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# i ^ II-I-1 7 INTH E UNITE D STATE S COURT O F APPEAL S FORTH E SEVENTH CIRCUI T Nos . 88-326 4 88-133 9 WISCONSI NELECTRI C POWE RCOMPANY , Petitioner , v . WILLIA MK . REILLY , Administrato r Unite d State s Environmenta l Protectio n Agency , e t al. . O NPETITION S T O REVIE WFINAL ACTION O F TH E UNITE D STATE S ENVIRONMENTAL

PROTECTIONAGENC Y BRIE F FORTH E RESPONDENT SP. 3

TABL E O F C0NTENT 8 Pag e APPELLEES ' JURISDICTIONAL STATEMENT 1 ISSUE S T O B E PRESENTE D 1 STATEMENT O F TH E CAS E 2 I . STATUTORYPROVISION S 2 A . Th e 197 0 Clea nAi r Ac t —2 B . Th e 197 7 Amendment s t o th e Clea n Ai r Ac t 4 1 . Revision s t o th e NSP S 4 2 . Th e PS D Program...... . 5 C . Judicia l Revie wUnde r th e Clea n Ai r Ac t 6 II . REGULATORYBACKGROUN D O F TH E NSP S AND PS D MODIFICATIONREQUIREMENT S 6 A . Th e Two-Step Tes t fo r Modifications : Twi n Branche s o f ASingl e Tre e 6 B . Physica l o r Operationa l Chang e 7 C . Emission s Increas e Unde r NSPS : Th e Differenc e Betwee nCurren t Maximu mEmission s Rat e an d Maximu

mEmission s Rat e Afte r th e Physica l o r Operationa l Chang e 1 2 D . Emission s Increas e Unde r PSD : Th e Differenc e Betwee n Representativ e Actua l Emission s an

d Potentia l t o Emi t Afte r th e Chang e 1 3 1 . EPA' s Initia l Regulation s an d Alabama Powe r 1 3 2 . Th e Curren t PS D Regulation s 1 4 E . Th e NSP S Reconstructio nRule : Th e Distinctio n Betwee n Modificatio n an d Reconstructio nUnde r NSP S 1 8 F . EPA' s Issuanc e o f NSP S an d PS D Applicabilit y Determination s r - 1 9P. 4

III . EPA' S MODIFICATIONREGULATION S AND UTILITY LIF E EXTENSIONPROGRA M2 0 IV . WEPCO' S PORT WASHINGTONLIF E EXTENSION PROJEC T 2 4 A . WEPCO' s Renovatio n Proposa l t o th e Publi c Servic e Commission : Restor e Design Capacit y an d Extend Plan t Lif e 2 4 B . EPA' s NSP S an d PS D Applicabilit y Determination s 2 6 1 . Th e Septembe r 9 , 198 8 Memorandu mfro m Do n R . Clay2 6 a . Physica l Chang e 2 7 b . Increas e i n Productio nRat e an d Hour s o f Operatio n2 8 c . Significan t Ne t Emission s Increas e Unde r PS D 3 0 d . Increas e i nEmissio n Rat e unde r NSP S 3 1 2 . Th e Octobe r 14 , 198 8 lette r fromLe e M . Thoma s 3 1 3 . Th e February15 , 198 9 Supplementa l Determinatio nfromDo n R . Clay3 3 SUMMARYO F ARGUMENT 3 6 I . STANDARD O F REVIEW : EPA' s INTERPRETATION S O F TH E CLEA NAI RAC T AND IT S OW NREGULATION S MUS T B E ACCORDE D GREAT DEFERENC E 3 8 II . EPAHAD NO OBLIGATIONT O CONDUC T NE WRULEMAKINGT O SPECIFICALL YADDRES S "LIF E EXTENSIONS " BEFOR E PROCEEDINGWIT H INFORMAL ADJUDICATION , BECAUS E TH E RENOVATIONWORK AT PORT WASHINGTON CONSTITUTE S AMODIFICATIONUNDE REPA' S EXISTING REGULATION S 4 1 A . EPAProperl yApplie d It s Existing Modificatio n Regulation s t o th e Fact s o f Thi s Cas e 4 1

i iP. 5

B . WEPCO' S Lif e Extensio nProjec t Involving "Like-Kind Replacement " I s Withi nth e Definitio n o f Modificatio nUnde r EPA Regulation s 4 4 C . Th e NSP S an

d PS D Regulation s Ar e No t Subjec t t o Revie wi n Thi s Court ; WEPCO' s Remed y Lie s i n a Rulemaking Petitio n 4 9 III . EPA' S FACTUAL FINDIN GTHAT WEPCO' S $8 0 MILLION LIF E EXTENSIONPROJEC T I S NO T ROUTIN E I S CONSISTENT WIT H TH E CLEA NAI RACT , EPA REGULATIONS , AND PRIORDECISION S 4 9 A . Th e Renovatio n Wor k I s Costl yan d Extensive , an d Apparentl yHa s Neve r Bee nDon e ByAny Othe r Utilit y4 9 B . Th e Purpos e o f th e Projec t I s t o Restor e Los t Capacit yan

d Extend th e Usefu l Lif e o f th e Por t Washingto n Plan t 5 4 C . WEPC O Woul d Hav e th e "Routine " Exclusio n Swallo wth e Rul e 5 6 IV . EPA' S FACTUAL FINDING S THAT WEPC O EXCEEDE D NSP S AND PS D BASELINE EMISSION S AR E REASONABL E AND I N ACCORDANC E WIT H APPLICABL E REGULATION S 5 7 A . Wher e Emission s Increase s Du e t o Increase d Productio n Rat e o r Hour s o f Operatio nAr e Attributabl e t o Physica l o r Operationa l Changes , TheyTrigge r NSP S an d PS D Coverag e 5 7 B . Origina l Design Capacit yI s No t Relevan t Unde r NSP S o r PSD ; Fue l Switching I s No t Relevan t Unde r NSP S 6 1 1 . Achievabl e Capacity , No t Origina l Design Capacity , I s th e Baselin e Fo r Determining Emission s Increas e Unde r NSP S 6 1 2 . Fue l Switching I s No t AMean s O f Avoiding NSP S Applicabilit y6 3

T \ •,.,-• • . C . EPA' s PS D Regulation s Requir e tha t Emission s Increase s B e Determine d b yComparin g Actua l Emission s Befor e th e Physica l o r Operationa l Chang e t o Potentia l Emission s Afte r th e Chang e ._ * 6 5 ii iP. 6

( it E . WEPC O Ha s ANumbe r o f Option s T o "Ne t Ou t o f NSP S an

d PS D Coverag e 6 8 CONCLUSION6 9

I VP. 7

foot e dis k AA : wepbrief.62 6 OG C DRAF T 6/26/8 9

RESPONDENT' S JURISDICTIONAL STATEMENT Th e jurisdictiona l summaryi nth e petitioner' s brie f i s correc t insofa r a s i t assert s th e jurisdictio no f thi s Cour t t o revie wth e fina l determination s o f th e U.S . Environmenta l Protectio n Agenc y(EPA ) regarding th e applicabilit yo f ne wsourc e performanc e standard s (NSPS ) an d th e preventio n o f significan t deterioratio n (PSD ) programt o petitioner' s Por t Washingto n lif e extensio n project . Petitioner' s jurisdictiona l statemen t i s incorrec t t o th e exten t tha t it s petition s fo r revie wconstitut e a collatera l challeng e t o EPA' s underlying NSP S an d PS D regulations . Pursuan t t o Clea nAi r Ac t sectio n 307(b)(1) , 4 2 U.S.C . § 7607(b)(1) , thos e nationall yapplicabl e regulation s wer e subjec t t o revie wonl yi nth e U.S . Cour t o f Appeal s fo r th e Distric t o f Columbi a Circui t withi n 6 0 day s o f thei r promulgation , an

d mayno t b e reviewe d i nthi s Court .

ISSUE S PRESENTE D 1 . Whethe r EPAreasonabl yinterprete d th e definitio n o f "modification " unde r th e Clea n Ai r Ac t an d it s ownregulation s a s encompassing an yphysica l o r operationa l chang e no t specificall yexclude d b ytha t definition , including "lik e kin d replacements " unde r electri c utilit y"lif e extension " projects .

2 . Whethe r EPAreasonabl yfoun d tha t WEPCO' s lif e extensio n project , involving th e unprecedente d replacemen t o f majo r component s a t th e Por t Washingto n plan t i norde r t o restor e generatin g capacit ylos t becaus e o f age-relate d deterioratio nan dP. 8

- 7 - t o extend usefu l lif e b y2 0 year s a s th e plan t near s it s retiremen t date , i s no t withi nth e narro wNSP S an d PS D exemption s fo r "routine " maintenance , repai r an d replacement . 3 . Whethe r EPAreasonabl yfoun d tha t emission s increase s mad e physicall yan d economicall ypossibl e byextensiv e renovation s t o WEPCO' s Por t Washingto n plan t ar e no t withi n th e narro wNSP S an

d PS D exemptio n fo r emission s increase s tha t resul t fro mincrease d productio n rate s o r hour s o f operatio nwhic har e necessaryt o respond t o marke t fluctuations .

4 . Whethe r EPAreasonabl yinterprete d it s NSP S regulation s a s defining anincreas e i n emission s rat e a s a n increas e i n curren t pollution-generating capacity , withou t regard t o fue l switches .

5 . Whethe r EPAreasonabl yinterprete d it s PS D regulation s a s determining a ne t emission s increas e bycomparing representativ e actua l emission s befor e prospectiv e physica l change s wit hpotentia l emission s following thos e change s wher e th e modifie d emission s uni t ha s no t begu nnorma l operations . STATEMEN

T OF THE CAS E I . STATUTORYPROVISION S A . The Clea n Ai r Ac t Th e Clea n Ai r Ac t ("CAA " o r th e "Act") , 4 2 U;S.C . § 1857 , establishe s a combine d federa l and stat e programt o contro lP. 9

- 8 - ai r pollution . Unde r section s 10 8 an d 10 9 o f th e CAA, 1 EPAi s t o promulgat e nationa l ambien t ai r qualit ystandard s ("NAAQS" ) specifying maximu

mpermissibl e concentration s o f ai r pollutants. 2 Sectio n 11 0 o f th e CA Arequire s eac hstat e t o develo p an

d submi t t o EPAfo r approva l a stat e implementatio n pla n ("SIP" ) tha t provide s fo r attainmen t an d maintenanc e o f th e NAAQS . I n sectio n 111(b)(1)(A ) o f th e Act , Congres s als o require d EPAt o promulgat e technology-base d standard s o f performanc e fo r certai ncategorie s o f ne wstationarysource s tha t caus e o r contribut e significantl yt o ai r pollutio n whic hmay reasonabl yb e anticipate d t o endange r publi c healt ho r welfare . Unde r sectio n 111(a)(2)o f th e Act , a stationarysourc e fo r whic h a ne wsourc e standar d o f performanc e (NSPS ) i s applicabl e i s define d a s an ystationarysource , th e constructio n o r modificatio n o f whic hi s commence d afte r th e publicatio n o f regulation s (or , i f earlier , propose d regulations ) prescribing a standar d o f performanc e unde r thi s sectio n whic hwil l b e applicabl e t o suc hsource . "Modification " i s define d broadl yi nsectio n111(a)(4 ) a s an yphysica l chang e in , o r chang e i nth e metho d o f operatio n of , a stationarysourc e whic hincrease s th e amoun t o f an

yai r pollutan t emitte d b ysuc hsourc e o r

1 Fo r convenience , al l specifi c citation s wil l b e t o section s o f th e Clea n Ai r Act . Paralle l citation s t o th e U.S . Cod e ar e provide d i n th e Tabl e o f Authorities .

2 NAAQ S consis t o f primaryan d secondarystandard s whic h ar e require d t o protec t th e publi c healt han d welfare , respectively , fro

madvers e effect s resulting fromexposur e t o criteri a pollutant s i n th e ambien t air .P.1 0

- 9 - whic hresult s i n th e emissio no f an yai r pollutan t no t previousl yemitted . (emphasi s added) . Sectio n 11 1 wa s "designe d t o preven t ne w[air ] pollutio n problems " b

yregulating bot hnewl yconstructe d source s o f pollutio n an

d existing source s tha t increas e thei r emissions . Nationa l Asphal t Pavemen t Ass' nv . Train . 53 9 F.2 d 775 , 78 3 (D.C . Cir . 1976) . Se e als o H.R . Rep . No . 1146 , 91s t Cong. , 2 d Sess . 3 , reprinte d i n 197 0 U.S . Cod e Cong . & Admin . New s 5356 , 5358 . B . Th e 197 7 Amendment s t o th e CleanAi r Act . I n Augus t 1977 , Congres s adopte d furthe r extensiv e change s t o th e CAA , an d recodifie d th e amende d Ac t a t 4 2 U.S.C . 740 1 e t sea . Pub . L . 95-95 , 9 1 Stat . 685 . 1 . Revision s t o th e NSPS . Th e NSP S provision s wer e revise d i nsevera l ways . Congres s amende d sectio n 11 1 t o requir e source s regulate d unde r tha t sectio n t o achiev e th e bes t technologica l systemo f emission s reductio n th e Administrato r determine d t o b e adequatel y demonstrate d an

d feasibl e considering a variet yo f factors , [cite ] Further , Congres s require d tha t fo r fossi l fuel-fire d stationar

y source s emission s standard s coul d no t t o b e me t b y simpl yburnin

glo w sulfu r fuels . Thus , Congres s adde d a provisio n requiring tha t a percentag e reductio nstandar d b e establishe d a s par t o f th e standard o f performance . [cite ] Se e H.R . Rep . 294 , 95t hCong. , 1s t Sess. , reprinte d i n 197 7 U.S . Cod e Cong . & Admin . New s 1077 , 1262-67 . Congres s mad e clea r tha t fo rP.1 1

- 1 0 - unit s subjec t t o th e NSP S fo r utilit yboilers , th e technologica l systemi t contemplate d fo r th e reductio no f sulfu r dioxid e emission s wa s th e installatio no f scrubbers , [cite ] 2 . Th e PS D Program . Th e 197 7 Amendment s als o adde d a ne wPar t C t o th e CA A including , i n section s 16 0 - 169 , a program fo r th e preventio n o f significan t deterioratio n o f ai r qualit y(th e "PSD * program ) i n clea n ai r area s whic hhad achieve d th e NAAQS . Th e congressiona l purpose s wer e t o protec t th e publi c from advers e healt han d welfar e effect s tha t migh t resul t fromexposur e t o a pollutan t a t level s belo wth e NAAQS , t o maximiz e opportunitie s fo r economi c growt hconsisten t wit hth e preservatio n o f existing clea n ai r resources , an

d t o insur e tha t an ydecisio n t o increas e ai r pollutio n i s mad e onl yafte r a careful , publi c evaluatio no f al l th e consequence s o f suc ha decision . Sectio n160(1 ) - (5) .

Thes e PS D purpose s ar e implemente d througha comple x preconstructio n revie wan d permittin g program applicabl e t o th e constructio n o r modificatio n o f a "majo r emitting facility" 3 i n area s o f th e countrytha t hav e attaine d th e NAAQ S fo r a give n pollutant . Mos t fundamentally , ai r qualit yi s preserve d b y

3 Sectio n 165(a)(1 ) require s tha t everymajo r emitting facilit yobtai n a permi t meetin g th e substantiv e PS D requirement s prio r t o construction . Sectio n169(1 ) define s "majo r emitting facility " a s a stationarysourc e whic hemit s o r ha s th e potentia l t o emi t 25 0 ton s pe r yea r or , i nth e cas e o f a sourc e i n certai n industria l categories , 10 0 ton s pe r year , o f an yai r pollutant . Sectio n 169(2)(C ) define s "construction " t o includ e "modification " o f a facilit ya s define d fo r NSP S purpose s i n sectio n 111(a)(4) .P.1 2

- 1 1 " establishin g incrementa l ceiling s tha t limi t tota l increase s ove r ambien t "baseline " pollutan t concentration s i n a give n area . Se e Section s 163 , 165(a)(3) , an d 166 . Th e firs t permi t applicatio n i n an are a trigger s th e baseline ; subsequen t applicant s maydraw upo n th e remaining "increment. "

T o maximiz e th e availabl e incremen t an d t o furthe r th e spread o f advance d pollutio ncontro l technologies , sectio n 165(a)(4 ) require s tha t PS D permit s specif yus e o f th e bes t availabl e contro l technology("BACT") , whic hmus t b e a t leas t a s stringen t a s an

yapplicabl e NSPS. 4 C . Judicia l Revie wUnde r th e Clea n Ai r Act . Sectio n 307(b)(1 ) o f th e Clea n Ai r Ac t authorize s th e court s o f appeal s t o revie wcertai nenumerate d regulatory decision s an

d "an yothe r fina l actio n o f th e Administrator. " Se e generall yHarriso n v . PP GIndustries . Inc . 44 6 U.S . 57 8 (1980) . Action s tha t ar e locall yo r regionall yapplicabl e ar e reviewabl e i n th e appropriat e circuit , whil e an actio no f nationwid e scop e an d effec t mayb e reviewe d onl yi nth e D.C . Circuit . Sectio n 307(b)(1) . I n general , a petitio nfo r revie wmus t b e file d withi n 6 0 day s o f EPA' s fina l action . Apetitio nfo r revie wmay b e file d a t a late r dat e onl yi f i t i s base d solel yo nground s arisin g afte r th e sixtiet hday . Id . A s a prerequisit e t o

4 I n additio n t o demonstrating complianc e wit hai r qualit y increment s an

d BACT , a PS D applican t mus t demonstrat e tha t ther e wil l b e n o advers e impact s o nth e ai r qualiJt yrelate d value s o f nationa l park s an

d othe r specifie d area s (section165(d)) , an d conduc t a n ai r qualit yanalysis , including impact s o n soils , vegetation , an

d visibilit y(section 165(e) .P.1 3

- 1 2 - appellat e jurisdictio n unde r thi s "arising after " exception , a part ymus t firs t petitio n EPAfo r rulemakin g base d o nth e ne w grounds . E.g. . Stat e o f Main e v . Thomas . F.2 d (1s t Cir . 1989) ; Group Agains t Smo g & Pollution . Inc . v . EPA . 66 5 F.2d . 1284 , 1289-9 0 (D.C . Cir . 1981) ; 01-iato Chapte r o f th e Navai o Trib e v . Train . 51 5 F.2 d 654 , 66 1 (D.C . Cir . 1975) . II . REGULATORYBACKGROUN D O F TH E NSP S AND PS D MODIFICATION REQUIREMENT S A . Th e Two-Ste p Tes t fo r Modifications : Twi n Branche s o f ASingl e Tree . Th e modificatio n provision s o f th e NSP S an d PS D program s gro wfroma singl e statutorytrunk , th e verybroa d definitio n o f "modification " i nsectio n111(a)(4) . Unde r bot h respectiv e programs , EPAha s develope d a highl yrefine d two-ste p tes t fo r determinin g whethe r activitie s a t a nexisting facilit y constitut e a modificatio n subjec t t o ne wsourc e requirements . I n th e firs t step , whic hi s largel yth e same fo r NSP S an d PSD , EPA determine s whethe r a physica l o r operationa l chang e ha s occurred . I f so , EPAproceed s i nth e secon d ste p t o determin e whethe r th e physica l o r operationa l chang e wil l resul t i n a nemission s increas e ove r baselin e levels . I n thi s second step , th e applicabl e rule s branc hapart , reflecting th e fundamenta l distinction s betwee n th e technology-base d purpose s o f NSP S an d th e technologyan

d ai r qualit yconcern s o f PSD . Briefly , th e NSP S progra mi s concerne d wit hhourl y- 1 3 -

emission s rates , expresse d i n kilogram s o r pound s pe r hour. 5 Emission s increase s fo r NSP S purpose s ar e determine d b ychange s i n th e hourl yemission s rates . PS D i s concerne d wit htota l annua l emission s t o th e atmosphere , expresse d i nton s pe r year. 6 Emission s increase s unde r PS D ar e determine d b ychange s i nannua l emissions . I n orde r t o understand th e curren t requirement s governing NSP S an

d PS D applicabilit ydeterminations , i t i s usefu l t o summariz e th e evolutio no f th e modificatio nrule s fo r th e respectiv e programs . B . Physica l o r Operationa l Change . Th e verybroa d definitio no f physica l o r operationa l chang e i n sectio n 111(a)(4 ) could , standing alone , theoreticall y encompas s th e mos t mundan e activitie s a t a nindustria l facilit y-

- eve n th e repai r o r replacemen t o f a singl e leak ypip e o r a chang e i n th e waytha t pip e i s utilized . However , EPAha s alway s recognize d tha t Congres s obviousl ydi d no t intend t o requir e everyphysica l o r operationa l chang e t o b e potentiall ysubjec t t o ne wsourc e requirements , an d tha t i t woul d b e administrativel y impracticabl e t o d o so . Accordingly , EPAha s substantiall y narrowe d thi s ter

m i n it s NSP S an

d PS D regulatorydefinition s

5 A n hourl yemission s rat e i s th e produc t o f th e instantaneou s emission s rate , i.e. , th e amoun t o f pollutio npe r uni t o f ful l combuste d o r material s processed , suc ha s pound s o f sulfu r dioxid e pe r to no f coa l burned ) time s productio nrat e (e.g. , ton s o f coa l burne d pe r hour) . 6 Annua l emission s ar e th e produc t o f th e hourl y emission s rat e (whichi s th e sol e concer no f NSPS ) time s th e hour s o f operatio n pe r year .P.1 5

- 1 4 - throughth e adoptio n o f common-sens e exemption s excluding certai n categorie s o f charges .

Regarding NSPS , EPA' s origina l regulation s provide d tha t certai n physica l an d operationa l change s woul d no t trigge r a modification . Se e 3 6 Fed . Reg . 24877 , 2 4 (1971 ) (codifie d a t 4 0 C.F.R . § 60.2(h ) (197_) . Unde r 4 0 C.F.R . § 60.2(h)(1 ) (1973) , a routin e replacemen t o r repai r woul d no t b e considere d a physica l change . Th e definitio n o f modificatio nals o exclude d fromth e term"chang e i nmetho d o f operation " an increas e i nth e productio n rate , i f suc hincreas e doe s no t excee d th e operating design capacit yo f th e affecte d facility . 4 0 C.F.R . § 60.2(h)(2 ) (1973) . I n 1974 , EPApropose d amendment s t o clarif yth e definitio n o f "modification " a s i t woul d b e applie d b yth e Agenc y i n determining NSP S applicability . I nparticular , th e proposa l adde d a ne wsectio n 60.14(e ) furthe r detailing wha t physica l an d operationa l change s woul d "not , b ythemselves , b e considere d modifications " eve n thoughth e emissio nrat e mayincrease . Se e 3 9 Fed . Reg . 36,946 , 36,948 , col . 1 , 36949 , col . 3 . EPA promulgate d th

e revise d NSP S rule s i n 1975 . 4 0 Fed . Reg . 58,416 . The ywer e subjec t t o judicia l revie wi nth e D.C . Circui t a t tha t tim e unde r sectio n 307(b) , an d wer e th e subjec t o f challeng e b y bot hindustryan

d environmenta l groups . Se e ASARCO . Inc . v . EPA . 57 8 F.2 d 31 9 (D.C . Cir . 1978) . Th e cour t o f appeal s uphel d thos e portion s o f th e NSP S regulation s relevan t t o thi s case .

Th e 197 5 NSP S regulation s exclude " thre e type s o f physica l o r operationa l change s relevan t t o thi s case :.16

- 1 5 - (1 ) Maintenance , repair , an d replacemen t whic hth e Administrato r determine s t o b e routin e ... . (2 ) A n increas e i n productio n rat e o f a n existin g facility , i f tha t increas e ca n b e accomplishe d withou t a majo r capita l expenditur e o n th e stationar ysourc e containin g tha t facility . (3 ) A n increas e i n th e hour s o f operation . 4 0 C.F.R . § 60.14(e)(1 ) - (3) .

Th e curren t PS D regulation s contai n simila r exclusions : (a ) Routin e maintenance , repair , an d replacement ;

**** * (f ) A n increas e i n th e hour s o f operatio n o r i n th e productio n rate , unles s suc hchang e woul d b e prohibite d unde r anyfederall yenforceabl e permi t conditio n ... . 4 0 C.F.R . § 52.21(b)(2)(iii)(a) , (f) .

Th e preamble s t o th e NSP S an d PS D regulation s adoptin g th e exclusion s fo r "routine " maintenance , repair , an d replacemen t contai n n o specifi c discussio n o f ho w"routine " wa s t o b e construed , implyin g tha t EP Awoul d interpre t tha t ter mi n a straightforward , common-sens e manner .

Bot hpreambles , however , reflec t tha t EP Aspecificall y intende dt o shap e th e exclusion s fo r increase s i n productio n rate s andhour s o f operatio n i n accordanc e wit hth e purpose s o f th e ne wsourc e programs . I n promulgatin g th e NSP S productio n rat e exclusion , EP Aexpressl ydelete d a provisio n fro mth e 197 1 regulation s tha t ha d applie d th e exclusio n t o productio n increase s u p t o th e operatin g "desig n capacity " o f th e facility . Instead , EP Adeclared , th e exclusio n woul d b e limite d t oP.1 7

- 1 6 - productio n rat e increase s tha t d o no t excee d actua l operating capacity . 3 9 Fed . Reg . 36,94 8 (propose d rule) .

EPAfurthe r limite d th e productio nrat e exclusio nt o increase s whic hca n b e accomplishe d withou t a "capita l expenditure, " i.e. , investment s i n long-termbetterment s i n exces s o f th e Interna l Revenu e Service s annua l asse t repai r guidelines . 4 0 C.F.R . § 60.14(e)(2 ) (1 9 ) . Se e 3 9 Fed . Reg . 36,949 , col . 1 (propose d rule) ; 4 0 Fed . Reg . 58,416 , col . 2 (fina l rule) .

Th e exclusion s fo r increase s i n productio n rate s an d hour s o f operatio n ar e lumpe d togethe r i n th e PS D regulations , an d contai n n o explici t link t o capita l expenditure . 4 0 C.F.R . § 52.21((b)(2)(iii)(f) . However , EPAidentifie d thre e factor s a s delineating th e exclusions ' scope , tw o o f whic hech o th e concern s underlying th e capita l expenditur e limitatio ni nth e analogou s NSP S exclusion . Th e Agenc ystated : [EPA ] i s als o convince d tha t Congres s coul d no t hav e intende d a compan

yt o hav e t o ge t a [PSD ] permi t befor e i t coul d lawfull ychang e hour s o r rat e o f operation . Plainly , suc ha requiremen t woul d severel yan d undul y hampe r th e abilit yo f an ycompan

yt o tak e advantag e o f favorabl e marke t conditions . Th e emphasi s o f th e relevant statutoryprovision s o n"construction " strongl y

support s EPA' s interpretatio n o f Congress ' intent . See , e.g. . sectio n 165(a) , 4 2 U.S.C . 7475 . A t th e sam e time , an

ychang e i nhour s o r rat e o f operatio n tha t woul d distur ba prio r assessmen t o f a source' s environmenta l impac t shoul d hav e t o underg o scrutiny . 4 5 Fed . Reg . 52,704 . Thus , simpl e change s i n productio n level s t o keep abreas t o f marke t fluctuation s d o no t trigge r PSD , bu t revie wi s require d wher e productio nincrease s ar e linke d t oP.1 8

- 1 7 - constructio n activity . Th e thir d facto r —disallowin g th e exclusio n wher e i t woul d affec t assumption s regarding a source' s environmenta l impac t —addresse s PS D ai r qualit yplannin g concern s no t a t issu e unde r NSPS . C . Emission s Increase s Unde r NSPS : Th e Differenc e Betwee n Curren t Maximu

mEmission s Rat e an d Maximu

mEmission s Rat e Afte r th e Physica l o r Operationa l Chance . Sectio n 60.1 4 o f 4 0 C.F.R . clarifie d th e definitio n o f a n emission s increas e fo r NSP S purpose s an d th e method s fo r determinin g whethe r a n increas e wil l occur . Unde r sectio n60.1 4 a n increas e i n emission s occur s i f th e hourl yemission s rat e increases . EPAconsidere d an d rejecte d othe r mechanism s suc ha s tota l annua l emissions . Se e 4 0 Fed . Reg . . 4 0 C.F.R . § 60.14(b ) set s fort hfou r specifi c mechanism s b ywhic hEPA(or a source ) ca n determin e whethe r a physica l o r operationa l chang e result s i n a n emission s increase : emissio nfactors , materia l balances , continuou s monitorin g system s an d manua l emissio n tests . Wher e emission s factor s d o no t demonstrat e t o th e Administrator' s satisfactio nwhethe r a n increas e wil l occur , on e o f th e othe r method s mayb e used . Wher e actua l emission s test s ar e run , test s shal l b e run unde r suc hcondition s a s th e Administrato r shal l specif yt o th e owne r o r operato r base d o n representativ e curren t performanc e o f th e facility . 4 0 C.F.R . § 60.14(b)(2) . Al l operating parameter s whic hma yaffec t th e emissio n rat e ar e t o b e hel d constant . I naddition , ther e i s n o d e minimi s exemptio n a s suc hi nth e NSP S mo~dification s provisions , althoughwher e actua l test s ar e conducte d th e tes tP . 1 9

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run s ar e analyze d t o ensur e tha t ther e i s a statisticall y significan t increas e i n emissions . Mino r change s i n emission s i n respons e t o routin e dail yfluctuation s i n operation s no t th e typ e o f change s contemplate d i nth e regulations . Se e 3 9 Fed . Reg . a t 36,947 . D . Emission s Increase s Unde r PSD : Th e Differenc e Betwee n Representativ e Actua l Emission s an d Potentia l t o Emi t Afte r th e Chance . 1 . EPA' s Initia l Regulation s an d th e Alabama Powe r Decision . I n 197 8 EPApromulgate d PS D regulation s t o implemen t th e 197 7 CA

AAmendments . Thos e regulation s limite d PS D coverag e t o onl y"major " modifications , wher e a physica l o r operationa l chang e increase d a source' s "potentia l t o emit " b yth e same 10 0 o r 25 0 ton s pe r yea r threshol d tha t Congres s establishe d fo r brand ne wmajo r emitting facilities , withou t regar d t o th e effec t o f pollutio n contro l device s o n uncontrolle d emissions . Se e 4 3 Fed . Reg . 26380 , 2639 1 (1978) .

I n a decisio naddressing numerou s provision s o f th e 197 8 regulations , th e D.C . Circui t remande d EPA' s definitio no f "modification " i n thre e keyrespects . Alabama Powe r Co . v . Costle . 63 6 F.2 d 32 3 (D.C . Cir . 1979) . First , th e cour t hel d tha t a source' s potentia l t o emi t mus t tak e int o accoun t th e anticipate d functioning o f ai r pollutio n contro l equipmen t designe d int o th e facility . 63 6 F.2 d a t 353 . Th e cour t als o hel d ope n th e possibilit ytha t enforceabl e restriction s o n operation s coul d also(the \ "limi t potentia l t o emit. " Id . a t 35 5P.2 0

- 1 9 - n.73 . Second , i n ligh t o f th e broa d definitio no f modificatio n i n sectio n 111(a)(4 ) a s "any " increas e i nemissions , th e cour t rule d tha t EPAlack s authorit yt o exemp t emission s increase s excep t o n ground s o f d e minimi s o r administrativ e necessity , noting furthe r tha t thi s woul d b e inconvenien t an d costl yt o industry . Id . a t 400 . Third , th e D.C . Circui t rule d tha t EPAhad broa d discretio n t o appl yth e nettin g o r "bubble " concept , suc h tha t physica l o r operationa l change s whic hincreas e emission s coul d b e offse t b

ycontemporaneou s emission s decreases , an d PS D woul d no t appl ya t al l i f ther e wer e n o ne t emission s increase . Id . a t 402-03 .

2 . Th e Curren t PS D Regulations . I n respons e t o Alabama Power . EPAsubstantiall yrevise d it s PS D regulation s i nAugus t 1980 . 4 5 Fed . Reg . 52,676. 7 Th e change s regarding modification s reflecte d al l o f th e court' s key finding s note d above . I n particular , EPAprovide d tha t increase s i n actua l emission s woul d gover ncoverage . Se e id . a t 5270 0 (citin g Alabama Power) . Thus , th e 198 0 regulation s redefine d "majo r modification, " a s

7 EPA : promulgate d tw o largel yidentica l set s o f PS D regulations . 4 0 C.F.R . § 51.16 6 (originall ydesignate d a s § 51.24) , establishe d requirement s tha t stat e PS D plan s mus t mee t t o b e approve d b

yEP Aa s par t o f a SIP . 4 0 C.F.R . § 52.2 1 contain s federa l PS D regulations , presentl yapplicabl e i n roughl y 2 0 states , including Wisconsin , whic hhav e faile d t o submi t thei r ow n PS D rule s unde r § 51.166 . Fo r mos t state s i n thi s category , agai n including Wisconsin , EPAha s delegate d PS D permit-issuing authorit ybac k t o th e stat e pursuan t t o § 52.21(u) . [cit e PS D delegation. ] Becaus e 4 0 C.F.R . § 52.2 1 is-th e relevan t se t o f PS D regulation s i n thi s case , reference s i n thi s brie f wil l b e mad e t o tha t section .P.2 1

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an yphysica l chang e i n o r chang e i n th e metho d o f operatio n o f a majo r stationarysourc e tha t woul d resul t i na significant[ 8 ]ne t emission s increas e o f an ypollutan t subjec t t o regulatio n unde r th e Act . 4 0 C.F.R . § 52.21(b)(2)(i ) (emphasi s added) .

EPAestablishe d a three-ste p proces s fo r determining ne t emission s increase . Th e firs t ste p i s t o determin e whethe r th e particula r physica l o r operationa l chang e woul d itsel f resul t i n a n increas e i n "actua l emissions. " Sectio n 52.21(b)(3)(i)(a). 9 Th e second step i s t o quantif yan yothe r increase s an

d decrease s i nactua l emission s tha t woul d b e contemporaneou s wit hth e particula r chang e and otherwis e creditable . Sectio n 52.21(b)(3)(i)(b) . Th e thir d ste p i s t o su m th e increase s an

d decrease s an

d determin e whethe r ther e i s a significan t ne t increas e overall . Se e 4 5 Fed . Reg . 52,698 , col . 3 . A n integra l componen t o f th e netting rule s i s a source' s abilit yt o gai n credi t fo r contemporaneou s emission s decrease s b

yobtaining "federall yenforceable " restriction s o n it s "allowabl e emissions. " Federall yenforceabl e restriction s

8 EP A defined"significant " i n term s o f d e minimi s value s fo r th e regulatedpollutants . Fo r example , th e significanc e threshol d for sulfu r dioxid e i s 4 0 ton s pe r year - Se e 4 0 C.F.R . § 52.21(b)(21) ; 4 5 Fed . Reg . 52705 .

9 I n general , "actua l emissions " i s define d a s th e averag e emission s t o th e atmosphere , i nton s pe r year , durin g th e two yea r perio d immediatel ypreceding th e physica l o r operationa l chang e i n question , o r suc hothe r perio d th~a t th e Administrato r determine s i s mor e representativ e o f norma l sourc e operation . Se e § 52.21(b)(21)(ii) .P.2 2

- 2 1 -

ar e thos e whic hca n b e enforce d b yEPA , suc ha s certai ntype s o f permi t conditions . 4 0 C.F.R . § 52.21(b)(17) . Asource' s "allowabl e emissions " ar e essentiall ysimila r t o it s "potentia l t o emit. " Unde r bot hterms , maximu mphysica l an

d operationa l capacit yt o emi t ca n b e restricte d no t onl yb yth e us e o f pollutio n contro l device s i naccordanc e wit hAlabama Power , bu t als o b yrestriction s o nproductio nrates , hour s o f operations , an d type s an

d amount s o f material s processe d o r combusted . Compar e § 52.21(b)(4 ) wit h§ 52.21(b)(16) .

I n orde r t o mak e applicabilit ydetermination s i n advanc e o f prospectiv e modifications , EPA' s decisio nt o us e a n actua l emission s baselin e create d a nee d t o mak e assumption s regarding th e leve l o f post-modificatio nemission s befor e th e "particula r date " o n whic hth e physica l o r operationa l chang e woul d occur . EPAaddresse d thi s problemb yequating "actua l emissions " wit h"potentia l t o emit " i nsuc hcircumstances :

Fo r an yemission s uni t whic hha s no t begunnorma l operation s o n th e particula r date , actua l emission s shal l egua l th e potentia l t o emi t o f th e uni t o n tha t date . 4 0 C.F.R . § 52.21(b)(21)(iv ) (emphasi s added) . I nth e preamble , EPAfurtha r clarifie d tha t permittin g authoritie s woul d rel yo n thi s assumptio n bot hfo r "ne wo r modifie d units , sinc e thes e unit s ar e no t ye t operationa l a t a norma l leve l o f operation. " 4 5 Fed . Reg . 52718 , col . 3 (emphasi s added). 1 0

10 Althoug hEPAmad e thi s remar k i n th e contex t o f incremen t consumptio n determinations , th e Agenc yemphasize d tha t th e (continued... )P.2 3

- 2 2 - Standing alone , th e require d compariso nbetwee n representativ e actua l emission s befor e a physica l o r operationa l chang e an

d potentia l emission s afte r th e chang e coul d rende r an y suc hchang e subjec t t o PS D revie w13

- wheneve r pre-modificatio n actua l emission s ar e significantl yles s tha n post-modificatio n potentia l emissions . Th e PS D regulation s avoi d thi s resul t b y providing tha t source s mayavoi d a ne t emission s increase , an d henc e PS D review , b yobtaining federally-enforceabl e restriction s o n potentia l (i.e. , allowable ) emissions , a s discusse d supra . E . Th e NSP S Reconstructio nRule : Th e Distinctio nBetwee n Modificatio n an

d Reconstructio nUnde r NSP S I n 1975 , EPAadde d a reconstructio n provisio nt o th e NSP S regulations . [cite ] An existing facilit ytha t undergoe s reconstructio n become s a naffecte d facilit ysubjec t t o th e NSP S i f a verysubstantia l portio no f th e facilit yi s replaced , i.e. , capita l cost s i n exces s o f 50 % o f th e cos t o f buildin g a n entirel yne wfacility , withou t regar d t o whethe r ther e i s a n emission s increase . [cite ] Th e Administrato r i s afforde d th e discretio n t o conside r o n a case-by-cas e basi s whethe r t o requir e th e applicationo f th e NSP S technologyt o a reconstructe d source .

10 (...continued ) preambl e discussio n o n "actua l emissions " i nth e sectio no n incremen t consumptio n woul d th e appl yt o th e meanin g o f tha t ter m fo r modificatio n baselin e purpose s a s well . 4 5 Fed . Reg . 52,699 , col . 1 . I n providing tha t incremen t consumptio n wol d b e guide d byactua l emissions , EPAlikewis e relie d o n Alabama Power . Id . a t 52,718 , col . 1 .

11 [DESCRIB E BRIEFLYWHAT PS D REVIE WI S —JUS T CIT E SECTIONS ]P.2 4

- 2 3 - [cite ] Th e purpos e o f th e reconstructio n provisio n i s t o recogniz e tha t replacemen t o f man yo f th e component s o f th e facilit yca n b e substantiall yequivalen t t o replacin g i t a t th e end o f it s usefu l lif e wit ha ne wfacilit ytha t woul d b e subjec t t o th e NSPS . Th e fina l rul e adopting th e modificatio nan d reconstructio n provision s emphasize d th e distinctio n betwee n th e tw o provisions : Fo r existing facilitie s whic hsubstantiall yretai n thei r characte r a s existing facilities , applicatio n o f bes t adequatel ydemonstrate d contro l technologyi s appropriat e whe nan yphysica l o r operationa l chang e i s mad e whic hcause s a nincreas e i n emission s t o th e atmospher e (thi s i s modification) . Thus , th e criteri a fo r "reconstruction " ar e independen t fro mth e criteri a fo r modification . 4 0 Fed . Reg . a t 58,417 . On e o f th e purpose s o f th e reconstructio nprovisio ni s t o discourag e th e perpetuatio n o f a facility , wher e ther e woul d b e n o emission s increase , instead o f replacing i t wit ha ne won e a t th e en d o f it s usefu l life . 3 9 Fed . Reg . 36,94 8 (propose d rule) . A t th e tim e o f proposing th e rule , EPAobserve d tha t i nth e industrie s subjec t t o NSP S (th e utilit yindustrywa s th e mos t significan t sourc e categorya t tha t time ) "i t i s generall yth e practic a £ o clos e a n ol d existing facilit yrathe r tha nt o reconstruc t i t b

yusing a mino r par t o f i t and replacing th e remaining portion. " Id . F . EPA' s Issuanc e o f NSP S an d PS D Applicabilit y Determination s EPAha s establishe d a ninforma l procedur e bywhic hi t issue s applicabilit ydetermination s t o owner s o r operator s o fP.2 5

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source s contemplating some activit ya t a facilit ywhic hmay trigge r NSP S o r PS D applicability . Fo r NSP S determinations , thi s procedur e i s codifie d i nth e genera l NSP S provision s a t 4 0 C.F.R . § 60.5 . Althoughther e i s n o comparabl e regulatoryprovisio nfo r PS D determinations , th e procedur e i s muc hth e same . Typically , a sourc e wil l contac t a stat e o r EPA' s Regiona l Offic e an d present s th e propose d activit yt o i t fo r consideration . EPAthe nreview s th e fact s an

d issue s a ninforma l determination . See , e.g . Supplementa l PS D Applicabilit yDetermination . Cypru s Cas a Grand e Corp . (1987 ) (PSD Determination ) [Record a t 2.17] ; Memorandu m FromE . Reich , EPA , t o W . Sawyer , EPA , EPARegio nIII , (1980 ) (NSP S Determination ) [Record a t 2.10] . Fina l applicabilit y determination s generall yar e subjec t t o revie wi nth e cour t o f appeal s unde r sectio n 307(b)(i) . Se e Harriso n v . PP GIndustries , Inc. . 44 6 U.S . 57 8 (1980) ; se e als o PEPC O v . EPA . 65 0 F.2 d 50 9 (4thCir . 1981) , cert , denied . 45 5 U.S . 101 6 (1982) . I nstate s wher e th e NSP S an

d PS D programar e delegate d t o th e state , state s generall ymak e a preliminarydeterminatio nsubjec t t o revie wan d concurrenc e b

yEPA . Wisconsi ni s i n thi s category . See , e.g. , letter , Valda s V . Adamkus , EPA , t o Carro l Besadny , Wisconsi nDNR , Apri l 8 , 1988 , 1 1 5 , 8 [Record a t 4.4 ] (NSP S delegation. ) III . EPA' S MODIFICATIONREGULATION S AND UTILITYLIF E EXTENSION PROGRAM S Electri c utilitie s continuall yundertak e planning measure s t o mee t th e futur e demand fo r electricity . Th e expecte d usefu l lifetime o f fossil-fue l powe r plant s ha s bee n 3 0 t o 4 0P.2 6

- 2 5 - years , and traditionall yutilitie s hav e buil t ne wplant s t o mee t growt hi n demand o r t o replac e ol d plants . Estimatin g th e Capita l Cost s o f Lif e Extensio n fo r Fossil-Fue l Steam Plants . U.S . Departmen t o f Energy , EnergyInformatio nAdministratio n (July1988 ) [Record a t 3.15 ] a t 1 (hereafte r cite d a s "Capita l Cost s o f Lif e Extension". ; EPR I Journal . July/Augus t 198 7 [Record a t 3.10] , a t 20. 1 2 I nassessing th e impac t o f it s NSP S modificatio n and reconstructio nregulation s o nth e electri c utilit yindustry , EPAto o assume d that , i n general , ol d electri c utilit ygenerating unit s woul d simpl yb e replace d a t th e en d o f thei r origina l designlif e rathe r tha nsignificantl ymodifie d o r reconstructed . Se e 3 9 Fed . Reg . 36,94 8 (proposa l o f NSP S reconstructio n provision) , discusse d supr a a t p . . Thus , EPA anticipate d tha t "few , i f any , existing stea mgenerator s . . . ar e expecte d t o qualif yunde r th e modification/reconstructio n provisions. " 4 4 Fed . Reg . 3359 1 (promulgatio n o f NSP S fo r electri c utilit ystea mgenerating units) . I n recen t years , however , th e economi c risk s associate d wit hbuildin g ne wplant s hav e increase d du e t o substantia l increase * i n constructio n costs , an d uncertaintie s i n futur e demand , abilit yt o recove r new-plan t costs , an d environmenta l requirements . Capita l Cost s o f Lif e Extensio na t 1 ; EPR I Journal . July/Augus t 1987 , a t 20 . A s a consequence , utilitie s

12 EPR I Journa l i s publishe d b yth e Electri c Powe r Researc h Institut e ("EPRI") , th e principa l researc horganizatio no f th e electri c utilit yindustry .P.2 7

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ar e no wexploring nontraditiona l option s a s the ysee k th e mos t economica l metho d o f meetin g electrica l demand . Thes e ne w option s includ e conservatio n an d load managemen t program s (t o reduc e tota l an

d pea k demand , respectively) , bul k powe r purchase s fro mothe r utilities , an d repowering —replacing th e boile r wit h a ne wcombustio n unit . Capita l Cost s o f Lif e Extensio n a t 1-2 . Anothe r optio n no wbein g considere d i s "lif e extension " o r refurbishmen t o f existing plants . Id . a t 2 . Upo nconsideratio n o f al l th e availabl e alternatives , lif e extensio n mayb e th e mos t cost-effectiv e choic e t o mee t futur e demand becaus e "[u]nlik e th e celebrate d 'one-hos s shay, ' whic hkep t o n goin g unti l i t completel yfel l apart , a powe r plan t doesn' t s o muc hwea r ou t a s becom e uneconomica l t o use. " EPR I Journal . July/Augus t 1987 , a t 20 . Becaus e "lif e extension " i s a relativel yne wtechnica l term , specifi c definition s o f th e termca nvary . However , th e thre e cor e element s ar e consisten t an d readil yidentifiable : (1 ) Aplanne d program

o f capita l investments ; (2 ) t o restor e and/o r maintai n origina l generating capacit ya t acceptabl e level s o f efficiency , an

davailability ; (3 ) fo r a nextende d perio d o f time , usuall y2 0 year s o r more , beyond origina l desig nlif e o r currentl yplanne d retiremen t date . Capita l cost s o f Lif e Extensio n a t 2 ; EPR I Journal . July/Augus t 1987 , a t 20-21 ; "Lif e Extensio n —AGlorifie d Maintenanc e Program?" , J.A . Derdiger , e t al . [Record a t 3.4] , a t 322-23 . Lif e extensio nprogram s focu s o n replacemen t o r substantia l refurbishmen t o f majo r component s no tP.2 8

- 2 7 - traditionall yperforme d during a plant' s initia l desig nlife , an d thu s ar e readil ydistinguishabl e fromroutin e correctiv e o r preventativ e maintenanc e o f majo r equipmen t an d periodi c replacemen t o f mino r equipment . Id . a t 324 . IV . WEPCO' S PORT WASHINGTONLIF E EXTENSIONPROJEC T A . WEPCO' s Renovatio nProposa l t o th e Publi c Servic e Commission : Restor e DesignCapacit yan d Extend Plan t Life . Wepco' s Por t Washingto npowe r plan t nea r Milwaukee , Wisconsi n consist s o f five coal-fire d stea mgeneratin g unit s place d int o servic e betwee n193 5 an d 1950 . Eac hha s a design capacit yo f 8 0 megawatts . Inventoryo f Powe r Plant s i n th e Unite d States . DOE/EIA-0095(85 ) (U.S . Departmen t o f Energy1985 ) a t 22 6 [Record a t 3.18] . However , th e capacit yan d performanc e o f th e unit s ha s deteriorate d i n recen t year s du e t o age-relate d degradatio n o f th e physica l plant .

I n 1983 , WEPC O initiate d a Plan t Availabilit yStud yt o asses s th e physica l conditio n o f th e Por t Washingto nplant . "Th e stud yconfirme d . . . tha t extensiv e renovatio n o f th e five unit s an d th e plan t commo n facilitie s i s neede d i f operatio no f th e plan t i s t o b e continued. " Letter , Thoma s J . Cassidy , WEPCO , t o Jacquelin e K . Reynolds , Publi c Servic e Commissio n o f Wisconsi n ("PSC") , a t 1 [Record a t 6. 1 (attachment)] .

Combustio n Engineering ("C-E") , th e fabricato r o f th e facilities , inspecte d th e boiler s i n198 4 and reporte d t o WEPC OP.2 9

- 2 8 - tha t sever e cracking o f th e stea mdrum s had occurred . • L J C- E recommende d shutting downuni t 5 becaus e o f th e potentia l fo r catastrophi c failur e (stea mdru mblo wout) , and recommende d reducing th e maximu moperating pressures , i.e. , capacities , fo r unit s 2- 4 wher e th e safet yconcern s wer e les s severe . WEPC O complie d wit hthes e recommendations .

I n ligh t o f thes e events , WEPC O i n198 7 applie d t o th e PS C fo r authorit yt o renovat e th e Por t Washingto n plant . WEPC O note d tha t tota l plan t capacit yha d decline d by4 0% , an d tha t extensiv e renovatio n wa s necessaryt o continu e operation . Accordingly , WEPC O sough t approva l t o conduc t a lif e extensio n programwhic hwoul d restor e ful l designcapacit yand enabl e operatio n beyond th e units ' planne d retiremen t date s o f 199 2 an d 199 9 unti l th e yea r 2010 . Lette r fro mThoma s J . Cassidy , supra . a t 1-3 . Th e renovatio nwa s expecte d t o improv e plan t availability , capability , hea t rate , efficiency , and reliability . Id . a t 3 . WEPC O pointe d ou t tha t i t ha d considere d variou s alternatives , bu t rejecte d thema s les s cost-effectiv e tha n th e propose d renovatio n project . Id .

....-inSPCO' s proposa l include d a four-yea r schedul e fo r th e renovatio n o f th e majo r component s a t Por t Washington , including boilers , turbine-generators , mechanica l an d electrica l auxiliaries , an

d plan t suppor t facilities . Id . a t 1 . Amon g th e

13 Stea mdrum s ar e larg e pressur e vessel s fo r th e separatio n an d distributio n o f stea man d wate r withi nth e boiler , stea m— It s Generatio n an

d Us e (Babcoc k 4 Wilcox ) Id . a t 1-5 .JL3Q^

- 2 9 - liste d project s wa s replacemen t o f th e stea mdrum s o n unit s 2- 5 an d replacemen t o f th e ai r heater s o nunit s 1-4 . Se e id. . Exhibi t A. 1 4

I n it s application , WEPC O pointe d ou t tha t i t ha d no t include d wor k item s "falling int o th e categoryo f repetitiv e maintenance " whic hd o no t requir e PS C approval . [Record a t ] . Th e tota l projec t cos t wa s estimate d a t $83. 8 million , o f whic h$45. 6 millio n wa s designate d a s capita l expenditures . Id . a t 2. 1 5 B . EPA' s NSP S an

d PS D Applicabilit yDeterminations . 1 . Th e Septembe r 9 . 198 8 Memorandu mfro mDo n R . Clay . Betwee n Marc han

d Septembe r 1988 , EPAstaf f member s me t wit hrepresentative s o f WEPC O o n numerou s occasion s t o gai n additiona l informatio nregarding th e renovation s a t Por t Washington . I n a Septembe r 9 , 198 8 memorandum , EPAActin g Assistan t Administrato r Do nR . Claymad e severa l preliminary

14 Ai r heater s prehea t combustio nai r an d improv e boile r efficiency , thereb

yincreasing boile r capacit yand associate d ai r pollutio n emissions . Se e Stea m—It s Generatio nan d Us e (Babcock6 Wilcox ) a t 13- 4 [Record a t 6.17] . 15 T6».Publi c Servic e Commissio nreferre d th e WEPC O proposa l t o th e Wisconsi nDepartmen t o f Natura l Resources . Tha t agenc y conclude d (1 ) tha t th e lif e extensio n projec t woul d no t qualif y a s a reconstruction , s o NSP S requirement s woul d no t apply ; an d (2 ) tha t th e projec t wa s exclude d fromPS D coverag e a s a majo r modificatio n du e t o th e exclusion s fo r routin e maintenance , repair , an

d replacement , an

d fo r increase s i nproductio nrat e o r operating hours . Pursuan t t o th e PS D delegatio n agreement , th e Stat e sough t th e concurrenc e o f EPARegio n V regarding th e questio n o f PS D applicability . [Record at*~6.1] ; [Record a t 6.2] . EPARegio n V

disagree d wit hWisconsin' s conclusions , bu t sough t advic e i n tur n fro

m EPAheadquarters . [Record a t 3.11] .P.3 1

- 3 0 - finding s regarding NSP S an d PS D applicabilit yt o WEPCO' s lif e extensio n projec t (cited hereafte r a s th e "ClayMemorandum") . Th e ClayMemorandu mapplie d th e know nfact s t o th e applicabilit y criteri a i n EPA' s regulation s an d conclude d that , a s proposed , th e projec t woul d b e subjec t t o bot hNSP S an d PSD . However , EPA decline d t o mak e an yfina l determination s becaus e additiona l factua l informatio n wa s stil l necessary . ClayMemorandu ma t 1-2. " a . Physica l Change .

EPAfoun

d tha t th e lif e extensio n projec t woul d constitut e a "physica l change " fo r PS D an d NSP S purposes . Id . a t 3 , 10 . EP Aconstrue d th e regulatorydefinitio nbroadl yt o includ e al l alteration s t o a n existing plan t othe r tha nthos e withi n th e exclusio n fo r routin e maintenance , repai r an d replacement . Id . a t 3 . EPAthe n se t ou t th e specifi c criteri a fo r a finding o f routinenes s an d mad e a factua l finding tha t WEPCO' s projec t wa s no t routine . ClayMemorandu ma t 3-4 . Th e Agenc yfirs t pointe d ou t tha t th e wor k woul d b e majo r and . extensive . Specifically , EPAfoun d tha t replacemen t o f ir th e stea s drum s —measuring 6 0 fee t long , 50. 5 inche s i n diameter,,and 5.2 5 inche s thic k •< —i s necessaryfo r continue d saf e operatio n a t unit s 2-5 , an d tha t WEPC O als o intende d t o

16 EP ARegio n V

conveye d th e ClayMemorandu mt o WEPCO , noting th e nee d fo r furthe r informatio nt o enabl e fina l applicabilit y determinations . [Record a t 4.2] .P.3 2

- 3 1 - replac e ai r heater s a t unit s 1-4 , a s wel l a s renovat e othe r majo r component s an

d commo n plan t suppor t facilities . Id . a t 4 . EPA furthe r note d tha t WEPCO' s ow n characterizatio no f th e wor k t o th e PS C supporte d a finding tha t i t i s no t routine . Id .

EPAnex t conclude d tha t th e "purpos e o f th e projec t i s t o significantl yenhanc e th e presen t efficienc yand capacit yo f th e plan t an

d substantiall yextend it s usefu l economi c life, " pointing t o WEPCO' s ow n statement s regarding th e 4 0 percen t declin e i n capacity , near-termretiremen t dates , nee d fo r renovatio n t o continu e operations , an d prospectiv e lif e extensio n t o th e yea r 2010 . Id .

Third , EPAfoun

d tha t th e wor k i nquestio ni s rarely , i f ever , performed , citing WEPCO' s statemen t t o th e PS C tha t thes e item s "woul d normall yoccu r onl yonc e o r twic e during a unit' s expecte d lif e cycle. " Id . a t 5 (quoting Lette r fro m Thoma s J . Cassidy , supra . a t 1) . 1 7

b . Increas e i nProductio n Rat e an d Hour s o f Operation . EPAfoun

d tha t th e regulatoryexemption s fo r increase s i n productio n rat e an d operating hour s woul d no t apply . fafcsgardin

g NSPS , EPApointe d ou t tha t WEPCO' s renovatio n investment s apparentl ywoul d b e larg e enought o qualif ya s

17 WEPC O ha d bee n unabl e t o identif yan ysteamdru

m replacement s a t an

yo f it s othe r facilities , an d EPAconclude d tha t th e example s o f othe r "header " pressur e componen t replacement s submitte d b yWEPC O wer e no t comparabl e i n size , function , o r importanc e t o th e drum s a t Por t Washington . Clay Memorandu

ma t 5-6 .P.3 3

- 3 2 - capita l expenditures , an d thu s outsid e o f th e regulatory exclusion . Id . a t 9 .

Regarding PSD , EPAdetermine d tha t th e exemptio ndoe s no t appl yt o productio n o r operationa l increase s associate d wit h non-exclude d physica l o r operationa l changes . Id . a t 7 . EPA cite d th e preambl e t o th e PS D regulation s fo r th e propositio n tha t th e exemption s ar e intende d t o appl ywher e a sourc e simpl y combust s a large r amoun t o f fue l i nrespons e t o marke t conditions . Id . a t 8 (citing 4 5 Fed . Reg . 52704) . Conversely , EPAexplained , th e increase s planne d b yWEPC O wer e th e typ e Congres s intende d t o b e subjec t t o review , becaus e the y"ar e inextricabl yintertwine d wit hth e physica l change s planne d unde r th e lif e extensio n project. " ClayMemorandu ma t 8 . c . Increas e i n Emissio nRat e unde r NSPS . EPAexplaine d tha t pursuan t t o longstanding Agenc y policy , th e emissio n rat e befor e and afte r a physica l o r operationa l chang e i s evaluate d a t eac huni t b ycomparing th e hourl ypotentia l emission s unde r curren t maximu mcapacit yt o emission s a t maximu mcapacit yafte r th e change . Th e Agenc yadde d tha t facility' s origina l maximu mdesigncapacity , t o th e exten t

••»- : i t diffe a from

curren t actua l capacity , i s irrelevan t t o thi s calculation . Id . a t 9-10 . EPAals o pointe d ou t tha t th e regulation s allowe d onl yth e additio n o f pollutio n contro l equipment , an

d no t th e us e o f less-polluting fuels , t o offse t increase s i n emission s rate s tha t woul d otherwis e resul t fro mth e change . Id . a t 9 . EPAconclude d tha t WEPCO' s renovation s woul dP.3 4

- 3 3 -

caus e emission s rat e increases , but withhel da fina l determinationbecaus e i t wa s unclea r whethe r WEPCOintende dt o ad dor enhanc e pollutio ncontrol s at Por t Washingtoni norde r to lawfull y

avoi dNSPS . IcL . at 11 . d . Significant Ne t Emission s Increas e Unde r PSD . EP A explainedtha t unde r the PS Dbaseline regulations , whethe r the physica l change s proposedunde r WEPCO' s lif e extensionprojec t woul dresul t ina significant ne t emission s increas e dependedo na compariso

ni nactua l emission s befor e an d afte r the change . Becaus e th e sourc e ha

dnot ye t begu

n operation s followin gth e renovations , actua l emission s followin g the renovation s wer e deeme dt o be WEPCO' s "potentia l to emit. "

_____at 7 (citin

g4 0 C.F.R . § 52.21(b ) (21 ) (iv) ) . EP A the nnote dthere apparentl y woul dbe a significant ne t increas e fo

r PS Dpurpose s becaus e potentia l emission s after restorin

gthe Port Washingto nunit s t o thei r origina l desig n capacity

woul dgreatl y

excee drepresentativ

e actua l emission s befor e the change . Cla y Memorandu

m a t 7 . EP

A declined , however , t o mak e a fina l determinatio nbecaus e WEPCOha dno t submitted adequate<je»issions data , an dbecaus e i t wa s unclea r whethe r WEPC O woul dseeii

t t o "ne t out " o f PS Drevie w b y agreein

gt o limi t potentia l emission s t o a leve l no t significantl y greate r than representativ

e actua l emission s prior t o th e lif e extension project . Id . at 7-8 .

2 . Th e Octobe r 14 . 198 8 Letter "fro m Lee M . Thomas .P.3 5

- 3 4 - Following issuanc e o f th e ClayMemorandum , EPA Administrato r Le e M . Thoma s me t wit hsenio r WEPC O officials , an d agree d t o reconside r certai npoint s i ntha t memorandum . EPAals o reviewe d additiona l emission s dat a supplie d b yWEPCO . O nOctobe r 14 , 1988 , Mr . Thoma s issue d fina l applicabilit ydeterminations : i f constructe d a s proposed , WEPCO' s lif e extensio nprojec t woul d b e subjec t t o NSP S an d PS D requirements . Lette r fromLe e M . Thomas , EPA , t o John Boston , WEPCO , Octobe r 14 , 1988 , a t 1- 2 ("Thoma s Letter") . Finding n o basi s fo r departin g fro m th e reasoning o f th e ClayMemorandum , th e Administrato r adopted

- EPA' s prio r conclusion s b yreference . Id . Th e Administrato r specificall yreconsidere d an d reaffirme d Mr . Clay' s finding s tha t th e propose d wor k i s no t routine . Id . a t 3 . Mr . Thoma s als o addresse d a relate d "equity " questio n regarding EPA' s treatmen t o f othe r utilit yrenovatio n project s tha t ha d bee n raise d i n hi s meetin g wit hWEPCO , bu t foun d n o inconsistenc ywit hEPA' s prio r determinations . Id . 1 8 Th e Thoma s Lette r enclose d figure s o n emission s increase s ove r baseline . Thes e calculation s reflecte d EPA' s conclusio n tha t a baselin e o f annua l emission s i n 1983-198 4 — prio r t o discoveryo f th e stea mdru mcrack s —wa s mor e

1 8 I n particular , th e Administrato r considere d an d rejecte d informatio n regarding fou r steamdru m replacement s submitte d b

yWEPCO , concluding the ywer e to o dissimila r t o affec t th e Por t Washingto n decisions . Id . a t 3-4 . Th e Administrato r als o reporte d tha t EPAha d conducte d a n informa l surve yan d foun d n o instance s o f stea mdru mreplacemen t a t age d powe r plants , an d n o instance s wher e th e Agenc yhad reviewe d a majo r lif e extensio n projec t o f an

ykind . Id . a t 4 .P.3 6

- 3 5 - representativ e o f norma l sourc e operation s fo r PS D purpose s tha n th e mos t recen t two-yea r period . Id . a t 5 and Enclosur e A . EPA calculate d NSP S emission s increase s usin g WEPCO' s actua l operating data , finding tha t othe r submission s b yWEPC O wer e inadequat e t o showtha t highe r capacitie s coul d b e achieve d o na n economicall ysustainabl e basis . Id . a t 5 and Enclosur e B . EPA lef t ope n th e possibility , however , tha t WEPC O coul d demonstrat e highe r curren t maximu mcapacitie s fo r th e fiv e units . Id . a t 5 . I n conclusion , Mr . Thoma s echoe d th e earlie r statemen t b yMr . Claytha t i n adopting th e NSP S an d PS D programs , Congres s intende d t o addres s th e typ e o f long-termcapita l investment s i n pollution-emitting facilitie s a t issu e i nth e Por t Washingto n lif e extensio n project . Id . a t 5 ; se e als o ClayMemorandu ma t 12 . 3 . Th e February15 . 198 9 Supplementa l Determinatio n

fro mDo n R . Clav . EPAcontinue d t o mee t wit hWEPC O following issuanc e o f th e Thoma s letter , an d WEPC O conducte d emission s test s an d submitte d othe r additiona l factua l materia l regarding th e Por t Washingto n project . O nFebruary15 , 1989 , Mr . Clayissue d a revise d fina l determinatio n addressing th e ne winformatio nan d othe r matter s raise d b yWEPCO . Tha t determinatio ngenerall y reaffirme d agai n EPA' s earlie r finding s an d conclusions . Lette r fro mDo n R . Clay , EPA , t o JohnBoston , WEPCO , February15 , 198 9 (hereafte r cite d a s "Supplementa l Determination") .P.3 7

- 3 6 - EPAfirs t addresse d ne winformatio nfromWEPC O regarding capita l expenditur e calculation s fo r NSP S purposes . However , EPAagai n conclude d tha t WEPCO' s prospectiv e productio n rat e increase s woul d involv e a capita l expenditure . Id . a t 1-5 .

Next , EP Areiterate d tha t ai r heate r replacemen t o n uni t 1 shoul d b e viewe d a s par t o f th e entir e lif e extensio n project , an

d a s suc hwoul d b e subjec t t o NSP S and PSD . EPA pointe d t o WEPCO' s ow n statemen t tha t th e plate-typ e ai r heater s suc ha s thos e a t Por t Washingto nunit s 1- 4 d o no t len d themselve s t o replacemen t o f individua l elements , bu t mus t b e replace d i n whole , wherea s th e Ljungstrombasket-typ e element s a t uni t 5 an d a t WEPCO' s othe r plant s mayb e readil yreplaced . Supplementa l Determinatio n a t 6 (citin g Lette r fro

mJohn Boston , WEPCO , t o GaryMcCutchen , EPA , Apri l 22 , 198 8 [Record a t 6.10 , Attachmen t a t 6]) . EPAals o addresse d capacit ytestin g performe d b yWEPC O i n hop e o f demonstrating tha t th e actua l capacitie s o f th e Por t Washingto n unit s wer e highe r tha nthos e reflecte d i nth e operatin g dat a tha t forme d th e basi s fo r th e Thoma s Letter . Base d o n ."th

e ne w data , EPAconclude d tha t unit s 2 and 3 coul d b e operate d "a

t thei r origina l designcapacitie s o na sustainabl e basis . Consequently , EPAsupersede d i npar t it s earlie r determinatio n an

d foun d tha t NSP S woul d no t appl yt o thos e unit s following th e lif e extensio n project . Id . a t 8 .

Regarding unit s 1 an d 4 , WEPC O wa s abl e t o operat e thos e unit s a t onl y72 % an d 89 % o f thei r respectiv e origina lP.3 8

- 3 7 - desig ncapacities . EP

A foun dthe test s adequat e t o confir m EPA' s origina l determinationtha t the lif e extensio nprogra

m woul d increas e current capacity at unit s 1 an

d4 an dthereb

y trigger NSP S coverage . Id . However , EP A rejectedthe tes t dat a fo r purpose s o f establishin gthe specifi c NSP S baseline s for unit s 1

- 4 , becaus e the testedcapacitie s ha dbeenaccompaniedb y severa l exceedance s o f applicabl e opacity an dmas s emissio

n limit s unde r th

e Wisconsi nSIP . Id . at 8-9 . Regardin guni t 5 , EP A foun dtha t b

y declinin

gt o conduc t capacity tests , WEPCOha

d concededtha t th

e uni t i s inoperable ; hence , EP A reaffirmedtha t it s NSP S baseline i s zero . Id . at 9 .

wit hrespec t t o PSD , EP A determinedtha t WEPCO' s capacity

test s wer e irrelevant i ndeterminin

gemission s increases . EP

A explainedtha t th e testin

gcoul donly

determine current maximu

m hourl y capacity

an dassociatedhourl y emission s rates . Incontrast , "actua l emissions " fo r PS Dpurpose s are tota l annua l emission s i.e. , ton s pe r year . Id . Se e als o supra p . (discussin

gdifference s inemission s calculation s fo r NSP S an dPS Dpurposes) . WEPCO' s tes t result s wer e als o irrelevant fo r i PS Dpurposes , EP

A explained , becaus e PS Dbaseline emission s are |

• • j determinedb

y representative , not current , actua l emissions . Id . ; at 10 . _ ^

Finally , EP

A reiteratedtha t WEPC Ocoul dno t obtai n offsettin

gemission s reduction s fo r NSP S purpose s b

y burnin g lower-sulfur coa l afte r the renovatio nproject , becaus e i t woul d be contrar

y botht o the statutor y requirement tha t a percentageP.3 9

- 3 8 - reductio n i n uncontrolle d emission s wa s necessaryfo r NSP S complianc e byfossi l fuel-fire d sources , an d t o th e NSP S regulations . Id .

4 . Historyo f Thi s Litigatio n O n Novembe r 28 , 198 8 WEPC O file d a petitio nfo r revie w o f Le e M . Thomas' , Octobe r 14 , 198 8 fina l applicabilit y determination . (No . 88-3264) . O n February22 , 1989 , WEPC O file d a petitio n fo r revie wo f a revise d fina l determinatio n issue d b y EPAo n February15 , 198 9 (No . 89-1339) . Upo njoin t motio nb yth e parties , th e Cour t consolidate d th e cas e b yOrde r entere d herei n o n Apri l 4 , 1989 . SUMMAR YOF ARGUMEN

T Thi s cas e concern s EPA' s determination s tha t th e massiv e "lif e extension " projec t a t WEPCO' s Por t Washingto n plan t constitute s a "modification " unde r th e NSP S an d PS D provision s o f th e Clea n Ai r Act . EPA' s determination s ar e base d o ndetaile d factua l finding s an d lega l interpretation s tha t ar e reasonable . I n everyrespect , EPA' s conclusion s ar e squarel yi n keeping wit h th e Ac t an

dthe Agency' s ow

n regulations . Accordingly , EPAmus t b e upheld . I n makin g applicabilit ydetermination s unde r th e NSP S an d PS D provision s o f th e Clea nAi r Act , EPAi s no t require d eithe r t o anticipat e al l ne wdevelopment s i nindustria l planning o r t o revis e it s regulation s t o addres s suc hchanges . Thus , althoughutilit ylif e extensio nprogram s ar e a ne wfor mo f plan t renewal , EPAreasonabl yfoun d tha t th e renovatio n wor k planne dP.4 0

- 3 9 - fo r Por t Washingto n fall s withi n th e broa d statutoryan d regulatorydefinitio no f "modification. " Tha t term encompasse s an yphysica l o r operationa l chang e whic hincrease s emissions . Specifically , i t doe s no t exemp t "lik e kind replacements " o f majo r components . No r doe s th e Ac t relegat e consideratio no f utilit ylif e extensio n program s t o th e NSP S "reconstruction " regulation , whic haddresse s onl ycomplet e replacemen t o f a n existing facilit ywithou t regard t o emission s increases . EPA' s determination s ar e i n keeping wit hth e basi c congressiona l inten t i n adopting th e NSP S an d PS D program s t o focu s pollutio n contro l effort s a t a n efficien t an d logica l point : th e makin g o f substantia l capita l investment s i n ne wo r modifie d pollution

generating facilities .

EPAreasonabl yfoun d tha t WEPCO' s unprecedente d replacemen t o f numerou s majo r component s a t age d an d deteriorate d facilitie s fo r th e purpos e o f restoring los t generatin g capacit y an d extending usefu l plan t lif e b ya s muc ha s 2 0 year s i s no t "routine " withi n th e meaning o f th e NSP S an d PS D regulatory exclusio n fo r routin e maintenance , repair , and replacement . A contraryfindin g woul d hav e effectivel ydefine d al l maintenance , repair , an

dreplacemen t a s routine , thereb yallowin g a narro w exemptio n t o swallo wth e genera l rule .

Th e regulatoryexclusio n fo r emission s increase s fro m increase d productio n rate s o r hour s o f operation s wa s mean t t o reac honl ythos e increase s i n respons e t o "fluctuation s i nth e busines s cycle . Absen t th e extensiv e renovation s a t Por tP.4 1

- 4 0 - Washington , WEPCO' s emission s increase s woul d no t hav e bee n physicall ypossible , an d woul d hav e ha d n o sustainabl e economi c basis . Thus , EPAreasonabl yinterprete d it s NSP S an d PS D regulation s a s no t excluding thos e increases .

EPAregulation s requir e tha t emission s increase s fo r NSP S purpose s b e determine d o nth e basi s o f curren t actua l capacity , an

d withou t regar d t o fue l switches . Thus , EPAacte d reasonabl yi n denyin g WEPCO' s clai mtha t th e Agenc yshoul d hav e looke d onl ya t increase s ove r origina l designcapacity .

Regarding emission s increase s fo r PS D purposes , EPA' s regulation s requir e a compariso n betwee nrepresentativ e actua l emission s prio r t o th e lif e extensio n projec t and potentia l emission s afte r th e renovations . Neithe r th e regulation s no r th e basi c purpose s o f th e PS D programallo wEPAt o rel yo n WEPCO' s ow n projection s o f futur e actua l emission s i nth e absenc e o f federall yenforceabl e restriction s holding WEPC O t o it s projecte d leve l o f actua l emissions .

A t bottom , WEPCO' s challeng e i s no t t o EPA' s applicabilit ydeterminations , bu t t o th e underlyin g NSP S an d PS D regulations . However , thos e regulation s coul d onl yb e challenge d i n th e D.C. ' Circui t withi n6 0 day s o f thei r promulgatio nan d ar e no t reviewabl e i n thi s Court. . I f WEPC O o r ami d ar e aggrieve d b y EPA' s reasonabl e interpretatio n o f it s ow nregulations , thei r remed yi s t o petitio n EPAt o alte r thos e rules . STANDARD O F REVIEW "P.4 2

- 4 1 - Th e standar d o f revie wo f EPAdetermination s o f NSP S an d PS D applicabilit yi s specifie d i n th e Administrativ e Procedur e Act , 5 U.S.C . § 706(2)(A) , whic hprovide s tha t agenc y actio n mayb e se t asid e onl yi f i t i s foun d t o b e "arbitrary , capricious , a n abus e o f discretion , o r otherwis e no t i n accordanc e wit hth e law. " Thi s standar d i s a deferentia l on e tha t presume s th e validit yo f agenc yaction . Citizen s t o Preserv e Overto n Par k v . Voloe . 40 1 U.S . 402 , 415-1 6 (1971) ; Stat e o f Ne wYor k v . EPA . 71 6 F.2 d 440 , 44 4 (7t hCir . 1983). .

Th e Supreme Cour t ha s establishe d a two-ste p procedur e fo r judicia l revie wo f statutoryconstructio n b ya n administrativ e agency . "First , always , i s th e questio nwhethe r Congres s ha s directl yspoke nt o th e precis e questio n a t issue . I f th e inten t o f Congres s i s clear , tha t i s th e en d o f th e matter. " Chevro n U.S.A. . Inc . v . Natura l Resource s Defens e Council . Inc. . 46 7 U.S . 837 , 84 2 (1984) . If , however , "th e statut e i s silen t o r ambiguou s wit hrespec t t o th e specifi c issue , th e questio n fo r th e cour t i s whethe r th e agency' s answe r i s base d o n a permissibl e constructio n o f th e statute. " Id . a t 84 3 (footnot e omitted) . "[A ] cour t ma yno t substitut e it s ow n constructio n o f a statutoryprovisio n fo r a reasonabl e interpretatio n mad e b yth e administrato r o f a n agency. " Id . a t 844 . Moreover , a nagency' s interpretatio n o f it s ow n regulation s i s entitle d t o specia l deference . "Whe n th e constructio n o f a n administrativ e regulatio n rathe r tha naP.4 3

- 4 2 - statut e i s i n issue , deferenc e i s eve nmor e clearl yi norder, " an d mus t b e uphel d "unles s i t i s plainl yerroneou s o r inconsisten t wit hth e regulation. " Udal l v . Tallman . 38 0 U.S . 1 , 16-1 7 (1965) . Therefore , thi s Cour t shoul d affor d grea t deferenc e t o EPA' s applicatio n o f it s ow nregulations , an

d uphol d EPA' s determination s unles s the yar e plainl yerroneous . ARGUMEN T EPAPROPERL YCONCLUDE D THAT TH E RENOVATIONWOR K AT POR T WASHINGTONCONSTITUTE S AMODIFICATIONUNDE REPA' S EXISTIN G REGULATION S

WEPCO' s propose d renovation s a t Por t Washingto nar e squarel ywithi n th e ambi t o f th e NSP S an d PS D "modification " regulations , whic hderiv e directl yfromth e statutorydefinitio n o f modificatio n foun d i n sectio n111(a)(4) . Th e effec t o f including modifie d source s a s wel l a s newly-constructe d source s unde r th e ne wsourc e requirement s i s t o establis hth e curren t leve l o f emission s a s a baselin e abov e whic ha n existing sourc e mayno t pollut e withou t becoming subjec t t o thos e requirements . A s th e D.C . Circui t ha s explained : [T]he operato r o f a n existing facilit yca n mak e an y alteration s h e wishe s i n facilit ywithou t becomin g subjec t t o th e NSP S a s long a s th e leve l o f emission s fro m facility

doe s no t increase . Thus , th e leve l o f emission s befor e th

e alteration s take s plac e . . . effectivel ydefine s th e standar

dtha t a n altere d facilit ymus t meet . ASARCO . Inc . v . EPA . 57 8 F.2 d 319 , 328-2 9 (D.C . Cir . 1978) . (challeng e t o amendment s t o th e genera l NSP S provision s including 4 0 C.F.R . § § 60.14 , 60.15) ; se e als o Alabama Power . 63 6 F.2 d a t 40 1 (PSD applie s onl yt o thos e industria l change s whic hmigh tP.4 4

- 4 3 - increas e pollution) . Thus , th e regulation s defin e a modificatio n a s an yphysica l o r operationa l change , no t specificall yexempted , whic hincrease s emission s ove r baselin e levels . Th e regulation s d o no t exemp t "lif e extensio n projects. " Hence , suc hproject s mus t b e treate d i nth e sam e manne r a s an y othe r typ e o f prospectiv e physica l o r operationa l change . Tha t i s precisel ywha t EPAdi d i n thi s case . A . EPAProperl yApplie d It s Existing Modificatio n Regulation s t o th e Fact s o f Thi s Case . I n addressing WEPCO' s lif e extensio nproject , EPA conducte d extensiv e factfinding , weighe d th e relevan t factors , an d issue d comprehensiv e applicabilit ydeterminations . Th e record reflect s th e lengthl yan d sophisticate d consideratio n give n thi s matter , whic hfa r exceede d th e normfo r NSP S o r PS D applicabilit ydeterminations . I n addition , th e matte r wa s reviewe d a t th e highes t levels , a s bot hth e Administrato r an d Acting Assistan t Administrator , issue d th e determination s i n question . EPAfoun d tha t th e extensiv e renovatio nwor k constitute d physica l o r operationa l change s whic har e no t withi n an yexempte d category . Th e Agenc yals o explaine d that , fa r fro m being "routine, " th e change s a t Por t Washingto nar e apparentl y unprecedented . EPAlikewis e foun d tha t th e exclusio nfo r increase s i n productio n rate s an d hour s o f operation s woul d no t apply , becaus e thos e increase s woul d no t occu r absen t th e renovatio n work . Th e Agenc ythe ndetermine d tha t th e renovation s woul d resul t i n a n increas e ove r baselin e emission s fo r NSP S an dP.4 5

- 4 4 - PS D purposes , an

d henc e woul d b e subjec t t o ne wsourc e requirements . I n s o doing , EPArejecte d WEPCO' s proffere d method s fo r determining emission s increase s a s bein g contraryt o law . Se e supr a pp . .

Despit e th e plai n langug e o f th e modificatio n regulations , WEPC O argue s EPAwa s wron g i n eve n considerin g whethe r th e Por t Washingto nrenovation s constitute d a modificatio n unde r th e fact s presente d i n thi s case . I n WEPCO' s view , EP Amus t firs t conduc t ne wrulemaking specificall y addressing lif e extension s befor e asserting tha t NSP S o r PS D appl yt o th e Por t Washingto n renovations . Ther e i s n o basi s i n lawfo r WEPCO' s assertions .

EP Awa s unde r n o obligatio n t o conduc t separat e rulemaking , o r accor d othe r specia l treatmen t t o physica l o r operationa l change s growin g ou t o f lif e extensio nprogram s i nth e electri c utilit yindustry , befor e applying it s existin g rules . EP Aregulation s an d long-establishe d Agenc ypractic e provid e fo r case-by-cas e adjudicatorydetermination s o f whethe r ne wsourc e requirement s appl yt o prospectiv e alteration s a t existin g facilities . E.g. . 4 0 C.F.R . § 60.5 ; se e als o supr a p . (discussio n o f EPApractic e o f issuing NSP S and PS D applicabilit y determinations) . Suc hdetermination s ar e properl yreviewabl e i n th e cour t o f appeals . Harriso n v . PP GIndustries . Inc .

Moreover , -a

s a practica l matter , i t i s essentia l tha t EPAb e abl e t o respond t o ne wfactua l circumstance s a s the y arise . Th e Agenc ycanno t anticipat e everyfor mtha t industria lP.4 6

- 4 5 - developmen t maytak e i n promulgatin g rule s "o f genera l .. . applicabilit yan

d futur e effect, " 5 U.S.C . § 551(4) , no r doe s th e lawrequir e EPAt o d o so . [Ad d cit e re : agencie s no t require d t o anticipat e everyfactua l circumstanc e t o whic h regulation s mayb e applied. ] S o long a s th e curren t regulation s ma yb e reasonabl yinterprete d a s encompassing th e propose d renovation s a t Por t Washington , EPA' s applicabilit y determination s mus t b e upheld . E.g. . Udal l v . Tallman . 38 0 U.S . 1 , 16-1 7 (1965) ; Wisconsi n Electri c Powe r Co . v . OSHRC . 56 7 f.2 D 735 , 73 8 (7T

H CIR . 1977) . I t i s clea r tha t regulatoryagencie s hav e authorit yt o procee d b

yadjudicatio n rathe r tha n rulemaking i n appropriat e circumstances , e.g. . NLRB v . Wvman-Gordo n Co. . 39 4 U.S . 75 9 (1969) . [MORE CITES] , Absen t a n explici t statutoryconstraint , EPAha s broa d discretio n t o employthos e procedure s an d method s i t feel s ar e bes t suite d t o discharging it s numerou s and varie d duties . See , e.g. . Vermon t Yanke e Nuclea r Powe r Corp . v . NRDC . 43 5 U.S . 519 , 54 3 (1978) .

Nevertheless , WEPC O argue s tha t EPAha s impermissibl y applie d it s rule s prospectively , b yeffectivel ycreating ne w

- r regulatoryrequirement s throughadjudicatio n an d withou t explanatio n o r opportunit yt o comment . Br . a t 21-23 . Thi s i s no t so . A s wil l b e shown , EPAmerel yapplie d existing regulation s t o th e fact s o f thi s case . WEPC O ha s faile d t o demonstrat e tha t EPAdeparte d fro meithe r trh

e lette r o r inten t o f thos e regulation s i n issuing it s applicabilit ydeterminations .- 4 6 -

Th e fac t tha t th e subjec t o f thos e determination s wa s a lif e extensio n project , a subclas s o f modificatio nno t previousl y encountere d b

yEPA , i s o f n o consequence . B . WEPCO' s Lif e Extensio n Projec t Involving "Like-Kind Replacement " I s Withi nth e Definitio n o f "Modification " Unde r EPARegulations . Neithe r th e statutorydefinitio n i n sectio n 111(a)(4 ) no r EPA' s regulation s contai nan yrestriction s o n th e typ e o f physica l o r operationa l change s tha t mayb e deeme d modifications . No r ca n suc ha restrictio nfairl yb e read int o th e legislativ e o r administrativ e historyo f th e NSP S o r PS D programs . WEPC O insists , however , tha t th e lif e extensio nprojec t a t Por t Washingto n i s beyond th e reac ho f th e Clea nAi r Act' s modificatio n requirements . Th e compan yi s mistaken . WEPC O argue s o n on e hand tha t "th e term 'lif e extension ' describe s onl ywha t utilitie s an d othe r industria l facilitie s hav e don e fo r decades, " becaus e everytim e a plan t componen t —eve n a singl e leak ypip e —i s replace d i n accordanc e wit horigina l plan t design , th e facility' s lif e i s extended. . Br . a t 28 . O nth e othe r hand , WEPC O claim s tha t whe n EPAadopte d it s NSP S an d PS D modificatio nregulation s th e Agenc y

••*%*::
. di d no t specificall yanticipat e tha t utilitie s woul d see k t o rene wtheir-facilitie s throughlif e extensio nprograms , an d thu s EPAmus t no wconduc t ne wrulemaking rathe r tha n appl yit s existing rules . Br . a t 29 . Bot hWEPCO' s facil e truis m an d it s pinche d reading o f EPA' s modificatio nregulation s ar e inaccurate .P.4 8

- 4 7 - EPAha s nowher e asserte d tha t NSP S o r PS D applie s t o repai r o f a leak

ypipe , whic htechnicall yextend s th e lif e o f a facility . A s discusse d infra , suc hroutin e repair s an d replacement s ar e beyond th e reac ho f th e CAA' s modificatio n provisions . WEPCO' s strawma n i s no t a t issu e here ; th e Por t Washingto n projec t involve s muc hmor e tha n leak ypipes . I t i s tru e tha t EPA— an d industry—di d no t forese e th e typ e o f lif e extensio n projec t a t issu e her e a t th e time th e NSP S an d PS D modificatio nregulation s wer e adopted . Se e supr a p . [cit e beginnin g o f lif e extensio ndiscussion. ] But , a s note d previously , thos e regulation s b ythei r veryterm s encompas s th e specifi c renovation s propose d a t Por t Washington . Moreover , a s th e prospec t o f lif e extensio n program s ha s loome d large r i n recen t years , th e electri c utilit yindustryha s acknowledge d tha t ther e mayb e regulatoryconsequences . I nparticular , industry als o understand s tha t thos e consequence s mayinclud e th e nee d t o compl ywit hNSP S an d PS D requirements . WEPCO' s professe d surpris e a t th e prospec t o f coverag e i n thi s cas e is , i n fact , n o shoc k a t all , bu t rathe r a natura l consequenc e o f industry' s ow n well-considere d choice .

I n deciding wha t rout e t o pursu e i nplannin g t o mee t futur e electrica l demand , utilitie s mus t asses s th e cost s an d benefits , including risk s an d uncertainties , associate d wit hlif e extensio n versu s thos e entaile d b yothe r availabl e alternatives . Capita l Cost s o f Lif e Extensio na t 5 ; EPR I -Journal . July/Augus t 1987 , a t 24-26 . [Record a t .] . Th e utilit yindustryP.4 9

- 4 8 - understand s tha t among th e cos t factor s tha t mus t b e considere d i s th e possibilit ytha t a give n lif e extensio nprojec t mayb e subjec t t o th e NSP S an d PS D provision s o f th e Clea n Ai r Act , an d mayb e require d t o instal l scrubber s o r othe r pollutio ncontro l technologya s a result .

Thus , i n thei r respectiv e guideline s fo r assessing lif e extensio n costs , bot hth e Departmen t o f Energyan d th e industry' s principa l researc hgroup expressl ystat e tha t a decisio nt o procee d wit ha particula r lif e extensio n projec t maysubjec t th e plan t t o ne wsourc e requirements . Se e capita l Cost s o f Lif e Extensio n a t 6 (NSP S appl yt o unit s whe n refurbishmen t make s them "modified") ; EPR I Journal . July/Auqus t 1987 , a t 2 6 ("a nextended

lif e plan t coul d als o b e subjec t t o NSP S i f th e emissio nrat e o f an ypollutan t covere d b ythes e standard s increase d b y refurbishment") . Th e Departmen t state d it s belie f tha t i t i s no t clea r wha t kind o f refurbishmen t activitie s wil l mak e a plan t subjec t t o NSPS , capita l Cost s o f Lif e Extensio na t 6 , whil e EPR I pointe d ou t tha t coverag e i s " a ris k tha t depend s o nregulatory interpretation, " EPR I Journal . July/Augus t 1987 , a t 27. 1 9

WEPCOassert s tha t th e onl yprovisio naddressing renewa l o r perpetuatio n o f existing facilitie s through"like-kin d

19 EPR I als o pointe d ou t tha t "[w]hethe r lif e extensio nwoul d remai n economicall yattractiv e i f refurbishe d plant s ha d t o compl ywit hNSP S woul d depend o nth e specifi c cases. " Th e researc hgrou

p furthe r state d i nthi s regard tha t eve ni f complianc e wer e required , i t maystil l befor e cost-effectiv e tha n a ne wunit . Id . I npar t thi s i s becaus e ne wclea ncoa l technologie s mayb e abl e t o satisf yne wsourc e requirement s withou t resor t t o scrubbers . Id .P.5 0

- 4 9 - replacement " o f deteriorate d component s i s th e NSP S "reconstruction " regulation , applicabl e wher e capita l cost s o f reconstructio n excee d 50 % o f th e cos t o f a ne wfacilit yeve ni f emission s d o no t increase . Se e 4 0 C.F.R . § 60.15 . Sinc e capita l cost s a t Por t Washingto nar e belo w50% , WEPC O argues , ther e ar e n o Clea n Ai r Ac t implication s t o WEPCO' s lif e extensio nproject . Br . a t . I n fact , i n adopting th e reconstructio nprovision , EPA explicitl ydistinguishe d reconstructio nfro mmodification , [cite ] Th e Agenc ylef t n o doub t tha t th e modificatio n rul e woul d appl ywhere , a s here , change s di d no t alte r th e characte r o f th e facility , bu t di d resul t i n emission s increases . 2 0 Recon structio n applie s onl ywher e wor k a t a nexisting facilit yi s "substantiall yequivalen t t o totall yreplacing i t a t th e en d o f it s usefu l life, " eve n i f ther e ar e n o resulting emission s increases. ] 4 0 Fed . Reg . 58417 , col . 3 . Th e Agenc yaddresse d WEPCO' s "like-kind replacement " argumen t b yclearl yproviding tha t project s o f lesse r scope , wher e renovate d facilitie s "substantiall yretai n thei r character, " wil l b e addresse d byth e

20 I t i s clea r fro

m th e technica l literatur e tha t th e utilit yindustryi s wel l awar e tha t lif e extension s i nparticula r ma yb e subjec t t o eithe r th e modificatio nprovision s o f NSP S o r th e reconstructio n provisions , depending o nth e fact s o f a give n case . Thus , bot hth e Departmen t o f Energyand EPR I hav e bee n carefu l t o distinguis hbetwee nth e ris k o f NSP S coverag e unde r th e reconstructio n provision s i f lif e extensio nexceede d 50 % o f capita l costs , an

d th e potentia l fo r coverag e unde r modificatio n provision s i f refurbishmen t activitie s increase d emission s rates . Capita l Cost s o f Lif e Extensio n a t 6 ; EPR I Journal . July/Augus t 1987 , a t 26 .P.5 1

- 5 0 - modificatio n regulations . JJL . EP Astate d quit e simpl yan d withou t qualificatio n a s t o suc hfacilitie s tha t "applicatio n o f [NSPS ] i s appropriat e whe nan yphysica l o r operationa l chang e i s mad e whic hcause s a n increas e i nemission s t o th e atmospher e (thi s i s modification). " Id . (emphasi s added) ; se e als o supr a p . (discussio n o f NSP S reconstructio nprovision). 2 1 WEPC O emphasize s tha t EPAregulation s plac e qualification s o n applicatio no f NSP S t o reconstruction s despit e thei r larg e scope . Br . a t . Bu t thi s ignore s th e obviou s an d importan t fac t tha t b ydefinition , modification s involv e emission s increase s whil e reconstruction s maynot . Thus , EPAha s a muc hgreate r interes t i n requiring advance d pollutio ncontrol s o n modification s despit e thei r lesse r scope , [ad d discussio no f Subpar t D a background doc . a s cite d i nWEPC O Br . a t 2 9 n.86. ] II . EPA' S FACTUAL FINDIN GTHAT WEPCO' S $8 0 MILLIONLIF E EXTENSIONPROJEC T I S NO T ROUTIN E I S CONSISTENT WIT H TH E CLEA NAI RACT . EPAREGULATIONS . AND PRIO RDECISION S A . Th e Renovatio n Wor k I s Costl yan d Extensive , an

d Apparentl yHa s Neve r Bee n Don e bvAn vOthe r Utility . I n finding tha t th e renovation s a t Por t Washingto n woul d constitut e a physica l o r operationa l chang e unde r NSP S an d PSD , EPAfirs t considere d an d rejecte d WEPCO' s clai m tha t suc h 21 EP Adecide d no t t o includ e a reconstructio nprovisio ni n it s 198 0 PS D rule s largel ybecause , i n ligh t o f th e genera l PS D objectiv e o f protecting ai r quality , ther e wa s no t a significan t nee d fo r suc ha requirement . EPAinstead-relie d o n th e modificatio n regulatio naddressing improvement s a t existin g facilitie s whic hwoul d caus e a significan t ne t emission s increase . Se e 4 5 Fed . Reg . 52703 , col . 2 .P.5 2

- 5 1 -

wor k i s withi n th e regulatoryexclusion s fo r "routin e maintenance , repai r an d replacement. " EPAevince d n o inten t t o depar t fromth e common-sens e meanin g o f "routine " whe n i t adopte d thes e exclusions . [cit e dictionarydefinition. ] Th e Agenc yha s applie d th e termi n a straightforwar d an d reasonabl e manne r here , consisten t wit hth e genera l rul e that , a s exemption s fro mth e statutorydefinitio n encompassing an yphysica l o r operationa l change , th e exclusion s fo r "routine " wor k mus t b e narrowl y construed . [cite. ]

EPAconducte d a nextensiv e factua l inquiryint o th e circumstance s o f th e Por t Washingto nrenovations . Th e Agenc y obtaine d a larg e quantit yo f informatio n fro mWEPC O regarding th e company' s plan s an d ho wtheycompare d t o WEPC O an d industry practice . ClayMemorandu ma t 5-6 . EPAals o reviewe d it s ow n file s i n searc ho f analogou s situations . Thoma s lette r a t 3-4 . A t on e poin t WEPC O asserte d tha t th e propose d wor k woul d normall y occu r onl yonc e o r twic e during a unit' s expecte d life . Lette r fro mThoma s J . Cassidy , supra . a t 1 . Bu t WEPC O di d no t identify , an d EPAdi d no t find , eve na singl e instanc e o f renovatio nwor k

1 a t a t an yeSiectri c utilit ygenerating statio n tha t approache d th e Por t Washingto n lif e extensio n projec t i nnature , scop e o r extent . In-particular , a s fa r a s coul d b e determined , replacemen t o f stea mdrum s an

d plate-typ e ai r heater s a t a nage d powe r plan t ha d neve r befor e bee n undertake na t an yutilit yi n th e Unite d States . Thoma s Lette r a t 3-4 ; ClayMemorandu ma t 3-4 .P.5 3

- 5 2 - EPAsummarize d th e approac han d outcome o f it s factua l inquirya s follows : I n determining whethe r propose d wor k a t a n existin g facilit yi s "routine, " EPAmake s a case-by

cas e determinatio nb yweighing th e nature , extent , purpose , frequency , an d cos t o f th e work , a s wel l a s othe r relevan t factors , t o arriv e a t a common-sens e finding . I n thi s case , al l o f thes e factor s sugges t tha t th e wor k require d unde r WEPCO' s lif e extensio n projec t appear s no t t o b e "routine. " Th e availabl e informatio n indicate s tha t th e wor k propose d a t Por t Washingto n i s fa r fro mbeing a regular , customary , o r standar d undertakin g fo r th e purpos e o f maintainin g th e plan t i n it s presen t condition . Rather , thi s i s a highl yunusual , i f no t unprecedented , and costl y project . It s purpos e i s t o completel yrehabilitat e aging powe r generating unit s whos e capacit yha s significantl ydeteriorate d ove r a perio d o f years , thereb yrestoring thei r origina l capacit yand substantiall yextending th e perio d o f thei r utilizatio n a s a n alternativ e t o retiring thema s the yapproac hth e en d o f thei r usefu l physica l an d economi c life . ClayMemorandu

ma t 3-4 . Despit e thi s exhaustivel yconsidere d an d well-reasone d finding , WEPC O continue s t o insis t tha t it s lif e extensio n projec t i s routine . Th e compan yassert s tha t a n activit yi s "routine " fo r NSP S an d PS D purpose s i f i t i s "customary " o r a "regular " procedure . Br . a t 42 . WEPC O follow s thi s premis e wit h another : like-kind replacemen t o f deteriorate d equipmen t i s customaryan

dregula r industrypractice . Id . Thes e premise s lead WEPC O t o th e genera l conclusio ntha t al l replacements , including thos e a t issu e here , ar e customaryan d regular , an

d therefor e routine . Id . Assuming , arguendo . tha t WEPCO' s premise s ar e true , it s conclusio ndoe s not_follo wi nlogi c o r i n fact .P.5 4

- 5 3 - Whil e some replacemen t o f deteriorate d equipmen t mayb e customaryan

d regular , an

d therefor e routine , i t doe s no t follow tha t al l replacement s ar e eithe r customary , regular , o r routine . Base d o n a n extensiv e record , EPAconclude d tha t n o stea m drum s o r plate-typ e ai r heater s ha d eve r bee nreplace d a t a U.S . utility . Significantly , WEPC O doe s no t disput e thi s finding . Moreover , WEPC O itself , i napplying fo r stat e approva l o f it s lif e extensio n project , specifie d tha t wor k item s "falling int o th e categoryo f repetitiv e maintenanc e tha t ar e normall y performe d during schedule d equipmen t outage s . . . ar e no t include d i n thi s application. " Lette r fro m Thoma s J . Cassidy , supra . a t 1 . EPA' s finding tha t th e wor k WEPC O di d pla nt o undertak e i s neithe r regular , customary , no r "routine " i s reasonable .

WEPC O claim s tha t EPA' s treatmen t o f ai r heate r replacemen t i s arbitraryan d capricious . Br . a t 45-48 . Thi s accusatio n i s groundless . Th e compan ywoul d hav e EP Aconside r th e cos t o f thos e replacement s separatel yfrom th e lif e extensio n projec t a s a whole . Br . a t 46 . Bu t a s EPAexplained , ther e i s n o basis : fo r according separat e treatmen t t o on e portio no f thi s integrate d project . Suc hpiecemea l revie wwoul d b e contraryt o reaso n an

d th e inten t o f th e Act' s ne wsourc e provisions . Supplementa l Determinatio na t 7-8 . Rather , a s explaine d above , EPAreasonabl yemploy s a totalit yo f th e circumstance s tes t tha t consider s al l th e relevan t factors . Se e ClayMemorandu ma t 3 . A s t o ai r heaters , among th e relevan t factor s i s tha tP.5 5

- 5 4 - th e plate-typ e heater s o n unit s 1- 4 apparentl yhav e neve r bee n replace d a t an

yothe r facility . I ndetermining industry practice , i t i s no t enough , a s WEPC O assert s (Br . a t 47 ) tha t al l kind s o f ai r heater s performth e same genera l function . WEPC O make s thi s specifi c poin t t o illustrat e it s genera l positio ntha t like-kind replacemen t tha t doe s no t alte r plan t desig no r emission s characteristic s i s pe r s e routine . However , a s EPAha s shown , supr a a t , ther e i s n o regulatoryexclusio nfo r like

kind replacement s i n general . I t mayb e th e cas e tha t a particula r like-kind replacemen t i s routine . Thus , i nth e contex t o f WEPCO' s lif e extensio nprogram , EPAha s rule d tha t replacemen t o f stea m drum s a t a n age d an d deteriorate d plan t i s no t routine . However , replacemen t o f a stea mdru mtha t faile d durin g initia l testing a t a ne wfacilit yprobabl ywoul d b e viewe d a s routin e i f th e alternativ e wa s t o abando n tha t facilit yan d th e unamortize d capita l investmen t i nne wequipment . Clay Memorandu

ma t 6 n . 2 . 2 2

2 2 WEPC O cite s EPA' s finding s tha t replacemen t o f regenerato r cyclone s a t a refineryafte r eigh t years , and replacemen t o f coa l pulverizer s a t a nelectri c utility , ar e routin e a s contraryt o th e Agency' s positio n i n thi s case . Br . a t 4 3 (citing Lette r fro mKennet hEng , EPARegio nII , t o Dal e Choate , Mobi l Oil , Septembe r 7 , 198 8 [Record a t 2.21] , 4 5 (citing NSP S Background Documen t a t 5- 4 [Record a t 3.19] . . . Whethe r a particula r projec t i s routin e require s a case-by-cas e weighin g o f al l th e relevan t factors , ClayMemorandu ma t 3 , an

d th e recor d doe s no t reflec t wha t fact s EPArelie d o ni nreaching thos e conclusions . I nparticular , ther e i s nothing t o suppor t WEPCO' s assertio n tha t coa l pulverizer s ar e rarel yreplaced . Thus , i t i s jus t a s reasonabl e t o assume tha t i t i s customaryfo r thes e individua l item s t o wea r ou t an d b e replace d a s a regula r practice .P.5 6

- 5 5 - WEPC O cite s severa l Agenc ymemorand a a s suppor t fo r it s positio n tha t restoring a plan t t o it s origina l capacit ydoe s no t trigge r NSPS . Br . a t 36-37 , n . 101 . WEPC O eithe r selectivel y misread s th e memorand a o r th e memorand a simpl yd o no t provid e enoughfactua l basi s t o suppor t WEPCO' s assertion s tha t th e Agenc yacte d arbitrarily . Fo r example , WEPC O cite s a memorandu m fromMichae l Jame s t o Jac k Farme r [Record a t 2.1] . providing tha t th e NSP S modificatio n provisio n woul d no t b e triggere d bya sourc e reopening afte r being close d fo r a perio d o f time . Tha t mem o clearl ystates , however , tha t th e modificatio nprovisio n woul d no t b e triggere d becaus e "neithe r th e source' s physica l structur e no r it s metho d o f operatio n i s change d fromit s conditio n unde r previou s operation. " Thus , th e fact s i ntha t cas e ar e entirel ydifferen t fro mWEPC O wher e significan t physica l change s wer e t o b e mad e t o th e facility . EPAha s alway s take n th e positio n tha t reactivatio no f a sourc e withou t othe r physica l o r operationa l change s doe s no t trigge r NSP S modification ; wher e physica l o r operationa l change s d o occu r th e Agenc ymake s a fac t specifi c determinatio no f whethe r thos e change s ar e routine . See . e.g. . Memorandu

mfromE . Reic ht o W . Sawye r (1980 ) [Record a t 2.10. ] I n examining reactivation s unde r PSD , EPAlikewis e inquire s a s t o whethe r physica l o r operationa l change s ar e necessaryt o restar t t o facility . E.g. , Supplementa l PS D Applicabilit yDetermination . Cypru s Cas a Grand e Corp. . Nov . 6 , 198 7 [Record a t 2.17 ] (reactivation o f sourc e i s subjec t t o PS DP.5 7

- 5 6 - du e t o extensiv

e physica l an

d operationa l change s necessaryfo r restart) . Se e als o infr a p . . B . Th e Purpos e o f th e Projec t I s t o Restor e Los t Capacit y an d Extend th e Usefu l Lif e o f th e Por t Washingto nPlant . EPAfoun

d tha t th e lif e extensio n projec t woul d no t merel ymaintai n th e unit s i n thei r presen t deteriorate d state , bu t restor e themt o thei r origina l desig ncapacit yan d substantiall yextend thei r usefu l physica l and economi c life . Thoma s Lette r a t 3 ; ClayMemorandu ma t 4 . WEPC O itsel f ha d concede d tha t tota l plan t capabilit yhad decline d b y4 0% , an

d tha t extensiv e renovatio nwa s necessaryt o continu e operations . Lette r fromThoma s J . Cassidy , supra . a t 1 .

WEPC O late r conducte d capacit ytest s o nunit s 1- 4 whic h demonstrate d tha t unit s 2 an d 3 coul d b e operate d a t maximu mto*^** capacity . EPAaccepte d thos e tes t result s and revise d it s determinatio n b

yprovidin g tha t NSP S woul d no t appl yt o thos e units . Supplementa l Determinatio n a t 8 . However , thos e same tes t result s showe d that , a t best , unit s 1 and 4 coul d onl y operate d a t level s substantiall ybelo wdesig n capacity , [ad d Fn here? : x % derat e pe r tests , bu t eve nthe n onl ywit hexceedances , suggestifl ^ tha t units ' tru e sustainabl e capacit yfo r baselin e purpose s aay

b e muc hlower. ] Regarding uni t 5 , WEPC O decline d t o tes t o r otherwis e resum e operation s a t tha t unit , leaving EPAn o reaso n t o alte r it s conclusio ntha t unit/ B coul d no t b e operate d a t al l without , a t a minimum , th e (unprecedented ) replacemen t o f th e stea

mdru m a s calle d fo r b

yWEPCO' s consultant , .[cite. ] ,iA *- 5 7 - Despit e thes e facts , WEPC O persist s i n characterizin g it s lif e extensio n projec t a s enabling th e plan t t o "operat e normally. " Br . a t 42 . I n1989 , however , norma l operation s ar e wel l belo wdesign capacity , reflecting th e har d fac t o f sever e age-relate d deterioratio no f th e plant . [Fn . cit e lo woperating load s fo r las t 1 0 years. ] Th e tru e purpos e o f th e project , a s WEPC O advise d th e Publi c Servic e Commission , i s t o restor e los t capacit yand extend plan t life . Lette r fro m Thoma s J . Cassidy , supra , a t 1-2 .

EPA' s finding tha t WEPCO' s lif e extensio nprojec t i s no t "routine " i s eminentl yreasonable . C . WEPC O Woul d Hav e th e "Routine " Exclusio nSwallo wth e Rule . WEPCO' s interpretatio n o f th e routin e exclusio ni n4 0 C.F.R . § § 60.14(e)(1 ) an d 52.21(b)(2)(iii)(a ) woul d hav e th e exception s swallo wth e rules . WEPC O ignore s tha t th e basi c starting poin t i s th e definitio n o f "modification " foun d i n sectio n 111(a)(4 ) o f th e Clea nAi r Act . Tha t provisio nstate s tha t an yphysica l chang e o r chang e i nth e metho d o f operatio no f a sourc e vhic hincrease s emission s ca n subjec t a sourc e t o th e NSP S and. PS Dmodificatio n provisions . Th e regulatoryexclusion s found i n 4 0 C.F.R . § § 60.14(e ) an d 52.21(b)(2)(iii)(a ) ar e exemption s t o thi s genera l requirement . Tha t WEPC O disagree s wit hth e breadt ho f th e exclusio ndoe s no t rende r th e Agency' s determinatio n invalid . EPA' s constructionis t it s ownregulation s i s entitle d t o grea t deference . Udal l v . Tallman . 3 8 0 U.S . -ST "P.5 9

- 5 8 - 16-17 . Moreover , a s construe d b yWEPCO , th e routin e exceptio n woul d rende r larg e portion s o f th e modificatio ndefinitio n meaningless . WEPC O assert s tha t an yphysica l chang e whic hi s a replacemen t o f a n existing componen t i s b ydefinitio nroutine . I t furthe r contend s tha t th e Agenc ycanno t conside r extent , scope , cos t o r frequenc yo f th e renovatio nwork ; it s impac t o n th e usefu l lif e o f th e facility ; o r similar , obviousl yrelevan t considerations . Br . a t 42 .

Perhap s th e bes t wayt o highligh t th e absurdit yo f WEPCO' s argumen t i s t o conside r th e analog yo f a car . EPA' s regulatoryexceptio n fo r routin e maintenance , repai r an d replacement , wa s mean t t o cove r suc hthing s a s a noi l change , replacing a broke n headlam p o r worn-ou t tires , changing th e sparkplugs , o r othe r simila r activities . Granted , eac ho f thes e element s i s essentia l t o th e operatio no f th e vehicl e an d eac hb

y bein g repaire d o r replace d technicall y"extends " th e lif e o f car . I n mos t instances , however , i t i s no t routin e t o replac e majo r component s suc ha s th e engin e o r th e transmission , an d i t i s certainl yno t routin e t o d o s o o na n aged , deteriorate d car . WEPCO' s proposedrenovation s ar e mor e analogou s t o th e latte r typ e o f activity

tha n th e former.[se e discussio ni n claymem o at -

-. ] WEPCO' s interpretatio n o f th e modificatio nrul e woul d eliminat e th e distinctio nbetwee n routin e an d nonroutin e physica l changes , wit hth e forme r engulfing th e latter . Thi s woul d undermin e a n importan t purpos e o f th e modificatio n provision , an d violat e th e precep t tha t exemption s b e narrowl yconstrued .P.6 0

- 5 9 - III . EPA' S FACTUAL FINDING S THAT WEPC O EXCEEDE D NSP S AN n pep BASELINE EMISSION S AR E REASONABL E AND I NACCORDANC E WJT H APPLICABL E REGULATION S A . Wher e Emission s Increase s Du e t o Increase d Productio n Rat e o r Hour s o f Operatio n Ar e Attributabl e t o Physica l o r Operationa l Changes . The vTrigge r NSP S an d PS D Coverage . WEPC O assert s tha t PS D doe s no t appl yt o th e Por t Washingto n renovation s becaus e an yemission s increase s wil l b e attributabl e t o increase s i nrate s o f productio no r hour s o f operatio n whic har e exclude d fro mth e definitio no f "majo r modification. " Br . a t 61-64 . Thi s clai m misread s th e scop e o f th e regulatoryexclusion . EPA' s interpretatio no f thi s exemptio n a s limite d t o stand-alon e increase s i n productio no r operation s i s i n keepin g wit hth e purpos e an d inten t o f th e exemption , an d shoul d b e upheld .

I n adopting NSP S an d PS D regulatoryexclusion s fo r increase s i n productio n rate s an d hour s o f operation , EPAsough t t o afford source s ampl e freedomi n responding t o change s i n marke t conditions . Wit hrespec t t o NSPS , wher e onl yhourl y emission s rate s ar e a t issue , EPAgav e source s broa d leewayt o increas e productio n s o long a s i t doe s no t entai l a capita l expenditur e fo r "long-termaddition s o r improvements. " Se e 3 9 Fed . Reg . 36948 , col . I. 2 3

2 3 Here , EPAfoun d tha t th e restoratio n o f desig ncapacit y a t unit s 1 , 4 , an

d 5 —an

d corresponding increase s i n productio n rate s an

d emission s rate s —woul d require- a capita l expenditure . Thoma s lette r a t 1-5 . WEPC O ha s no t challenge d EPA' s finding , effectivel yconceding thi s point .P.6 1

- 6 0 - Regarding PSD , o nthei r fac e th e exclusion s ar e limite d t o federall yenforceabl e emission s ceilings , and ar e no t specificall ytie d t o th e existenc e o f capita l expenditures . However , th e preambl e t o th e 198 0 PS D regulation s i s clea r that , a s i n matter s involving modificatio n regulation s generally , EPA wa s following th e lead o f it s earlie r NSP S regulations . Se e supr a p . . 2 4 Thus , requiring PS D revie wfo r a mer e increas e i n productio n o r operatio n"woul d severel yan d undul y hampe r th e abilit yo f an ycompan

yt o tak e advantag e o f favorabl e marke t conditions. " 4 5 Fed . Reg . 52704 . I n th e ver ynex t sentence , however , EPAstrongl yimplie d tha t productio nan d operationa l increase s woul d b e exemp t onl yinsofa r a s the ywer e no t linke d t o th e ne wconstructio nactivit ytha t i s th e linchpi n o f PS D coverage : "Th e emphasi s o f th e relevan t statutory provision s o n "construction " strongl ysupport s EPA' s interpretatio n o f Congress ' intent . See , e.g. . sectio n165(a). " 4 5 Fed . Reg . 52704 . EPAthe nproceede d t o addres s th e ai r qualit yplannin g concern s o f th e PS D programbyemphasizin g tha t "an ychang e i n hour s o r rat e o f operatio ntha t woul d distur ba prio r assess - men t o f a source' s environmenta l impac t shoul d hav e t o underg o scrutiny. " Id .

I n th e ClayMemorandum , EPAconsidere d th e regulatory exclusio n i n ligh t o f thes e underlying purpose s and th e fact s o f

24 Th e legislativ e historyals o reflect s that , a s a genera l matter , Congres s intende d t o confor mth e meanin g o f "modification " fo r PS D purpose s t o usag e unde r NSPS . Se e 12 3 Cong . Rec . H1195 7 (Nov . 1 , 1977 ) [chec k cite] .P.6 2

- 6 1 - thi s case . EPAnote d tha t WEPCO' s planne d productio nincrease s wer e no t a temporaryreactio n t o curren t marke t conditions , an d thu s interprete d th e exclusio na s no t applicabl e here . Rather , EPAstated : i t i s obviou s tha t WEPCO' s plan s t o increas e productio n rat e o r hour s o f operatio n ar e inextricabl yintertwine d wit hth e physica l change s planne d unde r th e lif e extensio n project . Absen t th e extensiv e renovation s propose d a t Por t Washington , WEPC O woul d hav e littl e marke t incentiv e to , and i npar t woul d b e physicall y unabl e to , increas e operation s a t thes e age d and deteriorate d facilitie s which , absen t th e renovations , woul d likel yb e retire d fromservic e i n th e nea r future . Thus , WEPCO' s plan s cal l fo r precisel yth e typ e o f "chang e i nhour s o r rat e o f operatio n tha t woul d disturba prio r assessmen t o f a source' s environmenta l impac t [and ] shoul d hav e t o underg o [PSD review ] scrutiny " (se e 4 5 FR52704) . Conversely , accepting WEPCO' s interpretatio no f th e majo r modificatio n regulation s woul d serv e t o exclud e from consideratio n al l physica l o r operationa l change s excep t thos e whic hcaus e increase d emission s pe r uni t o f production . Clearly , EPAneve r intende d thi s result . I t woul d allow , throughsubstantia l capita l investment , significan t expansio no f th e pollution

emitting capacit yan d longevit yo f majo r industria l facilitie s withou t PS D revie wo f th e impact s o n ai r qualit yan

d opportunitie s fo r futur e economi c growth . ClayMemorandu

ma t 8 . Th e environmen t bear s th e brun t o f a nincreas e i n actua l emission s fro m a sourc e regardles s o f whethe r i t come s fromincrsasedpollutio n pe r uni t o f productio no r fromincrease d production . EPAcan , an d does , allo wa nexemptio nfo r simpl e increase s i n productio n rat e o r hour s o f operations , whic har e unconnecte d t o physica l o r operationa l changes . Se e Alabama Powe r Co . v . Costle . 63 6 F.2 d 323 , 40 0 (D.C . Cir . 1979 ) (discusse d supr a a t ) . Bu t th e regulatoryexclusio n doe s no tP.6 3

- 6 2 - allo wsignifican t expansio no f th e pollutio n emitting capacit yo r longevit yo f majo r industria l facilitie s withou t PS D revie wo f impact s o n ai r qualit yan d opportunitie s fo r futur e economi c growth . ClayMemorandu ma t 8 . Suc ha reading woul d b e contrary t o th e statutoryinten t t o requir e a PS D permi t "wher e industria l change s migh t increas e pollutio n i n a narea. " I£ . a t 4 0'1 ; se e als o CA Asectio n 160(5) . WEPC O claim s tha t EPA' s interpretatio no f th e regulatoryexclusio n i s contraryt o pas t practice . Br . a t 63-64 . Bu t WEPC O distort s a 198 7 applicabilit ydeterminatio ntha t i n fac t explicitl yinterprete d thi s veryprovisio ni n precisel yth e same manne r a s EPAha s i nthi s case . Supplementa l Applicabilit y Determination . Cypru s Cas a Grad e Corp. . Nov . 6 , 198 7 [Recorde d a t 2.17] . I n tha t case , EPAhel d tha t reactivatio n o f a sourc e afte r a length

yshutdow

nwa s no t subjec t t o th e exclusio nfo r increase d productio n rat e o r hour s o f operation , becaus e th e reactivatio n coul d no t b e accomplishe d withou t extensiv e physica l change s t o rehabilitat e th e deteriorate d physica l plant . Id . a t 4-7 . EPAals o relie d o nth e fac t tha t th e stat e ha d remove d th e sourc e fro a it s emission s inventoryan d thu s reactivatio nwoul d "'distur ba prio r assessmen t o f a source' s environmenta l impact.' " Id . (quoting 4 5 Fed . Reg . 52704) . Similarly , i nthi s case , WEPCO' s plan s t o expand productio n canno t b e accomplishe d withou t extensiv e physica l changes , an d th e length

ylif e extensio n clearl ywil l distur bWisconsin's

- prio r assessmen t o fP.6 4

- 6 3 - environmenta l impact , whic hassume d retiremen t o f th e Por t Washingto n unit s i n th e nea r future . [Ad d rebutta l t o WEPC O Br . a t p . 6 3 r e fue l switch. ] B . Origina l DesignCapacit yI s No t Relevan t Unde r NSP S o r PSD ; Fue l Switching I s No t Relevan t Unde r NSPS . 1 . Achievabl e Capacity . No t Origina l Desig nCapacity . I s th e Baselin e Fo r Determining Emission s Increas e Unde r NSP S A s i t ha d don e throughou t th e administrativ e decisionmakin g process , WEPC O repeatedl yassert s tha t fo r purpose s o f determining baselin e emission s unde r NSPS , EPAmus t us e th e origina l operating designcapacit yo f th e unit , no t th e curren t achievabl e capacity . Br . a t — . Thi s assertio ni s incorrect .

NSP S applicabilit yi s determine d a s follows : compar e maximu machievabl e capacit yimmediatel ybefor e a propose d chang e t o maximu

machievabl e emission s afte r th e chang e t o establis h whethe r ther e wil l b e a n emission s increas e resultin g fro mth e change . 4 0 C.F.R . § § 60.1 4 . Se e supr a p . . Where , a s here , a n increas e i n productio n rat e i s a t issue , EPAexplicitl y rejecte d origina l designcapacit yi n favo r o f curren t operating

.ii* . . capacit ya s th e baselin e fo r guaging emission s increases :

Th e exemptio no f increase s i n productio n rat e i s n o longe r dependen t upo n th e "operating desig ncapacity. " Thi s termi s no t easil ydefined , an d fo r certai n industrie s th e "design capacity " bear s littl e relationshi p t o th e actua l operatin g capacit yo f th e facility . 3 9 Fed . Reg . 3694 8 (proposed rule) . Thi s cas e prove s th e rules'poin t precisely : th e actua l capacit yo f th e Por tP.6 5

- 6 4 - Washingto n unit s t o operat e ha s bee n significantl yreduced , an d i n fac t Uni t 5 i s unabl e t o operate , [cit e t o discussio n above. ] / " Therefore , EPAinitiall yuse d th e highes t capacit ydemonstrate d during th e previou s yea r fo r th e purpos e o f determinin g whethe r a n emission s increas e woul d occu r a s a resul t o f th e propose d renovatio n work . Thoma s Lette r a t 5 . However , EPAlef t ope nth e opportunit yfo r WEPC O t o demonstrat e tha t th e unit s coul d achiev e highe r capacities . During Novembe r an d Decembe r o f 198 8 WEPC O di d demonstrat e tha t Unit s 2 an d 3 coul d operat e no wa t origina l design capacity , an d thus , th e renovation s woul d no t increas e curren t capacit yo r emissions . Accordingly , i n th e Supplementa l Determinatio n EPAfoun d tha t th e propose d renovatio nwor k a t unit s 2 an

d 3 woul d no t subjec t thos e unit s t o NSP S coverage . Supplementa l Determinatio n a t 8. 2 5 Thus , WEPC O i s fre e t o mak e substantia l physica l change s t o Unit s 2 an d 3 withou t triggering NSP S review , contraryt o WEPCO' s assertion s tha t EPA' s

• Lxx-X res*

- ^ ^

25 WEPC O furthe r argue s tha t EPA' s tes t protoco l fo r determining actua l capacit yi s invali d becaus e i t use d th e lowes t 1 hou r capacit yachieve d furing a/5 0 hou r tes t period . Br . a t 49 . This * argumen t ha s n o merit . /Whethe r EP Ause d th e highest , lowest , o r som

e averag e o f th e 50 / hou r tes t ha s n o bearing o nth e determinatio n tha t NSP S applies . '/Eve n tn e highes t hou r during th e tes t perio d demonstrate d tha t Uni t l' s capacit ywa s % belo w projected ' pos t renovatio ncapacity/and tha t Uni t 4' s baselin e capacit ywa s __\ % les s tha nprojecte d capacity , f I nan yeyent , th e Administrato r ha s th e discretio n t o determin e wha t constitute s th e maximu m productio n rate^ttflde r representativ e operating conditions , se e 4 0 C/F-R^HToO . 14(by , an d thi s test protoco l wa s reasonabl ydesigried^€ o achiev e it s purpos e of \ determining a capacit ywhleh^/coul d b e achieve d o na sustanabl e basi s ove r a perio d gf^tlme. / /^Recor d a t > » . 

# (u,y* ** ^ 

# -\ t 

# iP.6 6

- 6 5 - interpretatio n o f th e NSP S regulation s effectivel ybar s an ylike

kind replacement s o f equipment .

WEPC O cite s severa l prio r applicabilit ydeterminations , contendin g the ysuppor t it s positio n tha t i n th e pas t EPAha s alway s looke d a t maximu mdesign capacit yt o determin e whethe r emission s wil l increase . Br . a t 39-40 , (citing Recor d Item s 2.2 , 2.3 , an d 2.15) . Acarefu l examinatio no f thos e determination s make s clea r tha t nothin g therei n i s inconsisten t wit hEPA' s positio n her e tha t th e baselin e capacit yfo r modificatio n purpose s i s th e maximu machievabl e capacit yjus t prio r t o th e propose d renovation . Thos e determintion s spea k o f highes t emissio n level s a t norma l operating conditions . [cite ] Here , a s note d above , th e applicabilit ydetermination s likewis e wer e base d o n th e maximu

mphysica l capacit ya t whic hth e plan t coul d operat e unde r norma l condition s a t th e time . Fo r Unit s 1 and 4 tha t wa s .7- 7 | <

—an d % percen t belo worgina l designcapacity , fo r unit s 2 an d 3 i t wa s th e desig n capacity , an d fo r Uni t 5 i t wa s zer o becaus e th e uni t coul d no t operate . 2 . Fue l Switching I s No t AMean s O f Avoidin g NSP S 

### Applicability LrWEPCOals o contend s tha t EPA' s determinatio ntha t switchin g t o a lower-sulfu r fue l i s no t a n appropriat e mean s o f avoiding NSP S applicabilit yi s contraryt o law . Br . a t 50 . WEPC O misread s sectio n Ill' s plai nlanguage .

I n th e ClayMemorandum , EPAexplaine d tha t th e NSP S regulation s ba r th e us e o f lower-sulfu r fue l t o avoi d coverage .P.6 7

- 6 6 - ClayMemorandu

m a t 9 (citin

g 4 0 C.F.R . § § 60.14(B)(2 ) an d 60.14(E)(4). ) I n it s Supplementa l Determinatio n EPAfurthe r explaine d wh

yi t rejecte d WEPCO' s proposa l t o avoi d NSP S coverag e b yaccepting a permi t conditio nrequirin g i t t o burnlo wsulfu r fue l s o a s t o preven t an yactua l emission s increase . EPAnote d tha t sectio n 11 1 a s amende d i n197 7 reflecte d a basi c congressiona l decisio ntha t fossi l fuel-fire d source s no t rel yo n naturall ylowpolluting fuel s t o compl ywit hth e NSPS . Supplementa l Determinatio n a t 10 . Thus , Congres s adde d th e percentag e reductio n requiremen t withi nth e definitio no f standar d o f performance . Se e sectio n 111(a)(1)(A)(ii) ; se e als o supr a a t pp . . Thi s cor e polic yjudgmen t i s reflecte d i n th e legislativ e historyo f th e 197 7 Clea n Ai r Ac t Amendments . Fo r example , th e Conferenc e Repor t states :

Th e Senat e concur s i n th e Hous e provisio nwit h mino r amendments . Th e agreemen t require s (1 ) tha t th e standard s o f performanc e fo r fossi l fuel-fire d boiler s b e substantiall yupgrade d t o requir e th e us e o f th e bes t technologica l systemo f continuou s emissio nreductio n an d t o preclud e us e o f untreate d lowsulfu r coa l alon e a s a mean s o f compliance ; . . . (3 ) tha t fo r fossi l fuel-fire d sources , th e ne wsourc e performanc e standard s mus t b e comprise d o f bot ha standar d o f performanc e fo r emission s an da n enforceabl e requiremen t fo r a percentag e reductio n i n pollutionfromuntreate d fuel . H.R . Rep^ j Ho . 95-964 , 95t hCong. , 1s t Sess . 13 0 (1977) .

EP A came t o th e conclusio ntha t becaus e th e wil l o f Congres s wa s s o clea r tha t lower-sulfu r fuel s alon e wil l no t suffic e t o compl ywit hNSPS , "i t woul d b e inconsisten t wit hth e legislativ e inten t fo r EPAt o allo wsource s t o avoi d coverag e o fP.6 8

- 6 7 - NSP S i n th e firs t instanc e i nth e manne r suggeste d b yWEPCO. " Supplementa l Determinatio n a t 11 .

I n response , WEPC O make s th e curiou s assertio n tha t EPA' s interpretatio n i s invali d becaus e "Congres s di d not , however , mak e an

ysimila r chang e [requiremen t o f percen t reduction ] i n th e 'modification ' provisio ntha t appl yt o existing sources. " Br . a t 51-5 2 (footnot e omitted) . Thi s statemen t reflect s a basi c misunderstandin g abou t th e relationshi p betwee n ne wan d modifie d source s unde r sectio n 111 . A s define d i n th e statute , a "new " sourc e subjec t t o NSP S provision s i s a sourc e "th e constructio n o r modificatio n o f which " occur s afte r th e proposa l o f a standar d o f performanc e fo r tha t sourc e category . Sectio n 111(a)(2 ) (emphasi s added) . Thus , th e requirement s o f sectio n 11 1 appl yt o bot hne wan d modifie d source s equally . Ha d Congres s intende d t o exemp t modifie d source s fromsuc ha ke y provisio n o f th e standar d o f performance , i t woul d hav e don e so . C . EPA' s PS D Regulation s Reguir e tha t Emission s Increase s B e Determine d b

yComparing Actua l Emission s Befor e th e Physica l o r Operationa l Chanc e t o Potentia l Emission s Afte r th e Change . EP A regulation s requir e calculatio no f "ne t emission s increase*

- for PS D purpose s b ycomparin g representativ e actua l emission s befor e th e physica l o r operationa l chang e an d potentia l emission s afte r th e change . Se e supr a pp . - . I n thi s case , usin g sulfu r dioxid e a s a nexample , representativ e actua l emission s ar e 24 , 23 6 ton s pe r year , whil e potentia l emission s following th e renovation s ar e 52 , 62 1 ton s pe r year . Thoma sP.6 9

- 6 8 - Letter , Envlosur e A . Despit e th e clea r requirement s o f th e regulation s and th e unconteste d facts , reguir e suc ha calculation . Th e compan ysuggest s tha t emission s increase s b e calculate d bycomparin g th e representativ e pas t actua l emission s wit hWEPCO' s "projecte d representative , actua l emission s tha t woul d occu r after " th e lif e extensio nprojec t ~ a maximu mo f 13,00 0 ton s pe r year. . Br . a t 5 6 n . 152 . Ther e i s n o basi s in . th e regulation s fo r suc ha comparison .

EPAha s explaine d i n detai l th e evolutio no f th e curren t systemfo r calculating emission s increase s unde r PSD . Se e supr a § . Afte r th e Alabama Powe r decision , EPArevise d it s PS D regulation s b yestablishing a nactua l emission s baselin e fo r modificatio n an d incremen t consumptio npurposes . However , i t i s logicall yimpossibl e t o determin e actua l emission s fo r a ne w o r modifie d uni t prio r t o it s constructio n o r modification . Hence , EP Aregulation s mus t assume tha t suc hunit s wil l emi t a t thei r maximu

mphysica l an

d lega l limits . Thi s i s don e b y providin g tha t fo r an yemission s uni t whic hha s no t begunnorma l operation s a s o f th e dat e o f th e modification , actua l emission s "shal l oen* l the potentia l t o emi t o f th e uni t o n tha t date. " 4 0 C.F.R . S SS. 21(b) (21)(iv) . EPAexplaine d tha t thi s assumptio n applie d bot ht o "ne w o r modifie d units. " Se e supr a (citing ) 4 5 Fed . Reg . 52713 , col . 3.) .

The rigo r tha t th e actual-to-potentia l compariso nmigh t otherwis e impos e o n th e PS D systemi s relieve d b yth e "netting " provision s o f th e regulations . Source s undergoin g physica l o r- 6 9 -

operationa l change s routinel yavoi d PS D revie wb yaccepting federall yenforceabl e restriction s whic hpreven t significan t emission s increase s ove r pre-modificatio n levels . Se e supr a •

Thes e basi c feature s o f th e PS D systemar e wel l understood , i f no t liked , b yth e electri c utilit yindistry . Numerou s industrygroup s sough t judicia l revie wo f severa l facet s o f EPA' s 198 0 PS D regulations . Chemica l Manufacturer s Associatio n v . EPA . No . 79-111 3 (D.C . Cir.). 2 6 Amon g th e petitioner s wer e severa l o f th e amic i i nthi s case , including Alabama Powe r Co. , e t al . Thes e petitioner s asserte d tha t EPA' s establishmen t o f an actua l emission s baselin e i s contraryt o th e CA Aan d tha t EPAshoul d hav e instead determine d emission s increase s base d o n potentia l t o emit , i.e. , desig ncapacit ya s limite d b

ylega l restriction s o n operations . Id. . Brie f fo r IndustryPetitioner s o n Actua l Emission s Definitio n o f Ne t Increase , Feb . 12 , 1981 , a t 19 , 28 . [Cit e t o supplementa l appendix? ] The yfurthe r objecte d t o th e requiremen t fo r compariso n o f actua l emission s befor e a physica l o r operationa l chang e wit hpotentia l emission s afte r th e additio no f a ne w emissionavuni t sx. th e "alteration " o f a nexistin g unit , an d th e nee d t o obtai noperationa l restriction s i n orde r t o avoi d a ne t

26 Th e partie s i n Chemica l Manufacturer s Associatio n entere d int o a settlemen t agreemen t unde r whic hEPAagreed , inte r alia , t o propose , an

d tak e fina l actio n on , a potentia l emission s baselin e fo r modifications . Id. . Settlemen t Agreement , Exhibi t B , Feb . 22 , 1982 . Th e cas e wa s staye d pendin g executio no f th e settlemen t agreement . T o date , however , EPAha s no t propose d an y regulatorychange s pursuan t t o Exhibi t B .P.7 1

- 7 0 - emission s increase . Id . a t 29. 2 7 Se e supr a . WEPC O canno t no wden yth e basi c functioning o f th e PS D baselin e regulations . [Ad d Fn . r e cite s t o sho wi s clea r thi s i s ho wworl d works : prio r EPAmemos , lawrevie warticles , etc. ]

Moreover , WEPCO' s propose d alternativ e —t o determin e emission s increase s base d o nth e company' s ownprojection s o f it s futur e actua l emission s — i s unworkabl e an d clearl ycontraryt o th e regulations . Anessentia l purpos e o f th e PS D programi s publi c revie wo f decision s t o increas e pollutio ni na clea nai r area . CA

Asectio n 160(5) . Thi s purpos e woul d b e defeate d i f th e polluter' s own estimate s o f it s futur e activitie s wer e determinativ e o f regulatoryconsequences . Instead , th e regulation s provid e tha t a compan ymayavoi d PS D revie wb y embodyin g it s projection s o f futur e emission s i n a n instrumen t enforceabl e b

yEPA . Se e supr a p . . Tha t i s th e pat h followe d b

yinnumerabl e source s sinc e 1980 , an d th e pat hEPAha s repeatedl yoffere d t o WEPC O during th e presen t controversy . Thoma s Lette r a t 3 , 5 ; ClayMemorandu ma t 8 . Thus , i f WEPC O i s willin g t o stand b yit s projection s tha t maximu mpost A modificatio n emission s wil l b e 14,00 0 ton s pe r yea r o f sulfu r dioxide , t&er e woul d b e n o PS D consequences . Indeed , WEPC O coul d

27 Th e partie s i n Chemica l Manufacturer s Associatio nentere d int o a settlemen t agreemen t unde r whic hEPAagreed , inte r alia , t o propose , an

d tak e fina l actio non , a potentia l emission s baselin e fo r modifications . Id.. , Settlemen t Agreement , Exhibi t B . Feb . 22 , 1982 . Th e cas e wa s staye d pending executio no f th e settlemen t agreement . T o date , however , EPAha s no t propose d an y regulatorychange s pursuan t t o Exhibi t B .P.7 2

- 7 1 - accep t a n emission s cap almos t twic e a s larg e a s it s projection s befor e triggerin g PS D review .

[Ad d rebutta l t o prio r determination s cite d b yWEPC O o n p . 60. ]

D . WEPC O Ha s ANumbe r o f Option s T o "Ne t Out " o f NSP S an d PS D Coverage . WEPC O an

d amic i presen t a parad e o f horrible s regarding th e allege d consequence s o f EPA' s interpretatio no f it s PS D an d NSP S regulations . WEPC O Br . a t . WEPC O suggest s tha t th e consequenc e o f EPA' s interpretatio n o f th e lawi s t o forc e th e compan yt o instal l expensiv e scrubber s t o mee t th e NSP S requirement s and satisf yth e BAC T require d unde r th e PS D provision s i f i t want s t o continu e t o operat e it s Por t Washingto n facilitie s afte r th e propose d renovations . However , ther e ar e a numbe r o f way s b

ywhic hWEPC O coul d renovat e it s plan t withou t installing scrubber s a t al l five units . Se e Thoma s Lette r a t Fo r NSP S purposes , th e emissio n rat e mus t increas e fo r a modificatio n t o occur . A t Uni t 1 fo r example , th e increas e i n capacit y.eve r baselin e i s projecte d t o b e V\ % [Record a t 6.13 , Attachmen t C] . Thus , WEPC O coul d impos e som e physica l control , suc ha s a contro l devic e whic hachieve s ^F % reductio no f emissions , whic hwoul d hav e th e effec t o f reducin g emission s b y mor e tha n th e increas e i ncapacit yt o emit . Ther e woul d b e n o increas e i n emissions , ye t th e sourc e woul d no t hav e t o mee t th e NSP S requirement s applicabl e t o ne wsources . Unde r PSD , a sP.7 3

- 7 2 - explaine d supr qa t p . _ , WEPC O coul d readil ytak e credi t fo r federall yenforceabl e limitation s whic hreduc e it s potentia l t o emi t an d thereb

y"ne t out " o f PS D revie wb ysimpl ystanding b y it s ow n projection s o f futur e emissions . V . TH E NSP S AND PS D REGULATION S AR E NO T SUBJEC T T O REVIE W I NTHI S COURT : WEPCO' S REMEDYLIE S I NARULEMAKING PETITION I t i s evidenc e fromth e foregoing tha t th e gravame no f WEPCO' s challeng e i s no t t o EPA' s interpretatio n o f it s ow n regulations , o r it s applicatio no f th e lawt o th e fact s o f thi s case , fo r EPA' s action a ar e reasonable . Rathe r WEPC O attack s th e verysubstanc e o f thos e underlyin g regulation s and th e Clea n Ai r Act . However , th e NSP S an d PS D regulations , a s nationall y applicabl e rules , ar e subjec t t o revie wonl yi nth e Distric t o f Columbi a circui t withi n 6 0 day s o f thei r promulgation , CA A sectio n 307(b)(1) , an d mayno t b e challenge d i na collatera l proceeding i n thi s court , PEPC O v . EPA . 65 0 F.2 d a t 513 . Th e remed yavailabl e t o WEPC O an d amic i fo r redres s o f an ygrievanc e arising ou t o f EPA' s determination s i s t o petitio n EPAt o revis e it s rule s o r see k legislativ e amendments . EPA' s actio ni n respons e t o a rulemaking petitio n wil l b e reviewabl e i n th e D.C . Circuit . [Cit e Oljato , etc. ] I n th e meantime , WEPC O mus t compl y wit hpresen t law . CONCLUSIO N Fo r th e foregoing reasons , th e petition s fo r revie w shoul d b e denied . _ _ Respectfull ysubmitted ,P.7 4

- 7 3 - DONAL D A . CARR Actin g Assistan t Attorne yGenera l

EILEE NT . MCDONOUGH Environmenta l Defens e Sectio n U.S . Departmen t o f Justic e Washington , D.C . 2053 0

GREGORYB . FOOT E U.S . Environmenta l Protectio n Agenc y Offic e o f Genera l Counse l Ai r an d Radiatio nDivisio n (LE-132A ) 40 1 MStreet , S.W . Washington , D.C . 2046 0

ROBER T J . MARTINEA U<fr . U.S . Environmenta l Protectio n Agenc y Offic e o f Genera l Counse l Ai r an d Radiatio nDivisio n (LE-132A ) 40 1 MStreet , S.W . Washington , D.C . 2046 0 O F COUNSE L GERAL D H . YAMADA Actin g Genera l Counse l Ala n W . Ecker t Associat e Genera l Counse l Michae l S . Wine r Assistan t Genera l Counse lP.7 5



# Inttei i%>UUz(Unur

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### Chicago , Illinoi s 6060

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### 1 9 Before RICHARD D . CUDAHY , Circui t Judg e Ho n JOE L K . TLAUM , Circui t Judg e Hon . a ROBERT A . GRANT , Senio r Distric t Judge * Hon .

WISCONSI NELECTRI C POWE RCOMPANY , Petitioner , N03 . 88-326 4 an

d vs . 89-133 9 On Petition s t o Revie w • Fina l Actio n o f th e Unite d State s Environmenta l Prote c Agenc y WILLIA MK . REILLY , Administrato r an d UNITE D STATE S ENVIRONMENTAL PROTECTIONJ 

### AGENCY , J Respondents . )

ORDE R Thi s cas e i s befor e th e cour t o n a Petitio nfo r Rehearin g an d Suggestio n fo r Rehearing E nBanc . O nconsideratio no f th e Petitio n an

d th e Respondents ' Response , th e court' s opinion , issue d January19 , 1990 , i s amende d a s follows : O n pag e 16 , lin e 3 3 (afte r "heater") , delet e " , a typ e that " an d replac e wit h" . Th e Ljungstrombaske t type , a t least, " Further , n o judg e i nactiv e servic e ha s requeste d a vot e an d al l o f th e judge s o n th e origina l pane l hav e vote d t o den ya rehearing . Accordingly , I T I S ORDERE D tha t th e aforesai d Petitio nfo r Rehearin g and Suggestio n fo r Rehearing E nBan c be , an d th e sam e i s hereby , DENIED .

Th e Honorabl e Rober t A . Grant , Senio r Distric t Judg e fo r th e Norther n Distric t o f Indiana , i s sittin g b ydesignation .

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