fitit ProtBCt
/ecemoer
Air
Equipment Leaks
ofVOCin EIS
Petroleum Refining
Industry —
Background
Information for
Promulgated
Standards
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EPA-450/3-81-01
Equipment Leaks of VOC in
Petroleum Refining Industry -
Background Information
for Promulgated Standards
Emission Standards and engineering Division
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Air, Noise, and Radiation
Office of Air Quaiitv Planning and Standards
Hesearcn Triangle Park, Nortn Carolina 27711
December 7, 1983
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4.0 MODIFIED SOURCES
4.1 EMISSION INCREASE
Comment:
A number of commenters (IV-0-14, IV-0-15, IV-0-16, and IV-D-21)
requested that the EPA allow an increase of a de mini mis level of
emissions before an existing facility would be considered to have
modified. De minimis values of 5 tons per year and 40 tons per year
(as in 40 CFR 51.18(j)) were suggested by the commenters.
Response:
Under the definition in Section lll(a)(4), any physical or
operational change resulting in an increase in emissions constitutes a
"modification." EPA has exempted certain small emissions increases
from consideration in deciding whether there has been an increase in
emissions constituting a "modification" for purposes of PSD applicability
(40 CFR 52.21(b)(2) and (b)(231)). This action followed the decision
in Alabama Power Co. v. Costle, 636 F.2d 323 (D.C. Cir. 1979), in which
the D.C. Circuit held that EPA has authority to interpret the definition
of "modification" so as to exempt sources with small emissions increases
from PSD review on grounds of administrative necessity (Id. at 400).
The Alabama Power decision does not require EPA to provide a d_e_
minimis exemption from application of the "modification" definition for
NSPS applicability purposes. Nor has EPA's experience in implementing
the NSPS program suggested an administrative need for relieving existing
sources from NSPS applicability when they undergo changes resulting in
only a small increase in emissions. This differs somewhat from EPA's
implementation of the definition of "modification" for PSD applicability
purposes. In that area, the Agency has determined that the administrative
burden of applying the full preconstruction review process to a source
with only a small emissions increase may be unreasonable (45 FR 52705;
August 7, 1980). The administrative burden associated with the NSPS
program, however, is relatively minimal. In contrast to PSD requirements,
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NSPS's are categorically applicable technology-based requirements only
fc.»
they do not involve an assessment of ambient effects ana do not require;;
case-by-case review.
Furthermore, EPA believes that the current straightforward
application of the "modification" definition for NSPS purposes oest
serves Section Ill's intent. One key purpose of tne NSPS program is to
prevent new pollution problems from arising. One way that the statute
seeks to achieve this is by requiring application of tne best demonstrated
technology at, and thereby minimizing emissions from, existing facilities
with increased emissions. The current NSPS approach of not providing
an exemption from the "modification" provision based on the size of
the emissions sources is not intended to cover existing plants maKing
routine and minor additions. The "modification" provisions in the
General Provisions of 40 CFR Part 60 exempt changes sucn as additions
made to increase production rate (if they can be accomplished without
capital expenditure, as defined in the General Provisions) and routine
replacements (40 CFR 60.14(e)). In addition, these standards would
exempt additions made for process improvements if they are made without
incurring a capital expenditure.
Comment:
Other commenters (IV-0-8 and IV-0-14), concerned about the complexity
of the modification provisions, endorsed revising the modification
provisions such that a modification occurs when the number of components
exceeds 10 percent of the total number of the same type and there is a
net increase in emissions from the process unit.
Response:
As discussed in Section 4.2, EPA is promulgating an alternative
procedure that will reduce the complexity of the modification provisions
(in particular, how to determine a capital expenditure). In EPA's view
40 CFR 50.14 of the General Provisions adequately specifies the categories
of changes to an existing facility that should bring the facility under
NSPS as a "modified" source. It should be noted that, under Section
60.14(e), certain changes made in an affected facility without a capital
expenditure are not considered "changes in operation" by EPA and,
therefore, are not modifications. See, e.g., 40 CFR 50.14(e)(2} —
production rate increases.
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As proposed in the standards, certain changes (process improvements)
made in an affected facility without a capital expenditure are not
considered "changes in operation" by EPA and, therefore, are not modi-
fications. This generally excludes coverage from industry practices
that involve adding a few valves and maybe a sampling system and making
other minor changes in equipment configurations. The 10 percent increase
in the number of fugitive emission components as suggested by the
commenter, would most likely be associated with a VOC emissions increase
of about 10 percent. Making such a change would likely be associated
with capital expenditure and, therefore, EPA considers this a modification
Therefore, EPA did not revise the modification provision as requested.
Comment:
Another commenter (IV-0-8) maintained that once a "modification"
has occurred, the NSPS requirements should be applied only to those
types of components which trigger the definition of modification.
Response:
Under Section 111 of the Clean Air Act, the application of
modification is inextricably tied to the designation of "new source,"
or in NSPS terminology, an affected facility. Section lll(a)(2) defines
the "new source" subject to NSPS as a source on which modification has
commenced after proposal, not the portion of the source actually changed.
Stated differently, modification provisions are triggered with respect
10 the affected facility; therefore, applicability is to all components
affected by the standards within the affected facility. The commenter
is implicitly requesting EPA to define the affected facility as a group
of one type of equipment within a process unit. EPA, as discussed in
Section 3.1, reasonably concluded that affected facilities to which the
standards apply should remain: (1) the group of all fugitive emission
sources (pumps, valves, sampling connections, pressure relief devices,
and open ended lines) within a process unit and (2) compressors.
4.2 CAPITAL EXPENDITURES
Comment:
Commenters requested that the capital expenditure determination
(as it relates to the modification provisions) be revised so that it is
more practicable. Commenters (IV-0-8 and IV-0-15) remarked that .the
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capital expenditure guidelines are outdated and would be difficult to
use because units have been substantially rebuilt over the years and
records of costs for determining the cost basis may be kept on a process
unit basis rather than for individual pieces of equipment, or simply
may not exist. It is, therefore, very difficult to reconstruct original
costs.
In support of their concern about using original costs, the commente
stated that, based on EPA's current interpretation of capital expenditure
1 to 3 percent of the current replacement costs would subject units to
modification. Another commenter (IY-0-14) claimed that component.costs
represent 5 percent of the total original costs and that the addition
of a new pump with several valves could easily exceed the "capital
expenditure" definition. This commenter provided the hypothetical
example of a unit with a total original cost of $16 million and component
cost of $815,000. The addition of a pump with several valves would
exceed 4 percent of the total component costs, around $56,000.
One commenter (IY-0-10) suggested that replacement costs rather
than original costs be used to determine the basis for capital expenditure
A few commenters (IY-0-4, IV-0-15, and IY-0-16) suggested that capital
expenditure be defined as 7 percent of the replacement cost (based on
the Chemical Engineering Construction Index or other suitable index) of
an affected facility at the time of process improvement.
Response:
After reviewing the comment letters concerning the difficulties
with using the capital expenditure definition, EPA agrees that the
definition for capital expenditure may be difficult to use for some
refineries. Accordingly, EPA decided to provide an alternative to
the procedures in the General Provisions. Although the implementation
of the capital expenditure definition has been made more practicable,
the original intent of the definition has been maintained.
The alternative uses an adjusted annual asset guideline repair
allowance (AAGRA) and the replacement costs to determine capital
expenditure. The adjusted AAGRA is determined by a formula and is
based on a ratio that reflects inflation of costs over the last several
years. The adjusted AAGRA is multiplied by the replacement costs of
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the equipment within the facility to determine the value of a capital
expenditure.
The burden associated with using the capital expenditure definition
in the proposed standards was not quantified by the commenters; however,
if some of these problems can be resolved without changing the application
of the modification provisions, EPA finds no reason not to do so.
Accordingly, EPA is providing an alternative method to the General
Provisions.
As mentioned above, the alternative method for determining capital
expenditure enables refiners to use-replacement costs rather than
original costs. An inflation index can be applied to the replacement
value of an affected facility to approximate the original cost basis of
the affected facility. The relationship between replacement and original
costs has been determined (Document Nos. IY-6-4xand IV-B-14) as:
Y = 1.0 - 0.575 log (X), where:
Y = the percent of the present replacement cost which is
equivalent to the original cost, and
X = the year of construction.
Using the above equations and the annual asset guideline repair allowance
(AAGRA) of 7 percent (see IRS Publication 534, page 20), capital expenditure
can be expressed in replacement dollars as:
Capital Expenditure = A x Y x 0.07, where:
A = existing facility replacement cost.
Another alternative method that was considered is similar to that
of the first in that an inflation index, Y (as defined above), and the
AAGRA basis of 7 percent are used to allow refiners to use replacement
costs. However, this second alternative would also allow refiners to
use the cost of the entire process unit rather than the affected facility
(the fugitive emission components). The second alternative would
reduce the number of units that would use a detailed costing of equipment.
However, the equipment covered by the standards represent a variable
portion of the total costs of all the equipment in a process unit.
' r , • •
Therefore, it is notjwsactTcaoTe to assign a single percentage that
would reflect the modification costs contributed by fugitive emission
pieces. Thus, EPA is not adopting this alternative.
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Even though EPA was unable to establish an alternative that would
allow refiners to use the cost of the entire process unit, EPA would
consider estimations from refiners that clearly show that an expenditure
would be less than the quantity associated with a capital expenditure.
There may be a variety of ways that these estimations can be made. For
example, a refiner may have proof that in certain units 5 percent of
the total replacement value at the process unit is the value of the
equipment covered by the standards. If an estimation clearly demonstrate
its results, EPA could quickly decide whether a process improvement
involves a capital expenditure.-- Based on the example, if the value of
the process improvement may be 0.04 percent of the replacement value of
the process unit, this would be clearly less than 12.5 percent of
5 percent of the value of the total unit. If an estimation does not
clearly show its results, then the time and effort required by EPA in
evaluating the estimation would not provide'the owner or operator a
quick response and, therefore, a more-detailed costing of equipment
(either by estimating replacement or accounting existing equipment)
would be the owner or operators best approach. If EPA can judge easily-
through review of a clear demonstration that a process improvement does
not involve a capital expenditure, it will do so. In contrast, if
EPA's review raises concerns or questions, EPA will reject the estimation
unless further convincing support is presented.
Comment:
One commenter (IY-0-8) wrote that the General Provisions exempt
"process improvements" from being considered modifications if made
without incurring a capital expenditure; however, using the proposed
definition of "capital expenditure" limits the exemption. Another
commenter (IY-0-21) recommended deleting the modification provisions
which require that process improvements be accomplished without a
capital expenditure.
Response:
The General Provisions do not include a "process improvement"
exemption. However, in the proposed standards EPA stated its intent
that minor modifications would not be covered by the standards: "addition
or replacement of fugitive emission sources for the purpose of process
improvement which is accomplished without a capital expenditure shall
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not by itself be considered a modification under this subpart." The
capital expenditure criterion was included so that minor process
improvements in a process unit that cause an increase in emissions
would not subject an existing facility to this NSPS. After reviewing
these comments, EPA has maintained the same exemption. EPA considers
any increase in emissions that results from a process improvement with
a capital expenditure a "modification" unless one of the other exceptions
in the General Provisions applies.
It should be noted that any potential emission increase that results
from changes in operation that require the addition of a few fugitive
emission sources could be offset or nullified by controlling existing
equipment or installing components with no fugitive emissions. Accordingly,
there would be no modification in such a case even if the emissions
occurred with a capital expenditure. The standards do not require that
process improvements be made without a capital expenditure. They
merely provide an exemption when the process improvements are made with
such an expenditure.
Comment:
One commenter (IY-D-30) argued that the "no capital expenditure"
exemption for modifications could be construed by a plant as including,
for example, the addition of fugitive components from existing inventory
of spare parts. The commenter requested that EPA make it clear that
the addition of equipment already in stock is still considered in
determining a capital expenditure.
Response:
As discussed in the response to the previous comment, the capital
expenditure criterion applies to process improvement or production rate
increase exemptions that are considered when determining whether an
increase in emissions at a facility results in a modification. This
criterion is used to judge if the activity results in a change in
operation. As such, a capital expenditure is determined by what is
added to a process unit, not by what is purchased. Accordingly, it
makes no difference whether the item was already in stock when the
process improvement occurred.
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4.3 SMALL FACILITIES
Comment:
Commenters (IV-0-9 and IV-0-23) stated that small refiners more
easily trigger the modification and reconstruction provisions of the
standards than do large refiners. A small capital expenditure on a
small unit would cause the unit to be classified as "inodified" more
easily than the same expenditure would cause a large unit to be so
defined. Some commenters (IY-0-8 and IY-0-15) also remarked that the
definition of "capital expenditure" would impact small facilities more
severely.
Response:
The provisions of the standards can be triggered by several differsr
actions. Some of these actions are relative changes that are considered
important because they involve a certain percent of the cost of the
unit. Other triggering actions are absolute changes that are considered
important because they involve an absolute increase in air pollutant
emissions from the existing unit. Even if the reconstruction and
modification provisions are more burdensome on small refineries, the
overall impact of the standards is still reasonable, however. If the
commenter's claim is true, then there must be a difference between
units at small refineries on the one hand, and those at large refineries
on the other. The difference could be related to size, age, ability to
respond to today's changing markets, or myriad of other factors. The
question of unit size, measured by throughput or equipment count, is
discussed in a previous response; the relationship between unit size
and firm size is not clear. In general, small changes can trigger the
provisions for units with comparatively few pumps and valves. However,
it is not clear that the capital expenditure criterion would be exceeded
quicker by a small process unit than by a large process unit. It is
not necessarily true that the cost of a given set of equipment would be
the same for a small and large process unit. Large process units can
use large equipment or small equipment (the costs of which would be
related, in a very general sense, to the size of.equipment) and small
process units can use large or small equipment. The value of any one
pump in a process unit may be relatively small or large depending on
the specifications in a particular application, not solely on the size
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of the pump. The commenters did not mention specific small refinery
characteristics that would explain why small refiners might suffer a
greater burden than large refiners. Age and obsolescence of equipment,
the most obvious characteristics, do not appear to be significant
factors. There are no data to indicate that units in need of modernization
are situated predominantly at small refineries. Even if there are
differences and small refineries are disproportionately affected, EPA
does not consider this unreasonable because EPA believes that the
standards are appropriate for all existing facilities that become
affected by the standards.
For these reasons EPA concludes that the modification and reconstruction
provisions of the standards will not subject small refiners to unreasonable
adverse impacts.
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