UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION10

1200 Sixth Avenue

Seattle, Washington 98101

Reply To

Attn Of: OAQ-IO7

Grant Cooper

Frederickson Power LP

1333 West Georgia Street 

Vancouver, British Columbia 

Canada V6E 3K9

Raymond McKay

EPCOR Power Development 

10065Jasper Avenue 

Edmonton, Alberta

T5J 3B1 Canada

OCT 12 2001

Subject: PSD Applicabilityfor Frederickson Power L.P. 

Dear Mr. Cooper and Mr. McKay: 

This letter is in response to the Preston Gates & Ellis letter of June 22, 2001, written to 

the State of Washington Department of Ecology (Ecology) on behalf of Frederickson Power and 

EPCOR Power Development (EPCOR), In addition to constructing a 249 megawatt (MW) 

power generation facility (current project) at a site in Frederickson, Washington, the companies 

are considering the construction of an additional combined cycle combustion turbine project 

(proposed project) of less than 350 MW on the same property. It is our understanding that the 

proposed project will be constructed sufficiently close to the current project such that the two 

projects will be considered one stationary source given their common ownership and Standard 

Industrial Classification (SIC) code. 

The United States Environmental Protection Agency (EP A) has concluded that it is 

permissible to permit the proposed project separately from the current given the facts of this 

situation as discussed below. In particular, the fact that both projects would likely be required to 

install the same pollution control technolo gy regardless of permitting process (minor NSR vs 

PSD) significantly diminishes any potential environmental benefit that would otherwise be 

gained by permitting the projectstogether through PSD. Moreover, the fact that Ecology's minor 

NSR and PSDprograms both require the installation of BACT does not provide EPCOR an 

incentive to intentionally space out the projects so as to circumvent PSD. 

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Background 

The current project was originally developed by TenaskaWashington Partners (Tenaska) 

to supply electricity to the Bonneville Power Administration (BPA) as part of BPA's 1991 

Competitive Acquisition Program. The two parties entered into a power-purchase agreement in 

April 1994. Prior to the agreement, BPA conducted an extensive environmental review of the 

project and subsequently issued an environmental impact statement in January 1994. The Puget 

Sound Clean Air Agency (PSCAA), the local permitting authority, issued Tenaska a synthetic 

minor New Source Review (NSR) permit on April 14, 1994. 

Construction of the current project commenced in September 1994 with the intent of 

starting up the project by fall 1996. In June 1995, however, after only 40 percent of the project 

was completed, construction was suspended when BPA withdrew from its agreement to purchase 

power from Tenaska. After protracted litigation and subsequent arbitration, Tenaska transferred 

the partially completed project to BPA in March 1998. 

In December 1999, Frederickson Power entered into an asset purchase and sale agreement 

with BPA which would allow completion of the original project. Before construction was 

allowed to recommence, however, Frederickson Power was required to obtain a synthetic minor 

NSR permit from PSCAA, which it did, on April 25, 2000. The minor NSR permit limits 

individual criteria pollutant emissions from the current project to less than 100 tons per year. As 

of May 1,2001, construction of the current project was 60 percent complete and engineering 99 

percent complete. The project is expected to be in commercial operation by July 2002. 

In light of the recent Northwest energy crisisl, Frederickson Power is considering 

constructing another combined cycle combustion turbine project near the current project, which is 

already under construction. The proposed project would operate separately from the current 

project as illustrated by the fact that the two projects would not share the same transmission line, 

fuel supply contracts, power sales contracts, gas metering stations, or connections to water and 

wastewater systems. 

Frederickson Power is requesting a Prevention of Significant Deterioration (PSD) 

applicability determination from EPA and Ecology as to whether the proposed project can be 

permitted separately from the current project for purposes of construction authorization. 

Separating the projects in such a manner would allow the existing minor NSR permit to remain in 

place and would require Frederickson Power and/or EPCOR to obtain a separate synthetic minor 

NSR permit for the proposed project. Combining the projects would essentially nullify the 

existing synthetic minor permit and would require one PSD permit for both projects together. 

Generally, PSD permitting is more rigorous than minor NSR permitting. A PSD permit, unlike a 

typical minor NSR permit, requires the installation of Best Available Control Technology 

l

January 26,2001, Proclamation by the Governor; Gary Locke, of the State of Washington 

declaring an energy supply alert, most recently extended through October 22,2001. 

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(BACT) and an ambient impact analysis demonstrating not only protection of the National 

Anmbient Air Quality Standards, but also acceptable increment consumption and protection of 

Air Quality Related Values in Class I areas. Notably in Washington, however, Ecology's minor 

NSR program requires all sources to install BACT and thereby results in one of the 

environmental protections that is required under PSD permitting. 

Discussion 

EP A has issued several guidance documents that relate to the issue of whether two 

projects that are located near each other and undertaken within a relatively short time frame may 

be permitted as two minor sources, or whether it is appropriate to obtain a single PSD permit for 

the projects2

. Those guidance documents emphasize the importance of evaluating a source's 

intent - specifically, whether the source intends to circumvent PSD permitting - in undertaking 

two such projects. As stated in the October 1986 memo: 

In the extreme case where the source has made a deliberate effort to circumvent 

PSD review (by the systematic construction of carefully sized emiss'ions units 

which only in the aggregate would trigger review) a permitting agency may, 

however, make a finding that PSD applies to the total plant. Such a finding would 

have to be based on clear evidence that the source made a conscious effort to 

escape review by knowingly misrepresenting the intended source size through the 

calculated juggling of actual and scheduled construction of emission units. 

The June 1989 Federal Register notice along with memos addressing "Potential to Emit" 

and the June 1993 3M Memo provide specific criteria for permitting and enforcement authorities 

to apply when evaluating whether a source intends to circumvent major NSR through the minor 

NSR permitting process. An outline of the criteria is presented here along with a case-specific 

assessment. 

1. Filing of More than One Minor Source Application Associated with Emissions 

Increases at a Single Plant Within a Short Time Period 

As stated in the June 1993 3M Memo: 

2

 EPA Guidance on this topic includes: October 21,1986, memo entitled, "Applicability 

of PSD to Portions of a Plant Constructed in Phases Without Permits" (October 1986 Memo); 

June 13, 1989, memo entitled, "Limiting Potential to Emit in New Source Permitting"; June 28, 

1989, Federal Register Notice Promulgating Revisions to 40 CFR Parts 51 and 52, 54 Fed. Reg. 

27274, 27280-27281 (June 1989 Federal Register Notice); September 18, 1989, memo entitled, 

"Request for Clarification of Policy regarding the Net Emission Increase"; October 1990 Draft 

NSR Workshop Manual, pages A.36 & A.37; June 17,1993, memo entitled, "Applicability of 

New Source Review Circumvention Guidance to 3M - Maplewood, Minnesota." (June 1993 3M 

Memo). 

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If a source files for more than one minor s'ource permit application 

simultaneously or within a short time period of each other, this may constitute 

strong evidence of an intent to circumvent the requirements of preconstruction 

review. Authorities should scrutinize applications that relate to the same process 

or units that the source files either before initial operation of the unit or after less 

than a year of operation. 

Although Tenaska obtained the original plant permit from PSCAA in April 1994, 

Frederickson Power submitted its minor NSR application for the current project to PSCAA in 

October 1999. We find it appropriate only to consider the time frame in which Frederickson 

Power became actively involved at the plant. We are assessing Frederickson Power's intent in 

October 1999 and not Tenaska's intent in 1994. Frederickson Power is now considering 

submitting another application for additional power generation approximately 24 months after 

the application for the current project and before the current project finishes construction. Thus, 

this second permit is being requested outside, but close to, the short time frame characterized by 

previous EPA guidance as less than 18 months. See June 1993 3M Memo. 

It is our estimation that the frequency of major construction permitting at a typical power 

plant spans well beyond two years given the historical stability in the market. However, recent 

dramatic and unanticipated fluctuations in wholesale energy prices in the Western United States 

have understandably motivated wholesale energy producers to react quickly to favorable market 

conditions. In the Pacific Northwest alone, thousands of megawatts are being developed in a few 

months after years of inactivity. Frederickson Power has provided evidence3 stating, "[The 

proposed project] is being developed primarily in response to the energy crisis that has emerged 

in the Pacific Northwest over the past several months." Because the unanticipated shift in 

marketplace conditions could certainly justify the companies' shortened permitting cycle and 

minor NSR permitting approach, we believe the 24-month span between the two applications is a 

reasonable time period supporting separation of the projects. However, we proceed with our 

review of other criteria to ascertain the companies' intent when applying for the current project's 

permit because a 24-month span is relatively short. 

2. Applications for Funding 

As stated in the June 1993 3M Memo: 

Applications for commercial loans, or, for public utilities, bond issues, should be 

scrutinized to see if the source has treated the projects as one modification for 

financial purposes. If the project would not be funded or if it would not be 

economically viable if operated on an extended basis (at least a year) without the 

other projects, this should be considered evidence of circumvention. 

3

May 8,2001, Declaration of Harvie Campbell before the State of Washington Energy 

Facility Siting Evaluation Council in support of petition for declaratory order. 

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Frederickson Power has not applied for a commercial loan to fund the current project. 

According to a certified statement4 of Mr. Brian Vaasjo, Executive Vice President of EPCOR, 

"The [current] project has, to date, been selffinanced." Documentation unrelated to 

Frederickson Power's financing illustrates the financial independence of the two projects. Mr. 

Harvie Campbell, Vice President of Westcoast Power Inc. (parent company to Frederickson 

Power), provided a sworn declaration (Declaration) to the State of Washington Energy Facility 

Site Evaluation Council (EFSEC) in May 2001, related to the purchase, permitting and 

construction of the current project along with the initiation of the proposed project. In his 

Declaration, Mr. Campbell provides evidence of the companies' original intent to solely develop 

the current project, and he speaks to the economic viability and independent nature of the 

projects. Mr. Campbell states: 

Frederickson Power did not plan to develop a second unit when it purchased and 

repermitted the existing Frederickson Project. We acquired the Frederickson 

Project on a stand-alone basis. Its' economic and technical feasibility were 

evaluated and found desirable on the assumption that it would be the only unit on 

the parcel. 

The existing Frederickson Project and any second unit will be designed and 

planned as separate facilities. Planning, design and approval of construction of 

the Frederickson II Project will not affect the construction and initiation of 

operation of the Frederickson Project. 

The existing Frederickson Project and the proposed Frederickson II Project 

would have separate gas metering stations. Although the natural gas lateral from 

Northwest Pipeline has the capacity for the Frederickson II Project, the fuel 

metering station does not. Therefore, a second metering stations would have to 

be designed and installed. 

Thus, the evidence before the agencies supports the conclusion that there was no intent to 

construct the proposed project when Frederickson Power purchased the current project. No one 

has presented information contrary to our conclusion. In addition, in coming forward to the 

agencies and explicitly requesting clarification relating to proper permitting of the existing and 

proposed project, the companies emphasized their concern that nothing interfere with the 

uninterrupted completion of the current project. The current project is unquestionably 

economically independent and can operate even if the proposed project is never constructed. 

3. Reports on Consumer Demand and Projected Production Levels 

As stated in the June 1993 3M Memo, 

4

Undated certification statement of Brian Vaasjo concerning existing loan documents for 

Frederickson Power L.P. 

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Stockholder reports, reports to the Securities and Exchange Commission, utility 

board reports, or business permit applications should be reviewed for projected 

operation or production levels. If reported levels are necessary to meet projected 

consumer demand but are higher than permitted levels, this is additional evidence of 

circumvention. 

Frederickson Power has entered into power purchase agreements5

 with three public 

utilities for the sale of 125 MW-hours; well below the 249 MW generating capacity of the 

current project. According to Mr. Campbell's Declaration, neither project's production level will 

be influenced by the other given the likelihood of separate contracts with generally different 

customers. Mr. Campbell states: 

Separate power sales contracts would be negotiated and entered into for the 

Frederickson II Project. Although there may be s'ome overlap in the power 

customers of the Frederickson II Project and the Frederickson Project, the two facilities

will probably serve different customers for the most part.

Thus, there is no evidence that the proposed project is required to fulfill Frederickson 

Power's power generation obligations with respect to the current project. 

4. Statements of Authorized Representatives of the Source Regarding Plans for 

Operation 

As stated in the June 19933M Memo: 

Statements by representatives of the source to EPA or to State or local permitting 

agencies about the source's plans for operation can be evidence to show intent to 

circumvent preconstruction review requirements. 

In his Declaration, Mr. Campbell speculates as to the plans for the proposed project. Mr, 

Campbell states: 

Westcoast and EPCOR are both interested in participating in the Frederickson II 

Project if it goes forward. It is also possible that a third partner could be brought 

into the partnership. No decisions have been made about ownership of the 

Frederickson II Project. However, the Frederickson Project and the proposed 

5

March 26, 2001, Wholesale Power Purchase and Sale Agreement by and between 

Frederickson Power L.P. and P.U.D. No. I of Gray Harbor County, WA; March 27,2001, 

Wholesale Power Purchase and Sale Agreement by and between Frederickson Power L.P. and 

P,U.D. No.1 of Benton County, WA; March 27,2001, Wholesale Power Purchase and Sale 

Agreement by and between Frederickson Power L.P. and P.U.D. No.1 of Franklin County, WA 

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Frederickson II Project would probably be owned and operated by different legal 

entities. 

The proposed project is still in its earliest phases of development as it has not yet even 

been determined who will own and operate the proposed project. Based upon the information 

available, we have no evidence of an intent by Frederickson Power to circumvent the PSD 

permitting process. 

Conclusion 

As stated in the June 1989 Federal Register notice, a source's intent is central to an 

evaluation of whether two projects may be permitted under two minor source permits or whether 

they must be permitted undera single PSD permit. See 54 Fed. Reg. at 27228. It is our finding 

that no clear evidence exists demonstrating an intent by Frederickson Power and/or EPCOR to 

circumvent PSD permitting. Based upon our review of the facts andpermitting history of the 

projects, the companies made no deliberate effort to circumvent PSD review. Given our findings 

noted above, the timing of the projects, and the certainty that both projects would be required to 

install the same pollution control technology regardless of permitting process, EP A advises that 

the projects may be permitted separately. Our conclusion is founded upon the record presented to 

EPA. 

Sincerely,

Doug Cole, Acting Manager

Federal & Delegated Air Programs Unit

cc: Bernard Brady, P.E., Ecology 

Kirk A. Lilley, Preston Gates & Ellis, LLP 

Steven M. Van Slyke, P.E., Puget Sound Clean Air Agency 

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