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# OAR Box 

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## s/f/V NOT E SUBJECT : Distributio n o f WEPC O Draf t

* Interpretativ e Rulin g FROM : Nanc yKet e J/ /CdE£2> TO : Dic k Schmalensee , CE A

Ar t Fraas , OM B Davi d Rivkin , DO E Pau l Bailey , DO E Jennife r Haverkamp , DO J Jonatha n Weiner , DO J Attache d fo r you r revie wi s th e lates t draf t o f th e WEPC O interpretativ e ruling . Thi s draf t i s a revisio no f th e Apri l 1 8 draf t and deal s largel ywit hth e treatmen t o f pollutio ncontro l projects , i nrespons e t o DOE' s concerns : EP Aha s abandone d it s "actua l t o actua l wit hrebuttabl e presumption " tes t fo r pollutio n contro l project s an d instead wil l exemp t pollutio ncontro l project s a s lon g a s w e retai na n"environmentall ybeneficial " tes t tha t largel ytrack s th e exemptio ni n4 0 CF R60.14(e)(5) ; second , th e rul e wil l no t mak e an yreferenc e t o whethe r an y increas e i nactua l emission s woul d b e considere d no t environmentall ybeneficial . Rather , w e wil l leav e i t t o th e permittin g authorit yt o determin e whethe r a nadvers e environmenta l impac t i s likely . A s th e attache d draf t expresses , th e Administrato r (o r othe r permittin g authority) , woul d determin e tha t a pollutio ncontro l projec t i s no t environmentall ybeneficia l o na cas e b ycas e basis . Astaf f discussio nha s bee nschedule d fo r 9:0 0 o nMondayt o revie wDOE' s comment s o nthi s draft , an d o n th e legislativ e rul e draf t whic hw e wil l send t o yo u a s soo na s possible , Thursday nigh t o r Friday . A s w e discusse d a t th e end o f yesterday' s meeting , you r writte n comment s wil l mak e th e staf f discussio n mor e constructive . Attachmen t 

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Draft : Ma y1 , 199 1 6:0 0 P.M . ENVIRONMENTA

L PROTECTIO

N AGENCY 4 0 CFRPart s 5 1 an d5 2 [FR L ] Requirement s fo r Preparation , Adoption , an dSubmitta l o f ImplementationPlans ; Approva l an

dPromulgationo f ImplementationPlan s AGENCY : Environmenta l Protectio nAgency . ACTION : Interpretativ e Rule . SUMMARY : I nrespons e t o widesprea d concern s regardin g th e applicabilit yo f ne wsourc e requirement s t o pollutio ncontro l project s an

d othe r modification s a t electri c utilit ygeneratin g unit s i nligh t o f th e enactmen t o f th e aci d rai nprovision s i n Titl e I V

o f th e Clea nAi r Ac t Amendment s o f 199 0 an d th e decision s i n Wisconsi n Elecri c Powe r Co . v . Reill yand Puert o Rica nCemen t Co . v . EPA. , EP Ai s todayclarifyin g it s interpretatio no f relevan t portion s o f th e governin g regulatory provisions , i nbrief , EP Ainterpret s it s regulation s a s callin g fo r a n"actua l t o futur e actual " calculatio no f emission s increase s fo r utilit ymodification s involving "like-kind " replacement s i narea s subjec t t o th e preventio no f significan t deterioratio n("PSD" ) program . I n addition , EP Ainterpret s it s ne wsourc e revie wregulation s a s no t applyin g t o pollutio n contro l project s a t existin g electri c utilit ysource s unles s th e Administrato r determine s tha t th e projec t i s no t environmentall y beneficial . Today' s rulin g als o implement s statutorychange s regarding ne wsourc e coverag e o f Clea nCoa l Technologyand repowering 'P. 4

- 2 - project s adopte d i n section s 4 0 9 and 41 5 o f th e Ac t a s revise d b y th e 199 0 Amendments . DATES : Thi s rulin g i s effectiv e immediately . FO RFURTHE RINFORMATIONCONTACT : Chebryl l Edwards , Ne wSourc e Revie wSectio n(MD-15) , Offic e o f Ai r Qualit yPlannin g and Standards , Researc hTriangl e Park , N.C . 27711 , (919 ) 541-5591 .

INTERPRETATIVE RULINGFO R MODIFICATION S A T ELECTRI C UTILIT YGENERATINGUNIT S Thi s interpretiv e rul e clarifie s th e coverag e o f th e ne w sourc e provision s o f Part s C and D o f Titl e I o f th e Clea nAi r Ac t fo r modification s a t electri c utilit ygeneratin g unit s i n ligh t o f th e recen t enactmen t o f th e aci d rai nprovision s o f Titl e I V

o f th e Clea nAi r Ac t Amendment s o f 1990 , Pub . L . 101-54 9 (Nov . 15 , 1990 ) ("199 0 Amendments" ) an d tw o federa l appellat e decisions , Wisconsi nElec . Powe r Co . v . Reilly . 89 3 F.2 d 90 1 (7th Cir . 1990 ) ("WEPCO" . and Puert o Rica nCemen t Co . v . EPA . 88 9 F.2 d 29 2 (1s t Cir . 1989)("Puert o Rica nCement") . I t als o implement s statutoryexemption s fo r Clea nCoa l Technologyproject s and certai nrepowerin g project s unde r section s 40 9 and 41 5 o f th e Ac t a s revise d byth e 199 0 Amendments . Whil e today' s interpretativ e rulin g provide s immediat e answer s t o som e o f th e question s tha t hav e bee nraise d i n th e wak e o f th e 199 0 Amendment s and th e WEPC O and puert o Rica n Cemen t decisions , th e Environmenta l Protectio n Agenc y(EPA ) als o intend s t o propose , fo r publi c notic e and comment , revision s t o it s ne wsourc e revie wregulation s whic hP. 5

- 3 - wil l provid e a mor e comprehensiv e resolutio no f th e variou s issues. 1 I . Modification s Unde r Existing Law Th e ne wsourc e revie wprovision s o f th e PS D program 2 provide , amon g othe r things , tha t "[n] o majo r emittin g facilit y

. . . ma yb e constructe d i nan y[PSD ] area " withou t takin g certai nstep s includin g securing a constructio npermi t and adding emission s contro l technology . (CA A§ 165 , 4 2 U.S.C . § 7475. ) Thes e preconstructio nrevie wrequirement s appl yt o th e constructio no f a ne wemission s sourc e and t o th e "modification "

1 Fo r severa l reasons , today' s interpretiv e rulin g i s limite d t o electri c utilit ygeneratin g sources . First , th e ne w aci d rai n programi nTitl e I V o f th e Clea nAi r Ac t Amendment s o f 199 0 ("199 0 Amendments" ) singl e ou t utilitie s t o playa majo r rol e i nreducin g sulfu r oxid e emissions . Sinc e manyutilitie s mus t decid e upo nthei r Phas e I complianc e strategywithi n th e nex t fe wmonths , EPAbelieve s tha t clarificatio no f th e NS R provision s whic haffec t th e utilit yindustryi s neede d withou t delay . Second , utilitie s ar e semi-publi c i nnatur e and , i n contras t t o othe r industries , manydetail s o f thei r past , presen t an d futur e operation s —including thei r output , fue l consumption , operatin g schedules , emission s data , and projecte d futur e utilizatio n rate s —ar e generall yaccessibl e t o th e public . Thi s wil l facilitat e corroboratio nbyEP Aan d th e publi c o f utilit ymodification s undertake npursuan t t o thi s ruling . A third , relate d poin t i s tha t EPAha s ha d extensiv e experienc e i n recen t year s i nassessin g th e applicabilit yo f ne wsourc e requirement s t o utilit ysources . Finally , bot hWEPC O and Puert o Rica ncemen t hav e directl yo r indirectl ymandate d change s i n EPA' s treatmen t o f modificatio nproject s a t utilities . EPAwil l conside r expandin g th e applicabilit yo f portion s o f thi s ruling t o othe r industrie s a s par t o f a futur e notic e an d commen t rulemaking .

2 Th e PS D provision s ar e found i nsection s 16 0 throug h 16 9 o f th e Clea nAi r Ac t ("CAA") , 4 2 U.S.C . 7470-79 . Sectio n 165 , 4 2 U.S.C . 7475 , set s fort hth e preconstructio nrevie w requirements .P. 6

- 4 -

o f a nexistin g source . CA A§ § 111(a)(4) , 169(2)(C) , 4 2 U.S.C . § § 7411(a)(4) , 7479(2)(C) . EPA' s regulation s implementing thes e statutoryprovision s requir e preconstructio nrevie wfo r source s undertakin g a "majo r modification, " i.e.
. a physica l chang e o r chang e i nth e metho d o f operation s "tha t woul d resul t i na significan t ne t emission s increas e o f anypollutan t subjec t t o regulatio nunde r th e Act. " 4 0 CF R52.21(b)(2)(i ) and (3)(i). 3 A"ne t emission s increase " i s define d a s th e increas e i n"actua l emissions " fromth e particula r physica l o r operationa l chang e togethe r wit hanyothe r "contemporaneous " increase s o r decrease s i nactua l emissions . 4 0 CF R52.21(b)(3)(i). 4

3 Th e curren t PS D program i s se t fort hi ntw o set s o f regulations . Th e regulatio ncite d i s par t o f th e federa l PS D permi t program(4 0 CF R52.21 ) whic happlie s a s par t o f th e stat e implementatio npla n fo r state s tha t hav e no t submitte d a PS D programmeetin g th e regulatoryrequirement s o f 4 0 CF R51.16 6 fo r EPAapprova l o f Stat e PS D programs . I nmos t State s wher e th e federa l requirement s apply , EPAha s delegate d th e authorit yt o implemen t th e PS D programbac k t o th e State . Roughl ytwo-third s o f th e State s ar e implementing thei r ow nPS D programpursuan t t o a nEPA-approve d PS D permittin g program . Section s 52.2 1 an d 51.16 6 hav e identica l modificatio nprovisions . Fo r thos e state s wit happrove d PS D ne wsourc e revie wprograms , today' s interpretiv e rulin g i s no t legall ybinding , bu t merel yadvise s intereste d partie s concernin g ho wEP Aread s thes e regulation s i n ligh t o f th e WEPC O and Puert o Rica nCemen t decisions . [Ad d Disclaime r Language. ]

4 Generall yspeaking , "contemporaneous " emission s increase s o r decrease s ar e thos e whic hwil l eithe r occu r prio r t o th e operatio no f th e propose d modificatio no r hav e occurre d withi nth e fiv e year s precedin g th e propose d modification . 4 0 CF R52.21(b)(3)((ii) . Onc e a modificatio ni s determine d t o b e major , th e PS D requirement s appl yonl yt o thos e specifi c pollutant s fo r whic hther e woul d b e a significan t ne t emission s (continued... )P. 7

- 5 - Applicabilit yo f th e Act' s ne wsourc e revie wprovision s mus t b e determine d i nadvanc e o f construction . I ncase s involving modifications , thi s require s a pollutant-by-pollutan t projectio n o f th e emission s increases , i f any , tha t wil l resul t fromth e physica l o r operationa l change . EPA' s PS D regulation s addres s thi s proble mbyprovidin g tha t whe na nemission s uni t "ha s no t begu nnorma l operations, " actua l emission s equa l th e "potentia l t o emi t o f th e unit. " 4 0 CF R52.21(b)(2)(iv) . Thi s regulatory provisio nma yb e overcom e —and ne wsourc e revie wwil l no t appl y

—i f th e sourc e owne r agrees , i na federall yenforceabl e instrument , no t t o increas e it s actua l emission s abov e baselin e levels . Se e 4 0 CF R52.21(b)(4) . Thi s i s referre d t o a s th e actua l t o potentia l test . II . Treatmen t o f "Like-Kind " Modification s Afte r WEPC O I nWEPCO r

supra , th e cour t reviewe d EPA' s determinatio n tha t th e "life-extension " renovation s planne d fo r severa l olde r electri c generatin g unit s (specifically , repai r and replacemen t o f turbine-generators , steamdrum s an d othe r major , components ) brough t th e unit s withi nth e PS D ne wsourc e revie wprovisions . EP Acontende d tha t th e unit s a s modifie d ha d no t begu n"norma l operations " and wer e thu s subjec t t o th e actua l t o potentia l test . EP Athe ndetermine d tha t th e projec t a s propose d woul d resul t i na nincreas e abov e pre-modificatio nbaselin e level s i n

4 (...continued ) increase . E.g. , 4 0 CF R52.21(j)(3 ) (bes t availabl e contro l technology) ; 4 0 CF R52.21(m)(1)(b ) (ai r qualit yanalysis) .P. 8

- 6 - th e unit' s actua l emissions . Sinc e th e compan ywoul d no t agre e t o limi t it s post-modificatio nemission s t o baselin e levels , EPA found th e plan t subjec t t o PSD . £ee

_WEPCO . 89 3 F.2 d a t 906 . Th e cour t rejecte d EPA' s us e o f th e actua l t o potentia l tes t unde r th e circumstance s o f tha t case , however . Th e cour t foun d instea d tha t EPA' s existing regulation s d o no t suppor t "EPA' s decisio n[to ] wholl ydisregar d pas t operatin g condition s a t th e plant, " becaus e th e modificatio ni nth e cas e involve d "like-kind replacement. " Id . a t 917 , 918 . O nremand , EP Adetermine d PS D applicabilit ybycomparin g WEPCO' s "representativ e actua l emission s fo r th e baselin e perio d t o estimate d futur e actua l emission s base d o nal l th e availabl e fact s i nth e record." 5 TodayEP Ai s confirmin g th e interpretatio no f it s regulation s whic hi t announce d i nth e wak e o f th e WEPC O decision . EPAwil l no wallo wth e compariso no f "representativ e actual " baselin e emission s t o an d estimate d projectio no f "futur e actual " emission s fo r al l "like-kind " utilit ymodification s subjec t t o PS D applicabilit y determinations . Thi s rulin g define s a "like-kind " replacemen t a s th e non 5 Lette r fro

mWilliamG . Rosenberg , Assistan t Administrator , EPA , t o JohnBoston , President , WEPCO , Jun e 8 , 199 0 a t 5 .P. 9

- 7 - routin e replacement 6 o f a componen t o f a nelectri c utilit y emission s uni t wit ha functionall yequivalen t component . A replacemen t componen t doe s no t hav e t o b e identica l o r o f th e sam e desig n a s th e componen t i t replaces , bu t i t mus t b e functionall yequivalen t i nth e sens e tha t i t serve s th e same purpose . I n addition , a "like-kind " replacemen t canno t alte r th e origina l desig ncapacit yo r fundamentall yalte r th e metho d o f operatio no f th e source . Th e chang e als o canno t consis t o f a replacemen t o f th e emission s uni t i nit s entirety . III . Non-Like-Kind Modification s I n th e Puert o Rica nCemen t decision , supra , th e Firs t Circui t uphel d th e us e o f EPA' s actua l t o potentia l methodology i nth e circumstance s presented . I nth e case , th e owne r o f a cemen t plan t sough t t o conver t a "wet " cemen t kil nt o a "dry " kil nand t o combin e tha t kil nwit hanothe r kiln . 88 9 F.2 d a t 293 . [The modifie d kil nwoul d b e mor e efficien t and thu s woul d provid e a neconomi c incentiv e t o increas e utilizatio nand , hence , actua l emission s abov e baselin e levels . Id . a t . ] EPAargue d tha t sinc e th e kil na s reconstructe d ha d no t begu nnorma l operations , th e Agenc ywa s required , pursuan t t o sectio n 52.21(b)(21)(iv) , t o measur e th e plant' s post-modificatio n emission s byth e plant' s potentia l t o emit , unles s th e compan y agree d no t t o increas e it s actua l emission s abov e baselin e

6 "Routin e maintenance , repai r an d replacement " i s alreadyexclude d fromth e modificatio ntest . Se e 4 0 CF R 52.21(b)(2)iii)(a) . EP Aplan s t o provid e additiona l guidanc e o n thi s exclusio ni n th e future .P.1 0

- 8 - levels . Th e petitione r argue d tha t thi s readin g o f EPA' s regulation s wa s improper , arbitraryand contradicte d b yearlie r EP Adecisions . Th e cour t rejecte d al l attack s and uphel d th e methodology . I nligh t o f EPA' s prio r interpretatio nwhic hwa s uphel d i n Puert o Rica nCement . EP Ai s no t prepare d t o abando nit s actua l t o potentia l tes t fo r "non-like-kind " replacement s withou t considerin g th e matte r i nnotic e an d commen t rulemaking . Fo r thi s reason , EP Ai s limiting th e actua l t o futur e actua l methodologydescribe d i nth e following section s t o "like-kind " modification s i narea s subjec t t o PSD . "Non-like-kind " modification s wil l stil l b e subjec t t o a nactua l t o potentia l test. 7 EP Aintend s t o reconside r th e methodologyfo r al l type s o f modifications , including distinction s betwee n"lik e kind " an d "non-like-kind " physica l changes , a s par t o f a futur e notic e an d commen t rulemaking. 8

7 Unde r th e actua l t o potentia l methodology , th e sourc e ca navoi d ne wsourc e revie wi f i t agree s t o a nenforceabl e emission s cap equa l t o it s existing emissions . I nthi s sense , th e burde n o f accuratel yprojectin g futur e emission s i s o nth e source . I f it s projectio ntha t i t wil l no t increas e emission s turn s ou t t o b e wrong , i t mus t g o throughne wsourc e revie wt o increas e emissions . Wit hth e actua l t o futur e actua l methodology , unanticipate d increase s abov e thos e projecte d b yth e sourc e ma yoccur . Fo r thi s reason , EPAi s ver yconcerne d abou t expandin g thi s systembeyond th e utilit yindustry , i n whic h futur e utilizatio n projection s ar e common .

8 Par t D o f th e Clea nAi r Act , whic hgovern s nonattainmen t areas , impose s ne wsourc e requirement s simila r to , bu t generall y mor e stringen t than , thos e applicabl e i nattainmen t area s unde r th e PS D program . ££ £ CA A§ § 172 , 173 , 4 2 U.S.C . § § 7502 , 7503 . (continued... )P.1 1

- 9 - IV . Th e Actua l t o Futur e Actua l Methodology A . •Calculating Baselin e Emission s T o determin e whethe r a propose d modificatio n wil l resul t i n a nemission s increase , th e sourc e mus t firs t determin e a baselin e actua l emission s level . Sectio n52.21(b)(21)(ii ) define s actua l emission s o n a particula r dat e a s "th e averag e rate , i nton s pe r year , a t whic hth e uni t actuall yemitte d th e pollutan t durin g a two-yea r perio d whic hprecede s th e particula r dat e an d whic hi s representativ e o f norma l sourc e operation. " Th e Administrato r "shall " allo wus e o f a differen t tim e perio d "upo na determinatio ntha t i t i s mor e representativ e o f norma l sourc e operation. " Id . Althoughno t require d b yth e regulations , EPA ha s historicall yuse d th e tw o year s immediatel yprecedin g th e modificatio nt o establis hth e baseline . (Se e 4 5 Fed . Reg . 52676 , 52705 , 5271 8 (1980). ) However , i nsom e case s i t ha s allowe d th e us e o f earlie r periods . Fo r example , i nWEPCO . EP Afound th e fourt han

d fift hyear s prio r t o th e modificatio n mor e representativ e o f WEPCO' s norma l operation s sinc e th e source' s capacit ywa s reduce d du e t o physica l problems . Thi s ruling

8 (...continued ) EPA' s regulation s fo r nonattainmen t area s ar e se t fort ha t 4 0 CF R § 51.16 5 and i n Par t 51 , Appendi xS . Thes e section s contai n modificatio nprovision s simila r to , bu t generall ymor e stringen t than , th e PS D provisions . Becaus e o f th e concer n tha t unplanne d emission s increase s resultin g fromutilit ymodification s coul d exascerbat e violation s o f nationa l ambien t ai r qualit ystandard s i nnonattainmen t areas , EP Ai s deferrin g an yactio nregarding like-kind replacement s i nsuc hareas . However , EP Awil l conside r makin g paralle l change s t o th e nonattainmen t provision s i n a futur e notic e and commen t rulemaking .r * P.1 2

- 1 0 - provide s furthe r clarificatio no f whe nsom e othe r tim e perio d may b e used . Unde r thi s interpretiv e rule , EP Aintend s t o giv e th e term "norma l sourc e operations " a s broa d a readin g a s i s compatibl e wit hth e regulatio nand statute . Th e utilit yma ycalculat e it s baselin e emission s usin g it s averag e annua l emission s froman y consecutiv e tw o yea r perio d tha t is , base d o nth e source' s operatin g history , representativ e o f historica l operatin g levels . I nkeepin g wit hit s pas t practice , an d consisten t wit hth e five

yea r perio d fo r "contemporaneous " emission s increase s an d decrease s i n4 0 CF R52.21(b)(3)(i)(b) , EP Awil l presum e tha t an y representativ e two-yea r perio d withi nth e fiv e year s precedin g th e modificatio n i s adequat e fo r baselin e purposes. 9 Sourc e owner s desirin g t o us e othe r tha na two-yea r perio d o r a baselin e perio d prio r t o th e las t fiv e year s mus t see k th e Administrator' s specifi c determinatio n tha t suc hperio d i s mor e representativ e o f

9 Thi s rulin g doe s no t appl yt o pas t modification s a t a n emission s uni t fo r th e purpos e o f determinin g contemporaneou s emissio nchange s a t a sourc e and canno t b e use d t o extend th e fiv e yea r perio d specifie d i ntha t provision . Se e 4 0 CF R 52.21(b)(3)(1)(b) .- 1 1 -

norma l operations. 1 0 EPAma yconside r a differen t tim e perio d throughnotic e and commen t rulemaking . B . Futur e Actua l Emission s A s discussed , t o determin e whethe r a "like-kind " modificatio nwil l resul t i na nincreas e i nactua l emissions , a utilit yma yno wcompar e it s actua l baselin e emission s (calculate d i naccordanc e wit hth e prio r section ) wit hit s projecte d futur e actua l emissions . Th e futur e actua l projectio ni s th e produc t of : (1 ) th e hourl yemission s rate , whic hi s base d o nth e unit' s physica l and operationa l capabilitie s following th e modificatio n and federally-enforceabl e operationa l restriction s tha t woul d affec t th e hourl yemission s rat e following th e renovation ; and (2 ) projecte d capacit yutilization , whic hi s base d o n(a ) th e unit' s historica l annua l utilization , and (b ) al l availabl e informatio nregardin g th e unit' s likel ypost-renovatio ncapacit y utilization. 1 1 Withou t extenuatin g circumstances , th e projectio n

1 0 I naddition , th e leve l o f baselin e emission s selecte d mus t b e consisten t wit hcurren t assumption s regardin g th e source' s emission s tha t ar e use d unde r th e stat e implementatio n plan s (SIP ) fo r plannin g o r permittin g purposes . Thus , th e sourc e ma yno t selec t a leve l o f baselin e emission s highe r tha n tha t use d byth e permittin g authorit yi nissuin g a PS D o r othe r constructio npermi t t o a sourc e i nth e area , i f suc hhighe r leve l woul d resul t i n a NAAQ S o r incremen t violation,o r violat e a visibilit ylimitation .

1 1 I nprojectin g futur e utilizatio nand emission s factors , th e compan yshoul d rel yo nit s historica l operationa l data , filing s wit hstat e o r loca l publi c utilit ycommission s o r othe r regulator yauthorities , and complianc e plan s develope d unde r Titl e I V

o f th e 199 0 Clea n Ai r Ac t Amendments .P.1 4

- 1 2 -

o f post-modificatio ncapacit yutilizatio nfo r applicabilit y purpose s shoul d no t b e les s tha nth e source' s highes t pas t utilizatio nrat e (base d o na tw o consecutiv e yea r average ) o r th e highes t projecte d us e o f th e sourc e during a consecutiv e two-yea r perio d followin g th e modification . C . Th e Causatio nRequiremen t B ythei r expres s terms , th e PS D regulatorymodificatio n provision s requir e tha t i norde r fo r ther e t o b e a "modification, " th e physica l o r operationa l chang e mus t "resul t in " a nincreas e i nth e emission s rate . Se e 4 0 CF R52.21(2)(i) . Anyemission s increas e attributabl e t o a physica l o r operationa l chang e must , therefore , b e include d i n th e post-modificatio n emission s calculation . Conversely , wher e increase d operation s ar e i nrespons e t o independen t factors , suc ha s system-wid e demand growth , whic hwoul d hav e occurre d eve ni nth e absenc e o f th e physica l o r operationa l change , suc hincrease s d o no t resul t fromth e chang e and ma yb e exclude d from th e projectio no f futur e actua l emissions . Thus , i nassessing whethe r th e propose d modificatio n wil l resul t i nanincreas e i nactua l emissions , utilitie s nee d no t includ e i nthei r calculatio no f post
modificatio n projecte d us e tha t portio no f th e increase d rat e o f utilization , i f any , du e t o factor s unrelate d t o th e physica l o r operatio nchange , suc ha s a nincreas e i nprojecte d capacit y utilizatio nequa l t o th e rat e o f electricit ydemand growth . O f course , durin g a representativ e baselin e perio d (se e supra) , th e plan t mus t hav e bee nabl e t o accommodat e th eP.1 5

- 1 3 - projecte d demand growt hphysicall yand legall ywithou t th e modification . Increase d operation s tha t coul d no t physicall yan d legall yb e accommodate d bu t fo r th e propose d physica l o r operationa l chang e ar e causall ylinke d t o an yprojecte d increas e i nactua l emissions . I n addition , th e utilit yshoul d tak e int o accoun t physica l o r operationa l change s whic hsignificantl yalte r th e efficienc y o f th e plant . Se e Puert o Rica nCement . 88 9 F.2 d a t 292 . I nth e cas e o f suc hmodifications , th e utilit ywoul d hav e th e burde no f provin g t o EP Ao r t o th e permittin g authorit ytha t th e increas e i nutilizatio ndu e t o demand growt ho r othe r "independent " factor s woul d hav e occurre d a t tha t plan t eve nwithou t th e propose d modification . EP Awil l conside r creating othe r guideline s o r presumption s regardin g th e causatio nrequiremen t i na separat e legislativ e rule .

V . Utilit yPollutio nContro l Project s Thi s rulin g als o clarifie s EPA' s treatmen t o f electri c utilit ypollutio n contro l projects . Suc hclarificatio ni s neede d immediatel yfo r tw o reason s because , a s ha s bee ndiscussed , th e ne waci d rai nprovision s i nTitl e IV o f th e Clea nAi r Ac t Amendment s o f 199 0 wil l requir e mos t electri c powerplant s t o undertak e pollutio n contro l project s withi nth e nex t fe wyears . Decision s regardin g a utility' s pollutio ncontro l strategyunde rP.1 6

- 1 4 - Phas e I o f th e aci d rai nprogramwil l b e mad e i nth e nex t few months . Utilitie s hav e raise d th e concer ntha t EP Awil l subjec t pollutio ncontro l project s t o a nactual-to-potentia l evaluation. 1 2 I nmanyinstances , i t i s clea r tha t pollutio ncontro l project s a t existin g stationarysource s ar e no t majo r modification s subjec t t o ne wsourc e revie wfo r th e simpl e reaso n tha t the yd o no t resul t i na nincreas e i nactua l emissions . I n addition , EP Aha s alway s recognize d tha t Congres s di d no t intend tha t everyactivit ya t a nexisting facilit yb e considere d a physica l o r operationa l chang e fo r purpose s o f th e ne wsourc e requirement s o f th e PS D program. 1 3 Wit hrespec t t o pollutio n contro l projects , EP Aha s i nrecen t year s issue d numerou s nonapplicabilit ydetermination s and "n o action " letter s t o utilit ysource s base d o na finding tha t environmentall y beneficia l pollutio ncontro l project s ar e no t th e typ e o f physica l o r operationa l chang e intende d t o b e covere d b yth e

1 2 I n fact , EP Aha s refraine d fromapplyin g th e actua l t o potentia l methodologyt o severa l recen t CC T and othe r pollutio n contro l projects . I nthes e nonapplicabilit ydetermination s an d "n o action " letters , EP Aha s instea d base d it s decisio n o n whethe r th e projec t woul d b e environmentall ybeneficial , ge e infr a not e 14 .

1 3 Fo r instance , EP Aregulation s explicitl yprovid e tha t routin e maintenance , repai r and replacement , and change s i nhour s o f operatio n o r i n th e productio nrat e ar e no t considere d a physica l chang e o r chang e i nth e metho d o f operation . Se e 4 0 CF R 52.21(b)(2)(iii) .P.1 7

- 1 5 - statut e o r EPA' s regulations. 1 4 T o provid e utilitie s wit h additiona l certainty , thi s ruling formall yadopt s a regulatory interpretatio n tha t i s consisten t wit hthes e individua l letter s a s wel l a s th e provision s o f th e Ne wSourc e Performanc e Standard s (NSPS ) regulations . Thi s interpretatio nprovide s tha t th e addition , o r us e o f an ysystemo r devic e whos e primar yfunctio n i s th e reductio no f ai r pollutant s wil l no t constitut e a physica l o r operationa l chang e tha t coul d b e deeme d a majo r modificatio n and trigge r ne wsourc e review , unles s th e Administrato r determine s tha t th e projec t woul d no t b e environmentall y beneficial. 1 5 I neffect , EP Ai s merel yinterpreting it s PS D regulation s i nharmonywit hit s NSP S regulations , whic hd o no t extend t o mos t pollutio ncontro l activities . Se e 4 0 CF R60.14(e)(5) . During

1 4 gee , e.g. . Letter , WilliamG . Rosenberg , Assistan t Administrator , EPA , t o Andre wAitken , Vic e President , Ne wEngland Powe r Servic e Co. , Marc h26 , 1991 ; Letter , Rosenber g t o Patric k M . McCarter , Senio r vic e President , Publi c Servic e Co . o f Colorado , Jul y23 , 1990 ; Letters , Davi d Kee , Director , Ai r an d Radiatio nDivision , EP ARegio nV , t o Timoth yJ . Method , Assistan t Commissioner , Indian a Dept . o f Environmenta l Management , January 30 , 199 0 and Marc h8 , 1990 .

1 5 A s discusse d abov e i nnot e 1 , EP Ai s deferrin g actio n o n sourc e categorie s othe r tha nelectri c utilit ygeneratin g units . Wit hrespec t t o pollutio ncontro l projects , today' s rulin g i s limite d t o utilitie s because , i ncontras t t o a genera l lac k o f experienc e wit hothe r industries , EP Aha s ha d extensiv e experienc e i naddressin g ne wsourc e applicabilit yissue s regardin g pollutio n contro l project s i nth e utilit yindustry . Tha t experienc e ha s le d EP At o conclud e i nnumerou s individua l case s tha t pollutio ncontro l project s i nth e utilit yindustryar e environmentall ybeneficial . Se e supr a not e 14 . I naddition , th e aci d rai nprovision s o f Titl e I V o f th e Clea n Ai r Ac t plac e a uniqu e burde nupo nth e utilit yindustryt o undertak e pollutio n contro l project s i nth e nea r future .P.1 8

- 1 6 - th e firs t year s o f th e PS D program , EP Ainterprete d it s PS D regulation s t o includ e thi s NSP S provision. 1 6 Thi s wa s i npar t base d o n th e fac t tha t th e PS D definitio n o f modificatio nsimpl y adopt s th e NSP S definitio ni nsectio n111(a)(4) . .I n addition , th e legislativ e histor yreflect s that , a s a genera l matter , Congres s intende d t o conformth e meanin g o f "modification " fo r PS D purpose s t o usag e unde r th e NSP S program . (Se e 12 3 Cong . Rec . H1195 7 (Novembe r 1 , 1977). ) EP Aha s sinc e voice d concer n wit hit s initia l vie wtha t th e NSP S pollutio ncontro l languag e ma yb e incorporate d wholesal e i nth e ne wsourc e revie wcontext , largel ybecaus e o f th e ambien t ai r qualit ycomponen t o f ne w sourc e revie wtha t i s absen t fromth e NSP S program. 1 7 However , a s note d above , manyo f th e recen t EPAdetermination s assessing pollutio ncontro l project s hav e bee nbase d o n a findin g tha t th e propose d projec t woul d b e environmentall ybeneficial. 1 8 I nligh t o f th e Titl e I V

requirement s and othe r provision s o f th e Clea n Ai r Ac t Amendment s o f 1990 , EP Ai s todayformall yadoptin g th e "environmenall ybeneficial " tes t fo r ne wsourc e revie w applicabilit yt o pollutio ncontro l project s o nan , interi m basi s pendin g proposa l and fina l actio no na regulator yexclusio nfo r

1 6 MemorandumfromEdwar d Reich , Director , Stationary Sourc e Complianc e Divisio nand WilliamF . Pederseh , Actin g Associat e Genera l Counsel , Air , Noise , and Radiatio nDivisio nt o Allyn M . Davis , Regio n IV (Apri l 21 , 1983) . 1 7 gee , e.g. . Memorandumfro mGeral d A . Emison , Director , OAQPS , t o Regiona l Divisio nDirector s (Jul y7 , 1986 ) ("Emiso n Letter") .

1 8 ge e supr a not e 12 .P.1 9

- 1 7 - pollutio nconto l projects , whic hEP Aintend s t o addres s i n a notic e and commen t rulemakin g proceedin g i nth e nea r future. 1 9 Fo r th e purpose s o f thi s ruling , a pollutio ncontro l projec t refer s t o th e additio n o r replacemen t a t a sourc e o f a nemission s contro l systemo r devic e primaril ydesigne d t o improv e th e contro l o r preventio no f ai r pollutio nemissions . Example s includ e add-o ntype s o f emission s contro l equipmen t suc ha s conventiona l and advance d scrubbers , sorben t injection , low-NOx burners , electrostati c precipitators , fabri c filters , catalysts , and therma l reduction/oxidation . Switchin g t o coa l wit ha lowe r sulfu r content , switchin g froma mor e pollutin g fue l t o natura l gas , natura l ga s o r coa l reburning , and cofirin g o f natura l ga s and othe r fuel s wher e th e projec t i s designe d primaril yt o reduc e ai r pollutio nals o constitute s a pollutio ncontro l project . An y

1 9 Today' s "environmentall ybeneficial " approac haddresse s th e concern s expresse d i nth e 198 6 Emiso nletter . First , EP Ai s no t simpl yreadin g i nt o th e ne wsourc e revie wregulation s th e NSP S exclusio ni n4 0 CF R§ 60.14(e)(5) . Fo r th e reason s state d i nth e Emiso n letter , tha t woul d consitut e a regulatorychang e requirin g notic e and commen t rulemaking . Second , byfocusing o n whethe r a pollutio ncontro l projec t i s a physica l o r operationa l chang e withi n th e meanin g o f th e ne wsourc e revie wregulations , today' s ruling avoid s th e nee d t o undertak e a quantitativ e emission s increas e calculatio ni never ycase , a s woul d b e necessar yi f suc hproject s wer e deeme d t o b e physica l o r operationa l changes . Especiall yi nligh t o f th e provision s o f thi s rulin g regardin g th e calculatio no f actua l emission s baseline s an

d projection s o f futur e actua l emissions , EP Aexpect s tha t most , i f no t all , pollutio ncontro l project s wil l reduc e actua l emissions . Nevertheless , th e Administrator' s authorit yt o conside r individua l pollutio ncontro l project s provide s a n adequat e opportunit yt o determin e tha t a pollutio ncontro l projec t woul d someho wresul t i na nadvers e environmenta l impac t and thu s conclud e tha t th e projec t i s no t environmentall y beneficial , bu t i s instea d a majo r modificatio ntha t shoul d b e subjec t t o ne wsourc e review .- 1 8 -

activit ytha t i s necessaryt o accommodat e switchin g t o th e les s pollutin g fue l i s considere d t o b e par t o f suc ha pollutio n contro l project . I n som e instances , thi s ma yinvolv e physica l change s t o th e pollutio ngeneratin g equipmen t (e.g. . boiler) , bu t onl yi f th e change s ar e necessaryt o maintai nth e norma l operatin g capabilit yo f th e uni t a t th e tim e o f th e modificatio n wher e th e capabilit ywoul d otherwis e b e impaire d a s a resul t o f th e fue l switch . Fo r example , a nelectri c utilit ysteam generatin g uni t tha t switche s froma highe r sulfu r bituminou s coa l t o a low-sulfu r subbituminou s coa l ma ynee d t o mak e certai n change s t o th e boile r i norde r t o avoi d deratin g th e unit . Change s tha t ar e intende d primaril yt o restor e origina l capacit yo r t o improv e th e operationa l efficienc yo f th e facilit y ar e no t considere d t o b e par t o f a pollutio ncontro l projec t fo r purpose s o f thi s ruling . Suc hchange s ar e addresse d i nth e "lik e kind " replacement s sectio no f thi s ruling . Also , th e sourc e owne r o r operato r stil l mus t compl ywit hal l applicabl e SI P limit s and requirements , permi t condition s and applicabl e NAAQ S o r PS D incremen t limits . Also , th e propose d additiona l pollutio n contro l systemo r devic e canno t resul t i n a reductio ni nth e contro l efficienc yo f a nexisting ai r pollutio n syste mo r devic e a t th e utility .

VI . Change s Mandate d byth e clea n Ai r Ac t Amendment s o f 199 0 A . Repowerin g Project sP.2 1

- 1 9 - Titl e I V

o f th e 199 0 Amendment s grant s specia l treatmen t t o utilitie s tha t see k t o compl ywit hth e mandate d aci d rai n reduction s byrepowerin g a uni t wit hqualifyin g clea ncoa l technology . CA

A§ 402(12) , 409(a) . Specifically , repowerin g project s tha t qualif yfo r a Phas e I I complianc e extensio nwil l als o b e exemp t fromNSP S requirements , s o long a s th e repowerin g "doe s no t increas e actua l hourl yemission s fo r an ypollutan t regulate d unde r th e Act. " CA A§ 409(d) . Anoperato r ca nqualif y fo r th e three-yea r extensio no f th e Phas e I I emission s limitatio n b ydemonstratin g (b yDecembe r 31 , 1997 ) t o th e permittin g authorit ytha t on e o r mor e unit s wil l b e repowere d wit ha qualifyin g clea n coa l technologyt o mee t th e Titl e I V restrictions . CA

A§ 409(a) , (b) . Th e operato r mus t provide , n o late r tha nJanuar y1 , 2000 , additiona l documentatio no f th e repowerin g projec t including a preliminarydesig nand engineerin g effor t fo r th e projec t and a bindin g contrac t fo r th e majorit yo f th e equipmen t needed , a s wel l a s an yadditiona l informatio nth e reviewin g authorit yrequires . CA A§ 409(a) . Th e EP Ainterpret s th e requiremen t tha t th e repowerin g no t lea d t o a nincreas e i n "actua l hourl yemissions " a s specifyin g a n actual-to-actua l methodology . Tha t is , a repowerin g modificatio n whic hresult s i na n increas e i na unit' s post-modificatio nactua l hourl yemission s wil l no t b e eligibl e fo r thi s limite d NSP S exemption . "Repowering " i s define d i nsectio n402(12 ) a s certai n grandfathere d oi l o r gas-fire d unit s and th e replacemen t o f a n- 2 0 -

existin g coal-fire d boile r wit hcertai nspecifie d clea ncoa l technologies , o r wit han yderivativ e technologie s o r wit han y othe r technologyofferin g greate r efficienc yand wast e reductio n ove r technologie s i nwidesprea d commercia l us e a t th e tim e o f enactment . Th e NSP S exemptio napplie s bot ht o repowerin g o f existin g unit s and t o replacemen t o f ol d unit s a t existin g sources , s o long a s th e projec t qualifie s fo r th e Phas e I I extensio nand satisfie s th e "actua l hourl yemissions " test . However , n o specia l treatmen t ca nb e afforde d t o a ne wuni t whic hi s locate d a t a differen t sit e tha nth e existing uni t i t replace s [se e 199 0 Amendments , § 409(d)] . Becaus e o f thi s provision , th e reconstructio nlimitation s specifie d i n4 0 CF R60.1 5 ar e n o longe r applicabl e t o repowerin g pro j ects . B . Clea n Coa l TechnologyDemonstratio nProject s Thi s rulin g als o implement s a nexemptio nfo r CC T demonstratio nproject s create d b yCongres s i nTitl e I V o f th e 199 0 Amendments . I nthes e provisions , CC T i s define d a s an y technologyno t i nwidesprea d us e o nth e dat e o f enactmen t tha t achieve s significan t reduction s i nS0 2 o r nitroge noxide s (N0 X ) emission s associate d wit hburnin g coa l i nth e generatio no f electricity , proces s steam , o r industria l products . CA A§ 415(a) . ACC T "demonstratio nproject " i s a projec t funde d unde r DOE' s CC T programo r a simila r projec t funde d byEPA . CA A§ 415(b)(1) ._P^ 3

- 2 1 - Repowerin g project s whic har e awarde d fundin g from th e Departmen t o f Energy(DOE ) a s permanen t CC T demonstratio n project s (o r simila r project s funde d b yEPA ) ar e exemp t fromNSP S and PS D requirement s s o long a s potentia l emission s (se e 52.21(b)(4) ) fromth e uni t d o no t increas e a s a resul t o f th e project . CA

A§ 415(b)(3) . Thes e project s stil l mus t compl ywit h th e nonattainmen t provision s o f Titl e I o f th e Act , however . Th e installation , operation , cessation , o r remova l o f a temporar yCC T demonstratio nprojec t tha t i s operate d fo r fiv e year s o r les s i s exemp t fromNSPS , PS D and nonattainmen t requirements . I£ . § 415(b)(2) . However , th e facilit ystil l subjec t t o an

yapplicabl e stat e implementatio npla nand mus t compl ywit han

yothe r requirement s necessaryt o attai n and maintai nNAAQS . Thi s rulin g implement s thi s provisio nand clarifie s tha t EP Aconsider s th e fiv e yea r perio d a s starting o n th e dat e o f startu p (a s define d i n4 0 CF R60.2) . Further , EP Ainterpret s th e statut e a s presumin g that , a t th e end o f a temporaryproject , th e facilit ymus t b e returne d t o pre-demonstratio ncondition s and hourl yemissio nrate s (or lower) . Th e retur no f th e facilit yt o it s pre-demonstratio n physica l and operationa l conditio nwoul d no t resul t i nth e los s o f th e actua l emission s margi nbetwee npre-demonstratio nactua l emission s rat e and Stat e implementatio npla n(SIP)-allowabl e emission s rate s fo r tha t facility . Rather , th e facilit ywoul d b e- 2 2 -

treate d a s i f th e temporarydemonstratio nprojec t ha d neve r occurred. 2 0 Thi s rulin g doe s no t extend t o emission s increase s whic har e unrelate d t o th e conduc t o f temporarydemonstratio nprojects . Emission s increase s (above th e pre-demonstratio nlevels ) tha t ar e attributabl e t o physica l o r operationa l changes , othe r tha nthos e necessaryt o restor e tha t uni t t o it s pre-demonstratio nconditio n ar e beyon d th e scop e o f thi s interpretativ e ruling . Atemporar ydemonstratio nprojec t ma yb e converte d t o a permanen t statu s a t an ytime , provide d i t meet s al l th e permanen t CC T projec t criteri a a t th e tim e o f conversion . Thus , fo r example , i f hourl yo r annua l emission s ha d increase d becaus e o f th e temporarydemonstration , afte r th e chang e t o permanen t status , thes e emission s ca nb e n o greate r tha nthos e whic h existe d prio r t o initiatio no f th e temporar ydemonstratio n project . VII . Applicabilit yDetermination s I nmos t instances , sourc e owner s o r operator s ar e abl e t o readil yascertai n whethe r ne wsourc e revie wrequirement s appl yt o

2 0 Thi s woul d b e th e cas e eve ni f ther e wer e smal l difference s i nth e post-demonstratio nphysica l an d operationa l condition s du e t o a technica l inabilit yt o restor e th e uni t t o it s precis e pre-demonstratio ncondition , o r du e t o norma l variabilit yi nth e coa l used . Thus , EP Awoul d no t see k t o appl y NSP S o r NS Rbecaus e o f a post-demonstratio nemission s increas e attributabl e solel yt o a nincreas e i nth e hour s o f operatio no r productio nrat e o f th e uni t (subjec t t o th e NSP S limitatio ntha t th e productio nrat e increas e mus t b e accomplishe d withou t a capita l expenditure) .

*••* " * * •fl " I T T O -T T .r.^- 2 3 -

them . Consequently , i nadministerin g thes e requirement s EP Adoe s no t requir e source s t o obtai na forma l applicabilit y determinatio nbefor e proceedin g wit hconstruction . I nkeepin g wit htha t practice , EP Awil l no t requir e utilitie s t o see k applicabilit ydetermination s unde r thi s ruling . Utilitie s i n mos t case s ca n readil yascertai nho wthi s rulin g wil l affec t them . EP Aanticipates , however , tha t manyclos e question s wil l aris e regardin g certai naspect s o f thi s ruling , suc ha s whethe r a particula r renovatio nprojec t involve s "like-kind " replacements , and whethe r a give nperio d o f pas t actua l emission s i s representativ e o f norma l operations . Becaus e suc hinstance s involv e discret e judgment s unde r thi s ruling , utilitie s ar e strongl yencourage d t o obtai ndetermination s o f applicability . EP Awil l provid e suc hdetermination s upo nrequest . Suc hrequest s shoul d b e submitte d togethe r wit happropriat e documentatio nt o th e appropriat e EP ARegiona l Office . VIII . Administrativ e Requirement s [Ad d boilerplat e regardin g OM B review , federalis m implications , Regulator yFlexibilit yAct , Paperwor k Reductio n Act , etc . Dated : Ma y, 199 1 WilliamK . Reilly , Administrator .