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[Senate Hearing 106-944]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-944

          CLEAN AIR ACT: NEW SOURCE REVIEW REGULATORY PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
        CLEAN AIR, WETLANDS, PRIVATE PROPERTY AND NUCLEAR SAFETY

                                 OF THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                  FEBRUARY 28, 2000--CINCINNATI, OHIO

                               __________

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

                   U.S. GOVERNMENT PRINTING OFFICE
66-380                     WASHINGTON : 2001

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington DC 
                                 20402

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

               one hundred sixth congress, second session
                   BOB SMITH, New Hampshire, Chairman
JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
JAMES M. INHOFE, Oklahoma            DANIEL PATRICK MOYNIHAN, New York
CRAIG THOMAS, Wyoming                FRANK R. LAUTENBERG, New Jersey
CHRISTOPHER S. BOND, Missouri        HARRY REID, Nevada
GEORGE V. VOINOVICH, Ohio            BOB GRAHAM, Florida
MICHAEL D. CRAPO, Idaho              JOSEPH I. LIEBERMAN, Connecticut
ROBERT F. BENNETT, Utah              BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas          RON WYDEN, Oregon
LINCOLN CHAFEE, Rhode Island
                      Dave Conover, Staff Director
                  Tom Sliter, Minority Staff Director
                                 ------                                

  Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear 
                                 Safety

               JAMES M. INHOFE, North Carolina, Chairman

GEORGE V. VOINOVICH, Ohio            BOB GRAHAM, Florida
ROBERT E. BENNETT, Utah              JOSEPH I. LIEBERMAN, Connecticut
KAY BAILEY HUTCHISON, Texas          BARBARA BOXER, California

                                  (ii)

                            C O N T E N T S

                              ----------                              
                                                                   Page

               FEBRUARY MARCH 28, 2000--CINCINNATI, OHIO
                           OPENING STATEMENTS

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     2

                               WITNESSES

Bynum, Joe, executive vice president, Fossil Power Group, 
  Tennessee Valley Authority.....................................    16
    Prepared statement...........................................    82
    Report, Routine Maintenance of Electric Generating Stations.. 17-42
Hawkins, David, Natural Resources Defense Council................    51
    Prepared statement...........................................    94
    Report, Plant Life Extension................................. 58-63
    Survey, Plant Life Extension Conference...................... 52-58
Moore, W. Henson, President and Chief Executive Officer, American 
  Forest and Paper Association...................................    48
    Prepared statement...........................................    90
    Statement, Forest Products Industry, Michael Draper..........    50
Seitz, John S., Director, Office of Air Quality Planning and 
  Standards, Environmental Protection Agency.....................     9
    Prepared statement...........................................    80
Slaughter, Bob, director, Public Policy National Petrochemical 
  and Refiners Association.......................................    46
    Prepared statement...........................................    83
Strickland, Hon. Ted, U.S. Representative from the State of Ohio.     5
    Prepared statement...........................................    78
Tyndall, Bill, vice president of environmental services, Cinergy 
  Corporation....................................................    63
    Prepared statement...........................................   100

 
          CLEAN AIR ACT: NEW SOURCE REVIEW REGULATORY PROGRAM

                              ----------                              

                       MONDAY, FEBRUARY 28, 2000

                                     U.S. Senate,  
         Committee on Environment and Public Works,
   Subcommittee on Clean Air, Wetlands, Private Property,  
                                        and Nuclear Safety,
                                                  Cincinnati, Ohio.
    The subcommittee met, pursuant to notice, at 2:30 p.m. at 
the Hamilton County Administration Building, 138 East Court 
Street, 6th Floor, Cincinnati, Ohio, Hon. James M. Inhofe 
(chairman of the subcommittee) presiding.
    Present: Senators Inhofe and Voinovich.

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. The meeting will come to order. I 
apologize, but it seems like we had our news conference before 
instead of after the meeting, which is fine with me.
    Today's hearing is on the reform of the New Source Review 
Regulatory Program. This is a highly complicated issue and 
hopefully we can shed some light on it today. This hearing is 
not about recent enforcement actions taken by the EPA against 
the electric utilities, although those actions were filed using 
the existing regulations.
    For those people in the audience who are not familiar with 
the way the EPA works, let me explain. The Air Program Office 
writes the regulations and the Enforcement Office polices the 
compliance of those regulations that have been written.
    What I would like to do now is briefly layout where we are 
today and invite some of the witnesses to comment. The New 
Source Review Program dates back to the Clean Air Act of 1977. 
The Act required sources built after 1977 to have state-of-the-
art emissions control devices. Congress did not believe this 
was fair and equitable and financially feasible to require all 
existing facilities to install new equipment.
    Instead, Congress required existing large facilities to 
undergo a New Source Review before they make major expansions 
or modifications in order to prevent significant new air 
emissions. These facilities have been referred to as 
grandfathered facilities, meaning that they are originally 
exempted from the new provision controls. Although, of course, 
they have had to install other control devices over the years.
    This program started a confusion and debate, which has 
lasted for almost 25 years now. I am told that over the years 
the EPA has issued more than 4,000 pages of guidance documents, 
which sometimes contradict each other, in order to explain the 
original 20-page, 1980 regulations.
    In the late 1980's the Wisconsin Electric Power Company, 
called WEPCO, challenged a determination by the EPA that they 
had violated the NSR regulations. The lawsuit resulted in a new 
regulation governing the NSR for utilities in 1992 called the 
WEPCO rule. Then in 1994 the EPA issued a new proposed rule for 
all industries and after 6 years in debate the EPA has 
indicated that they may go final with their new rule later this 
year.
    In my opinion, the major question is: when do modifications 
or changes to a facility or plant trigger the New Source Review 
Program. This involves a number of issues, such as whether you 
measure actual releases or just potential to release; whether 
you look at the dollar amount of the modifications and compare 
it with the value of the facility; or whether the modifications 
are just routine maintenance which is also hard to define. 
Considering the amount of debate over the last 25 years, the 
number of guidance documents and regulations issued by the EPA, 
and the number of lawsuits, I don't expect that we're going to 
be able to answer all the questions that exist today.
    I would like to publicly thank Bob Perciasepe, EPA's Clean 
Air Director, for working these issues out. He couldn't be here 
with us today. He sent a very capable person to represent him.
    Senator Voinovich?

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman. First of all, I 
would like to thank the county commissioners, John Dowling, Tom 
Neyer, and Bob Bedinghaus, for allowing us to use this fine 
facility here in Cincinnati; and I would like to welcome you 
here, Mr. Chairman. The chairman and I have known each other 
since his days when he was the Mayor of the City of Tulsa, 
Oklahoma, and I was the Mayor of the City of Cleveland and 
we've worked together in the Senate; and I consider him a true 
champion of responsible environmental policy.
    I don't know whether you know this or not, Mr. Chairman, 
but this is the home of Ken Griffey, Jr., and he's coming home 
to play and join his dad on the Reds team, and we're expecting 
some great things from him.
    Senator Inhofe. Sure, yes. Is that an invitation to come up 
and----
    Senator Voinovich. Come up for the I-71 World Series.
    Cincinnati is our queen city and it has a wonderful public 
partnership and a community that really cares about the 
environment and public health.
    I'd also like to welcome Congressman Ted Strickland. Ted is 
testifying today, and Ted and I have worked together in a 
bipartisan manner on a range of issues including the post 
ambient air standards for a particulate ozone; proposed NAAQS 
standards. Right now we're working on the Portsmouth gas 
infusion plant to try and predict in the interest of the 
workers, and I'm glad you're here today, Ted.
    I'd also like to extend a warm welcome to Bill Tyndall, 
Vice President of Environmental Services and Federal Affairs at 
Cinergy Corporation in Cincinnati. Cinergy is a responsible 
corporate citizen in the environmental arena and I am pleased 
that Mr. Tyndall is here today and he's testified before our 
committee before, Mr. Chairman.
    As I said, Southwest Ohio cares a great deal about clean 
air and the environment. I think it's appropriate that 
Cincinnati was chosen as the location for this hearing today. 
Just last month the U.S. EPA issued a proposed rule to 
redesignate Cincinnati as in attainment of the 1-hour ozone 
rule. I want to congratulate the greater Cincinnati community 
for working on that through a variety of coordinated programs 
to improve the quality of Ohio's air. And we're very hopeful 
that Administrator Browner will quickly act to finalize the 
rule following the close of the public comment period.
    Incidentally, Mr. Chairman, when I first entered office in 
1991 as Governor of the State of Ohio, most of Ohio's urban 
areas were not attaining the 1-hour ozone standard. By the time 
I left in 1998 all but Cincinnati were in attainment. So we're 
very, very proud of the fact that we've achieved that standard. 
And as you know, I have been very concerned about the new 
proposed standards for ambient air particulate matter and part 
of the reason is because we worked so doggoned hard to reach 
the 1-hour ozone standard. And as many people in this room 
know, I testified in your committee. The chairman helped us 
with that, and finally had to go to court over those 
regulations. A U.S. Appeals Court several weeks ago remanded 
EPA's ozone and PM2.5 standards ruling that the EPA 
did not justify its decision with sound scientific evidence. So 
that we want a clean environment, but we want reasonable rules.
    Now, we're here today to talk about the New Source Review 
Program and the proposed changes to the program. I think the 
chairman has done a good job explaining the history of it.
    We have a clean air statute. While I have some concerns 
about the law, it has done a great deal to clean up the 
nation's air and has improved public health and the 
environment. We need clear guidelines on how EPA will enforce 
provisions of that law and we need clear rules for industry to 
play by.
    I think you are going to be having a series of hearings, 
Mr. Chairman? Perhaps next year, we'll look at reauthorizing 
the Clean Air Act?
    Senator Inhofe. Yes. We have two more this year. We've 
already had one. Then we'll start the process, and we set a 
rather ambitious schedule for completing it.
    Senator Voinovich. I think it's important to look into the 
problems created by the New Source Review Program and look for 
the solutions needed to clarify the rules, and I commend U.S. 
EPA for taking on that task. Whether we're talking about the 
electrical utility, pulp and paper, or refining industries, one 
thing is clear: it is important for them to know the rules of 
the game. It should be clear to them what kinds of repairs can 
be made before triggering New Source Review, because repairs 
need to be made in a timely manner to insure worker safety and 
reliability of service, particularly electricity. So I urge the 
EPA to take into consideration the unintended consequences that 
are associated with this issue. We need to insure that this 
rule will help maintain air quality standards, but we also need 
to insure that needed maintenance repairs can be made so as not 
to jeopardize worker safety or the reliability of needed 
services.
    I also want to raise concern about the length of time it 
takes to receive a New Source Review permit, either to build a 
new facility or to make changes in an existing facility. I've 
been told that the standard timeframe is between one and 2 
years. I also understand that even getting a determination on 
whether a New Source Review permit is needed is also a timely 
process. I'm not sure that most industries can withstand that 
kind of timeframe without suffering serious consequences. A 
plant operator needs to make a decision much earlier than that 
to insure worker safety and, particularly, reliability of 
service.
    In addition, competitiveness is called into question. For 
instance, if a computer chip manufacturer wants to build a new 
plant it is likely that the technology will have changed during 
the time it takes to get an NSR permit and build the facility. 
I just think there needs to be some balance here.
    So, again, I commend the agency for moving forward to 
reform the program and I hope that it will keep those issues in 
mind as it proceeds forward. I am pleased that the EPA has 
worked with various stakeholders during the rulemaking process, 
and I strongly encourage them to do the same with the electric 
utilities. You learn more through communication, and that's 
what I hope will be achieved today through this hearing and 
will be achieved as the EPA continues the stakeholder 
discussions.
    Mr. Chairman, I ask that my statement be made a part of the 
record.
    Senator Inhofe. Without objection.
    Thank you, Senator Voinovich. I sometimes find that people 
in the local community are not as aware as they are in 
Washington in certain areas of expertise as the people who 
represent them. I was very pleased to have had one of the 
toughest jobs in the world, that is to be the mayor of a major 
city, when we were mayors together. And way back at that time 
and up to the present, Senator Voinovich has been one of those 
individuals who has been an expert in the field of clean air. 
And as he mentioned, he actually came as Governor of Ohio and 
testified before the committee that I chaired, the committee 
that we're in right now.
    I'm very happy to have Ted Strickland here, who I served 
with in the House. And while you're coming up, Congressman 
Strickland, let me just kind of give you an overview of what 
we're going do today. We've got a lot of people here. We've got 
four panels and then one panel has several on it. So with all 
seven witnesses we're going to have to keep moving along.
    I also mentioned that some of the Senators who are not here 
today, their staff is here; and they're going to be taking 
information back to their Senators in Washington but some of 
them could not be here today.
    Each witness will be allocated 5 minutes to give his 
opening statement. They'll be lights. And I see Andrew Wheeler 
brought his lights from Washington here. It's red and yellow 
and green. I think we all know what that means. So with that we 
will go ahead and begin.
    And, Congressman Strickland, it's a pleasure having you 
here with us today in your district.

STATEMENT OF HON. TED STRICKLAND, U.S. REPRESENTATIVE FROM THE 
                         STATE OF OHIO

    Representative Strickland. Thank you. Thank you, Mr. 
Chairman. Thank you for your coming to Ohio. And Senator 
Voinovich, I especially want to thank you for the fact that you 
have shown leadership in supporting one of Ohio's great 
resources, and that is the use of and continued use of coal. 
That's certainly very important to my district.
    I do represent the Sixth District. It's a 14-county, 
sprawling district, from Warren County in the west to 
Washington County in the east. This part of the State offers 
beautiful natural forest land, some of the most pristine 
farmland in Ohio, and many unique historic sites.
    Briefly, I just would like to share this morning some 
troubling statistics from my district and my concerns about 
EPA's New Source Review Program. I think together this 
information demonstrates the need for meaningful reform of the 
NSR program so that we can strike a better balance between the 
pace of desired environmental benefits and the increased 
productivity anticipated through economic development 
initiatives.
    As Senator Voinovich knows, the Sixth Congressional 
District is one of the poorest in Ohio and even the country. It 
has the lowest per capita income and the highest poverty rate 
of any district in Ohio. Unfortunately, southern Ohioans have 
not experienced the full economic recovery that most of the 
U.S. has enjoyed. The Sixth District includes Meigs and Vinton 
Counties, which have among the highest unemployment rates of 
any of Ohio's 88 counties, 11.1 percent and 13.8 percent, 
respectively, compared to a statewide average of 4.3 percent. 
These statistics clearly underscore the region's enthusiasm for 
economic development opportunities and its fear of regulations 
which may hamper job creation. Without a doubt, low cost energy 
and high quality manufacturing labor are vital to the economic 
prospects of the region.
    A substantial number of the labor force, more than 25 
percent, is employed in the manufacturing sector. And this 
region provides a significant number of jobs in the utility, 
mining, and refining sectors. Southern Ohio cannot withstand 
the loss of these jobs and it certainly cannot afford to 
overlook any opportunity for job creation. I have heard from 
the International Brotherhood of Electrical Workers, who raised 
specific issues about EPA's New Source Review proposed rule, 
and it should come as no surprise that one such concern is job 
loss. Under the current NSR program, decisions could be made to 
shut down utilities rather than venture into the confusing NSR 
permitting program to undertake what could be considered 
routine maintenance activities. Obviously this would result in 
layoffs.
    As you know, the New Source Review was first introduced as 
part of the 1977 Clean Air Amendment. The program was designed 
to insure that newly constructed facilities and substantial 
modifications of existing facilities do not result in the 
violation of applicable air quality standards. The New Source 
Review Program is acknowledged to be a very complicated program 
and a potential bottleneck to many positive community 
development projects, including brownfields redevelopment and 
the manufacturing facility improvements and modernization.
    For example, the specific requirements dictated by the New 
Source Review Program depend on the location of the facility. 
If a plant is cited in a part of the country that fails to meet 
the national ambient air quality standards for a pollutant, one 
set of requirements apply. If a plant is in a max attainment 
area, another set of rules apply. As you can imagine, some 
facilities may rest in a region that is considered in 
attainment for some criteria pollutants but not others, 
complicating the requirements even further.
    Let me quickly describe some frustrations my constituents 
and others have shared with me concerning this program. I've 
learned that merely determining whether the program applies to 
a project depends on complicated rules and guidelines which 
have been subject to 20 years of EPA's interpretation. I've 
also been told that EPA could require a preconstruction permit 
under NSR for the replacement of worn equipment parts even 
though the replacements are only modifications and not new 
construction.
    I know the EPA claims many successes under the NSR program, 
and I applaud the reduction or prevention of pollutant 
emissions. The environmental protections afforded under the NSR 
program should not be minimized here today; however, the EPA's 
most recent proposed changes to the NSR lead to considerable 
controversy and the agency acknowledges the need to build a 
more flexible program and streamline the permitting process. I 
would suggest that a truly meaningful reform of the NSR program 
can actually lead to even greater environmental benefits in the 
future.
    And in closing, let me say that this past fall I raised the 
concern that the EPA should not short-change the discussion on 
meaningful NSR reform. I am pleased to hear that a full review 
of approaches to NSR reform is ongoing. Without sufficient 
dialog among the interested parties, I have little confidence 
that a workable solution can be reached.
    Therefore, I would like to state very clearly that 
congressional oversight of this process does not stop here in 
Cincinnati. Indeed I think today's hearing demonstrates that 
both senators and representatives will continue to monitor the 
progress made to reform this program. With hard work and 
cooperation I believe an equitable proposal can be crafted that 
creates an efficient NSR rule without unnecessary pitfalls and 
establishes a proper balance between environmental benefits and 
economic progress.
    Mr. Chairman, in closing let me thank you once again for 
holding this hearing and Senator Voinovich for bringing it to 
Ohio. Thank you very much.
    Senator Inhofe. Thank you, Congressman Strickland. I hope 
it's obvious to everyone that this is not a partisan thing. We 
are all concerned. First of all, Democrats and Republicans 
alike want clean air. Democrats and Republicans also want fair 
treatment. During the course of our little news conference out 
here I told them the major concern I had is the 
unpredictability. People don't know, and that's what we're here 
to find out today, if they know what they can properly plan for 
in advance, how much time it's going to take to comply.
    I guess you would agree, Congressman Strickland, that both 
Democrats and Republicans feel that the dialog between the EPA 
and the stakeholders should continue?
    Representative Strickland. I think it's essential. And I 
think, as I said near the close of my statement, that it's 
incumbent upon those of us who are in the House and those of 
you who are in the Senate to make sure that this process 
proceeds in a manner that involves meaningful dialog and input 
from all stakeholders.
    Senator Inhofe. I'm sure this will be a surprise to you 
when I say it, but we have witnesses today who are testifying 
that the EPA has issued conflicting guidance on this program 
over the last 20 years or so. I know my constituents are 
concerned with that back in Oklahoma, and you have some that 
are concerned with that here.
    Representative Strickland. Well, they absolutely are, and 
it's important for a Federal agency to proceed in a fair 
manner. And I am troubled by some of the actions which seem to 
reach back to apply rules or interpretation of rules 
retroactively. That troubles me greatly. I see no fairness to 
that, and I think it's our responsibility as elected officials 
to make sure that what happens is done in a fair and a 
justifiable manner, and that's why I'm here today.
    Senator Inhofe. Because of the time constraints and the 
number of witnesses, we had to restrict the opening statements. 
You were talking about the frustrations of your constituents. 
Did you get a chance to complete that thought?
    Representative Strickland. Well, I did not but I'll submit 
it for the record. So many of my constituents representing both 
working folks, members of the work force, as well as the 
management of some of these facilities, are terribly concerned 
and justifiably so. And that's why I am so pleased that you're 
holding this hearing.
    Senator Inhofe. I think that's one of the issues here, 
Representative Strickland, that we have. Both labor and 
management are the big losers if we become noncompetitive. And 
I know--I can't speak for Ohio, but I can in Oklahoma. We've 
had some businesses actually have to leave and go across the 
border. And, of course, we're a little closer to Mexico, and 
we've lost a ton of jobs in Oklahoma as a result of this. And I 
assume that you have some examples here in Ohio, also.
    Representative Strickland. Well, I think there is great 
fear, as Senator Voinovich said a little earlier, the concern 
about the lack of predictability and not knowing what 
interpretations are going to be made regarding which 
regulations and how they are going to be applied. It seems to 
be one of the most troublesome aspects of this situation.
    Senator Inhofe. Senator Voinovich?
    Senator Voinovich. I'm interested in reading the letter 
from the--was it the president of the IBEW?
    Representative Strickland. Yes.
    Senator Voinovich. Are you aware of the fact of whether or 
not that organization is participating at all in the 
negotiations that are going on in terms of the rulemaking?
    Representative Strickland. I am not aware as to whether or 
not that particular organization is, but it's a good question. 
I certainly will talk with him. It seems important to me, 
Senator, that all stakeholders be given a voice in this process 
and be listened to. And that's the only way I think we can come 
to a consensus that is going to be widely embraced by all 
parties.
    Senator Voinovich. Well, I'm a big believer in quality 
management. I think so often when we talk about these things 
that we don't really bring in the people that are actually 
doing the work and have the insight into what some of this 
means. So often you get an engineer from some company that 
says, well, this is the way it is, and the other person on the 
other side says what he has to say. And if you had somebody 
that was really doing the work at the table with them, they'd 
have a much better understanding of what it's about. And I 
would hope that representatives here from the EPA make sure 
that some of those people are involved who are actually out 
there getting the job done in terms of----
    Representative Strickland. Absolutely. If I can just say as 
a concluding statement here, my district is a unique district 
but it is also a district not unlike other districts across the 
country in terms of its economic needs and in terms of its past 
history of having heavy manufacturing jobs and so on. And it is 
really troubling to me that a district like mine, and districts 
like mine across this country, could find themselves in an ever 
more difficult set of economic circumstances at a time when 
they really need to be able to make economic progress and to 
attract industry and create jobs and so on.
    And quite frankly, in perhaps a selfish way, that is the 
primary motivation behind my speaking out on this issue, and I 
think it's very important. It's important to my constituents 
and to the industries which serve my constituents. Thank you 
very much.
    Senator Inhofe. Well, let me just--I think what Senator 
Voinovich is suggesting is something that is a very good idea, 
to bring them in, the labor force in. They have just as much to 
be concerned with as anybody else. So I would like to ask you 
specifically to encourage them to do that, maybe today, to make 
some calls and get an involvement.
    I would also like to say that Senator Voinovich mentioned 
the ambient air proposed rules that we went through for about 2 
years. And we held a field hearing out in Oklahoma. We had your 
Lieutenant Governor and several people from Ohio out there, and 
it seems like Oklahoma and Ohio have a lot of things in common 
in terms of regulations. So it's nice to have you here to 
testify. Thank you very much.
    Representative Strickland. Thank you, Senator.
    Senator Inhofe. Now, I'd like to ask our second panel, Mr. 
John Seitz, Director of Office of Air Quality Planning and 
Standards. Mr. Seitz is a regular here and we always are able 
to get a lot of healthy compromises and communications, and I 
appreciate very much your coming today.
    Mr. Seitz. Thank you, Senator.

  STATEMENT OF JOHN S. SEITZ, DIRECTOR, OFFICE OF AIR QUALITY 
    PLANNING AND STANDARDS, ENVIRONMENTAL PROTECTION AGENCY

    Mr. Seitz. Good afternoon, Mr. Chairman and Senator 
Voinovich. I thank you for the opportunity to be here today on 
behalf of the administration to talk to you about the New 
Source Review Program.
    Enacted in Congress in 1977, the program's goal was to 
minimize air pollution from large, newly built, and modified 
industrial facilities. Recent figures suggest that over the 
life of the program NSR has prevented move than 100 million 
tons of pollution from getting into the air. The NSR program 
insures that when companies upgrade their facilities in a way 
that increases air pollution that they also take specific 
measures to minimize those increases. Upgrading pollution 
controls in the industrial infrastructure simultaneously make 
good economic and environmental sense. It's a simple concept 
that has been working in the NSR program for almost a quarter 
century, protecting our nation's air resources and makeing a 
critical part of the air quality program.
    The NSR provisions of the Clean Air Act combine air quality 
planning, air pollution technology requirements, and 
stakeholder participation. The only time NSR applies is when a 
facility makes a change that could significantly increase air 
pollution. This means a facility can make any change it wants 
so long as emissions could not increase. If a facility is 
unsure whether a change will trigger NSR review, there are many 
resources available to help them answer that question, most 
notably the State and local agencies. States are key partners 
in this program. Under the Act generally the States have the 
primary responsibility for issuing permits and they can 
customize their NSR program within the bounds of the EPA 
regulations.
    The NSR permit program for major sources has two different 
components: one for areas where the air is dirty or unhealthy, 
and the other for areas where the air is cleaner. In areas with 
unhealthy air, NSR assures that the sources do not impede 
progress toward cleaner air. In areas with clean air, 
especially pristine areas like national parks and wilderness 
areas, the program assures that emissions from new and modified 
sources do not significantly degrade the air quality. The 
program assures citizens that if any large industrial source 
being built or modified in their neighborhood, then the 
pollution aspects are addressed.
    Permits for sources located in attainment areas are known 
as prevention or significant deterioration--or PSD--permits. 
Permits for sources located in areas not meeting the National 
Ambient Air Quality Program are known as NSR permits. A major 
difference in the two programs is that the control technology 
requirement is more stringent in the nonattainment areas.
    Let me give you a few statistics about the NSR program. Our 
most recent data indicate that approximately 1 percent of large 
facilities or roughly about 250 facilities of 20,000 industrial 
facilities in this country are going through the NSR program 
annually. Recent data also show that these permits have 
prevented about a half a million tons per year of pollution 
from entering the environment. It's remarkable that annually 
less than 1 percent of these large sources are involved in the 
program, yet so much pollution is averted. These emission 
reductions are being achieved at the same time as the 
unprecedented economic expansion. We believe the program is 
achieving its goal.
    In addition to the emission reductions, the NSR program has 
sparked improvement in pollution control and pollution 
prevention technology. This technology forcing aspect of the 
program is an important reason why it has been so successful in 
allowing for continued economic growth while insuring 
environmental protection. It also helps the United States to be 
a leader in the export of pollution control technology.
    Despite the success of the NSR program, we have been 
actively working with many different stakeholders on all sides 
of the equation to help find ways to make the program work more 
effectively. I described some of those in my written statement 
which has been submitted for the record. We have worked very 
hard to be inclusive and comprehensive in our analysis of the 
stakeholder concerns. Since 1992 we have held hundreds of hours 
of meetings actively seeking comments and recommendations from 
various stakeholders. We formed the NSR Reform Subcommittee of 
the Clean Air Act Advisory Committee, a group of experts from 
industry, environmental groups, and State and local 
governments, brought together for the purpose of making 
recommendations for improving the NSR program. We listened to 
the analysis and debate from a wide variety of often opposing 
viewpoints. We issued a proposed rule in 1996, took comments, 
and held a public hearing on that rule. Since then we have 
continued to have meetings with stakeholders. As recently as 
last week we held another meeting with an industrial group.
    Our fundamental principle during this reform effort has 
been to promote more certainty and flexibility in the 
permitting process while maintaining at least the same level of 
environmental protection. We are examining the idea of 
promoting flexible plant-wide caps that would enable sources to 
make changes at their plant without meeting NSR's program so as 
long as the overall environmental cap is met. More examples are 
included in my written statement.
    We are also considering other options to provide 
flexibility for a specific industry while protecting the 
environment. For example, we recently held meetings with our 
stakeholders to obtain views on the concept of a sector-based 
approach for utilities. This would tailor the NSR regulations 
in such a way as to address issues unique to the utilities 
while still providing the overall environmental protection 
envisioned by the NSR program.
    We continue to discuss several issues with stakeholders and 
have not reached final decisions on the reform rule. However, 
we hope to complete the NSR rulemaking, as you indicated, later 
this year.
    Mr. Chairman, this concludes my statement. I appreciate the 
opportunity to be here today and I would be happy to answer any 
questions you have.
    Senator Inhofe. Thank you, Mr. Seitz. Mr. Seitz, I get 
conflicting reports as to the length of time it takes to apply 
for and to receive a permit under the NSR program. I know you 
keep records of these. Can you give us what your records show?
    Mr. Seitz. Yes. I'd be pleased to give that to you for the 
record, Senator.
    Senator Inhofe. No, just for today's oral testimony, I'm 
sure you've looked at this before.
    Mr. Seitz. I was a little surprised by the comment of one 
to 2 years. I acknowledge that there are some permits that take 
over that period of time after completing the application, but 
we believe that the majority of those are issued within the 
timeframe of 12 months, as set forth in the statute. However, 
industry has brought to the table in the reform effort--I think 
the microchip, the computer chip was a good example you brought 
out--that they need the ability to make changes quickly in the 
permitting process. They need more certainty, more speed in the 
permitting process. So we are currently looking at that and 
hope some of the efforts in terms of PALS and the technology 
clearinghouse can address some of that.
    Senator Inhofe. I'd like to have kind of an average just 
off the top of your head, 6 months, a year, 2 years?
    Mr. Seitz. I'd say it's probably from 9 to 12 months at 
this point in time.
    Senator Inhofe. Nine to 12 months would be somewhat of an 
average?
    Mr. Seitz. Right.
    Senator Inhofe. Now, who issues----
    Mr. Seitz. That's from the complete application. Sometimes 
there are problems getting a complete application. But once the 
application is in the hands of the States, I'd say 9 to 12 
months.
    Senator Inhofe. First of all, who receives the permit 
applications, the EPA or the States?
    Mr. Seitz. The States.
    Senator Inhofe. The States. And then who reviews them at 
EPA?
    Mr. Seitz. Well, it depends on the program, sir. If it is a 
SIP-approved program such as in Oklahoma, the State is the 
primary reviewer during the public comment period on the 
permit. The EPA regional office provides comments on some 
permits, but not necessarily all permits.
    Senator Inhofe. In planning new regulations which will 
result in the increase of permit applications, something that 
hasn't been talked about very much is who is going to pay for 
this? How much additional work load is going to be incurred in 
terms of the EPA, in terms of the State? Have you done a study 
of that, on work load, how we're going to accommodate that?
    Mr. Seitz. No, sir, I have not. We have not completed a 
study on that, yet. It's unclear to me at this point in time 
that as a result of the final reform package that we will have 
an increased number of permits that will actually go through 
the system. It is hoped that with some of the innovations such 
as plant-wide applicability limits, the process would actually, 
narrow that some. When we do the final rulemaking, we will have 
to put forward an analysis as to what the total cost and burden 
would be, which we have not done as of yet.
    Senator Inhofe. Prior to the rulemaking?
    Mr. Seitz. Prior to the final rulemaking.
    Senator Inhofe. Oh, OK, yes.
    Mr. Seitz. Yes.
    Senator Inhofe. The other witnesses, Henson and others, 
I'll probably be asking you the same question, but I'd be 
interested in knowing how this--at our news conference, and I 
think Ted Strickland mentioned this too, what this does to our 
competitiveness if we have these lengthy permit periods of 
time, how do you think that would affect our competitiveness 
compared to other countries?
    Mr. Seitz. Again, planning is the cornerstone of this 
program, as I said. The intent of the program when Congress put 
it together is that as a plant expands and plans on increasing 
its capacity, the environmental protection is protection 
addressed as a critical component of that. So I would hope that 
in the permit process the industrial sector would consider 
environmental protection as essential to the permitting 
application, and we need to preserve that aspect of the program 
along with the reforms to expedite the permitting process. 
Again, that is part of the effort of the reform process we have 
underway.
    Senator Inhofe. This is a concern to me because in Oklahoma 
we have some specific examples that I talked about the last 
time we had a hearing in Washington.
    It's been suggested that the New Source Review reform 
process is being steered in the direction of trying to get the 
same emissions reductions from the same sources as the 8-hour 
ozone and fine particulates and NAAQS set aside--they've been 
set aside by the D.C. Circuit Court of Appeals. And the NOx SIP 
call and Section 126, we're talking about three different 
things which are pending before that same court. Now, you've 
heard this and you've talked about this before. What is the 
agency's response to that notion?
    Mr. Seitz. I don't quite even understand how one could say 
that the NSR program is supplementing the NOx SIP call under 
section 110 of the Act. NSR is a source-specific facility, 
case-by-case decision. As you know, the NOx SIP call was across 
a given region based on a nitrogen budget for each State.
    Some of the alternative approaches we are examining in NSR 
reform voluntary approaches such as PAL or the sector-based 
approach for utilities. They clearly are voluntary programs and 
have nothing to do with the NOx SIP call.
    Since it would be a voluntary offering, I don't know how it 
could be something that supplements the NOx SIP call.
    Senator Inhofe. Yes, I'm running out of time here. Just one 
last question. In the January 3, 2000 issue of the well-known 
trade journal Electric Utility Week, Administrator Browner is 
quoted as saying in reference to a just announced final ruling 
granting the Clean Air Act, Section 126, petitions filed by the 
northeastern States asking for NOx emissions reductions from 
midwestern and southeastern States, ``we're going to get there 
one way or another.''
    What do you think she meant by that?
    Mr. Seitz. I think the Administrator's position is that we 
are going to get the clean air. Every American is deserves 
clean air, and she meant that we have to work together to 
achieve that.
    Senator Inhofe. Not to get to those standards that are 
under court review one way or another?
    Mr. Seitz. I didn't read it that way.
    Senator Inhofe. OK, Senator Voinovich?
    Senator Voinovich. When Administrator Browner appeared 
before our committee last week on her budget, she talked about 
overall reduction in the budget but an increase of 11 percent 
in the administrative part of the budget.
    Are you aware of any additional money that's going to be 
made available for this procedure, the people that handle this 
New Source Review?
    Mr. Seitz. Senator, at this current time I am unaware of 
that. I'm not aware of what the final pass-back numbers would 
be.
    Senator Voinovich. Well, I'm interested with talking about 
the timing though. The real decision on this, the application 
is submitted to the State agency and they go through it. But is 
it in Washington that that decision is made or is it made in 
the regional office in terms of this particular review?
    Mr. Seitz. In terms of the review and who conducts the 
review, that decision is in terms of the delegation. For 
instance, Ohio and Oklahoma have different types of programs. 
Maybe it would be helpful to describe them. The Oklahoma 
program is administered by the State under a State-approved 
regulatory program that was adopted in the Federal rulemaking. 
The State of Oklahoma issues the NSR permits.
    The State of Ohio's program is delegated program. The State 
did not choose to get a federally approved program so, 
therefore, the State is acting as an agent for EPA. In Ohio 
when a permit is issued by the State it is actually a federally 
issued permit, and Ohio acts as the agent for EPA. So the 
regional office--it is in Chicago for Ohio--would be more 
closely involved. An appeal of that permit goes straight to the 
EPA.
    It's my understanding the State of Ohio is working to 
change that now. This process contrasts with the appeals in 
Oklahoma, which go to the State.
    So the decision on where the permit goes and how it is 
reviewed depends on that State's structure. In Ohio, the 
regional office is more involved. In Oklahoma, the permits 
would be decided on a case-by-case decision. The funding of the 
program is an overall budget decision that is made out of 
Washington.
    Senator Voinovich. I'm interested in that. As I say, I'm a 
big fan of quality. And I know that as Governor of the State we 
had a lot of agencies that did a lousy job of permitting, and 
we made a real issue of that. We instituted quality management 
in our State agencies. I recall underground storage tanks. 
Ninety percent of the applications that used to be submitted 
were rejected because the people didn't understand the form. 
They spent a couple of months working on that issue, the people 
that actually issued the permits. They spent time with their 
customers, revised the application. Today there is only a 5 
percent rejection. So that speeded up the process right off the 
bat, because people didn't understand the process.
    Maybe it's a governmental thing, but I really want to know 
how you handle this. I want to kow what the manpower is and is 
it----
    Mr. Seitz. Well, in light of what you just said, 
particularly in terms of total quality and what you might do in 
the State of Ohio or Oklahoma, the internal timeframe is 
governed by the State. EPA does not set that. The statute says 
12 months. The period of time the State agency chooses to, say, 
take phase one or phase two, is totally within their 
discretion. So to the extent that some States have, as you 
said, maybe in Ohio with the total quality aspect of it, have 
implemented processing changes that make it more efficient, 
that is totally within the State's capability right now. I 
think through STAPPA/ALAPCO, which are the State and local air 
associations, share those experiences.
    So within that timeframe the only thing we govern is the 12 
months.
    Senator Voinovich. Well, I'd like you to get back to me on 
that. I'd also like to know how much of EPA's new budget are 
they putting into the program.
    Mr. Seitz. I'd be glad to answer that for you.
    Senator Voinovich. You're going to hear testimony today 
that will surprise you. People have been doing things according 
to the rules and all of a sudden they are finding out that they 
are supposed to have violated a process. They should have been 
able to get the permits reviewed and issued. Just what is the 
attitude of the agency toward those kinds of claims?
    Mr. Seitz. Well, most frequently, in the examples you've 
given I was actually sort of surprised at some of it. And you 
referenced some of it in your statement, Senator Inhofe. As 
mentioned, these rules were put out in 1980. Routine 
maintenance, or that issue of maintaining, was put in in 1988 
and 1989, put out as guidance, and that was upheld in the 
courts. And since that time we, EPA, has received very few 
written requests for an interpretation of that definition. So I 
am somewhat surprised that if it is so confusing and confounded 
why we have heard so little? There are questions about the 
other programs I administer; and Senator Inhofe has had the 
opportunity to quiz me on some of them in the past. I get 
hundreds of requests for interpretation, whether it is a MACT 
program or Title I program.
    So with respect to this issue, I receive relatively few 
questions in that area. In contrast, I receive lots of requests 
for information on modeling: how you do attribution, etc. On 
the issue of what is and is not routine--very few. I think we 
have to look closely at that as we go forward. I'm hearing that 
today.
    Senator Voinovich. There is a question about whether or not 
when you're coming up with the final rules on this whether 
you're going to be concerned about electricity reliability. One 
of the things that is a big issue now with the proposed 85 
percent on the NOx that the agency is requiring, is that many 
of the utilities are complaining about the fact that if they 
would go forward with that that they would have a real 
reliability problem. And there also is some real concern about 
ordinary maintenance of facilities that involve the well-being 
of people who are working for those agencies. And in terms of 
just providing reliable electricity for people that are--you 
know, the benefits of the company. What comment do you have 
about that?
    Mr. Seitz. Senator, as mentioned last summer when this 
first came up in connection with the SIP call, the 
Administrator said at that point in time if anyone is concerned 
about their ability to produce electricity because of either 
brown outs or shortage contact us because we do not believe 
this program will jeopardize the power supply of this country.
    With respect to the issue of whether or not routine 
maintenance can go on at a facility, as I said in my statement, 
the test here is really simple. I know there's a lot of debate 
around it, but the test here is really quite simple: Are there 
going to be emission increases as a result of what you're 
doing?
    Senator Voinovich. May I ask one last question? I know I'm 
out of time here.
    Senator Inhofe. Sure.
    Senator Voinovich. The issue of cost benefit in making a 
decision, and based on the technology that's available, does 
that ever get into the decisionmaking process?
    Mr. Seitz. Specifically you're referring to the decision of 
whether to apply back the Best Available Control Technology--
BACT. One of the factors in that decision is cost, like the age 
of equipment. So, yes, cost benefit is looked at in making 
decisions.
    Senator Voinovich. Good.
    Mr. Seitz. We take a look at the incremental costs, the 
marginal costs, social impacts, cost of energy. Those are 
specific criteria that are set forth in the statute.
    Senator Inhofe. Let me ask you one followup question and 
feel free to do the same thing.
    Mr. Seitz, I understand that part of your proposed rule 
would require facilities to look at what they actually emit 
today and then compare that to what they potentially could emit 
after equipment changes. And it seems to me this is kind of 
apples and oranges, that any facility could potentially emit 
more than they actually emit without making any equipment 
changes. All they have to do is run at full speed or increase 
the number of hours that they're emitting more pollutants. 
Would it make more sense to compare the actual emissions before 
an equipment change to the actual emissions after an equipment 
change. It seems like you anticipate that everyone runs at full 
capacity a hundred percent of the time.
    Mr. Seitz. Well, again, Senator, I think you have to go 
back to another provision in the Clean Air Act about the 
contemporaneous period in which you determine what the actual 
is. So when you make a change you assess the last 5 years of 
emissions data. Then you project forward to see, based on the 
proposed changes, what you could do in the way of production. 
If, based on the proposed changes, you have the ability to 
produce 100 products an hour, instead of 10 products an hour, 
there could be more pollution. Granted you're not at that level 
yet. A source has the ability to say, ``We never plan to emit. 
We want to address the technology issue now and put the 
technology on.'' They would have, through the State permitting 
program, the ability to take on an enforceable cap to address 
that.
    But the basic concept is if there is a potential to 
increase the emissions, then the impact on the environment has 
to be addressed.
    Senator Inhofe. But why couldn't you just compare the 
present potential to future potential? Then at least you're 
comparing the same things.
    Mr. Seitz. Let's say that a facility in the last 5 years 
has only produced 10 units. However, when the plant was built 
30 years ago, it was designed to produce 100 units. Is it fair 
to say that the design capability should meet an environmental 
permit that is based on 30 units 20 years ago should be the 
design criteria now, even though the standard has not been 
achieved in 30 years? We think that that's not what the 
statute----
    Senator Inhofe. OK, I understand your answer. I disagree 
with it, and I'm going to be asking some of the--Panel 3 and 4 
the same question.
    Do you have any further questions of Mr. Seitz?
    Senator Voinovich. No, I haven't.
    Senator Inhofe. Thank you very much, Mr. Seitz. I 
appreciate your being here.
    Audience speaker. Senator, would you indulge me for a 
second, please?
    Senator Inhofe. No, sir, we won't. I'm sorry. I don't want 
to be rude, but we have to comply with our rules. This is the 
way things get out of hand. We would run out of time, sir. I'd 
ask you to please sit down.
    I'd ask now Mr. Bynum to come forward. Most of the 
witnesses today are either industry or government, and I think 
Mr. Bynum is a hybrid. Which are you, Mr. Bynum?
    Mr. Bynum. I'm a hybrid. You're absolutely right, Mr. 
Chairman.
    Senator Inhofe. By the way, I would like to have all of the 
panels to understand that you're entire statement will be made 
a part of the record, but for time sake we have to do this. And 
that's why I always regret having to not deviate from the 
published rules by not allowing people from the audience to 
join in. When we're on time constraints, that takes away from 
our invited witnesses.
    Mr. Bynum?
    Mr. Bynum. Thank you.

STATEMENT OF JOE BYNUM, EXECUTIVE VICE PRESIDENT, FOSSIL POWER 
               GROUP, TENNESSEE VALLEY AUTHORITY

    Mr. Bynum. Mr. Chairman, thank you for the opportunity to 
testify before the subcommittee today. In my testimony I am 
providing the committee with the views that are solely those of 
the Tennessee Valley Authority. I appreciate your interest in 
the Environmental Protection Agency's proposed changes to the 
New Source Review Program, which will have a lasting impact on 
the operation of individual fossil plants and, in fact, the 
reliability of our nation's electric system.
    TVA has been operating various kinds of generating 
technology for more than 65 years and has substantial expertise 
in the maintenance of fossil plants. I am here today to 
represent TVA's dual responsibilities as a power producer and 
an environmental steward.
    Although there has been some criticism of its complexity, 
the TVA believes the NSR program has generally been a success. 
The EPA has largely applied the program's requirements in a way 
that does not impede routine maintenance or efficiency 
improvements of the nation's electric generating resources. TVA 
believes such improvements, long a part of routine maintenance, 
are desirable to insure a reliable supply of electricity and 
are in the public interest. As the person responsible for the 
operation and maintenance of 59 coal units, I urge great 
caution as EPA contemplates changes to the program. 
Unfortunately, some of the ideas being discussed can discourage 
such desirable improvements and have a detrimental impact on 
the electric utility industry's ability to safely and 
effectively operate our plants.
    The current NSR regulations have long excluded routine 
maintenance, repair, and replacement projects at existing 
sources. Historically the EPA has employed a common sense 
understanding of the term that encompasses those maintenance 
activities that are customary in the industry but optimize 
reliability, safety, availability, and efficiency. It would be 
a serious mistake in its rulemaking for the EPA to change its 
historic interpretation of the definition of routine 
maintenance. The EPA should not make changes to the program 
that discourage utilities from making improvements that 
increase plant efficiency and improve reliability. The 
utilities in the eastern interconnect have strained to meet 
demand and keep the lights on the last two summers. Now more 
than ever utility maintenance programs are key to meeting 
demand and reliably serving the public.
    TVA has recently released a technical report on routine 
maintenance on the TVA system and in the utility industry. This 
report demonstrates how important maintenance is for reliable 
service. I would like to submit a copy of this report for the 
record.
    Senator Inhofe. Without objection.
    [The referenced report follows:]

          ROUTINE MAINTENANCE OF ELECTRIC GENERATING STATIONS
                       TENNESSEE VALLEY AUTHORITY
  (GERRY L. GOLDEN MANAGER, PRODUCTION TECHNOLOGY FOSSIL POWER GROUP)

                           EXECUTIVE SUMMARY

    The Tennessee Valley Authority (TVA) has more than 65 years of 
experience in maintaining electricity-generating units with a wide 
range of unit size and technologies.
    This report examines TVA's maintenance philosophy and highlights 
specific TVA and industry routine maintenance activities. TVA and 
utility maintenance practices have as their goal unit reliability and 
availability and safe working conditions. This report presents 
maintenance case studies including:

      Cyclone replacements (at least 300 replaced industrywide 
[43 percent]).
      Draft system replacements (at least 79 replacements of 
forced-draft systems identified in a sample of 151 boilers [52 
percent]).
      Reheater replacements (231 in a sample of 190 generating 
units [121 percent--some units had multiple replacements]).
      Economizer replacements (98 replacement projects 
identified in a sample of 202 generating units [49 percent]).

    A large number of variables affect unit components' useful lives 
and dictate varying maintenance responses. These responses range from 
simply lubricating equipment to replacing components with improved 
materials to lessen component degradation and downtime. TVA's analyses 
indicate that component replacement does not occur at a certain age but 
varies widely, both within the TVA system and elsewhere in the 
industry.
    The case studies presented herein are only illustrative of the 
broad range of maintenance, repair, and replacement activities 
necessary to ensure safe and reliable production of electric power from 
coal-fired units. They do, however, provide insights into commonly 
encountered failure mechanisms and the advancements in assessment and 
repair techniques that have occurred over the last three decades.
Introduction
    A steam electricity-generating unit is a complicated machine 
consisting of thousands of separate parts and components that must be 
operated together in an integrated fashion to produce electricity. Like 
any complex mechanical system, an electricity-generating unit may 
suffer impaired performance caused by defects in design or manufacture, 
extreme operating conditions, or catastrophic failure. This impaired 
performance affects the economic performance of a unit and employee 
safety. In addition, it negatively impacts the ability to supply 
adequate and reliable electric energy to the public. To complicate 
matters, the unit's component parts are subject to different operating 
conditions and deteriorate at different rates. To ensure reliable 
integration and operation of all of these parts, an active maintenance 
program is necessary.
    The Tennessee Valley Authority (TVA) has more than 65 years of 
experience in maintaining various kinds of power-generating 
technologies. In the early 1930's, TVA began operating and maintaining 
hydroelectric units. When the public's demand for electricity exceeded 
the region's hydroelectric generation potential, TVA turned to coal-
fired steam generating units. Output from its hydroelectric and coal-
fired units was later supplemented by generation from nuclear units. 
Whatever the choice of fuel or generating technology, maintenance has 
been and continues to be the key to reliable operation of a unit 
throughout its useful life.
    In a 1972 report, two TVA power-system managers, T. H. Gladney and 
H. S. Fox, described TVA's maintenance experiences to date and its 
maintenance philosophy. Maintenance practices and techniques have 
improved since then, with better analytical tools and more experience, 
but the maintenance philosophy has remained unchanged for more than 25 
years. TVA and other power-system operators try to attain and maintain 
the highest practical availability and reliability of generating assets 
while taking into account safety and economic and financial 
considerations. Only through careful maintenance of generating assets 
can the public's need for electric energy be reliably and safely met.
    This report builds on the TVA maintenance activities documented in 
the earlier Gladney and Fox work. First, information about TVA's power 
system is provided. The report then discusses the life of a generating 
unit, the utility obligation to serve, and overall maintenance concepts 
in order to provide the fuller context in which maintenance decisions 
are made. This is followed by several case studies of specific 
maintenance projects and information about the frequency of similar 
maintenance activities on the TVA system and elsewhere.
TVA's Electric Power System
    TVA is an agency and instrumentality of the United States created 
by the Tennessee Valley Authority Act of 1933. Congress has tasked TVA 
with the development and conservation of the resources of the Tennessee 
Valley region in order to foster the region's economic and social well-
being. One component of TVA's regional resource development program is 
the generation, transmission, and sale of electric power. TVA's power 
system now serves approximately 8 million people in parts of seven 
States.
    Generation sources currently operated by TVA include 11 coal-fired 
power plants, 29 hydroelectric plants, 4 gas-turbine plants, 1 hydro 
pumped-storage facility, and 3 nuclear plants. TVA's 11 coal-fired 
power plants consist of 59 units, which are located in Alabama, 
Kentucky, and Tennessee. These units represent approximately 60 percent 
of the installed generating capacity on the TVA system.
    TVA's oldest active coal-fired unit was placed into service in late 
1951; the newest unit was placed into service in 1989. Four of the 
units are supercritical units. The unit boilers are a diverse mix of 
burner types and configurations: 26 are tangentially fired; 24 are 
wall-fired; 2 are cell burners; 6 are cyclones; and 1 is atmospheric 
fluidized-bed combustion. Unit sizes range from 125 MWs to 1,300 MWs 
(nameplate capacities). These boiler types and sizes are typical for 
more than 90 percent of the United States coal-fired boiler fleet. All 
of the boilers originally burned medium- to high-sulfur eastern coals, 
but a number of them currently burn coal blends consisting of low-
sulfur western and medium- or high-sulfur eastern coals. TVA's nominal 
fossil fuel-fired capacity is now 19,917 MWs.
    TVA is widely recognized as one of the leaders in the utility 
industry. Throughout its history, TVA has championed the evolution of 
electricity-generating technologies to improve efficiency and 
reliability and to reduce costs. Since the 1960's many of the major 
step increases in the size and economic performance of coal-fired 
generating plants have been taken by TVA. These steps included the 
construction and operation of:

      Gallatin Unit 1--first 300 MW tangentially fired unit in 
1956;
      Widow's Creek Unit 7--first 500 MW tangentially fired 
unit in 1961;
      Colbert Unit 5--first 500 MW wall-fired unit in 1965;
      Paradise Unit 1--first 700 MW unit in 1963;
      Bull Run--first 900 MW unit in 1967;
      Paradise Unit 3--first 1100 MW unit in 1970;
      Cumberland Unit 1--first 1300 MW unit in 1973; and
      Shawnee Unit 10--first utility-scale (160 MW) atmospheric 
fluidized-bed combustion unit in 1989.

    As Gladney and Fox stated, these units ``. . . represented the 
largest units the turbogenerator and steam-generator manufacturers were 
capable of designing and building; consequently, maintenance problems 
associated with prototype units were faced during the entire period.''
    In its 1955 Annual Report to the President and Congress, TVA 
observed:
    Because of the size of the TVA power system and its region-wide 
integration, TVA has been able to take advantage of the economies of 
``bigness'' and to stimulate advances in steam-plant technology. 
Turbogenerators of unprecedented capacity and greater efficiency have 
been purchased in multiple units of 2 to 12. As a result, the new TVA 
steam plants have made excellent field laboratories for the 
manufacturers, providing an opportunity for inspecting and testing a 
whole series of machines under operating conditions. The later machines 
in each series could be improved from the experience with earlier 
installations.
    Many of the maintenance practices developed by TVA on these 
prototype units therefore became the practices that were adopted and 
refined by others in the industry.
    Today, many of TVA's generating units are among the top performers 
in the country, ranking in the top decile in efficiency and 
reliability.
The Integrated Steam Electric Generating Unit
    A typical steam driven electricity-generating unit is a complex 
assembly of off-the-shelf components and custom-engineered equipment. 
Steam: Its Generation and Use (40th edition 1992) by Babcock and 
Wilcox, and Combustion Fossil Power (4th edition 1991) by Combustion 
Engineering Inc., describe in detail from the equipment vendors' 
perspective the various kinds of boilers and their component parts.
    The design, installation, and operation of boiler and 
turbogenerator component parts must be fully integrated in order to 
achieve the ultimate objective of generating electricity reliably, 
safely, and at the least cost possible. This integration is, even for 
the simplest, smallest units, a major undertaking. Thousands of 
components and pieces of equipment that are designed and supplied by 
different firms must ultimately be properly assembled, tested, and, 
almost always, tuned and refined before a generating unit can be 
initially connected to the grid. Furthermore, it is not unusual for 
replacements of equipment and systems and refinements to operational 
procedures to continue for months and years before a unit achieves its 
efficiency and reliability objectives.
    Maintaining integrated operation of all components is difficult 
because of the large number of components and the varying stresses on 
components. Failure of a component, or its failure to meet performance 
specifications, results in the inability of a unit to perform 
efficiently or to generate at design capability and may even prevent 
the unit from generating at all. This is true for almost all 
components. Failure of a critical electrical relay, sensing device, or 
valve can interfere with a unit's ability to operate properly as much 
as can failure of larger boiler or turbine components.
    The components and equipment of a generating unit face a wide range 
of operating environments and service conditions. These conditions 
range from the heat- and humidity-controlled environment of a control 
room to the extremely harsh environment inside a large furnace. Heat 
transfer surfaces in a boiler must retain adequate structural integrity 
to contain water/steam at pressures up to 4500 psi, the approximate 
equivalent to an ocean depth of two miles.
    Components must retain this structural integrity while being 
exposed to furnace temperatures exceeding 3000F; to highly corrosive 
gases; to deposition of corrosive solid materials; and to erosion 
caused by high-velocity, abrasive solid materials. Solid particles and 
water droplets traveling at supersonic velocities bombard steam turbine 
blades. Dynamic forces from the formation and collapse of steam bubbles 
can gouge chunks of metal from seating surfaces and rotating elements 
of control valves and pump impellers. Insulation inside electrical 
generators must maintain integrity while withstanding up to 24,000 
volts.
    Because of this wide variation in conditions of service, the 
service lives of individual components differ considerably. This 
affects the ability to maintain reliable integrated operation. Even the 
various components of a system or assembly do not have the same 
expected service life. For example, the rotating elements of a steam 
turbine, under design conditions, will require repair or replacement 
before the stationary components of the turbine. The superheater 
section of a boiler, which operates in a substantially more hostile 
service environment than the economizer section of the same boiler, 
typically has a shorter life than the economizer--even though the 
superheater is made of higher grade materials that can tolerate very 
adverse conditions.
    The power system may fail to meet its performance and reliability 
expectations because of design and integration errors. Components often 
fail to achieve their initially anticipated service lives. Poor quality 
control, manufacturing errors, design errors, and imperfect information 
regarding conditions of service can result in exposure to stresses 
higher than anticipated by the design engineer. Unexpected trace 
materials in the fuel supply can result in higher corrosion. Improper 
operation due to human error or failure of control components may also 
shorten component lives. For example, a single overheating event can 
occur early in the life of a plant and shorten the useful life of an 
entire section of heat transfer surfaces within a boiler (e.g., a 
superheater or reheater). All of these circumstances eventually require 
some form of maintenance response to ensure safe and reliable 
operation.
    Advances in industry standards, metallurgical developments, and 
improvements in inspection procedures and performance-testing 
techniques can also result in reduced life for components. Codes and 
standards exist to minimize the threat of a major safety-related 
failure. Industrial experience and increased knowledge of materials 
behavior can result in changes to these codes and standards that 
require removal of components from service earlier than anticipated by 
the designer. For example, in 1965 and again in 1991, the American 
Society of Mechanical Engineers reduced the allowable high-temperature 
stress levels for 11/4 Cr. 1/2 Mo steel (chrome-molybdenum, also known 
as T-11), which was commonly used in the waterwall, reheater, and 
superheater sections of a boiler. This significantly affected the 
assessment of remaining useful life for some of the boiler sections 
fabricated from this material. Similarly, the development of improved 
nondestructive examination techniques for boiler tubes and other 
components allowed sophisticated assessments of the remaining useful 
life of pressure parts to be conducted, which in turn allowed for 
planned replacements of wearing parts to be undertaken before a forced 
outage required emergency repairs.
Life of a Generating Unit
    Given the variations in the design life of individual unit 
components and systems, the life of a generating unit depends upon how 
a unit is operated, how well it is maintained, and other external 
factors. As a result, there is no preordained expected life of a 
generating unit. For TVA and other generating utilities, there are in 
fact two different concepts of expected life.
    First, there is the project planning life or accounting life. When 
a decision is made to put a new generating unit on line, a minimum 
expected lifetime is defined for accounting or planning purposes. In 
other words, for a project to be viable, it must be expected to perform 
long enough to generate sufficient revenues to provide a minimum 
targeted return on investment. In the case of for-profit entities, this 
minimum expected life or ``accounting life'' also establishes the 
depreciation schedule, an important parameter in the economic 
evaluation of a new project because of tax considerations. TVA 
periodically adjusts its depreciation schedules to reflect current 
estimates of a plant's remaining useful life. It is not unusual, 
however, for a generating plant to become fully depreciated yet remain 
in service.
    Second, generating units have a useful life, one that is based on a 
dynamic assessment of unit-specific internal and external factors to 
determine its continuing viability. Just as automobiles are not retired 
once the car loan is paid, generating units are not retired from 
service at the end of their accounting lives simply because they have 
been fully depreciated. Rather, they are retired when they no longer 
remain viable assets. This means that units are removed from service 
when either:
    The revenue they generate is inadequate to cover fixed plus 
variable operating costs and to provide sufficient return on investment 
in needed component restorations; or Technological advances provide the 
opportunity for an investment in new facilities to generate greater 
return on investment and lower cost of electricity than could be 
achieved through continued operation of the existing facility.
    Maintenance, repair, and replacement of unit components are 
necessary to achieve reliable and safe operation of a generating unit 
throughout this useful life. Since 1940, TVA has permanently shut down 
24 steam-driven electrical power plants. TVA acquired 23 of these 
plants from other power companies or from the government. One of the 24 
plants shut down was the Watts Bar coal-fired plant, the first steam 
plant designed and constructed by TVA. Many of the plants included in 
the acquisition of entire utility systems had internal combustion 
engines and were retired immediately upon their acquisition. Others 
were coal-fired plants of varying size and description that were shut 
down from 1941 to 1997 based on system needs and the relative economics 
of the individual plants.
    Review of this retirement history shows that retirements of coal-
fired units on the TVA system have been limited to small (kWh)
------------------------------------------------------------------------
Parksville.......................          250          575       21,000
Hales Bar........................          365          725       18,000
Watts Bar........................          865          900      11,400*
------------------------------------------------------------------------
*Design Value

    As demand grew on the TVA electrical system, substantially larger, 
more efficient generating units were added. The significantly lower 
production cost of these new units resulted in the older units being 
used less. This decrease in utilization led to the old unite' net 
annual revenue going negative (often, even net generation would go 
negative). Retirement of the old units typically followed soon 
thereafter.
    Table 2 was compiled based on information obtained from a review of 
TVA's Annual Reports to the President and Congress in 1957-1959. Table 
2 compares the average cost and capacity factor of the TVA-acquired 
units that were in service and the average figures for the TVA coal 
system overall. For example, in the late 1950's, the average cost of 
electric power generated by TVA's old, acquired units was about 4.4 to 
6.5 times the cost of electric power generated by TVA's new coal-fired 
units. The acquired units were all retired in the early to mid-1960's. 
(TVA retired the Parksville, Bowling Green, and Watauga units in 1960, 
the Nashville plant in 1962, Hales Bar in 1963, Memphis in 1965, and 
Wilson in 1966.)

                                 Table 2
            Financial Performance of JVA Coal Units 1957-1959
------------------------------------------------------------------------
                                       1957         1958         1959
------------------------------------------------------------------------
TVA Coal System--Average Cost ($/        2.773        2.898        2.793
 MWh)............................
Effective Capacity Factor (%)....       90.110       77.960       82.200
TVA-Acquired Units.--Average Cost       17.918       12.640       17.200
 ($/MWh).........................
Effective Capacity Factor (%)....        4.440        4.740        3.130
------------------------------------------------------------------------
* Generating units acquired by TVA from other power companies or from
  other government agencies from 1933 through 1950. Plants still active
  in 1957-1959 included Wilson, Nashville, Hales Bar, Parksville,
  Watauga, and Bowling Green.

    This retirement sequence demonstrates that neither the accounting 
age nor the actual age of units dictates when units are retired. TVA's 
1960 Annual Report indicated that the Nashville, Memphis, and 
Parksville units had reached the end of their accounting lives; that 
is, they were fully depreciated. Yet, the 1960 retirements included the 
Bowling Green and Watauga units but not the Nashville and Memphis 
units. Table 3 provides a summary of the age of some of these acquired 
facilities at the time of their retirements. Even in the 1950's and 
1960's, unit age at date of retirement ranged from just less than 30 to 
over 60 years, confirming that plant age was not the motivation behind 
retirement.

                                 Table 3
               Age of TVA Coal-Fired Plants at Retirement
------------------------------------------------------------------------
                                                 Retirement     Age at
                Generating Unit                     Date      Retirement
------------------------------------------------------------------------
Hopkinsville..................................         1954           41
Parksville....................................         1960           46
Bowling Green.................................         1960           28
Watauga.......................................         1960           38
Nashville.....................................         1962           61
Hales Bar.....................................         1964           40
Wilson........................................         1966           50
------------------------------------------------------------------------

    TVA's most recent plant to be shut down was the Watts Bar Steam 
Plant. This four-unit, combination wet-bottom/dry-bottom boiler plant 
was the first coal-fired plant actually built by TVA. The units began 
operation in 1942-45. In only one decade, the unite' operation was 
shifted from base-load to peaking mode following completion of the 
Kingston units in 1954-55. The technology of coal-fired generating 
stations had evolved considerably during this period because of 
increases in operating temperature and pressure and the addition of 
steam reheating to the thermodynamic steam cycle. As a result, the new 
Kingston units were approximately 20 percent more efficient than the 
Watts Bar units (design heat rates of 9,400 Btu/kWh compared to 11,400 
Btu/kWh at Watts Bar) and produced electricity at costs substantially 
lower than the Watts Bar units.
    The generation from Watts Bar continued to decline as other 
generating units were added to the TVA system until, as early as 1960, 
the net generation of the plant was negative--it consumed more 
electricity when it wasn't operating than it generated when it was 
operating. The units were effectively retired at ages ranging from 15 
to 18 years. However, Watts Bar's value as backup capacity exceeded the 
cost to maintain it as a viable generating asset, so it continued to be 
staffed and remained capable of operation. This changed in 1982 when an 
analysis indicated that, for the number of hours of expected operation, 
it would be more economical to generate the standby power from 
combustion turbines than to maintain full staffing and absorb the total 
fixed cost of the Watts Bar facility. As a result of this analysis, the 
plant was shut down and put into mothballed condition. Subsequently, in 
1997 Watts Bar was permanently shut down--55 years after going into 
service.
    Technological advances have continued to improve the efficiency and 
reduce the variable operating costs of new generating units. However, 
these more recent efficiency improvements have not approached the giant 
strides that were made in the 1950's and 1960's. Additionally, the 
economy-of-scale factor that allowed the fixed cost of the replacement 
capacity to be relatively small prior to 1970 is no longer relevant 
because there has been no increase in the size of generating units 
since the early 1970's. In fact, almost all of the new generating units 
added in the 1990's have capacities considerably smaller than those 
built in the late 1960's and early 1970's. Simply stated, the more 
recent limited improvements in unit operating efficiencies are not 
sufficient economically to justify the replacement of existing units, 
especially when the public's demand for electricity has continued to 
increase.
    1 Refer to the care study on reheater replacement on p. 28 of this 
report for additional details.
Service Mandates
    The TVA Act requires TVA to provide an ample supply of electric 
power to aid in discharging its congressionally mandated responsibility 
for the advancement of national defense and the physical, social, and 
economic development of the TVA region. The TVA Act also requires TVA 
to provide power at the lowest feasible rates, which in turn requires 
that TVA generate power at the lowest feasible cost.
    Maintaining generating units to ensure they are available to 
generate when needed is a critical element of any program to ensure 
reliability of supply. Maintenance activities are also necessary to 
reduce costs. If generating are not reliable, more capacity must be 
installed (or obtained from some other power supplier) to ensure that 
total energy needs are met. Furthermore, if the lowest cost coal-fired 
units are not fully available when needed, energy needs must be met 
from generating units with higher production costs.
    As a member of the North American Electric Reliability Council \2\ 
(NERC), TVA is also obligated to help preserve the reliability of the 
national electricity transmission and distribution grid. NERC's 
Operating Policy 1, Section C, defines the responses required of 
participating utilities in order to maintain acceptable frequencies at 
the transmission interfaces between entities. Upsets such as loss of a 
major generating unit on another utility's system can require TVA to 
activate its standby generation facilities or start idle ones. In 
addition to having an obligation to respond reliably to such events, 
TVA must minimize the number of events that are initiated on its 
system. Reliable generation and the ability to control the times when 
generating units operate or are shut down are crucial to fulfilling 
this obligation.
---------------------------------------------------------------------------
    \2\ NERC is a not-for-profit organization responsible for promoting 
the reliability of the electric supply for North America. This mission 
is accomplished by working with all segments of the electric industry 
as well as customers. Electric utilities formed NERC in 1968 to 
coordinate efforts to avoid blackouts such as the November 1965 event 
that left 30 million prople without power in the northeast USA and 
Ontario, Canada. NERC reviews the past for lessons learned and monitors 
the present for member compliance with published policies, standards, 
principles, and guides. NERC assesses the future reliability of the 
bulk electric systems in North America. NERC's owners are ten regional 
councils whose members come from all segments of the electric 
industry--investor-owned Federal State/municipal and provincial 
utilities electric cooperatives, independent power producers, power 
marketers and electricity customers. TVA is a member of Southeastern 
Electric Reliability Council (SERC). NERC governance is by a board of 
trustees comprised of 47 electric industry executives. TVA has 
representation on the board of trustees. Operating guides and policies 
are developed and revised by committees comprised of members from the 
ten councils. Guides and policies are approved at various levels and 
ultimately by the board of trustees (Information from NERC's Web site 
January 2000--http://www.nerc.com)
---------------------------------------------------------------------------
    In addition, TVA must operate its generating units and transmission 
assets in a manner that fully protects the health and well-being of its 
employees. As a result, TVA strives to promptly correct conditions that 
might lead to an unsafe or unhealthy working environment.
    Other companies that own and operate electricity-generating 
facilities for profit have also long been under a legal duty to 
maintain and to operate their facilities in a manner that ensures a 
safe, efficient, and reliable supply of electricity to their consumers. 
This legal duty is described in the utilities' compacts with their 
public service or public utilities commissions (PUCs). Activities aimed 
at improving or maintaining the reliability and efficiency of 
generating facilities are also subject to public scrutiny through 
reports to State PUCs, to the Federal Energy Regulatory Commission 
(FERC), and to the Energy Information Administration (EIA) within the 
U.S. Department of Energy.
Theory of Maintenance
    To fulfill their respective obligations to serve, TVA and the rest 
of the electric utility industry have developed a very simple 
maintenance philosophy--maintain the reliability of generating units in 
a way that preserves the value of the asset and minimizes the cost of 
electricity. For some maintenance activities, this simple statement is 
equally simple to implement. However, for other activities, determining 
the appropriate approach may involve more complicated engineering and 
economic evaluations. Furthermore, the conclusions that are reached 
today may not be valid at some future date because of changes in the 
technology or economic circumstances.
    Under this maintenance philosophy, routine maintenance of 
components of a generating unit generally falls into three categories. 
It can be proactive, reactive, or predictive.
    Proactive Utilities routinely change lubricants, clean lubricants, 
replace gaskets, repack pump seals, etc., based on fixed calendar 
schedules or hours of service--regardless of the condition of the 
equipment. Typically, major overhauls of equipment have also been 
performed on a predetermined schedule based on manufacturers' 
recommendations or utility experience. Improvements in monitoring and 
diagnostic capabilities in recent years have enabled plant operators to 
reduce the level of this proactive maintenance in favor of the more 
cost-effective ``condition based'' or predictive maintenance.
    Reactive Reactive maintenance is routinely performed when 
components or systems fail or experience performance degradation. This 
may entail replacement of components with identical parts, replacement 
with components with improved design or materials, replacement followed 
by changes in operating procedures, or replacement of an entire 
assembly or system that includes the failed component. The actions 
taken following a failure are determined by an economic evaluation that 
includes consideration of the immediate needs of the generating system, 
impact of the failure on unit operation, the frequency of the failure, 
and the availability of alternative solutions designed to prevent 
similar failures in the future.
    When a failure results in loss of generating capability of a unit, 
either partial or total, the economics normally dictate choosing a 
maintenance solution that minimizes lost generation. This sometimes 
results in an immediate response to restore unit capability followed by 
a later action to avoid future failures. For example, consider the case 
of a tube failure in the reheat section of a steam generator.
    If the damage is isolated to a single tube, that area of the tube 
is cut out and replaced, and the unit is returned to service. If there 
is visible collateral damage or if it is clear from initial analysis 
and review of operating history that other tubes in close proximity to 
the failure have been exposed to similar conditions that would make 
their early failure likely, a larger number of tubes may be replaced 
before the unit is returned to service. In this case, reactive 
maintenance is augmented by a proactive component replacement in order 
to avoid future failures that would result in loss of generation or 
create safety risks.
    If it is determined that the root cause of a failure is a condition 
that has exposed all or a large number of the reheater tubes to 
increased risk of failure, the economic analysis may indicate that 
replacement of the entire reheater is needed to maintain unit 
reliability and safety and that replacement is the most cost-effective 
approach to maintaining system reliability. Such a condition might 
result from identification of a design or materials deficiency, 
operational errors such as temperature or water-quality excursions, or 
changes in the condition of service such as might result from 
unexpected changes in fuel combustion characteristics due to variation 
of properties within a coal seam. The economic analysis would indicate 
that the loss of generation and wear and tear on the unit resulting 
from anticipated failures and shutdowns justify the investment needed 
to replace the reheater.
    Reactive maintenance can also be initiated by discovery of 
conditions that will lead to component failure if not corrected. If 
evidence of damage is found during inspections, a similar economic 
analysis is performed to determine the appropriate response. When the 
condition is detected prior to failure, however, repair of the 
component may also be a viable option. For example, discovery of 
cavitation damage at the suction of a pump could lead to weld repair of 
the pump impeller, replacement of the impeller, replacement of the 
impeller with improved materials, reconfiguration of the suction 
piping, or changes to the system upstream of the pump. The selected 
course of action would depend upon the costs of the alternative 
solutions and the benefits each solution would provide to system 
reliability.
    Predictive As technology has advanced, so have the maintenance 
tools used by the electric utility industry. Advances in equipment-
monitoring capability and analytical techniques now achieve many of the 
benefits of proactive maintenance while avoiding the costs of 
inspecting and overhauling equipment that is operating well and poses 
no current threat to unit reliability or employee safety. Predictive 
capability also allows threatening conditions to be discovered and 
mitigated prior to failure, thus avoiding the cost of lost generation, 
wear and tear on equipment that occur during the shutdowns and startups 
that accompany failures, and safety risks associated with a failure.
    Examples of predictive or condition-based maintenance are 
plentiful. Deterioration of a piece of rotating equipment can now be 
discovered by spectral analysis long before vibration reaches levels 
that would have been detectable with originally installed equipment. 
Portable vibration-monitoring equipment allows this analysis technique 
to be extended to components that have never previously been equipped 
with any type of vibration-monitoring equipment. Evaluation of 
metallurgical samples now enables the condition of tubing or other 
structural members to be determined and the remaining service life of 
the component to be predicted with increased precision. This allows the 
replacement of components before failure while fully utilizing the life 
of the component. Modern computational fluid dynamics capabilities 
allow the prediction of corrosive conditions within boilers that may 
result from installation of low-NOx burners. This enables localized 
mitigation techniques such as protective cladding to be applied.
Timing of Maintenance Activities
    The economic evaluation of maintenance activities at a generating 
unit is dependent upon a total generating system optimization that 
assigns a role and set of operating objectives to each individual unit. 
Unit roles and objectives change because of independent factors that 
include changes in fuel costs, overall economic conditions, and the 
condition of other units in the operating system. As a unit's role 
changes, the maintenance practice for that unit may also change.
    For example, a unit operating as a ``swing'' or load-following unit 
affords more opportunities to patch or replace failed components one at 
a time without severely impacting systemwide reliability because system 
load demand does not require that the unit be operated continuously. 
(It should be noted that this swing mode of operation might, in fact, 
create more opportunities for failure because of the thermal, 
mechanical, and electrical cycling of equipment and systems.) However, 
conditions on the operating system (such as loss of another generating 
unit for an extended period of time) can quickly change the role of the 
unit to base-load operation. Because a base-load unit is expected to 
operate continuously, opportunities for failure-driven maintenance are 
less frequent and certainly more costly. Proactive replacement of a 
complete assembly of components that have failure potential, rather 
than reactive replacement of individual components, may become 
economically justified with the increase in production rate or hours of 
operation.
    Many of TVA's coal-fired units experienced a major change of roles 
in the mid-1980's when TVA decided to shut down all operating nuclear 
units for an extended period because of safety concerns. The 
reliability of the coal-fired units during this period became critical 
to meeting system demand and fulfilling TVA's mission and obligation to 
serve.
    Decisions to repair or replace and the scope of the repair or 
replacement are not based only on assessments of the least-cost 
approach to maintaining the requisite reliability of TVA's generating 
and transmission system. The evaluations of options at a generating 
unit must also include consideration of the condition of the rest of 
the electrical system and the general economy as well as the safety of 
TVA employees.
    Technologically Superior Replacement It has been the common 
practice within TVA and the utility industry for decades to replace 
components and systems with state-of-the-art equipment that is often 
more reliable or more efficient than the original, sometimes obsolete, 
component. It is also typical for maintenance activities to include 
improved maintenance and operational practices that respond to 
conditions experienced during actual operation of the unit. The 
following discussion lists specific examples of these practices on the 
TVA system.
Replacements with improved design or materials
      Boiler feedpump recirculation valves for supercritical 
units underwent a complete evolution of materials and design and were 
replaced numerous times on many units.
      Cooling tower fill was replaced with fill systems that 
had better structural and thermal properties and/or eliminated asbestos 
materials.
      Metallic expansion joints were replaced with more durable 
fabric joints.
      Insulation of generator stator bars was upgraded because 
of continuing failures of the originally supplied design.
      Steam turbine blade shape and materials of construction 
have been improved with resultant increases in thermodynamic efficiency 
and reliability.
      Feedwater heaters have been completely retubed with new 
materials that have improved the reliability of the heaters with 
resultant increases in thermal efficiency of the generating units.
      Analog control systems have been replaced with digital 
systems that provide increased control flexibility and accuracy and 
improved reliability.

    Improved maintenance tools or operational practices:

      Continuous-cleaning systems for condenser tubes have 
increased efficiency through improved heat transfer capability and 
increased reliability by eliminating the need for unit outages or 
short-term load reductions to manually clean tubes.
      Vibration-monitoring systems with expanded capability 
have provided increased analytical capability and have increased the 
number of pieces of rotating equipment that can be monitored. This has 
resulted in improved reliability by making maintenance programs more 
effective and avoiding forced outages. Continuous-emissions-monitoring 
equipment has been added to improve combustion controls and overall 
thermal efficiency. Continuous-cleaning and filtration systems have 
been added to lubricating oil systems of turbine generators and other 
large rotating equipment to improve bearing life and decrease bearing-
related forced outages.
      More recently, artificial intelligence control systems 
have been added to continuously optimize unit efficiency while 
minimizing pollutant emissions.
TVA Historical Practices
    The overall maintenance philosophy described above has been in 
place at TVA for many years. This philosophy is reflected in a report 
presented to the American Power Conference in 1972, ``TVA's Power Plant 
Maintenance Program'' by T.H. Gladney and H.S. Fox. At the time of that 
report, TVA's oldest coal-fired plant had been in service just over 20 
years. Many of the units were less than 10 years old. The report 
clearly stated TVA's approach to maintenance:
    In an effort to maintain unit reliability, major replacement or 
rehabilitation in areas where excessive tale failures occur is made 
after an evaluation based on loss of generation, cost of repairs, and 
damage to the and from frequent startups and shutdowns indicates it is 
justified.
    Examples of the types of routine maintenance activities and 
projects that were identified in the report after less than 20 years of 
operation include the following.
      In one family of 14 similar turbines, 3 high-pressure 
spindles had to be replaced because of creep-rupture cracking.
      Another high-pressure spindle was replaced and two 
intermediate-pressure spindles were on order following discovery of 
unacceptable cracks in the rotor bore.
      Steam chests were replaced on two 700 MW units after only 
8 years of operation.
      Four generators required complete stator rewinding with 
upgraded insulation material, and 42 percent of the total generator 
fleet required partial replacement of bars.
      Although the projects had not yet been implemented, the 
decision had been made to pressurize the penthouse on all pressurized 
furnaces.
      Most crotch tubes, reentrant throat tubes, wrapper tubes, 
and face tubes had been replaced at least once on all cyclones of two 
700 MW units, and it was thought that replacement of all cyclone tubes 
would be required within 3 to 5 years. (See Paradise Unit 1 Cyclone 
Replacement Case Study later in this report.)
      Of 41 low-pressure heaters using admiralty tubing, 14 had 
been retubed using better quality copper-nickel material and all others 
were anticipated to require retubing in the near future.
      Stainless steel tubes were removed, heat-treated, and 
reinstalled in the superheater and reheater sections of 11 steam 
generators.
      The return bends in all reheater pendant elements of two 
steam generators were redesigned and replaced.
    These maintenance activities left the basic design of the steam/
heat cycle and the maximum heat input to the furnace unchanged. Within 
these overall design constraints, however, all of these maintenance 
activities were intended to improve the reliability or efficiency of 
the generating units.
Case Studies
    The same TVA maintenance philosophy has been consistently applied 
since the Gladney-Fox report. Four case histories of maintenance 
projects are presented below. Each case presents a discussion of the 
component, its function, and its conditions of service; the relevant 
operational history of the component; alternatives considered; and the 
rationale behind the maintenance decision. This specific case is then 
extended to analyze the history of replacements of the component on 
both the entire TVA coal-fired system and a larger data set that 
represents either the entire electric utility industry or a large 
segment of the industry.
Cyclone Furnace Replacement
            Cyclone Background
    As related in Steam: Its Generation and Use, \3\ cyclone-fired 
boilers were developed by Babcock and Wilcox (B&W) to burn coals with 
low ash-melting (fusion) temperatures that are not well suited for 
pulverized-coal (PC) combustion. The ash from these coals would enter 
the superheater of a PC unit in a molten state and create severe 
slagging and fouling problems. The ``cyclone'' design developed by B&W 
addressed this problem by deliberately melting as much ash as possible 
and draining it from the bottom of the furnace. This kept molten slag 
out of the superheater and substantially reduced the total amount of 
ash that was transported out of the boiler with the flue gas (fly ash). 
The cyclone design also had these collateral benefits:
---------------------------------------------------------------------------
    \3\ Babcock and Wilcox, Storm: Its Generation and Use, 40th 
edition, 1992, pp 14-1-14-11
---------------------------------------------------------------------------
      Eliminated the need for high-cost and high-maintenance 
pulverizers.
      Resulted in overall smaller furnaces (with the associated 
reductions in powerhouse dimensions).
      Required smaller particulate collection equipment due to 
reduced fly ash loading.
      Opened the market to a range of fuels that were not 
usable with pulverized-coal firing.
    The design objective was accomplished by creating a zone where 
combustion takes place outside the main furnace. The hot flue gas and 
molten slag then discharges into the main furnace, with the gas being 
cooled and discharged from the top of the furnace while the molten slag 
is kept at elevated temperatures and is drained through the main 
furnace bottom. This allows very high temperatures to be maintained in 
the combustion zone while the majority of the evaporative heat transfer 
occurs in the main furnace.
    These combustion zones or ``cyclones'' are horizontally oriented, 
cylindrical barrels that attach to the sides of the main furnace. 
Cyclones range from 6 feet to 10 feet in diameter. As few as 1 or as 
many as 23 of these cyclones are attached to the main furnace of 
different units. The term ``cyclone furnace'' is used to describe both 
the individual cyclones and the total furnace assembly of a cyclone-
fired unit. The cyclones are a water-cooled, tangent tube construction, 
but a thick layer of refractory lining is used to protect the tubing 
material while allowing the sustained high temperatures (greater than 
3000F) needed to consistently melt the ash. BOW describes the operation 
of cyclones as follows:

    Crushed coal and some air . . . enter the front of the Cyclone 
through specially designed burners in thefrontwall of the Cyclone. In 
the main Cyclone barrel a swirling motion is created by the tangential 
addition of the secondary air in the upper Cyclone barrel wall. A 
unique combustion pattern and circulating gas-flow structure result. . 
. . The products of combustion eventually leave the Cyclone furnace 
through the re-entrant throat. A molten slag layer develops and coats 
the inside surface of the Cyclone barrel. The slag drains to the bottom 
of the Cyclone and is discharged through the slag tap. \4\
---------------------------------------------------------------------------
    \4\ Babcock and Wilcox, Steam: Its Generation and Use, 40th 
edition, 1992, p. 141.

    While cyclones achieved their design objectives, they also 
presented some difficult problems. The introduction of crushed coal and 
air at high velocities resulted in erosion problems, particularly in 
areas of the cyclone that do not form a protective slag layer. The hot, 
molten slag environment also introduced high risk for corrosion damage 
to the water-cooled tubes. Generally, the refractory material would 
protect the tubing. However, in areas where refractory eroded, cracked, 
or otherwise was removed from the tubing, the tubing's exterior 
surfaces would be subjected to the corrosive matter (such as iron 
sulfide) and rapidly lose metal thickness and strength. As a result, 
cyclones were plagued by tube failures that resulted in forced outages 
and decreased reliability. In the face of these cyclone failures, B&W 
developed rehabilitative repair and replacement strategies, such as 
welding flat steel stock onto tube surfaces in areas of high erosion 
potential and using a high-density pin-studding pattern to better hold 
refractory in place.
Paradise Unit 1 Case Study
    Unit 1 of the Paradise Fossil Plant (located on the Green River in 
Muhlenberg County, Kentucky) is a 700 MW (nominal) cyclone-fired unit 
that was put into service in 1963. It has 14 ten-foot diameter 
cyclones--7 on each of the front and rear walls. Its boiler produces 
steam at 2450 psi'', 1003F. Within its first year of commercial 
operation, the unit began experiencing failures of cyclone tubes. These 
failures increased in frequency such that by the time of the Gladney 
and Fox report in 1972, most of the crotch tubes, reentrant throat 
tubes, wrapper tubes, and face tubes had been replaced at least once. 
It was projected at that time that replacement of all cyclone tubes 
would be mandatory within 3 to 5 years, but this anticipated wholesale 
replacement was delayed by a manpower-intensive program of frequent, 
proactive, tube replacements. This piecemeal replacement of the tubes 
continued through 1982; however, during this period the cyclones 
continued to exhibit failures that resulted in decreasing reliability, 
wear and tear on equipment, and labor and materials charges. The 
increase in unit forced outages from 1962 is shown in Figure 1. (The 
peak forced-outage rate experienced in 1979 was the result of a single 
turbine casing failure that resulted in a forced outage of 
approximately 1350 hours and contributed 20.5 percent to the 42.5 
percent forced-outage rate for the year. Without this single event, the 
forced-outage rate for 1979 would have been about 22 percent--
consistent with the trend at the time but still unacceptably high.)

    The contributions to forced outages for calendar year 1982 are 
analyzed in Table 4 below. These data show that cyclone failures were 
the principal cause of the unit's degraded performance.

                                                     Table 4
                               Paradise 1--1982 Forced Outage Rate (FOR) Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                                      Estimated
                                                                  Forced                            Differential
                       Description                        No. of  Outage    MWH Loss    Contr. To       Power
                                                          Events   Hours                 Unit FOR    Replacement
                                                                                                        Cost
----------------------------------------------------------------------------------------------------------------
Cyclone Tube Leaks......................................      10     882       516118        15.50     4,077,000
Waterwalls..............................................       2     158        98052         2.95       775,000
Condenser Shell.........................................       1     158        10839         0.33        86,000
Wet Coal................................................       2      11         6881         0.21        54,000
Main Turbine Control Valve..............................       2       5         2903         0.09        23,000
Main Turbine Shop Valve.................................       1       2         1002         0.03         8,000
Boiler Feedpump Turbine.................................       1       1          744         0.02         6,000
    Total...............................................      19    1026       636539        19.12     5,029,000
----------------------------------------------------------------------------------------------------------------

    In addition to decreasing reliability and increasing costs, cyclone 
repairs were becoming increasingly manpower-intensive. Although there 
were only ten forced-outage events attributed to cyclones during 
calendar year 1982, there were 213 tube leaks (and 168 leaks in 1981). 
Each of these leaks required maintenance attention.
    As discussed above, when equipment experiences repeated failures 
that adversely impact performance, it is TVA's practice to undertake a 
structured analysis of various alternatives to correct the problem. The 
maintenance decision involves a choice between:

      Repair or replacement of individual components (reactive 
maintenance);
      Replacement of other components that have also 
experienced conditions that could affect future performance (proactive 
maintenance); and
      Incorporation of improved materials or design elements 
that might help address the causes of equipment degradation in the 
future.

    TVA evaluated three primary options to address this unacceptable 
situation.

    1. Do nothing--Make no proactive tube replacements. Take only those 
measures necessary to return the unit to service after cyclone tube 
failures.
    2. Status quo--Continue with the past program of proactive 
replacement of damaged or high-risk tubes.
    3. Replacement--Replace all cyclones in a single scheduled outage, 
incorporating advances in materials and design developed by BOW based 
on lessons learned in service.

    TVA knew that there were similar cyclone problems at other 
utilities and that other utilities had replaced cyclones as part of 
their maintenance programs. The TVA analysis considered the results 
that had been achieved or projected by other utilities with similar 
large boilers. The results achieved by these utilities are shown in 
Table 5 below.

                                 Table 5
                  Results of Prior Cyclone Replacements
------------------------------------------------------------------------
                                      Unit 1       Unit 2       Unit 3
------------------------------------------------------------------------
Availability Before..............          60%          59%          50%
1Availability After..............          82%          78%         75%*
FOR** Before.....................        24.5%          29%          35%
FOR After........................        6.58%          13%         12%*
------------------------------------------------------------------------
* Projected results--projects were being implemented at time of economic
  evaluation.
** FOR--Forced Outage Rate.

    Based on TVA's experience to that time, complete inspection and 
evaluation of the condition of the cyclones, and the results of similar 
replacement projects performed by others, TVA projected the future 
performance of the unit for all three options as shown in Figure 2.

    Using these projections for future performance, the expected cost 
of the three options, and projected differential costs for replacement 
power, the economic analyses Droduced the results shown in Table 6.

                                1Table 6
             Paradise 1 Cyclone Options Economic Evaluation
------------------------------------------------------------------------
                                                  Low-Load    High-Load
                                                 Forecast*    Forecast*
------------------------------------------------------------------------
      Present Worth Savings ($ million):
Alternative 2 vs. Alternative 1...............        -2.70         5.90
Alternative 3 vs. Alternative 1...............        15.90        45.30
              Benefit/Cost Ratio:
Alternative 2 vs. Alternative 1...............         0.75         1.58
Alternative 3 vs. Alternative 1...............         2.11         5.12
------------------------------------------------------------------------
* TVA typically projects a range for future energy demands on its
  system: low-, medium-, and high-load forecasts. This table shows the
  range of cost estimates based on the low- and high-load forecasts at
  that time.

    As Table 6 shows, Alternative 3 (full replacement during a 
scheduled outage) was the best alternative, maximizing both the savings 
and the benefit/cost ratio for both the low- and high-load forecasts. 
TVA chose Alternative 3 and implemented the project in 1984.
Experience on the TVA System
    TVA operates six cyclone-fired units, three each at the Allen and 
Paradise Fossil Plants. In total, the Allen units have 21 seven-foot 
diameter cyclones and the Paradise units have 51 ten-foot diameter 
cyclones. All the cyclones have experienced the erosion and corrosion 
problems discussed above and, like Paradise Unit 1, all the originally 
supplied cyclones have been replaced. Figure 3 depicts the replacement 
history for these cyclones since 1978. The major tubing replacements 
refer to replacement of reentrant throat tubes at the Allen Fossil 
Plant. (Note that the replacements during the proactive, partial tube 
replacement effort are not included in Figure 3. That effort, which was 
performed at all TVA cyclones, is discussed above in the case study for 
Paradise Unit 1.)

    Other Industry Experience \5\
---------------------------------------------------------------------------
    \5\ Throughout this report, TVA experience is also included in the 
analysis of industry experience.
---------------------------------------------------------------------------
    The TVA experience with operating and maintaining cyclones is not 
unique. Virtually all cyclone owners have encountered the same problems 
with varying degrees of severity. There are 96 electricity-generating 
stations in the United States, (totaling 26,152 MW of capacity) powered 
by cyclone-fired furnaces. These units contain 701 individual cyclones. 
At these units, 300 cyclones (representing 13,981 MW of capacity) have 
been replaced since 1979. Industrywide data on partial replacements 
were not available for this report. Figures 4 and 5 show the number of 
cyclones replaced and the associated capacity as a function of cyclone 
age. The median age of the replaced cyclones was 21 years, while the 
mean age of those cyclones was 23.1 years.
    Of these 300 replacement cyclones, only 13 cyclones (representing a 
total capacity of 569 MW) were replaced with identical cyclones. All 
other replacements included some improvement based on the B&W 
rehabilitative repair and replacement strategies (discussed in the 
background above) or similar measures.

    It is apparent from the TVA case study and the analysis of 
industrywide maintenance history and practices that full replacement of 
cyclones has occurred frequently throughout the industry. It is also 
apparent that cyclones have been replaced on units of varying ages, 
confirming that many variables affect the actual condition and 
performance of boiler components. Full replacement of cyclones to 
correct problems created by corrosion and erosion of materials has 
occurred frequently and routinely throughout the utility industry.

Balanced-Draft Conversion

            Balanced-Draft Background

    In the 1950's, boiler designers began to employ a new design 
concept for large utility boilers--pressurized furnace operation. Prior 
to this design, the furnaces of all utility pulverized-coal-fired 
boilers had operated under a slight vacuum (negative pressure). The 
majority of these negative-pressure furnaces operated in a ``balanced 
draft'' mode. That is, they were equipped with a forced-draft fan that 
supplied the combustion air to the furnace and an induced-draft fan 
that mechanically drew the combustion gasses out of the furnace and 
expelled them through the chimney. Some smaller units were equipped 
with only an induced-draft fan, while some had no fans at all, using 
the draft effect of the chimney to draw air into the boiler and 
evacuate the combustion products.
    There were several recognized incentives to move to pressurized 
firing. Operation with a negative-pressure furnace introduces some 
inefficiency caused by the unavoidable in-leakage of air not needed for 
combustion. This extra air requires additional motive power from the 
induced-draft fans and increases thermal losses because the total mass 
of hot gas lost from the system through the chimneys is increased. 
Keeping the furnace, the convective sections of the boiler, and the 
duct to the chimney under positive pressure eliminates this 
inefficiency. In addition, elimination of the induced-draft fan lowers 
the initial cost of the draft system and subsequent operation and 
maintenance costs.
    The early installations with this forced-draft system design were 
initially successful and were soon followed by construction of other 
small, pressurized firing units. Pressurized firing was increasingly 
used in the industry by the mid to late 1950's and was widely accepted 
by the mid-1960's. (Of 284 boilers sold from 1955 to 1965 by Babcock 
and Wilcox and Combustion Engineering, the two largest boiler suppliers 
in the United States, 127 were pressurized. Of 185 sold from 1966 to 
1975, 76 were pressurized.)
    Although the pressurized furnaces were gaining in popularity during 
this period, certain shortcomings in the concept began to be 
manifested. Leakage of air into the furnace was replaced by leakage of 
combustion products out of the furnace. These combustion products, 
laden with fly ash and high concentrations of SO2 and other 
corrosive gasses, caused several unacceptable conditions that called 
for a maintenance response:

      Infiltration of corrosive gasses and fly ash into the 
penthouses above the furnaces resulted in accelerated corrosion and 
structural failures.
      The employee work environment deteriorated because of 
exposure to high concentrations of combustion byproducts.
      Corrosion of components in the powerhouse near the 
boilers increased.
      Rotating machinery was exposed to increased levels of 
damaging particulate matter.
      Component performance was degraded because accessibility 
to the components was reduced, impeding performance of maintenance.

    As a result, no pressurized Babcock and Wilcox units and only two 
pressurized Combustion Engineering units were sold after 1975 (none 
after 1977), and many utilities began to replace their forced-draft 
systems with balanced-draft systems to address equipment degradation 
and related health and safety problems. Some of the replacements were 
undertaken for economic reasons based on loss of reliability caused by 
component failure and inability to perform required maintenance. 
However, the primary reason for many of the replacements, including 
those on the TVA system, was improvement of the operating environment 
for plant personnel-- employee health and safety.
    The trend back to balanced-draft systems was accelerated by the 
addition of control equipment to meet air-quality regulatory 
requirements. The new control equipment added resistance (pressure 
drop) to the flow of the flue gas. Often, this added resistance could 
not be overcome by the existing draft system. Thus, when a utility 
considered the addition of control equipment, one of the options 
considered to enhance the draft system to accommodate the added 
pressure drop was replacement with a balanced-draft system. This was 
often the preferred option because it both accommodated the added 
pressure drop and resolved other operational, maintenance, and safety 
concerns, as discussed above. A TVA survey of 79 balanced-draft 
conversions indicates that 68 were done either out of concerns for 
employee health and safety or in conjunction with the addition of 
pollution-control equipment.

Cumberland Unit 1 Case Study

    Unit 1 of the Cumberland Fossil Plant (located on the Cumberland 
River in Stewart County, Tennessee) is a 1300 MW (nominal) opposed-
wall, pulverized-coal-fired unit that was put into service in 1973. It 
produces steam at 3650 psi'', 10030F. The unit was not yet in service 
at the time Gladney and Fox reported in 1972 that the decision had been 
made to pressurize the penthouse on all pressurized units. This 
decision was made in an effort to mitigate the severe maintenance and 
safety problems that had been encountered on the six other TVA units 
that had been operating with pressurized furnaces.
    Very early in the life of the Cumberland unit, it was apparent that 
state-of-the-art efforts to reduce gas leakage were inadequate. (These 
efforts included the redesign of tubing penetrations, sootblower 
penetration seals, expansion joints, and other design details aimed at 
reducing the tearing of ductwork and other pressure boundaries during 
boiler startups and shutdowns.) The environment inside the powerhouse 
when the unit was operating was intolerable--especially at upper 
elevations near the boiler bay. It was determined that the 
SO2 concentrations inside the powerhouse exceeded the levels 
allowed for safe industrial occupancy.
    Cumberland also was unable to consistently attain the reliability 
that is normally expected of a new generating unit. While this was due 
to a number of reasons, TVA determined that the hostile environment 
caused by the leakage from the pressurized furnace was a major 
contributor to the unit's poor initial performance, which is depicted 
in Figure 6.

    Accordingly, TVA decided to replace the pressurized firing system 
with a balanced-draft system in conjunction with its decision to add 
new, high-efficiency electrostatic precipitators to the unit for 
particulate control. In this instance, a rigorous economic evaluation 
justifying the decision was not made; providing a safer work 
environment for employees was deemed a major priority. The 
authorization document for the conversion states:
    . . . (G)as leakage from the boilers has resulted in sulfur dioxide 
and fly ash problems in the plant. Sulfur dioxide concentrations exceed 
the recognized national standard established to limit employee exposure 
and also prohibit adequate equipment maintenance and increase unit 
deratings. Also, the entrained fly ash infiltrates plant equipment, 
resulting in premature failures and further deratings. The addition of 
induced-draft fans and conversion to balanced-draft firing will 
eliminate these problems.
    . . . The addition of induced-draft fans and conversion to 
balanced-draft firing will bring the two Cumberland units into 
compliance with TVA Code VIII HAZARD CONTROL and consistent with the 
Occupational Safety and Health Act of 1970. The cost of converting 
these units to balanced-draft is estimated to be $41 million; this cost 
will be partially offset by the potential saving of reduced deratings 
and unit trips and by reduced plant maintenance. \6\
---------------------------------------------------------------------------
    \6\ Tennesssee Valley Authority Project Authorization, Serial No. 
3384, September 29, 1978.
---------------------------------------------------------------------------
    The project was approved in 1978 and implemented in 1981.

Experience on the TVA System

    Eleven of TVA's 59 operating units, totaling over 7,100 MW, were 
initially constructed and operated with pressurized furnaces. This 
included all units that went into service between 1962 and 1973. Today 
only one of these units, the 900 MW Bull Run unit, remains in 
pressurized operation.
    Bull Run is unique among the TVA pressurized units in that it has 
historically burned coal with a much lower sulfur concentration. (The 
lower sulfur content reduces the corrosiveness and SO2 
concentration of gasses that may leak into the powerhouse.) Bull Run 
has experienced many of the adverse conditions associated with 
pressurized firing. However, the twin-furnace, membrane-wall 
construction of the unit combined with its continuous operation as a 
base-load unit burning low-sulfur coal has allowed plant staff to 
maintain a safe working environment while balancing the impact of 
reduced reliability and other economic penalties associated with 
pressurized units. The penthouse at Bull Run was pressurized in 1972.
    Similar to the Cumberland project, other forced-draft system 
replacement projects on the TVA system were performed in conjunction 
with addition of environmental control equipment. Table 7 summarizes 
the history of TVA balanced-draft conversions.

                                                     Table 7
                                Draft System Replacements of JVA Coal-Fired Units
----------------------------------------------------------------------------------------------------------------
                                                                                        Date of
                                                                   Size,    Date of      Draft       Concurrent
                              Unit                                   MW     Initial      System    Environmental
                                                                           Operation  Replacement     Control
----------------------------------------------------------------------------------------------------------------
Allen 1.........................................................      330      1959        1991          None
Allen 2.........................................................      330      1959        1993          None
Allen 3.........................................................      330      1959        1993          None
Colbert 5.......................................................      500      1965        1981          None
Cumberland 1....................................................     1300      1973        1981           ESP
Cumberland 2....................................................     1300      1973        1982           ESP
Paradise 1......................................................      700      1963        1983           FGD
Paradise 2......................................................      700      1963        1983           FGD
Paradise 3......................................................     1150      1970        1983          ESP*
Widow's Creek 8.................................................      500      1965        1977           FGD
----------------------------------------------------------------------------------------------------------------
* Paradise 3 replacement of forced draft system was delayed one outage cycle by delays in delivery of induced
  draft fans.

Other Industry Experience

    There are no readily accessible data that identify industrywide 
pressurized furnaces and those where a forced-draft system was replaced 
with a balanced-draft system. However, TVA was able to obtain data from 
a large sample of U.S. utilities that own a significant number of coal-
fired generators. This data set includes 19 utilities that operate 
166,000 MW of fossil generation. These utilities collectively own 151 
boilers that were purchased and initially operated with pressurized 
furnaces. Within a 15-year period beginning in 1972, utilities replaced 
forced-draft systems with balanced-draft systems on 73 of these units. 
(Six other units were converted between 1991 and 1995 for a total of 79 
conversions representing 52 percent of the sample population.) Draft 
system replacement did not alter these unite' treat input capacity or 
steam flow but in most instances reduced the net electrical output 
because of increased auxiliary electrical loads for the induced-draft 
fans. The ages of the units at the time of the conversions are shown in 
Figure 7.

    These data show that replacement of forced-draft systems with 
balanced-draft systems in order to address equipment degradation, 
maintenance problems, health and safety concerns, and pollution control 
requirements has occurred frequently in the utility industry. The data 
show that these draft system replacements occurred regardless of the 
age of the unit, with age at conversion ranging from 4 to 36 years. On 
the TVA system, conversions to balanced-draft were justified primarily 
because of the need to improve working environments for employees. 
Improvement in unit reliability was an important collateral benefit. 
Balanced-draft conversions have occurred frequently and routinely in 
the utility industry.

Reheater Replacement

            Reheater Background

    Modern coal-fired power plants operate on cycles based on the 
regenerative Rankine cycle. In this cycle the boiler feedwater is 
converted to superheated steam in the boiler and used to drive a 
turbine-generator for electrical energy production. The steam is then 
condensed to liquid water to allow it to be pumped back to the boiler. 
The water is then heated using heat exchangers and returned to the 
boiler again as the boiler feedwater (thus being a regenerative cycle). 
In efforts to increase the plant thermal efficiencies (that is, reduce 
the amount of coal required to be burned for a specified output of 
electric power), the cycle was first improved to use superheated steam 
and then further improved with the addition of the reheat circuit. This 
latter addition, referred to as the reheat cycle, includes removing 
energy from the superheated steam in a high-pressure turbine and then 
returning the steam to the reheat section of the steam generator for 
additional heat energy. The steam is then again returned to the 
turbine-generator for further energy removal. For large installations, 
reheat makes possible a thermal efficiency improvement of approximately 
5 percent and substantially reduces the heat rejected to the condenser 
cooling water. \7\
---------------------------------------------------------------------------
    \7\ Combustion Engineering Inc. Combustion Fossil Power, 4th 
edition, 1991, pp. 1-8.
---------------------------------------------------------------------------
    Most of the TVA coal-fired plants built since 1951 (all since 1954) 
use the reheat cycle. The portion of the steam generator that transfers 
the heat to the steam is referred to as the ``reheater'' or the 
``reheat superheater.'' This system is, in general terms, a simple 
single-phase heat exchanger with steam flowing on the inside and the 
flue gas passing on the outside, generally in a cross-flow 
configuration. \8\ The major components are:
---------------------------------------------------------------------------
    \8\ Babcock and Wilcox, Steam: Its Generation and Use, 40th 
edition, 1992, pp. 1-8

      Inlet header (which distributes steam returning to the 
boiler from the high-pressure turbine exhaust to the individual tubes)
      Heat exchange tubes or elements (horizontal, pendant, 
platen, terminal, or crossover depending on individual design)
      Outlet header (which collects heated steam from the 
individual tubes for passage to the intermediate-pressure turbine)

    Because of the high operating temperatures, appropriate 
construction materials are critical to a successful reheater design. 
Accordingly, steel alloys were used in parts of the reheater 
construction because of their superior high-temperature properties and 
resistance to oxidation. But, as in all components of these steam 
generators, portions not operating at high temperatures were 
constructed of lower alloy steels (also referred to as higher carbon 
steels) that were lower in cost. The design of the reheater components, 
as other boiler components, was an attempt to optimize between the 
initial cost of materials of construction and the need for higher-cost 
steel alloys for reliable operation.
    As a result, carbon and low-alloy steels were used for portions of 
the reheater subject to lower temperature ranges, such as the reheater 
inlet tubes (where the lower temperature steam from the high-pressure 
turbine exhaust enters the reheater). Intermediate chrome-molybdenum 
(Cr-Mo) steels were used for portions subject to higher temperatures, 
such as toward the reheater outlet (where the steam achieves its 
maximum temperature). Unfortunately, this use of differing materials 
added an unforeseen failure mechanism to these components--the 
difficulties of welding dissimilar metals together.
    In early reheater designs, the materials selected were not always 
adequate to address the full range of the conditions that would be 
experienced, such as varying temperatures during operational upsets, 
varying physical and thermal stresses, water chemistry conditions, and 
changes in coal and ash physical and chemical properties. Accordingly, 
the useful life of these reheaters varied significantly among the many 
units in the industry because of the differences in operating 
environments.
    In addition to construction materials, the physical design of the 
reheaters was critical to the actual performance of the components in 
service. Again, an optimization was required to balance the desired 
high heat transfer from the gas to steam and the need to avoid 
undesirably high metal temperatures. Another major factor was the 
optimization of available tube surface while maintaining adequate tube 
spacing to avoid high gas velocities and the resulting excessive 
erosion of the tube material.
    Combined with these design considerations were the coal-ash 
properties that must be factored into the design in order to avoid 
fouling and, again, excessive erosion. To manage the fouling 
conditions, sootblowers were added in some applications. As with the 
welding of dissimilar metals, installation of sootblowers to reheaters 
adds a potential failure mechanism to reheater components, namely, 
erosion caused by sootblower impingement.
    Design features similar to those described above are extremely 
important in determining the life of reheater components. Equally 
important however is the actual operating environment to which the 
reheater is subjected. This can probably be best illustrated by 
examining the most common tube-failure mechanisms experienced in 
reheaters and the corresponding potential root causes as identified in 
the Electric Power Research Institute's Boiler Tube Failures: Theory 
and Practice. \9\ See Table 8 which follows.
---------------------------------------------------------------------------
    \9\ Electric Popover Research Institute, Boiler Tube Failures 
Theory and Practice, TR-J05261.

                                                     Table 8
                                      Failure Mechanisms in Reheaters (RH)
----------------------------------------------------------------------------------------------------------------
              Failure Mechanism                                      Possible Root Causes
----------------------------------------------------------------------------------------------------------------
Short-Term Overheating in RH Tubing.........    Tube blockage induced (especially exfoliated oxide
                                               blockage)
                                                Maintenance induced (improper chemical cleaning or
                                               repairs)
                                                Operation induced (improper startup or shutdown, or
                                               overtiring with top heater out of service)
Long-Term Overheating/Creep.................    Influences of initial design and/or material choice
                                                Buildup of internal oxide scale
                                                Overheating due to restricted flow caused by chemical or
                                               other deposits, scale, debris, etc.
                                                Operating conditions or changes in operation
                                                Blockage or laning of boiler gas passages
                                                Increases in stress due to wall thinning
RH Fireside Corrosion (Sootblower or Ash)...    Influence of overheating of tubes (poor initial design,
                                               internal oxide growth during operation, high temperature laning,
                                               tube misalignment, operational problems when coal is changed, and
                                               rapid startups causing reheater to reach temperature before full
                                               steam flow)
                                                Change to coal with unusually corrosive ash
                                                Incomplete or delayed combustion
Dissimilar Metal Weld Failures (Failures        Excessive tube stresses such as caused by improper
 occur where ferritic and austenitic steels    initial design or improper tube supports
 are welded together).                          Excessive local tube temperatures
                                                Change in unit operation (increased unit cycling, change
                                               of fuel, redesign of adjacent heat duties)
                                                Initial fabrication defects
Stress Corrosion Cracking...................    Influence of environment (mainly contamination from
                                               carryover of chlorides from chemical cleaning of waterwalls,
                                               boiler water carryover, caustic from attemperator spray,
                                               condenser cooling water leaks, or ingress of fireside
                                               contaminants or flue gas during primary leaks)
                                                Influence of excessive stresses (especially at supports)
                                                Need to change material to a stabilized grade of
                                               stainless steel
----------------------------------------------------------------------------------------------------------------

    These failure mechanisms can occur concurrently or individually. 
Depending upon the failure mechanisms, different maintenance responses 
may be required. These range from repair or replacement of individual 
tubes or tube sections, to redesign and replacement of the reheater, to 
the installation of equipment that will address the root cause of the 
maintenance problem (such as sootblowers).
Cumberland Units 1 and 2 Reheater Replacement Case Study
    In addition to the Cumberland Unit 1 features described earlier, 
Cumberland Units 1 and 2 each had 233,200 square feet of reheater 
surface installed as part of the original construction. During 
operation of the plant, high wear rates caused by fly ash or sootblower 
impingement resulted in numerous erosion shields being added and 
subsequently replaced. Cracks were routinely identified during 
inspections and were ground out and repaired. Individual tubes were cut 
out and replaced because of thinning from high-temperature oxidation 
and coal ash corrosion, mechanical damage, sootblower erosion, or 
overheating damage. Misaligned tube elements were realigned and 
numerous support lugs replaced. Still, the reheater condition continued 
to degrade and require increasing maintenance attention.
    In the 1986-1988 period, deterioration of the inlet pendant lower 
loops led to their being cut out and replaced with SA213-T22 material, 
a higher chromium content steel that is more resistant to loss of 
strength with long-term exposure to high temperature. However, the T22 
material is susceptible to out-of-service pitting. As a result, these 
loops were replaced again in 1996.
    In 1996, TVA conducted a comprehensive review of the failure 
experiences in the Cumberland reheaters. The review showed that during 
the period of fiscal years 1992-1996, 11 leaks had occurred in the Unit 
2 reheater pendant tubes. A root cause analysis was performed on the 11 
leaks, and several failure mechanisms were identified (including 
corrosion fatigue, stress corrosion cracking, weld defects, high-
temperature oxidation/coal ash corrosion, dissimilar metal welds, and 
sootblower erosion) with several root causes. Inspections and 
nondestructive testing indicated that further failures were developing. 
It was projected that the failure rate would increase and further 
jeopardize the availability of the unit, potentially causing two forced 
outages per year by the year 2000.
    TVA concluded that, because of the damage that already existed and 
the overall condition of the existing reheat pendant tubes, the most 
economical solution was the complete replacement of the 147 inlet and 
outlet elements. The following items were also recommended:
      Changes in the design of the structural attachments that 
were welded to the tubes. These attachments were limiting thermal 
expansions, thereby creating high local stresses that were leading to 
corrosion fatigue failures. The supports were redesigned and materials 
changed to reduce or eliminate this mechanism.
      Improvement in the unit's boiler water chemistry program. 
Condenser tubes were replaced to stop leakage of contaminants from the 
untreated condenser cooling water into the feedwater system. Also, the 
feedwater chemistry treatment process was changed to reduce or 
eliminate water chemistry contributions to the conditions that led to 
reheater internal tube corrosion.
      Improvement in the welding quality assurance program. 
Failures had been occurring in field welds and header socket welds. A 
new welding quality assurance program was implemented to avoid repeats 
of these failures.
    The cost of the element replacement project was estimated to be 
$8.4 million, with a projected benefit of $2.9 million per year. Thus 
the project would pay for itself in 3 years. The recommendations were 
implemented and the reheater was replaced in 1999.

Experience on the TVA System

    Of TVA's currently operating 59 units, 49 use the reheat cycle. In 
all these units, partial or complete replacement of the components of 
the reheaters exposed to the flue gas stream has been required in order 
to keep the units in reliable operation.
    Some plants have had different life experiences of the inlet versus 
the outlet reheater pendants. For example, TVA had to replace the 
outlet pendant elements at Gallatin Fossil Plant Units 1 and 2 within 8 
to 15 years, while the inlet pendant elements operated for more than 35 
years without replacement. Figure 8 below provides a summary of the 
reheater modification/replacement projects performed on the TVA system. 
At least one significant portion of the reheater pendant elements in 
every TVA reheat cycle unit has had to be replaced within 20 to 40 
years of initial operation.

Other Industry Experience

    To assess industry practice in the maintenance of reheaters, TVA 
analyzed data from other utilities with predominately coal-fired 
generation. These data represent the maintenance histories of 219 
generating units totaling more than 80,000 MW of electrical generation. 
Of these 219 units, 190 are equipped with reheaters. The results of 
this analysis are given in Figure 9.

    Of the 190 reheaters included in the sample, there have been 231 
reheater replacement projects, with some reheaters having been replaced 
more than once. As with the cyclone and the draft system replacement 
data, these data show no strong correlation between reheater 
replacement projects and reheater age. Ages at replacement ranged from 
5 to 44 years, with a mean age of 25.1 years and a median age of 25 for 
this data set. This leads to the conclusion that factors other than age 
determine the need for reheater replacement.

Economizer Component Replacement

            Economizer Background

    Another enhancement to improve the efficiency of the base Rankine 
thermal cycle was the addition of a heat exchanger in the flue gas 
stream exiting the steam generator. This heat exchanger, called an 
economizer, is typically a simple single-phase, tubular heat exchanger 
with boiler feedwater flowing on the inside and flue gas passing on the 
outside of the tubes. Thermal energy in the flue gas is transferred 
across the heat exchange surface into the feedwater, increasing its 
temperature before it enters the unit's steam drum or the furnace 
surfaces, depending upon the boiler design.
    The economizer provides another useful function by reducing the 
magnitude of thermal shock caused by feedwater temperature fluctuations 
at the inlet to either the boiler drum or the waterwalls. Thermal 
shock, the rapid change in metal temperature due to changes in the 
fluid temperature, produces stress increases in thick walled boiler 
components. Large numbers of these stress cycles will ultimately lead 
to failure of the component.
    The economizer is usually the last heating surface in the flue gas 
stream before the gas stream exits the steam generator and passes 
through the combustion air preheater. The overall efficiency of a 
boiler is improved more by using the thermal energy in the flue gas to 
heat feedwaterthan by using it to preheat the combustion air. Sizing an 
economizer, that is, determining the amount of heat transfer surface to 
be provided, is an economic optimization among three principal 
parameters: the cost of the economizer surface, the cost of the air 
preheater, and the thermal efficiency of the boiler.
    The major components of the economizer, in general terms, are the 
inlet header, the heat exchange tubes or elements, and the outlet 
header. Since these components are exposed to considerably lower 
temperatures and a less hostile environment than other boiler 
components (reheaters and superheaters, for example) they are typically 
constructed from low-carbon steel to reduce cost. However, because this 
steel is subject to corrosion in the presence of even extremely low 
concentrations of oxygen, it is necessary to provide boiler water that 
is practically 100 percent oxygen-free. \11\ This tubing is also 
susceptible to fly ash erosion and erosion/corrosion.
---------------------------------------------------------------------------
    \11\ Combustion Engineering Inc., Combustion Fossil Power, 4th 
edition 1991, pp 5-10.
---------------------------------------------------------------------------
    Thus, as with the reheater, both the physical design and 
fabrication details of the economizer and the operating conditions it 
encounters are important factors that determine its useful life. Their 
importance is again clearly illustrated by the summary of the most 
common tube-failure mechanisms experienced in economizers and the 
corresponding potential root causes taken from the Electric Power 
Research Institute's Boiler Tube Failures: Theory and Practice. \12\
---------------------------------------------------------------------------
    \12\ Electric Power Research Institute, Boiler-Tube Failures: 
Theory and Practice, TR-105261 Volume 2: Water-Tooched Tubes, 1996.

                                 Table 9
                    Failure Mechanisms in Economizers
------------------------------------------------------------------------
      Failure Mechanism                  Possible Root Causes
------------------------------------------------------------------------
Corrosion Fatigue...........    Influences of excessive stresses/
                               strains (especially restraint stresses at
                               attachments)
                                Influence of environmental
                               factors (poor boiler water chemistry,
                               overly aggressive or improper chemical
                               cleaning, and/or improper boiler shutdown
                               and/or lay-up procedures)
                                Influence of historical unit
                               operation (operating procedures that have
                               caused high stresses)
Fly ash or Sootblower           Excessive local velocities
 Erosion.                      (geometry of design, distortion or
                               misalignment of tubing rows, misalignment
                               or loss of gas flow guides and baffles,
                               operating above the continuous design
                               rating, and/or operating above design
                               excess air flow)
                                Increased particle loading (fuel
                               considerations and/or soot-blower
                               operation or maintenance)
                                Improper sootblower operation
                               (control of frequency, temperatures,
                               pressures, and travel; mechanical
                               malfunctions, etc.)
Thermal fatigue of              Operating conditions that
 economizer inlet header       produce large through-wall thermal
 tubes.                        gradients in the header
                                Header design and construction
Erosion/corrosion in            Very low O2 levels and high
 economizer inlet headers.     levels of oxygen scavenger
Low-temperature creep           High stresses (high residual
 cracking.                     stresses from the cold forming process,
                               enhanced membrane stresses caused by tube
                               ovality, and/or high service stresses)
Fatigue in tubes............    Excessive strains caused by
                               constraint of thermal expansion
                                Excessive mechanical stresses
                               (poor design or manufacturing)
                                Vibration induced by flue gas
                                Poor welding
Pitting in tubes............    Influence of improper shutdown
                               practice (presence of stagnant oxygenated
                               water)
                                Sagging economizer tubes
                               preventing tube draining after shutdown
                               (presence of stagnant oxygenated water)
Acid dew point corrosion....    Operation of economizer below
                               the acid dew point (SO2 oxidizes to SO3
                               and combines with moisture to form
                               sulfuric acid)
------------------------------------------------------------------------

Paradise Unit 3 Economizer Replacement Case Study

    Unit 3 of the Paradise Fossil Plant (located on the Green River in 
Muhlenberg County, Kentucky) is a 1,100 MW (nominal) cyclone-fired unit 
that were put into service in 1970. It produces steam at 3650 psi'', 
10030F.
    The unit has 281,580 square feet of economizer surface, which was 
installed as part of the original B&W design and installation. During 
the first 20 years of unit operation, the reliability of the economizer 
began to decrease as a result of many of the failure mechanisms 
addressed in the background discussion. A 1992 review of the generating 
unit's performance reliability found that tube failures in the 
economizer was one of the leading causes of forced outages.
    A root-cause analysis investigation found numerous failure 
mechanisms and root causes contributing to these leaks. The predominant 
failure mechanisms were identified as fly ash erosion, corrosion 
fatigue, pitting in tubes, and thermal fatigue of economizer inlet 
header tubes. The root causes were determined to be the following:

      Poor original design of the economizer (including the 
baffles).
      Inadequate boiler water treatment and boiler water 
chemistry control.
      Startup procedures that were allowing slugs of cold water 
to enter the economizer inlet header.
      Cycling stresses due to forced outages on the unit from 
other causes.

    Measures were implemented to eliminate these root causes or reduce 
their future impacts. However, past operations had already 
significantly damaged the economizer elements and inlet header. It was 
projected that without replacement of most of its components the 
economizer would increasingly contribute to unit unreliability. It was 
determined that component failures would, in fact, increase the 
economizer contribution to unit downtime by approximately 10 percent 
per year. This equated to a differential cost of replacement power to 
TVA of $19,543,000 plus the cost of repairs for the fiscal years 1995-
1999 period. The total cost to replace the economizer was estimated to 
be $9,153,000. It was replaced in 1994.

Experience on the TVA System

    Of TVA's currently operating 59 units, 44 are equipped with 
economizers. TVA has replaced all or a significant portion of the 
economizer elements/tubes on 11 units and has replaced the inlet 
headers on 3 units. Because of the relatively less severe service 
conditions of economizers, they have generally experienced longer 
useful lives than other boiler components discussed above. The TVA 
history of economizer component replacement projects is provided in 
Figure 10 below.

Other Industry Experience

    The age analysis of economizer replacement projects for the same 
industry sample used in the reheater analysis above is presented in 
Figure 11. Of the 219 units in the sample, 202 are equipped with 
economizers.
    As might be expected, because of the generally less severe service 
conditions, there have been fewer economizer replacement projects than 
reheater replacement projects: 98 economizer projects versus 231 
reheater projects. However, the average and median ages of the affected 
economizer at the time of the replacement project are less than the 
average and median ages of the reheater replacements by 2.3 and 3 
years, respectively. The age distribution of the economizer 
replacements is similar to the reheater age distribution. There is no 
strong correlation between economizer age and economizer replacement. 
It is apparent that factors other than age create the situations that 
lead to economizer replacement.

Conclusions

    The Tennessee Valley Authority has, in its more than 65 years of 
operating electricity-generating plants, established a philosophy of 
maintenance that has as its objective the safe, reliable, low-cost 
supply of electricity to the residents of the Tennessee Valley. This 
maintenance philosophy has been in place and implemented consistently 
since long before 1972, as is evidenced by the 1972 Gladney-Fox report 
referenced previously.
    At the core of TVA's philosophy is a thorough evaluation of factors 
that contribute to loss of reliability and consideration of 
alternatives to mitigate the loss. The selection of the appropriate 
alternative is most often based on economic considerations. The 
selection is also heavily influenced by other factors that are 
important to TVA, such as employee health and safety. It is common for 
the selected alternative to be replacement of equipment or components--
often with functionally identical equipment or components that reflect 
improvements in technology and lessons learned from actual service. The 
many factors that influence equipment or component replacement include 
design or fabrication errors, unanticipated operating conditions, 
operational errors, and technology advancements.
    Analysis of selected TVA projects that involved replacement of 
components and systems at TVA generating units does not reveal any 
strong correlation between the need for replacement and age of the 
equipment or component. TVA is no different from other electric 
utilities in its maintenance practices. Others in the industry 
routinely perform the projects performed by TVA. Furthermore, analysis 
of data from a large sampling of other utility projects clearly 
indicates that this routine maintenance behavior--component and 
equipment replacement--is driven by factors other than unit or 
component age.

Biographical Notes

    Jerry L. Golden is the Senior Manager of Production Technology in 
the Tennessee Valley Authority's Fossil Power Group. At various times 
he has served as TVA's Head Mechanical Engineer, Fossil Steam 
Generation and Equipment; Manager, Advanced Production and 
Environmental Technology; Manager, Clean Air Program and Generation 
Technology; Manager, Fossil Engineering; and (Acting) Vice President, 
Governmental Relations.
    Mr. Golden served on the U.S. Environmental Protection Agency's 
Acid Rain Advisory Committee and chaired the Base Programs Analysis and 
Policies Work Group of EPA's Clean Air Act Advisory Committee. He 
currently serves as utility chair of the EPRI advisory committee 
dealing with post-combustion NOx control and is an advisor on the EPRI 
boiler performance and SO2 committees. He also serves on the 
board of directors of the UtiliTree Carbon Company, an entity formed to 
implement carbon reduction and sequestration activities for utilities 
participating in the Climate Challenge Program of the U.S. Department 
of Energy.
    Mr. Bynum. Mr. Chairman, TVA finds itself in the position 
of agreeing with what appears to be the EPA's broader goals in 
these NSR changes improving the nation's air quality. However, 
we remain concerned that the agency may be tempted to shoehorn 
this admirable goal into a program that's primarily designed to 
address the permitting and control of new sources. Literally, 
the New Source Review Program is about who turns the wrench, 
when, and where. It is not intrinsically designed to handle 
broad shifts in air quality policy.
    In the Summer of 1998 TVA announced a voluntary 
installation of selective catalytic reduction controls to 
control of nitrogen oxide emissions at ten of our larger coal 
plants. TVA has undertaken this effort because we believe it is 
necessary if air quality improvements are to continue in the 
Tennessee Valley region. We have committed to this effort 
although it will cost more than $500 million on top of the more 
than $2.5 billion that TVA has already spent to reduce 
emissions from it coal-firing plants.
    I note this voluntary effort for two reasons. First, I 
think it demonstrates our commitment to environmental 
stewardship. Second, it represents an emission control effort 
based on a comprehensive analysis of our entire system to 
achieve improved air quality throughout the Tennessee Valley 
and adjacent areas. TVA carefully considered the air quality 
challenges facing our region and we're placing SCR controls 
where they will do the most good. When considering how air 
quality should be improved, an approached similar to TVA's 
system-wide plan for nitrogen oxide reductions can be a 
template. Although, the utility industry has just finished 
substantially reducing its NOx emission, the TVA thinks more 
can and should be done. What is needed is a program that allows 
utilities to reduce emissions on the system-wide or industry-
wide basis over time while still allowing units to be 
maintained as they have been historically. Unfortunately, the 
attempts to achieve this goal through the New Source Review 
Program likely will fall flat. The underlying program is ill-
equipped to answer these far reaching policy considerations. 
TVA stands ready to work with this subcommittee and EPA to 
continue the improvements in air quality and to develop the 
requirements for a successful program.
    Mr. Chairman, the subcommittee's interest in the proposed 
changes to the New Source Review Program is well timed. We are 
in an important juncture in trying to find a way to continue 
improvements in air quality without sacrificing the maintenance 
of individual facilities or the reliability of the overall 
collective system. Thank you.
    Senator Inhofe. Thank you, Mr. Bynum. As the only Federal 
agency who must live under the NSR regulations, your testimony 
is very important to us. You have both the credibility, if you 
want to call it that, of a Federal agency and the real-world 
experience of a private sector or a regulated industry.
    Mr. Bynum. Yes, sir.
    Senator Inhofe. On the average how long does it take to 
apply for and receive a permit under the NSR program?
    Mr. Bynum. I think the 12 months that have been mentioned 
is probably a realistic average for permits.
    Senator Inhofe. So you agree with Mr. Seitz in that?
    Mr. Bynum. I do. I think that's about average. I think the 
difficulty with the timeframe, however, is if you look at some 
of the activities that we're concerned about being contemplated 
is you don't always have a 12-month lead time to know when 
you're going to have to do some of those activities. For 
instance, just 2 days ago we removed a rotor from one of our 
fossil plants that was, in fact, running just fine a week ago. 
Now we're contemplating doing work on that rotor and replacing 
that rotor and we can have that done in a relatively short 
period of time. And we would be severely restrained if we had 
to go through a 12-month permitting process to do that type of 
a replacement. So it's not only the timing. I wish I had a year 
to know every replacement, every major piece of maintenance 
that I had to do. I wished I had a year's advance to know what 
I was going to have to do.
    Senator Inhofe. As a Federal agency, do you think you were 
treated the same as other facilities?
    Mr. Bynum. Yes, I do.
    Senator Inhofe. Could you explain what effect the NSR 
program has on your reliability and also the effect on your 
rate payers?
    Mr. Bynum. Well, clearly, you know, we have to be able to 
maintain the reliability of our fossil plants. You know, we had 
understood and hope will continue the new source review, you 
know, should not be aimed at not allowing us to do those 
projects that improve efficiency, improve reliability of the 
system. We absolutely have to maintain that reliability. This 
past year we broke our previously all-time record system usage 
16 times in a 30-day period. So the demand is continually 
growing, which means the reliability of our fossil plants 
continually has to increase.
    So in the case you were talking about with Mr. Seitz, the 
number of hours those units are going to run is expected to 
increase. It has to increase because of the increase in demand 
that we have on our system. So it's extremely important.
    From our standpoint, we don't have stockholders. The rate 
payers in our communities pay for all of the modifications, pay 
for all of the--if a unit is not available, we have to go out 
on the market----
    Senator Inhofe. You never hear from them, of course?
    Mr. Bynum. Of course. We have quite a vocal rate paying 
community, I can assure you.
    Senator Inhofe. Senator Voinovich?
    Senator Voinovich. Earlier today I was talking to someone 
and trying to get an understanding of what we're talking about 
here. And there is some understanding that when the Clean Air 
Act went into effect that we grandfathered in the pollution 
that was already being generated at the time, and that nothing 
has been done since that time to modify the facilities over 
that period.
    I'd like you to comment about even though some of the old 
facilities have been grandfathered, are they still spewing out 
the same emissions that were there when they were originally 
grandfathered? I would like you to comment on that.
    Mr. Bynum. Absolutely not. In fact, that is a common 
misperception. As was discussed before, there are national 
ambient air quality standards, and we have to meet those 
national ambient air quality standards and those are met with 
modifications and met by the existing power plants that we have 
that have been so-called grandfathered.
    The Clean Air Act of 1990 which, through the acid rain 
portion, required additional reductions. Those were done with 
these fossil plants. Literally every plant in our system has 
had to do some type of change as far as scrubbers--all the way 
from scrubbers on some units down to fuel switches. But they 
all have been required to change some mode of operation in 
order to meet the new--not only the national air ambient 
quality standards but the acid rain legislation that was placed 
on top of that. So these facilities have not been exempt from 
that. In fact, these are the facilities that we have made the 
adjustments to that have been able to meet those requirements. 
We've reduced our SO2 by--or will have reduced it by 
80 percent. By 2005 we will have reduced our NOx by 70 to 75 
percent in the same timeframe on these units.
    Senator Voinovich. I appreciate your clarifying that, 
because there is that perception among some of the public that 
this is the way it is. I know in our State utilities have spent 
an enormous amount of money reducing the emissions going into 
the air. As a matter of fact, when I looked the last time at 
some statistics, that we had spent more in Ohio on dealing with 
that problem than many of the utilities in the States that were 
complaining about the loading of ozone going into their 
respective States.
    One of the things that I'm concerned about, the WEPCO 
decision came in and basically said if you make a major 
modification you've got to get the permit. But they also said 
that miner modifications were not subject.
    Do you think that the rules that are being written today 
are aimed at changing the WEPCO decision through regulation and 
applying a new standard?
    Mr. Bynum. I have a concern that they are. And, again, if 
you look at the--you know, the exclusion is for routine 
maintenance. And what's routine maintenance and the types of 
things that I'm talking about, boiler tube repairs, 
replacements, certain boiler sections, reheater replacements, 
major turbine work. I mentioned the turbine rotor, other 
turbine type work. This work has been routinely done in our 
industry for years, before the WEPCO ruling. In fact, I have 
a--I indicated the one paper that we had on routine 
maintenance. I have another which was, in fact, written in 1972 
that describes the typical maintenance that's required to 
maintain the reliability and availability of fossil power 
plants. Those things have not changed. They are the same things 
that were good basic maintenance practices to improve the 
reliability and efficiency of plants in 1972 are the same 
things that we're talking about today, that we are concerned 
could be put in a rule that would prohibit us from doing this 
or that would require repermitting and then the putting on of 
controls subsequent to that. So that is our concern.
    Senator Voinovich. One other comment, Representative 
Strickland mentioned the statement of J.J. Berry, the 
International President of the International Brotherhood of 
Electrical Workers. And he raised some questions about safety 
and the welfare of utility workers. Would you like to comment 
on that?
    Mr. Bynum. Well, I share this concern. Anything that would 
tend to threaten the reliability of pieces of equipment in a 
fossil plant where you might have a failure of a piece of 
equipment could certainly be not only an issue of reliability 
but safety for our employees. We're talking about conditions--
4,000 pounds of pressure in some of these boiler tubes, that's 
a two-and-a-half mile depth in the sea, 3,000 degree 
Fahrenheit, 24,000 volts in our generators. So we're in, you 
know, a relatively hostile environment. And anything that 
degrades the reliability of equipment in that environment, you 
know, certainly would be an issue with public health and the 
safety of our employees.
    We have done projects in the past. For instance, we did a 
balance draft conversion on a number of our units, and that was 
largely driven by the atmosphere that was created in the upper 
sections of our power plants. And now, you know, we would be 
afraid that those types of projects through some new rule would 
be prohibited or at least require you to go back through the 
permitting process. And we think that would be very detrimental 
to us being able to conscientiously go forth with our 
responsibilities for employee health and safety.
    Senator Voinovich. Thank you.
    Senator Inhofe. Thank you, Mr. Bynum.
    I'd now ask that our fourth panel come to the witness 
table. Panel 4 includes Mr. Bob Slaughter, Director of Public 
Policy for the National Petrochemical and Refiners Association; 
Mr. W. Henson Moore, an old friend of mine from the House of 
Representatives days and now the President and Chief Executive 
Officer of the American Forest and Paper Association; Mr. David 
Hawkins, of the Natural Resources Defense Council; and Mr. Bill 
Tyndall, who's been back with us several times before and used 
to be with one of my closest friends in the House John Dingle, 
now Vice President of Environmental Services of Cinergy 
Corporation.
    With that said, we'll start in the order that the panelists 
appear on the agenda.
    Mr. Slaughter?

 STATEMENT OF BOB SLAUGHTER, DIRECTOR, PUBLIC POLICY NATIONAL 
             PETROCHEMICAL AND REFINERS ASSOCIATION

    Mr. Slaughter. Good afternoon, Mr. Chairman, and Senator 
Voinovich. My name is Bob Slaughter. I am general counsel and 
director of public policy for the NPRA, the National 
Petrochemical and Refiners Association. I am here today to 
present joint testimony on behalf of both NPRA and the American 
Petroleum Institute. Together those associations represents 
essentially all petrochemical and petroleum refiners for whom 
NSR reform is a very critical issue.
    My message today is a simple one. New Source Review reform 
is needed to allow refiners to continue their record of 
achieving significant environmental progress. And almost as we 
speak the EPA is in the process of issuing far reaching new 
environmental regulations which necessitate further changes in 
refinery facilities and operations.
    The current EPA interpretation of NSR threatens to 
frustrate our efforts at compliance with these new initiatives. 
Even worse, certain EPA activities indicate that some agency 
officials may even be seeking to second guess past actions 
which were taken in good faith and in reliance upon NSR 
interpretations, which we believe to be both firmly established 
and long settled. This amounts to changing an existing 
regulation without public notice and comment or congressional 
review.
    Clearly NSR reform is needed to remove the cloud of 
uncertainty over the current and future operations of refiners 
and other key industries. We hope that this hearing will help 
lead to effective NSR reform.
    Refineries have an impressive record of emission reduction. 
As shown on the first chart, EPA figures demonstrate that we 
have reduced our emissions by 74 percent between 1980 and 1996. 
Refining capacity declined only 16 percent during the same 
period. Since then we have made further progress both in 
reducing emissions from refineries and in cutting emissions 
from our products, such as through the reformulated gasoline 
program.
    We are being asked to do much more. The second chart is 
what we call our regulatory blizzard chart. It lists recent 
anticipated environmental initiatives, 13 of them, with which 
the refining industry must comply in the immediate and near 
future. We will spend billions of dollars to meet these 
requirements. Most, if not all, will require changes in 
facilities or procedures. For example, the final Tier II 
gasoline sulfur rule will require roughly $8 billion of 
industry investment in a short timeframe to accomplish what EPA 
estimates is the environmental equivalent of removing 164 
million cars from the road.
    The upcoming diesel sulfur regulation will cost roughly an 
additional $4 billion and must be implemented over nearly the 
same time period as gasoline sulfur reduction. Current NSR 
interpretation will impede our efforts to comply with these new 
environmental requirements. Although intended to limit emission 
increases, New Source Review now applies to actions which do 
not increase or which may even reduce emissions. Traditional 
tests to determine NSR application are now structured to 
require NSR in most instances.
    Former exceptions to NSR application have been narrowly 
construed or recast so that they provide little or no relief. 
At best current NSR policy is hopelessly confusing. At worst it 
can be paralyzing. When triggered, NSR is an onerous and time 
consuming process. Despite the fact that it is effectively 
impossible to determine when an NSR permit is required, 
refiners must somehow decide whether an anticipated action 
triggers NSR permitting and controls. If it does, they must 
obtain the required permit before beginning any construction, 
install appropriate emissions control technology, and perhaps 
meet other requirements as well. On average it takes 18 months 
to 2 years to get an NSR permit.
    State NSR decisions may also not reflect the EPA's latest 
positions. The EPA has delegated the program to most States but 
is now investigating State permitting decisions affecting 
refineries over the last 20 years. These decisions were not 
questioned during 20 years of State and EPA inspections. 
Refineries are in a quandary because State decisions may not be 
supported by EPA, while EPA's own guidance is difficult to find 
and often contradictory or confusing when located.
    Some EPA officials, however, do seem to realize these 
problems. Talks have recently taken place between EPA and 
representatives of several affected industries to discuss the 
need for NSR reform. API and NPRA have been participants. We 
are encouraged by the discussion that has occurred and hope 
that more talks will be scheduled. The EPA has also 
participated in one industry workshop regarding ways to 
expedite permitting relative to the gasoline sulfur rule. A 
joint workshop will be held next month. We appreciate EPA's 
commitment to these efforts but believe that underlying NSR 
reform is needed to provide us and other affected industries 
with greater certainty. We need an NSR process that is simple, 
efficient and transparent.
    Our thanks to you, Mr. Chairman, and you, Senator 
Voinovich, for your interest in this important issue. I look 
forward to answering your questions.
    Senator Inhofe. Thank you, Mr. Slaughter.
    Henson?

  STATEMENT OF W. HENSON MOORE, PRESIDENT AND CHIEF EXECUTIVE 
         OFFICER, AMERICAN FOREST AND PAPER ASSOCIATION

    Mr. Moore. Mr. Chairman and Senator Voinovich, thank you 
both for having this hearing. I'm Henson Moore, the President 
of the American Forest and Paper Association. We think the NSR 
program ought to meet a few basic principles. They ought to be 
consistent. They ought to follow congressional intent. It ought 
not be changed retroactively, that they should benefit the 
environment, and the program regulators, the program office, 
not the enforcers, ought to set new changes in policies and 
ought to be open to public scrutiny. Based on these principles 
today's NSR program is broken. We're not the only ones that 
think that. The EPA itself thinks it's broken. The States do. 
Republicans and Democrats in Congress do.
    And we have a statement we would like to include in the 
record, Mr. Chairman, from unions in our industry representing 
a quarter of a million of our workers who also feel this 
program is broken.
    Basically it's broken because when it requires a permit, 
something that takes--in the case of our industry we're seeing 
somewhere between a year and a year-and-a-half to get one of 
these permits for a physical change, we think this is something 
that ought to be looked at very carefully. Congress never 
intended NSR to impose new controls on equipment simply because 
of routine maintenance. The idea was if you're doing something 
that's going to increase emissions, you ought to go get a 
permit. We agree to that. The problem is not congressional 
intent. It's the way it's being implemented. Furthermore, it's 
confusing.
    Mr. Chairman, you've got a few pages in the United States 
Code that deal with this. These citations deal with New Source 
Review. Here are 4,000 pages of conflicting guidelines, 
regulations, and rules put out by EPA and various offices of 
EPA to interpret these few pages. That's the problem. The 
program is so complicated. It's so conflicting. It's so 
difficult to deal with. Nobody in the EPA knows how it works, 
and certainly the people trying to conform to it don't know how 
it works.
    Let me give you an example of routine maintenance. In 1980 
EPA provided an exclusion from NSR review for routine 
maintenance. We operated fine under that for 8 years. Then EPA 
came out and said, well, we're going to change that. We're 
going to weigh a variety of factors to arrive at a common sense 
finding of what was routine maintenance. We operated with that. 
Then last year, the enforcement office now, the people who 
actually fine you and hold you in violation of the rules, 
substantially narrowed this exclusion and without any public 
input stated it was meant to cover, I quote, ``frequent, 
traditional, and comparatively inexpensive repairs to maintain 
existing equipment.'' That's a 180-degree change. Now you are 
liable retroactively for fines and penalties back to 1980 when 
you were told it was OK and there is no amount of permitting 
time for this kind of routine matter that is acceptable. Even 
if you got it down to 6 months, as Mr. Seitz said, or 3 months, 
you still can't run a business based on this kind of a hold-up, 
waiting to see if you can get something routinely done without 
risking fines on a per diem basis. So the first problem is 
you've got to reform NSR to make it work. This is not workable. 
Nobody thinks it is. It needs to be changed.
    But you've also got another problem. The problem is the 
unfair and egregious enforcement of these retroactive rules, 
interpreting and changing rules and applying them retroactively 
and applying fines. For example, 10 years ago we had a mill 
that replaced an old power boiler with a new one that had 
potential lower emissions. The State, after getting comments 
from EPA, said this is OK and gave us the approval to go ahead 
and proceed. Now EPA says the boiler increases mill operating 
capacity and potential emissions and, therefore, alleges the 
mill failed to comply with NSR requirements and is now asking 
for fines going back 10 years when, in fact, it was cleared by 
the State. There have been no increase in emissions. And 
actually, at the time it was thought it would have potential 
lower emissions. There are other examples.
    Now we're not quarreling with implementation of the law, 
where somebody, as Mr. Seitz says, where you've got a change of 
a stationary source that increases emissions. If that's the 
case, you ought to go throught NSR; and if you didn't do that 
and get a permit you are liable, and it's OK to go back no 
matter how long you have to go back to enforce that kind of a 
situation. Now we're talking about potential, phantom emission 
increases. We're talking about not actual changes at all or 
actual changes in the emissions from these plants. Therefore, 
we feel like EPA ought to suspend these enforcement actions--
against anybody that has not actually increased emissions until 
such time as they finish the reforms in the regulations 
themselves. This is a program that is broken and needs to be 
fixed. And unfortunately, they are continuing to break the 
rules retroactively through the enforcement procedures to make 
it even more egregious and make it worse.
    Senator Inhofe. Thank you, Mr. Moore. Are you going to 
submit that document you held up?
    Mr. Moore. This one, but not this one. If you want them, 
you're welcome to them.
    Senator Inhofe. That reminds me a little bit of in the 
1980's a State of Union message that I heard when they brought 
the tax code out. No, I'm talking about the document on the 
workers that were affected----
    Mr. Moore. Yes, that's this one.
    Senator Inhofe. Thank you very much.
    [The referenced document follows:]
    Statement of Michael Draper, Chairman, Forest Products Industry 
                  National Labor Management Committee
    On behalf of the Forest Products Industry National Labor Management 
Committee (LMC), I would like to submit the following statement for the 
record.
    The LMC is a coalition of labor unions and forest products 
associations formed 10 years ago to pursue the conunon goals of the 
working men and women of our industry. Collectively, the LMC represents 
over 2 million workers nationwide, include 250,000 forest products 
workers. Our members are employed in hundreds of wood, pulp and paper 
manufacturing cities throughout the nation, producing the products used 
by consumers in households, offices and schools across the globe.
    I began my career as a member of the United Brotherhood of 
Carpenters and Joiners of America (UBCIA) in a sawmill in California. 
Today, I am the Regional Vice President for the UBCJA and represent 
workers across the Western United States. The forest products 
industry--both the wood and paper sectors--has been devastated over the 
last decade due to a decline in timber harvests and restrictions on 
manufacturing facilities. I have personally seen entire towns destroyed 
as local mills shut their doors because they were no longer able to 
compete, sending thousands of workers to the unemployment line. 
Throughout my proud career, I have had the oppose to work with 
thousands of individuals, including community leaders, county 
officials, working families, environmental groups, local and State 
legislators, as well as leaders in Washington, DC--all in pursuit of a 
common goal to provide the best public policy solutions for forest 
products workers and rural communities.
    The forest products industry and its workers depend upon the 
environment for our livelihooods, and working together, our Coalition 
is proud of our strong record of environmental stewardship and we 
recognize our responsibilities to ensure a cleaner environment for all 
Americans. We have come a long way over the last decade, and 
increasingly our industry continues to embrace new standards in 
environmental stewardship, including the American Forest and Paper 
Association's Sustainable Forestry Initiative (SFI)'sm, The SFIsm is an 
innovative approach to securing the proper guidelines and principles to 
providing sound scientific practices to protect our air, water and 
land.
    On behalf of the working men and women in pulp and paper 
manufacturing facilities throughout the nation, I am submitting this 
statement today out of concern for the Environmental Protection 
Agency's New Source Review (NSR) program. We support the Agency's goal 
of providing a cleaner and safer environment for all Americans, yet are 
concerned that the NSR program is not working and the complexities of 
the guidelines are dwarfing its ultimate mission.
    The Environmental Protection Agency is currently reviewing what the 
Agency admits is a ``broken'' New Source Review (NSR) program. First 
established under the 1917 Clean Air Act Amendments, the NSR program is 
considered to be the Act's single-most complicated regulatory program. 
As a result, our industry has struggled to understand and comply with 
the regulations, which stem from more than 4,000 pages of interpretive 
guidance.
    Oftentimes, decisions orally approved by the Agency are overturned 
several years later based on changes in interpretive guidance that did 
not exist at the time the original compliance decision was made. In a 
1996 proposal to reform the Cleen Air Act, the Agency explained that it 
had specifically recognized that routine maintenance, repair and 
replacement did not trigger the modification rule. Now, the NSR program 
is being interpreted to cover virtually anything the pulp and paper 
industry is doing to expand, improve operations and make equipment 
changes to meet environmental requirements, even when these changes 
reduce emissions and improve efficiency.
    Today, the guidelines of the NSR program are confusing and 
oftentimes inconsistent and contradictory, which is ultimately 
hampering our ability to successfully compete in the global market. The 
complexities are impeding innovation, inhibiting the use of new 
technologies or forestalling attempts to enhance environmental 
performance and energy efficiency. Our manufacturing facilities are 
shelving these plans, stifling new opportunities for growth and 
development.
    Yet even more troublesome is the fact the the Agency is moving 
ahead with a new enforcement initiative before the NSR program is 
fixed. Manufacturing facilities are facing penalties reaching $25,000 
per day starting when the actual construction or modifications began, 
in some cases going back nearly 20 years! Our industry estimates that 
the initiative could cost as much $10 to $50 million per mill, a price 
tag that would halt production and force many of our plants to shut 
their doors. The end result: high-skill, living wage jobs will be sent 
overseas.
    The demand for our products is high and we must all work to keep 
these jobs on American soil. Natural resources are an integral part of 
our work; the environment is our Trade--from the products we produce, 
to the air we breathe and the water we drink. It is critical that we 
work toward the best policy solutions to balance the environmental, 
social and economic needs of our society. We are all committed to a 
common mission, so let's work together to sustain a healthy environment 
for future generations.
    Today, we ask our leaders in Congress to work with the 
Environmental Protection Agency and all shareholders to create and 
quickly implement a reformed NSR program--a new program that will not 
stifle innovation and cost American jobs--a new program that will be 
fair, consistent and allow smallholders to comply in the spirit of law, 
providing a cleaner and safer environment for our children and 
grandchildren.
    Senator Inhofe. Mr. Hawkins?

 STATEMENT OF DAVID HAWKINS, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Hawkins. Thank you, Senator. Well, looking at this 
stack, no one can argue that the program has been bad for the 
paper industry.
    Senator, thank you. Most of today's witnesses have focused 
on the problems that the Clean Air Act presents for polluting 
sources. I'd like to comment on the problems that are presented 
for our members and your constituents, particularly the elderly 
and children, whose health is at risk from today's pollution 
burden.
    Just last week Ohio environmental groups published a report 
on the continuing problem of smog in the Ohio River Valley that 
documented the large number of adverse health effects, 
including over 83,000 asthma attacks that were directly 
attributable to elevated smog, over a thousand emergency room 
visits, over 600 hospital admissions. Now it's important to 
understand how much of a smog problem is due to old, 
grandfathered pollution sources, ones that should have been 
cleaned up under the Clean Air Act but have not been.
    For example, fossil electric power plants are major 
contributors to smog and soot problems. What's astonishing is 
how much those older plants dominate the inventory for that 
sector. Over 80 percent of the total U.S. emissions from fossil 
electric generating plants for sulfur and nitrogen emissions 
come from power plants built more than 20 years ago. Now 
contrast that to the motor vehicle program. In the motor 
vehicle program 20 year old cars contribute to less than 7 
percent of NOx emissions. If we had the problem with motor 
vehicles that today's power plants represent in terms of old 
sources, we would all be choking to death quite literally.
    Why is this? Well, because contrary to the expectation of 
Congress old plants have been kept running. They have been kept 
running rather than being replaced by cleaner sources. Many of 
these actions were due to loopholes in the law. But too many 
instances the strategies of keeping plants running have been 
carried out without complying with NSR requirements.
    The courts are going to decide based on the facts in 
particular cases, so I'm not going to get into the facts in 
particular cases. But let me comment on a couple of broad 
arguments that were repeated here today. The first is, ``It's 
all just routine maintenance.'' And the second is, ``EPA has 
changed the rules.''
    On the first point, the claim that everything is just 
routine maintenance is a rewriting of history. I have here two 
large volumes of proceedings of electric industry conferences 
held in the mid 1980's. All of the documents in these two 
volumes relate to programs to extend the life of existing coal-
fired power plants by another 20 to 30 years past the design 
life of those facilities. And just to quote from the 
proceedings themselves, at the beginning of this 1984 document 
it says: ``Typically the fossil fuel power plant is designed 
for a 30-year life. But as new fossil plants become 
increasingly difficult to finance, efforts are being made to 
extend the life of aging fossil plants to 50 or 60 years of 
reliable service.''
    In this 1984 conference 27 out of the 33 utility companies 
that were surveyed said they had begun or were planning life 
extension programs. And I would like to submit that survey for 
the record, if I might.
    Senator Inhofe. Without objection.
    [The referenced survey follows:]

    Proceedings: Fossil Plant Life Extension Conference and Workshop

                    Washington, DC, June 12-15, 1984

                    Workshop Director J. R. Scheibel

             Prepared for Electric Power Research Institute

    SYNOPSIS OF QUESTIONNAIRE RESULTS FOR EPRI PLANT LIFE EXTENSION 
                       WORKSHOP JUNE 12-15, 1984

    Plant life extension will play an increasingly important role in 
meeting U.S. generating requirements. This fact was made apparent in 
the utility responses to questionnaires concluding the June 12-15 
workshop held in Washington, D.C. Approximately 94 percent of 33 
responding utilities expect plant life extension to play a significant 
role in meeting their system demand in the future. Of the utilities 
expecting plant life extension to play a significant role in meeting 
their system demand, 40 percent have already implemented such a 
program, 10 percent expect to implement a plant life extension program 
within 5 years, and the remaining 50 percent plan to implement a plant 
life extension program within 20 years.
    Six principal considerations stand out for establishing a power 
plant as a candidate for life extension. They are, in order of 
importance:

      Plant age.
      System load demand and future expectation.
      Physical plant condition.
      Operating Efficiency.
      Availability.
      Maintenance costs.

    Other considerations identified by the responding utilities as 
considerations for establishing a plant as a candidate for life 
extension include: 1) plant replacement cost, 2) proximity to load, 3) 
operating costs, 4) fuel availability, 5) operating history, 6) 
politics, 7) new pollution control equipment, and 8) safety.
    The responding utilities indicated that plant life extension 
studies are generally carried out in house. This is primarily dependent 
on having adequate in-house engineering staff and expertise to support 
the study or studies. Where the magnitude of the effort exceeds the 
utilities technical resources, assistance from OEMs and A/Es is 
obtained.
    The utilities identified four units that have already had their 
life extended, or are scheduled for completion in 1984. One additional 
unit is scheduled for completion in 1986. Life extension studies have 
been completed for another 43 units, most of which have begun plant 
modifications and are in various states of completion, though no 
specific completion dates are identified. An additional 134 units have 
been identified as candidates for study or presently being evaluated 
for life extension.
    Noted units range in size from 40 MW to 900 MW with coal being the 
predominant fuel Present age of the subject units ranges from 10 years 
to 49 years with the greatest concentration of units in the 20- to 35-
year bracket. Desired total service life, including the extended life 
period, is from 50 to 60 years. Of the 139 units identified thus far 
for plant life extension, the predominant operating mode intended is 
for cycling and/or baseload service. Approximately 52 percent of the 
units will operate in cycling service while 43 percent of the units 
will be base loaded. The remaining 5 percent will operate in peaking 
service or load following mode. One unit is scheduled for mothballing.
    In addition to the units noted above, 15 additional units are 
slated for conversion from their design condition fuel. Nine are to be 
converted from oil or gas firing to coal, and six units will be 
converted to either atmospheric fluidized bed combustion (AFBC) or 
integrated gasification combined cycle plants. Fourteen of the 15 units 
are 80 MW and under in size, while one unit is 250 MW. Unit ages range 
from 28 to 40 years, with an average age around 32 years.
    The utilities identified three principal areas for uncertainty when 
evaluating plants for life extension. In order of importance, these 
uncertainties are:

      Estimating remaining life.
      Evaluation of boiler and turbine.
      Evaluation of headers, drums, and piping.

    Other uncertainties identified include: 1) verification of life 
extension and uprating, 2) material properties, 3) evaluation of 
electrical components, 4) generation planning and costs, including 
maintenance cost to support target availability, 5) evaluations 
requiring historical OEM data, 6) environmental considerations, and 7) 
probability of major failures.
    The utilities see a very significant role for diagnostic monitoring 
equipment including: vibration, stress, and condition analyzers during 
the extended life period.
    The utilities noted that they would like future workshops planned 
on plant life extension. Primary areas of interest, listed in order of 
preference, include:

      Concentration on utilities' findings.
      Update on ongoing projects.
      Methodologies.
      Equipment evaluation and diagnostics.
      Remaining life estimation.
      Program planning.
      Metallurgy and electrical components.
      Generic problems.
      High pressure piping.
      Instrumentation and controls.

    In order of preference, the utilities desire EPRI to undertake 
development programs in the following areas to assist in their carrying 
out or implementing life extension activities:

    Boiler life extension--Drums and headers
--Superheaters and reheaters
--Waterwalls
--Controls
--Structural members
--Burners
--Fans
--Pulverizers and feeders
--Valves and piping
--Ductwork
--Fabric expansion joints.
      Balance of plant evaluation
--Piping
--Controls.
--Feedwater heaters
--Condensers
--Pumps
--Valves
--Motors
--Transformers
--Switchgear
--Cable, wiring
--Precipitators
--Cooling towers
--Deaerators.
      Turbine life evaluation
--Shafts
--Generators
--Blades Discs
--Controls
--Bearings.
      Generation planning studies.

    
    
    Mr. Hawkins. The conference participants were clear that 
these life extension efforts involved much more than routine 
maintenance, and I'd like to quote from a paper delivered by 
Duke Power. Duke Power said: ``As in the case with most U.S. 
utilities, Duke Power has experienced a major change in 
operating philosophy in the past several years. This 
necessitated us developing a different approach than routine 
plant maintenance, which would have been responsive to the new 
schedule constraints. Plant maintenance program previously 
employed did an excellent job in minimizing cost outlays versus 
keeping this plant in service until the end of its design life. 
This program simply can't be applied to the present 
situation.''
    At another industry conference 2 years later TVA described 
how it had begun its fossil and hydro unit evaluation and 
modernization program in 1984 with the primary goal: ``to 
extend plant life 20 or more years beyond its design life of 35 
to 40 years.''
    Cincinnati Gas and Electric presented a detailed paper 
describing its life extension project at the Beckjord Unit 3, 
which involved 49 capital improvement projects which the paper 
distinguished from normal maintenance. And I'd like to submit 
that for the record.
    Senator Inhofe. Without objection, it will be entered into 
the record.
    [The referenced report follows:]

          Life Extension and Assessment of Fossil Power Plants

                         CONFERENCE PROCEEDINGS

           (Editors, Barry Dooley and Ramaswamy Viswanathan)

                                ABSTRACT

    A great many utilities across the country have included Life 
Extension as an integral part of their generation expansion plans. Life 
Extension has temporarily replaced new construction. Most of these 
utilities have adopted a ``phased'' approach to Life Extension of 
candidate units. The Cincinnati Gas 6 Electric Company's W. C. Beckiord 
Station-Unit 3 is the first generating unit in the country to complete 
a ``full'' instead of ``phased'' life extension program. During a 13-
week outage which ended in January, 1986, all life extensive 
modifications recommended as a result of extensive studies were 
implemented. A total of forty-nine replacement and/or modification 
projects were performed to add approximately 25 years to the unit's 
life at a total cost of less than $100/kW. The planning, coordination 
and project management utilized to inspect and evaluate the condition 
of the unit, procure materials, equipment, and contractors and complete 
the installation and startup are discussed in detail.

                               BACKGROUND

    LL C. Beckjord Station is located on the Ohio River near New 
Richmond, Ohio, approximately 17 miles upstream from Cincinnati, Ohio. 
Unit 3 has a rated capacity of 128 MW and was placed into service in 
1954. The unit consists of B&L front fired single reheat pulverized 
coal boiler and a General Electric tandem compound two flow turbine. 
Steam conditions are 1800 psig/1000 deg. F/1000 deg. F.
    The unit was conservatively designed, well-built, and has been 
well- maintained. Its heat rates and availability have been favorable. 
An analysis of CO&E's generation expansion plan identified Unit 3 as 
the prime candidate for life extension.

                                STUDIES

    For 30 years, the plant operators, maintenance and other support 
personnel have worked with the unit. They know it well; they know its 
limitations and its strong points. They have a good idea of what 
equipment is or is not suitable for another twenty-five years. This 
knowledge is a valuable source of information. In our studies, it was 
used to build the foundation for our detailed investigations. It 
allowed us to focus our resources on specific areas.
    Our preliminary studies had estimated a cost of $89/kW to extend 
the life of Unit 3.
    One of the most questionable areas in the determination of 
remaining life is turbine-generators, especially rotors and shells. We 
realized that this equipment is highly engineered and that much of the 
information required to properly evaluate this equipment is proprietary 
by the manufacturer, General . Electric. In the case of Unit 3, General 
Electric had been involved in every turbine overhaul since the initial 
startup. For these reasons, GE was contracted to perform a life 
extension evaluation of the turbine-generator equipment. This study was 
initiated in September 1983, and completed in February, 1984.
    The GE study of the turbine-generator supported our original 
estimate. Management approval was obtained in June, 1984, to proceed 
with life extension. A 13 week outage was scheduled for the fall of 
1985.
    A team was assembled to investigate the remaining areas of the 
unit. Organization of the study team is shown in Figure 1. The Boiler 
Plant study was conducted by our in-house engineering personnel with 
assistance in the evaluation of high temperature components from 
Babcock & Wilcox. Electrical equipment and structures were also 
evaluated by in-house personnel. Bechtel Associates was contracted to 
perform the life extension evaluations of balance of plant equipment. 
Bechtel was responsible for basically all other equipment not supplied 
by either the original boiler or turbine contractor??
    These studies were formally kicked off in July, 1984, and were 
completed in February, 1985, as scheduled. This demanding schedule was 
complicated by the need to conduct the inspection during a 2-week 
period. This required special considerations and careful planning. The 
inspection work was carefully staged and scheduled so that the unit 
could be returned to service within 24 hours notice if required for 
load.

                             SCOPE OF WORK

    As a result of the study, 49 capital improvement projects were 
identified for the life extension outage. CG&E defines capital projects 
in accordance with Federal Energy Regulatory Commission guidelines. A 
list of these refurbishment projects is provided in Table I.

                 A MAJOR PROJECT WITP A MINOR SCHEDULE

    At the time of our inspections, the outage to implement the 
recommendations of those inspe * ions was less than 1 year away. Action 
had to be taken to expedite procurement of long lead time items. Our 
requirements for obtaining competitive pricing could not be compromised 
and, before we could proceed with any purchase, our evaluation and cost 
justification for the replacement or modification had to be approved.
    It was obvious, that in order to maintain our commitment to the 
outage schedule, we must utilize some of the project controls normally 
reserved for major, new construction projects.

                   WCB-3--LIFE EXTENSION CAPITAL WORK

      Turbine Related
  Bucket Replacement (5 rows)
  Steam Seal Conversion
  HP Inner Shell Replacement
  Static Exciter
  Stop Valve Bypass Valve Installation
  Generator Field Rewind
  Generator Stator Rewind
  Starting & Loading Thermocouples
  Misc. Control Improvements
  Condenser Retubing
  Fine Mesh Screens.
      Boiler Related
  Bunker Replacement
  ID Fan Drive Replacement
  Demineralizer Replacement
  Combustion Controls
  Service Water Piping Replacement
  Water Sampling Room
  Annunciator Replacement
  Boiler Skin Casing
  Insulation Replacement
  Ignitor Replacement
  Feeder Motor Replacement
  Secondary Air Dampers
  Primary Air Fan Replacement
  Sootblowers Replacement
  Secondary Superheater
  High Temp. Headers (3)
  Primary Reheater
  Secondary Reheater
  Uninterruptible Power Supply
  Misc. Control and Panel Equipment.
    Total Project cost approximately $13,000,000, including all 
engineering, overheads, and allowance for funds.
    Table I
    We had recently acquired the PREMIS critical path method scheduling 
program. In the past, on major projects, our scheduling work had always 
been handled by outside consultants. As soon as we were able to 
identify a potential replacement or modification for the outage, action 
was taken to input the schedule into the PREMIS program. Our primary 
concerns at this point were to:

    1. Order and receive all materials and equipment prior to the first 
day of the outage, and
    2. Complete all engineering and drafting in-time to allow for 
obtaining competitive bids, and
    3. Award installation contracts in time to allow contractors to 
prepare detailed installation schedules.

    On this project, our plans were to complete all engineering in-
house for capital projects. Many of our engineering personnel were 
unfamiliar with the PREMIS program. To expedite the input of 
information, standard forms were prepared that listed the normal steps 
in the engineering-procurement-drafting process in our company. The 
engineer simply had to fill in the estimated time to complete each step 
in the process and/or fix the date when the step had to be complete. 
These forms greatly simplified the schedule formation process.
    Once the PREMIS schedules were input, the critical paths were 
identified and we were able to concentrate our efforts on those items 
in trouble.

                              CONTRACTORS

    It has been our experience that the fewer contractors on the 
jobsite, the easier it is to control the project. Limiting the 
contractors also limits the ``finger-pointing'' and simplifies 
coordination. For this project, installation contractors were chosen 
for the following work packages:

      Turbine-Generator
      Boiler
      Electrical
      Piping
      Condenser
      Asbestos Removal
      Insulation.

    Besides the capital work involved in the life extension project, 
there was a large amount of maintenance work identified by the plant 
that had to be included in the work packages. This required a close 
working relationship between engineering and plant personnel related to 
the outage.
    The turbine-generator installation contract was awarded to General 
Electric. Much of this work, especially service shop work, was awarded 
on a firm price basis. Late in the outage, problems were found with the 
stator windings in the generator. National Electric Coil was contracted 
to manufacture and install the new stator windings without impacting 
the outage schedule.
    Competitive bids were obtained for the boiler work. Babcock & 
Wilcox was successful. This scope of work was by far the most extensive 
of the project. B&W was also successful supplier of all of the boiler 
material being installed in this work package. This offered a great 
advantage since we were able to negotiate a single source 
responsibility from B&W for both materials and installation.
    This project involved the removal of asbestos bearing insulation 
from the entire boiler, (over 15,000 sq. ft.). Both the removal and the 
replacement were performed on firm price, competitive bid contracts. R. 
E. Kramig Co. of Cincinnati, Ohio performed the removal. Powerhouse 
Equipment of Akron, Ohio performed the replacement.
    All electrical work was assembled into a package and awarded to a 
local Contractor' Watson-Flagg. Likewise, all piping work (except for 
boiler related) was assembled in a package and awarded by competitive 
bid to a local piping contractor, Mechanicals, Inc.
    The condenser retubing and installation of ID fan drives (both in 
secluded areas of the plant) were bid separately and awarded to a local 
contractor, Enerfab.
    Each of the installation contractors were required to provide 
detailed Schedules within several weeks of award. These bar charts were 
required to include each step of the installation process and men per 
shift per day for each of these steps. This data became the basis for 
the project outage schedule.
    Prior to award of the installation contracts on this project, our 
management negotiated an agreement with the National Maintenance Policy 
Committee for craft labor of signatory unions to work at 90 percent of 
full scale wages. This resulted in a considerable savings in 
installation cost for this project.

                            THE OUTAGE TEAM

    As with any major project, a field engineering staff is necessary 
to service construction and administer the contractors. When our last 
new unit was completed, our normal field construction staff was 
reassigned. A new team with special characteristics had to be assembled 
for this project. These special characteristics for the Outage Team 
were:

    1. A clear understanding of existing plant operations and good 
working relationships with plant personnel.
    2. A familiarization with the modifications and equipment to be 
installed. The outage length did not allow time for someone to be 
trained.
    3. The tenacity necessary to effectively manage contractor 
personnel.
    4. A willingness to devote long hours to the project.

    Fulfilling these objectives required a mix of engineering and plant 
personnel. Our General Engineering and Electric Production Departments 
each contributed individuals to the Outage Team. Temporary 
reassignments were made. The Outage Coordinator was brought in from 
another generating plant, thereby allowing for his undivided attention 
to the project. The organization is shown in Figure 2. The Outage 
Coordinator was directly responsible for the outage work. His team of 
Field Engineers were the single source contacts for the contractors. It 
was the responsibility of the Life Extension Project Leader to procure 
equipment and contractors. It was the Outage Coordinator's 
responsibility to see that the contracts are carried out.
    The Outage Team was located in a room off the Turbine Room 
fittingly called ``Outage Central''. An outage board 35 foot long by 8 
feet high (see Figure 3) displayed all schedules for boiler and balance 
of plant equipment installations. A smaller board on the opposite wall 
displayed turbine work. These boards were the focal point of daily 
contractor meetings. Each morning at 8:30 a.m. all contractor 
representatives grouped to discuss progress from the proceeding day and 
activities to take place that day. If activities scheduled for the 
previous day were not completed as scheduled, they were moved back and 
their impact on other operations and the overall schedule could be 
assessed immediately. These meetings could be intimidating and were an 
effective tool. The discussion of daily activity by each contractor was 
very effective in minimizing lack of coordination problems. The 
contractors were also responsible for reporting their manpower levels 
at these meetings.

                               THE OUTAGE

    The outage was scheduled for October 25, 1985 thru January 25, 
1986. The first 15 days of the outage were used exclusively for 
asbestos insulation removal. The entire boiler area from ash hopper to 
penthouse was enclosed with plastic sheeting and placed under a 
negative pressure. The insulation removal contractor worked three 8-
hour shifts per day for these 15 days and completed all work as 
scheduled. Eighty large dumpsters of material was removed. During this 
work, we maintained field engineers at the site around the clock to 
ensure the work remained on schedule and was completed in accordance 
with applicable safety regulations.
    During these 15 days, the Boiler Room of the unit was closed off to 
all other personnel.' As a result; other contractors, such as the 
boiler and piping contractors, could not begin work until November 11, 
1985.
    The outage went well. Jobs initially considered crucial and close 
to impossible, such as the boiler skin casing, went very well. All 
contractors, with the exception of the turbine contractor, were 
originally scheduled for one or two 8-hour shifts. The turbine work was 
done on two 10-hour shifts. It was only during the last week of the 
outage that limited overtime became necessary.
    Three occurrences took place during the outage which had great 
potential for upsetting the schedule. Each occurrence was dealt with 
accordingly and adjustments made to compensate. As a result, the 
scheduled completion date remained unaffected. These occurrences are 
described below.

    1. As mentioned earlier, the stator rewind was found to be in need 
of rewinding. Coils were manufactured, installed and tested within 8 
weeks of award.
    2. The main steam and hot reheat lines were found to be severely 
exfoliated. Within 10 days of a decision to acid clean this piping, the 
cleaning system connections were fabricated and installed, the cleaning 
completed, and the temporary connections were removed. Total cost of 
this work was slightly over $100,000. The turbine and boiler 
contractors were slightly delayed, however, a weekend of overtime 
brought them back on schedule.
    3. Difficulties in electrical testing and delays in release for 
testing. Adjustments were made in testing responsibilities, work hours 
and overtime to compensate.

    The Outage was completed on schedule. On January 25, 1986, at 
9:37AM the generator relay was closed. On January 27, 1986, a cold 
spell hit the Cincinnati area and the unit was used to produce over 100 
MW's (75 percent of full load) to meet the system demands.
    Generator vibration at the first critical was unacceptable. After 
several balance attempts, the rewound field was removed and balanced at 
low speed on Site. Mid plane balance was required to reduce vibration. 
This field removal, balance, and replacement work took 1 week after the 
unit was finally removed from service.

                          COMPANY LABOR EFFORT

    CG&E labor efforts were monitored throughout the entire project 
from study thru the full implementation of life extension 
recommendations. All but one Of the jobs in this project were 
engineered by in-house engineering personnel. All field engineering, 
drafting, and electrical testing was completed by our company 
personnel. A summary of the hours is shown in Table II below:

                                Table II
              Summary of Company Labor WCB-3 Life Extension
------------------------------------------------------------------------
         Description                            Manhours
------------------------------------------------------------------------
Engineering (study only).....  5,900
Engineering of Modifications   13,800
 (incl. field eng'rg.).
Drafting.....................  8,200
Scheduling...................  1,100
Electrical Testing...........  8,400
Plant Support................  1,600
    Total....................  39,000
------------------------------------------------------------------------
Figure 4 compares monthly manpower requirements to major events in the
  schedule.

                               CONCLUSION

    Our work is complete on Unit 3. All modifications required for life 
extension have been implemented. We can walk away from the unit with 
reasonable assurance of its operating reliably thru the extended life 
period.
    The outage was a great success. It was completed on time and within 
budget, and at a cost of less than $100/kW. We've learned from our 
experience and are implementing changes now for our next outage on WCB-
2 in October, 1986. This will be another full implementation of life 
extension recommendations.
    The PRENIS program will be used to schedule not only the 
engineering and procurement, but the actual outage work itself. Through 
careful planning for completion of each item prior to contractor 
bidding, we hope to greatly reduce our electrical testing and 
contractor overtime.
    Work scopes are being detailed far in advance of the outage to 
minimize extra work. We are capitalizing on our experience to reduce 
our engineering and drafting efforts. Major scope changes such as the 
rewind of the generator stator and acid cleaning of the main steam and 
hot reheat line are being planned. Our field engineering personnel will 
be better supported with assistance to provide better cost control and 
cost reporting.

                            ACKNOWLEDGEMENTS

    Presentation of this paper is not complete without acknowledgement 
to the hundreds of individuals who made this life extension project a 
success. Everyone involved; the engineers, draftsmen, craft labor, 
technicians, clerks and typists played an important role in the final 
outcome. Special recognition is given to the Outage Team, whose 
unselfish dedication to the project made the pieces all come together.

                               REFERENCES

    Pulskamp, B.E., ``Life Extension of W. C. Beckord Station--Units 1, 
2 & 3'', Electric Power Research Institute Fossil Plant Life Extension 
Workshop, June, 1984
    Mr. Hawkins. How about the point that the EPA has changed 
the rules? Well, my time is up and I don't want to bend the 
rules. So if we get into that in the question and answer I 
would be happy to respond.
    Senator Inhofe. You'll have that opportunity, Mr. Hawkins, 
thank you.
    Mr. Tyndall?

  STATEMENT OF BILL TYNDALL, VICE PRESIDENT OF ENVIRONMENTAL 
                 SERVICES, CINERGY CORPORATION

    Mr. Tyndall. Good afternoon, Senators. Thank you for 
inviting me here today to testify before you on the EPA's 
proposed changes to the Clean Air Act's New Source Review 
Program. My name is Bill Tyndall. I am Vice President of 
Environmental Services for Cinergy Services, a service company 
for Cinergy Corporation, which is the utility that serves the 
Cincinnati area and home to this committee room, or temporary 
committee room.
    Cinergy serves about 1.4 million electric customers and 
478,000 gas customers in Indiana, Ohio and Kentucky. Let me 
talk very quickly about why the issue of New Source Review is 
so critical to Cinergy and to other companies trying to provide 
electrical service to our customers.
    Steadily increasing customer demand for electricity and a 
strong and increasing economy have provided a test to our 
nation's electric supply in many areas of the country, 
particularly in the Midwest. The EPA's proposed changes to the 
New Source Review rule must be carefully screened to make sure 
that they do not undercut our ability to continue to supply 
power reliably and safely. And let me emphasize there is no 
margin for error here, as most observers recognize that the 
Midwest faces narrow reserve margins this summer and for the 
next few years.
    As you are aware, electricity generating units are operated 
under extreme conditions of temperature, pressure and wear that 
makes such failures particularly likely. As an automobile or 
other highly integrated pieces of equipment, these various 
parts wear at different rates with the results that parts, both 
large and small, must be replaced on a periodic basis in order 
to keep the unit running properly. If the parts are not 
replaced, the failure to make such repairs results in rapid and 
declining reliability, unit availability, and really increases 
in--or decreases in the safe operation of the plant.
    And I brought with me one sort of show-and-tell item. This 
is tubing from our Zimmer power plant. There are 30 to 50 miles 
of tubing in a boiler. This shows a rupture from the pressure 
blowing out the tubing. It is this kind of repairs that you 
constantly have to be making. And when you see this or where 
you see this starting to happen, you actually go in and will 
repair whole areas. And, you know, to response to some of the 
things that Mr. Hawkins brought up, the question of whether 
there was over-extensive repair and replacement in the past 
will be something that obviously EPA has chosen to resolve in 
court cases. And, you know, it's not at this point probably in 
the committee's ability to look at that issue or to influence 
it, and we'll be happy to defend ourselves in court.
    But going forward, we need to have a system that allows 
this kind of project to go forward and make the units available 
because we simply can't risk having them not on line and having 
to wait a year or longer to get them on line because of having 
a food fight with EPA over whether a certain repair is covered 
or not under the New Source Review rules.
    Also, just to comment on the grandfathering issue, as has 
already been talked about by other witnesses, these existing 
power plants are subject to a host of Clean Air Act 
requirements. And really, as I've testified before in front of 
this committee and, you know, mimicking what's up there from 
the refiners, there's a whole other addition of requirements 
coming at coal-fired power. Cinergy at this point has spent 
about $650 million on putting on controls in the 1990's and we 
expect to spend $400 million more over the next few years 
making NOx reductions, partly in which will address some of the 
issues that David described in terms of health effects in the 
Ohio Valley.
    But all of that is taking place in response to programs in 
Title I of the Clean Air Act, programs that are designed to 
reduce emissions and improve ambient air quality. To try and 
turn the New Source Review Rule into the place where the 
reductions take place is to put too much of a burden on this 
program. To put it succinctly, it is not going to work that 
every time in the 30 to 50 miles there is a blow-out of a tube, 
it is not going to work to have that be the moment when plants 
have to be shut down for a year when difficult decisions about 
whether you put upwards of $250 million or more of controls on 
a plant versus repowering it versus closing it down are made. 
The system at this moment in time is not going to survive. The 
companies and the system at this moment in time are not going 
to survive a world where that's the basis on which we put our 
control.
    There's an alternative, which is to deal with these issues 
directly. I think the chairman of this committee has put 
forward a proposal to get all the sites together to talk about 
the challenges facing coal-fired power, to get all the 
stakeholders, the States, the environmentalists, into a room 
and see if there isn't a way of developing a path forward that 
gets the reductions, that also provides certainty for the 
industry.
    My CEO, Mr. Rogers, has been working with EEI on an 
internal task force, and hoping to work with the committee to 
try and do the same thing. And we think that's where the 
environmental issues should be resolved so that we can--in 
terms of New Source Review it should just be a program that 
puts controls on new sources. It shouldn't be providing mockup 
for all these other air quality issues.
    Senator Inhofe. All right, thank you, Mr. Tyndall.
    Mr. Hawkins, you were going to make some comments about 
changing rules. I want to give you an opportunity to do that. I 
have instructed Mr. Wheeler to extinguish the traffic light so 
we can go ahead and give ample time to each of the four of you. 
So why don't you go ahead and share what you were going to 
share with us concerning the change in the rules.
    Mr. Hawkins. Thank you, Mr. Chairman. Very briefly, the New 
Source Review Program as has been described involves the EPA 
writing regulations which appear in the Federal Register. And 
then from that point on it is largely a self-policing system 
where the applicants are responsible for determining whether 
their facilities and changes at their facilities may require a 
permit. And they are entitled to and invited to consult with 
the local permitting authority or with EPA.
    In the early 1980's when the industry began to discuss 
these life extension programs that I've been talking about, 
industry members discussed the fact that regulatory agencies 
might say these projects would be subject to New Source Review. 
What did the industry do? Instead of going to EPA and asking 
for clarification, they said, let's characterize these things 
as ``upgrades'' and ``maintenance;'' let's characterize them as 
``reliability related,'' downplay the life extension, and above 
all deal with it at the local level. Do not elevate it to a 
national level. In other words, they made a deliberate decision 
to try to fly under the radar screen with respect to this very 
important issue.
    EPA has always been ready to respond to applicability 
requests, and a large part of this stack of documents are EPA's 
responses to inquiries from other industries. Other industries 
have asked EPA for applicability determinations. But the 
utility industry by and large chose not to do so. Why? Because 
we think they didn't like the answer they would get.
    So then what happened? Well, in 1988 the State of Wisconsin 
did, in fact, elevate it to a national level. It wrote a letter 
to EPA that said, ``We've got a project in front of us 
involving Wisconsin Electric Power. We'd like to know whether 
you think it triggers New Source Review.'' The agency looked at 
that and said, ``Yes, it does.'' What did the company do? It 
hired the law firm that represents all the investor-owned 
utilities, virtually all of them, and took EPA to court and 
sued EPA saying, ``What you said is unlawful.'' In 1990 the 
Seventh Circuit upheld EPA's interpretation of routine 
maintenance. The industry had claimed that all the WEPCO work 
was routine maintenance. They brought in lots of data similar 
to the information that TVA has shared about practices in the 
industry. The court said EPA is right. The court said if the 
industry's arguments were to be accepted, an indefinite 
loophole would be created in the Clean Air Act contrary to 
Congress' intentions.
    While that case was pending, EPA began an investigation of 
utility practices, a broad investigation. What happened in that 
investigation? The same industry lawyers that brought the WEPCO 
case went to OMB and they got OMB to kill the investigation 2 
weeks after the WEPCO case came out. So that stopped EPA in its 
tracks for awhile. Then the industry went to Congress and tried 
to get an amendment in the 1991 and 1992 sessions, which was 
the Energy Policy Coordination Act before Senator Bennett 
Johnson's committee.
    Congress did not enact the loopholes that the industry 
sought, so they went back to EPA and they tried to get the EPA 
to write in broadened exemptions for routine maintenance. The 
industry knew exactly what the game was here and they were 
trying to get a very expanded definition of this loophole, 
because they knew what they had been doing didn't fit within 
the regulations as they were written.
    EPA did give an expanded loophole for some things in 1992, 
but it didn't do it with respect to routine maintenance. Then a 
few years passed, EPA again began another investigation in 
1997. Again, the industry went back to OMB trying to get that 
investigation killed, but this time OMB refused to kill it and 
that has resulted in where we are today. And that's why I say 
the rules have not been changed.
    Senator Inhofe. Do any of the other panel members have a 
brief response to what Mr. Hawkins has just stated?
    Mr. Tyndall. Just to respond to several things. There have 
been--I mean, there was guidance put into the 1992 rulemaking 
on the WEPCO rule, of the so-called WEPCO rule, that talked 
about what routine repair and maintenance is. And there it said 
that it was an activity that was undertaken by others in the 
industry. So there have been some marks given by EPA, and 
obviously companies are making decisions and they are trying to 
shoot for the targets that EPA has provided.
    You know, I don't want to--I know David has a view of how 
this has rolled out. But I think the best example of how the 
reality of trying to get EPA clarification on this, what it 
really looks like, is a company last spring asked for a 
clarification as to whether when they changed the turbine 
blade, or the turbine blades, whether that would trigger New 
Source Review. And they are still waiting for a response. The 
only thing----
    Senator Inhofe. How long ago was that?
    Mr. Tyndall. That was almost a year ago. And the only thing 
they have gotten from EPA was what's called a 114 request, 
which is essentially a request of information regarding all the 
projects they've done in the past. Essentially what they've 
done is, when they requested a clarification as to whether one 
of their projects would trigger New Source Review it only 
triggered a Federal investigation. So in that world, you know, 
the companies are not going to be writing EPA a lot of letters 
seeking clarification of what they can and cannot do.
    You know, again, what has happened in the past, you know, 
whether companies have gone over some line and whether the line 
was apparent or not, is right now, you know, the subject of 
litigation. I'm not really in a position to comment on it. But 
I will tell you and, you know, echo something that Mr. Bynum 
says. In terms of the people out there having to make decisions 
about what they can and cannot do at a plant, and especially in 
an emergency situation where a unit goes down in the summer 
because of one component or another failing, and when you have 
very little time to get it back on line when it's needed right 
at that time because we don't have excess power in this area, 
there is not a line out there that anyone understands.
    Senator Inhofe. OK, let me ask you, when you were talking 
about the blade in the turbine, that was not a turbine change, 
that was a blade in an existing turbine?
    Mr. Tyndall. You know, Senator, I'm not sure whether it was 
all or part of a turbine.
    Senator Inhofe. I think that would be helpful for us to 
know. I'd like the examples. Maybe some of you have other 
examples, in which case for the record you could submit them. 
Because there's no way that we can interpret and determine this 
without having specific examples that are obvious to those of 
us who are not in the business.
    Let me ask each of you to respond to Mr. Seitz's 
approximation of about six to 9 months in terms of the--I know 
this will differ from industry to industry. But as far as those 
industries that are represented today, and of course Mr. 
Hawkins having been with the EPA, you might want to respond to 
this, too. But I'd like to ask you your assessment of an 
average timeframe in which these permits--the application and 
the receipt of the permit. Let's start with you, Mr. Slaughter.
    Mr. Slaughter. Yes, Mr. Chairman. Our experience has been 
on the order of 18 months to 2 years. And I know you are 
familiar with this, but this particular question has been of so 
much concern with regard to the Tier II gasoline sulfur rings 
and the fact that the permit process, the time it takes, may 
inhibit our ability to comply in the given time that EPA took 
special notice of the problem in its recently finalized rules.
    So our experience has been 18 to 24 months. We have every 
indication that EPA is concerned with the time.
    Senator Inhofe. And you probably have records on this?
    Mr. Slaughter. Yes.
    Senator Inhofe. If you could supply those, would you do 
that?
    Mr. Slaughter. Yes.
    Senator Inhofe. Mr. Moore?
    Mr. Moore. The information we have from our companies is 
typically--the words used are typically 18 months.
    Senator Inhofe. All right, sir. Mr. Tyndall?
    Mr. Tyndall. We have one plant which was permitted in the 
late 1980's, early 1990's, and we're double checking but the 
recollection of one of the engineers who was involved in the 
project was that that was a two to 3-year permitting process 
for a new unit.
    Senator Inhofe. That's one example and one permit you're 
talking about?
    Mr. Tyndall. Right. I mean I--having both worked on the 
program at EPA, monitored it in Congress, and sort of attended 
a lot of these New Source Review meetings, my overall 
impression for the industry and for the industry in general is 
one to 2 years and even longer in situations where issues 
involving--any kind of issue can slow it down considerably.
    Senator Inhofe. Mr. Hawkins, any response to that or do you 
generally agree?
    Mr. Hawkins. Just a quick comment, Mr. Chairman, which is 
that most changes of facilities never see the Federal NSR 
permit process. Most changes of facilities either net out of 
review or are processed through the State, minor new source 
review. And it's only a very small fraction of all the 
permitting actions that are carried on by State and local 
agencies that are actually subject to a major Federal new 
source review.
    Senator Inhofe. That's interesting. Do you think it might 
be that Mr. Seitz is taking those, including those in the 
averaging to come up with his time that he's----
    Mr. Hawkins. No. There are in the audience from the local 
agencies that may want to say something about it, but there are 
thousands of changes that are looked at by local and State 
permitting control authorities.
    Senator Inhofe. OK, then a very similar question for each 
of you to respond to would be, addressing this reliability 
issue and its effect on foreign competition, competitiveness. 
Would anyone like to respond to that?
    Mr. Hawkins. I would like to respond to the electric supply 
reliability issue. I would submit that this argument about the 
impairment of the ability to respond to emergencies or worker 
safety is a classic red herring. Nobody has ever interpreted 
the rules to apply to the emergency replacement of the pieces 
of equipment in the electric utility sector, and I'm not aware 
of it happening in other sectors. None of the cases that have 
been brought, if you look at the complaints and notices of 
violation, involve these kinds of things. The agency has never 
indicated that it regards to these kinds of actions as not 
entitled to the exceptions.
    As I was saying in my testimony, what we're talking about 
here are organized activities that were planned over a lengthy 
period by the companies themselves, going up to corporate 
management level for approval in the capital budgets. These are 
not emergencies. These are substitutes for new capacity.
    Senator Inhofe. Mr. Slaughter, you had mentioned 18 to 24 
months. And I would ask you specifically if it takes your 
industry 18 to 24 months for permits before they can make 
equipment changes for new products, what does that do to your 
competitiveness? Do you have any thoughts about that?
    Mr. Slaughter. Well, we have had a lot of problems, Mr. 
Chairman. Because as you know, we've not had a new refinery 
sited in the United States since the early to mid-1970's. This 
essentially means that we have had to basically take place--
take care of delivering product to consumers and taking care of 
any increase in demand through changes at the existing 
facilities, through maintenance, repair, replacement, some 
additional capacity. Now with the tremendous burdens of the 
Tier II requirements upon us, and also others to come, as you 
know we are going to be forced probably to go in and look for 
permits in an unprecedented fashion over the next few years. So 
we are not going to be able to make our compliance dates, 
particularly on Tier II, unless we have some relief on the 
permit process. And EPA has been trying to address that, at 
least in part.
    Senator Inhofe. All right, sir.
    Senator Voinovich?
    Senator Voinovich. I was interested in Mr. Hawkins' 
testimony. I would think that from what I heard from Mr. Bynum, 
who is with Tennessee Valley Authority, that he is concerned 
that some of the things that you are talking about under the 
new rules would be included. That's the concern there. That's 
the kind of thing you're trying to share with the agency in 
terms of coming up with the rules to make sure that those kinds 
of things, indeed, are not included in that situation.
    Mr. Slaughter, it's very interesting. I'd like you to tell 
everybody here at this hearing, you now have Tier II sulfur 
requirements and it's going to cost the industry this $8 
billion, I think it was?
    Mr. Slaughter. Yes, sir.
    Senator Voinovich. Approximately how much will that add to 
the cost of a gallon of gasoline in this country?
    Mr. Slaughter. Well, there are different estimates. The 
industry's estimate is four to five cents per gallon. The EPA 
estimate was about one-and-a-half to one-point-nine cents. We 
are much more comfortable with our estimate. It is a total of 
$8 billion. And then as you know, the agency is also about to 
propose a rule on diesel sulfur which will cost about half as 
much on diesel. And as you know, Washington and other areas 
have been getting their share of complaints about diesel prices 
as of late.
    Senator Voinovich. I think at the time the biggest 
complaint I'm getting at my offices here in Ohio is that people 
are complaining about the high cost of gasoline. There's lots 
of reasons for that, but the fact of the matter is it's 
interesting that because of policies you haven't built a new 
refinery in this country in God knows how long. And the reason 
for it is it's not--why don't you tell us the reason why.
    Mr. Slaughter. Well, it's not possible to site a refinery 
because there are a multiplicity of regulations that would 
apply to it and areas generally have problems with it. We are 
pretty much resigned to the probability that another refinery 
will not be sited in the United States. We're going to be 
permanently reliant upon the sites that we have now. And I 
might just add, as you pointed out, we have a stewardship 
responsibility which we're reminded of from time to time to 
deliver gasoline and diesel to the public. So we've got to keep 
the plant in order and up to date.
    Senator Voinovich. One of the things that the public ought 
to pay attention to is the lack of energy or oil policy that we 
have in this country. We are right now at the mercy of the OPEC 
nations. If we got ourselves--our capacity to deliver gasoline 
is down to--we're more reliant today on overseas oil, I think 
at 65 percent. In 1973 it was about 35 or 40. And we're 
requiring you now to do some other things.
    The interesting thing is I think what you're talking about 
is some of the things that you're going to have to do to the 
current facilities that you have, you're concerned that that 
will then trigger this New Source Review, which would then make 
it more difficult for you to do the job that we are asking, or 
EPA is asking you to do, and that is to get rid of the sulfur 
from your gasoline.
    Mr. Slaughter. That's right.
    Senator Voinovich. The public has got to start putting some 
of this stuff together, about how it all works. And the point 
is you want to--you know, we haven't built--I'd like--why 
haven't the utilities explained why--why don't you build brand 
new utility plants? How come you haven't--you've tried to 
extend the life of those plants?
    Mr. Tyndall. Well, I think that's a very good point, 
because--I don't know. I mean, I've looked at the legislative 
history of the Clean Air Act amendment in 1970 and some of the 
claims that there was a specific date. There wasn't a specific 
date that was really used as when these plants would stop 
operating. But obviously what occurred was there wasn't the 
ability to add a whole bunch of new plants, so there was needed 
capacity continuation into the 1990's from the existing plants. 
Again, there was--I don't think it was a secret that there were 
projects undertaken to restore deteriorating capacity.
    You know, it's certainly one of--you know, a line that EPA 
is now claiming it can discern that it certainly wasn't 
informing people of in the past as to what exactly could be 
done and couldn't be done. They have never provided a list of 
projects, they've never said a money amount that couldn't be 
done. They've never said if you capitalize something it can't 
be done. So none of the--there's never been any discussion 
about exactly what can and can't be done until they bring 
enforcement actions and cite companies. First Energy was cited 
for something that occurred in 1979.
    So the ability to site these plants is--and to site any 
plants. Cinergy is trying to build a state-of-the-art gas-fired 
unit in a small town in Indiana, the kind of project that I 
think NRDC would want to see us doing, and we're having a very 
difficult time siting it because of issues involving land use, 
local air quality issues. And so in that world where it's so 
difficult to bring new things on line, you are going to 
continue to see pressure where there is very little margin for 
error, you are going to see continued pressure to keep these 
plants running. If any of our major units have to go down for 
whatever reason in the summer, it puts a serious strain on the 
entire Ohio-Indiana--and really the whole Midwest region. And, 
you know, we're going to do whatever we can to avoid that.
    Senator Voinovich. Well, your company I think did Zimmer. 
It was going to be a nuclear power, and they just that down and 
they spent----
    Mr. Tyndall. Right, which is the last plant we brought on.
    Senator Voinovich. That last plant. And I think part of the 
problem--I mean, another reason I would think logically that 
you're trying to extend the life is you have rate payers, 
people that have got to pay the rates. As the Governor of this 
State in terms of the rates that our residents pay, in terms of 
the competitiveness of our industries, we have parts of the 
State where people complain their rates are so high they're not 
competitive. We're concerned about, you know, competitiveness. 
All this has to be tied in. It's a reasonable, rational way of 
trying to develop rules and regulations.
    The other thing, Mr. Chairman, is the whole issue of fossil 
fuel. There are a lot of people in this country today that 
believe that there are some folks that just want to eliminate 
fossil fuel plants period, get rid of them. But you get rid of 
fossil fuel and nobody wants nuclear.
    If you don't mind, Mr. Chairman, we had a big hearing in 
Cleveland a month ago with some folks that were very concerned 
that they're going to run this nuclear waste through the City 
of Cleveland, out to Yucca Mountain. Well, I'll be dead before 
Yucca Mountain ever becomes a storage facility for nuclear 
waste. And someone was saying, well, what's the deal? We want 
to kill nuclear waste. Well, where are we going to get our 
power? Solar.
    We need to bring some rationality to all of this. And I 
think the environmental groups and the industry ought to get 
together at a table, and I'm hope that maybe in this room, like 
you suggested, Mr. Chairman, get everybody together and talk 
about this and where are we going? What is our national policy 
in regard to, say, the oil industry? Where are we going? Are we 
going to be completely relying on everyone else?
    Henson, your industry--you know, 18 months to 2 years. I 
think one of the other things is, you're all from different 
regions. That's the other thing. Is there a variation in the 
regions in terms of issuing the permits?
    Mr. Slaughter, I'm sure you have several regions.
    Mr. Slaughter. Lots of them.
    Senator Voinovich. Would you comment on that?
    Mr. Slaughter. There is some variation, but the average is 
what I've given you. A lot of our permitting activity takes 
place in Region VI, which is Texas and Louisiana, but that's 
the national average.
    Senator Voinovich. Mr. Hawkins?
    Mr. Hawkins. Senator, may I? If I can comment briefly on 
the question of the ability for new coal plants to get a permit 
and the life extension issue.
    Again, the facts won't bear out the claim that new coal 
plants couldn't get permits under the NSR and PSD rules. East 
Bend, the Trimble County Plant, the Rockport Plant, these are 
all plants within a hundred miles or so of here along the Ohio 
River that all got permitted with state-of-the-art controls 
under the PSD regulations.
    As far as life extension, we don't object to extending the 
life of these facilities, provided that they modernize their 
pollution controls when they do. Our objection is that the 
companies were not up front about what they wanted to do and 
failed to negotiate out what the requirements would be for 
cleaning up their power plants when they decided to extend the 
life of these old units, rather than building new capacity.
    So we're not objecting at all to finding ways to save money 
for the rate payer. I'm a rate payer, too; and my bill is as 
high as anybody else's and I'd like it to be lower. But you can 
clean these plants up economically and improve air quality and 
improve public health. And if that's part of your life 
extension program, then you're not going to have any arguments 
from us.
    Senator Voinovich. So the issue is not the length of the 
old plants, just tearing them down and rebuilding them, your 
point is that if you're going to be going forward with it that 
you ought to try to have the most modern technology available 
to you when you----
    Mr. Hawkins. If you want to run them longer, clean them up. 
I mean, the irony is that we're embarking on new regulation and 
a competitive playing field. And the fact is that the 
grandfather status of these extended life power plants is 
introducing a competitive distortion against new merchant gas-
fired power plants that want to come on to the market and 
they're having trouble getting financing because they have to 
compete head to head against plants with a built-in pollution 
subsidy because of their grandfather status.
    Senator Voinovich. But you will admit that they have done, 
as one of the other witnesses said, they have reduced the 
pollution from these coal-fired plants.
    Mr. Hawkins. Some industries have done better than others. 
As I said in my prepared testimony, 20-year-old power plants 
are responsible for 88 percent of the power plant sulfur oxide 
pollution, and 84 percent with the nitrogen oxide power plant 
pollution. They're hanging on there with the bulk of the 
pollution in those 20-year and older power plants. That's not 
impressive performance in my view.
    Mr. Tyndall. But, I mean, Senator, there is a very 
legitimate issue about talking about what is the best way of--
if further reductions are to be made what is the best way. I 
think the question where Mr. Hawkins and I may disagree is 
whether you use a program that essentially says, you know, when 
you blow--you know, as he would have it, and it's been 
described as a hair trigger. When you blow a tube in the 30 to 
50 miles that are in a power plant, that's a second that you 
swoop in and shut down the plant. You put on state-of-the-art 
controls. That isn't going to work. That's not reality.
    And Cinergy has been working constructively with lots of 
environmental groups, with other companies, to try and find a 
way of resolving these issues in a manner that makes sense for 
the environment, that makes sense for industry. And, you know, 
I mentioned before, Senator--Chairman Smith's initiative. I 
know there's some discussions going on between companies and 
environmental groups, in other words, trying to find a 
solution. I don't think the solution is to have a hair trigger 
on New Source Review so that if you have the misfortune of 
having any unit, any portion of your unit, have a problem, that 
that's the moment you're going to swoop and have to face the 2 
years, make the investment. That's not a rational way of 
resolving these issues.
    You know, the life extension issue, again, it's in the 
courts. I don't think there was--some of these quote, unquote, 
life extension projects, I don't think there was a lot of 
hiding the ball. You know, I think I know of an example where 
there were T-shirts and mugs and it was on annual reports. So I 
don't think that the court is going to find some conspiracy to 
violate the law. But, again, that's all in the courts.
    Senator Voinovich. That's in the courts. I think the thing 
is to look at the whole picture, the spectrum, and figure out 
where Mr. Hawkins would come out in terms of, hey, this is 
something that really ought to have required. And you know, I'm 
sure there are instances of that out there. And I think that if 
there are, then we should say that there are, OK; and then 
they're going to be brought under the net. But there is a 
rational, common sense way of handling this that doesn't put 
the industry in a place of not being able to protect workers or 
reliability and some of these other things.
    The last question I'm going to ask is, and maybe I'm taking 
it away from the chairman here was, but he talked about my 
briefing for this issue of the actual and the potential, that 
today if you're going to do something you're looking at what it 
is actually today and then what it's going to be actually 
tomorrow, although the potential may be there for the new thing 
to increase emissions. I guess that's what it's about. But if 
you look at the actual experience, common sense would say that 
you're not, even though someone says you've got the potential 
of going up, that in all practicality that's not going to be 
the case. I don't know if we're just talking about words here. 
Is this a real issue?
    Mr. Slaughter. Senator, if I could jump in for a minute, 
it's a very real issue. All the major industries like ours that 
are regulated build in a compliance margin to our operations. 
In other words, we don't go all the way out to our permitted 
levels of emissions. So the problem is that that means that 
there's a built in problem with NSR, because they look at your 
actual emissions to your potential emissions, and your 
potential emissions include the compliance margin. So that is 
being done almost automatically to trigger NSR.
    So one of the things I mentioned is that the net has been 
cast very widely to bring everybody into the ambit of NSR 
review, and the actual--the potential emissions test is one of 
the major reasons why.
    Mr. Moore. Senator, we also feel that this is a major 
problem and it's recent. Here again, since 1998, EPA is going 
back and changing something that had been a practice for 
largely 20 years of measuring actual to actual. Now the idea is 
you have to look at potentially the problem, that'll 
potentially increase. We take the position, our interpretation 
of the law, would be for our numbers that if you are operating 
at a certain level and if you make some kind of a change to 
your equipment under the regulations before 1998, or the 
guidelines, you didn't have to go through the permitting 
process, because you weren't changing any of the actuals.
    If you did increase your actual emissions, even within your 
permit level, if under the regulations it meets the term 
``significant,'' then you should go get a permit. But what 
we're talking about here is no realization of an increase at 
all and then you go through this process. This is new. This is 
conflicting the system. This is causing States not to know what 
to do. It's causing the industry not to know what to do. And 
for what purpose? If there is no increase in emissions, why do 
you have to go through this? The law says clearly an increase 
in emissions. Nowhere does it talk about a possibility. And if 
a possibility is achieved, then you've got to go back, because 
the law says, you change your operations and increase your 
emissions, you've got to go back and go through the review 
process.
    So the law is pretty clear. But what we're getting into 
here is something different, something new, something, as Mr. 
Hawkins has said in all honesty, you're trying to get at not 
permitting an increase. You're trying to get into forced 
decreases. And I think Mr. Tyndall said that was not the intent 
of the statute. Congress didn't intend that. There are other 
ways you get at that, other laws that you get at that.
    Senator Voinovich. Mr. Hawkins?
    Mr. Hawkins. First, it's not new. This was the subject of a 
1979 lawsuit by the Chemical Manufacturers Association and I 
believe the forest products industry was part of that lawsuit. 
A settlement was entered in 1981 where the agency said it would 
propose alternatives to the potential to actual test. In 1989 
the agency completed public comment and issued a rule saying it 
was going to retain this actual to potential test.
    Now, that's all the legalisms, but let's talk about the 
common sense aspect because I think it's a more powerful 
argument. The common sense point is the statute says no 
emissions increase. EPA has always taken the position that if a 
company is willing to live with its forecast of what the actual 
emissions in the future will be, then it can get a permit. The 
difficulty has been that the companies want to come in and say 
there's not going to be any emission increase and then the 
agency says put it in writing, and they say, ``Oh, no, I don't 
want to do that.'' They don't want to be bound by their 
assertions that there isn't going to be an emission increase. 
If they are willing to take an enforceable commitment that 
there will not be an emission increase, they can get their 
permit without the potential test at all.
    Mr. Tyndall. But to just add to the complexity, that sounds 
great until you realize that if you have a plant--you know, you 
had a low demand the year before, you only have 80 percent or 
in our industry you only use it about 80 percent of the time. 
What Mr. Hawkins is suggesting is in order to repair your tube 
you go in, and assuming EPA will respond to you and not launch 
a Federal investigation and allow you the level of emissions 
you had in the past, that essentially they'll let you freeze 
yourself at that 80 percent capacity. Therefore, you have 
essentially frozen that plant's output from that time forward 
at that level regardless of what future demand may be and 
regardless of whether any increase in the future was related or 
not related to you repairing this tube. And that--I mean, this 
gets into the complexities of this program and the sort of 
arguments that swirled around it for the last 20 years. That's 
why we really need to find something that's much simpler, like 
addressing the environmental issues in a different manner and 
then saying because of--we have a NOx cap over all emissions in 
Ohio, which we may have very shortly, or whatever reason, we're 
protecting the environment and we're satisfied we're protecting 
the environment, then we don't need to worry about whether any 
individual plant--we don't have to worry as much about whether 
any individual plant is going to increase emissions and we can 
do something by just essentially stating you're not changing 
the emissions rate, something very simple. The engineers 
understand it. If you're change doesn't increase the emissions 
rate, you can go ahead and make them. It's a very simple 
approach. It's one that can be made to work with a number of 
safeguards, some of which are already in place, and it's the 
kind of thing that I think if EPA were willing to really sit 
down and talk to Mr. Hawkins but also talk to industry and look 
at this issue, it might be something that could be resolved 
instead of them going forward--I think partly because their 
enforcement office is making them, going forward and just 
making, you know, as I said, the hair trigger approach to this 
program.
    Senator Inhofe. Well, I appreciate your following up on 
that because I was going to do that.
    Mr. Hawkins, in your testimony and in previous briefings 
you emphasized the fact that industry changes the names of 
maintenance work depending on their audience. I think one of 
the examples you used is to switch from the term ``life 
extension'' to ``reliability of projects.'' You seem to equate 
that to an admission, I guess, of guilt. Having been in the 
business world, I know that you use different terms depending 
upon your audience. If a manager wants funding for a project, 
he uses a term that he knows the accountants will approve.
    Now I understand that the environmental organizations do 
this, too. In a recent news article, and I was reading this, 
it's Inside EPA. They are talking about changing the name of 
the Environmental Defense Fund to Environmental Defense, 
because this has a greater appeal in their fund raising efforts 
out there. The article also says that your own organization was 
searching for a new communications director and an employee 
said that the NRDC was hoping to become ``the Bloomingdale's of 
the environmental movement.'' Does the NRDC hire or work with 
consultants to figure out the best words to use to raise the 
most money?
    Mr. Hawkins. I haven't heard that one. I think we would be 
better off if we were the Wal-Mart of the moment. Actually, 
we've been fairly stodgy as these things go. We haven't done 
focus groups or taken polls on our name. And I think proof of 
the pudding is our name--Natural Resources Defense Council. I 
have joked that we should have a tag line: ``We're the group 
you've never heard of.''
    We've pretty much resisted the idea of trying to come up 
with, you know, turning ourselves into Exxon or American Brands 
or something that nobody knows what it stands for.
    Senator Inhofe. Do you have any questions, Senator 
Voinovich?
    Senator Voinovich. No, I haven't.
    Senator Inhofe. Do any of the members of this committee 
have something they're just dying to say that they haven't had 
the opportunity to say? Mr. Moore?
    Mr. Moore. Yes, sir. I've got a lot of respect for Mr. 
Hawkins and his organization and worked with them while I was 
in government and I wish we could work with them more closely 
now. I can't let this routine maintenance thing go by. We have 
a different view of this. We aren't involved in a lot of things 
that he's been talking about involving the power companies, 
maybe things are different there.
    All we know is in 1980 the rule was clear, you know, what 
was maintenance. And, yes, we didn't have a lot of needs for 
the Federal permitting process. It was fairly clear. Now we're 
having a new enforcement decision in 1999 saying what routine 
maintenance is, and that's where the impact is. Anything you 
do, these words mean anything. They cover frequent, 
conditional, comparative, inexpensive repairs to maintain 
existing equipment. Look at the position that puts a middle 
manager in and then look at the position that puts the State 
regulator in when he calls them on the phone and says, I'm 
getting ready to do something that's routine. It's maintaining 
existing equipment. It's not going to increase anything. Do I 
have to get the permit? What does he say back? He says I don't 
know. He says, you know, I gave you a permit 10 years ago and 
now retroactive they are coming back and saying they didn't do 
it right because it had a potential of increasing emissions.
    Basically the rules have changed. The rules have gotten to 
where now they are even more unenforceable or more 
unfollowable, if that's a word, than they ever were before. And 
so, yes, you're not going to see--I mean, I don't know, by one 
measure you could see a great deal more of the permits being 
requested because of being forced to because now you are 
getting into things that up until 1999 everybody thought were 
not included.
    Well, what's going to happen is you're just going to freeze 
the process. Nobody is going to do anything. In the mills you 
are not going to do anything, adding anything to improve the 
processing or even improve the environment. Sometimes you do 
both at the same time on the grounds that we don't want to go 
through this. It's a marginal project. We're not going to go 
through all this red tape and wait 18 months or maybe longer if 
this thing is getting more complex and more permits being 
required. And the States are saying we don't know what to tell 
you. As a matter of fact, the States are asking EPA to go back 
to a simpler, reformed rule and get away from some of the stuff 
they're proposing here, particularly in the routine maintenance 
area.
    So I don't think we ought to let this area go by with some 
of us saying that we think that routine maintenance is a way to 
keep doing something or get away from something or whatever, 
that's not the case at all. Routine maintenance in our industry 
is meant to be just that. We are supposed to be doing something 
to keep a mill working, keep it running. If it increases 
emissions, we're supposed to get a permit and they were 
supposed to put some kind of equipment on to take that back 
down to below the emission levels. And that's not how this 
thing is working out there. This is something that's headed in 
the wrong direction. In other words, in how it is being 
enforced and by what it's doing to those of us who are trying 
to follow these rules and regulations. And we ought not let 
that go by as some kind of a no real change or no real 
difference in procedures. That's just not true from the point 
of view of us trying to live under these things.
    Senator Inhofe. Mr. Hawkins, do you want to respond?
    Mr. Hawkins. Actually, I'd like to make my final comment be 
one of agreement with something that Bill Tyndall and Joe Bynum 
said. Both of them pointed out the benefits of looking at a 
comprehensive approach to reducing emission from existing 
sources and preferably focusing on multiple pollutants. I think 
that has a great deal of merit. We are engaged in discussions, 
formal and informal, with a variety of players in the electric 
sector and we're committed to exploring that and seeing whether 
we can come to agreement.
    Senator Inhofe. Thank you very much. Mr. Tyndall? All 
right, any final----
    Mr. Slaughter. I just might add one point, Mr. Chairman, 
which is, you know, it's been suggested that maybe there are 
people who haven't been doing much. I know you're aware of the 
Natural Petroleum Council's study that shows that basically 
over this last decade the refining industry spent more on 
basically environmental controls than the entire book value of 
the industry. So there is a major commitment there. I probably 
should also add as mentioned in my oral statement that we hope 
these talks with EPA on NSR go forward and the program office 
and Mr. Perciasepe, whom you mentioned, has generally been 
helpful in this regard. Unfortunately, that hasn't been the 
uniform position across the agency. We're hopeful that this 
hearing will help move things in a more positive direction.
    Senator Inhofe. I appreciate that.
    Senator Voinovich. Mr. Chairman, I just want to point out 
one thing to verify that. As Governor I really worked hard with 
communities to get us some ambient--to get into attainment. And 
there was one industry, BP, had a big refinery up in the Toledo 
area, and they put on an enormous amount of money into cleaning 
up that facility. And as a result of what they did, they 
brought the Toledo area into attainment. So there's a lot of 
good that's being done out there by industry, and I guess the 
thing is that we want to all keep working to continue to 
improve the quality of our air but we want to do it in a way 
that makes sense and doesn't require you to spend money on 
things you ought not to spend money on, at the same time 
realize that we want to get better.
    Senator Inhofe. Thank you very much. Well, I thank all of 
our panelists. We're quitting exactly on schedule. But I 
appreciate you've come a long ways. We've come a long way to 
have this hearing. I appreciate your attendance here very much, 
and we are adjourned.
    [Whereupon, at 4:45 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]

                  STATEMENT OF HON. TED STRICKLAND, 
             U.S. REPRESENTATIVE FROM THE STATE OF OHIO

Introduction
    Good morning, Mr. Chairman. Thank you for your kind welcome and for 
allowing me to offer testimony at today's hearing. I especially would 
like to thank Senator Voinovich and take this Opportunity to express 
the appreciation of southern Ohio for his leadership in defending the 
use of coal--one of Ohio's most valuable natural resources.
    My name is Ted Strickland. It is my privilege to represent the 
people of the 6 Congressional District of Ohio in the U.S. House of 
Representatives. Ohio's 6th Congressional District spans all or part of 
14 counties across the southern part of Ohio, from Warren County in the 
west to Washington County in the east. This part of the State also 
offers a beautiful national forest, some of the most pristine farmland 
in Ohio and many unique historic sites.
    I appear here today because I am very concerned that new approaches 
to Federal environmental policies may result in an excessive and 
disproportionate hardship on already distressed parts of the country, 
like southern Ohio. The New Source Review (NSR) program directly 
affects southern Ohio and its neighboring States where some of my 
constituents travel to work. This region is home to coal-fired power 
plants, coal mines, manufacturing plants, a petroleum refinery and a 
large paper mill. After visiting this part of the country, it becomes 
readily apparent why we must strive for a healthy environment and why 
we must do so in a manner that allows for a healthy economy.
    I support strong environmental protections which improve the 
nation's ability to be a good steward of our natural resources, and I 
am proud of the fact that the 6th Congressional District has attained 
compliance with all of the National Ambient Air Quality Standards for 
all of the criteria pollutants regulated under the Clean Air Act. 
However, I believe equally strongly that we have a responsibility to 
develop a reasonable balance between the specific goal of air quality 
improvement and other important public policy objectives. Like Vice 
President Al Gore, I firmly believe that both a good environment and a 
good economy can coexist while we continue to use one of our most 
abundant energy resources--coal. In fact, I would share that Ohio 
University, right here in southern Ohio, offers promising research on 
the development of a practical biologically based process to reduce 
emissions from fossil generation units. This type of research provides 
some assurance that in the long run our fuel supply will remain 
diversified, reliable and efficient. The technological possibilities 
are within reach, but only if research and regulation compliment each 
other.
    Briefly, I will share with you some troubling statistics from my 
district and my concerns about the EPA's New Source Review (NSR) 
program. I think together this information demonstrates the need for 
meaningful reform of the NSR program so that we strike a better balance 
between the pace of desired environmental benefits and the increased 
productivity anticipated through economic development initiatives.
New Source Review Creates Problems For Economic Development
    As Senator Voinovich knows, the 6th Congressional District of Ohio 
is one of the poorest in the State and the country. It has the lowest 
per capita income ($ 10,349) and the highest poverty rate (20.1 
percent) of any Congressional District in Ohio. Unfortunately, Southern 
Ohioans have not experienced the economic recovery that most of the 
U.S. has enjoyed in 1990's. The 6th District includes Meigs and Vinton 
Counties, which have among the highest unemployment rates of any of 
Ohio's 88 counties (11.1 percent and 13.8 percent, respectively, 
compared to the statewide average of 4.3 percent). These statistics 
clearly underscore the region's enthusiasm for economic development 
opportunities and its fear of regulations which may hamper job 
creation. Without a doubt, low cost energy and high quality 
manufacturing labor are vital to the economic prospects of the region. 
A substantial number of the labor force--more than 25 percent--is 
employed in the manufacturing sector. And, this region provides a 
significant number of jobs in the utility, mining, and refinery 
sectors. Southern Ohio cannot withstand the loss of these jobs, and it 
certainly cannot afford to overlook any opportunity for job creation.
    I have heard from the International Brotherhood of Electrical 
Workers (IBEW) who raise specific issues about the EPA's New Source 
Review proposed rule, and it should come as no surprise that one such 
concern is job loss. Under the current NSR program, decisions could be 
made to shut down utilities rather than venture into the confusing NSR 
permitting program to undertake what could be considered ``routine 
maintenance'' activities. Obviously, this would result in layoffs. At 
this time, I would like to ask to include for the record, the statement 
of John J. Barry, International President of the IBEW.
Clean Air Act New Source Review ``Reform'' Rulemaking Concerns
    As you know, New Source Review was first introduced as part of the 
1977 Clean Air Act Amendments. The program is designed to ensure that 
newly constructed facilities and substantial modifications of existing 
facilities do not result in violation of applicable air quality 
standards. The New Source Review program is widely acknowledged to be 
very complicated and to be a potential bottleneck to many positive 
community development projects including, brownfields redevelopment and 
to manufacturing facility improvements and modernizations.
    For example, the specific requirements dictated by the New Source 
Review Program depend on the location of the facility. If a plant is 
sited in a part of the country that fails to meet the National Ambient 
Air Quality Standard (NAAQS) for a pollutant, one set of requirements 
apply. If the plant is in a NAAQS attainment area, another set of rules 
apply. As you can imagine, some facilities may rest in a region that is 
considered in attainment for some criteria pollutants, but not others, 
complicating the requirements even further.
    Let me describe some general frustrations my constituents and 
others have shared with me concerning the New Source Review program. I 
have learned that merely determining whether the program ``applies'' to 
a project depends on complicated rules and guidelines which have been 
subject to 20 years' of EPA interpretation. I have also heard that EPA 
could require a preconstruction permit under NSR for the replacement of 
worn equipment parts even though the replacements are only 
modifications and not new construction. In fact, these types of 
modifications are aimed at pollution reduction and efficiency 
increases--two worthy goals. On top of that, I understand that 
preconstruction permitting can take a year or longer. I do not 
understand why industry, whose business practices benefit the economy 
and comply with the Clean Air Act standards should suffer from the 
inconsistent and unintended application of the NSR program. It seems 
quite clear to me the program is broken and it is time to fix it.
    With the Objective of creating a more efficient NSR program, EPA 
announced back in 1991 that it would ``simplify and reform'' the 
original New Source Review rules. To the agency's credit, it 
understands that the NSR program demands a thorough review and it has 
engaged stakeholders to work on a comprehensive reform package. I would 
hope that this effort results in a program that encourages 
modifications and maintenance at our facilities so that they remain 
reliable, competitive and safe.
Conclusion
    I know the EPA claims many successes under the NSR program and I 
applaud the reduction or prevention of pollutant emissions. The 
environmental protections afforded under the NSR program should not be 
minimized here today. However, the EPA's most recent proposed changes 
to the NSR led to considerable controversy and the agency acknowledges 
the need to build in more flexibility in the program and streamline the 
permitting process. I would suggest that a truly meaningful reform of 
the NSR program could actually lead to even greater environmental 
benefits in the future. If the NSR program remains in its current 
broken state, I suspect certain facility maintenance functions may be 
delayed, thereby stifling progress on the air quality front.
    This past fall, I raised the concern that the EPA should not 
shortchange the discussion on meaningful NSR reform. I am pleased to 
hear that a full review of approaches to NSR reform is ongoing. Without 
sufficient dialog among the interested parties, I have little 
confidence that a workable solution can be reached. Therefore, I would 
like to state very clearly that congressional oversight of this process 
does not stop here in Cincinnati. Instead, I think today's hearing 
demonstrates that both Senators and Representatives will continue to 
monitor the progress made to reform the New Source Review Program. With 
hard work and cooperation, I believe an equitable proposal can be 
crafted that creates an efficient NSR rule that avoids unnecessary 
pitfalls and establishes a proper balance between environmental 
benefits and economic progress.
    I commend the chairman, Senator Voinovich, and the subcommittee for 
their attention and oversight with respect to this important issue. 
Thank you again for the opportunity to testify here today.

                               __________

 STATEMENT OF JOHN SEITZ, DIRECTOR, OFFICE OF AIR QUALITY PLANNING AND 
STANDARDS, OFFICE OF AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY

    Good afternoon Mr. Chairman and members of the subcommittee. Thank 
you for the opportunity to talk with you about the New Source Review 
program under the Clean Air Act. The New Source Review (or ``NSR'') 
program was enacted by Congress in 1977. It's goal is to minimize air 
pollution from large new and modified stationary sources. Recent 
figures suggest that over the life of the program, NSR has prevented 
more than a hundred million tons of air pollution. When companies 
upgrade facilities, either by building a new plant or making major 
modifications to an existing plant, they are required to install the 
best available pollution control equipment. In areas with unhealthy 
air, NSR assures that these sources do not impede progress toward 
cleaner air. In areas with clean air, especially pristine areas like 
national parks, the program assures that emissions from new and 
modified sources do not significantly degrade air quality. The program 
also assures citizens that any large new or modified industrial source 
in their neighborhoods will be as clean as practical.
    Upgrading pollution controls and the industrial infrastructure 
simultaneously makes economic and environmental sense. In general, it 
is more cost-effective for sources to install pollution control 
equipment such as scrubbers, electrostatic precipitators, or selective 
catalytic converters at the same time that they make major capital 
improvements. Because the NSR program relies on this principle, it 
minimizes emissions from new sources while maximizing opportunities for 
additional industrial and economic growth. It's a simple concept that 
has been working in the NSR program for almost a quarter-century, 
protecting our nation's air resources, and making up a critical 
component of our total air quality program.

Background

    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 major 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. 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 is to approve 
State programs, to review, comment on, and take any other necessary 
actions on draft permits, and to assure consistency with EPA's 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). Citizens also play a role in the permitting decision, 
and must be afforded an opportunity to comment on each construction 
permit before it is issued.
    The NSR permit program for major sources has two different 
components--one for areas where the air is dirty or unhealthy, and the 
other for areas where the air is cleaner. Under the Clean Air Act, 
geographic areas (e.g., counties or metropolitan statistical areas) are 
designated as ``attainment'' or ``nonattainment'' with the health-based 
National Ambient Air Quality Standards (NEARS)--the air quality 
standards which are set to protect human health. 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). On the other hand, 
in attainment areas, a source must apply Best Available Control 
Technology (BACT) and the statute allows consideration of cost in 
weighing BACT options.
    Also, in keeping with the goal of progress toward attaining the 
national air quality standards, sources in nonattainment areas must 
always provide or purchase ``offsets''--decreases in 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, PSD does require an air quality modeling analysis of the 
impact of the construction project, and if the analysis finds that the 
project contributes to ambient air pollution that exceeds allowable 
levels, this impact must be mitigated. Sometimes these mitigation 
measures can include offsets in PSD areas. 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 
(referred to as Class I areas). If a source constructs or modifies in a 
way that could affect a Class I area, the law affords 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.
    (The Clean Air Act also requires States to regulate construction 
for smaller changes, and at sources that are not big enough to be 
classified as ``major.'' This program is known as minor NSR. However, 
minor NSR is not part of the NSR Reform rule and is not the focus of 
today's remarks)

Current Status of the NSR Program

    Let me give you a few statistics about the NSR program to put 
things in perspective. Preliminary estimates based on our most recent 
data indicate that approximately 250 facilities apply for a PSD or 
nonattainment NSR permit annually. That's out of the approximately 
20,000 sources that would be classified as ``major'' under the Act, and 
the far larger number of additional stationary sources of air pollution 
in the United States that are not large enough to be called major. The 
nonattainment NSR and PSD programs are designed to focus on changes to 
facilities that have a major impact on air quality. And the NSR program 
is resulting in cleaner air. Recent data show that, each year, NSR 
permits at PSD sources have prevented about half a million tons per 
year of new emissions compared to what would be emitted if there were 
no Federal or State permitting. Clearly, in the absence of NSR, 
Americans would be breathing less healthy air. Even in areas with clean 
air, there would likely have been significant declines in air quality 
in some places, as well as harmful impacts in national parks. As these 
reductions have been occurring, the United States is in the midst of a 
record-breaking economic expansion. Thus, the program is accomplishing 
its intended purpose.
    In addition to the emissions reductions, the NSR program has 
sparked improvements and innovations in pollution control technology. 
Whenever demand for good control technology exists, vendors compete to 
supply better control technology at lower cost. This competition 
reduces the cost of controls as the control technology improves. This 
technology-forcing aspect of the program is an important reason why it 
has been so successful in allowing for continued economic growth while 
ensuring environmental protection. It also ensures that the U.S. will 
remain a leading exporter of pollution control technology.

NSR Reform

    Despite the successes of the NSR program, some of those with a 
stake in the program--EPA, regulated industry, State and local 
governments, environmental groups, Federal land managers, and others--
have engaged in a long-running dialog about how to make the program 
work more efficiently and effectively. The issues raised fall into five 
general categories. First, some argue that the process for determining 
exactly whether a permit is necessary for changes they are making to 
existing sources could be easier. Second, despite the statutory 
requirement that PSD permits be issued within 12 months of a complete 
permit application, some believe that the process for obtaining a 
permit can take too long, delaying construction. Third, some are 
concerned that the decisions made in the NSR process, such as the 
selection of a control technology, have been arbitrary, making it 
difficult to plan ahead. Fourth, stakeholders such as citizens and 
Federal land managers want to be more involved in the decisionmaking 
process. In addition, some believe that the program needs to cover more 
sources and is not sufficiently rigorous, while others feel that the 
existing program is already too rigorous and too broad in scope.
    For the past several years, the EPA has been undertaking a thorough 
multi-stakeholder process to understand and address the concerns 
associated with NSR in an effort to make the program work better. The 
NSR program protects the public from air pollution from large sources--
from every type of industry. EPA has been diligent about being 
inclusive and comprehensive in our analysis of industry concerns. Since 
1992, we have held hundreds of hours of meetings actively seeking 
comments and recommendations from various stakeholders. We formed the 
NSR Reform Subcommittee of the Clean Air Act Advisory Committee, a 
group of experts from industry, environmental groups, and State and 
local government brought together for the purpose of making 
recommendations on improving NSR. We listened to analysis and debate 
from a wide variety of often conflicting points of view. We issued a 
proposed rule in 1996, took written comments, and held a public 
hearing. Since then, we continue to meet with stakeholders, and, as 
recently as this month, have had multiple meetings with outside groups 
representing industry.
    Our fundamental principle during this reform effort has been to 
promote more certainty and flexibility in the permitting process while 
maintaining at least the same level of environmental protection as the 
current program. A few examples of the approaches we have proposed 
include: (1) promotion of flexible plantwide caps that would enable 
sources to make changes at their plants without triggering NSR 
applicability so long as the overall cap is not exceeded; (2) a more 
clearly defined and faster process for making control technology 
decisions; (3) deregulation of source modifications that have already 
recently installed good controls; (4) increased incentives for new or 
modified sources to incorporate pollution prevention or innovative 
control technology; and (5) opportunities for more meaningful 
participation in the permitting process for the public and Federal land 
managers through increased availability of information and earlier 
involvement.
    We are also considering other ways to better achieve the same goals 
as the current program. For example, we recently held a meeting of NSR 
stakeholders to obtain views on the concept of a sector-based approach 
to NSR at utilities. This approach would tailor NSR regulations 
specifically to the utility sector in an effort to address issues 
unique to utilities, while still providing the overall environmental 
protection of the NSR program. As noted, we continue to discuss several 
issues with stakeholders, and have not reached final decisions on the 
Reform package. However, we hope to complete an NSR Reform rulemaking 
later this year.
    Mr. Chairman, this concludes my prepared statement. I appreciate 
the opportunity to be here today. I would be happy to answer any 
questions that you may have.
                               __________
 STATEMENT OF JOE BYNUM, EXECUTIVE VICE PRESIDENT, FOSSIL POWER GROUP 
                       TENNESSEE VALLEY AUTHORITY

    Mr. Chairman, thank you for the opportunity to testify before the 
subcommittee today. In my testimony today, I am providing the committee 
with the views that are solely those of the Tennessee Valley Authority. 
I appreciate your interest in the Environmental Protection Agency's 
proposed changes to the New Source Review (NSR) program. Depending upon 
how EPA changes this program, there could be a lasting impact on the 
operation of individual fossil plants and, in fact, the reliability of 
our nation's electric system.
    The Tennessee Valley Authority is a Federal agency and corporation 
charged with fostering the economic and social well being of the 
residents of the Tennessee Valley. This includes managing the Tennessee 
River system, with responsibilities for flood control, navigation and 
stewardship of land and water resources. As part of this mandate, TVA 
operates the nation's largest integrated public power system, providing 
electricity to eight million residents in a seven-State region.
    In total, we have over 28,000 megawatts of generating capacity. 
Coal-fired generation comprises about 60 percent of this capacity, with 
59 units at 11 plants in three southeastern States. This places us 
among the largest coal-using utilities in the country. TVA has been 
operating various kinds of generating technologies for more than 65 
years and has substantial expertise in the maintenance of fossil 
plants. I am here today to represent TVA's dual responsibilities as a 
power producer and an environmental steward.
    Although there has been some criticism of its complexity, TVA 
believes the NSR program has generally been a success. EPA has largely 
applied the program's requirements in a way that does not impede 
routine maintenance of the nation's electric-utility generating 
resources. Moreover, in the past the program has not been applied in a 
way to discourage improvements in unit efficiency and reliability. TVA 
believes such improvements--long a part of routine maintenance--are 
desirable to ensure a reliable supply of electricity and are in the 
public interest.
    As the person responsible for the operation and maintenance of 59 
coal units, I urge great caution as EPA contemplates changes to the 
program that could preclude improvements in efficiency and reliability. 
Unfortunately, some of the ideas being presented to EPA by others as 
part of the rulemaking process could discourage such desirable 
improvements and have a detrimental impact on the electric-utility 
industry's ability to safely and effectively operate our plants.
    EPA's stated goal in its proposed regulation is to ``reduce the 
costs and regulatory burdens for applicants'' to the program. However, 
I would counter that, rather than achieving this admirable goal, these 
potential changes to the proposed rule will actually impede the NSR 
process. In fact, several aspects of the proposal are not only unsound 
on policy grounds, but appear counter to the intent of the Clean Air 
Act.
    The current NSR regulations have long excluded routine maintenance, 
repair, and replacement projects at existing sources. Industries of all 
kinds, including the electric utility industry, have relied upon this 
exclusion to maintain production capabilities and capacity. 
Historically, EPA has employed a common-sense understanding of the term 
that encompassed those maintenance activities that are customary in the 
industry to optimize reliability, safety, availability and efficiency.
    It would be a serious mistake in this rulemaking for EPA to change 
its historic interpretation of the definition of routine maintenance. 
EPA should not make changes to the program that discourage utilities 
from making improvements that increase plant efficiency and improve 
reliability.
    Utilities in the Eastern Interconnect have been straining to meet 
demand and keep the lights on the last two summers. Now more than ever, 
utility maintenance programs are key to meeting demand and reliably 
serving the public. TVA has recently released a technical report on 
routine maintenance on the TVA system and in the utility industry. This 
report demonstrates how important maintenance is to reliable service. I 
would like to submit a copy of this report for the record.
    Mr. Chairman, TVA finds itself in the position of agreeing with 
what appears to be EPA's broader goals in these NSR changes--improving 
the nation's air quality. However, we remain concerned that the agency 
may be tempted to shoehorn this admirable goal into a program that is 
primarily designed to address the permitting and control of new 
sources. Literally, the new source review program is about who turns a 
wrench, when and where. It is not intrinsically designed to handle 
broad shifts in air quality policy. Instead, this rule should use a 
straightforward approach that does not block the maintenance practices 
that have allowed this nation's industrial capacity to support the 
booming economy.
    In the summer of 1998, TVA announced the voluntary installation of 
selective catalytic reduction controls to control nitrogen oxide 
emissions at 10 of our larger coal units. TVA is undertaking this 
effort because we believe it is necessary if air quality improvements 
are to continue in the Tennessee Valley region. We are committed to 
this effort although it will cost more than $500 million on top of the 
more than $2.5 billion that TVA has already spent to reduce emissions 
from its coal-fired plants. By 2005, TVA will have reduced its system 
sulfur dioxide emissions by SO percent. Moreover, by the same period, 
we aim to reduce our ozone season its nitrogen oxide emissions by 70-75 
percent, driven in large part by our voluntary efforts.
    I note this voluntary effort for two reasons. First, I think it 
demonstrates our commitment to environmental stewardship. Second, it 
represents an emissions control effort based on a comprehensive 
analysis of our entire system to achieve efficient air quality 
throughout the Tennessee Valley and adjacent areas. TVA carefully 
considered the air quality challenges facing our region, and we are 
placing SCR controls where they will do the most good.
    When considering how the NSR program should be improved, an 
approach similar to TVA's system-wide plan for nitrogen oxide 
reductions can be a template. Although the utility industry has just 
finished substantially reducing its NOx emissions, TVA thinks more can 
and should be done. What is needed is a program that allows utilities 
to reduce emissions on a system-wide or industry-wide basis over time 
while still allowing units to be maintained as they have been 
historically. TVA stands ready to work with this subcommittee and EPA 
to build on the improvements already well under way.
    Finally, in general, there should be greater emphasis on multi-
pollutant planning, taking a look at how to improve air quality 
generally rather than just one pollutant at a time. Utilities need 
greater certainty as they plan for emissions control. Most importantly, 
air quality improvement efforts must have adequate mechanisms to ensure 
the most cost-effective air quality improvements. Unfortunately, the 
attempts to achieve these goals through the New Source Review program 
will likely fall flat. The underlying program is ill-equipped to answer 
these far-reaching policy considerations.
    Mr. Chairman, the subcommittee's interest in the proposed changes 
to the New Source Review program is well timed. We are at an important 
juncture, trying to find a way to continue improvements in air quality 
without sacrificing the maintenance of individual facilities or the 
reliability of the overall electric system.
                               __________

  STATEMENT OF BOB SLAUGHTER, GENERAL COUNSEL AND DIRECTOR OF PUBLIC 
    POLICY, AMERICAN PETROLEUM INSTITUTE, ON BEHALF OF THE NATIONAL 
                 PETROCHEMICAL AND REFINERS ASSOCIATION

                            I. INTRODUCTION

    Good morning. My name is Bob Slaughter. I am General Counsel and 
Director of Public Policy for the National Petrochemical & Refiners 
Association (NPRA). I am very pleased to be here this morning to 
address the need for reform of the ``New Source Review/Prevention of 
Significant Deterioration'' (``NSR'') program under the Clean Air Act 
on behalf of both NPRA and the American Petroleum Institute (``API'').
    NPRA's membership includes virtually all U.S. refiners, as well as 
petrochemical manufacturers using processes similar to refineries. Our 
members own and/or operate almost 98 percent of U.S. refining capacity. 
NPRA includes not only the larger companies, but also many small and 
independent companies. API is a trade association that represents more 
than 400 member companies involved in all aspects of the petroleum 
industry including refining, exploration and production, 
transportation, and marketing industries. The NSR program significantly 
affects NPRA and API member companies.

                              II. OVERVIEW

    The refining industry has dramatically reduced its direct and 
indirect emissions since Clean Air Act regulation began in the 1970's. 
Between 1980 and 1996, according to EPA's own figures, the refining 
industry decreased its criteria pollutant air emissions by 74 percent. 
Congress and EPA have required us to attain additional dramatic 
emissions reductions in the next few years.
    We will meet these obligations. However, both our ability to meet 
them and our ability to efficiently make and deliver the products we 
refine to consumers is currently threatened by the likely prospect that 
EPA will claim that almost any operational change we make triggers 
``new source review'' (``NSR'') under the Clean Air Act.
    Congress enacted the NSR program in the 1970's to ensure that 
sources that significantly increase their emissions must install 
technology to control that increase. You may well ask how an industry 
with the continuing record of dramatic emissions reductions which I 
have mentioned could be so affected by a program intended to control 
emissions increases.
    The answer lies in the manner in which EPA now administers this 
program. EPA applies NSR to many changes that will never cause 
emissions increases, even to changes that will reduce emissions. 
Moreover, EPA's practice of defining critical elements of the program 
by guidance rather than through rulemaking--or not defining them at 
all--has created a situation where it is effectively impossible for 
even the most diligent refiner to determine when NSR applies and when 
it does not.
    This state of affairs has created an urgent need for NSR reform. 
The policy consideration is this: EPA's reinterpretation of NSR 
threatens our ability to make the plant changes necessary to comply 
with important environmental requirements for stationary sources and 
fuel reformulation.
    I would now like to address these points in more detail.

 III. HOW THE NEW SOURCE REVIEW PROGRAM THREATENS FUTURE ENVIRONMENTAL 
                                PROGRESS

    The refining industry now faces extensive new Clean Air Act 
regulations that will take effect in the near future. These include 
requirements both for control of refinery emissions, and for the 
reformulation of gasoline to remove sulfur and selected ``air tonics''. 
It seems certain in addition that EPA will require the reformulation of 
diesel fuel, and likely that Congress or EPA will consider requiring 
the phase-down or elimination of MTBE from gasoline.
    Attached is a chart titled, ``Cumulative Regulatory Impacts on 
Refineries: 2000-2010'' reflecting these requirements in more detail.
    Implementing these upcoming programs is very important to EPA's 
environmental agenda. The refining industry's environmental progress to 
date is very impressive. Between 1980 and 1996, according to EPA's own 
figures, the refining industry decreased its criteria pollutant air 
emissions by 74 percent, while refining capacity decreased by only 16 
percent (see attached chart titled ``U.S. Refinery Emissions 
Reductions''). These figures underestimate our current emissions 
reductions, since they do not include the impact of many regulations 
issued under the 1990 amendments to the Clear Air Act. Nor do they 
reflect the significant emissions reductions that have been obtained 
through the use of reformulated gasoline produced by our industry. EPA 
expects emission reductions achieved by future fuel reformulation and 
stationary source emission requirements to be even greater. EPA 
estimates that just one of the upcoming product reformulation 
regulations, the Tier IV gasoline sulfur reduction requirements, will 
produce emission benefits equivalent to removing 164 million cars from 
the road.
    EPA has recognized that refiners face tremendous logistical 
challenges in meeting the ambitious goals and deadlines of these 
important new regulations. To implement the regulations, refiners must 
make many infrastructure and process changes. For each change, refiners 
must determine whether NSR permitting and controls are required, and 
then obtain required permits before commencing any construction. 
Because it is now effectively impossible to determine when an NSR 
permit is required, and extremely time-consuming to obtain a permit, 
the current state of the NSR program directly threatens the industry's 
ability to meet Congress' deadlines for this suite of new regulations.
    In order to meet Congress' ambitious goals and deadlines for 
upcoming Clean Air Act regulations, it is essential that refiners have 
a flexible and efficient permitting process. The current NSR program 
prohibits this and must be substantially reformed. Moreover, as 
discussed below, EPA's new interpretation of NSR applicability 
threatens continued environmental progress, as it penalizes refiners 
for making changes that decrease emissions.

    IV. THE PROBLEM WITH EPA'S CURRENT APPROACH TO NSR APPLICABILITY

    NSR is one of the most complicated regulatory programs ever 
created. EPA has recognized this and initiated the reform process to 
simplify and rectify the program. In this hearing, however, I want to 
focus on certain aspects of the program. EPA's current approach to NSR 
applicability makes it extremely difficult for refiners to determine 
when NSR permitting and controls are required and leaves refineries in 
enforcement jeopardy unless they consider NSR for any and all 
operational changes. As a result, the program is an untenable burden on 
State permitting authorities and refineries and threatens their ability 
to implement Congress' future environmental goals in a timely manner.
A. Background
    Under the Clean Air Act and EPA's regulations, NSR is triggered by 
any ``physical change or change in the method of operation'' of a 
source that increases its emissions by a significant amount. \1\ If a 
physical/operational change does not itself significantly increase 
source emissions, or if the source ``nets out'' the change by 
offsetting emissions reductions in other places, then, under the law, 
NSR does not apply.
---------------------------------------------------------------------------
    \1\ Clean Air Act Sec. 111(a)(4); 40 CFR 52.21(b)(2).
---------------------------------------------------------------------------
    If a change does cause a significant emissions increase, NSR 
requires the source to get a permit before beginning construction of 
the change, install emissions control technology on the change, and 
perhaps meet other requirements as well. It takes 18 months to 2 years 
on average to get an NSR permit.
    EPA officials have recently made public statements that many 
changes at refineries over the past 20 years required NSR permits but 
that none were obtained. Since NSR is only triggered by an emissions 
increase, and given that the refining industry since 1980 has 
experienced dramatic emissions reductions, any such EPA claim of 
widespread NSR noncompliance would appear inconsistent with the basic 
intent of the Clean Air Act.
    EPA has not disclosed information to support its claims of 
widespread refinery NSR noncompliance, and so we cannot comment on them 
specifically. However, EPA has reinterpreted its NSR rules in recent 
years so as to enable the Agency to allege that virtually any change a 
source might make requires NSR permitting and controls, even if 
emissions have not increased. In creating NSR, Congress intended that 
facilities that significantly increase emissions, by adding new 
equipment or making major changes, must install the latest pollution 
control equipment. NSR was never intended to impose new controls on 
older facilities simply because of their age and need for routine 
maintenance.

B. The Elements of EPA's Current Approach to NSR Applicability

            1. The ``Actual-to-Potential'' Test

    EPA uses the ``actual-to-potential'' test to determine whether a 
source has significantly increased its emissions. As explained below, 
the ``actual-to-potential'' test is bad public policy because it 
provides an incentive for sources to maximize their emissions, and 
punishes them for minimizing their emissions. The ``actual-to-
potential'' test is also inconsistent with Congress' intent for the NSR 
program, because it requires a source to add controls when its 
emissions do not increase significantly or even when they decrease. 
Congress intended NSR to apply only when a source significantly 
increases its emissions. The ``actual-to-potential'' test is a result 
of EPA interpretation and should be altered or abandoned through the 
reform process.
    In determining whether a ``physical/operational change'' at a 
source caused a significant emissions increase, EPA does not compare 
actual emissions before the change with actual emissions after the 
change. Instead, EPA compares actual emissions before the change with 
potential emissions--that is, the maximum amount the source could 
emit--after the change. According to EPA, NSR is triggered whenever the 
difference between ``past actual'' emissions and ``future potential'' 
emissions is ``significant''.
    This ``actual-to-potential'' approach always overstates the 
emissions increase caused by a physical/operational change. There will 
always be a difference between ``past actual'' emissions and ``future 
potential'' emissions at any source that complies with its emissions 
limits. Sources must maintain a buffer between actual emissions and 
potential (permitted) emissions to avoid inadvertently exceeding the 
permitted limit. A source that cares about its environmental 
performance will go further and try to minimize its emissions at all 
times, and EPA should encourage this. However, EPA's ``actual-to-
potential'' test punishes sources for doing so.
    The ``actual-to-potential'' test penalizes efforts to maintain a 
compliance margin or minimize emissions and uses them to trigger NSR 
for changes that do not really increase emissions, or even decrease 
emissions. As a source lowers its actual emissions, the difference 
between those actual emissions and potential emissions gets greater. 
EPA counts that difference as an emissions increase that triggers NSR 
whenever that source makes a physical/operational change. Thus a source 
is rewarded for maximizing emissions and deterred from minimizing 
emissions. Additionally, under this approach, a process unit at a 
source can trigger NSR repeatedly even when its emissions do not 
increase at all or even decrease. \2\
---------------------------------------------------------------------------
    \2\ EPA policy forbids sources that engage in ``emissions trading'' 
from counting their compliance margin as an ``emissions credit'' when 
it would be advantageous to the source to do so. See Draft Economic 
Incentive Program Guidance (September 1999) at 81, 106-107. But EPA NSR 
policy counts that same compliance margin toward non-compliance with 
NSR and uses it to trigger permit requirements.
---------------------------------------------------------------------------
    Although the ``actual-to-potential'' test is inconsistent with the 
intent of the statute, EPA requires that sources use this method and 
only this method to determine whether an emissions ``increase'' has 
occurred. EPA has found it to be a convenient way to require controls 
on more sources, whether or not their emissions have increased 
significantly.

            What is a ``Physical Change or Change in the Method of 
                    Operation''?

    As we have shown, the ``actual-to-potential'' test creates phantom 
emission increases. As a result, almost any change labeled a ``physical 
change or change in the method of operation'' of a source will trigger 
NSR even if in reality it will not increase emissions at all, or even 
decreases emissions.
    The question then become, what is a ``physical change or change in 
the method of operation''. EPA's application of the term is a moving 
target. Small repairs and improvements are needed constantly at complex 
sources like refineries. Under EPA's current approach, it is impossible 
to determine when such a repair or improvement will be counted as an 
NSR-triggering ``physical/operational change'', and when it will not. 
We know that EPA is increasingly aggressive in its claims that such 
repairs and improvements trigger NSR. However, that change in position 
has never been subject to public notice and comment, as the 
Administrative Procedure Act requires. Some of its elements have not 
even been issued as guidance. In some cases, we do not even know what 
they are.
    Let me offer two illustrations of these points, picked from many 
possible candidates.
      A's rules provide that ``routine maintenance repair and 
replacement'' does not trigger NSR. EPA has never defined these terms, 
either in rulemaking or guidance. However, recently, EPA has begun to 
claim in enforcement actions and informal conversations that this 
exclusion never applies to changes that increase the efficiency of a 
unit, improve its reliability, or reduce its costs. Under that 
approach, repairing or maintaining a 1990 unit with year 2000 
components that improve its performance could trigger NSR. Such an 
approach is both economically and environmentally counterproductive. It 
destroys the ``total quality improvement'' programs that businesses 
must adopt in today's competitive markets--and that the Administration 
has endorsed because of their environmental benefits.
      EPA has always recognized that NSR is triggered when a 
single ``physical change or change in the method of operation'' causes 
an emissions increase. EPA has also always cautioned that if a source 
artificially splits a single project into two projects in order to 
avoid NSR, it will still treat that project as one. We agree. But EPA 
now claims that all changes at a plant should be aggregated together 
whenever they serve the ``basic purpose'' of the facility. Since 
changes that did not serve that ``basic purpose'' would not be made, 
this is a formula for aggregating all changes that a plant makes into 
one change. Once those changes have been aggregated, the ``actual-to-
potential'' test makes it virtually certain NSR requirements will be 
triggered.

          V. THE CONSEQUENCES OF EPA'S CURRENT APPROACH TO NSR

    EPA's current approach to NSR applicability results in significant 
compliance uncertainty, overburdens State and refinery resources, and 
hinders future environmental progress.

1. Compliance Uncertainty

    Under EPA's current approach, it has become nearly impossible for 
any refinery to determine which of its activities might trigger NSR and 
which will not; EPA's requirements are extremely unclear and a 
constantly moving target.
    Refiners cannot rely on the current written guidance to determine 
when NSR is required because the existing guidance is unclear and often 
contradictory. It consists of over 4,000 pages of guidance documents, 
many of which are in draft form and contradict each other, and various 
EPA memoranda. Many of EPA's new positions on NSR applicability 
contradict the older guidance, and are not even in writing. Refiners 
often do not know EPA's latest position until it is incorporated into 
an enforcement action or initiative.
    Refiners should be able to rely on State permitting authority 
decisions to determine when NSR is applicable, but it now appears they 
cannot. In most States, EPA has delegated the implementation of the NSR 
program to State permitting authorities. The State permitting 
authorities make permitting decisions for refineries, and regularly 
inspect refineries to ensure that State decisions are properly 
implemented. EPA also reviews and approves the States' programs, and 
periodically inspects the refineries themselves. However, compliance 
with State decisions does not necessarily accord with EPA's latest 
positions. In fact, EPA is currently conducting a widespread 
investigation of refineries regarding NSR permitting compliance as far 
back as 1980. In effect, EPA has called into question State NSR 
permitting decisions over the last 20 years. These decisions were not 
questioned during 20 years of State and EPA inspections.

2. Overburdening State Resources

    Moreover, under EPA's current approach, hundreds of projects a year 
at a refinery might trigger NSR. No State has the resources to answer 
thousands of NSR permitting questions annually from all its major 
stationary sources, or to review its NSR permitting decisions over the 
past 20 years. Certainly, States have much better and more 
environmentally productive ways to invest their resources (e.g., 
expediting permitting for gasoline sulfur reduction requirements as EPA 
has agreed to do). State permitting may also be slowed down because 
States will proceed more cautiously for fear that they may be second-
guessed by EPA. This may create permitting bottlenecks at the very time 
States need to proceed expeditiously to implement important upcoming 
regulations.

3. Overburdening Refineries

    The end point of EPA's current position is universal NSR. However, 
no industrial economy could function if every change to a factory 
required a permit before construction could begin. This will be 
particularly burdensome for refineries given the operational changes 
necessary to comply with the blizzard of new fuel reformulation and 
stationary source regulations. EPA recognized that Congress did not 
intend universal NSR in its 1996 proposal for NSR reform, however EPA's 
new approach is achieving just that:

    ``. . . section 111(a)(4) of the Act could--read literally--
encompass the most mundane activities at an industrial facility (even 
the repair or replacement of a single leaky pipe, or an insignificant 
change in the way that pipe is utilized). However, the EPA has 
recognized that Congress did not intend to make every activity at a 
source subject to major new source requirements under parts C and D. As 
a result, the EPA has adopted several exclusions from the 'physical or 
operational change' component of the definition. For instance, the EPA 
has specifically recognized that routine maintenance, repair and 
replacement. . . [is not by itself] considered a physical or 
operational change in the method of operation within the definition of 
major modification.'' 61 Fed. Reg. 38250, 38253 (July 23, 1996).

4. Hindering Future Environmental Progress

    As discussed in section III, EPA's current approach to NSR 
threatens the Agency's future environmental agenda by posing 
significant logistical challenges for implementing important upcoming 
regulations.
    Additionally, the unnecessary costs of EPA's current approach to 
NSR will compete with resources needed to implement these regulations. 
Our resources are limited and the costs of these upcoming regulatory 
initiatives are high. Just one of these regulations, the Tier II/
gasoline sulfur reduction requirements, is expected to nearly double 
the refining industry's environmental expenditures to approximately $8 
billion annually. Expected requirements to reformulate diesel fuel 
could increase these costs by half again.
    We simply do not see the logic for applying EPA regulatory 
reinterpretation to activities that do not increase emissions, or 
actually reduce emissions.

               VI. REFINING INDUSTRY GOALS FOR NSR REFORM

    The refining industry is encouraged by our current round of 
discussions with EPA on NSR reform and hope that this joint effort will 
continue and produce real reform. The discussions so far have been 
candid and useful, but we still do not know clearly what to expect from 
them.
    We believe that any real reform must address both substantive and 
procedural issues. Real reform should ensure that NSR applies only if 
emissions actually increase significantly. The current system of 
perpetual exposure to NSR cannot be defended.
    Real reform must alter or abandon the ``actual-to-potential'' test 
so that changes that do not increase emissions do not automatically 
trigger NSR. Real reform must also change EPA's current approaches to 
``routine maintenance, repair and replacement'' and ``aggregation'', 
which work together with the ``actual-to-potential'' test to create 
exposure to NSR for virtually any change a plant makes. Perpetual NSR 
is unworkable, contrary to Congressional intent, and bad environmental 
policy.
    Finally, real reform will address the need to expedite rather than 
hinder efforts to comply with federally mandated environmental 
programs.
    These changes should be subject to full public review and comment.

      VII. EPA'S ENFORCEMENT INITIATIVE WILL UNDERMINE NSR REFORM

    I would like to conclude with a word about enforcement.
    Over the past 2 years, EPA has been conducting a massive 
investigation of the refining industry, and several other industries, 
for purported ``widespread'' noncompliance of the NSR program. 
Violations of NSR do occur, and the government should pursue them 
whenever they do. However, the refining industry believes EPA's 
allegations of widespread noncompliance are based on new and 
controversial reinterpretations of the NSR requirements that amount to 
rulemaking without notice and comment. By making fundamental changes to 
the NSR program through enforcement actions, EPA threatens to undermine 
the NSR reform process and an clarification of the program that reform 
can provide.
    The reinterpretations that EPA wants to retroactively enforce would 
allow EPA to claim that virtually any source is subject to NSR. As 
previously discussed, this approach would be impossible to comply with, 
overburden State and industry resources, and undermine the 
implementation of future environmental regulations.
    By questioning State permitting decisions and policy over the past 
20 years, EPA will only further slow down the permitting process and 
divert State resources toward reviewing past decisions. This is 
inappropriate at a time when it is critical that State permitting 
authorities and refiners work together to expedite the permitting 
processes for important upcoming environmental regulations, such as the 
Tier II/ gasoline sulfur reductions requirements.
    The decision criteria for many NSR issues are so opaque, and have 
changed so many times that, in our view, it is neither fair, nor just, 
nor sound public policy to make them the excuse for an aggressive 
enforcement program. The opportunity for public comment and 
congressional review of EPA's proposed reinterpretation of NSR is 
necessary to respect the due process rights of those who have to 
comply. If EPA wants to revise the NSR program, it should do so through 
the reform process.

                               __________

   STATEMENT OF W. HENSON MOORE, AMERICAN FOREST & PAPER ASSOCIATION

    Good afternoon. I am Henson Moore, President and CEO of the 
American Forest & Paper Association Thank you for inviting me to 
present the views of America's leading forest and paper companies on 
EPA's New Source Review Program, or NSR. This hearing exemplifies your 
concern to see that our environmental laws work.
    AF&PA believes that the NSR program should meet a few basic 
principles. First, the rules should be consistent, in sync with 
congressional intent, and not change in midstream. Second, policies 
should benefit the environment. And finally, program regulators, not 
enforcers--should set regulatory policies in a process that is open to 
public scrutiny.
    Based on these principles, our industry judges today's NSR program 
as fundamentally ``broken.'' It needs immediate reform.
    Everyone agrees it's broken EPA, the States, industry, Republicans 
and Democrats in Congress and notably labor unions. In fact, the Forest 
Products Industry National Labor Management Committee, a coalition of 
labor unions and industry organizations which represent over 1 million 
workers, issued a statement today raising similar concerns with EPA's 
reform and enforcement efforts. I would like to submit it into the 
hearing record.
    Making matters worse, EPA is playing ``good cop, bad cop'' with 
targeted industries, sending out conflicting signals on how it intends 
to pursue NSR. While the air program continues an on-going process 
started in 1991 to clarify, simplify, and fix NSR, the office of 
enforcement is aggressively issuing notices of violation on pulp and 
paper facilities. Other major industries are, or may soon be, facing 
similar assaults. By doing this, the enforcement office is 
reinterpreting established NSR policies that industry has long used to 
comply with the law and doing so without notice, comment, or any public 
procedure and applying these new interpretations retroactively asking 
for fines in the process. In addition, EPA's judgments frequently 
second-guess State permitting agencies earlier decisions leading to 
EPA's erroneous conclusion that 80 percent of industry is in non-
compliance. This is as unfounded as the underlying guidance is 
confusing.
    In some cases, plants are deferring routine maintenance, delaying 
conversion to cleaner fuels or making other environmental improvements, 
and shelving plans to move forward with production innovations all to 
avoid the uncertainties and burdens imposed by the current NSR review 
process. If this continues, two things will happen: our industry will 
lose its competitive edge in a global marketplace and the environment 
will suffer.

Our Industry and Its Commitment
    Let me tell you a little about the forest and paper industry. With 
more than 1.5 million workers and an annual payroll of $41 billion, 
we're a major contributor to the nation's overall economic health.
    Importantly, every AF&PA company subscribes as a condition of 
membership to a set of eight environmental, health, and safety 
principles designed to make environmental performance an essential part 
of every aspect of their operations. As we have increased employment 
and production as an industry, we've also made important environmental 
strides:

      We cut our sulfur dioxide emissions by 63 percent between 
1980 and 1995.
      We reduced the amount of chlorine used in bleaching by 89 
percent from 1988 to 1994.
      We decreased surface water discharges by 47 percent 
between 1988 and 1996.
      We've reduced the total energy we consume to make a ton 
of paper by 21 percent.
      Our industry are recycling leaders, recovering nearly 
half of all the paper and paperboard Americans use each year.

    We have a similarly rigorous commitment to the management of 
forestlands, called the Sustainable Forestry Initiative SM (SFIsm) 
program. Participants in this innovative program abide by a set of 
strict principles and objectives. A panel of 18 nationally recognized 
experts including leading environmentalists, academics, and foresters, 
as well as representatives of the U.S. Forest Service and EPA oversees 
our performance and critiques it as part of our annual SFIsm progress 
report. We are especially proud that in 1999, Renew America and the 
President's Council on Sustainable Development recognized SFIsm with 
the National Award for Sustainability.
    In addition to our commitment to innovation, we're also committed 
to cooperation. In meeting our environmental responsibilities, we work 
closely with regulators, environmentalists, and leaders in the 
communities that host our facilities, and others.
    A good example is the way we worked in concert with EPA to develop 
the so-called pulp and paper ``Cluster Rule,'' the first-of-its-kind 
multi-media regulation governing air and water quality in our industry. 
In fact, we were the only industry to voluntarily accept EPA's 
invitation to develop the ``cluster'' concept. Although it requires us 
to invest an estimated $2.8 billion in environmental upgrades, we're 
satisfied that the final rule fairly balances environmental 
improvements and benefits with our industry's capital planning 
expectations.
    And, of course, we've been heavily involved in EPA's effort to 
reform the New Source Review program from the very beginning, putting 
constructive ideas on the table, working with other industries and 
stakeholders, and being responsive to EPA's requests. Incidentally, our 
experiences with Assistant Administrator Bob Perciasepe and his staff 
have always been positive and productive. We are ready to work 
diligently toward a reasonable NSR program.

Why NSR Is Broken
    In broad terms, NSR requires a company to get a permit before it 
begins construction of any new ``major source'' with the ``potential to 
emit'' more than 100 to 250 tons a year of any regulated pollutant 
under the Clean Air Act. It also requires before construction begins a 
permit for a physical change to an existing ``major source,'' or any 
change in its ``method of operation,'' that will cause an increase in 
actual source emissions of any regulated pollutant exceeding specified 
levels. Typically, it takes over a year and a half to get a permit, 
even for very small plant changes, requiring extensive air quality 
analysis and a commitment to install expensive state-of-the-art control 
technology.
    In creating NSR, Congress told plant operators who would increase 
emissions by adding new equipment or making major changes to existing 
facilities to install the latest pollution control equipment. But 
Congress never intended NSR to impose new controls on older already 
permitted equipment simply because of their age and need for routine 
maintenance. So the problem with NSR is not congressional intent.
    NSR was designed to hold the line against emissions increases, not 
to aggressively pursue broad emission reductions. Other sections of the 
Clean Air Act already have that mandated purpose. The statutory term 
``prevention of significant deterioration'' (PSD) makes that purpose 
clear.
    The problem with NSR has always been with the way EPA has 
implemented it not congressional intent. The rules are too complex. The 
informal guidance, memoranda and letters EPA has issued over the last 
23 years more than 4,000 pages of interpretations and reinterpretations 
is inconsistent. It is no surprise that so much confusion abounds when 
most of these interpretive changes occurred at EPA behind closed doors 
without the benefit of public notice and comment. In particular, in 
recent years, EPA has sought to change interpretations that industry, 
the States, and EPA itself have followed for years.
    The definition of ``routine maintenance'' is a good example of 
EPA's flip-flopping policies.
    In 1980, EPA provided an exclusion from NSR review for ``routine 
maintenance'' without defining the term.
    In 1988, an EPA memorandum indicated the agency would weigh a 
variety of factors ``to arrive at a common-sense finding'' as to what 
was routine maintenance. This admittedly ambiguous interpretation left 
much latitude in State and EPA's case-by-case reviews.
    Then, in 1999 the enforcement office substantially narrowed the 
exclusion, without public input, stating it ``was meant to cover 
frequent, traditional, and comparatively inexpensive repairs to 
maintain existing equipment.''
    EPA is changing the rules 180 degrees contrary to congressional 
intent, and is applying those changes retroactively, using a process 
that lacks public involvement. For example, if a plant manager replaces 
worn-out bricks on the inside of a furnace, doesn't that sound like 
routine maintenance even if the replacements are costly and occur on an 
irregular basis. Real NSR reform needs to go back to a ``common sense'' 
definition of routine maintenance. So the first problem is to reform 
NSR to make it workable.
    EPA has long known of the problem. As far back as 1991, it 
announced it would ``simplify and reform'' the ``old'' 1980 NSR program 
to reduce confusion over its applicability and to streamline NSR 
review. Several years later, the Clinton Administration cited NSR as a 
candidate for reform in its National Performance Review of Regulations. 
At a September 1996 hearing, an EPA spokesman acknowledged: ``A lot of 
uncertainty exists in the old regulations as they have evolved since 
about 1980.''
    Major efforts by the EPA air office in 1996 and 1998 to rewrite the 
NSR rules did not yield successful reform, but clearly indicated EPA's 
desire to fix the broken program. However, the job is not completed and 
confusion still exists. Recently, two senior EPA staff members heavily 
involved in the NSR reform discussions publicly debated the ``correct'' 
interpretation of its ``actual to potential'' NSR policy. If EPA 
officials can't figure it out and agree on a single meaning, how are 
States and industry supposed to?
    Some people familiar with NSR, again including some within EPA, 
have gone so far as to suggest the program is working at cross-purposes 
with the Clean Air Act. During a 1993 NSR Simplification Workshop, for 
example, Ed Lillis, the Chief of EPA's Permits Program Branch, 
admitted: ``the rules seem to work against the purpose of why they were 
established.''
    The agency's current method for estimating emissions from a planned 
plant change is another good example of how NSR policy defies logic. 
EPA has recently changed its interpretations to require the facility to 
compare its pre-change actual emissions to its post-change potential 
emissions. This ``apples to oranges'' accounting scheme forces every 
facility to count imaginary emissions from unused capacity as an 
increase in emissions resulting from the modification, thus triggering 
NSR even when the change will cause no real increase in actual 
emissions, and, in many cases, will reduce actual emissions. For 
example, an effort to reduce emissions and comply with the ``Cluster 
Rule'' could land a facility in the 18-month NSR permit review process 
and end up requiring even more controls. Where's the common sense in 
this? To quote a letter from Pennsylvania's Department of Environmental 
Protection to Robert Perciasepe, ``How can we expect industry to do 
everything they can to minimize emissions when we will be penalizing 
them for these actual reductions when they come in for New Source 
Review?''
    Or consider the outcome of this real-world scenario.
    In 1 year, a typical pulp and paper site may make 40,000 changes in 
equipment, procedures, and operations. Based on the latest round of EPA 
guidance and interpretations, the environmental manager at this typical 
site screens them all and comes up with 400 (or roughly 1 percent) that 
may be considered ``changes'' under the new guidance. Of these, the 
manager decides about 25 projects that would make the plant run better 
and cleaner might require permitting. In the past, the State regulatory 
agency would have considered most of those projects inconsequential, 
but now they are reluctant to take a position for fear they may be 
second-guessed by EPA's enforcement office. Because of this 
uncertainty, and the fact that the State lacks the resources to process 
that number of projects in the first place, all 25 efficiency and 
reliability improvements are stopped cold.
    Does any of this sound like something that's good for the 
environment or good for business?

Misdirected Enforcement

    What's even more egregious than having to deal with a confusing 
myriad of guidance and interpretations is being held accountable for a 
constantly changing standard. We cannot sit here today and talk 
reasonably about NSR reform without talking about the aggressive NSR 
enforcement initiative launched last year. Just as we couldn't have a 
reasonable discussion about reforming the IRS while an army of IRS 
auditors were launching an all-out attack on taxpayers based on the old 
rules.
    Unfortunately, that's what's happening under the NSR program. The 
enforcement actions rely on new interpretations of past EPA policy and 
seek large retroactive fines which can exceed $20 million per facility. 
The enforcement office is taking the program in the exact opposite 
direction of where the NSR reform effort needs to go. Hundreds or 
thousands of minor changes at facilities would be pulled into the 
review system, swamping the State review process and further delaying 
permitting decisions all with little or no environmental benefit. This 
is very counterproductive. I think all Americans can agree, it is 
unfair to change the rules in the middle of the game and penalize 
people for their retroactive application.
    This abrogation of the basic principles previously outlined is 
leading to enforcement actions like these where EPA is overturning past 
determinations that NSR review was unnecessary because there was no 
significant expected increase in emissions.
    Ten years ago, a mill replaced an old power boiler with a new one 
that had lower potential emissions. The State, after soliciting 
comments from EPA, approved the mill's permit application for the new 
boiler without requiring an NSR review. Now, EPA says the new boiler 
increases mill operating capacity and potential emissions and alleges 
the mill failed to comply with the NSR requirements. But the law states 
that only actual increases in emissions require NSR review.
    A pulp and paper facility installed a boiler with a Prevention of 
Significant Deterioration (PSD) permit many years ago. Some years 
later, part of the boiler was replaced with a slightly different design 
that did not increase the capacity but improved the efficiency, reduced 
overall downtime, and decreased emissions. Now, years later, EPA's 
enforcement office, using new interpretations of what triggers NSR 
review, determined that this project was a modification that required a 
NSR permit and issued a notice of violation. Again, only actual 
emission increases require NSR review.
    A facility obtains a permit from a State agency, using best 
emissions estimates available at the time those from EPA's emissions 
factors data base. Data developed years later shows the original 
estimate was low. EPA holds that the source should have obtained a 
permit based on the new data. The agency also orders it to undergo a 
Best Available Control Technology (BACT) analysis using today's measure 
of best available technology. As a result, the earlier State decision 
is reversed. The source must install expensive controls that were not 
originally available and EPA imposes a large fine. This type of 
ratcheting of control requirements is unfair and not required by the 
law.
    What is EPA trying to accomplish by going after actions that are 
within the law and in some cases even reduce emissions?
    As we cite these real-world examples to illustrate how EPA would 
overstep its authority, we need to make one thing clear. We are not 
here today to talk about the details of individual enforcement actions. 
We do not want to impede any legitimate enforcement discussions between 
EPA and our member companies. The record of the American Forest & Paper 
Association in recent years makes it quite clear that we have little 
patience for those who fail to meet their environmental 
responsibilities. Real violations of clear environmental regulations 
should be enforced. Period.
    Rather, we are here today to raise legitimate concerns over EPA's 
overall enforcement policy. We question the logic behind the timing of 
what appears to be a well-orchestrated enforcement campaign at the same 
time that the rules underlying the enforcement actions are in flux. EPA 
incorrectly claims that 80-90 percent of our industry is not in 
compliance, 80 to 90 percent! This claim comes from bizarre 
interpretations of NSR. For example, one EPA enforcement official 
recently stated, ``If capital investments at major facilities have been 
made for the purpose of meeting market demand, diversifying product 
lines, increasing production efficiency, or reducing operating costs 
there is a high probability of PSD violations.'' [Betsy Wise, EPA 
Region 10 Enforcement Official at January 2000 meeting of the Joint 
Legislative Environmental Common Sense Committee in Idaho.] In other 
words, if a company has pursued its routine business goals, then it 
seems likely to have violated the PSD standards. Yes, under this 
convoluted logic, 100 percent of the industry is guilty guilty of 
providing products to meet the changing demands of the American public 
while doing its best to meet the intent and spirit of the Clean Air 
Act!
    We are here today to raise concerns over a broken environmental 
regulation that allows one EPA office to retroactively reinterpret 
regulations established two decades ago. A clear NSR regulation must be 
developed to eliminate arbitrary enforcement that is being imposed on 
companies going about their normal business in full compliance with the 
adopted NSR rules.
    To draw a sports analogy, it's like the National Basketball 
Association eliminating the 3-point shot and then going back to 
overturn any victories that were won based on 3-point shooting. Or, if 
we're talking about the IRS and taxes again, it's like the IRS 
eliminating the mortgage-interest deduction for millions of American 
taxpayers today and then demanding their past taxes with huge penalties 
for having used the deduction in prior years.
    So the second problem is this out-of-control enforcement binge. EPA 
should suspend those enforcement actions that rely on new 
interpretations of older policies and do not involve emissions above 
permitted limits until the NSR reforms are successfully completed. 
Enforcement actions where emission increases exceeded permitted limits 
and clearly violated the law should proceed.
Summary and Conclusions
    You know the axiom all too well. It's not the role of the judicial 
branch to legislate. Likewise, it should not be the role of the EPA's 
enforcement office to regulate. Compounding this issue is the matter of 
timing. Not only should the enforcement office not be regulating and 
changing the rules of the game and applying them retroactively, they 
shouldn't be doing so as part of an aggressive campaign while the air 
office is rewriting the rules.
    We fully appreciate the challenge before the air office. Making 
sense out of these complex rules is no easy task. And we applaud the 
``open door policy'' that the air office has shown us in working on the 
reform effort. We ask, however, that EPA's reform effort follow the 
basic principles I have identified: establish consistent rules and only 
apply them prospectively, give the job to the air office, not the 
enforcement office, and base them on the law.
    We're prepared to hold up our end of the bargain by working 
tirelessly with EPA to make NSR reform a reality. All we ask is that 
EPA all of EPA hold up its end of the bargain as well.
    Thank you.
                               __________

   STATEMENT OF DAVID G. HAWKINS, DIRECTOR, AIR AND ENERGY PROGRAMS, 
                   NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Chairman, members of the subcommittee, thank you for your 
invitation to testify on behalf of NRDC, the Natural Resources Defense 
Council, regarding the New Source Review (NSR) regulatory program of 
the Clean Air Act. NRDC is a nonprofit citizen organization dedicated 
to environmental protection, with more than 400,000 members nationwide. 
Since 1970, NRDC has followed closely the implementation of the Clean 
Air Act and has sought to promote actions under the law that carry out 
Congress' policy decisions to protect public health and the environment 
from harm caused by air pollution.
    In this testimony I would like to touch on three topics: the role 
of new source requirements in the nation's air quality management 
program; features of the current regulatory program that need 
improvement; and some of the general claims surrounding efforts to 
enforce the Act's NSR programs against various electric utility 
companies.

I. The Clean Air Act's Dual-Track Air Quality Strategy

    In 1970 Congress adopted a dual-track program to protect and 
enhance our nation's air quality. The first program calls on States to 
adopt comprehensive pollution control programs under State law to 
achieve air quality objectives set forth in National Ambient Air 
Quality Standards (NAAQS) adopted by EPA. This ambient program is an 
example of the ``assimilative capacity'' approach to environmental 
management based on the belief that the environment can assimilate a 
certain amount of dirt or toxins released from human activities without 
causing identifiable harm. This approach starts by identifying exposure 
levels of pollution that current research indicates may be tolerable 
for humans and ecosystems and then seeks to reduce emissions from 
pollution sources enough to meet the maximum tolerable exposure 
targets.
    The 1970 Act's ambient management program strengthened previous 
efforts enacted by Congress in the 1960's and relied on States to set 
control rules for pollution sources at levels just tough enough to 
bring total pollution down to the level of the national ambient 
standards. Implicit in this approach is that an area's air quality 
determines the amount of clean-up required of sources. Even if there 
are readily available means of reducing a source's pollution, a State 
is not required to adopt such measures if not needed to meet the NAAQS.
    But Congress did not rely exclusively on the assimilative approach 
to air quality protection in the 1970 Act. Congress adopted another 
strategy designed to minimize air pollution by requiring sources to 
meet emission performance standards based on modern ``best practices'' 
in pollution abatement. The performance standard approach does not set 
required levels of control based on the air quality conditions of 
particular areas. Rather, the required emission reductions are 
determined by assessing how much polluting processes can be cleaned up, 
taking account of technical and economic constraints.
    Congress expected that future ambient goals would likely be more 
ambitious than 1970's defined goals and wanted an independent program 
that would be effective in reducing total emissions over time. 
Congress' intent in the performance standard program was to use the 
force of new purchases and investments to incorporate advances in 
pollution prevention and control as a complementary strategy to the 
ambient management program.
    Congress applied the performance standard approach to both 
stationary and mobile sources but with some important distinctions. In 
the mobile source area (cars, trucks, buses), only entirely new 
vehicles were subject to federally established modern performance 
standards. Congress was presented with analyses demonstrating that with 
traditional rates of ``fleet turnover,'' most of the benefits of 
tighter new car standards would be experienced in less than 10 years.
    In requiring performance standards for stationary sources, Congress 
adopted more sweeping provisions. The Act requires that both new and 
modified stationary sources must meet modern performance standards. As 
I will discuss later, Congress in 1970 also adopted a very expansive 
definition of ``modification.''
    The 1970 Act's principal tool for improved pollution control for 
new and modified sources was the New Source Performance Standard 
(NSPS), a national, categorical requirement based on very good, but not 
the best, pollution minimizing practices. In 1977, when the Act was 
amended, Congress adopted the new source review (NSR) and prevention of 
significant deterioration (PSD) programs to strengthen efforts to 
minimize emissions and air quality impacts from new and modified 
sources. In the 1977 Amendments Congress expanded both the scope of the 
rigor of the requirements for improved performance from new and 
modified sources. Coverage would no longer be limited to the categories 
for which EPA had adopted NSPS requirements; rather all new and 
modified sources above certain pollution tonnage thresholds would be 
required to minimize their emissions. Second, the level of the 
performance requirement would not be tied to often out-of-date NSPS; 
rather case-by-case determinations of current best performance would be 
required. Third, covered sources locating in clean areas as well as 
dirty areas would have to pass ambient impact tests to prevent a 
worsening of air quality. In 1990, Congress again increased its 
emphasis on pollution prevention from new and modified sources, 
reducing the size thresholds for coverage in badly polluted areas.
    In sum, Congress has repeatedly endorsed the concept of modern 
performance standards for new and modified pollution sources, adopting, 
in successive amendments, strengthened requirements intended to make 
the NSR programs more effective in reducing pollution.
    However, these programs have for 20 years been the subject of 
criticism from industry representatives and from many academic 
economists. The economists' argument runs, ``why should new sources be 
regulated more strictly than existing sources? After all, air quality 
is determined by how much pollution is released and where it is 
released. The air certainly cannot tell the difference between a pound 
of pollution from a plant built in 1965 and that from a plant built in 
1995.''
    Critics of the Act's new source requirements argue that instead of 
regulating new and old sources differently, we should simply establish 
our desired air quality objectives and allow them to be met by the most 
efficient means. Under this approach, agencies first would do research 
to identify the adverse effects of air pollution on health and welfare; 
next, agencies would convert this research into environmental 
standards; then, the agencies would design pollution control programs 
to achieve the environmental standards; finally, agencies and pollution 
sources would implement the pollution control programs and the air 
would become cleaner.
    This critique and prescription has a certain superficial appeal. As 
I have mentioned, the ambient management program has been a central 
program of the Clean Air Act since 1970 and it should continue. The 
question is whether it is prudent to rely on the ambient standards 
approach as the only strategy for improving and protecting air quality. 
In my view that would be a mistake.
    The 1970 and later Clean Air Acts reflect a judgment by Congress 
that the ambient standards approach should be the major pollution 
control strategy but that it should be complemented by other 
independently functioning programs such as the NSR and Mobile Source 
Emission Standards programs. I think that this judgment was a wise one. 
The history of air pollution control efforts both before and after the 
1970 Act reveals that the ambient standards approach, while 
conceptually sound, has its weak spots, which when exploited by well-
organized opposition, can prevent the program from solving air quality 
problems in a timely fashion.
    First, the Government's capacity to acquire unambiguous information 
about natural processes is very limited. The research is complex, 
expensive, and time consuming. Due to perennial shortages of money, 
talent, and time, most of the studies undertaken in the past and those 
being conducted now are less than perfect. As a result, their 
conclusions are easy to pick apart and dismiss as not dispositive. 
Moreover, the health effects we are concerned about are increasingly 
related to chronic exposures to low levels of combinations of 
pollutants. We have never conducted an adequate study to characterize 
the effects from these kinds of exposures and none is even planned.
    The uncertainties in what we know about air pollution effects in 
turn lead to controversy and delay in establishing environmental 
standards. All of us, including this committee, have experienced this 
controversy in the continuing disputes about EPA's revised ozone and 
particulate standards.
    The next step in the process--control program design--can also be 
affected. Different interests argue at length about how emissions in a 
particular location relate to air quality in that location or 
elsewhere. This can and has led to uncertainty, controversy and delay 
in designing pollution reduction programs to meet environmental 
standards. The continuing fights over efforts to address transported 
air pollution are an example of this problem.
    Another weak spot in the ambient standards abatement program is 
that it often requires large changes in established patterns of 
behavior. When an air pollution control agency adopts a regulation that 
applies to an existing source it is trying to get firms to spend their 
money, time, and thought in ways they have not planned. Not 
surprisingly, these firms often resist, which leads to uncertainty, 
controversy and delay in the final step of the ambient standards 
approach, the actual implementation of pollution reduction measures in 
the real world.
    This resistance to change often feeds back to the first step in the 
ambient standards process, setting the standards themselves. Pressure 
is mounted to weaken existing standards and to oppose the setting of 
new ones. Again, the unified fight of industrial polluters against the 
revision of the ozone and particulate standards highlights this 
problem.
    These weaknesses do not call for abandoning the ambient standards 
approach. But they do suggest the wisdom of complementing that approach 
with programs that are strong where the ambient approach is weak. The 
Act's NSR programs meet that need. Implemented properly, these programs 
can assure that as new well-controlled sources replace old ones, we 
will make progress in reducing emissions as our economy grows. By 
controlling the major pollutants, the new source programs also serve as 
a hedge against unidentified risks associated with those pollutants. By 
dealing with engineering facts rather than biological facts, the new 
source programs usually involve more manageable factual controversies. 
We are relatively good at measuring the dollar costs of meeting 
performance standards and calculating the emission reductions such 
standards can provide. Finally, by focusing on new and modified 
sources, the new source programs can lessen the social and political 
costs of reducing pollution. Because they operate at the time firms are 
making new investments, these programs allow firms to plan pollution 
prevention and control into their plant operations.
    All of this does not argue that the new source programs should 
replace the ambient program, only that they should complement that 
program. For the new source programs have weaknesses in areas where the 
ambient program performs better. The new source programs focus on the 
highly technical details of engineering and thus are too insulated from 
effective public participation. Controlling pollution only from new 
sources often is not the cheapest way to achieve a unit of emissions 
reduction. In my view, the premium we pay to accomplish reductions 
where the ambient program has failed to deliver them is a prudent 
investment, but controls on new and modified sources should not be our 
only program. Finally, new source programs, because they are technology 
based, do not guarantee a desirable level of environmental quality. We 
will degrade our air quality unless we improve pollution reducing 
methods and processes at least as fast as we grow. The new source 
programs do not create adequate incentives for such improvements and 
thus must be complemented by the ambient standards and PSD programs 
which do recognize that clean air is a scarce resource.
    In sum, the Clean Air Act's dual track approach to air quality 
management employs the principle of diversification to reduce risks. In 
an uncertain world, a prudent investor will forego putting all his 
money into the one stock with the apparent highest yield. Instead he 
will spread his risk by selecting a range of investments some which 
offer high risk and high yield and others which offer less risk and 
less yield. Similarly, the Act resembles a stable ecosystem which has a 
diversity of species. Such systems are much less likely to fail in the 
face of adversity than systems that have no diversity.

II. How Should EPA's NSR Programs be ``Reformed'?

    NRDC has participated over the last decade in stakeholder 
discussions convened by EPA to consider ways to improve the Act's NSR 
programs. A major reason these talks have made little progress is the 
lack of agreement on the purposes of these programs. There are two 
major purposes: to assure that new investments do not degrade air 
quality and to assure that when new investments are made, emissions are 
minimized by requiring sources to meet performance standards that 
reflect modern emission prevention capabilities.
    While a great deal of attention has been paid to the complexity of 
the NSR permitting process, the larger environmental failure of the NSR 
program is that the program has not brought down emissions as Congress 
intended. Citizens, pollution control agencies, and Members of Congress 
are increasingly aware of the fact that grandfathered air pollution 
sources are more and more the central impediment to clean air progress. 
Contrary to the intent of Congress, investments in new production have 
not resulted in existing grandfathered sources being replaced by 
facilities that must meet modern performance standards. As a result, 
grandfathered sources dominate the pollution inventory throughout the 
United States.
    The degree to which old stationary sources determine our nation's 
burden of air pollution is striking, especially when compared to the 
impact of old cars on pollution loads. For example, fossil electric 
powerplants built more than 20 years ago are responsible for 84 percent 
of total US nitrogen oxides (NOx) pollution from that sector and 88 
percent of sulfur dioxide (SOx). In contrast, 20-year-old cars 
contribute less than 7 percent of U.S. car NOx pollution and 3 percent 
of that sector's VOC (volatile organic compounds) pollution.
    It is obvious that the Title II new mobile source program has done 
quite a good job of preventing old cars from dominating today's 
pollution problems but the Title I new stationary source program has 
performed miserably on this score.
    There are some obvious reasons for the NSR program's poor pollution 
reduction performance. First, the rules themselves contain too many 
loopholes that allow sources to avoid NSR even though they continue to 
make significant investments year after year. Second, as recent 
enforcement actions have alleged, there are many instances of firms 
escaping the requirements of the rules by misclassifying projects in an 
unlawful manner.
    Reform of the NSR program should address its failure to produce 
pollution reduction from old grandfathered sources as a priority issue 
as well as explore ways to simplify the NSR process. A genuine reform 
of the program should aim to make two basic changes: the program should 
apply to more industrial projects than it now does and the review 
process should be streamlined to enable decisions to be made quickly 
while protecting the public's right to participate. Instead, the 
``reform'' proposals EPA has published over the last decade have 
concentrated almost entirely on changes that would expand the loopholes 
of the current rules so that even fewer grandfathered sources would be 
required to clean up as they upgraded their capital equipment.
    The combination of categorical exemptions and exclusions, weak 
rules for calculating emission increases, and broad provisions for 
``netting out'' of review allow far too many sources to avoid the NSR 
program indefinitely. When illegal evasions of the rules are added to 
the many exemption opportunities in the rules, we get the results we 
see most sources never encounter the Federal NSR program and their 
pollution remains with us.
    NRDC has filed lengthy comments with EPA on these issues over the 
years and I will not burden the subcommittee with a recitation of the 
details here. I would like to mention one area that of ``netting.'' 
Netting is the jargon for a transaction that allows new projects at 
existing sources to escape NSR. In essence it allows the source 
operator to count ``reductions'' from grandfathered pieces of polluting 
equipment at the site in calculating whether a new project will result 
in an emission increase that would require new source review. By 
allowing sources to avoid the modern performance requirements of NSR, 
netting preserves the status quo, perpetuating excessively high levels 
of pollution originally emitted by poorly controlled grandfathered 
pollution sources.
    Netting rewards sources that have managed to manipulate the current 
system to preserve high levels of emissions. Current netting policy 
allows those high emission levels to function as an asset that can be 
deployed to avoid NSR/PSD review. Thus, netting operates at cross 
purposes with sound air quality objectives. It creates incentives to 
keep emissions at unnecessarily high levels and perpetuates an 
inefficient allocation of emission ``shares'' by providing the greatest 
rewards to the most polluting sources. Netting frustrates one of the 
primary objectives of the NSR/PSD program, which is to link 
requirements for modern emission performance standards to investments, 
so that emissions are reduced as the economy expands. Instead, netting 
allows existing emission levels to be perpetuated indefinitely.
    While the netting rules are complex, the fundamental problem with 
the approach is easy to understand. Netting allows a grandfathered 
pollution source to ``bequeath'' its excessive pollution privileges to 
its descendant, the new piece of equipment. Under netting, the new 
piece of equipment is not required to meet modern performance 
standards; it can emit at much higher levels by relying on the 
pollution entitlements transferred from old, grandfathered pieces of 
equipment. In this way, excessive amounts of pollution can live on long 
after the original sources have disappeared. Netting resembles the 
former hereditary peerage system in England, where membership in the 
House of Lords and other privileges were handed down from generation to 
generation. England recently acknowledged this system has no proper 
place in a modern democracy. We too need to eliminate the pollution 
peerage that is embedded in EPA's netting rules.
    For nonattainment NSR, the Supreme Court in Chevron made it clear 
that EPA has the authority to eliminate the availability of netting 
altogether. One perverse effect of netting in nonattainment NSR is that 
new equipment is installed without meeting ``lowest achievable emission 
rate'' (LAER) performance standards. This in turn means that a greater 
level of emission reduction is required to offset the new equipment's 
emissions than if the new equipment had met LAER standards. These 
additional emission reductions must come from a finite pool of existing 
emission sources whose total pollution load must be further reduced for 
the area to attain the ambient standards. Thus, the effect of NSR 
netting is to allow existing source owners to unilaterally dedicate the 
cheapest and easiest emission reductions in a nonattainment area to 
compensate for poorly controlled new units, leaving State and local 
control agencies with the more difficult task of developing an 
attainment plan from the more expensive, politically controversial 
remaining emission reduction opportunities.
    EPA's original defense of its 1981 change to allow netting under 
the nonattainment NSR program was that areas choosing such an approach 
would be required to develop timely attainment plans in any event so 
that there would be no environmental harm. It is now the year 2000 and 
EPA can no longer deny that the theory it presented to the Supreme 
Court in the early 1980's has no basis in reality. In fact, areas have 
not succeeded in developing timely and adequate attainment plans. State 
and local agencies have protested repeatedly to EPA that they cannot 
identify sufficient, politically feasible emission reductions to 
demonstrate timely attainment. EPA has responded with policies that 
have permitted lengthy delays in the submission of adequate plans. 
Given that the premise for EPA's initial adoption of NSR netting in 
1981 has not been achieved, it is time for nonattainment netting to be 
abolished.
    To restrict netting in the PSD NSR program, EPA should reform its 
definition of contemporaneous so that only activities which are part of 
the project for which the netting claim is made can qualify. Second, 
EPA should reduce the netting credits available for shutting down or 
limiting operations at existing units to reflect the obvious fact that 
the new emission-increasing projects will have greater longevity than 
the older existing units that are generating the netting credits. For 
example, consider a source that proposes to build a 100-ton-per-year 
new unit with a 35-year useful life and to net out the increase with 
the shutdown of a 100-ton source that has only 5 years of life 
remaining. The stream of emission reductions from the shutdown source 
ends after 5 years but the emission increases from the new source 
continue for an additional 30 years. There clearly is an enormous 
increase in the cumulative emissions from the facility over the life of 
the new project that is not captured if netting credits are given for 
the shutdown unit based only on a comparison 1 year's emissions.

III. Enforcement of NSR Requirements

    The ``new source review'' enforcement actions filed against major 
electric utilities are an effort to end a flagrant abuse of the Clean 
Air Act ``grandfather clause'' provisions relating to existing 
pollution sources. As mentioned above, Congress in the 1970 Clean Air 
Act did include a grandfather clause that exempted existing stationary 
pollution sources from the duty to meet modern emission performance 
standards. However, Congress did not intend to extend a permanent, 
blanket exemption to existing sources. Thus, Congress provided that 
when an existing source was ``modified'' it would become subject to new 
source requirements. Moreover, Congress defined ``modification'' 
extremely broadly, including in the term ``any physical change or 
change in method of operation'' that increases emissions. Congress 
adopted an expansive definition of the term to prevent sources from 
evading new performance standards with piecemeal changes.
    EPA regulations narrow the Act's modification definition somewhat 
by including an exemption for ``routine maintenance, repair, and 
replacement.'' It is this exemption the defendant companies claim 
shield their plants from NSR. However, the challenged projects cannot 
be called routine, as a matter of law, logic, good policy, or history. 
Public information documents an industry capital investment strategy, 
starting in the 1980's, to upgrade existing plants to run longer and 
harder rather than letting them retire and be replaced by new capacity. 
For instance, one of the challenged projects involved removing existing 
700 horsepower fans (the ``lungs'' of a powerplant) and replacing them 
with new 900 horsepower fans. If this is routine replacement, then so 
is taking the original 350 horsepower engine out of your car and 
``replacing'' it with a 450 horsepower engine.
    In essence, the industry decided to sell more electricity by 
building new capacity into their existing machines rather than building 
entirely new units. This practice has both kept pollution at 
unreasonably high levels and has functioned as a barrier to entry into 
the market keeping many new clean, efficient units from being built.
    While the industry is now labeling these projects as ``routine 
maintenance,'' utility equipment vendors as well as utility witnesses 
in public utility commission rate cases have described these projects 
as going beyond maintenance and providing capacity that otherwise would 
have to be created by building new units. Indeed, in a recent filing 
with the Department of Energy, American Electric Power Co. explicitly 
referred to some of the challenged projects as not including ``routine 
maintenance'' activities.
    Industry's claim today is that any rebuild project, regardless of 
scope is ``routine'' as long as the rebuilt plant's maximum production 
capacity is no greater than the plant's original maximum design 
capacity. This may remind you of the fabled ``one-hundred-year-old'' 
axe: it's only had two new heads and four new handles over its life.
    The industry's interpretation would read the ``modification'' 
provision out of the Act, creating a permanent grandfather exemption 
for all the capacity that existed prior to 1970. And when the industry 
litigated their interpretation over a decade ago, they lost. The 
utility industry in the 1980's challenged a Reagan-era EPA ruling that 
rebuilding a deteriorated plant to ``restore'' original capacity could 
not fit within the routine maintenance exemption. In 1990, the 7th 
Circuit rejected industry claims that original design capacity should 
define the boundary for the ``routine'' exemption. Wisconsin Electric 
Power Co. v. Reilly, 893 F.2d 901. In WEPCO, the court flatly rejected 
industry's interpretation as one that would confer indefinite immunity 
from new source standards, contrary to Congress' intent.
    When the WEPCO court upheld EPA, the industry prevailed on the 
Office of Management and Budget (OMB) to kill a broader examination of 
industry practices initiated by EPA. Industry also lobbied Congress 
following the court ruling to amend the law to create broad new 
exemptions for utility modification projects. When they did not get new 
statutory exemptions, industry lobbied the Bush Administration for 
regulatory exemptions. In 1992, the Bush Administration amended the NSR 
rules to give the utility industry a more generous formula for 
calculating whether an emission increase had occurred. But the rule did 
not change the definition of routine maintenance. After the 1992 rule 
had been in place for a few years, EPA again launched an investigation 
to determine why so few NSR applications had been filed. The industry 
again sought intervention by OMB, using the Paperwork Reduction Act as 
a pretext. While this effort delayed EPA's investigation for a time, 
this time OMB ultimately rejected the industry's Paperwork Act claims.
    The industry complains that EPA has not published a detailed 
reference book listing exactly which projects are ``routine 
maintenance'' and which are not. But EPA has explained in numerous 
communications with utilities and other industries, that determining 
the correct classification of many projects is a highly fact-specific 
undertaking. For that reason, These letters are similar to the opinion 
letters that the IRS uses to answer fact-dependent tax questions.
    The utility industry implies that EPA has not given them fair 
notice of their NSR obligations. The opposite is true. It has been 
EPA's practice for 30 years to issue ``applicability determination'' 
letters to resolve questions about whether a specific project would 
trigger NSR. Industry officials have known from the beginning of their 
rebuild programs that these types of projects could trigger NSR but 
they did not seek determinations from EPA for any of the challenged 
projects.
    Minutes of a 1984 industry discussion shed some light on the 
industry's thinking. The minutes report a consensus that companies 
should----

      identify their projects as ``upgraded maintenance 
programs;''
      ``downplay the life extension aspects of these projects 
(and extended retirement dates) by referring to them as plant 
restoration (reliability/availability improvement) projects;''
      deal with the air regulatory issues ``at the State and 
local level and not elevate [them] to the status of a national 
environmental issue.'' (ie, don't ask EPA because you won't like the 
answer) EPRI, Proceedings: Fossil Plant Life Extension Conference and 
Workshop (1984) at 27-4.

    As a final argument to inspire fear in the public, the industry has 
claimed that they now cannot make needed repairs for fear of triggering 
additional enforcement actions. There is no merit to this claim. EPA's 
NSR rules for utilities provide generous ``baseline'' emission formulas 
(the maximum polluting hour in the past 5 years and the average of the 
two maximum polluting years of the previous 5 years). A company that 
commits to not exceed these generous limits can carry out any 
maintenance or other project it wishes, routine or otherwise, without 
triggering NSR. Companies who refuse to commit to limit their pollution 
increases can seek applicability determinations from EPA.
    In short we believe EPA and the other plaintiffs are doing the 
right thing by enforcing the NSR law as Congress intended. The results 
of that enforcement should be to achieve a major reduction in pollution 
from these plants and to improve all industries' attention to their NSR 
obligations when they modify their facilities.
    Thank you for this opportunity to testify. I am happy to answer any 
questions you may have.
                               __________

    STATEMENT OF WILLIAM F. TYNDALL, VICE PRESIDENT, ENVIRONMENTAL 
  SERVICES, AND VICE PRESIDENT FOR FEDERAL AFFAIRS, CINERGY SERVICES, 
                                  INC.

Introduction

    Good afternoon. Thank you for inviting me here today to testify 
before you on EPA's proposed changes to the Clean Air Act's new source 
review (``NSR'') requirements.
    My name is Bill Tyndall. Since August 1998, I have been Vice 
President of Environmental Services for Cinergy Services, Inc., and I 
recently was named Vice President of Federal Affairs as well. Cinergy 
Services is the service company for Cinergy Corp., one of the nation's 
leading diversified energy companies. Its operating companies, The 
Cincinnati Gas & Electric Company and PSI Energy, Inc., serve more than 
1.4 million electric customers and 478,000 gas customers in Indiana, 
Ohio, and Kentucky. Cinergy is active in U.S. power and natural gas 
markets and maintains a 24-hour-a-day, 7-day-a-week trading operation. 
The company's international business unit, Cinergy Global Resources, 
has assets in power generation, transmission, and distribution projects 
in the Czech Republic, Spain, the United Kingdom, Zambia, Estonia, and 
the United States. Cinergy's 1999 revenues were $5.9 billion, and its 
total assets are $9.6 billion. Cinergy's core energy system comprises 
approximately 11,000 megawatts at 14 baseload stations and seven 
peaking stations. Its natural gas distribution system is connected to 
six interstate pipelines.
    Before joining Cinergy, I served as minority counsel to the House 
Commerce Committee and advised committee Democrats on air quality 
issues. Before that, I spent 5 years at EPA, serving first in EPA's 
Office of General Counsel, where I worked on new source review and 
other stationary source issues, and later as a senior policy advisor in 
EPA's Office of Air and Radiation, the office responsible for 
administering the NSR program.
    Today I am here on behalf of Cinergy, a company with nearly three 
decades of experience under EPA's regulatory treatment of NSR. Thus, I 
am speaking as someone who has spent nearly 10 years working with EPA's 
new source review program from a variety of perspectives. My testimony 
also is on behalf of the Edison Electric Institute, an association of 
investor-owner electric utilities such as Cinergy. I will be addressing 
what I believe to be the serious ramifications of EPA's attempt to 
reform the Clean Air Act's new source review program.
    A series of summer heat waves and steadily rising consumer demand 
have forced many utilities to the limits of their generating capacity. 
With the industry's equipment pushed to the breaking point for extended 
periods, the Nation as a whole faces a risk of electricity shortfalls 
that is higher than ever before. As these trends continue, the need to 
keep electric utilities running, and running reliably, is at its apex. 
The availability of power in America depends on the ability of 
utilities to continue maintaining their facilities in the manner needed 
to ensure safe, efficient, and reliable generation on demand. To 
exacerbate the situation, electric utilities, rural cooperatives, 
municipal electric systems, and independent power producers are all 
facing significant obstacles in siting and building needed additional 
peaking capacity.
    In the midst of these potential electricity shortfalls, EPA now 
proposes changes to the Act's NSR program that could require existing 
facilities to undergo an expensive and time-consuming permitting 
process before they undertake any activities intended to maintain 
safety, availability, and reliability. A close examination of EPA's 
proposal shows not only that it is contrary to Congress' focus on new 
sources of pollution, but that it is inconsistent with how the rule has 
been written and applied for nearly three decades. Moreover, EPA's plan 
to promulgate an unworkable rule that discourages or delays needed 
maintenance projects is at odds with maintaining the reliability of the 
nation's power supply.
Background
    Electric utilities occupy a unique position in the industrial 
world. We arguably are the ultimate example of ``just-in-time 
delivery'' of a product to our customers. Because it is not feasible to 
store significant amounts of power, we must generate electricity at the 
very instant that our customers consume it. This requires constant and 
careful maintenance of our generating units, which are comprised of 
thousands of individual components working together as an integrated 
system. In this interdependent environment, the failure of a single 
component is sufficient in many cases to cause an entire generating 
unit to be shut down and require repair.
    Furthermore, utilities are operated under extreme conditions of 
temperature, pressure, and wear that make such failures particularly 
likely. As in an automobile, or any other highly integrated piece of 
equipment, these various parts wear at different rates, with the result 
that parts both large and small must be replaced on a periodic basis in 
order to keep the unit running properly. In contrast, the failure to 
make such repairs results in rapid and predictably declining 
reliability and unit availability. At present, Cinergy operates over 60 
individual generating units in our three-State system, and the 
maintenance required to keep these facilities operating smoothly has 
been, and remains, a daunting task.
    Note that a failure to maintain generating units properly results 
not only in decreased performance, but also can cause unsafe conditions 
for our employees, as well as our customers. The early history of steam 
generation was plagued by equipment failures, with many injuries to 
plant employees. Since that time, the American Society of Mechanical 
Engineers (ASME) and other industry authorities have developed detailed 
codes that guide utility maintenance and repair activities to ensure 
that generating units may be operated safely and reliably for decades. 
In addition, various State agencies and insurance underwriters regulate 
boiler operation, maintenance, and repair practices to ensure utilities 
maintain their equipment properly.
    These generating facilities are subject to a host of Clean Air Act 
provisions that constrain emissions to levels that protect the public 
health and welfare. For electric utilities, this includes, but is not 
limited to, (1) compliance with SIP-based limitations designed to 
achieve or maintain the national ambient air quality standards 
(``NAAQS''); (2) restrictions on NOx and SO2 emissions under 
the Act's Title IV acid rain program, including a more stringent phase 
two of that program which commenced on January 1, 2000; (3) 
restrictions on ozone, SO2, and particulate matter under 
Title I of the Act; and (4) EPA's Title V operating permit program. In 
this manner, Congress has ensured that all industrial facilities both 
old and new are subject to extensive and costly pollution control 
requirements. In addition, State environmental programs impose 
additional emission limitations that apply to our plants.
    In 1970, and again in 1977, Congress enacted significant amendments 
to the Clean Air Act targeted at new sources of pollution. 
Specifically, Congress amended the Act to provide that companies that 
construct new facilities, or make ``major modifications'' to existing 
facilities that result in significantly increased emissions, must apply 
an extra layer of pollution control to these units. As EPA has 
recognized, Congress targeted new construction and the extensive 
alteration of existing units because it understood that it is more 
feasible technically, and less disruptive economically, for companies 
to install new control technology at the time these events occur than 
it is to retrofit existing units.
    Under the terms of the NSR program, new and ``modified'' units must 
satisfy ``new source performance standards,'' and install controls that 
represent ``best available control technology'' or ``lowest achievable 
emission rate'' requirements. Such units also must undergo review for 
their impact on ambient air quality either under the ``prevention of 
significant deterioration'' program (for areas where air quality is 
cleaner than the NAAQS require) or under the nonattainment program (for 
areas where one or more NAAQS is not being achieved). Thus, a ``major 
modification'' to an old plant can create a ``new'' source for 
regulatory purposes and trigger the congressional mandate for the plant 
to undergo a permitting process that takes 18 months or longer to 
complete and results in millions of dollars in control equipment costs. 
While Congress may have considered this a reasonable process for a 
``major modification,'' it is clear that such a process and cost cannot 
be imposed on routine maintenance and repair activities if the U.S. is 
to maintain a safe, reliable, and reasonable supply of electric 
generation to homes and businesses.

EPA's Historical Treatment of the Modification Rule

    Given this history, the question of whether a source has undergone 
a ``major modification'' for purposes of NSR is a crucial one for older 
generating units. Historically, EPA has interpreted the modification 
rule in a manner consistent with Congress' focus on new sources of 
pollution and its concern about the costs of retrofits. For example, 
EPA guidance recognizes that Congress ``did not intend to make every 
activity at a source subject to new source requirements'' via the 
modification rule, and that EPA ``in no way intends to discourage 
physical or operational changes that increase efficiency or reliability 
or lower operational costs, or improve other operational 
characteristics of the unit.'' 57 Fed. Reg. 32,327. Similarly, EPA has 
expressed concern with requirements that would ``unduly hamper the 
ability of any company to take advantage of favorable market 
conditions.'' 45 Fed. Reg. at 52,704. For these reasons, EPA has always 
excluded ``routine maintenance, repair and replacement,'' as well as 
increases in production rate or hours of operation within a facility's 
capacity, from the definition of a modification.
    EPA's actual application of the modification rule to utilities also 
has been consistent with both congressional intent and the agency's 
regulatory pronouncements. Specifically, EPA has allowed utilities to 
make those repairs that are customarily undertaken in the industry to 
maintain the availability and reliability of electric generating 
facilities, and to thereby maximize the useful lives of these units, 
without any suggestion that such repairs were non-routine modifications 
subject to NSR. Importantly, EPA adopted this approach while armed with 
an extensive agency awareness of utility maintenance practices from 
onsite inspections, reports filed with State and Federal regulatory 
agencies, and countless industry articles.
    There is one case where EPA has found that repair and replacement 
activity crossed the line between those routine projects that keep a 
facility operating, and a non-routine expansion of the facility subject 
to NSR. In a 1989 administrative decision, EPA ruled that a plant-wide 
reconstruction project at Wisconsin Electric's (``WEPCo'') Port 
Washington facility was a non-routine change because it involved a 
``massive'' and ``unprecedented'' replacement of major components, some 
of which had never been replaced before by WEPCo or other utilities. By 
pursuing the WEPCo project as a non-routine modification, after years 
of allowing less ambitious repair and replacement projects that 
extended unit life, EPA confirmed that the majority of utility 
maintenance projects to extend life qualified as routine maintenance 
and did not trigger the modification rule. EPA later confirmed this to 
Congress, leading GAO to report later in 1990 that:
    According to EPA policy officials, WEPCo's life extension project 
is not typical of the majority of utilities' life extension projects, 
and concerns that the agency will apply the ruling it applied to 
WEPCo's project are unfounded. (emphasis supplied)
    In keeping with its statements to Congress, EPA has continued to 
allow utilities to undertake repair and replacement projects as needed 
to maximize unit life in the 10 years following the WEPCo decision, 
without any finding that such projects triggered NSR.

EPA's Proposal to Revoke the WEPCo Rule
    However, in Federal Register notices issued in July 1996 and 1998, 
EPA has proposed a major revision to the NSR modification rule. I refer 
you to 61 Fed. Reg. 38,250 and 63 Fed. Reg. 39,857. In these notices, 
EPA essentially proposes to revoke parts of a 1992 rule EPA issued to 
formalize its WEPCo decision (the so-called ``WEPCo Rule''). EPA would 
replace this WEPCo Rule with a new interpretation of the modification 
standard under which nearly all activities intended to maintain or 
restore the reliability or efficiency of a generating unit would 
trigger NSR.
    EPA's original modification rule is fairly straightforward, and 
defines a ``modification'' as a: (1) physical or operational change (2) 
that results in (3) a significant net emissions increase. The rules 
then provide examples of activities that do not constitute a physical 
or operational change, including routine repair, replacement and 
maintenance, pollution control projects, fuel switches, and so on. See 
40 C.F.R. Sec. 52.21(b)(2), Sec. 60.14. As I mentioned earlier, this 
rule historically has resulted in a regulatory program where utilities 
are allowed indeed encouraged--to maintain and operate their plants as 
they were designed to operate.
    EPA now seeks to change how each of these criteria is applied to 
determine whether a modification has occurred. First and most important 
is EPA's new approach to what constitutes a ``physical or operational 
change.'' As described above, EPA has always excluded traditional 
utility maintenance activities, whether performed singly or grouped 
together, from the definition of a physical or operational change under 
the exclusion for ``routine maintenance, repair and replacement.''
    EPA now proposes an interpretation of the ``routine maintenance, 
repair and replacement'' exclusion under which all activities that 
restore deteriorated capacity and availability must be treated as 
``non-routine'' repairs. This would mean that all utility maintenance 
projects would be ``non-routine,'' since even the simplest utility 
maintenance project is intended to restore lost availability and 
reliability. This again is in direct conflict with the history 
discussed earlier. It also is logically inconsistent with the language 
of EPA's exclusion for ``routine maintenance, repair and replacement.'' 
If all repairs are non-routine, there can be no such exclusion. EPA 
would, in effect, read this exclusion out of the NSR regulations.
    Another major change is EPA's elimination of the causation 
requirement of the modification rule, and its removal of the so-called 
``demand growth'' exclusion, which excludes increases in production 
rate and hours of operation. EPA created this latter provision based on 
its understanding that Congress did not in any way intend for the 
modification rule to punish utilities for responding to changes in 
demand growth within the design capabilities of their facilities. Thus, 
under the rule as written, a physical or operational change cannot be 
considered a ``modification'' unless the change ``results in'' a 
significant increase in emissions. In other words, the mere fact that 
there is an increase in net annual emissions after a particular change 
does not necessarily trigger NSR. If the increase was caused not by the 
change but by something else for example, by an increase in production 
rate or hours of operation, occurring in response to an increase in 
product demand or some similar market force--a ``modification'' has not 
occurred. In this regard, EPA stated in the preamble to the 1992 WEPCo 
Rule that it ``declines to create a presumption that every emissions 
increase that follows a change in efficiency is inextricably linked to 
the efficiency change.'' 57 Fed. Reg. at 32,327.
    EPA now proposes a regulatory regime under which any non-routine 
(or otherwise non-excluded) change that is followed by a significant 
increase in annual utilization of the facility would be presumed to be 
a modification, even if that change does not affect a facility's 
overall capacity to burn fuel (and hence its emission rate). According 
to EPA, the Agency'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. A proximate 
cause for making such changes may be to respond to increased demand, or 
to more efficiently compete for share of a market that has flat, or 
even decreasing, demand. \1\
---------------------------------------------------------------------------
    \1\ 63 Fed Reg. 39,860.
---------------------------------------------------------------------------
    ``For these reasons,'' the Agency continues, ``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.'' Indeed, according to EPA, ``in a market economy, all 
changes in utilization and, hence, emissions might be characterized as 
a response to market demand.'' Id. In this manner, EPA's proposal 
appears to require that any change that is followed by a significant 
increase in annual utilization is a ``modification'' and, therefore, 
subject to NSR.
    EPA's final change is to redefine how an emissions increase is 
calculated. EPA claims that ``[u]nder current regulations,'' non-
routine activity at a unit must be ``deemed to be of such significance 
that 'normal operations' are deemed not to have begun'' at the 
facility. In other words, EPA would treat a company that undertakes a 
non-routine change at a unit as if the unit had never been operated 
before and had no emissions history. This change is significant because 
the NSR rules provide that, for a unit that has not begun ``normal 
operations,'' post-change emissions must be calculated based on the 
assumption that the unit will be operated at full tilt, 24 hours a day, 
365 days a year after the change. Under this test, any change will show 
an increase in emissions, even if the change would not truly result in 
any new pollution.
    But the Seventh Circuit specifically rejected this view of the 
emissions increase test in its review of EPA's WEPCo determination. See 
Wisconsin Elec. Power Co. v. Reilly, 893 F.2d at 917-18. Moreover, EPA 
rejected this interpretation in its 1992 WEPCo Rule, explaining that 
the Agency is required to compare actual emissions before and after a 
change, unless the unit is brand new or has been entirely rebuilt by 
spending 50 percent of the cost of a new facility. See 57 Fed. Reg. at 
32,317, 32,323.
    When one considers these changes together all repairs are non-
routine, all non-routine repairs are deemed to result in an emissions 
increase, regardless of whether they actually did so it becomes clear 
that EPA plans to subject the entire electric utility industry to a new 
level of controls not contemplated by the original NSR program.

Summary

    If EPA's goal is to obtain new source levels of emission reduction 
from existing sources even though those sources have already reduced 
emissions to address the public health and welfare requirements of the 
Clean Air Act then let's address this directly as a policy issue. The 
new source review program was never meant to require such sweeping 
reductions from existing utilities, and is uniquely ill-suited as a 
vehicle for obtaining them. In particular, EPA's interpretation of NSR 
would require all utilities to delay repair, and possibly shut down 
their facilities, for 18 months or more every time there is a minor 
equipment failure in order to go through the NSR process. There simply 
isn't enough capacity in the Nation to allow for so many units to 
remain inactive for such extended periods, nor would consumers 
appreciate the jump in rates that would accompany such a change.
    EPA's proposed revision to NSR is problematic for other reasons as 
well. EPA's proposed NSR approach would force utilities to guess on 
when to install new pollution controls according to the unpredictable 
failure of minor pieces of equipment, rather than choosing a time that 
minimizes outages and technical difficulties the very problem Congress 
sought to avoid in creating NSR. Utilities faced with the prospect of 
undergoing NSR every time they replace broken turbine blades or boiler 
tubing would be discouraged from making such changes for as long as 
possible, with serious ramifications for the reliability of the 
nation's power supply and for the safe operation of the units. 
Degradation in reliability is counter to the expectations of State 
public utility commissions, which can and have financially penalized 
companies for substandard performance. Finally, for many utilities, 
EPA's NSR proposal also would mean foregoing the adoption of new 
technologies that could increase the efficiency of generating units by 
reducing the amount of coal needed to produce power. By discouraging 
such opportunities, EPA would be losing a chance to obtain significant 
reductions in pollutants not currently regulated under the Act, in 
particular, greenhouse gases.
    In sum, the utility industry already faces many challenges to its 
ability to provide safe, reliable, and affordable power to the American 
public. EPA's proposed changes to the NSR modification rule should not 
be among them. The ongoing rulemaking process needs to be conducted in 
a manner that will truly reform the NSR program, rather than the 
piecemeal approach currently being taken by the Agency. It is now time 
for EPA to abandon such impractical approaches to NSR in favor of 
straightforward negotiations with industry, and for Congress to address 
the important policy issues raised in the current debate. Regardless, 
EPA's proposed NSR rule should not proceed on its current track.
    I thank you for the opportunity to present these comments, and 
would be happy to respond to any questions.


```