May 2, 2003

U.S. EPA

EPA West (Air Docket)

*Attn*: Docket ID No. A-2002-04

1200 Pennsylvania Ave., NW

Room: B108 Mail Code: 6102T

Washington, D.C. 20460

**Re: *Comments of Phelps Dodge Corporation on EPA's Proposed Standards
for Defining "Routine Maintenance, Repair and Replacement" for
Prevention of Significant Deterioration and Nonattainment New Source
Review, 67 Fed. Reg. 80290 (December 31, 2002)***

To Whom It May Concern:

# Introduction and Summary 

## Introducing the Commenters 

Phelps Dodge Corporation is the world's second-largest producer of
copper, a world leader in the production of molybdenum, the largest
producer of molybdenum-based chemicals and continuous cast copper rod,
and among the leading producers of magnet wire and carbon black. The
company\'s two divisions, Phelps Dodge Mining Co. and Phelps Dodge
Industries, employ approximately 14,500 people in 27 countries.

## The Importance of the Issue 

Some of Phelps Dodge's U.S. facilities are major sources under the New
Source Review (NSR) program including both the Prevention of Significant
Deterioration (PSD) and Nonattainment New Source Review (NA/NSR)
programs. In order to operate safely and effectively, each of these
facilities periodically must undertake hundreds of activities that are
routine maintenance, repair and replacement (RMRR). These activities
must be undertaken in a timely manner. A detailed and time-consuming
analysis of their NSR impact impedes implementation and delays
improvements in production efficiency and pollution control. Thus,
Phelps Dodge has a substantial interest in this rulemaking.

Under three separate Administrations, EPA has stated, "since Congress
obviously did not intend to make every activity at a source subject to
new source review requirements," a "common-sense" exclusion of RMRR
activities from NSR is legally justified. See, *e.g.* 57 Fed. Reg.
32314, 32316 (July 21, 1992); 61 Fed. Reg. 38250, 38253 (July 23, 1996);
67 Fed. Reg. 80290, 80293 (December 31, 2002). EPA's NSR rules have
included such an exclusion since the promulgation of the current
regulatory framework in August 1980. However, in recent years
conflicting EPA interpretations have created uncertainty about the
applicable standards for determining RMRR. In addition, many of those
interpretations have denied RMRR status to changes that fell well within
a common-sense definition of RMRR, further compounding the uncertainty.
In particular, EPA rulings have increasingly tended to deny RMRR status
to changes that increase source efficiency or reduce down time.

These new interpretations have created an extremely unfortunate
situation. Companies simply must take actions that are in fact RMRR in
order to keep their facilities operating safely and economically.
Moreover, economically beneficial actions can render existing assets
more environmentally protective. Such actions increase the ability of
existing facilities to meet growing demand and thus reduce pressure for
"greenfield" development. Such productivity increases also reduce
emissions per unit of product, and thus make the overall economy more
environmentally efficient. Yet, EPA's increased hostility toward such
actions placed companies in peril for taking the actions.

EPA has proposed two approaches to correct this problem. Under EPA's
"equipment replacement" approach, replacement of the elements of a
"process unit" would automatically qualify as RMRR if it did not change
the unit's basic function or capacity and if it fell under a specified
cost threshold. Under EPA's second approach, the "RMRR allowance"
approach, all changes that fell within a predetermined RMRR budget would
be excluded. Phelps Dodge believes that both approaches are clearly
legal and beneficial.

The "equipment replacement" approach properly concludes that it is
"routine" in American industry to "replace" elements of equipment in
order to improve the performance of a source without changing its basic
functions. It also properly concludes that a rule that does not
artificially burden this routine practice will be, on balance,
environmentally beneficial. Finally, it sets reasonable conditions to
the use of this exclusion to prevent abuse.

The "RMRR allowance" approach starts from the clearly valid conclusion
that sources will make their RMRR expenditures before they make other
expenditures, since RMRR is necessary for continued operation.
Accordingly, establishing a source-wide RMRR allowance tied to normal
RMRR expenditures will be well calculated to exempt RMRR expenditures,
but not other expenditures, from NSR review.

The allowance approach may not fit all industries. In some sectors it
may be simpler and more practical to develop narrative lists of
activities that qualify as RMRR. Such a list could cover certain
specific actions, or categories of actions (for example, all activities
that are accounted for as expenses, or that cost less than a certain
amount). No such list could ever be all-inclusive. Accordingly, it would
be essential to make clear that the list did not create any presumption
that actions had to be on the list to be RMRR. As with EPA's current
proposals, the list would simply create a "safe harbor" with no negative
implications for items that were not included. As with EPA's current two
proposals, actions that did not fall on the list would be evaluated
under the existing RMRR standards.

Phelps Dodge supports promulgation of both of EPA's proposed approaches.
EPA should promulgate a final rule as quickly as possible. There are no
obstacles to early promulgation of the equipment replacement proposal.
An allowance approach may take longer to develop given the factual
inquiries and analysis that may be required. Accordingly, EPA should not
hesitate to take early action to promulgate the equipment replacement
approach even if work on the final RMRR allowance rule is still
continuing.

# Summary of the EPA Proposal 

EPA does not propose to repeal or modify the current "case-by-case"
approach to RMRR. That approach would remain fully available for any
changes that did not fit within the two "safe harbors." Instead, EPA
proposes to add the equipment replacement and RMRR allowance approaches
to this existing structure, to identify projects that automatically
qualify as RMRR and thus to minimize the number of projects that have to
undergo a case-by-case review. Phelps Dodge supports this general
approach.

## The Equipment Replacement Approach 

Under this approach, the replacement of components of a "process or
production unit" at a major source with "functionally equivalent"
components would qualify automatically as RMRR as long as certain
conditions were met. A "process unit" would be "any collection of
structures and/or equipment that \...uses material inputs to produce or
store a completed product." 67 Fed. Reg. at 80302 & 80312. *See e.g.*,
proposed 40 C.F.R. § 52.21(b)(56). This is essentially the same as the
definition of "process or production unit" used in the NESHAP program.
*See* 40 C.F.R. § 63.41.

A "functionally equivalent" component is one that "serves the same
purpose as the replaced component." 67 Fed. Reg. at 80312, proposed 40
C.F.R. § 52.21(b)(57). "Functionally equivalent" replacements of
"process unit" components will be RMRR if the replacement does not
change the "basic design parameters" of the "process unit." The
replacement does not create a new process unit. The replacement does not
exceed a certain percentage of the "fixed capital cost" of an entirely
new process unit.

EPA seeks comments on the following.

> 1\. Whether replacement with identical or functionally equivalent
> items constitute RMRR without regard to other considerations.
>
> 2\. Whether the replacement percentage should be 50% and how the
> percentage should be applied to different industry sectors.
>
> 3\. EPA also asks how to apply any percentage cut-off -- for example,
> should the percentage be applied to each separate replacement
> activity, or should the replacement activities be accumulated over
> some defined period?

## The Allowance Approach 

Under the allowance approach, expenditures that did not exceed a certain
prescribed "annual maintenance, repair and replacement allowance" would
be automatically considered RMRR. 67 Fed. Reg. at 80311-12, proposed 40
C.F.R. § 52.21(b)(2)(b)(iii)(a)(2)(ii). That allowance would be set as a
sector-specific percentage of a defined "baseline." The "fixed capital
cost" of a specified set of process units would set that "baseline." The
RMRR status of expenditures that exceeded the allowance limit would be
evaluated case-by-case under the existing standards. Expenditures would
not be eligible for the allowance exclusion if they created a new or
different "process unit", or increased the hourly achievable emissions
rate of the source at which they took place.

Sources that used this approach would have to use it for **all** their
RMRR activities. They could not pick and choose. They would also have to
rank their annual expenditures by size, smallest first, so that the
largest expenditures (which EPA thinks are the least likely to be RMRR)
would be the first to exceed the allowance if there were an exceedance.
Sources would have to submit an annual report on their compliance with
the allowance. That report would describe their expenditures and their
relation to the exclusion percentage.

EPA asks for comments on the following specific aspects of this test:

1\. EPA proposes to apply the allowance test on a source-wide basis, but
asks for comment on whether to apply it on a "process unit" basis
instead.

2\. EPA proposes to use the replacement "fixed capital value" of the
units covered by the test -- either a whole source or a process unit --
to set the "baseline." However, EPA asks for comment on the alternative
of using original value restated for inflation.

3\. EPA asks for comment on the administrative difficulties an allowance
approach might pose.

4.  EPA proposes to set different RMRR percentage allowances for
    different industry sectors. EPA suggests both using
    industry-specific percentages, and reliance on the Annual Asset
    Repair Guideline Percentages ("AAGRP") set out in IRS Publication
    534.

5.  EPA also asks for comment on how to account for variability among
    sources in setting an RMRR percentage.

6\. EPA proposes annual determinations of compliance with the RMRR
percentage, but asks for comment on using a multi-year approach.

7\. EPA proposes to allow sources to compute their NSR compliance after
their single-year or multi-year compliance period has elapsed. However,
EPA expresses concern that under this approach a source might not
discover its non-compliance with the allowance test until several years
had gone by, and that this could create both compliance difficulties for
the source and enforcement difficulties for the regulatory agency.
However, after examining the alternatives EPA concludes that its
proposed approach is still the best.

8\. EPA proposes permitting sources to use "the most appropriate"
accounting approach consistent with their normal accounting practices to
determine compliance with the RMRR allowance and asks for comment on
establishing a consistent set of accounting practices for all such
determinations.

9\. EPA asks whether to exclude from the costs that must be included in
the allowance costs associated with the unanticipated shutdown of
equipment, due to component failures or catastrophic failures.

> 10\. EPA proposes not to count expenditures on pollution control
> equipment against the allowance, unless it is equipment that serves a
> dual purpose of process equipment and control equipment.

## Other Comments 

EPA specifically asks two questions on the relationship between the
equipment replacement and allowance approaches. First, would the
allowance approach be needed if the equipment replacement test were
promulgated? Second, if both tests were promulgated, what should be the
relation between them? EPA asks whether projects eligible for the
equipment replacement exclusion should count against the allowance, and,
if not, what adjustments should be made.

EPA also asks for comment on whether to exclude changes to non-emitting
units from coverage under both the equipment replacement and the
allowance tests, since "such replacements may not have emissions
consequences in the first place and hence would not warrant scrutiny
under NSR." 67 Fed. Reg. at 80303.

Finally, EPA asks for comment on two alternative approaches to codifying
RMRR policy -- a capacity-based approach and an age-based approach.
Under the capacity-based approach, expenditures that did not expand
process unit production capacity would be automatically considered RMRR
if they did not increase that unit's maximum achievable hourly
emissions, while those that did expand capacity would be evaluated under
the existing test. EPA finds some attraction to this approach in that
"\[t\]he primary object of RMRR is to keep a unit operating at capacity
and/or availability." However, as EPA also points out, it can be
difficult to define the capacity of a process unit, in particular
because "capacity may be defined based on input or output", while
"\[n\]ameplate capacity of a process unit may vary greatly from the
capacity at which the process unit may be able to operate." 67 Fed. Reg.
at 80304.

Under the "age-based" approach, sources would be allowed to make any
changes to a process unit that did not increase its "capacity" or exceed
the 50% "reconstruction" threshold as long as those changes took place
during a "useful life" period probably extending for twenty-five to
fifty years. Upon the expiration of their "useful life", the units
involved would have to become "clean units" as defined in the NSR Reform
Rule. EPA states:

> We see several difficulties in developing this type of approach. The
> first is defining capacity. The second is establishing the age cut-off
> for the exclusion. The useful life of equipment is difficult to
> establish and may vary greatly. The third is that some of the
> activities that would be allowed at newer sources do not fit within
> any ordinary meaning of RMRR and some of the activities that would be
> forbidden at older facilities would come within that meaning. Fourth,
> some sources may consciously, and appropriately, engage in aggressive
> RMRR as a way of maximizing the life span of \[their\] process units,
> and an age-based approach would discriminate against them.

67 Fed. Reg. at 80305.

# Comments

## General 

Phelps Dodge supports EPA's proposal in full, with only minor
recommended adjustments. We urge EPA to promulgate the equipment
replacement test without delay, and to promulgate the RMRR allowance
rules, however they may evolve, as soon as they are ready. We also
support EPA's decision to retain a case-by-case approach for sources
that want to use it, and for projects that do not fit under either of
the "safe harbor" approaches.

## The Equipment Replacement Test 

1\. [The Equipment Replacement Test Would Improve Both the Environment
and the Economy by Removing Regulatory Burdens from the Types of
Equipment Replacement that are in fact "Routine" in the American
Economy]{.underline}

> a\) [EPA's Proposal Would Remove Regulatory Burdens from
> Efficiency-Improving Beneficial Changes]{.underline}

Equipment replacement that improves efficiency is "routine" in our
economy, meaning that it is customary, standard, and usual. In today's
competitive economy, efficiency improvement is essential for any plant
that wants to keep up with the market and stay in business. They are
environmentally beneficial as well, since virtually without exception
the use of newer technology and more sophisticated production methods
allows the production of goods and services with less input of raw
materials and less pollution.

"Routine" may also mean activities performed as part of an unvarying
plan. But if EPA adopted this approach to "routine" in defining RMRR, it
would forbid sources to use the RMRR exclusion for anything they had not
done before, thus turning the RMRR exclusion into a road block to
innovation, rather than an encouragement to it. Some examples will
illustrate this point.

-   By replacing an old conveyer with a new one of different design and
    lay-out, a plant was able to increase its efficiency by improving
    the flow of raw materials through its process.

-   By replacing the doors on a raw material storage shed, a plant was
    able to shield the contents of the shed from moisture and improve
    their quality, thus raising process efficiency.

-   By installing a new vacuum pump in a paper machine, a paper mill was
    able to increase its capacity to process recycled paper, reducing
    costs and benefiting the environment with no increase in emissions
    rate.

Such replacements are both economically and environmentally beneficial,
and "routine" in the sense that any plant that thought of them would
make them.

b\) [EPA's Proposal Would Also Properly Encourage Other Types of Routine
Replacement]{.underline}

In addition to encouraging efficiency improvement, the equipment
replacement proposal would provide clarity as to the status of more
customary types of equipment replacement that are in fact "routine"
under *any* definition of that term, but that EPA has not always been
willing to classify as RMRR. The following two examples are activities
that should be considered RMRR currently, but have not been treated as
such. The equipment replacement test should clarify that these
activities are RMRR.

Primary copper smelters may use a sulfuric acid plant as a pollution
control device to reduce SO~2~ emissions. Sulfur dioxide gases generated
during the smelting process are routed to the acid plant were most of it
is converted to sulfuric acid. Because of the corrosive nature of the
process, significant maintenance is periodically required, including
replacement of components of the plant, in order to maintain the
effectiveness of the acid plant both as process equipment and as a
pollution control device. Additionally, as new technologies develop,
more efficient processes and equipment are available to replace current
components. The maintenance and replacement of components continually
improve the handling of SO~2~ and the production of sulfuric acid. While
the maintenance and replacement does increase sulfuric acid production,
it also improves the pollution control function of the acid plant as
well. These activities may increase the emissions of the acid plant, but
generally decrease emissions from the smelter unit, *i.e.*, a source
wide reduction.

For example, Phelps Dodge over an eight-year period spent approximately
\$31 million dollars in maintenance and replacement activities on an
acid plant that had been in operation for approximately twenty years at
a smelter. The acid plant has a current book value of approximately
\$47.5 million. These activities improved both the production of
sulfuric acid and the pollution control effectiveness of the plant. Even
though these activities were necessary to maintain the plant, Phelps
Dodge faced delays in implementation due to permitting requirements.
Because of the magnitude of the projects and because some of the changes
increased the capacity of the plant, Phelps Dodge was required to seek a
permit revision or submit the equivalent of a Section 502(b)(10) notice.
The notices were often submitted after extended discussions as a
compromise between Phelps Dodge's position that these activities were
RMRR and the agency's position that a permit revision was required.
These delays, the fruit of current RMRR uncertainty, delayed more
effective pollution control.

Over this eight year period, Phelps Dodge replaced the final absorption
tower at a cost of \$4.5 million. The new tower is equipped with state
of the art candle type demisters which reduced the amount of sulfuric
acid mist emitted from the tail stack. The tower was replaced because
the old one had deteriorated to the point where it was becoming a safety
issue. Phelps Dodge replaced the intermediate absorption tower at a cost
of \$5.9 million; also equipped with the candle demisters. Various heat
exchangers were replaced at a cost in excess of \$5 million. Phelps
Dodge installed a new preheater at the same time it replaced the
catalytic converter and other components at a cost of approximately
\$10.3 million. The old catalytic converter became unsafe as a result of
the structural degradation of the support steel exposed to the hot
gasses in the first stage of the converter. The new preheater (which had
larger capacity than the old one) and converter increased the conversion
efficiency, *i.e.*, the capacity of the acid plant. Phelps Dodge
replaced the dry tower due to its deteriorated condition at a cost of
\$5.8 million. These projects were essential in order for the acid plant
to control emissions and produce sulfuric acid. Phelps Dodge believes
these activities should be considered RMRR.

Some Phelps Dodge facilities use industrial boilers. The life of the
tubes in those boilers is highly variable, depending on the patterns of
boiler use and the fuels used, but is *always* far less than the life of
the boiler. Depending on their conditions of use, boiler tubes need
replacement at variable intervals, but almost always at intervals of ten
years or less. Boiler tubes that are not replaced when they should be
make operating the boiler dangerous. The number of boiler tubes replaced
at any one time will vary with the circumstances. However, since the
boiler must be shut down for tube replacement, it often makes sense to
replace more tubes rather than less at any one time, so as to minimize
the need for future shutdowns. Such a calculation of replacement numbers
is itself "routine."

In the past, EPA has often treated boiler tube replacements
inconsistently, classifying the replacement of only a few boiler tubes
as "routine", while treating the replacement as "non-routine" if "too
many" tubes were replaced. EPA has drawn a vague line between "routine"
and "too many." *Any* boiler tube replacement is "routine" in that the
need to undertake it is predictable and necessary for safety reasons.
The number of tubes replaced at any one time varies with particular
circumstances and has no relation to the underlying need for tube
replacement. EPA's "equipment replacement" proposal would properly
classify *all* tube replacements as routine as long as they did not
change the basic design specifications of the source or amount to a
reconstruction.

2\. [Detailed Comments on the Equipment Replacement Test]{.underline}

> a\) ["Process Unit"]{.underline}

Phelps Dodge supports EPA's general definition of "process unit." This
definition has functioned well in the NESHAP program to focus control
efforts on those new investment projects that are logical candidates for
the installation of technological controls. It should have the same
result here. Phelps Dodge also generally supports EPA's proposed
industry-specific definitions of "process unit."

> b\) [Efficiency and "Input Specifications"]{.underline}

As just discussed, Phelps Dodge strongly supports EPA's intention to
encourage efficiency improvements by granting them RMRR status under the
equipment replacement test. Such efficiency improvements, far more than
additional add-on controls, are now the key to improved environmental
performance at industrial operations, and should be encouraged by our
environmental regulatory system. Phelps Dodge recognizes that the right
to classify efficiency improvements as RMRR may be abused and therefore
must have boundaries.

However, EPA's proposal to forbid changes in "fuel or raw material input
specifications" is unacceptably vague, inaccurate, and counterproductive
in its current form, at least as applied to complex industrial sources.
It is vague because some individual emissions units never had defined
"input specifications", while for others those specifications may have
been lost. "Process units", which are collections of individual units,
will be even less likely than specific individual units to have
meaningful "input specifications." It is inaccurate, because even where
manufacturers design specifications exist for a unit, they serve to
define the unit's guaranteed maximum capacity rather than its actual
maximum capacity. Many units routinely and properly operate above their
design specifications. As EPA's proposal itself states " \[n\]ameplate
capacity of a process unit may vary greatly from the capacity at which
the process unit may be able to operate." 67 Fed. Reg. at 80304.
Finally, it is counterproductive because it could be read to forbid some
of the efficiency improvements that EPA wants to encourage. Efficiency
improvements at a unit often increase its ability to process an input --
for example, by reducing down time, or by reducing the time or energy
needed to process a certain amount of raw material into a more finished
product. EPA cites the replacement of analog with digital controllers at
a paper mill batch digester as an example of the "efficiency improving"
changes that the Agency wants to encourage. 67 Fed. Reg. at 80301.
Phelps Dodge fully agrees. But such a change, by allowing more precise
calibration of the digestion process, might well be able to increase the
rate at which input chips could be processed. That in turn could lead to
arguments, which we know EPA does not want to encourage, that such a
change caused a forbidden increase in "input specifications."

Instead, Phelps Dodge believes that EPA should define "design
specifications" for purposes of the equipment replacement test as an
increase in the maximum achievable hourly emissions of the process unit.
That would make sure that no equipment replacement changed the "design
parameters" of the unit that are most relevant to air pollution control
and NSR, namely the unit's capacity to emit air pollution. That approach
would also make the standards for administering the equipment
replacement approach consistent with those for administering the annual
allowance approach, and with those for other, long-established Clean Air
Act programs like NSPS.

3\. [Defining the Proper "Exclusion Percentage"]{.underline}

#### Setting the Percentage Itself 

Phelps Dodge believes that EPA has properly selected 50% of process unit
replacement value as one element of its overall test designed to screen
out those projects that fit within an acceptable definition of "routine
replacement" from those that do not. Other elements of that test already
restrict qualifying changes to those that do not change the basic
function of the unit, or create a new "process unit", or increase its
maximum achievable hourly emissions. Those provisions by themselves
define a set of "replacement" changes that most sources make routinely.
In that context, the 50% test provides an additional safeguard, making
sure that those changes that have traditionally qualified as
"reconstruction" will have to go through case by case review before
being classified as RMRR. That is, if the cost of an activity exceeds
50% of the replacement costs, it does not automatically qualify as RMRR,
but would have to satisfy the case-by-case criteria to be considered
RMRR.

The replacement of units that have failed catastrophically, however,
should not be subject to the 50% constraint. Industrial facilities have
every motive to avoid such catastrophic failures, because of the risk of
human injury and production interruptions and because of the expense in
correcting them. Nevertheless, such failures do take place occasionally,
although it is not possible to predict their exact occurrence. It would
not be practical to fit every correction of such failures into the 50%
constraint. Companies would not abuse such an exclusion, since such
catastrophic failures are easy to identify and companies are highly
motivated to avoid them.

b\) [Setting the Accumulation Period]{.underline}

The 50% accumulation test should apply only to individual projects, or
to more than one project arising out of the same planning decision, if
the permitting authority concludes that the source split them apart to
avoid the 50% "trigger." The NSPS program has operated on that basis for
over 20 years, and there have been no complaints about its functioning.

## The RMRR Allowance Approach 

Phelps Dodge offers the following responses to EPA's specific questions
on the RMRR allowance.

1\. [We Support a "Source-Wide" Approach]{.underline}

Phelps Dodge supports application of the allowance test on the
source-wide basis that EPA proposed, and not on a "process unit" basis.
Since most facilities keep their accounts on a plant-wide basis, this
approach would be easier to administer. In addition, a broader base
would tend to smooth out the year-to-year variations of RMRR
expenditures at individual process units by aggregating several such
units together, thus making compliance with a set annual allowance more
predictable. Additionally, as shown in Phelps Dodge's acid plant
example, maintenance on one unit may have benefits for other units. A
source-wide approach would encourage this type of beneficial activity.

2\. [We Favor a Ten-Year Rolling Compliance Period]{.underline}

Phelps Dodge believes that the allowance test should provide for
determining compliance over a ten-year averaging period. As the proposal
itself suggests, use of a multi-year averaging period would minimize the
impact of year-to-year fluctuations in RMRR expenditures. Also, as
shown, the maintenance cycle for the acid plant was more than five
years. The replacement projects took place after twenty years of
operation. A one year compliance period would not be able to cover this
type of extended maintenance activity.

EPA's proposal suggests that the Agency will not consider an averaging
period longer than five years. We urge EPA to reconsider. Certain
replacements that are clearly "routine" are undertaken at longer than
five-year intervals. EPA suggests that even a five-year period might
lead to administrative difficulties because it might not be clear for a
long time after a change was made that it had exceeded the RMRR
allowance. This problem will be short-term and manageable. We assume
that any multi-year averaging period would take the form of a "rolling
average" as soon as it had been in operation long enough to generate the
necessary data. As soon as that happens, it will be equally easy to
determine compliance with the annual and with the multi-year approaches,
while the multi-year approach will still retain all the other advantages
that EPA points out.

3\. [We Favor a Replacement Cost Approach]{.underline}

Phelps Dodge favors a replacement cost approach for determining the
"baseline" value for the RMRR allowance. Approaches based on original
capital investment are unfair and unworkable for the reasons described
in the preamble. By contrast, insurance valuations provide a reasonable
and efficient method of estimating replacement value.

4\. [We Favor End-of-Year Compliance Determinations]{.underline}

Phelps Dodge believes that only end-of-year determinations of allowance
compliance would be administratively workable. Given the frequency with
which unplanned RMRR activities occur, EPA's first suggested alternative
-- requiring a case-by-case RMRR determination for unplanned activities
-- would largely negate the benefits of a "safe harbor" rule. In
addition, it would saddle every facility that used the allowance
approach with a new government planning requirement. EPA's second
alternative -- denying use of the allowance test to unplanned activities
-- is even worse for the same reasons. The compliance issues that EPA
points out do not raise significant concerns.

5\. [Setting the Allowance Percentage]{.underline}

Phelps Dodge believes that the allowance percentage should be set based
on actual experience in the sectors to which the percentage applies.

6\. [Sources Should be Allowed to Use Their Normal Accounting
Procedures]{.underline}

Phelps Dodge does **not** favor EPA's suggestion to require use of
uniform accounting procedures to measure allowance compliance. Designing
such new procedures, debugging them, adapting them to many different
industries, educating sources and States to use them, and then actually
putting them into use would be a huge undertaking that would grossly
outweigh any possible return. Instead, EPA should allow sources to use
their normal accounting procedures, and then let the program evolve
towards greater uniformity over time if that turns out to be desirable.

7\. [EPA Should Not Count Pollution Control Equipment Against the
Allowance Even if it Increases Productivity]{.underline}

Phelps Dodge supports EPA's proposal to exempt expenditures on pollution
control equipment from RMRR allowance limits, so that these expenditures
would automatically count as RMRR if they met the other conditions of
the allowance test. EPA should take this same approach for pollution
control devices that are also process equipment, *e.g.*, acid plants at
copper smelters. It will encourage use of pollution control devices.

8\. [EPA Should Not Count Unexpected "Catastrophic" Failures Against the
Allowance]{.underline}

EPA asks for comment on whether sources should be allowed to repair
"catastrophic failures" in equipment without having that repair counted
against their allowance. Phelps Dodge supports this proposal.
Catastrophic failures will take place occasionally even though
facilities are highly motivated to avoid them. It would not be practical
to fit the correction of such failures into the allowance test. Since
the allowance will be set to cover normal and predictable maintenance
activities, it will be inadequate to provide for catastrophic failures.
The best solution would be to simply exclude them from the test, by
providing that steps to correct them do not count against the allowance.
It is clear that companies would not abuse such exclusion, since such
catastrophic failures are easy to identify and companies are highly
motivated to avoid them.

9\. [EPA Should Not Exclude Non-Emitting Units from the
Accounts]{.underline}

EPA's proposal to exclude changes at non-emitting units from its
accounts has conceptual appeal. However, we do not favor any
comprehensive attempt to exclude such changes for our facilities, though
it might work for others. For the final result to be defensible, such
changes would have to be excluded from both the numerator and the
denominator of the RMRR allowance, and that exclusion would have to be
considered in determining the final "allowance percentage." Since the
exclusion would therefore be just a change in the form of the allowance
approach and not its substance, the main reason for adopting it would be
to make administering the allowance test simpler.

We do not think that in fact it would make administration simpler. Since
our companies generally gather the necessary data on an aggregated
basis, without distinguishing between work on emitting units and work on
non-emitting units, a substantial amount of additional work would be
needed to find and exclude the figures relating to non-emitting units.
In addition, disputes would predictably arise over which units were in
fact "non-emitting." However, we believe that EPA should consider
excluding major work of a clearly non-emitting nature (constructing a
road, putting a new roof on a building) from consideration under the
allowance test.

10\. [EPA Should Reconcile the Equipment Replacement and Allowance
Approaches by Giving Them Both Independent Validity]{.underline}

Phelps Dodge suggests reconciling the equipment replacement and
allowance approaches as follows: All expenditures on projects that were
exempt under the equipment replacement approach would still be counted
against the RMRR allowance. However, if RMRR expenditures exceeded the
allowance the project would still be RMRR. In other words, they would
use up the allowance for other projects, but would not be disqualified
themselves if they exceeded it.

## Other Comments 

1\. [EPA Should Not Establish an "Age-Based" Approach to
RMRR]{.underline}

Phelps Dodge opposes EPA's proposal for an "age-based" approach to RMRR.
Proper maintenance of equipment may extend its life. This should be
encouraged. An age-based approach would discourage it.

2\. [EPA Should Not Establish a "Capacity Based" Approach to
RMRR]{.underline}

Earlier in these comments, Phelps Dodge explained why a "capacity based"
approach to determining the projects eligible for the equipment
replacement test would not be workable at complex manufacturing sources.
We believe that EPA's "capacity based" approach would be unworkable for
our sources for the same reasons.

Please contact Ken Evans (602) 366-8514 if additional information is
needed.