commenter (National Petrochemical & Refiners Association, @2545) added that
Congress intentionally linked NSR to the NSPS program which only applies to "new sources."
Sections 11 l(b)(l)(B), 11 l(b)(4). This Congressional intent forms the basis for the meaning of
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"modification." Therefore, the NSPS process of incorporating changes as exclusions to NSPS is
directly transferred to NSR, specifically to ERP.
Response:
The purpose of the cost-based threshold is to serve as one of the four criteria that
distinguish between those equipment replacement activities that should automatically qualify as
RMRR without further consideration and those activities that should apply the multi-factor
RMRR approach. This concept is akin to the long-established reconstruction provision under the
NSPS program, however, it is not intended to mirror that provision. Under the NSPS program,
when the cost of a project at an existing affected facility exceeds 50 percent of the fixed capital
cost that would be required to construct a comparable entirely new facility (that is, the current
capital replacement value of the existing affected facility), then the source must notify and
provide information to the permitting authority. After considering a range of factors, including
the cost of the activity, the estimated life of the facility after the replacements, the extent to
which the replaced equipment causes or contributes to the emissions from the source, and any
economic or technical limitations on compliance with the NSPS, the reviewing authority
determines whether the proposed project is a reconstruction. We observed that, in some respects,
an equipment replacement cost threshold set at the NSPS reconstruction test could be an
appropriate approach for distinguishing between routine and nonroutine identical and
functionally equivalent replacements under the major NSR program. As under the NSPS
program, we do not believe it is reasonable to exclude from major NSR those activities that
involve the total replacement of an existing entire process unit.
We also noted, however, that there are other considerations pointing in favor of a
threshold lower than the 50-percent reconstruction threshold that might be appropriate to bound
the ERP. Under NSPS, when a source undertakes a replacement activity at an existing affected
facility that constitutes half or more of the facility's capital replacement value, our rules require a
case-by-case determination as to whether such replacements constitute construction. We noted
that a percentage threshold lower than 50 percent might be more appropriate for determining
where we would require case-by-case consideration of the question whether equipment
replacements constitute a modification of an existing process unit under major NSR. In the
preamble to the proposed rule, we solicited comments on the appropriate level of any percentage.
Many commenters supported the threshold of 50 percent of replacement value as the upper limit
on equipment replacement. They believed a 50-percent cutoff to be consistent with
reconstruction definitions used in many NSPS and NESHAP regulations. Some commenters
stated that a 50 percent cutoff for the ERP would be valid for the same reason as for the NSPS
reconstruction test; significant changes to a process unit are necessary before retrofit controls
should be considered, provided there is no increase in emissions.
Many other commenters opposed the 50 percent replacement value threshold. They
believed the capital replacement percentage should be much less than 50 percent. For example,
one commenter believed the 50 percent number has no practical effect in protecting public health
and the environment, and was not aware of any projects that have exceeded 50 percent in cost.
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Another commenter said the 50 percent number from the NSPS is archaic and not
environmentally protective.
We agree with those commenters who see a relationship between establishing a threshold
for equipment replacements that we will treat as RMRR under the major NSR program and the
threshold the NSPS program established for reconstruction. However, we disagree that these two
thresholds should be the same. The NSPS threshold was intended to identify those activities that,
even though they did not qualify as a modification under NSPS, nevertheless are of such
magnitude that further consideration should be given as to whether they are projects tantamount
to new construction. The 50 percent NSPS threshold is not a bright line in the sense that all
projects that exceed 50 percent are automatically considered as reconstruction. Rather, it is a
threshold intended to alert permitting authorities to significant projects and allow case-by-case
decisions based on a series of regulatory factors.
The ERP replicates the NSPS concept in some ways. It identifies a cost-based threshold
to serve as one of four criteria that distinguish between those activities that should automatically
qualify as RMRR without further consideration and those activities that are subject the multi-
factor RMRR approach. The major difference between the ERP and the NSPS reconstruction
test is that the ERP deals with modifications, not reconstructions. This difference weighs in
favor of establishing the equipment replacement threshold at something less than the
reconstruction threshold. It is logical and practical to conclude, as some of the commenters do,
that by using the word "modification" the CAA intended to capture activities on a smaller scale
than reconstructions. Accordingly, we set the ERP cost threshold at 20 percent. We believe this
value fits well within this conceptual framework.
4.1.5 NSR Not Intended to Prevent All Emissions Increases
Comment:
Several commenters (American Gas Association, @2539; Alliance of Automobile
Manufacturers, @2574; Clean Air Implementation Project, @2581; National Petrochemical &
Refiners Association, @2545) pointed out that the NSR program was not designed to prevent or
reduce every emissions increase at existing sources. One commenter (American Gas
Association, @2539) stated that they do not believe as a legal matter that the ERP rule must
prevent all emissions increases or capture all emission reduction opportunities. The commenter
noted that the ERP rule will not necessarily allow changes that increase emissions to escape
NSR. The potential to emit for a compressor unit (either a gas turbine or an internal combustion
engine) will not increase without an increase in fuel input capacity, and the ERP rule specifically
denies relief to any changes that increase fuel input capacity. Emissions from a compressor can
increase if the compressors operating hours are increased. However, the commenter pointed out,
the compressor's operating hours depend on the demand for gas, not on changes to the
compressor station.
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One commenter (Alliance of Automobile Manufacturers, @2574) pointed out that the
petitioners argued that a broad definition of "any physical change" is required by the purposes of
PSD/NSR, which was "to assure that any decision to permit increased air pollution" is reviewed.
The commenter claims, however, that this argument shows a fundamental lack of understanding
of the final rule. Under the rule, any replacement activity is disqualified from automatic
exemption from NSR if it causes the process unit "to exceed any emission limitation, or
operational limitation that has the effect of constraining emissions, that applies to the process
unit and that is legally enforceable." The commenter notes that every industrial plant subject to
PSD/NSR is also a major source required to obtain an operating permit under Title V. That
operating permit must require compliance with "each applicable standard, regulation, or
requirement under this Act," including "emission limitations and other requirements in an
applicable implementation plan." Each source subject to NSR/PSD will be operating under
legally enforceable limits that have already been reviewed by the permitting authority. Under the
final ERP rule, no replacement activity is eligible for automatic exemption from NSR/PSD if it
exceeds such operating limitations. The commenter also asserts that the petitioners' complaint
that the automatic exemption will allow emissions increases to escape review is simply not true
because any emissions increase will have to stay within emissions limits that have already been
reviewed.
Two commenters (Clean Air Implementation Project, @2581; National Petrochemical &
Refiners Association, @2545) added that Congress designed a number of regulatory programs to
achieve emission reductions from every existing source. The commenters interpretation of the
CAA shows that Congress gave State and local governments the primary authority for adopting
measures to attain and maintain NAAQS. Also, according to the commenters, Congress
designed a number of regulatory programs to achieve emission reductions such as SIPs, Acid
Rain, and MACT.
Response:
The original 1978 NSR rules concerning modifications that we promulgated after
enactment of the 1977 Amendments generally tracked the NSPS approach by specifying that
RMRR was not a "change;" by specifying that changes in hours of operation and rates of
production were not a "change;" and by using the same basic approach NSPS used to the
question of what constitutes an "increase." 43 FR 26388 (June 19, 1978). Even after the D.C.
Circuit struck down other portions of our 1978 NSR rules in its original per curiam decision in
Alabama Power Co. v. Costle. 606 F.2d 1068 (D.C. Cir. 1979), we continued to propose to retain
the RMRR provision and the "potential to emit" approach to emissions increases in our revised
rules, although to drop the "hours of operation and rate of production" provisions because the
"potential to emit" provision made them unnecessary. 44 FR 51924, 51937 (September 5, 1979).
hi our final 1980 NSR rules, however, issued after the D.C. Circuit's final Alabama Power
decision, 635 F.2d 323 (1980), we changed our approach to the definition of "increase" in the
NSR context to specify that a change would trigger NSR if it would result in an increase over
"actual annual emissions." 45 FR 52676 (August 7, 1980). At the same time, and notably, we
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restored the provisions stating that increases in hours of operation or production rate were not
"changes." Id. at 52704.
It is important to understand what we did - and did not - decide in those final 1980 NSR
rules. What we did decide was that as a general proposition, we would better serve the purposes
of the NSR program if we used "actual" rather than "potential" emissions as the measure for
determining whether an activity at an existing source results in an emissions increase. What we
did not decide was that the purposes of the NSR program never allow us to exclude from the
definition of "change." In particular, for example, we decided to retain the "hours of operation"
and "rate of production" exclusions even though such changes might result in increases in
"actual" emissions because not having the provisions "would severely and unduly hamper the
ability of any company to take advantage of favorable market conditions." Id. Similarly, we
retained the exclusion for "routine maintenance, repair and replacement" even though it too can
result in emission increases. There is little doubt that increases in hours of operation and rates of
production arguably could be understood to fall within the statutory definition of modification,
since increases in hours of operation and rates of production certainly may be argued to be
changes in the "method of operation" of a plant. On balance, however, we rejected that
interpretation and determined that the definition of modification should not be read so broadly as
to encompass hours of operation or production rate increases, at least so long as they are
unrelated to a physical change.
hi the revisions to the NSR program we announced on December 31, 2002 (67 FR
80186), we reiterated our adherence to the view that as a general matter we should continue to
use "actual" rather than "potential" emissions in determining what activities constitute
"modifications" under NSR. We continue to believe that is correct, but we also believe we
should amplify our reasons for holding this view and why that view is entirely consistent with the
final ERP rule, hi determining the scope to give to "modification," we believe it is important to
give weight to two aspects of what Congress decided in 1977. Congress decided that existing
plants would not be immediately subject to NSR, but that they would become subject to NSR
when they made "modifications." It is also important to understand why Congress chose this
point at which to impose NSR on existing plants: to avoid the need to impose costly retrofits, but
require placement of new control technology at a time when it makes the most sense for it to be
installed. See H.R. Rep. No. 294, 95th Cong., 1st Sess. 185, reprinted in 1977 U.S. Code Cong.
& Admin. News at 1254; 116 Cong. Rec. 32,918 (Sept. 21,1970) (remarks of Sen. Cooper). See
also WEPCO. 893 F.2d at 909-910; National-Southwire Aluminum Co. v. EPA. 838 F.2d 835,
843 (6th Cir., Boggs, J., dissenting), cert, denied, 488 U.S. 955 (1988). A wholesale exclusion of
any activity that restores an existing plant to its potential to emit from the definition of
modification is not consistent with this balance, since there are many activities that might have
that effect but the occurrence of such activities would be an extremely effective time for the
installation of new control technology on an affected source.
At the same time, we believe it is also important to give equal weight to the converse
proposition that existing plants should not have to install new control technology in the ordinary
course of their operations To require a source to do so would fail to give full effect to Congress'
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decision that existing sources generally would not be required to obtain permits. It would also
subject these plants and the consumers who rely on them to enormous dislocation and expense.
That is why we excluded RMRR of existing plants from that definition.
4.1.6 Large-scale Equipment Replacement
Comment:
One commenter (American Gas Association, @2539) argued that the ERP rule will not
allow piecemeal replacement of entire operating units in the natural gas distribution industry to
defeat the application of NSR to new units. The commenter provided four reasons to support
their argument: (1) the ERP will not allow changes that cause emissions increases; (2) the ERP
rule will not result in a change in maintenance practices for this industry but instead confirms
existing practices; (3) the cost to "uprate" a compressor station exceeds the ERP's 20-percent
limit, and uprates are invariably accompanied by an increase in heat input capacity, which means
the ERP rule would not apply; and (4) any suggestion that natural gas compressor stations will be
unregulated if NSR does not apply is indefensible, as compressor stations are regulated under the
NOX SIP call and additional implementation plan provisions of many States.
Another commenter believed that the final rule would allow large-scale equipment
replacements. The commenter (Environmental Groups, @2620) said that nothing in the final
rule prevents a source from effectively undergoing a reconstruction by carrying out a series of
sequential replacement projects that individually fall below the rule's 20 percent cost threshold.
According to the commenter, the EPA expressly refused to set any temporal limit on how many
projects at a process unit can qualify for the equipment replacement exemption within a given
timeframe, thereby allowing a source to execute multiple replacement projects in the space of
one year or some other short period. So long as the reconstruction is undertaken in a series of
nominally independent projects, the ERP enables the complete reconstruction of a source to
occur without triggering NSR. Thus, for example, the commenter claimed, a source owner,
staffed with reasonably sentient accountants, could reconstruct an entire process unit through a
series of five projects carried out sequentially over a relatively short period of time without
triggering NSR. This aspect of the rule violates the language and the purpose of the CAA's NSR
provisions, and threatens public health and the environment. Furthermore, the stark
inconsistency between the words of the preamble and the regulatory text renders the rule
unreasonable (if the issue is governed by Chevron Step Two) as well as arbitrary and capricious.
Response:
We agree with the commenter who believed that the ERP will not allow wholesale
replacement of large portions of a facility (e.g., some commenters argued that a facility could
reconstruct an entire facility through five sequential projects, each of which do not exceed the 20
percent threshold). Commenters who supported the opposite view failed to take into account the
other criteria that must be met in order to qualify for the ERP: the new components must be
identical or serve the same purpose as the replaced components, and the replacements do not
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alter the basic design parameters of the process unit or cause the process unit to exceed any
emission limitation or operational limitation (that has the effect of constraining emissions) that
applies to any component of the process unit and that is legally enforceable.
Another important factor is that related activities must be aggregated under the ERP in
the same way as they would have to be aggregated for other NSR applicability purposes. Under
our current policy of aggregation, two or more replacement activities that occur at different times
are not automatically considered a separate activities solely because they happen at different
times, hi the case of replacing an entire facility, it is not feasible that an owner or operator could
successfully argue that multiple projects occurring one after the other within a relatively short
time period are not related to one another and should not be aggregated for applicability
purposes. Therefore, the situation envisioned by the opposing commenter would never happen.
4.1.7 Comments Related to State Programs
Comment:
One commenter (Electric Reliability Coordinating Council, @2531) offered observations
regarding State program issues in connection with the ERP: (1) the CAA allows States to adopt
more aggressive enforcement policies than the Federal government; (2) the only States that are
potentially limited by the ERP rule are those that currently choose to conform their laws to the
Federal approach; (3) states have participated in the NSR reform process, resulting in a final rule
that supports and extends several innovations developed by the States themselves, and the
commenter noted specific expressions of States' support of program reform; and (4) State rights
are diminished by the reinterpretation of the NSR program in the 1999 enforcement initiative.
This commenter further stated that the States of New Jersey, New York, and Pennsylvania allow,
under their nonattainment NSR programs, projects that do not increase a facility's allowable
emissions to proceed without NSR review, regardless of the project's size or whether the project
involves "functionally equivalent" replacement components. In other words, these States allow a
broader range of projects in their nonattainment areas than the ERP rule would allow in
attainment areas.
Response:
We disagree with the assertion that we engaged in a reinterpretation of our rules when we
brought the 1999 enforcement initiative. Furthermore, nothing in the 1999 enforcement initiative
altered the relationship of EPA to State programs under the CAA.
We note that certain local programs in California exclude the replacement of equipment
with identical equipment and allow the replacement of equipment with functionally equivalent
equipment (subject to minimum pollution control requirements, if necessary) without considering
such action to be a modification. Nothing in the final rule would prevent a State or local
program from imposing additional requirements necessary to meet Federal, State, or local air
quality goals.
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4.1.8 Examples of RMRR Projects
Comment:
One commenter (National Petrochemical & Refiners Association, @2545) stated that in
implementing NSR in the petroleum refining industry over the last 20 years, the EPA and the
States have reviewed a wide variety of RMRR changes and appropriately excluded them from
NSR. According to the commenter, these changes include those that need to be implemented
during the normal day-to-day operation of the refinery and those that take place during a
"turnaround." The commenter provided several examples of RMRR activities in this industry
that have been excluded from NSR review. The commenter urged the EPA to continue to allow
such exclusions and leave the final rule unchanged.
Response:
The RMRR activities cited by this commenter provide examples of projects that are
environmentally beneficial and permitted under the ERP as RMRR if all conditions of the ERP
are met. For example, replacing conventional burners with low NOX and ultra-low NOX burners,
resulting in significantly lower NOX emissions; replacing catalysts with ones that operate at lower
temperatures, resulting in lower firing of process heaters, resulting in reduced combustion
emissions; and replacement of FCCU regenerator cyclones with higher efficiency models,
resulting in reduced catalyst PM emissions. These are the type of environmentally beneficial
activities that the final rule will encourage.
4.1.9 Opportunity for Comment on the Legal Basis
Comment:
Three commenters (Southern Company, @2569; Equipment Replacement Rule Coalition,
@2614; National Petrochemical & Refiners Association, @2545) believed that EPA provided
adequate opportunity for comment on the legal basis of the ERP rule. One commenter (Southern
Company, @2569) further explained that an agency's notice of proposed rulemaking is only
required to fairly apprise interested persons of the subjects and issues involved in the rulemaking.
The EPA was not obligated to solicit comments concerning the legal basis for its proposed rule.
Another commenter (National Petrochemical & Refiners Association, @2545) stated that
stakeholders have rarely found any difficulty identifying issues with which to challenge the
EPA's rules, ranging from the most detailed technical issue to broad policies. Given this history,
it is hard to believe that those arguing that they did not have the opportunity to comment on the
legal basis of the rule overlooked in the preamble to the proposed rule in the section "How This
Preamble Is Organized" a major heading titled "Legal Basis For Recommended Approaches." A
number of commenters not only located this section but also provided comments to the EPA on
the legal basis for the rulemaking.
Response:
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We believe that the notice in the RMRR proposal was sufficient to allow for comment
and that the comment period was adequate to allow interested parties to submit comments on all
issues related to the ERP. We allowed a total of 120 days after publication of the proposed rule
in the Federal Register for submittal of public comments.
4.1.10 Inadequate Enforcement Provisions
Comment:
One commenter (NYSDEC, @2521) stated that the rationality of the ERP rule is
undermined by the lack of enforcement mechanisms or reporting procedures to ensure
compliance. The commenter noted that a facility might opportunistically define a process unit in
a way that ensures project costs would fall within the 20-percent cost threshold, yet there are no
enforcement mechanisms in place to prevent this.
Response:
We believe that the records developed and maintained in the ordinary course of business
will provide the primary means of assuring compliance with the final rule. We know that, as a
general rule, companies necessarily generate and keep records related to the types of projects
covered by the ERP. For example, companies generally have comprehensive procedures by
which funds are allocated to both capital and maintenance expense projects. Many of the records
generated by these procedures are needed for tax accounting purposes and, by law, must be
maintained for at least 6 years. Moreover, additional records must be maintained in industries
regulated for other purposes, such as the energy sector (over 90 percent of which, by capacity, is
subject to FERC regulation). Public utilities, licensees and natural gas companies that are subject
to FERC jurisdiction must, unless they receive a waiver from the Commission, comply with
extensive accounting and record retention requirements. They must keep financial information
according to uniform systems of accounts that are set out in 18 CFR part 101 for public utilities
and licensees, and 18 CFR part 201 for natural gas companies. These uniform systems of
accounts include hundreds of specific accounts, including individual accounts for boiler plant
equipment, engines and engine-driven generators, turbogenerator units, and hundreds of other
asset, liability, cost and property items.
These companies also must retain records according to the schedules set forth in 18 CFR
part 125 (for public utilities and licensees) and 18 CFR part 225 (for natural gas companies).
The types of records that companies must keep include, for public utilities and licensees, for
example, generation and output logs (records must be kept for 3 years), load records (3 years),
gauge-reading reports (2 years), maintenance work orders and job orders showing entries for
labor, materials and other charges in connection with maintenance and other work pertaining to
utility operations (5 years), work order sheets for construction work in progress (5 years),
appraisals and valuations made of utility property or investments (3 years), engineering records,
drawings, and other supporting data for proposed or as-constructed utility facilities, including
detail drawings and records of engineering studies (must be kept until facilities are retired),
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contracts or other agreements relating to services performed in connection with construction of
utility plant (6 years after the plant is retired or sold), general and subsidiary ledgers (10 years),
paid and canceled vouchers, and original bills and invoices for materials, services, etc. (5 years).
Altogether, these various sources of information provide more than reasonable assurance
of compliance with today's rule. This is particularly true given the EPA's broad authority to
inspect affected facilities and require submission of compliance related data. Accordingly, we
did not impose any recordkeeping requirements in the final rule.
4.1.11 Inadequate Supporting Data
Comment:
One commenter (NYSDEC, @2521), referring to a GAO report, noted that the EPA has
relied upon anecdotal evidence from industry to justify the ERP rule and also to determine
emission impacts of the ERP rule. The commenter also pointed out the GAO finding that the
EPA's conclusion drawn from these anecdotes is at odds with past pronouncements by the EPA
that performing an energy project can provide an economic incentive to increase production
levels, potentially resulting in increased emissions.
One commenter (NYSDEC, @2521) said the EPA provided no rational or legal basis
from which one could conclude that the projects meeting the cost threshold will generally not
impact air emissions. As an example, the commenter referred to modifications made at 14 coal-
fired electric power generating units for Tennessee Valley Authority, which the EPA's EAB
determined to constitute major modifications under the NSR provisions of the CAA. The
commenter noted that, as shown in comments by the American Lung Association, et al. (OAR-
2002-0068-1150), the ERP rule would exempt all of those projects without regard to whether
they would cause in increase in emissions, assuming the modifications did not cause the facility
to violate ambient air quality standards or other applicable emission limits unrelated to NSR.
Response:
At proposal, we presented a quantitative analysis of the possible emissions consequences
of the range of different approaches to the RMRR exclusion to evaluate if our policy conclusions
are correct. Our analysis was conducted using the IPM. This analysis was done for electric
utilities because we have a powerful model to perform such an analysis that we do not have for
other industries. We stated that the results for electric utilities accurately reflect the trends we
would see in other industries.
The IPM analyses of different scenarios showed that the breadth of the RMRR exclusion
would have no practical impact on, let alone be the controlling factor in determining, the
emissions reductions that will be achieved in the future under the major NSR program. The
analyses showed that emissions of S02 are essentially the same under all scenarios, but that under
the final rule these emission levels will be met in a more economically efficient manner than the
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base case. This stands to reason because nationwide emissions of SO2 from the power sector are
capped by the Title IV Acid Rain Program. For NOX, these analyses showed modest relative
decreases in some cases and modest relative increases in other cases. These predicted changes
represent only a fraction of nationwide NOX emissions from the power sector, which hover
around 4.3 million tpy. (It should be noted that these analyses were performed prior to the EPA
adopting the Clean Air Interstate Rule, which will provide additional reductions by capping SO2
and NOx emissions from electric utility plants in the Eastern U.S.) At this time, we do not have
adequate information to predict with confidence which modeled scenario is most likely to occur.
What these analyses indicate, however, is that regardless of which scenario is closest to what
comes to pass, the final rule will not have a significant impact, up or down, on emissions from
the power sector. However, we expect the rule to result in significant improvements in safety,
reliability, and other relevant operational parameters.
The DOE also presented further analysis of the possible emissions consequences of the
range of different approaches to the RMRR exclusion. Using the NEMS, a variety of changes in
energy efficiency and availability were evaluated, as well as the effect on emissions resulting
from these regulatory revisions. This analysis concluded that efficiency improvements resulting
from increased maintenance, repair and replacement are expected to decrease emissions, whereas
availability improvements are expected to increase emissions. In the cases represented in this
analysis, the emissions reductions from assumed reductions in heat rates tended to dominate the
corresponding effects of the assumed availability increases.
Regarding the applicability of our analysis to non-utility sectors, we continue to believe
that our conclusions are valid for all sectors, and further, that the effects from the electric utility
industry dominate those from other sectors. We acknowledge that the results for the SO2 cap for
utilities cannot be extended to non-utilities that are not similarly capped. However, our model
runs for NOX reflected the absence of a cap, and are therefore valid for other uncapped sectors.
Thus in the case of industrial boilers, which behave similarly to utilities, we would expect to see
similar efficiency improvements and availability improvements occurring in tandem, resulting in
either modest increases or decreases. Because the overall emissions from this sector are
significantly smaller than for utilities, the modeled effects for utilities are expected to dominate
the analysis.
For other industrial sectors, we do not anticipate that emissions increases will result from
equipment replacement activities that qualify as RMRR under the final rule. While some
efficiency improvements may result, the overall effect of these improvements will not be to
induce greater demand and greater emissions, in contrast to the effect shown by the modeling for
utilities (i.e., demand for other industrial sectors depends on independent factors). Indeed,
without increased demand, efficiency improvements that lower emissions per unit of output
would result in a decrease in emissions.
Concerning the GAO report, energy efficiency is only one of the considerations on which
we based the ERP rule. Moreover, in our reconsideration of the environmental effects of the
proposed rule, we specifically considered that report and determined that it provided no basis for
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the Agency to revise the rule. The GAO report asserts that there are uncertainties concerning the
potential impacts of the proposed rule, a fact that we have acknowledged. We have pointed out,
however, that the GAO report did not find that the environmental analysis was incorrect or that
the final rule was unjustified. After considering the extensive comments received on the
proposals and during reconsideration and the numerous meetings that the EPA held with
interested parties, we determined that the final rule will be economically beneficial and have
minimal environmental impact. That conclusion is supported by the record.
4.1.12 Assertions that the ERP Rule Will Lead to Emissions Increases
Comment:
Several commenters (NYSDEC, @2521; Jeffords, et al., @2376; STAPPA/ALAPCO,
@2576) disagreed with EPA's assertion that the ERP rule would not lead to emissions increases.
One commenter (NYSDEC, @2521), citing a NESCAUM report, noted that maintenance and
repair activities could lead to increases in utilization and capacity, thereby increasing facility
emissions, and even small increases in emissions could significantly impact air quality. Another
commenter (Jeffords, et al., @2376) (Peg Lautenschlager, Attorney General for the State of
Wisconsin) estimated that the effects of the ERP rule in Wisconsin will be an increase in air
pollution of almost 3,000 tons. One commenter (STAPPA/ALAPCO, @2576) stated that the
final rule eliminates permitting and control technology requirements in many cases by exempting
from NSR those sources replacing equipment that is valued at 20 percent or less than the value of
the total process unit even if the actual emissions would increase. The commenter believed that
this exemption virtually eliminates the NSR program for modifications at existing sources and
will result in increased emissions and poorer area quality in many areas.
Response:
In our response to the previous comment, we discussed the analyses we performed to
estimate the impact of the ERP. We continue to believe that the results of these analyses are
correct and that the concerns voiced by these commenters are misplaced.
The showing we made in these analyses is credible for a number of reasons. First, the
substitution effect of replacing deteriorating emission sources with well-maintained emission
sources will generally reduce emissions per unit of output. The ERP itself should not materially
affect demand in markets served by ERP-affected sources. To the extent individual sources will
increase output (and emissions) following maintenance allowed by the ERP, output (and
emissions) at other plants will decrease. Second, when placed in the context of the overall
implementation of the CAA, EPA's emission cap programs and NAAQS will actually force
emission reductions through attainment planning. Therefore, large increases in emissions are not
expected, contrary to the suggestions of experts relied on by the commenters. Finally, an
exclusion from NSR applicability under the ERP will not affect other applicable requirements of
the CAA, including RACT, MACT, and emission tonnage limits in title V permits. In light of
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these considerations, EPA can reasonably conclude that the ERP will not lead to an overall
emission increase as suggested by the commenter.
In appropriate circumstances, a State may seek to use CAA Section 126 to petition for
additional controls on out-of-state sources.
4.1.13 Whether the Final Rule Contravenes Clean Air Act or Congressional
Intent
4.1.13.1 Final Rule is in Accord with the CAA and Congressional Intent
Comment:
Based on the CAA definition of "modification," two commenters (Virginia Independent
Power Producers, Inc., @2560; El Paso Corp., @2561) believed that the EPA not only has the
authority, but also an obligation, to exclude RMRR activities from NSR if they do not (1) make
"any physical change in, or change in the method of operation of, a stationary source" or (2) the
change does not increase "the amount of any air pollutant emitted from such source or which
results in the emission of any pollutant not previously emitted." According to the commenter,
the revised ERP is more restrictive than required by the CAA because it requires that both (1) no
changes are made and (2) no emissions are increased, instead of requiring that either one of the
two requirements be met as the CAA definition of modification does. Also, the final rule
requires that the cost of the RMRR activity remain below the capital cost threshold, which is not
required by the CAA definition of modification. One of the commenters (El Paso Corp., @2561)
added that the EPA has the authority to adopt an exclusion for any projects that would not
increase a source's potential to emit.
Two commenters (Duke Energy, @2564; Southern Company, @2569) stated that the
RMRR provision is not a new addition to the NSR program, and Congress understood that
certain activities should not be considered physical or operational changes. An exclusion from
NSR requirements for RMRR activities has been a part of the new source programs since their
inception. Congressional actions in both the 1977 and 1990 CAA Amendments, the EPA
rulemakings to codify Congressional action, and the implementation history of the new source
programs all confirm that RMRR activities that ensure safe and reliable operation of sources as
originally designed and constructed are not the types of activities that constitute "modifications"
under the new source programs.
Three commenters (Edison Electric Institute, @2567; Southern Company, @2569;
National Refiners & Petrochemical Association, @2545) stated their opinion that the petitioners'
argument that the modifier "any" in the CAA definition of modification compels the agency to
adopt the broadest possible interpretation of physical change is not only legally flawed, for the
reasons explained in the rule preamble, but also would result in a regulation that is too broad and
burdensome to be enforced by federal and state agencies. Starting in 1999, the Agency's
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enforcement office sought to impose, by litigation rather than rulemaking, a new interpretation of
RMRR. The commenters claim that the petitioners want to apply this interpretation so broadly
that it would completely obliterate the CAA's distinction between "new" and "existing"
facilities, subjecting all facilities (new and existing) to repeated and frequent NSR evaluation and
permitting. By attempting to include every replacement activity within the meaning of "physical
change," the petitioners' construction of the term "any physical change" conflicts with
Congress's clear intent that RMRR activities not be considered physical changes. The
commenters stress that failure to implement a clear and consistent RMRR exclusion results in
arbitrary enforcement across all industrial sectors, subject to the whims and prejudices of those
managing enforcement activities.
Two commenters (Pinnacle West Capital Corporation, @2584; NED A/CAP, @2670)
stated that the fundamental purpose of the NSR program is to require pre-construction permits,
and state-of-the-art pollution controls, for new sources. Congress expressly determined that
existing sources did not require such permits, except in very narrow circumstances. Instead,
Congress affirmatively charged the states with determining the extent to and means by which
existing sources are required to comply with the NAAQS. Another commenter (UARG, @2615)
supported this view and provided an extensive review of the statutory and regulatory background
of the NSR program as it pertains to modifications and RMRR. Based on this review, the
commenter concluded that the ERP rule is completely consistent with the CAA, and the EPA
acted well within its discretion under the CAA in promulgating it.
One commenter (NEDA/CAP, @2670) stated that petitioners asserted that the final rule
is illegal because it is not consistent with the either the CAA or with prior EPA regulations or
court decisions regarding those regulations. The commenter believed that both of petitioners'
legal grounds for challenging the ERP rule are wrong. First, according to the commenter, the
EPA provided a thorough and legally defensible analysis of how the ERP rule is entirely
consistent with the CAA's NSR program. Second, while the ERP rule is consistent with prior
NSR regulations, if not recent Office of Enforcement interpretations of those regulations [so
characterized by the commenter], the EPA has ample authority to change its regulations
consistent with the statute so long as it conducts rulemaking to accomplish such changes.
One commenter (Iron and Steel Industry Trade Groups, @2544) believed that the
extensive legal authority provided in five pages of the EPA's preamble clearly demonstrated that
the final rule does not contravene Congressional intent and that the ERP rule is lawful under the
CAA. The commenter notes that the EPA recognized that it must interpret physical or
operational change in a flexible way that furthers the purpose of the CAA. In addition, the
commenter claims that the EPA accurately states that Congress intended that the NSR program
should be administered in a manner that protects the environment and promotes the productive
captivity of the nation. According to the commenter, the EPA stated that these goals can be
achieved by providing the State and local governments with the discretion to make decisions as
to what emissions reductions are needed in their jurisdictions to satisfy and maintain the
NAAQS.
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Response:
We agree with these commenters that we had an adequate legal basis for the ERP. We
also believe that we followed the directives of the CAA and that the final rule is consistent with
Congressional intent. Our reasoning that formed the basis of these conclusions is set forth in
more detail in response to the following set of comments.
We disagree with assertions by the commenter that we adopted a new interpretation of
RMRR starting in 1999. The positions we have taken in those cases are consistent with the
meaning of the rules as they stood at the time of the activities at issue in these cases.
.4.1.13.2. Final Rule is not in Accord with the CAA and Congressional Intent
Comment:
One commenter (NYSDEC, @2521) views the ERP rule to be inconsistent with the plain
language of the CAA and one not based on a permissible construction of the statute. For more
than 15 years, the commenter noted, the EPA and the courts have determined on a case-by-case
basis whether an activity was routine maintenance, giving broad effect to statutory terms and
focusing on practical and common sense factors. The EPA's departure from longstanding
practice cannot be justified on the scant rulemaking record assembled.
One commenter (Calpine Corporation, @2588) stated that nothing in the CAA or the
relevant interpretations of NSR provide the EPA with the authority to establish a financial
allowance or cost-based exemption, while ignoring the important singular focus on emissions
increases that the CAA requires, regardless of plant vintage. Under the PSD program adopted in
1977, all new major sources must install BACT. Existing sources are required to install state-of-
the-art pollution controls when they are refurbished.
One commenter (Delaware, @2554) stated that since the EPA's authority under the CAA
is to provide for improvements in the quality of air, there is uncertainty with the EPA's legal
authority to proceed in a manner that may allow polluters to avoid the requirements of the NSR
program to substantially decrease emissions as facility improvements are completed.
Consequently, the commenter urged the EPA to carefully scrutinize the factual basis
underpinning its argument that this rule will improve air quality as the EPA's authority extends
to clarify this provision in a manner that furthers the goal of increasingly improving air
emissions.
One commenter (Environmental Groups, @2620) pointed out that in the Legal Basis
section of the preamble, the EPA argued that because Congress incorporated Section 11 l(a)(4)'s
definition of "modification" into the PSD provisions in 1977, the EPA's then prevailing
construction of the "any physical change" language "delineates a zone of discretion within which
the EPA may operate" in its PSD/NSR regulations. The commenter claimed to have
demonstrated that the EPA's rule exempts physical changes that increase emissions significantly,
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and that there is no evidence that Congress intended to ratify such a divergence from the plain
language of the CAA. Congress did not, in 1977, express any approval with the RMRR
exclusion then in existence.
One commenter (NYSDEC, @2521) said the problem with the ERP rule is that it can
affect emissions by allowing old sources to undertake modifications that increase generation and
production capacity and enable old sources to extend their useful lives without having to install
appropriate pollution control equipment. For this important reason, the ERP rule cannot be
reconciled with the plain terms of the CAA or its underlying policy objectives.
One commenter (Delaware, @2575) specifically asserted that the ERP rule would allow
emissions increases and that such a rule violates the language of the CAA and Congressional
intent. The commenter (Delaware, @2575) pointed out a study conducted by NESCAUM of the
impact of the ERP rule that compared actual and Title V permitted emissions of sources in states
upwind of the New England states. The NESCAUM study, published in June 2004, indicates
that the ERP rule has the potential to allow VOC emission increases in New Jersey of 967
percent and NOX increases of 1,820 percent. Other pollutants (CO, PM10, and SO2) showed
similar potential increases. The ERP rule, in the opinion of the commenter, contravenes the
intent of Congress by allowing large emissions increases without triggering NSR and without
requiring the addition of modern pollution control measures or equipment. Congress, in creating
the CAA, intended that major NSR be applicable "for any physical change," not just some of
them.
Several commenters (Delaware, @2575; Calpine Corp., @2588; Environmental Groups,
@2620; New York et al, @2555; Adirondack Mountain Club, @2542) believed that the CAA
clearly states that modifications should trigger NSR, and that equipment replacement should be
considered a modification. The views of many of these commenters were reflected by one
commenter (Delaware, @2575) who stated that Congress did not intend that sources in existence
when the CAA was written to immediately add controls. Instead, the commenter believed the
expressed intent of Congress was to rely on the need for future modifications to trigger the
requirement that emission controls be added. The commenter also believed Congress did not
intend regulatory actions, such as the ERP rule, to allow a source to completely replace all
equipment in a process unit without NSR permitting and without adding controls. The
commenter also believed that Congress did not intend these grandfathered sources to continue to
pollute at their current levels indefinitely. Therefore, the commenter believed the CAA provided
no legal basis for the rule as written. One commenter (Environmental Groups, @2620) added
that an amendment to the 1990 CAA, which was defeated, took an approach similar to that in the
ERP rule for equipment replacement. This defeat preserved the then existing definition of
modification, and any emissions increasing physical change, including replacement projects
involving identical of functionally equivalent parts, is a modification.
Two commenters (National Petrochemical & Refiners Association, @2545; National
Forest & Paper Association, @2547) disputed this view. According to one of the commenters
(National Petrochemical & Refiners Association, @2545), the petitioners believed that Congress
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intended all grandfathered sources to go through NSR at some unspecified point in the future.
According to the commenter, the EPA corrected this misunderstanding in the preamble to the
final rule. The commenter stated that the EPA correctly explains, any existing source can make
as many physical or operational-method changes as it wishes without going through NSR, if the
changes do not result in a significant net emissions increase. The other commenter (National
Forest & Paper Association, @2547) stated that petitioners argued that the ERP exclusion
conflicts with the purpose of NSR to subject all emissions increases to review. However, this
point is wrong for three reasons according to the commenter. First, Congress intended NSR, like
NSPS before it, to require controls when it made technical sense to install them. That is shown
most clearly by the adoption of the NSPS "modification" test for use in NSR. Moreover,
Congress in 1977 expressly reaffirmed its intent to focus NSR technology control requirements
on the opportunities that made technicalsense. Second, NSR was never intended to cover all
emissions increases. The NSR program does not apply to sources below the "major source"
emissions threshold, or to variations in emissions at existing major sources that are not caused by
a physical change or change in the method of operation. According to the commenter, the CAA
contains many other programs to reduce emissions to attain the NAAQS and protect visibility,
and to limit emissions to preserve the PSD increments. The commenter charges that the
petitioners simply assumed the conclusion they prefer when it contends that the EPA's definition
of physical change or change in the method of operation must be rejected because it could lead to
emissions increases. Third and finally, the commenter claims that changes at the commenter's
member facilities under the ERP exclusion will virtually never cause increases above enforceable
limits that constrain emissions. Instead, the ERP exclusion, without allowing emissions
increases, will greatly streamline the process of making changes to improve safety, efficiency,
reliability, and environmental performance and will therefore encourage those changes.
Response:
The commenters' claim that the EPA's interpretation is inconsistent with statutory intent
is based on a misreading of the CAA and its legislative history. Contrary to the claims of
commenters, the purpose of the NSR modification provisions is not to compel emissions
reductions from existing sources, but to limit emissions increases resulting from physical or
operational changes. This is evident from the statutory requirements. The NSR provisions are
triggered only where a new source or a modification to an existing source results in a significant
increase in projected emissions. If Congress had intended NSR to compel decreases in
emissions, it would be irrational for the requirement to be triggered only when a facility, in fact,
increases its emissions. Rather, NSR requires that facilities making changes that increase their
emissions meet emission limits that reflect state-of-the-art control technology, analyze the
increased emissions from their facilities to ensure that they will not adversely affect air quality,
and, in nonattainment areas, offset their emissions increases with emission reduction credits.
Because the commenters misstated Congress' intent, there is no basis for their claim that
we are substituting our preferred policies for Congressional intent. Congress did not intend the
NSR provisions to be used to compel emission reductions from existing sources, but plainly did
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intend that the EPA balance economic and environmental considerations in implementing NSR.
That is exactly what the EPA has done.
Rather than NSR, the CAA's primary mechanisms for achieving the emissions reductions
needed to attain or maintain NAAQS are SIPs. hi their SIPs, States are required to provide
measures necessary to achieve or maintain the NAAQS. hi nonattainment areas, SIPs must
contain measures to achieve specified annual percentage reductions in emissions to ensure
progress towards attainment. These SIP requirements work in concert with federal programs
such as the NOX SIP Call, Glean Air Interstate Rule, and Title IV Acid Rain program. Because of
this complex array of programs designed to achieve air quality standards, we have reasonably
determined that the appropriate role for the NSR program is to ensure that emissions increases
from new or modified sources are subject to control and air quality analysis, which is entirely
consistent with the statutory language.
Concerning the incorporation of CAA Section 11 l(a)(4)'s definition of "modification""
into the 1977 PSD provisions, we disagree with the commenter's characterization of our
argument in the preamble to the final ERP rule. Nowhere in that notice did we argue that
Congress mandated adoption of the 1977 NSPS regulatory interpretation of what is a
"modification" when it cross-referenced CAA Section 11 l(a)(4) into the NSR program. We do
not believe Congress intended to ratify the then-existing interpretation or "congeal" our NSR
regulations as they stood under NSPS program in 1977 (see our Brief for Respondent in State of
New York v. EPA. D.C. Cir. Case No. 02-1387 (Aug. 9, 2004) at 38-40). Our discussion of the
history of our interpretation of Section 11 l(a)(4) simply points out the obvious: that words of
Section 11 l(a)(4) historically have been taken to have quite different meanings in the NSR and
NSPS programs. From this, we argue that any words that can be given such divergent meanings
for decades cannot have but one clear meaning on their face. To argue that the definition of
"modification" in Section 11 l(a)(4) is unambiguous, as the commenters have, one must advance
an unusual position that does not make sense: that the same words, with no further definitions or
legislative history, facially and unambiguously mean different things.
4.1.14 Interpretation of the Definition of "Modification"
Comment:
Two commenters (S. C. Johnson & Son, Inc., @2368; American Forest & Paper
Association, @2547) believed that an expansive interpretation of the definition of "modification"
would produce absurd results. According to one commenter (S. C. Johnson & Son, Inc.,
@2368), under such a strained interpretation, even a maintenance activity undertaken to replace
worn nuts or bolts in a piece of equipment could be construed as a modification subject to NSR
applicability. Another commenter (American Forest & Paper Association, @2547) believed that
the ERP rule rests ultimately on the EPA's power to define the term "physical change or change
in the method of operation." The ERP's interpretation of that phrase falls well within the
ordinary meaning of that term, and it falls well within the limits that Congress expressly
approved when it made this term applicable to NSR regulation in 1977. Indeed, according to the
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commenter, given the EPA's interpretation of its existing rules, the addition of the ERP
exclusion moves the EPA's rules closer to that original intent than they were before.
Other commenters (Environmental Groups, @2620; New York et al., @2555;
Adirondack Mountain Club, @2542) thought that the definition should be interpreted in the
broadest terms. One commenter (Environmental Groups, @2620) stated that, as the EPA
recognized in the final rule's preamble, the ordinary meaning of the term "change" denotes a
variety of activities, including those that replace components with identical or functionally
equivalent ones. The commenter notes that Congress's use of "any" expresses Congress's
understanding that the various types of physical changes, including identical or functionally
equivalent replacements, are all within NSR's reach, if they increase emissions. The commenter
points out while Congress may not have defined the phrase "any physical change" or the words
therein, Congress also expressed no intent to limit Section 11 l(a)(4) to particular kinds of
emissions-increasing physical changes. If it had intended such a result, it easily could have said
so. In short, "the replacement of any component of a process unit with an identical or
functionally equivalent component(s)" falls within the plain meaning of Section 11 l(a)(4)'s
reference to "any physical change," and such a replacement must undergo NSR if it "increases
the amount of any air pollutant emitted by such source" or "results in the emission of any air
pollutant not previously emitted." The commenter claims that the EPA's attempt to exempt such
activities violates the plain meaning of the CAA and must be rejected under Chevron Step One,
or in the alternative is an unreasonable interpretation that must be rejected under Chevron Step
Two.
The commenter further stated that the evidence the EPA cites for broad interpretive
discretion has no bearing on the exclusion that is at issue here. Moreover, the very regulatory
language that the EPA cites reveals that the "routine replacement" exclusion lacks the premise
that the agency ascribes to it. In particular, the pre-1977 regulations did not, as the EPA
suggests, exclude a list of activities from the collective phrase, "physical change ... or change in
the method of operation." Rather, the pre-1977 regulations excluded one list of activities from
the term, "physical change," and a second, non-overlapping list from the term, "change in the
method of operation."
Thus, the two distinct statutory terms led the EPA, in its pre-1977 regulations, to develop
two distinct lists of exclusions. The commenter claims that this is not surprising, for whereas
physical changes always carry certain easily recognizable hallmarks, such as the use of tools and
replacement parts, the same cannot be said of operational changes. The only regulatory
exclusion from "physical change" in 1977 was for "routine maintenance, repair, and
replacement." The commenter stated that the EPA in 1977 did not define "routine replacement"
with anything approaching the breadth necessary to accommodate the ERP. To the contrary, the
commenter asserted that the EPA acknowledged that the exclusion's coverage extended only to
the bounds of the agency's authority to exempt de minimis emissions increases. The commenter
argued that the EPA cannot credibly argue, then, that Congress, assuming that it even took notice
of the "routine replacement" exclusion in 1977, meant to ratify an interpretation broad enough to
accommodate this rule.
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This commenter also pointed out that the EPA argued because the CAA does not
separately define the terms in the phrase "any physical change," there is a gap or ambiguity that
the EPA has discretion to fill as it wishes. To the contrary, the commenter argued that, in the
absence of a separate statutory definition, the statutory terms are presumed to have their ordinary
meaning. Indeed, cases under the CAA have repeatedly emphasized the importance of applying
the ordinary meaning of statutory terms.
Another commenter (Adirondack Mountain Club, @2542) stated that the final ERP rule
significantly broadens the definition of "routine maintenance" to allow existing stationary
sources to be reconstructed and indefinitely escape the cost of installing pollution control
devices. Such a broad application of the routine maintenance exemption has repeatedly been
struck down by the courts. Numerous court decisions have concluded that Congress did not
intend a permanent exemption from the requirements of the CAA. In doing so, the courts have
ruled that the routine maintenance exemption must be construed very narrowly. The commenter
provided citations from Alabama Power. WEPCO, Southern Indiana Gas and Electric, and Ohio
Edison to support these claims. The commenter also pointed out that according to various EPA
enforcement documents, the EPA has conceded that since the routine maintenance exclusion was
not explicitly created by statute, the exclusion must be narrowly construed.
Response:
The core of the NSR program is to require preconstruction permits for all new major
sources. Congress specifically decided that existing sources generally would not be required to
obtain permits. These considerations are the starting point for understanding its application to
"modifications" and the meaning we should give that term.
The NSR's applicability to existing sources to which a "modification" is made is an
exception to this basic concept. This exception finds its roots in the NSPS program's
applicability to "modifications" of existing sources. The 1970 CAA made the NSPS program
applicable to modifications through its definition of a "new source," which it defined as "any
stationary source, the construction or modification of which is commenced after the publication
of regulations . . . prescribing a[n applicable] standard of performance ... ." Section lll(a)(2).
Section 11 l(a)(4), in rum, defined a "modification" as "any physical change in, or change in the
method of operation of, a stationary source which increases the amount of any air pollutant
emitted from such source or which results in the emission of any air pollutant not previously
emitted."
Congress did not further define the terms "physical change" or "change in the method of
operation" in the NSPS program. Therefore we issued regulations to clarify their meaning. As
early as our 1971 NSPS regulations, we have made clear that many activities that do not affect
the contemplated operation of a unit in a manner consistent with its original design are not
physical or operational changes. Specifically, in our 1971 NSPS regulations, we determined that
physical or operational changes do not include: (1) routine maintenance, repair and replacement
of equipment; (2) an increase in the production rate, if such increase does not exceed the
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operating design capacity of the affected facility; (3) an increase in the hours of operation; and
(4) use of an alternative fuel or raw material if the affected facility is designed to accommodate
such alternative use. 36 FR at 24877 (Dec. 23, 1971). In reflecting on these provisions, we
believe the premise behind characterizing these activities as not being "changes" is that they all
contemplate that the plant will continue to be operated in a manner consistent with its original
design.
The 1977 Amendments to the CAA likewise made the NSR program applicable to
"modifications." The original 1977 Amendments did so explicitly only in their provisions
dealing with the non-attainment portion of the NSR program. See CAA Section 171(4). But in
"technical and conforming" amendments to the 1977 Amendments, Congress clarified that it
intended the same result with respect to the PSD provisions. See CAA Section 169(2)(c).
Notably, Congress did not enact a new definition of "modification" in either the original
1977 Amendments or the "technical and conforming amendments." Rather, it incorporated the
NSPS definition of "modification" by cross-reference. See CAA Section 169(2)(c), 171(4). In
moving the adoption of those amendments, the sponsor (who was also the sponsor of the original
1977 CAA Amendments and who indicated that the technical amendments had been approved by
all members of the original 1977 Amendments conference committee) stated in a summary and
statement of intent that he placed in the Congressional Record that this was a deliberate choice.
As that summary explained, Congress intended the amendment "implement[ed] the [1977 CAA
Amendments] conference agreement to cover "modification" as well as "construction" by
defining "construction" in part C to conform to usage in other parts of the Act." 123 Cong. Rec.
36331 (Nov. 1, 1977). We have understood this to be a reference to our preexisting rules
interpreting the term "modification" in the NSPS context. 49 Fed. Reg. 43211, 43213 (1984);
see also 43 Fed. Reg. 26388, 26394, 26397 (June 19, 1978).
The original 1978 NSR rules concerning modifications that we promulgated after
enactment of the 1977 Amendments generally tracked the NSPS approach by specifying
that"routine maintenance, repair and replacement" was not a change; by specifying that changes
in hours of operation and rates of production were not a "change;" and by using the same basic
approach NSPS used to the question of what constitutes an "increase" (increase to a source's
potential to emit, except that the NSR rule used annual potential to emit while the NSPS program
used short-term potential to emit). 43 FR 26388 (June 19, 1978). Even after the D.C. Circuit
struck down other portions of our 1978 NSR rules in its original per curiam decision in Alabama
Power Co. v. Costle. 606 F.2d 1068 (D.C. Cir. 1979), we continued to propose to retain the
RMRR provision and the "potential to emit" approach to emissions increases in our revised rules,
although to drop the "hours of operation and rate of production" provisions because the
"potential to emit" provision made them unnecessary. 44 FR 51924, 51937 (September 5, 1979).
hi our final 1980 NSR rules, however, issued after the D.C. Circuit's final Alabama Power
decision, 635 F.2d 323 (1980), we changed our approach to the definition of "increase" in the
NSR context to specify that a change would trigger NSR if it would result in an increase over
"actual annual emissions." 45 FR 52676 (August 7,1980). At the same time, and notably, we
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restored the provisions stating that increases in hours of operation or production rate were not
"changes." Id. at 52704.
The commenters argue that Congress provided the only acceptable limitation on what
physical changes are not subject to NSR as a modification, which is the requirement that the
physical changes result in an increase in emissions of any pollutant or the emission of any
pollutant not previously emitted. They also argued that an agency cannot imply an exemption to,
or otherwise insert limiting language into, a categorical statutory provision, especially where
Congress was specific in how it would allow the language to be limited.
We disagree with the commenters on three grounds. First, the commenters seem to
assume the answer to the threshold question - that equipment replacements that meet the ERP
criteria are "physical changes." - in order to say that we are creating an exemption for activity
that is presumptively subject to NSR. We believe that there is no such presumption prior to the
agency defining the ambiguous term. Second, we believe that the implication of the
commenter's argument would mean that several long-accepted exemptions from NSR would no
longer be valid were their position adopted. These exemptions from "any...change in the method
of operation" were discussed in our final rule legal basis. Finally, we believe that the
commenter's argument would not give meaning to all the words of the definition of modification.
The commenter's position reads that "any physical change or change in the method operation" to
be so inclusive that essentially the test for a modification becomes whether emissions increase at
a source because there always will be some "change" to which the increase can be linked, hi
contrast, the ERP, as part of our overall approach to the definition of modification, gives
meaning to both the "change" portion as well as the "emissions increase" portion of the
definition.
To summarize: with respect to existing sources, the purpose of the NSR provisions is
simply to require the installation of controls at the appropriate and opportune time. The kind of
replacements that automatically fall within the equipment replacement provision established
today do not represent such an appropriate and opportune time. Accordingly, and given that it is
consistent with the meaning of "change" to treat this kind of replacement as not being a
"change," we believe excluding them on that basis from the definition of "modification" as used
in the NSR program is well calculated to serve all of the policies of the NSR provisions of the
CAA, and is therefore a legitimate exercise of our discretion under Chevron, U.S.A. Inc. v.
NRDC. 467 U.S. 837 (1984), to construe an ambiguous term. Likewise, we believe this
approach is consistent with the holding in the WEPCO case, and with some though not all of that
case's reasoning.
The commenter mischaracterizes what we say about the effect Congressional action in
1977 after the EPA had promulgated the pre-1977 exclusions. As we have stated in our briefs,
we do not claim Congress specifically meant to "congeal" the exclusions as they existed in 1977.
One of our points in comparing the history of the NSPS exclusions with those from NSR is to
show that historically we have not treated the definition of modification to compel us to deem
every activity at source that could, under some interpretation, be deemed a change to be a change
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for our regulatory purposes. Our past exercise of discretion in interpreting "any... change," as
amply documented by the commenter, confirms the correctness of our understanding of the
statute.
4.1.15 Purpose of NSR
Comment:
One commenter (Environmental Groups, @2620) believed that the EPA's argument that
the purpose behind NSR is to schedule pollution control upgrades for "appropriate and
opportune" moments conflicts with positions that the agency took prior to its promulgation of the
ERP, as well as with positions it has taken since, hi its August 2004 response to the legal
challenges to the 2002 NSR rule revisions, for instance, the EPA conceded that "the purpose of
the NSR provisions is ... to limit emissions increases resulting from physical or operational
changes." The agency adds that
the purpose of New Source Review is to require that facilities making changes that
increase their emissions meet emission limits that reflect state-of-the-art control
technology, analyze the increased emissions from their facilities to ensure that they will
not adversely affect air quality, and, in nonattainment areas, offset their emissions
increases with emission reduction credits.
According to the commenter, the EPA's acknowledgment in its response brief that
Congress intended NSR to "limit emissions increases" and "require that facilities ... meet
emission limits" directly belies the assertion that the agency makes in the ERP preamble that "the
purpose of the NSR provisions is simply to require the installation of controls at the appropriate
and opportune time." The discrepancy between these two interpretations of Congressional intent
undermines the agency's claim that it has reasonably interpreted the CAA pursuant to its
discretion under Chevron. Furthermore, the interpretation presented in the EPA's response brief,
that NSR was designed to limit emissions increases, reveals the unlawfulness of the EPA's
decision to exempt equipment replacement projects from NSR, even if those projects result in
emissions increases well above the agency's significance levels.
One commenter (American Forest & Paper Association, @2547) did not agree that
Congress thought that all emissions units had some predetermined "useful life" at the end of
which NSR would be required. However, even if that were true, the final ERP rule would not
allow any new and non-traditional types of equipment "life extension."
Response:
We disagree with the commenter who stated that we have been inconsistent with our
interpretation of the purpose of the NSR program. We have always consistently stated that the
purpose of the NSR program follows that of the CAA in general, which is "to protect and
enhance the quality of the Nation's air resources so as to promote the public health and welfare
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and the productive capacity of its population." CAA Section 101. The commenter is confusing
the purpose of the CAA with defining the terms used in the CAA, most notably the definition of
"any physical change," "increase," and "modification." We have clearly stated our definition of
these terms and the reasoning we used to arrive at these definitions. We continue to believe that
our definitions of these terms are the correct ones, and that these definitions consistently echo the
purpose of the NSR program.
4.1.16 Economic Considerations
Comment:
One commenter (American Forest & Paper Association, @2547) stated that the
regulatory history and Congressional intent show that EPA could and should have issued
regulations that allowed facilities to expand production free from NSR by investing a certain
percentage of their capital value, without regard to any resulting emissions increase. The EPA's
ERP rule falls far inside that legal boundary. Most notably, ERP forbids any increase in fuel or
raw material input specifications. Without such an increase, a facility's "potential to emit"
cannot become greater. However, the NSPS test would allow both input specifications and
potential to emit to increase as long as that could be accomplished without a "capital
expenditure."
, One commenter (New York et al., @2555) pointed out that the EPA attempted to justify
its reinterpretation of the modification provision based on its identification of Congressional
intent to promote the nation's "productive capacity." However, Congress chose to balance
economic and environmental interests in the NSR program in a different manner. Congress
intended that compliance with NSR emission control requirements by modified sources would
facilitate economic growth by allowing room for new sources without harming air quality,
thereby furthering Congressional intent "to insure that economic growth will occur in a manner
consistent with the preservation of existing clean air resources."
Response:
As the Supreme Court explained in Chevron, where it upheld a considerably more
significant shift in the Agency's understanding of Title I of the CAA, to wit, the scope of the
term "stationary source," there is nothing inherently suspect about a change of approach of this
type by an expert Agency seeking to interpret a technical statutory term so as best to
accommodate competing interests that Congress has charged the Agency with reconciling.
In Section 101 of the CAA, Congress stated that Title I of the CAA has a dual purpose:
"to protect and enhance the quality of the Nation's air resources so as to promote the public
health and welfare and the productive capacity of its population." This duality is reiterated in the
statement of purpose of the PSD provisions and in the House Report accompanying the 1977
Amendments in connection with the non-attainment provisions. See Section 160(1) (purposes of
the PSD program are, inter alia, "to protect,public health and welfare from any actual or potential
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adverse effect" of air pollution and "to insure that economic growth will continue to occur
consistent with the preservation of existing clean air resources"); H.R. Rep. No. 95-294, p. 211
(The "two main purposes" of the non-attainment permitting program are "(1) to allow reasonable
economic growth to continue in an area while making reasonable further progress to assure
attainment of the standards by a fixed date; and (2) to allow States greater flexibility for the
former purpose than EPA's present interpretative regulations afford").
More specifically, with regard to the question at issue here, Congress directed the EPA
not to apply NSR preconstruction permitting requirements to existing plants as a general matter,
but to apply them to "modifications." Both directives are entitled to receive appropriate weight.
hi these circumstances, changes in an Agency's understanding informed by greater
experience are not only not surprising, they are to be expected. Effectuating these underlying
Congressional commands requires a careful weighing and accommodation of the competing
considerations underlying them. Sensitivity to unintended consequences, and a willingness to
adjust policies in a manner informed by a better understanding of those consequences, are a
central element of the responsibilities of an Agency given such a charge. As the Chevron Court
explained:
Our review of the EPA's varying interpretations of the word "source" - both before and
after the 1977 Amendments - convinces us that the agency primarily responsible for
administering this important legislation has consistently interpreted it flexibly - not in a
sterile textual vacuum, but in the context of implementing policy decisions in a technical
and complex arena. The fact that the agency has from time to time changed its
interpretation of the term "source" does not, as respondents argue, lead us to conclude
that no deference should be accorded the agency's interpretation of the statute. An initial
agency interpretation is not instantly carved in stone. On the contrary, the agency, to
engage in informed rulemaking, must consider varying interpretations and the wisdom of
its policy on a continuing basis. Moreover, the fact that the agency has adopted different
definitions in different contexts adds force to the argument that the definition itself is
flexible, particularly since Congress has never indicated any disapproval of a flexible
reading of the statute. 467 U.S. at 863-64.
The Court went on to point out:
hi these cases the Administrator's interpretation represents a reasonable accommodation
of manifestly competing interests and is entitled to deference: the regulatory scheme is
technical and complex, the agency considered the matter in a detailed and reasoned
fashion, and the decision involves reconciling conflicting policies. Congress intended to
accommodate both interests, but did not do so itself on the level of specificity presented
by these cases.
[A]n agency to which Congress has delegated policymaking responsibilities may, within
the limits of that delegation, properly rely upon the incumbent administration's views of
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wise policy to inform its judgments. While agencies are not directly accountable to the
people, the Chief Executive is, and it is entirely appropriate for this political branch of the
Government to make such policy choices - resolving the competing interests which
Congress itself either inadvertently did not resolve, or intentionally left to be resolved by
the agency charged with the administration of the statute in light of everyday realities.
We hold that the EPA's definition of the term "source" is a permissible construction of
the statute which seeks to accommodate progress in reducing air pollution with economic
growth. The Regulations which the Administrator has adopted provide what the agency
could allowably view as ... [an] effective reconciliation of these twofold ends.' Id. at
865-66.
We agree that we strike the balance between productive capacity of the nation and the
protection of the environment differently than these commenters would. We disagree with the
assertion that the balance we struck inappropriately weights either consideration. To the extent
that Congress left discretion to anyone in striking such a balance, it is afforded to the
Administrator and not to litigants. The record demonstrates that our approach, in concert with
other CAA programs, is consistent with preserving clean air resources and improving air quality
in areas that are not attaining the NAAQS as well as Congress's intentions written explicitly in
Sec. 101(b)(l) to preserve the productive capacity of the nation's population and in Sec. 160(3)
to balance economic and environmental concerns.
When balancing the economic and environmental interests of the nation, we have also
considered that there are many other systematic air programs that will not merely prevent
emission increases from existing sources but even reduce emissions at sources we expect to use
the ERP. hi fact, the entire state implementation plan (SIP) program under Sec. 110(a)
establishes a framework for systematic reduction of emissions from existing sources when such
reductions are deemed necessary to meet or maintain the NAAQS. The CAA places primary
responsibility on the States to achieve the emissions reductions needed to attain and maintain the
NAAQS. Over the years, States have in fact achieved significant emissions reductions in
furtherance of this obligation.
To assist States, we have developed model market-based programs patterned after the
successful Acid Rain provision in Title IV of the CAA. For example, EPA's recently issued
"Clean Air Interstate Rule (CAIR)," will ensure, through States adopting a "cap and trade" or
other program approach, that overall emissions from electric utilities throughout much of the
Eastern part of the country will meet overall emission limits that are sharply below that which
they emit today. CAIR ensures that, by 2015, SO2 and NOx emissions will be permanently
reduced by 5.4 million tons and 2.0 million tons, respectively, over 2003 levels. Additional
emission reductions will occur after 2015 when CAIR is fully implemented.
There are other CAA programs, as well, that are specifically tailored to require emission
reductions from existing utility and nonutility sources. These programs include the Maximum
Achievable Control Technology (MACT) standards that apply to new and existing sources of air
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toxics and Control Technique Guidelines that provide guidance to states in determining
Reasonably Available Control Technology (RACT) for sources in ozone nonattainment areas.
All of these CAA measures will apply systematically to existing sources, and are unaffected by
the applicability or non-applicability of any NSR exclusion, such as the RMRR exclusion and its
further definition as set forth in the ERP. And, in appropriate circumstances, a State may seek to
use CAA Section 126 to petition for additional controls on out-of-state sources.
Even in the absence of these other CAA programs, we note that the substitution effect of
replacing deteriorating emission sources with well-maintained emission sources will generally
reduce emissions per unit of output. The ERP itself should not materially affect demand in
markets. Thus, to the extent individual sources will increase output (and emissions) following
maintenance allowed by the ERP, output (and emissions) at other plants will decrease. Thus, we
conclude that the ERP will not lead to an overall emission increase. In light of this important
factor, as well as the economic and safety benefits of the ERP, we believe we should use the
flexibility that exists under the statute to appropriately define RMRR without compromising air
quality.
In contrast to the CAA programs discussed above that systematically and efficiently
obtain emission reductions, the NSR program for existing sources, as that program existed before
the ERP, was applied in a scattershot manner, only triggered by "modifications" however defined
on a case-by-case manner. Under NSR, emissions reductions can only be obtained in a "catch-
as-catch-can" manner, and there never has been and never can be a date certain by which all
existing sources in an area of the country must comply with an emission cap or a NAAQS.
Moreover, as fully explained in our recent brief filed in defense of the NSR Improvements Rule
of December 31, 2002, the NSR program is not an emission reduction program. It is a program
to limit emission increases resulting from physical and operational changes. Brief for
Respondent at 73 - 75, State of New York v. US EPA, No. 02-1387 & consolidated cases (D.C.
Cir.) ("If Congress had intended to compel decreases in emissions, it would be irrational for the
requirement to be triggered only when a facility, in fact, increases its emissions"). In light of the
programs under the Act that systematically and efficiently allow for both reductions in emissions
and firm caps on emissions, and the scattershot applicability and limited goals of NSR program
with respect to existing sources, it was appropriate for us to strike the balance of economic' and
environmental interests in accordance with the CAA, as we did when we changed our method for
implementing the modification definition in the NSR program.
Commenters suggested that the EPA's decision in promulgating the ERP is not entitled to
deference because, in their view, it appears that Congress would not have sanctioned an
interpretation that allows sources to conduct a multi-million dollar refurbishment activities that
increase emissions without triggering NSR. The record establishes that overall emissions will
not increase while safety, efficiency, and reliability of plants will improve. Furthermore,
improvements in safety, efficiency, and reliability improve environmental performance by
minimizing the frequency of startup, shutdowns, and malfunctions. While the record contains
some conflicting data and studies, Congress left the weighing of this information and the forming
of policies based on this information to the EPA as an expert agency. The EPA's decisions in
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this matter are entitled to deference under Chevron. We considered the quality and validity of
the submitted data and studies in developing our conclusions.
4.1.17 Comments Specific to Court Cases
4.1.17.1 Nixon v. Missouri Municipal League
Comment:
One commenter (Alliance of Automobile Manufacturers, @2574) agreed with EPA's
conclusion that the ERP as established in the final rule has a solid legal foundation. The
Supreme Court's recent decision in Nixon v. Missouri Municipal League. 541 U.S. 125, 124 S.Ct.
1555 (2004), confirms EPA's analysis. The EPA's preamble to the final rule pointed out that the
CAA's definition of "modification" as "any physical change" does not have to be interpreted in a
broader sense than it would otherwise be read merely because it is preceded by the word "any."
Similar to the Court's analysis in Nixon, the EPA has correctly concluded that "a broader
frame of reference" is required to interpret "any physical change." Included in the "broader
frame of reference" was the fact that the 1977 CAA Amendments, which made NSR applicable
to "modifications," incorporated the NSPS definition, and the EPA had previously interpreted the
NSPS definition not to apply to several activities that may have been "changes" in some sense
but did not alter the operation of the plant in a manner consistent with its original design.
Nixon is particularly significant because it undermines the WEPCO decision, the
authority on which petitioners principally rely. In WEPCO. the Court repeatedly stressed the
term "any" as supporting its broad interpretation of "any physical change." That is precisely the
reasoning that the Supreme Court rejected in Nixon.
One commenter (Southern Company, @2569) pointed out that the Supreme Court's
recent decision in Nixon supports the traditional understanding of the phrase "any physical
change." 124 S. Ct. 1555, 1561 (2004). hi Nixon, the Supreme Court explained that Congress's
understanding of the term "any" can differ depending upon the statutory setting. An overly
expansive reading of the term "any physical change" that would include RMRR would lead to
absurd results.
One commenter (Electric Reliability Coordinating Council, @2531) commented on the
petitioner's argument that the CAA prohibits "any" modification without triggering NSR. This
interpretation struck the commenter as simplistic, ignoring decades of practical clarifications to
NSR applicability that populate federal clean air regulations. The commenter went on to note
that the Supreme Court recently wrote in Nixon that "'any' can and does mean different things
depending upon the setting." The Court further observed that, "to get at Congress's
understanding, what is needed is a broader frame of reference." hi order to achieve this broader
frame of reference, the Court cited with favor New Jersey Realty Title his. Co. v. Division of Tax
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Appeals of N. J.. U.S. 665, 673 (1950), which instructs that one must enquire into "the practical
operation and effect" of the statutory construction.
Three commenters (NYSDEC, @2521; Environmental Groups, @2620; New York et al.,
@2555) said that although the Court in Nixon looked beyond the express provisions of the
Telecommunications Act to the Constitution, Nixon does not provide a green light for a Federal
agency to do the same absent a compelling legal basis. In sharp contrast to Nixon, there were no
overriding constitutional considerations in connection with the interpretation of the CAA term
"modification" that are implicated by the ERP rule. There are also no other statutory
considerations that provide adequate justification for the EPA's casting aside more than two
decades of judicial precedent and legislative history in adopting a new interpretation of the term
"modification.".
One commenter (Environmental Groups, @2620) believed that the Nixon case does not
support narrowing the meaning of the phrase "any physical change" in Section 11 l(a)(4) of the
CAA. Nixon noted that reading "any entity" to encompass states' political subdivisions would
lead to a host of incongruities, and accordingly invoked the doctrine against construing a statute
in a manner that leads to absurd results. Here, by contrast, the EPA has previously espoused an
interpretation of "any physical change" that includes items exempted by the ERP, and the ERP
preamble announced that the agency will continue to seek deference for that previous
interpretation in ongoing enforcement litigation. For that reason and others, the agency cannot
credibly claim that such an interpretation is absurd.
This commenter also provided an extensive review of caselaw before and after Nixon
related to broad interpretation of the meaning of "any" as used in a regulatory context. The
commenter concluded that pre-Nixon cases remain fully viable and applicable here. Moreover,
in the short time since Nixon, the Supreme Court has handed down at least two decisions
emphasizing the breadth of statutory phrases containing "any." In Engine Mfrs. Assn. v. South
Coast Air Quality Management District. 124 S.Ct. 1756 (2004), the Supreme Court construed
CAA Section 209(a)'s provision that "[n]o State or any political subdivision thereof shall adopt
or attempt to enforce any standard relating to the control of emissions from new motor vehicles
or new motor vehicle engines subject to this part." The Court found that this language "is
categorical," and that it is "impossible to find in it an exception for standards imposed through
purchase restrictions."
Likewise, Intel Corp. v. Advanced Micro Devices, 124 S.Ct. 2466 (2004), construed a
statute providing "that a federal district court 'may order' a person 'residing]' or 'found' in the
district to give testimony or produce documents 'for use in a proceeding in a foreign or
international tribunal... upon the application of any interested person." In short, the caselaw
both before and after Nixon confirms that, absent special circumstances that are not present here,
the use of "any" to modify language indicates comprehensive coverage, and indeed requires
broad reading of the modified terms.
Response:
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In our July 1, 2004 Federal Register notice, we invited comment on a recent Supreme
Court case (Nixon) that construed a prohibition on States and localities enacting legislation to bar
"any entity" from offering interstate telecommunications services to not apply to legislation that
restrained political subdivisions of states from entering the field. The Nixon Court observed that
Congress's understanding of "any" can differ depending upon the statutory setting. This opinion
reversed a case petitioners had relied upon in seeking a stay of the ERP on the proposition for
which it was cited.4
In discussing the significance of the modifier "any" in the statute and in discussing the
Nixon case, commenters opposed to the ERP argued that numerous cases besides Nixon have
held that terms modified by the word "any" must be given the most inclusive meaning possible,
that such terms must be interpreted expansively, and that "any" has a broad meaning.5 These
commenters distinguished Nixon on the grounds that this case raised particular federalism
concerns (i.e., the ability of a state to regulate its own political subdivisions) not present in
Section 11 l(a)(4) of the CAA or the ERP.
Several other precedents establish that the principle on which Nixon relies, that the
understanding of "any" can depend on the statutory context, is not limited to situations with
federalism implications. E.g., O'Connor v. U.S.. 479 U.S. 27, 31 (1986) (statutory context
shows "any taxes" limited to taxes of the Republic of Panama); Mastro Plastics Corp. v. NLRB.
350 U.S. 270 - 85 (1956) ("any strike" does not include strike in response to unfair labor
practices); Bell Atlantic Tel. Cos, v. FCC. 131 F.3d 1044, 1047 (D.C. Cir. 1997) (FCC regulation
narrowing "any ... facilities or services" that a Bell operating company could offer affirmed
when Court notes "textual analysis is a language game played on a field known as 'context'").
As recently as April 26, 2005, the Supreme Court relied on Nixon in determining that a
conviction in "any court" does not include a conviction in a foreign court. Small v. United
States. No. 03-750, 2005 U.S. LEXIS 3700. Therefore, we believe the "broader frame of
reference" adopted by the Nixon Court is not an isolated and unsupported view of the law limited
to cases raising federalism concerns.
None of the cases cited by the commenters stands for the proposition that a term modified
by the word "any" invariably must be given its broadest meaning, hi Harrison and in other cases,
4State and Municipal Petitioners' Emergency Motion for a Stay, State of New York v.
EPA. D.C. Cir. No. 03-1380 and consolidated cases, at 8 fn.14 (citing Missouri Mun. League v.
FCC. 299 F.3d 949, 954 (8th Cir. 2002), rev'd sub nom. Nixon v. Missouri Mun. League. 541
U.S. 125, 124 S. Ct. 1555 (2004)). A copy of this motion was submitted to the record as a
comment on the reconsideration notice.
5E.g., Harrison v. PPG Industries. 446 U.S. 578 (1980); United States v. Gonzales. 520
U.S. 1 (1997); Department of HUD v. Rucker. 535 U.S. 125 (2002). A post-Nixon addition to
this line of cases is Norfolk Southern Railway Co. V. James N. Kirbv. Ptv Ltd.. 125 S. Ct. 385
(2004).
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the Court found "no indication whatever" that Congress intended a narrower or limited
construction of statutory terms. These cases discuss a different statutory context than the
adoption of the definition of "modification" in the NSR provisions of the CAA. These cases do
not involve a situation in which Congress incorporated into a section of a statute a term that had
been used in another section of the statute and which had been given a different meaning under
that prior section. While there is no evidence that Congress compelled the EPA to replicate its
NSPS interpretation of "any physical change" in the NSR program, the fact that the words at
issue were given a different construction in the NSPS is an indication that words do not have a
unique and, therefore, unambiguous meaning.
The cases cited by the petitioners and the Nixon line of cases are not, in fact, opposing
and contradictory. Both support looking for indications in the statute that suggest a more limited
meaning of the modified term is possible or intended. We believe such indications exist in the
NSR context because the modification definition inserted into the NSR provisions by a 1977
technical amendment to the 1977 CAA Amendments cross-referenced the pre-existing term
under Section 11 l(a)(4).
Implicitly, at least one of the commenters critical of the ERP recognizes that a broader
frame of reference can apply by arguing that while in Nixon, a broad construction of "any" would
have led to absurd, futile, and farfetched results, the same would not be true for the NSR
modification definition. For NSR, according to the commenters, Congress placed a clear limit on
what changes must be considered modifications - those that increase emissions.
In the definition of "modification," we believe a view that "any" compels a broad
construction of the modified terms also has farfetched implications. The same word "any" that
modifies "physical change in" also modifies "change in the method of operation of." The
commenters' argument proves too much. The argument would say that exemptions from the
definition of modification on any basis other than de minimis increases would not be necessary or
appropriate, even long accepted ones that limit the scope of "change in the method of operation."
As the preamble to the final rule notes, many of these exemptions can result in non-de minimis
increases in emissions. To accept the commenter's argument would mean that one word
("change") that modifies two clauses in a definition compels a broad construction of one
modified clause while allowing discretion when it modifies the other clause.
Another commenter picks up on Nixon's reliance on the doctrine of avoiding absurd or
futile results and echoes the view that this doctrine would not apply in the context of the
modification definition, hi this commenter's view, the EPA cannot claim that a broad
construction of "any physical change" would lead to absurd or futile results when we adopted
such a broad construction of "any physical change" in the past and continue to seek deference for
such an interpretation in ongoing enforcement litigation.
We do not claim our prior interpretation is absurd or futile. The Agency claims that the
use of the word "any" in the statute does not compel only our prior interpretation.
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Adoption of the commenters' position that Section 11 l(a)(4) only allows for one
interpretation of "any physical change" would lead to an incongruity at least as great as that
which was at issue in Nixon: that the identical statutory text incorporated into both the NSPS
and the NSR provisions "clearly" could support only one meaning in the NSR context while it
supports a different meaning in the NSPS context. Rather than saying Section 11 l(a)(4) is clear
but has two distinct meanings, common sense suggests the wording is ambiguous and allows for
an expert agency to adopt reasonable interpretations in the context of the programs.
We note that under the NSPS program, we interpreted CAA 110(a)(4) to allow us to
exempt "[maintenance, repair, and replacement which the Administrator determines to be
routine for a source category." 40 C.F.R. 60.14(e)(l). hi contrast, under the NSR program,
historically we have interpreted the RMRR provision on a case-by-case basis, and we have not
followed suit with the NSPS program in determining that the same activities are categorically
exempt from RMRR. Thus, a modification that is categorically exempt under the NSPS could be
potentially subject to NSR under our historical RMRR interpretation. It would be incongruous to
argue that the identical statutory text incorporated into both the NSPS and the NSR provisions
"clearly" could support only one meaning in the NSR context while it supports a different
meaning in the NSPS context. Rather than saying CAA 11 l(a)(4) is clear but has two distinct
meanings, common sense suggests the wording is ambiguous and allows for an expert agency to
adopt reasonable interpretations in the context of the programs.
Commenters incorrectly claim that we have recognized all equipment replacements,
including "like-kind" replacements, to be "physical changes" within the ordinary meaning of the
word. While the final rule recognized that "change" is susceptible to multiple meanings, and
outlined many common uses of the word, we did so to illustrate that there is no one,
unambiguous, common meaning for the word. That is the essence of ambiguity.
Several commenters agreed with our view that "any" should be interpreted within the
"broader frame of reference" of its statutory context. One commenter argued that Nixon
undermined much of the logic in Wisconsin Electric Power Co. v. Reillv. 893 F.2d 901 (7th Cir.
1990) (WEPCCO. That case contains sweeping language that repeatedly stressed that "any"
compelled a broad interpretation of "any physical change."
As we noted in the final rule, we believe that the Court was correct to determine that the
statute does not unambiguously allow all like kind replacements to avoid NSR, which was the
position advanced by WEPCO in that litigation and which is the position advanced in this
reconsideration by certain commenters. The Court's conclusion that the statute does not compel
the outcome favored by WEPCO leads to a result that is completely consistent with our current
view. Additionally, we continue to believe that the activities at issue in WEPCO were not
routine maintenance, repair, and replacement under the rules at issue in that case. Furthermore,
we continue to believe that, under the ERP, the equipment replacements at issue in that case
would not automatically qualify as being excluded from major NSR. However, we agree with
the commenter that Nixon calls into question the additional discussion in WEPCO that construes
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"any" to compel a broad view of what is a "physical change." In our view, "any physical
change" is an ambiguous term that can be defined by the Agency through rulemaking.
We note that establishing bright line criteria in a manner that reduces regulatory cost and
provide certainty is a well-recognized and accepted approach to clarifying ambiguous terms in
statutes. See Time Warner Entertainment Co. LP v. FCC. 240 F.3d 1126,1141 (D.C. Cir. 2001).
The ERP simply establishes bright lines for when an equipment replacement activity is
automatically excluded from major NSR. We do not take the position that all like-kind or
functionally equivalent replacements automatically are, or are not, changes. Instead, we simply
draw criteria for when such activities are excluded from NSR and when the multi-factor RMRR
approach applies.
4.1.17.2 American Trucking Association
Comment:
One commenter (SCAQMD, @2538) cited American Trucking Association: "EPA may
not construe the statute in a way that completely nullifies textually applicable provisions meant to
limit its discretion." Here, textually applicable provisions refer to changes resulting in an
emissions increase.
Response:
The American Trucking decision further stated that technical determinations made by an
expert agency are entitled to considerable deference by the Court. In the final rule, we did not
extend the limits of our discretion; rather, we exercised the discretion confirmed by the Chevron
Court to interpret ambiguous statutory language.
4.1.17.3 Ohio Edison
Comment:
One commenter (NYSDEC, @2521) cited the Court's observations in Ohio Edison that if
the routine maintenance exemption were defined broadly, the exemption would swallow both the
rule and specific provisions of the CAA and, more fundamentally, that the exception for "routine
maintenance, repair or replacement" was not included by Congress in the CAA. The commenter
believed the clear intent of the NSR program was to reduce the emissions of pollutants and
ultimately improve the quality of the air. By allowing facilities to undertake modifications under
the shield of the routine maintenance exemption without any consideration of environmental
impacts, the rule runs afoul of the Congressional purpose and violates the CAA.
One commenter (SCAQMD, @2538) cited Southern Indiana Gas & Electric Co. wherein
the Court stated, "Congress certainly did not inten[d] to allow for companies to make an 'end
run' on NSR by allowing the routine maintenance exemption to swallow the modification rule."
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Response:
As we discussed in responses to previous comments, the commenter is mistaken as to the
intent of the NSR program and the overall impact of the ERP. We believe that, because the
intent of the NSR program is not to reduce emissions, per se, but rather "to prevent [air quality ]
thresholds from being exceeded" (Alabama Power, 636 F.2d 323, 362) (which is accomplished
by requiring the emission rates of new sources and modified existing sources correspond to state-
of-the-art emission controls), the commenter's concerns that the rule runs afoul of the
Congressional purpose and the CAA are unfounded. We believe that RMRR has been defined
appropriately.
4.1.17.4 WEPCQ
Comment: ^
One commenter (Iron and Steel Industry Trade Groups, @2544) believed that EPA
clearly distinguished the WEPCO decision and concluded that it does not prevent it from
adopting the ERP amendments. The commenter stated that the EPA explained that while the
WEPCO Court decided that the projects at issue were physical changes, the WEPCO decision
did not decide the question of where to draw the line between activities that should and should
not be considered "changes." Furthermore, the commenter asserts that the EPA points out that
the projects at issue in WEPCO could have cost more than the 20 percent threshold and would
have been subject to case-by-case review. Thus, according to the commenter, the EPA accurately
explains why the WEPCO decision does not deny the EPA the discretion to adopt the
interpretation of "change" in the ERP.
Another commenter (NEDA/CAP, @2670) agreed with this view and thought that
petitioners' argument that the final rule is inconsistent with WEPCO were misplaced. In the
WEPCO case, the utility contested the EPA's determination that certain changes at the facility
were not RMRR and hence required NSPS and NSR permitting review before they were
constructed. Applying the Agency's own regulations and its interpretations of Agency
regulations in lengthy case-specific analysis of WEPCO's equipment, the Court upheld EPA's
determination that certain changes were not RMRR based on the specific facts in that
controversy. The commenter asserted that the Court merely observed in the case that it was not
addressing the reasonableness of the regulatory exclusion, but whether EPA had applied that
exclusion in an arbitrary or unreasonable fashion. The commenter claims that the WEPCO
opinion neither conflicts with the 20 percent threshold nor is probative regarding how EPA might
redefine or clarify the exclusions from NSR applicability.
Two commenters (Clean Air Implementation Project, @2581; National Petrochemical &
Refiners Association, @2545) further explained that the Court in WEPCO ruled that the projects
at issue there were too large to be excluded from the meaning of physical change. The ruling
does not deny the EPA discretion to adopt the interpretation of "change" in the ERP preamble.
The Court did not address the question as to where a line should be drawn between what
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activities should and should not be considered "changes." The Court simply concluded that the
projects at issue there, which would have cost more than the 20 percent of replacement cost
threshold in the ERP rule, would not be excluded as constituting RMRR.
Response:
The 20 percent cost threshold in the ERP is consistent with the decision of the WEPCO
Court, to the extent that it would not automatically allow the activities performed at the WEPCO
facility to constitute RMRR. We refer the reader to the ERP final rule for our discussion of the
WEPCO decision. See 68 FR 61256-61257.
4.1.17.5 Alabama Power
Comment:
One commenter (NEDA/CAP, @2670) stated that petitioners asserted that physical
changes at existing sources could not be excluded from NSR because the federal courts have held
that the only modifications that can be exempted are changes that would not result in significant
emissions increases. These assertions fail, however, for two reasons. First the Court in Alabama
Power v. Costle. 623 F.2d 323 (D.C. Cir. 1979), did not examine any of the listed exclusions in
the NSR rule which apparently were not challenged. A number of these exclusions from NSR,
such as production increases or additional hours of operation, could result in significant
emissions increases at a source. The Alabama Power Court's findings are confined to
interpretation of the term "modification," such as significance levels from nonexcluded changes,
the NSR emissions increase tests, and EPA's discretion to allow plantwide netting of
contemporaneous emissions increases and decreases, hi other words, while the Court apparently
agreed that a number of changes that caused significant emissions increases could be offset under
a bubble, it more importantly did not address whether other physical changes or changes in the
method of operation EPA had excluded altogether from the definition of "physical change or
change in the method of operation" were consistent with the CAA. Therefore, Alabama Power
does not stand for the proposition that "any" change that results in an emissions increase is
prohibited by the CAA. Second, the Alabama Power Court never stated that EPA did not have
the authority to define "modification" another way, or for that matter, redefine modification or
the exclusions to the phrase "physical changes or changes in the method of operation."
Another commenter (Environmental Groups, @2620) stated that the final rule ignores
Alabama Power's admonition that "[t]he statutory scheme intends to 'grandfather' existing
industries; but the provisions concerning modifications indicate that this is not to constitute a
perpetual immunity from all standards under the PSD program." By allowing source owners to
completely reconstruct their facilities through a set of nominally distinct projects carried out
either simultaneously or serially, the ERP opens "vistas of indefinite immunity" from NSR.
Response:
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In our final 1980 NSR rules, issued after the D.C. Circuit's final Alabama Power
decision, 635 F.2d 323 (1980), we changed our approach to the definition of "increase" in the
NSR context to specify that a change would trigger NSR if it would result in an increase over
"actual annual emissions." 45 FR 52676 (August 7, 1980). At the same time, and notably, we
restored the provisions stating that increases in hours of operation or production rate were not
"changes." Id. at 52704.
It is important to understand what we did - and did not - decide in those final 1980 NSR
rules. We did decide was that as a general proposition, we would better serve the purposes of the
NSR program if we used "actual" rather than "potential" emissions for determining whether an
activity at a new source results in an emissions increase. We did not decide that the NSR
program could never allow an activity at a plant that increases its actual emissions but does not
increase its "potential" emissions, to be excluded from the definition of change.
In particular, for example, we decided to retain the "hours of operation" and "rate of
production" exclusions even though such changes might result in increases in "actual" emissions
because not having the provisions "would severely and unduly hamper the ability of any
company to take advantage of favorable market conditions." Id. Similarly, we retained the
exclusion for "routine maintenance, repair and replacement" even though it too can result in
emission increases. There is little doubt that increases in hours of operation and rates of
production arguably could be understood to fall within the definition of modification, since
increases in hours of operation and rates of production certainly may be argued to be changes in
the "method of operation" of a plant. On balance, however, we determined that the definition of
"physical change or change in method of operation" should not be read so broadly as to
encompass hours of operation or production rate increases, so long as they are not prohibited by a
federally enforceable permit.
In the revisions to the NSR program we announced on December 31, 2002, we reiterated
our adherence to the view that as a general matter we should continue to use "actual" rather than
"potential" emissions in determining what activities constitute "modifications" under NSR. We
continue to believe that is correct, but we also believe we should amplify our reasons for holding
this view and why that view is entirely consistent with the ERP rule. In determining the scope to
give to "modification," we believe it is important to give weight to both aspects of what
Congress decided in 1977. Congress decided that generally speaking, existing plants would not
be subject to NSR, but that they would be subject to NSR when-they made "modifications." It is
also important to understand why Congress chose this point at which to impose NSR on existing
plants: to avoid the need to impose costly retrofits, but require placement of new control
technology at a time when it makes the most sense for it to be installed. See H.R. Rep. No. 294,
95th Cong., 1st Sess. 185, reprinted in 1977 U.S. Code Cong. & Admin. News at 1254; 116
Cong. Rec. 32,918 (Sept. 21, 1970) (remarks of Sen. Cooper). See also WEPCO. 893 F.2d at
909-910; National-Southwire Aluminum Co. v. EPA. 838 F.2d 835, 843 (6th Cir., Boggs, J.,
dissenting), cert, denied, 488 U.S. 955 (1988). A wholesale exclusion from the definition of
modification of any activity that restores a plant to its potential to emit is not consistent with this
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balance, since there are many activities that might have that effect but the conduct of which
would be an extremely effective time for the placement for new control technology.
At the same time, we believe it is also important to give equal weight to the converse
proposition that existing plants should not have to install new control technology in the ordinary
course of their operations To require a source to do so would fail to give full effect to Congress'
decision that existing sources generally would not be required to obtain permits. It would also
subject these plants and the consumers who rely on them to enormous dislocation and expense.
That is why we excluded RMRR of existing plants from that definition.
For similar reasons, we believe the ERP rule draws an appropriate line of demarcation
between replacements that should not be treated as changes, and those as to which further
consideration of the question is appropriate. Our rule states categorically that the replacement of
components with identical or functionally equivalent components that do not exceed 20 percent
of the replacement value of the process unit and does not change its basic design parameters is
not a change and is within the RMRR exclusion. On the other hand, the rule contemplates the
application of the multi-factor RMRR approach to identical or functionally equivalent equipment
replacements that do not have these characteristics.
We believe this approach is consistent with the intended scope of "modification" under
the NSR program, and is consistent with the Court's holding in Alabama Power. The Court in
Alabama Power, noted that sources that "increase " pollution are required to go through NSR.
Yet that decision did not address what constitutes an emissions "increase," nor does it preclude
EPA from allowing facilities to consider their normal range of operations to determine whether a
particular physical change is likely to cause an increase in emissions. In fact, the overall thrust of
that decision was that the NSR provisions should be triggered only when a change at a facility
results in an actual increase in pollution:
Congress wished to apply the permit process, then, only where industrial changes might
increase pollution in an area, not where an existing plant changed its operations in ways
that produced no pollution increase. It is true that Congress intended to generate
technological improvement in pollution control, but this approach focused upon rapid
adoption of improvements in technology as new sources are built, not as old ones were
changed without pollution increase. 636 F.2d at 401.
The final rule is consistent with that approach, and imposes NSR requirements only when
a change in a facility results in emissions that exceed those emitted by the facility during its full
range of operations.
We disagree with the commenters' reading of Alabama Power. Alabama Power does not
directly address whether like kind replacements must be deemed to be physical changes. The
Alabama Power Court addressed an exemption for physical changes that resulted in an emissions
increase of less than 100 tons. It is in this context, where the replacement activity has been
conceded to be a physical change, that the Court states that the modification definition "is
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nowhere limited to physical changes that exceed a certain magnitude." Alabama Power, 636
F.2d at 400. In context, the "magnitude" language only addresses the size of the emission
tonnage increase resulting from a "change," once the activity meets the definition of a "change."
The Court did not have before it the question of whether the phrase "any physical change" is
ambiguous. Contrary to the commenter's assertions, the cited portion of the Alabama Power
opinion discusses a de minimis exemption only in the context of emission increases and not in
terms of what constitutes a physical change ("EPA does have the discretion ... to exempt from
PSD review some emission increases on grounds of de minimis or administrative necessity"). Id.
Moreover, the Alabama Power Court also expresses the expectation that "bubbling" (or
netting) in calculating emission increases and an allowance for physical changes that result in de
minimis increases in emissions "will allow for improvement of plants, technological changes, and
replacement of depreciated capital stock, without imposing a completely disabling
administrative and regulatory burden." Alabama Power, 636 F.2d at 400. (emphasis added).
Our subsequent experience has shown that, even with netting, a definition of "physical change"
as encompassing as that supported by these commenters is inadequate to allow for appropriate
replacement of depreciated capital stock. See "New Source Review: Report to the President",
June 2002 (Docket No. OAR-2002-0068, Document No. 0004). It simply is not the case that the
Alabama Power opinion analyzes and requires the commenters' encompassing construction of
"any physical change." Equally important, a narrow interpretation of ERP as advocated by
commenters would create hurdles for ensuring that a process operates reliably, safely, and
efficiently, thereby increasing the likelihood that net emissions would be higher.
hi response to the commenter who believed that grandfathering of existing sources was
intended to extend indefinitely, an existing source - whether grandfathered or not - triggers NSR
only if it makes a physical or operational change that results in an emissions increase. Thus, a
facility can conceivably continue to operate indefinitely without triggering NSR - making as
many physical or operational changes as it desires - as long as the changes do not result in
emissions increases. This outcome is an unavoidable consequence of the plain statutory language
and is at odds with the notion that Congress intended that every major source would eventually
trigger NSR. Moreover, there is nothing in the legislative history of the 1977 Amendments,
which created the NSR program, to suggest that Congress intended to force all then-existing
sources to go through NSR. The ERP rule is consistent with this intention.
4.1.18 Applicability of Using of Building Codes
Comment:
Several commenters (Environmental Groups, @2620; New York et al., @2555; New
Jersey, @2671) were opposed to using building codes to determine RMRR applicability. One
commenter (Environmental Groups, @2620) in particular provided extensive comments on this
topic and believed that the EPA's plan to support the RMRR applicability criteria is not
appropriate.
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The RMRR is an EPA-invented exclusion from the statutory phrase, "any physical change
in ... a stationary source." None of the cost-based applicability thresholds in the building codes
identified by EPA stem from the term,"any physical change." The EPA has not and cannot show
that approaches used to define building code terms (e.g., rehabilitation, restoration, remodeling)
are relevant in interpreting the term at issue here, namely,"any physical change."
hi devising cost-based definitions for building code terminology, state and local entities
were defining terms of their own creation. The EPA, by contrast, according to the commenters,
is implementing a term of Congress' creation. Accordingly, the commenters report that, the EPA
is constrained in a way that the authors of cost-based applicability thresholds in building codes
were not. Specifically, one commenter stated that the EPA must effectuate the intent of
Congress. The agency has no authority to shunt Congress' language aside and embark upon
policy approaches that it finds more to its liking. Even if the issue here were governed by
Chevron Step Two (which it is not), the EPA's task still would be to interpret the statutory
language, not to ignore it in favor of an approach of its own choosing.
Congress did not, according to the commenters, to use the EPA 's phrasing, "consider
approaches used in building code applicability when establishing criteria for RMRR
determinations," because Congress has never enacted an RMRR exclusion, or any other
exclusion for that matter, from the statutory term"any physical change in ... a stationary source."
Moreover, there is no indication that Congress considered "approaches used in building code
applicability" in enacting the statutory definition of "modification." Assuming that Congress
considered any cost-based applicability thresholds at all (a proposition for which the EPA has
produced no evidence), it rejected them in favor of a pollution-based threshold (i.e.,"any physical
change in ... a stationary source which increases the amount of any air pollutant emitted by such
source.)"
The commenters assert that the EPA's resort to building codes ignores a fundamental
feature of Section 11 l(a)(4). While broadly referencing "any physical change," Section 11 l(a)(4)
provides that NSR is triggered only if a change "increases the amount of any air pollutant emitted
by such source" or "results in the emission of any air pollutant not previously emitted." Thus,
the activities that trigger NSR are ones that themselves harm the purposes of the statute (i.e.,
emissions-increasing activities).
Building codes operate very differently. Under those codes, the activity to which the cost
threshold applies does not itself necessarily harm the goals of the statute. For example, a
building renovation typically does not cause a fire, earthquake, or flood. Thus, the issue faced by
code writers is not how to avoid or mitigate adverse impacts caused by the renovation itself.
Instead, the issue is whether the renovation, by virtue of the amount of funds invested in it, is an
opportune time to require upgrading of the building to provide stronger protection against fires,
earthquakes, and floods that are not the result of the renovation. New Source Review
applicability, however, is premised on whether a physical or operational change increases
emissions, and thus is not limited to those instances when the EPA or a State believes it would be
an opportune time to install controls. The EPA's "opportune time to install controls" argument
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fails when considered on its own, and the agency cannot lawfully or rationally resurrect that
argument through the back door, under the guise of an analogy to State and local building codes.
One commenter stated that EPA has not claimed and cannot claim that State and local
building codes are focused on the items that EPA asserts authority to exempt. For example, the
term "substantial improvement," as used by Horry County, South Carolina, means "any
combination of repairs, reconstruction, alteration, or improvements to building, taking place
during a five-year period, in which the cumulative cost equals or exceeds fifty percent of market
value of the building." Thus, this code exempts "alteration[s]" and "improvements," so long as
the cost is less than fifty percent of market value. That approach is not lawful even under the
EPA's narrow interpretation of the term "physical change." Therefore, the percentage figures
chosen by state and local governments in furtherance of such an approach offer no lawful or
reasoned basis for the EPA's rule.
The reasoning underlying the percentages selected for building code applicability
thresholds would not survive review under the "arbitrary and capricious" standard. Notable in
this regard is the observation by the EPA that the 25/50 rule used widely until the late 1970s was
found wanting and was replaced in most jurisdictions by a code whose applicability is "based
upon the type of work being done" rather than on the cost of the work. In 1978, the Senate
Banking, Housing and Urban Affairs Committee held a hearing on the impact of building codes
that mandated current code compliance for rehabilitated buildings. Witnesses testified that the
25/50 rule was arbitrary, created inconsistencies, was unenforceable, and obstructed
rehabilitation. The National Institute of Standards and Technology also found that provisions
such as a 25/50 rule were impediments to building rehabilitation, hi the late 1970's, the 25/50
rule was removed from model codes. For its part, FEMA seems to have selected 50 percent as its
cost-based threshold for "substantial improvement" for the arbitrary reason that 50 percent is
halfway between zero and one hundred percent.
Another commenter (National Petrochemical & Refiners Association, @2545) stated that
the use of a bright line percentage for building permits is common practice in cities and counties
throughout the U.S. It is used as a means of determining whether a building modification should
be defined as new construction and subject to the building codes covering new construction. The
commenter discussed this practice of using a "bright line" for reconstruction and rehabilitation in
the housing industry with Director of Affordable Housing Research and Technology in the Office
of Policy Development and Research at HUD. According to HUD, virtually all localities in the
United States have some form of percentage of the rehabilitation cost or use the model
rehabilitation provisions in "Smart Codes" in their local building codes. This common sense
approach to use of a "bright line" to facilitate local decisions affecting construction, maintenance,
and repair is exactly the purpose of the ERP final rule.
Response:
We recognize that the wording of building codes generally differ from the CAA(a)(4).
Our analysis of building codes would not be relevant to identifying Congressional Intent behind
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"any physical change" or other terms of CAA 11 l(a)(4). Assuming that the Court agrees that
"any physical change" is ambiguous, our building code analysis is relevant to the reasonableness
of identifying significant changes by relative cost of the activity in question to the larger unit.
The building code analysis identifies that such an approach has precedent in municipal
regulation.
4.1.19 De Minimis Increase
Comment:
One commenter (SCAQMD, @2538) stated that the ERP lacks any legal basis because its
exemption from the definition of "modification" is divorced from any tie to the statutory
definition of "modification." The commenter noted that applicable case law (Alabama Power)
holds that the EPA's authority to craft exemptions from the definition of "modification" is
limited to de minimis circumstances (or administrative necessity). Other commenters
(Environmental Groups, @2620; Calpine Corporation, @2588) supported this view.
According to the commenters, despite the EPA's contention that the term "physical
change" is ambiguous, courts have not had difficulty in interpreting the language. But even if the
term were ambiguous, the EPA is not free to define it in a way that bears no relationship to
legislative intent. Since Congress was clearly concerned about an increase in emissions, rather
than the cost of the change, the EPA must craft its definition with reference to the amount of
emissions increase involved, rather than with reference to cost. The EPA did not try to justify
this exemption as de minimis, which is the only proper basis for exemption.
One commenter (Environmental Groups, @2620) further elaborated on the EPA's
authority to exclude only de minimis emissions increases. As the D.C. Circuit made clear in
Alabama Power, the de minimis principle is the only possible source of authority for the EPA's
regulatory exclusion of RMRR from the statutory term "any physical change." The EPA
continues to acknowledge that the RMRR exclusion "could be justified as de minimis." Indeed,
in the EPA "conformity" regulations that exclude "[rjoutine ... activities" from the CAA term
"any activity," the agency expressly presents "routine" activities, including "routine maintenance
and repair activities," as ones that "would result in no emissions increase or an increase in
emissions that is clearly de minimis." In promulgating those regulations, the EPA has
acknowledged that the exclusion of "routine" activities is "based on the premise that such
projects are not expected to have significant air impacts," and that "actions which are de minimis
should not be required ... to make an applicability analysis."
The commenter states that until it promulgated the current rule, the EPA itself asserted
that its authority to promulgate the RMRR exclusion derived exclusively from the de minimis
principle. The commenters report that the EPA accordingly insisted that it had "extremely
limited authority to exempt activities from the definition of 'modification' under the Clean Air
Act." The commenter claims that the ERP, however, covers activities that result in non- de
minimis emissions increases. The EPA and industry admit as much. According to the
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commenter, the rule thus exceeds the bounds of the de minimis principle. The commenter states
that because that principle is the only possible source of authority for EPA's regulatory exclusion
of RMRR from the statutory term "any physical change," EPA's rule exceeds the agency's
statutory authority.
Another commenter (New York et al., @2555) believed that EPA erred in suggesting that
it need not justify the exemption as a de minimis exemption. According to the commenter, there
is no merit to EPA's contention (made in response to the Stay Motion) that because Alabama
Power was decided before Chevron, the former's analysis is no longer relevant where a statute is
found to be "silent or ambiguous." The commenter claims that the CAA is neither silent nor
ambiguous here. Moreover, the D.C. Circuit reaffirmed the vitality of Alabama Power when it
held in Environmental Defense Fund fEDF) v. EPA. 82 F.3d 451 (D.C. Cir. 1996), that the
Agency's authority to create exclusions is limited to de minimis activities. As a result, the
Alabama Power Court's interpretation of this unambiguous statutory provision is still governing
law.
In contrast to these comments, two commenters (Clean Air Implementation Project,
@2581; National Petrochemical & Refiners Association, @2545) stated that in explaining why it
is not necessary for the EPA to rely on a de minimis rationale, the EPA noted that it has adopted
exclusions since the enactment of the modification definition in 1970 that could not qualify as
"de minimis." The EPA correctly pointed out that, even though it has interpreted the meaning of
"change" in its NSR enforcement cases to be quite narrow and consistent with a de mininis
rationale, the EPA has the authority to interpret this term through rulemaking. The EPA's
expressed view of the meaning of the term, as reflected in the ERP rule preamble, is in fact more
consistent with the overall intent of the NSR program to only require changes that increase a
source's emitting capacity to trigger NSR.
Another commenter (Pinnacle West Capital Corporation, @2584) stated that any
interpretation of the CAA which would require the installation of B ACT for every plant project
other than de minimis activities is simply untenable. One industry analysis indicated that projects
similar to those identified by EPA in the NSR utility litigation typically occur at each power plant
every 18-24 months. According to the commenter, it is inconceivable that Congress could have
intended existing plants to trigger NSR with such frequency, particularly since each NSR review
and permitting process typically takes at least one year. The commenter claims that such an
interpretation would effectively force existing plants into a state of perpetual NSR review, a
result that flies in the face of clear Congressional intent that NSR apply to existing plants only in
specific, exceptional circumstances. The commenter states that, moreover, such a sweeping
application of NSR to existing plants would render entirely superfluous the grandfather provision
for existing sources. A sweeping interpretation of NSR that captures nearly all plant projects,
including routine maintenance and efficiency projects, is inconsistent with the intent of the CAA
and is not practically or administratively feasible. According to the commenter, the ERP's built-
in safeguards, including the provision excluding projects that increase maximum hourly electric
output or steam flow rates, further ensure that such projects are accomplished in an
environmentally sound manner.
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Response:
Our policy choice in defining a "physical change" is consistent with the statute because it
strikes an appropriate balance among the purposes of the CAA, including protecting the Nation's
air resources, promoting the public health and welfare and the productive capacity of its
population. The bright line criteria of the ERP will promote safety, reliability, and efficiency in
processes affected by this rule. As explained more fully in the preamble to the ERP final rule, in
the Federal Register notice accompanying this document, and elsewhere in this TSD, we believe
that we have discretion to interpret the definition of modification in the NSR program and that
our interpretation in the ERP reasonably implements the statute.
4.1.20 Interpretation of "Routine"
Comment:
One commenter (Environmental Groups, @2620) stated that according to the "Legal
Basis" section in EPA's preamble to the final rule, the ERP "states categorically that the
replacement of components with identical or functionally equivalent components that do not
exceed 20 percent of the replacement value of the process unit and does not change its basic
design parameters is not a change and is within the RMRR exclusion." Later in the same section
of the preamble, the EPA explains that the ERP rests upon the agency's reinterpretation of the
term,"routine maintenance, repair and replacement."
According to the commenter, the EPA has acknowledged that the word "routine" means
"habitual, regular, ordinary." Other synonyms are typical, customary, and everyday. The
commenter feels that both industry and the EPA concede, however, that the ERP is so broad as to
cover projects that occur only rarely in the lifetime of a unit. Projects that occur only rarely in
the lifetime of a unit are not habitual, regular, or ordinary for that unit, and the EPA does not
claim otherwise. Moreover, while current EPA regulations acknowledge that refurbishment
activity is not "routine" if it necessitates shutting down a production unit, the ERP is so broad as
to cover projects that do necessitate shutting down a production unit. Indeed, in previous
submissions, the commenter claimed to have demonstrated that the ERP would cover virtually all
of the modifications at issue in the government's NSR enforcement actions, including the
modifications that necessitated shutdowns. This broad coverage exempts projects that increase
emissions significantly, and thus do not qualify as de minimis.
The commenter states that construing "routine" to mean "routine in a particular industry"
goes well beyond de minimis principles, for many physical activities that are routine in a
particular industry increase emissions by non-de minimis amounts. For example, in the EPA's
NSR enforcement case against SIGECO. the company asserted that the alleged source
refurbishments that increased emissions by substantial amounts were routine in the industry. The
commenter claims that because the de minimis principle is the only possible source of the EPA's
authority to exclude RMRR from the statutory term "any physical change," the EPA lacks
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authority to read "routine" to mean "routine in a particular industry." According to the
commenter, for this reason alone, the ERP is unlawful.
Response:
In the final rule, we did not base the determination of ERP applicability on the frequency
at which an activity takes place. To do so would have been akin to developing specific lists of
RMRR activities for each industry, which we rejected because "there are simply too many
activities in too many industries to effectively improve major NSR implementation through
creation of lists." We added that "lists would be a 'snapshot in time' that would need to be
reviewed and periodically updated for each industry sector." 68 FR 61268. The same would be
true for setting thresholds based on frequency.
The commenter also argues that the types of activities that would be considered "routine"
under the final rule could not be considered de minimis. We do not believe we are constrained by
the de minimis principle in this case.
4.1.21 ERP Imposes Greater Administrative Requirements
Comment:
One commenter (UARG@2615) expressed concern that the ERP imposed greater
administrative requirements on sources than prior to the RMRR rule. In particular, they interpret
the ERP as requiring approval by a regulatory authority of RMRR determinations for projects
exceeding the ERP 20 percent replacement cost threshold.
Response:
We do not agree with the commenter's interpretation of the ERP. The text of the ERP
rule is structured such that projects that meet the four ERP criteria are automatically deemed to
be RMRR, without the need for regulatory approval. However, the rule does not require
approval for RMRR projects that do not qualify for the ERP. Rather, projects not qualifying for
the ERP simply must apply the multi-factor RMRR approach.
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4.2 Basis for Selecting 20 Percent of the Process Unit Replacement
Cost as the Threshold to Determine if a Replacement was
Routine
4.2.1 Supports EPA's Selection of the 20 Percent Replacement Cost to
Determine if a Replacement was Routine
4.2.1.1 The Basis for EPA's Selection
Comment:
Six commenters (Equipment Replacement Rule Coalition, @2514; Solar Turbines,
@2540; The National Petrochemical & Refiners Association, @2545; UARG, @2615;
PacifiCorp, @2546; Hawaiian Electric Company, Inc., @2586) stated that they disagreed with
the petitioners that the EPA's basis for selecting the 20 percent replacement cost of the process
unit to determine if a replacement was routine was arbitrary and capricious. The commenters
also supported the 20 percent replacement cost threshold.
Response:
hi selecting the percent cost threshold, it is important to note that it is but one of the four
requirements that must be met to qualify as automatically RMRR under the ERP. Activities
falling below the 20 percent replacement value threshold are not exempt from major NSR under
the ERP if they do not meet the other necessary criteria in the final rule. These other criteria
require that the replaced component: (1) be identical or functionally equivalent; (2) does not alter
the basic design parameters of the process unit; and (3) does not cause the process unit to exceed
any emission limitation or operational limitation (that has the effect of constraining emissions)
that applies to any component of the process unit and that is legally enforceable. Of all of these
qualifiers, including the 20 percent threshold, the key qualifier is that the equipment replacement
is "like-kind" (i.e., identical or functionally equivalent). This criterion supports the basis for the
ERP that the process unit undergoes "no change" as a result of the activity. Thus, the 20 percent
cost threshold serves primarily as an administrative threshold, by which activities that fall
beneath threshold and which also meet the other rule criteria safeguards qualify automatically as
RMRR, while those activities that meet the other criteria but are over the 20 percent cost
threshold may still be RMRR, but only by applying the multi-factor RMRR approach.
Thus, our goal in selecting the cost threshold is not to create a bright line below which
any activity is excluded solely based on its cost. Rather, the threshold is intended to operate in
combination with the three other ERP criteria as a screen for determining when the multi-factor
RMRR approach is applicable and when it is appropriate to automatically exclude an activity as
RMRR based on satisfying the three non-cost ERP criteria. As discussed in this document
elsewhere, we continue to believe that 20 percent is an appropriate threshold for this purpose.
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The available data indicate that the 20 percent threshold will effectively identify those more
significant projects for which applying the multi-factor RMRR approach is prudent.
Another important factor of the ERP is that related activities must be aggregated in the
same way as they would have to be aggregated for other NSR applicability purposes. Under our
current policy of aggregation, two or more replacement activities that occur at different times are
not automatically considered separate activities solely because they happen at different times. In
the case of replacing an entire facility, it is not feasible that an owner or operator could
successfully argue that multiple projects occurring one after the other are not related to one
another and should not be aggregated for applicability purposes. These other rule criteria play an
important part in determining what replacements can qualify for the ERP.
Record/Preamble Support
Comment:
Eight commenters (NEDA/CAP, @2670; Iron and Steel Industry Trade Groups, @2544;
The National Petrochemical & Refiners Association, @2545; Hawaiian Electric Company, Inc.,
@2586; Equipment Replacement Rule Coalition, @2514; UARG @2615; Xcel Energy, @2551;
U.S. Chamber of Commerce, @2593) stated that the EPA summarized the supportive record in
the preamble to the final rule and included support for the basis of its selection of the 20 percent
replacement cost criterion in the rulemaking record.
Response:
We agree that there was support for the promulgated 20 percent replacement cost
threshold in both the record and preamble for the final rule. The preamble to the final rule
provided a detailed discussion as to why we felt that there was a basis for the promulgated 20
percent replacement cost threshold. The rulemaking record and additional information
developed in this action support the discussion in the final rule preamble and the basis for the
selection of the 20 percent replacement cost threshold in the final rule.
Case Study Support
Comment:
Six commenters (The National Petrochemical & Refiners Association, @2545; UARG,
@2615; Iron and Steel Trade Groups, @2544; Equipment Replacement Rule Coalition, @2514;
Alliance of Automobile Manufacturers, @2574; Xcel Energy, @2551) argued that the petitioners
misread or misinterpreted EPA's use of six industry case studies and that they do not serve to
exempt all "routine" equipment replacement activity for two of the industries.
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One commenter (Dairyland Power, @2553) believed that the replacement cost analyses
the EPA conducted of six industries and the analysis of the cost involved in the WEPCO case
clearly provided an adequate basis for adopting a 20 percent threshold.
One commenter (Alliance of Automobile Manufacturers, @2574) explained that the
replacement costs presented in the case studies reflected replacement projects that take place
every 3 to 5 years, and that replacement projects occurring less frequently (e.g., every 5 to 10
years) may undertake much larger replacement projects (up to $60 to 100 million in the
automobile manufacturing sector). Two commenters (Equipment Replacement Rule Coalition,
@2514; UARG, @2615) argued that some activities evaluated in the case studies falling below
the 20 percent replacement value threshold may not qualify as RMRR under the ERP rule
because they do not meet the other necessary criteria stated in the final rule.
One commenter (UARG, @2615) noted that the six industries assessed in the case studies
varied widely and provided a "useful scoping assessment" that supports the 20 percent threshold.
Response:
Much of the comment on the 20 percent replacement value threshold focused on our use
of six non-utility case studies that we believe support our selection of a 20 percent replacement
value threshold. Though equipment replacement activities vary widely across industry sectors,
the six industry sector studies (pulp and paper mills, automobile manufacturing, natural gas
transmission, carbon black manufacturing, pharmaceutical manufacturing, and petroleum
refining) indicated that equipment replacement activities of the type allowed under the ERP
generally do not cause increases in actual emissions. Additionally, though the six studies address
specific case examples from only a part of regulated industry, the data indicated that most typical
replacement activities fall within the 20 percent threshold, and that some major replacement
activities will cross the 20 percent threshold and be subject to the multi-factor RMRR approach.
We received a number of comments through the reconsideration process that were
supportive of the calculations performed in the case studies of the six industries. Many of these
comments came from the trade groups representing industries that were analyzed in the case
studies. These organizations - including the American Forest & Paper Association, Alliance of
Automobile Manufacturers, National Petrochemical & Refiners Association, and Interstate
Natural Gas Association of America - supported the analyses conducted and conclusions reached
for each of their industries in the case studies. In some cases, these trade groups provided further
amplification of their cost ranges for projects, which provided additional depth and support to the
conclusions of the report. Other commenters stated that the case studies failed to provide
sufficient data to support the 20 percent cost threshold.
While most industry commenters agreed that the 20 percent threshold was adequate and
reasonable and was well supported by available data, several industry commenters provided
additional data as further support that the 20 percent threshold is appropriate. For example, Solar
Turbines estimates for their products (turbines of 1 to 14 megawatts in capacity), a periodic
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refurbishing of the gas producer unit - normally performed every 4 years - would cost 6 to
14 percent of the replacement cost, depending on the extent of deterioration. The Gas Turbine
Association noted that the restoration cost as a percentage of total equipment replacement cost
varies significantly with turbine unit size. According to the Gas Turbine Association, one
supplier estimated a range from 9 percent for a combined cycle system to over 20 percent for a
simple cycle system. Other commenters - including the National Petrochemical & Refiners
Association and the American Forest & Paper Association - further supported the 20 percent
equipment replacement cost threshold providing lists of their plant maintenance activities, many
of which were beneath 20 percent in cost, and explained why they felt that their listed projects
are routine. We have evaluated the projects described by commenters and, assuming that they
would meet all other criteria of the ERP, these projects would not be the types of activities that
would be subject to the multi-factor RMRR approach.
We should note, however, that by referring to these lists provided by industry, we are not
categorically determining that these activities are RMRR. As we have explained above, the 20
percent threshold is only one part of the ERP. Therefore, each activity must be evaluated against
not only the 20 percent cost threshold but also the other three rule criteria before making a
determination that these activities are RMRR under the ERP.
Finally, we never claimed that the case studies encompassed all equipment replacement
activities at these industries. Further, we recognize that the case studies do not justify exempting
all "routine" equipment replacement activity in any one of the case study industries. As
discussed elsewhere in this technical support document, activities falling below the 20 percent
replacement value threshold are not exempt under the ERP if they do not meet the other three
criteria of the rule. It is important to note that the case studies were performed prior to decisions
on the exact form and content of the final rale. If the studies had chosen a different set of
assumptions (e.g., for costing of projects, or in defining the process unit), they may have
identified additional equipment replacement projects exceeding 20 percent in cost. Furthermore,
these studies showed industry-wide results, not plant-specific determinations. Under the ERP, if
a plant-specific replacement activity does not satisfy all four of the criteria that must be met to
qualify for the RMRR exclusion, then the activity is subject to the multi-factor RMRR approach.
The studies indicate that larger, less frequent maintenance activities could exceed the ERP cost
threshold and, consequently, would be subject to the multi-factor RMRR approach. Thus, we do
not believe there is a basis, nor did the petitioners provide one, that all equipment replacements
in these industries would be exempt under a 20 percent cost threshold.
We continue to believe that this information on other industrial sectors in addition to the
information oh the electric utilities supports our 20 percent cost threshold. The case studies,
coupled with the additional comments received in this action, support our view that the 20
percent value that we separately determined to be appropriate for electric utilities is appropriate
for industry as a whole.
Other Industry Experience/Data Support
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Comment:
Several commenters (Solar Turbines, @2540; Gas Turbine Association, @2519;
Interstate Natural Gas Association of America,@2656; North American Insulation Manufacturers
Association, @2582/2583; WEST Associates, @ 2573; Midwest Generation, @2552; U.S.
Chamber of Commerce, @2593; The National Petrochemical & Refiners Association, @2545;
American Forest & Paper Association, @2547) provided industry data in support of the 20
percent replacement cost threshold.
One commenter (Solar Turbines, @2540) reaffirmed their support of the basis for
selecting a 20 percent cost threshold. The commenter estimated the cost of a routine overhaul for
their products (turbines of 1 to 14 megawatts) to fall within the range of 6 to 14 percent of the
replacement cost of a similar process unit. The commenter explained that the replacement cost
of a similar process unit was determined by multiplying the turbine package cost by a factor of 2
and by a factor of 3. These factors are budgetary installation factors which, when multiplied by
the direct equipment cost, are used to approximate the installed cost of the process unit or the
"equipment replacement value" of the unit. Such budgetary installation factors are commonly
employed throughout industry for budgetary cost estimation purposes. The use of two factors is
justified because initial investment costs for gas turbine installations can vary significantly
depending on the application. The commenter noted that the wide range of costs demonstrates
that the 20 percent ERP level is justified (and not arbitrary). Additional justification is provided
in the docket for routine gas turbine maintenance activities, which demonstrates that the 20
percent threshold is not arbitrary. The commenter noted that additional justification of the 20
percent level (or higher) is provided in the docket at OAR-2002-0068-1211, 2210, and 2519.
One commenter (Gas Turbine Association, @2519) provided data on maintenance costs
as a percentage of the ERV for: (1) gas turbine overhaul and maintenance; (2) steam turbine
overhaul and maintenance; and (3) other equipment maintenance and replacement. In summary,
the commenters said that their compiled information shows a wide range of costs for turbine
maintenance activities and demonstrates that many routine maintenance activities for these units
are well above the 20 percent ERP exclusion. The commenter supported the 20 percent
replacement cost "bright line test," below which, maintenance and replacement activities can
proceed (assuming the other criteria are met). The commenter recommended that the EPA clarify
activities such as foundation repairs and replacements, crankshift replacements, and engine
regrouts as routine maintenance as an incentive for continued operation and installation of
environmentally beneficial cogeneration facilities.
One commenter (interstate Natural Gas Association of America, @2656) stated that
results of their industry-wide RMRR cost study indicated that the 20 percent ERP cost threshold
is both reasonable and appropriate for the INGT industry sector. Similar to the EPA findings
with respect to the electric utility sector RMRR data, the commenter stated that the INGT
industry cost data showed that the majority of individual replacement activities and limited
groupings of such activities would, in fact, qualify for the ERP at the 20 percent replacement cost
threshold. Certain individual activities and larger groupings of activities in general would exceed
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the 20 percent ERP threshold and thus would be subject to the multi-factor RMRR approach.
The commenter qualified that their study demonstrated that the 20 percent ERP cost threshold
would be effective in distinguishing between equipment replacement activities and groupings of
such activities that should be categorically excluded from NSR from those that would be subject
to the multi-factor RMRR approach.
One commenter (North American Insulation Manufacturers Association, @2582)
provided that the a survey of several NAIMA members confirmed that RMRR activities that
occur on a regular basis can range from 3 to 20 percent of the replacement value of the process
line, supporting the EPA's 20 percent cost threshold.
Two commenters (WEST Associates, @ 2573; Midwest Generation, @2552) commented
that the EPA has reviewed extensive data for the utility industry and knows which replacement
activities are commonly encountered to ensure continued reliability and efficiency of generating
units. These commenters believed that these activities, for the most part, will meet the 20
percent threshold and will qualify for the exclusion and that the EPA has provided support for the
20 percent threshold.
One commenter (U.S. Chamber of Commerce, @2593) stated that the EPA conducted an
extensive review of cost studies associated with a number of industries, as well as data submitted
by UARG and other commenters (including the American Lung Association), and that the data
supports the EPA's calculation of the 20 percent threshold.
One commenter (The National Petrochemical & Refiners Association, @2545) surveyed
its members (petroleum refining industry) to verify the information in the final rule concerning
the 20 percent threshold. The response from 70 percent of the facilities representing 80 percent
of the domestic refining capacity supported the EPA's 20 percent threshold as being reasonable
and consistent with the operations at a petroleum refinery.
One commenter (American Forest & Paper Association, @2547) stated that the RIA for
the ERP rule included a detailed report of the pulp and paper industry which supported the EPA's
decision to set the threshold at 20 percent.
One commenter (Council of Industrial Boiler Owners, @2675) stated that the EPA's
regulatory analysis of the ERP rule provides an analysis to assess the effect of a 10 percent, 25
percent and 50 percent test on the behavior of industrial manufacturing sectors on key process
equipment. Based on analysis using the Integrated Planning Model (IPM) for the entire power
industry, which contributes the majority of emissions from all industrial sectors and which is
believed to be representative of the results expected from other industries, the analysis showed
that the breadth of the RMRR exclusion promulgated in the EPA's ERP provision "would have
little impact on the emissions reductions that will be achieved in the future under the major NSR
program."
Response:
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The EPA agrees with the commenters that there was a substantial amount of
data/information that supported the decision to set the threshold at 20 percent. These data show
that many like-kind replacements occurring at facilities typically cost less than 20 percent of the
process unit's value and do not increase emissions. As noted by the commenters, we conducted
cost studies for a number of industries (the cited case studies), were provided extensive
information on the electric utility industry, and analyzed other data were submitted by other
commenters, such as the American Lung Association, to support the 20 percent equipment
replacement value threshold.
The EPA appreciates the additional supporting information provided by commenters
(Interstate Natural Gas Association of America, @2656; Gas Turbine Association, @2519; Solar
Turbines, @2540; National Petroleum Refiners Association, @2545) further supporting the 20
percent equipment replacement cost threshold in the final rule.
Statutory History/Regulatory History/Congressional Intent/Case Law
Comment:
Several commenters (El Paso Corp. Pipeline Group, @2561; Dominion, @2562; The
Large Public Power Council, @2563; Edison Electric Institute, @2567; Xcel Energy, @2551;
US Chamber of Commerce, @2593; Duke Energy, @2564; The Aluminum Association, @2543)
stated that the basis for selected of the 20 percent cost threshold is supported by Congressional
intent, statutory history, and regulatory history.
Two commenters (El Paso Corp. Pipeline Group, @2561; Dominion, @2562) stated that
the statutory and regulatory history of the NSR requirements showed that the EPA could exclude
from the meaning of "change" the replacement of components that are identical or functionally
equivalent to the replaced components without establishing any replacement cost threshold
whatsoever. Thus, it was clearly permissible for the EPA to provide that replacement projects
that satisfy the 20 percent cost of replacement threshold, in addition to the other ERP rule
criteria, are excluded from NSR applicability.
One commenter (Edison Electric Institute, @2567) noted that the CAA's NSPS define 50
percent as the upper bound of the EPA's discretion to define a modification on the basis of
replacement cost.
One commenter (The Aluminum Association, @2543) stated that the EPA established a
reconstruction benchmark of 50 percent of the capital cost for determining NSPS applicability on
a modified source. The commenter argued that since the promulgated 20 percent allowance
under NSR is more stringent, it provides ample environmental protection to promote NSR review
of sources that have significant modifications.
One commenter (WEST Associates, @2573) agreed that the reconstruction provisions of
NSPS differ from the modification thresholds of NSR. Therefore, the commenter supported a
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replacement threshold below 50 percent of unit replacement cost. The EPA has reviewed
extensive data for the utility industry and knows which replacement activities are commonly
encountered to ensure continued reliability and efficiency of generating units. These activities,
for the most part, will meet the 20 percent threshold and will qualify for the exclusion. The
commenter believed the EPA has provided more than adequate basis for its final rule and
supported the 20 percent threshold.
One commenter (Dominion, @ 2562) stated that when Congress enacted the NSR
program in 1977, the existing NSPS definition of "modification," adopted in the 1970 CAA
Amendments, was carried over and used for the new NSR program. The commenter explained
that the definition of "modification" excludes from NSPS applicability those activities that serve
to maintain facilities as designed, constructed and permitted, provided these activities do not
result in costs that would exceed 50 percent of the replacement value of the facility in question.
The commenter believed that the ERP rule preserves the basic design provisions of the NSPS
exclusion but limits the RMRR costs to not more than 20 percent of the facility replacement cost.
One commenter (Council of Industrial Boiler Owners, @2675) supported the EPA's
proposal to use a 50 percent threshold, similar to that used in NSPS and the NESHAP program
for reconstruction. They went on to state that the NSPS provisions also include a modification
provision which is triggered if there is an increase in the maximum hourly rate of emissions the
unit is capable of emitting. The EPA's final ERP rule addressed the existing source exclusion for
RMRR, yet it is more protective than EPA's existing source exclusion under either the NSPS or
NESHAP programs, hi the final ERP rule, the commenter acknowledged that the EPA reduced
the replacement threshold from 50 percent to 20 percent, and included other safeguard
provisions. The commenter believed that the final provisions are reasonable in that they ensure
that functionally equivalent repair and replacement projects can improve efficiency or reliability,
but not the basic parameters of the unit which limit its capacity (either measured on an input
basis or an output basis). In addition, the commenter contends that these limiting provisions
ensure the replacement unit cannot emit more pollution than the old unit was allowed to emit.
Thus, they argue, it includes an element similar to the NSPS modification provision, yet it is
more restrictive than the NSPS or NESHAP reconstruction provisions.
One commenter (Duke Energy, @2564) stated that prior to the EPA promulgating the
ERP Rule, the only objective cost limit or threshold was the NSPS 50 percent reconstruction
threshold. The 50 percent NSPS threshold restricts potential applicability of the NSPS
reconstruction provision to individual projects whose costs exceed 50 percent of the fixed capital
cost of constructing a comparable new unit. The NSPS reconstruction threshold has a long
legislative and regulatory history, and while the ERP rule's 20 percent cost threshold is
considerably more stringent, its use is appropriate. According to the commenter, if the 50
percent reconstruction threshold is legal under the NSPS provisions of the CAA, which it clearly
is, then the ERP rule's significantly more stringent 20 percent cost threshold is clearly not
arbitrary and capricious under the NSR/PSD provisions, as some have claimed.
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One commenter (Clean Air Implementation Project, @2581) believed that the statutory
and regulatory history of the NSR requirements show that EPA could exclude from the meaning
of "change" the replacement of components that are identical or functionally equivalent to the
replaced components without establishing any replacement cost threshold whatsoever. Thus, it
was clearly permissible for the EPA to provide that replacement projects that satisfy the 20
percent cost of replacement threshold, in addition to the other ERP rule criteria, are excluded
from NSR applicability. The commenter believed that the EPA has authority under the CAA to
adopt an equipment replacement cost threshold greater than the 20 percent level included in the
final ERP rule. However, in light of the fact that sources can demonstrate applicability of the
RMRR exclusion using the multi-factor approach if they exceed that threshold, they supported
EPA's adoption of the 20 percent cost threshold and urge that it be retained in the ERP rule.
One commenter (UARG, @2615) argued that the EPA considered the threshold screening
provision as being "akin to the long-established reconstruction provision under the NSPS
program," in which a 50 percent replacement value limit is used to identify those activities or
projects for which further review is warranted. The commenter stated that the EPA explained
that the 50 percent NSPS threshold is a "threshold intended to alert permitting authorities to
significant projects and allow case-by-case decisions based on a series of regulatory factors."
The commenter went on to say that the EPA replicated aspects of the NSPS concept in the ERP
by identifying a threshold below which there is no need for further inquiry into whether an
activity qualifies for the ERP, and above which there is a need for a case-by-case determination.
One commenter (PacifiCorp, @2546) expressed that the 20 percent threshold is
particularly appropriate when considering the regulatory history aspects of RMRR. The
commenter explained that when Congress adopted the NSR program in 1977, it adopted the
already existing definition of "modification" as contained in the NSPS program. Under the
commenter's interpretation, NSPS is not triggered for maintenance activities that do not change
the basic design characteristics of a unit in a way that increases maximum emission rate — unless
the activities in question cost more than 50 percent of the replacement value of the unit. The
commenter states that the notion of a replacement cost threshold is firmly imbedded in the very
NSPS regulation whose definition of "modification" was adopted into the NSR rules. The
commenter further stated that the ERP proposal of a 20 percent replacement cost threshold is
even more restrictive than the 50 percent threshold of the NSPS rule, therefore they believed that
the ERP rule is, therefore, clearly within the EPA's authority.
One commenter (US Chamber of Commerce, @2593) believed that the rule record
reflects that the EPA went through extensive efforts to conform to the directives of Congress.
Response:
We agree that there was a basis for the selection of the 20 percent equipment
replacement. This support is set out in the administrative record and preamble to the final ERP
rule.
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Case Law Support
Comment:
Five commenters (The Large Public Power Council, @2563; US Chamber of Commerce,
@2593; Edison Electric Institute, @2567; Xcel Energy, @2551; Dairyland Power, @2553) cited
the WEPCO case as supporting the EPA's 20 percent cost of replacement threshold.
One commenter (The Large Public Power Council, @2563) specifically stated that in the
WEPCO case the Court determined the proposed changes at each of the five coal-fired units did
not constitute a "physical change" under the NSR rules. The commenter explained that the Court
reached its ruling even though the capital cost percentage for the replacement activities, averaged
over the five WEPCO units, amounted to 29 percent of the replacement value.
Response:
We agree with the commenters that the WEPCO case findings support the EPA's 20
percent replacement cost threshold. However, we note that the commenter was incorrect in
stating that the Court determined that the projects of issue did not constitute a physical change.
To the contrary, the Court found that they did constitute a physical change (see 893 F.2d at 907).
Comment:
One commenter (Duke Energy, @2564) stated that the NSR provisions adopted in 1977
by Congress included the term "modification," which was to have the same meaning and usage
as the term has in the NSPS regulations, hi United States v. Duke Energy Corp.. 278 F.Supp. 2d
619, 2003 U.S. Dist. LEXIS 14957 (M.D.N.C. Aug. 26, 2003), the Court recognized and recited
this history. The Court articulated no cost limit and used commonalities in the electric utility
industry to determine whether or not projects were considered RMRR. The commenter stated
that the opinion in USA v. Duke Energy Corp. clearly supports use of a capacity-based test for
RMRR. If such a test is lawful, then EPA's inclusion of a 20 percent cost limit test for the ERP
rule, being more restrictive than a capacity-based test, is clearly lawful.
One commenter (Clean Air Implementation Project, @2581) expressed that, as the EPA
points out, the Agency should have broad discretion under Chevron to draw lines that it believes
reasonable in determining what activities may be excluded as "routine." As indicated above, all
identical or functionally equivalent component replacements could properly be excluded from the
meaning of changes and, in turn, excluded from NSR applicability. Thus, the EPA's ERP rule,
which only excludes a subset of such replacements is a permissible exercise of its discretion.
Response:
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The United States has appealed U.S. vs. Duke Energy Corp. For the reasons provided in
our briefs before the Court of Appeals, we disagree with the decision in the cited case. We
continue to believe that the statute provides us with discretion to interpret "any...change."
4.2.1.2 Petitioners Had Adequate Opportunity/Notice to Comment
on the 20 Percent Cost Threshold
Comment:
Five commenters (American Public Power Association, @2630; The Class of'85
Regulatory Response Group, @2568; Dairyland Power, @2553; Iron and Steel Industry Trade
Groups, @2544; NED A/CAP, @2670) disagreed with petitioners' allegations that the EPA did
not provide adequate opportunity to comment on the 20 percent cost of equipment replacement
threshold.
One commenter (NEDA/CAP, @2670) stated that the EPA's Report to the President set
forth in June 2002 the notion that a test derived from the NSPS rules, which included a 50
percent reconstruction test as well as an AAGR test were being considered, hi the December 31,
2002 proposed rule, the EPA took comment on both options as well as numbers below 50
percent. Moreover, the Agency not only provided the opportunity to comment on the number,
but requested comment on several definitional safeguards, which were ultimately adopted, to
ensure that if the exclusion was applied it could only be applied to a functionally equivalent unit
and not to a fundamentally altered "new" process unit.
One commenter (The Class of'85 Regulatory Response Group, @2568) stated that the
EPA solicited comments on a range of cost thresholds, up to 50 percent of the replacement cost
of a process unit. Although the commenter believed that the petitioners may be correct that the
EPA' s arguments in the proposed rule did not specifically identify a 20 percent cost threshold,
the EPA provided an analysis in the proposed rule as to why a cost threshold of up to 50 percent
might be appropriate. Therefore, petitioners clearly were put on notice that the EPA was looking
at various options ranging up to 50 percent.
One commenter (Dairyland Power, @2553) argued that the EPA provided an analysis in
the proposed rule as to why a cost threshold of up to 50 percent might be appropriate. The
commenter explained that the petitioners clearly were put on notice that the EPA was looking at
various options ranging up to 50 percent, and that the EPA's arguments in the final rule to
support the 20 percent threshold also serves as an analysis of why the EPA rejected a 50 percent
threshold.
One commenter (Iron and Steel Industry Trade Groups, @2544) stated that petitioners
alleged that the EPA did not provide adequate opportunity to comment on the legal basis due to
the difference in the length of the legal analysis discussed in the final rule compared to the
proposed rule. The commenter also contended that the petitioners also argued that the EPA's
arguments supporting the 20 percent threshold did not appear in the proposed rule; thus, they
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were not able to comment on these arguments. The commenter argued that, when reviewing
claims of procedural error under both the CAA and the Administrative Procedure Act, the courts
have emphasized that it is appropriate for agencies to learn from comments and other information
received or developed after the proposed rule and to modify or update its position based on
evidence it relies on without further notice and comment as long as the final rule is a logical
outgrowth of the proposal. Courts typically allow an agency to revise proposed regulations or
supplement data or information in the docket so long as such revisions or information is a logical
outgrowth of the proposal.
The commenter stated that the EPA provided a detailed legal analysis in the preamble to
the final ERP rule in response to the comments received from petitioners and others. Similarly,
the commenter asserted the EPA included additional arguments in the final rule preamble that
explained why it ultimately chose the 20 percent threshold. The commenter stated that the EPA
solicited comment on a range of equipment replacement cost thresholds and received comment
supporting a number of different cost thresholds, from less than 1 percent up to 50 percent. The
20 percent cost threshold selected in the final rule is well within this range. Therefore, the
additional length of the legal analysis in the final rule and the additional information offered by
the EPA to support its percent threshold would be considered a "logical outgrowth" of the
proposed rule to which the Petitioners had an adequate opportunity to comment.
Response:
We agree that we solicited comments on a range of percent thresholds and on safeguards
for a threshold-based equipment replacement test. We agree that our final rule was a logical
outgrowth of the proposal.
4.2.2 Supports 50 Percent Threshold
Comment:
Four commenters (Virginia Independent Power Producers, Inc, @2560; El Paso Corp.
Pipeline Group, @2561; Clean Air Implementation Project, @2581; Pinnacle West Capital
Corporation, @2584) believed that the equipment replacement cost threshold should be 50
percent.
One commenter (Virginia Independent Power Producers, Inc, @2560) believed that
adding a cost factor to the ERP makes the regulation more complex than is necessary. If one is to
be included, the commenter believed it should be consistent with the 50 percent threshold set
forth in the NSPS regulations. As part of the justification for a lower cost threshold in the ERP
than in the NSPS, the EPA incorrectly stated that the ERP "identifies a threshold below which
there is no need for further inquiry into whether an activity qualifies for the ERP and above
which there is a need for a case-by-case determination." The revised ERP does not consider an
activity RMRR unless other criteria are met in addition to the 20 percent threshold. Therefore, if
the cost of an activity is found to be less than the 20 percent cost threshold, further inquiry is
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required to determine if the activity also meets the additional criteria before it can be considered
RMRR. Since the ERP includes these additional safeguards a cost threshold is not necessary to
make it as restrictive as the NSPS definition of modification.
One commenter (El Paso Corp. Pipeline Group, @2561) stated that the threshold should
be 50 percent and is well supported in the previous rulemaking. While a 20 percent threshold
would cover a majority of their RMRR activities, it should be noted that certain replacement
projects that are non-emitting and certain routine events may exceed the 20 percent threshold.
Therefore, attempts to lower the 20 percent threshold will severely affect regular RMRR
activities at compressor stations and potentially could disrupt the reliability of gas distribution in
the country.
One commenter (El Paso Corp. Pipeline Group, @2561) provided extensive cost data for
63 RMRR projects at its facilities. The cost data included project costs replacement value and
percentage of replacement value represented by the project costs. The projects were divided into
13 categories based on the type of work performed. Based on the commenter's data, 3 of the 13
categories had projects that exceeded the 20 percent ERP threshold. The commenter provided
similar data in their comments submitted in May 2003 which showed an additional four
categories that had projects that exceeded the 20 percent threshold. The commenter stated that
all of these project categories are fundamental to maintaining the proper operation of their
compressor station operating capabilities, as required by the FERC Certificates of Public
Convenience and Necessity that govern pipeline operations. The projects do not increase the
emissions from process units, and are necessary to maintain these assets in a safe, reliable and
efficient operating mode. Therefore, the commenter strongly continues to advocate the ERP
percentage threshold of 50 percent. Although the 20 percent threshold represents a significant
fraction of the replacement cost, the commenter argued that many common RMRR activities that
are essential to safe and reliable operations exceed the 20 percent levels.
This commenter and one other commenter (Clean Air Implementation Project, @2581)
also urged the EPA to adopt the NSPS cost threshold for "reconstructions" as the test for whether
component replacement will come within the scope of the ERP. Under 40 CFR 60.15, a project
is deemed not to constitute "reconstruction" if its cost does not exceed 50 percent of the fixed
capital cost that would be required to construct a comparable entirely new unit. Also, under
certain NSPS, the EPA has provided that certain types of costs should be excluded in
determining whether the 50 percent threshold will be exceeded in order not to have projects that
are routinely undertaken be treated as reconstructions.
One commenter (Pinnacle West Capital Corporation, @2584) supported the 20 percent
threshold in the final rule, but believed that even a 50 percent cost threshold comports with the
CAA. Indeed, the EPA uses a 50 percent cost threshold for NSPS applicability purposes. This
same threshold is entirely appropriate for NSR applicability purposes.
Response:
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For our response to these comments, we refer the reader to Section 4.1.4 of this technical
support document.
4.2.3 Supports a Different Threshold Value
Comment:
One commenter (The Class of'85 Regulatory Response Group, @2568) stated that, based
on the public comments received on this issue, the replacement cost analyses the EPA conducted
of six industries and the analysis of the costs involved in WEPCO. the EPA clearly has provided
an adequate basis for adoption of a 20 percent cost threshold. Nonetheless, although the
commenter agreed with the Agency that the 20 percent cost threshold is legally supportable, the
commenter did not believe this is the appropriate threshold for the electric generating industry.
Based on an evaluation of some of the replacement projects that electric generating units
routinely undertake, including turbine blades, sections of waterwall tubes, reheaters,
superheaters, and economizers, the commenter determined that a cost threshold of five percent
would allow electric generators to continue to maintain their plants for safe, efficient, and
reliable operation.
The commenter also believed a five percent cost threshold is a more legally defensible
standard than the 20 percent cost threshold. In evaluating the projects at issue in the WEPCO
case, the EPA originally had determined that WEPCO's renovation costs would "represent
approximately 15 percent of replacements (sic) costs." Memorandum from Don R. Clay, Acting
Assistant Administrator for Air and Radiation, to David A. Kee, Director, Air and Radiation
Division, Region V, at 6 (September 9, 1988) (the "Clay Memorandum"). The Agency's
analysis in the final ERP rule, scaled up to 1991 dollars, found that the WEPCO projects would
be 29 percent of the replacement cost or, alternatively, using the 7th Circuit's cost figures, 22
percent of the replacement cost of an electric generating unit. Although the commenter believed
the EPA was justified in using 1991 dollars since it is within the timeframe of the 7th Circuit' s
decision, the commenter was concerned that the Clay Memorandum provides precedent for
establishing a level at something less than a 15 percent cost threshold as an upper bound for
whether an activity is routine. Further, the EPA found that the WEPCO work was "far from
being a regular, customary, or standard undertaking for the purpose of maintaining the plant in its
present condition." Clay Memorandum at 3-4. This indicates that something substantially lower
than a 15 percent cost threshold might be the boundary for determining whether a project is
routine maintenance. Therefore, the commenter continued to advocate a five percent cost
threshold for the electric generating industry as that clearly falls well below the cost of work at
issue in WEPCO regardless of the measurements used, and will allow electric generators to
maintain their plants for safe, efficient, and reliable operation.
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Response:
We agree with the commenter that, based on "public comments received on this issue, the
replacement cost analyses EPA conducted of six industries and the analysis of the costs involved
in WEPCO," we clearly provided an adequate basis for adoption of a 20 percent cost threshold.
We disagree, however, that a 5 percent cost threshold is more defensible for the electric utility
industry. Taking into account all of the data available, including substantial data from many
facilities in the electric utility industry, we continue to believe that a 20 percent cost threshold is
more appropriate for the electric utility industry, as well as other industry sectors.
4.2.4 Supports an Alternative to an Equipment Replacement Cost Percent
Threshold
Comment:
Two commenters (STAPPA/ALAPCO, @2576; NYSDEC, @2521) believed that a better
way could be devised to make routine maintenance determinations. The commenter
recommended that in lieu of the 20 percent threshold, the EPA should (1) codify criteria for
characterizing whether a change is routine, including criteria to safeguard against changes likely
to result in an increase in emissions; (2) develop two lists for each major industrial sector,
identifying the activities that would and would not be considered routine; (3) retain case-by-case
determination by the permitting authority for those activities that are not included on either list;
and (4) preserve the ability of state and local air pollution control agencies to impose
requirements more stringent than those of the federal government. The commenter believed such
an approach would provide greater clarity and certainty without sacrificing the critically
important environmental and health benefits of the NSR program.
Response:
Prior to promulgating the ERP, we evaluated developing a list of activities that are
considered RMRR as a component of an overall RMRR program. Although it was decided that
we could develop a list for industry sectors for which we had ample of information, we were
concerned that such a list would need to be updated often. As noted in the preamble to the final
ERP rule, we believe that there are too many activities in too many industries to effectively
improve major NSR implementation by creating such lists. We also were concerned that such
lists would need to be updated often.
As noted in the preamble to the final ERP, nothing in the promulgated ERP would
prevent a State or local program from imposing additional requirements necessary to meet
Federal, State or local air quality goals.
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Comment:
One commenter (Indiana Chamber of Commerce, @2578) pointed out that EPA, in the
final rule, reviewed several other options including specific listings of excluded activities, annual
allowances for RMRR activities, capacity-based options, and age-based options. These were
rejected primarily as difficult to implement and enforce. The commenter supported these
conclusions, hi addition, the actual-to-actual emissions test promulgated under the NSR Reform
Rule is not adequate in and of itself for RMRR activities. The primary function of the exclusion
is to provide regulatory certainty in conducting activities that are very time dependent. The
exclusion allows sources the ability to know, with certainty, that RMRR can be conducted
without the unnecessary delays caused by a time-consuming compilation of emissions data and in
many instances'submittal and agency approval of such data.
Response:
We agree that the ERP exclusion allows sources to know, with certainty, that RMRR can
be conducted without delay in situations where the project meets the four specified criteria,
including the 20 percent replacement cost criterion. As the commenter stated and as set out in
the final ERP rule preamble (68 FR 61267), we considered other options, in addition to the
equipment replacement cost-based option we selected. We concluded that a capacity-based
approach would have to be tailored to various types of sources, with capacity-based on input for
some and on output for others. As with defining capacity, we believe that defining an age cut-off
would also be difficult because the useful life of equipment may vary greatly. We also evaluated
listing activities that do not qualify as RMRR, but determined that there were too many activities
in too many industries to effectively produce a useful list that would serve to improve major NSR
implementation.
Comment:
One commenter (North American Insulation Manufacturers Association, @2582) stated
that although the case-by-case approach in the final rule is a flexible approach that considers
many factors, it can also require the source operator to conduct a lengthy, cumbersome technical
review of the process unit. The commenter added that sometimes the case-by-case approach can
become bogged down with difficulties interpreting NSR regulations, and sometimes it results in
misguided regulatory enforcement activities. Such reviews require a significant investment of a
company's resources. Moreover, they conflict with earlier determinations by EPA and various
States that such replacements are properly categorized as RMRR activity. Such component-by-
component reviews are time-consuming and costly for both the EPA and industry. Clearly, the
EPA lacks the resources to conduct a component-by-component review of each regulated
industry's process units. Equally important, such reviews unduly waste both the EPA's and
industries' resources and time. Accordingly, the ERP rule provides a simpler, more efficient, and
objective means of determining whether NSR requirements are triggered than the multi-factor
RMRR approach does.
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Response:
By including the 20 percent replacement cost threshold and other criteria for determining
whether a modification is subject to the multi-factor RMRR approach, we have reduced the
number of "changes" that would need to go through case-by-case review. We disagree with the
commenter that such reviews unduly waste both the EPA's and industries' resources. Most
RMRR projects will not be subject to the multi-factor approach, allowing resources to be more
focused to ensure that the goal to preserve and improve air quality is met.
4.2.5 Supports the Development of RMRR Activities Guidance
Comment:
One commenter (El Paso Corp. Pipeline Group, @2561) stated that the RMRR provisions
are the most critical aspects of NGT facilities because virtually all RMRR activities are
characterized by the following:
• Recommended by manufacturer to promote operational durability, reliability, and
safety;
• Serve to maintain the operation of equipment at specified capacity and performance;
• Avoid untimely delays in availability;
• Do not increase production capacity; and
• Do not affect emissions of any pollutant.
The commenter strongly advocated the ERP to provide clear guidance for the types of
activities that need not be evaluated under NSR to avoid costly delays and unnecessary
permitting efforts.
Response:
Guidance that would specifically address all industries and activities that would not need
to be evaluated under NSR would be difficult to develop. For example, activities in one industry
may be classified as RMRR, where as in another, they would not. We simply believe that there
are too many activities in too many industries to effectively improve major NSR implementation
by creating such guidance.
4.2.6 Future Rulemaking Recommendations
Comment:
One commenter (Interstate National Gas Association of America, @2656) strongly
advocated that the EPA consider a future EPA rulemaking to establish a categorical exclusion for
equipment component replacements related to unanticipated shutdowns and catastrophic process
unit failures. The commenter explained that such events require rapid response to regain FERC
mandated capacity and costs often exceed 20 percent of the process unit replacement value. The
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commenter requested that the EPA consider relaxing the ERP percentage necessary for such
events to avoid unacceptable time delays associated with determinations using the multi-factor
approach. This commenter also supported the EPA developing a rule or policy to clarify that
physical or operational changes that do not "result in" any increase in emissions cannot be
considered "major modifications." They explained that clarifying the "causality" criterion
implied in the definition of "major modification" would provide a clear mechanism for exclusion
of such activities irrespective of qualification under the ERP.
Response:
We do not believe that it is appropriate at this time to include a categorical exclusion for
equipment component replacements related to unanticipated shutdowns or catastrophic process
unit failures.
4.2.7 EPA Does Not Have An Adequate Legal Basis
Comment:
Four commenters (NYSDEC, @2521; State of Delaware, @2575; Calpine Corporation,
@2588; State of Delaware, @2554) argued that there was no support, record, or legal basis for
the EPA's 20 percent replacement cost threshold value.
One commenter (NYSDEC, @2521) stated that the incompleteness of the cost
information and the inherent source-specific nature of what constitutes RMRR across industries
make it impossible to justify a uniform 20-percent cost threshold for determining whether a
physical change should be exempt from permitting. The commenter believed it unlikely that
comprehensive and meaningful data exist anywhere to support the promulgation of a bright-line
test, because there was never a regulatory reason for permitting agencies to collect data on the
replacement values of facilities or process units to compare with the cost of emission controls.
Further, the commenter said, the pertinent consideration in determining whether a physical
change or change in the method of operation constitutes a modification under the CAA is
whether the physical or operational change will have an impact on emissions, rather than whether
a facility would undertake equipment replacement if the cost of pollution controls relative to the
process unit exceeds a certain level.
One commenter (State of Delaware, @2575) stated that the CAA was not created to
reduce source paperwork and permitting activity but was created to insure harmful emissions are
controlled "to protect and enhance the quality of the Nation's air resources so as to promote the
public health and welfare and the productive capacity of its population." The commenter did not
believe Congress intended "grandfathered" facilities to continue emitting harmful pollutants (nor
substantially increase these emissions) to the detriment of public health and welfare in order to
increase source productive capacity and decrease source paperwork.
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One commenter (Calpine Corporation, @2588) argued that they did not believe the final
rule provided a "bright line test," nor did it meet the Court's requirements as set forth in
WEPCO. The commenter stated that the EPA's references to other benchmarks, such as
"reconstruction," are irrelevant, and that neither Congress nor the EPA has suggested that a
bright line test eliminates the need for case-by-case government oversight and enforcement. The
commenter went on to say that the ERP neither eliminates the need for case-by-case oversight
needed to insure full compliance with the 20 percent rule, nor provides clarity or certainty of a
bright line rule. Indeed, by introducing several new, vague concepts, the commenter believed
that the ERP adds far more layers of regulatory complexity than it removes. The commenter did
not believe that the EPA's alternative to case-by-case review - simply obliging an owner or
operator to retain "records developed and maintained in the ordinary course of business" in
support of its exemption claim and to make them available upon government request - is
adequate to assure compliance.
One commenter (Calpine Corporation, @2588) believed that the 20 percent rule will not
function as a bright line test because it requires subjective interpretation of key terms. The
commenter cited the definitions of "replacement value," "basic design parameters,"and "total
capital investmenf'as examples, qualifying that each term introduces a new level of subjective
interpretation that will add more complexity to NSR. The commenter provided details on why
each of these terms lack clarity.
One commenter (State of Delaware, @2554) did not believe the percentage approach as
currently set out is appropriate and it is likely to impede the commenter's efforts to obtain
attainment with the NAAQS. The commenter believed that any rule clarifying the scope of the
equipment replacement provision needs to be carefully tailored so as to prevent increased
emissions or to impede the state's efforts to require future emissions reductions. Should a
percentage type of rule be utilized, the commenter believed such an approach must also include
an analysis of potential increases in pollutants to ensure the replacement does not cause more
than the de minimis increases the federal courts have found that EPA has the authority to exempt.
Further, the commenter was concerned that the rule is not clear with respect to how often a
facility may utilize the rule (i.e., how often may a facility utilize the percent exemption, be it
every year so that it could be rebuilt over a short period of years, or whether it could be utilized
several times in the same year, so that by bifurcating its projects a polluter may rebuild even
more than the allowed percentage of a facility within the same year). The commenter expressed
that this is a gray area with huge ramifications, and argued that without clarification, the EPA's
primary goal of promoting regulatory certainty may be negated.
Response:
We disagree with the commenters' arguments regarding there being no support, record, or
legal basis for the EPA's 20 percent cost threshold value exclusion.
As presented in the preamble to the final rule, and the judicial record for the final rule, we
provided a number of EPA studies, industry-supplied information, and legal basis as to why 20
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percent is a reasonable equipment replacement value threshold for what constitutes routine
repair, replacement, and maintenance across industries, in addition to the other criteria outlined
in the rule. The basic criteria, coupled with the 20 percent cost replacement threshold, ensures
that no physical change or change in the method of operation that increases permitted emissions
can be undertaken without triggering NSR.
In response to the commenter's (State of Delaware, @2575) belief that Congress did not
intend for "grandfathered" facilities to continue harmful emissions (nor substantially increase
emissions) to the detriment of public health and welfare in order to increase productive capacity
and decrease source paperwork, we disagree. Congress has never changed its legislative intent to
allow grandfathered facilities to operate indefinitely until they make a physical or operational
change that triggers NSR.
Calpine (Calpine Corporation, @2588) is correct to say that even with a bright line test
such as the ERP, we will need to make case-specific judgments as to whether the criteria are met
when we consider bringing enforcement actions. However, we believe that the brightness of the
lines we draw in the ERP derives not only from the specific regulatory definitions but also from
where we place the lines.
Our appropriate level of compliance assurance for sources using the ERP is fully
explained in the ERP final rule. See 68 FR 61263.
4.2.8 Six Modification Activity Case Studies Do Not Support the 20 Percent
Replacement Cost Threshold Exclusion
Comment:
Three commenters (NYSDEC, @2521; New York et al., @2555; Council of Industrial
Boiler Owners, @2675) argued that the six modification activity case studies do not support the
20 percent replacement cost threshold.
One commenter (NYSDEC, @2521), referring to a set of Abt Associates industry studies
in the docket, noted that the analyses state that emissions from some industry sectors may
increase once routine repairs are made. The commenter believed the analyses also indicate that
variability among individual facilities within a sector make it difficult to generalize what
relationship may exist between the cost of repair and maintenance projects and their emissions
impacts. Thus, the commenter said, the Abt studies fail to provide sufficient data to support the
ERP rule and the 20 percent cost threshold.
One commenter (New York et al., @2555) pointed out that the EPA relied on six industry
analyses performed by Abt Associates that purport to demonstrate that application of a 20 percent
threshold to plant modifications in those industries would not result in emission increases.
However, these industry analyses do not provide a justification for the 20 percent threshold. As
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an initial matter, EPA admits that the analyses are not exhaustive, but constitute just a "useful
scoping assessment." Furthermore, setting aside limitations of the analyses, there is no basis for
believing the results to be the same for other industries. Indeed, in the utility industry, the EPA's
enforcement cases document that most modifications cost less than 20 percent of replacement
value, yet result in emission increases, hi any event, in at least two of the industries studied -
automotive manufacturing and carbon black manufacturing - the EPA's contractor was unable to
identify any equipment replacement activities that would not be exempted by a 20 percent cut-
off. Accordingly, to the extent the EPA relies on these analyses, the commenter believes that its
conclusions are inconsistent with the statutory command that any physical change that increases
emissions should trigger the NSR requirements.
One commenter (Council of Industrial Boiler Owners, @2675) stated that the EPA's
regulatory analysis of the ERP rule provides an analysis to assess the effect of a 10 percent, 25
percent, and 50 percent test on the behavior of industrial manufacturing sectors on key process
equipment. Based on analysis using the Integrated Planning Model (IPM) for the entire power
industry, which contributes the majority of emissions from all industrial sectors and which is
believed to be representative of the results expected from other industries, the analysis showed
that the breadth of the RMRR exclusion promulgated in the EPA's ERP provision "would have
little impact on the emissions reductions that will be achieved in the future under the major NSR
program."
Response:
We continue to believe that this information on other industrial sectors beyond electric
utilities supports our 20 percent bright line test. The case studies (included in Appendix C of our
final regulatory impacts analysis) estimate the overall impact of the rule on six different
industrial sectors (pulp and paper mills, automobile manufacturing, natural gas transmission,
carbon black manufacturing, pharmaceutical manufacturing, and petroleum refining). The case
studies find that routine equipment replacement activities generally do not cause emissions
increases. Additionally, we believe that the study provides a useful scoping assessment that
tends to support the proposition that the 20 percent threshold derived for the utility industry
(which is based on robust industry data) should be applied to industry as a whole. These data
indicate that most typical replacement activities will fall within the 20 percent threshold. At the
same time, the data indicate that some major replacement activities likely will cross the 20
percent threshold and will require evaluation under the multi-factor RMRR test, hi short, the
study supports our view that it is reasonable to assume that equipment replacement activities in
the utility industry are similar enough to replacement practices in other industry that the 20
percent value determined for utilities, is appropriate for industry as a whole.
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4.2.9 No Basis for Selecting 20 Percent
Comment:
Four commenters (SCAQMD, @2538; State of Delaware, @2575; Calpine Corporation,
@2588; New York et al., @2555) stated that the EPA had no basis for selection a 20 percent
replacement cost threshold.
One commenter (SCAQMD, @2538) believed EPA's selection of the 20 percent cost
threshold is arbitrary because it bears no relationship to the amount of increase in emissions. The
commenter noted that the 20 percent threshold allows companies to make a complete run around
NSR by completely rebuilding their facility in a period of 5 years. The commenters allege that
the EPA's new interpretation allows sources to avoid NSR at the time when Congress intended it
should apply.
One commenter (State of Delaware, @2575) pointed out that the EPA stated that the
NSPS rule defines reconstruction as activity costing up to 50 percent of a facility's replacement
value, and that a figure less than half of that 50 percent figure is an appropriate ceiling above
which to require case-by-case review to determine if an equipment replacement is a modification
under NSR. The final rule states there are differences between the NSPS and the ERP rule, and
the difference weighs in favor of establishing the equipment replacement threshold at something
less than the reconstruction threshold. The EPA believes by using the word "modification," the
CAA intended to capture activities on a smaller scale than reconstruction. Apparently they
believe a value less than half of the reconstruction threshold is appropriate. The commenter
contended that no arguments were presented to show why 20 percent is any more appropriate
than 3, 5, 15, or even 45 percent.
The commenter (State of Delaware, @2575) went on to say that the preamble to the final
rule states that the WEPCO decision (at 29 percent) is above the proposed 20 percent threshold,
but does not serve to justify the selection of 20 percent. The commenter further stated that the
EPA also states the 20 percent threshold is supported by "robust" data from the electric utility
sector; however, no data are included in the rule preamble. Studies by Abt Associates of six
different manufacturing industries are referenced in the preamble, and the most telling statement
quoted is that "...studies also find that equipment replacement activities vary widely within these
industries. Likewise, the cost of these activities as a percent of the process unit replacement
value varies widely." Yet despite these contradictory results, the EPA has concluded that a 20
percent threshold is appropriate. Therefore, the commenter believed selecting a 20 percent cost
limit is arbitrary and capricious.
One commenter (Calpine Corporation, @2588) pointed out that the EPA asserted that 20
percent is the "appropriate" level for setting the ERP exemption. While the EPA lists the various
financial thresholds it considered in determining its ERP threshold, it appears that the essential
reason for selecting the 20 percent level as "appropriate" is that 50 percent, which the EPA
regulations define as "reconstruction" is substantially greater.
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The commenter (Calpine Corporation, @2588) stated that the EPA also offers that the
reasonableness of its 20 percent rule is shown by the fact that 20 percent is "approximately the
cost of retrofitting existing [coal-fired] plants with state-of-the-art controls." According to the
commenter, this argument is a complete non-sequitur. The effect of the 20 percent equipment
replacement exemption is to allow large investments in refurbishing run down units without
triggering the NSR obligation to invest in modem pollution control technologies. The cost of
pollution controls, were they to be required, has nothing whatever to do with how large a cost
loophole, if any, should be available for refurbishing projects. The commenter contends that, the
fact that the EPA's choice for defining an NSR exemption happens to be approximately the same
cost as the agency's current estimate of pollution control equipment for coal-fired units is simply
a coincidence.
The commenter (Calpine Corporation, @2588) argues that the EPA's rationales do not
constitute reasoned decisionmaking. What, if any, level of investment should be allowed without
undergoing NSR is a question of law and policy that has nothing whatever to do with the
agency's definition of "reconstruction" nor with the cost of installing pollution controls on old
coal-fired power plants. Reasoned decisionmaking requires careful consideration of whether the
20 percent rule will achieve the objectives of NSR and of national energy policy.
One commenter (New York et al., @2555) pointed out that the EPA referred to a
submission of the Utility Air Regulatory Group (UARG) that identified the type of activities that
would be exempted from NSR review under a 20 percent threshold. Concluding that "these
types of replacement activities are important to maintaining, facilitating, restoring or improving
the safety, reliability, availability, or efficiency of process units," the EPA concluded that the
type of activities described by UARG should be excluded from NSR. The commenter claims
that a fundamental error in the EPA's reasoning is its conclusion that activities that increase
availability should be excluded from NSR. To the contrary, availability improvements result in
increased emissions. Indeed, the EPA's expert witnesses in its NSR enforcement cases have
determined that the increased emissions resulting from availability improvements outweigh any
reductions attributable to efficiency improvements, hi addition, in its analysis of the UARG
submission, the EPA erred in concluding that "larger groupings of these activities - groupings
that are not usually seen in the industry - would not qualify for the ERP." Under the terms of the
ERP, the 20 percent threshold is applied to each "component," or part thereof, that is replaced.
Accordingly, groupings of multiple "components," even if "not usually seen in the industry," will
not trigger NSR unless any component replacement, by itself, exceeded the 20 percent threshold.
The commenter (New York et al., @2555) stated that the EPA attempted to justify the 20
percent threshold by stating that 20 percent of replacement value is the approximate cost of
retrofitting boilers with emission controls. As the EPA reasons, a source will not be willing to
spend more money on emission controls than on the replacement activity. Thus, according to
EPA, a 20 percent threshold will not deter replacement activities. The commenter contends that
the flaw in the EPA's logic is that a source will undertake a replacement project if the value of
the project exceeds the cost of the project, including any required emission controls. Thus, in
determining whether a project will be undertaken, the cost of emission controls is not weighed
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against the cost of the project. Instead, the cost of emission controls is included in the cost of the
project which is weighed against the benefit of the project.
The commenter (New York et al., @2555) believes that the EPA's decision to set a 20
percent threshold was not supported by the Time Warner Entertainment Co. LP v. FCC. 240 F.3d
1126 (B.C. Cir. 2001), which simply recognizes that an agency is entitled to act by rulemaking,
setting "bright lines," rather than case-by-case adjudication. However, nothing in that decision
allows the EPA to set a "bright line" that is arbitrary and without record support. Indeed, the
Court in Time Warner overruled two numerical thresholds set by the Federal Communications
Commission because they lacked any factual basis.
Response:
We disagree with these commenters and continue to believe that there is substantial
statutory, regulatory history, and record support for our decisions. First, we have a robust and
detailed set of information available on maintenance, repair, and replacement activities for the
electric utility sector. We used that information to establish the ERP.
Information on other industrial sectors beyond electric utilities further supports our 20
percent criterion. As detailed in previous comment responses, the six industry case studies
provide support for our view that the 20 percent cost threshold is applicable to industries outside
the electric utility industry, and that this threshold is consistent with the holding in WEPCO.
A final factor that we believe supports our selection of a 20 percent threshold is the cost
of installing state-of-the-art controls on existing units. There is obviously no single answer to the
question of at what point that cost becomes the deciding factor in an owner's decision whether to
replace a piece of equipment and incur that cost, since much will depend on the rate of return on
the investment. Nevertheless, we think it is reasonable to assume that if the cost of the controls
is greater than the cost of the replaced equipment, it is likely to operate as a substantial deterrent
to replacing the equipment at issue. That is likely to be the case with respect to electric utilities if
we set the threshold below 20 percent, which represents the approximate cost of retrofitting
existing plants with state-of-the-art controls. The equation is similar for industrial boilers.
Notably, those sectors represent a substantial fraction of the emissions potentially subject to the
NSR program. While the relative costs of air pollution controls in other industries vary more
widely than the costs for utility and industrial boilers, we nevertheless believe that the costs and
technical issues associated with retrofitting air pollution controls factor significantly into
equipment replacement decisions.
The EPA continues to believe that our basis for selection of the 20 percent replacement
cost of the process unit is not arbitrary and capricious, and that there is support in both the
rulemaking record and preamble for the 20 percent replacement cost threshold. Considering all
of this information, together with the additional supporting data provided by commenters in
response to the reconsideration issues, we believe our decision to establish the cost threshold at
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20 percent is supported and persuades us that we have established the correct cost threshold for
the ERP.
4.2.10 WEPCO Case Does Not Support Using a 20 Percent Cost
Replacement Threshold
Comment:
Two commenters (Calpine Corporation, @2588; New York et al., @2555) argued that the
WEPCO case does not support using a 20 percent cost replacement threshold.
One commenter (Calpine Corporation, @2588) stated that the EPA calculates that
WEPCO's investment in the units in question at its Port Washington generating station was 29
percent of replacement (or 22 percent using a different method of calculation). The commenter
qualified that in WEPCO. the Court held that the life extension projects would not qualify as
"routine maintenance." Indeed, the Court held that "to adopt WEPCO's definition of "physical
change" would "open vistas of indefinite immunity from the provisions of NSPS and PSD." The
commenter argued that it is not accurate to say that WEPCO is consistent with an NSR trigger of
29 (or 22) percent. WEPCO is equally consistent with a trigger of 1 percent. This is because
WEPCO addresses only one circumstance, a major life extension project, that the Court holds
does not qualify for a "routine maintenance" exemption to NSR. It-does not address the question
of what replacement cost would qualify for treatment as "routine maintenance." The commenter
also argued that it is incorrect to treat WEPCQ as endorsing any particular cost figure as a
measure of what is "routine maintenance" because the Court was reviewing a different EPA
interpretation of "routine maintenance." The WEPCO case held that the replacement program at
the WEPCO Port Washington plant, including replacement of steam drums or air heaters, was
not routine maintenance exempt from NSR. The Court's opinion endorsed the traditional EPA
approach to interpreting "routine maintenance" which involved a "case-by-case determination by
weighing the nature, extent, purpose, frequency and cost of the work, as well as other relevant
factors, to arrive at a common-sense finding."
One commenter (New York et al., @2555) stated that there was nothing in the WEPCO
decision that implies an intention that physical changes must be of at least the same magnitude as
those undertaken by WEPCO to trigger NSR requirements. The commenter argued that although
the total cost of the activities at issue in WEPCO may have exceeded 20 percent of each unit's
replacement cost, the Court upheld EPA's determination that each of the activities triggered
NSR, including the air heater replacements that cost a fraction of the total cost. If the ERP had
been applicable, at a minimum those reheater replacements would have been exempt from NSR
review. In addition, the EPA compared the total cost of all renovation activities at all process
units to the replacement costs of all units to find that the WEPCO replacements totaled 22-29
percent of replacement value. The EPA's analysis would have merit only if it disaggregated its
analysis to individual components and individual units, as called for by the ERP. Indeed, it is to
be expected that many of the individual projects at issue in WEPCQ. taken alone, would have
cost less than 20 percent of the replacement value of the particular unit.
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Response:
We disagree with the commenters that the WEPCO case does not support our selection of
a 20 percent replacement value threshold. As we set out in the final ERP rule preamble (68 FR
61256), and as discussed in more detail in previous comment responses, the 20 percent threshold
is beneath the scope of the activities at issue (as not constituting RMRR) in the WEPCO case and
not inconsistent with the decision made by the Court in that case. Furthermore, we continue to
believe that, under the ERP, the equipment replacements at issue in that case would not
automatically qualify as being excluded from major NSR.
4.2.11 Miscellaneous Objections To the Use of a 20 Percent Replacement
Cost Threshold
Comment:
One commenter (New Jersey, @2671) believed that if the EPA's replacement value is
used along with the 20 percent cost threshold, a 1,000 MW plant would be allowed to
incrementally replace components of up to $240 million each without being subject to NSR
review (assuming a basis of $l,200/kW). Thus, with 5 projects, a facility can replace an entire
40-year old 1,000 MW power plant without having to install any air pollution controls or
undergo air quality impact reviews, regardless of the emission consequences of the replacement.
Response:
An important factor of the ERP is that related activities must be aggregated in the same
way as they would have to be aggregated for other NSR applicability purposes. Under our
current policy of aggregation, two or more replacement activities that occur at different times are
not automatically considered separate activities solely because they happen at different times. In
the case of replacing an entire facility, it is not feasible that an owner or operator could
successfully argue that multiple projects occurring one after the other are not related to one
another and should not be aggregated for applicability purposes. These other rule criteria play an
important part in determining what replacements can qualify for the ERP.
Comment:
One commenter (New Jersey, @2671) stated that despite settlements in other NSR
violation cases, other companies have been unwilling to settle, or have not followed through on
agreements in principle, since the ERP was adopted. The commenter believed that these actions
occurred because the type of projects that led to the Consent Decrees fall into the types of
activities that may qualify for the equipment replacement exclusion, if applied retroactively.
Hence, the commenter argued that significant emission reductions that can be achieved with
enforcement of NSR have been slowed with the ERP rule.
Response:
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As discussed in the final ERP preamble (68 FR 61263), as recognized by the U.S.
Supreme Court, an agency may not promulgate retroactive rules absent express congressional
authority. See Bowen v. Georgetown Univ. Hosp.. 488 U.S. 204, 208, 102 L. Ed. 2d 493, 109 S.
Ct. 468 (1988). The CAA contains no such expressed grant of authority, and we do not intend by
our actions today to create retroactive applicability to the ERP. The promulgated ERP applies
only to the conduct that occurs after the rule's effective date.
Comment:
One commenter (New Jersey, @2671) pointed out that the EPA stated in the preamble to
the final rule that an "additional safeguard is that an excluded replacement activity cannot cause
the process unit to exceed any emission limitation or operational limitation (that has the effect of
constraining emissions) that applies to the process unit and that is legally enforceable." In other
words, the EPA indicated that under the ERP, facilities will be allowed to make equipment
replacements as long as the resulting emissions are not larger than what the permit allows. The
commenter compared allowable emission levels of approved Title V permits for 20 industrial
facilities, power plants, and refineries in New Jersey with actual emissions for the year 2002 and
found that the emission levels allowed by the Title V permits are dramatically higher than the
actual emission levels. Thus, allowing facilities to modify equipment to emit at the level
specified in a permit, as opposed to the level at which they have actually been emitting, means
that there will be a real and potentially enormous increase in actual emissions. By allowing
modifications to increase actual emissions to allowable levels, the commenter argued that the
ERP could result in significant emission increases and could have significant adverse air quality
impacts.
Response:
As discussed more thoroughly in the TSD for the final rule and elsewhere in this TSD, we
have analyzed the likelihood of an overall "enormous increase in actual emissions" and found it
unlikely, in part due to other CAA programs that require overall reductions in emissions. The
commenter's assumption that all sources will emit up to current permit levels is impracticable
given the nature of the affected facilities and ignores these programs. Also implicit is the
assumption there is sufficient demand to make it economical for all sources to simultaneously
maximize operation levels. Neither assumption is sound. To the extent that maintaining a unit's
actual emissions at levels far below its permit is necessary for the State's attainment strategy,
nothing in the ERP prevents the State from doing so pursuant to its SIP.
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4.3 Support for the simplified procedure for incorporating a FIP into
State plans to accommodate changes to the NSR rules
Comment:
Four commenters (Dominion, @2562; Edison Electric Institute, @2567; Cinergy Corp.,
@2672; CAA Services Steering Committee, @2522) supported EPA's streamlined updates of
State plans through a simple cross-referencing of the relevant Federal provisions required for
States with unapproved PSD programs. This new, straightforward format allows for automatic
updates of affected state plans whenever new sections are added to the PSD FIP. The automatic
update will eliminate paperwork delays and typographical errors associated with future updates
to Federal PSD requirements. One commenter (CAA Services Steering Committee, @2522)
believed that it will reduce the potential for confusion when the PSD rules are updated.
Response:
We cross-referenced the relevant Federal provisions required for States with unapproved
PSD programs to ensure that the relevant Federal provisions were included in updated PSD FIPs
in a consistent and efficient manner.
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