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OAR Box 1787 

Prepped by Ollie Stewart 

Document Number: 

33) II-B-18 

Docket Number: 

A-90-37 

Printed 11/4/200810:22:19 AM Sheet 33 of 147 
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<f UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

Office of Air Quality Planning and Standards 

Research Triangle Park, North Carolina 27711 

December 14, 1988 

MEMORANDUM 

SUBJECT: 

FROM: 

TO: 

Review of Valero Hydrocarbons BACT Analysis 

Allen C. Basala, Chief 

Economic Analysis Section, ASB (MD-12) 

Anthony Wayne, Chief 

Texas, New Mexico Enforcement Section (6T-ET) 

Region vi 

V-B-IZ? 

This memo is in response to your request of November 8. In 

our judgment, the Valero hydrocarbons BACT economic analysis is 

unacceptable. The employed methodology is not supported as valid 

for purposes of project budgeting and cost-effectiveness 

assessments. To remedy this deficiency, Valero should redo their 

analyses using more conventional techniques. Also, the BACT 

analysis fails to include other alternate control options which 

are potentially as effective as, and less costly than, those 

control techniques presented. 

Frank Bunyard's detailed review is attached. 

cc: G. McCutchen 

F. Bunyard 

E. Noble 

D. Solomon 

E •**-»•••"• " 
/°% 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

Office of Air Quality Planning and Standards 

Research Triangle Park, North Carolina 27711 

December 8, 1988 

MEMORANDUM 

SUBJECT: Review of Valero Hydrocarbons BACT) Analysis 

FROM: Frank L. Bunyard ^^V 7 ^"^? ) 

Economic Analysis Section, ASB* (MD-12) 

TO: Allen C. Basala, Chief 

Economic Analysis Section, ASB (MD-12) 

Per your request of November 8, I have reviewed the subject 

document and prepared the following comments regarding my 

concerns on the economic issues of the BACT proposals offered by 

Valero. I have also coordinated our reviews with Eric Noble of 

the Noncriteria Pollutants Programs Branch for his technical 

insights in preparing these comments. In addition, I have 

discussed these thoughts at some length with Stanley Spruiell and 

Rick Bartley of EPA Region VI staff by phone earlier in this 

week. 

My major concerns with the technical, cost and economic 

issues are summarized as follows: 

(1) Inconsistent annualization methods to estimate costeffectiveness 

(2) Omission of analyses of alternatives, such as combined 

cycle steam generation for gas turbines and 

retrofitting dry controls on internal combustion 

engines (<ICE) 

(3) Questionable incorporation of downtime in the 

operating costs and unreasonable concerns regarding 

catalyst regeneration and/or disposal, brine disposal 

and water purification costs. 

The following discussion will explore each of these points 

in detail. First, my chief concern is the annualization method 

used in the derivation of the cost-effectiveness figures that are 

the focus of the arguments presented by Valero. 

The method, as discussed in Section 3, page 20, of the 

Valero BACT analysis, uses the sinking fund, or future value 

method, to determine cost-effectiveness. Standard cost 

estimating methodologies used by the Agency program offices are 

based on present value methods. All the criteria for EPA 
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rulemaking, such as NSPS, and NAAQS/PSD program implementation, 

such as RACT determinations and BACT determinations, employ this 

present value method. This philosophy is in agreement with both 

academicians and practitioners familiar with modern financial 

theory in capital budgeting and asset allocation activities. 

The estimate of $14,724 per ton, which is derived from the 

future 10-year value of $53,947,000, is equivalent to a $5676 per 

ton NOx removed for Selective Catalytic Reduction (SCR) 

technology presented in Table 3, page 25. Similarly, the $5,865 

for water injection in Table 2 is equivalent to $1545 per ton NOx 

removed; and, the $9,292 in Table 3 for SCR for the ICE engines 

is equivalent to $ $3,582 per ton. In short, the choice of a 

present value versus future value metric is a time preference 

issue that should not be an argument introduced into the test of 

reasonableness of BACT determinations. To repeat, Agency 

standardized procedures use the present value method. 

I concur with Valero7s concept for normalizing annualized 

costs for projects with nonuniform cash outlays, such as 

replacing catalyst. I also concur conceptually with most of the 

remaining line-by-line items, with the exception of specific 

items, such as those discussed below (e.g., lost production). 

On the second point, Valero excludes discussion on 

alternative technical options, which would include: (1) operating 

some gas turbines in the combined cycle mode, (2) retrofitting 

existing ICE with new heads to meet the 2 gram NOx per 

horsepower-hour emission limit or,(3) purchase or rental of new 

simple cycle gas turbines capable of meeting the NOx limit with 

little or no water or steam injection. 

Regarding the discussion on page 32 of the Valero analysis, 

Valero could have included a discussion on the viability of 

installing one or more combined cycle gas turbines rather than 

utilizing all simple cycle units. The addition of heat recovery 

steam generators and steam turbines would increase plant 

efficiency and, as a side benefit, make steam available for 

injection into the gas turbines." Steam improves the heat rate of 

the gas turbines and reduces the maintenance impacts associated 

with water injection. I understand that Solar Turbines was 

promoting this concept a few years ago. 

Concerning the technical discussion of ICE's on page 47, 

Valero did not address retrofitting the ICE's with the new heads 

that would would achieve the desired emission limit of 2 gram NOx 

per hp-hr without further control. This would be cheaper and more 

reliable than SCR technology on existing ICE's in achieving the 

same environmental objective. Alternatively, newer model engines 

with new NOx control technology could possibly be rented. 
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On the third issue regarding inclusion of specific operating 

cost elements, we should not concur with the philosophy 

underlying the assumptions for downtime and associated lost 

production, brine disposal, and water purification problems. We 

believe the case for maintenance problems and including lost 

production as an out-of-pocket expense is overstated. We believe 

that expensing a full-time technician to monitor these turbines 

and engines should diminish potential downtime problems. 

Accordingly, adding an expense for lost production is a redundant 

item. Furthermore, enough experience should now be available on 

both wet controls and SCR to prevent, or at least be prepared 

for, potential maintenance problems. If not, then the source 

should consult with equipment manufacturers, users, and states 

for documentation of maintenance experience regarding SCR. As a 

minimum, EPA should request more analyses of dry controls in the 

Valero permit application. 

As for brine disposal, this requirement is not unique to 

Corpus Christi. This is a problem common to all facilities 

producing steam, as well as gas turbines with water injection. 

Therefore, this is not an argument for unreasonableness. 

Likewise, catalyst regeneration is a routine recycling operation 

carried out by the catalyst manufacturer. Regarding the 

discussion on page 28, the concerns with handling the handling 

and disposition (recycling) of vanadium pentoxide as a hazardous 

waste is a legitimate issue; however, proper care of this 

material is a normal cost of doing business and should not be 

considered as an economic argument, without additional 

documentation. 

The loss in efficiency attributed to water injection also 

seems to be excessive. The permit presumes (to meet a 42 ppm NO, 

limit) a fuel penalty of at least 2.2% for a 0.62:1 water-to-fuel 

ratio. This is about 3 1/2 times the impact reported in the 

background document for the gas turbine NSPS. Incidently, both 

the Solar and Allison gas turbines may be able to meet the 25 ppm 

limit with water injection at a water-to-fuel ratio less than 

1.0. 

In summary, Valero has not presented sufficient information 

to render the emission limits of 25 or 42 ppm for gas turbines 

and 2 grams per hp-hr for ICE inappropriate.