S. HRG. 107–868

NEW SOURCE REVIEW POLICY, REGULATIONS AND

ENFORCEMENT ACTIVITIES

JOINT HEARING

BEFORE THE

COMMITTEE ON

ENVIRONMENT AND PUBLIC WORKS

UNITED STATES SENATE

AND THE

COMMITTEE ON THE JUDICIARY

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

JULY 16, 2002

Printed for the use of the Senate Committee on Environment and Public Works

and the Senate Committee on the Judiciary

(
OURCE REVIEW POLICY, REGULATIONS AND

ENFORCEMENT ACTIVITIES
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83–717 PDF 2003

S. HRG. 107–868

NEW SOURCE REVIEW POLICY, REGULATIONS AND

ENFORCEMENT ACTIVITIES

JOINT HEARING

BEFORE THE

COMMITTEE ON

ENVIRONMENT AND PUBLIC WORKS

UNITED STATES SENATE

AND THE

COMMITTEE ON THE JUDICIARY

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

JULY 16, 2002

Printed for the use of the Senate Committee on Environment and Public Works

and the Senate Committee on the Judiciary

(
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JAMES M. JEFFORDS, Vermont, Chairman

MAX BAUCUS, Montana

HARRY REID, Nevada

BOB GRAHAM, Florida

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

RON WYDEN, Oregon

THOMAS R. CARPER, Delaware

HILLARY RODHAM CLINTON, New York

JON S. CORZINE, New Jersey

BOB SMITH, New Hampshire

JOHN W. WARNER, Virginia

JAMES M. INHOFE, Oklahoma

CHRISTOPHER S. BOND, Missouri

GEORGE V. VOINOVICH, Ohio

MICHAEL D. CRAPO, Idaho

LINCOLN CHAFEE, Rhode Island

ARLEN SPECTER, Pennsylvania

PETE V. DOMENICI, New Mexico

KEN CONNOLLY, Majority Staff Director

DAVE CONOVER, Minority Staff Director

COMMITTEE ON THE JUDICIARY

PATRICK J. LEAHY, Vermont, Chairman

EDWARD M. KENNEDY, Massachusetts

JOSEPH R. BIDEN, JR., Delaware

HERBERT KOHL, Wisconsin

DIANNE FEINSTEIN, California

RUSSELL D. FEINGOLD, Wisconsin

CHARLES E. SCHUMER, New York

RICHARD J. DURBIN, Illinois

MARIA CANTWELL, Washington

JOHN EDWARDS, North Carolina

ORRIN G. HATCH, Utah

STROM THURMOND, South Carolina

CHARLES E. GRASSLEY, Iowa

ARLEN SPECTER, Pennsylvania

JON KYL, Arizona

MIKE DEWINE, Ohio

JEFF SESSIONS, Alabama

SAM BROWNBACK, Kansas

MITCH MCCONNELL, Kentucky

BRUCE A. COHEN, Majority Chief Counsel and Staff Director

SHARON PROST, Minority Chief Counsel

MAKAN DELRAHIM, Minority Staff Director

(II)
(III)

CONTENTS

Page

JULY 16, 2002

OPENING STATEMENTS

Baucus, Hon. Max, U.S. Senator from the State of Montana, prepared statement ...................................................................................................................... 94

Biden, Hon. Joseph R., Jr., U.S. Senator from the State of Delaware ................ 16

Bond, Hon. Christopher S., U.S. Senator from the State of Missouri ................. 42

Cantwell, Hon. Maria, U.S. Senator from the State of Washington ................... 96

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware ................... 39

Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New York ........ 50

Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey ...................... 56

Durbin, Hon. Richard J., U.S. Senator from the State of Illinois ........................ 54

Edwards, Hon. John, U.S. Senator from the State of North Carolina ................ 45

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 19

Jeffords, Hon. James M., U.S. Senator from the State of Vermont .................... 6

Leahy, Hon. Patrick, U.S. Senator from the State of Vermont ........................... 1

Lieberman, Hon. Joseph I., U.S. Senator from the State of Connecticut ........... 12

Schumer, Hon. Charles E., U.S. Senator from the State of New York ............... 67

Sessions, Hon. Jeff, U.S. Senator from the State of Alabama ............................. 48

Smith, Hon. Bob, U.S. Senator from the State of New Hampshire ..................... 9

Voinovich, Hon. George V., U.S. Senator from the State of Ohio ........................ 14

Wyden, Hon. Ron, U.S. Senator from the State of Oregon .................................. 94

WITNESSES

Elliott, Donald, co-chair, Environmental Practice Group, Paul, Hastings,

Janofsky & Walker, LLP ..................................................................................... 85

Prepared statement .......................................................................................... 619

Responses to additional questions from:

Senator Voinovich ..................................................................................... 622

Senator Wyden .......................................................................................... 622

Harper, Stephen, director, Environmental Health, Safety and Energy Policy,

INTEL Corporation, Washington, DC ................................................................ 80

Exhibit, Intel Aloha Pal ................................................................................... 603

Prepared statement .......................................................................................... 599

Responses to additional questions from Senator Voinovich .......................... 604

Holmstead, Jeffrey, Assistant Administrator for Air and Radiation, U.S. Environmental Protection Agency .............................................................................. 29

Memorandum, Bryan Hubbell, senior economist, U.S. Environmental Protection Agency, Innovative Strategies and Economics Group ................... 156

Prepared statement .......................................................................................... 109

Reports:

Benefits Associated with Electricity Generating Unit Emissions Reductions Realized Under the NSR Program ........................................ 156

New Source Review: Report to the President, Overview.................... 134–155

New Source Review: Report to the President, June 2002, Recommended Improvements to the New Source Review Program .................................................................................................... 130–134

Responses to additional questions from Senators Jeffords and

Leahy .......................................................................................................... 113–130

Kelley, Hilton, founder, Community In-Power and Development Association ... 77

Articles:

Project Texas, Gasoline Alley ................................................................... 580
Page

IV

—Continued

Report, Refinery Reform: Overview Report on the ExxonMobile Baytown Refinery, July 12, 2002 ................................................................ 595

The Texas Observer, Port Arthur Blues, A Native Son Returns to

Revitalize His Pollution-Plagued Neighborhood, Feature: 31/2002,

by Michael May ...................................................................................... 589

Logs, PortArthur Odors ................................................................................... 583

Prepared statement .......................................................................................... 569

Report, Refinery Reform Campaign ................................................................ 571

Responses to additional questions from Senator Voinovich .......................... 599

Pryor, Bill, attorney general, State of Alabama, Montgomery, AL ..................... 65

Prepared statement .......................................................................................... 396

Responses to additional questions from Senator Voinovich .......................... 397

Sansonetti, Thomas L., Assistant Attorney General, Environment and Resources Division, U.S. Department of Justice .................................................... 27

Letter from Daniel J. Bryant, U.S. Department of Justice ........................... 105

Prepared statement .......................................................................................... 96

Report, U.S. Department of Justice, Office of Legal Policy, New Source

Review: An Analysis of the Consistency of Enforcement Actions with

the Clean Air Act and Implementing regulations, January 2002 ............. 106

Responses to additional questions from:

Senator Cantwell ....................................................................................... 104

Senator Graham ........................................................................................ 104

Senator Jeffords ......................................................................................... 99

Senator Leahy ............................................................................................ 100

Senator Lieberman .................................................................................... 102

Senator Voinovich ..................................................................................... 104

Schaeffer, Eric, director, Environmental Integrity Project, Rockefeller Family

Fund ...................................................................................................................... 71

Brief, United States of America v. Southern Indiana Gas and Electric

Company..................................................................................................... 407–483

Letter from Henry V. Nickel, Hunton & Williams..................................... 484–494

Prepared statement .......................................................................................... 398

Responses to additional questions from Senator Voinovich .......................... 495

Slaughter, Bob, president, National Petrochemical and Refiners Association ... 75

Chart, Cumulative Regulatory Impact on Refineries, 2000–2008 ................ 501

Letters:

Chevron Texaco Company ........................................................................ 567

National Petrochemical and Refiners Association .................................. 530

API NSR 90-Day Review Comments, EPA Docket No. A–2001–

19, July 19, 2001 ......................................................................... 559–561

Attachment 1, New Source Review Examples.............................. 534–552

Attachment 2, New Source Review Potential Impact Examples ............................................................................................... 553–555

Attachment 3, NPRA Paper, Market Based Alternative to Existing New Source Review, July 23, 2001 ..................................... 556–557

Memorandum, Status of the New Source Review Improvement

Rulemaking, EPA ........................................................................... 562

News Release, NPRA Comments on EPA’s NSR Reform Package 558

Prepared statements:

April 5, 2001 .............................................................................................. 517

February 28, 2000 ..................................................................................... 503

July 10, 2001 ............................................................................................. 526

July 16, 2002 ............................................................................................. 496

Responses to additional questions from:

Senator Voinovich ..................................................................................... 565

Senator Wyden .......................................................................................... 566

Sorrell, William H., attorney general, State of Vermont ...................................... 60

Prepared statement .......................................................................................... 163

Supplemental Comments ................................................................................. 164

Spitzer, Eliot, attorney general, State of New York ............................................. 63

Brief, State of New York v. Niagara Mohawk Power Corp. ...................... 180–360

Charts:

Department of Public Service, Article X Cases, Revised July 30,

2002 ......................................................................................................... 362

2000 Air Emissions From Coal Fired Power Plant That Are Targets

of New York State Attorney General Enforcement ............................. 178
Page

V

Spitzer, Eliot, attorney general, State of New York—Continued

Prepared statement .......................................................................................... 167

Report, Attorney General’s Action Plan for a Balanced Electric Power

Policy in New York State ............................................................................. 366

Responses to additional questions from:

Senator Cantwell ....................................................................................... 394

Senator Voinovich ..................................................................................... 361

Walke, John D., clean air director, Natural Resources Defense Council ............ 83

Prepared statement .......................................................................................... 604

ADDITIONAL MATERIAL

Letters:

Josten, Bruce R., U.S. Chamber of Commerce ............................................... 24

Senators Inhofe and Breaux ............................................................................ 20

Senators Inhofe and Specter ............................................................................ 21

Response to Climate Change Report by several State Attorneys General ......... 627

Statements:

Abbott, Ande, director, Legislative Department, International Brotherhood of Boilermakers .................................................................................... 25

Bast, Joseph, president, Heartland Institute on New Source Review Reform ................................................................................................................ 625

(1)

NEW SOURCE REVIEW POLICY, REGULATIONS

AND ENFORCEMENT ACTIVITIES

TUESDAY, JULY 16, 2002

U.S. SENATE, COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, COMMITTEE ON THE JUDICIARY, Washington, DC.

The committees met, pursuant to notice, at 10 a.m. in room 106,

Senate Dirksen Building, Hon. Patrick J. Leahy (chairman of the

Committee on the Judiciary) and Hon. James M. Jeffords (chairman of the Committee on Environment and Public Works) presiding.

Present for the Committee on the Judiciary: Senators Leahy,

Biden, Durbin, Edwards, Schumer, Sessions and Specter.

Present for the Committee on the Environment and Public

Works: Senators Jeffords, Bond, Carper, Chafee, Clinton, Corzine,

Inhofe, Lieberman, Smith, Voinovich and Warner.

OPENING STATEMENT OF HON. PATRICK LEAHY,

U.S. SENATOR FROM THE STATE OF VERMONT

Senator LEAHY. We welcome everybody here. Thank you for attending this joint hearing of the Senate Environment and Public

Works Committee and the Senate Judiciary Committee.

Before we start the hearing, I would note that the record will be

kept open for 2 weeks so that Senators can ask followup questions,

and they are sent to committee staff within the next week, but also

give the witnesses a chance to look at their answers should they

want to add anything to them. Obviously, this is unusual and I

want to extend thanks to my fellow co-chair, Senator Jeffords, who

is also my colleague from Vermont. I thank him for helping to put

this together, and Senator Bob Smith, who is the ranking Republican, and of course the ranking Republican on the Judiciary Committee, Senator Orrin Hatch. We will have statements by myself

and Senator Jeffords and Senator Hatch and Senator Smith. The

two appropriate subcommittee chairmen and ranking members are

Senator Lieberman and Senator Voinovich, and Senator Biden and

Senator Grassley.

I am disappointed that Administrator Christie Whitman was unable to join us today. We tried to make things easier by having two

major committees with jurisdiction here, but she is not here. I

would like to thank the Administration for having a couple of representatives who are willing to take time to be with us.

I also want to thank the State attorneys general who traveled

long distances to be present. I would like to recognize among them
2

my good friend, Vermont’s Attorney General William Sorrell, a

highly respected attorney general. We pay attention to that, because we have another highly respected former attorney general

from Vermont, Jim Jeffords. I never made it beyond the ranks of

being a State’s attorney. I also see Attorney General Spitzer here

and Attorney General Pryor and others.

Our committees have come together because of the issues we are

discussing, the Administration’s proposed revision to the Clean Air

Act’s New Source Review regulation, or NSR. Now, it does not just

go into the question of quality of air, it goes into the question of

enforcing our laws and the quality of air. Back in 1977, New

Source Review was a part of an agreement to give corporate energy

companies a temporary, and I emphasize a temporary, grace period

before they adopted modern Clean Air Act standards at their facilities. I was here at the time, and I remember the negotiations that

went on between both Democrats and Republicans, the industry

and the Administration. We worked out a compromise, and the understanding of the compromise was that everybody would keep

their word, including whoever might be in the Administration. The

Clean Air Act exempted or grandfathered pre-1977 industrial facilities from immediate installation of modern pollution controls, requiring them to do so only when they made significant modification

to their sites. It was a fair and generous concession that gave corporate energy companies the benefit of the doubt.

Now, several of the largest corporate energy companies did not

keep their word. They completely abused our trust in upgrading

old, dirty plants on the cheap. They ignored required air pollution

controls—controls required by the New Source Review regulation.

For more than 25 years, these irresponsible polluters who did not

keep their word have chosen to save money by allowing their

1950’s-era plants to belch hundreds of thousands of tons of excess

pollution into the air, including harmful toxins such as mercury.

Vermont and other States have paid the price with decades of acid

rain and mercury deposits in our soils, our lakes and our rivers.

Some of us here were among the strongest supporters of the action by former President Clinton’s Environmental Protection Agency and the Department of Justice. They recognized and documented

this corporate abuse. They cracked down on our Nation’s most flagrant NSR violators in 1999. The owners of these facilities happen

to be some of the largest and wealthiest corporate energy giants in

the country, especially those in the utility sector, as we show on

our chart over here on the side. This shows the incredible amount

of annual emissions emitted by eight of these companies. American

Electric Power, Southern Company, and Tennessee Valley Authority exceed the corporate average emission for the Nation’s top 100

utility companies’ emissions by five to eight times. The lawsuits

brought by the last Administration were landmark enforcement

cases against the largest corporate air polluters. They set the stage

for a multi-billion dollar settlement by those companies and hundreds of thousands of tons of annual pollution reductions.

For the children in my State, having the pollution go down is

worth a lot more than having the money in fines. But I would point

out that unless these companies face the fines, our children are

going to continue to breathe the pollutants. We have paved the way
3

for numerous settlements with refineries around the country, and

these are smaller in cases—fines and pollution reductions—but

they are significant for the communities who live there.

But as you might imagine, the largest of these corporate polluters did not like being caught, especially when it meant billions

of dollars in fines. So what did they do? Instead of paying the fines

or cutting the pollution, they went last year to the new Bush Administration for relief—relief from a regulation they had circumvented for more than a quarter of a century. Somebody finally

called them on it, and told them they had to keep their word, they

had to obey the law, and now they want to get away with it. Lobbyists for the biggest corporate polluters complained these lawsuits

were in error. They had done nothing wrong. The explanation for

why they continued to operate ancient pollution-spewing facilities

was simply they had never performed major maintenance—only

routine maintenance, which of course would not trigger the NSR.

Their justification is so transparent that one would think it would

not even pass the lab test, but the Administration saw it differently.

Meeting behind closed doors in secret meetings that have yet to

be fully disclosed to Congress or to the American public, Vice President Cheney’s Energy Policy Task Force created this document.

They sent it to the President in May 2001. Tucked within its pages

is a short paragraph recommending a review of the NSR by the Department of Justice and the Environmental Protection Agency.

That is a huge victory for corporate polluters. The path was clear

for corporate energy lawyers to get their clients off the hook.

As quoted in the New York Times earlier this year, one energy

lawyer revealed the strategy. The thinking was, how can you do

things that will influence the NSR issue in the pending litigation?

The Administration recants NSR provisions and the lawsuits fall

apart. They knew exactly what to do. They could say, go ahead and

pollute, because the Administration doesn’t give a hoot. That is exactly what happened. Last month, the Environmental Protection

Agency proposed sweeping revisions and despite pledges by the Administration officials that these revisions would not change the

course of pending litigation against NSR violators, we are already

seeing the effects of this roll-back. Two of the largest utility cases

have been settled in principle. Cinergy and VEPCO remain stalled

to this day. Those cases would have required $2.6 billion in fines,

but more importantly the reduction of 800,000 tons of pollutants.

As soon as they heard that the Administration was backing off,

those cases became stalled.

The bellwether case that set precedent for all litigation, U.S. v.

Tennessee Valley Authority, was recently sent to mediation. That

was a surprise to all involved. It is a much weaker outcome than

expected, but it was following what was being said on the NSR revisions. Early estimates of the case might have been in settlement,

and it would have, and TVA would have been responsible for over

$1 billion in fines to the American people.

Now, this is not an obscure regulatory battle. Relaxation of the

Clean Air Act has made headlines for months. In fact, it is the lead

story in today’s Post. I believe the American people will be listening for this Administration to explain itself. The dismantling of
4

these lawsuits did not happen by themselves. The gutting of them

is done in a calculated and planned manner, or it is completed in

confidence. Either way, it is now allowable.

Recalling the American people in every single poll say have

tougher action against corporate abuse. There is no way we can accept this roll-back of our Nation’s clean air laws to benefit the

wealthiest, largest, dirtiest corporate polluters, and sadly at the

health and safety of our children.

[The prepared statement of Senator Leahy follows:]

STATEMENT OF HON. PATRICK LEAHY, U.S. SENATOR FROM THE STATE OF VERMONT

Good morning to all of you and thank you for attending this joint hearing of the

Senate Environment and Public Works Committee and the Senate Judiciary Committee.

Before I move to the hearing itself, let me take a moment to mention that the

record for this hearing will be open for 2 weeks from today and that any followup questions that Senators wish to post: to our witnesses today will be accepted if

sent to committee staff within the next week.

I want to extend my sincere thanks to my co-chair and fellow Vermonter, Senator

Jim Jeffords, for his help in putting this hearing together as well as to my good

friend from the Granite State, Ranking Republican Bob Smith. And of course, I

would like to thank this committee’s Ranking Republican Member, Orrin Hatch.

While I am disappointed Administrator Christie Whitman did not join us today,

I would very much like to thank the Administration’s representatives for taking

time to be here and the State attorney; general who have each traveled long distances to be present. In particular, I would like to recognize my good friend,

Vermont’s Attorney General William Sorrell. Thank you so much for being here. Finally, I would like to thank the many witnesses that acre present to testify today— your time is much appreciated by both committees.’’ Our committees have come together for this special session today because the

issue we are discussing—the Administration’s proposed revisions to the Clean Air

Act’s New Source Review regulation (or NSR)—is not just about the future of our

air quality, it is about enforcing the law.

Written in 1977, New Source Review was a part of an agreement to give corporate

energy companies a temporary grace period before they adopted modem Clean Air

Act standards at their facilities.

The Clean Air Act exempted, or ‘‘grandfathered,’’ pre-1977 industrial facilities

from immediate installations of modern pollution controls, requiring them to do so

only when they made significant modifications to their sites and increased emissions.

This was a fair—and, generous—concession that gave corporate energy companies

the benefit of the doubt acid trusted that they would use future modification upgrades to not only extend the life of their plants, but also to clean up the air.

Sadly, several of the largest corporate energy companies completely abused our

trust, upgrading old, dirty plants on the cheap, and ignoring the required air pollution controls—controls required by the New Source Review regulation.

For more than 25 years, these irresponsible polluters have chosen to save money

by allowing their 1950’s era plants to belch hundreds of thousands of tons of excess

pollution into the air, including harmful toxins such as mercury. Vermont and other

States have paid the price, with decades of acid rain and mercury deposits in our

soils, our lakes, and our rivers.

Some of us here were among the strongest supporters of the actions by former

President Clinton’s Environmental Protection Agency and Department of Justice

that recognized and documented this corporate abuse, cracking down on our nation’s

most flagrant NSR violators in 1999.

The owners of these facilities happened to be some of the largest, and wealthiest,

corporate energy giants in the country, especially those in the utility sector.

On the chart behind me, you can see for yourself the incredible amount of annual

emissions emitted by eight of these companies. Three of them—American Electric

Power, Southern Company, and Tennessee Valley Authority—exceed the corporate

average emissions for the nation’s top 100 utility companies’ emissions by five to

eight times.

The Clinton lawsuits were landmark enforcement cases against the largest corporate air polluters—especially those in the utility sector—and set the stage for a

multi-billion dollar settlements by those companies and hundreds of thousands of
5

tons of annual pollution reductions. These, in turn, paved the way for numerous settlements with refineries around the country. While these were smaller cases in

terms of fines and pollution reductions, they were and are significant cases for those

communities living under the cloud of refinery smog.

Yet, as you may imagine, the largest of these corporate polluters did not like

being caught—especially when it meant billions of dollars in fines.

So, last year, they went to the new Bush Administration for relief—relief from a

regulation they had circumvented for more than a quarter of a century. Lobbyists

for the biggest corporate polluters complained that the Clinton Administration’s

lawsuits were in error and that they had done nothing wrong.

Their explanation for why they continued to operate ancient, pollution-spewing facilities was simply that they have never performed major maintenance—only ‘‘routine maintenance’’—to their facilities for the past 25 years. As you might guess,

‘‘routine maintenance’’ does not trigger the pollution controls of NSR.

This justification is so transparent that one would think it would not, should not,

even pass the laugh test. Yet this Administration obviously saw it differently.

Meeting behind closed doors in secret meetings that have yet to be fully disclosed

to Congress or to the American public, Vice President Cheney’s Energy Policy Task

Force created this document and sent it to the President in May 2001.

Tucked within its pages is a short paragraph, recommending a ‘‘review’’ of the

NSR regulation by the Department of Justice and the Environmental Protection

Agency.

It cannot be understated that this recommendation to review NSR by Vice President Cheney’s Task Force was a huge victory for corporate polluters. With it, the

path was clear for corporate energy lawyers to get their clients off the hook. As

quoted in the New York Times earlier this year, one energy lawyer—who chose to

remain anonymous—revealed the strategy:

‘‘The thinking was,’’ he said, ‘‘how can you do things that will influence the NSR

issue and the pending litigation? If the Administration recants NSR provisions, the

lawsuits fall apart.’’

And that is exactly what has happened. Last month, the Environmental Protection Agency proposed sweeping revisions to the New Source Review regulation—revisions that could have been written in corporate energy boardrooms or by the legal

teams for corporate NSR violators.

And despite pledges by Bush Administration officials that these revisions would

not change the course of bending litigation against NSR violators, we are already

seeing the effects of this rollback.

Two of the largest utility cases that had been settled ‘‘in principle’’ in early 2000

under the Clinton Administration—Cinergy and VEPCO—remain stalled to this

day. Those cases would have required $2.6 billion in fines and the reduction of more

than 800,000 tons of pollution.

And the case that has been called the ‘‘bellwether’’ case to set the precedent for

all litigation against illegal pollution from coal-fired powerplants—U.S. vs. Tennessee Valley Authority—was recently sent to mediation. This action by the judge

was a surprise to all involved and is a much weaker outcome than had been expected before the NSR revisions were publicized.

By all accounts, the mediation ruling occurred because of publicity surrounding

EPA’s revision to the NSR regulation.

As you can see on the chart behind me, early estimates of this case might have

ended in settlement and would have held TVA responsible for well over $1 billion

in fines to the American people.

This issue is not an obscure regulatory battle—the relaxation of the Clean Air Act

has made headlines for months and was a lead story in today’s Washington Post,

with the headline ‘‘Bush Plan to Ease Clean Air Rules Roils Court Cases Against

Utilities.’’

We will hear much more about the details of this issue in today’s hearing.

I believe the American people will be listening for this Administration to explain

itself. The dismantling of these lawsuits did not happen by itself. The gutting of

these lawsuits was either done in a calculated and planned manner or it was a product of complete Administration incompetence and lack of foresight.

At a time when the American people ware calling for tougher government vacation against corporate abuse, this Administration needs to be held accountable for

its rollback of our nation’s clean air laws for the benefit of the wealthiest, largest,

dirtiest corporate polluters and, sadly, at the expense of the American people.

Senator Jeffords.
6

OPENING STATEMENT OF HON. JAMES M. JEFFORDS,

U.S. SENATOR FROM THE STATE OF VERMONT

Senator JEFFORDS. I am pleased also to be here with my colleagues and co-chair from Vermont. I believe this is the first joint

Judiciary-EPW hearing ever held, but the gravity of the Administration’s actions on New Source Review, or NSR, requires scrutiny

of both legal and environmental grounds.

I am also glad to see one of my successors—Vermont Attorney

General William Sorrell is here today. I appreciate his willingness

to testify along with others. I wish we were meeting jointly on a

happier occasion, but these changes in NSR regulations appear to

be the biggest regulatory roll-back in the history of the Clean Air

Act. They seem designed to subvert the Federal Government’s own

enforcement actions that would otherwise remove millions of tons

of pollutants from the public air space.

They also seem intended to give away the billions of dollars

worth of health benefits that NSR provides every year. Under these

proposals, far fewer plants and maybe 50 percent or less will have

to apply pollution controls. The basic concept of NSR is one of constant improvement. That means industry should emit less and less

pollution as time passes, as investments occur, and as technology

develops. The Clean Air Act does not provide loopholes for non-routine maintenance or picking decade-old baselines or any of the

other loopholes that this Administration is trying to finalize.

When any physical change as a stationary source increases the

amount of any air pollutant by that source, ‘‘then pollution controls

must be applied.’’ That is simple. It is straightforward and it is the

law. Unfortunately, aside from the dubious legality of the public

health cost of these proposed NSR changes, the Administration’s

poor handling of this matter has created an atmosphere of distrust.

Even if these proposals were legal or justified, I would be suspicious. To my knowledge, no attempt was made to reach consensus

among the various stakeholders or consult with the committees of

jurisdiction before issuing the reform package.

Overall, this has been a much different, much less open rulemaking process than the one used by the Clinton Administration.

This Administration seems to have largely ignored comments from

public health advocates and the States, while listening mainly to

industry. The Senate Environment and Public Works Committee’s

legitimate request for information on this matter and others have

been treated disrespectfully and disdainfully by the White House.

While the EPA has recently begun to provide information in response to our December request, 90 percent of which is already in

the public docket, the Department of Energy has been very unresponsive. We will be reviewing the additional material that EPA

has promised to deliver by the end of this week, then we will decide

whether a subpoena is necessary. I hope it does not come to that,

but this White House may give the committee and Congress little

choice.

I will note, however, that I do not recognize any validity in the

Agency’s claim, made largely by the White House insistence, that

the documents we are requesting cannot be shared before the rules

become final. There is no precedent or protection provided by statute or case law to defend that position. I am saddened by what the
7

White House is doing to the Environmental Protection Agency. It

seems intent on gagging and binding this independent agency. This

prevents us from working together in any kind of productive and

cooperative manner. Even communication at the staff level has

been intentionally stifled.

More than a year ago, the President directed the Agency to prepare a three-pollutant legislative proposal. The Agency developed

and analyzed a proposal that it thought was defensible from air

quality and public health perspectives. That straw proposal from

August 2001 disappeared almost as soon as it was floated. Then in

February of this year, a new version of targets and timetables was

announced, one that looked quite different and substantially less

protective, but no environmental or economic justification for those

numbers had been provided to Congress or the public to see. We

still do not have legislative language or any comprehensive analysis or demonstration on it.

NSR fits into a similar pattern. The Clinton Administration did

a draft regulatory impact analysis in 1996 with its proposed regulations. Many years of stakeholder discussions took place, with lots

of commentary and the analysis was shared. That Administration

ended without a final rulemaking because of the many concerns,

including environmental and legal questions. In June of this year,

this Administration announced the NSR reform package. It did not

conduct stakeholder meetings on the rulemaking passage. It provided no final regulatory impact analysis or any environmental or

public health assessment. Worse yet, the Agency staff indicated

that no qualitative analysis had been done or would be forthcoming.

That does not seem to comport very well with the requirement

of the Executive Order on regulatory relief or with EPA’s own internal documents. The NSR reform package is a recipe for litigation. If these changes become final, they will be overturned by the

courts or perhaps by the Congress. The Agency will not be due any

deference in court on its expert opinion because it has not justified

how these changes can improve and protect the public health.

Except for a brief period, Congress has counted on EPA to be the

‘‘green’’ eyeshades people for 30 years. The Agency job is to make

sure that pollution is accounted for and reduced. The EPA is supposed to keep corporate polluters honest and look out for the public

good. But given these NSR changes and the White House anti-disclosure policy on information, it is hard not to think that the executives are overruling the green eyeshades people and trying to cook

the books. Instead of greenbacks, we are talking about millions of

tons of pollution that severely damages the health and welfare of

the public.

Thank you, Mr. Chairman.

[The prepared statement of Senator Jefford follows:]

STATEMENT OF HON. JAMES JEFFORDS, U.S. SENATOR FROM THE STATE OF VERMONT

I am pleased to be here with my colleague and co-chair from Vermont. I believe

this is the first joint Judiciary-EPW hearing ever held. But, the gravity of the Administration’s actions on New Source Review, or NSR, requires scrutiny on both

legal and environmental grounds.
8

I am also glad to see one of my successors, Vermont Attorney General William

Sorrell, is here today. I appreciate his willingness to testify along with the other

distinguished witnesses.

I wish we were meeting jointly on a happier occasion. But these changes in NSR

regulations appear to be the biggest regulatory rollback in the history of the Clean

Air Act. They seem designed to subvert the Federal Government’s own enforcement

actions that would otherwise remove millions of tons of pollutants from the public’s air space.

They also seem intended to give away the billions of dollars worth of health benefits that NSR provides every year. Under these proposals, far fewer plants, maybe

50 percent or less, would have to apply pollution controls.

In exchange for these giveaways, what would the public get? More premature

deaths, more lung disease, and more polluted landscapes. That doesn’t seem like a

fair trade to me.

I’d like to place in the Record a letter from Ben Rose of the Green Mountain Club

and the Hikers for Clean Air. Their letter clarifies that such NSR changes will foul

the air, ‘‘shroud our State and national parks in haze,’’ and acidify our lakes and

streams.

The basic concept of NSR is one of constant improvement. That means industry

should emit less and less pollution as time passes, as investments occur and as technology develops. The Clean Air Act doesn’t provide loopholes for non-routine maintenance or picking decades-old baselines or any of the other loopholes that this Administration is trying to finalize.

When ‘‘any physical change in a stationary source increases the amount of any

air pollutant by that source’’ then pollution controls must be applied. That’s simple

and straightforward. And, it’s the law.

Unfortunately, aside from the dubious legality and the public health costs of these

proposed NSR changes, the Administration’s poor handling of this matter has created an atmosphere of distrust.

Even if these proposals were legal or justified, I would be suspicious.

To my knowledge, no attempt was made to reach consensus among the various

stakeholders or consult with the committees of jurisdiction before issuing this reform package. Overall, this has been a much different, much less open rulemaking

process than the one used by the Clinton Administration.

This Administration seems to have largely ignored comments from public health

advocates and the States, while listening mainly to industry. The Senate Environment and Public Works Committee’s legitimate requests for information on this

matter and others have been treated disrespectfully and disdainfully by this White

House.

While the EPA has recently begun to provide information in response to our December request, 90 percent of which is already in the public docket, the Department

of Energy has been very unresponsive.

We will be reviewing the additional material that EPA has promised to deliver

by the end of this week. Then we will decide on whether a subpoena is necessary.

I hope it doesn’t come to that, but this White House may give the Committee and

Congress little choice.

I will note, however, that I do not recognize any validity in the Agency’s claim,

made largely at the White House’s insistence, that the documents we are requesting

cannot be shared before the rules become final. There is no precedent or protection

provided by statute or case law to defend that position.

I am saddened at what the White House is doing to the Environmental Protection

Agency. It seems intent on gagging and binding this ‘‘independent’’ agency. This prevents us from working together in any kind of productive and cooperative manner.

Even communication at the staff level has been intentionally stifled.

More than a year ago, the President directed the Agency to prepare a three-pollutant legislative proposal. The Agency developed and analyzed a proposal that it

thought was defensible from an air quality and public health perspective. That

‘‘straw proposal’’ from August 2001 disappeared almost as soon as it was floated.

Then, in February of this year, a new version of targets and timetables was announced, one that looked quite different and substantially less protective. But no environmental or economic justification for those numbers had been done for the Congress or the public to see. We still don’t have legislative language or any comprehensive analysis or documentation on it.

NSR fits into a similar pattern. The Clinton Administration did a draft regulatory

impact analysis in 1996 with its proposed regulations. Many years of stakeholder

discussions took place where lots of commentary and analysis was shared. That Administration ended without a final rulemaking because of many concerns, including

environmental and legal questions.
9

In June of this year, this Administration announced its NSR reform package. It

did not conduct stakeholder meetings on this rulemaking package. It provided no

final regulatory impact analysis or any environmental or public health assessment.

Worse yet, the Agency’s staff indicated that no quantitative analysis had been done

or would be forthcoming. That doesn’t seem to comport very well with the requirements of the Executive Order on regulatory review, or with the EPA’s own internal

documents.

This NSR reform package is a recipe for litigation. If these changes become final,

they will be overturned by the courts or perhaps by Congress. The Agency will not

be due any deference in court on its expert opinion, because it has not justified how

these changes can improve and protect public health.

Except for a brief period, Congress has counted on EPA to be the ‘‘green’’ eyeshades people for 30 years. The Agency’s job is to make sure that pollution is accounted for and reduced. The EPA is supposed to keep corporate polluters honest

and look out for the public good.

But given these NSR changes and the White House’s anti-disclosure policy on information, it is hard not to think that the executives are overruling the ‘‘green’’ eyeshades people and trying to cook the books. Instead of greenbacks, we’re talking

about millions of tons of pollution that severely damages the health and welfare of

the public. Thank you.

Senator LEAHY. Thank you very much.

We go next to Senator Bob Smith of New Hampshire, and then

Senator Hatch, and then Senator Lieberman as the subcommittee

chair and Senator Voinovich as ranking member, then Senator

Biden and Senator Grassley, and then the witnesses.

OPENING STATEMENT OF HON. BOB SMITH, U.S. SENATOR

FROM THE STATE OF NEW HAMPSHIRE

Senator SMITH. Thank you very much, Mr. Chairman.

Goodness gracious, I wonder if there might be a priest in the

house and I could go to confession for being a Republican after listening to all of that. Man. I guess it is an election year. Politics

is in the air.

Senator LEAHY. You got that right.

Senator SMITH. I wonder, though, really how in the world this

kind of discussion can be productive in terms of addressing the

problems that we face in this country. Remember these terrible

people are the ones that have produced the power to run this country through the last 100 years, including the Cold War—the machinery that they produced to win the Cold War and to keep a free

Nation. So if we just get that on there, just to get a little balance.

NSR, in my view, is a nightmare that does little to protect the

environment. In fact, it often is the mechanism that delays the upgrades that would provide for cleaner air. This discussion has ignored the new technology that is being produced every day, that

will in fact clean up the air. If they will just be given the opportunity to unleash that technology and not be restricted from doing

so by some of the actions that we take here, the results would be

beneficial to the environment.

Lest some people think that it is all one-way with me, in 1999

just days after I became chairman of the Environment and Public

Works Committee, I opposed a rider that many on my side supported that would have ended NSR enforcement cases. I opposed

that rider because I believe that we need to set clear environmental

rules and prosecute violators. I opposed it, and at the same time

I recognized the merits of the amendment and why they sought it.

It was to avoid yet another round of litigation that would not clean

up anything and just make lawyers rich. That is all we would ac-
10

complish with that—provide less clean air and make more lawyers

wealthy.

There is a better way, to be frank. NSR, which is anything but

clear, has been the subject of near-continuous litigation and revision since its enactment in 1977—continuous revision and litigation. It is no wonder. A few pages of Federal law, led to a 20-page

regulation that needed to be, ‘‘clarified’’ by more than 4,000 pages

of guidance. Let me repeat that. A few pages of Federal law led to

a 20-page regulation that needed to be clarified by 4,000 pages of

guidance documents. This should not be a partisan issue. I don’t

know of anybody that wants to breathe dirty air. I don’t. I will

speak for myself. I don’t think any of my colleagues down here on

this side of the table want to breathe dirty air. But it is worth reminding my colleagues on both sides that the Clinton Administration realized the problems with NSR. That Democratic Administration in a proposal by Vice President Gore proposed the NSR reforms that are now in the Bush proposal and brought forth some

of the same proposals that are now being roundly criticized on the

other side.

I do not believe regulatory efforts alone are enough of an answer.

I do not fault President Bush in the least for trying to create order

out of this jumbled heap of nonsense and chaos that some generously call an environmental program. Unfortunately, while we have

yet to even see drafts of the final or proposed rules, we have already heard threats of future lawsuits. We haven’t seen a draft yet,

and now future lawsuits are being threatened. That is in addition

to the cries—the biggest roll-back of the Clean Air Act since its inception. Biggest roll-back? On what data and analysis is the biggest

roll-back based? I haven’t seen any data. It was just in the last

week that this committee, the Environment and Public Works

Committee, received 13 boxes of information and analysis from the

Administration’s NSR review, long after claims of a roll-back were

splashed across our Nation’s newspapers and TV news. The majority has even indicated that 13 boxes are not enough. They may decide to issue a subpoena to get some more boxes.

If we do not have enough analysis yet, how can we conclude that

this is a roll-back of the Clean Air Act? If you haven’t got all the

boxes they want, how do you know what is in the boxes? Maybe

we do not need a roll-back of the Clean Air Act. If there is enough

information to support such a conclusion, why do we need another

subpoena?

It seems that again environmental politics is trumping real environmental policy. Good environmental politics is not good environmental policy, believe me, and it is now going to lead to cleaner air.

Believe me on that, too. Real environmental progress would be

working together to enact consensus, multi-emissions legislation for

electrical utilities. Real environmental progress would be working

together to build on the success of the acid rain program which

worked, frankly, not at a cost of $5 billion as many said, but less

than $1 billion, rather than to fight to keep a program that has reduced maybe a pound of emissions per lawyer involved.

Well, the President is trying to move forward on this, just like

his predecessor did, but politics dictates that we must oppose a consensus approach. We cannot have a consensus approach because
11

that would not have a political debate, and then we cannot call all

Republicans polluters. That is the bottom line, folks, and that has

served as an employment service for Clean Air Act lawyers and has

produced very little in terms of environmental benefits. What we

need is a legislative solution. That is what we are here for—a legislative solution. Isn’t it about time we sit down and do it? Why don’t

we go in the back and stop all this rhetoric out here in the front

and sit down and work it out? You know that solution is? It is a

market-based cap and trade program modeled on the acid rain program.

I spent weeks talking to Carol Browner about it in the Clinton

Administration and she supported it—a program with clear admission reduction levels and compliance dates set in law, allowing cap

and trade. And yes, putting NSR on the table—a program that

avoids needless litigation and delay; a program that provides industry with incentives to make deeper and faster reductions that

would employ their new technology. That is my goal. That is where

I am coming from. That is what I think we all should be working

to achieve—the most reductions with the least litigation, and we

ought to get started this morning. Unfortunately, that is not going

to happen.

Thank you, Mr. Chairman.

[The prepared statement of Senator Smith follows:]

STATEMENT OF SENATOR BOB SMITH, U.S. SENATOR FROM THE STATE OF

NEW HAMPSHIRE

Thank you Mr. Chairman.

This must be an election year, because there is definitely politics in the air.

NSR is a nightmare that does little to protect the environment; in fact it often

is the mechanism that delays upgrades that would provide for cleaner air. Nonethe-less, in 1999, just days after I became chairman of the Environment and Public

Works Committee, I opposed a rider that would have ended NSR enforcement cases.

I opposed the rider because it is my belief that we need to set clear environmental

rules and prosecute violators.

At the same time, I recognized the merits of the amendment. It sought to avoid

yet another round of litigation. Lawsuits make lawyers richer, but do little to provide for cleaner air—there is a better answer.

NSR—which is anything but clear—has been the subject of near-continuous litigation and revision since its enactment in 1977. And it’s no wonder—a few pages of

Federal law led to a 20-page regulation that needed to be ‘‘clarified’’ by more than

4,000 pages of guidance documents.

This shouldn’t be a partisan issue either—its worth reminding my colleagues on

both sides of the aisle that the Clinton Administration realized the problems with

NSR. That Democratic Administration—led by Vice President Gore—proposed NSR

reforms that are now included in the Bush proposal that is being so roundly criticized.

Although I do not believe regulatory efforts alone are enough of an answer, I do

not fault President Bush in the least for trying to create order out of this jumbled

heap of nonsense some generously call an environmental program. Unfortunately,

while we have yet to see even drafts of the final or proposed rules, we have already

heard threats of future lawsuits.

That’s in addition to all the cries of this being ‘‘the biggest rollback of the Clean

Air Act.’’ Biggest rollback? On what data and analysis are those claims based?

It was just in the last week and a half that the committee received 13 boxes of

information and analysis from the Administration’s NSR review—long after claims

of a ‘‘rollback’’ were splashed across our nation’s newspapers and television news

shows. And the majority has indicated that even 13 boxes are not enough—they

may decide to issue a subpoena to get more.

If we don’t have enough analysis yet, how can we conclude that this is a rollback

of the Clean Air Act?
12

If there is enough information to support such a conclusion, why would we need

to issue a subpoena?

It seems that, again, environmental politics is trumping a real environmental debate that could lead to cleaner air. Real environmental progress would be working

together to enact consensus multi-emissions legislation for electric utilities. Real environmental progress would be working together to build on the success of the Acid

Rain Program, rather than fighting to keep a program that has reduced maybe a

pound of emissions per lawyer involved.

Well that’s what I’ve tried to do. That’s what the President has proposed doing.

But politics dictate that the majority must oppose a consensus approach. While NSR

has served as an employment service for Clean Air Act lawyers, it has produced

very little in terms of environmental benefits.

What we need is a legislative solution.

That solution is a market-based, cap-and-trade program modeled on the Acid Rain

Program—a program with clear emission reduction levels and compliance dates set

in law—a program that avoids needless litigation and delay—and a program that

provides industry with incentives to make deeper and faster reductions than required.

That’s my goal, and that’s what I think we all should be working to achieve— the most reductions with the least litigation and delay.

Senator LEAHY. Thank you.

Senator Lieberman is the chairman of the Clean Air, Wetlands

and Climate Change Subcommittee, the Committee on Environment and Public Works—quite a mouthful.

[Laughter.]

OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN,

U.S. SENATOR FROM THE STATE OF CONNECTICUT

Senator LIEBERMAN. It is a mouthful.

Thanks, Chairman Jeffords and Chairman Leahy. This is an allVermont-led hearing. I feel as if I have enlisted in the Green

Mountain Boys here today, but it is an honor to be marching alongside behind you. I thank you for convening this hearing, which is

aimed at shining a spotlight on these proposals to amend the New

Source Review provisions of the Clean Air Act.

This is a very important hearing because the Bush Administration is on the brink of gutting these New Source Review provisions

and replacing them with nothing, or with an alternative that is so

weak it is essentially nothing. That would be devastating to the

quality of air in Connecticut and all across the country. There is

a good deal of attention that we are paying in the Senate these

days, and the whole country is to so-called ‘‘corrupt corporate accounting.’’ I am not saying that the accounting being done here is

corrupt, but I am saying that with regard to New Source Review,

the environmental accounting that is being done is at best deceptive.

The Administration asserts, for instance, that an increase of

thousands of tons of emitted pollutants by a power plant would not

be an increase under the law. Why? Because a decade ago, the

plant polluted at the higher level. As a result of this change alone,

some in EPA have estimated that over 50 percent of the polluters

currently required to install pollution controls would, under the

President’s plans, get to escape regulation and breathe a little easier.

Not so for the rest of us. The more noxious pollutants in the air,

the more the American people will have to grapple with more asthma, more cardiac disease and more cancer. That is just not my conclusion. In 1999, EPA sued eight utility companies that it believed
13

has violated the New Source Review provisions and according to

EPA’s own analysts, these eight utilities alone, a fraction of all

those that are subject to the New Source Review regulations, produced emissions responsible for 14,000 cases of acute bronchitis,

140,000 asthma attacks, and 5,900 premature deaths every year. It

is those lawsuits that these rule changes would under-cut, and

those health problems that would be a prelude, I am afraid, to

many more to come if the Administration’s proposed rule change

goes through.

In an effort to understand the full environmental and public

health consequences of these Administration’s actions, as has been

indicated here today, last December I was proud to join Chairman

Jeffords and other colleagues on the Environment Committee in requesting EPA’s analysis of the impacts of these rule changes. Since

then, I would say we have been slow-walked and have not truly received answers to our questions. This is subject to two interpretations, I would say. The first is either that the Agency has not done

the analyses we have requested, and therefore is gutting the Clean

Air Act without adequate evaluation of the consequences. Or second, the Agency has done the analyses and does not want to release them.

Either way, it says that these amendments are not built on a

strong foundation. The divergence between EPA’s proposal and the

position of the United States in these lawsuits is stunning. In legal

briefs that were actually signed by Mr. Sansonetti, who is a witness on the first panel, and submitted to Federal courts, the United

States argued that any exemption from the New Source Review

provisions should be, ‘‘narrowly construed,’’ that utilities, ‘‘indisputably had notice of EPA’s interpretation,’’ of the New Source Review rules and that EPA’s interpretation has been held constant for

at least the past decade.

These legal arguments directly contradict the EPA proposals we

are looking at in this hearing today, which seek to carve out what

I would call a cavernous exemption for routine maintenance and

which announce a need to clarify previous interpretations of these

provisions. Why would there need to be any clarification if, as the

Justice Department asserts, the interpretation has not varied for a

decade, and industry has had fair notice? I hope that from the witnesses today, we will be able to clarify the Administration’s true

position on these provisions.

Mr. Chairman, there is room for improvement in the New Source

Review program. That is clear. I think it would best be done, however, in concert with the legislation that you and I and others have

sponsored, which would limit the emissions of all four major pollutants from power plants, and that legislation was passed out of our

committee last month. The reason I think any alteration of New

Source Review would best be done in concert with new pollution

protections is that otherwise we are going to be replacing the existing environmental regime with nothing, or with something that

promises even more pollution, and that is not good for the health

and well-being of the American people.

So I congratulate both of you for your leadership. I thank you for

convening this hearing. I always preserve the hope that out of this
14

kind of dialog, even confrontation, will emerge a path to cooperation in the interest of the health and safety of the American people.

Thank you very much.

Senator LEAHY. Thank you.

Senator Voinovich.

OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,

U.S. SENATOR FROM THE STATE OF OHIO

Senator VOINOVICH. Mr. Chairman, first of all I object to the majority’s gross negative sinister characterization of the Administration’s initiative to clarify New Source Review. It reminds me of the

old bogeyman, and that is characterize something as bad before you

know what it is or it has been finalized. That being said, Mr.

Chairman, thank you for calling today’s hearing on New Source Review.

[Laughter.]

Senator LEAHY. Strong message to follow.

Senator VOINOVICH. Yes.

The program has been around since 1977. It requires new facilities to install the best demonstrated technology to control emissions. The program also requires older facilities to update their

equipment to state-of-the-art as they undergo major modifications.

I think it is important to point out at the very beginning that it

is a fallacy to say that any plants are so-called ‘‘grandfathered’’ from the Clean Air Act. On the contrary, every major facility is regulated by the Clean Air Act and must meet defined permit levels,

all of them. Every plant must abide by the ozone and PM standards, the MACT standards, the NOx and SIP Call, and every regulatory program applicable to each industry.

It is important to note, particularly for me as the former Governor of Ohio, that our utilities have spent more money to reduce

pollution than all of the utilities in the northeastern part of the

United States of America. We have reduced pollution significantly

since the Clean Air Act, which never seems to be mentioned in any

of these hearings.

It is also a fallacy to assume that NSR only applies to utilities

and refiners. It applies to every stationary source in the country as

evidenced by the testimony you will hear today from Intel. The

EPA issued first NSR regulations back in 1980—a 20-page document. Since then, they have produced, as Senator Smith said, over

4,000 pages of guidance documents in an attempt to explain and

reinterpret the regulations. I think it is important for this committee to understand that the lawsuits blossoming all over the

country were triggered by an EPA guidance in 1998 which changed

the definition of routine maintenance. That is a guidance. It was

not a regulation. Somebody came out with a new guidance and said

that the way we define routine maintenance is wrong, and subjected these utilities to these lawsuits because they said they violated New Source Review. This has led to confusion and misunderstanding by the Agency, the States and the regulated community.

Mr. Chairman, this chart, which I have used once before at a

Governmental Affairs Committee hearing, shows by companies are

reluctant to subject themselves to NSR permits. Only a fool would

put themselves into this maze to do ordinary repair and mainte-
15

nance of a generating facility. Look at that chart. It is no wonder

companies postpone making changes that would improve efficiency

and the environment. We need clarification of the regulations. We

need to do everything possible to encourage new investments in

more efficient equipment that produces fewer noxious emissions.

That is why, and I think it is really important for this committee

to know that Senator Conrad and I, along with 24 of our colleagues, sent a bipartisan letter to Administrator Whitman in May,

calling on her to complete the NSR review and undertake the necessary regulatory process in the future to clarify and reform the

NSR program.

Our letter was bipartisan, with 9 Democrats and 17 Republicans

all calling for reform. While I am sure that all of us will not necessarily agree on exactly what the reforms should ultimately look

like, we did all agree we had to move forward with reform. If members of this committee have concerns with certain aspects of the

proposed reforms, then this hearing should take place after the

proposed changes are published. At that point, we could debate the

merits of the proposed regulations and whether the reforms go far

enough. In the letter, we also stated that we have heard of many

situations in which confusion over the NSR program is having a

dampening effect on utilities’ willingness to perform energy efficiency and environmental improvement projects.

Mr. Chairman, I would just like to mention just a few of the examples I am aware of. I think it is important. There is a new technology called dense pack, which enhances the efficiency of turbine

blades in coal-fired power plants, and can result in significant improvements by generating more electricity with no additional use

of fuel. If one of those generating units could improve efficiency between 2 and 4 percent with this technology, which is a conservative

estimate, it would result in additional output of 6,000 to 12,000

megawatts of power in the near term, and significantly reduce

emissions of NOx and SOx. This is the equivalent of building 20

to 40 new power plants of 300 megawatts today, with no more

emissions. It is my understanding that these dense packs would

trigger NSR today. That is where we are.

Another example—the EPA concluded that a plan by the Detroit

Edison Company to replace worn turbine blades with new improved

blades was non-routine. The replacement would increase the efficiency of two turbines by 4.5 percent each along each unit, to

produce 70 additional megawatts of additional power with no increase in fuel consumption, or to continue to producing at past levels while reducing fuel consumption and emissions.

For refiners, I am aware of one example in which tubes failed,

resulting in a fire which damaged the remaining tubes. New tubes

were installed and the unit was back in production within 2 weeks.

However, they were in violation of NSR due to the actual potential

emission test. If NSR regulations were followed, the unit should

have followed the PSD permit process, resulting in the refinery

being out of commission for 5 to 18 months instead of the 2-week

period that it took for them to repair it. I think my colleagues

should remember that the next time a refinery closes and gas

prices spike.
16

Mr. Chairman, the 26 Senators who signed the letter are not the

only ones that think NSR has prohibited reductions in emissions.

According to the national coal study commissioned by the Clinton

Administration, if the EPA were to return to pre-1998 NSR definitions, we would generate 40,000 new megawatts of electricity from

coal-fired facilities and reduce pollution at the same time—reduce

pollution at the same time.

One last point, and that needs to be made. The cost of NSR are

passed on to the rate-payers. Somehow, people forget that the customer always pays. (INAUDIBLE) about the utilities, about those

industries and those bad people that run them? But when it comes

to utilities, it is the rate-payers that ultimately have to pay the

cost of this.

We have an interesting mix of witnesses today. I am particularly

eager to hear from the Administration because those opposed to

NSR reform have put a negative spin on their announcement. Isn’t

that why we are here today?

Thank you, Mr. Chairman.

Senator LEAHY. Thank you.

Senator Biden is the chairman of the Crime Subcommittee of the

Senate Judiciary Committee.

Senator Biden.

OPENING STATEMENT OF HON. JOSEPH R. BIDEN, JR.,

U.S. SENATOR FROM THE STATE OF DELAWARE

Senator BIDEN. Mr. Chairman, thank you for the opportunity to

hear these witnesses. I would like to ask unanimous consent that

my entire statement be placed in the record, and I would like to

abbreviate it if I may.

Senator LEAHY. Without objection, all statements can be placed

in the record.

Senator BIDEN. To state the obvious, I would like to thank you

and Chairman Jeffords for holding this hearing.

I would like to just say a few things at the outset. We sometimes

forget the focus of the Clean Air and Clean Water Acts, which were

passed when I came to the Senate in 1972. Their purposes are not

to maintain the status quo or to generate more energy. They are

to fundamentally change the quality of the air we breathe and the

water we drink. The objective is not to stay static, but is to improve

the environment; and there is a whole hell of a lot of improvement

needed.

Without blaming anyone about anything, I suspect our perspectives are impacted upon by which way the wind blows. I would like

for a while to have the wind blow into Ohio instead of out of Ohio.

I would like the wind to blow from Delaware into Pennsylvania,

rather than from Pennsylvania into Delaware. I was raised in a

steel town called Claymont, DE. I lived a tenth of a mile from the

Pennsylvania border, a place called Marcus Hook, PA. The Delaware River has more oil refineries—I don’t know if it still the

case—in any one spot than any other place in America, including

Houston, TX.

The prevailing winds blow our way, not the other way. As a kid,

I would wake up in the morning. My uncle would drop me off at

the local school. If there was mist that day, literally he would turn
17

on the windshield wiper and there would be an oil slick on the window.

Now, we have improved, but it was not a joke. It was real. It is

exactly how it worked.

Where we sit impacts on where we stand on this issue. I am not

being critical of the State of Ohio or any other State, but if the coal

plants in Ohio and Michigan and other places were 20 feet high instead of 300 feet high, they would just seep over the top and all

the folks in Ohio would get the benefit of the acid rain that we get

where we live.

I understand the perspective, but we should be straight with

each other. Part of what is at stake and the degree to which we

feel intense about this depends upon who breathes what and what

happens to our constituents. In my State, it is a big deal. If I take

issue slightly with my friend Senator Lieberman, is not to clarify

what you think, but rather to change what you think. You guys

have a chance to correct this.

I am not being facetious. I think we need to bring some focus on

this. The President says that he fully is focused on this—but it is

a little bit like when we started off the debate on corporate difficulties we now have. When it started, we did not alter very much at

all the bill that Senator Sarbanes brought out of committee. We

saw overwhelming opposition from about a third to probably a little

more than that of the Members of the Senate. Then the public

spoke. The public figured out what was going on and the Congress

passed it overwhelmingly—not a single dissenting vote. That is my

hope for this issue. You have time, fellows. Redemption is at hand.

You can change this. I mean it sincerely—you do not have to go

this route.

This is understandable; it happens in every Administration. A

relatively small group of people who feel very strongly for one position end up having control of it, and move it. Then once the whole

deal is figured out by everybody else, there are sometimes second

thoughts. My hope is for second thoughts. This is all about cleaner

air and cleaner water.

It is a serious issue to the people in my State. We live in a region

that is in non-attainment of the Federal ozone standard. We are a

tiny State. No place is wider than 55 miles; no place can you drive

in a straight line longer than 113 miles. We have the highest cancer rates of any State in the Nation on average. We are one, two

or three among the four cancers that are the biggest killers in

America. Why in the heck is that? I don’t know. We can’t prove

anything, but I will tell you what—we cannot build a barrier 300,

500, 700, 800, 10,000 feet high. We can’t. Nothing we can do about

it. Nothing we can do about it. Yet the standards are higher in

Delaware than elsewhere and we cannot meet the non-attainment

Federal ozone—we are in non-attainment.

The bottom line is, we don’t have the ability to meet the current

health-based standards. But to state the obvious, not all of our air

pollution comes from Delaware. Think about this. I think maybe

one of the big wake-up calls every once in a while—I have been

here a long time—every once in a while, something happens that

is totally unrelated to the issue at hand that sheds light on the

issue like nothing else. The entire East Coast was in a fog because
18

of a forest fire up in North Central Canada. If you ever need a

graphic description of how the air we breathe is affected by what

happens in other parts of the country, I don’t know what more you

would need to understand that point.

I would love to do something. I would love to be able to, just for

kicks, make every emission that comes out of a coal-fired plant, to

have a color, literally. I mean this sincerely. I am not joking. Instead of it being what is emitted, not discernible to the naked eye,

I would love to be able to literally color code what was coming out

of it, just like we saw that smog and smoke coming down from

thousands of miles away in Canada. We would have, as we Catholics say, ‘‘a real epiphany,’’ a real epiphany here in America.

My friend from Ohio makes a very valid point—the rate-payers

pay. I will lay you 8 to 5, if you went to the rate-payers and said,

look, your rates are going to go up 2, 3, 5, 7 percent, but the air

you breathe is not going to cause my son’s asthma to get any

worse. I will get they would pay. I bet they would pay. We don’t

ask them that question. We don’t get there.

I will make one last and concluding point. Under the leadership

of Delaware’s Governor Carper, now Senator Carper, Delaware’s

Chrysler wanted to build a new plant—to build the Dodge Durango. They had to build a new paint plant. They debated whether

or not they were going to meet the standards of New Source Review. The Delaware officials—the Governor, and our Secretary of

our EPA our Secretary of Natural Resources, a guy named

DiPasquale—came up with a program that is permitted in which

there is a plant-wide applicability limit, the so-called PAL permit.

They did a heck of a job. Working with EPA, one of the first PAL

permits was issued to the plant in 1996. The permit, the first of

its kind in the automotive industry, was issued in 99 days. Everybody acknowledged we have to reform some of this—it was issued

in 99 days. The plant continues to operate under flexible permit;

and as an added benefit, it saved Chrysler $13 million in increased

productivity and pollution prevention costs.

This can be a win-win situation. Chrysler won with a permit giving the flexibility to meet production needs. Delaware citizens won

through reduced air pollution. Clearly the PAL permits are one of

the many ways industry can meet its responsibility to prevent pollution, while continuing to grow and expand under New Source Review rules. The Administration says it wants to promote the use

of PAL permits. As part of the NSR reform, it has proposed a new

PAL rule, but the similarity between the PAL permit that you all

are proposing and the one, the old PAL permit that we used, is one

in name only. In the words of the bluegrass singer Guy Davis,

‘‘This permit is a two-dollar chicken on a three-dollar plate.’’

The Administration is using the successful Delaware PAL record

to support their new version, but the new version is fundamentally

different. It gives the industry fewer regulatory requirements, but

it fails to get in return pollution reductions that could come from

state-of-the-art pollution control technology. The new version would

force States to issue those new permits without gaining the benefits derived from the old permit.

Not surprisingly, Delaware does not believe it could achieve the

same pollution prevention results under the new rule. It is oppos-
19

ing the reform proposal. In a letter sent to Administrator Whitman,

Natural Resources Secretary DiPasquale said the following:

‘‘Fundamental differences in Delaware’s approach versus EPA’s apparent proposal

make the use of our permit to support your proposal in appropriate. The Delaware

approach ensures the use of state-of-the-art pollution control technology and lower

emissions per emission unit than would otherwise be attained. Delaware believes

this level of commitment from the source is needed in order to ensure those obtaining a PAL are truly environmental leaders and are capable of complying with a permit that offers streamlined regulatory requirements and flexibility along with the

responsibility of self-regulation.’’

Don’t confuse what we did in Delaware with what you are proposing now. This is serious stuff. These rules are designed to protect public health, not to protect industry from fulfilling its civic

duty. If it is going to cost more, why don’t we engage in a little bit

of truth in lending here? I sued to be on the Banking Committee.

We went through this whole truth in lending thing 28 years ago—

a gigantic fight. Why don’t we have a little ‘‘truth in lending’’ in

pollution control? If in fact you all tell us it is going to cause these

staggering increases in the cost of energy, tell us what they will be

and let the voters choose whether or not they would rather breathe

cleaner air or pay a little more money.

So I look forward to the hearing, Mr. Chairman. Thank you for

your time, and I yield the floor.

Senator INHOFE. Mr. Chairman, Senator Hatch has yielded his

time to me for opening statements.

Senator LEAHY. Well, he would have to yield to somebody on the

Judiciary Committee.

Senator INHOFE. All right. Let me throw something else at you.

Could I make an opening statement and then defer my 5 minutes,

since I was the early bird at the meeting and I was the first one

here?

Senator LEAHY. We are going to make sure that you are going

to be one of the first to be heard and you will be able to make a

statement during that time.

Senator INHOFE. Wouldn’t it be easier to do it now?

Senator LEAHY. I would like to hear from Mr. Sansonetti, and we

will have him——

Senator INHOFE. They have been sitting there for an hour already. I don’t think another 5 minutes is going to bother them. Is

it going to bother you guys?

Senator LEAHY. The chairman of your committee said to let you

go, so go ahead.

OPENING STATEMENT OF HON. JAMES M. INHOFE,

U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator INHOFE. All right. Thank you very much.

As a lot of you know, in March 2001, Senator Breaux and I wrote

the first congressional letter on the New Source Review program

to Vice President Cheney. In our letter, ‘‘EPA’s flawed and confusing NSR policies will continue to interfere with our Nation’s

ability to meet our energy supply needs,’’ and I ask unanimous consent that be placed in the record at the conclusion of my remarks.

Senator LEAHY. Without objection, it will be.

[The referenced document follows:]
20

UNITED STATES SENATE,

Washington, DC, March 23, 2001.

Hon. RICHARD B. CHENEY,

Vice President of the United States of America,

Washington, DC.

DEAR MR. VICE PRESIDENT: In your capacity as the chairman of the National Energy Policy Development Group, we are writing to bring to your attention our concerns that, unless addressed, the prior Administration’s EPA’s New Source Review

(‘‘NSR’’) enforcement policies will continue to interfere with our nation’s ability to

meet our energy and fuel supply needs. We strongly urge that the Administration

take into account these concerns in developing its national energy plan.

As you are very much aware, the Nation faces a potential energy supply shortage

of significant dimensions. The California energy crisis is receiving the greatest attention in the media. However, major challenges exist in meeting demands for gasoline and other fuels, especially in the Midwest. More troubling, current projections

suggest fuel shortages and price spikes—far exceeding last year’s problem. These

are due to a number of factors including: difficulties in making summer-blend Phase

II reformulated gasoline; EPA hurdles to expanding refinery capacity, and the overall increase in energy demand.

Unless reviewed and addressed, EPA’s implementation of NSR permitting requirements will continue to thwart the nation’s ability to maintain and expand refinery

capacity to meet fuel requirements. In 1998, EPA embarked on an overly aggressive

initiative in which it announced new interpretations of its NSR requirements that

it has applied retroactively to create a basis for alleging that actions by electric utilities. refineries and other industrial sources taken over the past 20 years should

have been permitted under the Federal NSR program. We also understand that

these new interpretations conflict with EPA’s regulations, its own prior interpretations and actions. and State permitting agency decisions.

EPA’s actions have been premised heavily on its reinterpretation of two elements

of the NSR permitting requirements. First, EPA’s regulations specifically exempt

‘‘routine maintenance, repair and replacement’’ activities from NSR permitting. EPA

now claims that projects required to be undertaken by utilities and refineries over

the past 20 years to maintain plants and a reliable supply of electricity and fuels

were not routine and thus should have gone through the 18-month, costly NSR permitting process. EPA’s enforcement officials are asserting this even though, for more

than two decades, EPA staff have had full knowledge that these maintenance, repair and replacement projects were not being permitted.

A second ground for many of EPA’s claims has to do with whether projects resulted in significant emissions increases. By employing a discredited method for determining whether emissions increases would result from a project-using so called

‘‘potential emissions’’ instead of actual emissions, EPA is asserting that numerous

projects resulted in emission increases when in reality they had no effect on emissions or were followed by emissions decreases.

EPA’s NSR interpretations have created great uncertainty as to whether projects

long recognized to be excluded from NSR permitting can be undertaken in the coming months to assure adequate and reliable energy supplies. Electric utilities and

refineries have expected that they could undertake maintenance activities, modest

plant expansions, and efficiency improvements without going through lengthy and

extraordinarily costly NSR permitting, as long as the project involved either routine

maintenance or no significant increase in actual emissions.

Now, in light of the new interpretations, utilities and refineries find themselves

in a position where they cannot undertake these very desirable and important

projects. This is not an acceptable result when the Nation is faced with severe

strains on existing facilities. Against this backdrop, we strongly urge that the National Energy Policy Development Group:

• give investigation of EPA’s implementation of its NSR requirements a high priority;

• suspend EPA’s activities until such time as there has been a thorough review

of both the policy and its implications;

• clarify whether the implications of EPA’s new NSR interpretations and its enforcement initiative are being reviewed by the White House Office of Energy Policy

and the Secretary of Energy prior to actions that could undermine energy and fuel

supply; and

• establish guidelines to assure that EPA’s application and enforcement of its

NSR requirements will not interfere with the Administration’s enemy and fuel supply policy. Requirements should be developed, which are consistent with responsible

implementation of the statutory NSR requirements.
21

Specifically, to assist you in assessing the implications of NSR on meeting the nation’s energy and fuel supply demands, you may want to obtain the following: (1)

all requests since January 1, 1998 for information under section 114 of the Clean

Air Act issued to facilities and companies in any sector involved in energy and fuel

supply: and (2) notices of violation issued to, and complaints tiled against, any such

company and/or facility alleging NSR violations during that period. We are submitting a similar request to EPA today.

Thank you for your consideration of this matter. We look forward to working with

you in the future to develop environmental policy, which further protects human

health and the environment and works in concert with sound energy policy.

Sincerely,

JAMES M. INHOFE,

U.S. Senator.

JOHN B. BREAUX,

U.S. Senator.

Senator INHOFE. I would like to publicly thank the Administration for being responsive to Senator Breaux’s and my concerns. It

took real courage to do this, to pursue NSR reforms. It takes courage because this is always misconstrued as a sneak attack on the

environment. Despite all of the partisan rhetoric we have heard

today about NSR reforms and the process of developing these reforms, make no mistake, President Bush’s decision will result in a

cleaner environment and greater energy security.

I am not going to go into this because it has already been

touched upon by Senator Smith—that is, it was the Clinton Administration that developed the draft proposals that accumulated over

130,000 comments on NSR reforms. It was Clinton’s Environmental

Chief, Bob Perciasepe, who wrote a letter outlining the NSR reforms, which are similar to President Bush’s reforms, and called for

the Bush Administration to consider formalizing the reforms. I

would like to place this letter in the record also.

Senator LEAHY. Without objection, the letter will be placed in the

record.

Senator INHOFE. From my tenure as the chairman of the Senate’s

Clean Air Subcommittee, I know that New Source Review is a

major issue for the energy sector. In fact, I held the very first congressional hearing on New Source Review in your State of Ohio

back in February 2000. I could not believe my ears of what I was

hearing. We heard from companies who were trying to make environmentally friendly modifications to the facilities being stopped

dead in their tracks, ironically by the Clean Air Act. As a result

of my March 2001 letter, a number of stakeholders from all over

the country have contacted me to discuss their experience with the

NSR program. These examples further shocked me, so much so

that Senator Specter and I sent a letter to the EPA and DOJ outlining some of the examples, and I would ask that that letter be

made a part of the record.

Senator LEAHY. Without objection, the letter will be made part

of the record.

[The referenced document follows:]

UNITED STATES SENATE,

Washington, DC, June 20, 2001.

HON. CHRISTINE TODD WHITMAN, Administrator,

U.S. Environmental Protection Agency,

Washington, DC.

DEAR ADMINISTRATOR WHITMAN: Thank you for your May 14, 2001 response to the

Inhofe letter, regarding all requests for information under § 114 of the Clean Air Act

and Notices of Violation (NOVs) issued to the energy sector. The information sub-
22

mitted was very useful and has provided us with a greater appreciation of the impact of the New Source Review program on our energy sector.

We have serious concerns that continuation of the prior Administration’s New

Source Review (‘‘NSR’’) enforcement policies may interfere with our nation’s ability

to meet our energy and fuel supply needs. For that reason, we were very pleased

to see that the President has included in his energy policy an Environmental Protection Agency (EPA) and Department of Energy review of the NSR program and a Department of Justice (DOJ) review of the NSR enforcement initiative.

Prior to the Inhofe letter, we knew that New Source Review was a major issue

for the energy sector. However, as a result of the Inhofe letter, a number of companies from all over the country have contacted us to discuss their experience in responding to EPA’s information requests, the first step EPA takes in initiating an

NSR enforcement action. The information included in your response to the Inhofe

letter and the information received from these companies has raised a number of

issues for which we would appreciate additional information. Therefore, we respectfully request the following information: • Information and examples submitted to our offices by companies over the past

several weeks suggests that the response provided by EPA does not include all of

the § 114 requests issued by EPA since 1998. Specifically, our offices have become

aware of facilities that have received § 114 requests without any official cover letter.

These requests were apparently not included in the information sent to Sen. Inhofe.

Please explain why these requests were excluded from the information presented to

Sen. Inhofe’s office. In addition, please explain how often the Agency submitted

§ 114 requests without the appropriate cover letter, and the reason for this apparent

informality. • Additionally, it has come to our attention that, in some cases, the § 114 requests

came in the form of a photo-copied document with the name of one facility scratched

out and the name of another facility penciled in. We are interested in knowing how

many § 114 requests are issued in this manner and the reason for using photo-copied requests with new names penciled in. Please include a copy of each of these requests and the names of the individuals in both the regional offices and headquarters who signed off on the § 114 request in this form. Are § 114 requests usually

allowed to be issued in this manner? • According to individual companies that contacted our offices, some § 114 requests asked for information which had already been produced. We are interested

in understanding further how often this occurs and the rationale for asking for the

same information twice. In instances where the same information is requested

again, does the company have to provide the same documentation again or can the

company simply refer to a previous submission? • Similarly, some companies have also stated that § 114 requests referred to attachments that were not provided. We would request your staff to review the § 114

requests sent out over the past 2 years to determine how often the § 114 requests

refer to attachments that are not provided.

• In addition, we are puzzled by the fact that upon receiving these § 114 requests, some company officials received follow-up calls apologizing for the § 114 request, requesting that the recipient ‘‘ignore’’ or ‘‘put on hold’’ the request. Please tell

us how many of these calls were made and the reason for the retraction. What are

the legal implications for the company of having received a § 114 request followedup by a ‘‘disregard call?’’ Is the company still obligated to respond to the request?

If not, how does the company adequately document that the § 114 letter is not being

pursued? In light of these incidents, please provide us with information on any requests for information under section § 114, which have been submitted to a facility

and, subsequently, withdrawn for any reason, including the date of the submission

and withdrawal of the § 114 request.

• Given these incidents, we would also appreciate information on the procedure

that EPA personnel must follow before issuing information requests under section

§ 114 of the Clean Air Act. Please describe this procedure and all cases of a violation

of such a procedure since 1998, including the name of the facility affected, the date

of the violation of the procedure, the names and titles of any Federal employees involved, the supervisors of the Federal employees involved, and the nature of the specific violation of the procedure. What quality controls procedures does EPA have in

place to assure compliance with these procedures?

• Unfortunately, because of the fear of retribution, many of the parties receiving

these § 114 requests have requested that we not disclose their names. None-the-less,

we find it very troubling that we did not see any of these § 114 requests included

in EPA’s May 14, 2001 response. In your testimony before the Senate Committee

on Environment and Public Works on May 15, 2001, you responded to inquires on

these issues by stating that the problem is being addressed. Please explain to us
23

what actions you are taking to assess the magnitude of these potential procedural

missteps and the measures that you are planning to take to address the problem.

• In addition, we would also like information on all requests for information

since 1998, which may not explicitly cite section § 114, but derive the power of the

requests from this section.

• With regard to the NOVs and complaints submitted, please provide us with a

list of the types of projects cited in the NOVs and complaints.

• Finally, we would appreciate an explanation as to why EPA apparently chose

not to comply with the requirements of the Paperwork Reduction Act (PRA) when

it issued these § 114 requests to the electric utility companies and refineries. As you

maybe aware, under the PRA and the Office of Management and Budget’s (OMB’s)

implementing regulations, an agency such as EPA is not to conduct or sponsor the

collection of information without first consulting with and obtaining approval from

OMB. Under the PRA, this consultation and approval process is intended to ensure

that, among other things, the agency’s information collection request is necessary

for the proper performance of the functions of the agency, including whether the information will have practical utility.

As you maybe aware, the PRA applies to all information collection requests consisting of essentially identical questions or requests for information imposed on 10

or more persons. OMB’s implementing regulations further specify that any collection

of information addressed to all or a substantial majority of an industry is presumed

to involve 10 or more persons. The information you previously submitted to Sen.

Inhofe indicates that this threshold requirement has been met with respect to both

the electric utility and refinery sectors.

Since the § 114 requests you previously provided to Sen. Inhofe do not display

OMB control numbers, should we assume that EPA has concluded that those requests are not subject to the PRA? If so, what is the basis for EPA’s conclusion?

We are aware of the fact that the PRA makes an exception for requests for information submitted during the conduct of a civil action to which the United States or

an agency thereof is a party, as well for requests made in conjunction with an administrative action or investigation involving an agency against specific individuals

or entities. But if this is the provision of the PRA on which EPA is relying, we must

remind you that OMB’s implementing regulations clarify that this exception applies

only after a case file or equivalent is opened with respect to a particular party. Are

we to understand that EPA has opened a case file for each and every one of the

electric utility companies and refineries to which EPA has submitted § 114 requests?

If so, we would appreciate your formally confirming this for us. If not, then the

question remains, what is the basis for EPA’s apparent conclusion that the PRA

does not apply? In particular, we direct your attention to the provision of the PRA

that specifies that the PRA does apply to the collection of information during the

conduct of general investigations undertaken with reference to a category of individuals such as a class of licensees or an entire industry.

We respectfully request this information no later than July 13, 2001. A timely response is requested, so that we can assess the impact of these enforcement policies

on our energy supply. We trust that producing such information will bring to light

some interesting facts for your review of the New Source Review program.

These examples concern us because they suggest a sloppy and poorly managed enforcement initiative with little regard to the impact on companies that often have

to unearth and certify up to 20 years of information in 30 days. Additionally, it costs

a small facility hundreds of man hours and hundreds of thousands of dollars to comply with these information requests. Because these companies face the full force of

the law and must respond to any information request, the government must bear

the responsibility of being judicious in undertaking these requests.

Therefore, we further request a full investigation by the EPA’s Inspector General,

involving procedural errors and mismanagement. Additionally, we request that you

share this information and any findings with DOJ, so DOJ can use this information

for their review. We will also be requesting that, during the NSR enforcement review called for by the National Energy Plan, DOJ take a serious look at the extent

to which these and other procedural errors exist within the NSR enforcement initiative.

We understand that you are still working hard to place your team together, but

we firmly believe that these issues must be investigated immediately. If you have

any questions, please feel free to contact us or have your staff contact Louis Renjel

with Sen. Inhofe’s staff.

Sincerely,

JAMES M. INHOFE,

U.S. Senate.

ARLEN SPECTER,

U.S. Senate.
24

Senator INHOFE. As if it is not bad enough that no one really understands NSR as a policy and NSR is stopping projects which

would make facilities cleaner and more efficient, under the NSR

enforcement initiative, I saw outrageous examples of bureaucratic

harassment. There were examples of information requests submitted to companies by EPA employees without any official authorization. There are other information examples in the form of

photocopied documents with the name of one facility scratched out

and the name of another facility penciled in. There are also requests which were addressed to one facility, but referred to operating units of another facility half-way across the country, just to

mention a few.

I fully support strong enforcement of the Nation’s clean air laws,

but I am not going to stand by and watch what appears at the minimum to be a gross incompetence and carelessness by the Federal

employees who appear to care nothing for the costs involved. As a

former businessman, I have personally dealt with similar behavior

from the government, and I often wish that more people had a

background like I had so they would know what it is like to be

overregulated when nothing is going to be gained from it.

I think Congress and the executive branch are going to have to

understand how these various layers of regulation impact sections

of the economy. We have a chart here I have used before, and this

chart shows refiners who are currently working at almost 100 percent capacity, are going to be simultaneously hit with a multitude

of regulations in the next few years. NSR will make it close to impossible for refiners to make these environmental upgrades. Higher

energy prices affect everyone, but you know, you had, Senator

Voinovich, someone come in and testify, I think his name was Tom

Mullen, that it affects the poor the worst. Twenty-five percent of

the people have to make a decision as to whether they want to heat

their homes or have groceries. That was your constituent that

made that testimony. Oklahoma is a poor State, so that percentage

is much higher.

I think the NSR reforms enjoys the support of a wide range of

interests. You have States’ attorneys general, you have labor

unions. I would like to submit two letters, one from the U.S. Chamber of Commerce and one from the International Brotherhood of

Boilermakers to support the NSR reform at this point—without objection so ordered.

[The referenced documents follow:]

CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA,

Washington, DC, July 15, 2002.

Hon. JAMES INHOFE,

U.S. Senate,

Washington, DC.

DEAR SENATOR INHOFE: I am writing on behalf of the U.S. Chamber of Commerce

(U.S. Chamber), the world’s largest business federation, representing more than

three million businesses and organizations of every size, sector, and region, to express our support for reform of the New Source Review (NSR) program. NSR, in its

current form has impeded environmental progress and energy production for decades. The revisions recently announced by the U.S. Environmental Protection Agency (EPA) are a good beginning to reforming a deeply flawed program.

The NSR program concerns the Clean Air Act (CAA) emissions standards applicable to significant new and modified stationary sources. In 1980, EPA established a

regulatory exclusion for ‘‘routine maintenance.’’ The scope of this term, however, re-
25

mains subject to debate. A clear administrative interpretation of ‘‘routine maintenance’’ would be an improvement over the present situation, which is mired in complexity and confusion.

Reducing the problems with the NSR program is vital. Governments should not

unnecessarily impede the work of the private sector. The NSR program is a classic

example of bureaucratic complexity. More than 20 years after the initial regulation,

a plant manager cannot determine with any certainty whether planned maintenance activities will subject the facility to millions of dollars of extra costs.

The NSR program, as presently constituted, is a severe impediment to increasing

domestic energy supply. Electric generating plants cannot make even minor changes

to their operations without running the risk of ruinous enforcement actions that

would impose huge fines and enormous compliance costs on their facility. National

energy policy, indeed national security, requires the removal of every obstacle to increased domestic energy production.

The National Energy Policy Report directed EPA to review the NSR program, and

report on its effect on environmental protection and energy production—EPA’s review found that the NSR program has impeded or resulted in the cancellation of

projects that would maintain or improve reliability, efficiency, or safety of existing

power plants and refineries.

On June 13, 2002, EPA announced a set of revisions to the NSR program. Among

other changes, facilities would be able to make physical changes to their plants

without obtaining an NSR permit, if their emissions do not exceed a plantwide cap.

Projects would be excluded from NSR requirements if they result in a net overall

reduction of air pollutants. EPA would also establish a safe harbor test. Projects

whose aggregate costs are below the threshold established by the safe harbor test

would be exempt from NSR requirements.

These proposals promise a major improvement to the NSR program. They will

lead to improvements in the environment, as regulatory certainty will allow facilities to perform routine maintenance and repairs without the fear of triggering NSR

requirements. Plants have deferred routine maintenance, which would have improved safety and decreased emissions, due to the potential costs of NSR requirements. With the NSR program modifications, overall emissions will be reduced. The

reforms, particularly the plantwide cap, will benefit facilities by allowing increased

operational flexibility. The revised NSR program will simplify an overly complex

program.

The recently announced NSR reforms are long overdue. The regulations to be

made final later this year were proposed in 1996. The proposals requiring notice and

comment rulemaking will not be in effect until 2004, at the earliest.

The U.S. Chamber supports reform of the NSR program. The U.S. Chamber urges

the Senate to encourage these efforts to improve environmental progress and energy

production.

Sincerely,

R. BRUCE JOSTEN.

STATEMENT OF ANDE ABBOTT, DIRECTOR, LEGISLATIVE DEPARTMENT, INTERNATIONAL

BROTHERHOOD OF BOILERMAKERS

Chairman Jeffords, Chairman Leahy, and members of the committees, my name

is Ande Abbott and I am the director of Legislation for the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers, AFL–

CIO. I thank you for this opportunity to present our views.

Commonly referred to as the Boilermakers Union, we are a diverse union representing over 100,000 workers throughout the United States and Canada in construction, repair, maintenance, manufacturing, professional emergency medical services, and related industries. Boilermakers, who make and maintain industrial boilers and the pollution control equipment they use, have had a long-time commitment

to a clear, effective and reasonable new source review (‘‘NSR’’) policy. We support

the recent efforts of this Administration to clarify the program. The efficiency of our

facilities and the safety of our workers hang in the balance.

First, let me be clear today that Boilermakers do not oppose the Clean Air Act,

nor do we oppose its rigorous enforcement. In fact, construction lodges of our union

look forward to doing much of the actual work for the installation of new technologies and controls at utility plants and for industrial boilers across this region

and the country. In reference to the NOx control program alone, our international

President Charlie Jones recently wrote:
26

‘‘The EPA estimates that compliance measures will cost about $1.7 billion a year.

A sizable portion of that money will go to the Boilermakers who do the work necessary to make the additions and modifications required by the SCR technology.’’

Aside from NOx control, Boilermakers have always led the way on Clean Air Act

issues. For example, Boilermakers were pioneers in installation of scrubbers and

further in fuel-substitution programs at our cement kiln facilities. In short, Boilermakers have been there to meet the challenges of the Clean Air Act, to the benefit

our members and all Americans that breathe clean air.

However, Boilermakers could not support the EPA’s 1999 recent interpretation of

its authority under the New Source Review program. NSR, correctly interpreted as

we believe the Administration’s clarification does, forces new sources or those undergoing major modifications, to install new technology, like the technology President

Jones mentioned. We support NSR in that context.

But, when NSR is applied to the routine maintenance policies and schedules of

existing facilities, very different results occur. In those cases, facilities are discouraged from undertaking routine actions for fear of huge penalties or long delays or

both. By applying NSR in that way, we are pretty sure that Boilermakers won’t

have the opportunity to work on maintenance projects that we know are extremely

important to energy efficiency. Just hearing about recent events in California is

enough to make the case that facilities need to be as efficient as possible. We now

have read that New York maybe facing similar problems. The New York Times reported just a few days ago that, the State ‘‘is unexpectedly facing the potential for

serious power shortages over the next couple of months.’’ Now is definitely not the

time to play with the reliability of power grid.

Efficiency is not the only reason to encourage routine maintenance. Experienced

professionals or Boilermakers new to the trade can both tell you: maintenance is

necessary to maintain worker safety. Electric generating facilities harness tremendous forces: superheater tubes exposed to flue gases over 2000 degrees; boilers

under deteriorating conditions; and parts located in or around boilers subjected to

both extreme heat and pressure. Any EPA interpretation which creates incentives

to delay maintenance is simply unacceptable to our workers.

Some critics of the June 13 action by the Administration have contended that the

NSR decision was made with insufficient attention to public process. This simply

has not been the experience of the Boilermakers or other unions working on this

project. The U.S. EPA held four public hearings in each region of the country. Paul

Kern, the recording secretary of our Local 105 in Piketon, Ohio, offered a statement

at the hearing in Cincinnati. In addition, it is our understanding that over 130,000

rulemaking comments were received on this initiative. Given our experience with

certain regulations that just seem to appear over night, the Administration’s action

on NSR seem pretty open and fair to us. When you compare the current clarification

to the way the program changed by in 1999—without any rulemaking process whatsoever—the Administration’s June 13 announcement looks all the better!

Boilermakers are not just workers; they are also consumers of electricity that

work hard for their wages. One item often lost in the mess regarding NSR is that

capital expenditures not justified for environmental protection are still passed along

to ratepayers. Unfortunately, the less money you make, the greater the percentage

of your paycheck goes to your electricity bills. According to Energy Information Administration data, those living at or near the poverty level pay 4 to 6 times the percentage of their income for power. So, advocates of misusing the NSR program hurt

those least able to afford it the most!

As you can see, Boilermakers have never asked for repeal or substantial revision

of the NSR program. We encourage the development and installation of new technology, and we stand ready to continue to train and apprentice workers to meet the

needs of the Clean Air Act. However, when the NSR programs goes where it wasn’t

intended—and discourages the very maintenance, repair and replacement activities

that constitute the livelihood of Boilermakers—we must strongly object. Thanks for

the opportunity to make a statement.

Senator INHOFE. President Bush will not place layer after layer

of regulations without considering the energy implications.

Mr. President, we now have an energy crisis in this country——

Senator LEAHY. I will settle for ‘‘Chairman,’’ as one of the very

few members of the Judiciary Committee who has never run for

President.

[Laughter.]
27

Senator INHOFE. I see. That is true. Well, we heard some really

great Presidential speeches already today, and I kind of enjoyed

them. The season is starting early.

[Laughter.]

But we do have a crisis and it is not a laughing matter, and the

extreme left environmental extremists do not want to drill, they do

not want to refine, they do not want nuclear energy. I don’t know

what they want. You cannot run the most highly industrialized Nation in the history of the world on windmills.

Thank you, Mr. Chairman.

Senator LEAHY. Thank you.

Mr. Sansonetti is the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice. He is the top law enforcement official on environmental issues.

He will go first, followed by Jeffrey Holmstead, who is the Assistant Administrator for Air and Radiation at the U.S. Environmental

Protection Agency.

In your statement, Mr. Sansonetti, please also tell us whether

you had any involvement with development of the Administration’s

energy policy, including specifically its Clean Air Act stance before

you were confirmed to your current post as chief environmental enforcer.

Please go ahead, Mr. Sansonetti.

STATEMENT OF THOMAS L. SANSONETTI, ASSISTANT ATTORNEY GENERAL, ENVIRONMENT AND RESOURCES DIVISION,

U.S. DEPARTMENT OF JUSTICE

Mr. SANSONETTI. Chairmen Leahy and Jeffords, members of the

committees, I am pleased to be here today to discuss the Department of Justice’s enforcement activities on behalf of the New

Source Review program. We take the health impacts of air pollution seriously, and our enforcement activities in this area are an

important part of the effort to clean up our air and to protect public

health and the environment.

Accordingly, we are continuing to prosecute vigorously a variety

of actions in connection with the NSR program. One point that I

want to state at the outset is that there is much more to this program than the regulation of power plants. We are targeting a variety of industries. This approach has resulted in significant gains

for public health and the environment across the United States.

In addition, the committee should be aware that the NSR litigation is only one part of the Environment and Natural Resources Division’s enforcement docket. We have many other enforcement actions focusing on other environmental laws, including for instance

the Clean Water Act, and we have to thank both of the Chairmen

for our Vermont pure natural spring water that you supplied us

with today. We are committed to vigorously enforcing all of these

laws, as well as NSR violations.

In the late 1980’s, the Department of Justice began bringing enforcement actions for NSR violations. Our primary goal in these actions has always been the protection of the public health and the

environment by compelling facilities that are in violation of the law

to install state-of-the-art pollution controls. We also seek to impose

appropriate civil penalties for past violations so as to discourage
28

noncompliance and ensure a level playing field between those who

comply with the law and those who fail to do so. Over time, working with our colleagues at EPA, we developed a strategy of targeting industries that had significant compliance problems with regard to NSR requirements that were major sources of air pollution.

I would like to describe just a few or our recent successes in those

areas.

Beginning in the late 1980’s, we focused our first NSR enforcement efforts on the wood products industry. In a landmark settlement, we resolved an action against Louisiana Pacific in 1993 with

a consent decree that required the company to install pollution controls at its facilities nationwide. Since then, we have had a string

of successes in obtaining similar settlements from other major

wood product manufacturers. In March, we filed a settlement with

Boise Cascade that will require reductions of up to 95 percent of

the emissions from the company’s eight plywood and particle board

plants. Boise Cascade will also pay millions in civil penalties in its

supplemental controls to reduce emissions at its various plants.

The State of Louisiana which joined us in bringing this action will

receive a portion of that civil penalty.

We have also been very successful in reaching settlements for

NSR violations with several major refiners. After prevailing at trial

on the issue of liability, we joined with the EPA and the Wisconsin

Department of Justice in January to announce a settlement with

Murphy Oil, which will dramatically cut sulfur dioxide emissions

from the company’s Wisconsin refinery. Murphy Oil will also pay

a civil penalty of $5.5 million, the largest ever leveled in Wisconsin

in an environmental enforcement case. Also last December, we announced comprehensive environmental settlements with Conoco,

Navajo Refining and Montana Refining Company that are expected

to reduce harmful air emissions from seven petroleum refineries by

more than 10,000 tons per year. Several States joined in those settlements.

These are only a few of the many settlements that we have

reached with major refiners in the last 18 months. All together,

these settlements cover 37 refineries and almost 31 percent of the

Nation’s domestic refining capacity, and are expected to reduce air

emissions of nitrogen oxides and sulfur dioxides by more than

150,000 tons per year.

Now, what about coal-fired utilities? The Department has filed

10 enforcement actions against coal-fired utilities. So far, we have

reached settlements with two companies and agreements in principle with two others. Our most recent success in this area came

in January when we joined forces with the State of New Jersey to

reach a settlement with PSEG, in which it will spend over $337

million to install state-of-the-art pollution controls to eliminate the

vast majority of sulfur dioxide and nitrogen oxide emissions from

two New Jersey coal-fired power plants. The combined effect of the

pollution controls will reduce the company’s sulfur dioxide emissions by 90 percent and nitrogen oxide by over 80 percent. PSEG

also agreed to pay a civil penalty of $1.4 million and to spend at

least $6 million on three pollution reduction projects. As Attorney

General Ashcroft stated, ‘‘This important settlement reflects our
29

continuing commitment to enforce vigorously the Clean Air Act to

protect public health and the environment.’’

What about the current status? We currently have 11 pending

enforcement actions in which NSR violations are the main issue.

Eight of those eleven involve power plants. The remaining three involve other industries. Of the eight pending power plant cases, five

are currently in active discovery on liability issues, with one of

these scheduled to go to trial this year in October. In the other

three pending power plant cases, the parties are either engaged in

settlement negotiations or discovery has been stayed because the

district courts are awaiting the 11th Circuit’s decision in TVA v.

EPA. That case was argued in May. The 11th Circuit has not

reached a decision and has recently referred that case to mediation.

Last, the Department’s Office of Legal Policy has reviewed the

existing enforcement actions for their consistency with the Clean

Air Act and determined that the existing enforcement actions are

supported by a reasonable basis in law and fact. It further stated

that the Division will continue as it has during the pendency of

this review to prosecute vigorously the EPA’s civil actions to enforce the New Source Review provisions.

In conclusion, I would like to assure these committees that the

Department of Justice takes very seriously its obligation to enforce

the existing laws and to protect public health and the environment.

As directed by the Attorney General, we will continue to vigorously

prosecute the NSR enforcement actions and to defend the action

brought by TVA against EPA.

I will be happy to answer any questions you have about my testimony.

Senator LEAHY. Mr. Sansonetti, you asked several questions

yourself and answered them, but I did not hear the answer, which

can be a simple yes or no.

Mr. SANSONETTI. It is a no.

Senator LEAHY. You had no involvement with development of the

Administration’s energy policy, including specifically its Clean Air

Act stance before you were confirmed here?

Mr. SANSONETTI. That is correct, sir.

Senator LEAHY. Thank you.

Mr. Holmstead.

STATEMENT OF JEFFREY HOLMSTEAD, ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION, U.S. ENVIRONMENTAL

PROTECTION AGENCY

Mr. HOLMSTEAD. Good morning, Chairman Jeffords, Chairman

Leahy and members of the committee. Thank you for giving me the

opportunity today to discuss the changes that the EPA is planning

on making to the New Source Review program.

I must admit that I have been looking forward to this opportunity because for some time now, I have been wanting to try to

clear up some of the misperceptions that are circulating about the

NSR program. Since I arrived at EPA almost a year and a half ago,

I have spent much of my time learning about the details of this

very complex program and I am eager to share with you what I

have learned.
30

As several of you have mentioned, Congress created the New

Source Review program in 1977 to allow for industrial growth without compromising our progress toward cleaner air. To accomplish

this goal, the NSR program requires companies to install state-ofthe-art pollution control equipment when they build a new majoremitting facility or when they modify an existing plant in a way

that results in a significant emissions increase. We believe that the

New Source Review program should provide a bright line for industry and regulators to follow in meeting these statutory requirements, but it does not. Over the years, the program has become increasingly complicated, often leading to protracted litigation. For

example, as Tom mentioned, EPA filed several NSR-related lawsuits against power plants in 1998 and they are still far from being

resolved. Now, as Tom has said and as Governor Whitman has repeatedly said, we are committed to pursuing those cases, but we do

not believe that a properly designed program should need protracted and uncertain litigation to make it work. EPA is attempting to end this system of regulation by litigation by putting common sense back into this important program.

In May 2001, the President’s National Energy Policy Group

asked EPA to review the NSR program. During our review, we met

with more than 100 public officials, industry groups and environmental and consumer groups. We held a series of public meetings

and public hearings around the country, and we evaluated more

than 130,000 public comments, although I should mention that

probably about 1,000 of those were substantive comments; about

129,000 were postcards that were virtually identical.

The review found that NSR, as it applies to new facilities, works

quite well and has provided substantial environmental benefits. As

the current program applies to existing facilities, however, we

found quite the opposite. It has become a source of frustration that

has impeded or caused the cancellation of many projects that would

have improved reliability and energy efficiency in existing plants.

Now, perhaps this would be an acceptable price to pay if the program were effective in improving air quality. As it relates to existing sources, however, and again I want to state we are not talking

about how the program applies to new sources, but as the program

relates to existing sources, there is no evidence that it actually has

improved air quality. We know that in some cases it has effectively

prevented companies from making changes at their plants that

would have reduced emissions.

We also know, perhaps more importantly, that it has created an

artificial incentive for companies to keep their emissions high because under the current program, this is the best and in some

cases the only way for a plant to preserve its operational flexibility.

This is entirely consistent with the current regulations.

Now, no one should be surprised to hear that there are problems

with the current NSR program. Officials from the last three Administrations, State and local government leaders, Members of

Congress from both political parties and consumer and environmental groups have all acknowledged that the New Source Review

program is not working as well as it should. For the past 10 years,

practically half of the life of the program, EPA under both Democratic and Republican Administrations has been engaged in a for-
31

mal process to figure out how to make the NSR program better. I

am pleased to say that we are finally moving forward on this effort.

Last month, we announced major improvements to the New

Source Review program, and rather than summarize those, I would

just refer you to the documents that I believe that you already

have. But let me just mention that those are really two different

sets of improvements. The first several, as you have mentioned,

will be final rules that will adopt proposals that were first made

under the Clinton Administration back in 1996. That accounts for,

the way we count them, five of the eight improvements to the program that we are making.

In addition, we are now at the initial stages of going through I

believe exactly what Senator Biden asked us to do, which was to

put these ideas out for public comment, to take input from all of

the interested stakeholders, and to decide whether these are additional changes that need to be made. Let me just emphasize that

each of these changes, whether they are the changes that we are

going final on, or the changes that will go through the full process,

have undergone an extensive public notice and comment process.

I believe that the changes we have made and those that we will

propose will make a real difference in the effectiveness of the New

Source Review program. By removing unnecessary barriers to modernization and pollution prevention, we can make our power plants,

refineries and factories cleaner and more energy-efficient.

Just a quick word if I can on power plants. We as an Administration, and I personally, agree with the concerns that have been

raised by many of the members of the committee, especially those

of you in the Northeast. We understand that in fact there are serious pollution problems that are caused by coal-burning power

plants. We also know how to address those problems, and I commend Mr. Jeffords for his leadership on the issue. We have spent

an enormous amount of time in my Agency over the last 18

months, and actually over the last 10 years, trying to study how

we can effectively reduce those emissions. I will tell you that the

answer is to do something like what you all did in 1990, which is

to not have a complex program that allows facilities to decide when

they are going to reduce their emissions, but to have Congress

enact legislation that says you are now required to reduce your

emissions by a certain amount over a certain period of time, and

that is what the President’s Clear Skies proposal would do, and we

very much look forward to working with all of you on that proposal

and passing this important piece of legislation.

One other thing, I would like to ask if I may that the reports

that are already in the public record on our recommendations, as

well as our report on the New Source Review program, if those

could be placed in the record, I would appreciate that.

Senator LEAHY. Without objection.

Mr. HOLMSTEAD. I look forward to answering any questions you

may have.

Senator LEAHY. Thank you.

Mr. Sansonetti, in January, your department issued a report

which upheld the legal basis of the Clinton NSR lawsuits. In

March, you were quoted as saying about the NSR cases, ‘‘We are

going full stream ahead. We are actively pursuing all cases. When
32

companies refuse to settle, DOJ will take them to trial.’’ Tough

words; I happen to agree.

But following these kind of tough words, the press reports indicate that because of EPA’s recent actions revising the NSR, defendants who were close to settlement are now walking away from the

bargaining table and doing it with confidence. In fact, defendants

in courts are brandishing the EPA’s own documents in their court

filings in support for dismissing the multi-billion dollar lawsuits.

All of a sudden, everything seems to be going backward. Did you

and your lawyers at DOJ see that coming?

Mr. SANSONETTI. First of all, I disagree with the interpretation

from press reports, because frankly, while obviously I cannot get

into the details of any of the ongoing litigation, the details of the

settlements, I can tell the Senator that the folks in my division

continue to work on all these pieces of litigation and the

settlements——

Senator LEAHY. Without going into the particular press reports,

are there cases where they were close to settlements and now they

are backing away from those?

Mr. SANSONETTI. No.

Senator LEAHY. None? That is your statement here—your statement here is that there are none.

Mr. SANSONETTI. That is correct. We are going forward with our

attempts to settle and we continue to negotiate with the attorneys.

Senator LEAHY. Are defendants in courts brandishing the EPA’s

own documents in their court filings as support for dismissing the

lawsuits? Are there any such cases?

Mr. SANSONETTI. The only case that I am aware of is one that

is not within my shop. I read the report on the New York State

case brought with Niagara Mohawk. We are not involved in that

case. To my knowledge that is the only one——

Senator LEAHY. Did you counsel EPA to refrain from publishing

a revision of NSR during the ongoing enforcement actions?

Mr. SANSONETTI. Did I counsel them not to do what?

Senator LEAHY. Did you counsel them to refrain from publishing

a revision of NSR during these enforcements?

Mr. SANSONETTI. No, that is not my business. I am in the law

and litigation business, not policy formation.

Senator LEAHY. You don’t think that their publishing that might

affect in any way the settlement discussions that are underway?

Mr. SANSONETTI. May, may not. It is a case-by-case basis.

Senator LEAHY. But it is irrelevant to you whether it would or

not?

Mr. SANSONETTI. Right, because the announcement does not affect my cases. I am going forward with them regardless of what

ends up happening with this proposal.

Senator LEAHY. But you don’t think that changing a key Clean

Air Act regulation mid-stream might affect those legal cases?

Mr. SANSONETTI. It depends on the judge. One judge could say

that that does affect it, and maybe they go back and make a certain decision; another judge may say ‘‘I’m sorry’’——

Senator LEAHY. But as far as you are concerned, it is irrelevant

to your actions?
33

Mr. SANSONETTI. Because, if I can use a baseball analogy, I am

in the game. I have got to go to the plate and bat. And some people

are saying—— Senator LEAHY. But it is irrelevant to your actions?

Mr. SANSONETTI. That is correct. I have got to go forward. I have

no choice.

Senator LEAHY. In your report to the President on the pending

NSR cases, the concluding line of the summary reads, ‘‘Any decision to withdraw, terminate or otherwise circumscribe them would

rest in the discretion of the ENRD’’—DOJ’s Environment and Natural Resources Division—‘‘which must assess the relative strength

and weaknesses of a given case.’’ But then in the same report, it

concludes, ‘‘Any decision to withdraw, terminate or otherwise circumscribe them would constitute policy determination as to Clean

Air Act enforcement strategy, or regulatory interpretation, determinations that properly rest with EPA, the Agency charged by statute with the responsibility to make such decisions.’’ I just wanted

to understand for the record, does responsibility for the enforcement of the Nation’s environmental law lie with DOJ or with EPA?

Mr. SANSONETTI. DOJ.

Senator LEAHY. Do you believe that it is appropriate for defendants in ongoing NSR cases to use EPA’s proposed NSR revisions as

support for dismissal of those cases?

Mr. SANSONETTI. I have to leave that to the attorneys representing the other side. I supposed if I were on the other side and

I thought that might help me, I might use that, but that is up to

them.

Senator LEAHY. Do you think it is a good defense?

Mr. SANSONETTI. I do not. I think that the courts are going to

look at what the existing law is at the time that the matters come

before the court, and the proposals are not going to be anywhere

near final by the time these trials come up.

Senator LEAHY. But you do not think that there have been any

changes in the status of cases that were close to being settled because of this?

Mr. SANSONETTI. I cannot read somebody else’s mind. All I can

do is go forward and listen to my attorneys.

Senator LEAHY. Now, Mr. Sansonetti, that is not responsive and

that is beneath you and this committee. That is not the question,

nor are we asking you to be—but if you are going to be in charge

of this, you have to make some judgments for tactics and otherwise. Do you get the impression that following this, there was a

backing off of settlement discussions?

Mr. SANSONETTI. No. I might also note that in the testimony that

was given by EPA today, it says specifically that the changes that

they are making to the NSR program will be prospective in nature.

EPA will continue to vigorously pursue its current enforcement actions.

Senator LEAHY. I understand their testimony, but what I am saying is, you have said you are in charge of the enforcement of this.

I am asking you whether it had an effect on you and on your ability to enforce.

Mr. SANSONETTI. So far, not, but let’s see how the trials come

along and if the settlements end up on the courthouse steps, as
34

many times they are as you get close to the trial date, settlements

come up. That first case is about 90 days away, a couple more in

February, so we will soon know. Those trials will come up before

this regulation.

Senator LEAHY. Mr. Holmstead, when EPA developed this 90-day

report on NSR, did you engage the Department of Justice’s NSR

legal team in these deliberations?

Mr. HOLMSTEAD. At the time we were developing that report and

the list of recommendations, we worked extensively, my staff

worked not only with the Department of Justice, but also with our

own Office of Enforcement. And so there was extensive—the answer is yes, there was extensive consultation.

Senator LEAHY. Did you go into a question of how these proposals would impact either prospective or retrospective NSR enforcement cases?

Mr. HOLMSTEAD. Yes, that was one of the primary issues that

was discussed. What I can say is, based on numerous meetings

that I have had, which have included staff attorneys from Tom’s office as well as attorneys from our own enforcement office is we do

not believe these changes will have a negative impact on the enforcement cases.

Senator LEAHY. So you were advised by DOJ that they would not

have an impact?

Mr. HOLMSTEAD. I cannot say that I have had specific advice

from Tom, but—— Senator LEAHY. By ‘‘Tom,’’ you mean Mr. Sansonetti?

Mr. HOLMSTEAD. I am sorry—Mr. Sansonetti. But based on conversations between our staffs, I have been informed by our enforcement folks as well as by people in Mr. Sansonetti’s office that they

do not believe these will have a negative impact on the enforcement cases.

Senator LEAHY. On these multi-billion dollar cases that have

been filed, your understanding from DOJ is that this would not

have any effect?

Mr. HOLMSTEAD. That is correct. If I can also just mention, I was

interested to read this morning in the Washington Post that there

was an article that addresses this issue, and I know that—and a

spokesman from Attorney General Spitzer’s office said exactly the

same thing. If I could just read from the article, he says, this is

from Attorney General Spitzer’s office, ‘‘Nothing the Bush Administration does prospectively will have any impact on the violations

these plants committed in the past,’’ said Mark Violeta, spokesman

for the Attorney General’s office. ‘‘We feel we are pretty solid

ground.’’ I think that represents our position on these cases as well.

Senator LEAHY. Thank you.

Senator Jeffords.

Senator JEFFORDS. Mr. Holmstead, I understand that EPA

projects about 70 percent of the sources in several industry sectors

have not bothered to get NSR permits when they should have.

What would you estimate is the current rate of noncompliance?

Mr. HOLMSTEAD. I have no idea. I have read that statistic before.

I believe that that comes also from our enforcement office, and they

believe that in some industry segments that there is that sort of

high rate of violation. I honestly do not know what the violation
35

rate may be. One of the things that I know that you are interested

in, as am I, is that we have another way of regulating power

plants, the Acid Rain program, where we know we have effectively

100 percent compliance, and we think that sort of a program where

we get compliance and we get the reductions is a much better way

of going about these things, but I do not have specific statistics on

what we think the compliance rate is.

Senator JEFFORDS. If these rules go final this year, which you

have proposed, when and by how much will pollution decrease?

Could you tell us with respect to each rule?

Mr. HOLMSTEAD. Yes, I would be happy to. As you mentioned,

there are five different rules that we plan to go final on. We have

analyzed each of those extensively and let me just go through them

quickly. The first one, as Senator Biden mentioned, has to do with

what we call plan-wide applicability limits. We have done a number of pilot projects on these so-called PALs, and have a study that

we hope to publish within the next few weeks, but it has found

that in each of the cases that we have studied, you get significant

reductions that you would not otherwise get under the program. It

is very difficult to quantify the extent of those reductions, but we

are highly confident that that reform will lead to much greater

emission reductions than we currently get. We can say the same

thing about something that we refer to as exclusion for pollution

control projects.

So we know of a number of cases where people have not undertaken these sorts of projects, and we are going to eliminate that

barrier, and we know that that will also reduce emissions. So

again, quantifying exactly how much is very difficult to do, but we

do know that as with the PALs, that we will get significant emission reductions.

The same is the case with respect to something we call the clean

unit test, which really for the first time provides industries with

an incentive to install the best available control technology. Under

the current program, if you go through NSR and as a result of that

you install the best available controls, you can be in the same process again 2 months later or 6 months later next time you make a

change. We do not think that is the way the statute was really intended to work, and we believe that if we can give people an incentive to put on the best available controls, that will also reduce

emissions.

The last two changes, one of which has to do with a change in

the emissions test. Currently, the program uses something called

the actual to potential emissions test, which focuses not on actual

emissions, but theoretical emissions. We believe that by focusing on

actual emissions, that that will allow people to go forward with

projects that will reduce pollution. Again, it is very difficult to

quantify, but we know it is in the right direction. And then the

fifth one has to do with a change in the baseline, and we do not

see that that has a difference on way or another.

So based on pretty extensive analysis of all of these reforms, we

know that they will result in emissions decreases, but it is very difficult to say by how much.
36

Senator JEFFORDS. Well, we would like you to the best extent

possible to give us some specific objectives in tons so that we can

better understand the ramifications of what you are doing.

Mr. HOLMSTEAD. We would be happy to do that. I will just need

to tell you it will need to be based on some assumptions and we

will be clear about those assumptions. For instance, one of the

things—we think PALs are a good idea and we wish States would

do what some States have done, and that is require PALs for everyone. That is, for instance, what the State of Oregon does that has

a very effective program. Under our program, PALs are optional

and so we have to make some assumptions about how many

sources would adopt PALs. But we can make those sorts of assumptions and provide that information to you, and we will be

happy to do that.

Senator JEFFORDS. Thank you.

Mr. Holmstead, when will the Agency provide us with a quantitative analysis of the aggregate impact of the rules that you intend to finalize this year on quality, public health and emissions?

I would note that a combination of the Congressional Review Act

and the Executive Order on Regulatory Review requires such an

analysis due to their significance. I would like your comments on

how you would be able to accommodate us on that.

Mr. HOLMSTEAD. I am quite familiar with both the Congressional

Review Act and the Executive Order which was signed by President Clinton which require what is called a regulatory impact analysis or an RIA for regulations that exceed a certain threshold in

terms of their impact on the economy. Back in 1996, the Clinton

Administration determined that these five regulatory changes that

we are making now that none of them exceed that threshold, and

so therefore a regulatory impact analysis was not required. As I

know you know, under both the Executive Order and the Congressional Review Act, it is only major regulations that are subject to

the RIA requirements, so we have not prepared a formal RIA. In

the preamble to these final rules, we will be again discussing why

we know that these will improve the environment.

In terms of quantifying the emissions reductions that I mentioned, that is hard to do. We will try to get something to you that

you can see, but again what we will have to do is just make some

assumptions about how many facilities will voluntarily accept PALs

because that does actually put a cap on the emissions, something

the current program does not do. We will make some assumptions

about that, and we will be happy to provide that information to

you.

Senator JEFFORDS. I think our view is that the impacts on public

health are very significant, and therefore it does apply. We would

appreciate it if you would look at it from that perspective.

Mr. HOLMSTEAD. We will be happy to.

Senator JEFFORDS. Mr. Holmstead, I understand that the informal interagency review of this package has begun, even before it

is sent to OMB. Will you agree to docket any written comments

from other agencies in this process?

Mr. HOLMSTEAD. Yes, I would be happy to. We will certainly—

and in fact, I am quite sure that we are doing that already, yes.
37

Senator JEFFORDS. Mr. Holmstead and Mr. Sansonetti, have you

had any meetings with representatives of power companies or TVA

that are the subject of the NSR enforcement actions, in which they

suggested modifications to the NSR regulations that would, if implemented, have prevented or precluded the filing of those enforcement actions?

Mr. SANSONETTI. In my case, no.

Mr. HOLMSTEAD. I believe that is the same for me. I am trying

to think if, because TVA is a Federal Agency, I have had some discussions with TVA, but not in relation to any of the enforcement

actions. I certainly understand their perspective on the NSR program on an overall basis, but I do not believe it is fair to say that

they have proposed changes that would have any impact on the enforcement actions.

Senator JEFFORDS. Thank you, Mr. Chairman.

Senator LEAHY. Thank you.

Senator Voinovich.

Senator VOINOVICH. Mr. Sansonetti, how long have you been

there, again?

Mr. SANSONETTI. One-hundred and ninety-six days.

Senator LEAHY. Liking it better every day.

Senator VOINOVICH. Are you familiar with when the lawsuits

started to be filed under NSR—about when?

Mr. SANSONETTI. As I mentioned in my earlier testimony, I remember that the initial cases were filed in the 1980’s. Many of the

cases that are presently coming up for trial were filed in the 1998–

1999 period.

Senator VOINOVICH. Here is what I am trying to get at. I think

in 1996, President Clinton asked the EPA or the EPA in conjunction with the President, to go forward with reform of the regulations that dealt with New Source Review, and as a matter of fact

some of the regulations that are being now considered are recommendations that have come out of the Clinton Administration.

Is that right, Mr. Holmstead?

Mr. HOLMSTEAD. That is correct, yes.

Senator VOINOVICH. OK. Something happened prior to 1998.

Some of the companies were doing routine maintenance and repair

and going on and doing a lot of things. Then something triggered

these lawsuits, and there were a lot of them that were filed. The

issue is, what was it? What change took place at the EPA that

caused these lawsuits to be filed in 1998 when many of the things

that were done were being done in 1991, 1992, 1993, 1994, and at

that time nothing was done about them? I suspect the people that

were doing them understood that we were doing routine maintenance and repair and this was OK, and then all of a sudden, wow,

a whole flurry, as I mentioned in my opening statement, blossomed—all these lawsuits. It is my understanding that it occurred

because someone in the EPA issued a guidance. Could either one

of you shed light on just what it was that caused the Agency to

start to go after some people on things that prior to that time they

were not bothering with?

Mr. SANSONETTI. I am afraid I can’t. During that period of time,

I was practicing law in Cheyenne, WY. So I am afraid I do not have
38

any personal knowledge of what was going on at EPA during that

time.

Mr. HOLMSTEAD. I am sorry, I cannot really help you either. I

don’t know exactly what the thinking was within the EPA back in

those days, but I do know, as you say, that the current round of

cases was initiated I think back in the 1998–1999 timeframe, so exactly what precipitated those cases, I do not know.

Senator VOINOVICH. Well, Mr. Chairman, I would like to ask the

EPA to do an investigation as to what it was that triggered these

lawsuits, as I mentioned, for things that had heretofore been done

by these companies and all of a sudden they now became subject

of lawsuits under New Source Review. I am very, very interested.

How did it happen?

Mr. Holmstead, there has been a number of—I would like to get

that in the next couple of weeks.

Mr. HOLMSTEAD. Yes, sir. I am sure we can provide that.

Senator VOINOVICH. Mr. Holmstead, there have been a number

of allegations in the media that the EPA has engaged in a closed

process. There are some allegations here from some of the questions and statements made by members of the two committees

here, that somehow it was a closed process in developing the NSR

reform package; that this was done in a sinister way in the dark

rooms of the White House, with big utility and other people. I

would like you to comment. What kind of process did you use in

trying to come up with the recommendations that you are making

in terms of regulations?

Mr. HOLMSTEAD. If I can just make an initial observation. One

of the most interesting things about being at the EPA is to be involved in an issue, and then read about that issue in the press and

realize that there is usually no relationship between, at least in my

experience, what is going on and what is reported in the press as

going on. I have heard these accusations before about a secret process, a backroom process, and I have to admit I am just sort of baffled because this has been done in a very open, public way, going

back to 1992. At the very end of the first Bush Administration and

then on through the Clinton Administration, there was actually a

formal FACA, Federal Advisory Committee Act, committee that

met dozens of times to talk about NSR issues.

Senator VOINOVICH. Excuse me—were all these open hearings,

were they the ones—after those hearings was what triggered the

Clinton Administration’s recommendations for regulations in 1996?

Mr. HOLMSTEAD. Yes. The five things that we are going final on

all stem directly from that process. So there were literally dozens

of public meetings. There was a formal proposal in 1996. There

were public hearings on that proposal. There was a series of meetings. I think our files indicate there were something upwards of

meetings with 50 different groups on those proposals. There was a

supplemental notice published in the Federal Register in 1998 and

again additional public comment on these very same reforms that

we are talking about today.

Senator VOINOVICH. Have you changed those regulations that

came in 1996 in any way, from the Clinton Administration?

Mr. HOLMSTEAD. There were a number of regulations—there

were many, many things that were proposed. We are not finalizing
39

all of them, partly just because of manpower concerns. So we are

focusing on the five most important ones. For those that were proposed, I cannot say that in every single respect they are the same,

but they are quite close to what was proposed in 1996 by the Clinton Administration.

Senator VOINOVICH. I would like to see what was proposed and

what you are proposing with these regulations, and make that

available to this committee also.

Mr. HOLMSTEAD. That is something that we will do shortly.

When we issue the final regulations, we will be able to—one of the

things that of course we have to do under the Administrative Procedure Act is explain any differences between the proposal and the

final rule, as well as our response to any comments. So that will

all be, again, available to you very soon.

Senator VOINOVICH. So the regulations that we have been talking

about here, we are speculating about what those regulations are

going to be because you have not really issued them, then. Is that

right?

Mr. HOLMSTEAD. That is correct. We have provided, as I think

you know, an announcement where we did provide some detail

about what we are planning to go final on, but again those are sort

of one or two paragraphs of what are fairly complicated regulatory

packages.

Senator VOINOVICH. The question I have is if these regulations

have not been issued yet, how can we attribute them being so terrible when we really do not know what they are yet?

Mr. HOLMSTEAD. I think that is a good question. As the person

who has been accused of gutting the Clean Air Act and rolling back

the Clean Air Act and various other things, I have often asked that

same question myself.

Senator VOINOVICH. So there has been a lot of speculation here

in this committee about how terrible they are and how they are

going to roll back the rules and regulations, and yet we still don’t

have those in front of our face yet so that we can really ascertain

whether or not they do what some people say they are going to do.

Mr. HOLMSTEAD. That is correct. The regulations are not—we are

still finalizing those within the Agency. That is correct.

Senator VOINOVICH. It might be good for this committee to get

together after the regulations have been issued so we really know

what we are talking about.

Mr. HOLMSTEAD. I will look forward to that.

Senator VOINOVICH. Thank you.

Senator LEAHY. Thank you.

Senator Carper.

OPENING STATEMENT OF HON. THOMAS R. CARPER,

U.S. SENATOR FROM THE STATE OF DELAWARE

Senator CARPER. Thank you, Mr. Chairman, and to our witnesses, thank you for joining us today.

Like several members of this panel, I am a supporter of legislation that seeks to cap and reduce the amount of pollutants, four

principal pollutants, including sulfur dioxide, nitrogen oxide, mercury and carbon dioxide. Senator Jeffords has sought to lead our
40

panel, Environment and Public Works panel, with legislation called

Four P’s, you are I am sure familiar.

We reported the bill out of committee and it is, I guess we are

now positioned to go to the floor. There are those of us who are interested in looking at an approach to a Four-P bill that still sets

targets and reduces pollution emissions in all four areas, but also

revisits New Source Review policy at the same time.

Here is my question, and I will ask either of you to take a shot

at it if you would. I want to in focusing on New Source Review ask,

does it currently, as it is currently applied, does it, and this is what

I think it ought to do, and then I will ask you do you think it does,

and if not, how can we change it. My view of New Source Review

is that it ought to protect our health and our environment. New

Source Review should promote energy efficiency and reduce our

consumption of energy in this country. New Source Review should

provide the reliable, affordable electricity to consumers. And finally, New Source Review, in my own judgment, ought to provide

some regulatory certainty for utilities. Those are really the four

things I would hope it would help us to provide.

Here is my question, two-part. One, does it do those things? If

not, how can we change it in order to accomplish those four goals?

Mr. HOLMSTEAD. I would like to address that if I can. Let me

make sure that I understand the four factors. One is energy efficiency; one is regulatory certainty; one is energy security.

Senator CARPER. Yes.

Mr. HOLMSTEAD. And I am sorry, the fourth?

Senator CARPER. Protecting a healthy environment.

Mr. HOLMSTEAD. OK. I have to say that as some of you know,

I have spent an enormous amount of time trying to understand

these very questions. I think the New Source Review program has

been quite effective for facilities that build brand-new sources. As

the program applies to the existing sources, and people I think

have misconstrued what the statute says. The statute says that

New Source Review applied if a facility makes a change that would

result in a significant emissions increase. So they are free to make

all the changes they would like to make as long as it does not result in a significant emissions increase, and there is a lot of debate

back and forth as to how you quantify that.

What we can say with some certainty on each of these four factors is first of all, with respect to protecting human health and the

environment, it certainly has been a useful tool that applies to new

sources, but it does not really do anything to reduce emissions from

existing sources for the reasons that I mentioned. As long as they

do not increase their emissions, they can keep going.

We actually have done a very extensive analysis of power plants,

and our basic conclusion is this: With respect to the most harmful

of these pollutants, and that is SO2, which contributes to fine particles, the only way the New Source Review program reduces those

emissions is if a facility violates the NSR program and then is subjected to a lawsuit and through settlement or otherwise has to put

on controls. If they comply with the program, and again we have

modeled this extensively, and we have modeled any number of

changes we could make to the program, it does not get any reductions at all in SO2 emissions. As I say, the only way it gets those
41

reductions is to have people violate the program and then be subject to an enforcement action. So we believe that in terms of actually reducing the emissions that many people, including ourselves,

believe that are the most significant, it does not really provide us

with anything.

We also believe, for reasons I can explain—I do not want to use

up all of your time—but it has impeded energy efficiency. We know

of many cases where changes that a facility could make that would

improve its energy efficiency have been prevented or canceled because of concerns about New Source Review.

In terms of regulatory certainty, that is one of the big issues. I

think that one of the things we want to do is provide that sort of

certainty. The program has been in existence since 1977. We have

never defined in our regulations what routine maintenance, repair

and replacement is. So that is something that we are endeavoring

to do now.

But if I could leave you with one thing, and I appreciate your

question, from an energy perspective, from an environmental perspective, the most important thing that we can do for the utility

industry and for the public health, especially in the Eastern United

States, is to do something along the lines of what you have talked

about and Senator Jeffords and the President’s Clear Skies initiative which is to say, we know that SO2 emissions right now are at

11 million tons. We want them brought down to 4.5 million tons

and then 3 million tons, and that would provide us with certainty.

It would encourage energy efficiency. It would provide health and

environmental benefits that we cannot get under the current program.

So I just have to say, judged on the four criteria that you mentioned, I think the program really does not work as it relates to existing sources.

Senator CARPER. Mr. Chairman, has my time expired?

Senator LEAHY. Go ahead.

Senator CARPER. The second half of my question, how do we need

to change New Source Review in the context of a four-pollutant bill,

in order to better meet the four goals that I described earlier?

Mr. HOLMSTEAD. I am sorry. I did not explain that very well. In

the context of a stringent cap program of the kind that I know the

President has proposed or others, the New Source Review program

becomes entirely redundant. It honestly has no additional benefit

for the environment. So our recommendation is that once you have

a cap program in place, as long as those caps are at least as stringent as what the President has proposed, then there is really no

longer a role for the New Source Review program as it relates to

those sources. You would still need it for—as you know, it applies

to many, many other sources besides power plants—but as it relates to power plants, there is really no longer any role to be played

by the NSR program. It really is counterproductive.

Senator CARPER. As we go forward, and I am still new at this

here, but the idea of doing away entirely with New Source Review,

as opposed to working with us to see if there is a middle ground,

I am going to encourage you to try to work with us to find if there

is a middle ground.
42

Mr. HOLMSTEAD. I appreciate your comment. And let me say, and

I may get carried away with my own rhetoric here, under the

President’s proposal, which we hope will be introduced in both the

House and the Senate fairly soon, we have retained certain features of the NSR program. For instance, under the current program there is sort of a guaranteed level of technology that any new

plant would have to meet, and that would be retained. There would

also be a need for new sources, a new power plant for instance, before it could be located anywhere, it would have to do modeling to

show that that would not cause an air quality problem. That would

be retained under the President’s proposal, as would some other

protections for national parks and what we call class-one areas.

So I think it would be really constructive to have a chance to sit

down with you and others and talk about the features of the program that would still make sense in that context, and we would be

delighted to have the opportunity to do that.

Senator CARPER. We look forward to that.

Mr. Chairman, is that my time? Is that it?

Senator LEAHY. It is.

Senator CARPER. Can I just ask one question for the record and

ask for a response in writing? Thank you very much.

About 4 years ago, Mr. Holmstead, when I was privileged to be

Governor of Delaware, our State submitted a section 126 petition

to EPA, and we did it with regards to controlling NOx emissions

from upwind power plants. I was surprised to learn the other day

that EPA has not yet responded to Delaware’s petition. It has been

about 4 years. I understand it is also the case with petitions from

the District of Columbia, New Jersey and our neighbors in Maryland. Here is my question. Don’t answer them now, but I would

like to have a followup if you would. When do you expect EPA to

respond to Delaware’s 126 petition? And what can we do in the future to help ensure that responses are more prompt?

Mr. HOLMSTEAD. We will be happy to respond to that question,

yes.

Senator CARPER. Thanks very much, and thank you, Mr. Chairman.

Senator LEAHY. Senator Bond.

OPENING STATEMENT OF HON. CHRISTOPHER S. BOND,

U.S. SENATOR FROM THE STATE OF MISSOURI

Senator BOND. Thank you very much, Mr. Chairman. I appreciate the opportunity to speak about the subject of the hearing

today.

As we have heard I believe in the testimony from these witnesses, this is not really about clean air. It is about litigation, policies, regulations, bureaucratic landmines and a whole raft of other

problems. Why are we here today? I think there may be other factors in improving air quality, and for the information of our good

friends on the Judiciary Committee, I think the Environment and

Public Works Committee last month scuttled further electric utility

pollution cuts in NOx, SOx and mercury in order to make a political point about carbon dioxide. A four-pollutant bill is not going to

go anywhere. A three-pollutant bill should go somewhere and we

continue to support it.
43

Today, we have spent the morning discussing an obscure program that was just an afterthought in the technical amendments

of 1977. As witnesses have testified, if you are really serious about

dealing with air pollution and continuing to make progress, there

are better ways to do it. We have not even discussed those aspects

of the NSR program that have been successful, which will ensure

that new facilities will not further harm regional air quality.

The Clean Air Act has brought America major air quality improvements. Since peaking in 1975, electric utility air emissions of

SO2 are now five million tons lower per year. In response to the

1990 Clean Air Act amendments, and I played a role in that with

the Bond-Byrd, as we call it in Missouri, or they call it the ByrdBond emissions trading proposal in Washington, we have seen

progress. Utilities have cut NOx by two million tons per year.

The major NSR enforcement cases begun by the last Administration in 1999 are responsible for none—let me emphasize none of

these air pollution decreases. The recent enforcement cases are

most striking in that they do not involve a single violation of air

and air emissions permit. Many, especially in the environmental

regulatory community, like to measure damage to the environment

in terms of pollution discharge or emissions permit violations. If

that is the test, these NSR cases are of no value to the environment.

Not one case alleges that a utility exceeded its government-permitted air emissions levels. These are all construction permits they

are fighting over. Most cases involve only potential increases in

emissions. Those plants which increase the actual emissions were

still below the levels allowed by the government in their emissions

permits. The NSR has produced bureaucratic confusion, conflicting

and changing regulations that leave this littered with traps for a

utility trying to improve efficiency and reduce environmental pollution. As one witness later on will testify, EPA has issued multiple

and inconsistent interpretation over the years. So much for regulatory certainty.

The other point that has already been brought out here in testimony is that the debate—the greatest value to the environment in

NSR reform should be energy efficiency, but this debate is leaving

that out. We spent much of the spring in the Senate debating an

energy bill, an important issue for environmental advocates was

promoting greater energy efficiency because the more efficiently we

generate and use energy, the less damage we do to the environment. However, advocates of the NSR program abandon their environmental friends’ energy efficiency arguments. The fuel efficiency

improvements we want for cars, trucks and air conditioners now do

not seem to matter for electric utilities.

We also hear charges about rolling back environmental protections. Nothing could be further from the truth. I was interested to

see a quote from a new administrator of EPA just before she took

office. One of her pledges was, ‘‘examine ways to simplify and

streamline the New Source Review process to reduce changes of

legal challenge.’’ That was not a statement by Governor Whitman.

That was a statement by Administrator-to-be Carol Browner.

That should not be surprising since all the rules the Administration announced in June essentially were finalizing the proposed
44

changes initiated by the Browner EPA, either the rollbacks back in

1996 under the last Administration were the substance, or maybe

the substance is not so bad at all. They just don’t like the messenger. I smell a sickening odor of political campaign rhetoric,

which is the greatest potential pollutant coming out of this hearing.

[Laughter.]

Senator BOND. And I think we ought to be aware of the dangers

of that to the health of our democracy.

Harsh letter to follow. I will submit the rest of my statement for

the record.

Thank you, Mr. Chairman.

[The prepared statement of Senator Bond follows:]

STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR FROM THE

STATE OF MISSOURI

Thank you, to both of the chairmen, for holding this joint EPW and Judiciary

Committee hearing on the New Source Review Clean Air program. Unfortunately,

for those who actually care about clean air, and not just litigation, policies, and regulations, you will be sorely disappointed.

So why are we hear today? I think it may have more to do with factors other than

improving air quality. For the information of my Judiciary Committee colleagues,

the Environment Committee last month scuttled further electric utility pollution

cuts in NOx, SOx, and mercury in order to make a political point about carbon dioxide.

Today, we will spend time discussing an obscure program that was just an afterthought in the technical amendments of 1977. We won’t even discuss the successful

part of the program which ensures that new facilities will not further harm regional

air quality.

The Clean Air Act has brought America major air quality improvements. Since

peaking in 1975, electric utility air emissions of SO2 are now 5 million tons lower

per year. In response to the 1990 Clean Air Act amendments, utilities cut NOx 2

million tons per year. The major NSR enforcement cases begun by the last Administration in 1999 are responsible for none of these air pollution decreases.

The recent enforcement cases are most striking in that they do not involve a single violation of an air emissions permit. Many, especially in the environmental regulation community, like to measure damage to the environment in terms of pollution

discharge or emissions permit violations. If that is the test, then these cases are of

no value to the environment.

Not one case alleges that a utility exceeded its government permitted air emissions levels. These are all construction permits we are fighting over. Most cases involve only potential increases in emissions levels. Those plants which increased

their actual emissions were still below the levels allowed by the government in their

emissions permits.

The other point that amazes me about this debate is how the greatest benefit of

NSR reform, energy efficiency, suddenly has no value to the environment. We spent

much of the Spring in the Senate debating the energy bill. One of the most important issues for environmental advocates was promoting greater energy efficiency.

The more efficiently we generate and use energy, the less damage we do to the environment.

However, advocates of the NSR program abandon their environmental friends’ energy efficiency arguments. Fuel efficiency improvements recommended for cars,

trucks and air conditioners now shouldn’t apply to electric utilities.

We will also hear charges today that the current Administration is halting enforcement suits and rolling back environmental protections. Nothing could be further from the truth.

I have a quote here from a new administrator before she took office. One of her

pledges was to, ‘‘examine ways to simplify and streamline the New Source Review

process [and] to reduce chances of legal challenge.’’ No, this wasn’t Governor Whitman; this was Carol Browner.

This shouldn’t be surprising since all of the rules this Administration announced

in June that it will finalize were proposed under the Clinton Administration by the

Carol Browner EPA. Either the rollbacks began in 1996 under the last Administration or the substance isn’t so bad after all. It’s just the new messenger they don’t

like.
45

Meanwhile, the Bush Administration continues to bring more NSR cases. EPA announced just last week that it filed a notice of violation for alleged NSR violations

against two coal-fired plants in Colorado. That is hardly taking the cop off the beat.

I urge my colleagues who are serious about improving air quality to get back to

the real work at hand—passing a three-pollutant bill that will bring a new generation of air pollution cuts for nitrogen oxides, sulfur dioxides and mercury. I look forward to working with my colleagues on that measure.

Thank you.

Senator LEAHY. I thank the Senator from Missouri, as always,

for being here.

[Laughter.]

Senator LEAHY. I appreciate the opportunity to be on the committee with him, as I am not a member of the committee that he

is representing here.

The next would be Senator Clinton, but I understand she is willing to yield a minute to the Senator from North Carolina.

Senator EDWARDS. I think actually she is willing to go further

than that and let me go ahead, Mr. Chairman, which I am very appreciate of Senator Clinton for doing.

Senator LEAHY. I thank the Senator from New York.

The Senator from North Carolina?

OPENING STATEMENT OF HON. JOHN EDWARDS,

U.S. SENATOR FROM THE STATE OF NORTH CAROLINA

Senator EDWARDS. Thank you.

Let me say first, Mr. Holmstead, I agree with a lot of the others,

that I think our priority here should be about reducing pollution

that is killing senior citizens, causing kids to get asthma and

smogging up our national parks. Personally, this is a huge issue for

us in North Carolina. We have every year in North Carolina 1,800

people who die from breathing pollution and soot. I think that is

actually the fourth-worst rate in the country. We have got 46,000

kids with asthma in just 17 counties. We have got clouds that are

literally more acidic than vinegar.

Our State has actually made a real effort to do something about

this. Governor Easley got enacted the Clean Smokestacks Act,

which I think is a model and we are proud of it. The problem for

us is obvious. North Carolina is not an island. Pollution travels

across our mountains and across our borders, and the Cumberland

TVA plant in Tennessee for example, emits about as much pollution every year as every car in North Carolina together. A lot of

that pollution, unfortunately, is getting into the lungs of kids and

our senior citizens.

I think we have got to do something about it. We have got to do

something about it not just in North Carolina, but for the entire

country. As you well know, New Source Review is an important

part of that. What I am concerned about is it seems to me that

what you are doing is gutting New Source Review without any kind

of adequate replacement for it.

Let me just ask you a couple of questions. I listened to your testimony earlier. You talked about your rule changes and you said it

is your feeling that those rule changes do not increase pollution,

but you have difficulty quantifying it. Let me ask you this question,

can you quantify the effect of those rule changes on human health?
46

Mr. HOLMSTEAD. Let me answer your question in two ways. First

of all, I agree completely and the Administration agrees completely

that the State of North Carolina has a significant problem that is

not caused by facilities in its own State. Those problems, including

premature deaths, including a negative impact on children with

asthma and others, are largely the result of emissions that come

in from neighboring States. We absolutely believe that those emissions need to be significantly reduced, and that is what the President is trying to do with the Clear Skies initiative. Again, just to

put that in context—— Senator EDWARDS. I apologize for interrupting you, but I have

gotten in front of Senator Clinton. I want to see if I can get an answer to my question. My question is, can you quantify the effect of

these proposed? You are proposing changing the law. These will

have the effect of laws, I understand it—these rule changes. If you

are proposing to change the law for the country, can you quantify

the effect of those changes on human health?

Mr. HOLMSTEAD. What I can tell you is that the changes that we

are finalizing will have a positive impact on public health. They

will make the air cleaner than it otherwise would be.

Senator EDWARDS. Can you quantify those changes? Can you tell

us what the quantification of those changes on human health

would be?

Mr. HOLMSTEAD. Senator Jeffords asked us to try to do that, and

we will attempt to do that. The other thing—— Senator EDWARDS. You have proposed rule changes and you have

not yet attempted to quantify what the effect on human health is?

Mr. HOLMSTEAD. Many times what we do in EPA, oftentimes is

when we make regulatory changes, we analyze those changes on a

number of different factors. For instance, some of the things that

we are proposing to do are just designed to bring some clarity to

the program and to make it work better. What we can say is we

have analyzed each and every one of these changes that are the

final changes that we are making, and on an overall basis they will

make things better. It is difficult to quantify how much better because as I said before it depends on how many people choose these

options.

But let me say one other thing which I think is important. The

concerns that you have raised are largely—the health impacts in

North Carolina have to do almost entirely, or let me say largely

with power plant emissions. None of the changes that we are making will have any impact on power plant emissions one way or the

other. Because of the way the program works, as I said before,

there are other programs that regulate the power sector.

Senator EDWARDS. Can I ask you about that, what you just said?

Mr. HOLMSTEAD. Yes, please.

Senator EDWARDS. One of the things—and this is related to

that—one of the things that you said earlier when you talked about

the rule changes is that you said the change in the baseline for determining where there has been an increase in emissions for purposes of determining whether an NSR is triggered, that that

change would have, I think you said, no effect up or down—I am

paraphrasing or something to that effect.

Mr. HOLMSTEAD. Correct. Yes.
47

Senator EDWARDS. Now, I am having trouble making sense out

of that. As I understand the current law is that the baseline for

determining whether there has been an increase in emissions and

whether a New Source Review is triggered is the last 24 months,

unless there is another more representative period. You are changing that to say that they only have to undergo a New Source Review if they have had an increase above, and I am quoting now,

the highest consecutive 24-month period within the immediately

preceding 10 years. So what you have said is, they can choose the

highest level of emissions over any 24-month period for the previous 10 years for determining whether they have in fact gone

above that level to see if a New Source Review can occur. It just

defies common sense to me that that does not improve the chances

that an NSR is not going to be triggered; that a period of greater

emissions can be used for purposes of determining the baseline. I

would add to that at least according to press reports, there are internal EPA documents where your own career lawyers say that a

change in that 10-year baseline would substantially diminish, I am

quoting now, ‘‘substantially diminish the scope of the program.’’ Do you disagree with them?

Mr. HOLMSTEAD. Let me answer your question. First of all, and

Senator Lieberman I think suffers from the same mis-impression

and talks about power plants that by changing the baseline that

somehow we are going to allow them to increase emissions. We are

not changing the way the baseline works for power plants. The

baseline issue for power plants is contained in a separate rule.

That rule was promulgated in 1992 and is referred to as the

WEPCO rule, and it creates a different way for power plants to calculate whether there is an emissions increase. We are not changing

that. So in terms of the power plant sector, what we are doing

today is irrelevant on the baseline issue.

With respect to other sectors, again there has been a great deal

of misunderstanding about what we are doing. As you mentioned,

under the current program the baseline that we refer to is either

the average of the two most recent years or another period that is,

‘‘more representative of normal source operations.’’ That subjective

piece, what is more representative of normal operations, has caused

a lot of controversy over the years for this reason. A lot of times

when someone goes in for an NSR permit, it is when they are coming out of a downturn in the economy and they want to improve

their facility because they realize that demand is growing. That

means that the 2-years immediately preceding the change are often

a period when their utilization is very low.

So they go in to the permitting authority and they sort of have

this negotiation about really what is a period that is more representative of normal source operations. We would like to remove

that subjective piece from the regulation altogether, and just have

a hard and fast rule which says you cannot look back more than

10 years. There is no longer a question about more representative

source operations. You have to choose a 24-consecutive-month period. I should mention that when the Clinton Administration—the

Bill Clinton Administration, Senator—I didn’t mean to confuse

them——

Senator CLINTON. I did not know there was another one.
48

[Laughter.]

Mr. HOLMSTEAD [continuing]. When they proposed this change,

they proposed a one-in-ten baseline. We were concerned that a onein-ten baseline would allow sort of unusual periods of high emissions. So we have gone to a two-in-ten baseline. That was not the

source of a great deal of concern in the public comment period, and

here is why. We are allowing people to look back 10 years to 24

consecutive months, but then they have to reflect additional pollution controls that have come online since that time. You do not

have to do that under the current program. So as we look at this,

in some cases our change will lead to a higher baseline, as you suggest; in other cases, it will lead to a lower baseline. But we do

know that in all cases it will just make the program a lot more

clear and a lot more understandable to people and there won’t be

the subjective element anymore. So that is why I say in some cases

the baseline will be higher; in other cases, it will be lower.

Senator EDWARDS. I think in fact, the power plants are a small

fraction of the industries that are covered by the NSR, when I

asked you the question about the change in the baseline.

Mr. HOLMSTEAD. That is correct.

Senator EDWARDS. I appreciate your explanation. I still have

trouble making it make sense.

Let me just say this, and there are others who have been waiting, I think that you are not able to quantify the effects on human

health of these proposed changes in the law, which is what they

are. It seems to me that at a minimum when we are talking about

senior citizens’ lives, and we are talking about kids getting asthma,

when we are talking about protecting people from the harmful effects, that if we are going to make a change in the law, we ought

to be certain that it is a positive change and we ought to be able

to quantify what that change is. I am glad that Senator Jeffords

has asked you to do that and I would like to see whatever information you have about that. But I will tell you that I believe that

what you are proposing is wrong. I intend to do everything I can

to stop it in the legislative process.

Thank you, Mr. Holmstead.

Senator LEAHY. Senator Sessions.

OPENING STATEMENT OF HON. JEFF SESSIONS, U.S. SENATOR

FROM THE STATE OF ALABAMA

Senator SESSIONS. Thank you, Mr. Chairman.

Well, I think the Carol Browner goal, as Senator Bond said, was

a good one, that we need and have for some time needed to simplify

the rules of the New Source Review to avoid litigation. Now we

have attorneys general in New York and other places suing power

plants all over America asserting what they think the rule means.

You have the Federal Government Department of Justice leading

a battle here against utilities that another agency of the Government thinks is not correct. So we have obviously serious differences

of opinion.

As I understand it, the EPA sat down with seven of the major

power companies and basically said either agree to what we tell

you or we are going to sue you. They just could not feel like they

could agree to it. And so now we are in litigation. Who knows, but
49

I will say this, a lawsuit in the 11th Circuit or any other Circuit

in the country is not going to come out with a comprehensive rule.

It is only going to answer the issues presented to the court. Isn’t

that correct?

Mr. SANSONETTI. That is correct, Senator.

Senator SESSIONS. So you will end up with some partial issue

settled, and other issues never touched or ruled on by the court.

That is not a way to establish a procedure that could cost of tens

of billions, maybe $100 billion out there. So we need to do this

properly.

Mr. Holmstead, when did EPA come to learn that the sources of

power were violating what they now conclude to be the New Source

Review rules? How long had they known about that before they

filed a lawsuit?

Mr. HOLMSTEAD. I do not know the answer to that question, because I was not in the Agency at the time those suits were brought.

Senator SESSIONS. That is an important question, it seems to me.

It has been going on for 18 years, or really 16 years before the lawsuit was filed. As a Judiciary Committee member, what concerns

me about this solely is are we following appropriately the Federal

administrative rules process and are we handling this in a legal

and fair manner? I believe that grandfathered-in plants are not

provided protection forever. We can through legislation or rule

change alter the rules or alter the legislation, if we deem it is important to public health. But if regulations are in place, they ought

to be carried out with integrity, Mr. Sansonetti, and ultimately

when you file a lawsuit you are responsible for that. You represent

EPA and the Department of Justice has to look a court in the eye

with integrity.

One of your attorneys in the 11th Circuit, when I asked when

the EPA knew about these NSR violations, the Department of Justice attorney apparently said the EPA did not know about it until

they filed a lawsuit, the cop was in another block—did not see the

crime occur. And the chief judge there questioned that. Surely,

EPA for years has known how the power plants are updating and

modernizing their facilities, haven’t they? That is an important

question because if they knew about it, they may well be estopped

to file a lawsuit and ask for damages back to 1982.

Mr. SANSONETTI. Obviously, this was before my time as well in

the department, but as I understand it the TVA case was brought

after the EPA had finished its negotiations with TVA, had brought

in an administrative compliance order issued by EPA. When TVA

did not like the result of that, it was TVA suing EPA in that case.

This is a matter of two Federal agencies after each other, and of

course it is the Department of Justice’s responsibility to defend

EPA in this case. This one is a little bit different from the other

cases we were discussing earlier where we were on the left-hand

side of the versus.

Senator SESSIONS. Well, this is an important, maybe even a pivotal issue in this litigation. Is EPA estopped from pursuing a suit

against TVA because they knew about these improvements and

have been approving these procedures for 16 years? Isn’t that a significant issue in the case?

Mr. SANSONETTI. It is a significant issue in the case.
50

Senator SESSIONS. Your attorney has now asserted on the record

that they did not know about it. That keeps the lawsuit alive, but

I wonder if you have had occasion to question that attorney and if

he was in error in that regard as a matter of ethics, is he not required to correct the record?

Mr. SANSONETTI. I obviously am not aware of the situation you

just described, but I sure will ask about it, yes sir.

Senator SESSIONS. I think what I am going to ask you to do is

to review that simple question, and if your attorney was in error,

to correct the record, because that has something to do with it.

Mr. Holmstead, why did the EPA not notice a rule change instead of commencing litigation? Why didn’t they announce, have

public hearings, take the public input, go through the process of

just changing the rules if they thought that the things were not

working out well?

Mr. HOLMSTEAD. I know that the Agency believes that it did not

change the rule; that in fact what the Agency has argued is that

those rules have been in place for many years and people were on

notice of them. So I believe that is why they did not think it was

necessary to go through a notice and comment rulemaking to do

anything because they believe that those rules were well-understood for a number of years.

Senator SESSIONS. So they understood, but they just allowed it

to continue, presumably?

Mr. HOLMSTEAD. Again, I know just in general that there is a lot

of controversy around this issue, whether the Agency was aware

that some of these changes were going on. I honestly do not know.

My impression is that for the most part, these facilities were not

the subject of EPA investigations or inspections, and so the Agency

may not have known that these changes were going on, but I honestly do not know very much about the record in that respect.

Senator SESSIONS. I hope that whatever rules you propose you

will do what you said and will make the air cleaner. I think we can

definitely do that, and I would support that, but I also think we

need to be careful about suing businesses for damages back 16

years for things that it is pretty obvious to anybody that is looking

at their plants what has been going on.

Thank you, Mr. Chairman.

Senator LEAHY. The order we will have now will be Senator Clinton, Senator Durbin, and Senator Corzine.

OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON,

U.S. SENATOR FROM THE STATE OF NEW YORK

Senator CLINTON. Thank you very much, Mr. Chairman.

Well, I think as our witnesses can tell, there are numerous questions that many of us will want to submit in writing, because clearly we do not have the time to go into all of them. I am also hoping

that we will have a chance to hear from our next panels, one of

which includes our Attorney General from New York, Eliot Spitzer,

who has been extremely active on the legal front in trying to determine how best to enforce the rules that are in existence, that we

are now hearing testimony about changing with respect to power

plant emissions. A number of Senators have asked questions with

respect to the EPA’s prior actions, especially with respect to en-
51

forcement. Eric Schaeffer, who was the director of EPA’s Office of

Regulatory Enforcement is also scheduled to testify and I am sure

that he can answer a number of the questions that have been

raised.

One of the problems that we are having here, of course, is that

the reason this hearing is being held is that many of the changes

which are being discussed are intended to go directly to final status. Therefore, we have to comment now because we won’t have the

opportunity to comment if the Administration carries forward on

its intention to finalize these rule changes. Now, many of us have

these continuing questions and I think that it would be appropriate, Mr. Holmstead, for us to have more of an opportunity to

comment than we have at the moment. Would you commit to allowing us that opportunity to comment going forward, before these

rules are finalized?

Mr. HOLMSTEAD. What I will commit to is that we will satisfy all

of the requirements under the Administrative Procedure Act to

make sure that there has been a full and complete opportunity for

the public to comment on all rules before they go final. So I can

assure you that everything that we promulgate will be in full compliance with all of the public notice and comment requirements

that are imposed upon the Agency, yes.

Senator CLINTON. In your testimony, you have repeatedly said

that you do not intend that these changes would be retroactive.

Will you commit that EPA will explicitly state in the preamble to

these proposed rule changes that the NSR changes that the Agency

is promulgating will not be retroactive?

Mr. HOLMSTEAD. It is certainly our intent to make these prospective only, and I believe that the preambles already make that

statement, that they are not retroactive, they are prospective only,

but I will go back and double-check on that to make sure that that

is the case.

Senator CLINTON. Here is the problem that many of us are having, and perhaps it is because the rules are being described by

some, including those within the Agency, somewhat differently

than your testimony seems to describe them. I was taken aback by

your testimony that your rule changes would not have any effect

on power plant emissions. Did I hear you correctly?

Mr. HOLMSTEAD. What I said is, it will not have any effect on

SO2 emissions from power plants, which are by far the biggest

issue, as you know, in New York because of the acid rain. We actually have for the power sector a very sophisticated computer model

that allows us to look at the response in the industry to any number of different rule changes. That has been a relatively simple

matter to conduct the analysis using that computer model for SO2

emissions. We have not yet finished that for the other emission of

concern, which is NOx, but our preliminary indications are that

any change that we would make might have a modest impact one

way or the other, but we have not finalized that analysis. When we

do, we will make that public.

Senator CLINTON. Mr. Holmstead, with all due respect, others

also have computer models and it is very difficult to understand

how you can claim that this is either neutral, having no effect, or

in some of the rest of your testimony actually claiming it would be
52

an improvement, when on the basis of the change in the baseline

that you discussed earlier with Senator Edwards, there would be,

as I understand your testimony, the opportunity for a refinery to

substitute its current emission baseline, which is now equal to the

average of the last 2 years’ emissions, with a new baseline consisting of the average of the 2-years of highest emissions within the

last 10 years. Now, based on modeling that others have done, this

would allow significant increases in SO2 emissions and I have before me some of the specific plants—a plant in Detroit, MI; the

Marathon Oil plant, current baseline 1,984.42 tons up to 4,194.55.

You know, a three times increase, just about.

There are other plants that have been modeled. These baseline

changes at least according to the modeling that I have seen, these

are oil refineries, obviously, not power plants, but they are still

going to add SO2 to the air. So you have got on the one hand a

claim that the power plant emissions stay even, then you have got

a permission within the baseline that will permit an added load of

SO2 into the atmosphere.

I am not asking you to respond. I am just explaining that many

of us find your testimony very difficult to follow. Now, maybe that

is the purpose of it, but it does not provide much benefit to those

of us who are trying to understand the true impact of these

changes. I can only say, based on the information provided to me

and my staff, these are sweeping changes. I would argue they are

illegal changes; that they violate the Clean Air Act; that they violate the capacity of this Administration to rewrite legislation that

is the province of this Congress.

I certainly will be joining with my colleague, Senator Schumer,

and our Attorney General to join an amicus brief against your ability to promulgate and enforce these illegal changes.

Mr. HOLMSTEAD. I am actually sorry to hear that anybody would

do that before they have actually seen the changes that we have

made.

Senator CLINTON. We have not seen them.

Mr. HOLMSTEAD. Right. That is my question.

Senator CLINTON. But once they are promulgated—you know,

once—you have come up to testify about something that you don’t

share information with us fully. We get contradictory approaches

about what it will or will not mean. You talk about computer modeling. Other people, based on the information they have available

do different computer modeling. You are essentially trying to

change the law without informing this Congress sufficiently so that

it can make an informed decision.

Mr. HOLMSTEAD. Again, I would be happy to take however much

time you would like to walk through each of these things. On the

baseline issue, when I was talking about computer modeling, I was

specifically referring to power plants. I have said we have modeled

that very comprehensively and we can say that almost regardless

of what we did to the NSR program, it would not make any difference with respect to SO2 emissions from power plants.

With respect to refineries that you have looked at, again I have

seen—and by the way, I think what you are referring to is not a

modeling study. It is some assertions made by some environmental

activists that again have not understood what we are proposing to
53

do. All of those plants have new emission requirements that have

come into place over the last 10 years, and so you have to look at

what those—for instance, we have done a number of MACT standards that affect the refinery industry. All of those now have to be

included in the baseline.

So I cannot tell you, and I do not think anybody can tell you

right now for a specific plant, without doing the analysis, whether

the baseline will be higher or lower. That was the point——

Senator CLINTON. Why would we promulgate regulations in the

21st century that would lead to any higher baseline for any SO2

emissions? I don’t care whether it is a refinery or a power plant.

All I know is that it lands in my lakes and rivers and in the lungs

in my people. Why on earth would you even contemplate rule

changes that would push us backward in the wrong direction?

Mr. HOLMSTEAD. We are not. As I have said before——

Senator CLINTON. You have said many things before.

Mr. HOLMSTEAD. I think I have been entirely consistent in everything I have said, at least I certainly try to be, and I am happy

to take as much time as you or others would like, because this is

an important program, and those of us at EPA who have worked

on these changes feel pretty strongly that we are making a dramatic improvement in a program that everybody knows for more

than 10 years is broken and needs to be fixed. I can explain all of

these in a great deal of detail if you would like me to, but what

I can say is this—the environment will not be worse off because of

these changes. In fact, it will be better off, and I am happy to walk

you through on each individual thing and explain to you why that

is the case, but again, we have spent an extraordinary amount of

time working on these issues and we want to make the air better.

In fact, one of the things that amazes me about this whole debate, the big issue that you have in your State is not emissions

from refineries, it is emissions from power plants.

Senator CLINTON. Right.

Mr. HOLMSTEAD. We agree that is a huge issue, and that is why

we have proposed legislation, and I know you are supporting similar legislation that would actually substantially reduce those emissions in a way that NSR just doesn’t do.

So I hope that for those of us that really care about improving

the environment will focus on——

Senator CLINTON. What legislation? Are you talking about the

Clean Skies Act?

Mr. HOLMSTEAD. The Clear Skies Act, yes.

Senator CLINTON. The Clear Skies Act, which we have not yet received. So we are being asked to put our trust in legislation whose

language we have not received, that it will do what you are claiming to do. And we are also asked to trust NSR changes which are

claiming, in conjunction with legislation that has not yet been delivered to the Congress, will make our skies better.

Mr. HOLMSTEAD. The Clear Skies proposal is not a complex

thing. It takes emissions from today’s levels, reduces them by 73

percent——

Senator CLINTON. That is not the way it is interpreted by many

of the rest of us. In fact, we think it does less than if we just con-
54

tinued with the Clean Air Act right now. So there is a dispute

about that, Mr. Holmstead.

Mr. HOLMSTEAD. But anybody who I think has analyzed the current Clean Air Act compared to, say, Clear Skies, and again our career folks who work on the Clean Air Act, have worked on the

Clean Air Act for 30 years, have done a projection of the emissions

reduction we would get under the current Clean Air Act, compared

to the President’s Clear Skies proposal, and there is just no way

under the current Clean Air Act to get anywhere near the reductions. Again, we would be happy to share—in fact, we have shared

that information with everybody. We want to clean up the air. We

want to make it cleaner. We want to do it as quickly as we can

and as efficiently as we can, and that is what we are trying to do.

Senator JEFFORDS. OK.

Senator LEAHY. Someone said you do want to—you have been

very consistent in one thing. You have explained that the Senators

do not understand what is going on. You have explained the press

does not understand what is going on. And you have explained that

some of these environmentalists do not understand what is going

on. I appreciate your air of infallibility, but I would also appreciate

it if you would answer some of the followup questions you will be

getting.

Senator Durbin.

OPENING STATEMENT OF HON. RICHARD J. DURBIN,

U.S. SENATOR FROM THE STATE OF ILLINOIS

Senator DURBIN. Thank you very much, Mr. Chairman.

I think it is appropriate that this is a joint hearing between the

Judiciary Committee and the Environment and Public Works Committee. I am glad that you are both doing this because all of us are

concerned about the issues at hand and we understand that it is

not just a question of how the law is written, but how it is enforced. For over 25 years, most of the action when it comes to this

issue has been in court. On the Judiciary Committee, we have the

responsibility of selecting, at least initially selecting the judges who

will interpret these laws. So if there are those who think that those

decisions about the men and women who serve on the court are not

that consequential, consider the issue that we are talking about

today.

I come to this issue with a State that has a dramatic investment

in this debate. We had, and I underline had, a substantial coal-producing industry in Illinois. It is all but gone today. In the name of

clean air, we have seen our high-sulfur coal virtually disappear.

There are good and sound arguments that with the current technology, we had no choice. But many of us feel that States like Illinois have given at the office and given at the coal mine and given

in the small communities to the issue of clean air. That is why

when we get to this discussion about whether or not we will enforce the laws that have closed down the industry, the coal-mining

industry in my State, many of us have a certain passion. If we are

going to close down that industry in the name of clean air, for

God’s sake, we are not going to give up the battle in a marathon

court proceeding which this has turned out to be.
55

Mr. Holmstead, help me and see if I understand the basic

premise of this whole hearing. So in 1970 when we passed the

Clean Air Act, and in 1977 when we amended it, we said we want

you to have less air pollution, fewer emissions coming out of industry in America, and we are going to set standards. Now, we understand there are some 17,000 companies that are already in business that have air emissions and we know we are going to have

to grandfather them in, but here is our notice to you in 1977.

When you start to change these plants, if you are going to make

any significant change in the plants, particularly one that creates

more air emissions, then you are going to have to start complying

with the new law. We will grandfather you as long as you are dealing with the old plant, but when you start making it a new or

newer plant, you are going to have to come into compliance. That

seems to me to be a pretty fair and reasonable standard.

But if I am not mistaken, for 25 years this has been the source

of nonstop litigation between the industry and the government as

to whether old plants, grandfathered in, were ever going to clean

up their acts. One of these issues got down to the question of routine maintenance. Attorney General Spitzer has in his testimony

here an allegation to leaky pipes. Well, if you fix a leaky pipe, you

know, is that routine maintenance?

But let me ask you this specifically, Mr. Holmstead, do you feel

that what you are proposing will broaden or narrow the definition

of maintenance so that older grandfathered plants will have to

meet new air quality standards?

Mr. HOLMSTEAD. Older plants right now have to meet new air

quality standards.

Senator DURBIN. Yes.

Mr. HOLMSTEAD. There are dozens and dozens of programs that

Congress created that apply to these older plants. For instance, the

most important one that I think everybody, and the one that has

impacted the coal business in your State, is the acid rain program

under Title IV, that every power plant in the country is subject to.

So they are subject to that regulation. Every power plant in the

country is also subject to the national ambient air quality standard.

So if there is a power plant or any other old facility that causes

a violation of the national ambient air quality standards, then

those have to be regulated.

Senator DURBIN. Understood. But your proposal—let’s get to the

question—your proposal, I am asking you, does it expand or narrow

the exception for routine maintenance so that older plants, grandfathered plants, do not have to meet new standards to reduce emissions of air pollution?

Mr. HOLMSTEAD. I think the specific issue you are asking about

has to do with the definition of routine maintenance, repair and replacement.

Senator DURBIN. I am asking a question—broaden or narrow?

Now, you can try to go somewhere between those, but I think those

are two fair standards. Does it broaden or narrow the standard for

old plants on routine maintenance?

Mr. HOLMSTEAD. On routine maintenance, we have not made any

changes yet. We are proposing a series of options. Some of them

would broaden the definition of routine maintenance; others would
56

basically leave it where it is now. We are putting that proposal out

for public comment so that everyone who is interested in that specific issue can take a look at it.

Senator DURBIN. Let me go to Mr. Spitzer’s testimony and ask

you this. Is the EPA proposing to allow companies to treat multimillion dollar, once-in-a-lifetime projects as routine maintenance,

even though as industry documents establish, the power plant staff

never considered the projects routine? Do you feel that your new

regulations would achieve that?

Mr. HOLMSTEAD. Our new regulations do not address that issue.

The regulations that we are proposing on routine maintenance, repair and replacement—we propose or we will be proposing a series

of options on routine maintenance.

Senator DURBIN. Narrow or broaden?

Mr. HOLMSTEAD. Some of them could broaden; some of them

would leave them where they are now.

Senator DURBIN. Let me just close, because my time is up and

everybody has other things that they have to do and other panels

are coming. Pardon our skepticism as we sit on this side of the

table. Your refusal or failure or inability to answer that question,

which I think is about as basic as it gets——

Mr. HOLMSTEAD. I thought I just answered it.

Senator DURBIN [continuing]. Does it broaden some, narrow

some, maybe we will let you see it sometime soon——

Mr. HOLMSTEAD. This is a proposed rule.

Senator DURBIN [continuing]. Maybe it will come later. It is a

proposal, trust us, we love you.

[Laughter.]

Senator DURBIN. I mean, all of these statements notwithstanding, we are looking at an Administration that struggled with

the concept of arsenic in drinking water. We are looking at an Administration that does not want to fund the Superfund program

again to clean up toxic waste. We are dealing with an Administration that won’t even disclose the names of the industry leaders who

sat down with the Vice President to write the energy bill; an Administration that opposes any new fuel efficiency standards to deal

with our Nation’s energy crisis. I hope you understand our skepticism as we sit on this side of the table and hear that kind of testimony.

Thank you, Mr. Chairman.

Senator LEAHY. Thank you.

Senator Corzine.

OPENING STATEMENT OF HON. JON S. CORZINE,

U.S. SENATOR FROM THE STATE OF NEW JERSEY

Senator CORZINE. Thank you, Chairmen, and I appreciate your

holding the hearing.

I can only say ‘‘ditto’’ to my colleague from Illinois’ underlying

fundamental premises that bring skepticism, but I will say one

positive thing. I noticed in your response to Senator Clinton you

said that New York’s, I presume that also would include New Jersey’s, air is negatively impacted most by out-of-State power plants,

as opposed to refineries. That is certainly the case.
57

I want to start with the specific and move to the more general.

There is a lot of concern in our State, particularly in the northwest

portion of it, with regard to a power plant, PPL’s Martin’s Creek

Power plant in Pennsylvania. Asthma rates have doubled in the

last 10 years. This is an old plant that has no scrubbers and contributes significantly to air pollution problems in that sector of the

State. Now, they are applying for authorization for building a new

plant on the same site. I wonder if EPA is planning on conducting

a review with regard to that plant.

Senator Torricelli has written Administrator Whitman and a

number of us have inquired about this and we have not received

an answer with regard to that individual power plant. I think it is

symptomatic of a lot of what happens in general, but is one where

the public health impact is very measurable and clear in a specific

sector of our State, and there is a failure to deal with NSR provisions, at least with the old parts of that plant, and now they are

trying to expand it.

So I wonder if you could comment on that specifically. Do you

know whether there has been an NSR review with regard to it?

Mr. HOLMSTEAD. Here is what I know about that plant. I believe

that we are conducting, along with the State, an investigation of

possible NSR violations there. That is really all that I know about

it at this point, but yes, if it is something that you have asked

about, I am sure that that is something that we will look into further.

By the way, what I have tried to say a number of times is, we

absolutely agree that we need to have an effective way to reduce

emissions from these older coal-fire power plants. We agree completely that they contribute to serious health problems in your

State, and Senator Clinton, in your State. I think all of us would

like to find an effective way of reducing those emissions as quickly

as we can.

Senator CORZINE. But if we do not address the specifics, if there

are not actions taken by EPA with regard to specifics when actions

are being taken to expand the business, then the purpose of the

NSR is not being fulfilled and we are not making real progress on

this. That is before we get to the cumulative effect of the proposed

changes in the rules, which a lot of us are fairly skeptical, are intended to upgrade pollution controls, but actually undermine them.

Has EPA referred any additional NSR enforcement cases to the

Justice Department since Administrator Whitman took office?

Mr. HOLMSTEAD. I might ask Mr. Sansonetti. I do not know the

answer to that question. I do not do the enforcement issues at EPA.

I do the policy issues.

Mr. SANSONETTI. The Enforcement Administrator at EPA has

continued to have its investigators continue their work and we are

continuing to receive cases from them.

Senator CORZINE. Have there been cases referred to the Justice

Department since Administrator Whitman took office?

Mr. SANSONETTI. Yes.

Senator CORZINE. Is Martin’s Creek one of those?

Mr. SANSONETTI. I would not know. Sorry.

Senator CORZINE. I would like to request a list of those references, if that is possible.
58

I was not here earlier, but I am under the impression that there

was a statement made by you, Mr. Holmstead, that NSR does not

produce benefits from existing sources unless it is violated—hard

to understand. Isn’t it true that NSR has been violated many times

by existing sources like Martin’s Creek?

Mr. HOLMSTEAD. I do not know about the Martin’s Creek Plant,

but yes it appears that many existing sources have violated NSR

and that is the work that our enforcement office, as well as Mr.

Sansonetti’s office, are working on right now. We do believe that

as a result of those cases, those are likely to lead either to settlements or judgments that will result in emissions reductions, yes.

Senator CORZINE. But you are arguing that the NSR has no benefits with respect to existing sources?

Mr. HOLMSTEAD. No, what I said was this. The big issue that I

think many of us in this room are concerned about are sulfur dioxide emissions from power plants—by far the biggest single pollutant emitted by any industrial source in the United States. We have

done an extensive analysis of that particular issue, and what we

can say is that if companies comply with the NSR program, it does

not reduce SO2 emissions from the utility sector at all. That is absolutely—we are happy to share the analysis, and it is not that

hard to understand. I can walk you through it if you would like,

but if companies comply with the NSR program as it is right now,

with a very stringent, narrow definition of routine maintenance, repair and replacement, it does not lead to any reductions in SO2

emissions from the power sector.

Here is the basic reason why. The Act says that a company triggers NSR only if it makes a physical change that results in a significant emissions increase. So as long as they keep their emissions

where they are now, they can make any changes they would like

to. So all of our analysis, and again we have some very sophisticated computer modeling. We know more about this industry than

any other industry. We can analyze the impact of the current rule

versus any number of changes, and no matter how we analyze that,

the program does not reduce SO2 emissions from existing power

plants.

As I said before, if companies violate the NSR program, then at

that point they are subject to enforcement action, and through the

enforcement process we can actually get some reductions, although

even there you only get reductions if a company agrees as part of

a settlement to retire some of the SO2 allowances that it has under

the acid rain program. But again, I am happy to provide anybody

with that analysis, but it is absolutely true that that is just the

fact. That is the way the law works.

[The prepared statement of Senator Corzine follows:]

STATEMENT OF SENATOR JON S. CORZINE, U.S. SENATOR FROM THE STATE OF

NEW JERSEY

I thank both Chairmen for convening today’s hearing.

Mr. Chairmen, air quality problems continue to plague New Jerseyans. Some of

these problems are of our own making. But according to the New Jersey Department of Environmental Protection, one-third of New Jersey’s air quality problems

originate outside of New Jersey.

That’s why enforcement of Federal clean air laws is so important. And that’s one

of the reasons why the Clean Air Act New Source Review provisions are so important to my State.
59

So I look forward to hearing the Administration explain their New Source Review

proposals in more detail. Because as far as I can tell, the proposals are rollbacks,

pure and simple. They may be help industry, but they’re going to hurt public health

in New Jersey and across the country. In fact, Abt (pronounced Apt) Associates estimates that that rolling back New Source Review will result in 160–220 premature

deaths annually and between 3,000 and 4,300 asthma attacks annually in New Jersey alone.

If the Administration disagrees with these numbers, then I invite them to produce

their own. Because to my knowledge, the Administration has not conducted an analysis of the health impacts of their proposals.

For that matter, I don’t think that the Administration has conducted a rigorous

analysis of the business impacts of the current NSR rules that they are proposing

to change. Today’s EPA testimony asserts that uncertainty about the current NSR

rules ‘‘has resulted in the delay or cancellation of some projects that would maintain

or improve reliability, efficiency and safety of existing energy capacity.’’ This is

vague, anecdotal evidence at best, and is no basis for trading away the tangible

health benefits that have been and can yet be achieved by rigorously enforcing NSR.

Mr. Chairmen, I won’t take up too much more time, as we have many other members to hear from and many witnesses to hear from as well. But I do want to run

through just a few additional points, because this issue is so important.

First, I am greatly concerned about the effect of the proposals on pending NSR

cases. In New Jersey, PSEG settled with EPA earlier this year. But many of PSEG’s

competitors are stalling, betting that they can wait out the Administration’s

changes. Now the Administration will argue that its proposals will have no effect

on ongoing NSR enforcement. Yet we will hear testimony today that proves that the

proposals have already impacted ongoing cases.

Second, I am concerned about the impacts of the proposals on the full range of

pollution sources that they apply to. The Administration offers its Clear Skies proposal as better way to achieve air quality benefits than New Source Review. Yet

Clear Skies applies only to power plants, while New Source Review applies to thousands of other sources of pollution such as oil refineries. What is the Administration’s plan for continuing to protect the health of families who live near refineries?

Third, I am concerned that the Administration’s proposals may run counter to the

intent of the Clean Air Act. In spite of claims to the contrary, NSR has consistently

been interpreted to allow for only de minimis increases in pollution from grandfathered sources without triggering installation of new pollution control technologies. But it appears that the Administration proposals will have the effect of allowing significant pollution increases without triggering NSR requirements.

Mr. Chairmen, I think the question before us today is simple. Will the Administration proceed with its NSR proposals? Will they allow industry to continue to operate old, dirty plants indefinitely? Or will the Administration fulfill the promise of

the Clean Air Act by pulling these proposals and vigorously enforcing New Source

Review to protect New Jerseyans and all Americans. Thank you.

Senator LEAHY. Thank you.

If there are no further questions, I know that Mr. Sansonetti and

Mr. Holmstead would love to have this go on a lot longer, but on

the basis they may have other things to do, Mr. Holmstead, thank

you; Mr. Sansonetti, thank you.

Senator JEFFORDS. Yes, thank you both.

Senator LEAHY. I turn it over to you.

Senator JEFFORDS. We will continue to continue. I will have to

leave shortly and be able to come back, but Senator Clinton will

take over. We will now go to the next panel.

Senator LEAHY. Why don’t we take about a 1-minute break just

to let the staff change the——

[Recess.]

Senator JEFFORDS [presiding]. I want to thank our next panel. I

will be here somewhat briefly. I have a meeting with the Administration that I cannot change, but I want to thank the panelists. I

know they are all experts, and we are appreciative of your guidance. I will ask each of the panelists to introduce themselves and

then we will proceed. I will start with my good friend my Vermont.
60

Mr. SORRELL. Yes, thank you, Mr. Chairman. I am William

Sorrell, the Attorney General of Vermont.

Mr. SPITZER. I am Eliot Spitzer, the Attorney General of New

York State.

Mr. PRYOR. I am Bill Pryor, the Attorney General of Alabama.

Senator JEFFORDS. Fine. I believe you probably have opening

statements. Please, General Sorrell, will you commence?

STATEMENT OF WILLIAM H. SORRELL, ATTORNEY GENERAL,

STATE OF VERMONT

Mr. SORRELL. Thank you, Chairman Jeffords, Chairman Leahy,

members of the committees. Thank you very much for allowing me

this opportunity to share my thoughts regarding the New Source

Review program.

To the two Chairs, particularly, I bring greetings and thanks

from so many of your friends from home.

Let me be blunt, we need your help. The quality of our Nation’s

air is of critical importance, not just to those of us living in the

Northeastern United States, but also to everyone in this Nation,

and most especially our children, the elderly and those among us

who suffer from respiratory illness.

We have worked very hard in Vermont to attain the quality of

life that is so important to us. We value our natural resources and

do our best to be sure we are not soiling our own backyard. I believe it is fair to say that we join the dialog regarding air pollution

with clean hands.

Unfortunately, in Vermont we are living with the consequences

of pollution problems that are not of our making. Our neighbors to

the west are in some respects not being good neighbors. To give you

an idea of the scope of the pollution caused by all dirty coal-fired

power plants, I want to impress upon you that in 1998 all Vermont

sources of sulfur dioxide pollutants, all sources—mobile, stationary,

residential, industrial, commercial—all sources in 1998 from

Vermont, a total of approximately 18,000 tons of SO2. We are involved in the lawsuit that was filed by DOJ and EPA against

American Energy Electric Power Company, which operates about

11 plants in the Midwest. Just looking at one of the plants that is

in that litigation, it is the Cardinal Plant in Brilliant, OH. That

plant alone in 1998 emitted more than 152,000 tons of sulfur dioxide. I might add that its stack-height, I am told, is over 800-feet

high. We did not pick the worst offender. The Cardinal Plant is not

the most heavily polluting of the plants that are in the litigation

I mentioned.

We have good reason to be deeply concerned about massive

amounts of air pollution being carried into our State by the prevailing winds. The impacts attributable to this wind-borne pollution in Vermont and regionally are sobering and bear repeating. In

Vermont, 20 percent of our lakes are moderately to extremely sensitive to acid deposition, and several lakes are critically acidic and

thus unable to support fish and/or other aquatic life. They are like

swimming pools.

Various studies conclude that the percentage of acidified lakes is

expected to increase or even double over the next four decades un-
61

less up-wind emissions of nitrogen oxide and SO2 are significantly

reduced.

Acid deposition is a major cause of the widespread decline of red

spruce in high-elevation forests throughout the Northeast. Since

the 1960’s, more than half of large canopy trees in the Adirondack

Mountains of New York and in our Green Mountains, and approximately one-quarter of large-canopy trees in the White Mountains

of New Hampshire have died.

There is growing also evidence that the sugar maple decline is

linked to acid deposition. Senator Jeffords, I know you realize how

important sugar maples are to our maple syrup industry. According

to one analysis, with a more than 80 percent reduction in electric

utility emissions beyond that required under the 1990 Clean Air

Act, recovery of certain watersheds to non-acidic levels will take 20

to 25 years, and recovery of the acid-neutralizing compounds in

soils will not occur until the year 2050. That is with an 80 percent

reduction in current emission levels, it will take that long for our

environment to recover.

Our children and grandchildren in generations to come will know

all of the devastating impacts resulting from decades of air pollution and will not see the recovery of the forests and lakes. Is this

to be our legacy?

As a Nation, we must take swift and decisive action to improve

the quality of the air. We applaud the efforts of EPA and DOJ in

working cooperatively with the States to protect air quality. Our

shared successes have included important victories affirming certain aspects of regulatory programs, and the Agency’s determinations regarding the long-range transport of ozone-forming pollutants.

We also appreciate the ongoing efforts by the Agency and DOJ

in seeking full implementation of EPA’s regional haze rule, which

will help to protect and improve visibility in our Nation’s pristine

wilderness areas, including the Shenandoah, Great Smoky Mountains, Yosemite and the Grand Canyon. This is not just a Northeastern issue.

New Hampshire, Maine and Vermont, joined by Utah and New

Mexico, the National Tribal Environmental Council, and national

advocacy groups have been actively involved in supporting this effort. We are hopeful that these efforts will lead to real improvements in the quality of our Nation’s air in years to come.

The State of Vermont is also working cooperatively and productively with the Environmental Protection Agency, the Department

of Justice, other States and national public interest advocacy

groups to enforce the existing New Source Review program against

corporations operating coal-fired power plants. There is no question

that implementation by EPA of the reform package will seriously

under-cut these efforts. Let me repeat, there is no question in our

mind that implementation by EPA of the reform package will seriously under-cut the ongoing litigation efforts.

Now is not the time to water down the laws needed to protect

air quality. The announced reforms of the New Source Review program will take us 180 degrees in the wrong direction. As one State

regulator has put it, these reforms will assure longer lives for old

dirty coal-fired power plants and shorter lives for Americans.
62

We very much hope that the Administration will change course

and not backtrack on existing environmental protections. However,

if it chooses to go forward with its announced changes, we encourage the Congress to reject such efforts to weaken the New Source

Review program.

Thank you again for the opportunity to meet with you and to

provide these comments, and I hope that all of my prepared comments will be made part of the record.

Senator JEFFORDS. They will be made part of the record.

I am going to make a little statement and do a little question.

I have got to go. Governor Ridge does not like my opinion of what

we should do with one of the parts of his operation, so I have to

go meet with him.

What kind of impact will these changes have on the States’ ability to have more stringent programs and protect local air quality?

And what effect will they have on the NSR cases where Vermont

has joined in filing?

Mr. SORRELL. I think they will have a significant impact on the

litigation, certainly in any attempts to negotiate a settlement of the

suits. In terms of your question on the impact on the States going

further than the Federal Government to set or to maintain their

own emissions standards or pollution control standards that might

be more stringent than the Federal Government has set, it is my

understanding that just yesterday two organizations of State and

local air pollution control administrators wrote Administrator

Whitman expressing objection and concern that the EPA proposals

will set a standard and not allow States to maintain or to set higher or more stringent emissions standards unless it is done on some

sort of a test-case basis that is affirmatively approved by the EPA.

So we hope very much through this process that the EPA will revisit that issue and allow individual—and to set stringent standards for emissions, but if individual States wish to go further and

to set more stringent standards in their own backyards, that they

would be allowed to do that.

Senator JEFFORDS. Well, thank you very much. As I say, I have

to leave now, but I really appreciate your testimony and being

here. I know, obviously, being a resident of Vermont that the problems we have had in the past, even some with New York State, but

I will not get into those.

Senator SCHUMER. Please do.

[Laughter.]

Senator JEFFORDS. So thank you. I will be back, I assure you,

probably before you are finished.

Senator Clinton will now take over.

Senator CLINTON [presiding]. Attorney General Spitzer, we are

delighted that you are here and I can tell that this is of great interest to New York since both my colleague Senator Schumer and I

have a great deal of interest in this issue and feel that it directly

impacts on the health and the environment of our State.

I know you have a prepared statement, but I cannot help but ask

that—you sat through the entire first panel, for which you should

receive some kind of combat ribbon. I would love for you to perhaps

add your observations to the confusing testimony that we heard

from the Administration about the meaning and potential impact
63

of the proposed rules as you go forward. We are delighted that you

are here.

STATEMENT OF ELIOT SPITZER, ATTORNEY GENERAL, STATE

OF NEW YORK

Mr. SPITZER. Thank you, Senator Clinton. Thank you, Senator

Schumer, also for being here.

I will take your lead and ask that my prepared testimony be submitted for the record. I would like merely to respond to a few of

the points that were made this morning because I think they do

bear responding to. To the extent they were addressed in my written testimony, I can be more succinct and more pointed in my testimony right now.

First, Mr. Holmstead took a quotation from the Washington Post

this morning and completely misinterpreted it. He was trying to

argue that the proposed regs from EPA have not had an impact on

the pending litigation. He could not be further from the truth. The

quotation he used is from a spokesman from my office. It says,

‘‘Nothing the Bush Administration does prospectively will have any

impact on the violations these plants committed in the past.’’ The

point is, they committed violations. There were violations. They

should be prosecuted civilly for those violations. They cannot rewrite that law.

However, the fact that we are in regulatory limbo right now has

made it virtually impossible either to pursue finalizing settlements

that should have been finalized with Vepco and Cinergy, or to pursue effectively ongoing litigations in the myriad of other cases that

are pending.

We are caught, I would suggest, in an intentional regulatory

limbo with the Administration having proposed and made very

public the fact over a year ago that it was going to rewrite the NSR

regs. They have refused to set forth the final regs, so we are caught

between the Scylla and Charybdis of their not being any regs on

the books that a court can rely upon, and the inability to attack

what they will finally issue.

I would suggest this is an intentional decision made by the EPA,

which has done everything it can do to hinder us. This is not an

effort to study more and further. As has been pointed out, we do

not even know with whom the Vice President met to discuss these

proposed regs.

So to the extent that Mr. Holmstead was arguing that there has

not been an impact on the pending litigations, I could not disagree

more fundamentally. In my prepared testimony today, you can see

how the judges who were presiding over the pending cases feel that

their hands are being tied because they have an inability, or feel

some hesitation, in imposing upon companies a remedy that may

no longer be feasible or authorized by the regs that would be finally

issued by the EPA. These proposal, this regulatory limbo has had

a devastating impact upon our ability to ensure the cleanliness of

the air that our children breathe.

I would also like to respond to the allegation made by one Senator that it was politics somehow underlying either our skepticism

of what EPA is doing or the litigation. I would like to point out that

when New York State filed these litigations, we were joined, I am
64

glad to say, by a significant number of East Coast States, neighbors and those who are farther afield. A decision was made specifically by the Governor of New Jersey at the time to join these litigations. The Governor of New Jersey then was Christie Todd Whitman.

These are litigations that are critical. And they are based, and

this is point three, upon a static interpretation of statutes that has

not changed. The notion of there being a newfangled interpretation

that emanated from the EPA in the prior Administration is simply

false. The case law in this matter is crystal clear, and I would cite

to you two documents. I will read one, a letter that was sent by

Administrator, former Governor Whitman to Congressman Mascara

on November 9 of last year in which she said, ‘‘The cases did not

hinge on a new interpretation of NSR rules.’’ That is a direct quote. ‘‘Rather, EPA’s interpretation of routine maintenance is consistent

with both the statute and case law.’’ You see it as well in a DOJ brief that was submitted last week

in which this Department of Justice felt constrained to say, the interpretation EPA urges in this current case is the same interpretation that the Seventh Circuit upheld more than a decade ago in

Wisconsin Electric Power v. Reilly in the Seventh Circuit in 1990.

There has not been a change in the law. It is constant. It is understood. It is understood by the industry. The documents obtained

from the industry in discovery make it crystal clear they know the

law.

I do not deny their right to try to change the law. That is their

right. I respect it. That is what this process is about. But let us

not be fooled into believing that the law has been ambiguous or

that these lawsuits are predicated upon a new interpretation of the

law. That simply is not the case.

I am also rather beguiled by the argument that has been made

by several Senators this morning that because there has been litigation since the statute has been promulgated in the past few

years, and therefore there must be a flaw in the statute. It seems

to me that enforcement actions show clearly that the statute has

teeth. They would force us to repeal most of the statutes that have

been passed by this Congress. The very fact that we have enforcement actions means that we as prosecutors are doing our job—

nothing more, nothing less.

Let me make a few final points if I may. The proposed rules have

been publicized by the EPA. Yet, Mr. Holmstead likes to hide behind the fact, and I lost count how many times he said this morning, that, there may be proposals. They are not yet final. Therefore,

don’t criticize us. However, it has been over a year since this process began and they have very publicly and in many discussions

with industry discussed what these proposed rules should look like.

If the rules look anything like the proposals, anything like what

the public statements by this Administration have been, I will go

to court to overturn them. I am proud, Senators Clinton and Schumer, that you will join in that effort.

The point here is very simple. This Administration cannot gut

the Clean Air Act unilaterally. Congress passed the statute. Congress wrote into the law a particular meaning that was understood

and has been understood since day one, judicially articulated, un-
65

derstood by every participant since day one. This Administration

cannot by administrative fiat repeal that statute. It would be an illegal act. We will go to court to prevent it, and I think we will win.

The issue is who pays. Will the companies pay as the statute

said they should? And they may pass that cost back to their ratepayers. That is a regulatory process. Or will we continue to see

people dying of cancer and asthma without doing anything? That

is the only question. I think the skepticism that was evidenced by

at least one side of this room this morning toward Mr. Holmstead

makes it very clear what the right decision should be.

Thank you.

Senator CLINTON. Thank you, Attorney General Spitzer.

Attorney General Pryor, we welcome you. There are two attorneys general named Pryor, because I know you have a colleague in

Arkansas also named Pryor, so it must be a good name to be elected Attorney General.

Mr. PRYOR. That colleague, Senator Clinton, as you well know,

is trying to become one of your colleagues.

Senator CLINTON. That is right.

Mr. PRYOR. He is a great guy and a distinguished colleague.

STATEMENT OF BILL PRYOR, ATTORNEY GENERAL, STATE

OF ALABAMA, MONTGOMERY, AL

Mr. PRYOR. Senator Clinton, Senator Schumer and Senator Sessions, I appreciate the opportunity to be with you today, along with

my distinguished colleagues, General Sorrell and General Spitzer,

to discuss an important issue—Clean Air Act, New Source Review.

As the Attorney General of a State that exports surplus electricity, my point of view may be a little different from that of my

colleagues who represent States that import electricity. I support

the thrust of the report submitted to the President by the EPA Administrator to revitalize the NSR program and in so doing to restore the delicate balance of cooperative federalism embodied in the

Clean Air Act Amendments of 1970.

Until the 1970’s, the maintenance of clean air was viewed as predominantly a State and local concern. In 1970, after a series of

smaller experiments, Congress adopted a new blueprint for the battle against air pollution. The new plan created a model of cooperative federalism.

This new model gave the Federal Government responsibility for

establishing national air quality standards, along with a variety of

enforcement tools for ensuring that those standards are met.

The Clear Air Act reserved to each State, however, ‘‘The primary

responsibility for assuring air quality within the entire geographic

region comprising such State by submitting an implementation

plan for such State which will specify the manner in which national primary and secondary ambient air quality standards will be

achieved and maintained within each air quality control region in

such State.’’ Underlying this provision was the congressional finding that ‘‘air pollution prevention . . . is the primary responsibility

of States and local governments.’’

In a series of decisions in the mid–1970’s interpreting the thennew statute, the Supreme Court laid out and clarified the Act’s division of responsibilities between the Federal Government and the
66

States. In the quarter-century since these cases, the Federal Courts

have staunchly protected the federalist design of the Clean Air Act.

For example, in 1984 the Seventh Circuit struck down an attempt by EPA to strengthen a State Implementation Plan through

a partial approval that was more akin to an amendment. As Judge

Posner explained, ‘‘The Clean Air Act is an experiment in federalism, and EPA may not run roughshod over the procedural prerogatives that the Act has reserved to the States, especially when,

as in this case, the Agency is overriding State policy.’’ As these and other courts have acknowledged, the delegation of

implementation decisions to the States reflects not only its spirit

of comity, but also a recognition that State regulators, well-versed

in local needs and circumstances, are best able to craft detailed

programs to improve air quality while ensuring the continued

availability of energy and maintaining economic prosperity.

In the late 1990’s, EPA upset this sound design. EPA commenced

enforcement actions against a variety of companies, including a

cross-section of the Nation’s utilities, declaring that certain plan activities triggered the extensive NSR permitting requirements.

For two decades, EPA, front-line State regulators and regulated

sources had all interpreted these activities as falling within an exclusion for routine maintenance, repair and replacement. Their

common understanding was that NSR applied only to major modification activities that are akin to new construction. During the

Clinton Administration, EPA advanced a novel interpretation that

would require the adoption of state-of-the-art pollution controls at

existing sources for activities that State regulators had considered

routine maintenance, repair and replacement activities.

In several instances, State and local regulators inspected the facilities that became the subject of EPA enforcement actions—before

or immediately after the maintenance activities—without suggesting that a permit was necessary. Indeed, some plants sought

out and received explicit determinations from State regulators that

a particular maintenance activity did not trigger the NSR requirements.

EPA undertook this abrupt reversal of course without notice and

comment rulemaking and without consulting the States, which had

the primary responsibility to implement NSR standards for over 20

years. EPA’s course eviscerated the cooperative federalist approach

that is the heart of Congress’ design. EPA invaded the province of

the States and threw their respective air pollution control programs into upheaval—my State’s clean air administrator uses the

term ‘‘chaos’’—by reversing, with the blunt tool of enforcement instead of collaborative rulemaking, interpretations that are central

to day-to-day activities of State regulators. Clarity and consistency

are vital to State regulators, as well as power generators, and must

be restored. I urge these committees to work with the President

and the EPA in a bipartisan spirit to develop better-defined standards of New Source Review consistent with the original design of

cooperative federalism in the enforcement of the Clean Air Act. I

will be happy to answer questions.

Senator CLINTON. Thank you very much, General Pryor.

I am going to yield my time for questions to my colleague, Senator Schumer.
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OPENING STATEMENT OF HON. CHARLES E. SCHUMER,

U.S. SENATOR FROM THE STATE OF NEW YORK

Senator SCHUMER. Thank you, chairman.

I want to thank all of our witnesses, particularly my Attorney

General, who has been such a leader in this. We are just amazed

in New York. Here we had successful lawsuits which our Attorney

General spearheaded. You had companies finally coming to the

table, and boom, the rug was pulled out from under it by this Administration policy.

The thing that galls me so about this, I have to tell everybody,

and particularly our fine Attorney General from Alabama, it is, you

know, State by State. Well, our State has done a great job making

sure its power plants comply and do a better job. But we have

wind, and we have a handful of plants in the Ohio Valley that

build their smokestacks way into the air so the pollution that they

spew will not fall on their people, but gets blown over to us. If

there was ever a need for interstate action, it is here.

The fact that you have just a handful of plants poisoning—that

is the only word that can be used—poisoning not only our lakes

and our streams, a quarter of our beautiful Adirondack lakes and

streams are dead, no life. It will go to half in 10 years. This is now

beginning to happen in other parts of the country. We learned it

first, but we have seen it elsewhere—calls for strong action; does

not call for saying to the polluter, which is in economic Adam

Smith terms, creating an external negative good that has to be recaptured. It is their responsibility. You do some good, you should

get economic credit. This is strict economic model. But if you do

economic harm, you should be forced to recapture, but just because

it is in the air does not mean you are immune from it. You created

that bad, as well as creating a good, and good economics says the

two should be reconciled.

That is what we have tried to do here. The anger that I have on

this issue is just large because it is a small group, a small group

of power plants that are destroying the environment of a large part

of my State, and actually at the bottom line, killing people, making

them less well, shorter. It is indirect. It is not a standard of murder. But sure enough, if these plants would clean up their acts, a

lot of people would be living longer and healthier.

So I just—you have answered the questions I have had in the anticipatory round. I just want to say to our Attorney General and

to the others in the Northeast, Democrat and Republican, that we

are going to move forward here. We are not going to let a small

group of power plants who have enormous political clout, poison

our environment and poison our people. It can be changed. It can

be changed relatively easily, without huge amounts of cost, and it

ought to happen immediately.

I want to thank you for the good work you have done here, Eliot,

and yield back my time.

Thank you.

[The prepared statement of Senator Schumer follows:]
68

STATEMENT OF HON. CHARLES E. SCHUMER, U.S. SENATOR FROM THE STATE

OF NEW YORK

I would like to thank Chairman Leahy and Chairman Jeffords for holding this important and timely hearing on New Source Review. I would also like to welcome

New York State Attorney General Eliot Spitzer to the hearing. Attorney General

Spitzer has been leading the charge against power plants that do not comply with

New Source Review. Our offices have worked together very closely on this issue and

I appreciate him testifying today.

It is a challenge to imagine a more aggressive attack on our clean air protections

or a more blatant disregard for the health of our citizens and our environment than

the announcement EPA Administrator Whitman made on June 13 to effectively gut

the Clean Air Act’s New Source Review program.

I know that many of my colleagues have already spoken about the ill effects these

proposed changes will have on our air, waterways and forests. I would just like to

take a minute to describe the effects such changes will have on my home State of

New York.

Ecosystems throughout New York have already been devastated by acid rain created by pollution from factories in Ohio, Indiana, Virginia, West Virginia, Kentucky

and elsewhere. According to the EPA’s own data bases, the Gavin Plant in Ohio

alone emits over one-half the NOx of all power plants in New York combined.

The Adirondacks have endured the worst damage in the Nation from acid rain,

with over 500 of its lakes now unable to sustain life—a number which is expected

to double over the next 40 years.

The Administration has yet to put forth a comprehensive proposal that would effectively improve air quality in the Northeast, reduce unlawful emissions that

produce acid rain and reverse the recent trend of high ozone readings in New York.

Instead, we have seen numerous attempts to rollback any progress we have been

making in this area.

This latest attempt, which will make it easier for power plants to pollute our air

at the expense of our citizens, raises numerous questions. I am particularly concerned about the effects these changes will have on pending enforcement cases and

I look forward to having the opportunity to pose some of these questions today.

These cases play a key role protecting the health and lives of tens of millions of

people. It is estimated that pollution from the targeted plants shortens the lives of

between 5,500 and 9,000 people each year.

I have already sent a letter to Administrator Whitman asking that the EPA immediately review the grave consequences of its New Source Review announcement

and retreat from the dangerous path down which we are headed.

We simply cannot allow this assault on our clean air to go unnoticed.

Senator CLINTON. Senator Sessions.

Senator SESSIONS. Thank you, Madam Chairman.

Attorney General Pryor, it is good to have you in Washington.

Mr. PRYOR. Thank you, Senator.

Senator SESSIONS. I appreciate your service. Attorney General

Pryor is just a tremendous Attorney General. He is one of the finest lawyers I have ever known, and was editor-in-chief of the

Tulane Law Review and he cares deeply about public policy and

doing the right thing.

You know, General Spitzer, I admire your advocacy and your

passion for making things better for the people of New York. I remain a bit troubled by one of the comments Attorney General

Pryor said that some of these companies that were being sued actually had explicit approval for the activities they have taken. Just

on a matter of administrative procedures and due process fairness

in the court of law, isn’t that something we ought to concern ourselves with, that there has been an understanding or in some cases

an explicit recognition that these kind of improvements in a plant

do not constitute the kind of modifications that violate the New

Source Review?

Mr. SPITZER. Well, Senator, as I said in my testimony, I think

indeed there has been a very constant understanding of what the
69

definition of routine maintenance meant. I think when we parse,

and we have done this in our briefs that has been submitted to

many courts and the judicial opinions themselves, and I would suggest that you read the WEPCO case and other judicial opinions

that have reviewed the history of what routine maintenance means

and the history of the Clean Air Act. I think you will see a very

constant strain of what that term of art was meant to mean by the

Congress, what it meant to EPA, and what it has meant to the

courts. That is why I quoted only two of the many possible citations

I could have pulled from, because I thought they were recent and

they came from this Administration, and therefore they might be

more probative.

With respect to your due process concern that perhaps a State

agency somewhere gave a seal of approval to an improvement and

that State agency or that administrative board or that county supervisor or whomever said, well, I think this means this does not

violate that threshold and does not cross the boundary of routine

to non-routine—well frankly, this is a statute that was passed by

the Congress to be interpreted by the courts. The fact that a waiver

perhaps was given properly or improperly by another individual is

not going to be, to me, dispositive over whether or not that is going

to be a final determination.

Now, should we be worried about government issuing inconsistent decisions? Of course we should. That is something we have

been trying to mediate through the 200-plus years of our federalism. Attorney General Pryor and I have had some spirited and

informed debates about federalism and how you apply it in these

different contexts. But I do not think there is any question that

right now we are dealing with a Federal statute, Federal regs that

are going to be interpreted by the Federal Courts and have been

interpreted in a way that has been constant.

Senator SESSIONS. Well, you know, Attorney General Mike Moore

of Mississippi has written to Attorney General Ashcroft, and of

course Mike Moore has been a strong attorney general also, a vigorous advocate.

Mr. SPITZER. Yes, sir, he has been.

Senator SESSIONS. He was a leader in the effort against smoking

and the State lawsuits against tobacco and he testified before the

Judiciary Committee a number of times. He has written, and I will

quote from his letter. I understand that the Director of Virginia’s

Air Program has written to the EPA that, ‘‘If EPA wants to change

the way they have historically looked at routine maintenance, repair and replacement, they should do it by rulemaking, rather than

an enforcement initiative that contradicts EPA’s own policies for

the last 25 years.’’ Moore goes on to say, ‘‘I strongly agree that any

significant departure from prior regulatory practice should be preceded by notice and then applied prospectively only. I am concerned that EPA has not historically applied the Clean Air Act

modification rule in the manner in which EPA is now attempting

to apply it through those enforcement actions. If you find this is

the case, I urge you to take whatever measures are necessary to

resolve the pending lawsuits in a manner that is compatible with

those basic principles of administrative law and fundamental fairness.’’
70

General Pryor, is that part of your concern? Is that what you are

saying?

Mr. PRYOR. Absolutely. That concern is not a solo one. I have a

stack of letters from State attorneys general from across the country—Utah, Colorado, North Dakota, South Dakota, Nebraska, Indiana—a host of States—Virginia, and General Moore from Mississippi who has that perspective and have expressed it both to Administrator Whitman and to General Ashcroft.

Senator SESSIONS. Well, thank you, Madam Chairman. I think

the best thing we could do for clean air, and it is something I support, is the expansion of nuclear power. It is the only way we are

going to meet the kind of goals that many have set for us. Alabama

has one plant that never was completed, or was coming on line or

would be brought on line, and two others that were 60, 70, 80 percent complete that could be brought on line. That would have a tremendous reduction in pollutants into the atmosphere. I just believe

we have got to go back and give thought to it, since France obtains

80 percent of their power from nuclear sources. We have never had

an American citizen lose his life because of an accident at a nuclear

power plant.

So there are some things we can do, but I think in the course

of what we do, we need to follow the basic law. I respect my good

advocates there that are testifying.

Senator CLINTON. Thank you, Senator.

We are about to take a recess. Before I do, do any of the Attorneys General have any final comments that they wish to leave us

with?

General Sorrell?

Mr. SORRELL. No, other than to repeat my thanks to the two

chairs and the two committees for convening and taking up this

issue that is so important to Vermonters.

Senator CLINTON. General Pryor?

Mr. PRYOR. No, thank you, Senator.

Senator CLINTON. General Spitzer?

Mr. SPITZER. No, thank you, Senator Clinton.

Senator CLINTON. The hearing will be in recess for a short period

until Chairman Jeffords returns at approximately 2 p.m.

Thank you all very much.

[Recess.]

Senator JEFFORDS [presiding]. The hearing will come to order.

We are pleased to welcome our third panel, consisting of Eric

Schaeffer, director of the Environmental Integrity Project at the

Rockefeller Family Fund; Bob Slaughter, president of the National

Petrochemical and Refiners Association; Mr. Hilton Kelley of Port

Arthur, TX; Mr. Steve Harper, director of Environmental Health,

Safety, and Energy Policy for the Intel Corporation; John Walke,

clean air director of the Natural Resources Defense Council; and

Mr. E. Donald Elliott, co-chair of the Environmental Practice

Group at the law firm of Paul, Hastings, Janofsky & Walker. Gentlemen, please come forward.

Now, I am going to want to hear from you as to how we handle

the problems that we have and suggestions of what we should do

to improve the law. So I am going to start with Mr. Schaeffer, then
71

for opening statements I will go down through for everybody’s

opening statement, and then come back to the questions.

So Mr. Schaeffer, if you would start.

STATEMENT OF ERIC SCHAEFFER, DIRECTOR, ENVIRONMENTAL INTEGRITY PROJECT, ROCKEFELLER FAMILY

FUND

Mr. SCHAEFFER. Thank you, Mr. Chairman, for the opportunity

to testify today. I was the director of the Civil Enforcement Program until March of this year, and now at the Rockefeller Family

Fund working on environmental issues. I am pleased to be here.

I think it makes sense, given the hour and the fact that we are

bringing up the rear on this panel, to respond to some of the points

raised earlier, to see if we can shed some light on some of the

issues you discussed.

I would like to start with the question to Mr. Sansonetti, I think

from Senator Leahy: Have defendants raised the issue of EPA

changing the rules as a reason to put off lawsuits or stall or walk

away from settlements? I don’t think you need to look any further

than the argument in front of the 11th Circuit in the TVA case,

which I think everybody recognizes is one of the most important

cases, and the first one we are likely to get a decision on.

In that case, defendant lawyers walked right into court—lawyers

for TVA—waved a copy of the proposed changes, and said very

clearly that the court should consider putting off or postponing

hearing the case or making a decision because the government was

still making its mind up as to what the law was. I am paraphrasing, but that was pretty close to what was said.

Senator JEFFORDS. I understand what you are saying.

Mr. SCHAEFFER. I can also say from my experience, sure, defendants walked or left the settlement table when they heard the law

was changing. That is a rational decision in a way on their part.

I guess I would suggest that you put that question to the Agency

and to the enforcement officials and staff lawyers who are handling

these cases, and I think you will be a clear answer.

Mr. Holmstead also said that enforcement in EPA, the Enforcement Office I assume he meant, has told him and the Air Program

that his proposals and final changes would not affect disposition of

the enforcement actions. Without saying more, I just strongly encourage you to check that statement out. You might start by asking

the Acting Director of the Enforcement Program if that is in fact

true, because I believe it is not. I think Enforcement has consistently expressed concern about some of these changes and their impact on the cases.

I think what is going on is, defense lawyers who are working for

utilities are playing a classic game. They are taking a law that

courts have said is pretty clear and they are trying to turn it into

so much wisp and smoke. And then when you press the Administration about the direction it is going in, although their purpose

seems to be to add more clarity, you get more wisp and smoke: ‘‘We

do not know what the impact on emissions is going to be. We are

just making proposals. We have not made any decisions yet.’’

I hope to shed a little bit of light on it, just starting with the

basic notion once again of what the law is. These cases did not
72

spring out of fevered minds of the EPA in the late 1990’s. They

began in the early 1980’s and go through the early 1990’s, with the

Alabama Power and the WEPCO cases. The courts looked at the

law you wrote, which says you cannot physically modify a plant in

a way that increases emissions without going in and getting a permit and putting on controls. And the courts have said not once but

several times, the law means what it says. The law is very broad.

There is an exception for routine repair. That is not found in the

statute. That is an exception that EPA created out of concern that

very small projects would have to go through permitting. Courts

have said, when agencies create an exception to a general duty in

the statute, that exception must be read narrowly.

So the first question I hope you will put to the Agency is, do you,

in fact, agree with statements the courts have made, that the law

is broad and exceptions must be read narrowly? I know Mr.

Sansonetti agrees because he argued that in the summary judgment motion in the Southern Indiana Gas and Electric case. He argued it very forcefully and very well, and that brief is worth reading.

If I could turn to what the Administration proposes to do with

what I think is a bright line that Congress has drawn for grandfathered plants, and how they plan to change the definition of routine repair—on my right, you will see a reheater being replaced at

a typical power plant. This is one of the changes that we have

talked about that has been undertaken and it had the impact because they are replacing an old part and replacing it with a more

powerful unit of driving emissions up. That is a crane you see on

the left, moving the part into place. We have more dramatic examples, too big, actually, to fit on a chart. This is what the Administration is proposing to call routine repair.

What the Administration is talking about, and you got what I

would treat as feigned ignorance today from Mr. Holmstead about

what these changes mean, when in fact, his recommendations announced in June make very clear. What they have said is, if you

pull one of these units out and you replace it with a more powerful

unit, even if that drives emissions up, we are going to treat it as

routine repair.

They are free to deny that. I hope they will if you ask them, but

I do think you should ask them. We have taken a look at all the

parts in power plants, big parts that have been pulled out and

changed over once or twice in the lifetime of the unit, and you can

see that nothing is left of the law if you go forward with these Administration-proposed changes.

My favorite thing in Washington is to hear lawyers who made a

lot of money arguing that we shouldn’t have as many lawyers, push

ideas that essentially eliminate the lawyers by eliminating the law.

That is essentially what is going on here in the Administration’s

proposal.

You heard I think from Senator Voinovich and from Senator

Inhofe, that all these utilities want to do, if you would just let

them, is to decrease their emissions. New Source Review is getting

in the way; they just want to decrease their emissions, and why are

we being so mean to them.
73

I want you to turn first to the chart on the right. These are NOx,

nitrogen oxide emissions at the plants tagged in EPA’s complaint.

In one case, we saw a 21,000-ton increase. As Mr. Holmstead said,

and this is where I think the law draws a bright line, don’t increase your emissions, and you don’t have a problem. He said, and

his words were, you can make any changes you want as long as you

do not increase emissions. These guys increased their emissions

and they did not do it by the 40-tons that you are allowed under

the Clean Air Act. They did it by thousands of tons. So there is a

real impact.

There is a lot of confusion, I think somewhat pretended, about

the impact of going to the dirtiest 24 months you can find in the

last 10 years, and then allowing the company to keep that highpollution level for the next decade and then some. I think Senator

Clinton did a good job pointing out an example of a refinery where

you can take a look at the before and after; you can say, what are

the emissions today; what would they be if you went back and

picked the dirtiest 24 months.

Here are three examples. The red charts that you see are the

highest 24-month period in the past 10 years. Mr. Holmstead is

suggesting, yes, but the emissions are not going to be that high,

but they do not quite know what they will be. And then I think

we ended up with, ‘‘well, some will be higher and some may be

lower.’’ I would ask you, just put them through the exercise, call

some of these refineries out, find these dirty 24-month periods in

the past decade, lay it in front of the Administration, lay it in front

of EPA and ask them—is your proposal—actually this is a final

rule—is this going to increase emissions or not for this plant? I

think the people who live around those facilities are going to want

to know.

We have also heard that the law is not letting companies make

repairs. We are losing capacity; we are in danger of having the

lights go out and the air conditioners turned off on really hot days.

That is another game that has been played on every issue that affects environmental control when it comes to the power industry in

the United States. I cannot think of a single environmental debate

where we have not heard from utility argue, you are going to be

colder or hotter or darker if you keep going forward.

What we did is look at just the 43 plants that the government

has sued, that are named in complaints. We asked the question,

did those complaints so terrify you that you were afraid of making

repairs and you started losing capacity? This is what we found. The

charts are not totally complete through 2001. We have some missing gaps in 2001 because the data is not yet available. But you can

see from looking at these charts, the plants sued, the very ones

that should be the most concerned about this supposed reinterpretation, have not lost capacity.

Let me make one other quick point. Refineries, if we do not

change New Source Review, we are going to lose refinery capacity.

I give you this chart. Again, this is from the Department of Energy.

That spike, the red spike on the right shows a sharp increase in

refinery capacity after—after we brought the New Source Review

lawsuits. Again, we were so successful in scaring the industry with

our lawsuits that they had a record increase in refinery capacity.
74

They have grown at a record rate. This is after we brought the lawsuits.

I think what you are getting in the Administration’s proposals,

in an Administration that likes to talk ceaselessly about good

science, is government by anecdote. You have got the same old war

stories recycled over and over again about the parade of horribles,

the bad things that the law is doing to them. The statistics just do

not support that, and you deserve that kind of data from the Agency. I think you deserved it this morning. I hope you will insist on

it. I invite you to verify any of this.

Senator JEFFORDS. I can assure you we will, so you can relax on

that.

Mr. SCHAEFFER. That is very encouraging.

On the fair notice issue, I will not belabor this. This is the question of, gosh, you know, we were all complying with the law until

EPA came along and changed its interpretation. If you find those

4,000 pages of guidance that keep flying around like the Flying

Dutchman that the Agency has apparently put out on New Source

Review, let us know. I don’t think they exist.

This is a fairly lean requirement. There are a number of individual decisions the Agency has made. We have not cranked out a

lot of conflicting guidance. The Justice Department looked at that

issue; said we have been consistent; and I would stand with Mr.

Ashcroft on that question.

Let me tell you what we saw, and I hope you will look at the

same evidence that Enforcement looked at. When we asked plant

supervisors, the people who make the decisions, are these big

projects, like the first one I put up, are these considered routine in

your industry and at your company? Here is what Mr. Hekking of

the Tennessee Valley Authority said, and it is a classic. This is Mr.

Hekking of TVA, formerly a plant supervisor.

The question was, ‘‘Mr. Hekking, did the Tennessee Valley Authority consider this project to be routine maintenance?’’ ‘‘No, sir.’’

‘‘Can you tell us why?’’ ‘‘A number of reasons. First, we just talked

about money. I give you an idea of what my annual budget is to

run the plant, operate it and maintain it. The money spent on this

one project alone exceeded my annual budget. I think that is one

reason it was not routine. It was performed during an outage. I

told you that a routine scheduled outage for us was 4 weeks. This

was a 12-week outage that was not routine. The re-heater we put

back in, we replaced an entire component. It wasn’t a tube or several tubes or a couple of elbows. It was an entire component. That

is not routine.’’

That is from the industry. We had the fun of having TVA’s lawyers, who have this sort of wisp and smoke confusion about the

law, keep pulling their own plant people back to the stand to get

them to correct those statements. Their plant people would not cooperate. They kept returning to I think the plain English and saying, ‘‘We can’t call these routine; these are big changes; they cost

a lot of money; they take a lot of time. I am not going to sit here

and testify they were routine.’’ So they knew.

I would like to return to the bottom line here, which is the impact these changes have on human health and the environment.

Senator Lieberman referred to a study that we ran, looking at the
75

impact that power plant emissions from the eight defendant companies have on human health and the environment.

I will say, tall stacks or no tall stacks, the impact is not just in

the Northeast. It is felt very heavily in the Midwest. You can see

some very high numbers in States like Pennsylvania and Ohio

when we are talking about premature death. These are estimates

after the acid rain emission reductions kick in. This is not today’s

emissions. This is a more conservative set of numbers.

I would invite you to ask the Agency, is this data correct? Or if

you have a model, and they are using a model to estimate the benefit of Clear Skies, run the model for these companies; run the

model for my State. We have also broken the number out by companies, and we fund the same impacts. I want to emphasize, we

had Harvard School of Public Health review this and verify it. This

was done using EPA models. I would invite them to respond and

explain how their proposal is going to make this situation better

when compared to enforcing current law.

I guess I would just close echoing what Mr. Spitzer said most eloquently, which is everybody has the right to change the law. This

is America. It is a democracy. This is a big change that the Administration has proposed. Changes of that scale, especially when they

affect enforcement of the law as you wrote it, they ought to come

before this Congress. They ought not to be made unilaterally by an

agency. That is your decision. I hope you will take that issue under

your jurisdiction. If you do, I know you will do good things with it.

Thank you for the opportunity to testify.

Senator JEFFORDS. Thank you for an excellent statement. I would

urge witnesses to try to stay around 5 minutes so I can get to some

questions.

Mr. Slaughter.

STATEMENT OF BOB SLAUGHTER, PRESIDENT, NATIONAL

PETROCHEMICAL AND REFINERS ASSOCIATION

Mr. SLAUGHTER. Thank you, Mr. Chairman.

I will summarize very quickly some points that I had in the formal testimony, and then I just want to add a couple of comments

on something that was just said.

NPRA is pleased to testify again before you today. This is the

third time we have appeared before this committee on the issue of

the need for New Source Review reform. Our members own or operate basically all U.S. refining capacity, with minimal exceptions,

and a number of petrochemical manufacturing facilities as well.

I am Bob Slaughter. I am NPRA’s president. I would like just to

make a few basic points. The NSR reform process has been open

and public. The previous Administration, as has been pointed out

earlier, made similar proposals to reform NSR. Public hearings

were held. Comments were taken on them. Congressional hearings

discussing the need for reform have been held on at least four occasions. We have appeared at three of them. EPA held an exhaustive

public dialog on the issue during its review, pursuant to the President’s plan, and the issue has been extensively discussed in the

media, both before and since EPA’s June 13 announcement of its

reform package. We have attached to our formal statement copies
76

of all our testimoneys, plus our submission to EPA as part of the

review, for your information.

Two, we believe that NSR reform will improve the environment.

The uncertainty resulting from shifting NSR interpretation has

placed our members in retroactive enforcement jeopardy, adding

considerable delay and cost to refinery projects. The ultimate effect

has been to hamper our industry’s efforts to expand domestic refining capacity, increase the supply of cleaner-burning fuels, and enhance energy efficiency.

Three, NSR reform is needed to enable the refining industry to

implement significant environmental improvements in our fuels

and facilities throughout this decade. Attached to my formal statement is our regulatory blizzard chart which basically shows an intense series of new regulatory initiatives which were required to

undertake in refineries in this decade. They include significant reductions, severe reductions in the sulfur content of gasoline and

diesel fuel, on-road diesel fuel, also one upcoming regulation for

equally severe reductions in off-highway diesel fuel and a number

of stationary source controls as well.

This suite of environmental requirements which the industry

must comply with in this decade will require at least $20 billion

in additional investment capital from our industry. All of them result from the 1990 Clean Air Act Amendments, and they will result

in significant environmental improvements through our fuels and

our stationary sources—refineries and petrochemical plants.

Four, the domestic refining and petrochemical industries are essential to our economic growth and national security, but they are

under a lot of pressure. We have not been able to build a new refinery in the United States since 1976. The only source of additional

capacity has been adding capacity at existing sites. Confusion over

NSR requirements disincentives the addition of capacity at existing

sites. Of equal concern, the Oil Price Information Service recently

reported that at least 15 U.S. refineries in many regions of the

country, with more than 10 percent of U.S. refinery capacity, may

change hands or be closed down by January 2003. So there is significant risk of loss of domestic refining capacity. We have one refinery in the Midwest, in Illinois, scheduled to close next month.

There are others, according to the OPIS article and according to

word in the industry, that are in serious danger of sale or closure.

The United States demand at the same time for our products is

increasing. EIA projects one to 2 percent growth per year in demand for petroleum products at the same time that we are unable

to add significant domestic capacity to refine those products. This

means that they will have to be imported. EIA projects a tripling

of imports of light products into the United States between now

and 2020. They will come from Canada, Venezuela, and the Middle

East.

U.S. refineries as we know here have to run full-out to meet the

bulk of U.S. demand, much as they do today. We operate at 90 to

95 percent of capacity at most times, pretty much 365 days a year,

every day of the week, and we have to do that in order to basically

make the products that the economy demands. So it is very important that the industry maximize its product output, and the upcom-
77

ing rulemaking which will give us greater clarity on the meaning

of routine maintenance, repair and reform will help us do that.

The opponents of NSR reform imply that it is the source of most

basic environmental regulation of U.S. manufacturing facilities, but

this is really not the case. We attach to our testimony a number

of other Federal and State programs that limit emissions at our facilities. NSR reform will not impact these.

NSR reform has really been a bipartisan effort up to this time.

The previous Administration, as we have said, proposed many of

these same changes. A bipartisan group of U.S. Senators, as Senator Voinovich pointed out this morning, wrote this Administration

urging NSR reform to move forward. The National Governors Association and many State environmental regulators have also urged

that NSR be reformed.

So we urge Congress not to falter in its support for this bipartisan effort. We think the changes will help our members meet consumers’ growing demand for better environmentally sensitive processes and products, and we really do believe that NSR reform is

the most significant step that public policymakers can make to

maximize the domestic refining capacity and petrochemical manufacturing capacity in the years to come.

So I would urge you to put the discussion today in that kind of

frame of reference. I know it has been said that there—at least Mr.

Schaeffer has a personal theory that has some clarity as to what

NSR means, but I have sat through the hearing today, too, Senator, and I believe—I know I listened to three current attorneys

general. I believe there are two former attorneys general on the

panel—you and Senator Sessions. I heard a number of differences

as to what this current rule means. You know, if five attorneys

general are not really able to agree among themselves, and that

was the strong impression I got today, I would say there is serious

evidence that this particular program needs to be reformed.

Just one other point I would like to make about the chart and

the baseline which alleges that at least certain refinery emissions

might go up if you basically looked at any 24 months within the

past 10-year period. You know, refineries basically produce all-out

almost all the time. So if there has been a significant reduction in

emissions of one particular pollutant from a refinery, it is probably

because there has been a change in the permitting requirements,

because they are probably producing more the last couple of years

than they were at any time during the last 10 years, particularly

in the Midwest, where there have been significant supply problems

and the refineries have really been producing all-out. So I urge you

to take a close look at some of these assertions that are based on

people’s models. I think we really need to look at what the facts

are here.

Thank you.

Senator JEFFORDS. Thank you, Mr. Slaughter.

Mr. Kelley.

STATEMENT OF HILTON KELLEY, FOUNDER, COMMUNITY INPOWER AND DEVELOPMENT ASSOCIATION

Mr. KELLEY. Yes, good evening. My name is Hilton Kelley. I am

the founder of a grassroots organization called the Community In-
78

Power and Development Association. I am also the coordinator of

the Southeast Texas Bucket Brigade, where we stand with and for

refinery reform.

I am grateful for the opportunity to speak out on behalf of refinery communities across this Nation and tell the Senate the truth

about what pollution is doing to us and how much worse it would

be under the new EPA proposal to roll-back New Source Review.

For example, by allowing refineries to go backward 10 years to pick

their baseline, pollution will increase. It makes no sense to go backward. We need to move forward and keep working to reduce pollution by enforcing the NSR fully.

Everybody needs to know that the Clean Air Act as it now stands

must be preserved, and the new EPA proposal is really a death

sentence for already-sick industrial neighbors. The Clear Skies proposal of the Bush Administration would do nothing for us because

it deals only with power plants. It does not cover refineries and

chemical plants. Refineries are located in 36 States, 125 cities and

up to 67 million people breathe air polluted by oil refineries. This

is a national problem and the only solution we see is strict enforcement of the New Source Review, not relaxation.

I grew up in Port Arthur, TX on the west side of town near refineries and chemical plants. I know what it smells like on a daily

basis, and I say that it is time that we do something to clean this

up because a lot of kids are still living in these neighborhoods

where I grew up. I moved away about 18 years ago, and I have recently come back in 2000. I am on a crusade to empower local citizens to fight for their health and to help them understand what

they must do to get their air clean. I say that we protect the Clean

Air Act, and New Source Review is the way to do it.

The rest of the country needs what Port Arthur makes. Just like

other refinery communities, the neighbors live with the fall-out of

pollution and health problems. Mr. Slaughter stated that refineries

are asked to provide this product. That may be so, but the neighbors never ask for the poison that these refineries put into our air.

Texas is home to America’s largest oil refineries and chemical

plants. While the State produces the energy the Nation needs, it

also produces more industrial pollution than any other State according to the latest right-to-know data. Our neighborhoods pay the

highest price for the rest of the Nation’s cheap gasoline. Sometimes, it can take your breath away. We have been losers in the

bargain as we have high unemployment, although the plants get a

tax break from our local government because they are located in

empowerment zones. Our people do not see the benefits of that.

It seems that these heavy industries concentrate on low income

communities and communities of color, where there is the least bit

of resistance from the citizens. They operate 24 hours a day, 365

days a year, expanding constantly. Right now, we are challenging

another expansion of the Premcor refinery that wants to dump 525

more tons of pollution on us so that they can make low-sulfur gasoline. It seems we never have a chance to get cleaner air. They can

do it without dumping more pollution on us. NSR is one tool to

make sure of that.

The problem has a human face. In Port Arthur almost every day,

10-year-old Cullen Como and his sister suffer with a severe asth-
79

matic condition. Their mother suffered also from upper respiratory

problems when she was giving birth to them. The plants emit a

toxic soup of chemicals. These chemicals are known to cause cancer, affect brain functions and hurt organ development and reproductive systems.

We, like other refinery communities, have teamed up with Denny

Larson of the Refinery Reform Campaign to form a local bucket brigade for Port Arthur, TX. The bucket is a simple, but effective air

sampler. It uses a special bag and vacuum pump. Air samples

taken during toxic releases have shown unhealthy levels of hydrogen sulfide, benzine and other dangerous chemicals. We were

forced to do this because there are no real air monitors in our community. We get more expansion, but we get no air monitors in our

communities.

Miss Annie Edwards is another victim of pollution. She has to

use two different types of air devices to breathe—one for when she

goes to bed at night to ensure that she will wake up the next morning, and if she dares to go outside, then she has one that she has

to walk with.

I know from going door to door that these problems are widespread. Too many people are dying from cancer. Too many people

have thyroid problems. We have two dialysis clinics in this small

town of mine, and it is time for the citizens to say enough is

enough, and it is time to do something about it.

We want to work with industry. We want them to put the necessary controls on their stacks, put the necessary controls on their

valves, so that they will quit emitting so much pollution into our

community.

We also have a huge pollution problem with accidents, fires, explosions, upset emissions releasing thousands of pounds of chemicals into our air through flares, relief valves, and dump stacks. It

seems that after expansion, the plants have more and more upsets

so there weren’t enough controls, from what I can see, by our

States. For example, Premcor Refinery, Port Arthur, TX, February

19, 2002, about 5,660 pounds of propane and 143 pounds of hydrogen sulfide were released during a 219-hour upset. More examples

are on the chart, if you look to my right.

Premcor Refinery, January 2, 2002, upset—about 26 pounds of

hydrogen sulfide per hour, 2,479 pounds of sulfur dioxide per hour,

295 pounds of volatile organic compounds per hour, and 6 pounds

of nitrogen oxide per hour were released. The upset lasted 168

hours.

A recent health survey done by the University of Texas toxicologist Dr. Marvin Legator compared people living in housing

projects in refinery communities like Port Arthur and Beaumont to

a non-industrial similar population. Preliminary results show a

vast difference between the health symptoms of those two communities’ reports. Seventy-five percent of the people from Port Arthur

complained of headaches, muscle aches, compared to twenty percent in the controlled area. Eighty percent of people in Port Arthur

had ear, nose and throat conditions, compared to twenty percent in

the controlled area. Eighty percent of those questioned had heart

conditions and respiratory problems in the refinery neighborhood,

compared to thirty percent in the non-refinery area.
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Dr. Legator has made a strong correlation between the known

health effects between the emissions from the refineries and the

health symptoms we experience.

Another study conducted by MacArthur Genius Award-winning

scientist, Wilma Subra showed that health symptoms and emergency room visits increase when there is a spill or unexpected release from the plants. Whenever we leave Port Arthur, it seems

like our health gets a little bit better, but whenever we return from

vacation, it seems like the respiratory problems and the skin rashes seem to reappear.

Glenn Alexander, a pediatric nurse practitioner in Port Arthur,

has been treating local children for 10 years. His waiting room is

nearly always full. He sees an unusually large number of upper

respiratory infections, allergies, skin rashes and asthma. ‘‘I do see

things because I am a health care provider. The air is not always

clear here. Sometimes it is hard for the children to breathe.’’ Some

of the effects are irreversible and will be a life-long problems for

these kids.

Mr. Alfred Dominic is a life-long resident of Port Arthur, TX as

well. He was born in 1928. He has seen a large number of his

friends die from cancer and various other respiratory problems.

This is a national problem. This is not a problem just concerned

with Port Arthur. This is a national problem. I could quote many

other leaders in the Refinery Reform Campaign, but I won’t go on

with that.

Mrs. Mabel Mallard lives in South Philadelphia, PA, and she has

a problem with the refineries out there as well. They are dealing

with pollution day-in and day-out and she says enough is enough.

Please do not tread all over the New Source Review. In other

words, stand with us and help support it.

In conclusion, New Source Review should be preserved and fully

enforced. It is a grave matter of environmental justice to people

who need the help of the U.S. Senate to protect their health and

the health of innocent children. Going backward to allow refineries

to pick a baseline and other such tricks are unthinkable to people

living on the fenceline suffering from current levels of pollution.

The Clear Skies plan won’t help us. We need the Federal protection

and the right to know of the New Source Review.

Thank you, and if there are any questions, I will take them at

this time.

Senator JEFFORDS. Thank you, Mr. Kelley, for an excellent statement.

Mr. Harper.

STATEMENT OF STEPHEN HARPER, DIRECTOR, ENVIRONMENTAL HEALTH, SAFETY AND ENERGY POLICY, INTEL CORPORATION, WASHINGTON, DC

Mr. HARPER. Yes, thank you, Senator.

My name is Steve Harper. I am the environmental health, safety

and energy policy director for Intel. I am here to speak about a portion of what EPA is seeking to promulgate and to propose what

was referred to a little bit earlier this morning, but only in passing,

it was very separate from in our minds most of the rest of the
81

issues before the committee, and that is the PAL portion of the

EPA’s pending rule.

Intel for several years now has been part of a coalition that has

included Lilly, Daimler-Chrysler, DuPont and Merck. Companies in

our coalition have all experimented under EPA’s various reinvention programs with PALs. We believe that EPA’s promulgation of

a PAL rule is the next logical step in piloting, perfecting and proliferating this new approach.

Much effort has been spent in the last 10 years or so on the reinvention of environmental protection under both Democratic and

Republican Administrations. We feel strongly that PALs are one of

the most successful, if not the most successful, story to come out

of, innovations to come out of that process and we think it is time

to mainstream this new approach through regulatory action.

Why does Intel care about PALs? Semiconductor manufacturing

is characterized by quick product cycles and rapid innovation in

products and processes. The sort of tag-line in our company is there

are only two kinds of semiconductor companies—the quick and the

dead. We obviously would therefore prefer to be quick. But the

kinds of needs for rapid and speedy innovation in our industry is

not that different from that experienced and needed by other companies in our coalition of other industries. Intel operates 10 fabs,

as we call our factories here in the United States. Each of these

costs on the order of $2–$3 billion per fab. They are characterized

by constant innovation and changes in product technologies, the

chemicals that we use, and the processes.

Given the capital cost of these factories, getting to and maintaining full production is absolutely critical to their profitability. Traditional New Source Review is therefore a non-starter for Intel and

for industries like ours because many of the frequent changes we

make would require under traditional NSR permit modifications

which entail uncertainty and substantial delay.

What is a PAL? PALs feature an emissions cap that provides a

bright line for NSR applicability. It determines whether changes

made in our operations trigger or don’t trigger NSR. Changes that

don’t raise emissions beyond the cap are not subject to NSR. In addition, within the cap or under the cap, there are typically a series

of pre-approved changes that you can make at your facility without

further permit modifications.

I want to make a distinction that is in the terminology I use in

my written testimony, Senator, I use both the term PAL and PALtype permits. I want to be clear on the distinction. A PAL is a

major source of NSR permit. A PAL-type permit is a minor source

State permit that features the cap and the preapproved changes

features of PALs, but lacks the NSR applicability feature, but in

every other respect they are identical.

What are the benefits of PALs? First of all, there are environmental benefits. PAL caps are set at levels typically that reflect the

air quality needs of an area. PALs that are based on actual emissions involve sources giving up significant emissions headroom that

would otherwise be allowed under their existing permits. Caps also

provide emissions certainty to the public and to the permitting authority. Caps provide powerful pollution prevention incentives because if you have got a tight cap and you want to grow your pro-
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duction, the only way you can do so is by substantially reducing

your emissions per unit of production which is what we have done,

as I will show. PALs, simply put, free up facility engineers at facilities like Intel’s to pursue pollution prevention, rather than spend

a lot of time on NSR paperwork.

The second area of benefit over traditional NSRs is public participation. PALs provide the public a much more holistic view of the

operations of a facility and its impact on the environment. In traditional permitting, the public sees a myriad of piecemeal changes

that provide a piecemeal view of what the impact of a facility is.

However, with PALs, the public gets to participate in the process

by which the cap and the preapproved changes are determined,

providing a much better understanding of the impact of the facility

and a much more meaningful opportunity for the public to participate in determining the outcome of the permitting decision.

Indeed, although I am going to focus mostly on our Oregon PAL,

in one of our facilities that has a PAL in Arizona, our Community

Advisory Board is actually so happy with our experience that they

want the State of Arizona and Maricopa County to make PALs

mandatory for all sources because of the environmental and public

participation benefits.

The third benefit is to our facility—operational flexibility. You

have the bright line in terms of NSR applicability. You also have

the preapproved changes I made reference to earlier.

So what has our experience been? We have entered into two partnerships with EPA permitting authorities and the public to pilot

this approach, both begun under the Clinton Administration. The

Pollution Prevention and Permitting Program at our Aloha campus

in Oregon and a Project XL effort at our Ocotillo campus in Arizona. In the interest of time, I am only going to focus on the Aloha

project in my remarks. My written testimony provides data and experience about both.

The exhibit in my testimony at the end of the testimony provides

we think a very graphic illustration of the environmental benefits.

Motivated by a need to grow, but remained under our cap at Aloha,

we reduced our emissions of volatile organic compounds per unit of

production by more than 90 percent during the 1990’s. Although

our production went up substantially by almost five times, we still

stayed under our cap. We were even able to add an additional factory within the existing cap without having to go through and get

an additional modification.

Moreover, we voluntarily reduced our cap along the way in order

to help Portland, OR with its efforts, which ultimately were successful, to get redesignated as an attainment area. The cap that we

worked under and lived under produced a very powerful pollution

prevention incentive that made that possible.

In sum, PALs, in our view, are ready for prime time. As I have

shown, our experience with PALs has been dramatically successful.

Other companies in our coalition have also piloted the approach

successfully, as have an increasing number of companies in other

industries and other companies. I want to emphasize that contrary

to the thoughts of some, PALs are not a niche-fix for companies

like Intel. I think if you look at the experience of PALs, and it is

a growing experience in a number of industries, they are not a one-
83

size-fits-all solution to everybody’s problems with New Source Review, but we think they are a win-win for both facilities and the

environment.

PALs, in our view, are an example of the right way for EPA to

innovate, to try something out in a limited number of places under

controlled circumstances. You evaluate your experience, and where

successful, you mainstream that experience, you mainstream the

success through the rulemaking process.

I want to emphasize mainstreaming through a rule is very important in our view. PALs are legal under current rules, and under

the current Clean Air Act, as my testimony goes into. But many

sources and States need clear guidance from EPA regarding the

value of PALs and they need clear guidance on the rules of the

road in applying this relatively new tool. So we believe that EPA

promulgating a rule will provide the certainty and we think will

make it a lot easier and a lot more likely that other sources and

States will use this new approach and will realize the environmental public participation and flexibility benefits that I have described earlier. Thank you.

Senator JEFFORDS. Thank you.

Mr. Walke.

STATEMENT OF JOHN D. WALKE, CLEAN AIR DIRECTOR,

NATURAL RESOURCES DEFENSE COUNCIL

Mr. WALKE. Thank you, Chairman Jeffords, for the privilege of

testifying before you today.

My name is John D. Walke, and I am the director of Clean Air

Programs with the Natural Resources Defense Council. We are a

500,000-member organization dedicated to protecting public health

and the natural environment. Prior to joining NRDC 2 years ago,

I was an air pollution attorney with the EPA’s Office of General

Counsel, where I worked for 3 years.

Allow me to go straight to the heart of the purposes and consequences of the Administration’s recent New Source Review announcements. These rule relaxations will allow significant increases in air pollution from over 17,000 of the Nation’s largest polluters, allowing them to escape pollution controls.

I want to emphasize this most basic point about the New Source

Review program that is often lost in the rhetoric and misrepresentations that some use to mischaracterize the program and its protections. The NSR program requires pollution controls at new or

existing facilities only when there are significant increases in air

pollution. Industry must clean up its pollution under the NSR program only when the air gets dirtier from anywhere from tens of

thousands of pounds per year to tens of thousands of tons per year.

The corollary to this point is even more important. Regulatory exemptions, so-called industry flexibilities and other changes designed to avoid NSR pollution controls will allow significant increases in air pollution to escape clean up. Increases in air pollution, of course, are what we all are about, whether the air gets

dirtier. It is that objective that drives the installation of pollution

controls under the New Source Review program.

It is highly revealing, however, how rarely if ever the NSR program’s opponents in industry, and now within this Administration,
84

mention the NSR program’s purpose to control air pollution increases. Instead, I submit that the talking points of NSR opponents

are carefully scripted to mention several buzz words—routine

maintenance, energy efficiency projects, system reliability activities. The reason for this selective focus is very simple. Every activity that industry wants to pursue without being required to install

pollution controls under New Source Review will involve significant

pollution increases. I urge you and the committee to bear in mind

than whenever appeals in the name of these activities are made,

they are implicitly but necessarily accompanied by the argument

that industry should be allowed to increase air pollution significantly without cleaning up that pollution.

As we all know, NSR pollution controls are required for modifications that exist in pollution sources. This was added in the 1977

amendments. Modification at an existing plant requiring NSR pollution controls is a two-part test covering first, any physical change

or operational change at a facility. Every court to address this

question, as Mr. Schaeffer has said, has found that this requirement is very broad, and they have affirmed the inclusiveness of the

concept of ‘‘any physical change’’ meaning exactly that. The second

part of the test is that a facility must increase air pollution, as I

noted earlier. So you must have a physical change or an operational change that must increase pollution.

I would like to speak just briefly to something that Assistant Administrator Holmstead said earlier, because it is something I have

heard him say before, and it is something that I find to be continually frustrating and even misleading. Mr. Holmstead made the

claim that NSR really does not do anything to reduce emissions

from existing sources. Because NSR applies only to pollution increases, pollution controls are required in order to minimize those

pollution increases. For example, if a modification at an existing facility increases pollution by 10,000 tons, NSR would require pollution controls that would reduce emissions by, say, 95 percent using

advanced technology.

Now, I would call keeping 9,500 tons out of the air to be a pollution reduction. I would also call the positive steps that Mr.

Holmstead mentioned where sources minimize pollution to keep

them from even having significant pollution increases to be emissions reductions. It is very telling that Mr. Holmstead declines to

refer to these as emissions reductions. I would submit that it is because the Administration has in essence abandoned the modification provisions of the statute. I would submit further that the regulations and the changes that were recently announced reflect that.

The five final rule changes, as well as the three proposed rule

changes that they announced would systematically undermine and

contradict the Clean Air Act’s mandate that modifications that

exist in pollution sources require pollution increases to be well-controlled. EPA announced new loopholes and exemptions from clean

up obligations that are nowhere to be found in the statute; defined

the plain breadth of the first part of the modification definition.

EPA also announced new accounting gimmicks to ensure that increases from today’s pollution levels will not be considered increases under the second part of the definition. My written testimony goes into the specific examples and our views on them.
85

Let me be clear. What EPA has done with these announcements

is repudiate an act of Congress. We now know from internal EPA

documents that I refer to in my testimony that agency attorneys

had advised EPA political appointees that many of the changes

that were recently announced run afoul of the Clean Air Act. The

recent announcements make clear what Administration officials did

in response to that legal advice.

We also know that the rule relaxations will allow significant pollution increases to escape control, thereby degrading air quality

and harming public health. I would like to read to you just a single

sentence from a letter issued by the National Association of State

Air Regulators in reaction to the specific reforms that the Administration is pursuing. The letter reads, ‘‘The controversial reforms

being pursued by EPA will not only result in unchecked emissions

increases that will degrade our air quality and endanger public

health, they will also undermine the chances of any responsible

changes to the NSR program ever taking effect.’’ With your permission, I would like to enter those comments into the record.

Senator JEFFORDS. Without objection, they will be—and since

there is nobody else to object, they are in.

Mr. WALKE. OK.

Let me note in passing, since it has come up several times, just

frankly how disingenuous it is for Administration officials and others to point to previous general calls for NSR reforms from Members of Congress and other quarters and support of the very specific harmful reforms that they have announced. My organization

has supported NSR reforms, as have the State regulators that I

just referred to. But what we were seeking were improvements to

the NSR program that would protect air quality while providing industry with responsible forms of flexibility. This Administration

has capitulated virtually entirely to the industry demands for flexibility and abandoned public health protections as an objective for

the program. It is not just my organization, it is this bipartisan

group of State regulators that is saying so.

I will end my comments there, and I would be happy to take any

questions afterwards.

Senator JEFFORDS. Mr. Elliott.

STATEMENT OF E. DONALD ELLIOTT, CO-CHAIR, ENVIRONMENTAL PRACTICE GROUP, PAUL, HASTINGS, JANOFSKY &

WALKER, LLP

Mr. ELLIOTT. Thank you very much, Mr. Chairman.

I would ask that my revised statement be made part of the

record.

I would like to focus primarily on what I consider a very disturbing fallacy that has effectively been part of the hearing, and

that is the notion that we should equate NSR with reducing pollution. Of course, that is not really the case. As Mr. Kelley said, it

is really just one tool under the Act. I guess my main point is I

think NSR is really the wrong fight. It is not a very effective program. It has not been effective, and I think we know much better

ways to deal with the problem.

As a former General Counsel of EPA, confirmed by this committee over a decade ago, I do believe that EPA’s many changing
86

interpretations of NSR over the years have really created a legal

mess of baffling complexity. The ultimate solution in my view is to

replace the antiquated, inefficient NSR program for existing plants

with a modern trading system, which really has tripartisan support, as Jeff Holmstead, Senator Smith and Senator Jeffords are all

supporting something like that. But in the meantime, I do applaud

the Administration’s recent attempts to do what it can to resolve

the uncertainties by creating safe harbors through the rulemaking

process.

I have to admit that I was General Counsel of EPA in 1990 when

the famous WEPCO case came down, which has done a lot to create a lot of the current uncertainties. Although that case has never

been overruled, it creates a lot of uncertainty because rather than

having a bright line test, it identifies multiple factors that have to

be weighed. So I think a lot of the uncertainty is how do you deal

with the various WEPCO factors.

Urged on by majorities in both Houses of Congress in 1990 to fix

the WEPCO problem, both Houses of Congress passed the WEPCO

fix, they were just different. So in conference, the Congress deferred to the Administration, passed the hot potato to us, and we

did in fact come out in the first Bush Administration with an NSR

interpretative rule in 1992 which I thought had fixed the WEPCO

problem, at least as far as the electric utility industry was concerned.

The key provisions of that rule were that it interpreted the language of the statute to require a causal relationship between the

physical operational change and the increase in emissions, and that

seemed to solve the problem. However, as a prelude to the current

EPA enforcement initiative in 1998, without any notice and comment, the Clinton Administration in the Federal Register renounced our previous 1992 interpretation of NSR. It really is the

conflict between the 1992 Bush Administration interpretation and

the 1998 Clinton interpretation, both purporting to be interpretative rules that have created a lot of this confusion.

I think the current Bush Administration did not really go far

enough in trying to clarify the problem. I admire their courage in

even touching the issue at all, but I think they should have done

two things, and I hope they will as the process goes forward. First,

in my opinion, the safe harbor provisions of the NSR rule should

have been made immediately effective as an interim final rule

under the good cause provisions of the Administrative Procedure

Act. EPA has done that in numerous other situations where there

is uncertainty in the law, and after 130,000 public comments have

already been received, I do not think we should be waiting. The

EPA-NSR report documents that there are a number of adverse effects taking place today as a result of the uncertainty.

Second, I believe the Administration should immediately conform

its litigating position in the pending NSR cases to the policy positions that it is now taking in these proposed rules. I disagree with

my good friend, Assistant Attorney General Tom Sansonetti, who

I served with in the previous Bush Administration, that it is going

to be viable for the U.S. Government to pursue multi-billion dollar

cases based on the premise that the same words in the law meant

one thing in 1980, something different in 1992, something different
87

in 1996, something different still in 1998, and that they are going

to mean something yet different in the future when these proposed

rules are finalized.

I also disagree strongly with those who imply that the pending

enforcement cases brought in the previous Administration should

somehow disable the new Administration from implementing its

views of good policy. Just as the Clinton Administration in 1998

could change from the 1992 Bush Administration interpretation, I

think the second Bush Administration is free to impose its own interpretation.

Of course, the Congress can make the Administration pay a price

politically for its actions, and I guess in a sense that is what this

hearing is about. But in my opinion, NSR is the wrong issue. It is

the wrong issue to make the touchstone for good environmental

policy. It has failed to work for 25 years. I have lived in Connecticut for 30 years and I am very well aware of the problems on

the East Coast. But I think it is important to emphasize that during that 25-year period, we have had the NSR program on the

books. The only place that I know of that when something does not

work it becomes an argument for doing more of it is in government.

We have had this program for 25 years. It has not worked.

Meanwhile, over the last 10 years, the acid rain program has

been wildly successful. Seventy-five people at EPA, less than onehalf of 1 percent, have gotten 50 percent of the total pollution reductions over the last 10 years through the acid rain trading program. Imagine a company like Intel that figured out that one-half

of 1 percent of its people were producing 50 percent of the profits.

Wouldn’t they want to figure out what those few people were doing

and do more of it? I think that is the basic problem that we are

really facing here.

The NSR program is an antiquated regulatory technology. The

notion that the way to regulate the environment is with case-bycase litigation, suing plant-by-plant, having discovery, big litigation

and oppose best available controls—that is a 1960’s technology. We

know much better how to do it, and I think that is what we should

do.

Much of the blame for the current NSR mess I think lies squarely at the doorstep of Congress. Congress in its wisdom enacted the

requirement for modifications of existing plants in 1977, but it has

really failed to define the key operative concept of a modification

in the statute. To date, it has proved impossible for the rest of the

legal system to come up with any clear dividing line that will stand

the test of time. I certainly tried and failed when I was in the government.

EPA has repeatedly tried to resolve that controversy through a

variety of changing rules and interpretations. At one point, EPA

even came out in the Federal Register with a statement that routine repair and replacement is what is ‘‘routine in the relevant industrial category.’’ EPA staff also developed the fascinating theory

of potential emissions, so that a plant was considered to have increased its emissions when its actual emissions went down. In fact,

I disagree with John’s statement. Many of the enforcement cases,

or at least some of the pending enforcement cases, are being

brought against companies whose emission actually went down. So
88

emissions increases ought to be part of the definition, but unfortunately has not been historically.

There have already been so many varied and shifting interpretations by EPA that I seriously doubt that the courts are ultimately

going to give much deference to whatever construction EPA now

tries to place on the statutory terms. That unpleasant fact really

leaves us with only two real options going forward.

First, we can slug it out with many more years of very unproductive litigation, probably going to the Supreme Court at least three

times over the next 10 years before we finally figure out what these

delphic words about modification actually mean in the Clean Air

Act. I think that is really the course that my friend Eric Schaeffer

urges, that when he talks about the concrete facts of individual

cases and a common sense interpretation and the testimony of utility executives, what he is really calling for is that we embark on

a 10-year process of litigation. If we do that, eventually the courts,

which are the courts of last resort, will essentially write a law for

us. They will essentially define over time and a period of litigation

what these terms of the statute really mean.

I think that would be a mistake in course. I would much prefer

to see Congress take control of the situation and put a merciful end

to the NSR controversy by legislating a modern, more efficient replacement for the program with regard to existing plants. I think

the way to do that is one that has tripartisan support and I hope

that is what you will do.

Thanks very much.

Senator JEFFORDS. Thank you very much, Mr. Elliott. I assure

you that we are concerned about the present situation and will be

doing hopefully a successful legislative answer.

Mr. Schaeffer, are there any ways that the Administration could

approach the NSR changes that might actually benefit public

health?

Mr. SCHAEFFER. Changes they could make that would benefit

public health?

Senator JEFFORDS. Right.

Mr. SCHAEFFER. Sure. The last Administration was thinking

about taking the plant-wide limit, which I think is a good one,

which is reflected in some of our settlements. I would refer you to

the Marathon-Ashland settlement for an example, and making that

a good type proposal that would have the effect of bringing emissions down over time. What the current Administration’s proposal

does, and this is an important difference, is allow you to reach

back, find an old baseline of high emissions, and then keep that

high level of emissions for 10 years going forward. The letter that

Mr. Perciasepe wrote which I think is attached to Mr. Slaughter’s

testimony, makes clear when he was talking about plant-wide limits, he was talking about an idea that would bring emissions down

over time. That is what the Clean Air Act is supposed to do, is to

create that downward slope. I think that is what you are trying to

do with the legislation you are considering.

So if they would take the PAL proposal, tighten the bolts on it,

and have the emission levels from companies that use plant-wide

limits step down over a period of time, instead of stay constant, as

though it were some kind of entitlement to pollute, then I think it
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would be a great improvement, and it would bring clarity to companies.

Senator JEFFORDS. Mr. Kelley, you had very dramatic testimony.

Could you describe the plastic bag you got in the bucket brigades?

Mr. KELLEY. Yes, I can. This bag is what we use to actually go

out and pick up the air samples. Here I have with me also, as

being a part of the bucket brigade, you can see why we call it the

bucket brigade. What it is, is literally a 5-gallon bucket and there

is a top that is usually accompanied with the bucket that has an

intake valve and an exert valve. What we do is take a simple computer vacuum cleaner, and it is a tube that is hooked to the top,

and we create a vacuum inside the bucket that will allow the air

to go inside the bag because it is attached to the top on the inside.

Once that vacuum is created in the bucket, the air automatically

flows into the bag.

On a lot of occasions when I go out, what happens is I will smell

some type of sulfur or some type of strong chemical order. I may

get a call from a neighbor who is a part of the bucket brigade as

well, and other citizens that I have alerted about the activity that

is going on in our community. They will call me up and say, well

Hilton, there is a strong odor of some sort in our community. So

I will go to that particular neighborhood. I will take an air sample.

The samples are then immediately rushed to a lab in a location

outside of Texas—I will say it that way—and the air is then analyzed and then sent back to me or Denny Larson and then we give

the results to a lot of the citizens to let them know exactly what

we found.

On many occasions, we have found that the refineries such as

Premcor, Huntsman, Motiva are well above the EPA standards

when it comes to what they can emit, how much they can emit into

the air. We have found sometimes they are somewhere in the ballpark of 8 parts per billion over or 12 parts per billion over the

amount of chemicals that they are allowed to dump into our air.

This is something that is common in Port Arthur, TX. This is why

so many of the citizens there have respiratory problems, and as I

said earlier, we have two dialysis clinics in Port Arthur and the

population is somewhere in the ballpark of 57,385.

I would like to state, No. 1, we are not really against refineries,

but what we are against is the amount of pollution that is being

dumped on this small community unfairly because we bear the

brunt of all the pollution and all the toxicities for the rest of the

Nation to have cleaner-burning gasoline. We say enough is enough.

It seems like we are being sacrificed for the rest of the Nation to

have cleaner air. I say, No. 1, it is time that we stand together and

come up with other solutions so that one community does not have

to bear the brunt of all this pollution.

We understand that we need gasoline. We understand that we

need the products of crude oil and various products that come off

of it. But what we don’t need is the pollution that they dump into

our communities and on our kids and everything else in our community. What we are saying is clean up your act. What we are saying is use the necessary controls on your smokestacks; use the controls on your flares. The flares were designed to burn gases as they

come off, but I have pictures that will show otherwise. Sometimes
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you can see flares 25–30 feet up in the air, and they are just burning wild, simply because too much product was coming to the flare

too soon, and they had to burn off thousands of tons of gasoline and

other products because it would go all over the ground at the refineries. And then the flare is just emitting all of this smoke, black

smoke, I mean day-in and day-out sometimes for like 10–12 hours

at a time, and tons and tons of sulfur dioxide is dumped.

Sometimes you can just go outside and you could just rub your

hand across your car and then you have all this soot and different

chemicals on your fingers. So you can imagine what is going on

into our lungs.

Senator JEFFORDS. That is right. Thank you very much.

Mr. Slaughter, your testimony is that NSR reform can make the

difference between life and death for many facilities. It is clear that

Mr. Kelley and other members in the affected communities feel

that it will make the difference between life and death for many

people. Have you and your members tried to meet with the community groups in the last year to see if there are NSR reforms that

everyone could support?

Mr. SLAUGHTER. Well, one, the refinery industry, the owners of

the individual facilities quite pervasively have community groups

around individual facilities that they meet with and have a continuing relationship with. I think one of the problems here is that

a number of these matters that are being discussed today by Mr.

Kelley are not involved in the NSR issue. They are involved in

these other regulatory controls that actually deal with emissions at

facilities. The toxic emissions, for instance, would be subject to

other controls. The facilities are very heavily controlled. I can tell

you that the facilities that are in Texas are subject to some very

stringent new requirements that are part of the new State implementation plan, and basically heavy industry facilities across

America are very closely monitored.

We have also shown the number of new proposals to change fuels

and also do additional things at our plants that are required of us

over the next decade. All of those will basically require discussion

of what the emissions characteristics of the facilities are, and in

most of those cases there will be input from the local community.

Senator JEFFORDS. Mr. Harper, you said that PALs should be set

to reflect the air quality improvement needs of an airshed. How

would that work if a PAL is locked in for 10 years as proposed by

the Administration?

Mr. HARPER. Mr. Chairman, what I understand is in the Administration proposal, it is not actually all that different in most respects from what was in the previous Administration’s proposals.

In fact, in one respect it is more cautious, and that is the previous

Administration was willing up until the very last moment to promulgate an allowables PAL provision, which the current Administration has decided to put out for further comment.

But part of what we understand to be the way the current Administration’s proposal would work is not that much different than

the way it has worked in our experience. The 10-year, you know,

highest 2 years in the last 10 years is the starting point. It is a

default or basic guideline for setting the cap baseline. In our experience, because PALs are voluntary, that is only the starting point
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for the negotiation. What States and permit authorities at the local

level do is they look at actual emissions and from the start you are

giving up the difference between your actuals and your allowables.

In our case, it has often been a very substantial number. So that

potential to amend is taken off the table from the get-go.

Then you look at your baseline, whatever the baseline is in the

State program—the baseline that EPA is now proposing, the highest 2 years in a 10-year period. We think that that is reasonable.

In our industry, cycles are pretty quick. In other industries, cycles

are much longer. So 10 years provides for all different kinds of situations.

What you then do, at least in our experience and what we think

will happen under the current regulation or current proposals as

we understand it will operate, is the area will take that baseline.

They will look at their air quality monitoring. They will look at

their SEP and what is required. They will set a baseline. They will

set a cap. As Eric mentioned, that is good for 10 years, but that

is a little bit of a misnomer. As we understand the process will

work, and we have no problem with this, over the lifetime of the

PAL permit, the 10-year period, adjustments can be made downward and we have no problem with adjustments being made downward on the cap if two conditions apply. No. 1, the air quality need

of the region is such that it requires emission reductions. As I stated in my testimony, in Portland we gave up a substantial percentage of our cap voluntarily. No. 2, PAL sources should not be treated any differently than any other sources. So if a permitting authority needs to reduce its emissions by 10 percent area-wide or

whatever the number is, and they treat PAL sources the same as

non-PAL sources and ask everybody to pony up emissions reductions, we do not have a problem. We understand the Administration’s proposal would allow the States to make adjustments.

We also do not have a problem as Intel with downward adjustments being made in the cap during that 10-year period if new requirements come into play. So if there are new air quality requirements that will apply to a facility, we have no problem with those

getting incorporated into the cap. We just don’t want to have a

willy-nilly reduction or a reduction that is targeted specifically at

PAL sources and does not treat PAL sources equivalent with others.

Senator JEFFORDS. Thank you.

Mr. Walke, I understand that the NRDC has been participating

in good faith and with the previous Administration on NSR reforms

that might actually benefit the environment and industry. What

happened to that process?

Mr. WALKE. Well frankly, Chairman Jeffords, we had an election

in the year 2000, and the industry decided that they could get a

better deal with the new Administration, and those discussions

came to a halt. My organization had been in constructive discussions with even some more progressive members of industry to design PALs, as Steve has mentioned, that would have declined over

time, bringing needed air quality benefits to areas. But those discussions fell by the wayside, and instead this Administration has

announced the intent to adopt a PAL that would grant perpetual

immunity from New Source Review. We refer to this approach as
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the grandfather-on-steroids, because it allows these grandfathered

facilities to pollute at the levels that they have been for time immemorial without cleaning up. That is a far cry from the constructive

dialogs that we had.

By the same token, in those stakeholder discussions, there was

very strong agreement among State air regulators and NRDC for

the elimination of various loopholes that exist under the New

Source Review program. EPA under the Clinton Administration

shared those desires in part, and we were on a constructive road

to eliminate some of those loopholes in exchange for some flexibilities for industry. That consensus has also fallen by the wayside.

Finally, the provisions of the Clinton proposals that have been

mentioned so frequently here in ostensible support of the argument

that the Bush Administration is doing something no different from

the Clinton Administration is really quite striking and disingenuous. The Clinton Administration did not adopt the changes that

the Bush Administration is going to. In part they did not because

there was considerable opposition from State air regulators, which

is reflected in the document that I have submitted to the record in

relation to the Bush Administration’s changes, and considerable opposition from environmental and public health organizations.

The truth is that this Administration has adopted a package that

abandoned that stakeholder discussion process, the Federal Advisory Committee process, abandoned progress that was being made

to reach consensus, and has adopted a set of so-called reforms that

are unilaterally favorable to industry and that weaken the air quality protections of the New Source Review program. That is what

happened.

Senator JEFFORDS. Mr. Elliott, I will give you a chance to make

the last comment. Do you have something you would like to add

to your testimony, or from what you have heard from the others

in the last few minutes?

Mr. ELLIOTT. Gee, Mr. Chairman, I was all prepared for all the

difficult questions you might ask me, but that one. I would say that

we can replace NSR with a trading system for the electric utility

industry for existing plants. The question then becomes what are

you going to do for the other plants. I think there we either should

make a judgment that their contribution is sufficiently insubstantial that we really don’t need to regulate them in order to achieve

our air quality goals, which is basically the decision that as made

in the NOx SIP Call, as you are aware.

Or alternatively, I think if we are going to keep NSR for plants

outside the utility industry, we need both clear triggers and clear

safe harbors. If there is anything that is unbalanced about the

Bush Administration proposals it is that it is very clear on some

of the safe harbors, it is still not equally clear about the triggers.

I think that leaving aside the past history of the last 40 years, the

reason that the NSR program does not work is that it is too confusing. It is too uncertain as to when it really is triggered for a

plant. I have represented some plants outside of the utility industry in Connecticut, and talked to the plant people. We have settled

those cases. People made changes to the plant and they just had

no idea if this triggered NSR.
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So we have really got a trap for the unwary here. If you are

going to keep NSR as part of the overall toolbox for existing plants,

you need a very clear trigger. And you have got a very clear trigger

in your bill. I forget the last section number—is it section 111 or

section 711 or 743? I don’t remember—it is the very last one. But

it basically says, hey, after 40 years, you are subject in the electric

utility industry to BACT—best available control technology.

I think the flaw in the bill, if I may be so bold, is that it also

preserves the NSR program as it is currently written. I think if we

could get clear triggers to people as to at what point an existing

point is required to meet the same standards as a new plant, this

is something I think people could live with. The electric utility industry as I understand it, and I am not a spokesman for the electric utility industry, but as I understand it they proposed a number

of different off-ramps or ways to deal with this. A lot of the States

have legislated ways to deal with it.

I think it is a good thing to have clear safe harbors, but I also

think we need clear triggers, and the only way the NSR program

is going to work if there is a very simple bright line. Really, I do

regard Eric Schaeffer as a friend and somebody whose public service I very much respect, but I think the thing that is wrong in

Eric’s approach, and it is very typical of enforcement attorneys, is

it is a retrospective approach. You know, you go in and make a

case after the fact. In order for these programs to work and actually clean up the air, you have to send very clear signals to people

in advance. This is what was wrong with the Superfund program

until it was fixed by the Clinton Administration. It was a very retrospective program. You balanced nine factors. You dealt with each

individual Superfund site as if you had never seen one before.

We got nowhere. It was a tremendous morass. And then much

to their credit, the Clinton Administration administratively fixed

that program by having much, much clearer standards, much clearer triggers. Once you have clear triggers for the regulated community, I think by and large people will comply with the law and you

will get a lot of voluntary action to comply with the law. The difficulty that we have got with the NSR program, the reason that it

does not work, is that when you say that we are going to—you trigger NSR based on a balance of multiple factors. Imagine if you had

a tax deduction and instead of having a very clear safe harbor for

what it takes to take a tax deduction, suppose the tax code says,

well, we decide whether or not you get this tax deduction by striking a balance of four or five different factors and weighing and balancing them in the individual case. Judges are inclined to do that

often because it makes it easy for them. They do not have to decide

something comprehensively. But I think the problem with NSR and

the reason that it does not work is as of now, we have multiple factors. If it going to work and people are going to be able to comply

with it, it is going to need both clear triggers and clear safe harbors.

Senator JEFFORDS. Well thank you very much for your participation and the participation of all of you. It has been a long day,

longer for me, I think, but maybe sitting and listening all that time

is even harder.
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We take our duty and obligation very seriously, and so I am

going to reserve the right to pepper you with questions by mail, as

the other members under our rules have to do, but I would not sit

by the mailbox, but you might expect some.

Thank you all. It has been extremely helpful and I assure you

that this committee is going to all it can to try to come up with

a rational program and make sure that the Administration has all

the help it needs to come up with the right answers.

Thank you very much.

[Whereupon at 3:18 p.m., the committees were adjourned, to reconvene at the call of their respective chairs.]

[Additional statements submitted for the record follow:]

STATEMENT OF SENATOR BAUCUS, U.S. SENATOR FROM THE STATE OF MONTANA

Chairman Leahy and Chairman Jeffords, I apologize for being unable to attend

this hearing today. I had to chair a hearing in the Senate Finance Committee and

attend another hearing in the Senate Agriculture Committee. I just couldn’t be in

three places at once. Thank you for allowing me to submit this statement for the

record.

The debate over New Source Review (NSR) has become increasingly intense, confusing and complex. I applaud you both, Chairman Leahy and Chairman Jeffords,

for holding this hearing to help us clarify what is truly at issue in this debate, and

to better understand EPA’s proposed NSR reforms and how those reforms could impact public health and the environment.

I think we all can agree with the ultimate goals of the NSR program, which put

simply, are to encourage the continuous evolution of pollution control technology,

and to make sure that as older power plants reach the end of their useful life, they

are gradually replaced by plants with the newest, and most up to date pollution control technology. This has obvious benefits for the environment and public health, as

harmful emissions are theoretically reduced over time. It also attempts to level the

playing field for new plants, while giving older plants some flexibility in complying

with stricter pollution control requirements that involve significant capital investments.

However, it does seem pretty clear that many folks believe the Administration of

the NSR program could be improved, that currently, the program is complex and

difficult for State agencies to administer. Industry also claims the current program

blocks them from making necessary environmental or energy efficiency improvements at their plants.

Therefore, maybe it is time for Congress to take a look at the effectiveness of the

current NSR program, and consider whether it should direct EPA to make any

changes. But, let me very clear, if any changes to the NSR program are necessary,

they should relate to reducing the administrative burden on States and industry,

in order to make the program operate more efficiently and effectively. In no way

should administrative changes to NSR lessen the impact of the NSR program on reducing harmful air emissions over time. In no way should NSR ‘‘reforms’’ relieve industry of the basic obligation to install the most up-to-date pollution controls if they

modify their operations and increase their emissions.

I know that the devil is in the details. But, I am concerned that the Administration’s proposed NSR reforms go too far and will negate Congress’ intent in crafting

New Source Review. Therefore, I am pleased we will have this hearing record to better understand what the Administration believes the impacts of its proposed NSR

reforms will be on public health and the environment and on current NSR enforcement actions, and how States, industry and public interest groups view the impacts

of those reforms.

Thank-you again, Chairman Leahy and Chairman Jeffords, for holding this hearing and allowing me to submit this statement for the record.

STATEMENT OF HON. RON WYDEN, U.S. SENATOR FROM THE STATE OF OREGON

Businesses regulated by the New Source Review (NSR) program have legitimate

interests. They want certainty, streamlining, and fairness in the permitting process.

But the only certainty I see in the Administration’s New Source Review proposal

is increased air pollution.
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EPA’s proposal breaks the clean air commitment made by industry, Congress and

the first Bush Administration in the 1990 Clean Air Act Reauthorization. It also

brazenly undercuts key enforcement actions that EPA has brought against several

utilities. They are proposing a definition of a routine maintenance, repair, and replacement that would allow, for example, a $1-billion refinery to upgrade its plant

by as much as $150 million per year without triggering new emission controls.

EPA’s proposal is another step back in the Administration’s ongoing retreat from

our country’s landmark environmental laws.

EPA has missed an opportunity to provide a win-win situation for industry and

the environment. NSR done right could both increase energy efficiency and reduce

pollution. It could provide certainty, quick turnaround, and protect the air.

I know this can be done because we do it in Oregon. For over 20 years, Oregon’s

new source review program allows sources to make changes quickly, and it protects

air quality. Oregon’s system is a ‘‘Plantwide Applicability Limit’’ or PAL; and it addresses all the problems that have been hashed back and forth for the last 10 years

in EPA’s NSR reform process.

Intel has a plant in the Portland area and they are quite happy with Oregon’s

program, as you will hear from Mr. Harper today. In fact, Intel should be commended for their voluntary donation of some of their emissions of volatile organic

compounds. Thanks to reductions from companies like Intel in the Portland area,

we have been able to be reclassified from an ozone nonattainment area to an attainment area.

Let me be clear, however. EPA’s proposal for PAL doesn’t offer the protections and

improvements that Oregon’s program does. I think it’s important to point out that

Oregon wants to keep this area in attainment, and has changed its PAL program

so that where companies make a substantial amount of emission reductions, the

emissions ‘‘cap’’ under a company’s PAL is now reduced so that company’s emission

reductions are ‘‘locked in’’. The company’s limit has been reduced.

In addition, Oregon’s system doesn’t let a company increase its pollution based on

phantom emission reductions nor does it allow companies to ‘‘inflate’’ its baseline

emissions by selecting the highest 2 years over the past 10 years.

And unlike EPA’s PAL, approach, all new sources or modifications in Oregon

must go through our system. EPA offers the States a menu of options. Obviously,

it should be a State’s choice to use a PAL system or not. But once a State chooses

a PAL system, it should apply uniformly. Companies should not be given the option

of picking the approach that allows them to minimize reductions and controls as

EPA would allow them to do.

I think the Bush Administration has missed the point, and an opportunity. Rather

than relaxing rules and weakening enforcement, EPA should be ensuring that the

State and local agencies responsible for issuing NSR permits have the people and

resources to do the job right. Sound and reasonable permitting decisions will both

assure the regulatory certainty that business is seeking and maintain clean air protections.

EPA said it themselves: an EPA official recently stated many problems with NSR

stem from the responsible personnel at the State and local agencies being ‘‘the last

ones hired’’. They are very young, the NSR work assignment is frequently viewed

‘‘entry level’’ and undesirable and at the earliest opportunity the more ambitious

personnel are ‘‘promoted out’’ of NSR. The result of this lack of experience, mentoring, and institutional memory is a cumbersome regulatory process at some State

and local air permitting agencies.

EPA’s solution amounts to a ‘‘Mc-NSR’’ approach, where EPA is saying ‘We do it

all for you’ claiming its package makes the process easier to understand for the

State and local agencies. Staff don’t have to think anymore or make difficult decisions; the regulations make it all automatic.

Rather than rewriting regulations and weakening clean air protections, the Bush

Administration should be looking at the real issues associated with NSR, and real

solutions. Giving bigger exemptions to some emissions sources does not solve air pollution problems. In fact, it makes it tougher for States as well as industrial sources

to meet air quality goals. I, along with four other Senators, have recently signed

a letter to the appropriations subcommittee that funds EPA. We have urged the

subcommittee to increase funding for State and local air pollution control agencies

by $25 million above the President’s proposal.

These agencies are the gatekeepers with the difficult task of balancing statutory

environmental protection with economic growth. Let’s help them do this! Instead of

dumbing down the law by rewriting the regulations, and endorsing a Clear Skies

Initiative that essentially eliminates NSR for all power plants in the United States,

State and local air agencies and the public would be better served by investing the
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resources to find the smarter win-win solutions that achieve both our energy and

environmental goals.

STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR FROM THE

STATE OF WASHINGTON

I would like to thank both Chairman Jeffords and Leahy for holding this important hearing today and would like to thank the members of our panel for taking

the time to share their expertise and views with us.

Protecting the air we breathe is fundamental to environmental stewardship.

When Congress passed the Clean Air Act in 1972, it was a great step forward in

protecting the health and environment of our communities.

In 1990, Congress and President George H.W. Bush amended the Clean Air Act

by establishing the New Source Review (NSR) program to enhance air quality by

regulating pollution from energy producers. The EPA set minimum national standards for air quality, while States were given the primary responsibility for enforcement. Under NSR, older power plants are required to minimize pollution by harnessing new protective technology when they modernize the rest of their operations.

In May 2001 Vice President Cheney’s Energy Task Force recommended a review

of NSR, after which time such regulations were not enforced. On June 13, 2002, the

EPA recommended changes in the NSR that would effectively weaken many environmental protections. The changes would raise emissions limits, selecting the highest base rate of the past 10 years and only affecting plants that are currently increasing emissions; let companies avoid installing the best available pollution technology controls by drastically narrowing the definition of ‘‘modification;’’ and delay

the ‘Best Available Control Technology’ implementation by 10 to 15 years.

Despite the resistance of certain companies, many businesses are successfully

complying with the Clean Air Act. In my State of Washington, the Centralia coal

plant has focused its efforts on upgrading facilities rather than litigating in court.

And there can be no doubt that the Clean Air Act has improved the nation’s air

quality. According to a study by the Congressional Research Service, the Clean Air

Act has lead to ‘‘noticeable improvements in air quality in recent years;’’ there are

now 42 more metropolitan areas meeting the 1-hour ozone standard and 36 more

areas achieving the carbon monoxide standards (CRS Issue Brief, 7/8/02).

I am concerned that the Administration’s Clear Skies proposal ignores these successes and will undermine over a decade of progress in protecting our nation’s air.

I am also troubled that this Administration has encouraged companies to avoid

settlement of current cases in the hopes of weaker regulations in the future. State

Attorneys General pursuing past infractions have been hindered by the Administration’s public interference. For example, the Federal Government has a pending case

against the Tennessee Valley Authority’s NSR violations, which EPA Administrator

Christine Todd Whitman has referenced as an excuse for other plaintiffs to delay

settlements. On March 7, 2002, she offered this legal advice to the Senate Environment Public Works Committee: ‘‘if I were a plaintiff’s attorney, I wouldn’t settle

anything until I knew what happened to that case.’’ This is unacceptable. The EPA

and the Justice Department’s main focus should be upholding and enforcing our environmental laws, not delaying or circumventing them.

The Senate must carefully examine whether the Administration’s Clear Skies proposal will indeed improve air quality. I look forward to the testimony today. Thank

you Mr. Chairmen.

STATEMENT OF THOMAS L. SANSONETTI, ASSISTANT ATTORNEY GENERAL,

ENVIRONMENT AND NATURAL RESOURCES DIVISION

INTRODUCTION

Chairmen Jeffords and Leahy, and Members of the Committees, I am pleased to

be here today to discuss the Department of Justice’s enforcement activities on behalf

of the Environmental Protection Agency’s New Source Review or ‘‘NSR’’ program.

We take the health impacts of air pollution seriously and view our enforcement activities in this area as an important part of the effort to clean up the air that Americans breathe and to protect public health and the environment. Accordingly, we in

the Department’s Environment and Natural Resources Division are continuing to

prosecute vigorously a variety of actions in connection with the NSR program.

In my testimony today, I will give you some background on the NSR enforcement

litigation in general and then discuss in greater detail our enforcement activities in
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this area. One of the points that I want to convey to you is that there is much more

to this program than regulation of power plants, and that we have taken a broadbased enforcement approach encompassing a number of industries. This approach

has resulted in significant gains for public health and the environment across the

United States. In addition, although I will not be discussing it in further detail, the

Committees should be aware that the NSR litigation is only one part of the Environment and Natural Resources Division’s enforcement docket. We have many other enforcement actions focusing on other, non-NSR related portions of the Clean Air Act,

such as violations of permits, State implementation plans, New Source Performance

Standards, and National Emission Standards for Hazardous Air Pollutants. In addition, we are also actively prosecuting violators of the Clean Water Act, the Safe

Drinking Water Act, the hazardous waste laws and a variety of other environmental

laws. We are committed to vigorous enforcement of all of the environmental laws

as well as violations pertaining specifically to the NSR program.

HISTORY OF NSR ENFORCEMENT LITIGATION

In 1977, Congress amended the Federal Clean Air Act to add certain provisions

which have come to be known as the New Source Review or ‘‘NSR’’ provisions. The

NSR provisions actually have two parts—the Prevention of Significant Deterioration

provisions, which apply to areas in attainment status for national ambient air quality standards, and the New Source Review provisions proper, which apply to areas

that are in non-attainment status. See 42 U.S.C. § 7470 et seq. and § 7501 et seq.

Both sets of provisions require that both newly constructed sources of air pollution

and existing sources that undergo ‘‘modification’’ obtain an NSR permit and install

state-of-the-art pollution control technology. The Act defines a ‘‘modification’’ 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 results

in the emission of any air pollutant not previously emitted.’’ 42 U.S.C. §§ 7411(a)(4),

7479(2)(C), 7501(4). If the source is in an attainment area, it must use the best

available pollution control technology, but if it is in a non-attainment area, it must

use the more stringent lowest achievable emissions reduction technology. 42 U.S.C.

§§ 7475(a)(4), 7503(a)(2).

In the late 1980’s, the Department of Justice began bringing enforcement actions

for NSR violations against facilities that made ‘‘modifications’’ without obtaining a

permit or installing state-of-the-art pollution controls. Our primary goal in these actions has been, and continues to be, the protection of public health and the environment by compelling facilities that are in violation of the law to install state-of-theart pollution controls. We also seek the imposition of appropriate civil penalties for

past violations, as an important component of our efforts to discourage non-compliance and to ensure a level playing field between those who comply with the law and

those who fail to do so.

Over time, working with our colleagues at EPA, we developed a strategy of targeting industries that had significant compliance problems with regard to NSR requirements and that were major sources of air pollution. These industries included

the wood products industry, refineries, and coal-fired utilities. I would like to describe just a few of our recent successes in these sectors.

Wood Products Industry

The first industry on which we focused in our NSR enforcement efforts was the

wood products industry. Our first actions concerned single facilities. See U.S. v.

Louisiana-Pacific Corp., 682 F.Supp.1141 (D. Colo. 1988). We subsequently filed another action against Louisiana Pacific, which was resolved in 1993 by a consent decree that required the company to install pollution controls at its facilities nationwide and to pay a civil penalty of $11 million. Since that landmark settlement, we

have had a string of successes in obtaining similar settlements from other major

wood products manufacturers, such as Georgia Pacific and Willamette Industries. In

fact, I was privileged to announce our most recent success in this sector just a few

months ago. In March of this year, we filed a consent decree with wood products

industry giant Boise Cascade Corporation that will require reductions of up to 95

percent of the harmful emissions from the company’s eight plywood and particle

board plants, located in Oregon, Washington, Louisiana and Idaho. Boise Cascade

will also pay $4.35 million in civil penalties and has agreed to spend another $2.9

million in supplemental controls to reduce emissions at various plants. The State

of Louisiana, which joined us in bringing this action, will receive a portion of the

civil penalty.
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Refineries

We have also been very successful in reaching settlements for NSR violations with

several major refiners. After prevailing at trial on the issue of liability, we joined

with the EPA and the Wisconsin Department of Justice in January to announce a

settlement with Murphy Oil USA, Inc., which will dramatically cut sulfur dioxide

(‘‘SO2’’) emissions from the company’s Superior, Wisconsin refinery, and will also improve Murphy Oil’s programs to monitor and repair leaks of volatile organic compounds and to prevent oil spills. Murphy will also pay a $5.5 million civil penalty,

the largest ever leveled in Wisconsin in an environmental enforcement case; the

State of Wisconsin will receive $750,000.

Also, last December, we announced comprehensive environmental settlements

with Conoco Inc., Navajo Refining Company and Montana Refining Company that

are expected to reduce harmful air emissions from seven U.S. petroleum refineries

by more than 10,000 tons per year. One consent decree required Conoco to spend

an estimated $95–$110 million to install the best available technology to control

emissions from stacks, wastewater vents, leaking valves and flares throughout its

refineries, while the other required Navajo and Montana Refining to spend an estimated $16–$21 million to undertake similar projects. The States of Louisiana, Oklahoma, Montana, Colorado and New Mexico joined the settlements and are sharing

in the civil penalties obtained. Attorney General Ashcroft stated that ‘‘[t]hese settlements are a victory for the environment and the public,’’ and that ‘‘[t]hey exemplify

the U.S. government’s commitment to protect our natural resources, to promote

cleaner air and to ensure that companies are complying with environmental law.’’

These are only a few of the many settlements that we have reached with major

refiners in the last 18 months and that will ensure cleaner air nationwide. Cumulatively, these settlements cover 37 refineries and 30.6 percent of the nation’s domestic refining capacity, and are expected to reduce air emissions of nitrogen oxides and

sulfur dioxide by more than 150,000 tons per year. These settlements also include

provisions to facilitate the production of low sulfur gasoline and diesel fuel, enhance

flexibility, and expedite permitting necessary to address future needs.

Coal-Fired Utilities

The Department filed seven enforcement actions in 1999 against the owner and

operators of coal-fired power plants located in Illinois, Indiana, Ohio, West Virginia,

Virginia, Georgia, Alabama, and Florida, and three additional actions since then for

plants located in North Carolina, South Carolina, Alabama, and New Jersey. So far,

we have reached settlements with the Tampa Electric Power Co., and agreementsin-principle with Virginia Electric Power Company and Cinergy, under which these

companies agreed to install and operate state-of-the-art pollution controls on significant portions of their entire coal-fired generating systems.

Our most recent success in this area came in January, when we joined forces with

the State of New Jersey by filing an action against and reaching a settlement with

PSEG Fossil LLC. Under that settlement, PSEG will spend over $337 million to install state-of-the-art pollution controls to eliminate the vast majority of sulfur dioxide and nitrogen oxide emissions from its Mercer and Hudson coal-fired power

plants in Jersey City and Hamilton, New Jersey. The combined effect of the pollution controls will reduce the company’s emissions of sulfur dioxide (SO2) by 90 percent and its emissions of nitrogen oxides (NOx) by more than 80 percent. Overall

reductions will be at least 36,000 tons of SO2 and 18,000 tons of NOx per year.

These decreases represent 32 percent of all the SO2 and 20 percent of all the NOx

emitted from stationary sources in New Jersey, and 19 percent of all the SO2 and

5 percent of all the NOx from all sources in the State, including cars and trucks.

In addition to the pollution reductions secured by the settlement, PSEG Fossil

agreed to pay a civil penalty of $1.4 million and to spend at least $6 million on three

pollution reduction projects that will partially offset the impact of past emissions.

As the Attorney General stated, ‘‘This important settlement reflects our continuing

commitment to enforce vigorously the Clean Air Act to protect public health and the

environment.’’

CURRENT STATUS OF PENDING NSR ENFORCEMENT ACTIONS

We currently have 11 pending enforcement actions in which NSR violations are

the main issue. Eight actions involve coal-fired power plants, and the remaining

three involve other industries.

Of the eight pending power plant cases, five are currently in active discovery on

liability issues. The first of the five (U.S. v. Southern Indiana Gas & Electric Co.

(‘‘SIGECO’’)) is scheduled to go to trial later this year in October. In the other three

pending power plant cases, the parties are either engaged in settlement negotiations
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(U.S. v. Cinergy Corp. in Indiana) or discovery has been stayed because the district

courts are awaiting the Eleventh Circuit’s decision in TVA v. EPA. (U.S. v. Georgia

Power Co. and Savannah Power Co. in Georgia and U.S. v. Alabama Power Co. in

Alabama). TVA v. EPA is a challenge by TVA to EPA’s 1999 administrative order

directing TVA to install pollution controls at coal-fired power plants in Kentucky,

Tennessee and Alabama that have undergone modifications. Although that case has

been fully briefed and was argued in May 2002, the Eleventh Circuit has not

reached a decision and recently referred the case to mediation until the end of August.

Seven northeastern States (New York, New Jersey, Connecticut, Vermont, New

Hampshire, Massachusetts, and Rhode Island) and Maryland have joined as plaintiffs in one of the enforcement actions against coal-fired power plants (U.S. and

State of New York et al. v. American Electric Power Co. et al.) New York, New Jersey and Connecticut also joined as plaintiffs in U.S. and State of New York et al.

v. Ohio Edison Co. et al. and in U.S. v. Cinergy Corp.

A number of citizen and environmental groups also have joined as plaintiffs in

four of the enforcement actions against coal-fired power plants. Citizen plaintiffs in

U.S. and State of New York et al. v. American Electric Power Co. et al. include Ohio

Citizen Action, Natural Resources Defense Council, Sierra Club, Clean Air Council,

U.S. Public Interest Research Group, Izaak Walton League of America, National

Wildlife Federation, Citizens Action Coalition of Indiana, Hoosier Environmental

Council, Valley Watch, Inc., Ohio Valley Environmental Coalition, West Virginia

Environmental Council, Indiana Wildlife Federation, and the League of Ohio Sportsmen. Citizen plaintiffs in U.S. v. Duke Energy Corp. include the North Carolina Sierra Club, North Carolina Public Interest Research Group, and Environmental Defense. Citizen plaintiffs in U.S. v. Georgia Power Co. include Physicians for Social

Responsibility, Campaign for a Prosperous Georgia, U.S. Public Interest Research

Group, and the Alabama Environmental Council. The Alabama Environmental

Council is also a plaintiff in U.S. v. Alabama Power Co. Finally, Hoosier Environmental Council and Ohio Citizen Action have joined as plaintiffs in U.S. v. Cinergy.

THE ATTORNEY GENERAL’S NEW SOURCE REVIEW REPORT

In May 2001 the National Energy Policy called for the Attorney General to ‘‘review existing enforcement actions regarding new source review to ensure that the

enforcement actions are consistent with the Clean Air Act and its regulations.’’ This

review was conducted by the Department of Justice’s Office of Legal Policy, which

issued its report in January 2002 (‘‘New Source Review: an Analysis of the Consistency of Enforcement Actions with the Clean Air Act and Implementing Regulations’’). The Office of Legal Policy determined that ‘‘the existing enforcement actions

are supported by a reasonable basis in law and fact,’’ and that the Department’s

Environment and Natural Resources Division ‘‘will continue, as it has during the

pendency of this review, to prosecute vigorously the EPA’s civil actions to enforce

the new source review provisions.’’ OLP New Source Review Report, January 2002,

p. vi. I should also note that our determination does not mean that EPA cannot revise NSR regulations in the future. As OLP said in its report: ‘‘The effect of the Department’s conclusion is retrospective. It examines only currently pending enforcement actions to determine their lawfulness, and expresses no opinion on how the

Clean Air Act should be enforced in the future. Those policy determinations rest

with the EPA.’’

CONCLUSION

In closing, I would like to assure these Committees that the Department of Justice takes very seriously its obligation to enforce the existing laws and to protect

public health and the environment. As directed by the Attorney General, we will

continue to vigorously prosecute the NSR enforcement actions and to defend the action brought by TVA against EPA to the full extent of the law. I would be happy

to answer any questions that you may have about my testimony.

RESPONSES OF THOMAS L. SANSONETTI TO ADDITIONAL QUESTIONS FROM

SENATOR JEFFORDS

Question 1. Mr. Holmstead said that he met with DOJ attorneys regarding the

potential negative impact of the NSR reform announcement on the enforcement

cases. Who did he meet with and when?

Response. ENRD attorneys have discussed PSD/NSR issues primarily with representatives of EPA’s Office of Enforcement and Compliance Assurance and Office
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of General Counsel. In addition, we have carefully reviewed with EPA each brief

filed on their behalf to ensure that the brief was consistent with their position. Over

time, my staff has also answered specific questions on several occasions that were

posed by EPA staff concerning PSD/NSR issues. Aside from these discussions, my

Deputy has discussed PSD/NSR reform with Assistant Administrator Holmstead

and other EPA officials on a number of occasions.

Question 2. How many cases have been referred to DOJ by EPA for prosecution

in 2002? How does that compare to the average during the Clinton Administration?

Response. During Fiscal Year 2002 to date, EPA has referred 287 cases to DOJ

for filing civil enforcement actions. The average for a similar time period in Fiscal

Years 1993–2000 was 283.5 referrals.

Question 3. Please provide any legal analysis performed by the Department in the

6 months prior to the announcement of the NSR Reform Package with respect to

the potential impact of any elements of the announcement on the pending enforcement actions.

Response. Prior to the announcement being made, the Department did not perform a legal analysis of the potential impact of the June 13 announcement on the

pending enforcement actions. Before June 13, staff communications took place on

various issues raised by EPA staff regarding potential issues associated with future

reforms.

Question 4. In the filing on the Southern Indiana Gas and Electric Company case,

you stated that the entire utility industry had constitutionally adequate and advance notice of EPA’s interpretation of ‘‘routine maintenance,’’ long before EPA and

the Department filed enforcement actions in 1999. Is that still your position?

Response. This matter is currently in litigation, United States v. Southern Indiana

Gas & Electric Company, S.D. Ind. Civil Action No. IP99–1692-C-M/S. Accordingly,

the most accurate statement of the position of the United States is contained in our

briefs to the Court, and we stand by those briefs.

Question 5. You also stated that this advance notice clarified that the exemption

for routine maintenance is only for trivial or ‘‘de minimis situations,’’ and applies

only on a case-by-case basis to activities that are routine for a typical unit. Is that

still your position?

Response. This is a matter is currently in litigation, United States v. Southern Indiana Gas & Electric Company, S.D. Ind. Civil Action No. IP99–1692-C-M/S. Accordingly, the most accurate statement of the position of the United States is contained

in our briefs to the Court, and we stand by those briefs.

Question 6. How many of the utility modifications which are currently subject to

DOJ-EPA enforcement actions would not be required to install controls if they were

allowed to take advantage of EPA’s announced proposed and final rules for routine

maintenance and repair, Plant Wide Applicability Limits, and the ‘‘clean unit test’’?

Response. Although EPA has announced that it intends to propose a rule or issue

a final rule regarding these issues, it has not announced what the specific language

of the proposed or final rules will be. Proposed rules will also be subject to section

307(d) of the Clean Air Act which requires formal public notice and an opportunity

to comment before they can become final. Accordingly, it is not possible to answer

this question. In any event, as Assistant Administrator Holmstead testified at the

July 16 hearing, the rule will be prospective in nature and is not intended to affect

current litigation.

Question 7. Has DOJ failed to pursue any new NSR enforcement cases in fiscal

year 2001 or fiscal year 2002 due to lack of resources?

Response. Within the budget restraints established by Congress, we have pursued

all new NSR enforcement cases that have been referred to us in fiscal year 2001

and fiscal year 2002.

RESPONSES OF THOMAS SANSONETTI TO ADDITIONAL QUESTIONS FROM

SENATOR LEAHY

Question 1. Please provide us copies of the briefs filed over your signature, and

referred to by Senator Lieberman in his opening statement in which the Department of Justice reportedly argued in Federal court that any exemption from the

New Source Review requirements should be ‘‘narrowly construed’’ and that utilities

‘‘indisputably had notice of EPA’s interpretation’’ of those requirements. Also, if

those representations are indeed accurate please explain why—if the interpretation
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has not varied and industry had fair notice—the NSR requirements need clarification.

Response. Attached are representative briefs on the points identified. As I testified, the Department of Justice’s Office of Legal Policy undertook a review of the

existing enforcement actions regarding new source review to ensure that the existing enforcement actions were consistent with the Clean Air Act and its regulations.

It determined that those actions had a reasonable basis in law and fact. However,

that determination does not mean that EPA cannot revise NSR regulations in the

future. Because EPA is the Agency responsible for implementing the Clean Air Act,

it is charged with determining whether future PSD/NSR reforms are necessary.

Question 2. In answer to my questions in the joint hearing, you stated three

times—and without caveat or qualification—that in none of the pending NSR cases

were defendants backing away from settlement in light of the EPA’s announcement

of its proposed changes to the NSR program. How do you reconcile your absolute

statement that these defendants are not retreating from possible settlements with

those same defendants’ statements that, for example, ‘‘The thinking was, how can

you do things that will influence NSR and the pending litigation? If the Administration recants NSR provisions, the lawsuits fall apart.’’

Response. I stand by my testimony that in the settlement negotiation context, we

are not aware of defendants backing away from discussions in light of EPA’s announcement of proposed changes. We have consistently stated both publicly and in

the context of settlement discussions that we will vigorously litigate the NSR enforcement cases while welcoming settlement as the preferred method to meet the

legal standards.

Question 3. You did not, however, answer my question that preceded the discussion referred to in the question above—namely, whether you and your lawyers anticipated that defendants in the pending NSR cases would begin brandishing the

EPA’s proposals as support for dismissing the suits against them. Did you, and if

you did, how did you plan to counter those efforts, and how, successful have those

counter-efforts been? And if you did not, why not, and what are you and your lawyers doing in response to these tactics? How have they affected the conduct of the

on-going discovery, litigation, or settlement discussions, as the case may be?

Response. Based on years of bringing enforcement actions, it is our experience

that defendants will raise a wide variety of issues in their defense. Although we

generally can anticipate such issues, e.g. potential use of EPA’s June 13 announcement, how we respond to them depends, among other things, on the context in

which they are raised. At the time of my testimony, no defendant in any of our NSR

cases had raised EPA’s June 13 announcement of its proposals as a basis for dismissal, and that continues to be the case. Since then, one company has raised the

announcement in a brief, but not in the context of requesting a dismissal.

Question 4. At one point in your testimony, you told me that whether announced

changes to a Clean Air Act regulation—namely NSR—midstream in litigation would

effect the pending cases would depend upon the judge in the individual case. A moment later, you declared that you believed that judges would look at existing law

at the time the issues came before them, and that the proposed changes to NSR

would not be final at the time of the NSR trials. I would appreciate a clear answer:

do you believe, as the nations’ head environmental litigator, that a court could properly consider the proposed changes to NSR regulations and practices in determining

the outcome, by trial or settlement, of the pending cases?

Response. EPA has not announced what the specific language of the proposed rule

will be. Once proposed, EPA will follow section 307(d) of the Clean Air Act, which

requires formal public notice and an opportunity to comment before the rule becomes final. As to rules that become final in the future, what a particular judge

makes of a provision in the final rule will be in the context of a particular case.

However, EPA testified at the July 16 hearing that the changes that it makes to

the NSR program will be prospective in nature, and are not intended to be used

in, or have any impact on, current litigation, including negotiations. Thus, for purposes of determining liability, the existing enforcement actions should continue to

be subject to the law in place at the time of the violations at issue.

Question 5a. Mr. Holmstead testified regarding the development of the Environmental Protection Agency’s New Source Review Recommendations and Report to the

President. He stated that the Recommendations and Report had been the product

of ‘‘extensive consultation’’ between EPA and the Department of Justice. You, however, testified that you are ‘‘in the litigation business, not policy formation.’’ Please

answer this basic question: How did the Justice Department (leadership and/or
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staff) and the EPA (leadership and/or staff) work together on the development of

the policy behind, or the actual text of, the Recommendations and Report?

Response. My staff have discussed PSD/NSR issues primarily with representatives

of EPA’s Office of Enforcement and Compliance Assurance (OECA) and Office of

General Counsel (OGC). In addition, we have carefully reviewed with EPA each

brief filed on their behalf to ensure that the brief was consistent with their position.

Over time, my staff has also answered specific questions on several occasions that

were posed by EPA staff concerning PSD/NSR issues. My deputy discussed the NSR

Report and accompanying list of recommendations with Mr. Holmstead, but most of

the staff discussions concerning PSD/NSR issues have been with representatives of

OECA and OGC. However, we did not work on the particulars of the policy behind

the Recommendations and Report.

Question 5b. Mr. Holmstead also testified that one of the ‘‘primary issues’’ discussed in the ‘‘extensive consultation’’ between DOJ and EPA was what impact the

proposed NSR revisions would have on NSR enforcement cases, and that his understanding from DOJ was that there would be no effect on the cases. Who actually

gave that advice?

Response. ENRD attorneys (have discussed PSD/NSR issues primarily with representatives of EPA’s Office of Enforcement and Compliance Assurance and Office

of General Counsel. However, our contact has largely occurred in the context of ongoing litigation, including the case brought by the Tennessee Valley Authority which

was argued this year before the 11th Circuit Court of Appeals. For instance, EPA

reviewed each brief for legal and factual accuracy in that case, and attended moot

courts and the oral arguments before the Court of Appeals. Some of the EPA staff

participating in this review were also working internally in EPA on PSD/NSR reform. There were also informal discussions about PSD/NSR reform between Assistant Administrator Holmstead and other EPA officials with my Deputy on several

occasions. Prior to the announcement being made, the Department did not perform

a legal analysis of the potential impact of the June 13 announcement on the pending

enforcement actions.

Question 6. Mr. Holmstead testified, in answer to one of Senator Carper’s questions, that EPA had never defined ‘‘routine maintenance, repair, and replacement’’

by regulation. What is your understanding of what that term means?

Response. Please see the attached brief in which we discuss that term.

Question 7. In answer to a question from Senator Sessions, you declared that ‘‘a

significant issue’’ in the TVA v. EPA case was whether the EPA should be estopped

from pursuing the case because the Agency had been long aware of the alterations

made to the power plants at issue, and that you would inquire into whether the

DOJ attorney representing the EPA before the Eleventh Circuit was ethically

obliged to confess error on that point. What is the result of your inquiry on this specific point? More generally, under what circumstances do you believe the EPA would

be ethically constrained from bringing an NSR enforcement action based on the temporal concerns described by Senator Sessions?

Response. Please see the attached letter to Senator Sessions addressing this question.

Question 8. In this hearing, and certainly in the press, Administration officials

frequently seek to bolster their arguments for acceptance of the announced proposed

changes to NSR by referring to a set of Clinton Administration proposals that are

purportedly the basis for the Bush Administration changes. Please explain precisely

how the two proposals differ.

Response. This appears to be a reference to statements in Assistant Administrator

Holmstead’s testimony, and would be more appropriately answered by EPA, the

Agency that is responsible for the proposals.

RESPONSES OF THOMAS L. SANSONETTI TO ADDITIONAL QUESTIONS FROM

SENATOR LIEBERMAN

Question 1. Your Department argued in the Southern Indiana Gas and Electric

Company case—in a brief to which you were counsel—that ‘‘the [routine maintenance] exemption is narrowly construed, in keeping with its status as a de minimis

exemption.’’ Is it your reading of the law that the ‘‘routine maintenance’’ exemption—which has no basis in statute—must be narrowly construed?

This is a matter currently in litigation, United States v. Southern Indiana Gas

& Electric Company, S.D. Ind. Civil Action No. IP99–1692-C-M/S. Accordingly, the
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most accurate statement of the position of the United States is contained in our

briefs to the Court, and we stand by those briefs.

Question 2. Your Department also argued in the same brief that ‘‘EPA [was] not

seeking to apply a new interpretation to the defendant’s conduct. As described

above, EPA’s interpretation is the same one upheld in WEPCO more than a decade

ago, before the defendant modified its plant.’’ Is it your understanding that EPA’s interpretation of the NSR rules has not changed for more than 10 years?

This is a matter currently in litigation, United States v. Southern Indiana Gas

& Electric Company, S.D. Ind. Civil Action No. IP99–1692-C-M/S. Accordingly, the

most accurate statement of the position of the United States is contained in our

briefs to the Court, and we stand by those briefs. It is our understanding that the

EPA interpretation at issue in the quoted sentence has not changed, and is the

same interpretation that was upheld in Wisconsin Electric Power Company v. Reilly

(‘‘WEPCO’’), 893 F.2d 901 (7th Cir. 1990).

Question 3. New York Attorney General Spitzer informs us that the Federal judge

handling his NSR lawsuit has asked for briefing on the effect of these proposed rule

changes on the case. Has any judge asked for similar briefing in a case to which

the United States is a party? Is it the position of the United States that this package of final and proposed rules should have no effect on the NSR lawsuits?

Response. No judge has asked for similar briefing in any of the NSR enforcement

actions in which the United States is a party. Although we have not reviewed the

proposed rules, Assistant Administrator Holmstead stated in his testimony that the

proposed rules will be prospective in nature and that EPA does not intend for its

future rulemaking or proposed changes to be used in, or have any impact on, current litigation. We note that this position is consistent with the position taken by

Attorney General Spitzer in response to the Federal judge’s request in the New York

litigation.

Question 4. When Administrator Whitman testified before the Government Affairs

Committee on this issue last March, she contended that you were ‘‘vigorously enforcing’’ these cases, but she was not able to point to any enforcement action that did

not have its roots in the Clinton Administration. Have you initiated any New Source

review enforcement action, the investigation for which was started in the Bush Administration?

Response. We are continuing to vigorously enforce NSR cases. As I testified, the

report by the Department of Justice in January specifically indicated that we have

been, and ‘‘will continue . . . to prosecute vigorously the FPA’s civil actions to enforce the new source review provisions.’’ Office of Legal Policy New Source Review

Report, January 2002. As discussed in greater detail in my testimony, we have

brought numerous Clean Air Act enforcement cases involving PSD/NSR violations.

For example, in March of this year, we filed a complaint and lodged a consent decree with wood products industry giant Boise Cascade Corporation that will require

reductions of up to 95 percent of the emissions from the company’s eight plywood

and particle board plants, located in Oregon, Washington, Louisiana and Idaho.

Boise Cascade will also pay $4.35 million in civil penalties and has agreed to spend

another $2.9 million in supplemental controls to reduce emissions at various plants.

Also, in January, the State of New Jersey joined us in filing an action against and

reaching a settlement with PSEG Fossil LLC under which PSEG will spend over

$337 million to install state-of-the-art pollution controls to eliminate 90 percent of

its sulfur dioxide and more than 80 percent of its nitrogen oxide emissions from two

New Jersey coal-fired power plants. In addition to these pollution reductions, PSEG

will pay a $1.4 million civil penalty and spend at least $6 million on three pollution

reduction projects that will partially offset the impact of past emissions. As the Attorney General stated in connection with this case, ‘‘This important settlement reflects our continuing commitment to enforce vigorously the Clean Air Act to protect

public health and the environment.’’

Question 5. Attorney General Spitzer also has informed us that he has not been

able to finalize settlements with VEPCO and Cinergy, whereas he previously would

have been able to. Has your department found a greater reluctance on the part of

NSR defendants to settle lawsuits?

Response. As you know, the Department has reached agreements in principle with

VEPCO and Cinergy to settle NSR claims. Those agreements have not yet been successfully translated into final consent decrees because of substantive differences

that pre-dated EPA’s announcement of proposed NSR changes. Accordingly, we do

not believe that EPA’s June 13 announcement is preventing settlements in the NSR

cases. We remain willing to settle any case on terms that would meet all legal requirements while protecting human health and the environment.
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RESPONSES OF THOMAS L. SANSONETTI TO ADDITIONAL QUESTIONS FROM

SENATOR VOINOVICH

Question 1. As I questioned during the hearing, I am very interested in finding

out what preceded the Department of Justice’s lawsuits. Overnight many companies

had become the subject of lawsuits under NSR for things that they had been doing

for years. Specifically, what action caused DOJ to file these lawsuits? Please list and

describe the details surrounding the 1998 filings.

Response. With regard to the NSR enforcement actions, as I stated in my testimony and as noted in the Department’s Office of Legal Policy’s report on these actions, we began bringing enforcement actions under the Clean Air Act’s PSD/NSR

provisions in the late 1980’s. The first industry on which we focused our NSR enforcement efforts was the wood products industry. See U.S. v. Louisiana-Pacific

Corp., 682 F. Supp. 1141 (D. Colo. 1988) (action focused on a single facility). We

subsequently filed another action against Louisiana Pacific, which was resolved in

1993 by a consent decree that required the company to install pollution controls at

its facilities nationwide and to pay a civil penalty of $11 million. These actions, and

our civil cases more generally, are based on analysis and inspections by EPA and

state agencies. EPA reviews industry and company compliance with the law and recommends enforcement actions based on research identifying particular industrial

sectors as significant sources of air pollution and on investigations identifying particular plants as being in violation of the Clean Air Act. The wood products, and

pulp and paper industries were the subject of major enforcement efforts before the

actions against the utilities were commenced, and the utility and oil refining sectors

are more recent industrial sectors identified in this way. In accordance with the

process that we have followed in all of our PSD/NSR cases, the current lawsuits

against the utility companies were the result of an extensive investigation and analysis by EPA and an extensive legal and factual review by the Department’s attorneys.

Question 2. How did the Department of Justice choose which industries and

plants to bring enforcement actions against? Is the Department planning more action?

Response. Please see the response to the preceding question. The Department of

Justice will continue to evaluate and analyze referrals by the Environmental Protection Agency that involve violations of the law to determine whether the case is appropriate for filing.

RESPONSES OF THOMAS L. SANSONETTI TO ADDITIONAL QUESTIONS FROM

SENATOR GRAHAM

Question 1. Given the Administration’s proposed NSR changes, how will EPA and

DOJ interpret the application of NSR to existing lawsuits and signed consent decrees, which have been based on previous NSR policy?

Response. As Assistant Administrator Holmstead testified on EPA’s behalf, ‘‘the

changes that [EPA] make[s] to the NSR program will be prospective in nature, and

EPA will continue to vigorously pursue its current enforcement actions. Accordingly,

EPA does not intend for its future rulemaking or proposed changes to be used in,

or have any impact on, current litigation.’’ The existing lawsuits and signed consent

decrees will continue to be subject to the law in place at the time of the violations

at issue.

Question 2. If the proposed NSR changes permit sulfur dioxide and nitrogen oxide

trading and these changes are included in the final rule how will this affect existing

consent decrees and/or negotiations where limitations on emissions trading is

planned?

Response. We have been advised by EPA that it does not intend to include such

provisions as part of the proposed NSR changes.

RESPONSE OF THOMAS SANSONETTI TO ADDITIONAL QUESTIONS FROM

SENATOR CANTWELL

Question 1. During your testimony, you said that you did not believe the behavior

and public comments of Administration officials has done any harm to enforcement

actions and current trials. But Secretary Whitman previously told this committee

that ‘‘if I were a plaintiff’s attorney, I wouldn’t settle anything until I knew what

happened to the case [TVA].’’ Do you think that discouraging settlement of Federal
105

cases in the hopes of new, weaker regulations interferes with your enforcement

abilities?

Response. I was not present at the hearing in question and do not know the context of the Administrator’s response. In Tennessee Valley Authority v. EPA, currently

pending in the 11th Circuit Court of Appeals (No. 00–15936), the Department of

Justice has argued on behalf of EPA in significant briefs during this Administration,

and in oral argument before the Court on May 21, 2002, that TVA has violated the

Clean Air Act PSD/NSR requirements. The Administrator has clearly stated on

other occasions her firm support for enforcement of all laws, her support for the ongoing litigation, and her continued emphasis that a prompt settlement would be in

the best interest of all parties. In support of this view, a utility, PSEG Fossil LLC,

has settled a case this year. In that case, PSEG will spend over $337 million to install state-of-the-art pollution controls to eliminate 90 percent of its sulfur dioxide

and more than 80 percent of its nitrogen oxide emissions from two New Jersey coalfired power plants. In addition to these pollution reductions, PSEG will pay a $1.4

million civil penalty and spend at least $6 million on three pollution reduction

projects that will partially offset the impact of past emissions. Further, as I stated

at my hearing and elsewhere, we will continue to vigorously prosecute the NSR enforcement actions, which are moving forward to trial on schedules established by the

courts independent of any hopes that defendants might harbor about potential new

regulations. We stand ready to resolve those actions by settlement as appropriate.

U.S. DEPARTMENT OF JUSTICE,

Washington, DC., August 9, 2002.

Hon. JEFF SESSIONS,

U.S. Senate,

Washington, DC.

Dear SENATOR SESSIONS: Thank you for your July 17, 2002 letter to Assistant Attorney General for Environment and Natural Resources Tom Sansonetti regarding

the recent Eleventh Circuit Court of Appeals oral agument in the case of Tennessee

Valley Authority, et al. v. Environmental Protection Agency. During Mr. Sansonetti’s

recent testimony before the Senate Judiciary Committee, and in your letter, you

asked that he confirm the accuracy of certain statements attributed to Department

of Justice (DOJ) attorneys during the oral argument on May 21, 2002.

Your letter does not contain a specific quote, but indicates a comment was made

during oral argument regarding the Environmental Protection Agency’s (EPA)

knowledge of the Tennessee Valley Authority’s (TVA) projects that are at issue in

the litigation. We have discussed this matter with the attorneys who handled the

oral argument, as well as with DOJ and EPA attorneys who attended the argument.

The issue you describe was the subject of a very short colloquy between a DOJ attorney and the Court regarding EPA’s enforcement activities during the 1990’s, and

why the administrative action against TVA was not initiated earlier.

At Mr. Sansoneti’s request, the Section Chief with responsibility for the TVA matter, reviewed this statement and the briefs submitted by the United States concerning this specific issue. After reviewing this matter with her, he is convinced that

the very limited statements made by DOJ attorneys to the Court on this matter

were consistent with the arguments on this point set forth in the briefs filed in the

case, and are accurate. For your convenience, I am enclosing a copy of the brief filed

on behalf of EPA (see pages 79–86).

Because the New Source Review (NSR) program is a preconstruction permitting

program, a pollution source is required to provide information to EPA before the

source undertakes a proposed major modification—either through a permit application, a request for an applicability determination, or other inquiry to the Agency—

so that EPA and State authorities can assess the information and determine if emissions will be increased and if the NSR requirements apply. Our brief describes how

EPA was generally aware of some improvement projects like TVA’s in the utility industry in the late 1980’s; however, the administrative record demonstrates that the

utility industry (including TVA) did very little to provide EPA or State authorities

with critical information about the nature and extent, purpose, frequency, and cost

of those projects, especially with regard to the projected emissions from those

projects. Such information is not typically obtained through general permit compliance inspection by the Agency or State authorities. The Agency only obtained the

necessary information about these large-scale projects after specifically requesting

it from several utility companies and TVA; the current enforcement actions were

commenced thereafter.
106

1See ‘‘New Source Review: An Analysis of the Consistency of the Enforcement Actions with

the Clean Air Act and Implementing Regulations,’’ at 10–14. 1 42 U.S.C. § 7411(a)(4)(1994).

During the oral argument colloquy noted above, our attorneys explained that EPA

turned its NSR enforcement resources to coal-fired power plants in the mid-to-late

1990s after first pursuing a series of NSR enforcement actions in other industry sectors, including wood products, pulp and paper, steel mini-mills, and refineries beginning in the late 1980s. For your convenience, I am enclosing the relevant portion

of the Attorney General’s January 2002, Report to the President that addresses

EPA’s past industry-by-industry NSR enforcement efforts1. Of course, regardless of

EPA’s level of knowledge about utility industry projects at a particular point in

time, the law is clear that, except in extremely limited circumstances typically involving affirmative misconduct of a government employee, the doctrines of estoppel

and laches do not prevent the government from taking enforcement actions to protect human health and the environment.

I appreciate your interest in these matters, and am happy to be of further assistance if you have any additional questions.

Sincerely,

DANIEL J. BRYANT.

Assistant Attorney General.

U.S. DEPARTMENT OF JUSTICE, OFFICE OF LEGAL POLICY

NEW SOURCE REVIEW: AN ANALYSIS OF THE CONSISTENCY OF ENFORCEMENT

ACTIONS WITH THE CLEAN AIR ACT AND IMPLEMENTING REGULATIONS, JANUARY 2002

EXECUTIVE SUMMARY

The Clean Air Act Amendments of 1970 required major stationary sources of air

pollution to install devices to reduce pollution. Sources existing at the time were not

required to retrofit pollution controls, but would be required to install such controls

if and when they modified their facilities. In 1977, Congress amended the Clean Air

Act to establish the new source review program, which requires preconstruction review and a permit for almost any major new source or modification of an existing

source (if air pollution.

The current controversy over the new source review program centers on what constitutes a ‘‘modification.’’ If a facility’s construction project is a modification, then

it is subject to the new source review process and the requirement that pollution

controls be installed. If the project is not a modification, then there is no need for

a permit or new pollution controls. The Clean Air Act defines ‘‘modification’’ to be

‘‘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 pollution not previously emitted.’’1

Between 1975 and 1980, the Environmental Protection Agency (‘‘EPA’’) promulgated regulations which elaborate on the meaning of ‘‘modification’’ under the Clean

Air Act. Together, the various statutory and regulatory requirements provide that

physical changes that constitute routine maintenance, repair, or replacement are

not modifications subject to the new source review permitting process. In addition,

even physical changes considered to be modifications do not trigger new source review requirements if they do not result in a significant emissions increase.

[copy missing]

enforcement actions that a particular plant modification is ‘‘major,’’ or encompasses more than ‘‘routine maintenance.’’

In light of this review’s conclusions, the Department’s Environment and Natural

Resources Division (‘‘ENRD’’) will continue, as it has during the pendency of this

review, to prosecute vigorously the EPA’s civil actions to enforce the new source review provisions. And it will continue, as it has during the pendency of this review,

to pursue talks to settle those actions where appropriate on mutually acceptable

terms. Because the existing enforcement actions are supported by a reasonable basis

in law and fact, any decision to withdraw, terminate, or otherwise circumscribe

them would rest in the discretion of ENRD, which must assess the relative

strengths and weaknesses of a given case.
107

42See 42 U.S.C. §§ 7501–15 (1994). 43See generally 40 C..F.R. § 52.24 (2001). 44See 45 Fed. Reg. 52,676, 52,747 (Aug. 7, 1980). 45 40 C.F.R. § 52.24(f)(5)(2001). This regulation states, in pertinent part: Major modification

means any physical change in or change in the method of operation of a major stationary source

that would result in a significant net emissions increase of any pollutant subject to regulation

under the Act. . . . A physical change or change in the method of operation shall not include:

(a) Routine maintenance, repair, and replacement . . . 46See New Source Review Reform 106–09 (EPA, Preliminary Staff Draft 1994). 47 Id. 48See 42 U.S.C. § 7413 (1994). 49 Id. § 7413(e)(1).

Frequently Used Abbreviations

AAR ................................................. Association of American Railroads

APA .................................................. Administrative Procedure Act

CAA ................................................. Clean Air Act

ENRD ............................................... Environment and Natural Resources Division

EPA .................................................. Environmental Protection Agency

FERC ............................................... Federal Energy Regulatory Commission

FRA .................................................. Federal Railroad Administration

NAAQS ............................................. National Ambient Air Quality Standards

NSPS ............................................... New Source Performance Standards

NSR ................................................. New Source Review PSD Prevention of Significant Deterioration

PSD ................................................. Prevention of Significant Deterioration

TECO ............................................... Tampa Electric Company

TRAC ............................................... Telecommunications Research Action Center

TVA .................................................. Tennessee Valley Authority

VEPCO ............................................. Virginia Electric Power Company

WEPCO ............................................ Wisconsin Electric Power Company

The CAA of 1977 also established a program for major emitting facilities located

in nonattainment areas of the country (known as the ‘‘nonattainment NSR’’ program).42 The nonattainment NSR requirements parallel the PSD requirements described above, but require more stringent pollution controls for major emitting facilities in nonattainment areas.43 In 1980, EPA promulgated regulations to implement

the nonattainment NSR requirements regarding major modifications.44 These regulations also provided an exception for ‘‘routine maintenance, repair, and replacement.’’45

EPA has not promulgated any regulations specifying what types of projects should

be considered routine, and therefore exempt from the new source review process. In

1994, EPA staff circulated an informal draft proposal that would have equated ‘‘routine’’ with ‘‘minor’’ modifications.46 This draft stated that ‘‘routine activities would

generally include . . . minor maintenance or repair of parts or components and the

replacement of minor parts or components with identical or functionally equivalent

items.47 Industry participants, however, apparently objected to this suggested definition, and EPA chose not to propose this language in any subsequent rulemakings.

B. Previous Enforcement Actions

The CAA’s basic enforcement provisions are found in section 113,48 which provides for both administrative and judicial enforcement proceedings. EPA has the authority to issue administrative compliance and penalty orders for violations of,

among other things, the CAA, its implementing regulations, or a permit. In addition, EPA can seek injunctive relief and civil monetary penalties by referring matters to the Department for filing in the appropriate U.S. District Court. Courts may

impose penalties of up to $27,500 per day for each violation. CAA § 113(e) specifies

the criteria to be used by EPA and the courts in determining the appropriate

amounts of penalties, including ‘‘the economic benefit of noncompliance, and the seriousness of the violation.’’49

EPA’s enforcement of the new source review program through judicial proceedings

began in the late 1980’s. The earliest cases involved violations at individual facilities. For example, an enforcement action was filed against the Louisiana Pacific Co.,

which constructed a new wood-products manufacturing facility, because it neither

applied for a PSD permit nor installed pollution control technology. In United States
108

50 682 F. Supp. 1141 (D. Colo. 1988). 51See United States v. Louisiana Pacific, No. CV 93–0869 (W.D. La. 1993). 52See United States v. Georgia Pacific, 960 F. Supp. 298 (N.D. Ga. 1996). 53See United States v. Willamette, No. CV 00–1001 HA (D. Or. 2001). 54 893 F.2d 901 (7th Cir. 1990). 55See id. at 906. 56See id. at 906–08. 57See id. at 913. 58These notebooks are available via the internet at http://es.epa.gov/oeca/sector. 59 42 U.S.C. § 7414 (1994).

v. Louisiana-Pacific Corp.,50 the court ruled that the company had violated the applicable PSD requirements.

EPA then investigated other wood-products manufacturers and concluded that

some had committed similar PSD violations. As a result, enforcement actions were

brought and settlements were reached that required multiple facilities owned and

operated by Louisiana Pacific, Georgia Pacific, and Willamette Industries to obtain

PSD permits and install pollution controls in 1993,51 1996,52 and in 2000.53 Further,

in 2000, EPA issued a Notice of Violation for alleged new source review violations

to Boise Cascade, and entered into settlement negotiations.

The seminal decision on the issue of PSD applicability to modifications by electric

utilities, however, is the Seventh Circuit’s 1990 ruling in Wisconsin Electric Power

Company v. Reilly (‘‘WEPCO’’).54 The WEPCO petitioners challenged the EPA’s position that modifications intended to restore lost capacity at a coal-fired steam generating facility triggered new permitting requirements. The company wanted to renovate the plant so it could operate beyond its planned retirement date of 1992.55

To that end, the company needed to repair or replace the turbine-generators, boilers,

rear steam drums, air heaters, mechanical and electrical auxiliaries, and common

plant support facilities. To make these repairs, the facility would have to take various units out of service for 9-month periods.56 The court found that EPA was not

arbitrary and capricious in considering the cost, magnitude, frequency, and nature

of these repairs and upheld EPA’s determination that these changes were not routine.57

One of the key disagreements between EPA and certain electric utilities relates

to the Agency’s enforcement of the CAA between the time of the WEPCO decision

and the filing of the recent enforcement actions in 1999. In the early 1990’s, EPA

began to evaluate sources of significant pollution in a number of major industrial

sectors. The EPA issued ‘‘Sector Notebooks’’ describing these industries and their

various sources of pollution. In particular, Sector Notebooks were issued for the refinery industry in 1995 and for the fossil-fuel fired electric generating industry in

1997.58

In the mid- to late-1990’s, EPA began investigations of several industrial sectors

that were emitting high levels of pollution and that were suspected of possible new

source review violations. These investigations focused on coal-fired power plants, refineries, steel mini-mills, wood products manufacturers, and pulp and paper manufacturers. As a result of these investigations, a number of referrals for judicial enforcement action were sent to the Department for consideration.

EPA began its investigation of the coal-fired electric utility industry in 1996. The

Sgency sent information requests under CAA § 11459 to a number of utilities, particularly in the Midwest and Southeast, seeking access to the power plants’ facilities

and their documents. EPA believed that the documents were necessary to ascertain

the facilities’ modification histories and to provide information that would allow

EPA to conduct an emission increase analysis. After considering the utilities’

records, EPA concluded that a large number of facilities had made modifications

that triggered the new source review permit and pollution control requirements, but

had failed to seek PSD permits or install pollution controls. EPA notified the companies and asked them to enter into settlements to cure these: violations without litigation. The facilities, however, strongly disputed EPA’s allegations.

Beginning in 1999, EPA sent a number of referrals to the Department for civil

judicial enforcement action against the owners and operators of some of the largest

coal-fired power plants in the country, alleging widespread violations of new source

review, NSPS, and ‘‘minor source’’ permitting and pollution control requirements.

EPA had made no referrals pertaining to the electric utility industry prior to that

time. The Department’s Environmental and Natural Resources Division (‘‘ENRD’’)

reviewed and evaluated the information provided by EPA, conducted legal research

into the basis for the proposed allegations, consulted with EPA and independent experts regarding the proposed legal and factual allegations, and concluded that the

referrals should be filed as enforcement actions.
109

1See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93–94 (1998) (courts must resolve

jurisdictional issues before considering the merits of a dispute); Region 8 Forest Service Timber

Purchaser’s Council v. Alcock, 993 F.2d 800, 807 n.9 (11th Cir. 1993) (same).

After ENRD’s review, the Department in November 1999 filed seven enforcement

actions in U.S. District Courts against: (1) American Electric Power Co. (S.D. Ohio);

(2) Ohio Edison and First Energy (S.D. Ohio); (3) Cinergy Corp. (S.D. Ind.); (4)

Southern Indiana Gas & Electric Co. (S.D. Ill.); (5) Illinois Power Co. (S.D. Ind.);

(6) Southern Company affiliates including Alabama Power Co. and Georgia Power

Co. (N.D. Ga.); and (7) Tampa Electric Co. (M.D. Fla.). The complaints alleged that

defendants made major modifications to their coal-fired power plants without applying for required new source review permits and installing required pollution controls. The complaints alleged violations at more than 25 power plants located in

Ohio, Indiana, Illinois, West Virginia, Georgia, Alabama, and Florida. The complaints seek both injunctive relief and civil monetary penalties. The injunctive relief

sought would require the facilities to remedy alleged past new source review violations by installing appropriate pollution control technology and by applying for permits.

Due to an adverse jurisdictional decision, Alabama Power Co. was dismissed from

the case brought against subsidiaries of the Southern Company in United States v.

Alabama Power Co.

TVA, et al. v. EPA. et al.

Consolidated Docket Nos. 00–12310-E, 00–12459-E, 00–12311-E, 00–12458-E, 00–

12349-E, 00–12457-E, 00–15936-E, 00–16234-E, 00–16235-E, 00–16236-E (consolidated under lead Docket No. 0012310-E)

CERTIFICATE OF INTERESTED PERSONS

Pursuant to 11th Cir. Rules 26.1–1 through 1–3, 27–1(a)(9), and 28–1(b), Respondents Christine Todd Whitman, Administrator, United States Environmental Protection Agency, and the United States Environmental Protection Agency hereby list the

following persons and entities that Respondents believe, based upon Respondents’

knowledge or representations by such person or entity, may have an interest in the

outcome of this case. Respondents have not listed persons or entities with regard

to which Respondent has no direct indication of potential interest other than such

person or entity having been listed on the Certificate of Interested Persons and Corporate Disclosure Statement of another party.

Alabama Power Company, Petitioner

American Chemistry Council, Amicii

John Ashcroft, U.S. Attorney General

Balch & Bingham LLP, Counsel for Alabama Power Company

R. Bruce Barze, Jr., Counsel for Alabama Power Company

Angelia Souder Blackwell, Counsel for Respondents

F. William Brownell, Counsel for the Tennessee Valley Authority

Margaret C. Campbell, Counsel for Georgia Power Company

Harriet A. Cooper, Counsel for the Tennessee Valley Authority

James C. Cope, Counsel for Petitioner TVPPA

STATEMENT REGARDING ORAL ARGUMENT

Respondent United States Environmental Protection Agency (‘‘EPA’’) has raised

substantial jurisdictional arguments both in its merits briefs and in its pending Motions to Dismiss, which were carried with the case for resolution by the merits

panel. Given that the Court must satisfy itself of its jurisdiction as a prerequisite

to review on the merits,1 EPA has proposed that argument be structured to hear,

first, full argument by the parties on the multiple jurisdictional issues, and to then

hear full argument by the parties on the merits of this matter. See EPA Response

and Cross Motion Regarding Format for Oral Argument, filed. Dec. 20, 2000.

STATEMENT OF JEFFREY HOLMSTEAD, ASSISTANT ADMINISTRATOR, OFFICE OF AIR AND

RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

Good morning Chairmen and members of the committees. Thank you for the opportunity to talk with you about the New Source Review (NSR) program under the

Clean Air Act and the proposed improvements we have announced.
110

There has been longstanding agreement among virtually all interested parties

that the NSR program can and should be improved. For well over 10 years, representatives of industry, State and local agencies, and environmental groups have

worked closely with EPA to find ways to make the program work better. In 1996,

EPA proposed rules to amend several key elements of the program. In 1998, EPA

sought additional public input on related issues. Since 1996, EPA has had countless

discussions with stakeholders and has invested substantial resources in an effort to

develop final revisions to the program. Between the 1996 proposal and January

2001, EPA held two public hearings and more than 50 stakeholder meetings. Environmental groups, industry, and State, local and Federal agency representatives

participated in these many discussions. Over 600 detailed comments were submitted

to EPA between 1992 and 2001.

In 2001, the National Energy Policy Development Group asked EPA to investigate

the impact of NSR on investment in new utility and refinery generation capacity,

energy efficiency and environmental protection. During this review, the Agency met

with more than 100 groups, held four public meetings around the country, and received more than 130,000 written comments. EPA issued a report to President Bush

on June 13 in which we concluded that the NSR program does, in fact, adversely

affect or discourage some projects at existing facilities that would maintain or improve reliability, efficiency, and safety of existing energy capacity. This report lends

strong support to the decade-long effort to improve the NSR program.

We now believe that it is time to finish the task of improving and reforming the

NSR program. At the same time that we submitted our report to the President, we

published a set of recommended reforms that we intend to make to the NSR program. These reforms are designed to remove barriers to environmentally beneficial

projects, provide incentives for companies to install good controls and reduce actual

emissions, specify when NSR applies, and streamline and simplify several key NSR

provisions. We plan to move ahead with this rulemaking effort in the very near future. We look forward to working with you during this important effort.

BACKGROUND

The NSR program is by no means the primary regulatory tool to address air pollution from existing sources. The Clean Air Act provides authority for several other

public health-driven and visibility-related control efforts: for example, the National

Ambient Air Quality Standards (NAAQS) Program implemented through enforceable State Implementation Plans, the NOx SIP Call, the Acid Rain Program, the

Regional Haze Program, the National Emissions Standards for Hazardous Air Pollutants (NESHAP) program, etc. Thus, while NSR was designed by Congress to

focus particularly on sources that are newly constructed or that make major modifications, Congress provided numerous other tools for assuring that emissions from

existing sources are adequately controlled.

The NSR provisions of the Clean Air Act combine air quality planning, air pollution technology requirements, and stakeholder participation. NSR is a

preconstruction permitting program. If new construction or making a modification

will increase emissions by an amount large enough to trigger NSR requirements,

then the source must obtain a permit before it can begin construction. To obtain the

permit, the owners must meet several requirements, including applying state-of-theart control technology. States are key partners in the program. Under the Act,

States have the primary responsibility for issuing permits, and they can customize

their NSR programs within the limits of EPA regulations. EPA’s role has been approving State programs and assuring consistency with EPA rules, the State’s implementation plan, and the Clean Air Act. EPA also issues permits where there is no

approved NSR program, such as on some Tribal lands.

The NSR permit program for major sources has two different components—one for

areas with air quality problems, and the other for areas where the air is cleaner.

Under the Clean Air Act, geographic areas, such as counties or metropolitan statistical areas, are designated as ‘‘attainment’’ or ‘‘nonattainment’’ for the NAAQS,

which are the air quality standards used to protect human health and the environment. Preconstruction permits for sources located in attainment or unclassifiable

areas are called Prevention of Significant Deterioration (PSD) permits and those for

sources located in nonattainment areas are called nonattainment NSR permits.

A major difference in the two programs is that the control technology requirement

is more stringent in nonattainment areas and is called the Lowest Achievable Emission Rate (LAER). In attainment areas, a source must apply Best Available Control

Technology (BACT). The statute allows consideration of cost in determining BACT.

Also, in keeping with the goal of progress toward attaining the NAAQS, sources

in nonattainment areas must always provide or purchase ‘‘offsets’’—decreases in
111

emissions which compensate for the increases from the new source or modification.

In attainment areas, PSD sources typically do not need to obtain offsets. However,

under the PSD provisions, facilities are required to undertake an air quality modeling analysis of the impact of the construction project. If the analysis finds that

the project contributes to ambient air pollution that exceeds allowable levels, the facility must take steps to reduce emissions and mitigate this impact. In addition to

ensuring compliance with the NAAQS, States track and control emissions of air pollution by calculating the maximum increase in concentration allowed to occur above

an established background level—that change in concentration is known as a PSD

increment.

Another key requirement is the provision in the PSD program to protect pristine

areas like national parks or wilderness areas, also referred to as Class I areas. If

a source constructs or modifies in a way that could affect a Class I area, the law

allows a Federal land manager, for example, a National Park Service superintendent, an opportunity to review the permit and the air quality analysis to assure that relevant factors associated with the protection of national parks and wilderness areas are taken into consideration, and, if necessary, that harmful effects

are mitigated.

CURRENT STATUS OF THE NSR PROGRAM

Let me give you a few statistics about the NSR program to put things in perspective. Estimates based on our most recent data indicate that typically more than 250

facilities apply for a PSD or nonattainment NSR permit annually. The nonattainment NSR and PSD programs are designed to focus on changes to facilities that

have a major impact on air quality.

EPA has worked for over 10 years to make changes to the NSR program to provide more flexibility and certainty for industry while ensuring environmental protection. In 1992, EPA issued a regulation addressing issues regarding NSR at electric

utility steam generating units making major modifications. This is referred to as the

‘‘WEPCO’’ rule. And in 1996, EPA proposed to make changes to the existing NSR

program that would significantly streamline and simplify the program. In 1998,

EPA issued a notice of availability where we asked for additional public comment

on several issues.

EPA held public hearings and more than 50 stakeholder meetings on the 1996

proposed rules and related issues. Environmental groups, industry, and State, local

and Federal agency representatives variously participated in these discussions. Despite widespread acknowledgment of the need for reforms, EPA has not yet finalized

these proposed regulations.

In May 2001, the President issued the National Energy Policy. The Policy included numerous recommendations for action, including a recommendation that the

EPA Administrator, in consultation with the Secretary of Energy and other relevant

agencies, review New Source Review regulations, including administrative interpretation and implementation. The recommendation requested EPA to issue a report

to the President on the impact of the regulations on investment in new utility and

refinery generation capacity, energy efficiency, and environmental protection.

In June 2001, EPA issued a background paper giving an overview of the NSR program. EPA solicited public comments on the background paper and other information relevant to New Source Review. In developing the final report responding to

the National Energy Policy recommendation, EPA met with more than 100 industry,

environmental, and consumer groups, and public officials, held public meetings

around the country, and evaluated more than 130,000 written comments.

On June 13, 2002, EPA submitted the final report on NSR to President Bush. At

that time, EPA also released a set of recommended reforms to the program. With

regard to the energy sector, EPA found that the NSR program has not significantly

impeded investment in new power plants or refineries. For the utility industry, this

is evidenced by significant recent and future planned investment in new power

plants. Lack of construction of new greenfield refineries is generally attributed to

economic reasons and environmental or other permitting restrictions unrelated to

NSR.

With respect to the maintenance and operation of existing utility generation capacity, there is more evidence of adverse impacts from NSR. EPA’s review found

that uncertainty about the exemption for routine activities has resulted in the delay

or cancellation of some projects that would maintain or improve reliability, efficiency

and safety of existing energy capacity. Reforms to NSR will remove barriers to pollution prevention projects, energy efficiency improvements, and investments in new

technologies and modernization of facilities.
112

EPA announced that it intends to take a series of actions to improve the NSR

program, promote energy efficiency and pollution prevention, and enhance energy

security while encouraging emissions reductions.

These improvements include finalizing NSR rule changes that were proposed in

1996 and recommending some new changes to the rules. The 1996 recommendations

and subsequent notice of availability were subject to extensive technical review and

public comment over the past 6 years. EPA will conduct notice-and-comment rulemaking for changes not proposed in 1996.

Our actions are completely consistent with the strong public health protection provided by the Clean Air Act. The key provisions of the Clean Air Act include several

programs designed to protect human health and the environment from the harmful

effects of air pollution and all of them remain in place. Moreover, the changes that

we make to the NSR program will be prospective in nature, and EPA will continue

to vigorously pursue its current enforcement actions. Accordingly, EPA does not intend for its future rulemaking or proposed changes to be used in, or have any impact on, current litigation.

SUMMARY OF IMPROVEMENTS

Congress established the New Source Review Program in order to maintain or improve air quality while still providing for economic growth. The reforms announced

last month will improve the program to ensure that it is meeting these goals. These

reforms will:

• Provide greater assurance about which activities are covered by the NSR program;

• Remove barriers to environmentally beneficial projects;

• Provide incentives for industries to improve environmental performance when

they make changes to their facilities; and

• Maintain provisions of NSR and other Clean Air Act programs that protect air

quality.

The following NSR reforms, all of which were originally proposed in 1996, have

been subject to extensive technical review and public comment:

• Pollution Control and Prevention Projects.—To encourage pollution control and

prevention, EPA will create a simplified process for companies that undertake environmentally beneficial projects. NSR can discourage investments in certain pollution

control and prevention projects, even if they are environmentally beneficial.

• Plantwide Applicability Limits (PALs).—To provide facilities with greater flexibility to modernize their operations without increasing air pollution, a facility would

agree to operate within strict sitenwide emissions caps called PALs. PALs provide

clarity, certainty and superior environmental protection.

• Clean Unit Provision.—To encourage the installation of state-of-the-art air pollution controls, EPA will give plants that install ‘‘clean units’’ operational flexibility

if they continue to operate within permitted limits. Clean units must have an NSR

permit or other regulatory limit that requires the use of the best air pollution control technologies.

• Calculating Emissions Increases and Establishing Actual Emissions Baseline.—

Currently, the NSR program estimates emissions increases based upon what a plant

would emit if operated 24 hours a day, year-round. This can make it difficult to

make certain modest changes in a facility without triggering NSR, even if those

changes will not actually increase emissions. This common-sense reform will require

an evaluation of how much a facility will actually emit after the proposed change.

Also, to more accurately measure actual emissions, account for variations in business cycles, and clarify what may be a ‘‘more representative’’ period, facilities will

be allowed to use any consecutive 24-month period in the previous decade as a baseline, as long as all current control requirements are taken into account.

EPA also intends to propose three new reforms that will go through the full rulemaking process, including public comment, before they are finalized. These include:

• Routine Maintenance, Repair and Replacement.—To increase environmental

protection and promote the implementation of routine repair and replacement

projects, EPA will propose a new definition of ‘‘routine’’ repairs. NSR excludes repairs and maintenance activities that are ‘‘routine’’, but a multi-factored case-bycase determination must currently be made regarding what repairs meet that standard. This has deterred some companies from conducting certain repairs because they

are not sure whether they would need to go through NSR. EPA is proposing guidelines for particular industries to more clearly establish what activities meet this

standard.

• Debottlenecking.—EPA is proposing a rule to specify how NSR will apply when

a company modifies one part of a facility in such a way that throughput in other
113

parts of the facility increases (i.e., implements a ‘‘debottlenecking’’ project). Under

the current rules, determining whether NSR applies to such complex projects is difficult and can be time consuming. • Aggregation.—Currently, when multiple projects are implemented in a short period of time, a detailed analysis must be performed to determine whether the

projects should be treated separately or together (i.e., ‘‘aggregated’’) under NSR.

EPA’s proposal will establish two criteria that will guide this determination.

It is important to note that we are undertaking changes in the NSR program at

the same time as we are moving forward on the President’s historic Clear Skies Initiative. The Clear Skies Initiative is the most important new clean air initiative in

a generation, and will cut power plant emissions of three of the worst air pollutants—nitrogen oxides, sulfur dioxide, and mercury—by 70 percent. The initiative

will improve air quality and public health, protect wildlife, habitats and ecosystems.

By using a proven, market-based approach, Clear Skies will make these reductions

further, faster, cheaper, and with more certainty than the current Clear Air Act. In

the next decade alone, Clear Skies will remove 35 million more tons of air pollution

than the current Clean Air Act.

In summary, the NSR reforms will remove the obstacles to environmentally beneficial projects, simplify NSR requirements, encourage emissions reductions, promote

pollution prevention, provide incentives for energy efficient improvements, and help

assure worker and plant safety. Overall, our reforms will improve the program so

that industry will be able to make improvements to their plants that will result in

greater environmental protection without needing to go through a lengthy permitting process. Our actions are completely consistent with key provisions of the Clean

Air Act designed to protect human health and the environment from the harmful

effects of air pollution.

RESPONSES OF JEFFREY HOLMSTEAD TO ADDITIONAL QUESTIONS FROM SENATORS

JEFFORDS AND LEAHY

Question 1. Please provide the Committee with an explanation of the differences

between the regulatory proposals regarding New Source Review that were considered by the Clinton Administration and those that EPA is forwarding to the OMB

for interagency review or plans to publish in final form.

Response. In 1996, the Clinton Administration proposed numerous changes to the

existing New Source Review (NSR) regulations. We will be acting to finalize five of

these changes to the regulations at this time. All five of these provisions will be

within the scope of the 1996 proposal. In addition, we intend to propose, solicit public comment on, and eventually promulgate several other provisions, including a proposal to address ‘‘routine maintenance, repair and replacement’’ (RMRR). These provisions were not addressed in the 1996 proposal.

Question 2. In a briefing for congressional staff, EPA OGC personnel said that a

tremendous amount of time and money is being spent on the NSR enforcement

cases. Approximately how much time and money has been spent since those enforcement actions were announced?

Response. While EPA does not separately track enforcement expenditures for

NSR, we have reviewed the level of effort involved in NSR enforcement since November 1999. We estimate that the Agency has invested more than 200 full-time

equivalents (FTEs) in employee time, as well as over a million dollars in contract

expenditures and over half a million dollars in travel expenditures to investigate,

negotiate and prosecute all cases that have NSR components. This does not include

the significant resources that DOJ expended on these cases.

It is worth noting that a significant portion of EPA’s effort on NSR cases has been

devoted to addressing discovery requests from defendants pursuant to prosecution

of filed cases in court. Furthermore, the filing of the power plant suits in 1999 was

the culmination of 2 years of effort by dozens of EPA Headquarters and Regional

personnel, who investigated and developed the cases.

Question 3. In an interview on National Public Radio, Governor Whitman indicated that the announced NSR regulation changes ‘‘. . . are intended to get at the

pollution from those dirty old power plants or those ‘grandfathered’ plants.’’ Please

explain how these changes will affect pollution, quantitatively and qualitatively,

from these ‘‘grandfathered’’ facilities.

Response. In the Governor’s interview with National Public Radio, she stated:

‘‘What we’re proposing gets precisely at those plants that have not been successfully

dealt with under the current program.’’ In this comment, the Governor was referring

to the Administration’s Clear Skies Initiative. The Clear Skies Initiative sets strict,
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mandatory emissions caps for three of the most harmful air pollutants—sulfur dioxide, oxides of nitrogen, and mercury. Clear Skies will cut power plant emissions of

these pollutants by 70 percent, eliminating 35 million more tons in the next decade

than the current Clean Air Act.

Question 4. How many facilities are potentially covered by NSR’s major source

category, and minor source category? Please specify industry sector, and the total

emissions from those covered facilities.

Response. EPA does not have comprehensive data regarding the number of major

and minor NSR sources in the country or total emissions from these sources. We

know that there are close to 19,000 sources subject to title V. These 19,000 sources

include all major NSR sources and some minor NSR sources. In addition, there are

many more minor sources that are not subject to title V.

Question 5. How many utilities are not required currently to apply New Source

Performance Standards to their facility by the Clean Air Act? Please provide their

generation capacity and the tons of pollutants emitted for each in the latest year.

Response. EPA is working to provide a data base listing units that were not subject to NSPS when they came on line. EPA does not maintain a data base that lists

all utility units not subject to the NSPS. We will provide this information and any

necessary followup information as soon as possible.

Question 6. How many tons of pollution has the New Source Review program, including Prevention of Significant Deterioration, prevented, either through application of technology, process changes to avert major source category status, or other

means, since it’s inception?

Response. Please see the response to question number 7.

Question 7. How many tons of pollution do the NSR and PSD programs prevent

or control annually?

Response. EPA does not have a current official estimate of the number of tons of

pollution prevented or controlled annually by the NSR and PSD programs.

Question 8. EPA’s 90-day report on NSR indicates that companies go to great

lengths to avoid triggering NSR. If EPA believes the principle reason is potential

cost of pollution controls, please provide a discussion of the control costs per ton of

pollutant for various types of facilities where NSR might apply.

Response. The 90-day NEP review found that NSR is having an adverse impact

on investment in existing utility and refinery capacity for some of the following reasons. The cost of offsets and pollution control technology is certainly one factor. For

example, in California, one facility incurred costs for offsets of more than $100,000

per ton of NOx when NSR was triggered. Facilities also try to avoid NSR because

NSR permitting can delay the implementation of projects. It takes anywhere from

a few months to, on occasion, a couple of years to get an NSR permit, and additional

time is required to prepare the permit applications. Because a permit must be obtained before construction can commence, projects sometimes are delayed by the

permit process. For example, in the semiconductor chip industry, entire generations

of technology span periods of only a few months. In such circumstances, a permitting delay of a few months could serve as an insurmountable obstacle. Another important factor is certainty. It is often difficult to predict the specific control measures or other requirements that ultimately are imposed by an NSR permit and this

uncertainty can impact project planning.

Question 9. Please provide a table showing the performance standards for new

stationary sources as required to be developed under section 111(b) of the Clean Air

Act, and the relevant timetable for reviewing and revising, as appropriate, those

standards.

Response. The NSPS currently applicable to electric utility steam generating units

are presented below. For each of the pollutants, there may be certain additional requirements for specific cases (e.g., anthracite coal, noncontinental area) but these

limits are those that are most widely applicable. Section 111(b)(1)(B) provides that

the ‘‘Administrator shall, at least every 8 years, review and, if applicable, revise

such standards . . .’’ The Administrator need not review any NSPS ‘‘if the Administrator determines that such review is not appropriate in light of readily available

information on the efficacy of such standard.’’ The date of last review of each of the

standards is also shown in the table.
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Electric Utility Steam Generating Units; 40 CFR Subpart Da

Pollutant Emission limit Last reviewed

Particulate matter:

Solid, liquid, or gaseous fuel ........ 0.03 lb/MMBtu ....................................... June 11, 1979

Sulfur dioxide:

Solid fuel ....................................... 1.2 lb/MMBtu and 90 percent reduction

OR 0.6 lb/MMBtu and 70 percent reduction a.

June 11, 1979

Liquid or gaseous fuel .................. 0.8 lb/MMBtu and 90 percent reduction

OR 0.6 lb/MMBtua.

June 11, 1979

Nitrogen oxides:

Solid, liquid, or gaseous fuel ........ 0.15 lb/MMBtua ..................................... September 16, 1998

a30-day rolling average

Question 10. If New Source Performance Standards were applied to all electric

generating facilities above 25 MW, how many tons of pollutants (NOx, SOx,

PM2.5) would be reduced? What would be the average cost per ton and most common

control technologies?

Response. Emissions of SO2 from coal-fired electric generating facilities in 2000

were estimated to total 10,708,692 tons. Estimated emissions if all units met the

current NSPS are 3,397,662 tons. Information is not readily available on emissions

of NOx and fine particulate matter (PM2.5) should all electric generating facilities

meet the applicable NSPS levels. The control technologies used to meet the NSPS

would be flue gas desulfurization (FGD) units, both wet and dry, for coal-fired units

and low-sulfur oil for oil-fired units. Control technologies used to meet NSPS levels

for PM would be electrostatic precipitators (ESP) for oil- and coal-fired units and

fabric filters for coal-fired units. Technologies used to meet NSPS levels for NOx

would be low-NOx burners, selective catalytic reduction (SCR) and selective noncatalytic reduction (SNCR) for all types of units. Information is not readily available

to determine the average cost of pollutant ton removed should every electric generating facility meet the applicable NSPS.

Question 11. Connecticut’s NSR program is currently more stringent than the

Federal equivalent. What is EPA’s position with respect to reconciling elements of

their proposal with that program, and is EPA going to require states to revise their

NSR programs to mirror the Federal program, even in cases where the state program remains more stringent?

Response. EPA believes that its final rules will significantly improve the NSR program. We will include these rules in our base NSR programs and we will encourage

States to adopt these changes into their own programs. We think that most States

will want to make these changes. However, any State may depart from our base

program as long as it demonstrates that its program is at least as effective as our

base program.

Question 12. In its 1996 proposal, EPA clearly indicated that the program elements (e.g. PALs and Clean Unit Exemption) would be in such a form that states

could adopt none, some or all of the elements. The proposal did not imply that states

would have to ‘‘demonstrate’’ their programs were equal to or more stringent without some or all of these new ‘‘elements’’. Is this still the case?

Response. Over the past 10 years, we have been involved in an extensive stakeholder process in an effort to reform the existing NSR regulations. There has been

general agreement among most of these stakeholders that the regulations can and

should be improved. The final NSR rules that we hope to finalize in the near future

are the product of this decade-long effort. We believe that these rules will, in fact,

significantly improve the program. Thus, we will include these rules in our base

NSR program and will be encouraging States to adopt these changes into their own

programs. We think that most States will want to make these changes. However,

any State may depart from our base program as long as it demonstrates that its

program is at least as effective as our base program.

Question 13. Given that the Administration considered changes will result in

fewer modifications being subject to NSR, would State/locals have to submit SIP revisions at all?

Response. We believe that our final rules will add new incentives for reducing

emissions to States’ NSR programs and eliminate existing disincentives to maintain

higher levels of emissions. For example, under a plantwide applicability limit (PAL),
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a facility would accept strict plantwide emissions caps and then may choose where

to apply the most cost effective controls (achieving the highest possible emission reductions for the lowest cost). Morever, facilities with PALs will have a strong incentive to keep actual emissions well below their caps in order to maximize operational

flexibility under the cap. Under the Clean Unit Test, a facility is encouraged to install state-of-the-art emission controls. We believe many who would not otherwise

be subject to the modification provisions will install controls to gain the added flexibility under PALs and the Clean Unit test. These examples show that the total benefits of the NSR program cannot be accurately measured solely by the number of

modification permits that are issued; we must also consider others ways in which

the program encourages emission reductions.

Question 14a. EPA’s proposed changes to the baseline calculation will allow for

a baseline equal to a plant’s highest usage in the last 10 years. How will this improve air quality?

Response. To begin, we believe that it is important to correct an apparent misconception that many stakeholders continue to hold about this option. The misconception is that the option would apply to all industry types. We do not currently

intend to apply the 10-year baseline to the utility industry because an industry specific baseline was established for the utility industry in the 1992 ‘‘WEPCO’’ rule.

The baseline calculation is an integral part of the procedure for determining

whether a physical or operational change made to an existing emissions unit will

result in a significant net emissions increase at the facility. We are currently considering an approach under which the 10-year baseline would allow a source to identify

a level of operation that it has actually achieved during the course of its normal

business cycle (within which emissions typically fluctuate), and to calculate an emissions baseline associated with that level of operation as long as the resulting emissions level continues to be allowed under currently enforceable emissions factors. If

the emissions level, in tons per year, under the selected level of operation is not currently allowed (for example, a more stringent limit has been placed on the sulfur

content of fuel or a control device has been installed), then a downward adjustment

to the emissions must be made accordingly.

While the existing regulations require that the preceding 2 years be used for calculating the baseline emissions, the permitting authority has the ability to determine that another period is more representative of normal operation. This could

conceivably result in a look back of 10 years or more in certain cases. However, this

approach typically involves case-by-case determinations that have resulted in confusion, inconsistent implementation and lengthy debates as to the most appropriate

period of time to select in any particular case. EPA’s new approach would provide

a bright line for facility owners and operators to use to determine their baseline

emissions.

It is also worth noting that the new approach, involving the selection of a consecutive 24-month period within the preceding 10 years, represents a more stringent approach than the 12-month period in the preceding 10 years proposed during the previous Administration. By averaging a source’s annual emissions over a 24-month period, rather than a 12-month period, short-term peaks are less influential in calculating the baseline emissions rate.

Question 14b. Should the baseline for emissions in nonattainment areas be designed to decline in future years to help provide attainment?

Response. We think that baseline for emissions in nonattainment areas should not

automatically be designed to decline in future years. Instead, States must have the

discretion to determine where future emissions reductions will be required from one

source to the next. This decision will be based on the nature and extent of the nonattainment problem in a particular area. State and local air pollution control authorities are in the best position to determine which sources need to be controlled

and which control measures should be applied.

Question 15. EPA’s proposal will allow sources to establish an emissions baseline

with a test that considers any 2 years out of the previous 10 as representative. As

many sources have substantially reduced their emissions in the last 10 years, in

cases where this mechanism is granted, how is EPA going to evaluate the effect on

State SIPs where emissions increase as a result of these proposed baseline changes?

Response. A source’s emissions may have been reduced through the imposition of

more stringent emissions limits (including new pollution control devices) or by specific operating restrictions (e.g., restrictions on fuel use, hours of operation, etc.) In

either case, as mentioned in the response to question No. 14, the calculation of the

source’s baseline emissions, under the approach we are currently considering, must

take into account these current factors. Thus, when a source selects a particular 24-
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month period within the last 10 years to define its representative operations, it

must also factor in the most current emission limits and operating restrictions.

Question 16. Why is it necessary to provide a 10-year window to establish actual

emissions baselines? Why is it better than defaulting to the previous 2 years, and

giving the States the discretion to adjust this period when it is demonstrated that

it is not representative?

Response. The typical industry business cycle involves recurrent ups and downs

in level of economic activity over a period of several years. To determine the length

of a reasonable look back period, we contracted a study to determine the length of

a typical business cycle for a number of industry categories. Based on this study,

we determined that a 10-year look back would adequately cover the business cycle

for any industry in the study. Further, we determined that a consecutive 24-month

period (rather than the 12-month period originally proposed) within the 10-year look

back would appropriately capture the source’s average annual operating level and

emissions rate. By averaging the source’s operation over a 2-year period, rather

than using just 12 months of operating history, unusually high peaks occurring during a short period will not skew the result.

We believe that the use of a uniform 10-year look back period will help simplify

the process and eliminate questions that can occur when an applicant and the permitting authority have to determine on a case-by-case basis what timeframe provides the period ‘‘most representative of normal source operation.’’ The new requirements also provide certainty to the look back period, since there is no opportunity

to select another period of time outside this 10-year period. In addition, we have

placed certain restrictions on when the full 10-year look back period may be used.

That is, the source must have available in its records adequate data for the particular 24-month period that is selected. This data must be used for calculating the

average annual emissions that form the basis for the baseline actual emissions. In

addition, the baseline emissions rate must be adjusted downward to reflect emissions or operational limitations adopted in the interim.

Question 17. With a non-declining PAL, how does air quality ever improve? Has

EPA thought about ways to maintain the incentive for voluntary early reductions

while not locking in current emission levels indefinitely?

Response. Until such time as the NSR Reform rulemaking package is published,

it would be premature to describe specific attributes of the new PAL system; however, we have received comments similar to your question and will be considering

them as we move forward.

Question 18. If each company can select whether to use a PAL or not, won’t each

company choose the option that minimizes the chances of triggering NSR? Won’t

that result in increased emissions as compared to the State choosing one approach

or the other?

Response. We do not believe that companies will not select an option solely based

on the chances of triggering NSR under that option. In a study of sources with

PALs, EPA found that those sources lowered their emissions.

Question 19. For a State that decides to require all facilities to use a PAL, many

of the other changes are not relevant. Will the rules make it clear which changes

do not apply under the PAL?

Response. We expect that few States will require all sources to use the PAL program. For States that decide to do so, EPA agrees that sources with PALs would

generally not seek or be subject to any of the other changes. We intend to finalize

all the changes identified in our Recommendations Report as part of our base program; however, States that require all sources to have a PAL will have the opportunity to depart from the base program upon a showing that their programs are

equivalent to or more stringent than the base program.

Question 20. Why is it necessary to add an ‘‘operating margin’’ up to the significance level (e.g., 25 TPY in a severe ozone nonattainment area) when setting a

PAL?

Response. Until such time as the NSR Reform rulemaking package is published,

it would be premature to describe specific attributes of the new PAL system; however, we have received comments similar to your question and will be considering

them as we move forward.

Question 21. Why is it appropriate to make the Clean Unit test retroactive? If the

argument for clean units is premised upon creating incentives to control, why are

incentives needed for units that controlled up to 10 years ago and have already installed good controls?
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Response. We will not be applying the Clean Unit Test retroactively. Although

emissions units that have applied state-of-the-art controls in the past may qualify

to use the test after the effective date of the final rules, the test will only be used

to determine whether future changes at the unit will result in an emissions increase. Any changes that were made at such emissions units before the effective

date of the final rules will be subject to the NSR requirements as they existed at

the time of the change.

Moreover, although the creation of incentives for sources to install controls is an

important part of the clean unit test, it is not the sole basis for it. The clean unit

provision also makes sense because it avoids the need for sources with state-of-theart controls to engage in an NSR review that ultimately would not require the installation of better controls. Also, it reduces the burden on permitting authorities

of having to process permit applications that we believe will result in no additional

control.

Question 22. Given that the purpose of the clean unit exclusion is to exempt from

review units where current technology would not achieve reductions beyond existing

technology, what is EPA’s basis for allowing such a long exclusion period (i.e., up

to 15 years)? Why is a look-back period necessary at all?

Response. The clean unit duration is based on a combination of the average life

expectancy of control equipment (as published in engineering journals) and the improvement in control equipment performance over a given period of time. For example, using existing information about the control efficiency of flue gas

desulfurization (FGD), we can see that in a period of about 20 years, the removal

efficiency of the device has only improved marginally. As a result, a FGD system

that was installed 10 years ago, would still be achieving good reductions and it

would not be justifiable to replace it with a very costly unit that would only improve

pollutant removal efficiency by only a small amount.

Question 23. Why does it make sense to define routine maintenance based on the

percent of capital costs, as opposed to the function of the construction? How can

EPA reconcile allowing a source to spend hundreds of millions of dollars over the

course of 4–5 years, increase emissions significantly, and still not trigger NSR and

the installation of controls?

Response. EPA will be in a better position to address these issues after the rulemaking package has been published. At that time the Agency will also be seeking

public comment on the proposal.

Question 24. Why isn’t the amount of emission increases considered in the Administration’s development of a new definition of routine maintenance?

Response. The Clean Air Act provides that, for existing sources, NSR applies only

to projects that constitute a physical change or change in the method of operation.

By definition, routine maintenance projects are not physical changes or changes in

the method of operating, therefore, such projects are not subject to NSR.

Question 25. According to EPA’s proposed recommendations, ‘‘the changes are intended to provide greater regulatory certainty, administrative flexibility and permit

streamlining, while ensuring the current level of environmental protection and benefit derived from the program.’’ This statement seems counter-intuitive in that with

fewer new emission units installing state-of-the-art emissions controls, it seems logical that emissions will increase. What data are available to show that the proposed

changes will indeed ensure the current level of environmental protection? How is

less control better for the environment?

Response. The data EPA has accumulated during the 10-year rulemaking effort

will be placed in the docket.

Question 26. A number of the proposed NSR changes will result in modifications

that were previously subject to NSR no longer being subject. These include pollution

control projects; projects on clean units; modifications on units with high emissions

in the past but low actual emissions today; projects that don’t plan to use all of their

capacity initially; projects that are less than a certain percent of the cost of replacing the plant; projects that allow downstream units to increase production; and

projects that are separated into independent parts. EPA claims that the changes remove disincentives in the NSR program, but has not produced hard evidence that

the cumulative effect of the disincentives is greater than the cumulative effect of

the exemptions. Is EPA prepared to present solid information to substantiate their

claims?

Response. The final rule will be fully supported by an extensive public record as

a matter of fact, policy and law. The reforms we intend to finalize in the near future

have been the subject of 10 years of analysis and public comment. These

rulemakings are well-founded. The facts and information that have been accumu-
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lated during the 10-year rulemaking effort will be available in the rulemaking docket.

Question 27. If these projects are exempted from NSR application through the proposed changes, does EPA plan to require the exempted sources to at least evaluate

the air quality impact of the emission increases and address them if needed to ensure no impact on NAAQS, increments or visibility?

Response. We do not agree that our planned changes will result in increased impacts on NAAQS, increments, or visibility as compared to the current program. The

proposed changes do not alter existing requirements that provide States with ample

authority to ensure protection of the NAAQS, increments and visibility.

Question 28. How does EPA’s plans to revise NSR ensure that reductions in stack

heights or reductions in stack gas temperature will not cause adverse local impacts?

Response. The existing NSR program contains only one provision specifically addressing stack height. We do not plan to change this requirement. The current program does not specifically address exit gas temperature. A project involving only a

stack height change and/or an exit gas temperature change almost always will be

regulated under State or local ‘‘minor’’ NSR programs. This will remain the case

after our reforms are promulgated.

Question 29. Will a modification that increases actual hourly or daily emissions

be modeled and proven to cause no adverse air quality impacts before the modification is done?

Response. Under the current NSR program, emissions increases are measured on

a ton-per-year basis. We do not plan to change this aspect of the program.

Question 30. How will States identify and correct air quality or public health problems that occur due to major modifications that have been exempted from NSR by

the EPA proposed changes? Will this be more expensive and time-consuming than

addressing these matters prior to modifications?

Response. As explained in the response to question 13, we believe that the new

NSR regulations will create additional incentives to reduce emissions and eliminate

the disincentives under the current program that prevent facilities from undertaking emission reduction projects. We do not expect the new regulations to result

in added air quality or public health problems.

Question 31. Recently, experts have estimated that direct emissions of fine particulate matter from coal-fired power plants are being underestimated significantly,

perhaps by a factor of 10. This is not surprising because there is so little testing

of particulate emissions from coal-fired power plants and what testing there is reflects optimal operation of the plant. This is a public health concern because those

particulate emissions are mostly fine particulates and because they contain heavy

metals that are carcinogenic, as well as particulate organic matter, which is also

carcinogenic. All these factors contribute to the adverse health effects of the fine

particulates in our air.

The major modification provisions of the New Source Review program currently

address particulate emissions. If existing NSR rules are enforced, companies would

improve the control of particulates to meet the best available control technology requirements of NSR. This was demonstrated in the EPA settlement with PSEG in

New Jersey where a baghouse is being added to the Hudson Generating Station to

improve particulate control. How does EPA plan to address direct emissions of particulates from coal-fired power plants through the regulatory process, if EPA’s proposed changes eliminate or substantially reduce the applicability of NSR to existing

power plants?

Response. EPA will be in a better position to discuss specific NSR changes applicable to power plants when the NSR rulemaking packages have been published. We

also note that we believe the President’s Clear Skies proposal provides an efficient

and effective mechanism for substantially reducing fine particle pollution from coalfired power plants to levels far below those that NSR could ever currently accomplish. We encourage Congress to enact the Clear Skies Legislation expeditiously.

Question 32. The preamble to Part 70 Title V Operating Permits states: ‘‘Once a

PAL is established, a change at a facility is exempt from major NSR and netting

calculations, but could require a Title V permit modification, as could any other

change. Whether a Title V permit modification would be required, and which permit

modification process would be used, is governed by the current part 70 rule as implemented by the permitting authority.’’ What is the effect of the proposed NSR

changes on the Title V program? Is it possible for a plant to make changes exempted

by the NSR reforms and yet be prohibited from operating the new or modified units

until changes were made to the Title V permit?
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Response. The NSR reforms that we plan to implement will not result in any

change to our Part 70 and Part 71 operating permits programs. If a particular activity in a plant does not trigger NSR, it may nevertheless be subject to other CAA

applicable requirements, such as a Section 112 ‘‘MACT’’ standard. The applicability

of other requirements could trigger the need for a Title V permit revision, even

though NSR is not triggered.

Question 33. To what extent will seasonal programs, like the NOx SIP Call, be

considered in the proposed changed rules for baseline calculations, PAL’s and clean

units (where controls are not operated year round)?

Response. The new requirements provide that the emissions baseline for calculating the emissions increase resulting from a modification cannot exceed the emissions level that would occur under currently enforceable emissions limitations.

Thus, the new procedures require that the calculation of baseline emissions for a

modification must consider current Federal and State restrictions, as well as enforceable limits resulting from voluntary reductions. Assuming that the utilization

level selected from any consecutive 24-month period is still allowed, this level would

be used along with current emissions limits and operational restrictions to calculate

an adjusted emissions baseline.

Question 34. EPA is proposing to provide a 10-year window to establish actual

emission baselines, where a source can use the 2-year high value during that period.

Yet, when a State performs its photochemical modeling as part of the SIP process,

it uses current actual emission rates from existing sources. Such modeling would

continue to use current actual emission rates even though for NSR purposes sources

may now use the 2-year high over a 10-year past period to represent baseline. Has

EPA considered requiring those States that elect to adopt the 10-year window in its

regulations, to use the higher baseline values in its photochemical modeling to ensure consistency in its planning process?

Response. We do not plan to change the emissions baseline for calculating source

impacts. The purpose of selecting a different actual emissions baseline for NSR applicability purposes is to better determine the amount of any increase that will result only from the change itself.

Question 35. For the Clean Unit Exemption, EPA is presuming that a control

technology approved within 10 years will generally be the same as a current control

technology determination. Yet 10 years ago combustion technologies could achieve

9 ppm NOx for large turbines and 25 ppm NOx for small turbines. Today, catalytic

combustion technologies have dropped these emissions down to approximately 3

ppm. Why is EPA making its presumption in the face of such contradictory evidence?

Response. EPA is not presuming that the control technology determination made

within the past 10 years will generally be the same as the current control technology determination. We expect the state-of-the-art to continue to progress, but

generally not at a rate that would require a source to upgrade its current controls

if the source had initiated state-of-the-art controls within the prior 10 years (i.e.,

it is likely that no additional control requirements would be required in a PSD determination because the incremental and average cost effectiveness between the current level of control and retrofitting to achieve a greater level of control are likely

to be determined to be too high compared to the added environmental benefit). In

addition, we also based the timeframe for which an emissions unit is eligible to use

the clean unit test on the average life expectancy of pollution control equipment. It

is reasonable to allow the clean unit test for the average length of time it takes industry to recoup the capital investment in the controls.

Question 36. Comments Opposing or Supporting Administration’s NSR Changes.—

In your announcement of the Administration’s intended changes to the NSR regulations, you stated that the ‘‘reforms’’ being adopted by the Administration enjoyed

‘‘broad-based support.’’ EPA materials also implied that previous statements from

Governors and State environmental commissioners offered support for the reforms

being pursued by the Administration.

For the following specific changes to the NSR regulations announced by the Administration, please identify all comments or statements supporting those specific

changes submitted by Governors; State environmental commissioners; any other

State officials or their representatives, especially State air program officials; and environmental and public health organizations. Please quote the specific passages supportive of each respective change below and identify the author(s) of those passages.

Separately, please identify any comments or statements from these same parties opposing these changes or similar changes.
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Finally, please identify all comments or statements supporting those specific

changes submitted by industry representatives, following the same format as above.

If there are numerous industry comments that are responsive, you may provide a

representative selection. However, if you do so, please provide information on the

group from which the representative selection was taken (for example, ‘‘These comments represent comments made by approximately 50 petroleum refining companies.’’)

A. Plantwide Applicability Limits (PALs):

(ix) An actual emissions baseline based upon ‘‘the highest consecutive 24

month period within the immediately preceding 10 years, taking into account

the current emissions factor (which would reflect emissions limitations, other

required emissions reductions, and permanent shutdowns since the baseline period) in combination with the utilization level from the 24-month time period

selected.’’ (x) A 10-year term for a PAL, in attainment or nonattainment areas.

(xi) A PAL that remains static during the 10-year term, i.e., one whose plantwide cap is not required to decline during its term.

(xii) A PAL that does not require installation of pollution controls qualifying

as BACT or LAER (or their equivalents) on emissions units covered by the PAL.

(xii) The ability to increase a PAL’s cap levels provided EPA’s criteria are

met.

(xiv) Requiring States to provide for PALs in their State implementation

plans.

B. Clean Unit Exclusion:

(i) Eligibility for the exclusion based upon whether an emissions unit has undergone ‘‘a valid BACT/LAER process or State minor source BACT since 1990.’’

(ii) Ability of significant emissions increases to escape new source review and

further control for a period of 10 years, or a period of 15 years.

(iii) Eligibility for the exclusion based upon whether an emissions unit ‘‘installed Maximum Achievable Control Technology (MACT), Reasonably Available

Control Technology (RACT) or undertook pollution prevention that required capital expenditures . . ., provided the results are determined to be comparable to

BACT or LAER that would have been employed at the time the control measures or devices were originally installed.’’

(iv) Eligibility for the exclusion based upon whether sources ‘‘invest capital to

purchase equipment or implement processes that are inherently clean or lower

emitting and which achieve emission reductions comparable to BACT or LAER

at the time the investment was made.’’

(v) Requiring States to include the Clean Unit Exclusion in their State implementation plans.

C. Pollution Control and Prevention Project Exclusion:

(i) A source’s ability to qualify for the exclusion merely by providing notice

to the permitting authority and ‘‘maintaining records supporting the source’s

determination onsite.’’

(ii) The ability of pollution prevention projects to qualify for this exclusion.

(iii) Requiring States to include the pollution control and prevention project

exclusion in their SIPs.

D. Actual to Projected Future Actual Methodology:

(vi) The concept of a demand growth exclusion, including making this exclusion available for non-utilities and continuing to make it available for utilities.

(vii) Allowing sources owners or operators to determine themselves whether

an activity resulted in a significant net increase in emissions, without requiring

the permitting authority to be involved.

E. Emissions Baseline:

For sources other than electric utility steam generating units, an ‘‘actual’’

emissions baseline based upon ‘‘the highest consecutive 24-month period within

the immediately preceding 10 years, taking into account the current emissions

factor (which would reflect emissions limitations, other required emissions reductions, and permanent shutdowns since the baseline period) in combination

with the utilization level from the 24-month time period selected.’’

Response. There is nearly universal agreement among stakeholder groups that

the NSR program should be reformed. Thus, the Administrator articulated that the

NSR reform effort enjoys a ‘‘broad-based support.’’ This does not mean that all

stakeholders agree with all aspects of the reform effort.

A complete summary of all the comments we received and our responses to them

will be available when we finalize the regulations. We currently are working to fin-
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ish this ‘‘response to comments’’ document. We would be happy to provide you with

a copy when it is finalized. In the meantime, please refer to the complete set of the

comments we received on the NSR proposed rules provided to you previously.

Question 37. Statutory Authority.—For the specific issues and measures listed

below, please quote all words in the Clean Air Act that provide legal authority to

EPA to adopt the announced changes to NSR regulations—final and proposed—implementing the statutory PSD and nonattainment NSR programs of the Act. Provide

statutory citations for these quotations as well. Finally, explain any other legal authorities upon which EPA is relying to adopt the Administration’s announced

changes to NSR and PSD rules, policies, or interpretations. Please ensure that the

responses follow the numbering system below.

A. Plantwide Applicability Limits (PALs):

(viii) The concept of PALs.

(ix) An emissions baseline for PALs based upon ‘‘the highest consecutive 24

month period within the immediately preceding 10 years, taking into account

the current emissions factor (which would reflect emissions limitations, other

required emissions reductions, and permanent shutdowns since the baseline period) in combination with the utilization level from the 24-month time period

selected.’’

(x) A 10-year term for a PAL, in attainment or nonattainment areas.

(xi) A PAL that remains static during the 10-year term, i.e., one whose plantwide cap is not required to decline during its term, for example, to reflect installation of BACT and LAER that otherwise would be required for modifications

that occur at the source.

(xii) A PAL that does not require installation of pollution controls qualifying

as BACT or LAER (or their equivalents) on emissions units covered by the PAL.

(xiii) The ability to increase a PAL’s cap levels provided EPA’s criteria are

met.

(xiv) Renewal of a PAL, and requirements governing that process.

(xv) The likelihood that a PAL could be renewed at the end of 10 years without being reevaluated, even if the level of the PAL was based on actual emissions from up to 20 years previously.

(xvi) The likelihood that a facility located in a serious or severe ozone nonattainment area could, with a PAL, increase emissions of ozone precursors more

than 25 tons over a 5-year period.

(xvii) Requiring State implementation plans to allow PALs.

B. Clean Unit Exclusion:

(i) The concept of the clean unit exclusion.

(ii) Eligibility for the exclusion based upon whether an emissions unit has undergone ‘‘a valid BACT/LAER process or State minor source BACT since 1990.’’

(xviii) Ability of significant emissions increases to escape new source review

and further control for a period of 10 years, or a period of 15 years.

(xiv) Eligibility for the exclusion based upon whether an emissions unit ‘‘installed Maximum Achievable Control Technology (MACT), Reasonably Available

Control Technology (RACT) or undertook pollution prevention that required capital expenditures . . . , provided the results are determined to be comparable

to BACT or LAER that would have been employed at the time the control measures or devices were originally installed.’’

(xx) Eligibility for the exclusion based upon whether sources ‘‘invest capital

to purchase equipment or implement processes that are inherently clean or

lower emitting and which achieve emission reductions comparable to BACT or

LAER at the time the investment was made.’’

(xxi) The apparently self-implementing nature of this exclusion.

(xxii) Requiring States to provide for the Clean Unit Exclusion in their State

implementation plans.

C. Pollution Control and Prevention Project Exclusion:

(i) The concept of the pollution control and prevention project exclusion.

(ii) The exemption from new source review of pollution control and prevention

project physical changes or changes in the method of operation that result in

emissions increases above the significance threshold.

(xxiii) A source’s ability to qualify for the exclusion merely by providing notice

to the permitting authority and ‘‘maintaining records supporting the source’s

determination onsite.’’

(xxiv) The eligibility of pollution prevention projects for this exclusion.

(vi) Requiring States to provide for the pollution control and prevention

project exclusion in their State implementation plans.
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D. Actual to Projected Future Actual Methodology:

(i) The concept of a demand growth exclusion, including making this exclusion

available for non-utilities and continuing to make it available for utilities.

(ii) Allowing sources owners or operators to determine themselves whether an

activity resulted in a significant net increase in emissions, without requiring the

permitting authority to be involved.

E. Emissions Baseline:

For sources other than electric utility steam generating units, an ‘‘actual’’ emissions baseline based upon ‘‘the highest consecutive 24 month period within

the immediately preceding 10 years, taking into account the current emissions

factor (which would reflect emissions limitations, other required emissions reductions, and permanent shutdowns since the baseline period) in combination

with the utilization level from the 24-month time period selected.’’ F. Routine Maintenance, Repair and Replacement Safe Harbor:

(i) The concept of the routine maintenance, repair and replacement exemption

as it exists under current EPA regulations, as an exemption from consideration

as a ‘‘modification’’ under the NSR program. Please reference in your response

any relevant documentation, including applicability determinations, guidance

documents, statements made by Agency representatives in litigation, briefs or

memoranda of law filed with a court, etc.

(ii) The concept of the routine maintenance, repair and replacement safe harbor announced by the Administration, as a threshold for exclusion from consideration as a ‘‘modification’’ under the NSR program.

(iii) The concept of the routine maintenance, repair and replacement safe harbor as a threshold for exclusion from consideration as a ‘‘modification’’ under

the New Source Performance Standard (NSPS) program.

(iv) For the NSPS program, the ‘‘capital replacement value of an affected

source [as] a relevant basis for determining the need for installing modern pollution controls when a project is implemented.’’ (v) For the NSPS program, an exclusion for projects that ‘‘increase utilization

at an affected source if they come below ‘annual asset guideline repair allow- ance’ percentage thresholds (defined by the IRS for specific industry categories)

ranging from 1.5 to 15 percent.’’ (vi) Whether ‘‘the aggregate cost of maintenance expenses and capital repair

and replacement projects’’ for relevant units exceeding specified dollar thresholds is a basis for not subjecting emissions increases from those activities to

NSR.

(vii) Whether such an NSR safe harbor may be based upon ‘‘annual dollar cost

thresholds, averaged on a rolling basis over a 5-year period (except where maintenance cycles in a particular industry dictate a different period) established for

entire utility stationary sources and refinery and other industry processing and

production units ....’’

(viii) EPA’s basis for excluding from this calculation costs incurred for installing and maintaining pollution control technology.

Response. The legal basis for the final and proposed rules that EPA plans to issue

in the next few months will be set forth in the preambles to the Federal Register

notices for those rules.

Question 38a. Internal EPA Disagreements Over Directions of Administration

NSR Rule Changes.—In January of this year, EPA staff prepared several charts detailing a series of topics and elements associated with PALs; the clean unit exclusion; and a revised ‘‘major modification’’ test for existing emissions units. The charts

set forth the initial directions by EPA’s Office of Air and Radiation (OAR) concerning these topics or elements; identified ‘‘Resolved and Non-Elevation Issues’’;

and ‘‘Issues That Need Resolution.’’ This last category, in turn, set forth areas of

serious disagreement among OAR, EPA’s Office of Enforcement and Compliance Assurance (OECA), and EPA’s Office of General Counsel (OGC) about the legality, validity and consequences of OAR’s initial directions. In an alarming number of instances, OECA or OGC raised highly troubling objections to the legal basis for certain of those directions, or to the air quality harms that would result from those

directions. Based upon a comparison between the issues and objections in these

charts, on one hand, and the intended changes to the NSR rules recently announced

by the Administration on the other, it appears that the Administration has ignored,

overridden or otherwise rejected the objections reflected in these charts.

In light of the very serious concerns reflected in these documents, which go the

heart of whether EPA is correctly carrying out its statutory responsibilities, and implementing the NSR program requirements in a way that best protects the nation’s

air quality and public health, respond to the following questions. For ease of ref-
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erence and where relevant, the questions are followed by page numbers on these

charts where the issues are discussed.

Identify all current or former EPA staff that participated in the meetings that resulted in the creation of these charts, including the offices for which these staff work

or worked. Also identify the staff that contributed to the creation of these charts.

Response. The following is a list of EPA staff (SES and political) who participated

in the meetings resulting in the creation of the referenced NSR summary charts:

William Harnett, division director, Information Transfer and Program Integration

Division, Office of Air Quality Planning and Standards.

Bruce Buckheit, director, Air Enforcement Division, Office of Enforcement and

Compliance Assurance.

Alan Eckert, principal associate general counsel, Office of General Counsel.

William Wehrum, counsel to the assistant administrator, Office of Air and Radiation.

Question 38b. Plantwide Applicability Limits (PALs). (i) Legal rationale:

(a) Is the PAL approach planned for adoption by EPA consistent with OGC’s legal advice that ‘‘Pals should work within a netting frame work’’? (1) What

legal rationale has been advanced by OAR that would not work within ‘‘a netting framework’’? If PALs are not governed by a netting framework, then what

are PALs under the Clean Air Act and what legal rationale justifies PALs?

(b) Disagreeing with OAR, OGC states that ‘‘A PAL with no adjustments are

not comparable to current system, citing industry study showing that current

system results in loss of 32 percent of allowable emissions every 10 years.’’ (1)

What studies, analysis or other experience is OAR relying upon to support the

claim that PALs are comparable to the current system? Attach the industry

study referenced above, as well as any studies or analysis relied upon by OAR.

(c) Considering that PALs were first proposed by EPA in 1996, that EPA has

instituted or approved many PALs since then, and that EPA now plans to move

forward with adoption of a PAL approach, how is it that ‘‘no agreement’’ existed

on the ‘‘legal rationale’’ for PALs as of the drafting of this chart in January

2002? (d) Was the issue of the ‘‘legal rationale’’ behind PALs elevated to EPA

management, as suggested by this chart, and what was the outcome of that elevation? (1)

(ii) PAL in conflict with section 182(c)(6):

(a) OGC states that a PAL ‘‘is in conflict’’ with Clean Air Act section 182(c)(6),

and notes that the ‘‘[s]tatute requires a 5-year rolling aggregation of net in- creases.’’ (2) Did EPA reject the legal advice of OGC in allowing 10-year PALs

in serious and severe ozone nonattainment areas and, if so, why? What is the

legal authority for 10-year PALs in serious and severe ozone nonattainment

areas? How does EPA reconcile a PAL whose term exceeds 5 years in serious

and severe ozone nonattainment areas with section 182(c)(6)? Provide any legislative history or quotes of statutory language to support your responses.

(b) The chart indicates that ‘‘[t]here was no resolution of this issue pending

outcome of further legal discussions. May be an elevation issue.’’ (2) Was this

issue elevated to EPA management and how was it resolved?

(iii) Basis for 10-year PAL:

(a) Disagreeing with OAR that a 10-year PAL is reasonable, OGC states that ‘‘PAL must be based on reasonably contemporaneous period, which is more consistent with a 5-year period.’’ (3) What evidence in the Clean Air Act, its legislative history, court decisions, or English usage is EPA relying upon to support

the claim that 10 years is a ‘‘contemporaneous period’’ within a netting framework? What legal authority is EPA relying upon as the basis for a 10-year PAL?

Why was there ‘‘no agreement on this issue’’ as of January 2002? Was this issue

elevated to EPA management, as suggested by the chart, and how was the disagreement resolved?

(b) How does EPA reconcile the Federal 5-year statute of limitations governing Clean Air Act violations with EPA’s ability to enforce Clean Air Act requirements associated with a 10-year PAL? (3)

(iv) PAL adjustments for newly applicable requirements:

(a) OGC states that it will elevate to EPA management ‘‘issue of not considering future applicable rules that are known at the time the PAL is set.’’ (4)

Was this issue elevated and what was the resolution?

(b) Will a PAL that is not adjusted for newly applicable requirements be dirtier, that is allow more pollution, than one that is? Why would OAR support the

dirtier outcome of not requiring the PAL to be adjusted downward to account

for new emissions limits that become effective during the PAL’s effective period?

(c) If a new emissions limit becomes effective during a PAL term, requiring

emissions at a given unit to be reduced, does that not allow other units at the
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facility to pollute more so long as the PAL is not exceeded, thereby undermining

the air quality benefit of the new emissions limit? What is the legal basis, and

policy rationale, for not requiring downward adjustment of the PAL for Reasonably Available Control Technology (RACT) and Maximum Achievable Control

Technology (MACT) requirements? What evidence does EPA find in the statute

or its legislative history for the apparent belief that Congress did not intend air

quality to benefit by the emissions reductions achieved by RACT and MACT requirements?

(d) Under today’s rules governing netting, may a source use emissions reductions required by applicable requirements as netting credits? [Check: Is the answer to this Yes? If so, then drop this question.]

(v) Control requirements for new and existing units under the PAL:

(a) OAR expresses the intent to require no controls for new and existing units

under the PAL. (5) Identify all comments from State and local officials, environmental groups, and public health organizations supporting and, separately, opposing, this approach. Identify all comments or statements supporting this approach submitted by industry representatives. If there are numerous industry

comments that are responsive, you may provide a representative selection.

(b) The failure to require controls for new or existing units under a PAL

would appear to produces a dirtier outcome than requiring such controls; if you

disagree, please explain. In light of this, what is the policy rationale for refusing

to require new or existing units under a PAL? What is the legal rationale? By

failing to require such controls, how does EPA believe it is carrying out the statutory purpose of requiring grand fathered existing facilities to clean up over

time?

(c) OGC disagrees with OAR’s claim that a ‘‘P4 study’’ and EPA’s experience

with PALs can be generalized given the ‘‘self-selecting nature’’ and ‘‘limited

number’’ of the sources covered. What evidence is OAR relying upon in support

of its apparent belief that all sources eligible for the PAL recently announced

by EPA will control new units when not required to do so? What differences

exist between the sources covered by EPA’s P4 study and the universe of

sources eligible for the PAL planned for adoption by EPA? Does EPA believe

that sources given a choice between a PAL and the traditional form of NSR regulation for modifications will select the option with the greater air quality benefits? What evidence is EPA relying upon in support of its belief? What evidence

is EPA aware of that contradicts this belief?

(vi) PAL renewal-setting level: The chart reveals OAR’s intention to require no adjustment downward to the PAL upon renewal. OAR also intends to allow PALs to

be renewed at the same level as the original level, and therefore not use the actual

emissions baseline existing at the time of renewal. (7)

(a) Would this approach allow a source with actual emissions well below the

PAL to increase its emissions at any time in the future without control, consuming increment in an attainment area, for example, so long as other applicable requirements were not violated (e.g., no NAAQS violation)?

Response. We believe that intra-agency discussions and correspondence are internal and non-discoverable. Our policy and legal justification for these rules will be

set out in the final packages. The data and information accumulated during the 10-

year rulemaking effort will be included in the public docket.

Question 38c. Clean Unit Test:

(i) What triggers NSR:

(ii) Duration:

(iii) Availability:

(iv) Process to Qualify:

(v) Application of Clean Unit designation to past determinations:

Response. We noted in our June 13th Report and Recommendations that EPA

plans to finalize a 10-year duration for the Clean Unit provision, but also propose

to later revise the duration to 15 years. We will not take final action on the 15-

year proposal until after providing ample opportunities for public comment.

Question 38d. Revised ‘‘Major Modification’’ Test For Existing Emissions Units

(i) [Several categories of inquiries to include from chart]

Response. This question makes reference to categories of inquiries from a chart.

We did not receive a chart with such inquiries, so are not able to provide a response.

Question 39a. Modification as Any Physical Change or Change in the Method of

Operation.—For the NSPS and NSR programs, the Clean Air Act defines ‘‘modification’’ as ‘‘any physical change in, or change in the method of operation of, a sta-
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tionary 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 U.S.C. § 7411(a)(4) (emphasis supplied). As the United States Court of Appeals

for the 7th Circuit noted in its decision, Wisconsin Electric Power Company v. EPA,

893 F.2d 901, 908–909 (Jan. 19, 1990), referring to the views of one of the congressional architects of the 1977 Clean Air Act amendments:

The Supreme Court reported in Chevron that Senator Muskie, one of the principal

supporters of the Clean Air Act, remarked: ‘‘A source . . . is subject to all the nonattainment requirements as a modified source if it makes any physical change

which increases the amount of any air pollutant....’’ 467 U.S. at 853, 104 S.Ct.

at 2787 (quoting 123 Cong. Rec. 26847 (1977)) (emphasis supplied). And other courts

considering the modification provisions of NSPS and PSD have assumed that ‘‘any

physical change’’ means precisely that 893 F.2d at 908. The court concluded that

to adopt WEPCO’s more narrow definition of ‘‘physical change’’ would ‘‘open vistas

of indefinite immunity from the provisions of NSPS and PSD.’’ Id. at 909.

What evidence, if any, does EPA find in the Clean Air Act’s language or legislative

history to contradict the conclusion that the language ‘‘any physical change in, or

change in the method of operation of, a stationary source’’ is meant to be read as

broadly as this language reads on its face, as broadly as the 7th Circuit did in the

WEPCO decision, and as broadly as numerous other courts have read this language?

Response. Please see the response to Question 37.

Question 39b. EPA has made the claim that Congress did not intend for pollution

control projects to be a physical change or change in the method of operation subject

to NSR, notwithstanding whether pollution increases, including significant or toxic

pollution increases, resulted from such projects. See 57 Fed. Reg. 32319. The ‘‘pollution control and prevention project’’ exclusion announced by the Administration appears to rest on this same assertion. In addition, several other pollution-increasing

activities excluded from NSR under the Administration’s announced plans also appear to rest on the claim that those activities are not physical changes or changes

in the method of operation at a stationary source within the meaning of the Clean

Air Act.

For the following activities and measures, what evidence, if any, does EPA find

in the Clean Air Act’s language or legislative history to support the claim that these

activities are not covered by the language ‘‘any physical change in, or change in the

method of operation of, a stationary source’’? Please quote that language and provide all necessary citations.

(i) Pollution control and prevention projects, as defined by EPA in its WEPCO

rulemaking or June 13, 2002 announcements, including those that ‘‘increases

the amount of any air pollutant emitted by such source or which results in the

emission of any air pollutant not previously emitted.’’ (ii) Changes, investments or processes occurring at a ‘‘clean unit’’ as defined

by EPA in its June 13, 2002 announcement about a ‘‘clean unit exclusion,’’ including any activity associated with those units that ‘‘increases the amount of

any air pollutant emitted by such source or which results in the emission of any

air pollutant not previously emitted.’’

(iii) ‘‘Routine maintenance, repair, or replacement’’ activities as set forth in

the Code of Federal Regulations, including those that ‘‘increase the amount of

any air pollutant emitted by such source or which result in the emission of any

air pollutant not previously emitted.’’

(iv) Activities covered or potentially covered by the ‘‘routine maintenance, repair, and replacement’’ safe harbor proposal described by EPA on June 13, 2002.

Response. Please see the response to Question 37.

Question 40a. Public Participation in Permit Actions for Pollution-Increasing Activities in Their Communities

The announced changes appear likely to drastically reduce the number of modifications to existing major sources that undergo NSR, particularly in nonattainment

areas. By avoiding major NSR, these changes will also avoid the public scrutiny provided through NSR.

Has EPA done any analysis to determine how many of those source activities—

previously treated as modifications subject to NSR/PSD but now exempt from NSR/

PSD as a result of EPA’s planned changes will be subject to State minor NSR programs pursuant to Clean Air Act section 110(a)(2)(C)? If so, please provide the

Agency’s best estimate; if not, please explain why.

Response. EPA will be prepared to discuss these issues as they relate to the final

rules upon publication. There may also be subjects we can appropriately explore on

aspects of the proposed rule once a Notice of Proposed Rulemaking has been published.
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Question 40b. EPA regulations require Federal, federally delegated, and SIP-approved State minor NSR programs to provide opportunities for public comment and

review for all new minor sources and ‘‘minor modifications’’ at existing sources. See

40 CFR §§ 51.161 51.164. How many State SIP-approved minor NSR programs, and

federally delegated State minor NSR programs currently provide opportunities for

public comment and review consistent with these Federal regulations? How many

do not? How many ‘‘SIP calls’’ or other corrective actions has EPA undertaken with

respect to State minor NSR programs that are inconsistent wit these Federal regulations? Does EPA plan to require States to take corrective actions to their State

minor NSR programs that are inconsistent wit these Federal regulations, by the

time EPA adopts final changes to its NSR regulations?

Response. At the current time, most States have minor NSR programs that have

been approved into the States’ SIPs. We are aware that there are concerns that

some of these SIPs (which we approved through notice and comment rulemaking)

may not comport with the requirements in our regulations. However, we have not

made any determination that any specific program is inadequate. We plan to review

this issue in the future and, if appropriate, take the appropriate actions to ensure

that all programs comport with our regulations.

Question 41a. Federalism, State Preemption, and Criticisms by State Air Regulators.—In its 1996 NSR rulemaking proposal, EPA proposed to adopt the rule

changes ‘‘as a menu of options from which a State may pick and choose in order

to customize a specific approach for its individual needs.’’ 61 Fed. Reg. 38250, 38253

(July 23, 1996). EPA explained this approach as follows : ‘‘For instance, if EPA

adopts in its final rulemaking both the ’Clean Unit’ exclusion and the PAL option,

a State could retain its current federally approved applicability approach without

making changes, retain its existing approach and add a Clean Unit Test, or retain

its existing approach and add both a Clean Unit Test and an option for PAL.’’ How many comments from State or local officials did EPA receive opposing the

proposal to allow States the option to adopt or decline to adopt the various rule

changes? How many comments from State or local officials did EPA receive supporting this proposal? Please attach both supportive and non-supportive State and

local comments.

Response. EPA has already provided a complete set of all comments received on

the NSR proposed rules. We are currently preparing a complete summary of these

comments and our responses. This ‘‘response to comment’’ document will be available when the regulations are published.

Question 41b. Will EPA reject the approach set forth in its 1996 proposal and

force States to adopt any or all of the changes to the NSR regulations, regardless

of whether a State wishes to adopt those changes, regardless of whether a State believes the changes will weaken their current regulations, or regardless of whether

a State believes one or more of the changes would degrade air quality or hamper

State efforts to attain or maintain the NAAQS? If EPA has not reached a final decision on this question, is EPA considering forcing these changes upon States opposed

to adopting them? If EPA has decided this or is considering doing this, how does

EPA reconcile this position with Clean Air Act section 116, which (1) retains State

authority to adopt or enforce ‘‘any standard or limitation respecting emissions of air

pollutants or any requirement respecting control or abatement of air pollution, and

(2) prohibits States or political subdivisions from adopting or enforcing any emission

standard or limitation which is less stringent than standards or limitations under

an applicable implementation plan or sections 110, 111 or 112 of the Act?

Response. Until such time as the NSR Reform rulemaking package is published,

it would be premature to say what the Agency will reject or accept relating to State

regulations.

Question 41c. In a January 23, 2002 letter to Administrator Whitman from the

State and Territorial Air Pollution Program Administrators (STAPPA) and Association of Local Air Pollution Control Officials (ALAPCO), the nation’s State air regulators expressed deep concerns about the closed process conducted by EPA in the

all-important months preceding announcement and adoption of changes to the NSR

program regulations. These State officials also expressed serious concerns about the

directions of EPA’s changes and ‘‘the impact that these changes will have on our

nation’s ability to achieve and sustain clean, healthful air.’’ The serious concerns

held by these officials were not assuaged by EPA’s June 13, 2002 announcements,

with a response statement released by STAPPA/ALAPCO on that date noting that

‘‘[n]othing in EPA’s announcement today indicates that the Agency has revised its

NSR reform plans to address our concerns.’’ This statement reiterated the States’

displeasure over EPA’s refusal to ‘‘convene a broad stakeholder meeting to allow for

an open dialog on the reforms under consideration.’’ The State air regulators’ state-
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ment ended with this chilling conclusion: ‘‘we believe the controversial reforms being

pursued by EPA will not only result in unchecked emission increases that will degrade our air quality and endanger public health, they will also undermine the

chances of any responsible changes to the NSR program ever taking effect.’’

Please explain why the Administration has failed to address the concerns of State

regulators with respect to the issues identified below. In addition, provide a detailed

response to the specific criticisms that STAPPA & ALAPCO levels at these issues;

if you disagree with these criticisms, explain in detail why STAPPA & ALAPCO are

wrong. Finally, explain all analysis undertaken by EPA with respect to these issues

that contradicts the conclusion by STAPPA & ALAPCO that ‘‘the controversial reforms being pursued by EPA will . . . result in unchecked emission increases that

will degrade our air quality and endanger public health.’’ Attach all documents reflecting or supporting that analysis.

Response. In 1992, EPA empaneled a Federal advisory committee (FACA) for the

sole purpose of investigating whether NSR could be improved and, if so, how.

STAPPA and ALAPCO were charter members of this FACA. After nearly 4 years

of extensive consultation and hard work, EPA published a proposed rule addressing

many of the ideas developed during this multi-year effort. Between the 1996 proposal and January 2001, EPA held two public hearings and more than 50 meetings

with a variety of stakeholders including environmental groups, industry, and State,

local and Federal Agency representatives. Over 600 detailed comments have been

submitted to EPA between 1992 and 2001.

In response to the President’s recent request for EPA’s review of the NSR program, the Agency met with more than 100 groups, held four public meetings around

the country, and received more than 130,000 written comments. Moreover, over the

years, EPA has seldom turned down a request to meet with any stakeholder group

that wishes to discuss improving NSR. STAPPA and ALAPCO have been long-time

and active participants in this process. The claim that this has been a ‘‘closed process’’ are obviously baseless.

We disagree that our NSR reforms will result in ‘‘unchecked emissions increases.’’

Question 42a. Air Quality Impacts.—In the 1996 rulemaking proposal, EPA stated

that it had prepared a draft Regulatory Impact Analysis (RIA) for the proposed regulations and included that draft RIA in the docket for the proposed regulations. 61

Fed. Reg. at 38318. With that document as background and context, please explain

the bases for the following estimated impacts:

(i) Revising the period for establishing the baseline for actual emissions from

which to calculate emission increases to the highest consecutive 12 months in the

previous 10 years would cause 20 percent fewer sources to be classified as major;

(ii) Adding exemptions for pollution control projects and clean units would cause

another 6 percent of sources to be classified as major;

(iii) Allowing sources to use projected future actual emissions in calculating

whether increases in emissions resulting from physical or operational changes trigger NSR would exclude an additional 25 percent of sources from major NSR.

Please identify differences between the proposed regulations and the planned final

regulations that could alter these estimated impacts (for example, if every permitting authority were required to adopt a pollution control project exclusion, the number of exempt sources would likely be higher than it would have been if the exclusion were optional).

Response. (i) & (ii) In preparation of the 1996 RIA for the proposed NSR Reform

package, the Agency had several choices for its analytical baseline. Since it was the

most recent analysis of the NSR process at the time, the Agency chose to use the

baseline from the ICR prepared in 1994. From that baseline, to determine the expected number of permits affected by the NSR Reform rule, EPA analyzed Standard

Industrial Code (SIC) groups which tend to have the greatest number of NSR permits each year. Three major changes impacted the number of sources which must

undergo major NSR in the 1996 RIA: a new applicability test for ‘‘Clean Units’’, a

change in the netting baseline, and an exemption for Pollution Control Projects

(PCPs). The number of sources not subject to permitting under the major NSR

through these programs is not additive. However, the Agency expected the effect of

this double-counting to be negligible and therefore double counting was ignored.

Combining all the applicability changes above, the Agency estimated there are approximately 340 sources that would have been subject to major NSR and would not

have needed an NSR permit as a result of the proposed changes. We note that the

environmental benefits of the NSR programs are not necessarily tied to the number

of permits actually issued or that on the basis of certain assumptions, might be required under the program.
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(iii) The 1996 RIA for the NSR Reform program also claimed an actual-to-futureactual applicability test, in conjunction with an extension to the actual emissions

baseline, could reduce the number of affected sources (from the 1995 baseline) by

25 percent. As with the determination of the expected effect of the other programs

addressed in this question, there are no data available upon which the Agency could

rely for its initial assessment of that impact. EPA polled industry experts and State

and local permitting experts on the potential impact of the actual-to-future-actual

applicability test and included a representative (and conservative) estimate from

that polling process in the 1996 RIA.

Question 42b. Please explain how EPA has revised its RIA and provided an opportunity for permitting authorities, members of the public, and regulated entities to

comment on the revised RIA.

Response. The public was afforded an opportunity to comment on this RIA at the

time of the 1996 proposal. Very few comments were received. The RIA for the final

rule and additional analyses of the final rule will be placed in the docket when EPA

publishes the rule.

Question 42c. Please explain how EPA has responded to comments on the additional analysis conducted to assess the impacts of the regulations as the Agency

plans to finalize them.

Response. EPA considered the comments submitted on the 1996 proposed rule. A

complete summary of these comments and our responses will be available when we

publish the rules.

Question 42d. If the Agency does not plan to conduct further analysis relevant to

the rules that the Agency has announced plans to finalize, on what basis would the

Agency justify that decision?

Response. Until we publish the proposed regulations, EPA continues to work on

analyzing the impacts of different regulatory options. All analyses that are conducted will be available at the time the rules are published.

Question 42e. Have any EPA offices, personnel, or contractors worked to estimate

the impacts of changing the NSR regulations (either as proposed or in any other

way) more recently than the draft RIA described in the proposal? If so, please describe those activities and their subject, scope, work product, conclusions, and outcome.

Response. EPA continues to work on analyzing the impacts of different regulatory

options. All analyses that are conducted by EPA offices, personnel, or contractors

will be available at the time the rules are published.

Question 43. The ‘‘clean unit exclusion’’ announced by the Administration would

provide that emissions increases from a qualifying unit ‘‘would only trigger NSR if

permitted allowable emissions increase.’’ The Administration claims that ‘‘[t]he

Clean Unit Exclusion would provide greater certainty and flexibility for changes at

clean emission units without sacrificing the environmental benefit provided by the

current program or meaningful public participation.’’ In stark contrast, EPA previously has noted the following about NSR exemptions turning upon whether a

source’s potential to emit increases:

An exclusion of projects that do not increase a source’s potential to emit would

create an exclusion that could considerably reduce the effectiveness of the NSR program. Almost any modernization that a source undertakes has the incidental effect

of lowering emissions. A new emissions unit or modernization generally has fewer

emissions than one built 40 years earlier. Since these types of changes would not

likely increase a source’s potential to emit, industry would claim this as a pollution

prevention project—even though its pollution prevention aspects are likely to be

negligible and actual emissions may increase dramatically due to increased utilization. ‘‘Responses to Issues Raised by Industry on Clean Air Act Implementation Reform,’’ (May 30, 1995), at 20 (Response to Issue 3: Pollution Prevention Exemption)

On what basis does EPA now conclude that a clean unit exclusion, applied retroactively and prospectively, and turning upon whether the unit’s permitted allowable

emissions increase, would not ‘‘considerably reduce the effectiveness of the NSR program.’’ What analysis has EPA undertaken to support this conclusion and to contradict its earlier conclusion?

Response. In 1996, EPA proposed and took comment on an alternative applicability test based on a ‘‘potential-to-potential’’ test. The Agency expressed many concerns with the environmental impact of such an approach. However, we also received many comments that support this approach based on the benefits such an

approach provides. For example, commenters stated that it would reduce the complexity of the NSR applicability determination, reduce unnecessary costs and delays,

prevent the confiscation of unused capacity, and improve compliance and enforce-
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ment. The Clean Unit test we are currently considering would capture the benefits

of a potential-to-potential test but adds additional safeguards to ensure environmental protection because the installation of clean units represent state-of-the-art

emissions controls that will have undergone public review and a review for impacts

on air quality.

Question 44. If the 1.5–15 percent capital investment threshold being contemplated for the changes to the definition of routine maintenance, repair and replacement safe harbor were in place at the time of the alleged NSR violations by

utilities and refineries, how many, if any, of the alleged violations prosecuted since

initiation of EPA’s NSR enforcement initiative would have qualified for the safe harbor? For any activities qualifying for the safe harbor and avoiding NSR pollution

controls, how many tons of pollution, on an annual and total basis, would have been

allowed to increase potentially uncontrolled since the time of the modification?

Response. The capital investment threshold concept is still in the pre-proposal

stage. The issues presented in this question will be addressed in the proposal.

NEW SOURCE REVIEW: REPORT TO THE PRESIDENT, JUNE 2002

RECOMMENDED IMPROVEMENTS TO THE NEW SOURCE REVIEW PROGRAM

The President’s National Energy Policy Report directed the U.S. Environmental

Protection Agency (EPA), in consultation with the Department of Energy (DOE) and

other relevant agencies, to review the New Source Review (NSR) program and to

issue a report on the impact of the program on investment in new utility and refinery generation capacity, energy efficiency and environmental protection. Having

carefully considered the comments received during this review and other relevant

information, EPA has identified the following ways in which to reform existing rules

and guidance to improve and streamline NSR applicability provisions. Also, with respect to electricity generators and refiners, these changes will help to address the

extreme demands being placed on our nation’s energy supply infrastructure. These

changes would assure that the NSR program operates in a manner that provides

greater regulatory certainty and flexibility for business investment decisions, while

at the same time protecting the environment.

(1) PLANTWIDE APPLICABILITY LIMITS (PALS)

EPA would finalize its 1996 NSR reform proposal for PALs by allowing source

owners to make changes to their facilities without obtaining a major NSR permit,

provided their emissions do not exceed the plantwide cap. A source could apply for

and obtain a PAL based upon its actual emissions baseline. The actual emissions

baseline would be determined according to the method described in Section 4, below.

The framework of the actual PAL requirements is as follows: PALs would be valid

for a term of 10 years. Once a PAL is established at a facility, the company may

make any change without undergoing major NSR provided the emissions do not increase above the PAL level. Upon renewal of the PAL, the emissions levels set by

the PAL may be reevaluated by the State or local permitting authority to determine

the need for an adjustment based on air quality needs, advances in technology and

control cost effectiveness considerations. A PAL may be increased provided certain

criteria are met. If the area is nonattainment, the State must provide an opportunity for public participation, model the increase as appropriate, apply control technology to the changed or new emissions unit and secure the necessary offsets. If the

area is in attainment, the State must provide an opportunity for public participation, model the increase, apply control technology to the changed or new emissions

unit and undertake any mitigation measures that might be required. Using this approach, we also plan to develop an alternative that would give a source the option

of obtaining a PAL based on allowable emissions.

We believe that PALs offer a number of advantages for industry, permitting authorities and the environment. First, PALs provide certainty and operational flexibility. Source owners would be able to make any change to their facilities without

obtaining a major NSR permit, provided their emissions do not exceed the plantwide

cap. We believe the cap ensures environmental protection and that facility owners

that use PALs will have the incentive to install good controls to maximize their

flexibility and certainty. Finally, the public obtains a complete picture of the emissions profile of the source and is assured that there is an opportunity for public participation in the event emissions are increased in the future.
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(2) CLEAN UNIT EXCLUSION

EPA would finalize its 1996 proposal for the Clean Unit Exclusion. A unit would

be considered to be ‘‘clean’’ if it underwent a review process that resulted in its

achieving Federal Best Available Control Technology (BACT) or Lowest Achievable

Emission Rate (LAER) control levels or comparable State minor source BACT. A

clean unit would only trigger NSR if permitted allowable emissions increase. This

exclusion would provide an incentive for source owners to install the best emission

controls on new or modified emission units. Specifically, a source that underwent

a valid BACT/LAER process or State minor source BACT since 1990 would be entitled to the exclusion. The exclusion would be valid for 10 to 15 years and would

run from the date the control technology was installed or the project was implemented. Sources that installed Maximum Achievable Control Technology (MACT),

Reasonably Available Control Technology (RACT) or undertook pollution prevention

that required capital expenditures could also qualify for the exclusion, provided the

results are determined to be comparable to BACT or LAER that would have been

employed at the time the control measures or devices were originally installed. Finally, sources that invest capital to purchase equipment or implement processes

that are inherently clean or lower emitting and which achieve emission reductions

comparable to BACT or LAER at the time the investment was made would also

qualify for the exclusion. The Clean Unit Exclusion would provide greater certainty

and flexibility for changes at clean emission units without sacrificing the environmental benefit provided by the current program or meaningful public participation.

(3) POLLUTION CONTROL AND PREVENTION PROJECTS

The EPA’s policy is to promote pollution control and prevention approaches and

to remove regulatory disincentives to companies seeking to develop and implement

these solutions to the extent allowed under the Clean Air Act. As part of finalizing

its 1996 NSR reform rulemaking, the Agency will revise its Prevention of Significant

Deterioration (PSD) and nonattainment NSR regulations to exclude from NSR

projects that will result in a net overall reduction of air pollutants, including where

a source switches to a cleaner burning fuel, regardless of the primary purpose of

the project. Specifically, the Agency will revise its PSD and nonattainment regulations to exclude from NSR the addition, replacement or use at an existing emissions

unit of any system, process, control or device whose overall net impact on the environment is beneficial, subject to certain conditions. As an overarching safeguard, a

project cannot result in an emissions increase that will cause a violation of a National Ambient Air Quality Standards (NAAQS) or PSD increment or result in an

adverse impact on Class I areas. Moreover, the complete replacement or reconstruction of an existing emissions unit will not qualify under this exclusion. For example,

replacement of a pulverized coal boiler with an atmospheric fluidized bed combustion unit, with inherent NOx and SO2 reduction technology, would not be treated

as a pollution control project for purposes of this exclusion. Projects qualifying for

this exclusion will not be considered to be a ‘‘physical or operational change’’ within

the definition of major modification under the Act.

EPA will provide a list of environmentally beneficial technologies that will be presumptively eligible for the exclusion. This list shall include those technologies identified in the WEPCO pollution control exclusion (40 CAR Section 52.21(B)(32)) and

those set forth in EPA’s 1996 proposed NCR reform rulemaking (61 far 38250,

38261 (1996)). Unless covered under another NCR exclusion, pollution prevention

and control projects that are not on this list must be determined to be environmentally beneficial before such projects can qualify to be excluded from NCR. Furthermore, new pollution control and prevention technologies that are not on the list

also can qualify for case-by-case approval for this exclusion if their effectiveness in

reducing emissions is demonstrated in practice, they are determined to be environmentally beneficial and their application will not cause a violation of a NAAQS or

PHD increment or result in an adverse impact on Class I areas. EPA will establish

a process through rulemaking for adding pollution control and prevention technologies to the list of projects that will be presumed to be environmentally beneficial.

A source may qualify for the exclusion by providing prior notice to the permitting

authority and maintaining records supporting the source’s determination onsite. A

source would have the option of seeking a determination from its permitting authority prior to implementing the exclusion.
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(4) ACTUAL TO PROJECTED FUTURE ACTUAL METHODOLOGY

EPA would finalize its 1996 NCR reform rulemaking by using an actual to projected future actual methodology for calculating emissions increases for all industrial sectors. Owners and operators of facilities would calculate emissions increases

for a physical change or change in method of operation at an existing unit by comparing representative pre-change actual emissions with projected post-change actual

emissions. The ‘‘actual to future actual’’ test would be applied to all physical or operational changes at existing sources, except those that are an addition of a new unit

or constitute a complete replacement of an existing unit. Records supporting the

source’s determination and records of actual emissions for the following 5 years

must be maintained on site.

Causation.—Consistent with pre-existing statutory and regulatory requirements,

only emissions increases caused by a given change are considered in measuring the

emissions increase associated with the change. In particular, as part of the actual

to projected future actual methodology, EPA will continue to apply the causation

test incorporated into the WEPCO rule. EPA will exclude from the emissions increase calculation that portion of the post-change emissions that both: (1) could have

been accommodated before the change within the representative baseline period;

and (2) is attributable to an increase in projected capacity utilization at the unit

that is unrelated to the particular change.

Actual Emissions Baseline.—For sources other than electric utility steam generating units, the actual emissions baseline will be the highest consecutive 24-monthperiod within the immediately preceding 10 years, taking into account the current

emissions factor (which would reflect emissions limitations, other required emissions

reductions, and permanent shutdowns since the baseline period) in combination

with the utilization level from the 24-month time period selected.

(5) ROUTINE MAINTENANCE, REPAIR AND REPLACEMENT (RMR&R)

Safe Harbor Test: Through notice and comment rulemaking, EPA will set forth

cost-based thresholds using well-established precedents from the Agency’s longstanding New Source Performance Standard (USPS) regulations. Projects whose aggregated costs are below the threshold would automatically be given RMR&R treatment. Projects whose costs exceed the threshold would remain eligible for RMR&R

treatment if they otherwise qualify, without any presumption that they did not

qualify by virtue of their being outside the safe harbor.

In approaching this test, we have considered two different provisions in the USPS

standards. First, the reconstruction provisions of 40 CAR Section 60.15 clearly provide that capital replacement value of an affected source is a relevant basis for determining the need for installing modem pollution controls when a project is implemented. Second, the USPS excludes projects that increase utilization at an affected

source if they come below ‘‘annual asset guideline repair allowance’’ percentage

thresholds (defined by the IRS for specific industry categories) ranging from 1.5 to

15 percent.

These USPS provisions would be adapted to operate in the NSR context. For example, the NSPS limits operate on specific projects, but in the context of an

RMR&R safe harbor, annual dollar cost thresholds, averaged on a rolling basis over

a 5-year period (except where maintenance cycles in a particular industry dictate

a different period) established for entire utility stationary sources and refinery and

other industry processing and production units, might be more appropriate. These

thresholds would be applied so that if the aggregate cost of maintenance expenses

and capital repair and replacement projects for the relevant unit do not exceed the

specified dollar threshold then the activities would be deemed to be ‘‘routine maintenance’’ and, thus, not subject to NSR.

The cost threshold for the relevant source or unit would be set so as to cover

RMR&R capital and non-capital costs incurred to facilitate the safety, efficiency, and

reliability of the operation of the unit. In the context of the NSPS increase in production rate exclusion, these are set by reference to historical invested basis. In the

context of establishing a safe harbor for routine maintenance, repair, and replacement, however, a more appropriate comparison point might be capital replacement

cost or another measure that sets a consistent threshold for all facilities in a given

industry.

As noted above, under the NSPS exclusion for increases in production rate, the

annual cost thresholds are set on an industry-by-industry basis, with an ‘‘annual

asset guideline repair allowance’’ percentage assigned to each industry. These percentages range from 1.5 percent to 15 percent. There is good reason to think that

the industry-specific basis and the specific percentages are appropriate in the

RMR&R context as well. EPA would also entertain comment, however, on the appro-
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priateness of the industry-specific approach and the appropriateness of the particular thresholds for the various industries in this context.

Excluded Costs: Costs incurred for installing and maintaining pollution control

technology would not be included in calculating costs under the safe harbor threshold test. EPA also would consider excluding certain costs associated with forced outages involving the unanticipated failure of one or more major components.

Expenses Beyond the Safe Harbor: If aggregate maintenance costs of work undertaken exceed the applicable cost threshold, that work would not thereby be presumed to be non-routine.

Other Considerations: EPA also would take comment on particular safe harbor implementation issues. For example, as noted above, the Agency intends to set thresholds at levels that will cover the RMR&R costs needed to facilitate the safety, efficiency, and reliability of operations at industrial facilities. Because expenditures

that fall below these thresholds would automatically be excluded from NSR, the

Agency is concerned that, in some cases, such thresholds might allow a facility to

undertake relatively low-cost projects (such as installation of new burners or painting equipment) that can increase emissions significantly and should not automatically be excluded from NSR. As part of the rulemaking for setting cost-based thresholds, EPA could identify specific types of projects that cannot be excluded from review by virtue of the thresholds. However, for some types of sources, such as electric

utilities and refineries, the better approach may be to utilize maximum achievable

hourly emissions rate as the mechanism for addressing this concern.

Definitional Issues.—Through notice and comment rulemaking, EPA will propose

that the replacement of existing equipment with equipment that serves the same

function and that does not alter the basic design parameters of the unit (for example

in the case of utilities this means maximum heat input and fuel consumption specifications) typically would be considered RMR&R. In addition, this rulemaking will

provide clear guidelines for RMR&R activities undertaken to facilitate, restore, or

improve efficiency, reliability, availability, or safety within normal facility operations. EPA also will consider provisions identifying the types of projects that are

undertaken as RMR&R activities in particular industrial sectors. The absence of a

project from such a list would not disqualify it from being considered RMR&R but

would simply result in its being evaluated on a case-by-case basis as to whether it

was routine.

In the case of the utility sector, equipment that is maintained, repaired and replaced can be categorized along functional lines (for example, boiler tube assemblies,

air heaters, coal handling equipment, pumps, fans, etc.) Using these categories, EPA

could identify RMR&R activities undertaken to facilitate reliability, availability, efficiency, or safety within normal facility operations. In particular, the EPA would

focus on projects where the consequences of delaying or foregoing the work could

lead to lower availability or the failure of the generating unit and create or add to

safety concerns. For example, DOE suggests that such a rule could be informed by

maintenance, repair and replacement activities identified as common practice by the

North American Electric Reliability Council.

Along the same lines, EPA could identify routine maintenance, repair and replacement undertaken by refineries during ‘‘turnarounds.’’

Also in the context of RMR&R, EPA will address energy efficiency projects. EPA

will affirm that existing NSR rules are not intended to discourage activities that increase efficiency. The Agency will propose that energy efficiency improvements undertaken through routine maintenance, replacement and repair activities will be

considered to be RMR&R. In this context, energy efficiency projects will be considered to be routine if the improvement results from the replacement of existing

equipment with equipment that serves the same function and that does not alter

the original design parameters of the unit (for example in the case of utilities this

means maximum heat input and fuel consumption specifications).

EPA will also take steps to provide additional certainty about RMR&R activities

during the pendency of this rulemaking.

(6) DEBOTTLENECKING

Through notice and comment rulemaking, EPA will clarify that, when calculating

actual emissions associated with a physical change or change in the method of operation, sources generally should look only at the unit undergoing the change. Emissions from units ‘‘upstream’’ or ‘‘downstream’’ of the unit being changed should be

considered only when the permitted emissions limit of the upstream or downstream

unit would be exceeded or increased as a result of the change.
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(7) AGGREGATION

Through notice and comment rulemaking, EPA would clarify its nonaggregation

policy as follows. For purposes of determining NSR applicability, a project would be

considered separate and independent from any other project at a major stationary

source unless (1) the project is dependent upon another project to be economically

or technically viable or (2) the project is intentionally split from other projects to

avoid NSR. Also, EPA generally would defer to the States to implement the Agency’s

aggregation rule.

NEW SOURCE REVIEW: REPORT TO THE PRESIDENT

OVERVIEW

The New Source Review (NSR) program is one of many programs created by the

Clean Air Act to reduce emissions of air pollutants—particularly ‘‘criteria pollutants’’ that are emitted from a wide variety of sources and have an adverse impact

on human health and the environment. Other key programs include the Title IV

Acid Rain Program, ‘‘MACT’’ standards and other air toxics standards, New Source

Performance Standards, the 22-state NO, ‘‘SIP Call,’’ the Regional Haze Program,

numerous mobile source programs, and other State and local SIP-based emissions

standards. Government officials from both major political parties and industry

groups have expressed the belief that the NSR program is unnecessarily complicated

and often serves as an unnecessary obstacle to environmentally beneficial projects

in the energy sector, such as those that improve energy reliability and efficiency and

promote the use of renewable resources.

The President’s National Energy Policy Development Group asked EPA to investigate whether the NSR program does, in fact, have such impacts. The Agency’s review of the NSR program was broad-based. EPA held four public hearings, had individual meetings with over 100 groups representing the public, industry and State

and local agencies, and reviewed over 130,000 comments from private citizens, environmental groups, State officials and industry representatives.

With regard to the energy sector, EPA finds that the NSR program has not significantly impeded investment in new power plants or refineries. For the utility industry, this is evidenced by significant recent and future planned investment in new

power plants. Lack of construction of new greenfield refineries is generally attributed to economic reasons and environmental restrictions unrelated to NSR.

As applied to existing power plants and refineries, EPA concludes that the NSR

program has impeded or resulted in the cancellation of projects which would maintain and improve reliability, efficiency and safety of existing energy capacity. Such

discouragement results in lost capacity, as well as lost opportunities to improve energy efficiency and reduce air pollution.

For the refining and other industries, EPA concludes that NSR as applied to existing plants discourages projects that would have provided needed capacity or efficiency improvements and would not have increased air pollution—in fact in some

cases air pollution may have decreased. EPA believes this can result in lost capacity

or foregone opportunities to increase capacity without increasing emissions.

Finally, with regard to environmental protection, EPA concludes that preventing

emissions of pollutants covered by NSR does result in significant environmental and

public health benefits. Specifically quantifying the NSR program’s contribution to

these benefits is very difficult because of the variety of Clean Air Act programs that

address these pollutants and because there is no tracking by any government agency of the reductions in emissions that sources make due to the program. Moreover,

EPA recognizes that the Agency does not currently have other information that

would be necessary to quantify risk reduction benefits associated with the program.

However, EPA believes that the inability to make exact estimates does not mean

that the benefits of the NSR program are insignificant. EPA also believes, however,

that for particular industry sectors the benefits currently attributed to NSR could

be achieved much more efficiently and at much lower cost through the implementation of a multi-pollutant national cap and trade program. In particular the President’s Clear Skies initiative is a much more certain and effective way of achieving

emissions reductions from the power generation sector.

For virtually the entire history of the NSR program, representatives of industry,

State and local agencies, and environmental groups have worked with EPA on developing improvements to the NSR program. These efforts came to a head in 1996,

when EPA proposed a rule to ‘‘reform’’ the NSR program. Even after the proposal,

stakeholders have invested countless hours in trying to find ways to make the program better. Based on the conclusions of this study and the recommendations from
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1See, Resolution Number 01–12, Environmental Council of States on Reform of the New

Source Review Regulations dated August 28, 2001, National Governors Association Policy Position, NR–18 Comprehensive National Energy Policy; Section 18.6. 2 Note that many parties submitted comments concerning issues unrelated to the NEPD’s recommendation for EPA to review on the impact of the regulations on investment in new utility

and refinery generation capacity, energy efficiency, and environmental protection. For example,

numerous parties offered comments as to the merits of pending NSR enforcement cases. This

report does not summarize issues unrelated to the NEPD’s charge.

the State Governors and Environmental Commissioners1 and other stakeholders,

EPA now plans to finish the task of improving and reforming the NSR program.

I. THE CHARGE TO EPA

In its May 2001 National Energy Policy Report, the National Energy Policy Development (NEPD) Group recommended that the Administrator of the Environmental

Protection Agency (EPA), in consultation with the Secretary of Energy and other

Federal agencies, ‘‘review New Source Review regulations, including administrative

interpretations and implementation, and report to the President within 90 days on

the impact of the regulations on investment in new utility and refinery generation

capacity, energy efficiency, and environmental protection.’’ Consistent with this recommendation, EPA conducted its examination and is now issuing this report. This

report describes EPA’s conclusions about the impacts of NSR on these three issues

based on its review of the available information and comments.

II. BACKGROUND

EPA assembled an interagency team for this project, including representatives

from the Department of Energy (DOE), Department of the Interior (DOI), Office of

Management and Budget (OMB), White House Council on Environmental Quality

(CEQ), and the National Economic Council (NEC). In consultation with this group,

EPA prepared a background paper, which was released on June 22, 2001 (EPA

Background Paper). This paper described available data relevant to the three issues

EPA was charged with reporting on: investment in utility and refinery capacity, energy efficiency, and environmental protection. The background paper included EPA’s own data, as well as data provided in a supporting report by ICF Consulting Inc.

(ICF Report), which summarized ICF’s survey of the available literature and public

statements on NSR issues. The background paper presented the data to facilitate

public comment, and to provide the opportunity for external reviewers to provide additional relevant data. The background paper did not draw conclusions or make recommendations.

Following the background paper’s release, EPA initiated an intensive public outreach effort, consisting of three components: (1) a 30-day public comment period; (2)

a series of four public hearings held in locations across the country; and (3) a series

of meetings with more than 100 stakeholder groups, including environmental organizations, industry representatives, and. State and local governments. During this

public outreach period, EPA received written comments from over 130,000 individuals and organizations. A total of 255 people testified at the four hearings. All of

the materials received during the public outreach period, including written comments, transcripts of the hearings, and attendance lists and written materials in

connection with the stakeholder meetings, are available in public docket number A– 2001–19 at the EPA’s Office of Air and Radiation Docket and Information Center.

This report discusses the statutory and regulatory provisions of the New Source

Review (NSR) pre-construction permitting program. While the report explains the

views of many parties regarding the requirements of the NSR program, it is not intended to affect the NSR program or actions that EPA has taken to implement or

enforce the NSR program2. This report does not substitute for statutory provisions

or regulations, nor is it a guidance document reflecting EPA’s interpretation of statutory or regulatory provisions. Its purpose is to summarize information that EPA

has received relating to the NSR program and to report on EPA’s findings concerning whether the NSR program has affected investment in new utility and refinery generation capacity, energy efficiency, and environmental protection.

New Source Review

EPA is strongly supportive of the goals of the NSR permitting program, whose

basic requirements are established in parts C and D of Title I of the Clean Air Act

(CAA). The purpose of the NSR program is to protect public health and welfare, as

well as national parks and wilderness areas, as new sources of air pollution are

built and when existing sources are modified in a way that significantly increases

air pollutant emissions. Specifically, NSR’s purpose is to ensure that when new
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3The term NSR usually refers to the overall program, but is sometimes also used as shorthand to refer to nonattainment NSR, which may be a source of confusion. In this document,

we will use NSR to refer to the general program (both nonattainment NSR and PSD), and will

use nonattainment NSR when referring specifically to NSR for nonattainment areas. 4 Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New

York, Pennsylvania, Rhode Island, Vermont, and Washington, DC. 5These comments were consistently raised by companies representing virtually all types (e.g., coal-fired; oil-fired or gas-fired) and sizes of electric generating facilities. See, e.g., Comments

of the Clean Energy Group (CEG) [II–D–291]; Comments of the Utility Air Regulatory Group

(UARG) [II–D–303]; Comments of Class of ‘85 Regulatory Response Group (Class of 1985 Group)

[II–D–268]; Comments of National Rural Electric Cooperative Associations (NRECA) [II–D–322].

The members of these groups, as well as individual utilities that filed comments expressing the

same conclusion, span the entire United States. See, e.g., Comments of Northeast Utilities Service Company (NUSCO) [II–D–331]; Comments of Cinergy [II–D–270]; Comments of Sunflower

sources are built or existing sources undergo major modifications: (1) air quality improves if the change occurs where the air currently does not meet Federal air quality standards; and (2) air quality is not significantly degraded where the air currently meets Federal standards. The fundamental philosophy underlying the NSR

program is that a source should install modern pollution control equipment when

it is built (for new sources) or when it makes a major modification (for existing

sources). Congress believed that incorporating pollution controls into the design and

construction when new units are built, or when major modifications occur, is generally more efficient than adding on controls after construction.

The NSR program is by no means the primary regulatory tool to address air pollution from existing sources. The Clean Air Act provides for several other public

health-driven and visibility-related control efforts: for example, the National Ambient Air Quality Standards Program implemented through enforceable State Implementation Plans, the NOx SIP Call, the Acid Rain Program, the Regional Haze Program, etc. Thus, while NSR was designed by Congress to focus particularly on

sources that are newly constructed or that make major modifications, Congress provided numerous other tools for assuring that emissions from existing sources are

adequately controlled. For example, the national cap on SO2 emissions established

under the Acid Rain Program applies to all existing electricity generating units,

without regard to the date of construction or whether a given source has been modified.

NSR operates by requiring a source to obtain a permit prior to construction or

major modification. The permit establishes various actions that the source must undertake to control its emissions of air pollution. However, NSR only applies if the

construction project will emit air pollution that exceeds threshold levels established

in the NSR regulations. For a new source, NSR is triggered only if the potential

emissions qualify as major. For an existing major source making a modification,

NSR is only triggered if the modification will result in a significant net increase in

emissions.

The major NSR program comprises two separate parts: Nonattainment NSR and

Prevention of Significant Deterioration (PSD).3 These two programs have separate

requirements to address the differing air quality planning needs in the areas where

they apply. Nonattainment NSR applies in areas where air is unhealthy to

breathe—i.e. where the established national ambient air quality standards (NAAQS)

for a CAA criteria pollutant are not being met. These areas are called nonattainment areas. Nonattainment NSR for major sources of certain pollutants also applies

in the federally designated ozone transport region (OTR), which consists of 11 northeastern States and Washington, D.C.4 PSD applies to major sources located in areas

where air quality is currently acceptable—i.e., where the NAAQS for CAA criteria

pollutants are being met. These are called attainment areas. Because nonattainment areas have poorer air quality, nonattainment NSR requirements are generally

more stringent than PSD requirements.

III. IMPACT ON INVESTMENT IN NEW AND EXISTING UTILITY AND REFINERY GENERATION

CAPACITY—AND ENERGY EFFICIENCY

The EPA begins by examining the question of whether the NSR program has an

impact on investment in projects that would increase or preserve utility and refinery

generation capacity or that would improve energy efficiency. We received extensive

comments on this issue, reflecting widely varying views on whether there is an impact and, if so, on its nature and extent.

In general, comments made by both the electric utility industry and the petroleum

refining industry consistently assert that the NSR program has a significant and

adverse impact on investment in expanding and preserving capacity, as well as on

energy efficiency.5 These commenters assert that the program is in need of funda-
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Electric Power Corporation [II–D–292]; Comments of Tri-State Generation and Transmission Association [II–D–335]; Comments of West Associates [II–D–216]; Comments of Salt River Project

(SRP) [II–D–320]. Even waste-to-energy facilities agreed with this conclusion. See e.g., Comments of American Ref-Fuel [II–D–214]. The refining industry offered similar comments. See

NPRA Letter to Stephanie Daigle, EPA, 7/23/2001. 6See comments by Michigan Department of Environmental Quality, representing a workgroup

including Alabama, Michigan, North Carolina, South Carolina, Virginia and West Virginia permitting staff. [II–E–09]. 7For other State comments, see STAPPA/ALAPCO, [II–D–313], CARB [II–D–468], RAPCA

[II–D–302], Wisconsin, Missouri, et. al. For environmental groups, see, Clean Air Task Force

[II–D–236], NRDC, Sierra Club [II–D–437], et. al. 8See Natural Resources Defense Council (NRDC) comments [II–D–267] at 1. 9This 214 GW increase would represent a 30 percent increase over the current installed capacity level, and would restore national reserve margins to about 25 percent, from a low of 8

percent in 1999. 10See New Jersey DEP comments [I1–D–310]. 11The State of Kentucky, in fact, put a hold on any new permit applications for electrical generation sources until it can analyze the environmental impacts of the large volume of pending

permit applications. 12See, e.g., California Air Resources Board (CARB) [II–D–468], Georgia Department of Natural Resources (DNR) [II–D–341], Wisconsin DNR [II–G–71], STAPPA/ALAPCO [II–D–303],

Clean Air Task Force [II–D–236], NRDC [1I–D–267] and other similar comments.

mental reform. Other industries (as discussed in Section IV below) made similar assertions, as did some State permitting authorities. These commenters said that investment is hindered by (1) regulatory uncertainty and lack of flexibility resulting

from alleged recent policy ‘‘re-interpretations’’ related to the applicability of the program’s requirements; and (2) the added costs and delays imposed by the NSR proc- ess.6 Other commenters, including environmental groups and some State and local

permitting authorities, expressed the opposite view. They assert that NSR does not

appear to be significantly hindering such investment, adding that NSR has resulted

in large benefits to the environment while allowing for increased energy and/or fuel

supplies.7 One environmental commenter does not believe that there is sufficient information to conclude that NSR is a primary factor driving decisions to invest or

not to invest in capacity.8

This section discusses our conclusions based on a review of the available data and

comments received regarding investment in new capacity and energy efficiency. Because the issues associated with new and modified source permitting differ, this

paper will discuss separately the impact on new sources and the impact on existing

sources undergoing changes.

A. New Sources

Focusing first on the impacts of NSR on investment in new capacity, the EPA

finds that NSR does not appear to have a significant impact on investment in new

utility or refinery plants. The discussion below indicates that, for utilities, significant new capacity has been permitted in recent years and substantial additional

greenfield capacity is planned. For refiners, decisions about whether to construct

new greenfield refineries are primarily driven by economic and environmental considerations. It does not appear that NSR has a significant impact on these considerations.

1. Utilities

For electric utilities, significant new sources were permitted in recent years (dominated by natural gas-fired systems) and more are planned. The background paper

noted current plans of certain companies to bring into service units producing more

than 120 Gigawatts (GW) in the coming years. An analysis by the NorthBridge

group, prepared for the Clean Air Task Force, uses RDI’s NewGen data base to estimate that it is likely that 214 GW—and possibly as much as 400 GW—of new generating capacity will come online before 2005, based on a survey of data on plants

at various stages of development.9 Several State commenters presented similar

data. For example, New Jersey stated that it had permitted over 2500 MW of new

electric generation since July 1999, and had proposed to approve another 1700 MW

in July of 200110. Another 5800 MW of applications were under review, and another

2000 MW of projects were in the pre-application meeting stage. These projects cover

22 facilities and 49 units. This 12,000 MW will result in a 60 percent increase over

the 18,000 MW of existing generating capacity in New Jersey.11 Other States and

environmental group commenters presented similar data.12 Although most of these

projects will be subject to NSR, the program does not appear to be hindering their

development.

In general, the DOE’s experience is that far more capacity is planned than is ever

actually realized. As it related to the analysis by the NorthBridge group, the DOE
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13STAPPA/ALAPCO comments [II–D–313] at 6. 14The primary air pollution control requirement commonly imposed on natural gas combus- tion is selective catalytic reduction, which adds about $30 per kilowatt to the cost of a combined

cycle generation system. New pulverized coal systems require electrostatic precipitators or fabric

filters for particulate matter control, scrubbers for sulfur dioxide control, selective catalytic reduction for nitrogen oxide control, and perhaps additional control technology for air toxics. Cumulatively, the systems needed for coal-based generation cost over $200 per kilowatt, and add

about 20 percent to the cost of a new coal-fired system. For a 1000 MW unit, these translate

into a cost of $200 million. 15See, e.g., STAPPA [II–D–313] at 3, New Jersey DEP [II–D–310] at 2. 16See CARB [II–D–468] at 4. 17Wisconsin DNR comments [II–G–71] at 1.

projects in its 2001 Annual Energy Outlook that only a small fraction of the capacity

estimates by NorthBridge will actually come on line by 2005. For the period of 1999

to 2005, DOE estimates the following: • Overall generation will increase from 3386 billion kilowatt-hours (BKWH) to

3810 BKWH. • Overall capacity will increase by 74 GW (from 745 gigawatts (GW) to 819 GW). • For coal-fired power plants, capacity will decrease slightly (from 306 GW to 301

GW), while generation increases from 1833 BKWH to 2085 BKWH, as existing units

increase their hours of operation. • For gas-fired plants, combined-cycle units will increase in capacity from 20 GW

to 50 GW, while generation increases from 371 BKWH to 584 BKWH.

While these data indicate continued expansion in new generating capacity, some

industry commenters assert that NSR can nevertheless introduce costs and delays

to the process of bringing new generating units online, as well as have an impact

on fuel supply flexibility. Utilities cited implementation of the requirements for

preconstruction monitoring, modeling, and consultation with Federal Land Managers, saying that the processing time by Federal, State and local governments and

potential permit appeals can result in significant costs and delays in obtaining a

permit. In particular, industry commenters, as well as some State permitting authorities, attribute a significant portion of the delay in obtaining NSR permits to

the large body of NSR guidance that has been issued over the course of many years,

by both EPA and State agencies administering delegated programs. This guidance

frequently is case-specific in nature. Many commenters consider the guidance to be

ambiguous and, in some cases, inconsistent.

Among the various aspects of the NSR program that industry commenters more

specifically identified as concerns for new sources included the following: • How to determine which emissions control technologies qualify as best available

control technology (‘‘BACT’’) or lowest achievable emissions rate (‘‘LAER’’) technology using EPA’s ‘‘top down’’ policy and the Agency’s BACT/LAER clearinghouse. • Procedural concerns about guidance issued by Federal Land Managers related

to permitting near Class I areas. • The limitation on construction activities prior to issuance of a permit, which is

of particular concern when (1) the permit undergoes lengthy appeals processes, or

(2) the climate is cold and the construction season is thus shorter. • The cost and availability of offsets in nonattainment areas. Commenters, particularly in California and New York, noted that shortages in available offsets have

the potential to significantly increase the cost of NSR permitting in certain limited

areas. Permitting authority commenters noted that offsets represent from 1–6 percent of the cost of a new power plant.13

Commenters further stated that NSR control requirements affect fuel supply

choices for new installations. They point out that the cost of air pollution control

represents a much greater proportion of the cost of construction at coal-fired facilities than at gas-fired plants.14 Operation and maintenance costs are also higher.

They believe this discourages investment in new coalfired plants.

Other stakeholders offered a different view. Several State and local permitting authorities noted that the NSR process can generally be accomplished in a reasonable

time, and within the same timeframe as the other elements involved in planning

of a typical electric generator project.15 Some States reported acceleration of permitting times for new utility sources consistent with that reported in the EPA Background Paper.16 One State commenter suggested that the perception that NSR is

lengthy, cost-intensive, and uncertain is really not the norm, though it can be true

in exceptional cases.17

In EPA’s experience, NSR has, in some individual cases, impeded new power

projects. However, as a general matter, available information indicates that NSR

typically does not represent a significant barrier to the construction of new electricity plants. As for the impact of NSR on fuel choices for new facilities, EPA notes
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18See, Testimony of the National Petrochemical and Refiners Association (NPRA) before the

Senate Subcommittee on Clean Air, Wetlands, Private Property and Nuclear Safety on Apr. 5,

2001.

that NSR typically does not require significantly greater levels of control at new

coal-fired plants than the recently updated NSPS for large electric generating units.

Thus, NSR itself is not the only driver with regard to air pollution control costs at

new coal-fired units and does not appear to significantly influence fuel choices at

new facilities.

2. Refineries

As noted earlier, the construction of new ‘‘greenfield’’ petroleum refineries in the

near future seems unlikely for various economic and regulatory reasons, primarily

unattractive profit margins. Industry has reported that the rates of return for refineries have averaged about 5 percent in the last decade, roughly equivalent to the

return from a passbook savings account, but with much greater risk. As a result,

building new plants at new sites is highly unlikely.18 The EPA agrees with this assessment. Moreover, while any new refinery would be required to obtain an NSR

permit, the available information does not indicate that NSR permitting is among

the most significant impediments to the construction of new refineries. Refinery

commenters indicate that any additional U.S. refinery capacity must come from either efficiency improvements or expansion at existing refineries (discussed below).

B. Existing Sources

The vast majority of concerns about NSR raised during the review pertained to

existing sources. As discussed below, the EPA believes that commenters have identified areas where NSR can discourage investment in both preserving and maintaining utility and refinery generating capacity as well as in improving energy efficiency

and expanding capacity.

1. Utilities

With respect to existing sources, comments from across the spectrum of the utility

industry consistently asserted that the NSR program imposes significant burdens on

the utility practices necessary to maintain the safety, availability, efficiency and reliability of the electricity supply at existing sources. They further assert it can have

a highly negative impact on the nation’s power supply. The result, they conclude,

is that the program hinders investment in projects intended to expand and preserve

generating capacity at existing electric generation units. In addition, as discussed

below, many utility commenters believe that the current NSR program has actively

discouraged efficiency improvement projects, which they believe not only can have

net environmental benefits, but also can provide an effective short-term response to

tight reserve margins at many locations in the United States. On the other hand,

environmental groups do not believe that there is sufficient information to conclude

that NSR is the primary factor driving decisions to invest in new capacity at existing sources or that, absent NSR, significant investments would have been made that

are presently not being made in recapturing lost existing capacity due to deterioration of equipment. This section examines more closely the capacity issues at electric

utilities, followed by the energy efficiency issues.

a. Impact on Utility Projects to Maintain the Availability, Reliability, and Safety of

the Electric Power Supply

(i) NSR Applicability.—The utility industry comments predominantly focused on

the exclusion from major NSR permitting requirements for activities that represent

‘‘routine maintenance, repair and replacement.’’ They asserted that, in recent years,

EPA has narrowed its interpretation of this exclusion to the point where NSR potentially applies to repair and replacement activities that are customarily undertaken

within the industry to assure the availability, reliability, and safety of power plant

operations. Commenters believe that under such an interpretation NSR would be required whenever the work involved: (1) a component that is replaced infrequently

in the life of an industrial facility; (2) a component that is large and expensive (in

absolute terms); or (3) a replacement component that is better designed and will improve the availability or efficiency of the facility.

Thus, according to the utility commenters, because electricity generation units are

inherently large, complex, and expensive (in absolute terms), most power plant repair and replacement activity would not be covered by the exclusion. Because of the

costs and potential delays associated with NSR, they believe that this has discouraged activities intended to maintain the reliability, availability, and safety of existing power plants; and/or has required generators to limit the output of their power
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19See Clean Air Task Force Comments [II-D–236], Appendix D. 20 UARG Comments [II–D–303] at 29–32. 21 UARG Comments [II–D–303] Attachment C. 22See Jerry Golden, TVA, Routine Maintenance of Electric Generating Stations (February

2000) (‘‘TVA 2000 Report’’), described in UARG Comments [II–D–303] at 29–31. 23TVA 2000 Report at 25. 24 UARG Comments [II–D–303] at 31–32.

plants to avoid triggering NSR, regardless of their capacity, in order to maintain

the units during their normal useful lives. NSR costs and delays are of particular

concern to commenters for such changes at existing units because (1) while certain

projects might be relatively inexpensive absent NSR, they believe the cost of controls resulting from NSR can make them cost-prohibitive to undertake, which, in

turn, can adversely affect the availability and reliability of plant operations and discourage such projects, and (2) they believe that units may need to be offline until

permitting can occur, so delays in permitting can have significant impacts on energy

supply through lost generation during this time.

Although utilities stated that NSR-required controls are expensive relative to the

gains associated with projects that might trigger NSR, other commenters noted that

these costs are small compared to the company’s revenue. The Clean Air Task Force

submitted a study by MSB Energy Associates performed on a sample of 51 existing

coal-fired utility units. The study concludes that if these units triggered NSR and

had to install BACT-level controls, the cost would be modest relative to the size and

revenue level of the companies.19 In the commenters’ view, this impact is exchanged

for significant environmental benefits, estimated at 2.8 million tons per year of sulfur dioxide (SO2) (22 percent of all power plant SO2 emissions in the United States)

and 1.0 million tons per year of NOx (19 percent of all power plant NOx emissions

in the United States).

According to industry, thousands of repair and replacement projects are undertaken by facilities each year and that, as a result, NSR permitting is potentially

triggered early in the life of virtually every electric utility plant, and then repeatedly thereafter.20 The industry commenters submitted information about the types

of projects they stated that they typically undertake, which they maintain are required to ensure reliability, availability, or safety of their facilities, but which they

believe EPA would classify as non-routine and therefore would potentially be subject

to NSR if they resulted in a significant net emissions increase.21

For example, a survey undertaken by the Tennessee Valley Authority (TVA) reported the frequency with which particular repair and replacement projects are undertaken within the electric utility industry.22 The, TVA survey covered approximately 20 percent of the electric utility industry—219 units totaling about 80,000

MW—and included a review of case studies and statistics regarding cyclone replacement, balanced-draft conversion, reheater replacement, and economizer replacement. For example, their survey States that, at the 190 units in the survey that

had reheaters, there were 213 reheater replacement projects (some reheaters were

replaced more than once). At the 202 units in the survey that had economizers,

there were 98 economizer replacement projects. For both components, replacements

occurred as early as 5 years after initiation of a unit’s commercial operation, or as

late as 40 to 50 years. Similarly, at 151 boilers originally constructed as forced draft

systems, utilities replaced 79 systems with balanced draft systems, primarily to address ‘‘equipment degradation, maintenance problems, health and safety concerns,

and pollution control requirements.’’23 Finally, the TVA survey reported that, since

1979, 300 cyclones out of 701 had been replaced at the 96 electricity-generating stations in the United States powered by cyclone boilers. UARG similarly reported a

more complete, recent census of the entire coal-fired steam electric generating industry.24 This census sought industrywide information regarding the frequency of

maintenance, repair and replacement activities that they believe EPA considers

non-routine. The census results are reported to show:

• The industry has undertaken tens of thousands of such maintenance, repair or

replacement activities;

Every unit in the industry has undertaken such activities;

• Approximately 50 percent of the units in the industry will have undertaken

such activity within 5 years of the unit’s in-service date;

• Each unit in the industry undertakes on average annually at least one such activity.

In short, in the view of many industry commenters, an inappropriately narrow

routine maintenance exclusion would not exclude many common maintenance

projects. According to these commenters, this would leave nearly every coal-fired

generating unit in a constant state of obligation to evaluate whether each of these
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25 NRECA Comments [II–D–322] It 14–15; see also Class of 1985 Group Comments [II–D268]

at 9 (‘‘Electric generating plant personnel have been placed in the untenable position of not

being able to correct and improve the reliability and efficiency of their plants, resulting in compromised safety to plant employees and the general public, without risking an enforcement action.’’); Dairyland Comments (II–D–324) at 4 (EPA’s current ‘‘interpretation may compromise the

reliability and efficiency of existing plants and could undermine the preservation of a diverse

energy supply.’’). 26See, e.g., RAPCA [II–D–302], Adirondack Council [II–D–136], Public Citizen [II–D327]. 27Public Citizen [II–D–327]. 28See, e.g., Class of 1985 Group Comments [II–D–268] at 9–10. 29 Commenters also complained of delays in the minor NSR permitting process (an average

of 3–8 months in one utility’s service area.) See Jerry L. Golden & Donald P. Houston, TVA,

Impacts of EPA’s Reinterpretation of New Source Review Requirements—Potential Loss of Generating Capability on the TVA System, at 8 (July 19, 2001) (‘‘TVA 2001 Report’’) (Attachment

E to UARG Comments [II–D–303]). 30See UARG Comments at 39–42; see also EPA Background Paper at 7.

numerous projects would trigger NSR, and if so, whether the costs associated with

NSR (including, if applicable, the costs of add-on controls and potential downtime)

would render such projects cost-prohibitive. As discussed below, if such projects are

found to be cost prohibitive, commenters predict steady deterioration of existing capacity, and limited investment in the recovery of such capacity at existing sources.

Many industry commenters echoed this conclusion and asserted that the situation

is unacceptable and must be corrected to reflect the real environment surrounding

routine maintenance within the electrical utility industry.’’25

On the other hand, environmental group commenters and some permitting authorities felt that the routine maintenance exclusion is appropriate. They believed

that a less narrow exclusion would allow the exception to swallow the rule. In this

vein, commenters expressed concerns that large-scale capital projects, such as major

life extension projects, should not qualify as routine.26 One of these commenters expressed concern that a facility could be virtually rebuilt without triggering NSR

under industry’s preferred interpretations of the routine maintenance exemption27.

After reviewing the comments, the EPA notes that there are differing opinions

amongst the commenters about the appropriate scope of the routine maintenance

exemption and the resulting NSR impacts. In determining whether an activity is

‘‘routine’’ for purposes of being excluded from NSR, EPA consistently has taken a

case-by-case approach, weighing the nature, extent, purpose, frequency and cost of

the work, as well as other relevant factors. Nevertheless, the Agency recognizes that

many industry commenters expressed uncertainty about the scope of the routine exclusion and argued that this uncertainty will cause them to delay or forego projects

critical to maintaining the availability, reliability and safety of their facilities. In

light of the volume of anecdotal evidence presented, the EPA concludes that concern

about the scope of the routine maintenance exclusion is having an adverse impact

on projects that affect availability, reliability, efficiency, and safety. Changes to the

NSR program that add to the clarity and certainty of the scope of the routine maintenance exclusion will improve the process by reducing the unintended consequences

of discouraging worthwhile projects that are in fact outside the scope of NSR.

(ii) Energy Impacts.—According to utility commenters, the energy impact of an inappropriately narrow NSR routine maintenance exclusion would be adverse and potentially quite significant. In addition, the industry commenters stated that an inappropriately narrow exclusion would leave many activities potentially subject to NSR.

This circumstance, they believe, would result in limited alternatives for utility managers. They describe three alternatives.

First, utilities could go through the NSR pre-construction permitting process. The

principal complaints against this alternative were protracted processing delays and

the attendant costs, including the costs of pollution control retrofits.28 In addition,

commenters feared that, if the interpretation of routine were to be narrowed, thousands of projects would trigger NSR per year, and would result in even more substantial delays by flooding the permit process with more permit applications than

it has the capacity to process quickly.

Second, a company could accept enforceable emissions limits (through a ‘‘minor’’

NSR permit) in the form of a cap on emissions from the affected units.29 Commenters stated, however, that acceptance of such a cap would require a utility to

limit the affected unit’s hours of operation and production rates to representative

emission levels just prior to the change, which could restrict the electricity supply

in a particular area.30 Commenters also could limit emissions by adding pollution

control technology, but commenters felt this was also not a workable NSR avoidance

strategy because it also could be infeasible, cost-prohibitive, and would only be a
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31See UARG comments at 39–42. 32See, e.g., Class of 1985 Group Comments [II–D–268] at 7, TVA 2001 report at 7 (Attachment E to UARG Comments [II–D–303]). 33See, e.g., id. 34TVA 2001 report at 12–14. 35Southern Company, The Dismantling of Energy Supply Capacity Through New Source Review (Attachment D to UARG Comments [II-D–303]). 36First Energy Comments [II-D–261 ] at 1. 37West Associates Comments [II-D–216] at 7. 38 NRECA Comments [II–D–322] at 7. Other commenters that submitted similar analyses include: Minnesota Power Comments [II-D–165] (25 percent lost production); Dairyland Comments

[II–D–324] at 7 (41 percent lost generating capacity); SRP Comments [II–D–320] at 6 (18.5 percent loss). 39See UARG Comments [II–D–303] at 39. 40See Ralph L. Roberson & Richard D. McRanie, Thoughts on Power Plant Efficiency, at 7

(Attachment F to UARG Comments [II–D–303]) (RMB Report); see also Class of 1985 Group

Comments [II–D–268] at 5–6 (noting that utilization of base-loaded units displaces less efficient,

more polluting plants). 41First Energy Comments [II–D–261] at 1.

temporary solution.31 Moreover, commenters stated that the delays associated with

the minor NSR process required to create the limit still severely impact a unit’s ability to replace components necessary to get back online quickly after a forced outage.32 For example, when a turbine rotor shaft cracks or slag falls and destroys a

boiler floor, the utility must repair the component as quickly as possible and restore

the unit to service. Commenters claim that, if the necessary repairs were not considered routine maintenance, repair and replacement, the repair could not be made

until the source obtained an NSR permit. In the meantime, the commenters believe

that the utility could lose the entire capacity of the unit, which could endanger the

stability of the electrical grid and create a risk of regional blackouts.33

Commenters also argued that avoiding NSR by accepting caps on emissions

through operational limits would constrain electrical system operators’ flexibility to

deliver necessary electricity at the least cost. In this regard, several utilities analyzed their systems to estimate the restrictions on their ability to produce electricity,

had what they consider to be a narrow interpretation of the routine exclusion been

applied over the last 20 years and had the utilities elected to obtain minor NSR permits limiting generation to recent levels in every instance they undertook certain

replacement projects.

For example, TVA (serving approximately 2.3 million homes in the Tennessee

River Valley),34 reported that, over the last 20 years, it would have lost 32 percent

of its coal system’s energy capability, or 34 million megawatt-hours (MW-hr) annually. In a similar analysis, the Southern Company found that, by the year 2000, it

would have had an energy shortfall of 57.5 million MW-hr, and that it would not

have been able to meet 38 percent of its customer demand.35 Similarly, First Energy

estimated that it would have lost 39 percent of its coal-fired generating capacity between 1981 and 2000.36 West Associates (a western utility with a younger fleet of

generating units) estimated a loss of 27 percent of generating capacity of one of its

plants just in the next 6 years. West Associates also estimated that, after 10 years

of operation under this ‘‘cap system,’’ the Western System Coordinating Council

(WSCC) would have lost 65 million MW-hr of generating capacity, or the equivalent

of 32 power plants with a net capacity of 250 MW each.37 The National Rural Electric Cooperative Association (NRECA) estimated that, in one maintenance cycle, the

loss of capability for the approximately 21,000 MW of cooperative-owned plants

would be 12 percent to 24 percent.38 Nationally, using this analysis method, one

commenter stated that it would take 200 new 500 megawatt power plants just to

make up the lost capacity, that is, to stay at the current levels of available supply.39

Maximizing the utilization of existing generation capacity can be critical to ensuring

the ability of utilities to meet consumer demand in peak periods.

Third, according to industry commenters, a company could simply choose not to

undertake the needed maintenance, repair and replacement projects in question, so

as to avoid triggering NSR. They believe this would result in a loss of electricity

generating capacity, because delayed and foregone maintenance leads to a decrease

in availability and reliability.

In addition, commenters suggest that such a decrease also could have a negative

impact on the energy efficiency of the unit and the overall efficiency of a utility system. This is because, if a larger utility unit becomes unavailable during a period

when it would have been utilized to meet consumer demand, then multiple smaller,

less efficient units often must be utilized in its place.40 One utility commented that

only through maintenance of highly efficient low-cost baseline generation is the retirement of more inefficient units possible.41 The commenter asserted that less effi-
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42 EPA Background Paper at 28. 43 RMB Report at 6 (Attachment F to UARG Comments [II–D–303]). 44 Industry commenters state that most energy efficiency improvements can be linked with

tangible benefits to the environment and that unless the power source is in close proximity to

the process in which energy efficiency is improved, the emissions benefits are not necessarily

local. If the power source is a grid, it may not be possible to predict where all the benefits will

occur, nor what their magnitude would be. Nevertheless, commenters believe that energy efficiency should be an important aspect of meeting national air pollution goals because the energy

saved is energy that would have otherwise been generated. 45 EPA Background Paper at 28 (citing Detroit Edison Applicability Determination, May 23,

2000. 46 Under EPA’s ‘‘WEPCO rule,’’ NSR is not triggered for existing utility sources unless there

is a significant net increase in actual emissions using an actual to predicted future actual methodology.

cient units are more costly to operate and generally produce more pollution per unit

of electric output.

EPA notes that the possible energy impacts predicted by industry commenters appear to flow from the industry’s reported uncertainty regarding the scope of the routine maintenance exclusion. Consistent with our conclusion in the previous section

of this report, we conclude that concern about the scope of the routine maintenance

exclusion is having an adverse impact on projects that would improve the reliability

and availability of existing electric generating facilities. We also note that, when

catastrophic forced outages have occurred in the past, the Agency has consistently

worked with industry and State and local permitting authorities to allow the facility

to get the unit back and running quickly.

b. Impact on Efficiency Improvement Projects

(i) NSR Applicability.—With respect to the issue of energy efficiency, a significant

number of industry commenters stated that an inappropriately narrow routine

maintenance, repair and replacement exclusion would prevent electricity generators

from taking advantage of opportunities to improve their generating efficiency. One

measure of such efficiency is ‘‘heat rate,’’ or the amount of fuelbound energy required to produce a unit of electrical power (typically expressed in million BTU per

kW-hr). Improving an electric unit’s efficiency—e.g., its heat rate—means that less

fuel is required to produce the same amount of electrical power, reducing pollution

per unit of production output. Alternatively, improved efficiency may allow a unit

to produce more electricity for the same amount of fuel burned (i.e., with no greater

amount of emissions). New electric generation technologies often lead to energy efficiency improvements, but industry raised concerns that applying these new technologies (i.e., replacing boiler or turbine components with components of better design and materials) often could trigger NSR—in some cases even if the unit’s emissions rate does not increase—because the source uses the more efficient unit more

than it used the old one.

These commenters stated that the turbine blade project that was the subject of

the Detroit Edison applicability determination is a good example of such a project.42

Industry reports that, under a voluntary self-reporting program initiated by the Energy Information Administration (EIA), utilities have reported numerous projects

that are expected to increase efficiency.43 Commenters cited as examples projects

ranging from load optimization programs and improved boiler controls to replacing

turbine blades and rotors, to upgrades or replacements of components like superheaters and condensers.44

Industry commenters noted that EPA views such energy efficiency projects as the

Detroit Edison turbine blade upgrade as ‘‘markedly different from the frequent, inexpensive, necessary, and incremental maintenance and replacement’’ of deteriorated components and, therefore, not within the scope of the routine maintenance

exclusion.45 Industry commenters expressed concern that this could result in the

discouragement of energy efficiency improvements because they could be subject to

NSR. For utilities, this is a particular concern in any jurisdiction that has not incorporated the WEPCO rule emission increase methodology because the ‘‘actual-to-potential’’ test applies in these jurisdictions.46 In non-WEPCO jurisdictions, and in all

jurisdictions for nonutility activities, industry commenters said that NSR could

apply to any project that both corrects availability/reliability problems and improves

efficiency (because of the belief that any project that corrects availability/reliability

problems could result in an emissions increase under the actual-to-potential test),

and to any efficiency improvement project at a unit that is not at the very top of

a system’s loading order. Even for units that are at the top of the loading order of

a particular system, like Detroit Edison’s Monroe units, industry commenters expressed concern about whether any efficiency improvement could be shown not to
144

47See, e.g., Class of 1985 Group Comments [11–D–268] at 5; UARG Comments [II–D–303] at

45.48See Comments of Xcel Energy [II–D–213] at 6–7. 49 EPA Background Paper at 28. 50See Class of 1985 Group Comments [II–D–268] at 5–6; see also FirstEnergy Comments [11– D–261] at 1–2. 51See, e.g., July 20 testimony of John Walke, NRDC. 52 NRDC Comments [II–D–267]. 53This was the case in Detroit Edison, where there was no expected increase and therefore

the proposed project did not trigger NSR. [See Detroit Edison Applicability Determination]

increase emissions, because an efficiency improvement almost always makes the improved unit more attractive to run.

Utility commenters stated that the Detroit Edison applicability determination discourages utilities from undertaking efficiency improvement projects.47 They suggested that utilities are likely to forego efficiency improvements in order to avoid

the uncertainty, delays and potential costs associated with NSR applicability. One

commenter sought to illustrate this point in responding to the EPA Background Paper’s inquiry regarding whether NSR applicability alters the economics of efficiency

improvement projects by evaluating a typical turbine efficiency improvement

project. This evaluation showed that such a project would cost approximately

$937,000 for a 250 MW unit, and would be expected to yield additional revenues

of $21.5 million (present value). For such a unit, however, the commenter determined that NSR applicability would result in expensive retrofits, with a capital cost

(i.e., excluding operation and maintenance of the retrofits) approximating $68.4 million.48

Industry commenters said that discouraging efficiency improvement projects also

results in more emissions than if the projects could go forward without NSR. They

argue that, on a megawatt basis, efficiency improvements reduce pollution,49 and

that, even if utilization increases at the unit with improved efficiency, the dynamics

of economic dispatch of electric generating units mean that the increased utilization

at that unit necessarily displaces less efficient, and therefore more-polluting,

plants.50 Thus, the industry concludes that discouraging efficiency improvements almost always results in higher emissions than if these improvements had been made.

As an example, the Detroit Edison case was again cited, where the use of the more

efficient blades would have permitted each generating unit to produce the same

amount of electricity as it had in 1994 while burning 112,635 fewer tons of coal.

The result, according to commenters, would have been a reduction of 1,826 tons per

year (tpy) in SO2 emissions, 1,402 tpy in NOx emissions, and 259,111 tpy in carbon

dioxide (C02) emissions, assuming that input design parameters (maximum heat

input and fuel consumption specifications) remained the same. Detroit Edison estimated that more than 1,000 other electric utility units in the United States have

the capability to achieve similar reductions through similar turbine blade replacements and other projects; thus, extrapolating based upon these estimates, they predict that by encouraging the adoption of blading efficiency improvements, CO2 emissions would be reduced by 81 million tons per year or more, provided input design

parameters (maximum heat input and fuel consumption specifications) remained the

same. They predict that SO2 and NOx emissions would also be reduced significantly.

In contrast, commenters from environmental groups believe that NSR treats energy efficiency improvement projects appropriately. They stated that NSR only applies when a project results in an emissions increase and that the types of projects

discussed above where significant reductions are achieved would not trigger NSR.

However, if an energy efficiency project also results in a significant emissions increase, these commenters felt that it would be inappropriate to exempt the increase

from review under NSR.51 One commenter also questioned whether NSR is the predominant factor in influencing a decision about whether to proceed with an efficiency project, noting that some analysts believe that the regulation of utility

rates—and specifically their treatment of cost recovery—has lessened the incentive

for heat rate improvements.52

In reviewing the information regarding energy efficiency projects, the EPA concludes that NSR may discourage some energy efficiency improvements. EPA notes

that as long as utilization remains constant, energy efficiency improvements can result in significant emissions reductions. Such projects would not trigger NSR if

there were not a significant emissions increase.53 Because such projects are not subject to the NSR regulations, NSR generally has a negligible impact in such cases.

However, as noted above, energy efficiency improvements are often associated with

increases in utilization, because the more efficient generating units are dispatched

more often. Efficiency improvements can also result in an increase in capacity or

availability. In such cases, there can be local emissions increases that trigger NSR
145

54 Clean Air Task Force comments [II–D–236] at 49 and App. C.

if the projects are not routine maintenance. For example, in Detroit Edison, if a 5

percent increase in operation were to result, actual increases on the order of 800

tons of NOx and 2000 tons of SO2 would occur. Even if these emissions increases

occur at the same time as emissions decrease somewhere else, some commenters expressed concerns about the localized impacts of potentially large emissions increases, and felt that review under NSR was needed to address them.

Congress provided that where physical changes at a plant result in significant increases in air pollution, these plants should go through NSR and take steps to control emissions. Even if a physical change is relatively inexpensive when compared

to the cost of the controls that are projected to result from NSR, the change could

still result in emissions increases that Congress believed should undergo review.

However, as noted in the example turbine efficiency improvement project above, and

echoed throughout many comments, the costs associated with NSR, particularly the

costs to retrofit pollution controls, can render these projects uneconomical. Thus, the

EPA finds that NSR discourages some types of energy efficiency improvements

when the benefit to the company of performing such improvements is outweighed

by the costs to retrofit pollution controls or to take measures necessary to avoid a

significant net emissions increase. The EPA recognizes the need to promote the development of efficient and more environmentally friendly designs.

On the other hand, it is also clear that a wide range of activities at an electric

utility can have energy efficiency benefits, from everyday maintenance to major capital projects. In general, the EPA encourages efficiency improvements wherever feasible. However, the scope and magnitude of some of the kinds of changes, their impact on recovering capacity that had been lost to deterioration of equipment, their

impact on significantly extending the life of the boiler, turbine, etc., and the resulting significant emissions increase, necessitates that certain projects which may result in efficiency improvements, must be reviewed under NSR. Though projects of

this magnitude still may go forward once their air quality impacts are addressed,

the EPA finds that NSR can discourage companies from undertaking them.

(ii) Energy Impacts.—The ICF report in support of the EPA Background Paper referred to various data, such as those of the National Coal Council (NCC) May 2001

report, which estimate that repairs and replacements that improve efficiency at existing coal-fired facilities could result in an increase in capacity of 5 percent to 10

percent. Applied across the entire coal-fired electric generation capacity of the

United States (over 300 GW) this would result in an additional capacity of 15,000– 30,000 MW. This is the equivalent to 30–60 new 500 MW plants or enough power

for 10–20 million homes.

Similarly, as noted in the EPA Background Paper, the NCC report found that

coal-fired units over 20 years of age had been substantially derated, and concluded

that: ‘‘If all existing conditions resulting in a derating could be addressed, approximately 20,000 MWs of increased capacity could be obtained from regaining lost capacity due to unit deratings.’’ Likewise, the NCC reported that 20,000 MW of additional capacity could be gained by ‘‘increasing heat input and/or electrical output

from [existing] generating equipment.’’ Moreover, the NCC found that this restoration and increase of capacity from existing units could only be economically viably

pursued by the facility owners if, among other factors, the increased availability

and/or electrical output would clearly not trigger NSR. Other industry representatives supported this estimate.

Conversely, environmental group commenters expressed the view that such investments are not as profitable as investments in completely new electric generation

capacity and that this is why the industry is not pursuing them, as opposed to NSR

being the major impediment.54 They also estimate that the emissions reductions

from efficiency improvement projects would be small compared to the reductions

that would be achieved if NSR applied.

In conclusion, for the utility industry, with respect to existing sources, and in contrast to new sources, the EPA finds that the available information indicates that

the NSR program is having an adverse impact on investment in both electric generation capacity and energy efficiency. While there are only limited data that prove

that NSR has resulted in the cancellation of otherwise economical projects of either

type, a significant number of industry commenters presented a variety of projects

at existing sources that could have increased capacity, improved reliability, or enhanced efficiency, but were made uneconomical due to delays and costs associated

with NSR. The EPA finds many of these cases to be credible and based on realworld examples, and believes that they demonstrate that NSR has an adverse impact on such investment at existing sources. It is reasonable to conclude that the

foregone investment has resulted in foregone capacity increases through decreased
146

55 API Comments [II–D–134] at 1–2. 56See NPRA Comments [II–E–27] at 2. 57See BP America comments [II–D–307] at 2. 58 NPRA letter to Stephanie Daigle, EPA, 7/23/2001. 59See API Comments [II–D–134] at 2; ExxonMobil Comments [II–D–418] at 2; NPRA Comments [II–E–27] at 3. 60See Marathon Ashland Petroleum LLC (MAP) Comments [II–D–253] at 2. 61See, e.g., ExxonMobil Comments [II–D–418] at 11 (commenting that actual-to-potential test

‘‘fabricate[s] emission increases’’ where no increases actually occur).

reliability and availability that are not recovered, and through foregone efficiency

improvements.

2. Refineries

Turning to the question of NSR impacts on investment in capacity at existing refineries, the EPA finds that the comments again highlight areas where NSR may

adversely impact investment in capacity and energy efficiency projects. These areas

are examined further in this section in order to assess their nature and extent.

Refinery commenters observe that the refining industry differs considerably from

the electric utility industry in several respects. For example, it is operating much

closer to full capacity than the utility industry, and it is not transitioning from an

economically regulated basis to a market basis. Even while operating at very high

utilization rates, commenters noted that the industry must be able to respond rapidly to changes in raw material availability, market demands, and environmental

requirements. API explained that, ‘‘[r]efiners are required by law to make adjustments to fuel specifications from one season to another, produce fuels meeting multiple specifications in various regions of the country, and reconfigure to refine cleaner burning low sulfur diesel and gasoline, all while being able to supply fuels to

meet constantly changing customer demand.’’55 API suggested that these requirements necessitate frequent and rapid responses that may involve changes to a refinery’s facilities and processes. Moreover, they note that, to meet demand for petroleum products and avoid market disruptions that can lead to shortages and price

volatility, the refining industry must be able to maintain the availability, reliability,

and safety of its facilities. NPRA’s comments noted, ‘‘Refining operations are continuous and complex. They depend on the simultaneous operation of many individual,

but inter-related, pieces of equipment (‘‘units’’). A delay or inability to change or improve operations of a single unit can have a significant cumulative impact on the

refinery’s ability to produce the fuels that its customers, and the national economy,

rely upon.56 To meet increasing demand without major construction of new refining

facilities, commenters believe that the industry must improve the efficiency of its

existing facilities, and it must engage in what one industry commenter described as

a ‘‘continuous incremental improvement in production capacity.’’57 Finally, as noted

in the Background Paper, and above, with no new refineries likely to be built in

the near future, assessing the impact of NSR on existing sources is particularly critical.

As with utilities, refineries maintain that the exclusion for ‘‘routine maintenance

repair and replacement’’ has been narrowed by EPA in recent years and undercuts

their ability to respond quickly to market changes and raw material availability. In

addition, refinery industry commenters expressed concern about the test used to determine whether a change results in an emissions increase at non-utility source categories (i.e., the ‘‘actual to potential’’ test). In the view of many refinery commenters, the NSR program has the effect of constraining the industry’s ability to

(1) expand domestic refining capacity, (2) increase the supply of cleaner burning

fuels, and (3) enhance energy efficiency.58 The commenters said that under the NSR

program, numerous common activities at a refinery—whether required to respond

to demand changes, to repair or replace a broken piece of equipment, to improve

efficiency, to expand refining capacity, or even to respond to environmental requirements—are potentially subject to NSR permitting.59 One industry commenter states

that hundreds of such activities are undertaken each year at existing U.S. refineries.60 According to commenters, the lengthy, costly, and uncertain nature of the

current NSR permitting process discourages those activities to which it potentially

applies, or at least introduces significant delays in and constraints on the ability

of the operator to make the required changes in an efficient and timely manner.

Refining industry commenters also noted that, in their opinion, the NSR emissions increase test for non-utilities (the ‘‘actual-to-potential’’ comparison) presumes

that virtually any activity at a refinery increases emissions within the meaning of

NSR, even if the activity were, in fact, to result in decreased actual emissions.61

Thus, these commenters stated that, of the activities undertaken at a given refinery,

only those activities ultimately deemed to constitute ‘‘routine maintenance, repair
147

62See ExxonMobil Comments [II–D–418] at 12; BP America Comments [II–D–307] at 2; MAP

Comments [II–D–253] at 2. 63See BP America Comments [II–D–307] at 2. 64 NPRA Comments [II–E–27] at Attachment 1, No. 1. 65See, e.g., NPRA comments [II–D–400] and API comments [II–D–134]. 66 NPRA Comments [II–E–27] at 2. 67See API comments [II–D–134] at 8. 68See ExxonMobil Comments [II–D–418] at 16. 69See BP America Comments [II–D–307] at 2. 70See id.; see also ExxonMobil Comments [II–D–418] at 18 (noting both the cost and scheduling impacts of NSR on project economics). 71See BP America Comments [II–D–307] at 2–3. 72See API Comments [II–D–134] at 2. 73 NRDC comments [II–D–267] at 5.

or replacement’’ might avoid NSR. However, according to industry commenters, few

activities beyond the most mundane maintenance activities that may be undertaken

each year at a given facility would be deemed ‘‘routine’’ under the NSR regulations.62 One commenter maintained that the NSR program would apply NSR to any

change that: (a) results in an increase in capacity or capacity utilization of an existing process unit; or (b) increases the efficiency or lowers the unit operating costs;

or (c) extends the useful life of that unit . . .’’[or (d)] increase[s] unit reliability.’’63

According to industry, these are precisely the types of activities that U.S. refineries

must constantly undertake to meet demand and minimize fuel supply disruptions

and price volatility. Moreover, commenters suggest that the use of an actual-to-potential test encourages industry to maximize current actual emissions within permit

limits, rather than providing incentives for emissions reductions.64

Industry commenters provided a list of activities that they reportedly undertake

to maintain reliability, improve efficiency, and expand capacity that, in their view,

are typically undertaken in the industry but, nevertheless, are potentially subject

to NSR under the current program.65 According to industry, the potential applicability of NSR, which they believe could encompass virtually any given project, tends

to discourage operators from undertaking particular projects because NSR would

add significant delays and costs.66 Industry commenters observed that the EPA

Background Paper’s estimate for the length of time typically necessary to obtain an

NSR permit did not include the time spent prior to submittal of a complete application. If such time is included, the length of the NSR permitting process in the experience of refinery commenters is at least 7 to 22 months, excluding any postissuance appeals and challenges.67 An industry commenter further predicted that,

if the listed activities are viewed as non-routine, the refining industry, as well as

other U.S. industries, would experience much longer lead times in obtaining NSR

permits than already occur.68

Like utilities, refiners also raised the concern that there would be limited options

for projects that are potentially subject to NSR.69 They described three options.

First, the operator could seek to obtain an NSR permit, accepting the delays, uncertainties, and potentially significant costs that commenters say are associated with

such permits.70 Alternatively, an operator could seek to ‘‘avoid’’ NSR by limiting

emissions to past, actual levels through a minor NSR permit (a permit which, according to industry, can take 3–12 months to obtain), thus giving up refinery capacity and ‘‘deprive[ing] the source of the ‘headspace’ between actual and allowable

emissions that is crucial to long-term operating flexibility and the ability to respond

quickly to changes in demand.’’71 A third option would be to simply cancel the

project, and forego the projected benefit that was the reason for the project in the

first place.

Overall, the comments submitted by refinery and other commenters during this

review process emphasize their belief that by imposing significant costs and delays,

the NSR program discourages investment in projects that are necessary to maintain

the reliability of existing refineries, improve their efficiency, expand capacity, and

respond flexibly to rapidly changing consumer demand for petroleum products. According to one commenter, what the industry most needs is certainty and flexibility

in its efforts to meet both the energy needs of the Nation and environmental requirements.72

In contrast, NRDC’s comments suggest that poor return on investment is more

important than environmental considerations (of which NSR is only a small part,

and is not specifically named by sources examined in the EPA Background Paper)

in any decisions not to invest in new capacity.73 They point to information presented

in the Background Paper showing that, in recent years, there has been significant

investment in refinery capacity at existing sources.
148

74See, e.g., Comments of NEDA/CARP [II–D–272] at 9–10.

As discussed above for utilities, the EPA notes that for refineries there are also

differences of opinion amongst the commenters about the scope of the routine maintenance exclusion and the resulting impacts. In determining whether an activity is

‘‘routine’’ for purposes of being excluded from NSR, EPA consistently has taken a

case-by-case approach, weighing the nature, extent, purpose, frequency and cost of

the work, as well as other relevant factors. However, EPA acknowledges, as it did

for utilities, that the comments report significant uncertainty about the scope of the

‘‘routine’’ exemption. Such uncertainty can result in the delay or cancellation of

projects. Changes to the NSR program that add to the clarity and certainty of the

scope of the routine maintenance exclusion will improve the process by reducing the

unintended consequences of discouraging worthwhile projects that are in fact outside the scope of NSR.

A key difference between utilities and refineries is the fact that refineries use the ‘‘actual-to-potential test’’ for determining NSR applicability, while utilities generally

do not. The EPA has reviewed a number of examples where projects could have provided capacity increases or energy efficiency improvements, and likely could have

done so without increasing actual emissions, and in some cases the projects appear

likely to decrease actual emissions. Such projects, if they occur at units operating

below capacity, could trigger NSR or, at least, trigger a need to cap the units below

capacity or install pollution controls to avoid NSR. Again, the determination of

whether a change results in an emissions increase is a case-by-case determination,

but the EPA believes that the commenters’ examples make a credible case that some

capacity or efficiency projects that do not increase actual emissions are not undertaken because they trigger NSR under the actual-to-potential test. Although the information is mostly anecdotal in nature, the EPA believes that the information presented is based on real world experience, and makes a credible case that some

projects are not going forward in part because of NSR. The EPA believes that this

results in lost refining capacity, or foregone opportunities to increase capacity without increasing emissions.

IV. IMPACT ON INDUSTRIES OTHER THAN ELECTRIC UTILITIES AND PETROLEUM

REFINERIES

In addition to the information supplied to EPA by utility and refinery commenters, the Agency received numerous comments from other industries regarding

the NSR program’s impact on energy use, efficiency, and capacity. These comments

came principally from a variety of industry associations and coalitions of manufacturers representing the automobile, aerospace, chemical, electronics, food, aluminum

and steel, packaging, paper, printing, pharmaceutical, and other manufacturing sectors. Like the utility and refining industries, these commenters were primarily concerned with the current application of the NSR program to existing sources. They

noted many anecdotal instances where projects would have reduced energy demand

and/or increased energy efficiency, but were abandoned because of NSR permitting

delays and/or costs associated with the retrofit of existing equipment with the BACT

or LAER emissions controls mandated by NSR rules. Other commenters presented

similar examples of pollution control and pollution prevention projects abandoned

because of potential NSR applicability. According to the commenters, the cancellation of projects that would have improved energy efficiency or decreased pollution

means that NSR is having an adverse impact on investment in both energy efficiency and environmental protection.

Among the general concerns voiced by commenters in addition to pollution control

costs were claims that (1) the NSR program is complex and gives rise to uncertainty

and associated delays, (2) it hinders flexibility for industry to quickly make needed

changes, and (3) that it results in the loss of production capacity where NSR is triggered based on the application of the actual-to-potential test, even if emissions will

not actually increase. Furthermore, commenters argued that if a source wants to

avoid NSR, it faces the undesirable outcome of accepting new emissions limits in

the NSR permit that, according to commenters, effectively reduce a plant or unit’s

productive capacity.74

A. NSR Applicability

1. Routine Maintenance, Repair & Replacement

As with utilities and refineries, many commenters from other industry sectors focused on the NSR ‘‘routine maintenance, repair and replacement’’ exclusion. Like

the industries discussed above, they believe that EPA has narrowed the exclusion

in recent years. Thus, they stated this was the day-to-day largest problem in main-
149

75See, e.g., FPA Comments [II–D–271] at 2–3. 76 NEDA/CARP Comments [II–D–272] Attachment A, Example #1. 77 NEDA/CARP Comments [II–D–272] Attachment A, Example #4. According to this example,

only 2 tons per year of regulated emissions would have resulted from the change, but potential

emissions could have increased over 100 TPY of VOC because operation of an incinerator with

a 98 percent control efficiency voluntarily installed by the company is not considered to be ‘‘federally enforceable.’’ 78 AFPA Comments [II-E–15], Tab 3, Case in Point #4.

taining the availability, reliability, and safety of production equipment.75 In particular, commenters asserted that projects involving repair or replacement components incorporating ‘‘state-of-the-art’’ improvements in materials or design may be

subject to NSR since they may not qualify as routine maintenance, or may result

in more efficient utilization of fuel and/or raw materials that may potentially increase a facility’s emissions. For instance, at one plant, a company states that it

elected not to replace spray nozzles in a process dryer, even though it determined

that significant energy savings could result, because it concluded that the new Teflon coated nozzles would not be equivalent parts and, therefore, the project would

not be exempt from NSR as routine. According to the commenter, the new nozzles

would have resolved the repeated need to replace the existing equipment, and may

have provided a safer and more reliable operating environment.76

Similarly, commenters complained that NSR application discouraged engineering

design innovations that provide better quality and control assurances during sometimes-dangerous production processes. One example, provided by the chemical industry, was the installation of a temperature regulating system on a thermal jacket

around a dryer that is equipped with a heated jacket that uses a temperature control system in the jacket. The temperature control system works by regulating the

flow of steam or hot liquids similar to radiator fluids in the jacket that surrounds

the dryer. The current system uses an older design and is relatively ineffective because of the system’s wide temperature variation, which causes risks of explosion

and lengthens the drying process time. Both problems could be eliminated with the

installation of a temperature regulating system, which would also reduce energy demands on the process by 20 percent. Although work is often performed on the jacket

regulating system, the company suggested that it did not go forward with the

change because work on the temperature regulating system, utilizing a unique new

system, would not be considered ‘‘routine.77

It was also suggested that application of the NSR program impeded the ability

of companies to undertake projects to ensure the reliability of their equipment that

might also result in significant energy efficiency gains. Commenters presented a

number of examples of such projects, including examples from the chemical, packaging, aluminum and general manufacturing sectors. One illustration from the

American Forest and Paper Association described replacement of outdated analog

controllers at a series of six batch digesters. The original controllers were no longer

manufactured, although new digital controllers, costing approximately $50,000, are

capable of receiving inputs from the digester vessel temperature, pressure and

chemical/steam flow. The new controllers would have more precisely filled and pressurized digesters with chips, chemicals and steam (whereas the old controllers

added materials in timed sequence), thus bringing a batch digester on line faster.

However, the source determined that under the NSR program this project would not

be considered to be routine because, although repairs to the analog system might

have been frequent at the company involved, replacement of the system with a digitalized, computerized system would not qualify as ‘‘routine.’’78

As with utilities and refineries, EPA notes that there are widely differing views

on the scope of the routine maintenance exclusion on other industries. As before,

we therefore conclude that concern about the scope of the routine maintenance exclusion is having an adverse impact for industries outside the energy sector. It also

is credible to conclude that projects have been discouraged that might have been

economically and/or environmentally beneficial without increasing actual emissions.

Changes to the NSR program that add to the clarity and certainty of the scope of

the routine maintenance exclusion will improve the process by reducing the unintended consequences of discouraging worthwhile projects that are in fact outside the

scope of NSR.

2. Pollution Prevention Projects

Another series of examples provided by commenters from the manufacturing sector involved pollution prevention projects, many with significant energy savings potential. Pollution prevention projects at manufacturing facilities may qualify for exemption under the NSR program. This determination is made on a case-by-case

basis under EPA’s 1994 guidance which addresses pollution control projects and
150

79 Comments of American Chemistry Council [II–D–416] example 1. 80 NEDA/CARP Comments [II–D–272] Attachment A, Example #14. 81 NEDA/CARP Comments [II–D–272] Attachment A, Example #15.

NSR applicability. Although this guidance was intended to create incentives for industry to undertake such projects, some comments suggested that it might actually

discourage such projects. One example comes from the chemical industry. In that

case, a chemical facility considered installation of a new, more efficient CFC refrigeration system. Completion of this project, according to the commenter, would have

resulted in decreased CFC emissions and less electricity demand, reducing overall

emissions from the facility’s power generating plant. However, this project would

not have qualified for the pollution control project exclusion because the primary

purpose of the project was not to reduce emissions. Therefore, because the project

otherwise would have triggered NSR, the company elected not to undertake it.79

In a second example, an aerospace company suggested that it was unable to avoid

NSR, using EPA’s 1994 pollution control project policy, because the purpose of a

particular project was to improve energy efficiency, although significant pollution

control benefits would also have resulted. The company had proposed to speed up

its manufacturing process (for parts and subassemblies) by using a new adhesive

that would dry (or cure) faster. The company stated that the project would have resulted in pollution prevention both because the new adhesive had a lower volatile

organic compound (VOC) content than the one in use and because more parts could

be processed in less time, consuming less energy overall. However, this project could

not qualify for the pollution control project exclusion because its purpose was to improve efficiency, rather than to abate pollution and because the new adhesive system would have increased the utilization of production equipment at the plant. Because the project otherwise would have triggered NSR applicability, the company

declined to make the change.80

EPA believes that these examples indicate that NSR is having an adverse impact

on some pollution control and prevention projects.

B. Energy Efficiency

The Agency also received a number of industry comments explaining the NSR program’s effect on energy efficiency and demand. These comments suggest that the

delays and costs associated with NSR have discouraged the adoption or implementation of various energy conservation and efficiency measures. Examples provided by

commenters included efforts to conserve fuel and programs that will result in energy

demand reductions at major industrial plants. The commenters allege that, in many

cases, the projects would ultimately reduce actual emissions, but nonetheless trigger

NSR under the actual-to-potential test.

For instance, NSR was cited as a principal reason for not undertaking energy efficiency projects for the installation of heat exchangers and overfire air by various

manufacturing sectors including the electronics and appliance industries, plastics,

and paper industries. Heat exchangers recover heat from boiler flue gas streams to

heat water used in the system’s deaerator units. By preheating the water used in

the deaerator units, the heat exchanger reduces the steam needed to run the

deaerators. This increases the overall efficiency of the boiler house and reduces fuel

usage. It also reduces annual boiler emissions. At a plastics plant, a commenter

pointed out that installation of a heat exchanger would be expected to reduce natural gas consumption by 7.5 percent, NOx emissions by 7.5 percent, SO2 emissions

by 5.8 percent and carbon monoxide (CO) emissions by 7.6 percent, particulate matter (PM) emissions by 9 percent, and VOC emissions by 9.3 percent. The project

achieves these benefits through pollution prevention rather than add-on controls.81

In this case, the industry applicant sought exclusion from NSR applicability under

the pollution control project exclusion. However, this project did not qualify as a pollution control project because its primary purpose was not pollution control or prevention. Moreover, because the boilers required back-up firing with oil during the

winter to ensure operation, the ‘‘actual to potential’’ emission test would have

caused the project to trigger NSR. To avoid the installation of new controls that

would be mandated as the result of NSR applicability, the source states that it is

considering burning more fuel oil over the next 2 years to increase base level of

emissions (actual emissions).

Another example from a boiler at a pulp and paper mill illustrates a similar problem. According to the comment, the mill’s industrial boiler currently experiences extensive, internal erosion as a result of the carryover of solids such as sand and wire

from the burning of tire-derived fuel, and burned bark particles, which have led to

decreased boiler efficiency. As a result, the mill proposed to install a new overfire

air system to allow for more complete combustion of the bark fuel. By getting more
151

82 AFPA Comments [II–E–15], Tab 3, Case in Point #1. 83FPA Comments [II–D–2711 at 6–7. 84 Id. 85 NEDA/CARP Comments [II–D–272] Attachment A, Example #12.

heating value from the same amount of bark burned, less natural gas would be required to provide supplemental heat at an annual natural gas savings of about $1

million (in July, 2001 dollars). According to the comment, future actual emissions

of NO, CO and VOCs would decrease after completion of this project. However, because the boiler is currently operating below its rated capacity, the potential emissions after completion of the project would increase over past actual emissions, triggering NSR. The commenter estimates that the cost of NSR controls would be $17

million.82 At the time this project was under consideration, the relevant company

estimated that the annual savings in natural gas usage equated to roughly 200 million cubic feet of natural gas. This amount of gas has a heating value of approximately 0.2 trillion Btu.

The Department of Energy has estimated that overfire systems could be installed

on 20 percent of the 200 coal fired boilers in the industry, resulting in 680,000 MWhr in energy savings annually. Additional energy savings reportedly are possible if

overfire air provides similar benefits in wood-fired systems. Potential reductions in

NON, SO2, CO, PM, VOCs and other pollutants such as mercury would accompany

such energy savings.

Commenters also expressed a need for operational flexibility, and asserted that

NSR delays can limit such flexibility, with the result that if changes are projected

to trigger NSR, even changes that improve energy efficiency, they are no longer economically viable. Because some industries must make rapid changes in their product lines it is very difficult for them to manage NSR compliance. One such example

was provided by the flexible packaging industry. In that case, the industry has been

moving steadily toward the replacement of solvent-based inks and coatings with

water-based inks and coatings in the production of packaging for foods, drugs, cosmetics, and other household goods. However, certain product orders reportedly require, from time-to-time, solvent-based inks or coatings, and these operations are required to operate large thermal oxidizers by their permits. In addition many of the

low VOC coatings contain materials that can poison a thermal oxidizer’s catalyst.

Therefore, the plant asked its permitting agency to change its permit to run the oxidizer only when it runs VOC-based coatings.83

In this instance, the operator calculated that the change could save approximately

15,000 cubic feet of gas and 650 kWh of electricity each day. However, the commenter felt that the change would probably be a change in the plant’s method of

operation, triggering NSR, even though actual emissions were expected to be reduced by the change. Because of the nature of its operations, involving product

batches sometimes constituting only hours of a day’s run, the company did not feel

it could accept limits on its hours of operation. Therefore, the project, which according to the commenter was conceived as a way to create large energy savings, did

not go forward.84

A number of commenters claimed to have abandoned energy conservation projects

because they determined that NSR would apply and make the project cost-prohibitive. For instance, at one commenter’s automobile assembly plant, the company

wanted to eliminate one shift of a two-shift operation due to downward market fluctuations. This would have resulted in a reduction of roughly 30 percent (0.4 billion

cubic feet) of annual natural gas usage in the plant’s boilers, ovens, thermal

oxidizers and other fuel combustion equipment at a cost savings of greater than $2

million annually. In addition, electrical power consumption would have been reduced by roughly 10 percent, at a cost savings of greater than $700,000 annually.

In order to accommodate this change, however, the facility needed to install certain

pieces of equipment, consisting mostly of assembly motors to increase the production

capability of a single shift by two automobiles per hour. According to the comment,

because of the actual-to-potential test, and the source’s reluctance to take a cap limiting it to one-shift operation, the project would have triggered NSR and the project

would no longer have been economically viable.85

Overall, the comments received from industries other than utilities and refineries

also provide additional evidence suggesting that the current NSR program is having

an adverse impact on energy efficiency by discouraging projects that may improve

energy efficiency, or may increase capacity and reliability without actually increasing pollutant emissions. In some cases it may even be discouraging projects that decrease emissions, because of the ‘‘actual-to-potential’’ test used for these industries.
152

86 In response to public requests for more such information, the Agency has added to the docket some general benefits information about reductions in emissions of pollutants likely to be impacted by the NSR regulations. (A) U.S. Environmental Protection Agency, Office of Air Quality

Planning and Standards. Regulatory Impact Analysis for the NOx SIP call, FIP, and Section

126 Petitions: Volume 1, Cost and Economic Impacts. September, 1998. Located on the Internet

at www.epa.gov/ttn/oarpg/otag/sipriavl.zip; (B) U.S. Environmental Protection Agency, Office

of Air Quality Planning and Standards. Regulatory Impact Analysis for the NOx SIP call, FIP,

and Section 126 Petitions: Volume 2, Health and Welfare Benefits. December, 1998. Located on

the Internet at www.epa.gov/ttn/oarpg/otag/sipriav2.zip; (C) U.S. Environmental Protection

Agency, Office of Air Quality Planning and Standards. Regulatory Impact Analysis for the Final

Regional Haze Rule. April, 1999. Located on the Internet at www.epa.vov/ttnioarpv/tl/reports/

riaes.pdf; and (D) U.S. Environmental Protection Agency, Office of Air Quality Planning and

Standards. Regulatory Impact Analysis for the Final Section 126 Petition Rule. December, 1999.

Located on the Internet at www.epa.gov/ttn/oarpg/t1 /reports/riaes.pdf.

V. IMPACT ON ENVIRONMENTAL PROTECTION

Overall, EPA believes that preventing emissions of pollutants covered by NSR

does result in significant environmental and public health benefits. Attempting to

specifically quantify the NSR program’s contribution to these benefits is very difficult because of the variety of Clean Air Act programs that address these pollutants

and because there is no tracking by any government agency of the reductions in

emissions that sources make due to the NSR program. Moreover, EPA recognizes

that measuring risk reduction benefits associated with any given reduction in emissions requires complex risk assessments that would, in turn, require more specific

information than has been gathered in the context of this review.

We note that NSR is implemented in the context of several other significant Clean

Air Act programs. Available information indicates that these other programs result

in substantial emissions reductions. For example, the Title IV Acid Rain Program

has reduced SO2 emissions from the electric utility industry by more than 7 million

tons per year. The Tier 2 motor vehicle emissions standards and gasoline sulfur control requirements will ultimately achieve NO, reductions of 2.8 million tons per

year. Standards for highway heavy-duty vehicles and engines will reduce NO, emissions by 2.6 million tons per year. Standards for non-road diesel engines are anticipated to reduce NO, emissions by about 1.5 million tons per year. The NO, ‘‘SIP

Call’’ will reduce NO, emissions by over 1 million tons per year. Altogether, these

and other similar programs achieve emissions reductions that far exceed those attributable to the NSR program. Moreover, most of these other programs are much

more efficient, streamlined, and simple than NSR because they do not entail the

same resource-intensive, case-by-case review that is required under NSR.

It would be very difficult to estimate or quantify the benefits of the NSR program.

However, EPA believes that the inability to make exact estimates does not mean

that these benefits are insignificant or nonexistent. Notably, industry concerns

about NSR focused almost exclusively on problems associated with applying the program to existing sources. These comments illustrated a potential dichotomy in that

the benefits of the NSR program are largely attributable to new sources while the

existing sources reportedly are more burdened by the program.

Electric utilities and petroleum refineries are significant sources of air emissions.

The major regulated air pollutants emitted from power plants are SO2, NOx, PM,

and mercury. Refineries primarily emit SO2 and NOx, as well as VOCs. Based on

2000 emissions, the electric utility industry is the single largest source of SO2 emissions and the second largest source of NOx emissions (on road mobile sources are

the largest). In 2000, the electric utility industry emitted 11.2 million tons of SO2, 5.1 million tons of NOx, and 302,000 tons of PM. In 1999, refineries emitted 479,000

tons of SO2, 299,000 tons of NOx and 161,200 of volatile organic compounds. Emissions of these pollutants from all sectors in 1999 totaled 18.9 million tons SO2, 25.4

million tons NOx, 18.1 million tons VOC, and 23.7 million tons PM.

There is a significant body of scientific literature linking air pollution to several

health effects. These include: premature mortality, chronic asthma and increased

asthma attacks, chronic and acute bronchitis, other chronic respiratory diseases and

damage, increased airway responsiveness to stimuli, inflammation in the lung, respiratory cell damage, premature aging of the lungs, increased susceptibility to respiratory infection, decreased lung function, developmental effects, infant mortality,

low birth weight, cancer, decreased time to onset of angina, other cardiovascular effects. Additional effects include decreased worker productivity; increased emergency

room visits for respiratory and cardiovascular effects, and more hospital admissions

for respiratory and cardiac diseases.86

Potential effects beyond human health effects include direct damage to plants and

forests, decreased yields for crops and forest products, damage to ecosystem functions, decreased visibility, corrosion and soiling of buildings and monuments, eu-
153

87First Energy Corporation testimony on NSR, 7/10/2001, stated that current interpretations

of NSR would have prevented projects now resulting in a reduction of 40,000 TPY of SO2 and

NOx emissions.

trophication (i.e., explosive algae growth leading to a depletion of oxygen in the

water), acidic deposition and acidification of water bodies, and impacts on recreational demand from damaged aesthetics and decreased visibility.

The EPA Background Paper provided some preliminary estimates of the amount

of emissions prevented by the NSR program for all industries in ‘‘clean’’ areas (e.g.,

emissions that would have otherwise occurred from construction/modification). The

NSR program in such clean areas is known as the PSD program. The Paper stated

that for the period 1997 through 1999, new or modified source compliance with PSD

for all industries prevented approximately 1.4 million tons of air pollution from

being emitted per year. The vast majority of these reductions are attributable to the

application of NSR to new gas fired electric generating units. The Background Paper

also reported that this number underestimates total emission. reductions because it

does not include estimates of emissions prevented in nonattainment areas through

nonattainment NSR permitting requirements during that same time period.

Several commenters reiterated this position and noted that as a general rule these

reductions would be greater because the control requirements are more stringent

and the offset requirements essentially result in a net emissions decrease. Although

EPA agrees that there are additional emission reductions that result from compliance with the offsets requirements of nonattainment NSR program, at this time the

Agency does not have information quantifying those emissions reductions. Finally,

other commenters noted that the EPA Background Paper failed to address the emission reductions of SO2 and NOx that occur as a result of sources reducing their

emissions so as to avoid the applicability of NSR altogether. On the other hand,

since SO2 emissions from the utility industry are capped by the Title IV acid rain

program, NSR does not produce overall net reduction in SO2 emissions from the industry. Similarly, in nonattainment areas, Title I effectively caps emissions of the

nonattainment pollutant. To a degree, the same is true for seasonally or geographically limited cap and trade programs, such as the ‘‘NOx SIP call.’’ Furthermore, as

noted below, industry commenters note that these estimates of emission reductions

attributed to NSR do not account for foregone emissions reductions that they allege

would have occurred in the absence of NSR’s disincentives to proceed with projects

that increase efficiency.87

A large number of commenters, primarily citizens and environmental groups, expressed strong support for the benefits that derive from reducing emissions from

these industrial sectors, either by installing pollution reduction controls on new

sources as they are built, or on existing sources as they are modified. Many groups

argued that the public health threat from the air emissions of power plants and refineries is urgent and further reductions are needed. Noting environmental justice

concerns, one commenter stated that 80 percent of the refineries in the Texas oil

refinery communities are either populated by minority citizens or contain significant

minority representation and reported that approximately three million minority citizens live in these Texas communities.

The EPA Background Paper also presented previous estimates of the health benefits per ton of pollutant reduced for SO2 and NOx emissions based on a study of

emissions at utilities. The work cited in the EPA Background Paper is based on the

benefits of reducing premature mortality associated with long-term exposure to PM.

However, many citizen and environmental group commenters requested a more detailed discussion of additional health benefits like the avoidance of reduced lung

function, asthma attacks, lost work days and premature death, which have been

linked to these air pollutants. For example, one commenter representing 43 environmental groups cited a study by Abt Associates presenting their estimate that national power plant emissions accounted for more than 6,000 asthma attacks, 30,000

premature deaths, and 5 million lost work days per year, noting that elderly people

with respiratory disease and children are at the greatest risk.

Commenters requested that EPA present information on the benefits due to avoided emissions of other pollutants, including pollutants that are reduced collaterally

when criteria pollutants are controlled (e.g., mercury). One commenter notes that

EPA documents identify coal-fired power plants as the largest industrial emitters

of mercury, another pollutant with well-documented health and environmental effects. Thus, without addressing the benefits that derive from reductions of these pollutants as well, several commenters argue that the EPA Background Paper significantly underestimates public health and environmental benefits of NSR.

Many commenters also mentioned numerous other benefits that result from lower

emissions from power plants and refineries. They presented information about im-
154

88See, e.g. STAPPA/ALAPCO comments.

pacts primarily of power plant emissions on the environment, particularly in National Parks. For example, several groups provided information regarding the adverse impact of power plant emissions in particular on visibility in National Parks.

Some commenters also note that ground level ozone (smog) not only impacts vegetation (more than 50 species of plants and trees allegedly harmed by ozone), but also

the health of visitors to National Parks. Additionally, commenters note the impact

of SO2 and NOx emissions on the formation of acid rain and its impact on ecosystems (e.g., red spruce decline, fish killed). Finally, many commenters were also

concerned about CO2 emissions and their potential to affect climate, and believed

that NSR plays a role in preventing these emissions as well. Commenters urged

EPA to discuss the benefits generally of reduced emissions in all these areas more

explicitly, and quantify them as they relate to the NSR program.

In addition, several commenters noted that in nonattainment areas, a source’s failure to reduce emissions through NSR places the burden on other sources to reduce emissions. In other words, because the State has to reduce emissions somewhere in order to attain air quality standards, it will target other sources (e.g., construction activities), or even consumers in order to create those reductions. Even in

attainment areas, compliance with PSD requirements can help maintain the area’s ability to continue to grow.

Some state and local governments supported the role NSR plays in preventing

emissions from new and modified sources.88 They believe, based on their experience,

that without NSR, emissions from new and modified sources would severely interfere with their efforts to attain and maintain air quality standards. While there are

several important programs that reduce emissions from existing sources, they felt

NSR was a critical complementary program because it minimized emissions from

new sources.

Some commenters also expressed support for the technology-forcing aspect of the

NSR program, arguing that it is the only CAA program that automatically mirrors

improvements in control technology over time, and therefore encourages continued

development of cleaner technology. Commenters urged EPA to estimate the benefits

of this effect as well.

Industry commenters felt that the current NSR program actually acts as a barrier

to improved environmental protection in certain instances. Although NSR is only

triggered when emissions increase, these commenters argued that the way EPA calculates an increase in emissions can actually have the effect of subjecting a project

to NSR that would decrease actual emissions. Because of the delay and costs associated with applying NSR to a project, NSR renders these environmentally beneficial

projects uneconomical, and they may be rejected. Similarly, again because of the

way that NSR calculates emissions increases, several industry commenters noted an

incentive to keep actual emissions high because the closer actual emissions are to

a source’s maximum capacity to emit, the less likely it is to trigger NSR.

VI. CONCLUSION

Based upon the information examined during this review of the NSR program,

there appears to be little incremental impact of the program on the construction of

new electricity generation and refinery facilities but a more dramatic impact on investment in utility and refinery generating capacity and energy efficiency at existing

utility and refinery plants. Looking at industry as a whole, there also is clear evidence of NSR’s benefits for environmental protection.

With respect to environmental protection, the EPA finds that NSR is not designed

to play the primary role in reducing emissions from existing sources. In fact, for pollutants covered by a national cap and trade program (such as the Title IV acid rain

program), the NSR program does not necessarily produce any overall emissions reductions. Furthermore, EPA believes that in particular industry sectors—especially

the utility sector—the benefits currently attributed to NSR could be achieved much

more efficiently and at much lower cost through the implementation of a multi-pollutant national cap and trade program.

Nevertheless, the NSR program plays a role in attainment and maintenance of

the NAAQS, particularly with regard to new sources. It helps ensure that as industry continues to grow and expand, air quality is managed appropriately (i.e., by

helping assure that clean areas do not worsen and that dirty areas get cleaner). It

also helps to protect sensitive areas like national parks and wilderness areas, and

promotes new and more effective pollution controls. As described in this report, and

thoroughly detailed in the comments and other references provided, NSR also provides health and ecological benefits.
155

89 Very few commenters provided sufficiently detailed examples for EPA to make definitive

judgments as to whether the given projects would have been considered nonroutine or ultimately

triggered NSR. As a result, EPA cannot quantify the number of projects affected or the corresponding impacts on capacity, reliability, efficiency, safety, or other relevant factors. Based on

the information presented, it appears unlikely that many of the examples discussed would trigger NSR either because they would qualify for the routine exclusion or they would not increase

emissions significantly. Nevertheless, the anecdotal information was sufficient to support our

conclusions with regard to the overall impact of the NSR program. 90The EPA notes that its conclusions for refiners are equally valid for the numerous nonutility/non-refinery sources that commented during the review.

With respect to new facilities, the NSR program’s principal impacts are in the

form of delays and additional costs, but there is little evidence that these delays and

costs are preventing new source construction in the utility industry. Indeed there

is substantial evidence that significant new generating capacity is being brought online within normal timeframes for planning such projects.

With respect to the maintenance and operation of existing utility generation capacity, there is more evidence of adverse impacts from NSR. Credible examples were

presented of cases in which uncertainty about the exemption for routine activities

has resulted in delay or cancellation of projects which sources say are done for the

purposes of maintaining and improving the reliability, efficiency and safety of existing energy capacity.89 Such discouragement results in lost capacity, as well as lost

opportunities to improve energy efficiency and reduce air pollution.

There appeared to be little impact of NSR on planning for new greenfield refineries, because new refineries are not being built for economic and environmental

reasons unrelated to NSR. For existing refineries, the points raised above about the

routine maintenance exclusion apply equally well to refineries as they do for utilities—the EPA observed that commenters expressed uncertainty about the application of the exclusion to any particular project. Existing refineries, however, face an

additional issue: the actual-to-potential emissions test. The EPA found credible examples of projects at existing units that would have provided needed capacity or efficiency improvements and would likely not have increased and in some cases may

have decreased—actual emissions. Due to the actual-to-potential test, such projects,

if they occur at units operating below capacity, could trigger NSR unless the company committed to continue operating the units below capacity or installed pollution

controls. The EPA believes that this potentially results in lost refining capacity, or

foregone opportunities to increase capacity without increasing emissions, which

could contribute to price volatility and shortages in fuel supply.90

With respect to energy efficiency, the EPA recognizes that the NSR program applies to certain projects that have the effect of increasing efficiency (e.g., projects

that increase electricity output for a given fuel input). The ordinary costs and permitting times associated with NSR may, in the EPA’s judgment, result in the delay

or cancellation of certain projects that could, improve energy efficiency. EPA encourages energy efficiency improvements wherever feasible. However, the EPA notes

that some changes that improve energy efficiency also can result in significant emissions increases that have adverse air quality impacts that must be reviewed, even

though the proposed project could reduce regional or national emissions. Thus, of

the universe of possible efficiency improvements, the appropriate focus of the NSR

program is on those that are non-routine and that significantly increase emissions.

At non-utility source categories, the ‘‘actual to potential’’ emissions test can discourage efficiency improvement projects even where there would not be an increase in

actual emissions. It is clear that some of these efficiency improvements can still go

forward (by going through NSR or taking steps to avoid NSR); however, it also is

clear that others are in fact canceled due to the costs and delays associated with

NSR.

As noted at the beginning of this report, representatives of industry, state and

local agencies, and environmental groups have worked with EPA for over a decade

on developing improvements to the NSR program. Our findings in this report ratify

a longstanding and broadly-held belief that parts of the NSR program can and

should be improved. For example, we conclude above that changes to NSR that add

to the clarity and certainty of the scope of the routine maintenance exclusion will

improve the program by reducing the unintended consequences of discouraging

worthwhile projects that are in fact outside the scope of NSR. For these reasons,

EPA is recommending a number of changes to the NSR program that will address

the concerns raised during this NSR review as well as many other concerns presented to EPA about NSR over the past decade.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

Research Triangle Park, NC, June 20, 2001.

MEMORANDUM

SUBJECT: Benefits Associated with Electricity Generating Emissions Reductions

Realized Under the NSR Program

TO: File

FROM: Bryan Hubbell, Senior Economist, Innovative Strategies and Economics

Group

As part of the EPA analysis of the impact of the NSR program on energy investment and supply, I did a calculation of the monetized benefits of the NSR program.

The details of this calculation are contained in the attachment to this memo. Based

on the estimated emissions avoided due to PSD BACT permitting, I estimated the

magnitude of the benefits associated with this program. This estimate is lower than

the actual benefits of the NSR program because I do not quantify all the health and

environmental benefits, nor do I capture the benefits of the nonattainment NSR program. Also, my estimate does not capture the benefits of the reductions in emissions

of pollutants other than SO2 or NOx. However, my calculation does show that the

benefits of this program are substantial.

Based on the information provided to me, there are roughly 400,000 tons of SO2

and 822,000 tons of NOx emission reductions avoided annually as a result of the

PSD program. Ninety percent of these reductions are thought to be from electricitygenerating facilities. Based on previous EPA analyses, the average mortality-related

benefits per ton of NOx reduced are around $1,300 and the average benefits per ton

of SO2 reduced are around $7,300 for electricity-generating units. For simplicity, I

provided estimates only for mortality impacts which generally account for over 90

percent of monetary benefits in previous analyses. Using these estimates as the

basis for my calculation, total mortality-related benefits of these avoided emissions

of SO2 and NOx are around $3.6 billion (1999$). This is due to an estimated reduction of 586 incidences of premature mortality from reduced exposure to these electricity-generating unit emissions.

Attachment

BENEFITS ASSOCIATED WITH ELECTRICITY GENERATING UNIT EMISSIONS REDUCTIONS

REALIZED UNDER THE NSR PROGRAM

There is a well-established body of evidence on the harmful health and environmental effects of SO2, NOx (as primary pollutant emissions) and their related atmospheric transformation products, termed ‘‘secondary pollutants’’ (such as sulfates,

nitrates, fine particles, and ozone). The scientific studies on health and environmental effects of sulfur dioxide, nitrogen dioxide, particulate matter and ozone have

been amply documented and peer reviewed in the comprehensive Criteria Documents and Staff Papers prepared for recent National Ambient Air Quality Standards reviews (EPA 1982a, 1982b, 1986a, 1986b, 1993, 1994a, 1994b, 1995, 1996a,

1996b, 1996c, 1996d).

Sulfur dioxide and nitrogen oxides act as precursors in the development of fine

particles and acid rain; nitrogen oxides also contribute to the production of ozone.

This discussion first summarizes the general nature of health and certain environmental effects expected from the presence of such emissions, and then outlines existing quantitative estimates associated with large-scale regional emissions reductions

from multiple sources, as well as relevant material on potential benefits of reductions at individual power plants. Finally, annual benefits of the NSR program over

the period from 1997 to 1999 are calculated by applying benefit-per-ton estimates

obtained from previous analyses of the benefits of emission reductions from electricity-generating utilities.

HUMAN HEALTH

Fine particle exposure has been associated with health effects such as decreased

lung function, increased hospital admissions and emergency room visits, increased

respiratory symptoms and disease, and premature mortality at a number of locations throughout the United States as well as in other countries (EPA, 1996a). A

number of the locations where such associations have been observed are included

in the eastern part of the Nation, which is subject to regionally-elevated concentrations of fine particles that are in large measure derived from utility emissions (EPA,
157

1996d). While there are well-recognized uncertainties in any such studies, EPA has

concluded, with the concurrence of its scientific advisors, that the associations seen

even at the lower concentrations that occur in the eastern United States are ‘‘likely

causal’’ (EPA, 1996a). Increased hospital admissions and emergency room visits for

respiratory causes have been associated with ambient ozone exposures, which also

are elevated on a regional scale in the eastern United States (EPA, 1996b). Exposures to ozone can make people more susceptible to respiratory infection, result in

lung inflammation, and aggravate preexisting respiratory diseases such as asthma.

Other health effects attributed to short-term and prolonged exposures to ozone, generally while individuals are engaged in moderate or heavy exertion, include significant decreases in lung function and increased respiratory symptoms such as chest

pain and cough (EPA, 1996b).

Short-term exposure to high levels of sulfur dioxide while at moderate exertion

may result in reduced lung function that may be accompanied by symptoms such

as wheezing, chest tightness, or shortness of breath. People with asthma are more

sensitive than the general population to this effect. Other effects that have been associated with longer-term exposures to higher concentrations of SO2, in conjunction

with high levels of PM, include respiratory illness, alterations in the lungs’ defenses,

and aggravation of existing cardiovascular disease (EPA, 1982a,b, 1986a,b, EPA

1994a,b). Health effects associated with exposure to nitrogen oxides include increases in airway responsiveness and decreases in pulmonary function in individuals with preexisting respiratory illness and increases in respiratory illness in children (EPA, 1993, 1995).

ANIMAL LIFE AND VEGETATION

Nitrogen oxides and SO2 contribute to a wide range of harmful effects on public

welfare and the environment. This section focuses on the harmful effects to animal

life and vegetation of NOx and SO2 separately, in combination, and as precursors

to other secondary pollutants (i.e., ozone and particles).

Nitrogen oxides are important precursors of ozone. Ozone is considered to be the

most toxic of the ambient air pollutants to vegetation. Specifically, ozone has been

shown to reduce agricultural and commercial forest yields, reduce survivability of

sensitive tree seedlings, and increase plant susceptibility to disease, pests, and other

environmental stresses such as harsh weather. In long-lived species, these effects

may become evident only after several years or even decades. As ozone-sensitive

species are out-competed by more tolerant ones, long-term changes to forest ecosystems and habitat quality for wildlife occurs. Additionally, ozone injury to the foliage of trees and other plants decreases the aesthetic value of ornamental species

as well as the natural beauty of national parks and recreation areas.

Deposition of nitrogen to terrestrial, wetland and aquatic (e.g., fresh, estuarine,

and/or coastal) systems can lead to harmful effects on vegetation and animal populations from fertilization, eutrophication, or acidification. For example, fertilization

of nitrogen-limited terrestrial systems alters competition between existing plant species, leading to. changes in the number and type of species (composition) present

within a community. Species specifically adapted for nitrogen-poor environments

(e.g., insectivorous plants found in wetlands) may be replaced by species better

adapted to take advantage of the higher nitrogen levels. Since the animal population in a community is closely tied to the type of vegetation present, this in turn,

affects which animals can successfully thrive in that habitat. As a result, the overall

nutrient cycles of the system may change. Additionally, eutrophication of some

aquatic systems can produce explosive algae growth leading to low oxygen levels in

the water and/or an increase in levels of toxins harmful to fish and other aquatic

life, leading to large fish and shellfish kills. Nitric acid (HNO3) is also a contributor

to the acidification of soils and both chronic and episodic or acute acidification of

water bodies in the United States. Acidification of soils can alter the availability of

plant nutrients and expose tree roots to toxic levels of aluminum and manganese.

If sufficient levels of aluminum are mobilized and leached from the system into waterways, it can be toxic to fish. Many species of aquatic animal and plant are adapted to live within a narrow range of water conditions, including acidity. As waters

become more acid, many species of aquatic animals and plants can no longer survive

in them and so are displaced by more acid-tolerant species.

SO2 and its derivatives have also been implicated in the acidification of terrestrial

and aquatic ecosystems, so many of the harmful impacts described for NOx above

apply for SO2 as well. In addition, SO2 emissions contribute to the formation of acid

rain, clouds and fog. In some high elevation sites, acid clouds or fog (which can be

more acidic than acid rain) have been shown to damage trees. Sulfur dioxide expo-
158

sure to vegetation can increase foliar injury, decrease plant growth and yield, and

decrease the number and variety of plant species in a given community.

RECENT ESTIMATES OF THE HEALTH BENEFITS OF REDUCING EMISSIONS FROM

ELECTRIC UTILITIES

Power plant emissions contribute to ambient air concentrations of the primary

pollutants SO2, NOx, as well as secondary pollutants such as sulfates, nitrates,

ozone and fine particles. Further, the characteristic transport distances for fine particle and acid rain-related pollutants can range as high as 500 to 1000 km (300 to

600 mi) or more, meaning—that emissions from plants in States such as Indiana

and Illinois can reach a large part of the East. Therefore, it is reasonable to expect

that emissions from power plants in the NSR program would contribute significantly to regional air pollutant problems associated with the elevated SOx and NOx

emissions in the eastern United States.

Substantial quantitative evidence do the regional effects of power plant emissions

impacts in the United States is available from the Regulatory Impact Analyses

(RIA) that have been prepared for a number of recent rules or EPA actions. In each

case, the RIA was intended to generally inform the public about the potential costs

and benefits that may result using an illustrative State implementation scenario,

recognizing that specific State actions would ultimately determine the actual costs

and benefits of the rule. It is essential to recognize the uncertainties as documented

in the RIM that are inherent in any such assessments. Also, the health and environmental impacts outlined in an RIA represent only those endpoints that can be quantified or monetized; thus, the findings may well represent an underestimate of the

total health and environmental impacts.

A regional analysis was conducted to estimate the benefits associated with reducing SO2 and NOx emissions from all coal-fired electricity-generating units (Abt Associates, Inc., 1996). Very substantial health and environmental impacts were estimated to result from a scenario that called for significant reductions beyond that

required by the acid rain provisions of the Clean Air Act Amendments of 1990. National emissions reductions of about 3 million tons of SO2 and 900 thousand tons

of NOx were modeled to predict consequent reductions in ambient concentrations of

those pollutants and related secondary pollutants, ozone and particulate matter.

These annual health benefits include 11 thousand lives prolonged, 3,700 avoided

hospital admissions for heart or lung diseases, and 161 thousand occurrences of respiratory symptoms. The environmental benefits of these SO2 and NOx emissions reductions were estimated on a monetary basis, and included $160 million per year

in reduced household soiling and $1,700 million per year in improved visibility (Abt

Associates, Inc., 1996).

A second recent analysis estimated (the benefits of reduced ambient ozone and

PM concentrations that would result from similar regional reductions in summertime NOx emissions; as stated previously, nitrogen oxides serve as a precursor for

both ozone and fine particles. This analysis is based on an estimated emission reduction from 1.1 million tons of NOx, including over 900 thousand tons of NOx

emissions from electricity-generating units. Resulting decreases in ambient particulate matter concentrations were estimated to result in annual benefits of 370 lives

prolonged. Decreased ozone and particulate concentrations resulted in an estimated

1,200 avoided hospital admissions for heart or lung diseases per year and over 62

thousand avoided incidences of chronic or acute bronchitis or respiratory symptoms

per year. In addition, environmental benefits of reducing NOx emissions, expressed

as monetary benefits, were estimated to include $280 million commodity crop benefits, and $210 million in commercial forest benefits, and $7 million in household soiling benefits. In addition, a number of benefit categories were discussed as potentially significant, but unquantifiable, including residential and recreational visibility

impairment, materials damage, and damage to ecosystems, nitrates in drinking

water (EPA 1998).

Another recent analysis was based on emissions reductions estimates of 659,000

tons of NOx, including 611,000 tons of NOx emissions reductions from electricitygenerating units. Annual health benefits associated with ambient particulate matter

concentration changes expected to result from this rule include 200 avoided premature deaths, 400 avoided cases of acute bronchitis in children, 3800 avoided lower

respiratory symptoms in children, 3900 avoided upper respiratory symptoms in children, and 29,000 avoided work loss days (EPA, 1999b). Annual health benefits associated with the ambient ozone concentration changes expected to result from the

final rule were estimated to include 371 avoided cases of chronic asthma, 529 avoided hospital admissions for respiratory causes, 136 avoided hospital admissions for

dysrhythmias, and 165 emergency room visits for asthma. Reductions in both ozone
159

and particulate matter concentrations resulting from this rule were estimated to result in nearly 2 million avoided minor restricted activity days for acute respiratory

symptoms. An estimated $51 million/year in welfare benefits, on a monetary basis,

was estimated on the basis of improved visibility and decreased commercial agricultural losses, with recognition of many welfare and ecosystem effects (e.g., commercial forestry benefits, decreased worker productivity, residential visibility, household

soiling and materials damage, nitrogen deposition) that could not be quantified on

a monetary basis (EPA, 2000a).

Finally, a recent analysis of emission reductions associated with the provisions of

Senate Bill 172 (S. 172) calculated the benefits of reducing emissions of SO2 and

NOx from electricity-generating units by 3,740 thousand tons and 3,192 thousand

tons, respectively (EPA, 2000). This analysis projected annual health benefits of

10,600 avoided premature deaths, 5,400 avoided new incidences of chronic bronchitis, over 5,000 avoided hospital and emergency room visits, hundreds of thousands of avoided respiratory symptoms in children, 1.5 million avoided lost work

days, and over 8 million minor restricted activity days. Most of these benefits (89

percent) occur in the Eastern United States. In addition to health benefits, reductions in SO2 and NOx emissions were also projected to provide over $1.2 billion in

benefits from improved visibility in Eastern Class I national parks.

Analyses of the Health Impacts of Individual Power Plants

In addition to the national or regional analyses discussed above, several recent

studies have assessed public health impacts associated with changes in emissions

from specific power plants. Substantial public health impacts were also found in

these analyses, as described below:

• Levy et al. (2000) evaluated public health impacts of emissions from two power

plants in Massachusetts, Salem Harbor (805 MW) and Brayton Point (1611 MW),

for the surrounding population of approximately 32 million people. According to

EPA Emissions Trends data for 1996, emissions from the Salem Harbor plant in

1996 included 4,900 tons NOx and 24,000 tons SO2, and emissions from the Brayton

Point plant included 14,000 tons NOx and 44,000 tons SO2. The authors estimated

that reductions in emissions of SO2, NO2 and PM10, from actual emissions to emissions estimated from application of Best Available Control Technology, would result

in substantial public health benefits, including 124 avoided premature deaths per

year, 1330 avoided emergency room visits per year, and 33,600 avoided asthma attacks per year. (Average actual and target emission rates are presented by the authors for each unit of each plant, and the reductions range from about 60 percent

to over 90 percent).

• A similar analysis was cited by Levy et al. (2000), on the public health impacts

of emissions from the Centralia power plant (1340 MW capacity) in Washington

State. The same general methodology was used, with some differences in air quality

model and dose-response coefficients. Levy et al (2000) cite an estimate of 34 annual

deaths due to particulate matter exposure resulting from the power plant emissions,

based on estimates of the effect of long-term pollutant exposure on mortality.

• An earlier analysis by Levy and colleagues (1999) evaluated risks associated

with emissions from a 62MW co-generation plant in Massachusetts. Annual emissions for 1994 were 2,100 tons of NOx and 330 tons of SO2, and risks were calculated based on ambient pollutant concentration changes between areas near to

and distant from the plant. The increased mortality risk was calculated to be 0.3

deaths per year, based on short-term pollutant exposures, and 0.9 deaths per year,

based on estimates of risk with long-term exposure.

EPA has not conducted, nor are we aware of any studies or publications that have

quantified health or environmental risks associated specifically with emissions reductions from the set of power plants covered by the NSR program. Nevertheless,

the scale of the potential benefits can be approximated by making reasonable interpolations from previous regional and local scale assessments. As discussed above,

power plant emissions have been associated with substantial health and environmental effects. For discussion purposes, the results of these analyses discussed

above are summarized in the following table. It must be noted that these analyses

were done for differing purposes, to answer different questions, and often using differing models or analytical methodologies, so the results cannot be directly compared but are illustrative of the health and environmental effects that might be associated with power plant emissions.
160

Estimated Emissions Changes Study Population Size/Geographic Area

Examples of Annual Health and

Environmental Benefits Estimates Reference

2,965,000 tons of SO2, 938,000

tons of NOx.

nationwide ...................... 11,00 premature deaths

3700 hospital admissions

160,000 respiratory symptoms

$160 million household

soiling

$1,700 million visibility.

Abt Associates, Inc.,

1996)

1,141,000 tons NOx (938,000 from

utilities).

22 Eastern United States 370 premature deaths (longterm)

150 premature deaths

(short-term)

1200 hospital admissions

for heart or lung disease

>62,000 incidences of

acute or chronic bronchitis

$280 million commodity

crop benefits

$210 million commercial

forest benefits.

EPA 1998

659,000 tons NOx (611,000 from

utilities.

12 Eastern United States 200 premature deaths

400 cases of acute bronchitis

530 hospital admissions

for respiratory diseases

2 million minor restricted

activity days

$40 million improved visibility

$11 million commercial

agricultural losses.

EPA 1999b, 2000a

3,740,000 tons of SO2, 3,192 tons

of NOx.

nationwide ...................... 10,600 premature deaths

5,400 incidences of chronic

bronchitis

5,100 hospital/emergency

room visits

475,000 respiratory symptom days

1.5 million work loss days

8 million minor restricted

activity days

$1.2 billion improved visibility.

EPA, 2000b

Reductions up to 90 percent from

2 plants with combined 1996

emissions of 19,000 tons NOx

and 68,000 tons SO2.

32 million people ........... 124 premature deaths

1330 ER visits

33,600 asthma attacks.

Levy et al., 2000

Reductions from emissions of 2095

tons NOx and 333 tons SO2,

(amount reduced not clear).

9.5 million people .......... 0.3 deaths (short-term exposure)

0.9 deaths (long-term exposure).

Levy et al., 1999

QUANTIFIED HEALTH BENEFITS OF REDUCED EMISSIONS OF SO2 AND NOx FROM

UTILITIES AFFECTED BY THE NSR PROGRAM

As shown above, the health and environmental effects associated with power

plant emissions reductions are indeed substantial. In order to provide an idea of the

magnitude of health benefits that might be associated with emissions reduced by

the NSR program, average benefits per ton, of precursor pollutant can be derived

from previous analyses and applied to the NOx SO2 emission reductions from the

NSR program. For the purpose of this calculation, the Analysis of the Acid Deposition and Ozone Control Act (S. 172), completed in July 2000 will be used to derive

the benefit per ton estimates. For simplicity, we are providing estimates only for
161

PM2.5 related mortality impacts, which account for over 90 percent of monetized

benefits.

The analysis of S. 172 examined the impacts of reducing SO2 emissions by 3,740

thousand tons and NOx emissions by 3,192 thousand tons. Based on, an earlier

analysis of the NOx SIP call rule, we expect that NOx emission reductions will have

only 1⁄10 the impact on PM2.5 concentrations as SO2 emission reductions. As such,

we multiply the 10,600 estimated premature mortalities by 0.9 to get the 9,540 attributable premature mortalities for the SO2 emission reductions. Adjusting the estimated mortality to account for the change in C–R function from the Pope et al.

(1995) estimate to the HEI/Krewski (2000) estimate results in an updated estimate

of 7,100 attributable incidences of premature mortality. Dividing updated attributable incidences by tons results in an estimated 1.90 incidences of premature mortality per thousand tons of SO2 reduced in 2010. On a per-person basis, this is

0.0064 mortality incidences per thousand tons per million people.

To obtain a similar estimate for NOx reductions, we multiply the 10,600 estimated premature mortalities by 0.1 to get the 1,060 attributable premature mortalities for the NOx emission reductions (319 thousand tons) used to derive the benefit/

ton estimates. Adjusting the estimated mortality to account for the change in C–

R function to the HEI/Krewski (2000) estimate results in an updated estimate of

773 attributable incidences of premature mortality. Dividing updated attributable

incidences by tons results in an estimated 0.33 incidences of premature mortality

per thousand tons of NOx reduced in 2010. On a per-person basis, this is 0.0011

mortality incidences per thousand tons per million people.

In order to calculate the potential benefits of the NSR program, three pieces of

information are needed: (1) population expected to benefit from reductions in ambient PM2.5 concentrations, (2) tons of NOx and SO2 reduced, and (3) benefits per ton

per million population for NOx and SO2 There were 400,000 tons of SO2 reductions,

and 822,000 tons of NOx reductions that occurred annually from 1997 to 1999 as

a result of NSR activities in States in the Eastern United States. Most of these reductions occurred at utility plants; however, some portion of these emission reductions occurred at refineries and other non-utility sources. However, it is likely that

at least 90 percent of the SO2 and NOx reductions come from utilities nationwide.

For illustrative purposes, it is assumed that there were 0.9*400,000=360,000 tons

of SO2 reduced and 0.9*822,000=740,000 tons of NOx reduced at utilities due to the

NSR program. Based on a population of around 188 million in the Eastern United

States (east of Minnesota, Iowa, Missouri, Arkansas, and Louisiana, inclusive), the

average mortality-related benefits per ton of NOx reduced are around $1,300 and

the average benefits per ton of SO2 reduced are around $7,300. Applying these estimates to the reductions in utility emissions due to the NSR program yields total

mortality-related benefits of $2,628 million (1999$) for SO2 emission reductions and

962 million (1999$) for NOx emission reductions. Thus, total mortality-related benefits of utility emission reductions of SO2 and NOx could potentially be around $3.6

billion (1999$). This is due to an estimated reduction of 586 incidences of premature

mortality related to PM2.5 exposure. It is important to keep in mind the uncertainties that are inherent in these estimates. The estimates are intended to provide an

order of magnitude approximation to the benefits rather than a precise estimate.

There are many factors which may cause actual benefits to deviate from these estimates. These factors include whether the sources of emissions, meteorology, transport of emissions, initial PM concentrations, population density, and population demographics are reasonably consistent with those used in generating the benefit

transfer values. A general rule is that as these factors diverge, the likelihood of significant error in the estimated benefits values will increase.

References:

Abt Associates, Inc. 1996. Clean Air Power Initiative (CAPI) Benefits Analysis.

Memorandum from Leland Deck and John Voyzey to Allyson Siwik, November 22,

1996. Abt Associates, Inc., Bethesda, MD [included in PM NAAQS review docket,

A–95–54, II–F–26]

EPA. 1982a. Air Quality Criteria for Particulate Matter and Sulfur Oxides. U.S.

Environmental Protection Agency, Office of Research and Development, Washington, DC 20460. EPA/600/882–029

EPA. 1982b. Review of National Ambient Air Quality Standards for Sulfur Oxides;

Assessment of Scientific and Technical Information. U.S. Environmental Protection

Agency, Office of Air Quality Planning and Standards, Research Triangle Park, NC

27711, EPA–450/5–82–007

EPA. 1986a. Second Addendum to Air Quality Criteria for Particulate Matter and

Sulfur Oxides. U.S. Environmental Protection Agency, Office of Research and Development, Washington, DC 20460. EPA/600/8–86–020F
162

EPA. 1986b. Review of National Ambient Air Quality Standards for Sulfur Oxides;

Updated Assessment of Scientific and Technical Information; Addendum to the 1982

OAQPS Staff Paper. U.S. Environmental Protection Agency, Office of Air Quality

Planning and Standards, Research Triangle Park, NC 27711, EPA–450/05–86–013

EPA. 1993. Air Quality Criteria for Oxides of Nitrogen. U.S. Environmental Protection Agency, Office of Research and Development, Washington, DC 20460. EPA/

600/8–91/049cF

EPA. 1994a. Supplement to the Second Addendum (1986) to Air Quality Criteria

for Particulate Matter and Sulfur Oxides (1982): Assessment of New Findings on

Sulfur Dioxide Acute Exposure Health Effects in Asthmatic Individuals. Environmental Criteria and Assessment Office, Research Triangle Park, NC. EPA/600/FP–

93–002

EPA. 1994b. Review of National Ambient Air Quality Standards for Sulfur Oxides;

Updated Assessment of Scientific and Technical Information; Supplement to the

1986 OAQPS Staff Paper. U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, NC 27711, EPA–452/R–94–

013

EPA. 1995. Review of National Ambient Air Quality Standards for Nitrogen Dioxide; Assessment of Scientific and Technical Information; OAQPS Staff Paper. U.S.

Environmental Protection Agency, Office; of Air Quality Planning and Standards,

Research Triangle Park, NC 27711, EPA–452/R–95–005

EPA. 1996a. Air Quality Criteria for Particulate Matter. U.S. Environmental Protection Agency, Office of Research and Development, Washington, DC 20460. EPA/

600/P–95/001cF

EPA. 1996b. Air Quality Criteria for Ozone and Related Photochemical Oxidants.

U.S. Environmental Protection Agency, Office of Research and Development, Washington, DC 20460. EPA/600/P–93/004cF

EPA. 1996c. Review of National Ambient Air Quality Standards for Ozone; Assessment of Scientific and Technical Information; OAQPS Staff Paper. U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research

Triangle Park, NC 27711, EPA452/R–96–007

EPA. 1996d. Review of National Ambient Air Quality Standards for Particulate

Matter; Assessment of Scientific and Technical Information; OAQPS Staff Paper.

U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, NC 27711, EPA–452/R–96–013

EPA. 1997. National air pollutant emission trends, 1900–1996. U.S. Environmental Protection Agency. Office of Air Quality Planning and Standards, Research

Triangle Park, NC 27711. EPA–454/R–97–011

EPA. 1998. Regulatory impact analysis for the NOx SIP call, FIP and Section 126

petitions; Volume 2: Health and welfare benefits. U.S. Environmental Protection

Agency, Office of Air and Radiation, Washington, DC 20460. EPA–452/R–98–003

EPA. 1999b. Regulatory impact analysis for the final Section 126 petition rule.

U.S. Environmental Protection Agency, Office of Air and Radiation, Washington, DC

20460

EPA. 2000a. Regulatory impact analysis for the final Section 126 petition rule:

supplementary volume—ozone-related benefits of regional NOx emission reductions.

U.S. Environmental Protection Agency, Office of Air and Radiation, Washington, DC

20460

EPA. 2000b. Analysis of the Acid Deposition and Ozone Control Act (S. 172). Prepared for the Senate Subcommittee on Clean Air, Wetlands, Private Property, and

Nuclear Safety. U.S. Environmental Protection Agency, Office of Air and Radiation,

Washington, DC 20460

Flagler RB., editor. 1998. Recognition of Air Pollution Injury to Vegetation: A Pictorial Atlas (second ed.) Air and Waste Management Association, Pittsburgh, PA.

Hubbell B. 1999. Estimated NOx and SO2 emissions damages—incidences and

monetary benefits; Memorandum from Bryan Hubbell to Bill Harnett, October 30,

1999.

Levy J., Spengler JD, Hlinka D, Sullivan D. 2000. Estimated public health impacts of criteria pollutant air emissions from the Salem Harbor and Brayton Point

Power Plants. Harvard School of Public Health, May 2000.

Levy JI, Hammitt JK, Yanagizawa Y, Spengler JD. 1999. Development of a new

damage function model for power plants: methodology and applications. Environ Sci

Technol 33:4364–4372.
163

STATEMENT OF WILLIAM H. SORRELL, ATTORNEY GENERAL OF THE

STATE OF VERMONT

Chairman Jeffords, Chairman Leahy, and members of the Committees: Thank you

very much for allowing me this opportunity to share my thoughts regarding the

New Source Review program.

The quality of our nation’s air is of critical importance—not just to those of us

living in the northeastern United States, but also to everyone in this great Nation

and most especially our children, the elderly, and those among us who suffer from

respiratory illness.

We have worked hard in Vermont to attain the quality of life that is so important

to us. We value our natural resources and do our best to be sure we are not soiling

our own backyard. I believe it is fair to say that we join the dialog regarding air

pollution with clean hands.

To give you an idea of the scope of the pollution caused by old, dirty coal-fired

power plants, I want to impress upon you that in 1998, all Vermont sources of sulphur dioxide emitted a total of approximately 17,000 tons of SO2. Just one of the

plants at issue in the New Source Review enforcement case that Vermont has

joined, the Cardinal Plant in Brilliant, Ohio operated by American Electric Power

and its affiliated companies, emitted more than 152,000 tons of SO2 in the same

year—and this plant is not even the largest of the American Electric Power plants.

We have good reason to be deeply concerned about massive amounts of air pollution carried into our State by the prevailing winds. The impacts attributable to this

wind-borne pollution, in Vermont and regionally, are sobering and bear repeating:

• In Vermont, 20 percent of lakes are moderately to extremely sensitive to acid

deposition and several lakes are critically acidic and, thus, unable to support fish

and/or other aquatic life.

• Federal studies conclude that the percentage of acidified lakes is expected to increase or even double over the next four decades unless upwind emissions of NOx

and SO2 are reduced extensively.

• Acid deposition is a major cause of the widespread decline of red spruce in high

elevation forests throughout the Northeast. Since the 1960’s, more than half of large

canopy trees in the Adirondack Mountains of New York and the Green Mountains

of Vermont and approximately one quarter of large canopy trees in the White Mountains of New Hampshire have died. There is also growing evidence that sugar maple

decline is linked to acid deposition.

• According to one analysis, even with an 80 percent reduction in electric utility

emissions beyond that required under the 1990 CAA, chemical recovery of certain

watersheds to non-acidic levels will take 20–25 years and recovery of the acid—neutralizing compounds in soils will not occur until the year 2050. Biological recovery

will take decades if not generations beyond that.

Our children and grandchildren and generations to come will know only of the

devastating impacts resulting from decades of air pollution and will not see the recovery of the forests and lakes. Is this to be our legacy?

As a Nation, we must take swift and decisive action to improve the quality of the

air. We applaud the efforts of EPA and the Department of Justice in working cooperatively with States to protect air quality. Our shared successes have included important victories affirming certain aspects of regulatory programs and the Agency’s

determinations regarding the long-range transport of ozone-forming pollutants.

We also appreciate the ongoing efforts by the Agency and DOJ in seeking full implementation of EPA’s regional haze rule, which will help to protect and improve

visibility in our nation’s pristine wilderness areas, including Shenandoah, the Great

Smokey Mountains, Yosemite and the Grand Canyon. New Hampshire, Maine and

Vermont, joined by Utah and New Mexico, the National Tribal Environmental

Council and national advocacy groups have been actively involved in supporting this

effort. We are hopeful that these efforts will lead to real improvements in the quality of our nation’s air in years to come.

The State of Vermont also is working cooperatively and productively with the Environmental Protection Agency, the Department of Justice, other States and national public interest advocacy groups to enforce the existing New Source Review

program against big corporations operating numerous old, dirty coal-fired power

plants. There is no question that implementation by EPA of the reform package will

seriously undercut these efforts.

Now is not the time to water down the laws needed to protect air quality. The

announced reforms of the New Source Review program will take us 180 degrees in

the wrong direction. As one State regulator has put it, these reforms will assure

longer lives for old, dirty coal-fired power plants and shorter lives for Americans.
164

1The Particulate-Related Health Benefits of Reducing Power Plant Emissions (‘‘Particulate Report’’), Abt Associates Inc., October 2000, at 5.1. 2Particulate Report, at 5.3. 3 Id.

We very much hope that the Administration will change course and not backtrack

on existing environmental protections. However, if it chooses to go forward with its

announced changes, we encourage Congress to reject such efforts to weaken the

New Source Review program.

Thank you again for the opportunity to meet with you and to provide these comments.

SUPPLEMENTAL COMMENTS BY ATTORNEY GENERAL WILLIAM H. SORRELL

The New Source Review program has been the Act’s most effective tool for reducing air pollution. However, the Administration’s proposed changes announced June

13, 2002, will change this. These changes will amount to the largest and most significant weakening of clean air regulations in the history of the Act.

The weakening of these regulations is a major public health and environmental

mistake. A rollback in the NSR program will result in increased respiratory disease,

premature death, smog, acid rain, and degradation of our waters and forests. Pollution from power plants in the form of nitrogen oxides, sulfur dioxide, carbon dioxide

and mercury costs Americans thousands of lives and billions of dollars each year.

We need to reduce power plant emissions, not allow them to increase in the way

proposed by the Administration.

When it originally established the program, Congress recognized that the most

cost-efficient time to install new controls was when a power plant was being built

or modified. Congress also recognized that many power plants were nearing the end

of their useful lives and that requiring new pollution controls on these plants would

not be effective or efficient. However, Congress declared that new or modified plants

should be as clean as technologically feasible. The Administration’s decision departs

from this bedrock principle and will have grave consequences for each and every

American.

POWER PLANT POLLUTION

In terms of the volume and variety of pollutants emitted, and the resulting adverse impacts, no source can compare to coal-burning power plants. These facilities

emit the ‘‘worst’’ of our air pollutants—carbon dioxide, sulfur dioxide, nitrogen oxides, particulate matter and mercury. Coal-fired power plants collectively account

for about 70 percent of annual sulfur dioxide (SO2) emissions and 30 percent of nitrogen oxide (NOx) emissions in the United States. SO2 interacts in the atmosphere

to form sulfate aerosols. These aerosols often travel long distances in the air and

contribute to acid rain and haze. NOx also is carried long distances and is a major

contributing factor to the formation of ground level ozone, or smog. Coal-burning

power plants are also a major source of particulate matter. All of these pollutants

cause serious health and environmental impacts.

ADVERSE HUMAN HEALTH EFFECTS FROM POWER PLANT POLLUTION

The health effects caused by these pollutants are well known and bear repeating:

Premature Death.—Fine particulate matter pollution in the eastern United States

is composed primarily of sulfate aerosols. Because these fine particles can be inhaled

more deeply into the lungs than larger particles, they are associated with certain

types of respiratory diseases and premature death. Particulate pollution claims the

lives of over 30,000 Americans per year.1

Asthma.—Ozone or ‘‘smog’’ pollution, formed from nitrogen oxides, is increasing

at an alarming rate. Smog pollution severely affects this country’s 15 million

asthmatics. A recent study found that coal-fired power plant emissions trigger

600,000 asthma attacks per year and are responsible for sending 20,000 Americans

to the emergency room.2 Power plant pollution results in 5 million lost workdays.3

Neurological and Developmental Damages from Mercury Contamination.—Americans should not have to worry about eating fish from rivers, lakes and oceans. Yet,

over 40 States have advised their citizens to reduce their consumption of fish from

contaminated waterways. Mercury contamination can cause serious neurological and

developmental damages in children and infants, including subtle loss of sensory or
165

4Power Plants, Your Health and the Environment (‘‘Power Plants’’), Clean the Air, Washington, DC, at 1. 5 Children at Risk; How Air Pollution for Power Plants Threatens the Health of America’s Children, Clean Air Task Force, April 2002, at 1. 6Power to Kill, Clean Air Task Force, July 2001, at 4; Preliminary Analysis of the Benefits

and Costs of Current New Source Review Litigation, Clean Air Task Force, June 2002.

cognitive ability, delays in developmental milestones, such as walking and talking,

and even birth defects.4

The most troublesome aspect of power plant pollution is that our children are the

most vulnerable to its effects. Many factors increase the risk of children to air pollution as compared to adults. Due to the higher activity level of children, ‘‘pound for

pound’’ they breathe more air for their size than adults do. In addition, their increased time spent playing outdoors further increases their exposure to outdoor air

pollution. Studies suggest that children suffer a higher prevalence of asthma than

adults, and, thus, asthma makes our children far more susceptible to impacts of air

pollution. The lung’s defense systems in children are still developing, and are unable

to defend against the effects of pollutants as effectively as the lungs in adults.5

HUMAN HEALTH EFFECTS ATTRIBUTED TO POWER PLANTS CHARGED WITH

NSR VIOLATIONS

A recent report delivered the sobering reality regarding the human health effects

that are caused by the power plants that have been charged with NSR violations.6

The key findings of this report include:

• Pollution from the 51 plants that are targets of the NSR enforcement actions

shortens the lives of between 5,500 and 9,000 Americans each year;

• Requiring these plants to meet standards required by law would avoid 4,300 to

7,000 of these deaths;

• Pollution from the 51 NSR plants leads to between 107,000 and 170,000 asthma

attacks each year;

• Between 80,000 and 120,000 of these asthma attacks could be avoided by requiring these plants to meet pollution standards as required by law;

• Although all of the plants that are current targets of NSR enforcement are located in the Midwest or Southeast, there is a ‘‘transport of death and disease.’’ Pollution from these plants affects downwind Northeastern States resulting in 1,500 to

2,100 premature deaths and 30,000 to 39,000 asthma attacks per year in those

States;

• Between 1,200 and 1,700 of the deaths, and between 23,000 and 31,000 of the

asthma attacks in downwind Northeastern States would be avoided if the plants

met standards required for new plants;

• Requiring the 51 NSR plants to meet pollution standards required by law would

yield total estimated monetary benefits of $27 to $45 billion per year.

HARM TO NATURAL RESOURCES

Emissions of NOx and SO2 from power plants also cause extensive harm to natural resources. In the atmosphere, the NOx and SO2 are converted into acids, including nitric and sulfuric acids, and other acidifying compounds. These compounds

fall to the ground as wet deposition (acid rain, fog, cloud water, sleet and snow) and

dry deposition (gases, aerosols and particles). These acids and acidifying compounds

are cycled through the soil, vegetation, and surface waters setting off a cascade of

adverse ecological impacts.

Acid deposition has altered, and continues to alter, soils in areas of the Northeast

in a number of ways. First, acid deposition has leached base cations, including calcium and magnesium, out of the soil, thereby reducing the soil’s acid-neutralizing

capacity and fundamentally altering soil processes. The depletion of these compounds has, in turn, resulted in the accumulation of sulfur and nitrogen in the soils.

When leached out of the soil, sulfur and nitrogen contribute to the acidification and

nitrogen loading of streams and lakes. Additionally, acid deposition facilitates the

mobilization of dissolved inorganic aluminum, an ecologically harmful form of aluminum, into soil waters, vegetation, lakes and streams. High concentrations of aluminum can be toxic to fish, plants and other organisms.

Acid deposition also continues to impair the quality of water in lakes and steams

throughout the Northeast by lowering pH levels, decreasing acid-neutralizing capacity and increasing aluminum concentrations. Power plant emissions are largely responsible for the fact that 20 percent of the lakes in New York’s Adirondack Park

region are too acidic to support fish life. In Vermont, 20 percent of lakes are moderately too extremely sensitive to acid deposition and several lakes are critically
166

7Protecting Visibility in National Parks and Wilderness Areas, National Academy of Science’s

National Research Council (National Academy Press, 1993) at 2. 8 62 Federal Register 41,138–41,139 (July 31, 1997).

acidic and, thus, unable to support fish and/or other aquatic life. Similarly, in New

Hampshire, nearly half of the lakes have been acidified with some so acidic that

they do not support naturally reproducing fish populations. Federal studies conclude

that that percentage of acidified lakes is expected to increase or even double over

the next four decades unless upwind emissions of NOx and SO2 are reduced extensively. Similar impacts are seen in the lakes and streams of other northeastern

States that lie downwind of the defendants’ power plants.

Decreases in pH and elevated concentrations of aluminum have reduced the species diversity and abundance of plankton, invertebrates, fish and other aquatic life

in many streams and lakes in acid sensitive areas of the Northeast. Although chronically high acid levels stress aquatic life, acid episodes are particularly harmful.

Spring runoff from snowmelt creates an annual pulse of acidified water, which enters lakes and streams in huge volumes. This phenomenon, known as acid shock,

is particularly harmful to aquatic communities because it occurs during spawning

or the early life-cycle stages of many species. Studies have shown that high acidity

and aluminum levels disrupt the salt and water balances in a fish’s blood, causing

red blood cells to rupture and increasing blood viscosity, thereby resulting in a lethal heart attack.

In addition, acid deposition is a major cause of the widespread decline of red

spruce in high elevation forests throughout the northeast. Since the 1960’s, more

than half of large canopy trees in the Adirondack Mountains of New York and the

Green Mountains of Vermont and approximately one quarter of large canopy trees

in the White Mountains of New Hampshire have died. Recent research suggests

that acid deposition leaches calcium directly from cell membranes in spruce needles.

This renders the needles more susceptible to freezing damage, thereby reducing a

tree’s cold tolerance and increasing the occurrence of winter injury. In addition, elevated aluminum levels in the soil, discussed above, limits the ability of red spruce

to take up water and nutrients through its roots, leading to reduced tolerance for

environmental stress.

There is also growing evidence that sugar maple decline is linked to acid deposition. Extensive mortality among sugar maples in Pennsylvania appears to result

from deficiencies of base cations, together with other stresses such as insect defoliation or drought. Acid deposition, and its effect on soil chemistry is a predisposing

factor in sugar maple decline.

Total power plant emissions of sulfur dioxide, and consequent deposition in the

northeast of sulfuric acid and other sulfur particles, has declined since 1990. However, emissions of nitrogen oxides have remained essentially unchanged. Because of

this and given the extensive loss of acid-neutralizing base cations, the mobilization

of aluminum, and the accumulation of sulfur and nitrogen in the soil, the chemical

and, in turn, biological recovery of forest and aquatic ecosystems will require extensive reductions of emissions. According to one analysis, even with an 80 percent reduction in electric utility emissions beyond that required under the 1990 CAA , recovery of certain watersheds to non-acidic levels will take 20–25 years and recovery

of soil base cation and aluminum levels will not occur until the year 2050. Many

ecosystems are more sensitive to the additional input of acids and acid forming compounds.

Nitrate deposition also contributes to the eutrophication of coastal bays and estuaries, which occurs when an excess of nitrogen causes algae growth that threatens

the survival of other aquatic species.

Another significant effect of power plant pollution is the impairment of visibility

throughout the Nation, including in our national parks and wilderness areas. Electric utility boilers are the predominant source of sulfur dioxide and a principal cause

of reduced visibility.7 Power plants annually release about 13 million tons of sulfur

dioxide into the atmosphere, more than 60 percent of the national total. Data show

that ‘‘visibility impairment caused by air pollution occurs virtually all the time at

most national park and wilderness area monitoring stations.’’8 States are impacted

by the problem of impaired visibility not only because it affects their residents’ quality of life, but also in more concrete economic terms due to lowered tourism, diminished appeal for new business activity, and adverse affects on businesses dependent

on visitors to national parks and wilderness areas.
167

CLIMATE CHANGE

Coal-burning power plants also emit CO2 which contributes to global climate

change. This is the most pressing environmental challenge of the 21st century. The

global nature of the climate change problem would be most efficiently addressed by

comprehensive regulatory action at the national level.

The Administration’s recent report, U.S. Climate Action Report 2002, projects that

emissions of greenhouse gases—primarily carbon dioxide produced from the combustion of fossil fuels—will increase by 43 percent by 2020. The Report also makes it

clear that the question of whether global climate change is occurring is no longer

in doubt, only the precise rate of change and the specific impacts of that change.

Some States are now initiating measures to achieve reductions in greenhouse gas

emissions. For example, Massachusetts last year adopted State regulations requiring carbon dioxide reductions by power plants, and New Hampshire recently enacted ‘‘cap and trade’’ legislation. California’s legislature has just passed a bill that

will lead to the ‘‘maximum feasible’’ reductions of carbon dioxide emissions from vehicles. New York is also considering a carbon cap. While individual States are prepared to lead the way, a strong national approach will allow for more efficient solutions that will better protect the American economy in the long run.

CONCLUSION

In sum, I urge the respected members of these Committees to review critically the

Administration’s actions on environmental issues, especially the New Source Review

program. Congress intended the NSR program to protect and improve air quality

and to encourage the installation of cleaner plants. Congress should reaffirm these

goals and reject efforts to weaken the New Source Review program.

STATEMENT OF ELIOT SPITZER, ATTORNEY GENERAL OF THE STATE OF NEW YORK

Chairman Leahy and Chairman Jeffords, Senator Schumer and Senator Clinton,

and distinguished members of the committees: Thank you for convening this hearing

and thank you for providing me with the opportunity to testify about the need to

maintain and enforce the New Source Review (NSR) provisions of the Federal Clean

Air Act.

New York State has been hard hit by air pollution from coal-burning power

plants. Hundreds of lakes and ponds in the Adirondack and Catskill Mountains

have been ravaged by acid rain. Ground level ozone has triggered asthma attacks

and other respiratory diseases in every corner of our State, particularly in New York

City. In addition, nitrate and sulfate particulates cause respiratory and cardiac illness, lung cancer and thousands of deaths in the regions downwind from polluting

plants.

The New Source Review provisions of the Clean Air Act constitute a powerful tool

to reign in this harmful pollution. For years, power plants have been exploiting an

exemption, added to the Clean Air Act in 1977, which temporarily excused existing

power plants from having to install modern pollution control devices. This exemption, however, was not intended to be permanent. Congress understood in 1977—

25 years ago—that existing plants could not operate indefinitely without having to

undertake expensive life extension projects. At that time, Congress mandated,

power plants would have to install state-of-the-art pollution controls. But now, decades later, many of these power plants continue to spew huge quantities of air contaminants and operate with no pollution controls, in blatant violation of the Clean

Air Act.

The aim of the Clean Air Act litigation brought by New York, other northeast

States, the Federal Environmental Protection Agency (EPA) and various environmental organizations is to address these harms by going to their source. In 1999,

working in partnership with EPA and other Attorneys General from the northeast,

my office identified various power plants that were in violation of the New Source

Review requirements. These coal-burning power plants had undergone major multimillion dollar improvements without installing NSR-dictated pollution controls. To

date, I have filed lawsuits with respect to 17 of these power plants—which are located in Ohio, West Virginia, Virginia and Indiana—under the citizen suit provision

of the Clean Air Act. Each of these cases has been joined by EPA and other States.

The plants involved emit tons of nitrogen oxides and sulfur dioxide every day, harming New York’s air quality and damaging its natural resources.

My office also has taken enforcement action against several power plants located

in New York State even though they are generally responsible for much less pollution than their counterparts in the Midwestern and southern States. Working with
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1 Attached to my testimony (Exhibit 1) is a list of the 24 plants, within and outside of New

York, against which we have taken action, along with the amounts of air pollution they emit.

the New York State Department of Environmental Conservation, we have identified

seven power plants that were in violation within New York, and we have filed a

lawsuit against the owner of the two largest plants. The Commissioner of the State

Department of Environmental Conservation and I are currently in negotiations with

the owners of the other five plants.1

Unfortunately, however, our efforts to enforce the Clean Air Act have prompted

the Bush Administration to propose a set of illegal regulatory changes that would

essentially neutralize New Source Review as an enforcement mechanism and deprive the public of the benefits of this laudably farsighted legislation. The Administration’s efforts to dismantle NSR must be defeated, and I will go to court, if necessary, to stop them. I also urge Congress to ensure that the proposed changes do

not come to fruition. In the meantime, however, the Administration’s retrenchment

on clean air already has jeopardized all of the existing NSR cases brought by the

States and the Federal Government, and threatens to thwart any future NSR enforcement efforts.

My testimony today addresses four points. First, I explain how the Administration’s proposed changes would, if enacted, illegally contravene the Clean Air Act. I

intend to go to court to challenge these illegal changes if the Administration puts

them into effect. And I intend to win. Second, I demonstrate that the Administration’s plans to gut the NSR provisions are already—before the changes even become

effective—jeopardizing our existing enforcement cases and depriving us of the millions of tons in pollution reductions that those cases would yield. Third, I refute

both the Administration’s claim that the NSR program needs ‘‘clarification’’ and industry’s contention that it was ‘‘unfairly surprised’’ by our enforcement cases. Finally, I offer my recommendations as to how Congress should respond to the Administration’s assault on the Clean Air Act.

I. THE ADMINISTRATION’S PROPOSED CHANGES ARE ILLEGAL

The Administration’s proposed changes—so far as we know them through EPA’s

press statements—are illegal because they purport to amend the Clean Air Act. I

will first explain the existing law, as enacted and enforced under the prior Reagan

and Bush Administrations. I will then review the changes and explain why they are

illegal.

A. New Source Review Law and Regulations

In 1977, Congress created the Prevention of Significant Deterioration (PSD) program to ensure that increased pollution from the construction of new emissions

sources or the modification of existing emission sources would be minimized, and

to ensure that construction activities would be consistent with air quality planning

requirements. This program only applied to areas of the country where the air quality met or exceeded the national ambient air quality standards. The non-attainment

New Source Review program, also created in 1977 contains virtually identical requirements applicable to facilities in non-attainment areas. (I refer to both programs

together as the NSR program.)

Generally, the NSR program requires such sources to obtain permits from the permitting authority before the sources undertake construction projects if those projects

will result in an increase in pollution above a de minimis amount. In addition, the

NSR regulations usually require that sources install state-of-the-art controls to limit

or eliminate pollution. Congress required and fully expected that those older existing sources would either incorporate the required controls as they underwent ‘‘modifications,’’ or would instead be allowed to ‘‘die’’ and be replaced with new, state-ofthe-art units that fully complied with pollution control requirements.

The Clean Air Act defines ‘‘modification’’ as any physical change or change in the

method of operation that increases the amount of an air pollutant emitted by the

source. 42 U.S.C. § 7411(a). Courts for many years have interpreted the Clean Air

Act term ‘‘modification’’ broadly. Alabama Power Co. v. Costle, 636 F.2d 323, 400

(D.C. Cir. 1979) (the term ‘‘ ‘modification’ is nowhere limited to physical changes exceeding a certain magnitude’’); Wisconsin Electric Power Co. v. Reilly, 893 F.2d 901,

905 (7th Cir. 1990) (‘‘WEPCO’’ (‘‘[e]ven at first blush, the potential reach of these

modification provisions is apparent: the most trivial activities—the replacement of

leaky pipes, for example—may trigger the modification provisions if the change results in an increase in the emissions of a facility.’’) The WEPCO court noted that

Congress did not intend to provide ‘‘indefinite immunity [to grandfathered facilities]

from the provisions of [the Clean Air Act],’’ id. at 909, and that ‘‘courts considering
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2That NSR applies only when both a modification is large enough and the emission increase

is significant was clearly demonstrated in EPA’s May 23, 2000 applicability determination concerning a proposal by the Detroit Edison Company to replace and reconfigure the high pressure

section of two steam turbines at its Monroe Power Plant. There, EPA determined that, although

the modification was significant enough to trigger the NSR provisions, because the project would

not lead to an increase in emissions, it was not subject to the pollution control requirements

of the PSD program. Applicability Determination, p. 20. Indeed, as Detroit Edison explained to

EPA, ‘‘because the change would increase efficiency, it would allow increased electricity generation using the same amount of coal, boiler heat input and steam flow while producing the same

level of emissions as currently emitted.’’ Id. Thus, contrary to the Administration’s rhetoric,

EPA’s existing implementation of the NSR program does not weaken the utility industry’s incentive to undertake efficiency programs (or any other projects for that matter) that do not involve

increased pollution.

the modification provisions of [the Clean Air Act] have assumed that ‘any physical

change’ means precisely that.’’ Id. at 908 (emphasis added) (citations omitted).

EPA recognized, however, that interpreting ‘‘modification’’ to include literally ‘‘any

physical change’’ could become administratively unworkable (‘‘the definition of physical or operational change in Section 111(a)(4) could, standing alone, encompass the

most mundane activities at an industrial facility (even the repair or replacement of

a single leaky pipe, or a change in the way that pipe is utilized)’’). 57 Fed. Reg.

32,314, 32,316 (July 21, 1992). To exclude these trivial activities from the scope of

the NSR provisions, EPA regulations have exempted routine maintenance, repair,

and replacement from the definition of modification since 1977. 40 C.F.R.

§ 52.21(b)(2)(iii).

EPA historically has analyzed and applied the ‘‘routine maintenance’’ exemption

to modification by using a common sense test that assesses four primary factors, the

(1) nature and extent, (2) purpose, (3) frequency, and (4) cost of the proposed work.

See, e.g., Memorandum from Don R. Clay, EPA Acting Assistant Administrator for

Air and Radiation, to David A. Kee, Air and Radiation Division, EPA Region V

(Sept. 9, 1988). This approach was upheld by the U.S. Court of Appeals for the Seventh Circuit in WEPCO, a case brought under the first President Bush. Our cases

follow these standards.

Although Congress did not authorize EPA to create this ‘‘routine maintenance’’ exemption, the Court of Appeals for the D.C. Circuit ruled, in a challenge to the exemption in the PSD regulations for minor emission increases, recognized that EPA

may exempt de minimis activity from the scope of the modification provisions. Alabama Power Co. v. Costle, 636 F.2d at 360–61. See also Natural Resources Defense

Council v. Costle, 568 F.2d 1369 (D.C. Cir. 1977) (similar holding regarding the

Clean Water Act). Thus, as long as it is construed narrowly, the routine maintenance exemption is legal.

Another change EPA made over a decade ago was to limit the scope of the modification provisions to those modifications that generate a significant increase in pollution. This requirement is essential when one considers the justifications offered

by the present Administration for its NSR ‘‘reforms.’’ In announcing the NSR

changes, EPA has claimed repeatedly that NSR requirements have deterred emissions-reducing projects. In offering this justification, EPA appears to have bought

into one of the power industry’s favorite arguments against the NSR program—that

the program somehow prevents companies from making efficiency improvements

that would benefit the environment. However, efficiency improvements that are environmentally beneficial and reduce emissions do not trigger NSR: if emissions decrease—or even increase only slightly—existing NSR requirements are inapplicable.2

B. The Bush Administration’s Proposals

The Bush Administration proposed changes would sanction plant modifications

that are far from de minimis. For example, EPA proposes to allow large facilities

to operate under a single plant-wide emissions cap (plant-wide applicability limit or

PAL) for a period of 10–15 years. Unlike what some who support plant-wide caps

would require—that the caps decline over time—the Administration would allow the

caps to remain high. Emissions at such a plant would remain the same throughout

the 10–15-year period, regardless of changes in air quality, technology, or air quality

standards. Because the plant’s emissions are set for the duration of the PAL, States

likely would be prohibited from imposing emission reduction requirements beyond

what the PAL required, regardless of air quality needs.

Similarly, EPA proposes that any unit that has installed ‘‘Best Available Control

Technology’’ (BACT) or BACT equivalent since 1990 would not be required to undergo NSR review for a period of 10–15 years, unless ‘‘allowable’’ emissions increase.

Again, this limit on review of the source’s emissions fails to consider evolving air
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3To the extent EPA has indicated it will make retroactive changes to the Act, any such

changes would be of questionable validity. The D.C. Circuit, which would have exclusive jurisdiction of such changes under 42 U.S.C. § 7607(b)(1), prohibits retroactive application of interpretive rules absent authority delegated by Congress, see Health Ins. Ass’n of America v.

Shalala, 23 F.3d 412, 423 (D.C. Cir. 1994) (‘‘[I]nterpretive rules, no less than legislative rules,

are subject to Georgetown Hospital’s ban on retroactivity.’’), and such authority is entirely lacking here.

quality needs, and may prevent a State from imposing more stringent emission reduction requirements, even if air quality considerations would justify such measures. Congress’s clear intention to have the Clean Air Act stimulate technology improvement will be frustrated.

EPA also proposes several significant revisions in the method by which NSR-triggering emissions increases are calculated. For example, EPA proposes that the baseline for measuring emissions (for facilities other than power plants) become the

highest emission level achieved over any 2 year period during the last 10 years. By

allowing a source to use a baseline that extends back 10 years, EPA is proposing

to permit inflation of the source’s baseline, because many regulations in the last 10

years have forced sources to reduce emissions. These required emission reductions,

however, may not be reflected in the source’s baseline generated under the Administration’s proposal. Thus, a source would actually be allowed to increase emissions

from current levels without any attendant pollution control upgrade.

The most alarming revision proposed by EPA is the wholesale expansion of the

Routine Repair and Maintenance (RRM) exception. Specifically, EPA is proposing to

allow companies to treat multi-million dollar once-in-a-lifetime projects as ‘‘routine

maintenance,’’ even though, as industry documents establish, power plant staff

never considered the projects routine. EPA is planning to forego pollution control

requirements for virtually limitless ‘‘like-kind’’ replacements that would restore and

perhaps expand an old plant’s capacity and dramatically prolong its life. To accomplish this, EPA proposes to include in the definition of RRM projects that are below

a specified cost threshold (inflated to reflect facility replacement cost, not original

cost), and that involve installation of replacement equipment that serves the same

function and does not alter basic design parameters. The cost threshold test fails

to consider air quality and places no limit on any emissions increase the project

might produce. Thus, significant increases in emissions could occur with no attendant pollution control requirement. Similarly, the equipment replacement exemption

could essentially allow a company to rebuild a source without undergoing any governmental review and without meeting pollution control requirements. Significant

emission increases could result.

These impacts have severe consequences for the American public and particularly

for the States. EPA’s proposal would severely blunt one of the States’ most important anti-pollution tools, placing the States in an extraordinarily difficult position

regarding their responsibilities under the Clean Air Act. It is the States—not EPA,

not the Federal Government—that have the responsibility for insuring that National

Ambient Air Quality Standards (NAAQS) are met. 42 U.S.C. §§ 7404; 7410. Under

EPA’s proposed revisions, the States stand to lose flexibility in determining how

best to achieve or maintain air quality because the largest sources of pollution—

which generally are the most efficient to control—will essentially be exempted from

regulation.

C. States Will Sue to Prevent this Illegal Rollback of Clean Air Protections

I will do all in my power to prevent the Administration from unilaterally gutting

the Clean Air Act. The Administration cannot change the law retroactively as it is

seeking to do,3 it cannot change regulations without adequate notice and comment.

And, most importantly, the Administration cannot eviscerate the Clean Air Act

without getting Congress to pass legislation allowing such a rollback. As explained

above, the CAA itself contains no exemption for routine maintenance. Nor does it

exempt like-kind replacement activities, no matter how massive or infrequent, from

the definition of modification. With the statute so clear, the permissible scope for

agency-created exemptions is very narrow. When in the Alabama Power case the

D.C. Circuit held, following ample Supreme Court and D.C. Circuit precedent, that

EPA can exempt de minimis activity, it emphasized that EPA could only exempt the

most minor of activities so that the program would be workable administratively.

Indeed, the court stated in very strong terms that ‘‘there exists no general administrative power to create exemptions to statutory requirements based upon the Agency’s perceptions of costs and benefits.’’ Alabama Power, 636 F.2d at 357. The court

also held that the power to create exceptions ‘‘is not an ability to depart from the

statute, but rather a tool to be used implementing the legislative design.’’ Id. at 359.
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That is not what the Administration proposes to do. The Administration’s proposed changes are far from de minimis. EPA’s changes would have the effect of essentially eliminating the applicability of New Source Review to modifications, contrary to the express language of the statute. EPA’s announced changes will confer

on existing, dirty power plants indefinite immunity from the requirements of the

Clean Air Act, contrary to Congress’s clear intention when it enacted the NSR provisions 25 years ago. This is illegal and for that reason, I—and I expect to be joined

by may other States—intend to sue EPA if it carries out its plans.

II. THE PROPOSED CHANGES AND THE ADMINISTRATION’S HOSTILITY TO NSR ARE

ALREADY JEOPARDIZING THE ENFORCEMENT CASES

If enacted, the Administration’s proposed changes would impermissibly undercut

existing law and reduce the scope of the Clean Air Act. Simply by signaling its hostility to the NSR program, however, the Administration already has compromised

our existing enforcement cases. Indeed, from the day Administrations in Washington changed, industry has sought to avail itself of its enhanced bargaining position.

A. The Administration is Overtly Hostile to NSR

Fifteen months ago, the Administration released President Cheney’s ‘‘National

Energy Policy: A Report of the National Energy Policy Development Group.’’ The report directed Attorney General Ashcroft to ‘‘review existing enforcement actions regarding NSR to ensure that the enforcement actions are consistent with the Clean

Air Act and its regulations.’’ That directive immediately undercut the Department

of Justice’s lawyers; yet, on January 15, 2002, DOJ concluded that the NSR cases

were legally sound.

The Vice President also directed the EPA ‘‘in consultation with the Secretary of

Energy and other relevant agencies, to review NSR regulations, including administrative interpretations and implementation, and report to the President within 90

days on the impact of the regulations on investment in new utility and refinery generation capacity, energy efficiency, and environmental protection.’’ Over a year later,

EPA finally announced its illegal, wholesale administrative rollback of NSR.

In its press statements, EPA claims to be simply ‘‘clarifying’’ the existing regulations and maintains that its proposed rewriting of the law will not affect the filed

cases. Indeed, on the day of EPA’s announcement, Administrator Whitman explained that EPA would continue its enforcement efforts against past violations, ‘‘because you can’t get away with violating the law just because the law gets changed.’’

See June 14, 2002 Atlanta Journal and Constitution article ‘‘Air Proposals Irk Environmentalists; Bush Plan a ‘Massive Gift’ to Energy Industry, Critics Say.’’

Earlier, on March 27, 2002, the Justice Department’s environmental chief, Thomas Sansonetti, said that pursuing NSR cases was one of his top priorities. Quoted

in the ‘‘Daily Environment Report,’’ Mr. Sansonetti stated: ‘‘We’re going full steam

ahead. We’re actively pursuing all cases. When companies refuse to settle, DOJ will

take them to trial.’’ He predicted that DOJ would prosecute two or three NSR cases

in court in the coming year. He also said that DOJ had budgeted $3 million in the

current fiscal year to pursue such cases. I’d like to believe Mr. Sansonetti; his attorneys at the Justice Department have done excellent work on the pending cases and

I want to continue our partnership. But his statements were made before EPA announced its retrenchment. Since then, DOJ has been silent as to its future intentions regarding NSR.

B. The Existing NSR Cases are in Jeopardy

Although we agree with the Administration that any new regulations should not

be retroactive, it would be naive to believe that industry will not try to use the

‘‘NSR reforms’’ in court to justify their past conduct. We are already seeing the effects of this Administration’s misguided and illegal policy changes: settlements are

stalled, judges are wondering about the impact of the reforms on their cases, and

industry lawyers are already arguing in court that the cases should not go forward.

Whether or not the rollback will affect the existing cases is an issue of first impression for the courts because of the unprecedented nature of EPA’s action. Never before has EPA—or Congress, for that matter—undertaken such a clear retreat on environmental protection. Conducting such a rollback while enforcement cases under

the old rules are pending is not only unprecedented but was unimaginable, at least

before this Administration came to power. Simply put, the existing NSR cases are

in jeopardy and we are fooling ourselves if we believe that the Federal Government

will be filing more cases after rewriting the regulations to legalize the conduct at

issue.
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I would like to focus my comments now on three concrete examples of how the

Administration’s policies are adversely affecting our pending enforcement cases.

1. Cinergy and VEPCO

On November 16, 2000, my office and the EPA reached a $1.2 billion settlement

in principle covering eight coal-fired power plants run by the Virginia Electric

Power Company (VEPCO)—one subject to New York’s pending lawsuit and seven

others that VEPCO brought into the settlement. The settlement would have reduced

air pollution by more than 270,000 tons annually. VEPCO was to spend $1.2 billion

over 12 years to reduce its sulfur dioxide emissions by 70 percent and its nitrous

oxides emissions by 71 percent from pre-existing levels. Further, VEPCO was to pay

$5.3 million in penalties to the Federal Government and an additional $13.9 million

to fund environmental benefit projects, with a portion going to New York State. The

intent at the time was to finalize the agreement within 60–90 days. Eighteen

months later, this agreement remains unexecuted. My staff has spent countless

hours in meetings with VEPCO and the Federal Government, but the regulatory uncertainty has prevented any final agreement. This is a terrible loss for the people

of this Nation, who expect, and deserve, cleaner air.

Similar delay has beset our effort to reach a final agreement with the Ohio-based

utility Cinergy. In December 2000, I joined the Federal Government and the States

of Connecticut and New Jersey in reaching a settlement in principle covering ten

of Cinergy’s coal-fired power plants (one subject to New York’s lawsuit and nine others). We were to see over 300,000 tons in emission reductions, and $30 million in

penalties and environmental projects. Like VEPCO, the Cinergy agreement remains

in limbo. After tolerating 2 years of settlement discussions, the Cinergy court has

placed the case back on the litigation track. Although DOJ advised the court that

it intended to file an amended complaint by July 10, it has not yet done so, raising

questions about DOJ’s willingness to pursue NSR enforcement cases when its client,

EPA, is in the process of changing the rules.

Although Cinergy and VEPCO have continued to express their interest in settlement, their actions speak louder than words. As might be expected, the softening

of EPA’s regulatory posture has only hardened Cinergy’s and VEPCO’s positions on

the remaining issues to be worked out. I now see no way for these settlements to

become final unless the States and DOJ capitulate on the remaining issues, something that I am not prepared to do.

2. Tennessee Valley Authority case

In 2000, EPA issued a final determination that TVA had violated the NSR requirements of the Act by undertaking enormous and expensive modification projects

at several of its power plants. TVA appealed to the Eleventh Circuit, briefs were

submitted and oral argument was held this past May. Like many others involved

in these cases, I was hopeful that the Eleventh Circuit would issue a quick decision,

affirming EPA’s determinations. A decision from the Eleventh Circuit would be an

extremely important precedent for the other NSR cases.

Instead, in the wake of EPA’s recent announcement on NSR ‘‘reform,’’ the Eleventh Circuit took the extraordinary step of ordering the parties to mediation. Although we cannot be certain that this order was issued in direct response to the

EPA announcement, it is unlikely that the timing of the two events is coincidental.

3. Niagara Mohawk case

On January 10, 2002, Governor Pataki and I filed a lawsuit in Federal court

against Niagara Mohawk Power Corporation and NRG (the current owner of the

power plants) for violating NSR at two power plants in western New York. The

Dunkirk and Huntley coal-burning power plants account for more than 20 percent

of the nitrogen oxide emissions and 38 percent of the sulfur dioxide emissions released by all power plants in New York State.

The defendants filed a motion to dismiss all or portions of the case on jurisdictional grounds. Briefing was completed and my attorneys were preparing to argue

the case. But shortly after EPA’s announcement, the judge called us in to explain

how the Administration’s announced intention to change the NSR rules would affect

the existing case. In its brief on this issue (see Exhibit 2), Niagara Mohawk has described EPA as ‘‘reconsidering’’ its position on NSR and recommended that the

Court put the case on hold until EPA takes final action on the NSR changes:

In order to consider the merits of the case, the Court would ultimately have

to decide whether EPA’s interpretation of the Act and regulations, as applied

by DEC, is reasonable and in accordance with law. The Court cannot properly

make that decision until the EPA decides finally what its interpretation is.
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In short, EPA has said that its recommendations involve clarification of existing law and policy, and definition of a regulatory concept (routine maintenance,

repair and replacement) that derives from EPA’s interpretation of the Clean Air

Act. Accordingly, to the extent that EPA’s final action follows its recommendations, its action may affect not only the State’s request for prospective injunctive

relief, but also its request for penalties for alleged past violations.

Niagara Mohawk also contends that even if the new rules were purely prospective, ‘‘they would still affect the State’s request for injunctive relief.’’ We think this

argument is wrong. When a business breaks the law—no matter how much influence it may now have in Washington—the rule of law requires courts to order compliance. However, Niagara Mohawk’s argument evidences a practical problem that

judges will face if the Administration succeeds in implementing its ‘‘reforms.’’ We

expect the courts to find with relative ease that the utilities violated the law. But

when it comes time to select a remedy, will they require substantial emission reductions even though the Administration’s proposed policy would not require such reductions? Will a practical judge require a company to spend millions of dollars on

pollution controls for actions that EPA is now saying do not require such controls?

Indeed, now can EPA even ask for that relief with a straight face? If any of these

cases go to trial, we might see the payment of some fines for past wrongdoing, but

we may be deprived of the emission reductions we so desperately need. More money

in the State and Federal coffers, while welcomed, will not help us reverse the ravages of acid rain and respiratory disease in New York State and elsewhere.

I intend to continue to press forward on this important case. Niagara Mohawk

violated the law and we need the remedy of dramatic emission reductions. Unless

EPA tries to take away the States’ authority to reject the regulatory changes—something I hear may be in the works—New York can continue to implement the law

as it has existed for 25 years within New York. But we enjoy no such comfort in

our out-of-state cases, where it will be difficult to proceed if EPA pulls the rug out

from under us.

III. NSR NEEDS NO ‘‘CLARIFICATION’’

The power industry has always understood the scope of NSR and has never considered the modifications at issue to be routine maintenance. These modifications

were large-scale capital projects that required significant advance planning and

typically cost millions of dollars; they were intended to fix problems that routine repair or replacement had been unable to address. By contrast, activities considered

by industry to be ‘‘routine’’ include relatively mundane actions, such as the day-today repair of leaky or broken pipes. In short, the record supplies no basis for the

Administration’s claims that the law was somehow unclear and that industry was

somehow ambushed by our enforcement cases.

A. Industry Officials Originally Distinguished Routine Activities from Upgrades

Industry documents establish that industry officials appreciated the potential applicability of the NSR provisions to their power plant life extension projects. Because of protective orders entered in our various cases, I am unable to quote from

most of these documents in my testimony. However, despite the utilities’ attempt

to cloak their plant life extension projects in secrecy, publicly available industry documents amply demonstrate industry’s acknowledgment of the routine maintenance

exemption’s limited scope. For example, the Babcock and Wilcox company, in its definitive power plant treatise, Steam, Its Generation and Use, distinguished some of

the very plant life extension activities at issue in our NSR cases from routine maintenance activities as follows: ‘‘Older boilers represent important resources in meeting energy production needs. A strategic approach is required to optimize and extend the life of these units. Initially, routine maintenance is sufficient to maintain

high availability. However, as the unit matures and components wear, more significant steps become necessary to extend equipment life.’’ Id. at 46–1 (Exhibit 3). Our

cases involve such ‘‘more significant,’’ as opposed to the routine maintenance activities that the plants conduct on a day-to-day basis.

Similarly, the American Electric Power Company (AEP) explained to the Ohio

Public Utilities Commission that life extension activities go beyond routine maintenance: ‘‘As time goes on, the cumulative effects of operation affect more components,

and affect those components more severely. Finally, the major subsystems and components reach a stage at which ‘‘normal’’ maintenance and repair become inadequate to support satisfactory continued operation.’’ Direct Testimony of Myron

Adams, AEP’s Manager of Integrated Resource Planning, filed with the Public Utilities Commission of Ohio on July 20, 1994 at 20 (Exhibit 4).
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Publicly available information likewise demonstrates the magnitude of the

projects we have cited in our cases. For example, modifications performed by TVA

include projects costing $57 million, $23 million, and $29 million. These modifications required that the affected units be shut down for 13 months, 3 months and

6 months respectively. Another TVA project costing $11 million required construction of a railroad track and a monorail to facilitate the replacement of 44 percent

of the 234,000 square feet of total boiler surface area. At Ohio Edison, the NSR violations include installation of an entirely new and redesigned furnace and burner

system—the core of any power plant—at the W.H. Sammis plant, as described in

the accompanying article (Exhibit 5).

Documents produced by Niagara Mohawk show that the company originally used

the term ‘‘routine maintenance’’ to apply to only a narrow category of work done at

the plant. (Exhibit 6A). In another company document, Niagara Mohawk made clear

that work done at the plant for the purpose of extending the life of an electric generating unit concerned ‘‘components that are not routinely replaced.’’ (Exhibit 6B). Indeed, Niagara Mohawk requested that its contractor not include ‘‘maintenance’’ type

recommendations in a life extension report for one of the generating units. (Exhibit

6C).

Industry’s complaint that EPA suddenly changed its interpretation of the NSR requirements during the Clinton Administration is similarly contradicted by industry

documents dating from the 1980’s, which cite particular plant life extension projects

as exceeding routine maintenance and therefore triggering the NSR requirements.

Thus, in 1984—seven years after the enactment of the NSR requirements—the Electric Power Research Institute (EPRI) held a conference that included the topic of

extending the lives of old power plants The conference literature explicitly recognized that ‘‘a fossil fuel power plant is designed for a 30-year life,’’ meaning that

all plants existing when the NSR/PSD requirements were enacted would reach the

end of their useful lives by 2007. (Exhibit 7). Conference attendees then discussed

the life extension activities that would be needed. A Duke Power representative

stated that keeping the old plants running ‘‘necessitated us developing a different

approach than routine maintenance’’ which only keep ‘‘the plant in service until the

end of its design life.’’ (Exhibit 8).

Similarly, at 1985 and 1986 EPRI conferences, industry representatives recognized that life extension activities transcend routine maintenance:

If plant life extension serves the balanced interests of stockholders and ratepayers, capital improvements and increased attention to equipment above and

beyond routine maintenance may be warranted....

It is of primary importance to define the distinction between plant life extension

work and routine maintenance.

(Exhibit 9).

B. Industry was Fully Aware that its Activities were not Exempt from NSR

Not only did industry recognize that plant life extension activities failed to qualify

as ‘‘routine maintenance,’’ industry also understood that NSR requirements would

likely be applicable. For example, an article entitled ‘‘Regulatory Aspects of Power

Plant Life Extension’’—which was presented at a 1985 industry conference—expressly discussed the circumstances under which life extension projects could require NSR permits. (Exhibit 10). As a result, EPRI recommended ‘‘that corporate

counsel be consulted as a part of life extension planning activities, particularly for

the interpretation of regulatory and environmental issues when such activities are

clearly beyond the scope of what might be considered typical maintenance.’’ (Exhibit

11)

Rather than seeking EPA’s guidance, however, industry simply attempted to conceal its activities. For example, a 1984 EPRI workshop on life extension recommended that life extension projects be described as maintenance activities in

order to avoid triggering NSR requirements:

[T]here are a number of issues which require clarification. Several of these

are: What is considered ‘routine’ repair, replacement, or maintenance for the

purpose of qualifying for an exemption to the NSPS modification provisions?

Some aspects of life extension projects may not be considered routine repair/

maintenance/replacement. To the extent possible these projects should be identified as upgraded maintenance programs....

Life extension projects will result in increased regulatory agency sensitivity

to facility retirement dates. . . . Regulatory agencies may contend that since

life extension projects will defer the need for new generation, additional pollution control should be required for the older, higher emitting affected plants.
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4Likewise, a decade ago, one of the attorneys at Porter, Wright, Morris & Arthur, counsel for

AEP and Ohio Edison, wrote:

The ‘‘Routine maintenance, repair, and replacement’’ exclusion may be available only if: (1)

the repair/replacement is immediate after discovery of deterioration; (2) the replaced equipment

is standard in the industry and fails frequently; (3) the repair/replacement is inexpensive; and

(4) the repair/replacement does not appreciably prolong the life of the unit.

It may be appropriate to downplay the life extension aspects of these projects

(and extended retirement dates) by referring to them as plant restoration (reliability/availability improvement) projects. To the extent possible, air quality

regulatory issues associated with these projects should be dealt with at the

State and local level and not elevated to the status of a national environmental

issue.

To the extent possible, project elements should be stressed as maintenance related activities to maximize chances for NSPS exemptions. Utility accounting

practices play a significant role here.

(Exhibit 12).

In 1988, EPA issued an applicability determination to the Wisconsin Electric

Power Company, or WEPCO, in which EPA determined that WEPCO’s multi-million

dollar life extension projects were not covered by the routine maintenance exemption. The issuance of the WEPCO interpretation conclusively disabused industry of

any notion that it might avoid compliance with NSR requirements. Shortly after

EPA issued its WEPCO applicability determination concerning the life extension

projects at issue there, the Utility Air Regulatory Group (UARG), a leading industry

group, advised its members that ‘‘Life Extension is [now] an unpopular term in the

wake of WEPCO.’’ (Exhibit 13, p. 2.). Consistent with other industry missives at the

time, the memo further recommended against using ‘‘the term ‘life extension’ to describe any project.’’ Id., at 5. The same industry memorandum demonstrates that

UARG and its members fully understood EPA’s interpretation limiting the routine

maintenance exception:

According to UARG, EPA equates ‘routine’ with ‘frequent’ . . . . UARG believes

that under present EPA policy, in order to qualify for the routine maintenance exemption, the activity would have to be:

• frequent, • inexpensive, • able to be accomplished at a scheduled outage, • will not extend the normal economic life of the unit, • be of standard industry design.

Id., at 4. UARG also advised its members that if the WEPCO applicability determination were upheld by the courts, it ‘‘will set a serious precedent if it is adverse.’’ Id., at 5.

After the WEPCO determination, one of Ohio Edison’s in house attorneys and one

of the lawyers at the law firm representing Ohio Edison wrote an article explaining

that, under the EPA interpretation reflected in WEPCO, Ohio Edison’s own plant

improvements would be subject to NSR, since: ‘‘[a]fter WEPCo, virtually any physical change to an existing facility, even pollution abatement activities and an unpredictable array of repair, replacement, and maintenance projects, can trigger new

source control obligations.’’ See June 18, 1990 letter from David Feltner, Senior Attorney for Ohio Edison, to Ms. Cheryl Romo, with enclosed draft article entitled ‘‘Is

There Life Extension After WEPCo?.’’ (Exhibit 14). (I note that the authors of this

article overstate the reach of the NSR requirements by overlooking that the requirements apply only if an emissions increase is projected.) Despite the opinions of its

attorneys, Ohio Edison continued to undertake expensive life extension activities at

its plants without applying for an NSR permit or otherwise notifying the permitting

authorities.4

‘‘What You need to Know About Modifications/Major Modifications’’ by Robert

Meyer at p. 28. (Exhibit 15).

IV. THE ROLE OF CONGRESS

Congress need not sit idly while the Administration unilaterally ignores its earlier

mandates and jeopardizes public health and the environment. As I’ve said, I will

fight these changes; I urge you to do so as well.

First, while I can go to the courts, you have a greater ability to ensure this rollback does not occur. Any litigation I bring may take years to be resolved. You can

act strongly and quickly. I urge you to pass specific legislation, this session, that

would expressly prohibit the Administration from proposing or finalizing any new

exemptions from NSR, including those that EPA has announced.
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Second, I urge you not to be seduced by the Administration’s claim that NSR can

be replaced by the Administration’s so-called ‘‘Clear Skies’’ initiative. That plan is

an inadequate substitute for existing law and a wholly unsatisfactory alternative to

Senator Jeffords’s ‘‘Clean Power Act.’’ At the outset, I note that ‘‘Clear Skies’’ is still

no more than a press release. Although months have elapsed since the ‘‘Clear Skies’’

replacement for NSR was announced, no plan has even been introduced in Congress.

Many of us took note of Administrator Whitman’s criticism of the ‘‘Clean Power

Act,’’ which she dismissed on the grounds that it is unlikely win congressional approval. I would point out that Senator Jeffords’s legislation has been introduced,

and has passed the Senate Environment and Public Works Committee—so it is at

least two steps ahead of ‘‘Clear Skies.’’

Even if the Administration were serious about ‘‘Clear Skies,’’ the pollution reductions that program would offer are too little, too late: the caps are too high and

would not take affect until the distant future.

To be blunt, the ‘‘Clear Skies’’ caps are based on little more than politics. They

do not guarantee compliance with air quality standards. The caps certainly are not

based on sound science. Every month, another study shows the need to reduce pollution more aggressively. For example, a recent study finds new links between fine

particulate matter (PM) and cancer. Nor does technical feasibility stand in the way

of higher caps. More aggressive SO2 and NOx cuts are clearly technically feasible

even with existing technology. Nor is it a question of rates that consumers must pay

for power. The Department of Energy itself determined that the country could cut

NOx and SO2 by 60–80 percent by 2010 with virtually no rate impact. See Energy

Information Administration, Analysis of Strategies for Reducing Multiple Emissions

from Power Plants: Sulfur Dioxide, Nitrogen Oxides, and Carbon Dioxide (December

2000).

The Administration tries to sell its plan by using faulty comparisons to current

emissions. Don’t be deceived. Even at their end point, the Bush pollution caps would

be 50 percent higher than, for example S. 556, the Clean Power Act, or EPA’s own

initial proposal. This 50 percent is roughly equivalent to all emissions produced

within the State of Ohio, a leading producer of emissions. This difference alone

could lead to hundreds, and perhaps thousands, of additional deaths each year.

Under the Administration’s program, States will find it far more difficult, if not impossible, to attain their mandated air quality standards.

Under the Administration’s program, many dirty old plants will remain uncontrolled. In 1977, when it enacted the NSR provisions, Congress clearly expected that

all plants would be controlled by 2018—over 40 years after the 1977 amendments

made the NSR requirements applicable to plant modifications. However, if all plants

were controlled with ‘‘best available control technology’’ by 2018, the SO2 cap would

be below 2 million tons, not 3 million tons as contemplated by ‘‘Clear Skies.’’

Moreover, the ‘‘Clear Skies’’ caps would not be fully phased in until the 2020’s.

Even EPA’s own graphs acknowledge that pollution levels will not reach the cap

level by the Administration’s announced target dates. While EPA speaks instead of

incentives for early reductions, the flip side of early reductions is late compliance.

Under the Administration’s program, any cuts now can be banked, ton-for-ton, to

offset subsequent emissions. We should insist on early reduction and caps that are

lower and take effect sooner.

Finally, the Administration’s claim that the President’s plan achieves more reductions than current law is directly contrary to what EPA and the Department of Energy found when they included the emission reductions attributable to full enforcement of the New Source Review provisions. See, e.g., Energy information Administration, Analysis of Strategies for Reducing Multiple Emissions from Power Plants:

Sulfur Dioxide, Nitrogen Oxides, and Carbon Dioxide (December 2000). Furthermore, in its analysis, EPA ignores the emission reductions that will result under

current law from other programs, such as the regional haze rule, the mercury Maximum Available Control Technology (MACT) requirements and the new ozone and

particulate matter standards. Thus, the Administration is not comparing its proposal to the Clean Air Act as it is now written and as it should be implemented

and enforced. Comparing Clear Skies to a Clean Air Act that is ignored or eviscerated is WorldCom-style math at best.

I support the ‘‘Clean Power Act’’ because we need swift and significant reductions

in sulfur dioxide, nitrous oxides, mercury and carbon emissions. I am especially supportive of including carbon in the four pollutant legislation and commend Senator

Jeffords for working so hard on this legislation. The Administration finally admits

that global climate change is happening. Unlike the Administration, however, Senator Jeffords has a plan of action. I urge you to pass the Jeffords ‘‘Clean Power Act.’’
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CONCLUSION

Allow me, and others who are serious about environmental law enforcement, to

continue to use the Clean Air Act to reduce pollution. That is what Congress intended when it adopted New Source Review 25 years ago. Don’t allow the most serious attack on the Clean Air Act since it was adopted to succeed. Don’t allow the

product of 30-plus years of bi-partisan cooperation on clean air to be cast aside.
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RESPONSES OF ELIOT SPITZER TO ADDITIONAL QUESTIONS FROM SENATOR VOINOVICH

Question 1. On July 12, 2002, the New York Times published an article entitled

‘‘In a Switch, Utilities Say Power Is Low’’ that describes the summer power shortages that New York is experiencing. Reportedly, there have been brownouts on Long

Island and in Connecticut, and mobile gas-turbine generators have had to be installed in Chelsea and Long Island. The article cited several causes of the shortages

including aging equipment, maintenance delays, and the difficulties that power-generating companies have had in obtaining permits for new plants and substations in

the affected areas. Due to the maintenance delays and aging equipment, do you

think NSR is a problem in providing the needed electricity to New York?

Response. I do not believe that NSR inhibits the ability of generators to provide

a reliable supply of electricity in New York. Indeed, the referenced article does not

suggest such a link, or even mention NSR. Utilities may lawfully undertake ‘‘routine

maintenance’’ to keep their plants running without having to go through the NSR

process. Moreover, utilities may make even major efficiency improvements that increase the amount of electricity generated by the same amount of fuel consumed

without undergoing NSR review as this would not increase emissions. Finally, although utilities may also make major modifications that do increase emissions, if

they choose to do so, they must—and should be required to—obtain a

preconstruction permit and install state-of-the-art pollution controls. The requirement not to increase pollution is not a barrier to electricity generation.

I note in addition that according to the New York Public Service Commission’s

compilation of applications for new power plants in New York (revised 7/30/02),

3630 MW of new electricity generation has been approved in New York and applications for another 5377 MW are pending.

Question 2. From this article, it seems that routine maintenance is a major issue.

If it is not a problem, what are the short and long term solutions for New York?

Response. I do not see any indication in the article or elsewhere that ‘‘routine

maintenance is a major issue.’’ It is only those companies that have evaded the law

for years and wish to continue doing so that have cited the NSR provision as a

stumbling block to achieving an adequate energy supply.

Nonetheless, I appreciate your interest in New York’s short term and long term

electricity needs. It is a very important issue, one that my staff and I have spent

considerable time considering. Let me briefly respond to your question, and, by separate cover letter, forward to you a copy of my Action Plan for a Balanced Electric

Power Policy in New York State (March 20, 2001). Briefly, we must ensure that we

have sufficient electricity supply in the New York City area (where demand is greatest and transmission constraints the worst) by increasing clean sources of electricity

generation and by reducing the growth of demand through aggressive conservation

and efficiency measures. To achieve these objectives, we will need to develop and

pursue policies that (1) expedite the siting process for new power generation, (2) upgrade the transmission and distribution system, (3) increase renewable energy and

clean distributed generation sources, (4) protect the consumer, and (5) protect the

environment. I firmly believe that each of these objectives is reconcilable with the

others, and that all can be pursued simultaneously.
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ATTORNEY GENERAL’S ACTION PLAN FOR A BALANCED ELECTRIC POWER

POLICY IN NEW YORK STATE

INTRODUCTION

Electric power is in the news and on everyone’s mind these days, with good reason. While we usually take for granted this invisible but vital force that permeates

our daily lives and provides the power without which our modern society could not

exist, recent events in New York and elsewhere demand our close attention and immediate action.

As the economy has grown rapidly in New York over the last decade, so has the

demand for electricity. Demand has risen so dramatically over the past several

years that it is now outstripping available supply in New York, particularly in New

York City and Long Island where transmission constraints require most power to

be generated locally. Moreover, in New York’s restructured market—where the price

of power no longer reflects a regulated price, but rather a market price—the current

supply/demand imbalance has caused dramatic price spikes in electricity bills. For

example, Con Edison’s customers saw their bills increase an average 30 percent last

summer, even though it was the coolest summer in years. California’s forced rolling

blackouts, soaring energy prices, and threatened bankruptcy of several major utilities’ have also heightened New Yorkers’ concerns.

At the same time as New York confronts price spikes and potential shortages, we

are faced with continuing reports of the impacts of electricity generation. Power

plant emissions contribute greatly to acid rain and urban smog, which, in turn,

cause tremendous damage to our health and our environment. Urban smog exacerbates asthma, which is increasing rapidly in New York City and other urban

areas—especially among children. Acid rain is killing entire ecosystems in the Adirondacks and other treasured natural areas. Mercury emitted by coal-fired plants

contaminates fish, and greenhouse gases such as carbon dioxide change the climate.

Power plant cooling water intake systems injure fisheries upon which many New

Yorkers depend.

Clearly, New York needs to find better ways to meet its electricity demands at

a reasonable cost while also protecting its citizens’ health and the State’s natural

resources. To meet growing electricity demand, the State has had to rely largely on

existing power plants, many of which are old, inefficient, highly polluting, and insufficient to meet projected demand. New York policymakers would be foolhardy to ignore the lessons of California, and our own experience, in developing energy policy.

We must move now on two fronts to develop a sustainable, balanced energy policy

that ensures customers a reliable and reasonably priced power supply and that preserves our environment and protects our health. We must meet our immediate

short-term needs by increasing clean supply and reducing the growth in demand

through conservation and efficiency. We must also secure the longer term by using

electricity more efficiently and shifting our dependence on fossil fuel toward renewable sources of electricity.

For the short term, New York must plan for the summer of 2001. Summer is

when the demand for power is the greatest in our region, as more air conditioning

is used in response to hot weather. We must have enough power supply available

downstate to meet expected demand without skyrocketing prices. The power generators the New York Power Authority (‘‘NYPA’’) is placing downstate—among the

cleanest and most efficient available—are a sound approach to accomplish those

goals. At the same time, investments in energy efficiency must be significantly increased. The New York Independent System Operator (‘‘NYISO’’) must enhance the

design and operation of the state’s electricity markets to avoid price spikes based

on abusive market power, and to ensure the integrity of the wholesale power market. Unless these markets work competitively, deregulation cannot achieve its goals,

and consumers, the economy, and the environment will suffer as windfalls are

reaped by the few at the expense of the many.

For the longer term, we must address not only how much power we have available, but how that power is generated. To protect our health and natural resources,

the State must move to a cleaner electricity supply and contain the ever-expanding

growth of demand. Relying more on renewable energy and using electricity efficiently should also lower bills for consumers.

To assure reliable electricity at steady prices we must build new sources of electric power, expand transmission capacity to reach more existing sources of power,

and create more flexible demand during peak demand periodsthrough demand-side

management, conservation and more efficient consumption. We can achieve this

new, balanced energy portfolio by improving the plant siting process, by enacting

policies that promote clean distributed generation and the use of renewable energy
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sources, and by increasing transmission capacity to allow market sited plants to

serve the entire state. We must also ensure that new clean generating capacity displaces older, dirtier, and less efficient power plants.

These goals are achievable if we work together and act with care and speed. New

York is one of the largest energy users in the United States, which is the largest

energy user in the world. Thus, our choices can have a major influence on global

as well as local energy policies and environmental impacts. The following recommendations are a first step toward a balanced strategy on electric power.

EXECUTIVE SUMMARY

The demand for electricity in New York has grown dramatically over the past several years, primarily due to a rising economy. Supply however, has not kept up,

raising reliability concerns for the future. New York has also recently restructured

its electric power markets, and the current supply/demand imbalance has been reflected in the price of power, sometimes leading to dramatic price volatility in electricity bills downstate. As we confront our energy needs, we must recognize the impacts of electricity generation. Power plant emissions contribute to acid rain, smog,

toxic pollution and climate change, all of which have a serious deleterious impact

on our health and environment. These facts raise both short-term and long-term

concerns for New York about the price, reliability, and impacts of electric power.

New York needs to find better ways to meet its electricity demands at a reasonable

cost while also protecting its citizens’ health and the State’s natural resources.

RECOMMENDATIONS

The Attorney General’s Bureaus of Telecommunications & Energy and Environmental Protection recommend the following measures:

A. SHORT-TERM MEASURES

Currently, New York’s growing imbalance in supply and demand is greater

downstate than upstate, due to the nature of transmission constraints, which make

it difficult for significant power to be sent downstate. We must be sure we have

enough electric power supply this summer to meet the anticipated peak demand

downstate by increasing clean sources of electricity generation and by reducing demand through aggressive conservation and efficiency measures. Not only must we

make sure that the lights stay on this summer, but also that there is enough supply

so that electricity prices do not skyrocket.

2. New supply is needed, particularly in downstate areas.—Estimates of peak supply shortfall downstate in the summer of 2001 require the additional generation proposed by the New York Power Authority (‘‘NYPA’’) and others.

3. Immediate efforts to reduce demand will improve reliability, lower price and reduce the need for more supply.—Funding for the three existing State programs that

promote energy efficiency, conservation and renewable energy must be increased.

The Attorney General is directing a portion of its future power plant settlement

funds—totaling approximately $20 million—to the New York State Energy Research

and Development Authority (‘‘NYSERDA’’) for efficiency, conservation and renewable energy programs. Funding for NYPA efficiency programs should be increased

immediately from its current level of $60 million annually to $160 million per year,

with an emphasis on projects to reduce peak demand in New York City and Long

Island. Funding for Long Island Power Authority (‘‘LIPA’’) efficiency programs

should be increased this spring from $32 million per year to $50 million per year.

With increased funding for these demand-reducing programs, it is estimated that

over 600 MW of generation capacity needs could be avoided statewide over the next

2 years.

B. LONG-TERM MEASURES

In the longer term, we must address not only how much power we have available,

but how that power is generated and used. To ensure environmental protection, a

reliable electricity system, and reasonable prices for electricity, we must develop

policies today that (1) improve the siting process for new power generation, (2) upgrade the transmission and distribution system, (3) increase renewable energy and

clean distributed generation sources, (4) protect the consumer, and (5) contain the

growth of demand and protect the environment.

1. We must increase our supply for the long term.—The State needs to recognize

that an increase in supply is necessary to keep up with demand. We need to be innovative and forward-looking in considering how to increase supply while protecting

our environment.
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a. The siting process must be improved.—The Siting Process must be improved to

ensure that necessary new generating facilities come on line expeditiously, with the

least possible impact on the environment and public health: • The Legislature should require the Siting Board and New York State Department of Environmental Conservation (‘‘DEC’’) to decide which siting applications

merit a preference for earlier review. • The Siting Board should designate a project manager for each application. • The Siting Board should require applicants to file environmental permit applications with DEC before filing a siting application. • The Siting Board should establish a 30-day time limit to negotiate voluntary

stipulations. • The Siting Board should appoint an ombudsman for each project to be a focal

point of contact for community groups and to mediate disputes. • The New York State Independent System Operator (‘‘NYISO’’) should set deadlines for Transmission and Distribution Owners to contribute to system reliability

impact studies. • The PSC and the NYISO should assign responsibility for transmission system

upgrades necessary for new generating capacity.

b. New and upgraded transmission lines are needed.—New York needs additional

high voltage transmission capacity to move large quantities of power from places

with surplus power to areas that currently contain limited generating capacity. For

decades, transmission bottlenecks have restricted the efficient use of New York’s overall existing generating capacity as well as access to supplies from out-of-state.

Despite these infrastructure flaws, investment in transmission has declined significantly since 1988. Steps have been taken to establish a federally sanctioned regional

transmission organization (‘‘RTO’’) to address New York’s transmission needs. However, whether or when such an RTO will begin operations remains uncertain. The

PSC and the NYISO have the authority to begin the work needed to relieve New

York’s transmission bottlenecks, and should begin immediately. c. Renewable generation and clean distributed generation sources should be increased.—Until recently, solar and wind generation were not economically competitive with fossil fuel power generation. New technologies for solar and wind generation, combined with increased fossil fuel costs, have narrowed the cost gap considerably. The Legislature should join New Jersey, Massachusetts, Connecticut, Texas,

and many other states by adopting a Renewable Portfolio Standard (‘‘RPS’’) requiring retailers of electricity to include in their portfolio of supply an increasing percentage of renewable generation.

Policies are also needed to increase clean distributed energy sources. The need for

large power plants and the strain on the transmission system could be lessened by

distributing small-scale generation units (i.e. fuel cells, wind generators, small-scale

hydro, solar cells, and cogeneration facilities) that use minimally polluting technologies directly on the site where the electricity is to be used. The Legislature

should (i) expand tax credits for the purchase of clean distributed generation technologies, and (ii) expand the Solar Net Metering Law to include wind and small

hydro power—allowing owners of such generation to sell excess power generated

back to the grid. In addition, NYPA should work with local governments across the

State to install fuel cells at landfills and wastewater treatment facilities, which

produce large quantities of methane that can be used to power fuel cells.

2. The consumer must be protected during the transition to competitive markets.

a. The NYISO must enhance its market monitoring and price mitigation functions.—Electricity prices must not be permitted to soar during the transition to competitive markets for this vital service. The NYISO has made significant progress toward developing competitive power markets and in monitoring the markets for potential abuses of market power. However, more needs to be done to ensure stable

prices for the summer of 2001 and beyond, whenever supply and demand are severely out of balance. The NYISO must implement its proposed ‘‘automatic’’ mitigation, which seeks to ensure that prices reflecting potential abusive exercise of market power do not set the market-clearing price. The NYISO must also strengthen

its current forward-looking market mitigation, by obtaining approval from the Federal Energy Regulatory Commission (‘‘FERC’’) to order retroactive refunds when

abuses of market power are timely identified. The current $1,000 per megawatthour cap on the price of wholesale power should be retained, and should be kept

in line with any price caps in adjoining markets, until a judgment is made that New

York’s markets are reasonably competitive, especially during times of peak demand.

b. Consumers must be protected from extremely volatile electricity prices while receiving necessary market price signals.—During the transition to deregulation, utilities should bear some of the risk of high wholesale market prices with customers,

rather than completely passing through such prices to consumers. This will
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1See, NYISO Installed Capacity Load Forecast Study for Summer 2001. Http: //

www.nyiso.com/markets/icapinfo.html#summer—2001. 2Only 308 MW of power were added between 1996–2000, compared with 3,410.7 MW added

between 1990 and 1995. This data is based on NYISO registration dates for New York power

plants currently operating. 3 New York State Energy Planning Board (‘‘NYSEPB’’), New York State Energy Plan and

Final Environmental Impact Statement. November 1998. p. 3–60, 3–62. 4State-mandated DSM Funding in 2000 came from three sources: (1) SBC; See Order Continuing and Expanding the System Benefits Charge for Public Benefit Programs, Case NO. 94-

E–0952, et. al., (January 26, 2001); (2) NYPA, see NYPA press release, November 30, 2000; and

(3) LIPA, see LIPA Clean Energy Initiative, May 3, 1999. 5 New York State’s total summer electric generation capacity is 35,098 MW. NYISO 2000 Load

And Capacity Data Report, July 1, 2000, Table 111–2, p. 55. Seasonal effects change capacity

levels for certain generators, resulting in a state-wide winter capacity of 36,649.8 MW. One

megawatt is the amount of power required to light 10,000 100-watt light bulbs. Because demand

for electricity peaks in the summer, the winter capacity has less significance for system reliContinued

incentivize utilities to better manage their risk, while affording consumers price signals upon which to make decisions about electricity use.

3. Demand must be contained over the long term and the environment must be protected.—As the economy and population grows, so will demand. We must meet

growth without increasing degradation. Aggressive measures to reduce demand, together with construction of clean and renewable power plants, will greatly increase

the probability that older, highly polluting power plants will be displaced.

The NYSERDA, NYPA and LIPA programs that fund efficiency and renewable

projects are not required by law. NYSERDA’s funding expires in 2006, NYPA’s funding is year-to-year, and LIPA’s funding expires in 2004. The Legislature should

mandate that these programs be funded at a higher level for at least the next 10

years. In addition, the Legislature should enact other financial incentives to reduce

demand, such as exempting the most energy efficient products from sales tax.

The PSC should improve pricing and revenue signals to encourage flexible demand and conservation. Utilities should promote offers for different time-of-day

rates to residential customers to encourage load shifting, and master-metered buildings in New York State should be converted to direct metering or submetering. The

PSC should also consider changing the way it regulates the price of electricity distribution. If the rate structure rewarded retailers for reductions in demand, energy

conservation would more likely become a priority.

State government can bring utilities into the State’s energy efficiency efforts by

enacting an Efficiency Portfolio Standard, requiring retail sellers of electricity to

achieve certain levels of demand reductions in their service area. The Federal Government can similarly act to implement stringent minimum energy efficiency standards for appliances and other electrical products to reduce demand for electricity nationwide.

No one proposal within this report stands alone. This package of proposals recognizes the need to address both supply and demand. In so doing, the State will best

promote the growth of competitive electric power markets while also protecting both

consumers and the environment. Taken together, these recommendations are a balanced approach to address the State’s short-term and long-term electric power needs

and to lay the foundation for a sustainable energy policy for the future.

I. NEW YORK MUST ADDRESS ITS GROWING IMBALANCE IN ELECTRIC SUPPLY

AND DEMAND

A. Electricity Supply and Demand are Out of Balance

The recent rapid and welcome growth in New York’s economy has spurred a dramatic increase in demand for electricity. Statewide, peak demand for electricity is

estimated to be increasing at an annual rate of 1.4 percent, with demand increasing

in some regions at more than twice the state-wide rate.1 Growth in generating capacity and investments in efficiency have not kept pace. Indeed, addition of new

electric power sources in New York State has slowed dramatically over the last 5

years, even compared to the limited amount of capacity built between 1990 and

1995,2 and state-mandated demand-side management investments (and their associ- ated savings in needed generating capacity) have declined from a high of $330 million in 19933 to approximately $170 million in 2000.4 This growing imbalance between supply and demand, if unaddressed, can lead only to ever-soaring electric

power prices and eventual blackouts. However, increasing capacity without regard

to environmental considerations, will exacerbate our state’s air pollution problems.

The present facts are stark. New York State has a geographical mismatch between generating capacity and where electricity is used.5 Physical limitations on the
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ability concerns. The summer peak electricity demand for New York State in 2001 is projected

to be 30,620 MW. See, NYISO Installed Capacity Load Forecast Study for Summer 2001. Http:/

/www.nyiso.com/markets/icapinfo. html#summer 2001. 6 NYISO February 15, 2001 Locational Installed Capacity Requirements Study. 7The power outages experienced in parts of New York City and Westchester County that

began on July 6, 1999 were caused by failures in Con Edison’s distribution network, not insufficiency in supply. See, New York State Attorney General’s report, Con Edison’s July 1999 Electric

Service Outages, March 9, 2000. 8These estimates do not take into account the proposed NYPA generating units or additional

projected capacity increases on Long Island. NYISO February 15, 2001 Locational Installed Capacity Requirements Study. See also, NYISO, Power Alert: New York’s Energy Crossroads, March

2001, p. 19, and NYISO March 14, 2001 press release, Expedited Power Plant Development &

More Customer Choices Needed To Avoid California-Type Energy Crisis, Says NYISO Report. 9See, NYISO Installed Capacity Load Forecast Study for Summer 2001. Http://

www.nyiso.com/markets/icapinfo.html#summer—2001. 10See, NYISO Press Release, New York Independent System Operator Finds That New York

City Faces Electricity Shortage, February 14, 2001. See also, NYISO, Power Alert: New York’s

Energy Crossroads, March 2001, p. 19. 11Source: NYISO, Power Alert: New York’s Energy Crossroads, March 2001, p. 19. 12See, August 2, 2000 testimony of PSC Chairman Maureen Helmer before the Assembly

Standing Committee on Energy, Http://www.dps.state. ny.us/testimony—8—2—2000.htm, p.3. 13See, Albany Times Union, Demand the Key to Power Supply, March 6, 2001, p. E1.

amount of electricity that can be transported from one part of the state to another

over the existing high voltage transmission system mean that western New York

has surpluses of power whereas eastern New York, particularly downstate in New

York City and Long Island, are short. Moreover, additional capacity is required to

ensure that the lights can be kept on even if a major generating unit or transmission line fails. These reserve levels are required to be 18 percent above the projected peak demand for electricity statewide and in given areas.

New York City is projected to have a summer 2001 peak demand of 10,535 MW,6

up 4.6 percent from the record peak demand of 10,076 MW during the July 1999

heat wave.7 The NYISO estimates that New York City will be a glaring 397 MW

short of required capacity during the upcoming summer. Electricity supply on Long

Island is only slightly better. For Long Island, the NYISO projects a summer 2001

peak demand of 4,733 MW and a capacity shortfall of 131 MW.8

For 2001 NYISO forecasts a 1.7 percent annual increase for New York City and

a 2.3 percent annual increase for Long Island.9 Thus, projected summer peak demand in 2002 and 2003 for both New York City and Long Island may well exceed

available generating capacity unless supply and demand are quickly aligned.10 As

shown in Table 1, if current demand growth continues unchanged for the next 2

years, no more generation capacity is added, and efficiency and conservation are not

improved, both New York City and Long Island risk being unable to supply sufficient power.11

Table 1.—Downstate New York Shortage Without More Generation Or Reduced Demand*

(MegaWatts)

Zone

2001 Zone

Capacity Required

2001 Current

Capacity

2001 Current

Deficit

2002 Zone

Capacity Required

2002 Projected Deficit

2003 Zone

Capacity Required

2003 Projected Deficit

NYC .................... 8428 8031 ¥397 8560 ¥529 8680 ¥649

LI ........................ 4638 4507 ¥131 4709 ¥202 4776 ¥269

*Source: NYISO, Power Alert: New York’s Energy Crossroads, March 2001, p. 19.

In addition to these estimates, the Public Service Commission (‘‘PSC’’) has identified a ‘‘statewide need for 600 MW plus per year of capacity additions to satisfy the

demands of a growing economy’’ and ‘‘an immediate need for 300 MW [of added capacity now in New York City], and an additional 200 MW each year thereafter.’’12

PSC Chairman Helmer has also stressed that New York must use effective strategies to cut demand, comparing building power plants alone to trying to clap with

one hand.13

While electricity conservation and demand management programs could substantially reduce the amount of additional generation needed, it is clearly imperative

that clean supply be increased, both for the short-term downstate, and for the longterm throughout the state. Indeed, new clean and efficient power plants, combined

with aggressive demand-side management and renewable energy investments,

should displace older, dirtier power plants and yield reduced emissions and increased generating capacity.
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14 Buyers in other power markets, including natural gas, can ride out peak demand periods

by drawing down storage supplies and avoid paying volatile spot prices. 15Different generation plants have vastly differing production costs, according to their size,

design, operation, and fuel source. Large steam powered generators and nuclear power plants

(in the 500–1,000 MW range—called ‘‘base load’’ units), cannot be activated quickly, nor can

they rapidly adjust electricity output. Therefore, owners of such units normally offer their power

into the market at relatively low prices, to ensure that it will be dispatched and they will not

have to dump excess output. At the other end of the spectrum, small gas turbines (ranging from

20 to 60 MW) are designed to allow for quick startup and output adjustment and, due to their

high operating costs, are most often used during peak hours. Peaking units, including gas turbines, experience greater wear and maintenance costs if run for extended periods. To recover

their investment and operating expenses over a relatively limited number of unpredictable hours

of use, owners of such units usually offer power at high prices. 16See, NYISO, Power Alert: New York’s Energy Crossroads, March 2001, p. 9. This NYISO

projection assumes that 8,600 MW would be added to New York’s supply, and does not include

inflation or fuel cost increases. 17While a number of other small-scale potential capacity additions to existing units in New

York City are being pursued at various sites, it is difficult to determine with certainty which

efforts will be brought on line and whether they will meet the need when demand peaks. 18The Attorney General supports this effort, but takes no position on the particular sites selected for the NYPA generators.

B. Supply Must be Greater than Demand to Avoid Power Outages, and Keep Electricity Prices from Skyrocketing

In competitive markets, when demand is inflexible and approaches the limits of

available supply, the price paid for a product will climb dramatically. This characteristic is especially salient in the case of wholesale electricity markets, where demand currently is relatively inflexible, and where the physical properties of electrical generation and flow are such that electricity cannot be stored in any significant quantity, but is generated, transmitted, and used virtually instantaneously.14

The amount generated and put into the transmission grid must be balanced with

the amount consumed second by second, or the entire system could break down.15

When demand threatens to outstrip supply during periods of peak use, price spikes

will occur. Electricity will be less expensive if surplus capacity is sufficient not simply to keep the lights on, but to keep wholesale prices competitive.

Once a sufficient number of private sector new generation projects are approved

to be brought on line, market forces can be expected to bring supply into better balance with demand, yielding greater wholesale market price stability.

Until we have more experience with market participant behavior, it is difficult to

ascertain what specific amount of capacity would provide sufficient surplus to not

only assure reliability but also stabilize market prices during peak demand periods.

As much as 10–20 percent surplus during peak demand may be required to avoid

the steep end of the price curve. The NYISO projects that by 2005, if no new generation is added in New York, ‘‘statewide prices could be expected to increase by about

14 percent from present levels’’, but ‘‘[i]f supply is allowed to grow . . . Statewide

prices should actually decrease and could be 20–25 percent lower than if no new

generation is added,’’ resulting in statewide ‘‘savings of over $1.4 billion annually

in 2005.’’16 Because the mix of generator types and sizes varies in each of the 11

zones where NYISO administers market prices, the surplus capacity needed to avoid

volatile prices will necessarily differ for each zone.

C. NYPA’s Proposed Generators for New York City are Necessary to Meet Peak Demand for Summer 2001

For the immediate term, by the summer of 2001, we have no choice but to increase the available power downstate by at least 528 MW, i.e., 397 in New York

City and 131 MW in Long Island. The NYPA has received approval to construct 11

new gas turbines in New York City with a combined output of 443.5 MW, most of

which are expected to be operational at the start of the upcoming summer cooling

season. In addition, the Astoria No. 2 plant (a former Con Edison generator fueled

by natural gas) is expected to be repowered by Orion Power Holdings, Inc. and

available sometime during summer 2001, which would add 170 MW. Another 60

MW to the generating capacity in New York City is anticipated from Con Edison’s

planned reactivation of the Hudson Avenue No. 10 plant (Brooklyn).17 These new

NYPA and repowered units, if completed in time, should address the risk that New

York City might otherwise have insufficient power supply if demand peaks at forecast levels.18
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19Power plants emit significant quantities of pollutants, especially sulfur dioxide, nitrogen oxides, particulate matter, carbon dioxide, and mercury. These emissions contribute to acid rain

and regional haze, and are dangerous to human health as well as to the health of fish and wildlife. 20The NYPA has stated that they will use the best available emission control technology to

reduce NOx, particulate matter, sulphur dioxide and carbon monoxide emissions. In addition,

the NYPA performed an analysis of the turbines’ fine particulate (PM2.5) pollution and determined the increase to be insignificant. The DEC has issued air pollution control and acid rain

permits limiting emissions for each of the sites. 21DEC Press Release, dated January 12, 2001. The State’s Department of Environmental

Conservation (‘‘DEC’’) and the NYPA should formalize an agreement on reduction of overall area

emissions. 22The NYPA has also committed to noise mitigation measures at some of the new sites. 23The NYPA and LIPA are publicly owned not-for-profit utilities, whose programs are funded

by rates charged their customers.

The NYPA units, which burn natural gas as a fuel, are considered relatively clean

in terms of emissions19—they emit virtually no sulfur dioxide (‘‘SO2’’) and less nitrogen oxide (‘‘NOx’’) than oil or coal-fired plants. Thus, the potential air quality impact

of this supplemental generation capacity should be limited.20 In addition, the NYPA

has committed to reducing air emissions at other New York City plants so overall

air emissions will not increase.21 Each new unit is comparatively small’ in scale,

which should minimize impact on local communities.22

On Long Island, the NYPA is installing one 44 MW capacity gas turbine at the

former site of Pilgrim State Hospital. In addition, Keyspan is upgrading its

Holtsville unit to increase output by 5 MW, and other gas turbines that will add

35 MW more generating capacity on Long Island. A merchant generator turbine is

slated for Far Rockaway with 44–50 MW of capacity. Together, these planned additions will barely satisfy the 131 MW capacity needed for Long Island reliably to

meet forecast demand. Some of these new units are not expected to be operational

by the May 1, 2001 start of the peak season, but instead may not be available until

July 1. Even with the anticipated new generating unit upgrades and additions, Long

Island electric power resources are likely to be stretched to their limit during peak

demand periods this summer.

D. Current State Programs that Promote Energy Efficiency and Renewable Energy

Should be Expanded

Several programs in New York State currently encourage energy efficiency and

renewable energy. Most are implemented by the New York State Energy Research

and Development Authority (‘‘NYSERDA’’), the NYPA, and the Long Island Power

Authority (‘‘LIPA’’).23 They have proven to be highly successful and offer a good

starting point for an expanded state efficiency effort.

1. The Attorney General is Directing Power Plant Settlement Funds to Supplement

NYSERDA Programs

The Attorney General, through his authority to enforce Federal and state environmental protection laws, has embarked on a number of clean air initiatives. The Attorney General sued out-of-state coal-fired power plants that upgraded or expanded

their old power plants without installing the pollution controls required by the

Clean Air Act. The Attorney General, with the DEC, is also pursuing legal action

against similar plants in New York. Recognizing the priority the people of New York

have assigned to clean air and a balanced energy policy, the Attorney General is

negotiating to ensure that settlements are directed to enhancing renewable energy

development and efficiency.

The Attorney General is working with the NYSERDA and DEC to ensure settlement funds are spent most effectively to promote energy efficiency and renewables.

The settlement funds may also be used to fund some of the transmission infrastructure needed to make available additional wind resources. While agreements-in-principal have not been finalized—and other cases are in negotiation or litigation—the

lawsuits are likely to yield $20 million or more that can provide the catalyst for an

additional 10–30 MW of renewable energy and perhaps 10 MW of savings through

efficiency.

The Legislature Should Ensure Funding for NYSERDA Programs by Extending the

System Benefits Charge

The NYSERDA’s programs, under the umbrella of the New York Energy Smart

program, are designed to improve energy efficiency through education, improved operations, purchases and use of energy efficiency equipment and services, and technology development and demonstration. The 38 New York Energy Smart programs,

range from market transformation (e.g. ensuring retail stores offer efficient products
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24 In Opinion and Order Regarding Competitive Opportunities for Electric Service, Case NO.

94-E–0952, et. al., (May 20, 1996), the PSC created the SBC to mitigate the potential adverse

environmental impact of restructuring the electric industry. 25See, Order Continuing and Expanding the System Benefits Charge for Public Benefit Programs, Case NO. 94-E–0952, et. al., (January 26, 2001), p. 12. A small percentage of the funding

is administered by the utilities. 26 Ibid. 27 NYSERDA, New York State Energy Smart Program Evaluation and Status Report, Report

to the System Benefits Charge Advisory Group. Interim Report, September 2000. 28 NYSERDA, Proposed Operating Plan for New York Energy Smart Programs (2001–2006),

February 15, 2001, pp. 2,3. 29The NYPA’s efficiency programs have successfully reduced electricity use and electricity

bills. For example, the NYPA is working with the New York City Housing Authority (NYCHA)

to replace 180,000 refrigerators with more efficient varieties over 8 years. After this project is

completed in 2003, NYCHA will reduce energy consumption by 103,000 MWh per year and save

over $7 million annually in energy costs. Similarly, its High Efficiency Lighting Program provides energy-efficiency improvements such as new lighting and upgrades to heating, ventilation

and air-conditioning systems with no up-front costs to government and educational institutions.

These measures can cut up to 25 percent on electric consumption. See, Http://www.nypa.gov/

html/es.htm. See also NYPA press release, November 30, 2000. 30The NYPA currently spends approximately $60 million per year on demand-side management (‘‘DSM’’), but information regarding the amount of generating capacity saved is unavailable. Capacity savings were estimated based on past DSM investments. Between 1990 and 1996,

the NYPA spent $255 million on demand-side management programs and reported saving 84

MW (0.33 MW per million dollars spent). Between 1990 and 1997, Investor-Owned utilities

spent $1,277 million on DSM and reported saving 1,377 MW (1.08 MW per million dollars

spent). Thus, an annual $60 million investment could result in a capacity savings of between

20 and 60 MW per year. 31For example, one of the NYPA’s largest customers, the Metropolitan Transportation Authority, uses approximately 1,800,000 MWh per year. By updating its lighting and signal systems

and other efficiency/conservation projects, it is conservatively estimated that the MTA could reContinued

to their customers) to low-income assistance (e.g. direct installation of efficiency

measures in low-income households) and renewable energy development (e.g. production incentives to wind farm developers).

The NYSERDA’s programs are funded by the System Benefits Charge (‘‘SBC’’).24

The SBC is a small, non-bypassable charge per kilowatt-hour to all customers buying electricity transmitted and distributed by the State’s investor-owned utilities.

Currently, the SBC rate is just over one-tenth of one cent per kilowatt-hour and collects $150 million per year.25 The existence of the SBC derives from a PSC Order

that expires in 2006.26 The Legislature should codify the SBC and extend it 5 years

to ensure a long-term, reliable source of funding for energy efficiency and renewables. In addition, the Legislature should make permanent programs funded by the

SBC that improve efficiency in low-income households.

The NYSERDA has used over $71.8 million SBC funds since 1998 to encourage

efficiency and renewable power investments. These investments have resulted in estimated electric savings of 486,000 MWh annually; demand reduction of at least 125

MW; reductions to electric, fuel oil, and natural gas bills of $54 million annually;

reductions to annual air emissions of 464 tons of NOx, 774 tons of SO2, and nearly

335,000 tons of CO2; and the creation of over one thousand jobs.27 While the $71.8

million was paid out once, the savings are annual. Based on this experience, a onetime investment of $100 million in energy efficiency reduces consumer bills by about

$75 million per year. This annual savings accumulates over the lifetime of the efficiency measure, yielding a net savings of $375 million over the first 5 years for just

the first year’s investment.

The NYSERDA estimates that the total effect of SBC expenditures through the

summer of 2002 will reduce peak demand between 600 and 660 MW and between

1,200 and 1,300 MW through 2006.28 These programs, so critical to New York’s energy and environmental future, should be codified.

3. NYPA Should Work With its Customers to Reduce Demand by an Additional 200

MW Over the Next Two Years Beyond Its Current Goals

The NYPA currently provides about $60 million annually to its customers for demand-side management projects and recovers its costs by sharing in the electric bill

savings. These projects cost taxpayers nothing to implement, but realize approximately $65 million annually in energy bill savings, and save enough energy each

year to service 300,000 people, and avoid 360,000 tons of CO2 emissions.29 While

the NYPA’s demand-side management initiatives currently achieve capacity savings

of between 20 and 60 MW per year,30 significant opportunities exist for greater savings.31 The NYPA’s customers, many of which are public entities, consume over 20
374

duce its electricity use by 2 percent. (The NYPA reports that they can achieve up to a 25 percent

reduction in energy consumption for each efficiency project they undertake. Thus a 2 percent

overall reduction is a conservative target.) This project alone could reduce peak demand in New

York City—a load pocket—by at least 4 MW, saving 36,000 MWh per year and $2,520,000 in

annual energy costs (based on a rate of 7 cents per kWh—the NYPA’s rates vary). See NYPA

1998 Annual Report. 32 New York Power Authority 1998 Annual Report, p. 19. 33The NYPA would need to achieve 320 MW savings over 2 years to meet the Attorney General’s proposal, assuming the NYPA already achieves 60 MW savings per year through its existing $60 million per year program. A 7 percent reduction in electricity use = 5,600,000 MWh.

320 MW x 17,520 hours per 2 years = 5,600,000 MWh. 34 Based on a rate of 7 cents per kWh. The NYPA’s rates vary. 35 Based on average statewide emission rates according to PSC Historical Fuel Mix and Emissions Data. Http://www.dps.state.ny.us/fuelmix.htm. 36The LIPA’s Clean Energy Initiative offers many programs, including rebates for energy efficient products in their ‘‘EnergyWise’’ catalog. More than 37,000 lighting products have been ordered through the program and an additional 170,000 compact fluorescent lights have been sold

in home improvement stores. Together, they represent potential electric savings of nearly $9

million and over 2,970 MWh of electricity. The LIPA’s Residential Energy Affordability Partnership, a low-income energy efficiency program much like the NYSERDA’s, directly installs energy

efficiency measures, such as compact fluorescent lighting, refrigerators, wall and attic insulation, and programmable thermostats. The Solar Pioneer Program offers direct consumer incentives toward the installation of qualified photovoltaic systems between 250 and 10,000 watts,

as well as a $3 per watt rebate for installing approved solar equipment. 37 Estimated peak load reductions during the first year of the Clean Energy Initiative, totaled

approximately 39 MW. Energy reductions resulting from the Clean Energy Initiative during

1999 were estimated to total approximately 16,000 MWh. These savings were achieved within

percent of the State’s electricity, making this Agency well situated to advance the

State’s need for more aggressive energy efficiency efforts. By reducing the government’s demand for electricity, The NYPA can save taxpayers hundreds of millions

of dollars in electricity costs. The NYPA should work with its governmental and

business customers to reduce demand and increase clean distributed generation and

renewable energy by at least an additional 100 MW per year over the next 2 years

and commit to fund its demand-side management programs at an increased level

over the next 10 years.

Because of the dual benefit of reducing demand and reducing the electricity bills

of public entities, the Governor should direct all State agencies to report on energy

use and recommend how to reduce both base and peak demand within 6 months.

The NYPA should work closely with the State agencies to develop and implement

those recommendations, including providing the financing necessary to obtain technical assistance, conducting energy audits, and purchasing and installing more efficient motors, lights, and other appliances or devices.

The NYPA should also expand its existing efficiency programs to include more

local governments and school districts statewide, further reducing electricity costs

for taxpayers. The Legislature should direct the NYPA to provide funding for local

governments to assess their energy efficiency opportunities within 6 months (for

New York City and Long Island) or 12 months (for upstate areas) and reach agreements for their implementation.

The NYPA sells approximately 40,000,000 MWh of electricity per year, much of

it to government and educational institutions.32 For the NYPA to achieve 200 MW

in additional savings beyond its current program, it will need to reduce energy consumption from all of its customers by 7 percent over 2 years.33 This would save the

NYPA’s government customers (i. e. taxpayers) and business customers $196,224,000 in energy costs annually.34 The environmental gains would be commensurately large—an estimated 2.7 million tons of C02, 14,280 tons of SO2, and

5,320 tons of NOx, would be avoided.35 Finally, energy savings of this magnitude

would reduce stress on the existing system, improving reliability.

4. The Legislature Should Direct LIPA to Increase Its Investments in Demand Side

Management

Shortly after the LIPA acquired the Long Island Lighting Company, its Board of

Trustees issued a Clean Energy Policy Statement that declared the LIPA would establish a Clean Energy Initiative to support energy efficiency, clean distributed generation and renewable technologies. The LIPA funded the Clean Energy Initiative

at $32 million per year for 5 years and began implementation in mid-1999.36 In

light of the current demand/supply imbalance on Long Island, the Legislature

should direct the LIPA to increase its funding for the Clean Energy Initiative from

$32 million to at least $50 million per year for 10 years.

The LIPA’s existing Clean Energy Initiative—projected to obtain 144 MW of demand-side energy capacity savings by the time it expires in 200437—will not realize
375

1 year of the LIPA’s approval of the Clean Energy Initiative, demonstrating how quickly effi- ciency measures can be effective. At the end of the 5-year, $160 million program, the LIPA estimates that it will save 191,000 MWh of energy per year and avoid the need for 144 MW of capacity. See, LIPA, Clean Energy Initiative, May 3, 1999. 38Pace Law School Energy Project and Long Island Citizens Advisory Panel, Power Choices:

21st Century Energy Alternatives for Long Island, October 1999, p. 3. 39 Estimate based on LIPA’s current projections of 144 MW per $160 million spent over 5

years (0.9 MW per million dollars spent). 40 Under Article X, any utility, public authority or merchant generator wishing to build a new

generator in New York State with a capacity of 80 MW or more must comply with and obtain

a Certificate of Environmental Compatibility and Public Need (‘‘Certificate’’) from the Siting

Board approving the plant’s construction and operation. See also, 16 NYCRR Chapter X, Subchapter A, § 1000 et seq., which sets forth the Board’s rules and procedures. The five permanent

members of the Siting Board are the PSC chairman, who serves as the Siting Board chairman,

the Commissioner of Environmental Conservation, Commissioner of Health, chairman of

NYSERDA and the Commissioner of Economic Development. The Governor appoints two members of the public as ‘‘ad hoc members’’ for each generator application: one must reside within

the judicial district and the other must be from the county where the proposed plant is to be

located. 41 Article X requires an entity seeking approval for a generating facility to file an application

with the Siting Board. At least sixty (60) days before filing its application, an applicant must

file a preliminary statement with the Siting Board and various offices within the PSC. An applicant must also obtain environmental air and water permits from the DEC and acceptance of

its interconnection study from the NYISO. The PSC and DEC assign staff members to review

the application, and each also assigns a project manager to coordinate review within their agencies.

Before filing the application, the applicant, the PSC, DEC, and others may voluntarily engage

in negotiations regarding environmental and other studies needed. Once theapplicant files its

Article X application with the Siting Board, the chairman of the PSC has 60 days to determine

if the application is complete, or needs to be supplemented. Once the application is deemed comContinued

all of the potential for capacity savings on Long Island. A 1999 study that examined

opportunities to meet expected increases in demand on Long Island found that expanded energy efficiency, distributed generation, wind power, fuel cells, and

photovoltaics could yield 690 MW by 2010, including 465 MW from energy efficiency

alone.38

If the Clean Energy Initiative were expanded to $50 million per year until 2010,

as recommended, capacity savings over the next 10 years could be greater than 450

MW.39 If the funding were increased immediately, and programs were expanded

this year, an additional 30 MW could be avoided over the next 2 years and an additional 45 MW savings over the remaining 3 years of the LIPA program. Given the

cost savings from efficiency programs in the past, the investment of $50 million per

year would save Long Island ratepayers approximately $35 million in each succeeding year, leading to dramatic cumulative savings (perhaps $60 million after 3

years). Again, significant environmental and reliability gains can also be expected.

II. The Review Process for the Siting of New Generation Facilities Must be Streamlined

The need for new supply underscores the importance of the power plant siting

process, yet significant problems in that process affect the ability to respond quickly

to increased demand with increased supply. Power plants cannot simply be built

whenever and wherever someone decides they would like to do so. Rather, because

of their size and environmental impacts, plans to build power plants are subject to

an extensive and careful state approval process. This state-mandated review has

been fraught with delay and uncertainty, impeding the ability of aspiring generators

to proceed as expeditiously as would be optimal. Oddly, no process exists by which

to rank the relative environmental impact of the proposed power plants. To increase

the supply of electrical power to meet our economy’s needs while protecting human

health and the environment, the process must be dramatically improved.

Ideally, the siting process should provide one-stop shopping for generators. Indeed, when the Legislature enacted Article X of the Public Service Law (‘‘PSL’’) in

1992, the goal was for one entity, the New York State Board On Electric Generation

Siting And the Environment (‘‘Siting Board’’), to have authority over the entire review process.40 However, the U.S. Environmental Protection Agency (‘‘EPA’’) authorizes the state DEC to issue permits under the Clean Water Act and the Clean Air

Act. Since such permits are necessary before a generating facility may be built, the

process does not readily fit the one-stop shopping model. Additionally, the siting of

a power plant is often controversial, so the review process appropriately provides

an opportunity for extensive input by interested parties. For these reasons, siting

a new plant is neither easy nor quick .41 Nevertheless, more can and must be done
376

plete, the Siting Board has 12 (12) months to decide whether to approve it, during which time

the DEC and PSC jointly conduct public hearings in which expert witnesses are examined and

evidence submitted. The hearing officers make specific statutory findings and recommend a decision to the Siting Board, which has the ultimate decisionmaking authority. 42To ease the initial screening process, the application form could require a cover page that

indicates which, if any, of the preference criteria are met by the proposed plant.

to coordinate and expedite the process if New York is going to meet the expected

increase in demand with sufficient increase in supply, while at the same time ensuring that the added capacity results in a cleaner environment. Toward that end, the

Attorney General urges the following:

A. Decide Which Siting Applications Merit A Preference for Earlier Review

Currently, the Siting Board reviews each application in the order received, on a

first-come first-served basis. The Siting Board does not now give a reviewing priority based on relative need for generation at the location of the proposed site or

on environmental attributes. The Legislature, however, could and should direct the

Siting Board and DEC to give a preference in the review process to applications for

plants that:

• Are located in areas that have an acute need for new generating capacity, and

thus would have the greatest incremental impact on New York’s structural supply

deficit;

• Repower existing plants so overall emissions are reduced and community impacts minimized, or otherwise displace electrical generation that produces greater

air emissions in the same air basin;

• Achieve a lower emission rate for particulate matter, NOR, and SO2 than legally mandated or than other proposed plants, in addition to obtaining the largest

offsets (proportional to the plant size);

• Are the most efficient generators, producing the least CO2 per MWH generated;

• Include active controls for mercury emissions;

• Are sited on former industrial ‘‘brownfields,’’ which thus would be redeveloped,

cleaned and put to use; or

• Utilize dry-cooling techniques to minimize water impacts.

Since the Siting Board reviews applications as they come in, all other things being

equal the first applications will be reviewed, approved and built first. As new supply

comes on line, later proposals for plants may be withdrawn. However, the later proposed plants may, in fact, be preferable from the perspective of the State’s energy

needs or the environment.

To ensure that the State’s needs are best served by proposed plants, and to encourage the private sector to propose such plants, the Legislature should require the

Siting Board to give both procedural and substantive preference to plants that meet

the above criteria. A preliminary review of any application should establish whether

the plant is located in an existing electricity load pocket, repowers an existing plant,

and what its emissions rates are.42 The Siting Board and DEC staff could be preferentially allocated to plants that meet the criteria listed. That alone would speed

the review and approval of such plants given existing staff constraints. Similarly,

the Siting Board could, in making approval decisions, give a substantive preference

to plants that meet these criteria.

B. Designate a Project Manager for Each Application

The time to review a siting application could be sharply reduced if the Siting

Board designated a central Project Manager to be responsible for monitoring and

ensuring the progress of an application’s review at all agencies, rather than relying

on separate agency project managers.

The lack of coordination among the state agencies, especially the DEC and PSC,

has often made it difficult for applicants to get clear direction to move forward. A

central project manager for each application would keep the process from getting

bogged down through conflicting or confusing directions.

C. Require Applicants to File Environmental Permit Applications with the

DEC Before Filing a Siting Application

Initially, applicants filed siting applications and the DEC permit requests at the

same time. This led to delays because DEC, subject to EPA requirements in its permit process, cannot generally decide within the Siting Board’s 60-day period whether the environmental permit applications are complete. As a result, many applications were rejected by the Siting Board at the 60-day deadline as incomplete, and

the process had to be restarted.
377

43 Underscoring the necessity for a formal rule, the Siting Board recently adopted an informal

policy that it will not consider a siting application to be complete unless the DEC has proposed

a draft permit. 44See, PSL § 163. These studies include those describing the expected environmental impact

and safety of the facility, both during its construction and its operation, that identify ‘‘(i) the

anticipated gaseous, liquid and solid wastes to be produced at the facility including their source,

anticipated volumes, composition and temperature, and such other attributes as the board may

specify and the probable level of noise during construction and operation of the facility; (ii) the

treatment processes to reduce wastes to be released to the environment, the manner of disposal

for wastes retained and measures for noise abatement; (iii) the anticipated volumes of wastes

to be released to the environment under any operating condition of the facility, including such

meteorological, hydrological and other information needed to support such estimates; (iv) conceptual architectural and engineering plans indicating compatibility of the facility with the environment; and (v) how the construction and operation of the facility, including transportation and

disposal of wastes would comply with environmental health and safety standards, requirements,

regulations and rules under state and municipal laws, and a statement why any variances or

exceptions should be granted....’’ PSL § 164(c).

Applicants should be required to submit their DEC permit requests well ahead

of their siting application.43 The aforementioned Project Manager could coordinate

this ‘‘front-loading’’ of the approval process so that an applicant will have negotiated

with the PSC and DEC, secured the required environmental permits, and performed

the necessary studies prior to filing the siting application.

D. Establish a 30-Day Time Limit to Negotiate Voluntary Stipulations

The Siting Board encourages, but does not require, applicants to negotiate voluntary stipulations with state agencies and interested parties to identify the issues

of public concern and the studies or analyses appropriate for the project under review.44 This ‘‘scoping process’’ is intended to speed review by enabling parties to

reach early agreement on which issues need to be addressed in the application,

thereby reducing later objections or litigation. With no current timeframe for completion, these negotiations are often protracted—causing unnecessary delay and uncertainty. To address this problem, the scoping process should be made mandatory

and should be overseen by the Project Manager, who should establish a 30-day timeframe for the parties, the DEC and PSC to negotiate stipulations. The Project Manager should clarify the details of the environmental and other reviews required by

the Siting Board and DEC. Adherence to well-established and understood descriptions of the detailed studies necessary for permitting under the State Environmental

Quality Review Act (SEQRA) will also result in greater clarity and expedite the

process.

E. Appoint An Ombudsman For Each Project

The Siting Board should appoint an ombudsman to be a focal point of contact for

community groups seeking to be involved in the siting process and to work with the

Project Manager to mediate issues concerning the scope of necessary studies. Citizens often identify community and environmental concerns about which the DEC

and Siting Board members are unaware. Earlier identification and mediation of the

issues could speed the permitting process by avoiding the need for amended applications, supplemental hearings, and subsequent litigation.

F. Set Deadlines for Transmission and Distribution Owners to Contribute to

System Reliability Impact Studies

A siting applicant must submit to the NYISO a System Reliability Impact Study

(‘‘SRIS’’) that identifies both the impact a new or modified plant would have on existing transmission and distribution systems, and the changes needed to accommodate the proposed additional generating capacity. NYISO approval of an SRIS is

necessary.

To prepare an SRIS, an applicant needs essential technical information that only

the owners of transmission and distribution systems can supply. Currently, these

entities are not required to provide the information within any particular deadline.

The PSC and NYISO should quickly correct this deficiency. New York transmission

and distribution owners are either subject to PSC jurisdiction or are members of the

NYISO. The PSC and NYISO should establish an efficient process for SRIS applicants to obtain information from transmission and distribution system owners, including the deadline by which a system owner must comply with an applicant’s request for information. Additionally, formal deadlines for the NYISO to complete its

required review should be set.
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45See generally, New York State Energy Planing Board, Report on the Reliability of New

York’s Electric Transmission and Distribution Systems (November 2000) (hereinafter ‘‘Planning

Board Report’’) and New York State Department of Public Service, Analysis Of Load Pockets

And Market Power In New York State, Final Report (October 1, 1996) (hereinafter ‘‘PSC Analysis’’). 46Dependence on power plants fueled by natural gas has contributed to the recent increase

in the price of natural gas, which in turn has increased the wholesale price of electric power.

Augmenting transmission capabilities would facilitate access to electricity generated by other

sources. 47 A transmission bottleneck resembles a section of highway carrying traffic merging from two

or more other highways with the same number of lanes. As long as the traffic is light, the merge

flows smoothly. But if the merging traffic is heavy, all lanes slow and movement can cease. 48PSC Analysis, p. 235. This description of power flows in the New York transmission system

is highly simplified and is not intended to take into consideration numerous technical factors

that make the movement of bulk power difficult. 49 Id., p. 123. 50Planning Board Report, p. 26. 51The LIPA has applied to the PSC for approval of two transmission lines under Long Island

Sound to Connecticut. If constructed, these new lines would ease but not eliminate both the InCity bottleneck and the constraints on importing power from New England. The PSC reviews

transmission construction proposals under Article VII of the Public Service Law.

G. Assign Responsibility for Transmission System Upgrades Necessary for

New Generating Capacity

New generators may require costly upgrades or modifications of transmission system facilities to carry the increased power. Transmission facility owners and generators often disagree as to whether a transmission system reinforcement is needed to

serve new capacity and which of them should bear an expense. Disputes have the

potential to delay or restrict the availability of new capacity. Currently, no clear

rule governs as to who should bear this responsibility.

However, between them, the PSC and NYISO have jurisdiction over all possible

parties. To ensure expeditious resolution of such disputes, the PSC and NYISO

should quickly decide disputes over transmission reinforcement obligations.

III. Additional High Voltage Transmission Capacity is Needed

New York must augment the network of high voltage transmission lines used to

move bulk power from places with surpluses to areas where the power is needed.

Major transmission bottlenecks in central New York (‘‘Central East bottleneck’’),

around New York City (‘‘In-City bottleneck’’) and at our borders with other states

and Canada limit the amount of power that can be moved.45 While minimizing the

environmental and aesthetic impact of transmission lines, these bottlenecks must be

opened.

High-voltage transmission lines enable large amounts of power to move over long

distances, provide flexibility in the location of plants, and increase access to diverse

sources of electricity, including sources hundreds of miles away.46 Long distance access is especially important in New York, which has cheap hydroelectric and Canadian power sources at the extreme western and northern borders of the state.

A. Bottlenecks in New York Transmission Cut Off Access to Cheap Power

New York’s transmission network contains segments that are not able at all times

to carry the optimum amount of power. Each such inadequate segment forms a ‘‘bottleneck.’’47 Near Utica, the transmission lines from western New York and Ontario

converge with the transmission lines from the north and Quebec to form the Central

East bottleneck. Whatever power is available to the west or north, Central East can

pass along only 5,995 megawatts.48 When the demand for power soars in southeastern New York during the summer, the Central East bottleneck may limit access

to surplus power west and north of this bottleneck. The In-City bottleneck works

similarly to set an even lower limit (4,979 megawatts)49 on the amount of power

New York City and Long Island can import from western and northern New York,

Canada and plants in the Hudson Valley.

B. New York’s Transmission System has been Neglected

Despite the potential for transmission upgrades to lower our electricity costs and

avoid having to build new power plants, fundamental infrastructure is sorely lacking in New York. Measured in constant dollars, between 1988 and 1998 capital improvements to New York’s transmission system dropped from $307.7 million per year to $90.0 million per year.’’50 The Central East and In-City bottlenecks have existed for at least 20 years. Today only one major project to ease a New York transmission bottleneck is under active regulatory considerations.51

Building a transmission upgrade, such as a new high voltage line, is complex and

expensive. Once the PSC approves a project, an applicant may then have to nego-
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52 Regional Transmission Organizations, Order No. 2000, III FERC Stats. & Regs. ¶31,089

(1999); Order No. 2000-A, III FERC Stats. & Regs. ¶31,092 (2000). 53FERC, Docket No. RT01– —— 000, Order No. 2000 Compliance Filing (January 16, 2001).

The NYPA and the LIPA supported the filing but did not join as applicants. Id.; p. 2, fn 3. 54 In the short run, even the most modern gas units will likely increase total air pollutants,

until the older units become too uneconomical to operate.

tiate or litigate with possibly hundreds of landowners for rights of way, and obtain

dozens of local building permits. Uncertainty about who is responsible for transmission under deregulation and how the cost of transmission construction is to be

recovered in a deregulated marketplace has undoubtedly affected decisionmaking on

transmission upgrades.

C. Upgrades to New York Transmission Capacity Should not Await Approval

of a Regional Transmission Organization

The Federal Energy Regulatory Commission (‘‘FERC’’) has proposed the creation

of disinterested Regional Transmission Organizations (‘‘RTOs’’) to improve transmission capability52 and has asked electric utilities to submit proposals for RTOs

that would, inter alia, have authority to prepare and enforce plans for optimizing

transmission systems. A disinterested RTO could weigh the interest of all, decide

what transmission network upgrades are in the public interest and then enforce its

decisions by ordering appropriate utilities and others to construct improvements. On

January 16, 2001, the NYISO and the six private New York electric utilities submitted a joint RTO proposal requesting that the FERC designate the NYISO the

RTO for New York.53

While an RTO is welcome, we should not wait for an RTO to be up and running

before addressing New York’s transmission needs. The PSC and the NYISO must

immediately begin working with the transmission facility owners to assess what

transmission upgrades are warranted. In particular, this joint effort should examine

what can be done within the next 2 years to ease the Central East and In-City bottlenecks, and increase our ability to import power from other states and Canada.

If the FERC approves the application to designate the NYISO an RTO or brings

New York under another RTO, the new RTO could take over this work and not have

to start from scratch.

IV. New York Should Encourage New Sources of Generation

While our electricity supply brings innumerable benefits and drives our economy,

electricity generation also significantly impacts public health and the environment.

Existing electricity generation in the United States produces: one-third of the nitrous oxide emissions that cause urban smog; two-thirds of the sulfur dioxide emissions that cause acid rain; one-third of the mercury emissions that poison fish and

wildlife; and one-third of the greenhouse gas emissions, particularly C02, that are

warming the planet.

The impacts of these problems are very severe in New York State, which is characterized by an asthma rate 2–5 times the national average, and 20 percent of Adirondack lakes too acidic to support life. Though up to 40 percent of New York’s air

pollution comes from sources out of state, it is essential that New York lead by example in creating a sustainable electricity policy.

Not all conventional power plants pose the same level of health and environmental hazards. Modern combined-cycle gas-fired generators, which are most of the

units proposed for new generation in New York, are far more efficient than power

plants built in the past, and are equipped with controls that greatly reduce emissions. To the extent that more efficient units come on line and displace older, less

efficient and dirtier units, air emissions problems in New York will decrease.54 To

minimize the adverse impacts of even the cleanest fossil generation plants, alternatives such as enhanced transmission, renewable source generation, clean distributed generation, conservation and increased efficiency must have a major role in a

balanced package.

A. Renewable Generation Sources Should Provide at Least an Additional 10

Percent of New York’s Electricity

For many decades, New York has benefited from hydro power, a renewable source

that does not release air emissions and uses no imported fossil fuels. Hydro power

currently produces up to one-fifth of the electricity needs of the State. While ecological and sociological impacts limit the usefulness of further expansion of hydro
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55Large scale hydropower can adversely affect fish and other aquatic life and can displace indigenous populations. While solar and wind power cause no air or water emissions problems,

wind power can raise aesthetic concerns. 56 Electric generators in New York State rely on fuels that originate elsewhere in the U.S.

or abroad. Increasing renewable generation sources in New York State will produce jobs in-state

and keep electricity expenditures in-state. 57 New York Times, New York Ranks Near the Top For Efficient Use of Energy, October 21,

2000, pp. B1, B6. 58 Bailey, B. and Marcus, M., AWS Scientific, Wind Power Potential in New York State: Wind

Resource and New Technology Assessment, May 1996. ESEERCO Project EP 91–32, p. 36. 59 According the U.S. Department Of Energy (‘‘DOE’’), today’s cost of generating electricity

from wind is about $0.05 or less per kilowatt-hour, which represents an 85 percent drop over

the past 15 years. Http://www.eren.doe.gov/wind/fags.html. 60 American Wind Energy Association, The Global Wind Energy Market Report, February

2001. 61See, A. 8506-Englebright.

power, recent developments in solar and wind power generation promise new means

of clean electricity generation.55

Commercial scale electricity generation from wind and solar (photovoltaic) sources

are unlikely to come on line in significant amounts (over 100 MW) by this summer,

however they can meet a significant portion of New York’s electricity needs in the

medium to long term, while reducing air emissions and reliance on imported fossil

fuels.56 Indeed, some argue that renewables could satisfy virtually all of New York’s

need for increased capacity.

New York is particularly well-suited for renewable generation. A study by the

State University of New York Atmospheric Sciences Research Center concluded that

solar power could significantly reduce sharp demand peaks because the state gets

most of its sunlight during the same time as electricity demand peaks—hot summer

days.57 Similarly, many areas across the State have strong wind resources. It is estimated that up to 5,000 MW of electric capacity could be produced from large scale

wind generation sites in New York, enough to generate about 13 million MWh, or

10 percent of the State’s electricity consumption.58

In the past, solar and wind generation were not economically competitive with fossil fuel power generation. However, new technologies for solar and wind generation

combined with increased fossil fuel costs narrow the cost gap considerably.59 During

most of the 1990’s, wind energy was the world’s fastest-growing energy source, expanding by 20–30 percent per year; in the last 24 months, nearly 1,000 MW of wind

have been installed in the United States.60

The following steps should enhance use of solar and wind power to produce clean

electricity for New York:

7. The Attorney General Will Use Settlement Funds to Develop Wind Power

The Attorney General’s Office sued a number of out-of-state coal-fired power

plants that upgraded or expanded their old power plants without installing the pollution controls required by the Clean Air Act and whose pollution significantly

harmed New York State. The Attorney General has directed that a major portion

of the settlement money arising from the Clean Air Act power plant enforcement

cases be used as incentives to develop 10–30 MW of renewable wind generation. The

Office is also pursuing legal action against similar plants in New York. These cases

will likely generate tens of millions of dollars in payments in lieu of penalties that

the State can use for clean air and efficiency projects.

8. The Legislature Should Enact a Renewable Portfolio Standard

The Legislature should join New Jersey, Massachusetts, Connecticut, Texas, and

many other states by adopting a Renewable Portfolio Standard (‘‘RPS’’). The RPS

would require retailers of electricity to include in their portfolio of supply an increasing percentage of renewable generation. This would increase demand for renewables such as wind and solar, that would, in turn, create a competitive market

for supplies of renewable generation.

A bill to create an RPS has been introduced in the State Assembly.61 The Legislature should pass, and the Governor should sign, the Assembly proposal to require

0.5 percent of all retail electric sales to come from non-hydro renewables (650,000

MWh; equivalent to about 300 MW of installed capacity, or enough to power 90,000

homes) by 2003. The percentage grows by a half-percent per year until renewables

reach 6 percent of sales. Thereafter it grows by 1 percent per year until it reaches

10 percent. The bill includes a cost cap of 2.5 cents/kWh. If renewables at this price

cannot be found, retailers have the option of making payments into a ‘‘Clean Elec-
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62Massachusetts Division of Energy Resources., Massachusetts Renewable Portfolio Standard

Cost Analysis Report. December 21, 2000, p. 37. 63Wind, Thomas, Wind Utility Consulting, The Electric Price Impact of an RPS in Iowa, May

1, 2000. 64 Estimated benefits according to American Wind Energy Association RPS Fact Sheet, Http:/

/www. awea.org/pubs/factsheets/nyrps001.pdf. 65 Assumes wind turbine generates electricity 30 percent of the year. Historical fuel mix data

and emission rates according to the DPS at Http://www.dps.state.ny.us/fuelmix.htm. 66Wind and solar power are cleaner. Fuel cells that operate on hydrogen fuel emit only water

vapor. Other fuel cells use natural gas, and thus emit carbon dioxide. 67For example, LIPA’s recent action to promote the use of onsite back-up generation does not

differentiate between clean onsite generation and diesel generators. This action should be revisited to ensure that financial incentives to use diesel generators are removed. See, LIPA Supplemental Service Tariff. Http://www.lipower.ore/supservtalkvoints.html.

tricity Fund,’’ calculated as 2.5 cents times their RPS obligation. This fund would

incentivize the development of renewable generation.

An aggressive RPS could create well over 3,000 MW of renewable generation at

little to no additional cost to consumers. For example, a recent study of Massachusetts’ RPS (similar to what the Attorney General recommends for New York) found

that it would add only 0.4 percent to consumer bills by 2003, rising to 2.2 percent

in 2012.62 An Iowa study—which assumed that the cost of fossil fuels would rise,

while wind’s costs would decline—showed customers could save $300 million over

a 25-year period if the state met 10 percent of its electric demand through wind generation.63

Much of the renewable supply needs in New York could be met with wind power,

providing significant environmental and economic benefits. It is estimated that for

every 100 MW of wind development about $1 million is generated in property tax

revenue. New York could see 2,000 MW of wind power by 2010 with an aggressive

RPS and financial incentives, generating $20 million annually in tax revenues to

rural communities. In addition, since wind farms are generally located on privately

owned land, the development of 2,000 MW in New York means annual payments

of approximately $4 million to farm and forest landowners.64

The reduced emissions of pollution and greenhouse gases resulting from wind

power is significant. A single 1.65 MW wind turbine will each year displace emissions of 2,161 tons of CO2, 11 tons of SO2, and 4 tons of NON, based on the New

York State average utility fuel mix.65

B. Policies are Needed to Increase Clean Distributed Energy Sources

The need for large power plants could be lessened by distributing small-scale generation units that use minimally polluting technologies directly on the site where

the electricity is to be used. Electric power can be efficiently generated at smallscale facilities located on or near the consumer’s property. Generation options include fuel cells, wind generators, small-scale hydro, solar cells, and cogeneration facilities that combine heating and cooling with electric generation. Because distributed generation facilities may not always provide the exact amount of power needed,

the facility is usually connected to the electric power grid. The grid can provide additional power if the facilities run short, or can take the excess power generated.

To the extent that local sources of electricity reduce the demand placed on traditional generating plants, they can reduce both (i) the need to build new power

plants, and (ii) the wholesale market scarcity conditions that produce price volatility.

Distributed generation’s smaller scale often enables new sources of power to be

obtained in less time than with conventional power plants. Another advantage is the

greater diversity of generation sources, including renewables such as sunlight and

wind, decreasing dependency on fossil fuels. As demonstrated by the current rise in

natural gas and oil prices, excessive reliance on fossil fuels subjects New York to

risk of fuel shortages and cost volatility. Distributed generation also avoids further

strain on the transmission and distribution system.

Many forms of distributed generation are also environmentally cleaner than conventional power plants.66 Moreover, their smaller scale can minimize the impact on

neighborhoods and open space. However, uncontrolled diesel generators—sometimes

used for distributed peak supply—emit many times the pollution of modern, largescale power plants or any form of renewable generation. Thus, public policies encouraging distributed generation must not include incentives for environmentally

detrimental onsite generation facilities.67

If more commercial, industrial and multi-family residential buildings installed

modern onsite generation facilities, the balance between supply and demand in tight

regions such as downstate New York could be improved, reducing the need to con-
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68When customers are billed on a real-time basis, such that their bills reflect the power used

during peak and off-peak hours, the economic value of solar generation will be maximized, as

it is most productive during periods when demand and market prices are highest. 69 New York State residents can claim a state income tax credit of 25 percent on the cost of

their Photovoltaic system, up to a maximum credit of $3,750. 70 American Wind Energy Association. Http://www.awea.org/smallwind/newyork.html. 71See, New York State Standardized Interconnection Requirements, Application Process, Contract & Application Forms For New Distributed Generators, 300 Kilo Volt-Amperes Or Less, Connected In Parallel With Radial Distribution Lines, issued November 9, 2000. 72March 23, 1999 EPA press release. Http://www.epa.gov/nheerl/ordpr/1999/pr032399.pdf.

struct large new power plants or transmission lines. In the past, many onsite generators did not economically compete with traditional sources of electricity. However, recent technological advances have lowered the costs of distributed generation.

In addition, the transition to wholesale market pricing and the ability of distributed

generation to shave peak demand levels (thereby relieving all power buyers from

prices set at the steepest part of the supply/demand curve) further increase the relative economic benefit of distributed generation.68

The following policies should reduce barriers to, and promote additional distributed generation:

1. The Legislature Should Offer Financial Incentives to Develop Clean Distributed

Generation. The NYSERDA should provide low-cost loans to finance the investment

necessary to install onsite facilities, and the Legislature should expand New York

State’s tax credit for residential solar power systems to clean distributed technologies such as fuel cells, wind, and small hydro power projects.69 Government incentives are necessary to jump-start development of supplemental electricity generation in New York. If the initial investment barriers are reduced, many distributed

generation units could be installed in time to help meet New York’s electricity needs

for 2002.

2. The Legislature Should Expand the Solar Net Metering Law to Include Wind

and Small Hydro Power.—The Legislature should expand the Solar Net Metering

Law (Public Service Law Section 66-j) to include wind and hydro power. The New

York State Legislature enacted the net metering law in 1997, allowing customers

who install solar power to use excess electricity produced by the solar panels to spin

the electricity meter backwards, effectively banking the electricity until it is needed

by the customer. This provides the customer with full retail value for all electricity

produced. In its current form, the net metering law applies only to facilities powered

by solar generation. Of the thirty states with net metering opportunities, New York

is the only state where small wind generation systems are ineligible.70

3. The PSC Should Eliminate Unjustifiable Barriers to Clean Distributed Generation.—Distributed generation facilities typically require connection to the utility

grid. Utilities therefore need to maintain technical safeguards to prevent distributed

generation from adversely affecting the transmission system. Formerly, utilities imposed burdensome insurance requirements on independent generators seeking to

connect to the power grid. The PSC recently reviewed such tariff conditions, and

adopted improved interconnection standards designed to lower this and similar barriers.71 However, insurance is still required for solar power systems that are

netmetered. The PSC should removes this existing barrier and the NYSERDA

should provide low-cost insurance or bond coverage to meet utility interconnection

requirements. Furthermore, the PSC should review utility policies and practices to

ensure that any unjustifiable barriers to distributed generation are eliminated.

4. NYPA Should Work With Local Governments to Install Fuel Cells at Landfills

and Wastewater Treatment Facilities.—The NYPA should build on its success with

fuel cells and work more aggressively with local governments to install them, particularly local governments in load pockets such as New York City and Long Island.

Landfills and wastewater treatment plants produce large quantities of methane,

which can be used to power fuel ells to generate electricity. If not used to generate

power, the gas is either flared or released, significantly contributing to climate

change.

In 1998, the NYPA and the EPA installed the world’s first commercial fuel cell

powered by waste gas, located at the Westchester County Wastewater Treatment

Plant in Yonkers. In its first year, the 200 kilowatt fuel cell converted over 20 tons

of waste gas into over 1.2 million kWh of electricity.72 The NYPA has also installed

fuel cells at NYPD’s Central Park Station and North Central Bronx Hospital, both

of which run on natural gas.

Other prospects for fuel cells have not materialized. The New York City Department of Environmental Protection (‘‘DEP’’) has estimated that it flares or releases

enough anaerobic digester gas at its 14 wastewater treatment facilities to fuel be-
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73February 15, 2001 conversation between OAG Policy Analyst Tom Congdon and Energy, Air

and Laboratory Services Division Chief Fred Sachs, DEP Bureau of Wastewater Treatment. 74 Ibid. DEP ’s electric bill would have increased significantly to repay the NYPA for the cost

of the fuel cells. The fuel cells installed at Yonkers Wastewater Treatment Plant and the North

Bronx Hospital were subsidized by the DOE. 75 As with other NYPA efficiency and renewable programs, these fuel cells would be financed

from the NYPA’s existing rate revenue. 76FERC approval was required because the FERC regulates interstate transmission of power

and has mandated open access to transmission services. 77 In New York, independent electricity supply businesses, termed ‘‘energy service companies’’ or ‘‘ESCOs,’’ may compete with traditional utilities for customers. 78 Alternatives to market clearing prices to set wholesale electricity prices have been proposed.

One approach is to pay each seller its asking price, rather than pay all sellers the highest offer

taken. Other proposals would peg each offer price to actual costs. 79The NYISO also operates competitive markets for generating reserves and other services

related to supplying electricity, and monitors the power markets to ensure that they operate

competitively.

tween 15 and 25 fuel cells.73 But a proposal to install two NYPA fuel cells at one

of DEP’s wastewater facilities did not move forward largely because of the high cost

of fuel cells, which are not yet commercially available.74 The myriad environmental

benefits of fuel cells, and the improved reliability to the grid resulting from distributed generation, must not be overlooked in cost/benefit analyses. To fully realize the

potential of fuel cells, the NYPA should seek new opportunities for fuel cell installation across the State, and offer attractive financing to its local government partners

to ensure the projects are implemented.75

V. Power Prices Must Not Be Permitted To Skyrocket During the Transition to Competitive Markets

A. New York Wholesale Power Markets Must be Significantly Reformed

Since New York’s wholesale power markets began operating in November 1999,

significant flaws in the design of these markets have been identified. The markets

are not fully competitive at all times in all locations, and thus the opportunity to

exercise abusive market power often arises. When improper market power is exercised, electricity prices can suddenly rise to noncompetitive and, indeed, stratospheric, levels. This creates windfalls for generators, as well as unreasonably high

bills for energy purchasers. It also impedes the development of truly competitive

markets. All possible means must be used to ensure competitive pricing in the

NYISO’s markets, thwart the abusive exercise of market power, and provide redress

for purchasers when market power leads to noncompetitive pricing.

1. NYISO Background

In January 1999, independent power generators, utilities, public authorities and

others interested in competitive electricity markets and open access to power transmission requested from the FERC authority to create an ‘‘independent system operator’’ to manage New York’s high-voltage transmission grid, operate competitive

short-term markets for power, and undertake other tasks essential to establishing

a competitive wholesale market for electricity.76 The NYISO began operations in November 1999.

Today the NYISO manages the transmission grid that moves bulk power around

New York, and operates the short-term Day Ahead (‘‘DAM’’) and Real Time (‘‘RTM’’)

markets that together supply half the power used each day in the state. (The other

half is supplied through bilateral contracts between generators and users.) On a typical day, the DAM accounts for about 45 percent of the total power used in New

York, while the RTM typically accounts for 5 percent of the power. The DAM and

RTM determine the price per megawatt-hour to be paid for wholesale power and the

order in which generating plants will be scheduled to run. In highly simplified

terms, the NYISO accepts confidential bids stating how much power each utility or

other electricity retailer77 wishes to purchase during each hour of the next day (in

the DAM). Simultaneously, each power supplier submits confidential offers stating

for each generating plant it owns how much power at a given price it is willing to

provide. The NYISO, using complex software, totals the bids and ranks the offers

in ascending price order. The most expensive offer that must be scheduled to run

to provide the total amount of power requested for a given hour sets the price per

megawatt-hour paid to all suppliers for power delivered during that time (referred

to as ‘‘the market clearing price’’).78 The RTM operates similarly.’’79

NYISO membership today consists of private generators, utilities, public authorities, power marketers, representatives of commercial and industrial customers, consumer advocates and others, as well as a paid professional staff. A 10-member
384

80The NYISO professional staff has taken the position that the NYISO Board does not need

to seek the FERC’s approval of every operational change intended to strengthen the NYISO’s efforts to deter uncompetitive actions. Not all NYISO members agree. 81October 31, 2000 Letter from Attorney General Eliot Spitzer to FERC Chairman James J.

Hoecker. 82 New York Independent System Operator Approves Automated Process For Reviewing Supply Bids—Measure Enhances NYISO’s Ability To Prevent Market Abuse—, NYISO press release

(February 22, 2001). 83 Automatic mitigation will use as triggering levels the price threshold values in the NYISO’s current forward-looking market monitoring procedures. Each day NYISO software will automatically review Day Ahead offers for evidence of market power and recompute excessive offers before they can set the market clearing price. In grossly simplified form, automatic mitigation

works as follows: if upon matching offers with bids, the Day Ahead Market in any zone would

yield a market clearing price that exceeded $150 per megawatt-hour, a price analysis will be

triggered. Depending on where in New York the over-$150 market clearing price appeared, the

NYISO software would examine every offer in any zone in the state deemed competitively relBoard of Directors sets policy for the professional staff and determines the actions

the NYISO will take in its relations with the FERC and other government agencies.

By NYISO rule, Board members must be disinterested and may not have a financial

interest in any aspect of the electric power industry.

A NYISO Management Committee and two other NYISO committees discuss

issues and propose actions to the NYISO Board of Directors. The FERC exercises

regulatory authority over the NYISO and other independent system operators. The

NYISO has sought the FERC’s approval of numerous proposed changes in the way

NYISO operates and exercises its authority. While many of the changes involve

technical and ‘‘housekeeping’’ matters, several have addressed competition problems

identified by the NYISO staffs Market Monitoring Unit (‘‘MMU’’). Most notable are

the NYISO’s June 30, 2000 petition for a $1,000 per megawatt-hour cap on the price

of power in the short term markets, and its March 27, 2000 petition for a cap on

the price of reserve generation capacity. The FERC approved the power price cap

petition on July 26, 2000 and the reserves price cap petition on May 31, 2000. These

and other FERC-approved changes in NYISO operations have moderated but not

eliminated the potential for exercise of market power.80

2. The NYISO Must Ensure That Energy Sellers Cannot Unfairly Exercise Market

Power to Raise Electricity Prices

At least two instances have been identified in which the NYISO markets were not

competitive in 2000. During certain hours of high demand on June 26, 2000, the

price of power in the Day Ahead Market spiked to $1,000 per megawatt-hour due

to bidding practices leading to excessively high prices. This behavior cost energy

buyers an estimated $100 million in excessive power prices that day. The NYISO

has also identified instances of market power in the sale of generating capacity reserves from January to March 2000. The Attorney General has urged the FERC,

which has jurisdiction over power transmission and independent system operators,

to provide the NYISO the authority it needs to address such exercises of market

power.81

The NYISO must ensure that design and operational flaws are addressed quickly,

before the demand for electricity rises with the start of the summer cooling season

in May 2001. In particular, the NYISO must enhance its ability to identify and correct noncompetitive prices and practices. The Attorney General supports a three

part approach: (1) ‘‘automatic mitigation’’ of DAM prices as soon as possible; (2)

strengthening after-the-fact market monitoring, including retroactive mitigation of

noncompetitive prices; and (3) retaining the $1,000 cap on power prices.

Finally, the NYISO should follow through on plans to open its markets to increased participation by non-generators and non-load serving entities, so as to enhance competition and liquidity in the power markets.

a. Automatic Mitigation Must be Implemented Quickly

On February 20, 2001, the NYISO Board voted to extend its current forward looking market mitigation to the DAM in a way that is intended to prevent the exercise

of market power until competition fully takes hold.82 To effect this mitigation, also

referred to as a ‘‘circuit breaker,’’ the NYISO will reprogram the software it uses

to operate its power markets so that the software automatically analyzes bids before

they set the market-clearing price. If the analysis indicates a potential exercise of

market power in the DAM, the suspect power prices will be replaced with competitive prices. The NYISO expects to implement the software changes before the 2001

summer cooling season, i.e., by May 2001.83
385

evant to the affected zone, and compare it to a predetermined ‘‘reference price’’ associated with

the generating facility whose output is represented by each offer. If the difference between any

offer and its associated reference price exceeds $100, the NYISO software would substitute the

reference price for each offer and recompute a ‘‘reference market clearing price’’ for each affected

zone. This recomputed reference market clearing price hen would be compared to the initial

‘‘unanalyzed’’ market clearing price in each affected zone. If the difference between the two mar- ket clearing prices is more than $100 in any zone, the NYISO software would then automatically

set aside any offer in the affected zone that was initially greater than $100 above its reference

price and replace that offer’s price with the reference price. These recomputed offers would then

be used in the calculation of the official market clearing price for that zone. 84Others object to the idea of automatic mitigation as an unnecessary tampering with competitive markets. The markets, however, are not always competitive. Automatic mitigation

should prevent excessive prices from occurring in the first instance.

While agreeing with the general framework, some have objected that the NYISO

automatic mitigation would still allow considerable exercise of market power, primarily because the triggering levels in the NYISO proposal are too high. Among

other changes, the objectors would lower the initial trigger to $100 per megawatthour and the market comparison triggers to $50 per megawatt-hour. Lowering the

triggers could more accurately capture the times and places in which market power

may be exercised. For this reason, the Attorney General supports lower thresholds

for automatic mitigation.

While lowering the triggers would make automatic mitigation more effective, such

a refinement would likely constitute a material change from the current NYISO

market monitoring standards and thus might require the FERC’s authorization before it could be implemented, with the concomitant risk of delay or denial.84

Another objection to the current automatic mitigation is that it does not apply to

the RTM. The NYISO staff’s explanation is that the logistics of the RTM operate

on such a short timeframe that it is not practical to design an automatic mitigation

mechanism for the RTM. Experience with Day Ahead mitigation may suggest ways

to make automatic mitigation of the RTM practical. Deployment of Day Ahead automatic mitigation should not be delayed, but the NYISO should continue to evaluate

capability for automatic mitigation of the RTM as well.

b. Existing Forward-Looking Market Monitoring Must be Strengthened

i. The NYISO’s Market Monitoring Triggers Must be Refined.—The NYISO staff

has a 14-member Market Monitoring Unit (‘‘MMU’’) that examines the offers, bids

and market clearing prices in the various electricity markets to determine whether

noncompetitive prices or practices have occurred. Once it identifies such a price or

practice, the MMU takes actions to prevent a repetition. The major difference between automatic mitigation and the current MMU efforts is that the MMU addresses prices and practices after the market has cleared; it does not prevent the initial

exaction of noncompetitive prices. As part of its effort, the MMU compares the market clearing prices in the DAM and RTM to numerical triggers. If a market clearing

price exceeds a trigger, the MMU then employs procedures to identify potential noncompetitive behavior and fashion forward-looking means for preventing its repetition.

Because the current MMU threshold values may not identify accurately enough

all situations in which competition is impaired, the NYISO should seek from the

FERC, and the FERC should grant, authority for the NYISO to lower these triggers.

This refinement would increase the NYISO’s ability to discern noncompetitive market behavior leading to noncompetitive prices. It could also lead to the identification

of loopholes in NYISO rules that the current market monitoring protocol does not

detect.

ii. Authority for Retroactive Mitigation Must be Obtained.—The FERC has not authorized the NYISO to recapture excess profits obtained through the exercise of

market power. When the MMU identifies a noncompetitive pricing or practice, the

NYISO can at most order the offending act or practice to cease prospectively. Thus,

currently, one exercising market power in a NYISO market gets at least ‘‘one bite

at the apple,’’ risking nothing more than being admonished not to do it again. Such

limited enforcement capability is inadequate. Noncompetitive market conditions for

even a few hours on a single day can exact large sums in excessive prices.

Adding automatic mitigation to the MMU’s tools and tightening the MMU’s surveillance triggers will reduce the likelihood of noncompetitive prices, but no preventive system is perfect. The NYISO needs the authority to recover excessive noncompetitive profits if and when market power slips past the NYISO’s preventive

measures.
386

85The current price cap is set to expire on April 30, 2001 unless extended by the FERC upon

request. 86See, e.g., NYISO, New York Independent System Operator, Inc.’s Report on the Implementation of Virtual Bidding and Zonal Price-Capped Load Bidding in Docket No. EL00–90–000,—— FERC ¶———— (February 2, 2001), p. 6. 87 Id., p. 4. 88Some have protested to FERC that the NYISO’s implementation of virtual bidding is taking

too long. FERC rejected the initial protests as inconsistent with the prudent development of the

NYISO’s operations. FERC Docket No. EL00–90–000, Order On Complaint, Morgan Stanley

Capital Group, Inc. v. New York Independent System Operator, Inc., 93 FERC ¶ 61,107 (October

5, 2000). Certain parties have renewed their protests. See, e.g., Morgan Stanley Capital Group,

Inc., Motion For Immediate Commission Action Regarding Virtual Bidding Implementation

Schedule, Docket No. E100–90–000 (March 5, 2001).

As the Attorney General urged in the October 31 letter to FERC Chairman

Hoecker, the NYISO should request from the FERC, and the FERC should grant,

authority retroactively to mitigate noncompetitive prices identified in the course of

its forward-looking market monitoring. The window for identification of possible exercises of market power and for retroactive refunds should be short, both to maximize the value of refunds as a deterrent and to provide the wholesale power market

with certainty. Both consumers and wholesale market participants have an interest

in the speedy resolution of market monitoring inquiries, as well as in not being

forced to pay noncompetitive prices for electric power.

iii. The Current $1,000 Per Megawatt Hour Price Cap Must be Retained.—A

$1,000 per megawatt-hour cap on the price of wholesale power currently exists in

the NYISO’s Day Ahead Market and Real Time Market, as well as in relevant markets in the adjacent New England and PJM power pools.85 The NYISO should ask

the FERC, and the FERC should agree, to retain this cap until the wholesale electric market in New York is fully competitive. While NYISO market monitoring can

be the first line of defense against market power, and retroactive mitigation may

recover excess profits exacted by market power, there may be circumstances in

which neither is able to prevent extreme wholesale power price spikes. The current

NYISO price cap thus provides a crucial final safeguard against extreme price

spikes. It should be retained until a change in circumstances justifies modifying or

retiring it.

To be effective, a price cap must be compatible with conditions in neighboring

power pools. Otherwise, power suppliers may have a financial incentive to sell preferentially into the power pool with the highest price cap. Today, both power pools

neighboring New York have a $1,000 per megawatt-hour price cap. This, compatibility of price caps should be maintained.

iv. The NYISO Should Implement Virtual Bidding to Expand Competition.—Today

the only parties that may buy or sell electricity through the NYISO are utilities and

other entities that provide retail service to end users, and those who own or control

generating plants. This limits the number of participants in the NYISO markets.

Competition would be enhanced if power marketers, brokers and others not directly

involved in generating or retailing electricity could buy and sell power through the

NYISO markets. In addition to increasing competition, market participation by new

types of parties would add liquidity to these markets by increasing the number of

ways that power purchases can be contracted for and financed. The downside of

opening the NYISO markets to new classes of participants is the increased potential

for gaming the markets, especially during times of tight electricity supply.

The NYISO currently plans to implement power trading by parties other than

generators and retailers, participation termed ‘‘virtual bidding,’’ by November 1,

2001.86 The NYISO’s explanation for the delay in instituting virtual bidding is that

it needs to correct flaws in its current operating procedures and to develop appropriate software before adding virtual bidding to an already complex system.87 FERC

has accepted the NYISO’s explanation.88 The NYISO should develop the necessary

software and make the operational improvements needed to implement virtual bidding as soon as practicable. At the same time, the NYISO should address the increased complexity that virtual bidding will add to its markets and strengthen its

market monitoring capability to accommodate the additional market surveillance

that will be needed.

c. Exposure to Volatile Prices Must be Minimized Without Shielding Customers

From Market Price Signals

We have seen in New York that highly volatile wholesale electricity prices can accompany the transition from regulated monopoly to competitive commodity markets,

especially during times when supply is limited and demand irreducible. During the
387

89The Attorney General has taken NYISO analyses and examined the impact of the Indian

Point 2 outage on the price of power in the wholesale markets. The unavailability of Indian

Point 2’s 941 MW capacity output from February 16, 2000 through early January 2001 required

the NYISO to rely upon more expensive generators during times of greater demand, and thus

increased the market clearing price for peak-hour power purchased by Con Edison. Indeed, it

increased the market price throughout the state. The Attorney General, in a motion filed with

the PSC has estimated that the outage cost Con Edison’s customers $176.5 million and urged

that Con Edison be required to reimburse customers for this increase in wholesale power costs.

See, PSC Case 00–E–0612—Proceeding on Motion of the Commission to Investigate the Forced

Outage at Consolidated Edison Company of New York, Inc.’s Indian Point No. 2 Nuclear Generating Facility, December 4, 2000 Motion by New York State Attorney General Eliot Spitzer For

Complete Quantification Of Consolidated Edison’s Liability For Alleged Imprudent Management

Of Its Indian Point 2 Nuclear Plant. 90 Con Edison passes through to its electric customers 90 percent of the difference between

the company’s forecasted and actual purchased power costs. (Con Edison, P.S.C. No. 9 Electricity, Leaf No. 163, Effective September 11, 2000) Central Hudson Gas & Electric’s rates permit an automatic pass-through, but this is ameliorated by the utility’s long term supply contracts with the companies that purchased their former generation units. Rochester Gas & Electric has not yet progressed as far as the other utilities toward restructuring, and currently retains most of its own generating plants. LIPA, as a public authority, is not regulated, but instead sets its own rates. LIPA thus ultimately recovers from its customers any increased cost

of power it purchases from generators, although the lack of automatic pass-through likely delays

the impact. 91Other New York utilities, such as Niagara Mohawk Power Corporation and New York State

Electric & Gas Corp. currently operate under fixed consumer retail rates, and have been able

to obtain long-term supply contracts. 92 Evidence shows that customers react to price signals by reducing demand, and often do so

relatively quickly. For example, according to Hal R. Varian, economics professor and Dean at

the University of California at Berkeley, when the electric bills of San Diego residents more

than doubled last summer, power consumption dropped 5 percent within a few weeks. See, The

New York Times, January 11, 2001, p. C2. 93The Attorney General opposes alternative bill mitigation proposals that would not accomplish these goals. One. proposal would permit customers to postpone payment of that portion

of their electric bills representing extremely high levels, and make up the difference during

months when prices are below a certain threshold. This proposal would still expose customers

to the full cost of power, albeit leveled over a year’s bills. Others have proposed to keep rates

Continued

summer of 2000, Con Edison’s customers experienced electricity rates 30 percent

higher than during the comparable period in 1999, despite cooler weather in 2000

resulting in lower peak usage levels than usual. In addition to the increased cost

of oil and natural gas, an almost 12-month outage at Con Edison’s Indian Point 2

nuclear plant tightened supply in the downstate markets significantly, leading to

higher wholesale prices in times of high demand89 If New York’s summer weather

in 2001 or 2002 is normal or hotter, wholesale price spikes remain a threat.

Con Edison’s and Orange & Rockland’s current rate structures permit them to

pass through to their customers nearly all of the commodity cost of electricity, no

matter how high.90 Con Edison is a multi-billion dollar company serving over three

million customers, and therefore has much more bargaining power than any of its

residential or small business customers to control price volatility through negotiation of long-term contracts with generators, and through other hedges that manage

risk.91 To give an electric utility like Con Edison an incentive to hedge its risks in

the wholesale market, the company must pay the price for bad market decisions.

Recent experience in California demonstrates that completely insulating consumers from wholesale electricity prices can financially devastate the affected utilities, especially if, as in California, they must buy all their energy requirements in

the spot market. While the New York market rules permit and encourage bilateral

contracts and other hedging strategies, we cannot ignore the warning of the California experience.

As electric power supplies increase, customers ought gradually to receive more

complete price signals to encourage more flexible and efficient demand.92 Until we

reach that point, however, we must ensure price stability for customers during volatile markets. The complete pass-through of energy costs, such as Con Edison and

Orange & Rockland currently enjoy, must be modified. The PSC should cap Con

Edison’s rates once power prices reach a certain per kilowatt hour level. Below that

level, customers would pay the passed-through market price. Above that level, Con

Edison would swallow a substantial portion of the difference. Such billing would

limit customers’ exposure to market volatility extremes while sending them appropriate price signals reflecting the market price of the electricity they use. At the

same time, Con Edison would have an incentive to employ long-term supply contracts and other hedges to moderate the cost of power should market prices exceed

the rate ceiling established.93
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at or below a certain pre-determined level throughout the year by offsetting higher summer

peak market price levels with a variety of customer credits otherwise owed by Con Edison. Since

customers are entitled to these rate offsets whether or not power prices rise, this approach to

rate mitigation is unsatisfactory, and would conceal from customers what is occurring in the

power market. 94 If the growth in demand is not reduced, there will be a need for both the existing power

supply and new capacity. The addition of even the cleanest natural gas plant will result in a

net addition of emissions if the State does not ensure that older, dirtier plants are displaced

by cleaner new ones. 95 American Council for an Energy Efficient Economy. National and State Energy Use and

Carbon Emissions Trends. September 2000, Http://www.aceee.org/pubs/e001.pdf. 96 American Council for an Energy Efficient Economy. Energy Efficiency and Economic Development in New York, New Jersey and Pennsylvania. February 1997.

VI. Demand for Electricity Must be Reduced to Minimize the Environmental and,

Public Health Impacts of Generation and to Assure Market Competition and Stable Prices

Aggressive measures to reduce demand, together with construction of clean and

renewable power plants, will greatly reduce the environmental and public health

impacts of electricity generation and foster competitive markets and lower electricity

bills. Reducing electricity use avoids the need for existing power plants to produce

that amount of electricity, and the corresponding emissions. Over the long-term, an

energy policy is sustainable only if it includes environmental factors among its objectives. When new, more efficient power plants start supplying electricity to the

grid, the need for existing, dirtier power plants should be reduced. But only if demand is simultaneously reduced while clean supply is increased will the State ensure a net gain for the environment and for the consumer.’’94

What appears like a small action to reduce demand can have a large impact. For

example, replacing just one incandescent light bulb with a compact fluorescent bulb

(which uses 70 percent less energy to produce the same amount of light) can save

a consumer over $38, save 337 kWh of electricity, and avoid over 300 pounds of the

greenhouse gas CO2 in 3 years. If all 6,766,000 households in New York State replaced just one bulb, over $260 million would be saved, 2.2 billion kWh would be

saved (more than the electricity generated at an 100 MW power plant), and over

one million tons of CO2 emissions would be avoided in 3 years. (See Appendix.)

New York already ranks as the second most efficient state in per capita energy

use nationwide (in large part due to the natural efficiency of apartment living).95

Nonetheless, opportunities for improved efficiency and conservation abound. A 1997

study claims that cost-effective investments in energy-efficient technologies could reduce New York’s electricity use by 34 percent.96

New York State has several programs to compensate for market barriers that discourage energy efficiency. But existing programs are not sufficient to create the environmentally sound, reliable, and balanced energy portfolio that is in the State’s

best interests. The Attorney General recommends significantly expanding these programs (see Section I.D.). The Attorney General is similarly using his legal authority

to direct litigation settlement funds to energy efficiency and renewable power investments. In addition, utility portfolio standards would over the long-term lead to significant savings—perhaps 1,000 MW through efficiency and 3,000 MW through renewable energy—that will shift New York’s energy policy to a more sustainable

framework.

Together, the funding proposals below would direct approximately an additional

$120 million per year (on top of existing programs) to energy efficiency, conservation, and renewable energy programs in New York State. (See table 2.) This expansion could result in a savings of over 600 MW over the next 2 years—an amount

sufficient to avoid capacity shortfalls—and a necessity if New York State’s electric

grid is to maintain reliability and to minimize price spikes. At the same time, these

energy savings will avoid enormous quantities of harmful pollutants—millions of

tons of NOx, SO2, and CO2 lead to substantial consumer savings.

If New York’s funding levels for efficiency and renewables were increased from

the current level of $242 million per year to $360 million per year, as recommended,

New York will still spend less per capita than many other states in the Northeast.

(See Table 3.)
389

97Most consumers lack information on the energy, cost, and environmental savings that would

enable them to comparison shop for more efficient appliances.

Table 2.—Summary of Attorney General’s Proposals to Expand Funding for Current Efficiency and

Renewable Programs

Programs Current Funding (in millions of dollars)

Estimated Annual

Capacity Savings

from Current

Funding

Proposed Funding Level

Estimated Annual Capacity Savings from Proposed Funding

System Benefits Charge

(NYSERDA’s EnergySmart Program)1.

$150 million per year

until 2005.

200 MW ........... $150 million per year

until 2010.

200 MW

NYPA Energy Services2 ............... $60 million per year 20–60 MW ....... $160 million per year

until 2010.

53–160 MW

LIPA Clean Energy Initiative3 ..... $32 million per year

until 2004.

28 MW ............. $50 million per year

until 2010.

45 MW

Power Plant Settlements ............ $0 ............................. 0 MW ............... Approximately $20

million.

20–40 MW

TOTAL ..................................... $242 million per year 248–288 MW ... $360 million per year

plus settlement

funds.

318–445 MW

1 Estimated savings from the funding proposals are based upon NYSERDA projections, see SBC Proposed Operating Plan For New York

EnergySmart Programs (2001–2006) February 15, 2001, p. 2. 2 Estimated savings are based upon the past experience in New York and other states. Between 1990 and 1997, the State’s investor-owned

utilities spent $1.2 billion on efficiency or demandside management (DSM) programs, avoiding the need for over 1,300 MW of capacity. These

programs included rebates for efficient appliances and lighting, consumer education, and low-income weatherization projects. The NYPA spent

$255 million on DSM investments between 1990 and 1996, avoiding the need for 84 MW of capacity. See, NYSEPB, New York State Energy

Plan and Final Environmental Impact Statement. November 1998. p. 3–60, 3–62. 3 Estimated savings based on LIPA’s current projections of 144 MW per $160 million spent over 5 years. See, LIPA, Clean Energy Initiative,

May 3, 1999, p. 21.

Table 3.—Comparison of Demand Side Management and Renewable Energy Spending Per Capita By State1

State Annual DSM Spending Per Capita

Connecticut ...................................................................................................................... $35.95

Massachusetts ................................................................................................................. $25.91

New Jersey ........................................................................................................................ $28.85

New York .......................................................................................................................... $13.30

1 American Council for an Energy-Efficient Economy. A Review and Early Assessment of Public Benefit Policies Under Electric Restructuring,

Volume 2. Summary Table of Public Benefit Programs and Electric Utility Restructuring. Http://www.aceee.org/briefs/mktabl.htm. See also, U.S.

Census 1999 population estimates, Http://quickfacts.census.gov/qfd/index.html.

Attorney General’s Proposed Funding Level

New York .............................................................................................................................................. $19.78

E. Market Barriers to Energy, Efficiency

Despite the financial and environmental benefits of efficiency, many opportunities

are not taken due to the numerous market barriers to energy efficiency investments.

Efficiency often requires a higher capital outlay (e.g. to better insulate a home, get

a more efficient refrigerator or motor) and many consumers look only to the up-front

cost rather than to the lifetime cost when making purchasing decisions.97 Within

companies, purchasing agents may be responsible only for initial costs while another

person is responsible for utility bills. In home or office building and renovations, the

person making the capital outlay (e.g. the builder) rarely pays the monthly energy

bills, and thus has no incentive to build in efficiency. Stores with limited shelf space

often do not offer more efficient products because they are usually more expensive,

and thus take longer to sell.

Efficiency investments are also diffuse. Unlike a power plant, which can generate

100 or 500 MW, efficiency savings come in small increments of a few kilowatts or

less. Thus, to ‘‘generate’’ efficiency savings of 100 or 1,000 MW, many actors must

be involved, and each must reject the incorrect assumption that his/her actions

won’t make a difference. For these reasons, most programs to stimulate efficiency

focus on information disclosure and subsidies (such as tax credits, mail-back rebates
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98The Senate Majority Leader has introduced legislation that includes a sales tax exemption

for efficient products and other products that promote conservation. See, S.0002-Bruno. 99 EnergyStar is a voluntary partnership between the EPA, DOE, manufacturers, utilities and

retailers. Partners promote energy efficiency by labeling qualifying products with the

EnergyStar logo. EnergyStar-approved products are 10–75 percent more efficient than the Federal efficiency standard. The NYSERDA is an EnergyStar partner and promotes EnergyStar

products. 100The sales tax exemption could also encourage consumers in neighboring states to buy appliances from New York State businesses. 101 Association of Home Appliance Manufacturers, Major Appliances—Estimated Distributor

Sales by State. See http://www.aham.org/indextrade.htm. 106Since distribution costs are essentially fixed, higher sales lead to both higher revenue and

proportionately higher profits. See also Section VI.E.3. for proposal to correct these existing market disincentives against efficiency. 103 Replacement of incandescent bulbs with energy efficient compact fluorescents has the potential to significantly reduce energy consumption and consumer costs. See Appendix A–1.

to consumers, or payments to sellers) to lower the initial cost, as well as efforts to

encourage retailers to sell efficient products.

B. The Legislature Should Enact Tax Incentives to Purchase Efficient Appliances

Since major home appliances account for approximately one-third of residential

energy consumption, the Legislature should pass a sales tax exemption98 for all

major home appliances having the EnergyStar label.99 Past experience with shortterm sales tax exemptions suggests that retailers could show significant interest in

this initiative.100 During last year’s sales tax exemption on clothing, for example,

many stores offered a matching 8 percent-off sale.

If implemented before the coming summer, this incentive could impact air conditioner sales and thus summer peak demand. Other major appliances and products

(i.e. refrigerators, clothes washers, dish washers, furnaces, efficient windows, and

lighting) also use significant amounts of energy. While not purchased by any individual very often, the cumulative annual sales of these appliances in New York are

significant. For example, according to the Association of Home Appliance Manufacturers, 440,700 room air conditioners, 481,800 refrigerators, 297,700 clothes washers, and 133,400 electric clothes dryers were sold in New York State in 1996.101

While it is nearly impossible to predict with precision the cost or impact of the

sales tax exemption on efficient products, conservative estimates suggest a positive

outcome. If, for example, an exemption steered only 10 percent of air conditioner

purchases to more efficient models, it could save 8,814 MWh per year and would

cost the state (in lost tax revenue) perhaps $1,762,800 per year, while saving ratepayers $1,181,076 per year.

The sales tax exemption would additionally draw attention to efficient products

and show the environmental and economic benefit of purchasing such products. Consumer education on the impacts of energy conservation and each individual’s ability

to contribute is critical to implementation of energy efficiency programs.

C. The Legislature Should Create an Efficiency Portfolio Standard

Electricity retailers, unlike electricity generators, have direct contact with electricity consumers through monthly bills . This contact provides an opportunity to

educate consumers. However, absent a legislative mandate, retailers lack incentive

to conserve energy because the more they sell, the greater they profit.102 The Legislature should bring retailers into the State’s energy efficiency efforts by enacting an

Efficiency Portfolio Standard, requiring retail sellers of electricity to achieve certain

levels of efficiency improvements in their service area.

Retailers could achieve these gains through direct installation of efficiency measures and include the cost of the installation in their prices. They could also provide

rebates, promotions, or education. For example, using bill inserts and instructing

employees (such as those answering telephone inquiries or installing equipment) to

highlight efficiency and conservation opportunities, retailers could accomplish significant savings. A re-institution of the utility compact fluorescent bulb rebate program could be an important promotion.103

While an EPS is a new concept, it has two strong antecedents. Many states have

implemented a Renewable Portfolio Standard that requires utilities to buy a minimum percentage of electricity from renewable sources. In addition, before restructuring, utilities were required to achieve certain energy savings through rate conditions that effectively acted like an EPS. Indeed, before restructuring, utilities were

able to reduce electrical usage through efficiency measures by over 1,300 MW over

7 years when State regulations granted utilities incentives to accomplish that re-
391

104 NYSEPB, New York State Energy Plan and Final Environmental Impact Statement, November 1998, p. 3–62. The demand-side management programs cost the utilities $1.277 billion

between 1990 and 1997. 105See, PSL § 66(27). This law applies only to corporations with annual gross revenues in ex- cess of $200 million. 106 In a December 20, 2000 Order, the PSC required electric utilities to file a report identifying

measures that could be taken to reduce peak demand. While several of the utilities indicated

that ‘‘real time pricing’’ for their very large users of electricity (i.e. commercial and industrial)

might be included in their portfolio of strategies to reduce demand, very few identified programs

that could reduce peak demand from residential customers. Only New York State Electric and

Gas (NYSEG) offers residential customers both time of use pricing (to customers who use 35,000

kWh or more annually) and day-night pricing (to customers who use 1,000 kWh or more per

month). ConEd indicated that residential customers would be eligible to participate in its Direct

Load Program which would reward customers who voluntarily allow ConEd remotely to control

their central air conditioning units during peak.

sult.104 (A further precedent is provided by New York City’s program to install— at its expense—water conservation devices in hundreds of thousands of homes and

apartments. This program successfully reduced water use significantly.)

D. The Comptroller Should Report Annually on Energy Efficiency and Renewable Energy Programs

Both to enhance public support for and understanding of efficiency and renewable

programs, as well as to ensure that the money in these programs is spent most effectively, the Legislature should direct the Comptroller to prepare an annual report

on the implementation of efficiency and renewable programs. As noted above, three

major State programs currently operate: the NYSERDA’s EnergySmart program

(using SBC funds), the NYPA’s Energy Services programs, and LIPA’s Clean Energy

Initiative. While the PSC requires the NYSERDA to report on the implementation

of EnergySmart, the NYPA and LIPA have no reporting requirement. In addition,

there should be verification of progress on the Renewable and Efficiency Portfolio

Standards.

The Comptroller’s annual report, prepared in coordination with the NYSERDA,

NYPA, LIPA, PSC and retailers, should include: • total funds expended on efficiency, conservation and renewable energy; • total MWh and MW saved as a result of the programs; • a running list of all completed projects and a list of all planned projects; • total energy cost savings to consumers; • comparative effectiveness of programs; and • remaining barriers to additional efficiency, conservation and renewable energy

projects.

Accurate accounting of efficiency and renewable energy projects is essential to understanding how future energy needs should be met. The Attorney General would

commit to assisting the Comptroller with this report and in investigating opportunities to remove remaining legal barriers to a sound energy policy.

E. The PSC Should Improve Pricing and Revenue Signals to Encourage Flexible Demand and Conservation

In addition to tax incentives, Portfolio Standards, and direct subsidies through the

NYSERDA, NYPA and LIPA, significant opportunities exist to amend pricing mechanisms to foster efficiency and conservation:

1. Utilities Should Widely Advertise Offers for Different Time-of-Day Rates to

Residential Customers to Encourage Load Shifting

The Public Service Law requires large electric utilities to offer residential customers the option of paying different rates for different times of day of instead of

paying one rate for all electricity used.105 For example, instead of paying 13 cents

per kilowatt-hour 24 hours a day, a customer could pay 6 cents during the night

and 15 cents during the day. Despite this law, it appears that few utilities effectively offer this service to customers.106 Since this pricing could shift demand away

from peak times, the PSC should require utilities to advertise its availability.

Time of use pricing reduces electricity bills for customers who have the flexibility

to use certain appliances, such as the clothes washer and dryer, dishwasher, or

water heater, at times when the price is cheapest. This pricing also sends truer

price signals to the customer, as it is far more expensive for the utilities to buy electricity during peak periods than in off-peak periods.

Given the failure of utilities to offer or advertise time of use pricing, significant

peak demand reductions may be achievable if the PSC requires more aggressive efforts. The PSC should ensure that each retailer offer reasonable time-of-day (or at
392

107 Current Energy Code requires all residential new construction to have separate meters for

each dwelling (See, 9 NYCRR § 7813.52(b)). Between 1951 and 1979, however, the PSC banned

submetering. Thus, much of the housing built during this time—including most public housing

and other publicly assisted co-ops—have master meters. The Energy Code states that whenever

more than 50 percent of a residential building’s electrical system is replaced in a 12 month period, each dwelling unit is to be provided with a separate meter. See, 9 NYCRR § 7810.6. 108 NYSERDA, Facilitating Submetering Implementation, Report 96–7, May 1996, p. A–2. 109 Ibid., p. S–1. 110See, 66 Fed. Reg. 3313–33, January 12, 2001 (clothes washers); 66 Fed. Reg. 3335–56, January 12, 2001 (commercial heating and cooling equipment); 66 Fed. Reg. 4473–97, January 17,

2001 (water heaters); and 66 Fed. Reg. 7169–7200, January 22, 2001 (residential air conditioners).

least day-night) pricing to all customers, and provide consumers an analysis of the

possible savings from such pricing. Appropriate means of financing time-of-day meters will need to be analyzed.

2. Direct Metering or Submetering Should be Expanded

While time-of-day meters would enable direct metered customers to shift some

power use to off-peak periods, consumption is not measured individually in many

apartments, but rather through the building’s ‘‘master’’ meter. Studies have indicated that residents in master-metered buildings tend to consume significantly more

electricity than residents with direct meters or submeters. Consideration should be

given to the possibility of converting master-metered buildings in New York State

to direct metering or submetering.107 In master-metered buildings, individual residents do not pay for their electricity directly. Rather, electricity charges are included

in the rent. These tenants thus have no direct price signal associated with their

electricity consumption.

Direct metering and submetering use direct market forces to encourage conservation. For example, a NYSERDA pilot project in 1981 showed an energy savings potential of 18–26 percent from submetering.108 If comparable energy savings were

achieved in the approximately 400,000 apartments in 1,800 master-metered buildings in the Con Ed service area,109 demand in the New York City load pocket would

be reduced significantly. The considerable costs involved when converting to direct

metering or submetering can be offset by the savings in the electricity bills over

time.

Efforts to expand direct metering and submetering are ongoing, and should continue. For example, as part of its Residential Innovative Opportunities program, the

NYSERDA has pilot projects to enhance submetering of cooperative apartment

buildings, and has provided technical advice to building operators interested in converting to submetering.

3. Utilities Should be Given Incentives to Encourage Energy Efficiency and Clean

Distributed Generation

While generators of electricity are allowed to sell their power at market value in

the current restructured environment, the transmission and distribution retailers—

the utilities—have remained regulated monopolies. That is, the rates received by the

utilities from their customers for the transmission and distribution of electricity is

still set through rate agreements with the PSC. Among the most central issues

raised by the restructured marketplace is whether the utilities’ profits should be

linked directly to sales.

Under the current rate structure there is a rate cap, which means the more electricity a retailer sells, the greater the retailer’s profits. But, a retailer’s fixed costs

for distribution do not increase substantially when marginally more electricity is

sold, and thus the rate of profit increases for each additional kilowatt-hour of electricity sold. As a consequence, clean distributed generation, energy conservation or

efficiency—all of which reduce a retailer’s sales—is usually not in a retailer’s best

interests despite its significant benefits to consumers and the public.

If the rate structure rewarded retailers for reductions in demand, energy conservation would more likely become a priority for retailers and consumers. The PSC

should develop a formula for the distribution charge that rewards (or at least does

not discourage) efficiency, distributed generation, and similar efforts.

F. The Federal Government Should Implement New Appliance Efficiency

Standards

The DOE should implement the new appliance energy efficiency standards110 to

reduce energy use in an important sector. Not only would this help New York’s en-
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111See, New Efficiency Rules Cut Need for 91 New Power Plants, Environment News Service,

Washington, DC, January 19, 2001. A more complete description of the standards can be found

at Http://www.eren.doe.gov/buildings/codes—standards/stkappl.htm. 112DOE, www.eren.doe.gov/comsumerinfo/energy—savers/introbody.html. Electricity generated

by fossil fuels for one home plus the energy that is generated in the home (for example, a boiler)

emits twice as much carbon dioxide as does one typical car in 1 year. Every kilowatt hour of

electricity avoided in New York State saves almost one pound of CO2 from entering the atmosphere.

ergy efficiency efforts, but since New York receives significant pollution from

upwind states, efficiency efforts elsewhere can improve New York’s air.

In 1977, the DOE promulgated efficiency standards for residential refrigerators,

residential room air conditioners, and fluorescent lamp ballasts. These standards

have been very successful in leading manufacturers to produce far more efficient

products, often 25 percent or more efficient than previous models. The DOE estimates that the standards already promulgated will save enough energy to eliminate

the need for over 13,000 MW of generation capacity nationwide.

In early 2001, the DOE announced the adoption of new energy efficiency standards for four additional types of appliances—residential central air conditioners and

heat pumps, residential clothes washers, residential water heaters, and commercial

heating and cooling equipment. These new standards are projected to save consumers and businesses more than $19 billion through the year 2030 and to alleviate

the need to build 91 new 400-megawatt power plants. The residential central air

conditioner standard alone is estimated to avoid the need for 53 of these plants.111

It is critical that these standards be adopted by the new Administration and fully

implemented.

VII. Challenge and Encourage New Yorkers to Assist in Reducing Demand

Every New Yorker can help to save energy, clean the air, and prevent climate

change. By implementing these measures, consumers will also save on their electricity bills. State officials should use available opportunities to educate the public

on efficiency, renewable power and conservation options.

An average U.S. family spends close to $1,500 a year on its home utility bills

(both heating fuel and electricity bills). Businesses spend much more. Unfortunately,

not even including inefficient appliances, a large portion of that energy is wasted

through actions such as running an almost empty dish or clothes washer, or

uninsulated attics, walls, floors, and basements. Lights left on when no one is

around, at home or in stores or offices after hours, consume electricity needlessly.

The DOE estimates that the amount of energy wasted nationwide is about the same

amount of energy that we get from the Alaskan pipeline each year.112

Individual consumers can do many things at home to save electricity, reduce air

pollutants, and reduce their energy bills. Table A–2 in the Appendix illustrates

ways, many of which are free and available immediately, to save electricity. For example, if a household increases the air conditioner thermostat in summer by merely

three degrees, it would save 937 kWh/yr., and $126 annually. If all New York households did the same, then 6.3 million MWh of energy would be avoided, along with

over 3 million tons of carbon dioxide. Avoiding this amount of carbon dioxide is tantamount to removing 600,000 cars in 1 year.

APPENDIX

Table A–1.—Electricity Savings: Incandescent vs. Compact Fluorescent Lights

Savings show result of replacing one incandescent bulb with a compact fluorescent bulb in one household and in each of

the 6,766,000 households in NYS.

Bulb Type 100 watt incandescent 23 watt compact fluorescent Savings Over 3 Years by Replacing Bulb

Purchase Price ...................... $0.75 .................................... $11.00 ..................................

Life of the Bulb .................... 750 hours ............................. 10,000 hours ........................

Number of Hours Burned per

Day.

4 hours ................................. 4 hours .................................

Number of Bulbs Needed ..... about 6 over 3 years ............ 1 over 6.8 years ...................

Lumens ................................. 1,690 .................................... 1,500 ....................................

Total Cost of Bulbs .............. $4.50 .................................... $11.00 ..................................

Total energy used over 3

years.

438 kWh per household ....... 100.74 kWh per household .. 337.26 kWh per household

2.964 billion kWh if all

households.

682 million kWh if all

households.

2.282 billion kWh if all

households
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APPENDIX

Table A–1.—Electricity Savings: Incandescent vs. Compact Fluorescent Lights

Savings show result of replacing one incandescent bulb with a compact fluorescent bulb in one household and in each of

the 6,766,000 households in NYS.

Bulb Type 100 watt incandescent 23 watt compact fluorescent Savings Over 3 Years by Replacing Bulb

100 w (4 hrs/day) (365

days/year)

(3 years) = 438000 watthours or 438 kWh.

23 w (4 hrs/day) (365 days/

year)

(3 years) = 100740

watts-hours or 100.74

kWh.

(equivalent to the power

generated from an 86.8

MW power plant, 24 hours

every day.)

438 kWh (6,766,000) =

2.964 billion kWh.

100.74 kWh (6,766,000) =

682 million kWh.

Total Cost of Electricity for 3

years (avg price in 1999:

13.4 cents/kWh).

$58.69 .................................. $13.50 ..................................

Total Cost over 3 years

(cost of energy + cost of

bulbs).

$63.19 per household

$427,543,540 if all

households.

$24.50 per household

$165,767,000 if all

households.

$38.69 per household

$261,776,540 if all

households

Total CO2 emissions over 3

yrs (avg emission rate:

996.7 lbs/MWh or 0.9967

lbs/kWh).

436.56 lbs per household

1,476,882 tons if all

households

438 kWh (.9967 lbs/kWh)

= 436.56 lbs

436.56 lbs (6,766,000)/

2000 = 1,476,882 tons.

100.41 lbs per household

339,687 tons if all households

100.74 kWh (.9967 lbs/

kWh) = 100.41 lbs

100.41 lbs (6,766,000)/

2000 = 339,687 tons.

336.15 lbs. per household

1,137,195 tons if all

households

Total S02, emissions over 3

yrs (avg emission rate:

5.1 lbs/MWh or 0.00511

lbs/kWh).

22.38 lbs per household

75,711 tons if all households

438 kWh (.00511 lbs/

kWh) = 22.38 lbs.

0.52 lbs per household

1,759 tons if all households

100.74 kWh (.00511 lbs/

kWh) = 0.52 lbs.

21.86 lbs. per household

73,952 tons if all households

Total NOx emissions over 3

years (avg emission rate:

1.9 lbs/MWh or 0.0019

lbs/kWh).

0.83 lbs per household

2,807 tons if all households

438 kWh (.0019 lbs/kWh)

= 0.83 lbs.

0.19 lbs per household

643 tons if all households

100.74 kWh (.0019 lbs/

kWh) = 0.19 lbs.

0.64 lbs. per household

2,164 tons if all households

Table A–2.—Electricity Savings, Electricity Cost Savings, and Carbon Dioxide Emissions Avoided By Implementing Efficiency

and Conservation Measures in One Household and in All New York Households

Household Measure

Electricity

saved for one

household

(kWh/yr)

Electricity

saved for all

NY households

(MWh/year)

Money saved

for one household

CO2 avoided

for one household (lbs/yr)

CO2 avoided

for all NY

households

(tons/yr)

Replace a 1970’s refrigerator w/a new

EnergyStar refrigerator .................................... 2,197 14.9 million $294 2,190 7,408,770

Increase AC thermostat by 3F degrees for cooling ................................................................... 937 6.3 million $126 934 3,159,410

Replace 5 incandescent light bulbs with compact fluorescent .............................................. 562 3.8 million $75 560 1,894,480

Source: U.S. Energy Information Administration, Household Energy Consumption and Expenditures 1993, and Rocky Mountain Institute’s calculations at www.rmi.org (1999)

RESPONSE OF ELIOT SPITZER TO AN ADDITIONAL QUESTION FROM SENATOR CANTWELL

Question 1. Would you expand on the de minimis arguments that you made on

pages eight through 12 of your testimony? Specifically, which parts of the Clean

Skies Initiative go beyond acceptable executive changes, and what do you believe

is the best way to make such a judgment?

Response. As a general rule, administrative agencies are expected to promulgate

regulations that implement congressional intent as reflected in the statute. As explained below, in implementing the statutory design, agencies may exempt de minimis activity but only when doing so is consistent with congressional intent and

would not reduce the benefits of the legislation being implemented. Because the
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NSR provisions of the Clean Air Act are triggered by ‘‘any physical change’’ that results in increased emissions, the existing exemption for ‘‘routine maintenance’’ must

be read narrowly and EPA cannot greatly expand that exemption or create other

exemptions that reduce the air quality benefits to be achieved by the NSR requirements.

The de minimis doctrine is reflected in numerous Federal court decisions. In Alabama Power Co. v. Costle, 636 F.2d 323 (D.C. Cir.1979), the U.S. Court of Appeals

for the D.C. Circuit held the EPA did not adequately justify the exclusion from the

PSD requirements of modifications that resulted in relatively low emission increases. The Court stated that the Agency has the authority to exempt de minimis

activity when applying the literal terms of a statute would result in pointless expenditures of time and effort. Id. In other words, agencies are entitled to craft exemptions from the scope of a statute when literal application of the statute would

lead to ‘‘absurd or futile results.’’ Id at 360. The Agency will bear a heavy burden

to prove that the exempted matters are of a de minimis nature. Id at 360.

Other Clean Air Act cases decided after Alabama Power confirm the limited scope

of EPA’s authority to depart from the reach of the statute. Most recently, in Environmental Defense Fund v. EPA, 82 F.3d 45.1, 466 (D.C. Cir. 1996), the D.C. Circuit

explained that de minimis exemptions are derived from the commonplace idea that ‘‘the law does not concern itself with trifling matters.’’ The power to craft de minimis exemptions does not create the ability to depart from the statute, but rather

is a tool used to implement legislative intent. Id. De minimis authority should be

used when the burdens of the regulation greatly outweigh the value of enforcing it,

not merely when the Agency concludes the costs exceed the benefit. Id. Exemptions not found in a statute can also be based on ‘‘administrative necessity.’’ Sierra Club v. Environmental Protection Agency, 719 F.2d 436, 462 (D.C. Cir.

1983). In Environmental Defense Fund, the Court listed examples of such de minimis or administrative exemptions available under the Clean Air Act: ‘‘judicial and

legislative proceedings, recurring activities such as permit renewal where the activities to be conducted will be similar in scope and operation to activities already being

conducted, rulemaking and policy development and issuance, routine maintenance

and repair activities, civil and criminal enforcement activities, actions related to foreign affairs, and so on.’’ 82 F. 3d at 465.

In light of this case law, EPA’s authority to depart from the plain language of

the statute is very limited. The statutory reach of the NSR provisions covers any

modifications that increase emissions. To the extent that EPA’s regulations have the

effect of exempting any activity that does result in increased emissions, EPA must

be able to establish that the exemption is called for by administrative necessity or

that the burdens of applying the requirements greatly exceed the benefits under

those circumstances.

Many aspects of EPA’s rulemaking proposals appear to exceed this authority.

Most significantly, its proposal greatly to expand the scope of the routine maintenance exemption cannot be justified. Indeed, the current exemption for routine activity must be construed narrowly to exempt only the routine maintenance activities

of a plant, such as replacement of valves and flanges and patching of leaking pipes.

It appears that EPA’s NSR ‘‘reforms’’ will significantly expand the current exemption to exclude once-in-a-lifetime projects costing millions of dollars. Such projects

are not de minimis within any plain understanding of the term. Moreover, EPA cannot demonstrate that the burdens of regulation greatly outweigh the benefits. In

fact, the benefit of applying the NSR requirements to the activities that EPA hopes

to exclude is very significant: it will lead to substantial decreases in air pollution—

pollution that, as I and others have stated, is causing people to get sick and die and

is harming the environment. All studies that have been done show that the benefits

of this pollution reduction greatly exceed the costs.

Other aspects of EPA’s ‘‘reform’’ proposal may fall outside of EPA’s authority to

craft de minimis exemptions, at least under some circumstances. For example, the

clean unit exemption would satisfy a de minimis analysis only when control technologies applicable to the clean unit have not improved significantly since the plant

was equipped with the controls. If control technologies do improve significantly, benefits can still be achieved by subjecting the unit to more effective controls when a

modification that would otherwise trigger the NSR requirements is made. It is only

when the burdens of upgrading the existing controls greatly exceed the benefits that

an exemption is appropriate. Under those circumstances, however, there is no need

for the clean unit exemption under the PSD program because the cost-effectiveness

of controls is already figured into the determination of Best Available Control Technology.

If EPA proceeds to create broad exemptions that will plainly reduce or postpone

the air quality benefits to be achieved by the NSR program, EPA will have exceeded
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its authority. Based on what we have seen, it appears that EPA is rewriting the

scope of the statutory provisions rather than effectuating congressional intent. This

EPA may not do.

STATEMENT OF ATTORNEY GENERAL BILL PRYOR, ATTORNEY GENERAL OF THE

STATE OF ALABAMA

Chairman Jeffords, Chairman Leahy, and distinguished members of the Committees, my name is Bill Pryor, and I am the Attorney General of the State of Alabama.

It is my pleasure to be here today to discuss the important issue of Clean Air Act

New Source Review.

I support the thrust of the report submitted to President Bush by the EPA Administrator to revitalize the New Source Review Program and in so doing to restore

the delicate balance of ‘‘cooperative federalism’’ embodied in the Clean Air Act

Amendments of 1970.

COOPERATIVE FEDERALISM

Until the 1970’s, the maintenance of clean air was viewed as predominantly a

State and local concern. In 1970, after a series of smaller experiments, Congress

adopted a new blueprint for the battle against air pollution. The new plan—set forth

in the Clean Air Act Amendments of that year (42 U.S.C. §§ 7401–7671 (1994 &

Supp. V 1999))—created a model of ‘‘cooperative federalism.’’

This new model gave the Federal Government responsibility for establishing national air quality standards, along with a variety of enforcement tools for ensuring

that those standards are met. It reserved to each State, however, ‘‘the primary responsibility for assuring air quality within the entire geographic region comprising

such State by submitting an implementation plan for such State which will specify

the manner in which national primary and secondary ambient air quality standards

will be achieved and maintained within each air quality control region in such

State.’’

Clean Air Act § 107(a), 42 U.S.C. § 7407(a). Underlying this provision was the congressional finding that ‘‘air pollution prevention . . . is the primary responsibility

of States and local governments.’’ Clean Air Act § 101(a)(3), 42 U.S.C. § 7101(a)(3).

In a series of decisions in the mid–1970’s interpreting the then-new statute, the

Supreme Court laid out and clarified the Act’s division of responsibilities between

the Federal Government and the States. Train v. National Resource Defense Council, 421 U.S. 60, 79 (1975); Union Electric Co. v. EPA, 427 U.S. 246 (1976); EPA

v. Brown, 431 U.S. 99 (1977) (per curiam). In the quarter century since these cases,

the Federal courts have staunchly protected the Federalist design of the Clean Air

Act.

For example, in 1984, the Seventh Circuit struck down an attempt by EPA to

strengthen a State Implementation Plan (or ‘‘SIP’’) through a partial approval that

was more akin to an amendment. Bethlehem Steel Corp. v. Gorsuch, 742 F.2d 1028,

1036 (7th Cir. 1984). As Judge Posner eloquently explained, ‘‘The Clean Air Act is

an experiment in federalism, and EPA may not run roughshod over the procedural

prerogatives that the Act has reserved to the States, especially when, as in this

case, the Agency is overriding State policy.’’

Id. at 1036–37 (citations omitted).

Similarly, and more recently, the D.C. Circuit relied on the same principles and

precedents to vacate an EPA rule that purported to require 12 States and the District of Columbia to amend their SIN to adopt a particular method of controlling

pollution. In so holding, the court emphasized that Section 110 of the Clean Air Act

‘‘does not enable EPA to force particular control measures on the States ....’’ Virginia v. EPA, 108 F.3d 1397, 1410, amended on other grounds, 116 F.3d 499 (D.C.

Cir. 1997).

As these and other courts have acknowledged, the delegation of implementation

decisions to the States reflects not only a spirit of comity but also a recognition that

State regulators—well-versed in local needs and circumstances—are best able to

craft detailed programs to improve air quality while ensuring the continued availability of energy and maintaining economic prosperity.

THE CLINTON EPA ENFORCEMENT CAMPAIGN

In the late 1990’s, the United States Environmental Protection Agency upset this

sound design. EPA commenced enforcement actions against a variety of companies,

including a cross-section of the nation’s electric utilities, claiming that certain plant
397

activities triggered the extensive New Source Review pre-construction permitting requirements under the Clean Air Act.

For two decades, EPA, frontline State regulators, and regulated sources had all

interpreted these activities as falling within an exclusion for routine maintenance,

repair, and replacement. Their common understanding was that New Source Review

applied only to major modification activities that are akin to new construction. During the Clinton Administration, EPA advanced a novel interpretation that would require the adoption of state-of-the-art pollution controls at existing sources for activities that State regulators had considered routine maintenance, repair, and replacement activities.

The Clinton EPA’s new interpretation conflicted with prior Federal and State

guidance. In several instances, State and local regulators inspected the facilities

that are the subject of EPA’s enforcement actions—before or immediately after the

maintenance activities upon which EPA has based its actions—without suggesting

that a permit was necessary. Indeed, EPA’s enforcement net was so broad as to encompass certain plants that sought out and received explicit determinations from

State regulators that a particular maintenance activity did not trigger the New

Source Review requirements.

The Clinton-era EPA undertook this abrupt reversal of course without notice-andcomment rulemaking and without consulting the States, which have had the primary responsibility to implement New Source Review standards for over 20 years.

EPA’s course eviscerated the cooperative Federalist approach that is the heart of

Congress’s design, in which the Federal Government has the authority to set national air quality objectives and standards but the States have the authority and

the responsibility to implement them. EPA invaded the province of the States and

threw their respective air pollution control programs into upheaval by reversing—

with the blunt tool of enforcement instead of a collaborative rulemaking process—

interpretations that are central to the day-to-day activities of State regulators.

I urge these committees to work with the President and the EPA in a bipartisan

spirit to develop better-defined standards of New Source Review, consistent with the

original design of cooperative federalism in the enforcement of the Clean Air Act.

RESPONSES OF BILL PRYOR TO ADDITIONAL QUESTIONS FROM SENATOR VOINOVICH

Question 1. How would you recommend that NSR be reformed to ensure that the

‘‘cooperative federalism’’ that you described in your testimony remains the cornerstone of the Clean Air Act?

Response. I should note that my testimony was devoted to the subject of routine

maintenance, repair, and replacement (‘‘RMR&R’’) activities, and the problems that

have been caused by the decision of EPA during the Clinton Administration to ignore roughly a quarter-century of established practice with regard to state regulators’ responsibility for oversight of these activities. We should return to the maximum extent possible to the situation that existed before the Clinton Administration’s reversal of policy. The long-standing approach that the EPA abandoned in the

1990’s was consistent with the Clean Air Act, and that approach preserved a sensible division of labor among state and Federal enforcement authorities. As I understand the recommended improvements to the NSR program, as announced in June

of this year, EPA wishes to conduct rulemaking proceedings that will set cost-based

safe harbor thresholds for RMR&R activities, and the new rules will provide a clearer definition of what activities fit within RMR&R—and thus do not trigger NSR—

and what activities do not fit. These EPA recommendations are consistent with both

the original understanding of the Clean Air Act that I outlined in my testimony and

the long-standing enforcement practice before the 1990’s. I believe that clearer rules

would protect the states’ role in the regulation of air pollution and, as a consequence, lead to better enforcement outcomes.

Question 2. In your testimony, you call for the President and the EPA to develop

better defined standards of the NSR program. Can you comment on the announcement by EPA to finalize several NSR rulemakings and to propose other rules?

Response. In the course of answering the first question, I have answered the second question to the extent of my endorsement of the RMR&R recommendations. Because I do not claim any expertise in the other areas of policy that are covered by

the EPA’s June 2002 recommendations, I do not wish to offer an opinion, either

positive or negative, with respect to the other elements of the Agency’s proposed

course of action. I know that the air quality regulators of my state are prepared to

enforce and abide by the final NSR rulemakings, which were initiated by the Clinton Administration.
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STATEMENT OF ERIC SCHAEFFER DIRECTOR, ENVIRONMENTAL INTEGRITY PROJECT/

ROCKEFELLER FAMILY FUND

Thank you, Mr. Chairman and members of the Senate Environment and Judiciary

Committees, for the opportunity to testify today. I am presently director of the Environmental Integrity Project at the Rockefeller Family Fund, a nonprofit organization dedicated to fair enforcement of our nation’s environmental laws. Until this

February, I was director of EPA’s Office of Regulatory Enforcement, a position I

held for 5 years.

Last month, the Administration unveiled its program to effectively repeal the New

Source Review (NSR) provisions of the Clean Air Act. I would like to briefly highlight why the Administration’s proposal is unlawful, threatens public health, is premised on an energy shortage that does not exist, and undermines enforcement of

the Clean Air Act.

Twenty-five years ago, Congress exempted existing coal-fired power plants, refineries, and other facilities from the strict permit and pollution control requirements

all new operations had to meet. Under the law, the exemption for these so-called

‘‘grandfathered plants’’ ends whenever a facility is physically modified in a way that

increases its potential to emit above a minimal amount. EPA has recognized an exemption for routine repairs to prevent ordinary maintenance activities from triggering permit review. Because this exception was created by EPA and does not appear in the law itself, it must be read narrowly under the Federal rules of statutory

construction.

Federal courts have taken this law much more seriously than the Bush Administration, beginning with the landmark Alabama Power decision by the D.C. Circuit

Court of Appeals more than 20 years ago. That decision rejected EPA’s effort to

carve out an exemption for certain sources, holding:

Implementation of the statute’s definition of ‘‘modification’’ will undoubtedly

prove inconvenient and costly to affected industries; but the clear language of

the statute unavoidably imposes these costs except for de minimis increases.

The statutory scheme intends to ‘‘grandfather’’ existing industries; but the provisions concerning modifications indicate that this is not to constitute a perpetual immunity from all standards under the PSD program. If these plants increase pollution, they will generally need a permit.

The 7th Circuit Court of Appeals adopted the same broad reading of the law in

finding that Wisconsin Electric Power Company had violated New Source Review.

And the Justice Department, when enforcing the rules, reminds defendants that

their exemption is temporary and ends when a physical modification increases pollution.

Why does New Source Review matter? Because older plants still claiming to be

exempt from the law after 25 years are responsible for the lion’s share of some of

our worst pollution. For example, coal fired power plants, almost all built before

1977, are responsible for 2 out of 3 tons of sulfur dioxide and a quarter of the nitrogen oxide from all sources. According to national epidemiological studies by the

American Cancer Society, the Health Effects Institute, the Harvard School of Public

Health and others, these pollutants form fine particles now associated with high levels of premature death among exposed populations.

In 1999, the Justice Department filed lawsuits against eight power companies responsible for over 20 percent of the sulfur dioxide emissions in the United States

for violating NSR requirements. An Abt Associates study, using EPA models and

the most conservative of a range of choices, estimates 5,900 premature deaths a

year from power plants owned by just these eight companies. That analysis has recently been validated by Jonathan Levy of the Harvard School of Public Health.

EPA’s expert witness, Professor Morton Lippman of the New York University School

of Medicine, estimates more than 420 premature deaths a year are caused by the

Illinois Power Baldwin plant alone—then cautions that this is likely an underestimate. The steady drumbeat of bad news from public health experts should push the

EPA to treat this matter with some urgency by stepping up its enforcement against

big polluters responsible for this problem.

What has the Bush Administration done instead? It has announced changes to

New Source Review last month to carve new loopholes, turn the law on its head,

and promise eternal life to some of the worst polluters in the country. For example,

the Agency proposes to treat as routine repair, ‘‘replacement of existing equipment

with equipment that serves the same function and does not alter the basic design

parameters of a unit.’’ In other words, you can rip out and replace all the major

components of a utility boiler—over and over—no matter how expensive, complex,

or time consuming these modifications are. And if that’s not enough, you’ll also get

an exemption for any project to, ‘‘facilitate, restore or improve efficiency, reliability,
399

availability or safety within normal facility operations.’’ Contrary to the plain meaning of the law, almost every project would be exempt from the definition of a physical modification that requires permit review and pollution control. These changes

take an administrative exception for routine repair not found in the law that courts

insist must be read narrowly, and expands it until it swallows the law whole.

Almost as bad, the Administration has turned back the clock by allowing companies to look back 10 years, pick the 24 months in which their pollution peaked, then

keep polluting at those levels for the next decade and beyond. Rather than

ratcheting pollution down, this proposal creates a kind of property right in pollution

that can be used to avoid permit review and pollution control. Given what we know

about the damage to human health, why create a new entitlement to actually increase pollution above current levels?

EPA offers several half-hearted explanations for this gutting of the Clean Air Act.

My personal favorite is that NSR gets in the way of energy growth, and keeps power

companies from maintaining their capacity. But according to the Department of Energy, 2001 set a new record for power plant growth, and we have so much capacity

that new plants are being delayed or canceled. Another Department of Energy Report, prepared for Congress in 2000, found that electricity prices would not increase

even if all coal-fired plants above 20 megawatts had to put on modern pollution controls within 5 years. Power companies keep telling us that they will lose generating

capacity because NSR makes them afraid to keep their plants in repair. But even

the 43 power plants targeted by EPA in its complaints show no real decrease in capacity between 1998 and 2002, according to information available on the companies’ own websites.

What about refineries? Again, the Department of Energy tells us that distillation

capacity in U.S. refineries has increased from less than 16 million barrels a day in

the mid 1980’s to nearly 18 million barrels today. And U.S. refineries have expanded

50 percent over the same period, from an average capacity of 46,000 barrels a day

to 73,000 barrels. In other words, the greatest periods of growth in our capacity to

generate electricity and refine oil have occurred exactly when enforcement of New

Source Review requirements was at its peak. So much for the argument that NSR

inhibits energy supply.

Another argument you’ll hear is that New Source Review gets in the way of

projects that decrease emissions. But the law doesn’t even apply unless your project

is expected to increase emissions, which is why the Agency doesn’t offer much more

than innuendo and a couple of anecdotes to support this red herring. EPA’s enforcement cases demonstrate that many of these projects increased emissions many

times above the minimal amounts allowed by law. And the Administration’s proposals—by exempting every project as routine no matter how much emissions increase, and by allowing refineries to ratchet pollution back up to their highest levels

in 10 years—hardly provide an incentive to reduce pollution.

The Administration would have us believe that New Source Review does little for

the environment. But the reductions in sulfur dioxide from refinery enforcement

cases, and from just two power plant settlements (TECO and PSE&G) come to 220

thousand tons a year, as much as the emissions from all power plants in the State

of New York. Add the Dominion and Cinergy agreements, on track until derailed

by the Bush Administration, and you get another 400,000 tons of sulfur dioxide a

year. That’s more than 600,000 tons from just a handful of cases in less than a 2-

year period. So much more could be accomplished if the Administration weren’t so

determined to stop enforcing the law.

The Bush Administration and the energy lobby argue that New Source Review is

just too confusing to comply with. I invite you to read the transcript of the TVA

trial, as well as the many documents that EPA has gathered in the course of its

investigations. When asked if the some of the gigantic projects targeted by EPA’s

enforcement qualified as routine repair or ordinary maintenance, TVA’s own plant

supervisors admitted they did not. Read the court’s decision in the Murphy Oil case,

in which the judge blasted refinery managers for hiding emissions increases to avoid

NSR requirements. The evidence shows that these companies knew full well the

risks they were taking. They gambled with the law and lost. Now they have the arrogance to demand that the government cover their losses by changing the rules to

their liking.

Finally, there’s the Bush ‘‘Clear Skies’’ proposal, featuring a snazzy website and

colorful charts, but no actual legislative language. Clear Skies, of course, applies

only to power plants and asks nothing of refineries, pulp mills, and other factories

that will benefit from EPA’s new, polluter-friendly interpretation of the Clean Air

Act. For power plants and refineries, EPA enforcement actions would cut sulfur dioxide emissions about 70 percent over the next 10 years, as does North Carolina’s

new State law. The Bush Administration thinks we should take about 20 years to
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get that much from power plants, and proposes nothing but Clean Air rollbacks for

refineries and other polluters. The Administration is free to make its case, but ought

not to blackmail Congress and the public by refusing to enforce the law until it is

changed to the energy industry’s liking.

Given the Administration’s policy changes and vague and conflicting statements

by the Administrator of EPA, what is to become of the cases filed by the Justice

Department? Mr. Sansonetti, the Assistant Attorney General for Environment and

Natural Resources at the Justice Department, has argued that the Clean Air Act

is broad and the exemptions narrow, but the Bush Administration now suggests exactly the reverse. Mr. Sansonetti and the Justice Department have argued that industry understood well the requirements of the law, while his own Administration

is insisting the law is too complex to understand. Mr. Sansonetti and the Justice

Department have argued that New Source Review is fundamental to environmental

protection, while the Bush White House pretends it doesn’t matter at all.

At you can tell from my testimony, I don’t think much of the Administration’s proposals or the arguments its offers to support them. President Bush has the right

to recommend that Congress weaken the Clean Air Act. What is most disturbing

is the spectacle of large companies—some of the biggest and wealthiest in America—avoiding enforcement of the law by getting their friends in power to change it

in their favor. By all means, let’s have an honest debate on the future of the Clean

Air Act. But in the meantime, I hope you will insist that the environmental laws

you have written be enforced when they are not obeyed.

Tennessee Valley Authority Actual Emission Increases Resulting From Modifications at Power

Plants Located in Alabama, Tennessee, and Kentucky

Plants NOx (tpy)

Allen Unit 3 .......................................................................................................................................... 1,732

Colbert Unit 5 ...................................................................................................................................... 1,774

Cumberland Unit 1 .............................................................................................................................. 21,187

Cumberland Unit 2 .............................................................................................................................. 4,192

John Sevier Unit 3 ................................................................................................................................ 298

Paradise Unit 1 .................................................................................................................................... 1,007

Paradise Unit 2 .................................................................................................................................... 421

Paradise Unit 3 .................................................................................................................................... 10,674

Shawnee Unit 1 .................................................................................................................................... 720

Total ............................................................................................................................................ 42,005

Source: Final Order of the Environmental Appeals Board, United States Environmental Protection Agency, Washington, DC, In re: Tennessee

Valley Authority, Docket No. CAA–2000–04–008, Decided September 15, 2000.

Capacity of Power Plants Identified in NRS Lawsuits 1998–2001 (Megawatts)

Combined Winter Capacity of Power Plants Identified in NSR Lawsuits

Utility Company Capacity 1998 Capacity 1999 Capacity 2000 Capacity 2001

Alabama Power (Southern) ................... 9027.1 9027.1 9846.4 N/A*

Cinergy/PSI ............................................ 3888.8 3634.8 3649.8 N/A*

Georgia Power (Southern) ..................... 7103.4 6953.4 7068.7 N/A*

Edison ................................................... 2233 2233 2233 2233

SIGECO .................................................. 406 406 406 406

AEP ........................................................ 13480 13480 13480 N/A*

Duke ...................................................... 8087 8087 8087 N/A*

TVA ........................................................ 12280.8 12262 11931 11176**

*Not Available

**Reflects Units not in use due to decline in demand

Source: Energy Information Administration

Selected State-Level Estimates of PM-Related Health Effects Attributable to Eight Electric

Utility Systems

State Mortality Chronic Bronchitis Acute Bronchitis Asthma Attacks

Alabama ................................................ 240 160 540 5,400

Florida ................................................... 230 160 410 4,700
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Selected State-Level Estimates of PM-Related Health Effects Attributable to Eight Electric

Utility Systems—Continued

State Mortality Chronic Bronchitis Acute Bronchitis Asthma Attacks

Georgia .................................................. 360 300 1,000 10,000

Illinois ................................................... 290 210 690 6,800

Indiana .................................................. 250 180 610 5,900

Maryland ............................................... 170 140 410 4,400

Michigan ............................................... 250 190 660 6,400

New York ............................................... 340 260 750 8,200

North Carolina ...................................... 400 310 890 10,000

Ohio ....................................................... 480 340 1,100 11,000

Pennsylvania ......................................... 550 360 1,000 11,000

Tennessee ............................................. 340 240 720 7,700

Virginia ................................................. 230 180 550 6,000

Source: Abt Associates, Particulate-Related Health Impacts of Eight Electric Utility Systems (April 2002).

National Estimates of PM-Related Health Effects Associated with Eight Electric Utility System

Electric Utility System Mortality Chronic Bronchitis Acute Bronchitis Asthma Attacks

AEP ........................................................ 1,400 1,000 3,200 32,000

Cinergy .................................................. 730 530 1,700 17,000

Duke ...................................................... 550 420 1,300 14,000

Dynergy ................................................. 450 330 1,100 10,000

First Energy ........................................... 610 450 1,400 14,000

SIGECO .................................................. 50 36 120 1,200

Southern ................................................ 1,200 900 3,000 29,000

TVA ........................................................ 780 590 1,800 20,000

Total ................................................. 5,900 4,300 14,000 140,000

Source: Abt Associates, Particulate-Related Health Impacts of Eight Electric Utility Systems (April 2002).
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RESPONSES OF ERIC SCHAEFFER TO ADDITIONAL QUESTIONS FROM

SENATOR VOINOVICH

Question 1. Did you support the NSR reforms that the Clinton Administration

proposed?

Response. I was not directly involved in the development of the Clinton Administration’s proposed reforms to the New Source Review program. I was, however, encouraged by the Administration’s interest in conditioning increased flexibility for industry upon serious and long-term reductions in emissions from old ‘‘grandfathered’’

power plants and other facilities that continue to claim an exemption from the pollution control requirements that have long been in place for new facilities. The Bush

Administration’s June announcement seems instead to widen the loophole while sacrificing the emission reductions the Clinton proposals sought to obtain.

Under the Clean Air Act, electric utilities, refineries, and other industries must

apply for a permit and install state-of-the-art controls when their plants are modified in a way that increases emissions above a de minimus amount. The Clinton Administration asked for comment on a number of proposals in 1996 and 1998 Federal

Register Notices designed to simplify the program and encourage innovative approaches to emission reductions. The Bush Administration announced in June this

year that it would shortly publish final regulations to ‘‘reform’’ New Source Review,

and has claimed that it is merely implementing proposals made by the Clinton Administration. A closer review of the proposals reveals striking differences between

the Clinton proposals and the final actions the Bush Administration has announced.

Here are three of the most important:

Elimination of Enforceable Permit Limits.—Companies can avoid New Source review so long as physical improvements to their plants do not increase emissions, so

the method used to calculate emissions is important. Electric generators may estimate future emissions based on the projected actual use of the specific unit where

a modification has occurred. For example, it may determine that a boiler will only

be used a limited number of hours to meet peak demand for electricity, and adjust

emissions downward to the point where NSR no longer applies. Refineries and other

industries may also adjust emissions downward based on similar operational restrictions (e.g., by assuming that a unit will only operate at 75 percent of capacity).

Unlike utilities, refineries and other industries can lower emission estimates

based on operational restrictions only if those estimates are reflected in enforceable

emission limits. In other words, you are not allowed to exceed the emission levels

that you calculate assuming unused capacity or reduced hours of operation. This requirement for enforceable limits does not apply to utilities under today’s rules.

When a utility’s emissions rise above its original estimates, EPA and State agencies

must look back in time to determine if those estimates were in good faith and based

on sound engineering judgment.

Because this is confusing for both industry and the government, the Clinton Administration’s 1998 Federal Register Notice proposed requiring utilities to accept the

same enforceable permit limit to reflect expected capacity or operational restrictions.

The Bush Administration reverses this by eliminating the requirement that refineries and other factories accept enforceable emission limits based on operating restrictions that such companies claim will keep emissions below the NSR radar. Allowing companies to avoid permit review by operating without enforceable emissions

limitations, then forcing government and citizens to undertake an after-the-fact

analysis to determine whether original estimates were reasonable, hardly provides

the kind of ‘‘bright line’’ the Administration claims to be seeking. It also encourages

companies to continue to lowball emissions in the hope that they won’t get caught

(or see below) or if they are, to fall back on arguments that their earlier estimates

were reasonable.

Out of Sight, Out of Mind.—Under today’s law, a company can ‘‘net out of’’ (or

avoid) NSR permit and control requirements if emissions increases associated with

one project are offset by reductions elsewhere in the plant. Companies are supposed

to submit their calculations to the permitting authority for review. EPA investigations and a recent court decisions (Murphy Oil) found that some companies did not

make these submissions and deliberately underestimated emission increases.

The Bush Administration proposal eliminates the requirement that companies

that ‘‘net out’’ of NSR submit their emission estimates to the appropriate Federal

or State agency. While records would have to be kept on the plant site, they would

not be accessible to the public. This restriction, which does not appear at all in the

Clinton proposal, would make it much harder for a community group to find the information needed to review the impact of a proposed plant expansion on the environment. It would also block access to evidence needed to file citizen suits, and
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make it harder for States like New York and Connecticut to file Federal lawsuits

against out-of-State polluters, since such cases rely on citizen suit authority.

Pollution as a property right.—Properly designed, a plant-wide emission limit

(PAL) can give industry the room it needs to make operational changes by providing

one overall emission target. The Clinton Administration’s 1998 proposal made clear

that EPA was considering making such flexibility depend on a company’s commitment to reduce its emissions over the lifetime of the permit. The Bush announcement, in contrast, would allow a company to avoid NSR pollution control restrictions

for 10 years (or longer) so long as it did not exceed its worst levels of pollution in

the previous decade. As with so many other of the Bush Administration ‘‘reforms,’’

the industry gets to keep its flexibility, but public health benefits from lower emissions get sacrificed. The 25-year loophole from state-of-the-art pollution controls for

old, ‘‘grandfathered’’ plants would be automatically extended for at least another

decade, and even beyond based upon other provisions allowing extension of these

inflated PALS, without requiring any reductions in air pollution.

Question 2.—Under the Clean Air Act and apart from NSR, what permit and pollution control requirements must all existing coal-fired plants, refineries and other

facilities meet?

Response. Absent NSR, plants built before 1977 are exempt from one of the most

fundamental requirements of the Clean Air Act: to install the best available control

technology to control pollution. That is why 25 years after the Clean Air Act became

law, a plant built before 1977 can still emit over 100,000 tons of sulfur dioxide a

year, while a new plant of comparable size and burning the same type of coal, is

limited to less than 5,000 tons, or under 5 percent of that amount. The other permit

requirements that do exist have been relatively ineffective in limiting this gross disparity, or curbing the kind of pollution that the American Cancer Society, the Harvard School of Public Health, and the Health Effects Institute estimate leads to tens

of thousands of premature deaths every year.

There are three basic requirements that grandfathered power plants may be subject to, in addition to the New Source Review requirements the Administration has

proposed eliminating. Some facilities are subject to emission rates, e.g., allowing a

certain level of pollution per unit of energy created. While useful, these allow utilities, refineries and other old plants to increase total emissions proportionately when

demand grows or capacity is increased. In short, they do not set a ceiling (as NSR

does) on the amount by which grandfathered plants can increase their production

as a result of plant modifications.

Title IV of the Clean Air Act does require modest annual reductions in the

amount of sulfur dioxide that can be released nationwide by power plants, on average about 2 percent a year. But it does not apply at all to refineries or other industries that would benefit from the Bush Administration rollback of New Source Review. Nor does it compel the kind of reductions (85 percent for NOx and 95 percent

for SOx) required of the biggest emitters subject to NSR. Finally, it allows power

plants to continue to run at high levels of pollution if they have been able to by

credits from cleaner facilities that may operate a thousand miles a way. That is

small comfort to the citizens living near the dirty plant.

EPA or the States can force changes based on tighter air quality rules, but these

changes are fought by industry at the Federal, State and local level. It seems particularly unfair to take away one of the most important tools for requiring the dirtiest, oldest plants to upgrade pollution controls right at the moment that States and

counties must begin preparing to meet tough new, health-based standards for fine

particle pollution. And the Administration’s Clear Skies proposals compounds the

problem by erecting extreme and unnecessary hurdles to prevent a State from petitioning EPA to take action against polluters outside its boundaries when those polluters are jeopardizing that State’s air quality.

STATEMENT OF BOB SLAUGHTER, PRESIDENT, ON BEHALF OF THE NATIONAL

PETROCHEMICAL & REFINERS ASSOCIATION

Chairman Jeffords, Chairman Leahy, Senators Smith and Hatch and other members of the committees, I am Bob Slaughter, president of the National Petrochemical

& Refiners Association (NPRA). NPRA thanks you for asking us to appear before

you today on the subject of reform of the New Source Review (NSR) program. NPRA

is a national trade association which represents nearly all owners or operators of

U.S. refining capacity, as well as petrochemical manufacturers with processes similar to refiners. The petroleum and chemical products made by our members are vital

to continued U.S. economic health and national security, and we welcome the oppor-
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tunity to underscore the importance of NSR reform to maintaining a secure and

adequate supply of those products.

NSR REVIEW HAS BEEN A PUBLIC PROCESS

This is our third appearance before the Senate Environment and Public Works

Committee on this subject. On February 28, 2000, I appeared before a hearing of

the Subcommittee on Clean Air, Wetlands, Private Property and Nuclear Safety to

explain many of the problems that our members were experiencing under the NSR

program. On April 5, 2001, I appeared before the same subcommittee to stress our

members’ continued need for NSR reform and our hope that this matter would be

reviewed as part of the Administration’s forthcoming recommendations for changes

in national energy policy. The problems with and concerns about the NSR program

we expressed at those times are already on the record, but we have included them

as an appendix to this statement for ease of access by committee members and staff.

In May 2001, the National Energy Policy Development Group, in its National Energy Policy report, recommended that ‘‘the Administrator of the Environmental Protection Agency, in consultation with the Secretary of Energy and other relevant

agencies, review New Source Review (NSR) regulations, including administrative interpretation and implementation, and report to the President on the impact of the

regulations on investment in new utility and refinery generation capacity, energy

efficiency and environmental protection.’’ That review was to be concluded by August 15, 2001.

On July 10, 2001, NPRA appeared at one of the four public hearings held by EPA

across the country. The hearings were held to accept comments on industry experience with the NSR program in general, and specifically on the EPA paper (published June 22, 2001) providing background and a preliminary overview of NSR performance and related issues. Some of our member companies also appeared during

these EPA public hearings. We have attached the statement delivered on behalf of

NPRA in Cincinnati as part of the appendix to this testimony.

On June 27, 2001, NPRA and representatives of 12-member companies met with

the Environmental Protection Agency Office of Policy, Economics and Innovation.

This meeting was held to discuss specific problems with the NSR program and our

suggestions for ways in which the program could be improved in order to maintain

environmental progress while promoting energy efficiency, the production of cleaner

fuels and the installation of improved technology. On July 23, 2001 NPRA sent EPA

a written summary of the points brought forward at that meeting. This material is

a part of EPA’s docket of the review process, but we are attaching a copy as part

of the appendix to today’s testimony.

On June 13, 2002, EPA Administrator Whitman sent a letter to the President

transmitting EPA’s report to the President and a separate New Source Review Recommendations document summarizing actions to improve the NSR program. It

should be noted that the Administration took 10 months beyond the originally anticipated August 15, 2001 date to receive and review input and to formulate its recommendations. NPRA issued a press release supporting the Administration’s decision to move forward with NSR reform; a copy is attached as part of the appendix.

NSR REFORM IS NECESSARY

NPRA continues its strong support for reform of the New Source Review program.

Our members need both increased certainty as to the application of that program

and greater flexibility in meeting its requirements. Considerable uncertainty still

exists about the NSR program, and our members tell us that State regulators who

actually administer most of the program’s requirements have expressed their concern about its many complexities and shifting interpretations.

REFINERS HAVE A HEAVY REGULATORY AGENDA

Refiners in particular are in urgent need of NSR reform. The industry is facing

a blizzard of new regulatory requirements in this decade, all of which are environmental in nature. The number and compressed timing of these requirements are

compellingly demonstrated on the attached chart which we call the Regulatory Blizzard.

To mention only the most significant of these programs: refiners must implement

a greater than 90 percent reduction in gasoline sulfur content outside of California

in the 2004–2006 timeframe, at an estimated cost of $8 billion. By mid–2006 the

industry must achieve a 97 percent reduction in the sulfur content of 80 percent of

highway diesel fuel, at an additional cost approaching that of the gasoline sulfur

reduction. EPA is currently considering severe sulfur reductions in the off-road die-
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sel pools, which will also be quite expensive and, which will be partially implemented in this decade as well.

Additional and expensive gasoline specification changes involving the use of

MTBE in reformulated gasoline must be implemented in the same timeframe. At

the same time, stationary source programs such as the MACT hammer and compliance with the new 8-hour ozone standard will require additional environmentally

related investments at refineries and petrochemical facilities.

Many industry experts have told us that they believe that the refining industry faces a total of $20–25 billion in additional investments before 2010. The vast majority of these requirements are related to mandatory environmental programs. Other

experts think that the $20–25 billion price tag may be underestimated.

The unfortunate fact is that most, if not all of these regulatory requirements were

imposed in relative isolation and with little attention paid to their cumulative effect

on the domestic refining industry. In 1999 a study done by the National Petroleum

Council (NPC), a joint government-industry body co-chaired by the then Secretary

of Energy, warned about the impact of these uncoordinated investment requirements on the refining industry. In its Report, the NPC recommended more reasonable timing and better sequencing of these requirements to avoid domestic refinery

closures and reduced supply of petroleum products. The NPC’s recommendation has

been largely ignored to date.

NSR REFORM IS NEEDED TO MEET THIS REGULATORY AGENDA

Confusion and controversy over NSR requirements and applicability contribute to

the problems facing our industry. Assuming their ability to secure sufficient investment capital to meet these regulatory requirements, refiners still face many logistic

challenges in meeting the ambitious goals and deadlines of these new regulations.

Refiners must make infrastructure and process changes to comply with these regulations. The current NSR program makes it extremely difficult for refiners to determine just what the legal requirements are as they do so. This situation illustrates

why the unreformed NSR program hinders our industry’s efforts to produce the

cleaner fuels that consumers want and which are needed for continual environmental progress.

Current disarray in the NSR program has had an even more direct, negative effect on refiners. Enforcement actions against the refining industry based upon unanticipated and shifting NSR interpretations have sought to add significant and uncoordinated new investment requirements to those already mandated in this decade.

Given the magnitude of the tasks facing the refining industry, and the cost of contesting these claims, some of our members have decided to settle these enforcement

actions rather than to contest them. Other members are still discussing these matters with agency personnel.

It is NPRA’s position that the enforcement activity against refiners is inappropriate and should cease. We believe that the NSR program’s application and requirements must be clarified and the industry allowed to proceed with the many

challenges it faces in complying with its vast suite of new regulatory requirements

with the help of a reformed NSR. Regulatory improvements resulting from NSR reform should be made available to those companies which have already settled at

their option. Given the immense job ahead of the industry it is inconceivable that

this would have anything but a positive effect on the environment.

THE U.S. REFINING INDUSTRY IS ESSENTIAL, BUT FACES CHALLENGES

Domestic refining is an essential industry. It is also a tough business. Refining

is a heavily regulated, capital-intensive industry that requires huge amounts of capital to continue its significant environmental progress and to maintain and expand

production capacity. Thus, it is very important to provide clear and efficient means

to comply with environmental regulation. Unnecessary costs mean reduced domestic

production of crucial energy supplies and further reductions in the number of U.S.

refineries.

No new refinery has been built in the United States since 1976. It is unlikely that

any new grassroots refinery will be built in the United States in the foreseeable future. This is due to the industry’s relatively low return on capital invested (which

is in part attributable to the costs of environmental compliance) and to the NIMBY

factor, which makes it difficult to site new heavy industry facilities.

PETROLEUM PRODUCT DEMAND IS INCREASING

No new U.S. refineries have been built, but our demand for petroleum products

continues to increase. The Energy Information Administration (EIA) projects continued growth in demand for petroleum products at roughly 1.5 percent per year
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through 2020. As the number of U.S. refineries declines, overall U.S. capacity has

increased at existing sites just enough to offset the reduction in capacity. But this

is not enough to keep pace with the growing demand for petroleum products, which

must be met through more product imports. In order to maintain—and hopefully in- crease—domestic production of basic fuels, NSR reform is needed to continue capacity additions and other efficiencies at existing sites. Otherwise, we will gradually

but inexorably become more dependent on imports of key petroleum products like

gasoline, diesel fuel, home heating oil, and jet fuel, with a significant impact on national security. Currently, the United States imports large quantities of crude oil,

but the useful petroleum products are largely made in the United States at domestic

refineries.

NSR reform will not remove all the challenges facing domestic refiners, but it will

eliminate unnecessary and counterproductive costs of unnecessary regulation and

uncertainty that can make the difference between life and death for many facilities.

This is not an idle concern. The Oil Price Information Service (OPIS) recently reported that at least 15 U.S. refineries that represent more than 10 percent of U.S.

production may change hands or be closed down by January 2003. The facilities

identified by OPIS are in every region of the country other than the West Coast,

which already suffers from a sharply reduced refinery population. OPIS adds ‘‘It’s the rare unit these days that is sought after by qualified buyers.’’ EIA is projecting that U.S. refineries capacity will continue under pressure, even

with capacity utilization at levels of 94–95 percent which is far more than in other

industries, where maximum utilization is considered to be 75–85 percent of capacity.

EIA forecasts: ‘‘Imports of light products are expected to nearly triple by 2020, to

4.5 million barrels per day. Most of the projected increase is from refiners in the

Caribbean basin and in the Middle East, where refining capacity is expected to expand significantly.’’

Given such warnings, and the impact on U.S. national security, it is hard to argue

that NSR reform should not proceed expeditiously. And U.S. petrochemical production, also directly linked to U.S. economic progress and national security, confronts

challenges equal in magnitude to those of the refining industry and could also operate more efficiently and economically with NSR Reform.

MANY OTHER REGULATORY PROGRAMS CONTROL PLANT EMISSIONS

Opponents of NSR reform attempt to leave the impression that the current NSR

program is the source of all industry environmental regulation; this is not the case.

The refining industry, for example, is heavily regulated through many other programs. (A compilation of those programs is included in the appendix. It was prepared by the American Petroleum Institute.) NSR, on the other hand, was intended

to require the use of up-to-date emission control technology on new or substantially

rebuilt facilities; and routine maintenance, repair and replacement activities were

specifically exempted from NSR requirements.

NSR reform will also help enable the refining industry continue its strong record

of environmental progress. The industry has dramatically reduced its direct and indirect emissions since Clean Air Act regulation began. According to EPA’s figures,

between 1980 and 1996 the refining industry reduced its criteria pollutant air emissions by 74 percent. Congress and the EPA have required the industry to attain additional dramatic emission reductions in the next few years, largely through rulemaking activities taken under the authority of the 1990 Clean Air Act amendments.

The refining industry’s contributions to improved air quality reflect the progress

made by the Nation as a whole. On June 26, 2001 the EPA announced that between

1970 and 1999 total emissions of the Clean Air Act’s six criteria pollutants decreased 31 percent at a time of considerable growth in both the economy and population. The Agency attributed the improved air quality to effective implementation

of clean air laws and regulations and improved efficiency of industrial technologies.

Updating and improving the NSR program should be viewed in the context of improving air quality and considered as a way to maintain its environmental progress.

NSR REFORM HAS BEEN A BIPARTISAN EFFORT

Finally, NSR reform has been urged by a bipartisan group of executive branch

and congressional policymakers over the past several years. In 1996 during the previous Administration, EPA initiated a rulemaking to revise NSR, proposing what

appear to be the same changes that are the core of the present Administration’s recommendations. Former EPA Air Administrator Bob Perciasepe, who served until the

end of the previous Administration, publicly stated his support for NSR changes

which are similar to those recommended by this Administration. A memo expressing

Mr. Perciasepe’s opinions is attached in the appendix. Also, in May 2002 a bipar-
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tisan group of U.S. Senators wrote to the Administration strongly urging NSR reform.

In closing, NPRA urges Congress to continue its support for this bipartisan effort

to modernize and reform the NSR program. Additional regulatory flexibility in the

form of plant wide applicability limits (PALS), clean-unit treatment, and clarification of the definition of routine maintenance will help our members improve energy

efficiency, produce cleaner fuels, and install the latest technology. NSR in its current form impedes, rather than advances, achievement of these goals. We hope that

we can count on continued congressional support for reforming NSR, so that our

members can meet the growing need for environmentally sensitive products and procedures in ways that are both effective and efficient. I look forward to responding

to your questions.
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RESPONSES OF BOB SLAUGHTER TO ADDITIONAL QUESTIONS FROM

SENATOR VOINOVICH

Question 1. Could you provide some examples that illustrate the impact of the

current NSR program on the domestic refining industry’s ability to perform maintenance?

Response. On July 23, 2001, NPRA submitted the attached letter to the Environmental Protection Agency as a followup to an earlier meeting held with EPA during

its ongoing NSR review. As part of that submission, NPRA stated: ‘‘Uncertainties

about the program’s interpretations have often placed our members in a state of retroactive ’enforcement jeopardy’ while adding considerable delay and cost to refinery

projects. The ultimate effect has been to constrain the industry’s ability to (1) expand domestic refining capacity, (2) increase the supply of cleaner burning fuels,

and (3) enhance energy efficiency. The unavoidable conclusion is that recent Administration of the NSR program has had an adverse impact on the nation’s fuel supplies and that the program merits careful review and reform.’’

Uncertainty resulting from shifting interpretation of the ‘‘routine maintenance, repair and replacement’’ exemption has been an important contributor to the problems

cited in the paragraph cited above.

The July 23, 2001 letter to EPA cited numerous examples in which NSR reinterpretation has adversely affected industry operations and improvements. The relevant section of the transmittal letter reads as follows:

‘‘To demonstrate NSR’s ‘real’ world’’ impact, we have collected from our members

some concrete examples of refining projects affected by NSR-related uncertainties.

Attachment 1 contains more than 30 examples showing how NSR reinterpretations

in the recent past have had a chilling effect on desirable investments or added considerable delay and cost.’’ We are attaching Attachment 1 to that letter, for your

complete information. In summary, the impact of the examples contained therein is

as follows: Example # Impact:

1. Restrictions place an artificial limit on the refinery’s capacity to produce clean

fuels.

2. The permitting uncertainty created by EPA’s current interpretation of NSR,

and the threat of EPA overfilling resulted in delay and the use of extraordinary

measures and resources by the refinery to obtain a permit for clean fuels.

3. Foregone production of clean fuels.

4. Regulatory uncertainty may cause a reliability project to be abandoned. Fuel

supply could be impacted.

5. These steps would increase fuel production and improve environmental compliance (delayed by NSR reinterpretation and costs increased).

6. Foregone increase in refinery capacity and fuel supply.

7. Foregone production of clean fuels. 10,000–12,000 B/D of RFG supply lost or

delayed.

8. Foregone increase in refinery capacity.

9. Additional gasoline and diesel fuel would have resulted if the investment were

made. Propane deasphalting yields FCCU and coker feed, which is converted in part

to gasoline and diesel fuel.

10. Forgone increase in refinery capacity.

11. Forgone increase in refinery capacity.

12. Forgone increase in refinery capacity.

13. Forgone increase in refinery capacity and fuel supply.

14. Additional gasoline production was foregone. Alkylate is a key blendstock for

cleaner, lower sulfur gasoline.

15. If PSD review had been undertaken, gasoline production would have been curtailed.

16. If PSD review had been undertaken, gasoline production would have been curtailed.

17. Enforcement action by EPA on an existing permit. This permit meets the goal

of PSD—it prevents deterioration of air quality. EPA has included a similar provision in its recent consent decree with Marathon Ashland.

18. Loss of 50,000 BPD of refining capacity because of EPA’s reinterpretation of

NSR.

19. If PSD review had been undertaken, gasoline production would have been curtailed. If the project had not been done, an energy efficiency gain and NOx reduction

would not have been realized.

20. Refinery capacity increase delayed.

21. Project delayed by 4 months.

22. The difficulties in determining debottlenecking and aggregation issues have

resulted in the long delay of a project that could have put more gasoline into the
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marketplace during the summers of 2001, 2002 and 2003. Since the actual emission

increases would have been negligible, there was no benefit to the environment associated with delaying this project.

23. Gasoline supply foregone.

24. Supply of clean fuels delayed.

25. Capacity increase foregone.

26. Gasoline production increase foregone.

27. Gasoline production and energy efficiency improvements foregone.

28. Air quality improvement delayed or foregone.

29. Gasoline production increase and air quality improvement delayed or foregone.

30. Energy efficiency and air quality improvement foregone.

31. Gasoline production increase delayed or foregone.

32. Gasoline production increase foregone.

Question 2. Could you share with the Committee some of the concerns that state

program’s many complexities and shifting interpretations?

Response. Several NPRA member companies have told us that state regulators

have expressed concern over shifting interpretations of NSR requirements. These

regulators have cited EPA reinterpretations as a reason for some delay in what

would have otherwise been routine requests for review and approval under formerly

longstanding NSR interpretation. This situation is doubly problematic. State regulators are integral to the NSR oversight and permitting process, and the refining

industry is facing an unprecedented number of new regulatory requirements which

will in many instances require changes to facilities. Many of these regulatory

changes must be implemented by early 2006. Because of the nature of the NSR

process, our information on these expressions of state regulators’ misgivings is anecdotal, but we can assure you that several of our refining members have told us of

these experiences.

RESPONSE OF BOB SLAUGHTER TO AN ADDITIONAL QUESTION FROM SENATOR WYDEN

Question. Mr. Slaughter, you have testified that refiners are in ‘‘urgent need’’ of

NSR reform and refer to the requirement to reduce 90 percent of sulfur in gasoline

and that the program hinders your industry’s efforts to produce the cleaner fuels

needed. But in April at a hearing on gasoline pricing, we heard testimony from Mr.

Reeves from Chevron Texaco that they have made and are making significant expansions at their Pascagoula, Mississippi refinery. He also states that ‘‘it will be one

of the first refineries in the Nation capable of producing both low sulfur gasoline

and on-highway diesel fuel outside of California. The project will be completed in

advance of national deadlines for these requirements.’’ It doesn’t sound as if the

Chevron Texaco refinery was hindered by NSR. Please clarify your statement in

light of Mr. Reeves’ testimony.

Response. Because this question refers specifically to Chevron Texaco’s experience

at its Pascagoula, Mississippi refinery, Mr. Reeves has sent a letter to the Committee and Senator Wyden in response to this question. That letter supports and

explains the continued need for NSR reform, and I have attached a copy for your

easy reference.
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STATEMENT OF HILTON KELLEY, COMMUNITY IN-POWER AND DEVELOPMENT

ASSOCIATION AND THE REFINERY REFORM CAMPAIGN

My name is Hilton Kelley, Port Arthur, TX. Community In-Power and Development Association and the Refinery Reform Campaign.

I am grateful for the opportunity to speak out on behalf of refinery communities

across the Nation and tell the Senate the truth about what pollution is doing to us

and how much worse it would be under the new EPA proposal to rollback New

Source Review. For example, by allowing refineries to go backward 10 years to pick

their baseline, pollution will increase. It makes no sense to go backward; we need

to move forward and keep working to reducing pollution by enforcing NSR fully.

Everyone needs to know that the Clean Air Act, as it now stands, must be preserved and the new EPA proposal is really a death sentence for already sick industrial neighborhoods. The Clear Skies Proposal of the Bush Administration will do

nothing for us because it deals only with power plants. It doesn’t cover refineries

and chemical plants.

Refineries are located in 36 States, 125 cities and up to 67 million people breathe

air polluted by oil refineries. This is a national problem and the only solution we

see is strict enforcement of the New Source Review, not a relaxation.

I grew up in Port Arthur’s Westside in the Carver Terrace housing project right

next to the cluster of refineries. I moved away, but in 2000, I returned. I am on

a crusade to empower local citizens to fight for their health and a key element of

that crusade is to protect the Clean Air Act’s New Source Review.

The rest of the country needs what Port Arthur makes, just like other refinery

communities. The neighbors live with the fallout, pollution and health problems.

Texas is home to America’s largest oil refineries and chemical plants. While the

State produces the energy the Nation needs, it also produces more industrial pollution than any other State according to the latest Right To Know data. Our neighborhoods pay the highest price for the rest of the nation’s ‘‘cheap gasoline’’. Sometimes

it can take your breath away. We benefit the least in this bargain as we have high

unemployment. Although the plants get tax breaks by being in an ‘‘Empowerment

Zones’’, our people don’t see the benefits.

It seems that these heavy industries concentrate in low income communities and

communities of color where there is the least resistance. They operate 24 hours a

day, 365 days a year and expand constantly. Right now we are challenging another

expansion of the Premcor refinery that wants to dump 525 more tons of pollution

on us so that they can make low sulfur gasoline. It seems we never have a chance

to get cleaner air.

This problem has a human face. In Port Arthur, almost every day, 10-year-old

Cullen Como gets a breathing treatment for asthma. The illness causes him to miss

school often. His mother and sister also have trouble breathing. The family lives

right across the street from the refineries. Cullen’s sister, Kendra Prince, says, ‘‘It’s

dangerous, and everybody around here is sick, everybody. It’s just killing off people.’’

The plants emit a toxic soup of chemicals. These chemicals are known to cause

cancer, affect brain functions, and hurt organ development and reproduction. We,

like other refinery communities, have teamed up with Denny Larson, of the Refinery

Reform Campaign to form a local ‘‘Bucket Brigade’’ for Port Arthur. The bucket is

a simple, but effective air sampler. It uses a special bag and vacuum pump. Air

samples taken during toxic releases have shown unhealthy levels of hydrogen sulfide, benzene and other dangerous chemicals. We were forced to do this because

there are no real air monitors in our community.

Annie Edwards, who suffers from breathing problems, has two breathing machines and has a terrible reaction to the neighborhood atmosphere. ‘‘Like I panic

and I can’t catch enough air, and if I go outside, it’s worse. I have to strap on my

breathing machine at night so I don’t pass on while I sleep.’’

I know from walking door to door that these problems are widespread. Too many

people are dying from cancer. Too many people have thyroid problems. We have two

dialysis clinics in this small town, and it’s time for the citizens to say, ‘Enough is

enough,’ and it’s time to do something about it.

We want to work with industry. We want them to put the necessary controls on

their stacks, put the necessary controls on their valves, so they will quit emitting

so much tons of pollution in the community.

We also have a huge pollution problem with accidents, fires, explosions and upset

emissions releasing thousands of pounds of chemicals into our air through flares,

relief valves and dump stacks.

Some Examples are:
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March 2002, Premcor Refining, Port Arthur.—80,000 pounds of propane/butane

mix, 7,704 pounds of VOCs per hour, 207,112 pounds of sulfur dioxide, 2,218 pounds

of hydrogen sulfide, 163 pounds of nitrogen oxides.

February 2002, Premcor Refining, Port Arthur, February 19, 2002.—About 5,650

pounds of propane and 143 pounds of hydrogen sulfide were released during the

219-hour upset.

January 2002, BASF Corp., Port Arthur, January 21, 2002.—The plant experienced an upset, during a 14-hour period, about 57,000 pounds of benzene, 1,055,000

pounds of ethylene, 675,000 pounds of propylene, 462,000 pounds of butylene, 2,200

pounds of butadiene and 2,200 pounds of toluene were released.

January 2002, Premcor Refining, Port Arthur, January 2, 2002.—Upset, about 26

pounds of hydrogen sulfide per hour, 2,479 pounds of sulfur dioxide per hour, 295

pounds of VOCs per hour and 6 pounds of nitrogen oxides per hour were released.

The upset lasted 168 hours.

A recent health survey done by University of Texas toxicologist Marvin Legator

compared people living in housing projects in refinery communities like Port Arthur

and Beaumont to a non-industrial similar population. Preliminary results show a

vast difference between the health symptoms these communities report.

• Seventy-five percent of the people from Port Arthur complained of headaches

and muscle aches compared to twenty percent in the control group.

• Eighty percent of Port Arthur people had ear, nose and throat conditions compared to twenty percent in the control area.

• Eighty percent of those questioned had heart conditions and respiratory problems in refinery neighborhoods compared to thirty percent in non-refinery areas.

Dr. Legator has made a strong correlation between the known health effects from

the emissions from the refineries and the health symptoms we experience.

Another study conducted by MacArthur Genius Award winning Scientist, Wilma

Subra, showed that health symptoms and emergency room visits increase when

there is a spill or unexpected release from the plants.

Glenn Alexander, a pediatric nurse practitioner, has been treating local children

for 10 years. His waiting room is nearly always full. He sees an unusually large

number of upper respiratory infections, allergies, skin rashes and asthma. ‘‘I do see

things because I am a health care provider. The air is not always clear here. Sometimes it’s hard for children to breathe.’’ Some of the effects are irreversible and a

life long problem.

Alfred Dominic was born in Port Arthur in 1928: ‘‘Many of my friends have died

of cancer, and many of them are sick at the present time, because of the emissions.’’

Mabel Mallard a SUNOCO refinery neighbor of South Philadelphia, PA, States:

‘‘How can we live in constant fear not knowing what we will be forced to breathe

next from these refineries? Don’t tread on our New Source Review, we need the protection.’’

CONCLUSIONS

1. New Source Review should be preserved and fully enforced. It is a grave matter

of environmental justice to people who need the help of the U.S. Senate to protect

their health and the health of innocent children. Going backward to allow refineries

to pick a baseline from the last 10 years is unthinkable to people living on the

fenceline suffering from current levels of pollution.

2. The Clear Skies Plan won’t help us. We need the Federal protection and right

to know of the New Source Review.

Thank you. I would be happy to answer any of your questions.
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RESPONSE OF BY HILTON KELLEY TO ADDITIONAL QUESTION FROM

SENATOR VOINOVICH

Question. Like you, I care deeply about the impact of these programs on disadvantaged people. As you may know, two researchers from the University of North Texas

issued a report in May on ‘‘The EPA’s Reinterpretation of New Source Review Rules:

Implications for Economic Development in Rural America.’’ The report concludes that the changes in EPA’s interpretation of NSR in 1998

have had a greater negative impact on rural America. Among their findings are: • Population, job growth, and average earnings have all decreased in rural areas

as compared to urban areas. • While overall our Nation depends on coal for 55 percent of its electricity generation, electric cooperatives serving rural areas are 76 percent dependent on coal for

electricity.

Businesses operating in non-metropolitan areas already spend more for electricity

than businesses operating in metropolitan areas. As a representative of part of Appalachia, which is one of the most economically distressed areas in this country, I

am concerned about how the study’s findings apply to my region and to other portions of the country like Texas. Would you support any kind of reform to NSR to

help these people?

Response. Pollution from power plants cuts short the lives of thousands of Americans every year, according to EPA studies through heart disease, lung cancer and

other illnesses. In my out community of Port Arthur, Texas—where you won’t find

any of the industry’s lawyers—I have seen first hand how the pollution from refineries and chemical plants has damaged the health of my neighbors, with high rates

of cancer, asthma and other diseases. These illnesses hurt poorer people the most,

since they are much less likely to have adequate health insurance or the money to

afford long-term care. I do not understand why, in the richest society in history, we

should ask low-income families to sacrifice their health to make a living.

Also, materials available on the Department of Energy’s own website show that

is a false choice. Apparently, last year was the biggest year ever for power plant

expansion, and we have so many new plants that some of them are being canceled.

In North Carolina, State law will require Duke Power to cut its emissions 70 percent in 10 years, with no increase in electric rates for consumers. That seems to fit

with another study by the Department of Energy in 2000 (also on the website),

which shows that requiring companies to put on modern pollution controls will not

raise rates for consumers, because it will make it more economical to build plants

that are not only cleaner, but much more efficient. And I don’t understand how allowing old power plants to keep running without good pollution control equipment

helps rural communities—doesn’t that just discourage companies from replacing old

plants with more modern (and cleaner) power plants that would bring construction

and operating jobs to rural areas?

Refineries are experiencing record growth, and in Port Arthur the Premcor plant

wants to grow to 475 million barrels a day, making it one of the largest in the

world. And that’s on top of the recent expansion of the BASF plant. Unfortunately,

both these plants have plagued the community with high levels of pollution and a

series of accidents. It doesn’t seem unfair to ask companies to clean up their act,

and not to expand in a way that makes the air even harder to breathe.

STATEMENT OF STEPHEN HARPER, DIRECTOR OF ENVIRONMENT, HEALTH, SAFETY AND

ENERGY POLICY, INTEL CORPORATION

Thank you, Chairman Jeffords and Chairman Leahy, for the opportunity to address this joint hearing regarding New Source Review policy issues. My name is Stephen Harper. I serve as the director of Environment, Health, Safety, and Energy

Policy for the Intel Corporation. I am here to address the committees today about

one specific aspect of New Source Review (NSR), namely Plantwide Applicability

Limit (PAL) permitting approaches. Intel has been part of an informal coalition of

companies from the pharmaceutical, chemical, automotive, and electronics industries that have been advocating promulgation of a PAL rule by the U.S. Environmental Protection Agency (EPA) for several years now. Many of our coalition members have experience with PAL-type permits at their facilities and believe strongly

that EPA should promulgate a PAL rule as a logical next step in a long process of

piloting, perfecting, and proliferating flexible permitting approaches that protect the

environment and provide operational flexibility to facilities.

Much effort has been expended over the last 10 years by industry, States, EPA,

and the public—under both Democrat and Republican Administrations—to ‘‘reinvent’’ or innovate new approaches to environmental protection. Intel has partici-
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pated in many of these efforts and is intimately familiar with the mixed result of

successes and failures from these endeavors. We feel strongly that PAL-type permits

are one of the most successful innovations to emerge from these many reinvention

efforts. The time has come to build on this success and take PALs into the mainstream of NSR permitting.

SEMICONDUCTOR MANUFACTURING REQUIRES FLEXIBLE PERMITTING

Why does Intel care about PALs and other forms of flexible permitting under the

Clean Air Act? In simplest terms because of the importance of operational flexibility

in being able to innovate new products and processes and quickly respond to market

conditions. As in many other industries, there are only two types of semiconductor

companies—‘‘the quick and the dead.’’ We feel strongly, therefore, about being quick.

Intel operates 10 semiconductor ‘‘fabs’’ or fabrication facilities in the United

States, producing Pentium processors and other semiconductor products. These facilities employ many thousands of highly skilled US workers. The capital investment required to bring a new fab into full production is in the $2–3 billion range.

The life-cycle of a semiconductor fab involves numerous upgrades and innovations

in production technology, chemicals, and processes. A ‘‘typical’’ Intel fab, for example, experiences two or more technology generations over a 5-year period; as many

as 75 upgrades and innovations each year in process steps, methods, and chemicals;

and the installation of between 175 and 500 new process tools over a 2-year technology transition.

Once a fab has commenced production, profitability depends upon reaching and

maintaining high levels of production as quickly as possible. Traditional air quality

permitting approaches, under NSR and other EPA and State programs, would require potentially hundreds of permit revisions to implement the upgrades and innovations that are critical to successful startup and ramp-up of a fab. The potential

delays attendant to such revisions are—simply put—incompatible with the profitable operation of U.S.-based semiconductor fab that must compete in a global marketplace where success hinges upon being quick-to-market. Traditional permitting

approaches would require numerous permit modifications and threaten significant

delays for companies like Intel as we install new manufacturing tools, convert to

new manufacturing processes, change chemicals, and expand production capacity to

respond to market conditions.

Driven by the incompatibility of traditional permitting approaches with semiconductor manufacturing requirements, Intel has long pursued an objective of minimizing our permitting burden. We have done this in two ways. The first is to reduce

our emissions of all pollutants as much as we can so as to achieve ‘‘minor source’’ status under the Clean Air Act. The second priority has been to work with EPA and

the States to pilot and prove new, innovative, and more flexible permitting approaches.

WHAT IS A PAL?

A PAL permit provides an emissions cap or caps for an industrial facility. The cap

provides a clear method for determining whether changes at a PAL-covered facility

trigger NSR permitting requirements. The need to obtain an NSR permit revision

only applies when a facility’s emissions increase beyond the PAL cap. In addition

to the cap, a PAL or PAL-type permit typically specifies certain kinds of facility

changes that are ‘‘pre-approved.’’ A facility with a PAL can undertake a pre-approved change without becoming subject to NSR as long as the facility’s emissions

remain below the cap(s).

It is important to clarify the difference between a PAL permit under the NSR program and what I am terming a ‘‘PAL-type’’ permit. PALs per se relate only to facilities that qualify as ‘‘major’’ under the Clean Air Act by virtue of the magnitude of

their emissions. I am using the term ‘‘PAL-type’’ permits to refer to minor source

permits involving both an emissions cap and pre-approval of certain operational

changes. As I will make clear shortly, Intel has experience with both types of permit.

WHAT ARE THE BENEFITS OF PAL-TYPE PERMITS?

There are three categories of benefits provided by PAL and PAL-type permits.

Most importantly, PALs provide significant environmental benefits. PAL emissions

caps provide certainty regarding the emissions impact of a facility. Moreover, since

these emissions caps are set at levels that reflect the air quality improvement needs

of an airshed, PAL caps typically entail emission reductions compared to traditional

permitting approaches. Emissions caps, moreover, provide a very powerful incentive

for pollution prevention. The only way a facility can increase its production and still
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stay under its cap is to reduce its emissions per unit of production. PALs allow facility environmental engineers to spend less time dealing with the burdens of permitting paperwork and free them up to concentrate on reducing emissions through pollution prevention.

A second benefit PALs provide is enhanced public participation. Under traditional

approaches, air quality permitting authorities notify the public of numerous

changes, big or small, at facilities, providing opportunities for public input into

whether or not permit modifications should be granted. At best, what the public

sees in the traditional case is a series of incremental changes and piecemeal information about facility operations that provide little understanding regarding the

overall impact of a facility on local air quality. Under a PAL, however, the public

has the opportunity to be involved in the initial process of establishing the PAL permit and emissions caps. In this setting the public can gain a much better sense of

the overall operations of a facility, the kinds of operational changes that are contemplated, and the likely air quality impacts of the facility over the term of the permit. The public has a much enhanced opportunity to view the facility holistically,

rather than in a fragmented way.

A third type of PAL benefit accrues to the permitted facility in the form of operational flexibility. For major sources concerned about NSR applicability, PALs provide a ‘‘bright line’’ that eliminates ambiguity about whether or not operational

changes trigger NSR requirements. PAL-type permits provide minor sources the

same type of flexibility regarding State minor source NSR requirements.

INTEL’S EXPERIENCE WITH PAL-TYPE PERMITS

A major part of our corporate commitment to innovating new permitting approaches has involved partnership with EPA, the States, and members of the public

to pilot the basic concepts underlying the PAL rule that EPA currently is finalizing.

The first of these partnership commitments came in the 1992–1995 timeframe

where Intel, EPA, and Oregon developed a PAL permit for Intel’s Aloha, Oregon fab

as part of EPA’s ‘‘Pollution Prevention in Permitting Program’’ (P4). The second

major partnership involved Intel, EPA, and Maricopa County, Arizona jointly undertaking one of the first pilot projects under EPA’s ‘‘Project XL’’ program at its

Ocotillo campus in Chandler, Arizona.

Intel’s P4 permit was a PAL permit under the Federal NSR program because our

Aloha fab was a major source at the time the permit was issued. Our XL permit

for the Ocotillo fab is not, strictly speaking, a PAL, because that facility is a minor

source under the Clean Air Act and, thus, no NSR ‘‘applicability’’ issues arose.

Nonetheless, our Ocotillo permit functionally is the same as the Aloha permit and

has provided another valid test of the emissions cap and pre-approved changes features of a PAL.

I previously described the environmental benefits of PAL permits. Let me now

show how those benefits were realized in practice in our Oregon and Arizona pilot

projects. The environmental benefits at our Aloha, Oregon fab are very dramatic.

The attached exhibit provides a graphic demonstration of the powerful incentive

PALs provide for aggressive pollution prevention programs. This chart shows facility

VOC emissions per production unit and total production units. Motivated by the

need to find room for growth under our PAL cap, our Aloha fab reduced emissions

of VOCs by over 90 percent per unit of production since 1990. Some of this reduction

occurred prior to 1995 under an Oregon PAL-like permitting program. Even more

dramatic reductions occurred after our NSR PAL came into effect in 1995.

The combination of the pressure of an emissions cap and the operational flexibility under our Aloha PAL fueled an aggressive pollution prevention program. The

success of that program allowed Intel to add an additional fab at our Aloha campus

without the need to increase our cap. Indeed, we reduced overall VOC emissions and

voluntarily lowered our VOC cap from 160 tons per year to 130 tons per year. This

was done to support the successful efforts of Oregon and the Portland region to reduce overall regional emissions and qualify Portland for re-designation as an Ozone

Attainment area in 1997. Intel’s consistent reductions over time, combined with this

area redesignation, allowed our Aloha fab to itself achieve minor source status

under the Clean Air Act in 1999.

The environmental results under our PAL-type permit at our Ocotillo campus

have been equally dramatic. Through our aggressive pollution prevention program,

the Ocotillo facility—which sits on 720 acres, employs approximately 5,000 people,

and produces a high volume of semiconductor devices—emits approximately 25 tons

of VOCs annually. This emissions level is in the neighborhood of what several large

gas stations would produce. Our emissions reductions at Ocotillo have been so dra-
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matic that we have constructed and are now operating a second fab on this campus—all under the XL cap.

PALS ARE PROVEN AND READY FOR PRIME TIME

As I have shown, Intel’s experience piloting PALs and PAL-type permits with

EPA and State and local permitting authorities has been dramatically successful.

Other companies that have worked with EPA and the States to test the PAL approach also can tell similar success stories. Several of the other companies in our

informal ‘‘PAL coalition’’—including DaimlerChrysler, DuPont, and Merck—have

successfully piloted the PAL approach at one or more of their facilities. Other companies in other industries are applying the PAL approach as we meet today, including BMW, GM/Saturn, and several oil refineries. At this point, PALs have been

demonstrated successfully in a number of very different industrial sectors.

Intel believes, as I mentioned at the outset of my testimony, that PALs are one

of the most significant regulatory innovations to emerge from the last 10 years of

regulatory reinvention activities at the Federal and State level. Indeed, PALs are

an example of the right way for a regulatory agency like EPA to innovate. First you

try some pilot projects. You evaluate your experience and, where success has been

demonstrated, you build on that success by mainstreaming the innovation in your

regulatory program.

‘‘Mainstreaming’’ the PAL success story will be aided greatly by EPA promulgation of practical PAL provisions either discretely or as part of a larger NSR rule.

Regulatory action is not necessary as a legal matter. The successful PAL pilot

projects at Intel and other companies have utilized existing legal authority. On the

other hand, regulatory action by EPA will promote the PAL concept by providing

greater guidance to permitting authorities and sources regarding the benefits of

PALs and PAL-type approaches. With the promulgation of clear ‘‘rules of the road,’’

sources and States will be better able to craft PAL permits that realize the environmental, public participation, and operational flexibility benefits I have cited.

In sum, Congress should be encouraging flexible permitting approaches like PALs.

I will be glad to answer any questions the committee members might have.
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RESPONSES BY STEPHEN HARPER TO ADDITIONAL QUESTIONS FROM SENATOR

VOINOVICH

Question 1. How important is ‘‘operational flexibility’’ to a company that must

compete in a global marketplace? Can you provide examples of how NSR has affected your company’s ability to compete? What would be the economic impact and

loss of jobs if Intel could no longer compete due to these cumbersome regulations?

Response. Operational flexibility is critical to the ability of Intel, and companies

like Intel, in fast changing international markets, to compete. Traditional NSR permitting requires permit modifications for many of the hundreds of production

changes Intel makes at each of its fabs during the several year cycle of a process

or product generation. The application process alone can threaten delays that hinder

the ability of a facility to respond to changes in market demand or install improvements that reduce cost or increase output. Intel has been able to avoid these effects

of NSR because we have rigorously employed pollution prevention to become a

Clean Air Act ‘‘minor’’ source at all of our facilities. Our interest is preventive: We

seek to codify, as part of the Federal NSR program, the type of flexible plantwide

applicability limit (PAL) permits we operate under through State minor source programs. We want to make sure that, should we become a major source at any of our

sites—through growth and/or reclassification of an area under the Clean Air Act—

we can continue to enjoy this type of flexibility under major source NSR. At the

present time, PALs are legal under NSR, but clear ‘‘rules of the road’’ are necessary

to make it easier for sources and States to know how best to craft major source PAL

permits. The threat of becoming a major source, and not being able to enjoy PAL

flexibility, would influence our future decisions re siting of new facilities here in the

United States.

Question 2. In your testimony, you detail Intel’s experience with PAL-type permits. What was the timeline and process that has led up to the Administration’s

announcement to finalize the PAL rule?

Response. I cannot speak definitively to the Administration’s timeline. I can say

only what I know from Intel’s direct participation in a long multi-stakeholder process to reform NSR. What has become the current version of the PAL concept was

proposed in EPA’s 1996 NSR rulemaking. Although we have not seen the Administration’s specific rulemaking language, we believe that everything the Administration currently seeks to finalize/propose with respect to PALs was foreshadowed in

that proposal, or is a logical outgrowth of the 1996 proposal and the comments received on that proposal. Subsequent to the 1996 proposal, the Clinton EPA held a

lengthy series of consultations, both formal and informal, with a wide variety of

stakeholders to refine the PAL concept. Part of this early process included Intel’s

project piloting the PAL concept at our Ocotillo fab in Arizona, as part of the Administration’s flagship reinvention effort, Project XL. The process picked up in February 1999, when EPA held a formal NSR reform workshop in Washington, where

PALs and many other NSR reform ideas were discussed. Following that workshop,

and leading right up to the final days of the Clinton Administration, numerous more

informal meetings were held by EPA with various stakeholders to discuss PALs. In

sum, the process was extensive and deliberative. Upon leaving office, Assistant Administrator Perciasepe recommended to the incoming Bush Administration taking

action to finalize PALs among other NSR reforms.

STATEMENT OF JOHN D. WALKE, DIRECTOR, CLEAN AIR PROGRAM, NATURAL

RESOURCES DEFENSE COUNCIL

I. INTRODUCTION

I would like to thank the chairmen of these committees for inviting me to testify

on behalf of NRDC’s 500,000 members. As an organization dedicated to safeguarding public health and the natural environment, NRDC has for over 30 years

promoted actions to implement the Clean Air Act. For just as long, NRDC has opposed efforts to turn the government away from fulfilling Congress’s commitment

to protect Americans from harmful air pollution.

The chairmen have convened these hearings to investigate the changes that the

Environmental Protection Agency has announced it will make to the regulations

that implement the Clean Air Act. This investigation will reveal that the attempted

changes represent the most sweeping and aggressive attack that the Clean Air Act

has faced in its thirty-year history. Through the mechanism of administrative rulemaking, EPA is attempting, in effect, to repeal an act of Congress. These changes

are not only unlawful, but also deadly. They will result in tens of thousands of pre-
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1The description of the New Source Review program provided in this section derives largely

from the U.S. Department of Justice’s January 2002 report entitled ‘‘New Source Review: An

Analysis of the Consistency of Enforcement Actions with the Clean Air Act and Implementing

Regulations’’ (‘‘OLP Report’’). 2See Pub. L. No. 91–604, 84 Stat. 1676, Section 111 (codified at 42 U.S.C. § 7411). 3See id., Section 111(a)(2) (codified at 42 U.S.C. § 7411(a)(2)). 4See H.R. Rep. No. 95–294, at 185–86 (1977), reprinted in 1977 U.S.C.C.A.N. 1077, 1264–65

(‘‘Building control technology into new plants at time of construction will plainly be less costly

than requiring retrofit when pollution ceilings are reached.’’). See also Wisconsin Electric Power

Co. v. Reilly (‘‘WEPCO’’), 893 F.2d 901, 909 (7th Cir. 1990) (finding that the purpose of the ‘‘modification’’ rule is to ensure that pollution control measures are undertaken when they can

be most effective, at the time of new or modified construction). 5See H.R. Rep. No. 95–294, at 186 (‘‘For some of the older and smaller sources, it is not physically or economically feasible to retrofit sulfur oxide control technology.’’). 6Pub. L. No. 95–95, 91 Stat. 685 (codified at 42 U.S.C. §§ 7401–7642). 7See 42 U.S.C. §§ 7475, 7501–7503. 8See id. § 7470(5).

mature deaths, asthma attacks, and hospitalizations that would have been prevented had EPA elected to obey the law rather than break it.

This testimony will summarize the data that the public health community has

presented to EPA showing that the impending rollbacks will result in illness and

death on a massive scale. The agency has not even attempted to rebut this evidence;

its staff has performed no analysis of the impact that the announced changes will

have on air quality and public health. But EPA is going forward with the changes

anyway.

Why is EPA doing this? The agency’s top officials admit that it is making these

changes because industry has called for them. The owners of the country’s dirtiest

power plants claim that the portion of the Clean Air Act known as New Source Review prevents them from undertaking routine maintenance at their plants and from

upgrading their facilities to generate more electricity with less fuel. But when asked

for facts showing that the operation of New Source Review has had this negative

effect, industry offers only undocumented anecdotes and sketchy hypotheticals. This

testimony will summarize the evidence demonstrating that the New Source Review

provisions of the Clean Air Act do not hinder industry from carrying out routine

maintenance or from meeting the country’s energy needs. The only thing New

Source Review prevents a company from doing is evading its duty to install pollution controls when it modifies its plants in ways that increase pollution. The nation’s worst polluters resent the lawsuits that the Federal Government and the

States have brought to enforce this statutory obligation, so they have instructed the

current Administration to eliminate it.

EPA has blindly adopted the polluters’ self-serving, unsubstantiated claims about

New Source Review and initiated an unprecedented rollback without any analysis

of the public health impacts. Because the rollback will violate an act of Congress

and adversely impact the health of tens of thousands of Americans, I ask that these

committees do everything in their power to prevent the changes from taking effect.

II. BACKGROUND

A. What NSR Is1

In 1970, Congress amended the Clean Air Act to require that new industrial

sources of air pollution be built with state-of-the-art pollution controls.2 The amendments did not require existing sources to install modern controls immediately. Instead, they required existing plants to install controls when and if the sources underwent modification.3 Congress believed that the most efficient time to retrofit a

facility was when the plant was already undergoing construction activity,4 and it

assumed that many existing sources would soon be retired and replaced anyway.5

The 1970 amendments failed to achieve the Act’s goal of healthy air in all areas

of the country by 1975. In response to this failure, Congress passed a new set of

amendments in 1977.6 These amendments established the New Source Review

(‘‘NSR’’) program, which requires a preconstruction review and the issuance of a permit for the construction of any new ‘‘major emitting facility,’’ or the modification of

any existing facility.7 The program is designed to prevent modified or new facilities

from causing increased emissions that could cause or contribute to violations of applicable air quality standards.8 Before a company can receive a permit to commence

‘‘construction,’’ it must show that the proposed project would not result in the violation of an air quality standard or any other applicable limit in any local or downwind area, and that the resulting facility would be ‘‘subject to the best available con-
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9 Id. § 7475(a). 10 Id. § 7479(2)(C). 11 Id. § 7411(a)(4). In the words of Senator Edmund Muskie, one of the principal supporters

of the 1977 amendments, ‘‘A source . . . is subject to all the nonattainment requirements as

a modified source if it makes any physical change which increases the amount of any air pollutant ....’’ 123 Cong. Rec. 26,847 (1977). 12 40 C.F.R. §§ 51.166(b)(2)(I); 52.21(b)(2)(iii)(a); 52.24(f)(5)(iii)(a); 60.14(e)(1). 13See New Source Review Reform 106–09 (EPA, Preliminary Staff Draft 1994). 14 Id. 15Letter from Mary Nichols to Bill Lewis, May 30, 1995, at 19. 16WEPCO, 893 F.2d at 910. 17 Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir. 1980). See also Legislative History of the Clean Air Act Amendments of 1990, 6675–76, Senate Debate on S. 1630, Remarks

of Senator Baucus (‘‘The issue is whether old facilities that are substantially renovated and refurbished should continue to be allowed to emit at much higher rates or to emit more pollution,

and with little or no pollution control equipment, compared to new sources. The obvious answer

is that they should not, so long as common sense exceptions to the rules de minimus exceptions

and exceptions for pollution control equipment] continue to apply ....’’). 18WEPCO, 893 F.2d at 906–08.

trol technology for each pollutant subject to regulation under this chapter emitted

from, or which results from, such facility.’’9

The Act defines ‘‘construction’’ to include ‘‘modification.’’10 The term ‘‘modification’’ is in turn defined 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.’’11 The statute does not further limit the definition of ‘‘modification’’; however, EPA regulations promulgated after 1977 exclude ‘‘routine maintenance, repair,

and replacement’’ from the term’s scope.12

Industry representatives often complain of difficulty determining what kinds of

activity qualify as ‘‘routine.’’ Although EPA has issued guidance in the form of individual applicability determinations, it has not promulgated any regulations specifying what types of projects are always ‘‘routine’’ and thus exempt from New Source

Review. In evaluating industry’s complaints about lack of clarity, it is important to

keep in mind the fact that, as early as 1994, EPA staff circulated draft regulatory

language that would have equated ‘‘routine’’ with ‘‘minor.’’13 The draft stated that ‘‘routine activities would generally include . . . minor maintenance or repair of

parts or components and the replacement of minor parts or components with identical or functionally equivalent items.’’14 In response to industry comments, including a recommendation that ‘‘routine’’ be defined as ‘‘undertaken in an industrial category,’’15 EPA abandoned the effort to craft a regulatory definition of the term.

EPA thus continues to determine what is ‘‘routine’’ on a case-by-case basis. In

making these determinations, the agency weighs several factors, including ‘‘the nature, extent, purpose, frequency and cost of the work.’’16

The U.S. Court of Appeals for the D.C. Circuit has observed that ‘‘[i]mplementation of the statute’s definition of ‘‘modification’’ will undoubtedly prove

inconvenient and costly to affected industries.’’ The court nevertheless held that ‘‘the

clear language of the statute unavoidably imposes these costs except for de minimis

increases.’’ While ‘‘[t]he statutory scheme intends to ‘grandfather’ existing

industries[,] the provisions concerning modifications indicate that this is not to constitute perpetual immunity ....’’17

B. The History of NSR Enforcement

The regulations implementing the 1977 New Source Review provisions were not

fully in effect until the early 1980’s, after several rounds of judicial review and repromulgation. Thereafter followed a period, coinciding with the Reagan Administration, in which EPA did little enforcement of any kind. During this period of nonenforcement, the utility industry essentially ignored the New Source Review requirements.

One company, Wisconsin Electric Power (‘‘WEPCO’’), did approach EPA in 1988

to ask whether the construction planned at one of its coal-fired power plants could

be considered ‘‘routine maintenance, repair, and replacement.’’ WEPCO wanted to

undertake renovations so that its plant could operate beyond its planned retirement

date of 1992. To that end, the company wanted to repair or replace the turbine-generators, boilers, rear steam drums, air heaters, mechanical and electrical auxiliaries,

and common plant support facilities. These refurbishments would require the company to take various units of the plant out of service for 9 months.18

When EPA told WEPCO that the planned renovations could not be considered

routine, the company petitioned for review by the U.S. Court of Appeals for the Seventh Circuit. In court, WEPCO argued that ‘‘Congress did not intend for simple
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19 Id. at 908. 20 Id. at 909. See also id. (‘‘The legislative history suggests and courts have recognized that

in passing the Clean Air Act Amendments, Congress intended to stimulate the advancement of

pollution control technology. . . . The development of emission control systems is not furthered

if operators could, without exposure to the standards of the 1977 Amendments, increase production (and pollution) through the extensive replacement of deteriorated generating systems.’’) (citations omitted). 21 Id. at 913. 22OLP Report at 17–19, 31, Appendix II. 23 Id. at 13. 24Public Utilities Commission of Ohio, Case No. 94–996-EL-AIR, Supplemental Testimony of

Myron D. Adams on behalf of Ohio Power Company, July 20, 1994, at 6–7. 25 Id. at 23.

equipment replacement to constitute a physical change for purposes of the Clean Air

Act’s modification provisions.’’19 The Seventh Circuit held, however, that ‘‘to adopt

WEPCO’s definition of ‘physical change’ would open vistas of indefinite immunity

from the provisions of NSPS and PSD [the latter being the version of New Source

Review that applies in areas that are in attainment of air quality standards].’’20 The

court found that EPA had not acted arbitrarily or capriciously in determining that

the proposed changes were not routine.21

The electric power industry’s response to the WEPCO decision was to stop seeking

applicability determinations from EPA. The power companies did not, for the most

part, apply for NSR permits before undergoing construction at their existing plants,

nor did they report the resulting emissions increases.

At the same time, the industry prevailed upon the Office of Management and

Budget to kill a broader examination of industry practices initiated by EPA. The industry also pressured Congress to amend the Clean Air Act to create broad new exemptions for modification projects at power plants. When they did not get new statutory exemptions, the power companies lobbied the first Bush Administration for

regulatory loopholes. In 1992, the Administration amended the NSR rules to give

the electric utilities a more generous formula for calculating whether an emission

increase had occurred. The rule did not change the definition of routine maintenance, however. When EPA initiated a new investigation to determine why so few

NSR applications had been filed, industry again sought intervention by OMB, using

the Paperwork Reduction Act as a pretext. While this effort succeeded in delaying

EPA’s investigation, OMB ultimately dismissed the industry’s claims.

In the mid 1990’s, EPA focused its NSR enforcement efforts on refineries and pulp

and paper mills.22 Budget cuts and congressional attacks associated with the 104th

Congress limited EPA’s ability to mount serious enforcement efforts against the

power industry. Moreover, efforts to revise the national ambient air quality standards for ozone and particulate matter, to address interstate ozone transport problems, and to strengthen mobile source controls dominated EPA’s air pollution control activity.

Finally, in 1996, EPA began to investigate the electric power industry in earnest.23 That investigation uncovered a capital investment strategy, starting in the

1980’s, to upgrade existing coal-fired power plants to run longer and harder rather

than letting them retire and be replaced by new, cleaner facilities (as Congress had

anticipated). Not only was the utility industry deliberate in pursuing this strategy,

but industry representatives were even candid about it, or at least they were in nonenvironmental proceedings. For instance, in January 1995, a plant manager for

Ohio Power (‘‘OPCo’’), a subsidiary of American Electric Power (‘‘AEP’’), testified

about his company’s ‘‘life-optimization programs’’ to the Public Utilities Commission

of Ohio:

The company has recognized for some years the benefits of extending or optimizing the lifetimes of several of its older coal-fired generating units . . . and

has developed and begun to implement life-optimizations programs to accomplish that objective. The life-optimization programs extend over several years,

and require significant capital expenditures during those years. Without those

expenditures, the units’ lives could not be extended, and they would most likely

achieve more traditional lifetimes, on the order of 35–40 years. As a direct result of the life-optimization programs, the company expects those units to

achieve, instead, lifetimes on the order of 50 years for certain of those units and

of 60 years for others ....24

Utilities today, including OPCo, have much greater incentives than in the

past to keep existing generating units operating as long as possible beyond their

nominal lifetimes, even at considerable expense, so as to put off the need for

incurring the even greater expense of adding costly new replacement capacity.25
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26 Id. at 25. 27 In re: Tennessee Valley Authority: Transcript of Proceedings at 240–242; Direct Testimony

of Plant Manager Alan Heckking at 17. 28September 15, 1999 letter from Eliot Spitzer, Attorney General of New York, to William J.

Lhota, president of Kentucky Power Company. 29 United States v. AEP, Complaint. 30 United States v. Alabama Power Co. and Georgia Power Co., Complaint. 31OLP Report at 13–17. 32 Id. at 15, 17.

[T]he achievement of lifetimes in excess of 40 years is directly dependent on

carrying out the life optimization program; such lifetimes simply could not be

achieved without the unit modernization program, and without incurring the

program’s considerable capital cost.26

In light of the industry’s ‘‘life-optimization’’ strategy, it is not surprising that

EPA’s investigation of coal-fired power plants uncovered myriad construction

projects that were anything but routine:

• At the Tennessee Valley Authority’s Allen plant, the replacement of a reheater and other large components involved cutting a twenty-five-foot hole in

the boiler wall at a location 10 stories off the ground and constructing a monorail line and trolley system to transport the old components out of the boiler.

The project required a work force of over 70 people.27

• AEP modified its Big Sandy plant in Kentucky in ways that allegedly led to

an annual increase in sulfur dioxide emissions of 18,000 tons—more than the

total emissions from a new coal-fired plant.28

• At its Tanners Creek plant in Indiana, AEP replaced 11 furnaces.29

• At its Scherer plant in Georgia and its Miller plant in Alabama, the Southern Company constructed entirely new units.30

The companies did not apply for NSR permits before undertaking any of these upgrades and reconstruction projects.

Beginning in 1999, EPA sent a number of referrals to the Department of Justice

for civil enforcement actions against the owners and operators of some of the largest

coal-fired power plants in the country, including those identified above, alleging

widespread violations of the New Source Review provisions. After reviewing the referrals, the DOJ in November 1999 filed seven enforcement actions in U.S. District

Courts against nine companies. That same month, EPA issued an administrative

compliance order to the Tennessee Valley Authority alleging multiple NSR violations at nine of TVA’s 11 coal-fired power plants located in Alabama, Kentucky, and

Tennessee. The following May, TVA petitioned for review of the EPA order by the

U.S. Court of Appeals for the Eleventh Circuit. In December 2000, the DOJ filed

an additional NSR enforcement action against Duke Energy alleging major modifications at the company’s coal-fired power plants in the Carolinas.31

One of these enforcement actions—against Tampa Electric—has been resolved

with a consent decree. The rest are still in litigation.32

C. The Backlash Against NSR

In response to the enforcement actions, industry renewed its political assault on

New Source Review. Lawyers and lobbyists for the coal and oil companies descended

once again on Washington with claims that NSR was having a host of pernicious

effects. A review of the facts reveals each of these industry claims to be specious.

t, the lobbyists have asserted that NSR subjects companies to an expensive and

interminable permitting process whenever they seek to undertake even the most

minor maintenance at their facilities. A popular claim is that NSR could potentially

apply to the replacement of a single light bulb at a plant.

The reality is that NSR’s permitting requirements are only triggered by modifications that significantly increase air pollution emissions. What is more, EPA’s regulations already calculate the baseline against which increases are measured in a way

that is generous to industry. Only if emissions increase significantly above these

generous levels does a facility trigger NSR.

The Department of Justice has not filed enforcement actions against companies

for replacing light bulbs. As the examples presented above demonstrate, the instances in which the government has asserted that NSR applied are ones in which

companies undertook large-scale construction projects at their plants, refurbishing,

replacing, and upgrading equipment in ways that greatly increased the amount of

air pollution emitted from those facilities.
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33See, e.g., Economists Tell Senate Committee that FERC May Need More Economic Expertise to Monitor Power Markets Effectively, Foster Electric Report, June 20, 2001 (comments by

Severin Borenstein); Power Companies and Regulators Must Take Steps to Avoid Spread of California Power Virus, Business Wise, April 24, 2001; Charles J. Cicchetti and Colin M. Long, Politics as Usual: A Roadmap to Backlash. Backtracking and Re-Regulation, Public Utilities Fortnightly, October 1, 2000, at 34. 34PA Consulting Group, The President’s 2001 US Energy Blueprint: What Does It Mean For

the Utility Industry? (May 25, 2001) (emphasis in original). 35 Jerry Taylor, Just Say ‘‘No’’ to the Energy Plan, May 19, 2001, at http://www/cato.org/dailys/

05–19–01.html. 36 ‘‘Reliability Assessment 2000–2009’’, North American Electric Reliability Council, October

2000. 37 Clean Air Task Force, et al., Comments on Review of Interpretation, Implementation, & Enforcement of Clean Air Act New Source Review Programs, EPA Docket No. A–2001–19, July 24,

2001 (‘‘Environmental Comments on NSR Background Paper’’), at 47. 38 Nelson Schwartz, Is Dick Cheney the New Hillary? Fortune, June 11, 2001, at 37. 39 Alexei Barrionuevo, Exxon-Mobil CEO Doubts Anyone Would Build US Refinery, Dow Jones

News Service (May 30, 2001). 40 ICF Consulting, Review of Data on the Impact of New Source Review on Investment Decisions: Power Generation and Refinery Sectors, Draft Report (June 22, 2001), at 53. See also Energy Information Administration, The Impact of Environmental Compliance Costs on US Refining Profitability.

The second claim the lobbyists make is that NSR’s onerous requirements prevent

industry from meeting the country’s power needs. Nothing could be farther from the

truth.

First of all, energy market analysts do not see environmental regulation as a driver of recent trends in electricity capacity expansion and utilization relative to other

factors.33

Moreover, all signs indicate that this country will produce more than enough electricity to satisfy its needs. PA Consulting has estimated that more that 245 GW of

new capacity is under development; and that it is likely that 175 GW to 230 GW

of that planned capacity will come on line by 2006. To put that growth in perspective, the group states that 215 GW of capacity additions would be equivalent to

‘‘what the entire rest of the world built in 3 years.’’ PA Consulting emphasizes that

the total includes 11 GW of coal-fired generation capacity under development and

that 20,000 MW of new coal-fired capacity had been announced in the 6 months preceding the report alone. Finally, the group observes:

With the current wave of new plant announcements, it is even likely that the

industry will overbuild, as players seek to increase market share by displacing

older capacity. By 2006, some 30–50 GW of ‘excess’ capacity might become operational and some regional markets might experience excess capacity and very

low prices in the next 3–4 years.34

Likewise, the Cato Institute has estimated that 150 to 200 GW of new capacity

is scheduled to come on line by 2004, threatening an ‘‘electricity glut.’’35 Clearly, the

current NSR regulations have not hindered the construction of new generating capacity.

The fact is that a great deal of new capacity is being built, even with NSR requirements in place. According to the North American Electric Reliability Council,36

‘‘Near term generation adequacy is deemed satisfactory.’’ The NERC expects reserve

margins in the 15–27 percent range, with 15 percent generally considered adequate.37 These estimates may need to be adjusted to account for recent investor reluctance owing not to NSR, but rather to disclosures of corporate fraud in the energy industry and elsewhere.

With respect to oil production, refiners have affirmed that the reason they did not

build new refineries in the 1990’s is that the low profitability of the business simply

did not justify the investment. Valero’s senior vice president has emphasized that

it was ‘‘the poor margins that had the biggest impact, not the environmental

rules.’’38 Refiners and analysts also point to low profitability—not to NSR or other

environmental requirements—when explaining why companies are not investing in

new refineries. For example, Exxon Mobil’s chairman and chief executive recently

stated that no oil company is prepared to build a new refinery because they cannot

make money from doing so.39 Finally, environmental requirements cannot be

blamed for the low profitability of the industry and the resulting reluctance to invest in new refineries. The EIA has concluded that environmental requirements accounted for only a very small share of the refining industry’s decline in profitability

in the early 1990’s.40

The third industry claim is that requiring older power plants meet modern pollution standards will mean higher electricity prices for consumers. An analysis by
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41 Environmental Comments on NSR Background Paper, Appendix D. 42See id., Appendix K. 43 Id. at 49–50. 44 Id. at 49. 45 Id. 46 Id. at 50. 47 Id. 48 Id. 49 Remarks by Christine Todd-Whitman, Administrator of the U.S. Environmental Protection

Agency, at the National Association of Manufacturers, June 12, 2001.

MSB Energy Associates analysis demonstrates that the cost of requiring best available control technology on the fifty-one plants that have been charged with NSR violations is quite modest relative to industry revenues. The annual cost (including the

amortization of the capital cost) would be about $4 billion. This amounts to about

8 percent of the revenues for the companies involved. On average, the cost impact

would be 0.5 cents per kWh based on year 2000 reported sales for the companies

involved. This must be compared to the health benefits, which are four-to-five times

the cost of controls.41

The other important point to take away from MSB’s analysis is that the lion’s share of the cost of the clean up will be eaten by the plant owners, who in a competitive power market cannot automatically pass-through those costs to consumers.

In fact, the Energy Information Administration in its recent Analysis of Strategies

for Reducing Multiple Emissions from Power Plants found that requiring best available control technology at all of the nation’s grandfathered power plants would not

increase electricity prices appreciably. Indeed, EIA found that relative to 1998

prices, even requiring modern controls at all power plants, electricity prices will fall.

This is the so-called ‘‘McIntosh Report’’ that President Bush used as justification to

reverse his pledge to control carbon dioxide from power plants.42

The fourth claim that the power companies make is that NSR prevents them from

making improvements to increase the efficiency of their plants. Specifically, they

argue that fear of triggering NSR keeps power plant owners from making investments in heat rate improvement that would reduce emissions from those plants.

To check this claim, environmental groups calculated the potential impact of heat

rate improvements at coal-fired power plants on emissions and compared that to the

potential emission reductions from enforcement of New Source Review standards.43

The comparison is striking. The actual potential for heat rate improvement is

small. The Electric Power Research Institute investigated this a number of years

ago and reported its findings in a 1986 report, ‘‘Heat-Rate Improvement Guidelines

for Existing Fossil Plants.’’ In this report EPRI found that, if cost were no object,

there could be, on average, an improvement in heat rate of about 400 BTUs per

kWh (about 4 percent). Cost, however, is very much an important consideration.

Work done by a major northeast utility in the early to mid-1990’s found that a fair

amount of the heat rate improvement potential at their plants had already been

tapped, and that any further improvements were extremely non-cost-effective.44

Nevertheless, to give heat rate improvement the benefit of the doubt, the environmental groups assumed that half of the average heat rate improvement potential

could actually be achieved in a cost-effective manner at every major coal-fired generating unit (over 1,000 generating units with a total installed capacity of almost

300,000 MW).45

Even under these generous assumptions, heat rate improvement at coal-fired

power plants would only reduce SO2 emissions by about 218,000 tons out of a total

of 11.2 million tons (about 2 percent). NOx emission would be reduced by 88,000

tons out of a total of 5.1 million tons (less than 2 percent).46

In contrast, NSR enforcement at the 51 plants currently subject to enforcement

actions under Federal law would reduce SO2 by 2.8 million tons—over 12 times as

much as the heat rate improvements, and NOx by one million tons—over 11 times

as much as the heat rate improvements. NSR enforcement at all coal-fired power

plants would reduce SO2 by 8.8 million tons and NOx by 3.3 million tons.47

Heat rate improvements would reduce CO2 emissions by about thirty-eight million

tons out of 2,454 million tons (1.5 percent). It is more difficult to compare this to

CO2 reductions from NSR enforcement, because those would be a byproduct of other

actions taken. However, we have estimated that NSR enforcement at all coal-fired

power plants would reduce CO2 by 95 million tons, and NSR enforcement at the 32

plants initially charged with violations would reduce CO2 by 40 million tons.48

In a speech before the National Association of Manufacturers on June 12, 2001,

EPA Administrator Whitman said, ‘‘I have heard too many instances where we interpreted [NSR] so literally in the field that we, in fact, are hindering environmental progress ....’’49 When NRDC submitted a Freedom of Information Act re-
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50Letter from William T. Harnett, director, EPA Information Transfer and Program Integration Division, to NRDC, October 1, 2001. 51See Environmental Comments on NSR Background Paper, Appendix D. 52See id., Appendix K. 53See id. at 49. 54See http://www.nrdc.org//media/pressreleases/020521.asp.

55 Industry’s intimate access to the Cheney Task Force stands in stark contrast to the limited

access afforded environmental groups. See http://www.nrdc.org/air/energy/taskforce/bkgrd2.asp.

quest seeking all documentation of those ‘‘instances,’’ EPA responded that ‘‘Administrator Whitman was referring to oral statements that had been made to her by various industry stakeholders’’ and that the agency did not have any information to

substantiate the oral statements.50 In light of the analysis presented above, it is not

surprising that industry has not been able to provided EPA with documentary evidence to support its claim that NSR undermines efficiency.

Finally, the industry lobbyists assert that the operation of NSR means higher

electricity prices for consumers, and that those costs overwhelm the environmental

benefits of the law. The facts explode this specious claim as well.

First, an analysis by MSB Energy Associates demonstrates that the cost of requiring best available control technology on the 51 plants that have been charged with

NSR violations is modest relative to industry revenues. The annual cost (including

the amortization of the capital cost) would be about $4 billion. That is approximately 8 percent of the revenues for the companies involved. On average, the cost

impact would have been 0.5 cents per kWh based on year 2000 reported sales for

those companies.51

The lion’s share of this cost is borne by the plant owners, who in a competitive

power market cannot automatically pass those costs through to consumers. In fact,

the Energy Information Administration found in its Analysis of Strategies for Reducing Multiple Emissions from Power Plants that requiring state-of-the-art control

technology at all of the nation’s grandfathered power plants would not increase electricity prices appreciably. Indeed, EIA concluded that even if best-available controls

are required at all power plants, electricity prices will fall.52

Although money is not the measure of everything, monetized value provides one

metric of the efficacy of these actions. Data collected by Abt Associates on the 51

plants charged with NSR violations shows $27 billion to $45 billion in annual benefits from requiring those plants to implement best available control technology.53

That figure dwarfs the $4 billion estimated by MSB Energy Associates as the annual cost of clean up.

The lack of support for industry’s claims about New Source Review has not

stopped the nation’s worst polluters from making them. With the election of President Bush and the convening of Vice President Cheney’s Energy Task Force, the

polluters found themselves with a friendly audience and a forum in which to make

their pitch for the effective elimination of NSR.

Documents that NRDC has obtained from the Department of Energy, the lead

agency on the Cheney Task Force, reveal that the companies and industry groups

who most sought the demise of New Source Review enjoyed extraordinary access to

the task force:54

• Edison Electric Institute had contact with the task force at least 14 times

(EEI contributed $598,169 to Republican candidates and the GOP from 1999 to

2002).

• North American Electric Reliability Council had contact with the task force

at least 11 times.

• National Mining Association had contact with the task force at least nine times (NMA contributed $575,496 to Republican candidates and the GOP from

1999 to 2002).

• Westinghouse had contact with the task force at least nine times (Westing- house Electric Company contributed $65,060 to Republican candidates and the

GOP from 1999 to 2002).

• Electric Power Research Institute had contact with the task force at least

eight times.

• Southern Company had contact with the task force at least seven times (Southern contributed $1,626,507 to Republican candidates and the GOP from

1999 to 2002).

• American Petroleum Institute had contact with the task force at least six

times (API contributed $44,301 to Republican candidates and the GOP from

1999 to 2002).55

These firms made the most of their access. On March 23, 2001, an executive of

the coal giant, Southern Company, sent the task force coordinator at the Energy De-
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56See http://www.nrdc.org/air/energy/taskforce/doc150.html. 57See http://www.nrdc.org/air/energy/taskforce/doc6368.html. 58 Report of the National Energy Policy Development Group, ch. 7, at 14 (May 16, 2001). 59 Id. 60OLP Report at 4. 61 EPA, New Source Review: Report to the President, at 1 (June 13, 2002). 62 Id. at 2. 63 Id. at 1. 64 Id. at 34.

65 Id. at 17.

partment a memorandum arguing that ‘‘EPA has re-interpreted [the NSR] regulations in extreme ways that not only places [sic] in legal jeopardy past work conducted at facilities but also threatens the safe, reliable and efficient operation of energy production facilities across the country.’’ The paper urged the Administration

to undertake a ‘‘reaffirmation of historical interpretations’’ of the New Source Review provisions.56

The previous day, an official with the National Petroleum Refiners Association

had written in a message to the same Energy Department official that ‘‘[t]he EPA’s enforcement campaign against U.S. refineries should be halted and reexamined.’’ He

characterized EPA’s enforcement actions as ‘‘nothing more than an attempt to discredit the industry and collect tribute in the form of fines on order to allow refiners

to get on with their business.’’ In concluding, he wrote that ‘‘this activity goes far

beyond the pale of reasonable enforcement action and should cease.’’57

This heavy-handed lobbying bore fruit in the form of two final recommendations

issued by Vice President Cheney on May 16, 2001: • The NEPD Group [the task force] recommends that the President to [sic] direct

the Administrator of the Environmental Protection Agency, in consultation with the

Secretary of Energy and other relevant agencies, to review New Source Review regulations, including administrative interpretation and implementation, and report to

the President within 90 days on the impact of the regulations on investment in new

utility and refinery generation capacity, energy efficiency, and environmental protection.58

• The NEPD Group recommends that the President direct the Attorney General

to review existing enforcement actions regarding New Source Review to ensure that

the enforcement actions are consistent with the Clean Air Act and its regulations.59

President Bush issued both of the recommended directions. In January 2002, the

Department of Justice responded to the second one with a report concluding that

‘‘EPA may reasonably argue that the new source review enforcement actions against

coal-fired power plants are consistent with the C[lean]A[ir]A[ct], as well as with the

A[dministrative]P[rocedure]A[act].’’60

EPA issued its report 6 months later. The report concluded that the NSR program

has not significantly impeded investment in new power plants or refineries. For the

utility industry, this is evidenced by significant recent and future planned investment in new power plants. Lack of construction of new Greenfield refineries is generally attributed to economic reasons and environmental restrictions unrelated to

NSR.61

EPA also found that ‘‘preventing emissions of pollutants covered by NSR does result in significant environmental and public health benefits.’’62 At the same time,

however, it concluded that, with respect to existing power plants and refineries, the

NSR program has impeded or resulted in the cancellation of projects which would

maintain and improve reliability, efficiency and safety of existing energy capacity.

Such discouragement results in lost capacity, as well as lost opportunities to improve energy efficiency and reduce air pollution.63

This conclusion is based largely on self-serving, anecdotal evidence submitted by

industry commenters. For example, EPA relies on one company’s complaint that it

did not install new Teflon-coated nozzles in a process dryer for fear of triggering

NSR. EPA blindly accepts as true the company’s claims that the change it forwent

would have actually triggered NSR, that the desire to avoid NSR was really the motivation for abandoning the change, and that the change would have improved the

reliability, efficiency, and safety of the facility in question.64

EPA concedes that industry has offered little more than undocumented anecdotes

and sketchy hypotheticals to support its critique of NSR. The agency nevertheless

takes the position that such material can substitute for verifiable data if industry

shovels enough of it into the administrative record:

In light of the volume of anecdotal evidence presented, the EPA concludes

that concern about the scope of the routine maintenance exclusion is having an

adverse impact.65
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66Letter from OIRA Administrator John Graham to VA General Counsel Tim McClain, October 3, 2001 (posted at http://www.whitehouse.gov/omb/inforeg/va—medical—care—rtnltr.html). 67Letter from OIRA Administrator John Graham to DOT General Counsel Rosalind Knapp,

August 8, 2001 (posted at http://www.whitehouse.gov/omb/inforeg/wetlines—return—

letter3.html). 68See Exec. Ord. 12866, Section 1(b)(7) (Sep. 30, 1993) (‘‘Each agency shall base its decisions

on the best reasonably obtainable scientific, technical, economic, and other information concerning the need for, and consequences of, the intended regulation.’’). 69 EPA, New Source Review: Recommendations (June 13, 2002), at 4. 70 42 U.S.C. § 7411(a)(4).

Under the leadership of John Graham, the Office of Regulatory and Information

Affairs at the Office of Management and Budget has repeatedly returned to agencies

for reconsideration regulations that, in OIRA’s view, lacked adequate data to substantiate the purported grounds for the rulemaking. For example, the office returned one regulation to the Office of Veteran Affairs because, ‘‘[w]hile VA staff

have argued that there are currently inconsistencies in billing practices, OMB has

not been presented with evidence of this problem or evidence of how this rule would

reduce, rather than increase inconsistency.’’66 It returned to the Department of

Transportation a rule requiring the retrofitting of exterior piping on tanker trucks

carrying hazardous substances, because while the Department presented an estimate of what the retrofitting would cost, the estimate was itself based upon ‘‘anecdotal evidence.’’67 To date, OIRA has only returned rules that the private sector

finds too onerous. Dr. Graham insists, however, that he will apply the same standards to regulations that are criticized as not providing adequate protection to the

public. If this is in fact the case, then he will return EPA’s proposed changes to New

Source Review, for EPA has failed to present adequate data to substantiate the purported problems that supposedly justify eviscerating the program.68

III. THE ANNOUNCED ROLLBACKS

On June 13, the day that EPA released its report on NSR, the agency announced

that it would be making eight regulatory changes. If these changes are allowed to

take effect notwithstanding their incompatibility with the Clean Air Act, the New

Source Review requirements will in effect no longer apply to the modification of existing facilities.

A. Dirtiest Two Years in Ten Baseline

The New Source Review requirements are only triggered by changes that cause

air pollution emissions to increase significantly, i.e., by at least 40 tons per year.

To determine whether pollution will increase significantly, it is necessary to compare a source’s pre-change emissions, known as its ‘‘baseline,’’ with its post-change

emissions. With respect to the approximately 15,500 major industrial facilities in

this country that are not electric utilities, EPA currently interprets the Clean Air

Act to require that the baseline be calculated as the average of the source’s last 2

years of emissions, unless the source can demonstrate that another period is more

representative of its pre-change emissions.

On June 13, EPA announced that it will promulgate a final rule allowing the

baseline to be calculated as the average of the source’s emissions during any 2-year

period that the company chooses from the last 10 years.69 If this rule takes effect,

a plant that currently emits 1,000 tons-per-year of an air pollutant could institute

a change causing its emissions to go up to 1,640 tons-per-year without triggering

NSR, provided that its emissions nine and 10 years ago averaged 1,600 tons-peryear. Under EPA’s new rule, in other words, a change that causes a source’s emissions to go from 1,000 tons-per-year to 1,640 tons-per-year will not be deemed a

‘‘modification,’’ even though the Clean Air Act defines that term to mean ‘‘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.’’70

During internal EPA discussions leading up to the June 13 announcement, officials within the agency included this change to the baseline calculation among the

‘‘proposals present[ing] a risk of significantly diminished program benefits.’’ The officials elaborated on what they meant by ‘‘significantly diminished’’:

Based on our review . . . , moving to a ‘‘high 2 in 5’’ from a ‘‘last 2 years’’

as the pre-change baseline will have some reduction (perhaps 20 percent) on the

scope of the NSR program as it impacts non-utility sources . . . . A 10-yr baseline would substantially diminish the scope of the program. Our best estimate
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71 Internal EPA document provided to NRDC. 72 New Source Review: Recommendations at 3–4. 73 Id. at 2. 74 Internal EPA document provided to NRDC. 75 636 F.2d at 401. 76 Id. at 402. 77 45 Fed. Reg. 6802, 6803 (January 30, 1980). 78 45 Fed. Reg. 52676, 52701 (August 7, 1980). 79 61 Fed. Reg. 38249, 38264 (July 23, 1996).

is that it would reduce the number of facilities subject to NSR by 50 percent or

more compared to a high 2 in 5 baseline.71

B. Using Accounting Gimmicks to Low-Ball Projected Future Emissions

As noted above, one must compare a source’s pre-change emissions with its postchange emissions to determine whether the change is causing a significant increase

in emissions. EPA’s change to the baseline calculation will exaggerate pre-change

emission levels. The agency has also announced that it will take final action on a

rule that will under-represent the post-change emissions attributable to the change.

Specifically, the new rule will allow a company to exclude from the calculation of

post-change levels those emissions that can be attributed to old capacity, even if the

source would not be able to continue using that capacity without making the proposed change.72 In essence, this rule will enable companies to cook the books in

order to hide significant emissions increases that should trigger the New Source Review requirements.

C. Exemption for Units That May Once Have Been Considered Clean

EPA also announced on June 13 that it would promulgate a final rulemaking any

source that goes through an NSR review for best available control technology exempt from having to go through the review again for a period of 15 years—regardless of what changes the source undergoes and how much its emissions increase.

What is more, the exemption would apply retroactively, meaning that if, 10 years

ago, a source installed pollution controls that have long since been rendered obsolete

by more effective technology, the source could nevertheless undergo dramatic renovations today that significantly increase emissions without installing new controls,

and it could continue making such changes with impunity for 5 years into the future.73

In the pre-announcement internal agency discussions, EPA’s attorneys noted the

lack of a ‘‘solid legal rationale’’ for this change.74 Indeed, there is no authority whatsoever in the Clean Air Act for allowing a company to ignore the New Source Review requirements—when it undertakes radical changes that significantly increase

emissions—just because the company long ago installed control equipment that may

now be obsolete.

D. Exemption for Plantwide Applicability Limits

In Alabama Power Co. v. Costle, the U.S. Court of Appeals for the D.C. Circuit

concluded that ‘‘EPA ha[d] properly exempted from best available control technology

(BACT) and ambient air quality review those ‘modifications’ of a source that do not

produce a net increase in any pollutant.75 The court noted that, under the Clean

Air Act, ‘‘any offset changes claimed by industry’’ to demonstrate the lack of a net

increase ‘‘must be substantially contemporaneous.’’76

In response to the ruling in Alabama Power, EPA solicited public comment on

whether the agency should ‘‘specify that no emission reductions which occurred

more than 3 years before the date a [pre-construction] application was complete may

offset the increase that would result from the change proposed in the application.’’77

After reviewing the voluminous industry comments submitted on this proposal, EPA

selected 5 years as the outer limit of contemporaneity.78

In 1996, EPA proposed a rule pursuant to which ‘‘a source, if authorized by a

State in a SIP, may base its NSR applicability on a plantwide emissions cap, termed

a plantwide applicability limit (‘‘PAL’’). So long as source activities do not result in

emissions above the cap level, the source will not be subject to NSR.’’79 Although

EPA never finalized this proposal, further analysis brought recognition that a PAL

could not be a means for escaping the contemporaneity requirement enunciated in

Alabama Power and quantified in the agency’s 1980 netting rule. This recognition

is reflected in a 1998 Federal Register notice, in which EPA renewed its proposed

to authorize PALs:

Having again reviewed Alabama Power and the Agency’s subsequent interpretation of the case, the Agency is concerned that, because PAL’s may be characterized as a form of netting and result in the avoidance of major NSR, the con-
615

80 63 Fed. Reg. 39857, 39863 (July 24, 1998). 81 New Source Review: Recommendations at 1. 82 Id. 83 Id. at 2–3. 84Detroit Edison Applicability Determination, at 5–6, n.1 (May 23, 2000). See also Puerto

Rican Cement Co. v. EPA, 889 F.2d 292, 297–98 (1st Cir. 1989) (modification of emissions unit

that decreases emissions per unit of output, but may result in sufficient production increase

such that actual emissions will increase, is subject to the New Source Review requirements).

temporaneity requirement for netting set forth in Alabama Power may also

need to be applied to PAL’s. Therefore, EPA is soliciting comment on whether

and when to provide for subsequent adjustment of PAL’s to address contemporaneity issues associated with Alabama Power.80

Although the Clinton Administration never finalized its 1998 PAL proposal, the

Bush Administration has now, 4 years later, decided to promulgate a final PAL rule.

Despite the 5-year netting limit promulgated in 1980 and EPA’s 1998 recognition

that PALs are subject to the same legal requirement of contemporaneity that governs netting, the agency is now planning to finalize a rule under which a PAL could

remain unchanged for 10 years or more.81 This stretches the meaning of ‘‘contemporaneity’’ past the breaking point. What is more, EPA’s rule would allow the plantwide limit to be renewed at higher levels under certain circumstances.82

Internal EPA documents reveal that as late as January 2002, EPA lawyers still

did not have a legal rationale for the Administration’s new PAL rule. In fact, during

a 2-day meeting held that month at EPA headquarters, the agency’s lawyers informed their clients that the new PAL proposal was ‘‘in conflict’’ with the Clean Air

Act. The attorneys argued that any PAL approach must adhere to the legal framework of netting, a stricture which the political appointees refused to accept. According to a memorandum memorializing the meeting, the lawyers also insisted that a

‘‘PAL must be based on [a] reasonably contemporaneous period, which is more consistent with a 5-year period.’’ Again, the political appointees resisted. The final PAL

rule announced June 13 reveals that, in the end, the political appointees at EPA

elected to ignore the law.

If the change takes effect, a company will be allowed to pretend that a significant

pollution increase at its facility in, say, 2010 is not occurring on account of a decrease that happened at the plant in 2001. What is more, EPA has announced that

its new method of calculating baselines will apply to PALs, meaning that the limits

will be set so high as to allow massive pollution increases over current levels.

E. Exemption for ‘‘Pollution Control and Prevention Projects’’

The last of the final rules that EPA announced on June 13 would exempt a proposed change to a source from the New Source Review requirements even if the

change would cause a significant increase in the emissions of an air pollutant, so

long as EPA deemed the change environmentally beneficial in the aggregate. EPA

has announced, moreover, that it will consider as environmentally beneficial a

project that reduces emissions per unit of energy output, even if the project causes

the source’s emissions to increase.83 In a recent applicability determination, EPA

itself recognized the flaw in this type of exemption:

[V]irtually any major capital improvement project at an existing source is designed in part to increase efficiency of production, and this will in turn almost

always have the collateral effect of reducing emissions per unit of production,

even though it may provide an economic incentive to increase total production,

with the net result that actual emissions of air pollution to the atmosphere

could increase significantly. There is nothing in the statutory terms or structure

or in EPA’s regulations which suggests that such major changes should be accorded exempt status under the NSR program. To the contrary, major capital

investments in industrial equipment, where they could result in an increase in

emissions, appear to be precisely the type of change at an existing source that

Congress intended should be subject to PSD and nonattainment area NSR permitting.84

The Clean Air Act has not changed in the 2 years since EPA made the above determination. The exemption for improved heat rate projects announced June 13 is

as unsound and unlawful now as it was in 2000.

F. Defining ‘‘Routine Maintenance, Repair, and Replacement’’

In addition to announcing final rules on June 13, EPA announced that it would

be submitting proposed rules for notice and comment. Most significantly, the agency

announced that it would propose to define certain parameters that industry will be
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85 New Source Review: Recommendations at 4–6. 86 Id. at 4–5. 87 Id. at 5–6. 88WEPCO, 893 F.2d at 909. 89 New Source Review: Recommendations at 6. 90 Id. at 4. 91 Id. at 6. 92 Internal EPA document provided to NRDC. 93 New Source Review: Recommendations at 7.

able to follow safe in the knowledge that its activities will be deemed ‘‘routine maintenance, repair, and replacement.’’85

Under the first set of proposed parameters, any changes that a company makes

at a facility—irrespective of how much increased pollution results—will be per se

‘‘routine’’ as long as the annual cost of the changes does not exceed 15 percent of

the cost of the entire plant. Costs attributable to the installation of pollution control

equipment and the remedying of unanticipated equipment failures would be excluded from the annual cap.86 The upshot would be that a company could replace

every single part of its facility over the course of five or 6 years and never trigger

NSR, regardless of the amount by which the plant’s emissions increased.

Under the second set of parameters, the replacement of existing equipment with

new equipment that serves the same function and does not alter the heat input and

fuel consumption specifications of the unit would never trigger New Source Review.

In other words, a power plant could replace all of its deteriorating boilers with new

ones, and as long as the new ones had the same specifications as the old ones when

they were new, the plant would not need to install state-of-the-art pollution controls.87 This rule would thus open the ‘‘vistas of indefinite immunity’’ that the

WEPCO court found to be impermissible under the Clean Air Act.88

Under the third set of parameters, any change that fell within a set of categories

identified by EPA would automatically be deemed ‘‘routine,’’ no matter how much

new pollution the change caused. EPA has announced that it is considering allowing

its list of per se routine activities to be informed by ones that industry itself identifies as common practice.89

In its June 13 announcement, EPA took pains to emphasize that changes falling

outside the proposed parameters would not be disqualified as ‘‘routine.’’ All of the

other announced limitations on NSR’s applicability (dirtiest 2 years in 10 baseline

calculation, new method of calculating post-change emissions, etc.) would still be

available to industry.90

It is impossible to miss the fact that if this proposed rule were allowed to become

final, the New Source Review requirements would never apply in the case of modifications at existing facilities.

G. Exemption for ‘‘Debottlenecking’’

EPA also announced that it would propose a new rule that would provide a company with additional leeway to under-represent the emissions increase caused by a

change to a source. Specifically, if a change to one emissions unit at a plant caused

emissions to increase at an ‘‘upstream’’ or ‘‘downstream’’ unit at the same plant,

that increase would not be considered in determining whether the change had

caused a significant emissions increase such to trigger the NSR requirements.91

During the deliberations of the Cheney Task Force, EPA enforcement officials estimated that the ‘‘debottlenecking’’ proposal would reduce the effectiveness of New

Source Review by approximately 5 percent.92

H. Allowing Dis-aggregation of Modifications

Finally, EPA announced that it would propose a new rule that would make it

easier for a company to evade NSR by taking a change that does cause a significant

pollution increase, and treating it as a collection of sub-changes, no one of which

causes a significant increase.93

IV. WHAT THE EFFECTS OF THE ROLLBACKS WILL BE

After some details of EPA’s regulatory plans became public in January 2002, the

State and Territorial Air Pollution Program Administrators and the Association of

Local Air Pollution Control Officials (‘‘STAPPA/ALAPCO’’) wrote to Administrator

Whitman expressing ‘‘considerable trepidations regarding what we understand the

reforms will allow and the impact that these changes will have on our nation’s ability to achieve and sustain clean, healthful air.’’ STAPPA/ALAPCO pointed out that,

‘‘when taken in combination, these reforms will allow most source modifications to
617

94Letter from STAPPA President Lloyd Eagan and ALAPCO President Arthur Williams to

EPA Administrator Christine Todd-Whitman, January 23, 2002. 95 Id. 96Letter from Office of Regulatory Enforcement Director Eric V. Schaeffer to Administrator

Christine Todd-Whitman, February 27, 2002. 97Power to Kill, Clean Air Task Force, July 2001. The report draws upon data from Abt Associates, Inc., The Particulate-Related Health Benefits of Reducing Power Plant Emissions (October 2000). See also, Clean Air Task Force, Death, Disease, and Dirty Power: Mortality and

Health Damage Due to Air Pollution from Power Plants (October 2000) (posted at

www.cleartheair.org). 98L. Bruce Hill, A Preliminary Analysis of the Benefits and Costs of Current New Source Review Litigation, June 24, 2002 (posted at http://www.clnatf.org/press—room/index.html).

avoid NSR, resulting in unchecked emission increases that will degrade our air

quality and endanger public health.’’94

EPA has ignored STAPPA/ALAPCO’s request for ‘‘a broad stakeholder meeting to

allow for an open dialog on the reforms under consideration’’95 and announced

rollbacks every bit as extreme as the ones rumored to be under consideration in

January. The announced changes threaten, by operation of ‘‘no more stringent than’’

provisions in State statutes, to force States to weaken their air quality measures

at a time when they will be struggling to achieve attainment of stricter national ambient air quality standards for ozone and particulate matter. Indeed, EPA has indicated that it will require State implementation plans to include the announced

changes to NSR program. As a result, even States that do not want to adopt the

changes will be forced to in order to retain control of their permitting programs.

EPA has long been on notice of the devastating impact that the changes the agency has now announced would have on public health and the environment. In his

February 2002 resignation letter, former director of EPA’s Office of Regulatory Enforcement Eric Schaeffer reminded Administrator Whitman that the agency stood

to keep more than five million tons per year of combined SO2 and NOx pollution

out of the air by means of the compliance orders and enforcement actions it had

brought under the New Source Review provisions.96 Since all of those cases involve

modifications, and the announced rules would effectively end NSR for modifications,

it follows that the new rules would allow millions of tons more pollution to be emitted into the air every year than the proper application and enforcement of NSR as

it exists today.

A report by the Clean Air Task Force reveals the stakes, in terms of public health,

of the NSR enforcement cases alone.97 Key findings of this report include:

• Pollution from the 51 plants that are targets of NSR enforcement actions shortens the lives of between 5,500 and 9,000 people every year.

• Requiring these plants to meet modern pollution standards as required by law

would avoid between 4,300 and 7,000 of these deaths.

• Pollution from the 51 NSR plants leads to between 107,000 and 170,000 asthma

attacks each year.

• Between 80,000 and 120,000 of these asthma attacks could be avoided by requiring the plants to meet modern pollution standards as required by law.

• Although all of the plants that are currently targets of NSR enforcement are

located in the Midwest or Southeast, there is a ‘‘transport of death and disease.’’

The pollution from these plants affects downwind States resulting in 1,500 to 2,100

premature deaths and 30,000 to 39,000 asthma attacks per year in the Northeast.

• 1,200 to 1,700 of the deaths and 23,000 to 31,000 of the asthma attacks in

downwind Northeastern States would be avoided if the plants met modern pollution

standards.

• The pollution reductions from the announced settlements with Tampa Electric,

Cinergy, Inc., and Dominion Power alone would result in avoiding between 780 and

1,150 premature deaths every year.

If NSR did not apply to the modification of existing units—a result EPA hopes

to achieve with the rules announced on June 13—then the prevention of death and

disease outlined above would not be achieved.

On June 24, the Clean Air Task Force released another study. It shows that prosecution of power plants charged with violating the New Source Review provisions

is a highly cost effective way to clean up the air. Using methodologies approved by

EPA, the study demonstrates that the benefits of the NSR enforcement cases outweigh the costs by as much as 10 to 1. Specifically, it shows that using New Source

Review to force the 51 sued coal plants to reduce their soot and smog emissions

would produce annual public health benefits valued at $24–38 billion in avoided

deaths and avoided asthma attacks while costing utilities only about $3.5 billion per

year in control costs.98
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99 61 Fed. Reg. 38,250 38,319 (July 23, 1996). 100 Exec. Ord. No. 12866, Section 1(b)(6) (Sept. 30, 1993). 101 Id., Section 3(f)(1) (Sept. 30, 1993). 102 Id., Section 6(a)(3)(C)(ii). 103See, e.g., BNA Daily Environment Report, ‘‘Whitman Says Clear Skies Proposal Will Reduce Emissions Faster Than Clean Air Act,’’ April 8, 2002.

When EPA proposed to reform the New Source Review program in 1996, it prepared a Final Draft Regulatory and Economic Impact Analysis. The agency characterized the results of that analysis in its notice of proposed rulemaking:

The EPA estimates that 20 percent fewer sources will be classified as major

as a result of revising the period for establishing the baseline for actual emissions from which to calculate emissions increases to the highest 12 consecutive

months operation by the source. Another 6 percent reduction is anticipated from

the ‘‘clean unit’’ and ‘‘clean facility’’ tests and the exclusion for pollution control

and pollution prevention projects. The EPA estimates still another 25 percent

of modifications, which would otherwise be subject to major NSR, would be excluded due to allowing sources to use projected future actual emissions to calculate emissions increases rather than requiring the calculation to be based on

the source’s potential to emit in each case.99

EPA concluded, in other words, that only forty-nine percent of the sources that

would otherwise be subject to NSR would be subject to those provisions in the event

that the proposed rules entered into effect. Those proposed rule changes were, in

virtually every aspect, less extreme than the ones EPA announced on June 13. One

can only conclude, then, that the announced changes will have an effect on NSR applicability far more dramatic than the one EPA quantified in 1996.

Executive Order 12866 states in part:

Each agency shall assess both the costs and the benefits of the intended regulations and, recognizing that some costs and benefits are difficult to quantify,

propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.100

Where a regulatory action is likely to result in a rule that may ‘‘[h]ave an annual

effect on the economy of $100 million or more or adversely affect in a material way

the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments of communities,’’101 the same executive order requires the agency to provide OIRA, ‘‘as part

of the agency’s decisionmaking process,’’

An assessment, including the underlying analysis, of costs anticipated from

the regulatory action (such as, but not limited to, the direct cost both to the

government in administering the regulation and to businesses and others in

complying with the regulation, and any adverse effects on the efficient functioning of the economy, private markets (including productivity, employment,

and competitiveness), health, safety, and the natural environment), together

with, to the extent feasible, a quantification of those costs.102

As indicated above, EPA is in possession of evidence indicating that the announced changes to New Source Review will result in tens of thousands of premature deaths, asthma attacks, and hospitalizations, tens of billions of dollars’

worth of forfeited public health benefits each year, and—on account of increased

haze in national parks and acid deposition across the Northeast—serious detriment

to the nation’s tourism industry. EPA has nevertheless refused to perform an analysis of the impacts that the announced rules will have on public health, the environment, and the economy. That refusal flies in the face of Executive Order 12866. I

am thus compelled to call upon OIRA Administrator Graham—again—to return any

NSR rulemaking package to EPA pending the agency’s submission of the required

analysis.

Whenever political appointees at EPA are confronted with the devastating effects

that the announced NSR rollbacks will have on public health and the environment,

they assert that President Bush’s Clear Skies Initiative will obviate New Source Review.103 This assertion ignores a key fact: whereas the announced NSR rollbacks

will apply to all of the approximately 17,000 large industrial facilities in this country, the caps proposed for the CSI would only apply to the nation’s approximately

1,500 power plants. CSI would actually allow 50 percent more sulfur emissions than

current law, and delay safer standards by 8 years. It would also permit three times

more toxic mercury emissions than existing law, and it would allow hundreds of

thousands of tons of additional nitrogen oxide pollution. And of course, whereas EPA
619

1 Co-Chair Environmental Practice Group, Paul, Hastings, Janofsky & Walker; Professor (adj)

of Law, Yale and Georgetown Law Schools; Former General Counsel, Environmental Protection

Agency. 2WEPCO v. Reilly, 893 F.2d 901 (7th Cir. 1990). 3WEPCO Interpretative Rule, 57 Fed. Reg. 32314 (July, 1992). 4 63 Fed. Reg. 39860 (July 24, 1998).

5 5 U.S.C. § 553(b)(3)(B). 6The WEPCO court gave ‘‘substantial deference’’ to EPA’s interpretations of the statutory

terms and ‘‘even more’’ to EPA’s interpretations of its NSR regulations under the Chevron doctrine. 893 F.2d at 906–907. However, under more recent Supreme Court precedent, Chevron defContinued

has announced final rules eviscerating New Source Review, the Clear Skies initiative has not even been introduced as legislation yet.

The Administration thus fails to offer any effective rebuttal to the evidence indicating that rules announced on June 13 will impose a staggering cost on this country—in the form of premature deaths, asthma attacks, birth defects, heart attacks,

haze, acid rain, and all the attendant horrors of climate change. For that reason,

and because the announced rules purport to repeal a vital portion of the Clean Air

Act, I respectfully ask that these Committees do everything in their power to prevent these rollbacks from ever taking effect.

STATEMENT OF DONALD ELLIOTT, CO-CHAIR, ENVIRONMENTAL PRACTICE GROUP, PAUL, HASTINGS, JANOFSKY AND WALKER, PROFESSOR OF LAW, YALE AND GEORGE- TOWN LAW SCHOOLS1

Mr. Chairman and distinguished members of the committee: It is a great pleasure

to be testifying again before these two distinguished Committees in a rare joint session on the very important legal and policy issues raised by the Administration of

the ‘‘new source review’’ (NSR) provisions of the Clean Air Act.

EPA’s many changing interpretations of NSR over the years have created a legal

mess of baffling complexity that raises a host of separation of powers and administrative law issues that only a law professor could love. The good news is that the

NSR controversy makes a great hypothetical for a law school exam (and I have used

it as such at least twice in my administrative law courses at Yale and Georgetown).

Unfortunately, the bad news, which is much more important, is that major parts

of our country’s economic infrastructure—including but not limited to the electric

power industry—are now threatened with great legal uncertainties and huge penalties. As a result, as documented by EPA’s recent NSR report, plants are delaying

making needed repairs and changes to equipment. In the long run this threatens

the reliability of our electricity supply and keeps inefficient equipment on line when

it would benefit our economy to replace it with more modern equipment.

The ultimate solution in my view is to replace the antiquated, inefficient NSR program for existing plants with a modern trading system. But in the meantime, I applaud the Administration’s recent attempt to do what it can to resolve the huge uncertainties about what is legal and what is illegal under the NSR program by creating safe harbors through the rulemaking process. It took great courage to touch

the issue at all, because NSR is rapidly becoming the proverbial ‘‘third rail’’ of U.S.

environmental politics. Any action—no matter how modest and reasonable—will immediately be denounced as a rollback of historic proportions in an election year. It

is very easy for us no longer in the political arena to criticize. I must admit that

I was General Counsel of EPA at the time of the 7th Circuit’s WEPCO decision in

1990, which helped to create the current NSR controversies.2 Urged on by majorities

in both houses of Congress during the 1990 Clean Air Act Amendments to ‘‘fix the

WEPCO problem,’’ the first Bush Administration came out with an NSR interpretative rule in 1992,3 which I thought had resolved the WEPCO problem, at least for

the electric utility industry. However, as a prelude to the current NSR enforcement

initiative, the Clinton Administration attempted to renounce our interpretation of

NSR—without any notice and comment—by renouncing it in a proposed rule in

1998.4

So I have to admit that I was unsuccessful in getting the problem resolved when

I was in the government, so perhaps it is churlish of me to criticize others. But nevertheless, I do feel that the current Bush Administration did not go far enough in

two ways. First, in my opinion, the safe harbor portions of the proposed NSR rule

should have been made immediately effective as an ‘‘interim final’’ rule under the

‘‘good cause’’ provisions of the Administrative Procedure Act.5 Massive uncertainty

has been created by vague caselaw (which is almost certainly wrongly decided under

more recent Supreme Court precedents6) and by EPA’s misguided NSR enforcement
620

erence is not appropriate for lower level agency interpretations that did not go through rulemaking or adjudication or for positions first advanced in litigation. See U.S. v. Mead Corp., 533

U.S. 218 (2001). 7Shell Oil Co. v. EPA, 950 F.2d 741 (D.C. Cir. 1991)(per curiam). 8Motor Vehicle Manufacturers Assn. v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29 (1983). 9The White House, Executive Summary—The Clear Skies Initiative February 14, 2002 (‘‘The

acid rain cap and trade program created by Congress in 1990 reduced more pollution in the last

decade than all other Clean Air Act command-and-control programs combined, and achieved significant reductions at two-thirds of the cost to accomplish those reductions using a ‘‘commandand-control’’ system. . . . The Acid Rain program enjoys nearly 100 percent compliance and

only takes 75 EPA employees to run—a track record no command-and-control program can

meet.’’)

initiative. While notice and comment is important, it is simply untenable to wait

another 3–5 years or more for a resolution of this controversy in the courts and

through the rulemaking process. Administrative law specifically recognizes the

power of agencies to put rules into immediate effect for good cause in the meantime

while taking comments. EPA has often used this power in the past when court decisions have created undesirable uncertainty, such as following the invalidation of the

mixture-and-derived from rule under RCRA in 1991.7

Second, I believe that the Administration should immediately conform its litigating position in the pending NSR enforcement cases to the policy position that the

Administration has taken in the proposed rules. I disagree with my good friend Assistant Attorney General Thom Sansonetti that it is going to be viable for the U.S.

Government to pursue multi-billion dollar cases based on the premise that the same

words in the law meant one thing in 1985, another thing in 1992, still another in

1996, yet another in 1998 and will someday mean something still different in the

future.

I also disagree strongly with those who imply that the pending enforcement cases

brought in a previous Administration should somehow disable a new Administration

from implementing its views of good public policy. As I indicated in my testimony

before Government Affairs last March, I see this as a fundamental Constitutional

question of who is running the government—the President and the Officers of the

United States confirmed by this Senate, or the career enforcement staff at EPA.

Just as the Clinton Administration was free to walk away from the first Bush Administration’s NSR interpretation in 1998—provided of course that proper procedural formalities were observed8—so too the second Bush Administration should be

free to reinstate its own NSR interpretations and policies.

Of course, the Congress can make the Administration pay a price politically for

its actions. But, in my opinion, NSR is the wrong issue to make the touchstone for

good environmental policy. The NSR program is the greatest failure in the Administration of our environmental laws in my professional lifetime. It has failed to work

for 25 years, and now it badly needs to be replaced with something that does work.

Case-by-case, plant-by-plant litigation to force individual plants to install best available control technology is at best an antiquated regulatory technology. It is slow,

expensive and uncertain. There has to be a better way. The better way is clear. It

is a modern, efficient cap and trade system—a concept that has proven remarkably

successful in the Acid Rain Trading system under the 1990 Amendments,9 and

which now has tri-partisan support in both the Administration’s ‘‘Clear Skies Initiative’’ and Senator Jeffords’ S. 556, which was recently reported out by this Committee. A modern, efficient trading system will achieve far greater pollution reductions in far less time and at far less expense—not to mention the side-benefit of putting lots of pesky environmental lawyers out of business! In my view, we should

move promptly on a tri-partisan basis as quickly as possible to replace the antiquated, dysfunctional NSR system for existing plants by legislating a modern efficient trading system.

What has caused the great NSR debacle? There is plenty of blame to go around—

and I probably share some of it. I had been nominated as General Counsel of EPA

but not yet confirmed when the WEPCO case was argued, and I failed to properly

supervise my staff and did not know the position on NSR issues that EPA was advocating until after the decision came down. The courts are partially to blame, because

the cases to date have temporized by promulgating vague, multi-factor tests that fail

to give clear guidance to industry as to what is and is not permitted. EPA has

issued multiple and inconsistent interpretations over the years. There have been so

many of them that I doubt that any of them will ultimately receive much deference

from the courts. When invited by the Administration to review the legal situation,

the Department of Justice in its recent report ducked the key issues, and said merely that EPA’s latest interpretation was not so clearly wrong that it would be uneth-
621

10 United States Department of Justice Office of Legal Policy, New Source Review: An Analysis Of The Consistency Of Enforcement Actions With The Clean Air Act And Implementing

Regulations (January 2002). 11 123 Cong. Rec. H36327–36334, S36250–36259 (Nov. 1, 1977). 12The Clean Air Act has only one statutory definition of ‘‘modification’’ and it is in a different

section: ‘‘The term ‘‘modification’’ means 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.’’ CAA

§ 111(a)(4).

13 40 C.F.R. § 52.21(b)(2)(iii)(a). 14 57 Fed. Reg. 32326 (July 21, 1992). 15 Compare city of Chicago v. Environmental Defense Fund, 511 U.S. 328 (1994).

ical to continue to argue it.10 DOJ then ducked entirely the key issue of whether

industry had been given fair notice of EPA’s newest interpretation of NSR requirements, punting that central issue entirely to the courts. Unless Congress steps in,

I fear that we are now embarked on a decade-long process of litigation that will require several Supreme Court decisions to clarify the law.

Much of the blame for the current NSR mess must also be laid squarely at the

doorstep of Congress. In the text of the 1970 Clean Air Act, Congress created a basic

distinction between the pollution requirements applicable to ‘‘new’’ as opposed to existing plants. Then, in so-called ‘‘technical amendments’’ in 1977—which were never

debated or properly vetted in Committee hearings—Congress extended the concept

of ‘‘new’’ plants to included ‘‘modifications’’ of existing plants.11 But in its wisdom,

Congress failed to adequately define the key operative concept of a ‘‘modification’’ in the statute.12 That statutory ambiguity over how to define the nature of the ‘‘modifications’’ that convert an existing plant into the equivalent of a ‘‘new’’ plant

for purposes of installing state-of-the-art pollution controls has been at the root of

a great deal of unproductive and unnecessary NSR legal controversy over the years.

It simply cannot be that literally any modification—no matter how trivial—triggers NSR and converts every existing plant into a new plant. Somehow someone has

to distinguish between those physical and operational changes that trigger new

source review and those that don’t. To date, it has proved impossible for the legal

system to come up with any clear dividing line that will stand the test of time. EPA

has repeatedly tried to resolve this controversy through a variety of changing rules

and interpretations over the years. By rule, EPA has exempted certain activities

such as ‘‘routine repair and replacement of equipment,’’13 and required an increase

in emissions for a modification to trigger NSR. But how to define what repairs and

replacements of equipment are ‘‘routine’’? At one point, EPA even officially defined ‘‘routine’’ in the Federal Register as what is ‘‘routine . . . within the relevant industrial category’’14—which brings to mind Churchill’s line about a question wrapped

in a riddle wrapped in an enigma. EPA’s legal staff also developed the fascinating

theory of ‘‘potential emissions,’’ so that a plant was considered to have ‘‘increased’’ its emissions even though its actual emissions went down! Over the years, EPA has

come out with many shifting interpretations of what constitutes a ‘‘routine’’ repair

and replacement, and now in its enforcement cases, EPA is arguing for yet a different definition than the ones that it advanced in the past or the ones that it is

now proposing to implement through the rulemaking process. I do applaud the Administration’s courageous attempt to bring some clarity to the legal chaos that is

the NSR program today through its proposed safe harbor rule. There have already

been so many varied and shifting interpretations by EPA in the past, however, that

I seriously doubt that the courts will ultimately give much deference to whatever

construction EPA now attempts to place on the statutory terms.15

That unpleasant fact leaves us with only two real options going forward—either

slug it out in many more years of unproductive litigation, probably going to the Supreme Court several times, before we finally find out what the term ‘‘modification’’ really means in the NSR provisions of the Clean Air Act. Or alternatively, as I prefer, Congress should act to put a merciful end to the NSR controversy by legislating

a modern, more efficient replacement, such as the trading system advocated by the

Administration in its Clear Skies Initiative and also endorsed in Senator Jeffords’

proposal.

Realistically, I don’t think there can be any serious question that slugging it out

in continuing litigation is bad environmental policy that will really only benefit the

lawyers—and law professors—and maybe a few politicians who can claim to be taking decisive action to fight polluters, if not actually to benefit the environment. NSR

litigation makes those who participate in it feel good, because they can imagine that

they are taking tough action to benefit the environment. But in reality, the NSR

approach of case-by-case litigation to force each individual plant to install best available control technology is not going to produce anything approaching the environ-
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mental benefits that will come from legislating a trading system to replace the antiquated and dysfunctional NSR program for existing sources.

RESPONSES OF E. DONALD ELLIOTT TO ADDITIONAL QUESTIONS FROM

SENATOR VOINOVICH

Question 1. During the hearing and in your testimony, you advocate for the replacement of the NSR program with a cap and trade system. How does a cap and

trade system meet the goals that the NSR program is directed toward?

Response. The NSR program for existing plants can require the installation of pollution control technology on a unit-by-unit basis if a major ‘‘modification’’ occurs. This requirement to install pollution control technology is not an end in itself, but

rather is a means to the ultimate end of achieving air quality goals. A well-designed

cap and trade program will achieve air quality goals much more quickly, efficiently,

fairly and effectively with less expenditure of private and government resources

than a litigation-driven, unit-by-unit command-and-control system such as NSR.

The fundamental insight behind a cap-and-trade program is to use the market to

allocate control requirements and to achieve the most efficient mix of controls system-wide. This approach is fundamentally inconsistent with the idea behind NSR,

which is for government to decide what pollution control system is the ‘‘best available control technology’’ (BACT) for each individual unit on a case-by-case basis. The

ultimate goal is the same, but cap-and-trade uses market trading to allocate the

control burden, whereas NSR uses case-by-case bureaucratic decisions and litigation

(with their inherent uncertainties, delays, expense and unintended consequences).

NSR as envisioned in EPA’s recent NSR litigation position loses sight of the big picture goals, and diverts enormous resources to micro-manage constantly moving unitby-unit targets for every change that EPA deems to be a ‘‘modification.’’

Question 2. What effect does a program like NSR have on the effectiveness of a

cap and trade system?

Response. Maintaining the present NSR program for existing sources could eviscerate a trading program. There would be nothing left to trade under EPA’s recent

litigation-driven interpretation of NSR that essentially deems all units ‘‘modified’’ and subject to stringent, technology-based controls under NSR. As indicated above,

trading and NSR are fundamentally incompatible and mutually redundant. Because

of its high transaction costs, NSR cannot be implemented effectively, but if somehow

it could be, and all plants magically already had BACT controls, there would be

nothing left to trade. The whole philosophy behind trading is that some plants will

control more stringently than others, creating the most efficient system-wide mix.

EPA’s recent NSR litigation position, on the other hand, imagines that government

can specify the ‘‘best’’ control system for each individual plant every time that it has

a scheduled outage. In practice, however, government is not able to design a systemwide mix of controls that is as efficient as that which will emerge from market trading. We can have a litigation-driven approach to NSR or trading, but not both.

Question 3. If abolishing the NSR program was not an option, how would you recommend that Congress clarify or reform NSR?

Response. If it is not possible to abolish NSR outright, the program should be

amended to limit NSR to truly ‘‘new’’ plants and to exempt ‘‘modified’’ plants that

are covered by an effective cap-and-trade program. Requiring retrofit of additional

control technology for simply using a unit up to its fully capacity makes no sense.

If this is also not possible, and NSR must be maintained for existing plants as well,

it should be clarified to have clear triggers for installing technology. For example,

modest minimum technology requirements could become applicable to a plant after

a specified number of years of operation. This compromise approach would essentially combine section 481 of the Administration’s Clear Skies Initiative S. 2815

with section 711(a) of Senator Jeffords’ S. 556. A two-tiered system is possible in

which an NSR program is maintained to impose minimum technology requirements

on existing plants automatically after a period of years of operation. This would

maintain an NSR program and would not be too damaging to a cap-and-trade program, provided that the minimum technology requirements are modest and not too

constraining on trading.

RESPONSES OF E. DONALD ELLIOTT TO ADDITIONAL QUESTIONS FROM

SENATOR WYDEN

Question 1. You have testified that the Clinton Administration attempted to renounce EPA’s previous interpretation of NSR without any notice and comment, but
623

you say they did this by doing so in a proposed rule. Isn’t a proposed rule just that?

I believe the Agency by publishing it as a proposed rule satisfied the notice and

comment requirement, is that correct?

Response. No. With all due respect, the situation is not that simple. Both your

question and my testimony are not sufficiently clear about the difference between

legislative and interpretative rules. Interpretative rules state the agency’s interpretation of law, and they can become immediately effective without notice and comment (provided that affected parties receive appropriate notice). See Administrative

Procedure Act, 5 U.S.C. § 553(b)(3)(A) and § 552(a)(1)(D) and (E). In the course of

a preamble to a proposed legislative rule, EPA may promulgate new interpretations

of existing law or statutory terms. Those interpretations then become immediately

effective as the agency’s current view of the law even if the proposed legislative rule

is never finalized. That is exactly what happened in the case of the Clinton Administration’s 1998 renunciation of the 1992 Bush Administration NSR interpretations.

In the course of the preamble to the 1998 legislative rule that was cited in my testimony, EPA disavowed and renounced its 1992 legal interpretations, claiming that

the 1992 legal interpretations were an unwarranted deviation. Not only is this ‘‘revisionist history,’’ but it was a major change in policy that was not preceded by any

public input. In direct contradiction to its own 1992 WEPCO-Fix rulemaking, EPA’s

1998 preamble states:

One particular circumstance where EPA has been dissatisfied with the

WEPCO rule is in the exclusion of demand growth from predictions of utility

units’ future actual emissions. The Agency’s promulgation of the WEPCO rule

represented a departure from longstanding practice under which emissions increases that followed non-routine and otherwise nonexempt changes at a source

were presumed to result from the change. At the same time, EPA believed that

there was a way to disassociate utility units’ post-change emission increases

which would have otherwise occurred due to demand growth as a purely independent factor from those that resulted directly from the physical or operational

change. The EPA has reconsidered that departure, and has tentatively concluded that its 1992 departure is not appropriate and should not be continued,

both as a general matter and especially in view of recent developments in the

electric power sector.

The EPA’s experience leads to the conclusion that sources generally make

non-routine physical or operational changes which are substantial enough that

they might trigger NSR in order to increase reliability, lower operating costs,

or improve operational characteristics of the unit and do so in order that they

may improve their market position. . . . For these reasons, EPA now seriously

questions whether market demand should ever be viewed as a significant factor

in answering the relevant regulatory question of whether an emissions increase

results from a physical or operational change at an existing source, since in a

market economy, all changes in utilization—and hence, emissions—might be

characterized as a response to market demand.

[T]here is no plausible distinction between emissions increases due solely to

demand growth as an independent factor and those changes at a source that

respond to, or create new, demand growth which then result in increased capacity utilization. 63 Federal Register 39860 (July 24, 1998, emphasis added).

These statements are legally significant and immediately effective in that courts

give little or no deference to agency interpretations that are inconsistent and shifting. See, e.g. City of Chicago v. Environmental Defense Fund, 511 U.S. 328 (1994).

My discussions with EPA legal staff persuade me that EPA knew exactly what it

was doing and was renouncing prior legal interpretations that could prove troublesome for EPA in the NSR enforcement cases that were about to be brought. This

major change in NSR policy was not preceded by notice and comment, nor any other

form of public participation.

I do not contend that these major changes in NSR legal interpretations were technically illegal because they were not preceded by notice and comment. As noted

above, interpretative rules are exempt from notice and comment requirements by

statute. Similarly, much of what the current Bush Administration is proposing to

do regarding NSR is also in my view an interpretation of statutory terminology that

is technically an interpretative rule that does not require notice and comment for

a legalistic perspective. However, notice and comment can be provided in the agency’s discretion. Much of the discussion within this Committee about the desirability

of notice and comment is not based on the technical requirements of the Administrative Procedure Act, but rather proceeds from the sensible notion, which I share, that

as a matter of good public policy, major changes in important policies should be preceded by public participation and input. My point was that this norm, which is now
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being invoked so strongly by the Committee against the Bush Administration, was

clearly breached by the Clinton Administration in 1998. The current Bush Administration has already provided far more opportunity for public participation, scrutiny

and comment on its contemplated changes in NSR policy than was provided by the

Clinton Administration in reversing its predecessor’s policies and putting the new

NSR policies into effect in 1998.

Question 2. In your testimony you refer to EPA’s definition of ‘‘potential emissions’’ and attribute this definition to resulting in a plant being considered to increase its emissions even though there is a decrease in actual emissions. Do you

have any actual examples that you can quantify? Are you aware of (or can you provide) any estimates that have been made of the decrease in actual emissions that

have been reported as increases in potential emissions?

Response. Yes, I am aware of a number of actual cases in which actual emissions

have decreased but hypothetical ‘‘potential’’ emissions increased, but I have not done

a quantitative study to collect all of these cases and add up the total tons involved.

(If a comprehensive quantification is really desired, this might be a good project for

GAO, which has the resources to conduct such studies, which I do not.) Increases

in ‘‘potential emissions’’ were the essence of EPA’s legal position in both the Puerto

Rican Cement case (which involved construction of an entirely new emission unit

never before operated) and WEPCO (which rejected the actual-to-potential test for

already existing units) cases. A major controversy over EPA’s ‘‘potential emissions’’

theory then erupted as a result during the first Bush Administration. In the 1992

Interpretative Rule, EPA partially backed off from its potential emissions theory by

committing to using instead an ‘‘actual to projected actual’’ approach for existing

electric utility plants in the future, but the actual to potential test was maintained

in effect for all other industry segments. Thus, contrary to the implication of the

question, the ‘‘potential emissions’’ theory is definitely still very much alive and still

being applied today by EPA as a matter of stated agency policy to most industries.

EPA’s official Background Paper for the Administration’s NSR Review explains

the current status of the potential emissions theory as follows: ‘‘Current emissions

are measured using actual emissions over the recent past, usually designated as the

last 2 years. Future increases are generally determined using potential to emit

(which, as described above, is the maximum capacity to emit, except as limited by

a permit). The difference between the future potential and the past actual emissions

is compared to the relevant significance level. An exception is the electric utility industry, which estimates future emissions using a special calculation that resulted

from a Federal rulemaking following a Federal court opinion. The utility calculation

is established in a rule, commonly known as the ‘‘WEPCO rule’’, which EPA finalized on July 21, 1992. This rule provides that utilities compare past actual emissions to projected future actual emissions.’’ EPA, NSR 90-Day Review Background

Paper (June 22, 2001)(Docket A–2001–19 Document II-A–01) http://www.epa.gov/

air/nsr-review/nsr-review.pdf at p. 7 (emphasis supplied; footnotes omitted).

The actual-to-potential test makes no attempt to correlate a causal link between

a particular ‘‘physical change or change in the method of operations’’ and a resulting

‘‘increase in the amount of emissions.’’ Historically, EPA had required a real increase in emissions to trigger NSR. The wording of Section 111(a)(4) of the Clean

Air Act on its face, as well as it has been interpreted by EPA historically and in

the 1992 Federal Register preamble, clearly requires a real increase in emissions

to trigger NSR. You need only look at EPA’s annually published air quality and

emissions trends reports to confirm that in the aggregate, actual tons per year of

emissions of SO2, NOx, and PM/PM10 are decreasing, despite increases in population, GNP, energy production, and vehicle miles traveled. See http:www.epa.gov/

airtrends and related links.

Question 3. You compare the Clear Skies Initiative to Senator Jeffords’ S. 556 recently reported out by the EPW Committee. You praise them both, in fact. S. 556

requires that new or modified power plants still go through New Source Review, and

some people are opposed to that. Are you saying you are in favor of that?

Response. No. When an effective cap-and-trade program is put in place, I believe

that it should replace NSR for existing sources, for all the reasons that are indicated

above in my answers to Senator Voinovich above. As it presently exists, NSR for

modified plants is not only redundant but destructive of trading.
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STATEMENT OF JOSEPH BAST, PRESIDENT OF THE HEARTLAND INSTITUTE ON NEW

SOURCE REVIEW REFORM

Gentlemen, I respectfully add my voice to those of many who believe the New

Source Review Program requires substantial and immediate reform.

The Heartland Institute is a national nonprofit research and education organization based in Chicago. Since our founding in 1984, we have produced research and

commentary on a wide range of public policy issues, including environmental policy.

Since 1998, Heartland has published Environment & Climate News, a monthly

newspaper devoted to covering environmental news.

Because of the importance of New Source Review reform, I assembled a three-person team to study the Environmental Protection Agency’s June 13, 2002, New

Source Review: Report to the President, and to produce a Heartland Policy Study

evaluating its findings and recommendations. The team consisted of Heartland’s Science Director, Dr. Jay H. Lehr, editor of McGraw-Hill’s Standard Handbook of

Environmental Science, Health, and Technology (2000); the managing editor of Environment & Climate News, James Taylor; and myself. My bio and Dr. Lehr’s appear at the end of these comments; past issues of Environment & Climate News featuring Mr. Taylor’s reporting can be found on Heartland’s Web site at

www.heartland.org.

Our complete evaluation runs to some 23 pages and can also be viewed on The

Heartland Institute’s Web site at www.heartland.org. Printed copies are available

by calling 312/377–4000. We found: • EPA accurately described instances where current NSR policy has discouraged

investments needed to improve productivity and plant safety, even when those investments would reduce emissions of pollutants. • EPA’s recommended reforms would remove counterproductive policies without

harming air quality. • EPA’s recommendations and some of the ideas that apparently will be part of

President Bush’s ‘‘Clear Skies Initiative’’ represent progress in bringing one of the

nation’s least effective environmental regulations up-to-date.

Following is a more complete summary of our evaluation.

WHAT THE REPORT TO THE PRESIDENT SAYS

EPA’s Report to the President summarizes extensive public comments and previous EPA reviews of NSR enforcement policies, along with case studies showing

how current NSR enforcement policies have had negative effects on businesses,

workers, consumers, and the environment. EPA identified three areas where reform

is needed: • EPA’s uncertain and increasingly narrow interpretation of the ‘‘routine maintenance, repair and replacement’’ exclusion.

Consistent with Congress’s intent, EPA until 1999 generally excluded ‘‘routine

maintenance, repair and replacement’’ (RMR&R) activities from the NSR permitting

process. As early as 1988, though, EPA began to challenge the meaning of ‘‘routine,’’

subjecting or threatening to subject more activities to NSR than before.

The Report to the President concludes that ‘‘concern about the scope of the routine

maintenance exclusion is having an adverse impact on [utility] projects that affect

availability, reliability, efficiency, and safety.’’ Concerning nonutility companies,

EPA says ‘‘concern about the scope of the routine maintenance exclusion is having

an adverse impact on industries outside the energy sector. It also is credible to conclude that projects have been discouraged that might have been economically and/

or environmentally beneficial without increasing actual emissions.’’

• EPA’s substitution of ‘‘actual-to-future-potential’’ for ‘‘actual-to-future-actual’’

in estimating likely changes in emissions.

In 1996, EPA changed the way it estimates the effect of facility modifications on

emissions for nonutility emitters from ‘‘actual-to-future-actual’’ to ‘‘actual-to-futurepotential,’’ which means the decision to apply NSR is determined by the emitter’s

‘‘potential to emit’’ rather than the actual change in emissions likely to occur.

In its Report to the President, EPA concluded ‘‘the current NSR program is having an adverse impact on energy efficiency by discouraging projects that may improve energy efficiency, or may increase capacity and reliability without actually increasing pollutant emissions. In some cases it may be discouraging projects that decrease emissions because of the ‘actual-to-potential’ test used for these industries.’’

• Emissions from de-bottlenecking and aggregation

Originally, EPA ruled that only the direct effect on emissions from the unit being

modified would be considered in determining whether an NSR permit was required.

More recently, EPA has moved to a more expansive definition under which ancillary

increases in emissions from unmodified but ‘‘de-bottlenecked’’ units must be in-
626

cluded. EPA is also combining separate projects and claiming the aggregate effect

on emissions is sufficient to trigger NSR.

EPA’S REFORM RECOMMENDATIONS

When it released its Report to the President, EPA also issued seven recommendations for NSR reform. The first four were proposed by the Clinton Administration

in 1996 but never implemented: • Plantwide Applicability Limits (PALs).—Regulated emitters would be allowed

to modify their plants without obtaining a major NSR permit provided their emissions do not exceed a plantwide cap based on an actual emissions baseline. Such

‘‘Plantwide applicability limits’’ (PALs) would effectively expand the RMR&R exclusion and resolve conflicts over de-bottlenecking. • ‘‘Clean unit’’ exclusion.—Regulated emitters who achieved Federal BACT or

LAER control levels or comparable State minor source BACT since 1990 would be

entitled to a ‘‘clean unit exclusion’’ from NSR. A clean unit would trigger NSR only

if permitted allowable emissions increase. • Exclusion for pollution control and prevention projects.—Modifications that result in a net overall reduction in air pollutants, including when an emitter switches

to a cleaner-burning fuel, would be excluded from NSR, subject to certain conditions.

Caps on emissions under the National Ambient Air Quality Standards program and

other programs would remain in place. • Return to actual-to-future-actual methodology.—The ‘‘actual-to-future-potential’’

emissions test would be replaced with the previously used (and still used for utilities) ‘‘actual-to-future-actual’’ test, which is a more realistic calculation of future

emissions. Only emission increases caused by a given modification would be considered. The baseline for calculating current actual emissions would be the highest consecutive 24-month period within the immediately preceding 10 years.

Three additional reforms of NSR recommended by EPA would need to go through

the formal rulemaking procedure (including public comment) before being implemented. They are:

• More objective definition of the RMR&R exclusion.—EPA proposes to set costbased thresholds below which projects would automatically qualify for the RMR&R

exclusion. The thresholds would be set on an industry-by-industry basis and would

exclude costs incurred for installing and maintaining pollution control technology.

• De-bottlenecking.—EPA proposes to clarify that, when calculating actual emissions associated with a modification, emitters generally will need to look only at the

unit undergoing the change. Emissions from units ‘‘upstream’’ or ‘‘downstream’’ of

the unit being changed would be considered only when the permitted emissions

limit of the upstream or downstream unit would be exceeded or increased.

• Aggregation.—EPA proposes to consider modifications to be separate and independent projects unless they are dependent upon another project to be economically

or technically viable or the project has been intentionally split from other projects

to avoid NSR. EPA says it ‘‘generally would defer to the States to implement the

Agency’s aggregation rule.’’

EVALUATION OF EPA’S RECOMMENDATIONS

Since 1980, EPA has released some 4,000 pages of ‘‘guidance’’ and produced many

(often conflicting) letters and several proposals for NSR revision, none of them finalized. Testimony to EPA contains many reports by industry spokespersons alleging

that EPA has frequently and substantially changed its enforcement policies without

going through the formal (and legally required) rulemaking procedure, causing considerable uncertainty within the regulated community.

We found these reports to be credible and uncertainty to be justified. Current policies plainly have the unintended consequences of discouraging worthwhile investments and maintenance activities that would benefit companies and consumers as

well as the environment. Many of these investments and activities were once correctly understood to be outside the scope of NSR, and ought once again be put beyond NSR’s reach.

EPA’s recent enforcement of policy reinterpretations has forced companies to

count imaginary emissions from previously unused capacity in determining whether

a repair or other moderation would cause a significant increase in emissions. As a

result, under current rules most repair projects would trigger a full New Source Review, even if actual emissions decrease as a result of the modification. Given the

cost of complying with the NSR permitting process, many companies choose not to

upgrade and modernize plants or even make routine changes and repairs. Efficiency

improvements that would have reduced emissions and energy consumption or improved worker or community safety have been foregone.
627

The NSR policy changes recommended by EPA, if put into practice, would not

compromise air quality. We are skeptical that NSR has had a major positive effect

on air quality since 1977, since air quality was improving prior to that year and

other air quality regulations were responsible for much larger emission reductions

than can be traced to the NSR program. Predictions that NSR reform would result

in substantial increases in emissions strike us as partisan rhetoric, not analysis.

The air quality goals and standards for protecting public health and the environment remain intact, and those aspects of the current program that unintentionally

increase emissions by discouraging investments in energy efficiency would be avoided.

EPA’s proposals would fix some of the biggest problems encountered by an aging,

inefficient, and expensive environmental regulatory program. Replacing the program

outright as it affects utilities with the ‘‘Clear Skies Initiative,’’ as also proposed by

the Bush Administration, would be a further step in the right direction, though

judgment must be reserved until legislation for the Initiative is made public.

The country would be better served if NSR were changed to clarify and make

more certain the scope of the routine maintenance exclusion and the method used

to measure future emissions. Even better would be a move away from the costly and

often counterproductive style of end-of-the-pipe regulation represented by NSR.

CONCLUSION

Everyone agrees that clean air is one of the most important rights of American

citizens and goals of national environmental policy. The failure to apply common

sense to the New Source Review program, though, has burdened American consumers and American industry with higher economic costs and higher levels of pollution than were envisioned by Congress when it wrote the Clean Air Act amendments of 1977. As EPA itself now admits on pages 31–32 of its Report to the President:

Our findings in this report ratify a longstanding and broadly-held belief that

parts of the NSR program can and should be improved. For example, we conclude above that changes to NSR that add to the clarity and certainty of the

scope of the routine maintenance exclusion will improve the program by reducing the unintended consequences of discouraging worthwhile projects that are

in fact outside the scope of NSR.

NSR was adopted at a time when forecasts of a ‘‘post-industrial era’’ were naively

thought to justify anti-manufacturing policies. Balancing costs against benefits was

thought to be unnecessary, and the effects of regulations on the incentives of regulators and members of the regulated community alike were poorly understood and

often dismissed as unimportant.

Since 1977, air quality, technology, and regulatory theory have improved dramatically, creating new opportunities to more cost-effectively protect air quality. Investors, too, have rediscovered the inherent value of companies that manufacture real

goods and services, and the negative impact that defective regulations can have on

global competitiveness.

It is entirely appropriate, at this time in U.S. history, to re-examine the rules and

regulations known to be ineffective or damaging to the manufacturing sector of the

country’s economy. EPA’s recommendations and the Bush Administration’s Clear

Skies Initiative are good places to start, but they do not mark the end of the need

for reform.

Thank you for this opportunity to submit my comments to the record. Please do

not hesitate to contact me or members of my staff if I can be of any assistance to

your Committees or to you and your staffs.

STATE ATTORNEYS GENERAL

A COMMUNICATION FROM THE CHIEF LEGAL OFFICERS OF THE FOLLOWING STATES: ALASKA, CALIFORNIA, CONNECTICUT, MAINE, MARYLAND, MASSACHUSETTS, NEW

HAMPSHIRE, NEW JERSEY, NEW YORK, RHODE ISLAND, VERMONT

July 17, 2002.

Hon. GEORGE W. BUSH,

The White House,

Washington, DC.

RE: CLIMATE CHANGE

DEAR PRESIDENT BUSH: Climate change presents the most pressing environmental

challenge of the 21st century. We applaud the efforts of your Administration in the
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release this May of a formal, comprehensive report that details the seriousness of

this problem. U.S. Climate Action Report 2002, U.S. Dept. of State, Washington,

DC, May 2002 (‘‘Report’’). Unfortunately, however, the Administration’s current policy is inconsistent with the import of the Report’s findings by failing to mandate reductions of greenhouse gas emissions. To fill this regulatory void, States and others

are being forced to rely on their available legal mechanisms. The resulting combination of State-by-State regulations and litigation will necessarily lessen regulatory

certainty and increase the ultimate costs of addressing climate change, thereby

making the purported goals of the Administration’s current policy illusory. For these

reasons, we write today to urge you to reconsider your position on the regulation

of greenhouse gases and to adopt a comprehensive policy that will protect both our

citizens and our economy.

The Report Documents the Need for Dramatic Action

The Report documents ongoing climate change that will cause significant impacts

on virtually every aspect of our planet and way of life. We already see the signs

of such change everywhere. Some are dramatic, such as the recent collapse of a portion of the Antarctic ice shelf the size of Rhode Island, the open water at the North

Pole, or millions of acres of spruce trees in Alaska killed by insects. Others are less

overt, but are also powerful statements of the enormity and pervasiveness of the

problem. The Report is replete with examples. For instance, the Report documents

that average temperatures have already increased 1 degree Fahrenheit over the

past century, and it projects that over the next century, average temperatures will

likely increase 5–9 degrees Fahrenheit. Increased temperatures will dramatically

change climates in every State and destroy some fragile ecosystems. The Report also

documents that sea levels have already risen 4–8 inches over the last century, and

it projects that they will likely rise another 4–35 inches over the next. Rising sea

levels will cause more flooding along the coast and it will obliterate vital estuaries,

coastal wetlands and barrier islands. While some areas will face increased storms

and storm damage, other areas—such as California and other parts of the West—

will face dwindling supplies of water. Of perhaps the most concern, the Report documents potential health-related impacts of climate change, and a just-published

study in the journal Science warns of increased risks from insect-borne diseases

such as malaria and yellow fever.

The Report makes it clear that the question of whether global climate change is

occurring is no longer in doubt, only the precise rate of change and the specific impacts of that change. It also repeatedly acknowledges that the dominant cause of

climate change is carbon dioxide produced from the combustion of fossil fuels. Notably, the Report projects that greenhouse gas emissions will increase by 43 percent

by 2020. Report at 6. It also notes ‘‘the long lifetimes of greenhouse gases already

in the atmosphere and the momentum of the climate system.’’ Report at 82. According to the Report, this means that impacts of climate change will continue to be felt

for several centuries, ‘‘even after achieving significant limitation in emissions of CO2

and other greenhouse gases.’’ See Report at 103. The evidence marshaled in the Report refutes its own counsel of inaction and delivers a different message: an effective

response to the confirmed dangers of global climate change must include immediate

action to limit greenhouse gas emissions.

The Existing Administration Proposal is Inadequate and Increases Uncertainty

While we are certainly heartened that the United States has now officially recognized the existence and scope of the climate change problem, the Administration has

yet to propose a credible plan that is consistent with the dire findings and conclusions being reported. The Administration’s one proposal calls for a voluntary reduction of greenhouse gas ‘‘intensity’’ at roughly the same pace such reductions have

occurred over the last 20 years. The Report itself strongly suggests that such voluntary reductions will be grossly overshadowed by existing atmospheric gases and,

combined with ongoing and increasing emissions, will actually allow the problem to

continue to worsen. In light of this, the Report implicitly calls this policy approach

into question. See Report, at 50–51 (stating that there is ‘‘a need to re-evaluate existing climate change programs to ensure they effectively meet future economic, climate, and other environmental goals’’).

Despite conceding that our consumption of fossil fuels is causing serious damage

and despite implying that current policy is inadequate, the Report fails to take the

next step and recommend serious alternatives. Rather, it suggests that we simply

need to accommodate to the coming changes. For example, reminiscent of former Interior Secretary Hodel’s proposal that the Government address the hole in the ozone

layer by encouraging Americans to make better use of sunglasses, suntan lotion and

broad-brimmed hats, the Report suggests that we can deal with heat-related health
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impacts by increased use of air-conditioning. Report at 82. Far from proposing solutions to the climate change problem, the Administration has been adopting energy

policies that would actually increase greenhouse gas emissions. Notably, even as the

Report identifies increased air conditioner use as one of the ‘‘solutions’’ to climate

change impacts, the Department of Energy has decided to roll back energy efficiency

standards for air conditioners.

To fill the void left by Federal inaction on this issue, some States are now initiating measures, within their borders, to reduce greenhouse gas emissions. For example, Massachusetts last year adopted State regulations requiring carbon dioxide

reductions by power plants, and New Hampshire recently enacted ‘‘cap and trade’’

legislation. California’s legislature has just passed a bill that will lead to the ‘‘maximum feasible’’ reductions of carbon dioxide emissions from vehicles. New York is

also considering a carbon cap. Continued Federal inaction will inevitably lead to a

wider range of State regulatory efforts. In addition, States and others are beginning

to review their litigation options.

Only Mandatory Federal Carbon Caps of Appropriate Levels Can Provide Regulatory

Certainty

We obviously support our States’ regulatory and litigation efforts on this issue.

At the same time, however, we want to make it clear that State-by-State action is

not our preferred option. We believe that such regulation or litigation will increase

the uncertainty facing the business community, thus potentially making the most

cost-effective solutions more difficult. Moreover, we agree that the global nature of

the climate change problem would be most efficiently addressed by comprehensive

regulatory action at the national level. A recent Department of Energy Report concluded that the United States could address carbon dioxide emissions issues with

minimal disruption of energy supply and at modest cost, but only with fully integrated planning. See Energy Information Administration, Office of Integrated Analysis and Forecasting, U.S. Department of Energy, ‘‘Analysis of Strategies for Reducing Multiple Emissions from Electric Power Plants with Advanced Technology Scenarios,’’ SR/OIAF/2001–05 (October 2001). This integrated planning can only come

with regulatory certainty.

In particular, we believe that a market-based program that would cap greenhouse

gases holds great promise. Such an approach has a proven track record as one effective tool in the regulatory toolbox, as you have noted in other contexts. We strongly

believe that prompt implementation of a market-based approach that caps greenhouse gas emissions would promote significant benefits for public health, welfare

and the environment in a manner that would be consistent with strong economic

policies.

Conclusion

We very much appreciate your Administration’s formally acknowledging the magnitude and nature of the climate change problem. In light of the Report’s findings,

however, we urge you now to rethink the Administration’s policy response to the

problem. While individual States are prepared to lead the way, we believe that a

strong national approach will allow for more efficient solutions that will better protect the American economy in the long run. Please do not hesitate to contact us on

this critical issue.

Very truly yours,

Thomas F. Reilly, Massachusetts Attorney General; Bruce M. Botelho,

Alaska Attorney General; Bill Lockyer, California Attorney General;

Richard Blumenthal, Connecticut Attorney General; G. Steven Rowe,

Maine Attorney General; Philip T. McLaughlin, New Hampshire Attorney General; David Samson, New Jersey Attorney General; Eliot

Spitzer, New York Attorney General; Sheldon Whitehouse, Rhode Island Attorney General; J. Joseph Curran, Jr., Maryland Attorney

General; William H. Sorrell, Vermont Attorney General.

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