p.1 

OAR Box 1778 

Prepped by Ollie Stewart 

Document Number: 

181) ll-F-8 

Docket Number: 

A-90-06 

Printed 10/28/2008 9:51:00 AM Sheet 181 of 276 
<* £ * at • 

II-F-8 

1 

MEMORANDUM TO: 

PROM: 

SUBJECT: 

department of Energy 

Washhgton, DC 205B5 

Bill Rotjenhnrg 

Assistant Administrator for Air and Radiation 

Environmental Protection Agftncy 

Linda G. Stuntz {£> 

Objection to iBBUing Draft WEPCo Interpretative Rule; 

DOE Proposal for Resolving WEPCo Problem* 

The purpose of this memorandum is to provide DOE's commenta explaining why we 

strenuously object to the issuance of an inadequate WEPCo interpretative rule like 

the April 16 draft. DOE acknowledges EPA's recent concern about the need to 

respond quickly to industry's concems about WEPCo. However, this concern was not 

evident to us during the 6-month period between Bill Reilly's letter to MikeBoskin 

last year and the first draft interpretative rule made available to us that had been 

reviewed by EPA management. 

We are also providing comments on EPA's excerpt from a legislative rule Uiat 

addresses pollution controls. Finally, we are offering a proposal that should lead to a 

quick and satisfactory resolution of WEPCo through the forthcoming legislative rule. 

Draft lnteiforetative Rule 

DOE continues to believe that it is critical for the Administration to issue OJQII a good 

and comprehensive WEPCo fix by June 1. Therefore, we strenuously object to 

releasing the April 18 draft interpretative rule because of its failure, once again, to 

resolve certain key issues. (See enclosed memorandum.) One example is EPA's 

insistence on tying pollution control relief to the rebuttable presumption. Note that 

last September, the Administration told Senator Ford the rebuttable presumption 

would be easily rebutted, thus triggering WEPCo. (See enclosure, "A Brief History of 

the Rebuttable Presumption.") 

Contrary to EPA's April 26 memorandum, we do xuji believe Uie draft interpretative 

rule is responsive to the needs of the electric utility industry. The recent letter from 

the trade associations representing the electric utility industry makes clear that a 

"partial fix" would not be responsive to their WEPCo problems. We believe a 

comprehensive legislative rule which includes a good preamble is the ojily way to be 

fully responsive to the utilities' WEPCo concerns. 

Pfl1h.tj.in (])ontrol Exccrot 

DOE staff met with EPA stafFlast week to seek clarification of parts of the draft 

excerpt. Both parties agreed to consider questions raised by the other. Our detailed 

comments reflect those questions. (See enclosed memorandum.) 
P.3 

In some respects, the differences between EPA and DOE over pollution control 

projects have narrowed. However, oui major concerns include limiting the pollution 

control PSP exclusion to electric utilities only, tying the rebuttable presumption to 

poUution controls in nonattainment areas, and the need to exclude demand growth 

from future*actual emissions for pollution control projects in nonattainment areas. 

Because the draft rule continues to reflect an approach that hat yielded very little 

progress, IJOE is proposing a somewhat different approach to the legislative rule. 

This approach should help to resolve our differences in a more expeditious and 

mutually satisfactory manner. 

Specifically, we propose that the legislative rule, to be issued by June 1, contain a 

preamble that presents a reasonable interpretation of EPA's current rules and, of 

course, propose new regulatory language as needed. Such a preamble would obviate 

the need for an interpretative rule. The proposed rule would have the following 

elements: 

1. For pollution control projects, an exclusion from new source review. Utility 

projects would be presumed to be environmentally beneficial, with that term broadly 

construed. 

2. For non-pollution control projects, changes to EPA rules to implement the 

1984 settlement agreement between the Chemical Manufactures Association and EPA. 

(The terms of the agreement allow a source to use either a potential-to*potential or an 

actual-to-actual emissions test to determine whether a modification has occurred.) At 

the March 26 meeting of the WEPCo Group, EPA indicated its long-standing 

commitment to implement the CMA settlement agreement. Implementing that 

agreement now as part of the WEPCo legislative rule would resolve the differences 

between ua concerning non-pollution control activities and allow EPA to meet its 

obligations to the D.C. Court of Appeals. 

We look forward to discussing this proposal at our Tuesday meeting. Its adoption by 

EPA would ensure that a good WEPCo fix is proposed by the June deadline. 

cc: Richard Schmalensee, CEA 

Don Elliot, EPA 

Barry Hartman, Justice 

Art Frnafi, OMB 

Teresa Gorman, White House 

Jeff Holmstead, White House 

Lydia Wegman, EPA-OAQPS 
P.4 

I 

MEMORANDUM 

SUBJECT: DOE Review of the Interpretive Rule and DOE 

Recommendations on How to Proceed 

DATE: April 29, 1991 

I. Background 

The Administration has insisted Lhat EPA abandon ita current 

WEPCo policies, in order CO ensure orderly implementation of the 

Clean Air Act Amendments of 1990, to encourage pollution control 

projects, and to promote repairs and replacements needed for 

efficient reliable operation of electric generating units. In 

October 1990, Administrator Reilly agreed to reverse course on 

WEPCo and return to policies that would allow pollution control 

projects and needed repairs ©nd replacements to move forward 

without the uncertainty and delay associated with new source 

review. 

Prior to the Administrator's commitment to fix WEPCo. B?A 

submitted to OMB a draft interpretative rule, that addressed the 

"like kind replacement" concept and "pollution control" projects. 

Amony other things, this draft interpretive rule provided that 

pollution control projects would not; be exempt from new source 

review, if annual utilization of the associated facility were to 

ir.ciease atter tho project was installed. While the draft rule 

would have created a "rebuttable presumption" that pollution 

control projects would not be followed by an increase in annual 

utilization, this presumption could easily have been rebutted, 

leading to uncertainty regarding whether such projects could be 

undertaken at all. Fox this and other reasons, the draft rule 

was rejected as not providing an adequate pollution control 

exemption from new source review. 

In March 1991, EPA submitted a new version of the draft 

interpretive rule -- a version that had grown to 74 pages. This 

version provided even less relief than the first version. It 

Imposed new WEPgy xestxlotions on pollution control projects, and 

still contained the "rebuttable presumption" aa the centerpiece 

of the pollution control fix. Bill Rosenberg and Don Elliott 

stated that they had not reviewed this draft before its 

circulation, and agreed to revise the draft to make it conform 

with the Adnsiiti,st,.x«aiLion's position on pollution control projects. 
P.5 

On April 18, 1991, EPA circulated the latest draft interpretive 

rule. The principle difference between this draft and earlier 

drafts is.that this draft ia only 18 pages long, it reflects no 

change in overall results. 

21, "Discussion of the Probl-Mim with th« EPA's April Draft 

Utilities should be allowed to undertake projects to reduce 

emissions, utilizing certain kinds of technologies that EPA is 

quite tamiliar with,1' without triggering the new aource review 

process. Moreover, any system ought to be susceptible of a 

prompt and certain application, so that an average utility would 

know in advance whether its planned pollution control activities 

are going to be exempt from new source review. Unfortunately, in 

our view, judged by these standards, fc-FA's interpretive rule 

remains completely unacceptable. 

Specifically, like the first and second drafts, the April draft 

still adheres to the "actual annual increase" standard for 

pollution control projects, albeit with a "rebuttable 

presumption." In otiier wuxds, EPA proposed again the approach 

that had been rejected earlier and refused again to return to the 

1983 Pedersen PSD intexpretation regarding pollution control 

projects — an interpretation that would provide clear-cut relief 

for such projects. In sum, EPA has simply submitted a shorter 

version of its previously unacceptable interpretive rule. 

In addition, the latest draft, rule contains elements of prior 

drafts that are unacceptable — e.g., the qualifier on "like kind 

replacements" Lhat the xeplac&ment cannot "fundamentally alter 

the method of operation of a source," and the failure of the rule 

to reooyniite that certain other repairs /e.g.. addition of soot 

blowers), do not transform a unit that has "begun normal 

operations" into one that has noL. The "fundamental change" 

criteria create the prospect of endless and time consuming EPA 

xeviews whenever an older piece of equipment is replaced with one 

of a newer design, or with one that allows a source to return to 

prior operating levels. Considering only replacements and 

ignoring all repairs creates an arbitrary line that cannot be 

squared with the regulatory language, which focuses on whether a 

unit has or has not "begun normal operations." 

Like previous versions of its interpretative rule, EPA has added 

new requirements* to the "actual emissions" calculation formula 

that, like earlier versions, "take away with one hand what it has 

l

' These include scrubbers, low-NOX burners, precipitators, 

fabx-ic filters, sorbent injection systems, ttC-
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TEL: Apr 29,91 23 = 22 No.013 P.06 

j 

given with the other." The newest interpretive rule is 

particularly ingenious in this regard. 

One section of the draft grudgingly implements the "causal link" 

requirement in the Administration's legislative proposal.*' But 

thft section immediately preceding the "casual link" section makes 

clear that projected emissions (as adjusted in accordance with 

the "cauaal link" section) will not be used by EPA to represent 

future actual annual emissions when they are "leas than the 

source'shiohest past utilisation rate . . . ." (Pg. 10, 

emphasis added.) The effect of this requirement is to eliminate 

virtually all relief that would be provided by the "causal link" 

aspect of the ruling, and to read the "causal link" requirement 

out of the rules for most cases. 

Under the April draft, the only time when PSD review would 

clearly not be triggered is when past representative emissions 

equal the source's highest past utilization rate. In every case 

where past representative utilization ia less than the past 

maximum levels, PSD will be triggered (even in casea where future 

utilization is projected to dacr^fl^e below past representative 

levels). Among other things, this new requirement will 

arbitrarily target for new source review smaller, higher emitting 

facilities that have been reducing utilization and plan to reduce 

Utilization further to meet acid rain requirements. 

Finally, the dratt interpretative rule is expressed in terma that 

make it particularly vulnerable to litigation by opponents to the 

rule. Among other things, there is no logical or legal basis for 

distinguishing utilities from non-utilities with respect to 

pollution control projects and "like kind" replacements. While 

distinctions may be made as to what constitutes a pollution 

control project, it seems to us that aa a matter of sound 

administrative law, EPA cannot declare pollution controls 

undertaken by utilities as being exempt under the PSD rules and 

controls undertaken by other industries as triggering PSD review. 

In this regard, release of the interpretative rule in its present 

form would signal to all other industries that EPA would view 

control projects as triggering an "actual to potential" 

comparison. This would mean that new source review would have to 

precede commencement of construction of any pollution control 

project by any other industry. This would substantially inhibit 

the voluntary control program under Title III of the 1990 

v

 The draft fails to state explicitly that changes in loading 

order of units due to economic or environmental reasons must be 

discounted. Also, by imposing a burden of proof on utilities 

undertaking etticiency improvements, EPA will discourage project* 

that are critical to achieving the Administration's energy and 

environmental policies, including "global warming" concerns. 
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TEL: . .V ... 

Amendments and could wreak havoc on Title I nonattainment control 

programs, .An interpretation of current rules that returned to 

the 1983 Pedersen interpretation would avoid these problems. 

In conclusion, the draft interpretative rule does not solve "90 

percent" of the problem, ao suggested by EPA at our last meeting. 

It merely reiterates the Agency's prior position and imposes new 

restrictions that create additional problems/ making this draft 

even less acceptable than the prior attempts. 

Ill, DOE Recommendation 

The draft interpretative rule should not be released because it 

does not fultill Administrator Reilly'a commitment. Simple 

editing will not transform it into an acceptable response. What 

is needed is a legislative rule with an explanation of current 

law that removes the WEPCO cloud over pollution control projects 

and over legitimate repair and replacement activities at utility 

units. We believe that the industry would be perfectly content 

to wait a little bit longer, so as to get needed WgPCo relief. 

The legislative rule should also include, as Don Elliott has 

promised, proposed changes to implement the CWA settlement. 

We believe the preamble to such a legislative rule (which, to the 

extent it described current law, would also be an "interpretative 

rule" that source owners could rely upon) should accomplish the 

following: 

1. Make clear that current rules contain an implicit pollution 

control exclusion (i.e., a return to the Pedersen 

interpretation), which EPA is proposing to make explicit; 

2. Describe the "causal link" requirement and make clear that 

increased utilization due to changes in loading order or 

demand growth must be discounted; 

3. Implement the CMA settlement by proposing a change in the 

new source applicability rules to allow an election between 

"potential-to-potentialM and "actual-to-actual"; 

4. Until the CMA rule is finalized, make clear that unito that 

have begun normal operations (including all units 

undertaking like-kind replacements) are subject to an 

actual-ta-.-ictual comparison; 

5. implement tne NSPS fix in the Administration proposal, 

making clear that, in the interim, the emission rate 

immediately before a change will not be uaed where that rate 

reflects temporary conditions that are unrepresentative of 

past operations. 
P.8 

** • 

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TEL: Rpr 29,91 23=22 No.013 P.10 

meaning of the term, it should be defined in the iegialative 

rule. In addition, utility PCPs should be presumed to be 

environmentally beneficial. 

The excerpt language does not mention demand growth. 

Increased utilization in response to demand growth should be 

excluded from the projection of future-actual emissions for 

PCPS. This is appropriate because the installation of 

pollution controls or fuel switching are not causally linked 

to satisfying future demand growth. 

Once again, we object to a rebuttable presumption being tied 

to pollution control projects. As we all know, the 

allowance trading system encourages a high level of 

utilization of the best-controlled powerplants. Therefore/ 

increased utilization due to environmental/economic dispatch 

should be excluded. Otherwise, the rebuttable presumption 

will be rebutted and WEPCo will be triggered.