> \-\-\-\-- Forwarded by Timothy Young/DC/USEPA/US on 05/04/2003 02:48
> PM \-\-\-\--

+-----+------------------+--------------------------------------------+
|     | > **Jeffrey      | To: Group A-AND-R-DOCKET@EPA               |
|     | > Marks          |                                            |
|     | > \<JM           | cc:                                        |
|     | arks@nam.org\>** |                                            |
|     | >                | Subject: Docket Number A-2002-04           |
|     | > 05/02/2003     |                                            |
|     | > 03:48 PM       |                                            |
+-----+------------------+--------------------------------------------+

> EPA Docket Center (Air Docket)
>
> United States Environmental Protection Agency
>
> (MC-6102T), Room B-108
>
> 1301 Constitution Avenue, NW
>
> Washington, DC 20004
>
> RE: Docket Number A-2002-04
>
> The National Association of Manufacturers (NAM) is pleased to submit
> comments on the Prevention of Significant Deterioration (PSD) and
> Non-attainment New Source Review (NSR): Routine Maintenance, Repair
> and Replacement Proposed Rule, as published in the December 31, 2002,
> *Federal Register*.
>
> The NAM is the nation's largest industrial trade association. The NAM
> represents 14,000 members (including 10,000 small and mid-sized
> companies) and 350 member associations serving manufacturers and
> employees in every industrial sector and all 50 states. Headquartered
> in Washington, D.C., the NAM has 10 additional offices across the
> country.
>
> Because the NAM's broad-based membership includes all industry groups
> affected by this proposed action (electric services; petroleum
> refining; chemical processes; natural gas transport; pulp and paper
> mills; automobile manufacturing; and, pharmaceuticals), our comments
> will address those general issues that concern a large cross-section
> of our member companies. The NAM's member companies conduct routine
> maintenance, repair and replacement activities daily to ensure the
> continued productive and efficient operation of their facilities and
> are directly affected by this rulemaking.
>
> If you have any questions, please contact me at (202) 637-3176 or
> [jmarks@nam.org]{.underline}. Thank you.
>
> Sincerely,
>
> Jeffrey Marks
>
> Comments
>
> On Prevention of Significant Deterioration (PSD) and Non-Attainment
>
> New Source Review (NSR): Routine Maintenance, Repair and
>
> Replacement: Proposed Rule
>
> (Docket Number A-2002-4)
>
> By the National Association of Manufacturers
>
> Submitted to the Environmental Protection Agency on
>
> May 2, 2003
>
> **Executive Summary**
>
> The National Association of Manufacturers (NAM) welcomes the
> Environmental Protection Agency's (EPA) full public review and comment
> rulemaking on the New Source Review (NSR) program's routine
> maintenance, repair and replacement exclusion. The proposed rule will
> begin to remove the obstacles to environmentally beneficial projects,
> clarify NSR requirements, encourage emission reductions, promote
> pollution prevention, provide incentives for energy efficiency
> improvements and help ensure continued plant productivity and
> reliability.
>
> The complexity of the current NSR program and its related burdens
> create significant disincentives to new investment in energy efficient
> and environmentally-friendly technologies and processes. The proposed
> rule will help facilities make operational adjustments and needed
> maintenance and repairs to meet energy and product needs in the most
> efficient, cost-effective and environmentally-sound manner possible.
> To help meet these goals, the NAM makes the following recommendations
> regarding the options presented in the proposed rule.
>
> **Annual Maintenance, Repair and Replacement Allowance**
>
> • The EPA should promulgate an Annual Maintenance, Repair and
> Replacement Allowance (AMRRA) for the routine maintenance, repair and
> replacement (RMRR) exclusion.
>
> • The EPA should provide for the AMRRA to be applied on a multi-year
> or annual basis.
>
> • The AMRRA should be applied on a facility-wide or a process-unit
> basis.
>
> • The EPA should provide for the AMRRA to be set on an
> industry-by-industry basis and be based on any viable methodology at
> the option of the source (*e.g.*, replacement cost, invested cost or
> invested cost adjusted for inflation).
>
> • Both of the EPA's two options for the timing of the decision
> regarding qualification of activities under the AMRRA are acceptable.
>
> • The EPA should give facilities the option of whether pollution
> control and dual purpose equipment should be considered part of a
> process unit for purposes of the RMRR exclusion.
>
> • The EPA should exclude activities undertaken to address
> unanticipated forced outages or catastrophic events from the AMRRA.
>
> **Equipment Replacement Provision**
>
> • The EPA should promulgate an Equipment Replacement Approach to the
> RMRR exclusion.
>
> • The EPA should provide in the final rule that the criterion for
> determining whether an activity qualifies under the equipment
> replacement provision is whether the replacement component is
> identical or functionally equivalent to the replaced component.
>
> • The EPA should adopt the New Source Performance Standard (NSPS) 50
> percent capital replacement threshold as the test for whether
> component replacements will fall within the scope of the equipment
> replacement provision.
>
> • The EPA's definition of "process unit" is generally acceptable as to
> what collection of equipment should be considered in applying the
> equipment replacement approach.
>
> • Sources should have the option to identify whether pollution control
> projects and non-emitting components should be excluded from
> consideration under the equipment replacement provision.
>
> **General Recommendations**
>
> • The NAM supports the basic scope and framework of the ARRMA and the
> equipment replacement provisions and recommends that both options be
> promulgated by the EPA.
>
> • The NAM urges the EPA to finalize both the ARRMA and the equipment
> replacement proposals expeditiously to provide much-needed certainty
> to industry, as well as to promote energy efficiency, increased
> productivity and improved environmental quality.
>
> • The NAM highly recommends that the EPA pursue an efficiency
> exclusion to the NSR program.
>
> • The EPA should adopt regulations providing RMRR status to all
> projects properly claimed as expenses on the income tax return of the
> company that owns the source in question.
>
> • The EPA should maintain the case-by-case approach for those projects
> that do not fit with the AMRRA or equipment replacement provision.
>
> • The EPA should improve the case-by-case approach.
>
> • The EPA should not develop lists of excluded projects under a RMRR
> exclusion.
>
> The NSR program affects 22,000 facilities around the country that form
> the background of the nation's economy. In the current economic
> climate, we need sensible reforms that streamline regulatory programs
> while providing fundamental environmental protection. The proposed
> rule will allow facilities to improve their energy efficiency,
> environmental performance and economic competitiveness.
>
> The key to improving air quality and energy security are innovation
> and investment. The proposed rule will help promote safer, cleaner and
> more efficient factories, refineries and power plants.
>
> **COMMENTS OF THE**
>
> **NATIONAL ASSOCIATION OF MANUFACTURERS**
>
> **to the**
>
> **ENVIRONMENTAL PROTECTION AGENCY**
>
> **regarding**
>
> **DOCKET NUMBER A-2002-4**
>
> **on**
>
> **PREVENTION OF SIGNIFICANT DETERIORATION (PSD) AND NON-ATTAINMENT NEW
> SOURCE REVIEW (NSR): ROUTINE MAINTENANCE, REPAIR AND REPLACEMENT:
> PROPOSED RULE**
>
> **I. Introduction**
>
> The National Association of Manufacturers (NAM) submits these comments
> in response to the Environmental Protection Agency (EPA) proposed rule
> on Prevention of Significant Deterioration (PSD) and Non-Attainment
> New Source Review (NSR): Routine Maintenance, Repair and Replacement
> \[*hereinafter*, Proposed Rule\] as published in the December 31,
> 2002, *Federal Register*. The NAM is the nation's largest industrial
> trade association. The NAM represents 14,000 members (including 10,000
> small and medium companies) and 350 member associations serving
> manufacturers and employees in every industrial sector and all 50
> states.
>
> The NAM's mission is to enhance the competitiveness of manufacturers
> and improve American living standards by shaping a legislative and
> regulatory environment conducive to U.S. economic growth. Due to our
> dedication to that mission, the NAM commends the EPA for proposing a
> rule intended to provide greater regulatory certainty without
> sacrificing environmental quality and improvement. Because the NAM's
> broad-based membership includes all industry groups affected by this
> proposed action (electric services; petroleum refining; chemical
> processes; natural gas transport; pulp and paper mills; automobile
> manufacturing; and pharmaceuticals), our comments will address those
> general issues that concern a large cross-section of our member
> companies.
>
> The NAM generally supports the EPA's Proposed Rule and suggests a few
> minor changes in its comments. The Annual Maintenance, Repair and
> Replacement Allowance (AMRRA) concept comes from the New Source
> Performance Standards (NSPS) program under the Clean Air Act (CAA) and
> recognizes that industries routinely spend a certain amount of money
> periodically to maintain and replace equipment. Therefore, it neatly
> fits under the rubric of routine maintenance, repair and replacement
> (RMRR) and alleviates the need for case-by-case determinations under
> the RMRR exemption. The Equipment Replacement Provision goes to the
> heart of the RMRR exemption, as it embodies the reality of the
> manufacturing process: facilities must perform routine maintenance,
> repair and replacement activities to improve productivity; maintain
> equipment functionality; and increase efficiency of operations. Both
> options have a firm root in law and policy. Therefore, the NAM agrees
> with other commenters, including the American Chemistry Council;
> Alliance of Automobile Manufacturers; and the Clean Air Implementation
> Project, that the EPA has the legal authority for the proposed
> revisions to the RMRR exclusion under the NSR program.
>
> **II. Background**
>
> The problem with the current NSR program essentially lies with the
> EPA's treatment of existing facilities. In adopting the 1977
> amendments to the Clean Air Act (CAA) that authorized the NSR program,
> Congress sought to impose pollution controls on new sources of
> pollution, while allowing existing facilities to continue normal
> operations as long as they were in accord with other CAA regulations.
> Congress understood that imposing the potential time delays and
> capital costs of the NSR program made more sense for the construction
> of new sites and major expansions of existing plants because those
> types of projects involved time frames and capital investments that
> could absorb the delays and emissions controls cost-effectively.
> Likewise, Congress recognized that imposing delays and retrofitting
> new control technologies for every change at existing facilities could
> be prohibitively costly and technically unachievable.
>
> In creating the NSR program, Congress intended for existing facilities
> to install the best pollution control equipment if those facilities
> added new equipment or made major changes that significantly increased
> emissions. Congress did not intend NSR to impose new controls on older
> facilities by virtue of their need for routine maintenance. However,
> Congress did anticipate that existing facilities may undertake
> extensive changes that result in new pollution not accounted for in
> the permit limits that already apply to new sources. To establish a
> "major modification," the rule requires a "physical change or change
> in the method of operation that results in a significant increase in
> actual emissions."
>
> Recognizing that Congress obviously did not intend to make every
> activity subject to NSR, the EPA promulgated rules that excluded
> changes related to normal facility operations from the "major
> modification" rule, including exclusions for "routine maintenance,
> repair and replacement (RMRR)" and for increases in hours of operation
> or production rate up to design capacity. However, the EPA has more
> recently implemented the program so that it appears that nearly every
> change that occurs at existing sites could be a modification that
> triggers NSR. Much of this is due to the Agency's interpretation of
> "physical change or change in the method of operation" in the
> definition of "major modification" to mean just about anything. As a
> result, existing facilities are hampered in their ability to make
> changes to their plants --- even if those changes improve
> productivity, reliability, safety, efficiency and even environmental
> quality.
>
> The EPA filed enforcement proceedings in November 1999 against more
> than 40 midwestern and southeastern utilities, alleging their failure
> to obtain pre-construction NSR permits before making "non-routine"
> changes and repairs. The alleged illegal activities date as far back
> as 1982. After almost 20 years of NSR program application and 4,000
> pages of guidance and policy interpretations, the EPA appeared to be
> using the litigation process to force a policy objective on industry
> without engaging in proper notice-and-comment rulemaking. This
> approach was clearly at odds with Administrative Procedures Act (APA)
> requirements, as well as original congressional intent for the NSR
> program: to control new sources of pollution while allowing existing
> sources to continue normal operations in accordance with the health
> and welfare protections found elsewhere in the CAA.
>
> By taking an increasingly restrictive view of the NSR program, the EPA
> has transformed NSR from what is primarily an expensive, one-time
> program for new sources --- currently involving about 200 applications
> per year --- into a program in which a large, undefined portion of
> America's 22,000 existing major sources may be required to undergo NSR
> repeatedly. Currently, existing sources must undertake thousands of
> routine repair and replacement projects every year. The potential for
> triggering the NSR permit process, with its lengthy delays and
> requirements for upgrading control equipment, every time a facility
> performs necessary maintenance has produced a substantial hurdle to
> needed changes in products and processes. In many cases, this
> maintenance, repair or replacement work is needed to maximize
> efficiency or generating capacity, and often it will reduce air
> emissions as well.
>
> As noted by the EPA's "New Source Review 90-Day Review and Report to
> the President (hereinafter, Background Paper)," as published in the
> June 27, 2001, *Federal Register*, the current NSR program is
> requiring existing sources to halt many of these essential projects.
> Industrial facilities prevented from undertaking maintenance projects
> needed for normal, safe and efficient operation, including continuous
> quality improvement projects, will rapidly deteriorate in reliability
> and productivity, while increasing fuel consumption, reducing energy
> efficiency and increasing air pollution and greenhouse gas emissions.
> The current interpretation of the RMRR exemption interferes with
> industry planning activities. Industrial facilities must be able to
> plan for future repair and replacement needs. Once a need is
> identified, facilities must move quickly to secure labor and equipment
> and to coordinate scheduled outages in advance of the work. Knowledge
> that a simple routine project could require NSR will often discourage
> a facility from undertaking it. Thus, the applicability of NSR to a
> particular project is a crucial consideration when deciding whether
> and how to undertake projects. When sources have no way of knowing in
> advance how any given project will be classified, this creates
> additional costs and planning problems.
>
> Most importantly, improvements in design, materials and processes
> increase the efficiency and reliability of manufacturers, utilities
> and refineries. This, in turn, allows facilities to reduce consumption
> of fuel and other resources and to reduce their emissions of
> pollutants and greenhouse gases. Innovative projects allow industrial
> sources to operate more cleanly and cheaply, improve the environment
> and create jobs. Current interpretations of the RMRR exclusion
> threaten efficiency improvements, raise concerns for the safety of
> plant workers, maintain higher levels of air emissions and stifle less
> expensive and more environmentally friendly processes. In summary, the
> current interpretation not only removes any certainty of the
> distinctions between RMRR and non-routine changes, it all but removes
> the distinction itself.
>
> Since 1982, the EPA Office of Air and Radiation has been attempting to
> reform the NSR program. In 1990, Wisconsin Electric Power Co. v.
> Reilly (WEPCo) applied a "four-factor test" for RMRR, weighing the
> nature and extent, purpose, frequency and cost of the work in deciding
> whether a project is excluded under RMRR. In 1992, the EPA clarified
> in the so-called WEPCo rule that an RMRR assessment should be based on
> whether that type of equipment has been repaired or replaced by
> sources within the relevant industry category.
>
> In 1996, the EPA invited public comment on several options for
> improving the program. The EPA started to hold several NSR reform
> discussions with affected parties, including states, environmental
> groups and the regulated community. A 1998 Notice of Availability
> created further confusion by misstating the modification rule so as to
> dramatically re-interpret the NSR test for emissions increases, a
> problem that has been cleared up in the EPA's 2002 final NSR rule. In
> November 1999, former EPA Administrator Carol Browner authorized the
> filing of a wave of NSR enforcement actions against electric
> utilities, involving the issue of whether certain facility maintenance
> activities, modifications and changes triggered NSR by exceeding the
> scope of the RMRR exclusion. Most of these cases are ongoing in the
> current Administration. In May 2000, the EPA offered a new
> interpretation of the NSR modification rule that radically weakened
> the RMRR exclusion. EPA Region V applied a new test under which 24
> factors were to be considered to be indicative of non-routine repair
> or replacement projects.
>
> In May 2000, President Bush's National Energy Policy recommended that
> the EPA and other federal agencies review the potential impact of the
> NSR program on investment in new utility and refinery capacity, energy
> efficiency and environmental protection. That review was expanded to
> include NSR's effect on non-utilities. The EPA submitted its
> Background Paper on NSR and recommendations for reform to President
> Bush on June 13, 2002. Four of the seven major EPA reform
> recommendations were proposed by the Clinton Administration in its
> 1996 proposal while the remaining three recommendations (RMRR,
> aggregation and debottlenecking) were to be issued as proposed rules,
> subject to full notice and comment. On December 31, 2002, the EPA
> finalized its 1996 rulemaking and proposed this rule to clarify the
> scope of the RMRR exclusion under the NSR program. The NAM and its
> member companies appreciate this opportunity to comment on the
> Proposed Rule.
>
> **III. Annual Maintenance, Repair and Replacement Allowance**
>
> *A. Description*
>
> The EPA Proposed Rule is offering two categories of activities that
> will prospectively be considered RMRR so that a source will know that
> the activity is excluded from NSR without regard to other
> considerations. If an activity does not fall within one of these
> categories, it could still qualify as RMRR under the present
> case-by-case test. The two categories are (1) activities that are
> covered under an annual maintenance, repair and replacement allowance
> (AMRRA) and (2) replacements that meet equipment replacement criteria.
>
> The AMRRA proposal would allow those projects that involve relatively
> small expenditures compared with the replacement cost of the facility
> to be automatically excluded from NSR provided that total costs did
> not exceed the AMRRA. The allowance would be applied for an entire
> facility on an annual basis and the source could elect to use a
> fiscal-year period instead of a calendar year as the time period for
> the AMRRA. In recognition that maintenance cycles may extend for more
> than one year, the EPA is seeking comment on whether sources should
> have the option of a multi-year allowance, such as five years.
>
> The allowance would be based upon a specified percentage of the cost
> to replace the entire stationary source. The EPA intends to set
> percentages on an industry-specific basis, but is not proposing
> specific percentages for particular industries. The EPA is asking for
> comment on various methods for setting the percentages, including: (1)
> the threshold necessary to cover the RMRR capital and non-capital
> costs that a source incurs to maintain, facilitate, restore or improve
> the safety, reliability, availability or efficiency of the source; (2)
> use of the Internal Revenue Service (IRS) annual asset guideline
> repair allowance percentages that are used in determining the
> availability of the New Source Performance Standards (NSPS) capital
> expenditure exclusion; and, (3) use of industry-specific data for
> choosing an appropriate threshold. The replacement cost would be an
> estimate of the total capital investment necessary to replace the
> stationary source. Accounting procedures used to document eligibility
> of activities under the AMRRA will be required to conform to the
> accounting procedures used for other purposes at a facility. The EPA
> also seeks to standardize practices for estimating this investment,
> along the lines described in the EPA Air Pollution Control Cost
> Manual. The EPA is seeking comment on whether this manual or other
> reference documents would provide the best approach for standardizing
> estimations of project costs and whether different methods would be
> accepted by the EPA if used by a facility.
>
> The source would sum the costs of the relevant activities performed at
> the source during the year (from the least expensive to the most
> expensive) to get a yearly cost. Costs associated with activities
> taking more than one year to complete would be included for the year
> that the costs are incurred. If the total costs for all activities
> came within the AMRRA, these activities would all be considered RMRR.
> Where total annual costs for these activities exceed the AMRRA, the
> activities would be further reviewed by (1) subtracting activities
> from the total yearly cost, starting with the most expensive, until
> the remainder is less than or equal to the AMRRA; (2) evaluating those
> projects not covered under the AMRRA on a case-by-case basis; and (3)
> determining whether any constitute "major modifications" that require
> an NSR permit.
>
> The EPA is proposing to exclude the following from use of the annual
> allowance: (1) construction of a new "process unit," (2) replacement
> of an entire "process unit," and (3) any change that would result in
> an increase in the source's maximum achievable hourly emissions rate
> of any NSR pollutant or in the emission of any NSR pollutant not
> previously emitted by the stationary source.
>
> Sources electing to use the AMRRA will be required to submit an annual
> report to the appropriate reviewing authority within 60 days after the
> end of the year over which activity costs have been summed.
>
> Finally, the EPA is proposing to exclude costs for pollution control
> equipment from the annual cost calculation. The agency is also seeking
> comment on whether equipment that serves a dual purpose of process and
> control equipment should be included.
>
> *B. Discussion and Recommendations*
>
> The EPA should promulgate an Annual Maintenance, Repair and
> Replacement Allowance for the RMRR exclusion. This option recognizes
> that sources routinely make relatively small expenditures to keep
> their facilities running efficiently, productively and safely. The
> proposed AMRRA would allow these expenditures to be made without
> forcing facilities to engage in costly, time-consuming analysis and
> review under the NSR requirements. However, the AMRRA needs to be
> carefully structured so that it actually simplifies the NSR program
> and does not substitute a new layer of complexity. A similar exclusion
> is already provided for under the NSPS "capital expenditure" provision
> which excludes expenditures that do not exceed specified levels from
> regulation as modifications.
>
> The EPA should provide an option for the AMRRA to be applied on a
> multi-year or annual basis. In many industries and facilities,
> maintenance cycles extend over multiple years, even up to ten years
> depending on the particulars of the equipment and operations. An
> annual allowance, on the other hand, may be unworkable because of the
> varying maintenance, inspection, repair and shutdown/outage cycles.
> Also, as the EPA points out, the cost of maintenance may vary
> significantly from year to year and may be distributed over several
> years. Using a single year as the time period may reduce the
> flexibility for some sources. Of course, some facilities may choose
> the option of using an annual accounting period, as they might find
> that it results in more accurate cost information under their normal
> company procedures.
>
> The AMRRA should be applied on a facility-wide or a process-unit
> basis. As sources tend to establish maintenance budgets on a
> facility-wide basis, rather than for each unit, application of this
> exclusion to the entire facility should usually avoid the burden to
> regulated entities of tracking maintenance and repair activities on a
> unit-by-unit basis and unnecessarily restrict flexibility for larger,
> multi-process operations. Sources will have greater flexibility in
> decision-making if the allowance applies to the entire facility,
> rather than for each individual unit. However, many facilities may
> already have an established process-unit approach to their equipment
> maintenance spending allocation and switching to a facility-wide
> approach would create additional cost and burden without any
> corresponding benefit. Therefore, the facility should have the option
> of selecting a facility-wide or process-unit approach to its AMRRA.
>
> The EPA should provide for the AMRRA to be set on an
> industry-by-industry basis and be based on any viable methodology at
> the option of the source (replacement cost, invested cost or invested
> cost adjusted for inflation). The EPA is proposing that the AMRRA
> would be determined by multiplying the replacement cost of the source
> by an AMRRA percentage determined by a rule. Annual maintenance,
> repair and replacement requirements of facilities vary from
> industry-to-industry; therefore, it makes sense to have different
> allowance percentages for different industries. NAM member companies
> and trade associations will be commenting on the preferred percentages
> for their specific industries. Information relating to types of
> maintenance, repair and replacement activities and costs associated
> with those activities will be provided by individual industry sectors
> during the public comment period. Also, to maximize flexibility while
> assuring reasonable cost estimation techniques, sources should be
> allowed to estimate current value based on replacement costs, invested
> costs adjusted for inflation or some other method currently employed
> by companies. While replacement costs can be more readily estimated
> and provide a more accurate, consistent basis for calculating annual
> RMRR allowances, some companies may have the invested cost data
> available to make the calculations. Again, individual companies and
> associations will be commenting more specifically on this issue.
>
> Both of the EPA's two options for the timing of the decision regarding
> qualification of activities under the AMRRA are acceptable. Under the
> AMRRA, a source will sum the costs of maintenance, repair and
> replacement activities from least to most expensive to determine which
> activities are excluded. The proposal's options are (1) application of
> the allowance prior to construction based on planned activities and
> estimated costs or (2) an end-of-year reconciliation after the
> activity costs are known. The EPA's proposals regarding summing
> activities from least expensive to most expensive to determine
> eligibility, as well as the requirement for end-of-period reporting,
> are acceptable.
>
> The EPA should give facilities the ability to include pollution
> control and dual purpose equipment as part of a process unit for
> purposes of the RMRR exclusion. Projects and activities that have no
> related emissions would normally have no need for permit
> authorization. On the other hand, some companies may want to consider
> such equipment as part of the process unit in order to avoid potential
> confusion when routine maintenance projects and equipment replacements
> are evaluated for the AMRRA.
>
> The EPA should exclude activities undertaken to address unanticipated
> forced outages or catastrophic events from the AMRRA. Because repairs
> to remedy forced outages and/or catastrophes are unanticipated, it is
> impossible for facilities to plan for, budget and include them in
> their allowance. The purpose of the AMRRA is to account for minor
> activities that can be anticipated and to plan for those activities to
> restore and maintain a unit's productive capacity. Therefore,
> expenditures for unplanned outages and catastrophic events should not
> be including within the costs of the allowance and should not trigger
> NSR.
>
> **IV. Equipment Replacement Provision**
>
> *A. Description*
>
> In addition to the proposed AMRRA, the EPA is also soliciting comment
> on an additional approach to be used in the future for those
> replacement activities that should qualify without regard to other
> considerations as RMRR. More specifically, the EPA is proposing that a
> replacement component would constitute RMRR if it (1) is identical or
> functionally equivalent to the replaced component; (2) does not change
> the basic design parameters of the process unit; and (3) does not
> exceed a certain percentage of the cost of the process unit to which
> the equipment belongs.
>
> Under this approach, the exemption would be based upon a percentage of
> the replacement costs for the affected "process unit." "Process unit"
> would be defined as "any collection of structures and/or equipment
> that processes, assembles, applies, blends, or otherwise uses material
> inputs to produce or store a completed product." A single facility may
> contain more than one process unit. The EPA is not proposing a
> specific percentage, but indicates that the 50 percent capital
> replacement threshold under the NSPS requirements might constitute an
> appropriate limit on what qualifies under the equipment replacement
> exclusion. Under the NSPS program, a project at a source triggers NSPS
> when the cost of the project exceeds 50 percent of the fixed capital
> cost that would be required to construct a comparable entirely new
> unit --- that is, the current capital replacement value of the
> existing source. The EPA is soliciting comment on whether the proposed
> approach is workable, whether the capital replacement percentage
> should be 50 percent or lower, and whether different percentages
> should apply to different industries. The EPA is also seeking comment
> on whether the equipment replacement cost approach should be
> established on something other than a "process unit" basis.
>
> Finally, the EPA is seeking comment on whether to exclude certain
> components from the equipment replacement exemption. For example,
> should pollution control equipment associated with a process unit be
> excluded? Also, should "non-emitting components" be considered under
> the exclusion? These replacements may not have emissions consequences
> in the first place and may not warrant scrutiny under NSR.
>
> *B. Discussion and Recommendations*
>
> The EPA should promulgate an Equipment Replacement Approach to the
> RMRR exclusion. Equipment failures are common and ongoing maintenance
> is routine. Delaying or foregoing maintenance because of the costs and
> delays under the NSR program could lead to failure of production units
> and may create safety problems. When equipment wears out or breaks
> down, it often is replaced with identical equipment, or with equipment
> that serves the same basic purpose or function but is different in
> some way in comparison to the equipment being removed. Technology is
> constantly changing and therefore it is not always possible to replace
> the equipment with the same type because, with time, identical
> equipment is seldom available. As the EPA validates, most replacements
> of existing equipment are necessary for the continued safe, efficient
> and reliable operation of industrial facilities and are not of
> regulatory concern. These types of replacements should automatically
> qualify under a RMRR exclusion.
>
> The EPA should provide in the final rule that the criterion for
> determining whether an activity qualifies under the equipment
> replacement provision is whether the replacement component is
> identical or functionally equivalent to the replaced component. The
> proposed "basic design parameters" criterion potentially excludes
> component replacements that would properly be deemed "functionally
> equivalent" under the first criterion. For example, in some cases,
> components that achieve significant gains in efficiency might be
> excluded under this provision. Functionally equivalent replacements
> will often increase efficiency and productivity, which is consistent
> with the EPA's statement that efficiency should not be considered a
> design parameter, as "NSR should not impede industry in making energy
> and process efficiency improvements..." The "functionally equivalent"
> criterion will provide an adequate basis that replacement components
> that are exempt from review cannot be designed to materially change
> the operation of the source and will increase clarity and certainty
> for implementing the equipment replacement provision.
>
> The EPA should adopt the NSPS 50 percent capital replacement threshold
> as the test for whether component replacements will fall within the
> scope of the equipment replacement provision. Under the NSPS program,
> projects are not considered to be a "reconstruction" if its costs do
> not exceed 50 percent of the fixed capital cost required to construct
> a comparable entirely new unit. The NSPS cost approach should extend
> to the equipment replacement provision. NAM member companies and
> associations may comment on different percentages for different
> industrial groupings or processes, but the 50 percent threshold should
> generally represent the threshold.
>
> The EPA's definition of "process unit" is generally acceptable as to
> what collection of equipment should be considered in applying the
> equipment replacement approach. It defines the "denominator" against
> which maintenance activities or equipment replacements can be compared
> and the regulated community is already aware of and comfortable with a
> similar definition in other parts of the CAA. The definition is also
> designed to encompass integrated manufacturing operations that produce
> a completed product, rather than smaller pieces of such operations,
> making it manageable and easy to understand. Individual NAM member
> companies and associations may express concerns about and suggest
> changes to the Proposed Rule's examples regarding steam electric
> generating units, petroleum refineries, pulp and paper mills and
> incinerators.
>
> Sources should have the option to determine whether pollution control
> projects and non-emitting components should be excluded from
> consideration under the equipment replacement provision for the same
> reasons described above for pollution control and dual-purpose
> projects under the AMRRA.
>
> **V. Other Issues and Recommendations**
>
> The NAM supports the basic scope and framework of the AMRRA and the
> equipment replacement provisions and recommends that both options be
> promulgated by the EPA. Conducting maintenance and repair activities,
> as well as replacing components with identical or functionally
> equivalent equipment, are routine practices for all regulated industry
> sectors. The EPA has the authority to adopt both of the RMRR
> provisions as exclusions under the NSR program. These two provisions
> can work together and companies should be able to choose either system
> or both, depending on their needs.
>
> The NAM urges the EPA to finalize both the AMRRA and the equipment
> replacement proposals expeditiously to provide much-needed certainty
> to industry, as well as to promote energy efficiency, increased
> productivity and improved environmental quality. As mentioned above,
> the EPA, states and the regulated community have pursued meaningful
> NSR reform for more than a decade. Clarification of the RMRR exemption
> will provide significant improvements to the NSR program that have
> been the subject of ongoing deliberations for years. If, however, one
> approach takes longer to finalize, the EPA should not hesitate to take
> early action on the other approach.
>
> The NAM strongly recommends that the EPA pursue an efficiency
> exclusion to the NSR program. As mentioned above, projects that
> improve energy efficiency and environmental quality are sometimes not
> undertaken because of the permit delays and costs of the NSR program.
> Such improvements are essential to economic progress and usually allow
> the production of goods and services with less input of raw materials
> and less pollution. The EPA should continue to work to determine
> whether an efficiency exclusion can be developed. Perhaps the EPA
> could specifically exclude from the definition of "major modification"
> any activity that promotes energy efficiency and/or resource
> conservation. In the meantime, finalization of the AMRRA and the
> equipment replacement provisions should start us in the right
> direction toward greater operational and energy efficiency.
>
> The EPA should adopt regulations providing RMRR status to all projects
> properly claimed as expenses on the income tax return of the company
> that owns the source in question. Such regulations could be
> promulgated at the same time as the equipment replacement provision
> discussed earlier. They would reflect a defensible, narrow view of
> RMRR, be easy to administer and could be promulgated based on the
> current proposal. The IRS regulations allow businesses to deduct as
> expenses any expenditures that "do not substantially prolong the life
> of an asset or materially increase its value or adapt it for a
> substantially different use." Similarly, the IRS regulations provide
> that "\[t\]he cost of incidental repairs which neither materially add
> to the value of the property nor materially prolong its life, but keep
> it in an ordinarily efficient operating condition, may be deducted as
> an expense." Any project that fits within this definition would
> qualify, without question, as RMRR. If a project does not increase the
> value of an asset, or prolong its life, or change its nature, it can
> only be intended to keep it in good operating condition, or restore it
> to good operating condition. Such projects are the essence of RMRR.
> Companies are already familiar with the legal standards and judgments
> needed to determine whether an item can be claimed as an expense.
> Moreover, company auditors and the IRS itself provide a cross-check on
> those judgments. Accordingly, a "tax expense" test for RMRR status
> would be readily enforceable. In addition, it would be completely free
> from the accounting complexities and need for retrospective compliance
> determinations that characterize the allowance approach in its
> proposed form. Finally, a "tax expenses" approach would be a logical
> outgrowth of the allowance proposal itself. That proposal suggests
> granting RMRR status to any projects that would fall within the
> "repair guidelines" of IRS publication 534 and therefore could be
> deducted as expenses from an income tax return. Our suggestion merely
> points out that it would be simpler and more defensible simply to
> grant RMRR status to expensed items directly.
>
> The EPA should maintain the case-by-case approach for those projects
> that do not fit within the AMRRA or equipment replacement provision.
> Some changes may not fit within either exclusion, but should not be
> discounted as RMRR, especially if the project would lead to increased
> energy efficiency, decreased air emissions or greater productivity.
> While the EPA recognizes that case-by-case approaches to the RMRR
> exclusion are often inconsistent and burdensome, the Proposed Rule
> will cut down on those situations while leaving some of the more
> ambiguous projects open to case-by-case review.
>
> The EPA should improve the case-by-case approach. For example, in the
> WEPCo case, the EPA offered a four-factor test for conducting
> case-by-case evaluations under which the EPA considered the nature and
> extent, purpose, frequency and cost of a project to see if it
> qualified under the RMRR exclusion. In 2000, the EPA set forth even
> more factors in its applicability determination for Detroit Edison.
> Previous interpretations of the RMRR exclusion looked at what was
> routine within a particular industry. The EPA should include in the
> final rule a provision that expressly excludes those activities that
> maintain, facilitate, restore or improve the efficiency, reliability,
> availability or safety of a stationary source.
>
> The EPA should not develop lists of excluded projects under an RMRR
> exclusion. Many groups have encouraged the EPA to develop a general
> list or industry-by-industry lists of maintenance, repair and
> replacement projects that would automatically be considered RMRR under
> the NSR program. This may actually cause more confusion than it solves
> and thrust the regulated community back into a case-by-case review
> structure. No list can be all-inclusive of RMRR activities, and
> therefore will contain large gaps and become outdated quickly.
>
> **VI. Conclusion**
>
> Many of the NAM member companies' businesses are capital intensive,
> requiring careful business planning and strict cost controls to remain
> viable in an extremely competitive global marketplace. Success is
> determined in large part by a company's ability to match expenditures
> to revenue though disciplined planning and the ability to respond
> quickly to changing market conditions. This ability to manage costs
> and react immediately to changing markets is affected by the EPA's
> current interpretation of the RMRR exclusion. The EPA's current
> case-by-case process for deciding whether a project is RMRR is
> inconsistent with the need for companies to compete in a global
> marketplace.
>
> The proposed AMRRA can provide sufficient flexibility to reflect the
> business cycles that impact various industries. A one-size-fits-all
> approach across different industries will not work, but a clear
> applicability test that encourages good maintenance practices and
> continued innovation will provide incentives consistent with the
> common goals of improved efficiency and lower air emissions. The
> proposed equipment replacement provision is also consistent with a
> "common sense" interpretation of the RMRR exclusion. It is simple to
> apply and should be easy for the EPA to enforce. The exclusion should
> encourage energy efficiency as old equipment can be replaced by new
> equipment that is functionally equivalent, without going through the
> NSR process or case-by-case RMRR applicability determination.
>
> Clarification of the RMRR process under the NSR program is critical to
> relieving the regulatory congestion that has permeated the NSR program
> for more than a decade. The confusion surrounding the RMRR exclusion
> has prevented implementation of projects that improve safety,
> efficiency, reliability and environmental performance in a number of
> industries. This lack of certainty has led to inaction on maintenance,
> repair and replacement projects that hurt facilities, energy security
> and the environment.
>
> Changes to the NSR program are long overdue. The NAM supports the
> EPA's efforts to clarify the definition of RMRR to enable plant
> operators and owners are able to make reasoned, replicable and
> expeditious judgments regarding whether activities qualify under the
> RMRR exclusion and avoid the costly and time-consuming NSR permitting
> process.
>
> Since July 2000, manufacturing has lost 2.2 million jobs -- among the
> highest skilled, best paying jobs in our economy. For millions of
> American families that depend on manufacturing, this is a continuing
> tragedy. Getting our manufacturing sector back on its feet should now
> be a top priority for regulators. It was strong capital investment in
> manufacturing that drove the strong economic growth of the late 1990s,
> and it will take strong capital investment in manufacturing to get our
> economy back on a strong growth curve today. Regulatory improvements
> to the NSR program are key to an effective manufacturing strategy and
> to the 22,000 facilities that are affected by the current program's
> problems.