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OAR Box 1778 

Prepped by Ollie Stewart 

Document Number: 

178) ll-F-5 

Docket Number: 

A-90-06 

Printed 10/28/2008 9:51:00 AM Sheet 178 of 276 
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

Office of Air Quality Planning and Standards 

Research Triangle Park, North Carolina 27711 

MEMORANDUM 

TO: Docket 

FROM: 

DATE: JUNE 4, 1991 

SUBJECT: Draft Preamble WEPCO Interpretive Rule 

Chebryll Edwards 

The attached draft preamble of the WEPCO interpretive rule 

(dated April 18, 1991) was submitted for interagency review to the 

Council of Economic Advisors, Department of Energy, and Department 

of Justice. 

tJISS5A]x 

».'• • il 
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Draft: April 18, 1991 

WEPCO INTERPRETIVE RULE 

DRAFT PREAMBLE 

This interpretive rule clarifies the coverage of the new source provisions of Part C 

of Title I of the Clean Air Act for modifications at electric utility generating units in light 

of two recent federal appellate decisions. Wisconsin Elec. Power Co. v. ReillyT 893 F.2d 901 

(7th Cir. 1990) ("WEPCO") and Puerto Rican Cement Co. v. EPA. 889 F.2d 292 (1st Or. 

1989) ("Puerto Rican Cement".. While today's interpretive ruling provides immediaiC 

answers to some of the questions that have been raised in the wake of the WEPCO and 

Puerto Rican Cement decisions, the Environmental Protection Agency (EPA) also intends 

to propose, for public notice and comment, revisions to its new source review regulations 

which will provide a more comprehensive resolution of the various issues.1 This ruling also 

implements certain changes in the treatment of repowering and clean coal technology 

projects mandated by Congress in the Clean Air Act Amendments of 1990. 

I. Modifications Under Existing Law 

The new source review provisions of the prevention of significant deterioration 

("PSD") program2 provide, among other things, that "[n]o major emitting facility... may be 

constructed in any [PSD] area" without taking certain steps including securing a construction 

permit and adding emissions control technology. (CAA § 111(a)(4), 169(2)(c), 42 U.S.C. §§ 

1

 For several reasons, today • s interpretive ruling is limited to electric utihty generating sources. First, the 

new acid rain program in Title IV of the Clean Air Act Amendments of 1990 ("1990 Amendments") single out 

utilities to play a major role in reducing sulfur oxide emissions. Since many utilities must decide upon their 

compliance strategy within the next few months, EPA believes that clarification of the NSR provision which affect 

the utihty industry is needed without delay. Second, both WEPCO and Puerto Rican Cement have directly or 

indirectly mandated changes in EPA' s treatment of modification projects at utilities. Finally, utilities are semipublic in nature and, in contrast to other industries, many details of their past, present and future operations ~ 

including their output, fuel consumption, operating schedules, emissions data, and projected future utilization 

rates-are generally accessible to the pubhc. This will facihtate corroboration by EPA and the pubhc of utihty 

modifications undertaken pursuant to this ruling. EPA will consider expanding the apphcabihty of portions of 

this ruling to other industries as part of a future notice and comment rulemaking. 

2

 The PSD provisions are found in section 160 through 169 of the Clean Air Act ("CAA"), 42 U.S. C. 7470-

79. Section 165, 42 U.S.C. 7475, sets forth the preconstruction review requirements. 
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7411(a)(4), 7479(2)(C). 

EPA's regulations implementing these statutory provisions require preconstruction 

review for sources undertaking a "major modification," i£„ a physical change or change in 

the method of operations "that would result in a significant net emissions increase of any 

pollutant subject to regulation under the Act." 40 CFR 52.21(b)(2)(i) and (3)(i).3 A "net 

emissions increase" is defined as the increase in "actual emissions" from the particular 

physical or operational change together with any other "contemporaneous" increases or 

decreases in actual emissions. 40 CFR 52.21(b)(3)(i).4 

Applicability of the Act's new source review provisions must be determined in 

advance of construction. In cases involving modifications, this requires a pollutant-bypollutant projection of the emissions increases, if any, that will result from the physical or 

operational change. EPA's PSD regulations address this problem by providing that when 

an emissions unit "has not begun normal operations," actual emissions equal the "potential 

to emit of the unit." 40 CFR 52.21 (b)(2)(iv). This regulatory provision may be overcomeand new source review will not apply~if the source owner agrees, in a federally enforceable 

instrument, not to increase its actual emissions above baseline levels. See 40 CFR 

52.21(b)(4). This is referred to as the actual to potential test. 

II. Treatment of "Like-Kind" Modifications After WEPCO 

In WEPCO. supra, the court reviewed EPA's determination that the "life-extension" 

3

 The current PSD program is set forth in two sets of regulations. The regulation cited is part of the federal 

PSD permit program (40 CFR 52.21) which apphes as part of the state implementation plan for States that have 

not submitted a PSD program meeting the regulatory requirements of 40 CFR 51.166 for EPA approval of State 

PSD programs. In most States where the federal requirements apply, EPA had delegated the authority to 

implement the PSD program back to the State. Roughly two-thirds of the States are implementing their own 

PSD program pursuant to an EPA-approved PSD permitting program. Sections 52.21 and 51.1.666 have identical 

modification provisions. For those States with approved PSD new source review programs, today' s interpretive 

ruling is not legally binding, but merely advises interested parties concerning how EPA reads these regulations 

in light of the WEPCO and Puerto Rican Cement decisions. [Add Disclaimer Language.] 

4

 Generally speaking, "contemporaneous" emissions increases or decreases are those which will either occur 

prior to the operation of the proposed modification or have occurred within the five years preceding the 

proposed modification. 40 CFR 52.21(b)(3)(ii). Once a modification is determined to be major, the PSD 

requirements apply only to those specific pollutants for which there would be a significant net emissions increase. 

E.g.. 40 CFR 52.21 G)(3) (best available control technology); 40 CFR 52.21 (m)(l)(b) (air quahty analysis). 
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renovations planned for several older electric generating units (specifically, repair and 

replacement of turbine-generators, steam drums and other major components) brought the 

units within the PSD new source review provisions. EPA contented that the units us 

modified had not begun "normal operations" and were thus subject to the actual to potential 

test. EPA then determined that the project as proposed would result in an increase above 

pre-modification baseline levels in the unit's actual emissions. Since the company would not 

agree to limit its post-modification emissions to baseline levels, EPA found the plant subject 

to PSD. See WEPCO. 893 F.2d at 906. 

The court rejected EPA's use of the actual to potential test under the circumstances 

of that case, however. The court found instead that EPA's existing regulations do not 

support "EPA's decisionfto] wholly disregard post operating conditions at the plant," because 

the modification in the case involved "like-kind replacement." Id; at 917, 918. 

On remand, EPA determined PSD applicability by comparing WEPCO's 

"representative actual emissions for the baseline period to estimated future actual emissions 

based on all the available facts in the record."5 Today EPA is confirming the interpretation 

of its regulations which it announced in the wake of the WEPCO decision. EPA will now 

allow the comparison of "representative actual" baseline emissions to and estimated 

projection of "future actual" emissions for all "like-kind" utility modifications subject to PSD 

applicability determinations. 

This ruling defines a "like-kind" replacement as the non-routine replacement6 of a 

component of an electric utility emissions unit with a functionally equivalent component. 

A replacement component does not have to be identical or of the same design as the 

component it replaces, but it must be functionally equivalent in the sense that it serves the 

same purpose. In addition, a"like-kind" replacement cannot alter the original design capacity 

or fundamentally alter the method of operation of the source. The change also cannot 

5

 Letter from William G. Rosenberg, Assistant Administrator, EPA, to John Boston, President, WEPCO, 

June 8, 1990 at 5. 

6

 "Routine maintenance, repair and replacement" is already excluded from the modification test. See 40 

CFR 52.21(b)(2)(iii)(a). EPA plans to provide additional guidance on this exclusion in the future. 
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consist of a replacement of the emissions unit in its entirety. 

III. Non-Like-Kind Modifications 

In the Puerto Rican Cement decision, supra, the First Circuit upheld the use of 

EPA's actual to potential methodology in the circumstances presented. In the case, the 

owner of a cement plant sought to convert a "wet" cement kiln to a "dry" kiln and to 

combine that kiln with another kiln. 889 F.2d at 293. [The modified kiln would be more 

efficient and thus would provide an economic incentive to increase utilization and, hence, 

actual emissions above baseline levels. kL at .] EPA argued that since the kiln as 

reconstructed had not begun normal operations, the Agency was required, pursuant to 

section 52.21(b)(21)(iv), to measure the plant's post-modification emissions by the plant's 

potential to emit, unless the company agreed not to increase its actual emissions above 

baseline levels. The petitioner argued that this reading of EPA's regulations was improper, 

arbitrary and contradicted by earlier EPA decisions. The court rejected all attacks and 

upheld the methodology. 

In light of EPA's prior interpretation which was upheld in Puerto Rican Cement 

EPA is not prepared to abandon its actual to potential test for "non-like-kind" replacements 

without considering the matter in notice and comment rulemaking. For this reason, EPA 

is limiting the actual to future actual methodology described in the following sections to 

"like-kind" modifications. "Non-like-kind" modifications will still be subject to an actual to 

potential test.7 EPA intends to reconsider the methodology for ail types of modifications, 

including distinctions between "like-kind" and "non-like-kind" physical changes, as part of a 

future notice and comment rulemaking.8 

7

 Under the actual to potential methodology, the source can avoid new source review if it agrees to an 

enforceable emissions cap equal to its existing emissions. In this sense, the burden of accurately projecting future 

emissions is on the source. If its projection that it will not increase emissions turns out to be wrong, it must go 

through new source review to increase emissions. With the actual to future actual methodology, unanticipated 

increases above those projected by the source may occur. For this reason, EPA is very concerned about 

expanding this system beyond the utihty industry, in which future utilization projections are common. 

8

 Part D of the Clean Air Act (which governs nonattainment areas) also imposes new source requirements. 

See CAA §§ 172,173, 42 U.S.C. §§ 7502,7503. The relevant regulations for these sections contain modification 

provision similar to the PSD provisions. EPA will consider making parallel changes to the non-attainment 

provisions in a future notice and comment rulemaking. 
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IV. The Actual to Future Actual Methodology 

A. Calculating Baseline Emissions 

To determine whether a proposed modification will result in an emissions increase, 

the source must first determine a baseline actual emissions level. Section 52.21(b)(21)ii) 

defines actual emissions on a particular date as "the average rate, in tons per year, at which 

the unit actually emitted the pollutant during a two-year period which precedes the 

particular date and which is representative of normal source operation." The Administrator 

"shall" allow use of a different time period "upon a determination that it is more 

representative of normal source operation." IdL Although not required by the regulations, 

EPA has historically used the two years immediately preceding the modification to establish 

the baseline. (£££ 45 Fed. Reg. 52676,52705,52718 (1980).) However, in some cases it has 

allowed the use of earlier periods. For example, in WEPCO. EPA found the fourth and 

fifth years prior to the modification more representative of WEPCO's normal operations 

since the source's capacity was reduced due to physical problems. This ruling provides 

further clarification of when some other time period may be used. 

Under this interpretive rule, EPA intends to give the term "normal source operations" 

as broad a reading as is compatible with the regulation and statute. The utility may 

calculate its baseline emissions using its average annual emissions from any consecutive two 

year period that is, based on the source's operating history, representative of historical 

operating levels. In keeping with its past practice, and consistent with the five-year period 

for "contemporaneous" emissions increases and decreases in 40 CFR 52.21(b)(3)(i)(b), EPA 

will presume that any representative two-year period within the five years preceding the 

modification is adequate for baseline purposes.9 Source owners desiring to use other th.an 

a two-year period or a baseline period prior to the last five years must seek the 

Administrator's specific determination that such period is more representative of normal 

9

 This ruling does not apply to past modifications at an emissions unit for the purpose of determining 

contemporaneous emission changes at a source and cannot be used to extend the five year period specified in 

that provision. Sg£ 40 CFR 52.21(b)(3)(l)(b). 
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operations.10 EPA may consider a different time period through notice and comment 

rulemaking. 

B. Future Actual Emissions 

As discussed, to determine whether a "like-kind: modification will result in an 

increase in actual emissions, a utility may now compare its actual baseline emissions 

(Calculated in accordance with the prior section) with its projected future actual emissions. 

The future actual projection is the product of (1) the hourly emissions rate, which is based 

on the unit's physical and operational capabilities following the modification and federallyenforceable operational restrictions that would affect the hourly emissions rate following the 

renovation; and (2) projected capacity utilization, which is based on (a) the unit's historical 

annual utilization, and (b) available information regarding the unit's likely post-renovation 

capacity utilization.11 Without extenuating circumstances, the projection of postmodification capacity utilization for applicability purposes should not be less than the 

source's highest past utilization rate (based on a two consecutive year average) or the 

highest projected use of the source during a consecutive two-year period following the 

modification. 

C. The Causation Requirement 

By their express terms, the PSD regulatory modification provisions require that in 

order for there to be a "modification," the physical or operational change must "result in" 

an increase in the emissions rate. See 49 CFR 52.21(2)(i). Any emissions increase 

attributable to a physical or operational change must, therefore, be included in the postmodification emissions calculation. Conversely, where increased operations are in response 

to independent factors, such as system-wide demand growth, which would have occurred 

10

 In addition, the level of baseline emissions selected must be consistent with current assumptions regarding 

the source' s emissions that are used under the state implementation plans (SIP) for planning or permitting 

purposes. Thus, the source may not select a level of baseline emissions higher than that used by the permitting 

authority in issuing a PSD or other construction permit to a source in the area, if such higher level would result 

in a NAAQS or increment violation, or violate a visibility limitation. 

11

 In projecting future utilization and emissions factors, the company should rely on its historical operational 

data, filings with state or local pubhc utihty commissions or other regulatory authorities, and comphance plans 

developed under Title IV of the 1990 Clean Air Act Amendments. 
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even in the absence of the physical or operational change, such increases do not result from 

the change and may be excluded from the projection of future actual emissions. Thus, in 

assessing whether the proposed modification will result in an increase in actual emissions, 

utilities need not include in their calculations of post-modification projected use that portion 

of the increased rated of utilization, if any, due to factors unrelated to the physical or 

operation change, such as an increase in projected capacity utilization equal to the rate of 

electricity demand growth. 

Of course, during a representative baseline period (see supra), the plant must have 

been able to accommodate the projected demand growth physically and legally without the 

modification. Increased operations that could not physically and legally be accommodated 

but for the proposed physical or operational change are causally linked to any projected 

increase in actual emissions. 

In addition, the utility should take into account physical or operational changes which 

significantly alter the efficiency of the plant. S!e_e Puerto Rican Cement. 889 F.2d at 292. 

In the case of such modifications, the utility would have the burden of proving to EPA or 

to the permitting authority that the increase in utilization due to demand growth or other 

"independent" factors would have occurred at that plant even without the proposed 

modification. 

EPA will consider creating other guidelines or presumptions regarding the causation 

requirement in a separate legislative rule. 

V. Utility Pollution Control Projects 

This ruling also clarifies EPA's treatment of utility modifications that consist solely 

of the installation of pollution control equipment. It has long been EPA's view that 

pollution control projects at existing stationary sources should not be uniformly subject to 

new source review for the simple reasons that they normally do not result in an increase in 

actual emissions. Utilities have raised the concern that EPA will subject legitimate pollution 

control projects to an actual to potential evaluation. In fact, EPA has refrained from 
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applying control projects and intends to continue with this practice.12 As with like-land 

replacements, it generally is appropriate for utilities undertaking pollution control projects 

to rely on past operating history in projecting future capacity utilization. Accordingly, for 

the reasons articulated by the court in WEPCO. today's ruling clarifies that pending 

adoption of a pollution control project provision set forth in a legislative rule, pollution 

control projects should receive (with the difference noted below), the same actual to future 

actual test described in the preceding sections. 

For purposes of this ruling, a pollution control project refers to the addition or 

replacement at a source of an emissions control system or device primarily designed to 

improve the control or prevention of air pollution emissions. Examples include fabric filters, 

scrubbers, catalysts, and thermal reduction/oxidation. Physical changes attendant to 

switching to a less polluting fuel where the project is designed primarily to reduce air 

pollution would also be considered a pollution control project. 

The actual-to-future actual methodology must be applied on a pollutant-by pollutant 

basis. Also, the source still must comply with all applicable SIP limits and requirements, 

permit conditions, and applicable NAAQS or PSD increment limits. 

In contrast to the projection of estimated future emissions for like-kind replacements, 

in making PSD applicability determinations for pollution control projects, EPA will presume 

that the project will not result in an increase in capacity utilization. This presumption may 

be overcome, however, if available information clearly demonstrates that capacity utilization 

will increase as a result of the pollution control project. 

VI. Changes Mandated by the Clean Air Act Amendments of 1990 

A Repowering Projects 

Title IV of the 1990 Amendments grants special treatment to utilities that seek to 

comply with the mandated acid rain reductions by repowering a unit with qualifying clean 

coal technology. CAA § 402(12), 409(a). Specifically, repowering projects that qualify for 

a Phase II compliance extension will also be exempt from NSPS requirements, so long as 

12 [Cite pollution control and CCT non-applicability letters] 
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the repowering "does not increase actual hourly emissions for any pollutant regulated under 

the Act." C_AA § 409(d). An operation can qualify for the three-year extension of the Phase 

II emissions limitation by demonstrating (by December 31,1997) to the permitting authority 

that one or more units will be repowered with a qualifying clean coal technology to meet 

the Title IV restrictions. CAA § 409(a), (b). The operator must provide, no later than 

January 1,2000, additional documentation of the repowering project including a preUminary 

design and engineering effort for the project and a binding contract for the majority of the 

equipment needed, as well as any additional information the reviewing authority requires. 

CAA § 409(a). 

The EPA interprets the requirement that the repowering not lead to an increase in 

"actual hourly emissions" as specifying an actual-to-actual methodology. That is, a 

repowering modification which results in an increase in a unit's post-modification actual 

hourly emissions will not be eligible for this limited NSPS exemption. 

"Repowering" is defined in section 402(12) as certain grandfathered oil or gas-fired 

units and the replacement of an existing coal-fired boiler with certain specified clean coal 

technologies, or with any derivative technologies or with any other technology offering 

greater efficiency and waste reduction over technologies in widespread commercial use at 

the time of enactment. 

The NSPS exemption applies both to repowering of existing units and to replacement 

of old units at existing sources, so long as the project qualifies for the Phase II extension and 

satisfies the "actual hourly emissions" test. However, no special treatment can be afforded 

to a new unit which is located at a different site than the existing unit it replaces [see 1990 

Amendments, § 409(d)]. 

Because of this provision, the reconstruction limitations specified in 40 CFR 60.15 

are no longer applicable to repowering projects. 

B. Clean Coal Technology Demonstration Projects 

This ruling also implements an exemption for CCT demonstration projects created 

by Congress in Title IV of the 1990 Amendments. In these provisions, CCT is defined as 

any technology not in widespread use on the date of enactment that achieves significant 
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reductions in S02 or nitrogen oxides (NOx) emissions associated with burning coal in the 

generation of electricity, process steam, or industrial products. CAA § 415(a). A CCT 

"demonstration project" is a project funded under DOE's CCT program or a similar project 

funded by EP4A. CAA § 415(b)(1). 

Repowering projects which are awarded funding from the Department of Energy 

(DOE) as permanent CCT demonstration projects (or similar projects funded by EPA) are 

exempt from NSPS and PSD requirements so long as potential emissions (see 52.21(b)(4)) 

from the unit do not increase as a result of the project; CAA § 415(b)(3). These projects 

still must comply with the nonattainment provisions of Title I of the Act, however. 

The installation, operation, cessation, or removal of a temporary CCT demonstration 

project that is operated for five years or less is exempt from NSPS, PSD and non attainment 

requirements. Id. § 415(b)(2). However, the facility still subject to any applicable state 

implementation plan and must comply with any other requirements necessary to attain and 

maintain NAAQS. This ruling implements this provision and clarifies that EPA considers 

the five year period as starting on the date of startup (as defined in 40 CFR 60.2). 

Further, EPA interprets the statute as presuming that, at the end of a temporary 

project, the facility must be returned to pre-demonstration conditions and hourly emission 

rates (or lower). The return of the facility to its pre-demonstration physical and operational 

condition would not result in the loss of the actual emissions margin between predemonstration actual emissions rate and State implementation plan (SlP)-allowable 

emissions rates for that facility. Rather, the facility would be treated as if the temporary 

demonstration project had never occurred.

 13 

This ruling does not extend to emissions increases which are unrelated to the conduct 

of temporary demonstration projects. Emissions increases (above the pre-demonstration 

13

 This would be the case even if there were small differences in the post-demonstration physical and 

operational conditions due to a technical inability to restore the unit to its precise pre-demonstration condition, 

or due to normal variability in the coal used. Thus, EPA would not seek to apply NSPS or NSR because of a 

post-demonstration emissions increase attributable solely to an increase in the hours of operation or production 

rate of the unit (subject to the NSPS limitation that the production rate increase must be accomplished without 

a capital expenditure). 
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11 

levels) that are attributable to physical or operational changes, other than those necessary 

to restore that unit to its pre-demonstration condition are beyond the scope of this 

interpretative ruling. 

A temporary demonstration project may be converted to a permanent status at any 

time, provided it meets all the permanent CCT project criteria at the time of conversion. 

Thus, for example, if hourly or annual emissions had increased because of the temporary 

demonstration, after the change to permanent status, these emissions can be no greater than 

those which existed prior to initiation of the temporary demonstration project. 

VII. Applicability Determinations 

In most instances, source owners or operators are able to readily ascertain whether 

new source review requirements apply to them. Consequently, if administering these 

requirements EPA does not require sources to obtain a formal applicability determination 

before proceeding with construction. In keeping with that practice, EPA will not require 

utilities to seek applicability determinations under this ruling. Utilities in most cases can 

readily ascertain how this ruling will affect them. EPA anticipates, however, that many close 

questions will arise regarding certain aspects of this ruling, such as whether a particular 

renovation project involves "like-kind" replacements, and whether a given period of past 

actual emissions is representative of normal operations. Because such instances involve 

discrete judgments under this ruling, utilities are strongly encouraged to obtain 

determinations of applicability. EPA will provide such determinations upon request. Such 

requests should be submitted together with appropriate documentation to the appropriate 

EPA Regional Office.