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# OAR Box 1778 Prepped byOllie Stewart



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# 220 ) ll-G- 1

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# u i T < \ TESTIMON

YO F RICHARD SCHMALENSE E MEMBER , COUNCI L O P ECONOMI C ADVISER S

O N v 8 . 186 8



# u« % NATURA

L GAS CO-FIRIN

GPROMOTIO

N AC T OF 198 9 

## V\ V\- \VV - BEFORE TH E SUBCOMMITTE E O

N ENERG YRESEARCHANDDEVELOPMENT .COMMITTE E O

N ENERG YAN DNATURA

L RESOURCE S 1 UNITED8TATE S 8ENAT E

May8 , 199 0

I a mver yplease d t o b e give n thi s opportunit yt o discus s wit hyo u th e comple xse t o f issue s tha t hav e com e t o b e referre d t o a s WEPCO
. I wil l limi t th e scop e o f m yremark s i n tw o ways . First , a s I a

mno t a lawye r and clai m n o expertis e whateve r i n environmenta l law , I wil l no t pretend t o offe r myow n lega l opinion s o r t o predic t futur e judicia l decisions

. Second , a s th e electri c utilit yindustryi s th e focu s o f mos t discussion s regarding WEPC O —and o f virtuall yal l discussion s regardin g WEPCO' s interactio n wit hth e variou s Clea n Ai r bill s —I wil l limi t m yremark s t o tha t industry

. Mr
. Chairman , yo u pose d tw o specifi c question s i n you r letter

. First , yo u requeste d testimon yo n regulator yimpediment s t o marke t penetratio n o f repowerin g and retrofi t technologie s stemming fromEPA' s so-calle d "WEPCO " policy

. Second yo u aske d fo r a discussio n o f whethe r o r no t th e WEPC O issu e wa s addresse d adequatel yi n th e Clea n Ai r Ac t amendment s a s recentl ypasse d i n th e Senat e and a s currentl ypendin g i n th e House
. I n regar d t o th e firs t question , i t i s extremel ydifficul t t o separat e th e incrementa l effec t o f "EPA' s so-calle d 'WEPCO 1 policy " from

othe r influence s o n th e marke t penetratio n o f repowering an

d retrofi t technologies

. Anecdota l evidenc e an d commo n sens e bot hsugges t tha t th e modificatio n rul e a s currentl y applie d b

yEPA , ha s b

yitsel f probabl yha d som e discouragin g effec t o n th e marke t penetratio n o f repowerin g and retrofi t technologies

. I t i s importan t t o recogniz e tha t pollutio n contro l retrofit s o r othe r modification s whic hcaus e emission s o f all , pollutant s t o decreas e a t th e sourc e bein g retrofitte d wil l no t trigge r a ne wsourc e review

. Th e mai n controvers yi n WEPC O revolve s around th e wayi n whic hth e befor e and afte r emission s being compare d i n applying th e increas e tes t ar e calculated

. A s t o th e second question , adequac yi s inevitabl yi n th e ey e o f the beholder , an d th e propose d Clea n Ai r Ac t amendment s (an d certai n administrativ e development s tha t I s-hal l discuss ) d o mov e i n th e righ t directio n especiall ywit hrespec t t o clea n coa l technology

. Afte r a carefu l loo k a t th e matter , th eP. 3

Administratio n ha s formulate d a se t o f principle s tha t i t believe s provid e th e foundatio n fo r a legislativ e approac ht o WEPC O tha t wil l protec t loca l ai r qualit yvalue s and als o significantl yreduc e uncertaint yaffectin g investmen t decision s i n th e utilit yindustry

. Thes e principle s ar e outline d a t th e end o f m

ytestimony

.

Basi c Issue s and Problem s Environmenta l polic yha s historicall yimpose d mor e stringen t obligation s o n ne wfacilitie s tha n o n ol d facilities

. Th e mai n substantiv e rational e fo r thi s distinctio n i s tha t i t i s ofte n mor e expensiv e t o retrofi t existin g plant s t o reduc e emission s t o som e leve l tha n t o incorporat e control s int o th e desig n o f ne wplant s t o attai n tha t sam e level

. Th e distinctio n betwee n newand existin g facilitie s mayals o b e attractiv e becaus e th e interest s o f existin g facilitie s ar e mor e vigorousl y defende d than th e interest s o f thos e tha t d o no t ye t exis t whe n a regulatoryprogrami s established

. Fo r whateve r reaso n i t i s introduced , th e distinctio n betwee n newan

d ol d plant s maycreat e strong incentive s t o prolon g th e live s o f ol d plant s i n orde r t o avoi d toughe r new plan t standards

. Th e WEPC O issue , i n it s presen t form , basicall y reflect s th e difficult yo f usin g furthe r regulatio n t o counterac t thi s incentive

. specifically , i n a regim e wher e existin g facilitie s receiv e mor e favorabl e treatmen t tha n ne wones , i t become s necessar yt o decid e whe n change s t o a n existing sourc e mak e i t int o a new sourc e fo r regulatorypurposes . I t i s eas yt o agre e tha t replacemen t o f everythin g bu t a plant' s oute r shel l shoul d trigge r newsourc e requirements

. I t i s als o eas yt o agre e tha t routin e maintenance , o f th e sor t tha t i s regularl ydon e on specifi c plants , i s no t capitalized , an d ha s n o effec t o n emissions , ough t po t t o d o this , i t is , however , extraordinaril y difficul t t o ge t eve n reasonable , well-informe d peopl e t o agre e o n wher e th e lin e shoul d b e drawn betwee n thes e extremes
. I n recen t years , industryplan s t o rehabilitat e existin g unit s rathe r tha n t o buil d ne wone s ha s focuse d increase d attentio n o n thi s issue , an

d EP Aenforcemen t policie s and cour t decision s i n WEPC O an

d relate d case s hav e no t resolve d importan t uncertaintie s regarding bot hth e presen t locatio n o f th e lin e and wher e i t shoul d be draw

n i n th e future

. I n the abstrac t a t least , th e bes t wayt o dea l wit hth e incentive problempose d b yth e distinctio n betwee n ne wan d ol d source s i s t o shif t from source-specifi c contro l requirement s t o area-wid e emission s ceiling s —bu t onl ywhere - thi s ca n b e withou t compromising local , ai r qualit yvalues

. EPA' s bubble s an d offset s program s ar e move s i n thi s direction

. Th e Presiden tP. 4

propose d a significan t furthe r mov e i n thi s direction : amendment s t o th e Clea n Ai r Ac t t o dea l wit hsulfu r dioxid e emissions , whichcaus e aci drain , b y a syste mo f tradabl e allowance s coupledwit ha nationwide caponthos e emissions . W e are gratifiedtha t thi s approachha s beenretainedi nthe Senat e bil l and , w e understand , i nthe bil l orderedt o b e reportedb y the Hous e Energ

y an dCommerc e Committee . A nimportan t reasonfor the attractivenes s o f thi s approachi s it s abilit y t o dea l wit h the environmenta l problems posedb y very ol dplant s wit hhig h emission s i na fai r an dcost-effective manner . However , i t mus t b e recognizedtha t the adoptiono f thi s flexible , cost-minimizing approacht o aci drai ncontro l add s a ne w dimensiont o th e WEPCO issue . Tha t is , ther e i s a tensionbetweenthe longstandin g source by-sourc e approacht o loca l ai r guality problems unde r th e existin g cleanAi r Ac t an dthe flexibl e approacht o sulfur dioxide contro l at the regiona l an dnationa l leve l inthe Senat e an dHous e committe e bills . Unde r the latte r approach , electri c utilitie s ar e free t o reduc e emission s an y way the y can— b y fuel-switching , scrubbing , changin g dispatchorderings , encouraging conservation , o r doin g othe r thing s nobod y ha s ye t thought of . The

y are evenfree t o increas e emission s fro m som e plants , a s lon

g a s the

y remai nwithi nthe limit s o f an y applicabl e Stat e Implementatio nPlan(SIP ) an

dpurchas e allowance s fro

m other s who have decreasedemission s belo w level s the y woul dotherwis e b e requiredt o reach . The tensionarise s inpar t becaus e cos t minimization require s tha t utilitie s be free t o reallocat e thei r generation load s a s par t o f thei r complianc e strategies , bu t thos e reallocation s ma

y als o reallocat e emission s among generating units . Bu t action s aimeda t reducin g sulfur dioxid e emissions , sucha s a chang e i nfuel s or th

e installationo f pollution contro l equipment , tha t require modification s t o generating unit s ma y trigge r ne

w sourc e revie

w dependin

g o nth e wa

y inwhich "before " an

d"after " emission s usedi napplying the ne t increas e tes t ar e calculated . The modificationrul e may b e triggeredeven i f the "after " emissionleve l doe s no t violat e an y ai r quality standard s a t the loca l level .
WEPCO-RelatedUncertaintie s The CleanAi r Ac t specifie s tha t modification s t o an existing sourc e tha t increas e source-specifi c emission s o f an y regulate d pollutant s tha t affec t loca l ai r qualit ymus t g o throughne wsourc e revie w—eve n i f th e modificatio n decrease s on e o r mor e othe r pollutants

. Ne w sourc e revie wha s tw o components
. Th e Preventio n o f Significan t Deterioratio n (PSD ) programlimit s ai r qualit ydeterioratio n fromne wo r modifie d source s sitin g i n alread yclean areas ; an

d th e non-attainmen tP. 5

provision s expedit e attainmen t i n area s tha t violat e on e o r mor e o f th e Nationa l Ambient Ai r Qualit yStandard s (NAAQS)

. "Modification " i s definedi nth e Ac t a s "an

y physica l change in , or chang e i nthe metho do f operatio

no f a stationary

sourc e whichincrease s the amount o f an y ai r pollutan t emittedb y suc h sourc e or whic hresult s inthe emissio no f an y ai r pollutan t no t previousl y

emitted. " B

y regulation , EP

A ha s define d"routine maintenance , repair , an dreplacement " a s no t constituting a "modification. " Fo r NSP S purposes , change s tha t d o no t increas e hourl y emission s rate s ar e no t "modifications, " whil e for PS Dan d N A purposes , change s tha t do no t increas e tota l annua l emission s are no t "modifications. " Th e WEPC Ocas e an

drelate

ddevelopment s hav e focused attentio

no na t leas t thre e set s o f concern s regarding future EP A actions . First , ther e i s concer ntha t the "increase " tes t fo r PSD/N A revie w woul dtrigge r reviews for an y physica l o r operationa l change s tha t woul dprovide a direc t economi c incentiv

e t o increas e capacity utilization , eve ni f hourl y emission s rate s wer e reduce da t the affecteduni t an dtota l emission s o f al l pollutant s wer e reduce donc e utilizationchange s a t othe r electri c utility unit s wer e take

nint o account . Second , there i s uncertainty regardin

g whe n actua l emission s wil l b e used , whenpotentia l emission s wil l be used , an dwhe ndifference s betweenpas t actua l emission s an dfuture potentia l emission s wil l be use dfor triggerin

g ne w sourc e reviews . Thi s i s compoundedb y uncertainty

regarding th

e importanc e of the WEPC Ocourt' s distinctionbetween"like-kin dreplacements " an dothe r changes . Third , considerabl e uncertainty attache s t o EPA' s futur e definition s o f "routine maintenance " an do f "actual " an

d "potential " emissions .

Impediment s to Marke t Penetration Senato r Ford' s letter o f invitatio nrequeste dtestimon y regardin

g "regulator

y impediment s t o marke t penetrationo f repowerin

g technologie s an

dretrofi t technologies , sucha s natura l ga s co-firing , stemmin g fro m EPA' s so-calle d'WEPCO ' policy. " Th e January 198 9 repor t o f th e Innovative Contro l Technolog

y Advisor

y Boar dt o th e Secretar

y o f Energ

y identifie s thre e categorie s o f impediments : economi c problems , referring t o capita l cos t risk , an dperformanc e an

doperating cos t risk ; problem s i n PU

C regulation , referring t o electricit yrat e regulatoryris k an d th e siting an

d approva l process ; an d problem s wit henvironmenta l regulation , referring t o environmenta l complianc e risk , environmenta l permitting and regulator ydelays , an d regulatoryinflexibility

. Th e ICTA D studydoe s no t provid e a basi s fo r quantifyin g thes e differen t effects ^ and I a meve n uncertai n ho wan

ysuchstud

ymigh t b e structure d s o a s t oP. 6

disentangl e th e multipl e force s influencing th e marke t penetratio n o f thes e technologies

. DOE * is , o f course , i n contac t wit hutilitie s selecte d a s hos t site s fo r CC T demonstrations

. The yhav e indicate d tha t approximatel yone-hal f o f thes e utilitie s hav e expresse d moderat e o r strong concern s regarding th e WEPC O policy

. Onl yon e projec t ha s cite d WEPC O a s a majo r facto r i n withdrawin g fro mth e demonstratio n program . On e othe r projec t wa s significantl y delaye d b

yWEPC O concerns . T o thi s purel yanecdota l evidence , I ca n add a fe wqualitativ e observations

. I t mus t b e recognize d tha t becaus e th e regulator y distinctio n betwee n ne wan d ol d plant s provide s incentive s t o prolon g th e lif e o f ol d plants , i t tend s t o som e exten t t o promot e th e adoptio n o f thes e technologies

. Becaus e thi s distinctio n make s i t necessaryt o decid e tha t som e change s i n ol d plant s mak e the m

int o ne wplants , however , i t make s som e countervailin g impediment s t o th e penetratio n o f thes e technologie s necessary . Myimpressio n i s tha t eve n befor e th e WEPC O decision , th e ne t effec t wa s t o slo wth e penetratio n o f thes e technologie s somewhat , but , a s note d above , conclusiv e evidenc e i s lacking

. I t i s correspondingl ymor e difficul t t o determin e th e incrementa l effec t o f "EPA' s so-calle d 'WEPCO * policy " o n th e marke t penetratio n o f thes e technologies

. Certainl yth e installatio n o f eithe r repowering o r retrofi t technologie s i s likel yt o b e considere d "nonroutine " unde r tha t policy

. And i t i s m yimpressio n tha t th e uncertaintie s discusse d abov e hav e le d t o fear s tha t us e o f thes e technologie s woul d lea d t o failur e o f th e "increase " tes t fo r PSD/N Areview , particularl yi f repowering o r retrofitting woul d lead t o increase s i n capacit yutilization

. I t i s importan t t o not e tha t suc hincrease s ar e likel yt o b e commo n i n thi s context : modification s tha t increas e th e efficienc yo f a n ol d uni t generall ymak e i t efficien t and economica l t o increas e utilization

. Th e aci d rai n programwil l increas e th e frequenc yo f thi s pattern , sinc e change s t o a uni t tha t reduc e it s sulfu r dioxid e emission s rat e o r tha t ar e naturall yaccompanie d b yothe r change s tha t hav e thi s effec t generall yprovid e additiona l incentive s t o us e tha t uni t mor e intensivel yand t o reduc e generatio n elsewhere

. I t i s thu s har d t o escap e th e conclusio n tha t curren t law , a s recentl yinterpreted , ha s b yitsel f ha d some discouragin g effec t o n th e marke t penetratio n o f repowering and retrofi t technologies

. Th e availabl e evidenc e doe s no t allo wu s t o determin e whethe r tha t effec t i s larg e o r small

. And i t i s importan t t o conside r legislativ e proposal s t o revers e o r eliminat e tha t effec t i n ligh t o f recen t administrativ e developments

.P. 7

Recen t Development s Senato r Ford' s lette r o f invitatio n request s a discussio n o t "whethe r o r no t th e WEPC O issu e wa s addresse d adequatel yi n th e i Clea n Ai r Ac t Amendment s a s recentl ypasse d b yth e Senate , and a s | currentl ypendin g i n th e Hous e o f Representatives. " I woul d lik e | t o begi n m

yrespons e wit ha broade r discussio n o f EPA' s applicatio n o f th e modificatio n rul e t o th e electri c utilit y sector
. Th e applicatio n o f th e modificatio n rul e t o refurbishment s clearl yha s ver ysignifican t cos t implication s fo r th e electri c utilit ysector
. Fo r som e facilities , exposur e t o th e modificatio n rul e wil l significantl yalte r decision s regardin g th e timing o f refurbishmen t o r maintenance

. I n som e cases , a decisio n mayb e mad e t o op t fo r earl yretiremen t instea d o f a refurbishmen t plan

. Man yo f th e cost s associate d wit hth e applicatio n o f ne wsourc e revie wt o modification s a t existin g unit s ar e largel yindependen t o f th e enactmen t o f th e ne waci d rai n progra

m - - a fac t whic hdoe s no t mak e themanyles s importan t fromth e perspectiv e o f th e utilitie s tha t ar e significantl yaffecte d b ybot hprograms . EPAbelieve s tha t project s a s extensiv e and nonroutin e a s th e WEPC O Por t Washingto n projec t wil l b e th e exceptio n rathe r tha n th e rule

. T o date , WEPC O i s on e o f th e onl yutilit yplant s t o trigge r th e modificatio n provision s a t existin g unit s unde r ne wsourc e revie wprovisions

. However , give n th e forecaste d relianc e o n refurbishmen t i n th e electri c utilit ysecto r i t woul d b e difficul t t o argu e tha t n o mor e WEPCO s ar e i n store
. I t mus t b e note d tha t complianc e action s take n i n respons e t o th e aci d rai n program coul d increas e th e numbe r o f existin g facilitie s facing ne wsourc e reviewa s compare d t o a "busines s a s usual " scenario

. Consideratio n o f thi s effec t woul d probabl y dissuad e utilitie s fromengaging i n some project s identifie d a s par t o f th e lo wcos t complianc e strateg ythat , fo r purpose s o f Administratio n cos t estimate s wa s base d o n a n assumptio n tha t concern s ove r ne wsourc e revie whad n o rol e i n complianc e decisions

. Conversely , complianc e wit hth e aci d depositio n contro l programcoul d rais e th e cost s o f th e ne wsourc e revie w progra mi f i t increase s th e numbe r o f facilitie s subjec t t o th e modificatio n rule

. Th e interactio n betwee n thes e program s suggest s th e nee d t o revisi t the forme r whil e enactin g th e latter

. A s I understand it , th e cour t decisio n i n WEPC O gav e EPAth e authorit yt o continu e it s recen t enforcemen t policie s (wit hth e exceptio n tha t th e so-calle d "actual-to-potential " standar d fo r PS D purpose s wa s rule d invali d fo r a t leas t some changes ) , bu t di d no t compe l i t t o d o so . Thu s EP Ai s fre e t o retur n t o th eP. 8

enforcemen t polic y(or , mor e precisely , th e operationa l definitio n o f "modification" ) tha t prevaile d unti l th e las t few years . Moreover , muc ho f th e concer n i n thi s are a stem s from uncertaint yregardin g EPA' s futur e policies , uncertaint ytha t ha s le d some t o expres s fear s tha t implausibl ystric t policie s coul d b e adopted

. Withou t ne wlegislation , administrativ e actio n by EP Aca n hel p t o resolv e thi s uncertainty

. Suc hactio n i s o f cours e subjec t t o th e vagarie s o f judicia l revie wand futur e administrativ e decisions

. I n th e limite d tim e tha t ha s elapse d sinc e th e WEPC O decisio n wa s hande d down o n January19 , EP Aha s move d t o clarif y it s policies

. EP Aha s sough t t o reduc e uncertaintie s surroundin g it s positio n wit hrespec t t o clea n coa l technologyand othe r utilit yproject s tha t coul d b e affecte d b yit s NSP S and Ne w Sourc e Revie wpolicies

. T o date , EPAha s issue d severa l research-relate d "nonaction " assurance s t o temporar yCC T project s t o preven t ne wsourc e review s frombeing triggere d whe n CC T equipmen t i s remove d a t th e en d o f th e project

. Suc hassurance s ar e not , however , a panacea : theyca n leav e recipient s i n technica l violatio n o f th e Clea n Ai r Ac t an d subjec t t o citize n suits

. DO E report s tha t som e project s hav e rejecte d th e offe r o f a forma l no-actio n assuranc e i n orde r t o maintai n a lowe r profil e regarding suc htechnica l violations

. Mos t recently , EP Asen t a lette r t o th e Indian a Departmen t o f Environmenta l Managemen t stating tha t EPA' s interpretatio n o f curren t rule s woul d exemp t th e NIPSCO-Baile yCC T projec t fromne w sourc e reguirements

. Thi s lette r i s intende d t o clarif yEPA' s positio n tha t i f a sourc e solel yadd s o r enhance s system s o r device s whos e primaryfunction s ar e th e reductio n o f ai r pollution , and tha t ar e determine d (b yth e Administrator ) t o b e no t les s environmentall ybeneficia l tha n an yemissio n contro l systemo r devic e i t replaces , i f any , suc hactivitie s woul d no t constitut e a physica l o r operationa l chang e triggerin g ne wsourc e review

. Th e lette r state s tha t a forthcoming interpretativ e Ruling no wunde r revie wa t EP Awoul d appl ythi s polic yt o bot h temporaryand permanen t project s unde r th e CC T program . Whil e EP Awil l continu e t o mov e administratively , legislativ e actio n i s als o unde r consideration

. Le t m e now , a s yo u requested , tur n t o th e Senat e and Hous e Committe e bills

. A s passed , th e Senat e bil l contain s n o broa d o r generi c "WEPC O provision, " bu t i t doe s dea l explicitl ywit h commercia l repowerina , wit hclea n coa l technology(CCT ) demonstratio n projects , and wit hcertai n othe r projects

. Sectio n 409(d ) exempt s repowcre d unit s qualifyin g fo r a complianc e dat e extensio n fromNSP S i f ther e i s n o increas e i n hourl yemission s o f an ypollutan t regulate d uude r th e Clea n Ai r Act ; i t doe s no t dea l wit hPS D o r N Areviews

. Sectio n 415(e)(2 ) exempt s temporaryCC T demonstratio n project s fro mNSPS , PS D an

dP. 9

N Aprovisions

. Sectio n 415(e)(3 ) provide s exemption s fo r permanen t CC T demonstratio n project s an d certai n othe r project s fro mPS D an

d N Arevie wunde r certai n condition s bu t doe s no t address.-NSP S review

. Repowerin g project s ar e exemp t fromPS D and N Arevie wi f potentia l emission s d o no t increase

. Retrofi t project s (e.g. , scrubbers) , othe r pollutio n contro l projects , and ga s conversio n project s ar e exemp t i f ther e i s n o significan t increas e i n actua l emission s o f an ypollutan t regulate d unde r th e Act^wit ha rebuttabl e presumption"tha t th e projec t wil l no t increas e th e unit' s capacit yfactor

. Som e hav e suggeste d tha t thi s presumptio n mayb e easil yrebutte d b yeithe r th e utility' s ow n announce d plan s fo r complianc e wit hth e aci d rai n programo r b yconsideratio n o f th e likel yimpac t o f a projec t o n utilit y dispatc hplans

. (Fue l switchin g i s characterize d a s a retrofi t i f physica l change s ar e necessaryt o accommodat e th e ne wfuel. ) Finally , le t m e commen t briefl yo n th e Hous e Committe e bill

. I mus t not e a t th e outse t tha t definitiv e copie s o f th e Hous e bil l wer e no t availabl e a s thi s testimon ywa s prepare d s o tha t ther e i s som e chanc e tha t I wil l mis-characteriz e it s provision s an d thei r likel yeffects

. A s 1 understand it , th e Hous e Committe e bil l no wcontain s tw o broad , generi c "WEPC O provisions" : Section s 512(b ) and 707

. Ther e i s som e tensio n betwee n them , an

d I a mtol d tha t thei r ne t impac t i s difficul t t o determine

. Sectio n 508(c ) o f th e Hous e bil l exempt s repowere d unit s qualifying fo r a complianc e dat e extensio n from NSP S review

. Suc hunit s ar e als o exemp t fro mPS D an

d N Aprovision s i f potentia l emission s afte r th e change , assumin g a 7 0 percen t capacit yfactor , d o no t excee d actua l emission s befor e th e change

. Sinc e repowering ofte n follow s a perio d o f lo wcapacit y utilization , w e expec t thi s exemptio n t o appl yonl ywhe n significan t investment s i n pollutio n contro l ar e mad e alon g wit h

. repowering

. Sectio n 515(b ) o f th e Hous e bil l exempt s temporary CC T demonstratio n project s fro mNSPS , PSD , and N Aprovisions

. Permanen t CC T demonstratio n project s a^r e exempte d b

ySectio n 515(c ) fromthes e sam e provision s onl yi f thos e project s pas s th e same "curren t actua l t o potentia l emission s a t 7 0 percen t utilization " tes t tha t woul d b e applie d t o commercia l repowerin g projects

. Sinc e mos t powe r plant s operat e a t les s tha n 7 0 percen t utilization , thi s provisio n woul d onl ypartl ymee t WEPCO

relate d concern s a t mos t permanen t demonstratio n projects

.

Nex t step s Al l o f thi s discussio n point s t o tw o keyquestions

. Th e firs t i s whethe r th e foregoing development s constitut e an "adequate " respons e t o th e WEPC O issue

. Adequac yi s inevitabl y in th e ey e o f th e beholder , an d th e administrativ e an d legislativ e development s outline d abov e d o mov e i n th e righ tP.1 0

direction , particularl ya s regard s temporaryCC T demonstratio n projects

. Moreover , a goo d cas e ca n b e mad e fo r relianc e o n Administrato r Reilly' s goo d sens e t o maintai n a soun d approac ht o administratio n o f th e ne wsourc e revie wprovision s o f th e nonattainmen t and Preventio n o f significan t Deterioratio n program s i n th e future

. Nonetheless , th e Administration' s positio n i s that , particularl yi n ligh t o f th e specia l burden s place d o n th e electri c utilit yindustry' s coa l fire d boiler s t o contro l aci d rai n an d th e importanc e o f flexibilit yt o tha t program , a broad , clear , generi c provisio n t o dea l wit hthi s issu e shoul d b e include d i n th e fina l Clea n Ai r bill

. Difference s i n interpretatio n among a numbe r o f cour t decisions , uncertaintie s a s t o ho wdifferen t decision s wil l b e reconciled , th e recen t controvers ysurrounding th e applicatio n o f ne wsourc e revie wt o modification s o f existing utilit yplants , th e vagarie s o f judicia l revie wo f EP Aactions , and th e long ter mimplication s o f thi s polic yal l poin t t o th e conclusio n tha t a clea r statemen t i n la wwoul d constitut e th e mos t effectiv e approac ht o resolving th e ne wsourc e revie wissu e a s i t applie s t o electri c utilities

. Th e second questio n follow s immediately : wha t sor t o f broad , generi c legislatio n woul d th e Administratio n recommend ? Le t m e begi n t o addres s thi s questio n bymakin g i t clea r tha t th e Administratio n view s th e aci d rai n programi s a supplemen t to , and no t a substitut e for , existin g Clea n Ai r protections

. I n particular , loca l ai r qualit yvalues , measure d b yattainmen t o f th e nationa l ambien t ai r qualit ystandard s or , i n clea n areas , b y th e preventio n o f an ysignifican t deterioratio n i n ai r quality , shoul d no t b e compromised

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w e do , however , recogniz e tha t th e aci d rai n programwil l interac t wit hpreviousl yexistin g program s i n severa l importan t ways . Utilitie s wil l b e reconfigurin g thei r facilitie s an d dispatc hplan s t o achiev e th e ambitiou s sulfu r dioxid e reduction s specifie d i n th e aci d rai n program . Th e step s take n t o mee t ou r ambitiou s sulfu r dioxid e reductio n goal s ma ygreatl yincreas e th e numbe r o f existing facilitie s facing NSP S and/o r PS D issue s ove r th e nex t 1 0 years , a s compare d t o a "busines s a s usua l scenario"

. I n addition , th e aci d rai n contro l programimpose s a nationa l ceiling o n sulfu r dioxid e emissions , an d a nationa l standar d fo r technolog

yo n existing utilit yburner s t o reduc e nitroge n oxid e emissions

. Taking accoun t o f th e nee d t o protec t loca l ai r qualit y whil e a t th e same time facilitatin g th e ambitiou s emission s reduction s require d unde r th e aci d rai n programs , th e Administratio n support s a broad , generi c legislativ e resolutio n tha t ha s seve n basi c elements

. —P.1 1

1 0 (1 ) Th e distinctio n betwee n routin e an d nonroutin e physica l an d operationa l change s t o electri c utilit ystea melectri c generatin g unit s shoul d b e retained

. A s unde r curren t law , routine^repai r an d replacemen t a s wel l a s increase d utilizatio n o f existin g source s tha t i s no t accompanie d b yphysica l o r operationa l change s woul d no t b e considere d a "modification " an d woul d thu s no t trigge r ne wsourc e review

. Fo r example , periodi c replacemen t o f coal-handlin g equipment , boile r tubes , an d turbin e blade s i s typicall yconsidere d routine , whil e replacemen t o f stea m an d generatin g turbine s i s not
. T o reduc e uncertainty , EP A shoul d b e instructe d t o issue , withi n 1 8 month s o f th e dat e o f enactment , guidanc e fo r us e b ypermittin g authoritie s i n determinin g criteri a unde r whic hrefurbishmen t project s woul d b e considere d routin e o r nonroutine

. (2 ) Loca l ai r qualit yvalue s shoul d continu e t o b e protected

. Thus , i n non-attainmen t areas , al l nonroutin e physica l o r operationa l changes , includin g pollutio n contro l projects , tha t resul t i n a ne t increas e i n th e maximu mhourl y emissio n rat e o f an ypollutan t woul d b e subjec t t o th e revie wan d permittin g requirement s o f par t D o f Titl e I
. I n addition , par t D revie wan d permittin g requirement s woul d als o b e triggere d b y an ynonroutin e physica l o r operationa l change , includin g pollutio n contro l projects , tha t resulte d i n a ne t increas e o f pollutant s i n a non-attainmen t are a tha t woul d exacerbat e th e exceedenc e o f ai r qualit ystandards

. Th e ne t increas e determinatio n woul d b e base d o n a compariso n o f befor e an d afte r emission s acros s representativ e periods

. PS D increment s o r visibilit yprotectio n limitation s promulgate d pursuan t t o Par t C mus t als o b e protected

. Project s tha t di d no t increas e th e hourl yemissio n rat e o f an ypollutan t use d i n establishin g th e applicabl e PS D baselin e level s fo r th e sourc e (or , fo r thos e source s permitte d afte r th e establishmen t o f th e PS D program , th e hourl yemissio n rat e specifie d i n th e PS D permittin g process ) woul d b e considere d t o fal l withi n short-ter m PS D limit s withou t an yfurthe r showing , sinc e th e short-ter mPS D baselin e and/o r incremen t consumptio n woul d hav e bee n calculate d usin g tha t hourl yrate
. Fo r simila r reasons , a projec t tha t di d no t increas e annua l emission s o f a sourc e abov e th e level s use d i n establishin g th e baselin e o r i n determinin g incremen t consumptio n woul d b e considere d t o mee t annua l PS D requirement s fo r tha t sourc e withou t an yfurthe r showing

. (3 ) A s i n th e Senat e an d Hous e Committe e bills , temporar y CC T proiect s shoul d b e exempte d fro mNSPS , PSD , an d NArevie w provisions

. Failur e t o maintai n thi s exemptio n woul d rais e significan t an d unwarrante d obstacle s t o th e developmen t o f thi s importan t technology

. (4 ) I n considerin g al l othe r nonroutin e changes , w e woul d distinguis hbetwee n "utilit ypollutio n contro l projects " an dP.1 2

1 1 othe r nonroutin e change s an d appl ydifferen t test s t o each

. An y nonroutin e physica l chang e in , o r chang e i n th e metho d o f operatio n of , a n existing stea melectri c utilit ygeneratin g uni t fo r purpose s o f reducing emission s a t tha t uni t i n orde r t o compl ywit hth e aci d rai n titl e o f th e Clea n Ai r Ac t shoul d constrcuEs-u

_ io r pre ^ ~ purposes , a utilit yoollJLtiP_n L contro l proiect s Thi s woul d include , among othe r changes , ga s cofiring

. Thi s basi c inten t standar d shoul d b e applie d t o a se t o f contemporaneou s changes , rathe r tha n separatel yt o each

. whe n a plan t i s idle d t o permi t physica l change s aime d a t reductio n o f emission s o f sulfu r dioxid e o r nitroge n oxides , i t i s ofte n economica l t o mak e othe r change s a s well

. T o reduc e uncertaint yregardin g th e applicabilit yo f ne wsourc e revie w requirement s t o suc hundertakings , w e woul d specif ytha t contemporaneou s physica l o r operationa l change s shal l b e deeme d t o b e par t o f th e utilit ypollutio n contro l projec t i f thei r valu e doe s no t excee d 2 0 percen t o f th e tota l projec t value

. However , unit s seeking t o tak e advantag e o f thi s provisio n woul d b e require d t o mee t th e NO xreductio n limit s require d byth e applicabl e fina l rule , i f any , issue d unde r Sectio n 407(b ) a s a par t o f th e tota l project

. (5 ) Utilit ypollutio n contro l project s woul d b e evaluate d i n term s o f thei r impact s o n maximu mhourl yemissio n rates , following curren t polic ytowar d NSP S reviews

. Thu s a utilit y pollutio n contro l projec t tha t doe s no t increas e maximumhourl y emission s o f an

ycriteri a ai r pollutan t compare d t o a representativ e perio d prio r t o th e projec t shoul d no t b e deeme d t o b e a majo r modificatio n subjec t t o th e revie wand permittin g requirement s o f par t C o f Titl e I
. (6 ) Nonroutin e physica l o r operationa l change s a t existing stea melectri c generating unit s othe r tha n utilit ypollutio n contro l project s shoul d no t b e deeme d t o b e majo r modification s subjec t t o th e revie wan d permitting requirement s o f par t C an d D o f Titl e I unles s the yresul t i n a ne t increas e i n annua l emissions

. State s woul d b e give n th e optio n t o allo wutilitie s t o reduc e cost s b

yemploying comparison s o f actua l emission s involving multipl e sources . I n case s i n whic ha utilit y operatin g compan

yplan s t o shif t generatio n fromothe r owne d unit s t o unit s affecte d b yth e nonroutin e physica l o r operational , chang e and EP Ai s th e permitting authority , th e operatin g compan y may , fo r purpose s o f thi s section , elec t t o calculat e it s actua l emission s o n a statewid e basis

. An yStat e permittin g authorit y mayallo wactua l emission s i n bot hrepresentativ e period s t o b e (i ) tota l operatin g compan yemission s withi n th e State , (ii ) wit h th e agreemen t o f th e owner s o f al l othe r steam electri c generatin g unit s withi n th e State , tota l emission s withi n th e state , o r (iii ) wit hth e agreemen t o f an yothe r State s i n whic h th e operatin g compan yown s stea

melectri c generatin g units , tota l operatin g compan

yentissions

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Th e calculatio n o f th e chang e i n emission s fo r al l project s othe r tha n pollutio n contro l project s shoul d b e base d o n annua l emission s during representativ e period s befor e an d afte r th e propose d modification

. Becaus e emission s increase s i n nonattainmen t area s ar e rule d ou t byth e nee d t o protec t loca l ai r guality , th e sam e typ e o f compariso n woul d appl yt o utilit y pollutio n contro l project s i n thos e area s t o anyemission s o f pollutant s tha t woul d exacerbat e th e exceedenc e o f ai r qualit y standards

. (7 ) Finally , i n case s wher e a ne wsourc e revie wi s triggered , w e believ e th e Bes t Availabl e Contro l Technology (BACT ) standar d fo r nitroge n oxide s (NOx ) fo r existin g coal-fire d boiler s shoul d b e th e standar d se t fort hi n sectio n 40 7 i n th e Senat e bill

. Tha t is , fo r physica l o r operationa l change s a t a n existin g steamelectri c utilit yuni t tha t requir e permit s unde r Section s 16 5 o r 173 , BAC T fo r NO xshoul d b e se t a t th e level s require d unde r sectio n 40 7 wher e EP Ai s th e permittin g authority

. Thi s provisio n woul d provid e guidanc e t o Stat e permittin g authorities , withou t i n an ywaypreemptin g thei r authorit yt o se t mor e restrictiv e standards

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Mr , Chairma n and member s o f th e Committee , than k yo u onc e agai n fo r givin g m e th e opportunit yt o appea r befor e you . I woul d b e pleas e t o respon d t o an yquestion s yo u migh t have

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