p.1 

OAR Box 1778 

Prepped by Ollie Stewart 

Document Number: 

216) ll-F-25 

Docket Number: 

A-90-06 

Printed 10/28/2008 9:51:01 AM Sheet 216 of 276 
* 

f • A-80-03 

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II-F-25 

NOTE s/f/V 

SUBJECT: Distribution of WEPCO Draft 

* Interpretative Ruling 

FROM: Nancy Kete J/ /CdE£2> 

TO: Dick Schmalensee, CEA 

Art Fraas, OMB 

David Rivkin, DOE 

Paul Bailey, DOE 

Jennifer Haverkamp, DOJ 

Jonathan Weiner, DOJ 

Attached for your review is the latest draft of the WEPCO 

interpretative ruling. This draft is a revision of the April 18 

draft and deals largely with the treatment of pollution control 

projects, in response to DOE's concerns: EPA has abandoned its 

"actual to actual with rebuttable presumption" test for pollution 

control projects and instead will exempt pollution control 

projects as long as we retain an "environmentally beneficial" 

test that largely tracks the exemption in 40 CFR 60.14(e)(5); 

second, the rule will not make any reference to whether any 

increase in actual emissions would be considered not 

environmentally beneficial. Rather, we will leave it to the 

permitting authority to determine whether an adverse 

environmental impact is likely. As the attached draft 

expresses, the Administrator (or other permitting authority), 

would determine that a pollution control project is not 

environmentally beneficial on a case by case basis. 

A staff discussion has been scheduled for 9:00 on Monday to 

review DOE's comments on this draft, and on the legislative rule 

draft which we will send to you as soon as possible, Thursday 

night or Friday. As we discussed at the end of yesterday's 

meeting, your written comments will make the staff discussion 

more constructive. 

Attachment 

H33Li#. 
P.3 

Draft: May 1, 1991 

6:00 P.M. 

ENVIRONMENTAL PROTECTION AGENCY 

40 CFR Parts 51 and 52 

[FRL ] 

Requirements for Preparation, Adoption, 

and Submittal of Implementation Plans; 

Approval and Promulgation of 

Implementation Plans 

AGENCY: Environmental Protection Agency. 

ACTION: Interpretative Rule. 

SUMMARY: In response to widespread concerns regarding the 

applicability of new source requirements to pollution control 

projects and other modifications at electric utility generating 

units in light of the enactment of the acid rain provisions in 

Title IV of the Clean Air Act Amendments of 1990 and the 

decisions in Wisconsin Elecric Power Co. v. Reilly and Puerto 

Rican Cement Co. v. EPA., EPA is today clarifying its 

interpretation of relevant portions of the governing regulatory 

provisions, in brief, EPA interprets its regulations as calling 

for an "actual to future actual" calculation of emissions 

increases for utility modifications involving "like-kind" 

replacements in areas subject to the prevention of significant 

deterioration ("PSD") program. In addition, EPA interprets its 

new source review regulations as not applying to pollution 

control projects at existing electric utility sources unless the 

Administrator determines that the project is not environmentally 

beneficial. 

Today's ruling also implements statutory changes regarding 

new source coverage of Clean Coal Technology and repowering' 
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projects adopted in sections 4 09 and 415 of the Act as revised by 

the 1990 Amendments. 

DATES: This ruling is effective immediately. 

FOR FURTHER INFORMATION CONTACT: Chebryll Edwards, New Source 

Review Section (MD-15), Office of Air Quality Planning and 

Standards, Research Triangle Park, N.C. 27711, (919) 541-5591. 

INTERPRETATIVE RULING FOR MODIFICATIONS AT 

ELECTRIC UTILITY GENERATING UNITS 

This interpretive rule clarifies the coverage of the new 

source provisions of Parts C and D of Title I of the Clean Air 

Act for modifications at electric utility generating units in 

light of the recent enactment of the acid rain provisions of 

Title IV of the Clean Air Act Amendments of 1990, Pub. L. 101-549 

(Nov. 15, 1990) ("1990 Amendments") and two federal appellate 

decisions, Wisconsin Elec. Power Co. v. Reilly. 893 F.2d 901 (7th 

Cir. 1990) ("WEPCO". and Puerto Rican Cement Co. v. EPA. 889 F.2d 

292 (1st Cir. 1989)("Puerto Rican Cement"). It also implements 

statutory exemptions for Clean Coal Technology projects and 

certain repowering projects under sections 409 and 415 of the Act 

as revised by the 1990 Amendments. While today's interpretative 

ruling provides immediate answers to some of the questions that 

have been raised in the wake of the 1990 Amendments and 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 
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will provide a more comprehensive resolution of the various 

issues.1 

I. Modifications Under Existing Law 

The new source review provisions of the 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 § 165, 42 U.S.C. § 7475.) 

These preconstruction review requirements apply to the 

construction of a new emissions source and to the "modification" 

1 For several reasons, today's interpretive ruling is 

limited to electric utility 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 Phase I compliance strategy within the 

next few months, EPA believes that clarification of the NSR 

provisions which affect the utility industry is needed without 

delay. Second, utilities are semi-public 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 

public. This will facilitate corroboration by EPA and the public 

of utility modifications undertaken pursuant to this ruling. A 

third, related point is that EPA has had extensive experience in 

recent years in assessing the applicability of new source 

requirements to utility sources. Finally, both WEPCO and Puerto 

Rican cement have directly or indirectly mandated changes in 

EPA's treatment of modification projects at utilities. EPA will 

consider expanding the applicability of portions of this ruling 

to other industries as part of a future notice and comment 

rulemaking. 

2 The PSD provisions are found in sections 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. 
P.6 

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of an existing source. CAA §§ 111(a)(4), 169(2)(C), 42 U.S.C. §§ 

7411(a)(4), 7479(2)(C). 

EPA's regulations implementing these statutory provisions 

require preconstruction review for sources undertaking a "major 

modification," i.e.. 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 

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 applies 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 has 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 

51.166 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 

(continued...) 
P.7 

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Applicability of the Act's new source review provisions must 

be determined in advance of construction. In cases involving 

modifications, this requires a pollutant-by-pollutant 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 overcome — and 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 WEPCOr supra, the court reviewed EPA's determination that 

the "life-extension" 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 contended that the units as 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 

4(...continued) 

increase. E.g., 40 CFR 52.21(j)(3) (best available control 

technology); 40 CFR 52.21(m)(1)(b) (air quality analysis). 
P.8 

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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. £ee_ 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 

decision [to] wholly disregard past 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 non5 Letter from William G. Rosenberg, Assistant 

Administrator, EPA, to John Boston, President, WEPCO, June 8, 

1990 at 5. 
P.9 

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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 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. Id. 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 

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. 
P.10 

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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 in areas subject to PSD. "Non-like-kind" 

modifications will still be subject to an actual to potential 

test.7 EPA intends to reconsider the methodology for all 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 utility industry, in which 

future utilization projections are common. 

8 Part D of the Clean Air Act, which governs nonattainment 

areas, imposes new source requirements similar to, but generally 

more stringent than, those applicable in attainment areas under 

the PSD program. £££ CAA §§ 172, 173, 42 U.S.C. §§ 7502, 7503. 

(continued...) 
P.11 

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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." Id. Although not required by the regulations, EPA 

has historically used the two years immediately preceding the 

modification to establish the baseline. (See 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 

8(...continued) 

EPA's regulations for nonattainment areas are set forth at 40 CFR 

§ 51.165 and in Part 51, Appendix S. These sections contain 

modification provisions similar to, but generally more stringent 

than, the PSD provisions. Because of the concern that unplanned 

emissions increases resulting from utility modifications could 

exascerbate violations of national ambient air quality standards 

in nonattainment areas, EPA is deferring any action regarding 

like-kind replacements in such areas. However, EPA will consider 

making parallel changes to the nonattainment provisions in a 

future notice and comment rulemaking. 
r* P.12 

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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 fiveyear 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 than 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 

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. See 40 CFR 

52.21(b)(3)(1)(b). 
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normal 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 federally-enforceable 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) all available 

information regarding the unit's likely post-renovation capacity 

utilization.11 Without extenuating circumstances, the projection 

1 0 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. 

1 1 In projecting future utilization and emissions 

factors, the company should rely on its historical operational 

data, filings with state or local public utility commissions or 

other regulatory authorities, and compliance plans developed 

under Title IV of the 1990 Clean Air Act Amendments. 
P.14 

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of post-modification 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 40 CFR 52.21(2)(i). 

Any emissions increase attributable to a physical or operational 

change must, therefore, be included in the post-modification 

emissions calculation. Conversely, where increased operations 

are in response to independent factors, such as system-wide 

demand growth, which would have occurred 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 calculation of postmodification projected use that portion of the increased rate 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 
P.15 

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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. See 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 electric 

utility pollution control projects. Such clarification is needed 

immediately for two reasons because, as has been discussed, the 

new acid rain provisions in Title IV of the Clean Air Act 

Amendments of 1990 will require most electric powerplants to 

undertake pollution control projects within the next few years. 

Decisions regarding a utility's pollution control strategy under 
P.16 

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Phase I of the acid rain program will be made in the next few 

months. Utilities have raised the concern that EPA will subject 

pollution control projects to an actual-to-potential 

evaluation.12 

In many instances, it is clear that pollution control 

projects at existing stationary sources are not major 

modifications subject to new source review for the simple reason 

that they do not result in an increase in actual emissions. In 

addition, EPA has always recognized that Congress did not intend 

that every activity at an existing facility be considered a 

physical or operational change for purposes of the new source 

requirements of the PSD program.13 With respect to pollution 

control projects, EPA has in recent years issued numerous 

nonapplicability determinations and "no action" letters to 

utility sources based on a finding that environmentally 

beneficial pollution control projects are not the type of 

physical or operational change intended to be covered by the 

1 2 In fact, EPA has refrained from applying the actual to 

potential methodology to several recent CCT and other pollution 

control projects. In these nonapplicability determinations and 

"no action" letters, EPA has instead based its decision on 

whether the project would be environmentally beneficial, gee 

infra note 14. 

1 3 For instance, EPA regulations explicitly provide that 

routine maintenance, repair and replacement, and changes in hours 

of operation or in the production rate are not considered a 

physical change or change in the method of operation. See 40 CFR 

52.21(b)(2)(iii). 
P.17 

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statute or EPA's regulations.14 To provide utilities with 

additional certainty, this ruling formally adopts a regulatory 

interpretation that is consistent with these individual letters 

as well as the provisions of the New Source Performance Standards 

(NSPS) regulations. This interpretation provides that the 

addition, or use of any system or device whose primary function 

is the reduction of air pollutants will not constitute a physical 

or operational change that could be deemed a major modification 

and trigger new source review, unless the Administrator 

determines that the project would not be environmentally 

beneficial.15 

In effect, EPA is merely interpreting its PSD regulations 

in harmony with its NSPS regulations, which do not extend to most 

pollution control activities. See 40 CFR 60.14(e)(5). During 

1 4 gee, e.g.. Letter, William G. Rosenberg, Assistant 

Administrator, EPA, to Andrew Aitken, Vice President, New England 

Power Service Co., March 26, 1991; Letter, Rosenberg to Patrick 

M. McCarter, Senior vice President, Public Service Co. of 

Colorado, July 23, 1990; Letters, David Kee, Director, Air and 

Radiation Division, EPA Region V, to Timothy J. Method, Assistant 

Commissioner, Indiana Dept. of Environmental Management, January 

30, 1990 and March 8, 1990. 

1 5 As discussed above in note 1, EPA is deferring action on 

source categories other than electric utility generating units. 

With respect to pollution control projects, today's ruling is 

limited to utilities because, in contrast to a general lack of 

experience with other industries, EPA has had extensive 

experience in addressing new source applicability issues 

regarding pollution control projects in the utility industry. 

That experience has led EPA to conclude in numerous individual 

cases that pollution control projects in the utility industry are 

environmentally beneficial. See supra note 14. In addition, the 

acid rain provisions of Title IV of the Clean Air Act place a 

unique burden upon the utility industry to undertake pollution 

control projects in the near future. 
P.18 

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the first years of the PSD program, EPA interpreted its PSD 

regulations to include this NSPS provision.16 This was in part 

based on the fact that the PSD definition of modification simply 

adopts the NSPS definition in section 111(a)(4). .In addition, 

the legislative history reflects that, as a general matter, 

Congress intended to conform the meaning of "modification" for 

PSD purposes to usage under the NSPS program. (See 123 Cong. 

Rec. H11957 (November 1, 1977).) EPA has since voiced concern 

with its initial view that the NSPS pollution control language 

may be incorporated wholesale in the new source review context, 

largely because of the ambient air quality component of new 

source review that is absent from the NSPS program.17 However, 

as noted above, many of the recent EPA determinations assessing 

pollution control projects have been based on a finding that the 

proposed project would be environmentally beneficial.18 In light 

of the Title IV requirements and other provisions of the Clean 

Air Act Amendments of 1990, EPA is today formally adopting the 

"environmenally beneficial" test for new source review 

applicability to pollution control projects on an, interim basis 

pending proposal and final action on a regulatory exclusion for 

1 6 Memorandum from Edward Reich, Director, Stationary 

Source Compliance Division and William F. Pederseh, Acting 

Associate General Counsel, Air, Noise, and Radiation Division to 

Allyn M. Davis, Region IV (April 21, 1983). 

1 7 gee, e.g.. Memorandum from Gerald A. Emison, Director, 

OAQPS, to Regional Division Directors (July 7, 1986) ("Emison 

Letter"). 

1 8 gee supra note 12. 
P.19 

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pollution contol projects, which EPA intends to address in a 

notice and comment rulemaking proceeding in the near future.19 

For the 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 add-on types of emissions control equipment such as 

conventional and advanced scrubbers, sorbent injection, low-NOx 

burners, electrostatic precipitators, fabric filters, catalysts, 

and thermal reduction/oxidation. Switching to coal with a lower 

sulfur content, switching from a more polluting fuel to natural 

gas, natural gas or coal reburning, and cofiring of natural gas 

and other fuels where the project is designed primarily to reduce 

air pollution also constitutes a pollution control project. Any 

1 9 Today's "environmentally beneficial" approach addresses 

the concerns expressed in the 1986 Emison letter. First, EPA is 

not simply reading in to the new source review regulations the 

NSPS exclusion in 40 CFR § 60.14(e)(5). For the reasons stated 

in the Emison letter, that would consitute a regulatory change 

requiring notice and comment rulemaking. Second, by focusing on 

whether a pollution control project is a physical or operational 

change within the meaning of the new source review regulations, 

today's ruling avoids the need to undertake a quantitative 

emissions increase calculation in every case, as would be 

necessary if such projects were deemed to be physical or 

operational changes. Especially in light of the provisions of 

this ruling regarding the calculation of actual emissions 

baselines and projections of future actual emissions, EPA expects 

that most, if not all, pollution control projects will reduce 

actual emissions. Nevertheless, the Administrator's authority to 

consider individual pollution control projects provides an 

adequate opportunity to determine that a pollution control 

project would somehow result in an adverse environmental impact 

and thus conclude that the project is not environmentally 

beneficial, but is instead a major modification that should be 

subject to new source review. 
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activity that is necessary to accommodate switching to the less 

polluting fuel is considered to be part of such a pollution 

control project. In some instances, this may involve physical 

changes to the pollution generating equipment (e.g.. boiler), but 

only if the changes are necessary to maintain the normal 

operating capability of the unit at the time of the modification 

where the capability would otherwise be impaired as a result of 

the fuel switch. For example, an electric utility steam 

generating unit that switches from a higher sulfur bituminous 

coal to a low-sulfur subbituminous coal may need to make certain 

changes to the boiler in order to avoid derating the unit. 

Changes that are intended primarily to restore original 

capacity or to improve the operational efficiency of the facility 

are not considered to be part of a pollution control project for 

purposes of this ruling. Such changes are addressed in the "like 

kind" replacements section of this ruling. Also, the source 

owner or operator still must comply with all applicable SIP 

limits and requirements, permit conditions and applicable NAAQS 

or PSD increment limits. Also, the proposed additional pollution 

control system or device cannot result in a reduction in the 

control efficiency of an existing air pollution system or device 

at the utility. 

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

A. Repowering Projects 
P.21 

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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 the repowering 

"does not increase actual hourly emissions for any pollutant 

regulated under the Act." CAA § 409(d). An operator 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 preliminary 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 
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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 

proj ects. 

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 reductions in S02 or nitrogen oxides (N0X) 

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 EPA. CAA § 

415(b)(1). 
_P^3 

- 21 -

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 nonattainment 

requirements. I£. § 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 pre-demonstration actual 

emissions rate and State implementation plan (SIP)-allowable 

emissions rates for that facility. Rather, the facility would be 
- 22 -

treated as if the temporary demonstration project had never 

occurred.20 

This ruling does not extend to emissions increases which are 

unrelated to the conduct of temporary demonstration projects. 

Emissions increases (above the pre-demonstration 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 

2 0 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). 

*••* " * * 

•fl" IT TO -TT .r.^ 
- 23 -

them. Consequently, in 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. 

VIII. Administrative Requirements 

[Add boilerplate regarding OMB review, federalism 

implications, Regulatory Flexibility Act, Paperwork Reduction 

Act, etc. 

Dated: May , 1991 

William K. Reilly, 

Administrator.