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OAR Box 1778 

Prepped by Ollie Stewart 

Document Number: 

24) ll-A-8 

Docket Number: 

A-90-06 

Printed 10/28/2008 9:50:52 AM Sheet 24 of 276 
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11-A-8 

Equipment Leaks 

of VOC in 

Petroleum Refining 

Industry — 

Background 

Information for 

Promulgated 

Standards 

EIS 

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EPA-450/3-81-01 

Equipment Leaks of VOC in 

Petroleum Refining Industry -

Background Information 

for Promulgated Standards 

Emission Standards and Engineering Division 

U.S. ENVIRONMENTAL PROTECTION AGENCY 

Office of Air, Noise, and Radiation 

Office of Air Quaiitv Planning ana Standaras 

Researcn Triangle Park, Norm Carolina 27711 

December 7, 1983 
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4.0 MODIFIED SOURCES 

4.1 EMISSION INCREASE 

Comment: 

A number of commenters (IV-D-14, IV-0-15, IV-D-16, and IV-0-21) 

requested that the EPA allow an increase of a de minimis level of 

emissions before an existing facility would be considered to have 

modified. De minimis values of 5 tons per year and 40 tons per year 

(as in 40 CFR 51.18(j)) were suggested by the commenters. 

Response: 

Under the definition in Section 111(a)(4), any physical or 

operational change resulting in an increase in emissions constitutes a 

"modification." EPA has exempted certain small emissions increases 

from consideration in deciding whether there has been an increase in 

emissions constituting a "modification" for purposes of PSD applicability 

(40 CFR 52.21(b)(2) and (b)(231)). This action followed the decision 

in Alabama Power Co. v. Costle, 636 F.2d 323 (D.C. Cir. 1979), in which 

the D.C. Circuit held that EPA has authority to interpret the definition 

of "modification" so as to exempt sources with small emissions increases 

from PSD review on grounds of administrative necessity (_Id_. at 400). 

The Alabama Power decision does not require EPA to provide a de 

minimis exemption from application of the "modification" definition for 

NSPS applicability purposes. Nor has EPA's experience in implementing 

the NSPS program suggested an administrative need for relieving existing 

sources from NSPS applicability when they undergo changes resulting in 

only a small increase in emissions. This differs somewhat from EPA's 

implementation of the definition of "modification" for PSD applicability 

purposes. In that area, the Agency has determined that the administrative 

burden of applying the full preconstruction review process to a source 

with only a small emissions increase may be unreasonable (45 FR 52705; 

August 7, 1980). The administrative burden associated with the NSPS 

program, however, is relatively minimal. In contrast to PSD requirements, 

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NSPS's are categorically applicable technology-basea requirements only, 

they do not involve an assessment of ambient effects ana do not require 

case-by-case review. 

Furthermore, EPA believes that the current straightforward 

application of the "modification" definition for NSPS purposes nest 

serves Section Ill's intent. One key purpose of tne NSPS program is to M 

prevent new pollution problems from arising. One way that the statute M 

seeks to achieve this is by requiring application of tne best demonstrated:! 

technology at, and thereby minimizing emissions from, existing facilities 

with increased emissions. The current NSPS approach of not providing 

an exemption from the "modification" provision based on the size of 

the emissions sources is not intended to cover existing plants making 

routine and minor additions. The "modification" provisions in the 

General Provisions of 40 CFR Part 60 exempt changes sucn as additions 

made to increase production rate (if they can be accomplished without 

capital expenditure, as defined in the General Provisions) ana routine 

replacements (40 CFR 60.14(e)). In addition, these standaras would 

exempt additions made for process improvements if they are made without 

incurring a capital expenditure. 

Comment: 

Other commenters (IV-0-8 and IV-D-14), concerned about the complexity 

of the modification provisions, endorsed revising the modification 

provisions such that a modification occurs when the number of components 

exceeds 10 percent of the total number of the same type and there is a 

net increase in emissions from the process unit. 

ResDonse: 

As discussed in Section 4.2, EPA is promulgating an alternative 

procedure that will reduce the complexity of the modification provisions 

(in particular, how to determine a capital expenditure). In EPA's view 

40 CFR 60.14 of the General Provisions adequately specifies the categories 

of changes to an existing facility that should bring the facility under 

NSPS as a "modified" source. It should be noted that, under Section 

50.14(e), certain changes made in an affected facility without a capital 

expenditure are not considered "changes in operation" oy EPA and, 

therefore, are not modifications. See, e.g., 40 CFR 50.14(e)(2) — 

production rate increases. 

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As proposed in the standards, certain changes (process improvements) 

made in an affected facility without a capital expenditure are not 

W considered "changes in operation" by EPA and, therefore, are not modifications. This generally excludes coverage from industry practices 

that involve adding a few valves and maybe a sampling system and making 

]'• other minor changes in equipment configurations. The 10 percent increase 

± in the number of fugitive emission components as suggested by the 

j^ commenter, would most likely be associated with a VOC emissions increase 

of about 10 percent. Making such a change would likely be associated 

with capital expenditure and, therefore, EPA considers this a modification. 

Therefore, EPA did not revise the modification provision as requested, 

r Comment: 

Another commenter (IV-D-8) maintained that once a "modification" 

has occurred, the NSPS requirements should be applied only to those 

types of components which trigger the definition of modification. 

Response: 

Under Section 111 of the Clean Air Act, the application of 

modification is inextricably tied to the designation of "new source," 

; or in NSPS terminology, an affected facility. Section 111(a)(2) defines 

the "new source" subject to NSPS as a source on which modification has 

commenced after proposal, not the portion of the source actually changed. 

Stated differently, modification provisions are triggered with respect 

to the affected facility; therefore, applicability is to all components 

affected by the standards within the affected facility. The commenter 

is implicitly requesting EPA to define the affected facility as a group 

of one type of equipment within a process unit. EPA, as discussed in 

Section 3.1, reasonably concluded that affected facilities to which the 

standards apply should remain: (1) the group of all fugitive emission 

sources (pumps, valves, sampling connections, pressure relief devices, 

and open ended lines) within a process unit and (2) compressors. 

4.2 CAPITAL EXPENDITURES 

Comment: 

Commenters requested that the capital expenditure determination 

(as it relates to the modification provisions) be revised so that it is 

more practicable. Commenters (IV-D-8 and IV-D-15) remarked that .the 

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capital expenditure guidelines are outdated and would be difficult to 

use because units have been substantially rebuilt over the years and 

records of costs for determining the cost basis may be kept on a process 

unit basis rather than for individual pieces of equipment, or simply 

may not exist. It is, therefore, very difficult to reconstruct original 

costs. 

In support of their concern about using original costs, the comniente 

stated that, based on EPA's current interpretation of capital expenditure 

1 to 3 percent of the current replacement costs would subject units to 

modification. Another commenter (IV-D-14) claimed that component costs 

represent 5 percent of the total original costs and that the addition 

of a new pump with several valves could easily exceed the "capital 

expenditure" definition. This commenter provided the hypothetical 

example of a unit with a total original cost of S16 million and component 

cost of 5815,000. The addition of a pump with several valves would 

exceed 4 percent of the total component costs, around 556,000. 

One commenter (IV-0-10) suggested that replacement costs rather 

than original costs be used to determine the basis for capital expenditure 

A few commenters (IV-0-4, IV-0-15, and IY-0-16) suggested that capital 

expenditure be defined as 7 percent of the replacement cost (based on 

the Chemical Engineering Construction Index or other suitable index) of 

an affected facility at the time of process improvement. 

Response: 

After reviewing the comment letters concerning the difficulties 

with using the capital expenditure definition, EPA agrees that the 

definition for capital expenditure may be difficult to use for some 

refineries. Accordingly, EPA decided to provide an alternative to 

the procedures in the General Provisions. Although the implementation 

of the capital expenditure definition has been made more practicable, 

the original intent of the definition has been maintained. 

The alternative uses an adjusted annual asset guideline repair 

allowance (AAGRA) and the replacement costs to determine capital 

expenditure. The adjusted AAGRA is determined by a formula and is 

based on a ratio that reflects inflation of costs over the last several 

years. The adjusted AAGRA is multiplied by the replacement costs of 

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the equipment within the facility to determine the value of a capital 

i expenditure. 

• The burden associated with using the capital expenditure definition 

in the proposed standards was not quantified by the commenters; however, 

if some of these problems can be resolved without changing the application 

r of the modification provisions, EPA finds no reason not to do so. 

Accordingly, EPA is providing an alternative method to the General 

} Provisions. 

As mentioned above, the alternative method for determining capital 

expenditure enables refiners to use-replacement costs rather than 

original costs. An inflation index can be applied to the replacement 

value of an affected facility to approximate the original cost basis of 

the affected facility. The relationship between replacement and original 

costs has been determined (Document Nos. IV-B-4'and IV-B-14) as: 

Y = 1.0 - 0.575 log (X), where: 

Y = the percent of the present replacement cost which is 

equivalent to the original cost, and 

X = the year of construction. 

i 

f Using the above equations and the annual asset guideline repair allowance 

(AAGRA) of 7 percent (see IRS Publication 534, page 20), capital expenditure 

1

 can be expressed in replacement dollars as: 

Capital Expenditure = A x Y x 0.07, where: 

A = existing facility replacement cost. 

Another alternative method that was considered is similar to that 

j of the first in that an inflation index, Y (as defined above), and the 

! AAGRA basis of 7 percent are used to allow refiners to use replacement 

f costs. However, this second alternative would also allow refiners to 

f use the cost of the entire process unit rather than the affected facility 

§ (the fugitive emission components). The second alternative would 

| reduce the number of units that would use a detailed costing of equipment. 

However, the equipment covered by the standards represent a variable 

portion of the total costs of all the equipment in a process unit. r . • 

Therefore, i t is not_pj*atrcicaDie to assign a single percentage that 

would reflect the modification costs contributed by fugitive emission 

pieces. Thus, EPA is not adopting this alternative. 

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Even though EPA was unable to establish an alternative that would 

allow refiners to use the cost of the entire process unit, EPA would 

consider estimations from refiners that clearly show that an expenditure 

would be less than the quantity associated with a capital expenditure. 

There may be a variety of ways that these estimations can be made. For 

example, a refiner may have proof that in certain units 5 percent of 

the total replacement value at the process unit is the value of the 

equipment covered by the standards. If an estimation clearly demonstrate 

its results, EPA could quickly decide whether a process improvement 

involves a capital expenditure. =• Based on the example, if the value of 

the process improvement may be 0.04 percent of the replacement value of 

the process unit, this would be clearly less than 12.5 percent of 

5 percent of the value of the total unit. If an estimation does not 

clearly show its results, then the time and effort required by EPA in 

evaluating the estimation would not provide-the owner or operator a 

quick response and, therefore, a more-detailed costing of equipment 

(either by estimating replacement or accounting existing equipment) 

would be the owner or operators best approach. If EPA can judge easilythrough review of a clear demonstration that a process improvement does 

not involve a capital expenditure, it will do so. In contrast, if 

EPA's review raises concerns or questions, EPA will reject the estimation 

unless further convincing support is presented. 

Comment: 

One commenter (IY-0-8) wrote that the General Provisions exempt 

"process improvements" from being considered modifications if made 

without incurring a capital expenditure; however, using the proposed 

definition of "capital expenditure" limits the exemption. Another 

commenter (IY-0-21) recommended deleting the modification provisions 

which require that process improvements be accomplished without a 

capital expenditure. 

Response: 

The General Provisions do not include a "process improvement" 

exemption. However, in the proposed standards EPA stated its intent 

that minor modifications would not be covered by the standards: "addition 

or replacement of fugitive emission sources for the purpose of process 

improvement which is accomplished without a capital expenditure shall 

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rS 

not by itself be considered a modification under this subpart." The 

capital expenditure criterion was included so that minor process 

improvements in a process unit that cause an increase in emissions 

would not subject an existing facility to this NSPS. After reviewing 

these comments, EPA has maintained the same exemption. EPA considers 

any increase in emissions that results from a process improvement with 

a capital expenditure a "modification" unless one of the other exceptions 

in the General Provisions applies. 

It should be noted that any potential emission increase that results 

from changes in operation that require the addition of a few fugitive 

emission sources could be offset or nullified by controlling existing 

equipment or installing components with no fugitive emissions. Accordingly, 

there would be no modification in such a case even if the emissions 

occurred with a capital expenditure. The standards do not require that 

process improvements be made without a capital expenditure. They 

merely provide an exemption when the process improvements are made with 

such an expenditure. 

Comment: 

One commenter (IV-D-30) argued that the "no capital expenditure" 

exemption for modifications could be construed by a plant as including, 

for example, the addition of fugitive components from existing inventory 

of spare parts. The commenter requested that EPA make it clear that 

the addition of equipment already in stock is still considered in 

determining a capital expenditure. 

Response: 

As discussed in the response to the previous comment, the capital 

expenditure criterion applies to process improvement or production rate 

increase exemptions that are considered when determining whether an 

increase in emissions at a facility results in a modification. This 

criterion is used to judge if the activity results in a change in 

operation. As such, a capital expenditure is determined by what is 

added to a process unit, not by what is purchased. Accordingly, it 

makes no difference whether the item was already in stock when the 

process improvement occurred. 

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4.3 SMALL FACILITIES 

Comment: 

Commenters (IV-0-9 and IV-0-23) stated that small refiners more 

easily trigger the modification and reconstruction provisions of the 

standards than do large refiners. A small capital expenditure on a 

small unit would cause the unit to be classified as "modified" more 

easily than the same expenditure would cause a large unit to be so 

defined. Some commenters (IY-0-8 and IY-D-15) also remarked that the 

definition of "capital expenditure" would impact small facilities more 

severely. 

Response: 

The provisions of the standards can be triggered by several differer 

actions. Some of these actions are relative changes that are considered 

important because they involve a certain percent of the cost of the 

unit. Other triggering actions are absolute changes that are considered 

important because they involve an absolute increase in air pollutant 

emissions from the existing unit. Even if the reconstruction and 

modification provisions are more burdensome on small refineries, the 

overall impact of the standards is still reasonable, however. If the 

commenter's claim is true, then there must be a difference between 

units at small refineries on the one hand, and those at large refineries 

on the other. The difference could be related to size, age, ability to 

respond to today's changing markets, or myriad of other factors. The 

question of unit size, measured by throughput or equipment count, is 

discussed in a previous response; the relationship between unit size 

and firm size is not clear. In general, small changes can trigger the 

provisions for units with comparatively few pumps and valves. However, 

it is not clear that the capital expenditure criterion would be exceeded 

quicker by a small process unit than by a large process unit. It is 

not necessarily true that the cost of a given set of equipment would be 

the same for a small and large process unit. Large process units can 

use large equipment or small equipment (the costs of which wouid be 

related, in a very general sense, to the size of.equipment) and small 

process units can use large or small equipment. The value of any one 

pump in a process unit may be relatively small or large depending on 

the specifications in a particular application, not solely on the size 

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of the pump. The commenters did not mention specific small refinery 

characteristics that would explain why small refiners might suffer a 

greater burden than large refiners. Age and obsolescence of equipment, 

the most obvious characteristics, do not appear to be significant 

factors. There are no data to indicate that units in need of modernization 

are situated predominantly at small refineries. Even if there are 

differences and small refineries are disproportionately affected, EPA 

does not consider this unreasonable because EPA believes that the 

standards are appropriate for all existing facilities that become 

affected by the standards. 

For these reasons EPA concludes that the modification and reconstruction 

provisions of the standards will not subject small refiners to unreasonable 

adverse impacts. 

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