Page 1 of 76 6 NYCRR Parts 200, 201 and 231 Revised Regulatory Impact Statement

1. STATUTORY AUTHORITY The statutory authority for these regulations is found in the Environmental Conservation Law (ECL) Sections 1-0101, 3-0301, 3-0303, 19-0103, 19-0105, 19-0107, 19-0301, 19-0302, 19-0303 and 19-0305, and in Sections 160-169 and 171-193 of the Federal Clean Air Act (42 USC Sections 7470-7479; 7501-7515) (Act or CAA). Section 1-0101. This Section outlines the policy declaration for the Department of Environmental Conservation (Department) regarding the protection of New York State’s environment and natural resources including the control of “air pollution, in order to enhance the health, safety and welfare of the people of the state and their overall econo mic and social well being.” Section 1-0101 further requires that it is the policy of the State to co ordinate the Stat e’s environmental plans, functions, powers and programs with those of the federal government and other regions and manage air resources to the end that the State may fulfill its respon sibility as trustee of the environment for present and future generations. This Section provides that it is the policy of the State to foster, promote, create and maintain conditions by which man and nature can thrive in harmony by providing that care is ta ken for air resources that are shared with other states. Section 3-0301. This Section states that it shall be the responsibility of the Department to carry out the environmental policy of the State. In furtherance of that mandate, Section 3-0301(1)(a ) gives the Commissioner authority to “[c]oordinate and devel op policies, planning and programs related to the e nvironment of the State and regions thereof...” Section 3- 0301(1)(b) directs the Commissioner to promote and coordinate management of, among other things, air resources “to assure their protection, enha ncement, provision, allocation, andPage 2 of 76 balanced utilization consistent with the environmental policy of the State and take into account the cumulative impact upon all of such resources in making any determin ation in connection with a ny license, order, permit, certification or other similar action or promulgating any rule or regulation, sta ndard or criterion.” Pursuant to ECL Section 3-0301(1)(i), the Commissioner is charged w ith promoting and protecting the air resources of New York including providing for the preven tion and abatement of air pollution. Section 3-0301(2)(a) permits the Co mmissioner to adopt rules and regulations to carry out the purposes and provisions of the ECL. Section 3-0301(2)(g) allows the Commissioner to enter a nd inspect sources of air pollution and to verify compliance. Section 3-0301(2 )(m) gives the Commissioner authority to “adopt such rules, regulations, and procedures as may be necessary, convenient, or desirable to effectuate the purposes of this chapter.” Section 3-0303. This Section requires that the Department formulate and, from time to time, revise a statewide environmental plan for the management and protection of the quality of the environment and the natural resources of the State. In fo rmulating this plan and any revisions, the Department is required to conduct public hearings, cooperate with other departments, agenci es and government officials, and any other interested parties, and obtain assistance and data as may be necessary from any department, division, board, bureau, commission or other agency of the State or politic al subdivision or any public authority to enable the Department to carry outits responsibilities. Section 19-0103. This Section is a declaration of the State’s policy with specific reference to air pollution. “It is declared to be the policy of the State of New York to maintain a reasonable degree of purity of the air resources of the Stat e . . . and to that end to require the use of all available practical and reasonable methods to prevent and control air pollution.” Section 19-0105. This Section sets out the purpose of Article 19 of the ECL, “to safeguard the air resources of the State from pollution” consistent with the policy expressed in Section 19-0103 and in accordance with other pr ovisions of Article 19.Page 3 of 76 Section 19-0107. This Section provides definitions to be used in the application of the requirements of Article 19 of the ECL. Sections 19-0301(1)(a) and (b). These sections state that: 1. Consistent with the policy of the State as it is declared in Section 19-0103, the Department shall have power to: a. Formulate, adopt and promulgate, amend and repeal codes and rules and regulations for preventing, controlling or prohibiting air po llution in such areas of the State as shall or may be affected by air pollution ... b. Include in any such codes and rules and regulations provisions esta blishing areas of the State and prescribing for such areas (1) the degree of air pollution or air contamination that may be permitted therein, (2) the extent to which air contaminants may be emitted to the air by any air contamination source ... Section 19-0301(2)(a) states that it shall be the duty and responsib ility of the Department to prepare and develop a general comprehensive plan for the control or abatement of existing air pollution and for the control or prevention of any new air polluti on recognizing various requirements fo r different areas of the State. Section 19-0301(5) directs the Department to “certify emission reduction credits and establish an emission reduction credit registry. Su ch registry shall identify emission cred its that are certified by, or used in, New York State. Prior to certifying credits, the Department shall publish notice and provide the opportunity for public comment, pursuant to article 70 of this chapter, on the proposed m odification of a sources’ permit to reflect that emission reduc tions will be certified as emission reduction credits...” Section 19-0302. This Section states that permit applications, renewa ls, modifications, suspensions and revocations will be governed by rules and regulations adopted by the Department, and that permits issued may not include performance, emission or control standards more stringent than any established by the Act or by thePage 4 of 76 United States Environmental Protection Agency (EPA) unless such standards are authorized by rules or regulations. Section 19-0303. This Section provides that a code, rule or regulation or a ny amendment or repeal thereof will not be adopted until after a public hearing is held and may not become effective until filed with the Secretary of State. The Department may also recognize the difference in the State’ s air quality areas in its rulemaking. Finally, this section prescribes procedures for adopting any code, rule or regulation which contains a requirement that is more stringent than the Act or regulations issued pursuantto the Act by the EPA. Section 19-0305. This Section aut horizes the Department to enforce the codes, rules and regulations established in accordance with Article 19 of the ECL. Sections 71-2103 and 71-2105 set forth the civil and criminal penalty structures for violations of Article 19.

2. LEGISLATIVE OBJECTIVES The Act requires states to have a preconstruction and operating permit program for new and modified major stationary sources. This rule making is being undertaken to satisfy New York’s obligations under the Act and also to meet the environmental quality objectives of the State. This Sectio n discusses the legislative objectives of the rulemaking, including overview of rele vant federal and State st atutes and regulations.

Environmental Conservation Law Articles 1 and 3, of the EC L, set out the overall Stat e policy goal of reducing ai r pollution and providing clean air for the citizens of New York. They provide general authority to a dopt and enforce measures to do so, including the regulation of mobile sour ces of air pollution. In addition to the general powers and duties of the Department and Commissioner to prev ent and control air pollution found in Articles 1 and 3, Article 19 of the ECL was specifically adopted for the pur pose of safeguarding the ai r ‘quality’ of New York from pollution. ToPage 5 of 76 facilitate this purpose, the Legislature bestowed sp ecific powers and duties on the Department, including the power to formulate, adopt, promulgate, amend and rep eal regulations for preventi ng, controlling and prohibiting air pollution. This authority specifically includes promulgating rules and regulations for preventing, controlling or prohibiting air pollution in such areas of the State as shall or may be affected by air pollution, and provisions establishing areas of the State and prescribing for such ar eas (1) the degree of air pol lution or air contamination that may be permitted therein, and (2) the extent to whic h air contaminants may be emitted to the air by any air contamination source. In addition, this authority also includes the preparation of a general comprehensive plan for the control or abatement of exis ting air pollution and for the control or prevention of any new air pollution recognizing various requirements fo r different areas of the State.

The Federal Clean Air Act In 1970, Congress amended the Act “t o provide for a more effective pr ogram to improve the quality of the Nation’s air.” The statute directed EPA to adopt National Ambient Air Quality Standards (NAAQS) and required states to develop implementation plans known as State Implementation Plans (SIPs) which prescribed the measures needed to attain the NAAQS. The statut e also mandated that states attain the NAAQS by 1975, or with certain allowable extensions, by 1977. The 1970 Act amendmen ts mandated that SIPs contain “a procedure for review (prior to construction or modificati on) of the location of any ne w or modified air pollution
source.” When it became clear that the goals of the 1970 Act amendments would not be achieved, Congress amended the Act in 1977 to provide additional safeguards to protect the nation's air quality. The 1977 amendments required states to identify areas that di d not meet the NAAQS which were then designated as “nonattainment” areas. In particul ar, the 1977 amendments strengthened the Act by (1) e xpressly creating a preconstruction review program for new or modified major sources located in “nonattainment” areas (i.e., areas which failed to meet N AAQS) (‘see generally’ 42 USC Sections 7501

- 7515 ); and (2) expressly providing aPage 6 of 76 parallel preconstruction revi ew program for new or modified sources located in “attainment” areas (i.e., areas which met NAAQS or where there was insufficient information to evalua te whether NAAQS were met) (‘see generally id.’ Sections 7470-7492). The two programs are collectively known as New Source Review (NSR). The first program is commonly referred to as Nonatta inment New Source Review (NNSR), and the second as Prevention of Significant Deterioration (PSD). The NNSR program, as contained in the 1977 Act amendm ents and set forth in Part D of Title 1 of the Act, required states to adopt permit programs for the construction, modificati on and operation of major stationary sources in nonatta inment areas. Facilities subject to NNSR must apply emission co ntrol technologies in order to achieve the Lowest Achievable Emission Ra te (LAER) for new or modified emission sources, and obtain emissions reductions from other sources such that the resulting emissions from the new or modified emission source produces no increase in overall regional emi ssions. Facilities must also demonstrate that any other facility owned by the same company is in compliance with the requirements of the Act. Part C of Title 1 of the 1977 Act amendments established the PSD program and sets forth the preconstruction review and permitting requirements for stationary sources located in areas that are in attainment of the NAAQS. The PSD provisions establish prec onstruction permitting requirements for new major stationary sources and major modifications at existi ng stationary sources which require, among other things, that (1) the proposed new or modifi ed sources be subject to the Best Available Control Technology (BACT), and (2) the source perform ambient air qua lity analyses to show that it w ill neither violate NAAQS increments nor adversely affect air quality in national parks or other areas that EPA ha s designated as needing particularly high-quality air. 42 USC Section 7475. The 1977 Act amendments directed that, at a minimum, LAER and BACT must be as restrictive as any New Source Performance Standard (NSPS) promulga ted pursuant to Section 111 of the Act (‘see’ 42 USC Section 7479[3] [“In no event shall application of [BACT] result in emi ssions of any pollutants which willPage 7 of 76 exceed the emissions allowed by any applicable sta ndard established pursuant to [NSPS]”]; ‘see also’ 42 USC Section 7501[3] [‘for LAER’]). Congress passed the 1990 Act amendments, after nearly a decade of consideration, in recognition of the fact that many areas of the country continued to be out of compliance wi th the NAAQS and that full nationwide attainment, particularly with the ozone standard, could not be achieved as e xpeditiously as originally thought. The goal of the 1990 amendments was to set more realistic d eadlines that recognizedthe differences among areas while requiring reasonable progress towards at tainment. To accomplish this, the 1990 amendments divided every state into areas design ated as “attainment,” “nonattainment,” or “unclassifiable ,” like the 1977 Act amendments, but went a step further by dividi ng nonattainment areas into different clas sifications depending on the severity of the probl em in each area. Each classifi cation had a separate deadline for attainment and incrementally more stringent contro l requirements for areas w ith higher nonattainment classifications (worse air quality problems). One aspect of the 1990 Act amendments relevant to this rulemaking consisted of more stringent permitting requirements for new and modified major stationary sources. Specifically, the 1990 amendments mandated that states with areas which had been designate d as nonattainment had to re vise their SIP to include specific measures to ensure attainment and reasonable further progress towards attainment. Among other measures, SIPs had to provide for a permit program for new and modified majo r stationary sources in accordance with Section 173 of the Act. Section 110 of the Act already required that SIPs include provisions implementing the permitting programs required in Parts C and D of Title 1 of the Act for new and modified stationary sources (42 US C Section 7410[a][2][j]). Section 173 of the Act continued to impose special review, permit a nd emission offset requirements on new and modified major stationary sources in nonatta inment areas. The 1990 Act amendments imposed the additional requirements that a proposed ne w or modified major stationary sour ce analyze alte rnative sites, sizes, production processes, and control techni ques, and the permitting agency make a finding that the benefits of thePage 8 of 76 source outweigh its environmental and social costs. Section 173(c) imposed new restrictions on emission offsets, including the requirement that they be obtained from the same nona ttainment area, or from a different nonattainment area if (1) the other ar ea has an equal or higher nonattainm ent classification and (2) emissions from the other area contribute to the nonattainment problem in th e area in which the sour ce is proposed to be located. Any emission reductions required by the Act co uld not be counted for the purpose of establishing emission offsets.

Federal NSR Regulations In 1978, EPA promulgated a NSR regulation, followe d by multiple sets of regulations including regulations applying to PSD and NNSR in states with and without appr oved SIPs. These regulations are substantially similar. This document will collectively re fer to the regulations as the NSR regulations. Industry groups commenced legal action challe nging the 1978 regulations. Following the decision in ‘Alabama Power v Costle’, 623 F2d 323 (D.C. Cir. 1979), EPA pr omulgated a revised NSR regulation in 1980. One of the central areas of controversy with the 1980 NSR regulation, which still persists today, concerned the definition of the term “modification.” The final 1980 rule de fined the term “major modification” as follows: “ ‘[m]ajor modification’ means any physical change in or change in the method of operation of a major stationary source that would result in a ‘signifi cant net emissions increase’ of any pollutant subject to regulation under the Act” (45 Fe d Reg 52676 [August 7, 1980] [emphasis added]). The regulation further defined “[n]et emissions increase” as “any increase in actual emissions fr om a particular physical change or change in method of operation” that occurred after taking into account, through a process known as “netting,” “any other increases and decreases in actual emissions at the source that are contemporaneous with the particular change and are ot herwise creditable” (‘id’ at 52736). The regulation then defined “actual emissions” as follows: “(ii) In ge neral, actual emissions as of a particular date shall equal the average rate, in tons per year, at which the unit actually emitted the pollutantPage 9 of 76 during a two-year period which proceeds the particular date and which is representative of normal source operation. The Administrator shall allo w the use of a different time period upon a determination that it is more representative of normal source operati on. Actual emissions shall be calculated using the unit's actual operating hours, production rates, and types of materials processed, stored, or combus ted during the selected time period. (iii) The Administrator may presume that source-specific allowable emissions for the unit are equivalent to the actual emissions of the unit. (iv) For any emission unit which has not begun normal operations on the particular date, actual emissions shall equal the potential to emit of the unit on that date.” Unlike the proposed regulation, the 1980 final rule emphasized “actual emissions .” EPA explained in the regulation's preamble that while the initial ‘Alabama Power’ decision had usedthe phrase “potential to emit,” the later opinion used language that, “like the [statutory] definition, suggest[ed] changes in actual emissions,” and that EPA had acted c onsistently (‘id.’ at 52700) . Finally, the 1980 regulati on provided that “[a] physical change or change in the method of operation shal l not include ... an increa se in the hours of operation or in the production ra te” (‘id.’ at 52735-36).

1996 Federal NSR Reform Proposal In 1996, EPA proposed a NSR rule revision that it descri bed as “the first comprehensive overhaul of the program in 15 years” (61 Fed Reg 38250 [July 23, 1996] [1996 Draft Rule]). The proposed changes were “intended to reduce costs and regulatory burdens for permit applicants” without sacrific ing air quality (‘id.’ at 38251) EPA estimated that the changes, if finalized, would re sult in approximately 50 percent fewer sources being subject to NSR (‘s ee id.’ at 38319).
The 1996 Draft Rule set forth, among other things, the following proposals: Emissions calculation methodology. For non-electric utility steam ge nerating units (EUSGUs), states were given the choice of either retaining the “actual-to-potential” emissions calculation methodology or adopting the “actual-to-future-actual” test. Sources that opted for the latter methodology would have toPage 10 of 76 submit annually to the permitting authority informati on demonstrating that th e physical or operational change did not result in an emissions increase (‘see , e.g.’, proposed 40 C.F.R. Section 52.21[b][21][vi]).

Emissions baseline. All non-EUSGUs would have been allowed to use any 24 consecutive month period in the past 10 years when establishing a base line level for use in calculating emission increases from non-routine physical or operati onal changes. This baseline le vel had to incorporate current emission limitations, whether mandatory or voluntary.

Plantwide Applicability Limits (PALs). Facility owners could make physic al changes or changes in the method of operation without undergoing NSR, as long as the facility did not ex ceed the PAL. The PAL was to be set using the facility’s baseline emissions plus an operating margin less than the significant level of the pollutant (‘see, e.g.’ proposed 40 CFR Section 52.21[u][3]).

Clean Unit Exclusion. An emissions unit that had undergone NSR and installed controls considered to be BACT or LAER would avoid NSR for any non-r outine physical or operati onal changes that occur during a 10-year period in which the exclusion applies. A unit that ha d not undergone NSR, but that had installed controls comparable to BACT or LAER, would merit a five-year exclusion.

Pollution Control Project (PCP) Exclusion. The Draft Rule proposed es tablishment of a single comprehensive regulatory exclusion for a specific lis t of pollution control pr ojects, including add-on controls, switches to less-polluting fuels, and pollution prev ention projects.
To “provide states with greater flexibility to customize their own regulations implementing the NSR program,” the 1996 Draft Rule offered a “menu” appr oach, pursuant to which States could choose to incorporate any -- or none -- of these changes into their respec tive NSR programs (61 Fed Reg 38251).Page 11 of 76 In 1998, in light of comments received on the 1996 Dr aft Rule and changed circumstances, EPA issued a Notice of Availability ( NOA) entitled “Alternatives for New Source Review (NSR) Applic ability for Major Modifications; Solicitation of Comment” (63 Fed Reg 39857 [July 24, 1998]). EPA used the NOA to present its preliminary conclusions on those aspects of the 1996 Draft Rule that dealt with emissions methodology and PALs and to request additional comment.

December 31, 2002 Federal NSR Final Rule On December 31, 2002, the EPA published a final rule revising the regulations that implement the PSD and NNSR provisions of the Act (‘see’ 67 Fed Reg 80185 [2002 Federal NSR Rule ]). EPA stated that the rule was designed to “reduce burden, maximize operating flexibility, improve environmental quality, provide additional certainty, and promote administrative efficiency” (‘id.’ at 80189). The 2002 Federal NSR Rule departed from the 1996 Draft Rule and prior NSR rules in several significant respects. Under the 1980 ru le, sources determined past actual emissions by averaging their annual emissions for two years immediately pr ior to the change, tho ugh they could use more representative or source specific periods with approval of the permitting agenc y. Both the 1996 Draft Rule and 2002 Federal NSR Rule included provisions for (1) the use of a 10-year look-back period for establ ishing baseline emissions, (2) the extension to sources other than EUSGUs of a past-actual to future-projected-actual test for emissions increase calculations, and (3) three permitting provisions that would allow a source to make changes without triggering NSR - PALs, the Clean Unit exclusion, and the PCP ex clusion. The 1996 Draft Rule, however, proposed a menu approach whereby states could select the NSR app licability provisions they de emed most appropriate; the 2002 Federal NSR Rule made adoption of these provisions mandatory. Th e 2002 Federal NSR Rule extended to all sources, not just EUSGUs, EPA’s 1992 rulemaki ng revisions addressing the Wisconsin Electric Power Company (WEPCO) decision requiri ng an actual-to-future actual me thodology for calculating emission increases (57 Fed Reg 32,314). In a ddition, the 2002 Federal NSR Rule prov ided that facilities could forgoPage 12 of 76 recordkeeping documenting post-modification emissions, if the facility determined that there was no “reasonable possibility” that a modification could trigger NSR. The 2002 Federal NSR Rule required States with approved PSD and NNSR programs to submit a SIP revision by January 2006. The Department’s NNSR regul ation at 6 NYCRR Part 231 is subject to this SIP submittal requirement. The Department implemented the PSD program on behalf of EPA pursuant to a delegation agreement with EPA that had been in eff ect since the mid 1980s. The Department could have continued to implement the PSD program as a delegate d State but objected to seve ral aspects of EPA’s 2002 Federal NSR Rule and determined that it could not im plement the 2002 Federal NSR Ru le in its entirety and EPA declined to have the Department implement the PSD program on a partial ag reement. On May 24, 2004, the Department returned delegation of the PSD program to EPA after failing to reach agreement on a partial implementation of the program. The Department advise d EPA that it intended to adopt a State PSD program that would be protective of the St ate’s air resources and submit the re gulations to EPA for SIP approval.

The December 31, 2002 Federal NSR Rule included the following key provisions: Baseline Emissions . In calculating whether an emissions incr ease has occurred, a source must first calculate its baseline emissions. Under the 1980 rule, baseline emissions were calc ulated by determining the average tons per year of the pollutant at issue, th at were emitted during the two-year period immediately preceding the proposed change. Under the 2002 Federal NS R Rule, baseline emissions are to be calculated by taking an average of the annual emissions in any 24 cons ecutive month period (selecte d by the permittee) within the 10-year period that precedes the change, adjusted to reflect current enforceable emissions limitations. A notable exception exists in the case of electric generating units, which are limited to any 24 consecutive month period within the five-year period immediately preceding when a permittee begins actual construction of a project, as was established in EPA’s WEPCO rule.Page 13 of 76 Reasonable Possibility Test . A facility that made a non-routine physical or operational change did not need to maintain records of post-m odification emissions unless all of the following three criteria were met: (1) the facility chose to project post change emissions inst ead of using an actual-to-potential test; (2) the facility determined it would not significantly increase emissions using the actual-to -projected-actual test; and (3) the facility believed there was a “reasonabl e possibility” that the proj ect may in fact result ina significant emissions increase that would trigger NSR. If the three criteria were met, the facili ty was required to track its emissions and keep records for either five or 10 years, depending on th e nature of the change. By contrast, facilities which believed there was no “reasonable possibility” that a change would trigger NSR did not need to keep any data to verify that conclusion.

Independent and Unrelated Em issions Increase Exclusion . Under the pre-December 31, 2002 Federal PSD regulation, only EUSGUs could take advantage of the exclusion for emissions from independent and unrelated factors such as demand growth initially established in the WEPCO case. The 2002 Federal NSR Rule broadened its application, allowing all facilities to exclude from post-change emissions calculations any increase in emissions that a unit could have accommodated during the 24 consecutive month period used to establish the baseline as long as the emissions are unrelated to the propos ed project, including any increased utilization due to product demand growth.

PALs . A source may obtain a PAL and avoid NSR perm itting when a modification is made, as long as the total emissions from the source remain below the PAL specified in the permit. The PAL is established as the sum of the baseline actual emissions of the PAL pollutant plus an amount equal to the applicable significance level. The PAL has a 10- year term and may be renewed for an additional 10 years. PALs are established in the Title V operating permit and are s ubject to monitoring and reco rdkeeping requirements to assure compliance with the PAL emission limit.Page 14 of 76 Clean Unit Exemption . Under the 2002 Federal NSR Rule, a unit qualified for Clean Unit status if in the last 10 years it had implemented BA CT or LAER at the time of making a change that triggered NSR, or if the unit had not undergone NSR but had control technology in place that is “comparable” to BACT or LAER, and the unit demonstrates that it s allowable emissions wi ll not violate NAAQS or NSPS. Under the 2002 Federal NSR Rule, a unit with Clean Unit status would ha ve retained that status for 10 years and could have renewed that status as long as it remained in co mpliance with emissions limits and other NSR permit requirements. If such a unit made a change that w ould otherwise have triggered NSR by increasing emissions at a source, the unit could have nevertheless avoided NS R as long as the change does not alter the unit’s Clean Unit status. EPA referred to this approach as “an innovative approach to NSR applicability” that would measure increases in emissions in terms of the ‘status’ of a unit, rather than its actual emissions.

Pollution Control Project Exclusion . The 2002 Federal NSR Rule provi ded for an exemption from NSR of specific projects which entail a physical or operationa l change that reduced emissions of a primary pollutant, even if as a collateral effect the project increases emissions of anothe r pollutant. If the net effect was environmentally beneficial, then the work w ould have been exempt from NSR permitting.

NSR LITIGATION December 31, 2002 Federal NSR Rule On June 24, 2005, the United States Court of Appeals for the District of Columbia issued a 73-page decision on a consolidated lawsuit challenging the 2002 Fe deral NSR Rule. The case, ‘State of New York, et al. v U.S. Environmental Protection Agency’, 413 F 3d 3 (D .C. Cir. 2005) (‘New York v EPA’), is one in which the State of New York and numerous other State and local government en tities, among others, sued EPA over its 2002 Federal NSR Rule changes (implemented in March 2003) to the NSR provi sions of the Act. It consolidated a number of procedural and substantive challe nges to the 2002 Federal NSR Rule that had beenPage 15 of 76 raised by both government and industry petitioners. The lawsuit challenged various aspects of the new rule, including: the use of a 10-year lo ok-back period for establishing base line emissions; the extension of the exclusion for emissions from independent and unrelated factors such as demand grow th to sources other than EUSGUs; the extension to sources other than EUSGUs of the past-actual to future-projected-actual test for emissions increase calculations; the elimination of the requirement that sour ces keep records documenting postmodification emissions, where the source determines that there is no “reasonable possibility” that a modification will trigger NSR; and three permitting prov isions that would allow a source to make changes without undergoing NSR - PALs, the Clean Unit exclusion and the PCP exclusion. Also at issue in ‘New York v EPA’ were claims by the government petitioners that: EPA’s requirement that an approvable SIP must includ e EPA’s changes to the NSR provisi ons as minimum program elements, precluded the adoption by States of more stringent program requirements; the new rules violate the antibacksliding provisions of the Act; and EPA’s rejection of the menu approach for State and local governments to choose which provisions of the new rule s to incorporate in thei r programs, was not a logical outgrowth of the proposed rule. The Court upheld most of EPA’s changes to the NS R provisions, including th e past-actual to futureprojected-actual emissions incr ease calculations methodology for n on-EUSGUs; the 10-year look-back provision (a five-year look-back was retained in the 2002 Federal NSR Rule for the utility indus try); the use by non-EUSGUs of the exclusion for emissions from independe nt and unrelated factors such as demand growth in calculating baseline emissions; and the use of PALs to avoid NSR permitting. The court rejected the government petitioners’ challenges re garding approvable SIPs, anti-backs liding, and EPA’s rejection of the menu approach. The two former arguments were rejected as unripe for judicial review. The latter was rejected on substantive grounds, the Circuit Cour t having concluded that EPA’s reje ction of the menu approach was one of two possible outcomes of its propos ed rule, and that EPA had provided adequate notice of the change.Page 16 of 76 However, the Court upheld the government petitioners’ challenges to the Clean Unit and PCP exclusions, and remanded the “reasonabl e possibility” test for recordkeepi ng. With respect to the first two exemptions, the court concluded that EPA erred in its interpretation of the Act when it implemented those provisions, and lacked the authority to create those ex emptions. The Court vacated those two provisions of the 2002 Federal NSR Rule. With respect to the “reasonable possibility” test, the court agreed with Government petitioners that EPA’s standard that if a source undertaking a modificatio n concludes that it has no “reasonable possibility” of triggering a significant increase in emissions as a result, the source need not retain records to either document or verify that conclusion is unenforceab le. The Court remanded the recordkeeping standard to EPA instructing the Agency to “provide an acceptable expl anation for its ‘reasonable po ssibility’ standard or to devise an appropriately supported alternative” (‘New York v EPA’, 413 F.3d at 28). From the State’s perspective, these issues represen ted some of the most troublesome aspects of the 2002 Federal NSR Rule.

Baseline Emissions . During the litigation, government peti tioners objected to a 10-year look-back period, arguing first that EPA’s analysis was impermissibl e under the Act, as the ordinary meaning of the word “increase” mandated the use of the time period immediately preceding the change. The court concluded, however, that the statute di d not unambiguously require th e adoption of that analysis and that the only question was whether EPA’s interpretation of the term “inc rease” was permissible unde r a ‘Chevron’ analysis. 1 The

1 ‘Chevron U.S.A., Inc. v Natural Resources Defense Counc il’, (467 US 837 [1984]), established a two-part test for analyzing a regulatory agency’s ex ercise of authority in promulgati ng an implementing regulation. Under Step 1, a court must determine whether Congress clearly spok e to the issue in writing th e statute. If the statute expresses a clear Congre ssional intent, that intent must be given e ffect in the regulation. If the statute is ambiguous, however, the agency has the authority to clarify that intent. Under Step 2 of the analysis, the court must determine whether the agency’s regul ation is based on a permissible interpre tation of the statute. If so, the court will defer to the agency’s interpretation.Page 17 of 76 ertise.” 2 court concluded that it was, and that EPA’s interp retation of the term was supported by a “‘detailed and reasoned analysis’ based on its experience and exp The second argument advanced by government petitione rs with respect to the emissions baseline was that the switch to a 10-year period violated the CAA because it could result in increases of emissions to historic levels, without the required NSR revi ew, harming public health and the envi ronment. The Court rejected this argument, relying on several factors. First, the 2002 Federal NSR Rule incor porated three “safeguards”: (1) the baseline must be adjusted downward to reflect any lega lly enforceable emissions lim itations; (2) there must be sufficient record information to suppor t the use of a particular baseline pe riod; and (3) the baseline calculations cannot include emissions that exceed any legally enforceable emissions limits imposed during the baseline period. Second, the Court noted that EPA concluded in its environmental impact analysis that the 2002 Federal NSR Rule would reduce pollution and ther efore be protective of public healthand the environm ent. Finally, despite both EPA’s acknowledgment and a Federal Gove rnment Accountability Office (GAO) study which noted the lack of data available to determine how companies would respond to the rule (in terms of whether they would actually make changes that would decrease pollution), the GAO did not conclude that inadequate evidentiary support existed for the pr ovisions with respect to the baseline period. The GAO recommended that EPA monitor emissions impacts to determine whether ther e would be adverse effects created by the rule. The Court concluded that incomplete data did not render EP A’s determination on the baseline issue arbitrary and capricious.

Independent and Unrelated Emissions Increase Exclusion . The Court rejected the argument of the government petitioners that in its 1998 Notice of Availabili ty, EPA had tentatively conc luded that th is exclusion for emissions from independent and unrelated factors such as demand growth was inappropriate, because

2 Part of this analysis involved EPA’s review of in dustry business cycles, and its conclusion that a 10-year period, while not representative of the business cycle of all industries, would provide “ ‘a fair and representative time frame for encompassing a source’s normal business cycle’ ”.Page 18 of 76 among other things all changes in utilization could be proximately linked to market demand, and that EPA had therefore arbitrarily change d its position on this issue without notice. The Court found that EPA had addressed this issue in its denial of the petition for reconsiderat ion, and that EPA’s approach was adequately explained and supported by the record, and that the statutory language of the modificati on was only intended to cover emission increases that resulted from physical changes.

2002 Reasonable Possibility Test . Under the 2002 Federal NSR Rule , a facility that made a nonroutine physical or operational change did not need to maintain records of post-modification emissions unless all of the following three criteria were met: (1) the facil ity chose to project post ch ange emissions instead of using an actual-to-potential test; (2) the facility determined it would no t significantly increase emissions using the actual-to-projected-actual test; a nd (3) the facility believed there wa s a “reasonable possibility” that the project may result in a significant emi ssions increase that would trigger NSR. If these criteria were met, the facility was required to track its emissions and keep reco rds for either five or 10 years, depending on the nature of the change. By contrast, a facility that believed there was no reasonable possib ility that a change would trigger NSR did not need to keep its em ission calculations or any data to verify that prediction. EPA concluded that the new rule actually increasedrecordkeeping requirements for non-EUSGUs, and that many cases would arise where a source determined thatthere was a reasonable possibility of an emissions increase. EPA also argued that sources with a low likelihood of triggeri ng NSR should not have to bear the same burden of monitoring and recordkeeping. The Court concluded th at EPA’s position ignored significant differences between the old and new rules, and rejected its reasoning as flawed on a number of grounds. Under the former NSR rules the emi ssions applicability test was an actu al to potential emissions test. By definition, a facility’s post-modification actual emissi ons could not exceed its potential to emit, making it unnecessary to maintain records to establish whether the post change actual emissions exceeded projected emissions. In the alternative, facilities that wanted to avoid NSR could take a cap on their emissions levels,Page 19 of 76 which requires stringent monitoring. In addition, under the pre-2002 Federal NSR Rule, the utility industry was required to maintain records for a minimum of five years following a change, a fact the Court noted underscored EPA’s flawed analysis on the recor dkeeping provision in the 2002 Federal NSR Rule. EPA also argued that Title V imposed additional reco rdkeeping requirements, a nd that states have the ability to establish their own, more stringent, recordkeeping and reporting requirements for modifications, if they choose to do so. The Court determined, however , that nothing in Title V emissions records would necessarily be traceable to a particular change. Moreover, EPA’s ar gument did not address those states that would simply rely on the requirements in the 2002 Fede ral NSR Rule, a prospect the Court found unacceptable. The Court explicitly recognized the enfo rcement difficulties that would arise fr om the lack of a paper trail that documents a source’s emissions and its projections of emi ssions increases related to a change, stating that “EPA has failed to explain how, absent recordkeeping, it will be able to determine whether sources have accurately concluded that they have no ‘reasonab le possibility’ of significantly incr eased emissions” (‘New York v EPA’, 413 F3d at 53-54). As a resu lt, the Court remanded the issue to EPA “f or it to either provide an acceptable explanation for its ‘reasonable possibility’ standard or to devise an appropriately supported alternative” (‘Id.’ at 56).

Plantwide Applicability Limitations (PALs) . Government petitioners argued that the PAL provision was unlawful because it would allow a source to incr ease emissions beyond recent actual emission levels without triggering NSR, and that there would be harmfu l impacts to public health and the environment as a result. The Court rejected these argu ments for the same reasons stated in its analysis of the 10-year look-back provision, concluding that the petitioners had “fail[ ed] to demonstrate that PALs are based on an impermissible statutory interpretation or are othe rwise arbitrary and capricious” (‘Id .’ at 57). The Court upheld EPA’s determination that the term “increases” could be defined in terms of facility-wide emissions, and deferred to EPA’s discretion to define which cha nges at a plant are “substantially c ontemporaneous”. The Court furtherPage 20 of 76 stated that environmental petitioners failed to “refute EPA’s assessment of the environmental benefit of PALs” and that the State intervenors’ experience with th e NSR program confirmed EP A’s conclusions about the environmental benefit of PALs. Thus, the Court upheld PALs as a reasonable exer cise of EPA’s authority under the Act.

Clean Unit Exemption . EPA referred to the Clean Unit exempti on approach as “an innovative approach to NSR applicability” that would measure increases in emissi ons in terms of the ‘status’ of a unit, rather than its actual emissions. The Court rejected EPA’s position. Instead the Court sided with the government and environmental petitioners who argued that the Clean Unit Exemption was contrary to the plain meaning of the Act which requires that increases be measured in terms of actual emissions. EPA argue d that the Act was silent as to whether emissions must be measured in terms of act uals, allowables, potentials, or in some other manner. The Court found, however, that Congress distinguished be tween these categories of emissions when it enacted the 1977 amendments to the Act, that Congress was clearly conscious of the distin ction between actual and allowable emissions, and that various provisions of the Act indicated Congress fully intended that increases be measured in terms of actual emissions. The Court notedthat EPA had come to the same conclusion in its preamble to the 1980 rule. Thus, the C ourt vacated the Clean Unit Exemption as contrary to the Act based on its findings that Congress intended to apply NSR to ch anges that increase emissions and EPA lacked the authority to change the definition of “increase.”

Pollution Control Projects . EPA’s position on PCPs was that, despite the fact that PCPs are modifications, Congress did not intend th at PCPs would be the type of activ ity that would trigger NSR. EPA argued that the statutory definition of “modification” was adopted from the NSPS regulations, which excluded PCPs, and that to discourage the implementation of PCPs by requiring NSR would be absurd. The court rejected EPA’s position, the latter argument in particular, given EPA’s lack of support for this statement, as wellPage 21 of 76 as the court’s earlier an alysis of the relationship betw een the NSPS and NSR programs. The court also held that EPA had failed to provide any evidence of Congressional intent on this issue, and that Congress had not given EPA the authority to create this regulatory exemption to NSR.

Modification . The other significant aspect of Court’s decision in ‘New York v EPA’ is that, in contrast to the decision of the Fourth Circ uit Court of Appeals in ‘United States of America v Duke Energy Corporation’, the D.C. Circuit Court of Appeals rejected industry’s position with respect to the interpretation of the term “modification”, as it pertains to calculating emi ssions increases. Industry argu ed (and prevailed on this argument one week earlier in the ‘Duke Energy’ lawsuit) that Congress in tended that the analysis required under the NSPS of the Act also be used to analyze emissions increases unde r NSR. Under the NSPS, emissions increases are analyzed by calculating th e hourly emissions rate of a unit. Under NSR, it has long been EPA’s position that emissions increases at a unit are to be measured in annual tons. EPA and the Utility Air Regulatory Group (UARG) moved for a rehearing of the June 24, 2005 decision. On December 8, 2005, the Court denied both reque sts for a rehearing. EPA wanted a rehearing with respect to Clean Units and for clarif ications of the retroactive application of the June 24, 2005 decision with respect to PCPs. UARG sought to r eargue the Court’s approva l of EPA’s revised emission increase calculation methodology and its rejection of the PCP exemption. Signifi cantly, the D.C. Circuit said that the plain language of the Act does not permit EPA to exempt any increase inemissions from modified s ources. It also said that there is no indication that C ongress intended to adopt an ho urly emission rate test. (‘id.’ at 23)

Equipment Replacement Provision rule On October 27, 2003, EPA promulgated a second NS R rule, known as the Equipment Replacement Provision (ERP). The ERP would have amended the R outine Maintenance, Repair, and Replacement (RMRR) exclusion from NSR requirements. Pursuant to Secti on 111(a)(4) of the Act, 42 US C Section 7411(a)(4), whichPage 22 of 76 is made applicable to the NSR program through Sections 7501(4), 7479(2 )(c), sources th at undergo “any physical change” that increases emissions are subject to NSR. The RMRR exclusion created by EPA in the 1970s historically provided that routine maintenance, repair, and replacement do not constitute changes which trigger NSR. The ERP rule would have significantly expanded the scope of the routine maintenance, repair, and replacement exclusion by categorically stating that the replaceme nt of components with id entical or functionally equivalent components that do not exceed 20 percent of the replacement value of the process unit or change its basic design parameters is not a change and is within the RMRR exclusion (68 Fed Reg 61248, 61270 [Oct. 27, 2003]) [ERP Rule]; ‘see also’ 70 Fed Reg 33838 [June 10, 2005] [“Recons ideration”]. New York and a consortium of other States filed a lawsuit challenging EPA’s promulgation of the ERP Rule. The Court stayed the effective date of the ER P Rule and subsequently vacat ed the rule on March 17, 2006, as cont rary to the plain language of section 111(a)(4) of the Ac t (‘State of New York, et. al. v U.S. Environmental Protection Agency’, 443 F.3d. 880 [D.C. Circuit, March 17, 2006] [‘New York v EPA II’).

South Coast Air Quality Management District v EPA (Eight hour ozone, Phase 1) On December 22, 2006, the United States Court of A ppeals for the District of Columbia ruled on petitions challenging EPA’s Phase 1 eight-hour ozone ru le. (‘South Coast Air Quality Management District v. E.P.A.’, 472 F.3d 882 [‘South Coast’]). With respect to NS R, the Court agreed with State petitioners that the rule violated the Act’s prohibition on backsliding because it permittedstates to remove one-hour NSR requirements as well as other requirements related to non- attainment planning from st ate implementation plans. The Court concluded that these measures, including pollu tion control requirements under NSR, are controls and as such any removal of them from a state implementa tion plan constitutes impermissible backsliding. The end result is that, in order to prevent backsliding, EPA must keep in place measures which are intended to constrain ozone levels.Page 23 of 76 Environmental Defense v. Duke Energy Corporation On April 2, 2007, the United States Supreme Court issued a decision upholding the annual tonnage test for measuring a significant net emissi ons increase under the Act’s PSD regulations. In ‘Environmental Defense v Duke Energy Corporation’ the Suprem e Court reversed the Fourth Circuit Court of Appeals’ earlier decision upholding Duke Energy’s argument that major modifications under the PSD regulations must be interpreted in the same manner under both the NSR and NSPS regulations , and that a major modification could therefore only be found if it was determined that there had been an hourly increase in emissions. In so holding, the Supreme Court rejected the Fourth Circuit Court of Appeal's c onclusion that the term “major modification” must be interpreted identically in the two sets of regulations . The Court held that EPA’s construction of the PSD regulations in such a manner as to measure actual emi ssions in terms of the actual operations averaged over time - i.e., tons of pollutant per year - could not “b e squared with a regime under which ‘hourly rate of emissions’ . . . is dispositive”. The Court further heldthat the Court of Appeals’ “effort to trim the PSD regulations to match their different N SPS counterparts can only be seen as an implicit declaration that the PSD regulations were invalid as written”. The Court held that a review of th e validity of the regulations should have taken place in the Court of Appeals for the District of Columbia within 60 days of EPA's rulemaking.

December 21, 2007 NSR Reasonable Possibility In Recordkeeping (Final Rule) On December 21, 2007 EPA published in th e Federal Register (Vol. 72, No. 245) its final NSR rule, “Prevention of Significant Deterioration and Nonattain ment New Source Review: Reasonable Possibility in Recordkeeping”. The rule finalizes EPA’s proposedrevisions to its 2002 Federal NSR Rule governing the major NSR programs mandated by parts C and D of title I of the Act by clarifying what constitutes ‘‘reasonable possibility’’ and when the ‘‘reasonabl e possibility’’ recordkeeping requirements of the 2002 Federal NSR Rule apply. This final rule is in direct response to the U.S. Court of Appeals for the DC Circuit in ‘New York v.
EPA’ , 413 F.3d 3 (DC Cir. 2005) (‘New York’) remand to the EPA to either provide an acceptable explanationPage 24 of 76 for its ‘‘reasonable possi bility’’ standard or to devi se an appropriately supported al ternative. The ‘‘reasonable possibility’’ standard iden tifies for facilities and revi ewing authorities the criteri a under which an owner or operator of a major facility undergoing a physical change or change in the method of operation that does not trigger major NSR permitting requirements must keep reco rds. The standard also specifies the recordkeeping and reporting requirements on such facilities. The December 21, 2007 rule finalizes a ‘‘percentage increase trigger ’’ for reasonable possibility. Under the ‘‘percentage increase trigger’’ option, there is a reasonable possibility that a change would result in a significant emissions increase if the projected increas e in emissions of a polluta nt, determined by comparing baseline actual emissions to projec ted actual emissions, equals or exce eds 50 percent of the applicable NSR significant level for that pollutant. The rule imposes recordkeeping, emissions monitoring, and reporting requirements on any facility projecting that a change coul d result in a reasonable po ssibility of a significant emissions increase. By EPA definiti on, ‘‘projected actual emissions’’ excl udes emissions attr ibutable to an independent factor 5 (such as demand growth); see, ‘e.g.’, 40 CF R 52.21(b)(41). The 2002 NSR Rule excluded emissions attributable to independent factors (such as demand growth) from the projected increase in emissions to which the ‘‘reasonable possibility’’ recordkeeping tri gger applied. The final rule requires that emissions attributable to independent factors (such as demand growth) be consideredfor purposes of the ‘‘percentage increase’’ test. The final rule also retains the requirement that facilities compare baseline actual emissions to projected actual emissions to determine whether the emissions increase equals or exceeds 50 percent of the applicable NSR significant level. If so, those facili ties must comply with both pre-change and post-change recordkeeping and reporting requirements. This final rule includes the additional requirement that facilities whose projected actual emissions increas e is less than 50 percent of the ap plicable NSR significant level must determine whether emissions attributable to an independent factor (such as demand growth) that is unrelated to the change would cause the post-proj ect emissions increase to exceed 50 percent of the applicable NSR significant level. If so, then, thes e facilities also have a reasonable possibility of causing a significantPage 25 of 76 emissions increase, but under these circumstances, the fina l rule requires such sources to comply with only the pre-change recordkeeping requireme nts and not the pre-change reporting requirements or post-change recordkeeping and reporting requirements.

3. NEEDS AND BENEFITS NSR Implementation in New York. The Department is undertaking this rulemaking to comply with the 2002 Federal NSR Rule EPA promulgated and correct deficiencies that EPA identifie d in regards to New York’s existing NNSR regulation. The 2002 Federal NSR Rule modified both the nonattain ment NSR and PSD regulat ions at 40 CFR 51.165 and 52.21, respectively, and requires states with SIP approved NSR program s to revise their regulations in accordance with the 2002 Federal NSR Rule and submit the revisions to EPA for approval into the SIP. The Department’s existing NNSR program at Part231 is subject to this requirement. The Department first adopted Part 231 in 1980 a nd made subsequent substa ntial revisions to the regulation in 1984, 1994, and 2000. The program establishe s requirements for new and modified facilities including the requirement to meet LAER and obtain emission offsets in the case of new major facilities and modifications which resulted in a significant net emission in crease. LAER must be determined at the time of permit issuance. Emission offsets may be obtained from the same nonattainment area th at a project is to be located, or from other nonattainment areas of equal or higher classification if emissions from such other areas contribute to a violation of the NAAQS in the nonattainment area where the proposed project is to be located. Following the 1994 rule revisions, the Department sent Part 231 to EPA fo r SIP approval. EPA identified deficiencies which, for the most part, the Department corrected. This rulemaking will address the remaining deficiencies. One deficiency concerned th e use of the Maximum Annual Potential (MAP) of an emission unit for determining whether a proposed facility modification would be subject to NNSR. Under this methodology, only those modifications whic h would increase the MAP of an emission unit would be subject toPage 26 of 76 further Part 231 applicability review. If the MAP was projected to increase, the facility was required to compare the lesser of the prior actu al annual or allowable annual emi ssions to the projected MAP of the emission unit to determine if there woul d be a significant emissionincrease. The proposed amendments to Part 231 correct this deficiency consistentwith the D.C. Circuit’s decision in ‘New York v EPA’. Applicability under the proposed Part 231 is determined by comparing ba seline actual emissions of an emission source to projected actual emissions of the sour ce to determine whether there is a si gnificant emission increase, consistent with the 2002 Federal NSR Rule. EPA also commented that Part 231 did not require automatic revocatio n of permits if construction did not commence within 18 months after i ssuance of a permit. Part 231 states that permits shall be subject to revocation, while the 2002 Fede ral NSR Rule states that a permit “shall become inva lid” if construction is not commenced within 18 months. Amending Part 231 to pr ovide for automatic permit re vocation appears contrary to the State Administrative Pr ocedure Act and the ECL. SAPA establishes uniform administrative procedures that apply to rulemaking, adjudicatory procedures, and the issuance of permits by State agencies. Th e provisions of SAPA Sec tion 401, with respect to adjudicatory proceedings, apply when a license (permit) is required by statute to be preceded by notice and opportunity for hearing. Section 70 -0115 of the ECL, which establishes uniform review procedures for the major regulatory programs of the Department, states th at the Department may revoke a permit after providing the permit holder notice stati ng the grounds for its action an d an opportunity for a heari ng. Part 70 applies to major stationary source air permits including Title V and air permits incorporati ng PSD and NSR requirements. Pursuant to the State Admini strative Procedures Act, as implemented by 6 NYCRR Part 621, the Department must provide due process, including the opportunity for a hearing before it can proceed with permit revocation. Consequently, the Depart ment cannot subject NSR permits to automatic revocation if construction is not commenced in 18 months. The Department mu st follow the procedures outlined in Part 621 which provide the opportunity for the pe rmittee to request a hearing.Page 27 of 76 EPA also identified a deficiency with respect to th e netting procedures of Part 231 regarding the use of ERCs. EPA stated that an ERC, or a portion thereof, which was used in a net emissions increase determination of non-applicability may not be usedin a subsequent net emissions increase determination, even if contemporaneous. The proposed amendments to Part 231 correct this deficiency. Another purpose of the rulemaking is to adopt a St ate PSD program for proposed new major facilities and major modifications to existing facilities located in attainment areas. In the 1980s, EPA delegated to the Department authority to implement the Federal PSD pe rmit program on behalf of EPA pursuant to a delegation agreement. Among other things, the agreement specifiedthat the Department w ould issue and enforce PSD permits consistent with Federal regulations. PSD permits were therefore subject to Federal administrative review and appeal. The agreement was modified fr om time to time when PSD regulations changed, but remained essentially the same until March 2003. The Department implemented the PSD program until March 3, 2003 when the revised 2002 Federal NSR Rule took effect and the Department returned delegation of the PSD program to EPA. New York is not obligated to a dopt a SIP-approved PSD program and could continue to implement the Federal PSD program on behalf of EPA. The Depart ment, however, has determined that the 2002 Federal NSR Rule does not adequately protect the air resources of the State and believes the appropri ate course of action is to adopt a State PSD rule rather than implement the le ss protective 2002 Federal NSR Ru le. ‘See also’ ‘General Accounting Office, Clean Air Act: EPA Should Use Available Data to Monitor The New Source Review Program 24’ (2003) (the economic and environmental impacts of the 2002 Federal NSR Rule are uncertain because of the limited data and difficulty in determini ng how industrial companies w ill respond to the rule). The proposed Part 231 rule incorporates provisions fr om the Federal PSD regulations in significant part with additional provisions to ensure enforceability of the rule and effective monitoring, recordkeeping and reporting. New major facilities and major modifications at existing faci lities must comply with the requirement to install BACT. Facilities must quantitatively assess the impact of new emission sources and majorPage 28 of 76 modifications at existing facilities through an air quality impact analysis . The procedures for an air quality impact analysis are set forth in proposed 6 NYCR R Subpart 231-12. A companion guidance document, Division of Air Resources-10 / NYS DEC Guidelines on Dispersion Mode ling Procedures for Air Quality Analysis, has been developed by the Department to establish the detailed pro cedures for conducting these ambient air quality impact analyses. DAR-10 follows the federal procedures set forth in 40 CFR Part 51, Appendix W: Guideline on Air Qu ality Models of the EPA. PSD regulations require project app licants to demonstrate that allowable emission increases from the proposed facility or modification would not cause or contribute to a violation of any ambient air quality standard, any applicable maximum a llowable PSD increment increase over the baseline concentrations for Federal Class I, II and III areas, or any Quantified Air Qu ality Related Values (AQRVs) including visibility in Federal Class I areas. PSD increm ents have been set for Particulat e Matter (PM), Sulfur Dioxide (SO 2 ) and Nitrogen Dioxide (NO 2 ). Although New York State does not have any Class I areas, there are Class I areas (large national parks and wilderness areas) in downwind States. All of New York State is designated as Class II for the purposes of PSD. BACT is required for any ne w major facility or major modification at an existing facility.

Benefits of the NSR Program From the State’s perspective, major NSR is a crit ical tool in meeting the Legislature’s air quality objectives and ensuring that healthfu l air quality is preserve d in areas of the state that meet the NAAQS and does not further degrade but actually improves in areas of the State which currently are not in attainment of the NAAQS. The State of New York currently has areas that ar e designated nonattainment fo r ozone, and particulate matter or particles with an aerodynamic diameter less than or equal to 2.5 micro-meters (PM-2.5 ). As a result, the Department must have a NNSR program that meets the requirements of Part D of Ti tle I of the Act to adoptPage 29 of 76 permit programs for the construction, modification and operation of major st ationary sources in nonattainment areas. The Department must also adopt provisions of Section 184( b)(2) of the Act, which states that any major stationary source in the Ozone Transpor t Region (OTR) is subject to the provi sions applicable to areas classified as moderate ozone nonattainment.

Ozone The implementation of NNSR, as a practical matte r, has been primarily driven by the issue of nonattainment with the ozone NAAQS. Because of New York State’s incl usion in the OTR, NNSR has, and will continue to be, applied statewid e with respect to major facilities which emit ozone precursor pollutants such as NO X and VOCs. Thus, for every new and modified major facility in the State, NNSR has controlled emissions of ozone precurso r pollutants through th e requirement that such sources achieve LAER, and ensured, in effect, negative emissions growth by requiring emission offsets. The primary ozone NAAQS is established by EPA at a level the attainment and maintenance of which is requisite to protect the pub lic health. In the northeastern United States the ozone nonattainment problem is pervasive as concentrations of ozone often exceed th e level of the NAAQS by mid-afternoon on a summer day. On sunny hot summer days, VOCs react with NO X to form ozone. It is well-settled that ground-level ozone aggravates respiratory conditions like chronic lung and heart diseases, alle rgies and asthma, and recent studies have demonstrated a definitive link between even short-term ozone exposure and death in humans. ‘See generally’ Senate Committee on Environment and Public Health, S. Rep. No. 101- 228 (1990), ‘reprinted in’ 1990 U.S.C.C.A.N. 3385. The United States Senate has re cognized that a growing body of scientific evidence indicates that over the long term, chronic exposure to ozone may produ ce accelerated ag ing of the lung analogous to that produced by cigarette smoke exposure (‘id.’). In 1995, EP A recognized that “[m]uch of the ozone inhaled reacts with sensitive lung tissues, irritating and inflaming the lungs, and causing a host of shortterm adverse health consequences including chest pains, shortness of breath, coughing, nausea, throat irritation,Page 30 of 76 and increased susceptibility to re spiratory infections” (60 Fed Reg 4712-13 [Jan. 24, 1995]). Moreover, two recent studies have shown a definitive link between short-term exposure to ozone a nd human mortality. ‘See’ 292 ‘Journal of the American Medical Asssn.’ 2372-78 (Nov. 17, 2004); 170 ‘Am. J. Respir. Crit. Care Med.’ 1080-87 (July 28, 2004) (observing si gnificant ozone-related deaths in the New York City Metropolitan Area). Even healthy adults during exercise can experience 15 percent to 20 percent reductions in lung function from exposure to low levels of ozone over several hours. Children are most at risk from exposure to ozone. Because their respiratory sy stems are still developing, they are more susceptible than adults. This pr oblem is exacerbated becau se ozone is a summertime phenomenon. Children are outside playing and exercisi ng more often during the summer which results in children being exposed to ozone more than adults. Out door workers are also more susceptible to lung damage because of their increased exposure to ozone. The elderl y are also more susceptible to ozone exposure because of the cardiovascular impairment that often accompanies aging. Ground level ozone interfer es with the ability of plants to pr oduce and store food. This compromises growth, reproduction and overall plant health. By weakening sensitive vegetation, ozone makes plants more susceptible to disease, pests and e nvironmental stresses. Ozone has b een shown to reduce yields for many economically important crops (e.g., corn, kidney beans, or soybeans). Ozone damage to species with long lives, such as trees (by killing or damaging leaves), can signifi cantly decrease the natural beauty of an area, such as the Adirondacks.

PM 2.5 or Fine Particulate Matter Particulate Matter (PM) is a ge neric term for a broad class of chemically and physically diverse substances that exist as discrete particles (liquid droplets or so lids) over a wide range of sizes. As noted above, PM-2.5 or fine particulate matter refers to particulate matter or particles with an aerody namic diameter less than or equal to 2.5 micro-meters. EPA first established a NAAQS for PM in1971 and conducted its first periodicPage 31 of 76 review of the standard in 1979. In April 1994, EPA conduc ted the second periodic revi ew of the criteria and NAAQS for PM and promulgated si gnificant revisions to the NAAQS in 1997. Among other things, EPA established an annual and 24-hour sta ndard for PM fine concentrations. In October 1997 EPA published its plans for the current periodic revi ew of PM criteria and NAAQS. Particulate matter, especially fine particles, contains microscopic solid s or liquid droplets that can lodge deep into the lungs and cause serious health problems. Numerous scient ific studies have linked particle pollution exposure to a variety of re spiratory and cardiovascular problems including: increased respiratory symptoms, such as irritation of the airways, coughing, or difficulty breathing, for example; decreased lung function; aggravated asthma; development of chronic br onchitis; irregular heartbeat; nonfatal heart attacks; and premature death in people with heart or lung disease. People with heart or lung diseases, children and older adults are the most likely to be affected by particle pollution exposure. However, even healthy people may experience temporary symptoms from exposure to elevated levels of particle pollution. Subsequent to the promulgation of NAAQS for fine par ticulate matter, EPA designated the New York City metropolitan area as nonattainment for the PM-2.5 standard (70 Fed Re g 944). NNSR is now required for new major facilities and major modifications to existing facilities that emit fine particulate in significant amounts in the PM-2.5 nonattainment area. NNSR requires that every new major facility and major modification at existing facili ties in the PM-2.5 nonattainment area co ntrol emissions of di rect PM-2.5 through the requirement that such sources ach ieve LAER and obtain emission offset s. On May 8, 2008 EPA issued final rules governing the implementation of the NSR program for PM- 2.5. EPA’s final rule requires permits to address directly emitted PM2.5 as well as pollutants res ponsible for secondary formation of PM-2.5, referred to as precursors. EPA has identified SO 2 as a regulated precursor, and also NO x unless a state can demonstrate that NO x emissions are not a significant co ntributor to the formation of PM2.5. The final EPA rule also allows interpollutant trading for emission offsets under th e nonattainment NSR program on a regional basis or statewide basis, but preclude s such trading on a permit by permit basis. EPA’s permissible interpollutant offsetPage 32 of 76 trading allows reducti ons in direct PM-2.5 to offset precursor emissions incr eases, emissions reductions of one precursor to offset emissions increases of another precu rsor, and reductions in precursor emissions to offset direct PM-2.5 emissions increases. To facilitate these interpollutant trading provisions, EPA has provided in their final PM-2.5 rule what they consider as acceptable trading ratios. States may elect to use EPA’s trading ra tios or develop their own subject to EPA approval. States with EP A approved PSD programs and those with PM-2.5 nonattainment areas have up to three (3) years to submit revised State Im plementation Plans (SIPs) incorporating the PM-2.5 NSR requirements. At the present time New York does nothave an approved PSD pr ogram, nor does it have the legal authority to implement EPA’s nonattainment requirements of 40 CFR Part 51 Appendix S. Therefore, EPA will be implementing all PM-2.5 NSR requirements unt il such time as New York’s revised NSR program addressing PM-2.5 is approved by EPA. As noted above, New York has up to three years to submit a revised SIP addressing PM-2.5. The Department will need time to evaluate EPA’s final PM-2.5 rule, specifically with regard to applicable PM- 2.5 precursors and appropriate interpollutant trading ratios to determine what provisions make sense for New York. As such, the Department will not be incorporating provisions establishing PM-2.5 precursors or inte rpollutant trading provisions into this Part 231 rulemaking. Following the Department’s detailed evaluation of EPA’s final PM-2.5 rule, the Department will propose amendments to Part 231, if appropriate and necessary, to in corporate the Department’s decisions with respect to PM-2.5 precursors and interpollutant trading.

Sulfur Dioxide Sulfur Dioxide or SO 2 belongs to the family of su lfur oxide gases (SOx). Th ese gases dissolve easily in water. Sulfur is prevalent in all raw materials, incl uding crude oil, coal, and ore that contains common metals like aluminum, copper, zinc, lead, and iron. SOx gases are formed when fu el containing sulfur , such as coal and oil, is burned, and when gasoli ne is extracted from oil, or metals are extracted from ore. SO 2 dissolves inPage 33 of 76 water vapor to form acid, and interacts with other gase s and particles in the air to form sulfates and other products that can be harmful to people and their environment. Over 65 percent of SO 2 released to the air comes from electric generating units, especially those that burn coal. Other sources of SO 2 are industrial f acilities that derive their products from raw materials like metallic ore, coal, and crude oil, or that burn coal or oil to produce process heat. Examples are petrol eum refineries, cement manufacturi ng, and metal processing facilities.
SO 2 contributes to respiratory illness, particularly in children and the elderl y, and aggravates existing heart and lung diseases. Peak levels of SO 2 in the air can cause temporary br eathing difficulty for people with asthma who are active outdoors. In addition, SO 2 reacts with other chemicals in the air to form tiny sulfate particles (fine PM). Wh en these particles are inhaled, they gather in the lungs and are associated with increased cardiovascular and respiratory symptoms and disease, difficulty in breathing, an d premature death. Longerterm exposures to high levels of SO 2 gas and particles cause respiratory illness and aggravate existing heart disease. Significantly, SO 2 is one of two chemicals in the atmosphere which contributes to the formation of acid rain. Acid rain forms in the atmosphere where SO 2 and NO X react with water, oxygen and oxidants to form a solution of sulfuric and nitric acid. This solution in turn falls to the earth as acid rain in the form of snow, rain, fog and other forms of precipitation. These forms of acid rain are known as we t deposition. Additionally, acidity in the atmosphere falls to th e earth’s surface as dry de position (gases and dry particles). These acid particles and gases are carried by pr evailing winds and deposited onto cars, buildings, homes, trees and the earth’s surface (sometimes hundreds of miles from the source). These dry deposits can also be washed from surfaces by rainstorms, mix with wet depos ition and, in turn, result in the cr eation of a more acidic solution than would be caused by the wet deposition alone . This is also called acid deposition. The adverse effects of acid deposition are pervasiv e and well documented in New York State. Acid deposition can damage trees, crops, hi storic buildings and monuments; a nd makes soils, lakes, and streams acidic. The Department prepared an extensive analysis of environmental and public health issues associatedPage 34 of 76 with acid deposition in the Regulatory Impact Stat ements for rulemakings: 6 NYCRR Part 237, the Acid Deposition Reduction NO X Budget Trading Program; and 6 NYCRR Part 238, the Acid Deposition Reduction
SO 2 Budget Trading Program.
SO 2 also contributes to the formation of atmospheric particles that cau se visibility impairment, most noticeably in national parks. Finally, SO 2 and the pollutants formed from SO 2 , such as sulfate particles, can be transported over long distances and deposited far from th e point of origin. This means that problems with SO 2 are not confined to areas where it is emitted.

Nitrogen Dioxide Nitrogen dioxide or NO 2 belongs to the family of nitrogen oxide gases. NO 2 is a reddish or orange/brownish, highly reac tive gas. It is one of the most ubiqu itous air pollutants and a deadly poison by inhalation. NO 2 acts as a respiratory irritant and can cause permanen t lung injury resulti ng in decreased lung function. Nitrogen oxides are produced from burning fuel s, including gasoline and co al. Nitrogen oxides react with volatile organic compounds to form ozone as well as reacting withother atmospheric pol lutants to create fine particulate matter and acid rain.

Carbon Monoxide Carbon monoxide (CO) is a colorless, odorless gas that is form ed when carbon in fu el is not burned completely. It is a component of mo tor vehicle exhaust, non-road engines and vehicles (such as construction equipment and boats), combustion instal lations (boilers, turbines and engine s), industrial processes (such as metals processing and chemical manufacturing), resident ial wood burning, and natural sources such as forest fires. CO can cause harmful health effects by reduci ng oxygen delivery to the body's organs (like the heart and brain) and tissues. The health threat from low levels of CO is most se rious for those who suffer from heart disease, like angina, clogged arteries , or congestive heart failure. For a person with heart disease, a singlePage 35 of 76 exposure to CO at low levels may cau se chest pain and reduce that person' s ability to exercise. Repeated exposures may contribute to other card iovascular effects. Healthy people can also be affected by high levels of CO. People who breathe high levels of CO can develop vision problems, reduced ability to work or learn, reduced manual dexterity, and difficulty performing complex tasks. At extremely high levels, CO is poisonous and can cause death. CO in the atmosphere al so contributes to the formation of ozone.

Lead Lead is a metal found naturally in the environment as well as in manufactured products. The major sources of lead emissions have histori cally been motor vehicles (such as cars and trucks) and indu strial sources. Due to the phase out of leaded gasoline, metals processi ng is now the major source of lead emissions to the air today. The highest levels of lead in air are generally found near lead smelters. Other stat ionary sources of lead include municipal and industrial waste incinerators, utilities, and lead-acid battery manufacturers. People, animals, and fish are mainly exposed to leadby breathing and ingesting it in food, water, soil, or dust. Lead accumulates in the blood, bones, muscles, and fat. Infants and young children are especially sensitive to even low levels of l ead. Lead causes damage to the kidne ys, liver, brain and nerves, and other organs. Exposure to lead may also lead to osteoporosis (brittle bone disease) an d reproductive disorders. Excessive exposure to lead causes seiz ures, mental retardation, behavioral disorders, memory problems, and mood changes. Low levels of lead damage the brain and nerves in fetuses and young children, resulting in learning deficits and lowered IQ. Lead exposure causes high blood pressure and increases heart disease, and may also lead to anemia

.

Proposed Part 231 Amendments The Department has supported efforts to reform the NSR program since 1996, when EPA proposed its first comprehensive set of revisions aimed at making NS R more efficient and cost effective while meeting thePage 36 of 76 goals and objectives of the Act. Efforts to revise NSR in the 1990s exte nded into a multi-year review process and EPA did not finalize a rule until six years later in December 31, 2002. EPA’s 2002 Federal NSR Rule departs significantly from its 1996 proposal in several ke y respects which are disc ussed in the Legislative Objectives section of this document. A Federal Court ruled in June 2005 that several provisions of the 2002 Federal NSR Rule, including the Clean Unit Exemption, PC P provision and the “reasonable possibility” test, were contrary to the intent and express terms of the Act (‘see New York v EPA’, 413 F3d 3, 40-41). New York objected to these provisions and prevailed in Court. Th e Department will not incorporate into its proposed Part 231 rulemaking those provisions that did not survive the litigation. It is the Department’s position that the 2002 Federal NSR Rule contains significant regulatory gaps with respect to enforceability and, therefore, is not protective of the environment and public health and welfare or consistent w ith the goals and policy objectives of the State. The Department’s objectives with its proposed rule making are to develop a St ate specific NSR program which fulfills the mandates of the Act and the Federal NS R program, as appropriate, but is sufficiently tailored to meet the environmental quality ne eds and objectives of the State. Im plementation of the Part 231 revisions will, in concert with counterpart programs established by other states and other measures implemented by the State, enable the Department to effectively track and reduce the pollution emitted from major facilities, ensure that those facilities are m eeting their regulatory obligations to install and operate state-of-the-art pollution control equipment when undertaking ma jor new construction or modifications , and achieve applicable emission limits. In all, a robust permitting program for new major f acilities and major modificat ions at existing facilities will help ensure that emissions of ozone precursors from these facilities are minimized and thereby reduce contributions to ozone formation in New York State and will decrease the adverse public health and welfare effects described above.Page 37 of 76 NSR Workgroup In May 2004, the Department convened a workgroup to discuss the development and adoption of a State NSR regulation (revised Part 231). Participants in cluded members of the regu lated community, State and Federal agencies, and environmental organizations: American Lung Associ ation; the Busine ss Council of New York State, Inc. (BCNYS); the Chemical Alliance; the National Federation of Independent Businesses; Consolidated Edison Company of New York; the Ener gy Association of New York State; EPA Region II; Independent Power Producers of New York; the Natu ral Resources Defense Council (NRDC); the New York Public Interest Research Group (NYPIRG); New York Department of Public Se rvice (NYSDPS); New York State Office of the Attorney General (NYSOAG); and th e Governor’s Office of Regul atory Reform (GORR). The Department held four meetings in the su mmer and fall of 2004 to discuss the major reform provisions included in EPA’s 2002 Fe deral NSR Rule and Equipment Replacement Provision (ERP). The following issues were discussed: the Clean Unit and Pollution Control Project ex emptions; whether the 2002 Federal NSR Rule adequately addressed compliance m onitoring, reporting and reco rdkeeping; the methodology for determining baseline actual emissions, including th e appropriate look-back pe riod (five years versus 10 years); the “reasonable po ssibility” test; the method for determini ng whether a significant emission increase occurred - the baseline actual emission to projected actual emissions test; whether emissions attributable to an independent factor (such as demand growth) should be excluded fr om the projection of post-modification actual emissions; routine maintenance, repair, and replacemen t, including the ERP rule, and the practice of conducting case-by-case determinati ons; and the PAL provision. The workgroup re-convened on February 16, 2006 to discuss proposed amendmen ts to Part 231. The Department presented an overview of the proposed am endments to Part 231 and discussed the differences between the proposed amendments to Part 231, EPA’s 2002 Federal NSR Rule and the Department’s existing NNSR Regulation (6 NYCRR Subpart 231-2). The workgroup commented on provisions which might be too broadly (e.g., permit modification triggers) or too narro wly construed (e.g., definition for routine maintenance,Page 38 of 76 repair, or replacement). The attendees were also intere sted in the timing of the regulation and other pending and anticipated EPA regulations which mi ght impact NSR review. The Department requested written comments and revised the proposed amendments to Part 231, as appropriate, taking into account comments that were received. On September 6, 2006, the Department publicly noticedfor hearings and comment proposed amendments to Part 231. Following this proposal a nd receipt of comments, the workgroup reconvened once again on March 28, 2007 to discuss further changes that the Department planned to make to its proposed amendments to Part 231. The workgroup attendees were interested in the Department’s proposed changes to baseline emissions, exemptions, PALs , and monitoring/reporting/ recordkeeping requirements particularly as they relate to insignificant modifi cations and emissions attributable to independent factors such as demand growth. The Department once again requested written co mments and revised the proposed amendments to Part 231, as appropriate, taking into account comments that were received. The Department has also provided outreach through Part 231 rulemaking presentations at the New York State Business Council’s 2005 Annual Industry-Environmental Conferen ce held on October 13 & 14, 2005 in Saratoga Springs, New York, and at the Air & Waste Management’s Ninth Annual Environmental, Health & Safety Seminar held in Rochester, New York on February 15, 2006. Comments from these presentations were also considered during development of the proposed am endments to Part 231. The amendments to Parts 200, 201, and 231 were published in the State Register on Se ptember 26, 2007 for public hearings and comment. Hearings were held in Avon on November 13, 2007, Albany on November 15, 2007, and in Long Island City on November 16, 2007. The comment period closed on November 26, 2007. The Department received written and oral comments. All of the comments have b een reviewed, summarized and responded to by the Department. Public notice will be held to obtain additional comments on the Department = s proposed revisions to its original proposed amendments to 6 NYCRR Parts 200, 201, and 231 that were published in the State Register on September 26, 2007.Page 39 of 76 Overview of Part 200, 201 and 231 Amendments The Part 200 amendments will add a definition for Routine Maintenance, Repair, or Replacement. In addition, the Department is revi sing Part 200 (Section 200.9 and 200.10). Section 200.9 is being amended to include all federal materials referenced in the proposed amendments to Part 231. Section 200.10(a) is being amended to reflect that the Departme nt is no longer delegated responsibi lity for implementation of the Federal PSD Program. The Department is amending the definition for “maj or stationary source or major source” at 6 NYCRR 201-2.1(b)(21). The definition will now encompass the te rm “major facility” and incorporate major source and significant project thresholds for facilities emitting PM-2.5. The existing NNSR program at Part 231 will be re-titled as “New Source Revi ew for New and Modified Facilities” and will include new Subparts 231-3 through 231-13 incorporating the Fe deral PSD program requirements for attainment areas, a nd revised federal requirements fo r NNSR in nonattainment areas. The proposed revisions to Part 231 will incorporate elements of the 2002 Federal NSR Rule provisions that survived court challenge. The revisions are expected to make the regulations less burdensome to implement from the perspective of the Department and th e regulated community without compro mising air quality. The Department will retain the existing provisions fo r NNSR in Subparts 231-1 and 231-2 si nce these provisions are currently cited in State air permits. Proposed Subparts 231-3 through 231- 13 are organized to facilitate the implementation of NSR by providing a consistent regul atory framework for review and permitting in attainment and nonattainment areas. Subparts 231-5 and 231-6 set forth requi rements for new major facilities a nd major modificatio ns at existing facilities in nonattainment ar eas, including Lowest Achievable Emission Rate technology and emission offsets. Subparts 231-7 and 231-8 set forth the requirements for new major facilities and major modifications at existing facilities in attainment areas, includ ing Best Available Control Technology and the requirement for ambient air quality analyses. In addition, Subparts 231-5 and 231-7 (new facilities) and Subparts 231-6 and 231-8Page 40 of 76 (modified facilities) contain parallel provisions for de termining applicability. Pr oposed new facilities with a potential to emit at or above the applicable major faci lity threshold will be subj ect to major NSR review. Existing facilities undertaking a major m odification will have the ability to use netting procedures to avoid NSR applicability. Subpart 231-3 “General Provisions” sets forth provisions which apply generally su ch as a transition plan specifying the effective date of the new Subparts, ex emptions, general permit requirements and prohibitions which restrict construction or operation without permits, sour ce obligations, a provision for a shakedown period to verify the operation of new equipment, and a prohi bition against undertaking actions to circumvent the regulation. The Exemption section (231-3.4) will no longer include the exemptions for Clean Coal technologies. These exemptions or iginated in the 1990 Clean Air Act Am endments (and are approximately 20 years old). The purpose for the exemptions was to allo w the design, development, and installation of new clean coal fired equipment. At the time that these exempti ons were promulgated, there were very few air pollution controls (specifically for the emissions of NO X and SO 2 ) that had been developed and implemented on coal fired equipment. Over the past two decades the ability to control air pollution from coal fired equipment has increased dramatically. New co al fired sources can meet NO X and SO 2 emission limits that rival gas fired sources based on the available contro l technologies. Theref ore, the Department has determined that the exemptions for Clean Coal technologies are out of da te and are no longer necessary. The Source Obligation section (231-3.6) includes a specific requirement that any owner or operator of a facility that proposes a project that involves a physical change or ch ange in the method of operation thatthe owner or ope rator determines would be followed by a facility emissions increase that equals or exceeds any of the significant project thresholds in Subpart 231-13, Tables 3, 4 or 6, must notify the Department in writing of the proposed project prior to implementing the change if the owner or operat or determines that the project does not constitute a modification because all the emission in creases are attributable to independen t factors in accordance with clause 231-4.1(b)(42)(i)(b). The notification must in clude (1) a description of the ch ange, (2) the calc ulation of thePage 41 of 76 projected emissions increase, (3) the pr oposed date of the change, and (4) an explanation of the factual basis for the conclusion that none of the projected emission increases are attributable to the proposed project. Subpart 231-4 “Definitions” contains definitions fo r terms used in the NNSR and PSD programs and, where possible, integrates the regulatory terms which are common to both pr ograms. The Department has opted not to continue to utilize the exemptions for Clean Co al technologies, as discussed above. Therefore, the definitions for Clean Coal technologies will not be included in the proposed revisions to Part 231. The remaining subparts apply generally to facilitie s in attainment and nonatta inment areas. Subpart 231-9 sets forth the requirements for establishing PALs . Subpart 231-10 defines em ission offset and Emission Reduction Credit (ERC) creation and us e. Subpart 231-11 pr ovides permit and reasonable possibility requirements. Subpart 231-12 details th e ambient air quality impact analys is requirements for facilities in attainment areas. Subpart 231-13 compiles tables and list s emission thresholds which are applicable throughout the proposed regulation. Many permits issued throughout the State reference regulatory provi sions of Subparts 231-1 and/or 231- 2. To avoid confusion in the impl ementation of the Part 201 permit progr am, the Department is retaining Subparts 231-1 and 231-2 rather than repealing them. Subpart 231-1 will remain titled “Requirements for Emission Sources Subject to the Regulation Prior to November 15, 1992.” Similarly, S ubpart Part 231-2 will be re-titled “Requirements for EmissionUnits Subject to the Regulation on or after November 15, 1992 and Prior to the Effective date of Subparts 231-3 through 231-13”, to indicate that it does not apply to applications received on or after the effective date of the pr oposed Part 231 revisions. The following provisions from the 2002 Federal NS R Rule are being addressed in the proposed amendments to Part 231:

Baseline Period In the preamble to the 2002 Federal NSR Rule, EP A stated that one "comm on complaint" about the 1980 rule is that sources have "limited ability to consid er the operational fluctuations associated with normalPage 42 of 76 business cycles when establishing baseline actual emissions unless [the] reviewing aut hority agrees that another period is 'more representative of normal source operation.'” ( 67 Fed Reg 80191-92 ). Members of the regulated community in New York echoed this same concern during the Workgroup meetings including raising the following. Establishing a baseline period pursuant to the existing NSR regulations was too complex and burdensome and often involve d protracted permit proceedings with the Department. Facilities which experienced low demand or low production faced the pr ospect of “losing capacity ” by capping emissions at unrepresentative low levels or incurring the time a nd expense of obtaining NS R permits for facility modifications that involved small ch anges. If the economy experienced a downturn wh ich slowed production at a facility for a few years, the f acility’s baseline would decrease an d the facility woul d lose operational flexibility. A facility would be di scouraged from making modifications that might otherwise benefit the environment such as pollution prevention measures. The Department has decided to establish a uniform baseline pe riod provision for EUSGUs and nonEUSGUs. Under this provision, all emission sources would be able to select a baseli ne using any 24 consecutive month period in the past five years. The Department believes that this approach strikes the most appropriate balance considering environmental protec tion, administrative burden, and economic growth. For EUSGUs, which since EPA’s 1992 rule a ddressing WEPCO have been able to establish their baseline emissions using this approach, the only change w ould be that a facility could not look back furthe r than five years to attempt to show that there was another 24 consecutive month period that was more representative of normal emission source operations. Both EUSGUs and non-EUS GUs would have more flexibility than under the current Part 231 in establishing their baseline as they would not have to specifically demonstrate (in order to look back beyond the two most recent years) that anothe r 24 consecutive month period within five years was more representative of normal emi ssion source operations. As under the current Part 231, both EUSGUs and non-EUSGUs would not be able to go beyond the most r ecent five years in establishing their baselines.Page 43 of 76 The Department believes that, in light of the D.C. Circuit’s decision in the ‘S outh Coast’ case, adopting a 10-year look-back period could be le gally vulnerable as an impermissible “backsliding” of a control in a nonattainment area. Section 193 of the Clean Air Act, 42 U.S.C. S ection 7515, prohibits th e “backsliding” of control requirements in nona ttainment areas; ‘see also’ 42 U.S.C. S ection 7502(e) (prohibiting the relaxation of a primary national ambient air quality standard absent the promulgation of requirements that “provide for controls which are not less stringent than the controls applicable to areas designated as nonattainment before such relaxation”). In ‘South Coast’, the court held th at EPA acted unlawfully when it decided that the one-hour NSR requirements need not be continued, given that “[t]he result of this change is to subject fewer areas to LAER and to offset requirements that themselves are weakened,” but did not require alternative requirements that would ensure the same level of emission reductions (‘South Coast’ , 472 F.3d 882, 901). Similarly, if the Department were to adopt the 10-year look-back provi sion for non-EUSGUs the baseline period provision could be challenged in court as being inconsiste nt with the ‘South Coast’ decision. Under the current Part 231, both EUSGUs and non- EUSGUs may attempt to demonstrate to the Department that a 24 consecutive m onth period other than the two most recent years (with a limit on looking back five years) should be used in establishing the baseline period. Howeve r, as the D.C. Ci rcuit noted in the ‘New York v EPA’ decision, “EPA appropriately refers to the problems experienced under the 1980 [PSD] rule . . . [including that] establishing a re presentative baseline period other th an the two-year period immediately preceding the change was ‘complex and time-consuming’ and often involved ‘disputed judgment calls’” (‘New York v EPA’, 413 F.3d 3, 53-54 (quoting 61 Fed Reg 38,258)). Removing this aspect of the regulation should reduce the administrative burden on the Department, allo wing it to use its limited resources in other more pressing areas. The Department also believes that overall this approach will also provide additional flexibility for facilities, which EPA concl udes could result in additi onal economic growth. In particular, both EUSGUs and non-EUSGUs will be able to use any 24 consecutive month pe riod within the past five years, without the burdenPage 44 of 76 of demonstrating to the Department that this period is more representative of norma l source operations than the two most recent years. In addition, the business cycle study relied upon by EPA, to justify the 10-year lookback, found business cycles vari ed in the industries surveyedfrom three years to eight years. A five-year lookback offers a period that is approximat ely the average length of these cycles. Although the 2002 Federal NSR Rule allows facilities to choose a different baseline period for each NSR pollutant, proposed amendments to Part 231 require facilities to select a sing le baseline period for all pollutants. The Department has determined that a single baseline period for a specific project is more appropriate for New York’s NSR program. The use of a single baseline period assure s that a proposed project is based on an actual operating scenario and not an arti ficially high emissions baseline. The use of multiple baselines could result in picking seve ral baseline periods to maximize emissi ons for several different pollutants. For example, a combustion facility permitted to burn both oil and natura l gas could choose different baseline periods when using natural gas to maximize VOC, CO , and PM-10 emissions and oil to maximize PM, NO X and SO 2 emissions. This would create an artificially high baseline never actually experienced by the source nor emitted to the atmosphere surrounding the facility and, in extreme cases, a baseline that could never actually be achieved by the source. Pursuant to the 2002 Federal NSR Rule, a facility could develop a baseline emissions profile which is not derived from a permitted operating scenario, but is based on pollutant-specific emissions achieved during different operating scenarios and different baseline periods . In practice, the facility would not have emitted at the two-year high levels for all the NSR pollutants dur ing any consecutive two-yearbaseline period. More importantly, the operating permit woul d not have authorized such emi ssion levels under either operating scenario. With higher baseline emissions during a pa rticular two-year period, however, a proposed project could avoid being subject to NSR for those pollutants as a result of select ing that baseline period. At no time would the actual emissions of the affected emissions source in any one operating scenario be honored, notwithstanding that the Part 201 permitting program esta blishes emission limits for each operating scenario.Page 45 of 76 The result of this is the potential for a project that would otherwise be considered major except for the artificially high baseline to either “cap out” or “net out” of NSR. This would cau se an increase in emissions that would exacerbate air quality problems in New York State.

Independent and Unrelated Em issions Increase Exclusion. In considering whether to exclude emissions from independent and unrelated factors such as demand growth from the calculation of post-modification emissions, the Department is guided by the decision in ‘New York v EPA’ which upheld the exclusion as consistent w ith the Act. EPA’s explanation that the CAA and the implementing regulations require a ca usal link between the proposed change and any post-modification increase in emissions and that the 2002 Federal NSR Rule excl uded demand growth where it was unrelated to the particular project persuaded the Court that the approach was cons istent with the Act (‘see’ ‘New York v EPA’, 413 F3d 3, 32). In rejecting petitioner’s arguments, the Court noted that the 2002 Fede ral NSR Rule establishes two criteria a facility must meet before it can exclude emissions fr om the projection of post change actual emissions. First, the facility must demonstrate that th e emission source could have ac hieved the necessary level of utilization during the 24 consecutive month period sel ected to establish the baseline actual emissions. Second, the increase cannot be related to the physical or operational change (s) made to the emission source. Even if the emission source could have been operated to achieve a particular level of demand during the representative baseline peri od, if the increase is related to the modi fication of the emission source, the emissions increases resulting from the increased operation must be attributed to the modifica tion, and cannot be excluded from the projection of post-modification actual emissions. For example, if a proposed physical change or change in the method of operation (modi fication) at a facility lowers the cost of producti on, thereby enabling the facility to produce and sell more of its product as a result, the emissions attributable to the increase in production and sales must be included in the calculation of projected actua l emissions. On the other hand, if a facility’s proposed modification lowe rs the cost of produc tion, but without any pr ojection of increasedPage 46 of 76 production or sales, the modification w ould not be projected to result in in creased emissions. Likewise, if a facility produces more solely because of increased demand that is unrelated to a proposed modification, the increase in emissions due solely to the production increase w ould be excluded in the ca lculation of projected actual emissions for the modification. One of the Department’s concerns with the Fede ral independent and unrelated factors emissions exclusion in the 2002 Federal NSR Rule is that as a practical matter it is often difficu lt to separate such emission increases from other emission increases resulti ng from a project. A facility may vent emissions from more than one emission source out of the same emission point, in some circumstances making it difficult to attribute stack emissions to a particul ar emission source. Alternately, since emissions from independent and unrelated factors such as demand growth depends on production, and production fi gures are often deemed confidential business information, it would be difficult to reproduce calcul ations that support the independent and unrelated factors, or impossible to obtain sufficient information from the facility to verify whether emissions are truly attributable to su ch factors. Since EPA promulgated the independent and unrelated factors emissions exclusion in 1992 as a result of the WEPCO case, EPA has not published any guidance for how this distinction should be made. Further, EPA acknowledge d in the Technical Support Document in connection with its determination on Reconsideration of the 2002 Federal NSR Rule thatit may be diffic ult to separate independent and unrelated factor emi ssion increases from other increases resulting from a project (‘Technical Support Document for the Prevention of Significant De terioration (PSD) and Nona ttainment Area New Source Review (NSR): Reconsideration,’ EP A-456/R-03-005, October 30, 2003, page 19 ). As a result, EPA concluded in its response to comments document that it is “very important that the source retain a record of all information available to support its initial claim th at an emissions increase predicted to occur as a result of demand growth did not result from the physical or opera tional change to an emissions unit. This information may be required by the reviewing authority should there be a question about the project being a major modification” (EPA Technical Support Document’ November 2002, I-5-44). EP A noted, however, that there are situations wherePage 47 of 76 the distinction clearly can be made, including: s kyrocketing demand because the product becomes a fad; mishaps at a factory causing producti on increases at remaining supplier s ources; decrease inraw material prices; opening of new markets; and improved economic conditions. To the extent that facilities can make those distinctions, and in light of the Court’s ruling that the CAA definition of modification contempl ates a causal connection between th e proposed change and any postmodification emission increase, proposed amendments to Part 231 allow facilities to exclude emission increases from independent and unrelated factors consistent with the 2002 Federal NSR Rule. Emission increases which an emission source was capable of accommodating prior to the modification and which are not in any way related to the change do not have to be included in the projection of (post-modification) projected actual emissions. The proposed amendments to Part 231 requ ire that facilities prov ide (at the time of permit application for a modification) adequate documentation of projected actual emissions , including any emissions attributable to independent and unrelated factors that an emission source was capable of accommodating prior to the modification. Emissions associ ated with independent and unrelated factors cannot be excluded where the emissions are related to the modificati on, or if the facility ca nnot establish that the em ission source could have accommodated the increase. Thus, proposed amendments to Part 231 are structured to provide a mechanism for the Department to ensure that regulated entities are properly invoking the exclusion for emissions from independent and unrelated factors and can adequately document their determination of post-modification actual emissions, and the basis for any emission exclusions.

Permit Requirements The 2002 Federal NSR Rule requires modified f acilities to obta in NSR permits only when the modification is major above significance levels. Similarly, the proposed amendments to Part 231 require facilities to obtain permits and/or permit modificati ons when the proposed modification will result in a significant net emission increase. In addition, the proposed amendments to Pa rt 231 require a fa cility to obtainPage 48 of 76 a new or modified permit if the facil ity utilizes netting to avoi d a significant net emission increase. Under the netting provisions of the proposed amendments to Part 231, a facility can subtract any contemporaneous emission decreases from other emission sources at the facility, from the project emission potential. The requirement for a permit where a faci lity relies on netting to avoid majo r NSR is consistent with how the Department has implemented Part 231 since November 15, 1992. The 2002 Federal NSR Rule does not require a permit for netting and requires facilities to maintainrecords of post-modification emissions only when the facility itself determined that a “reasonable possibility ” exists that a significant ne t emissions increase could occur notwithstanding the facility’s projections that it would not. In ‘New York v EPA,’ the Court held that the “reasonable possibility” provision was unenforceable. To avoid any questions concerning the implementation of NSR in New York for facilities that use netting to avoid NSR requirements, the proposed amendments to Part 231 expressly require that faciliti es apply for and obtain a permit. The permit will include appropriate recordkeeping, monitoring, and reporting provisions to ensu re that modification will not result in a significant net emission increase. Although the 2002 Federal NSR Rule does not expressly require facilities to obtain a permit when the facility relies on netting or make specific assumptions with respect to the magnitude of post-modification emissions, EPA, in its oversight of New York’s implemen tation of the CAA, has required permits as a matter of policy and administrative practice. Under the current Subpart 231-2, if the proposed emissions increase (baseline actual emissions to poten tial to emit) of a modified emissi on source exceeds applicable NSR thresholds the facility must obtain a permit with ap propriate terms and conditions limiting emissions or be subject to NSR requirements. Consistent with th e Department’s current implementation of Part 201, a limitation on a facility’s “potential to emit” must be en forceable through the issuance of an operating permit with appropriate terms and conditions limiting the capacity of the f acility to emit. The Department promulgated Subpart 201-7 “Federal ly Enforceable Emission Caps” in 1996, in the absence of a Federal emission capping regulation, to provide a legal mechanism for facilities to avoid federalPage 49 of 76 CAA permitting requirements by accepting a State-issued permit with federally enforceable emission caps. EPA approved Subpart 201-7 into New York’s SIP in 2005, making the regulation enforceable as a matter of federal law. The Department has consistently usedthe Part 201 permitting program, including Subpart 201-7, to ensure that: (1) new facilities seeking to avoid Federal permit requirements maintain emissions below applicable thresholds; (2) facili ties undertaking modifications do not exceed their projections of postmodification emissions, and (3) facilities claiming cred it for voluntary emission re ductions actually achieve those reductions. These goals are accomplished by including terms and conditions in permits limiting emissions, hours of operation or pr oduction, requiring the implementati on of appropriate work practices reflecting the emission source shutdow n or curtailment of operations, a nd requiring compliance monitoring, recordkeeping, and reporting. The proposed amendments to Part 231 will conti nue the long-standing pr actice ensuring compliance with regulatory standards through the Part 201 permitting program. Facilities which avoid NSR through netting will be required to obtain operating permits with appropriate terms a nd conditions ensuring that the emission reductions relied upon are achieved. Ne w or modified facilities which are subject to NSR will be required to obtain permits limiting their potential to emit or project ed actual emissions respectively, to ensure that emissions do not exceed the amounts upon which the Departme nt made its NSR determin ations with respect to emission offsets and contro l technology requirements.

Emission Reduction Credits Under the ECL, ERCs are defined as the actual decrea se in emissions of a regulated air contaminant in tons per year (ECL Section 19-0107[16]). Under the pr oposed amendments to Part 231, ERCs will be used in both the PSD and NNSR programs to re flect emission decreases in annua l tonnages consistent with ECL Section 19-0107(16). In the case of a ne w major facility or major modification at an existing facility located in a nonattainment area or the Ozone Tran sport Region, ERCs can be utilized to meet the CAA requirement forPage 50 of 76 emission offsets. Emission offsets are a subset of ER Cs and represent emission re ductions which are required to be obtained by a facility to obtai n a permit to construct. ERCs can also be used by facilities in both attainment and nonattainment areas for netting whereby a facility reduces emissions of other emission sources at the facility to limit the net emission increase of a proposed NSR major modifi cation to below significance levels. ERCs are subject to Depa rtment review and approval through a notice and comment permit process and will be documented in the operating permit with enforceable emission limitations . There are specific provisions which apply to ERCs used as emission offsets which w ill be carried over from existing Subpart 231-2 into the proposed amendments to Part 231.

Reporting, Monitoring, and Recordkeeping Under the proposed amendments to Part 231, operati ng permits must include appropriate monitoring, recordkeeping and reporting requirements to ensure comp liance with any emission limitation or standard or emission reduction credit established. These requirements will be impleme nted through a faci lity’s Title V operating permit or state facility preconstruction permit and are consistent with the Department’s implementation of existing Part 231. These provisions are applicable to a new major facility, NSR major modification and to facilities that avoid NSR requirements by netting. F acilities which undertake insignificant modifications (those that are not projected to result in significant emission increases) will be required to comply with the proposed Part 231 Reasonable Possibility Requ irements for Insignificant Modifications, and comply with any other requirements that may be appl icable, including Part 201 permitting requirements. On December 21, 2007 EPA finalized its Reasonable Po ssibility Rule which iden tifies the criteria under which an owner or operator of a major facility undergoi ng a physical change or change in the method of operation that does not trigger major NSR requirements must keep record s (72 Fed. Reg. 72607). Proposed Part 231 tracks these Federal requirements with a few additional provisions. Some revisions for clarification were made to the Department’s original proposal but the subs tantive requirements are esse ntially the same. EPA hasPage 51 of 76 concluded that it is “very important that the source retain a record of all information available to support its initial claim that an emissions increase predicted to o ccur as a result of demand grow th did not result from the physical or operational change to an emissions unit.” The Federal Reasonable Possibility Rule only re quires post-change monito ring for insignificant modifications if the projected actual emissions increase (Part 231 project emission potential) is by itself greater than or equal to 50 percent of the applicable signifi cance threshold. Proposed Part 231 extends the post-change monitoring requirement to also includ e any modification with a project emission potential which is less than 50 percent of the applicable significan t project threshold in Table 3, Tabl e 4 or Table 6 of Subpart 231-13, but equals or exceeds 50 percent of the applicable signifi cant project threshold when emissions excluded in accordance with Clause 231-4.1(b)(42)(i )(c) (emissions from independent a nd unrelated factors) are added. Facilities will be required to keep records of their calculation of emis sion increases from independent and unrelated factors such as demand gr owth, monitor post-modification emissions, and submit annual reports to verify the accuracy of their calculations. This should increase accountability and enforceability, consistent with the D.C. Circuit Court’s decision in ‘New York v. EPA’, 413 F.3d. 3. Additionally, the Federal Reasonable Possibility Rule only requires EUSGUs to notify the Department, prior to beginning actual construction, for any modification with a project emission potential which equals or exceeds 50 percent of the applicable significant project threshold. Proposed Part 231 extends the pre-construction notification requirement to any facility that proposes a modification with a project emission potential which equals or exceeds 50 percent of the applicable significant project threshold or proposes a modification with a project emission potential which is less than 50 percent of the applicable significan t project threshold in Table 3, Tabl e 4 or Table 6 of Subpart 231-13, but equals or exceeds 50 percent of the applicable signifi cant project threshold when emissions excluded in accordance with Clause 231-4.1(b) (42)(i)(c) (emissions from independent and unrelated factors) are added. The Department believes these requirements are necessary to ensure that facilities take into account the emissions from such projects in any future Part 231 applicability determination or ne tting analysis and comply with thePage 52 of 76 proposed amendments to Part 231. Because facilities will have to generate this information to determine whether they are subject to the proposed amendments to Part 231, there should be little if any additional cost associated with maintaining the records. In the case of netting at existing major facilities, and for insignificant modifications, the proposed recordkeeping, monitoring, and reporting requirements are more extensive than those included in the 2002 Federal NSR Rule. For netti ng, the proposed regulation is consistent with current Department practice which requires permits to in clude enforceable emission limits and appropriate recordkeeping, monitoring, and reporting. For insignifican t modifications, the propose d regulation requires that facilities maintain records of the modification and comply with any other requirements that may be applicable, including Part 201 permitting requirements. While proposed Part 231 recordkeeping, monitoring, and reporting requirements may be more extensiv e than the 2002 Federal NSR Rule, fr om the perspective of New York State’s implementation of NSR, the requi rements are not sign ificantly changing.

Routine Maintenance, Repair, and Replacement (RMRR) The regulatory exemption from the federal definition of “modification” for routine maintenance, repair, and replacement, known as the RMRR exclusion, has been subject to numerous court challenges and garnered significant discussion during the NSR wo rkgroup meetings. A discussion of the statutory framework and the legal issues surround ing the interpretati on and implementation of the RM RR provision is helpful to understanding the proposed amendments to Part 231 with respect to this issue. The Act defines modification broadly as “any physical change in, or change in the method of operation, of a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted” (42 USC Section 7411[a][4]). A modification triggers permitting requirements under the CAA as well as the duty to install pollution controls ( 42 USC Sections 7475[a]) , 7479[2][C]) and 7503[a]) . By regulation, EPA exempted certain activities from the definition ofPage 53 of 76 modification, including maintenan ce, repair, and replacement activities. ‘See also’ 40 CFR Section 52.21[b][2][iii]). To give full effect to the plain language of the CAA, which contains no exemption provision for the term “modification”, Courts have construed the RMRR exclusion narrowl y. As the Court explained in ‘Alabama Power v Costle,’ 636 F.2d 323 (1979), a case cha llenging the legality of EPA’s then promulgated NSR rule, EPA does have discretion, in administering th e Act's "modification" provis ion, to exempt from PSD review some emission increases on grounds of ‘de mi nimis’ or administrative necessity, however, such discretion is limited: Implementation of the statute's definition of "modification" will undoubtedly prove inconvenient and costly to affected industries; but the clea r language of the statute unavoidably imposes these costs except for de minimis increases. The statut ory scheme intends to "grandfather" existing industries; but the provisions concerning modificatio ns indicate that this is not to constitute a perpetual immunity from all sta ndards under the PSD program. If th ese plants increase pollution, they will generally need a permit. Exceptions to this rule will occur when the increases are de minimis,. . . (636 F2d at 400). Consistent with ‘Alabama Power,’ EPA had, for over two decades, defined the RMRR exclusion as limited to “‘de minimis’ circumstances” (‘see’ 68 Fed Reg 61272 [Notice of ERP Rule, October 27, 2003]). In the seminal decision ‘Wisconsin Electric Power v Reilly’, the Seventh Ci rcuit Court of Appeals addressed the interpretation of “modification” and the extent of the RMRR regulatory exemption in the context of a proposed project at an electric generating facility (‘Wisconsin Electric Power Company v Reilly,’ 893 F.2d 901 [7 th Cir. 1990] [en banc] [‘WEPCO’]). At issue in WEPCO was a proposed replacement program, termed a "life extension" program, which WEPCO submitted to Wi sconsin Public Service Co mmission for approval. In support of the project, WEPCO stated that renovation of the emission units was necessary to enable them to operate beyond their currently planned retirement dates an d would make the plant capable of generating at its design capacity until year 2010 (‘id.’ at 906).Page 54 of 76 The Court opined on two central issues, namely whether certain activities constituted a physical change within the meaning of the CAA and s econd whether, assuming the projects involved physical changes, did they constitute exempt RMRR activ ities. Notably, the Cour t rejected outright the argu ment that Congress intended to exclude like-kind replacements from the purview of a physical change: [W]hether the replacement of air heaters and steam drums is a 'basic or fundamental change' in [defendant's facility] is irrelevant for our purposes, given Congress's directions on the subject: 'The term 'modification' means any physical change . . . .
(‘id.’ at 908; ‘see also id.’ at 913 ["th e modification provision applies to ‘a ny physical change, without regard to cost’, that causes an increas e in emissions"] [emphasis added]). On th e issue of how to interpret what activities constituted RMRR, the Court relied on EPA’s policy guidance. That guida nce stated that whether proposed work at a facility is rou tine, involves a case-by-case determination wh ich considers four factors, namely the nature, extent, purpose, frequency, and cost of the work, as well as other relevant factors, to arrive at a common-sense finding. Having determined that the propos ed work constituted a physical change and, thus, a modification, the Court went on to apply the four factor s to determine whether the projects avoided classification as a modification as being RMRR. The Court concluded that the na ture and extent of the proposed projects at WEPCO did not co mpare with other projects done in the industry, as WEPCO argued. The Court further concluded that the purpose, frequency and cost of the work demonstrated that the activities were not routine, but rather intended to exte nd the life of the units from their planned retirement dates and at a cost of at least $70.5 million. These facts, in the Court’s view, provided strong indication that the projects were not routine. (‘id.’ at 912). ‘United States v. Southern Indiana Gas & Electric Co.,’ 245 F.Supp. 2d 994 (S.D. Ind. 2003) (‘SIGECO’) is also helpful in examining the routine ma intenance issue. The Court in SIGECO addressed how broadly the RMRR exclusion s hould be defined in the context of a se ries of modifications at several power plants owned by defendants. Citi ng to ‘WEPCO,’ the Court stated:Page 55 of 76 The general rule is that any physical change to a unit which results in an increase in emissions constitutes a "modification" triggering complian ce with the CAA. If the routine maintenance exemption were defined broadly, as Ohio Edison urges, the exemption would swallow both the rule and specific provisions of the Clean Air Ac t. More fundamentally, the exception for "routine maintenance, repair, or replacement" was not in cluded by Congress in the Clean Air Act. This regulatory exception then must also be harmonized with the statut ory language of the Clean Air Act. This Court concludes that if the broad defi nition given to "routine maintenance, repair, or replacement" by Ohio Edison were adopted, the re gulation would be in di rect conflict with the superceding and controlling la nguage of the Clean Air Act (‘id.’ at 855). Applying the four part test to each of the activities in question, the Court found th at many of the projects were large in scope, expensive, involved outside contract ors and increase in value to the units and were treated by the company as capital expenditures for accounting pu rposes. In other instan ces, the company failed to substantiate that the activities at issue were undertakenwith such frequency that they could be considered routine (‘id.’ at 861). More recently, and shortly after the last workgroup meeting, the U.S. Court of Appeals for the D.C. Circuit spoke to the issue of routine maintenance wh en it vacated the ERP Rule (‘New York v. EPA II’, 443 F.3d 880). The ERP Rule both defined and expanded the RMRR exclusion by providing th at the replacement of components with identical or functionally equivalent co mponents does not constitute a physical change as long as the cost of the replacement did not exceed 20 percent of the replacement value of the process unit and did not change its basic design parameters. The Court held that the ERP viol ated Section 111 of the Act in two respects. First, the word “any” in th e definition “modification” means that all types of “physical changes” are covered and that an activity within the common phrase of “physical change” is subject to NSR when that activity results in an emissi on increase. Second, Congress defined modi fication in terms of emission increases, but the ERP would allow equipment replacements resul ting in non-‘de minimis’ emission increases to avoid NSR, in violation of the express te rms and clear intent of the Act. In light of the foregoing, in particular the ‘New York v. EPA II’ decision, the Department believes that the question of how the term “modification” should be in terpreted with respect to any regulatory exemption,Page 56 of 76 including the RMRR exemption, is settled. The Act evinces a clear Congressional intentto broadly construe the term “modification”, and neither expressly, nor impliedl y, provides any categorical ex emptions for particular activities or physical changes. Gi ven the statutory framework, any exem ption established by regulation must, by necessity, be of a ‘de minimis’ natu re. Thus, the RMRR exclusion must be viewed in the natu re of a narrow, ‘de minimis’ exclusion from NSR requirements rather than as a broad exemption or a measure providing regulatory flexibility. The RMRR exclusion is currently embedded in the defi nition of the term “modification” in existing Part 200. To clarify the Department’s intent with respect to RMRR, Part 200 will be amended to include a definition for RMRR. Whether work done at an emissions source constitutes RMRR will continue to be determined on a case-by-case basis by examining the nature and extent, purpose, frequency, and cost of the activity. Generally, RMRR refers to activities wh ich are undertaken on a prescribed and/or regular schedule, limited in scope and expense, and typically paid for out of the operation and maintenance budget of the facility. RMRR generally does not refer to activities that are infrequent, large in scope, extend the life of the facility, or result in the regaining of lost capacity or availability. Some activities which might qualify as RMRR in the case of an electric generati ng facility, for example, include the following: cleaning of a boiler and related ductwork to facilita te maintenance access and inspections; inspection of th e furnace and gas path; inspection includi ng non-destructive examination of known trouble areas; individual tube repair/replacement; inspecti on of tube shields and high erosion areas; inspection, repair and replacement of refractory in the slag n ecks and troughs; inspection an d repair of ductwork and expansion joints; cleaning and inspec tion of boiler penthouses; water bl asting, inspection, stud replacement and new refractory (cyclone fired boilers); inspection a nd repair of boiler casing, doors and inspection ports; inspection and repair of gas path deflection baffles and flow distributors; inspection and repair of all dampers (air and gas); removal, disassembling, inspection and repa ir of ignitors; cleaning, inspection and repair ofPage 57 of 76 external steam header vestibules; pressure testing water and steam tubing components; and chemical cleaning of water-side tubing to rem ove internal deposits. During the workgroup meetings, but prior to the March 17 th Federal Court decision, members of the regulated community expressed concern with the curr ent practice of evaluating RMRR on a case by case basis and preferred the bright lin e test established by the ERP Rule. New York however, challenged the ERP Rule as clearly contrary to the CAA because it allowed potentially significant emi ssion increasing activities to occur without the requirement for NSR review , under the auspices of a regulatory exemption. The Department agreed to discuss the RMRR issue during the workgroup process, bu t made clear that from the State’s perspective, the ERP Rule was not a viable option for inclusion in a St ate NSR rule. The Department encouraged workgroup members to present alternative proposals and, in turn, pr esented concepts for discussion in addition to the four factor test. The Department’s con cepts included (1) a provision for pred etermining RMRR activities in Title V permits, subject to public notice and comment; (2) relying on Title V operational flexibility provisions; and (3) utilization of PALs. Workgroup members did not presen t specific proposals and did not reach consensus on a particular approach to the RMRR issue. The Department believes that the four factor test is appropriate for inclusion in a regulatory definition in light of ‘New York v EPA’ II and that facilities which want to avoid case by case determinations and permitting review for modifications can avail themselves of other more appropriate regulatory flexibility discussed below.

Options for Regulatory Flexibility The RMRR exclusion is not intended as a tool fo r regulatory flexibility as some persons in the regulatory community might have been envisioned. The proposed amendments to Part 231, however, and the Title V program do include provisions for operational flexib ility. The Department believes that these provisions can be utilized by facilities to m eet their business needs and benefit the environment at the same time.Page 58 of 76 The PAL provisions allow a facility to establish a facility-wide emission limitation based on historical operating data. The PAL must be reduced by 25 percent by the sixth year that the PA L is in effect, unless the facility is able to ju stify a lesser reduction on the gr ounds that application of BACT and/or LAER at the facility (depending on attainment status) would achieve less thana 25 percent reduction. As long as the facility’s emissions remain under the applicable PAL, the facility can undertake modifications without undergoing NSR review. PALs will enable facilities to more effectivel y respond to market-place changes. Through the use of a PAL, the facility can accommodate shifting demand for various products without the need for review and scrutiny by the Department prior to making such changes. To obtain a PAL, a facility is required to monito r and maintain records of its activities to ensure compliance and have appropriate conditions in its Title V permit reflecting these requirements. Some members of the workgroup expressed concern that these requireme nts would be burdensome. It is important to note however that major facilities ar e already subject to extensive m onitoring, reporting, and recordkeeping requirements. It is likely that these facilities already have thes e systems in place that could be used to meet the regulatory requirements for PALs. The Department believes that PALs will be a valuable tool for regulatory flexibility, enabling a facility owner to obtain the benefit of increased flexibility in return for committing to a plant-wide emission cap that will ensure reduced emissions and improved air quality. Review of the record of EPA’s rulemaking and the Department’s own experience establish that PALs can also achieve substantial reduction in emissions. For example, the D.C. Circuit noted in ‘New York v EPA’ th at participants in six pilot projects evaluated by EPA resulted in emission reductions of 27-83 percent below their PAL levels. Requiring a reduc tion of 25 percent ensures that such reductions will be realized (‘Ne w York v EPA’, 413 F.3d 3, 37). In the absence of a requirement to reduce emissions as a condition of a PAL, EPA estimates “cons ervatively” that reductions of at least 10-33 percent will be achieved (‘id.’at 38).Page 59 of 76 Likewise, NRG in 2004 agreed to a settlement of alleged CAA violations in which NRG agreed to a substantial (85-90 percent) reduction in emissions through a series of annual system-wide emission reduction targets that limit total SO2 and NOx emissions from th eir Huntley and Dunkirk f acilities. Under this settlement, beginning in 2005 NRG would have to meet signifi cant annual tonnage reductions in emissions of both NO X and SO2 from both facilities. In terms of annual tonnages, by the end of 2013 NRG will have reduced the SO2 emissions at Hunt ley and Dunkirk from its pre-enforcement permitted levels of over 100,000 tons per year across both plants, to 14,169 tons. By the end of 2012, NRG’s NO X emissions will be reduced from pre-enforcement permitted levels of over 17,000 tons pe r year to 3,241 tons or an emission rate equivalent to the presumptive BACT level of 0.10 lb/mmBtu per ye ar across both plants. Although NRG has flexibility in the short term to allocate emission reductions between its facilities, it ultima tely must propose and comply with a plant-wide emission cap for each f acility. NRG commented during the wo rkgroup meeting of February 16, 2006 that it has been meeting the monitoring, record keeping, and reporting obligations under the Consent Decree and does not find the requirements to be burdensome. The Department recognizes that most facilities will not take advantage of PALs, regardless of whether a 25 percent reduction in emissions is re quired. However, in those instances when a source determines that the added flexibility justifies its agreemen t to a PAL, the provisions, as revise d, ensure that reduced emissions and improved air quality will result.

4. COSTS NSR reviews are done on a case-by-case basis so th e costs of compliance with either the Federal NSR rules or the proposed Part 231 revisions will be very facility specific. Under proposed Part 231, the following types of costs may be incurred. Ne w facilities or facilities that under take modifications will have costs associated with determining regulator y applicability in the first instance. Some facilities that undertake insignificant modifications will only incur the costs associat ed with maintaining records of information that theyPage 60 of 76 would have needed to generate to de termine whether they are subject to the proposed amendments to Part 231, therefore, there should be little if any additional cost associated with maintaining the records. Other facilities proposing an insignificant modification will be required to keep records of thei r calculation of emission increases from independent and unrela ted factors such as demand growth, monitor post-modification emissions, and submit annual reports to verify the accuracy of their calculations. Although such facilities will incur some additional costs, the Department believes that the costs will not be significant and are necessary for accountability and enforceability, consistent with the D. C. Circuit Court’s decision in ‘New York v. EPA’, 413 F.3d. 3. Facilities that require emissi on caps will have the costs of preparing permit applications and emissions monitoring, recordkeeping and reporting. Facilities that are subject to NSR in its entirety will have costs associated with preparing permit applications, including control technology and environmental impact assessments, obtaining emission offsets for nonattainment areas, and emissions monitoring, recordkeeping, and reporting. The proposed amendments to Part 231, in gene ral, add provisions for increased regulatory flexibility and provide for a coordinated review process for NSR affected projects. The technology assessment requirements of LAER, for facilities subject to the De partment’s existing Part 231, remain unchanged in the Department’s proposed amendments to Part 231. While some aspects of the re gulatory applicability determination will be more restrictive for non-attainment NSR than current Part 231, i.e. the baseline actual emissions to projected actual emissions methodology will replace the maximum annual potential (MAP) methodology calculation, other aspects of the proposed regulation will be more flexible than the current regulation. For example, for baselin e determinations facilities will have the option to choose any 24 consecutive month period in the past five years while the current Part 2 31 requires facilities to use the most recent 24 consecutive month period unless th ey can demonstrate that another period is more representative. It is possible that the proposed revisions to Part 231 will resultin more facilities being subject to nonattainment NSR review than under current Part 231 sin ce the Department is eliminating the MAP concept. As explained earlier in this document, EPA determined that the MAP methodol ogy was inconsistent with the Act and since then hasPage 61 of 76 revised its rule for determining regulatory applicability. The Department’s revisions to Part231 address these issues. It is also possible that more facilities will be subject to NSR under revised Part 231 than under the Federal regulations since the Departme nt is proposing to determine baseline actual emissions based on a fiveyear look-back period rather than a 10-year look-back as in the Federal NSR rule. The Department anticipates that more facilities will be subject since there will be less opportunity for an emission look-back, however, the Department does not have definitive data to determine for cer tain that this will be the case. As far as the costs of compliance are concerned the Department does not envi sion significant increased costs. Since the proposed amendments to Part 231 apply to proposed major faci lities, NSR major modifica tions and netting, annual compliance and administrative costs would remain consiste nt with those currently in curred to comply with the Department’s 6 NYCRR Part 201 Title V requirements.

Recordkeeping, monitoring, a nd reporting requirements The proposed revisions require all emission sour ces that undergo NSR keep appropriate monitoring records and submit required reports to the Departme nt. The Title V permit program under 6 NYCRR 201-6 requires that facilities which have monitoring conditions and emission limits in their permits maintain records and submit reports to the Department. The capping requi rements under 6 NYCRR 201-7 also require facilities to maintain records and submit reports associated with all emission limitations and monitoring provisions in their permits. Therefore, the addi tion of these proposed requirements to Part 231 will not increase costs to facilities that are either subject to, or a voiding Part 231 applicability by capping. Major facilities that undertake modifications with a project emission potential which is less than 50 percent of the applicable significant project threshol d, but equals or exceeds 50 percent of the applicable significant project threshold when excl uded emissions from independent and unrelated factors such as demand growth are added, or for a modificati on with a project emission potential wh ich equals or exceeds 50 percent of the applicable significant project thre shold, the facility owner or operator must submit an application to modifyPage 62 of 76 the facility permit under the minor permit provisions of Subpart 201-6 or obtain a preconstruction permit under the provisions of Subpart 201-6, and will be required to keep records, perform monitoring, and submit annual reports to the Department. The Department revised th ese requirements of the proposed regulation to address comments, comply with EPA’s December 21, 2007 final Reasonable Possibility Rule and to insure accountability and enforceability, consistent with the D. C. Circuit Court’s decision in ‘New York v. EPA’, 413 F.3d. 3. Facilities which are subject to this requiremen t will incur costs associatedwith monitoring emissions and preparing annual compliance reports, but these costs are not expected to be signi ficant. Major facilities already have systems and technology in place to mon itor emissions and are subject to annual compliance reporting under the Title V permit progr am. Therefore, the Department believes these obligations will not impose significant additional burdens on facilities. Facilities that undergo insignificant modifications and do not project emission increases due to independent and unrelated factors such as demand growthor project only insignificant emission increases even with emissions from independent and unrelated factors such as demand growth will be required to maintain records of their modifications for a minimum of five y ears, and make the records available to the Department upon request. Facilities that undertake a project that involves a physical change or ch ange in the method of operation that the owner or operator determines would be followed by a si gnificant facility emissions increase attributable solely to independent factors must notify the Department in writing and submit supporting data of the proposed project prior to implem enting the change. The requirement to maintain and submit these data records is not expected to result in any cost increase. The maintenance of these records will insure a future streamlined permitting process.

PALs The proposed regulation requires that the PAL shal l be reduced to 75 percen t of the in itial PAL, commencing with the first day of the si xth year of the PAL, unl ess the owner or operatordemonstrates that aPage 63 of 76 lesser level of reduction is justified. The owner or operator may seek an alternative reduced PAL by demonstrating that the application of BACT and/or LA ER, as applicable, on all major PAL emission sources at the facility would not result in a 25 percent reduction in the initia l PAL. The Department may authorize a reduction in the PAL to a level that would reflect the emissions from the facility if all major PAL emission sources are operated at full capacity af ter complying with BACT and/or LAER , as applicable. In making these determinations, emissions from minor PAL emission sources sh all be held constant at the initial baseline levels. In no event shall the reduced PAL exceed the initial PAL. The capital, operation and maintenance, and monitoring costs associated with the acceptance of a PAL, if any, will vary on a case-by-case basis. The requirement to reduce the PAL may caus e an increase in cost to the facility that chooses to use a PA L, if a facility chooses a capital-intensive means of achieving the emission reductions. However, some facilities may meet the 25 percent reduction without incurring any additional costs, such as when a facility already plans to reduce the usage of a less efficient source within the facility, or implements efficiency improvements that reduce emissions and the cost of operation. Since PALs are a new compliance option, no specific cost estimates are availa ble to determine if the PAL provisions will cause a monetary burden on any facility that chooses to use a PAL.

Emission Offsets The proposed amendments to Part 231 set forth PM -2.5 applicability requirements for new major facilities and NSR major modi fications consistent with new Federal PM-2.5 requirements. EPA designated the New York City metropolitan area as nonattainment for the PM-2.5 standard(70 Fed Reg 944). NNSR is now required for new major facilities and ma jor modifications to existing faciliti es that emit PM- 2.5 in significant amounts in the PM-2.5 nonattainment ar ea. The Department must include PM-2.5 in its pr oposed amendments to Part 231 to receive SIP approval. For new major f acilities and NSR major modifications for PM-2.5, located in a PM-2.5 nonattainment area, the proposed rule requir es the application of LAER and emission offsets ofPage 64 of 76 PM-2.5 at a ratio of one to one. For new major facilities and NSR major modifications for PM-2.5, located in a PM-2.5 attainment area, the proposed ru le requires the application of BACT and preparation of an ambient air quality impact analysis. Facilities which meet the PM-2.5 applicability criteria will incur additional costs above those in existing Part 231 since PM-2.5 is not a regul ated contaminant under existing Part 231 and was not previously a regulated contaminant under Federal 40 CFR 52.21 (PSD). The most signi ficant cost increase will be for new facilities and modifications that need to obtain PM-2.5 emission offsets. These costs will vary greatly, being dependent on the amount (tpy) of emission offsets needed a nd the availability of approved reductions to be used as PM-2.5 offsets.

5. PAPERWORK Most of the proposed amendments to Part 231 ar e not expected to entail any significant additional paperwork for the Department, industr y, or State and local governments be yond that which is already required to comply with the Department’s existing perm itting program under 6 NYCRR Part 201-6 and existing NSR regulations under 6 NYCRR Part 231, and federal 40 CFR 52.21. While Part 231 may include more specific recordkeeping and monitoring requirem ents than the Federal NSR rule, as discussed above, the paperwork involved in complying with the additional requirements is not considered as extensive or significantly more than facilities are currently required to maintain unde r the Title V permit program. Another area where revised Part 231 may entail additional paperwork is with the initial PAL review, which is a voluntary program. Applicants that seek to justify a reduction of less than 25 percent in the PAL will have to conduct control technology assessments that will increas e the amount of paperwork beyond that required if the applicant chose not to avail itself of the option to agree to a PAL.Page 65 of 76 6. STATE AND LOCAL GOVERNMENT MANDATES The adoption of the proposed amendments to Part 231 are not expected to result in any additional burdens on industry, State, or lo cal governments beyond those currently incurred to comply with the requirements of the existing NSR process under 6 NYCRR 201-6, 6 NYC RR 231-2, and 40 CFR 52.21.

7. DUPLICATION This proposal is not intended to duplicate any othe r Federal or State regula tions or statutes. The proposed amendments to Part 231 will ultimat ely conform the regulation to the CAA. In the short term, some duplication may occur. Currently, EPA Re gion 2 implements the PSD program for new and modified major facilities in attainment areas of New York State. Federal PSD regulations were included in the New York State SIP by Federal action. The Department intends to submit the proposed amendments to Part 231 to EPA for SIP review, repl acing the current PSD and NN SR SIP provisions. When the proposed amendments to Part 231 are promulgated, the Department will implement PSD requirements for subject sources pursuant to its authority under State law. EPA also wi ll continue to impleme nt the Federal PSD program until such time as the amendments are approved in to the SIP. Once the propos ed amendments to Part 231 are approved into the SIP, the Department will have sole responsibility for implementing PSD and no duplication will occur. During the period of overlapping jurisdiction, the Department will work with the USEPA to avoid conflicti ng regulatory reviews.

8. ALTERNATIVES
1. Take No Action. The State would be in violation of Federal law if no action is undertaken. As disc ussed in more detail in the Legislative Objectives, CAA Sec tion 172 mandates that Stat es have a SIP approved permitting program for NNSR. CAA Section 161 requires thatState SIPs include emission limitations and other measures, asPage 66 of 76 determined by regulation to be necessary, to prevent significant deterioration of air quality. In 2000, EPA advised the Department that the methodology for determining NNSR modifi cation applicabil ity in existing Subpart 231-2, based on the concept of MAP, did not conform to the Act be cause it did not take into account increases in actual emissions. EPA required that exis ting Subpart 231-2 be revised as a condition of SIP approval and to fulfill the Department ’s obligations under the Ac t. Moreover, under the “ no action” alternative, the EPA would continue to implement the PSD Program for the preconstruction and permitting requirements for facilities located in areas that are in attainment of th e NAAQS. The Department does not find this alternative acceptable in light of the noted defici encies in the 2002 Federal NSR Rule and believes the policy objectives of the ECL are better addressed with a State PSD program. Thus, the State doe s not have the op tion of taking no action here. The rulemaking will corre ct the major deficiencies identifiedby EPA which is necessary for SIP approval. In addition, the rulemaking will incorporate some provisions of the 2002 Federal NSR Rule as well as other provisions which the Department believes is nece ssary to comport with the Ac t and with the State’s air quality objectives.

2. Adopt the Federal NSR Rule The Department does not believe that adoption of th e Federal NSR Rule is c onsistent with the policy objectives of the State as articulated in the ECL and ther efore has determined that this is not a viable option. Although the 2002 Federal NSR Rule allows facilities to choose a different base line period for each NSR pollutant, the proposed amendments to Part 231 require faci lities undergoing an NSR major modification to select a single baseline period for all pollutants. The De partment has determined that a single baseline period is more appropriate. The use of a single baseline period assures that a modification is based on an actual operating scenario and not an artificially high emissions baseli ne period. The use of multiple baselines, for facilities undergoing an NSR major modification, c ould result in picking several baseline periods to maximize emissions for several different pollutants.Page 67 of 76 Additionally, under the 2002 Fe deral NSR Rule, baseline emissions are to be calculated by taking an average of the annual emissions in any 24 consecutive month period (selected by the permittee) within the 10- year period that precedes the change, adjusted to refl ect current enforceable emissions limitations. A notable exception exists in the case of EUSGUs, which are limited to any 24 consecutive m onth period within the fiveyear period immediately preceding when a permittee begins actual construction of a project, as was established in EPA’s rule addressing WE PCO. The Department believes that, in li ght of the D.C. Circuit’s decision in the ‘South Coast’ case, adopting a 10-year look-back period could be legally vulnerable as an impermissible “backsliding” of a control in a nonatt ainment area. Section 193 of the Cl ean Air Act, 42 U.S.C. Section 7515, prohibits the “backsliding” of contro l requirements in nonattainment areas; ‘see also’ 42 U.S.C. Section 7502(e) (prohibiting the relaxation of a primary national ambi ent air quality standard absent the promulgation of requirements that “provide for contro ls which are not less stringent than the controls applicable to areas designated as nonattainment before suchrelaxation”). The Department has, therefore, decided to establish a uniform baseline period provision for EUSGUs and non-EUSGUs. Under proposed Part 231, all emission sources would be able to select a baseline using any 24 consecutive month period in th e past five years. The Department believes that this approach strikes the most appropriate balance considering environmental protection, administrative bur den, and economic growth. The Department has also determined that the Fede ral NSR Reasonable Possibil ity standards finalized on December 21, 2007 still contain some regulatory gaps a nd, therefore, are not totally protective of the environment and public health and welfar e or consistent with the goals and policy objectives of the State. The Department’s proposed Part 231 tracks the Federal Reas onable Possibility Rule requirements with a few additional provisions to ensure th at sufficient recordkeeping, monito ring and reporting is required for insignificant modifications that have a reasonable possibili ty of exceeding the applicable significance threshold.Page 68 of 76 3. Adopt a State-specific NSR program Because neither option discussed above is acceptable, the Department proposes to adopt a State specific NSR program. The program will consist of modifications to the Department ’s existing Part 231 NNSR program and adoption of a State PSD program. The rulemaking will incorporate some of the provisions of the 2002 Federal NSR Rule as well as other provisions tailored to New York’s air quality needs and objectives. To address potential backsliding issues, proposed Part 231, like current Part 231, provides for a uniform approach on look-back periods allo wing EUSGUs and non-EUSGUs to selectany 24 consecutive month period within the last five years. Federa l regulations allow non-EUSGUs to sele ct any 24 consecutive month period within the last 10 years. As discu ssed elsewhere in this document, the De partment believes a uniform approach strikes the most appropriate balance between air quali ty, administrative burden, and economic growth and minimizes the potential for backsliding. The proposed amendments to Part 231 require facilities undergoing an NSR major modification to select a singl e baseline period for all pol lutants rather than allowing them to select multiple baselines. In addition, requiring facilities to use a single baseline period as sures that a modification is based on an actual operating scenario and not an artificially hi gh emissions baseline period. The proposed amendments to Part 231 also provide clear criteria for reco rdkeeping and emissions monitoring to address the State’s concerns with rule enforceability. Notably, w ith regard to reasonable possibility requirements for insignificant modifications, th e proposed rule requires th at modifications with a project emission potential which is less than 50 percent of the applicable significant project threshold, but equals or exceeds 50 percent of the applicable signifi cant project threshold when excluded emissions from independent and unrelated factors such as demand grow th are added, or for a modification with a project emission potential which equals or exceed s 50 percent of the applicable significant project threshold, the facility owner or operator must submit an app lication to modify the f acility permit under the minor permit provisions of Subpart 201-6 or obtain a preconstruction permit under th e provisions of Subpart 201-6. Facilities will be required to keep records of their calc ulation of emission increases from i ndependent and unrelat ed factors suchPage 69 of 76 as demand growth, monitor post-modifi cation emissions, and submit annual reports to verify the accuracy of their calculations. The Department believes that this more objective standard must be adopted as a trigger for recordkeeping, monitoring, and reporting and is essential to ensure accountab ility, and enforceability of the regulation. Finally, the Department believes that additional environmental benefits will result from requiring a reduction in an initial PAL of up to 25 percent by the end of the fifth year of the PAL or a demonstration that major PAL emission sources at the f acility already comply with the best available control technology or the lowest achievable emission rate technology.

9. FEDERAL STANDARDS The proposed amendments to Part 231 exceed federal standards in the following circumstances. Baseline Period Unlike the Federal regulations, which provide for di fferent “look-back” periods for establishing baseline emissions and different approaches for demonstration of representative baseline em issions periods for EUSGUs and non-EUSGUs, the proposed amendments to Part 231 pr ovide for a uniform approach on look-back periods and representative emission demonstrations. Under the proposed amendments to Part 231, EUSGUs would be allowed to choose any 24 consecutive m onth period in the last five years, as in the Federal regulations. The only difference for EUSGUs between the new Part 231 a nd the federal regulations would be that EUSGUs would no longer be allowed to look back beyond the last five years to at tempt to demonstrate to the Department that another 24 consecutive month pe riod is more representative of normal source operations. Like EUSGUs, non-EUSGUs would be allowed to choose any 24 consecutive m onth period in the last five years. This differs from the approach in the Federal regulations, which allows non-EUSGUs to choose any 24 consecutive month period in the last 10 years.Page 70 of 76 As discussed above, the Department believes that a doption of a uniform baseline period strikes the right balance between air quality, administra tive burden, and economic growth. In addition, given the D.C. Circuit’s recent decision in the South Coast litigation, the adoption of a 10-year look-back period could be legally vulnerable as an impermissible “backsliding” oncontrol requirements in nonattainment areas.

Single Baseline Selection for Faciliti es Undergoing NSR Major Modifications Although the 2002 Federal NSR Rule allows facilities to choose a different baseline period for each NSR pollutant, the proposed amendments to Part 231 re quire facilities undergoing an NSR major modification to select a single baseline period for all pollutants. The Department has determined th at a single baseline period is more appropriate. The use of a single baseline peri od assures that a modificati on is based on an actual operating scenario and not an artificially high emissions baseline period. The use of multiple baselines, for facilities undergoing an NSR major modification, could result in pickin g several baseline periods to maximize emissions for several different pollutants. For exampl e, a combustion facility permitted to burn both oil and natural gas could choose two different baseline periods; one when using natu ral gas to maximize VOC, CO, and PM-10 emissions, and another when us ing oil to maximize PM, NOx, and SO 2 emissions. This would create an artificially high baseline never actually experienced by the source nor emitted to the atmosphere surrounding the facility and, in extreme cases, a baseline th at could never actually be achieved by the source. Pursuant to the 2002 Federal NSR Rule, a facility could develop a facility-wide baseline emissions profile which is not derived from a permitted operating scenario, but is based on pollutant-specific emissions achieved during different operating scenarios and different ba seline periods. In practice, the facility would not have emitted at the 24 consecutive month period high levels for all the NSR pollutants during any 24 consecutive month baseline period. More importantly, the operating permit would not have authorized such emission levels under eitheroperating scenario. With higher base line emissions during a particular 24 consecutive month period, however, a proposed project co uld avoid being subject to NSR review for thosePage 71 of 76 pollutants as a result of sele cting that baseline period. At no time would the actual em issions of the facility in any one operating scenario be honored, notwithstandi ng that the Part 201 permitting program establishes emission limits for each operati ng scenario. The result of this is the potential for a project that would otherwise be considered major, except for the artificially high baseli ne, to either “cap out” or “n et out” of NSR. In order to not exacerbate air qu ality problems in this proposal, the Department has decided that a si ngle baseline best represented the goals of the NSR progr am for the State of New York. This is important given the synergistic relationships that many air pollutants have (NO X and VOC, and to a smaller extent CO, react to form ozone, while SO 2 , NO X and VOCs react to form PM [which is also directly emitted by many sources]). The emissions from a facility underg oing an NSR major modification are re lated to each other. Only the utilization rate or type of fuel fired in a source will cause different emission prof iles (as noted in the above example). The single baseline criteri a will not be used for determining a PAL. PALs are voluntary facility limits that account for all of the emissions from every pr ocess and source at a facility. Facility wide emissions can vary based on many factors. Unre lated processes can cause a facility to emit more of one regulated NSR contaminant, in any given year, than another regulatedNSR contaminant. For ex ample, a facility that manufactures aluminum has three di stinctive processes; anode bakin g, aluminum smelting, and aluminum extruding. The facility sells and us es anodes, aluminum ingots, and fini shed aluminum parts. Although the three processes are linked, each process can be operated at a different rate depending on several outside factors. The emissions rates of SO 2 , NOx, and PM will differ each year, de pending on which proces ses are utilized more. Therefore, the Department feel s it is appropriate to allow a differe nt baseline period for each regulated NSR contaminant for which a facility is seeking a PAL.

Source Obligations Subdivision 231-3.6(c) includes a requirement that a ny owner or operator of a facility that proposes a project that involves a physical cha nge or change in the method of operation that the owner or operatorPage 72 of 76 determines would be followed by a facility emissions increase that equals or exceeds any of the significant project thresholds in Subpart 231-13, Tables 3, 4 or 6, must notify the Department in writing of the proposed project prior to implementing the change if the owner or operator determines that the project does not constitute a modification because all the emission increases are attr ibutable to independent f actors in accordance with clause 231-4.1(b)(42)(i)( b). The notification must include (1) a descri ption of the change, (2 ) the calculation of the projected emissions increase, (3) th e proposed date of the change, and (4) an explanation of the factual basis for the conclusion that none of the projected emission in creases are attributable to the proposed project. The Department believes these requireme nts are necessary to ensure account ability of the NSR applicability requirements and the Department’s goals of improving air quality. Facilities that meet this requirement will only incur the costs associated with developing information that they would have needed to generate in order to determine whether they are subject to the proposed amendments to Part 231, ther efore, there shouldbe little if any additional cost.

Reasonable Possibility for Insignificant Modifications On December 21, 2007 EPA finalized its Reasonable Po ssibility Rule which iden tifies the criteria under which an owner or operator of a major facility undergoi ng a physical change or change in the method of operation that does not trigger major NS R requirements (insignificant modificat ion) must keep records (72 Fed. Reg. 72607). Proposed Part 231 tracks these Federal requir ements with a few additional provisions. Some revisions for clarification were made to the Department’s original proposal but the substantive requirements are essentially the same. EPA has concluded that it is “v ery important that the source retain a record of all information available to support its initial claim that an emissions increase predicted to occur as a result of demand growth did not result from the physical or operational change to an emissions unit.” The Federal Reasonable Possibility Rule only re quires post-change monito ring for insignificant modifications if the projected actual emissions increase (Part 231 project emission potential) is by itself greaterPage 73 of 76 than or equal to 50 percent of the applicable signifi cance threshold. Proposed Part 231 extends the post-change monitoring requirement to also includ e any modification with a project emission potential which is less than 50 percent of the applicable significan t project threshold in Table 3, Tabl e 4 or Table 6 of Subpart 231-13, but equals or exceeds 50 percent of the applicable signifi cant project threshold when emissions excluded in accordance with clause 231-4.1(b) (42)(i)(c) (emissions from independent and unrelated factors) are added. For such modifications, facilities will be required to keep records of their calculati on of emission increases from independent and unrelated factors such as demand gr owth, monitor post-modification emissions, and submit annual reports to verify the accu racy of their calculations. Additionally, the Federal Reasonable Possibility Ru le only requires EUSGUs to notify the Department, prior to beginning actual constructio n, for any modification with a project emission potential which equals or exceeds 50 percent of the applicable significant pr oject threshold. Proposed Part 231 extends the preconstruction notification requirement to any facility that proposes a modification with a project emission potential which equals or exceeds 50 percent of the ap plicable significant project threshold or proposes a modification with a project emission pot ential which is less than 50 percent of the applicable significant project threshold in Table 3, Table 4 or Tabl e 6 of Subpart 231-13, but equals or ex ceeds 50 percent of the applicable significant project threshold when emissions excluded in accordance with Clause 231-4.1(b)(42)(i)(c) (emissions from independent and unrelated factors) are a dded. The Department believes these requirements are necessary to ensure that f acilities take into account the emissions from such projects in any future Part 231 applicability determination or net ting analysis and comply with th e proposed amendments to Part 231. Some facilities that undertake in significant modifications will only incur the costs associated with maintaining records of information that they would have needed to generate to determine whether they are subject to the proposed amendments to Part 231, theref ore, there should be little if any additional cost associated with maintaining the reco rds. Other facilities proposing an insignificant modification will be required to keep records of their calc ulation of emission increases from i ndependent and unrelat ed factors suchPage 74 of 76 as demand growth, monitor post-modifi cation emissions, and submit annual reports to verify the accuracy of their calculations. Although such facilities will incur some additional costs, the Department believes that the costs will not be significant and are necessary for account ability and enforceability, consistent with the D.C. Circuit Court’s decision in ‘New York v. EPA’, 413 F.3d. 3. While proposed Part 231 may include more specific recordkeeping and m onitoring requirements for some insignifican t modifications than under the Federal NSR Rule, as discussed above, the Department does not believe that the additional requirements are extensive or significantly more than facilitie s are currently required to mainta in under the Title V permit program.

Plantwide Applicability Limits The proposed amendments to Part 231 allow facilities to establish a PAL for an initial term not to exceed 10 years. The 2002 Federal NSR Rule also allows for the establishment of a PAL for a 10 year term. Amended Part 231, however, aligns the PAL term with the Title V permit so that the PAL expires when the renewed Title V permit which includes the PAL expires. This may cause the duration of the initial PAL term to be less than 10 years. For example, if a PAL is establ ished two years into the Title V permit term, the PAL will expire in eight years rather than 10 years. This will en able the PAL to be renewed in conjunction with the Title V permit rather than in a separate proceeding as a majo r modification to the Title V permit. The Department believes that a single permit process w ill facilitate public revi ew of the PAL and the Title V permit and also eliminate the costs associated with a separate permit application and review process. The Department has determined that additional en vironmental benefits will result from requiring a reduction in the PAL of up to 25 percent by the end of the fifth y ear of the PAL. This condition will ensure that reduced emissions will result from the implementation of each PAL . Although the Department acknowledges that fewer facilities may opt for a PAL because of the emission reduction requirement, the PALs that would not go forward because of the reduction requirement are necessarily those PALs that would not result in substantial emission reductions. Because the PAL provision is volunta ry, limiting its availability to those facilities thatPage 75 of 76 commit to reduce emissions will not impose any additional costs or burdens on regulated industry, compared to the Federal PAL provision. The Department considered three alternatives. Fi rst, based on comments from industry representatives in the working group that it is unlikely that many facilities will seek a PAL, the Department considered dropping the PAL provision entirely. Th e Department, however, determined th at even if that prediction is correct and the number of sources that select a PAL is limited, the alternative selected will provide benefits to both the environment and the facility in those few instances in which a PAL is put in place. Second, the Department considered implementing th e Federal PAL provision, as initially proposed. The Department recognizes that a source operating under a PAL is free to undertake plant changes that might otherwise trigger NSR emission reduction requirements. Therefore, the implementati on of a PAL can have the effect of allowing a facility to avoid the imposition of controls that would result in reduced emissions. Requiring a reduction in the PAL level ensures that environmental benefits will be achieved by the implementation of the PAL. Third, in determining how to structure a PAL that requires a reduction in emissions, the Department considered requiring that the PAL mandate the actual impl ementation of BACT or LAERat the facility within five years of the commencement of the PAL. The Depart ment determined that such an approach would likely limit the usage of PALs to those instances in which a fa cility is already fully controlled to BACT or LAER levels. Therefore, no additional environmental benefit would result from such an approach. Therefore, the Department determined that the PAL provision adopted best balances the goals of improving air quality while reducing the burden of NSR compliance on industry.

EPA May 1, 2007 Final Rules 40 CFR Parts 51, 52, 70, and 71 On May 1, 2007 EPA promulgated final rule revisi ons to 40 CFR Parts 51, 52, 70, and 71 Prevention of Significant Deterioration, Nonattainme nt New Source Review, and Title V: Treatment of Certain EthanolPage 76 of 76 Production Facilities Under the ‘‘Major Emitting Facility’’ definition; Final Rule – with an effective date of July 2, 2007. To remain consistent with this rulemaking, the Department proposes to modify the definition of “Major stationary source or major source or major f acility” under Part 201, and Table 9 – Source Category List under Subpart 231-13 to exclude ethanol production facilities that produ ce ethanol by natural fermentation (included in NAICS codes 325193 or 312140) from chemical process plants.

10. COMPLIANCE SCHEDULE The proposed amendments do not involve the establishment of an y compliance schedules. The regulation will take effect 30 days af ter publication in the State Register, anticipated to be in late 2008. The regulation has specified “on or after the effective date of this Subpart” as the applic ability date, associated with the submission of a complete application. Current permit renewal schedules for regulated industries will continue and provisions of this regulation will be incorporat ed at the time of permit re newal. Modifications will continue to be addressed upon applicat ion by the facility and subsequent review by the Department of such application.