1

March 14, 2012

Memorandum to the North Dakota Regional Haze SIP Fi le

Docket ID # EPA-R08-OAR-2010-0406

Subject: Basin Electric Power Cooperative’s (BEPC’s ) Adverse Comments on

Credibility and Credentials of EPA’s Consultant

From: Gail Fallon, Environmental Engineer Environmental Protection Agency, Region 8

Background

We are including this memorandum in the docket for our final action to address some of BEPC’s adverse comments pertaining to our c ost analysis for tail-end selective catalytic reduction (SCR) at Leland Olds Unit 2 (LO S 2), particularly those comments related to the qualifications of EPA’s consultant a nd the quality of our cost analysis. This memorandum was included after the signature date of our final rule promulgation due to

time constraints. This information did not factor into our final decisions in this action.

EPA’s consultant, Dr. Phyllis Fox, is a well-known and highly regarded registered professional engineer with specific expertise in re gulatory cost effectiveness analysis. She has been qualified in federal court and numerou s administrative proceedings to render opinions on this subject matter and is a boa rd-certified pollution control engineer.

Her resume is in the record. BEPC’s characterizati on of her qualifications includes many errors and misstatements. We stand by our consulta nt’s review of Sargent & Lundy’s (S&L’s) May 2009 cost analysis for tail-end SCR. H owever, Dr. Fox’s review and analysis are not relevant to our final action on th e North Dakota Regional Haze SIP because of our decision to approve the State’s best available retrofit technology (BART)

determination for NO

x for LOS 2 on grounds unrelated to the costs of com pliance. Thus, we are not responding to most of BEPC’s and S&L’s c omments on our analyses of costs

for NO

x controls for this unit. In this memorandum, we ar e responding to some of these comments due to the misleading nature of many of th e comments which called into question the credibility and credentials of Dr. Fox . An excerpt below from BEPC’s comments highlights the general tone of its comment s that led to our decision to respond:

“Moreover, the 2011 S&L Evaluation highlights the f undamental inadequacies in EPA's cost estimates, which are so utterly lacking in any technical or engineering basis as to be laughable. But the s takes for Basin Electric are high. It has taken with utter seriousness EPA's attempt h ere to impose an untested control technology on it, based on a neophyte's con trol cost estimates, and in complete disregard for the State's role in making t he BART determination. At significant expense, Basin Electric arranged for th e 2011 S&L Evaluation, a level2 of cost estimation that exceeds what the Cost Manua l requires, but is the gold standard for estimating the costs of compliance for a control technology.” 1

Consultant’s Use of Sufficient Information

BEPC believes that our consultant lacked the inform ation needed to estimate emission control costs at LOS 2, especially due to the technically complex and untested tail-end SCR configuration. 2 BEPC states “[i]n contrast to the Sargent & Lundy engineers, Fox has never visited the Leland Olds St ation. Fox did not contact either Sargent & Lundy or BEPC while preparing her report. Fox has in the past relied on pictures from Google Earth to prepare her cost esti mates, but her report gives no indication that she took even that rudimentary step in this case.” 3

We disagree that Dr. Fox lacked the necessary infor mation to conduct her analysis. First, our consultant used all of the si te-specific information produced by BEPC and its contractors at the time of her work. We sp ecifically sought all relevant sitespecific information through a Section 114 request and used all of the information that was produced in preparing our independent analysis. Dr. Fox was not authorized to independently contact BEPC or S&L. All information interface and acquisition was handled by EPA. We requested all vendor correspond ence, calculations, formulas, and methodologies, including electronic spreadsheet fil es, used to generate the costs presented in the S&L cost analysis for tail-end SCR dated May 27, 2009. Essentially, none of the information provided in response to our request included any new information beyond the limited information already included in the SIP record related to BEPC’s development of costs pertaining to SCR techn ology. BEPC provided insufficient information to suggest that it relied on anything o ther than an unsupported lump-sum, dollar-per-kilowatt figure for its capital costs.

Second, our consultant’s scope of work was to revie w and, as appropriate, revise the May 2009 S&L cost analysis. This analysis was a study-level estimate, accurate to within +/-30%. This is adequate for a regulatory a nalysis and does not require a site

survey. 4 The subject May 2009 S&L cost analysis contains n o evidence that S&L’s personnel who prepared the analysis visited the si te, consulted Google maps, or relied on any site-specific information. 5 S&L characterizes the May 2009 cost analysis that we

1 November 21, 2011 letter from Holland & Hart, Deni se Kennedy to EPA Region 8, Callie Videtich, Re: Comments of Basin Electric Power Cooperative to the Proposed Rule on North Dakota’s Regional Haze State Implementation Plan, 76 Fed. Reg. 58570 (Sept . 21, 2011), Docket EPA-R08-OAR-2010-0406-0267 (hereinafter, referred to as BEPC Comments), p. 59.

2 BEPC Comments, p. 48.

3 BEPC Comments, p. 41.

4 Control Cost Manual, Section 1, p. 2-3. See, e.g. , site survey only required for firm or detailed es timate. “Study-level estimates are acceptable for regulator y development because they represent a compromise between the less accurate order-of-magnitude and th e more accurate estimate types.”

5 Letter from Cris Miller, BEPC, to Terry L. O’Clair , May 29, 2009, transmitting Letter from William DePriest, Sargent & Lundy, to Cris Miller, BEPC, Re : BART Evaluation Update – Tail End SCR, May 27, 2009 (May 2009 S&L cost analysis).3

reviewed as a “study-level” estimate based on publi shed equipment costs that did not take any site-specific design parameters or equipment la yout into consideration. 6

A site visit is not required to prepare a study-lev el, regulatory cost analysis, particularly for a tail-end SCR, where space constr aints are generally not an issue. A site visit is generally only required for space-constrai ned sites. Otherwise, site visits are very unusual for regulatory cost analyses, which need on ly be accurate to within +/- 30%. The Control Cost Manual, for example, notes site survey s only for a firm, detailed, contractor’s estimate, accurate to within +/-5%. 7 Space constraints are not an issue for a

tail-end SCR at LOS 2. The SCR issues that resulte d in the disagreements leading to the proposed FIP were all theoretical and hypothetical process-related issues related to the impact of fuel composition on flue gas characterist ics and, hence, catalyst lifetime. Inspecting the plant site would not resolve any of these issues or have any impact on a study-level cost analysis.

Third, the record documents that S&L first visited the site in July 2011 to prepare a more detailed cost analysis to rebut our work. B EPC characterizes this new analysis as a conceptual design “scoping level” cost estimate, based on a “site walkdown to assess physical constraints that could limit tail-end SCR implementation and to complete plant design data collection.” 8 The resulting revised cost analysis adopted many of the modifications that we made to S&L’s 2009 study-leve l analysis, supporting our

consultant’s work. These modifications included:

• The price of natural gas was lowered from $8/MMBtu - $12/MMBtu to $4.25/MMBtu;

• The SCR catalyst life was increased from 6 to 12 mo nths to 16,000 hours;

• The SO 2 to SO 3 conversion rate of the SCR catalyst was lowered fr om 1% to 0.5%;

• The catalyst changeout time was lowered;

• The cost of auxiliary power was lowered from $50/MW h to $30.1/MWh;

• A future worth factor was used to estimate catalyst changeout costs.

Consultant’s Qualifications and Objectivity

BEPC asserts that Dr. Fox is “unqualified and biase d” and that “Fox’s relevant experience consists almost exclusively of...testifyin g against industry defendants...” 9

We note at the outset that the fact that a consulta nt has testified “against industry defendants” has no bearing on the consultant’s qual ifications or the validity of her or his analysis. Presumably, BEPC’s consultants have freq uently worked for industry defendants. In any event, we disagree with BEPC’s assertions. The exhibits BEPC cites are consistently misquoted, inaccurately cited, tak en out of context, mischaracterized, or

6 BEPC Comments, Exhibit 32, p. 5-2.

7 Cost Control Manual, Section 1, pp. 2-3 to 2-4.

8 BEPC Comments, Exhibit 32, pp. 1-5, 5-2.

9 BEPC Comments, pp. 48-49.4

are irrelevant. BEPC’s claims are refuted by Dr. F ox’s resume and further review of the exhibits presented.

BEPC narrowly focuses only on the first section of Dr. Fox’s resume, “Expert Witness/Litigation Support,” which catalogues her l itigation experience encompassing a period of over 30 years, ignoring the balance of he r resume. Litigation is and has historically been a very small part of Dr. Fox’s pr actice.

Further, BEPC mischaracterizes the litigation secti on itself. Dr. Fox’s resume

shows numerous cases in defense of industrial and o ther clients as well as other types of

work. 10 Dr. Fox, in response to the question: “Have you w orked on industry side or government side or both?” testified in federal cour t: “The majority of my work has been on industry side.” 11 BEPC includes this testimony in one of its exhibi ts, relating to trial testimony in federal court on behalf of the United States, but BEPC ignores this testimony when it criticizes Dr. Fox’s qualificatio ns. In fact, Dr. Fox has variously represented industry; local, state, and federal gov ernments; unions; and nongovernmental organizations. 12

Dr. Fox modified a regulatory cost analysis under c ontract to EPA that was prepared by another (unidentified) consultant(s) to conform it to standard practice and correct numerous errors. Regulatory cost effective ness analysis is a specialty within the air quality control field. It involves the applica tion of cost analysis methods to pollution control equipment within a regulatory context, incl uding the determinations of BACT, BART, and maximum achievable emission rate (MACT). Practitioners in this field develop cost estimates from secondary information, including vendor quotes and standard costing algorithms published by EPA and others, fol lowing a methodology prescribed in EPA guidance. 13 Dr. Fox is a recognized authority in this practic e and has been qualified as an expert in cost analysis based on her experien ce and training in numerous cases, including in federal court. 14 BEPC’s criticisms of Dr. Fox’s qualifications are misleading

and incorrect as listed below:

1. BEPC quotes a passage written by a State administra tive law judge in 2008 that summarizes Dr. Fox’s qualifications in another, unr elated case (Longleaf): “Dr Fox

10 Fox Resume, Docket EPA-R08-OAR-2010-0406-0027. Se e, e.g., Fox defense experience at pp. 3 (A. Singh v. A. Assaedi), 9 (oil companies defending ag ainst citizen’s suit), 9 (oil companies, defending against property damage claims from oil spill), 11 (gas station), 11 (foundry), 12 (home builder), 11 (major manufacturer), 11 (oil company), 13 (oil company), 14 (urea manufacturer), 15 (numerous commercial and industrial facilities).

11 BEPC Comments, Exhibit 25, p. 90, lines 14-16.

12 Fox Resume, Docket EPA-R08-OAR-2010-0406-0027.

13 See Response to Technical Comments for Sections E. through H. of the Federal Register Notice for the Oklahoma Regional Haze and Visibility Transport Fed eral Implementation Plan, EPA Region 6, December 13, 2011, Docket No. EPA-R06-OAR-2010-0190, include d in the docket for this action.

14 See, e.g., BEPC Comments, Exhibit 25, Transcript o f Trial Proceedings, U.S. v. Cinergy Corp., No. 99- 1693 (S.D. Ind. Feb. 12, 2009), pp. 86:23 – 91:16 ( qualified as an expert in air pollution controls, i ncluding cost analysis), pp. 89-90 (“My typical work is perf orming BACT and LAER analyses for coal-fired power plants for various parties who have an interest in the project. In that work, I do comprehensive revi ews of the technology that’s available working with vendor s and reviewing the literature from around the worl d.”)5

is not a regulator, a design engineer, or an expert in the design of pollution control

devices...” 15 These are not qualifications for a regulatory cos t effectiveness analysis. In fact, cost effectiveness was not an issue in the Longleaf case. However, Dr. Fox was admitted as an expert in the Longleaf case on o ther issues, e.g., BACT limits, additional impact analyses, etc. 16

BEPC did not include the complete Longleaf decision in its exhibits; instead, it only included those pages that supported the quote that it took out of context. In a portion of the decision that BEPC did not include, the judg e, after reviewing the evidence, concluded that Dr. Fox was “thorough and credible.” 17

2. BEPC claims “Fox’s relevant experience consists alm ost exclusively of...assisting with closure of industry plants or sites.” 18 Dr. Fox has never assisted with the closure of a plant, but rather has defended and otherwise r epresented owners of properties

contaminated from historic uses at sites slated for redevelopment, as a result of closure by others. 19 This is an important distinction.

3. BEPC claims “Fox’s only experience with coal plants is as an expert witness against them in at least 20 different cases, typically repr esenting the Sierra Club or other environmental organizations with an avowed mission to kill coal-fired power plants. ”20 This is an incorrect characterization of only the “Expert Witness/Litigation Support” section of Dr. Fox’s resume. In this sect ion, she lists 76 separate items. Of these, Dr. Fox testified in only four cases involvi ng coal-fired power plants on behalf

of the Sierra Club 21 and an additional four coal-fired power plant case s on behalf of other environmental organizations, all in state adm inistrative proceedings. 22 Dr. Fox

also testified on behalf of the United States in th ree major Clean Air Act enforcement cases involving 29 coal-fired power plants. 23

Dr. Fox also has advised both a Colorado and Montan a coal-fired utility on pollution control retrofits in anticipation of future rulemak ings; conducted bench- and pilotstudies of the partitioning of major, minor and tra ce elements during coal combustion; investigated environmental impacts of both coal slu rry transport and coal mining for the Department of Energy; and worked for several ow ners and operators of coal-fired power plants during her six years at Bechtel, among others. Her federal court trial

15 BEPC Comments, p. 48, Exhibit 26, p. 7.

16 Transcript of Administrative Hearing Proceedings, Friends of the Chattahoochee v. Couch , OSAH-BNRAQ-0732139-HOWELLS, September 5, 2007, p. 137, line 24.

17 Final Decision, Friends of the Chattahoochee v. Couch , OSAH-BNR-AQ-0732139-60-HOWELLS, Office of Administrative Hearings, January 11, 2008 , p. 107.

18 BEPC Comments, p. 49.

19 Fox Resume, Docket EPA-R08-OAR-2010-0406-0027.

20 BEPC Comments, p. 49.

21 Fox Resume, Docket EPA-R08-OAR-2010-0406-0, pp. 4 (Longleaf), 5 (Iatan, Springfield), 8 (Thoroughbred).

22 Fox Resume, Docket EPA-R08-OAR-2010-0406-0, pp. 4 (Oak Creek), 6 (Weston 4, Michigan), 7 (Weston 4).

23 Fox Resume, Docket EPA-R08-OAR-2010-0406-0, pp. 3 (Cinergy: Gallagher), 3-4 (Cinergy: Wabash), 5 (AEP).6

testimony, as reflected in BEPC’s Exhibit 25, state s; “I worked there [Bechtel] from roughly 1971 to 1976 as an engineer, and there I [h ad] experience with and responsibility for design and analysis of coal-fire d and other types of power plants and refineries, as well as cost estimating.” 24

BEPC also alleges “Fox has frequently been hired by environmental advocacy groups to testify in cases challenging industry compliance with air quality standards.” 25
However, Dr. Fox’s resume reveals she also has freq uently defended the other side against citizen suits and government enforcement ac tions. 26

4. BEPC links Dr. Fox’s testimony on behalf of the Sie rra Club (only 4 cases compared to the claimed 20) to material it found on the Sier ra Club’s homepage on its “Beyond Coal” campaign. 27 This comment conflates the goals of some of Dr. F ox’s clients with Dr. Fox’s testimony. This material makes no m ention of Dr. Fox. Further, Dr. Fox’s opinions are rendered based on the facts of e ach individual case, not the policies and advocacy of her clients.

5. BEPC alleges that Dr. Fox “testified for the Sierra Club that SCR should be applied to a proposed Texas coal-fired power plant.” 28 Dr. Fox has never testified on any coalfired power plant in Texas on behalf of any party. The subject case cited in this claim apparently involved petroleum-coke fired circulatin g fluidized bed boilers. Regardless, this would only be further evidence of experience with SCR.

6. BEPC alleges that Dr. Fox “testified for the Sierra Club in a challenge to the NO

x emission limits for a proposed coal-fired power pla nt in Illinois,” 29 citing to a 2006 Environmental Appeals Board order in the Prairie St ate case. However, there was no testimony involved in that case. The cited case op inion notes that Dr. Fox prepared

comments on behalf of the Sierra Club in June 2004. This, again, is evidence of experience with SCR.

7. BEPC alleges that “As recently as October 2009, Fox was retained by Alaskans for Energy Freedom, d/b/a Alaska Coal, a group whose mo tto is “North to the Future Beyond Coal,” to provide technical advice about the Healy Coal Plant Unit 2..,” citing Exhibits 20 and 21. 30 This, again, is misinformation that conflates the goals of an environmental group with Dr. Fox’s opinions. Fu rther, the cited exhibit erroneously claims that Dr. Fox was a technical exp ert for “Alaska Environmental

24 BEPC Comments, Exhibit 25, p. 87, lines 9-13.

25 BEPC Comments, p. 49.

26 Fox Resume, Docket EPA-R08-OAR-2010-0406-0. See, e.g., pp. 3 (Singh v. Assaedi), 9 (gas plant, marine terminal), 11 (gas station, foundry, commerc ial business), 12 (home builder, property owners, o il company), 13 (oil company), 14 (commercial business es, urea manufacturer), 15 (numerous industrial facilities).

27 BEPC Comments, p. 49, Exhibits 22 and 23.

28 BEPC Comments, p. 49.

29 BEPC Comments, p. 49.

30 BEPC Comments, p. 49.7

Center” and would conduct a review of HCP#2 in Octo ber 2009. Dr. Fox has never heard of, been retained by, or represented any of t hese groups.

8. BEPC claims “Fox’s lack of experience with air poll ution control systems has led to mistakes in opinions in other cases.” Two examples are cited. 31 Neither is evidence of error, but rather of BEPC mischaracterization.

In the first example, BEPC alleges four errors in a BART cost evaluation for scrubbers, based on comments made by the utility op posing BART controls. Oklahoma Gas & Electric (OG&E) opposed the installa tion of scrubbers and retained S&L, the same consultant representing BEPC in this case, to oppose their installation based on cost effectiveness grounds. 32 Adverse comments by a utility seeking to avoid installing a scrubber are not evidence of err or.

Dr. Fox prepared an independent cost analysis and c oncluded, consistent with S&L’s own advice to other clients, that scrubbers were co st effective. This is analogous to the current situation, in which BEPC was seeking to avoid installation of SCR and retained S&L to argue that SCR was not cost effecti ve. EPA disagreed with the cited OG&E comments as to alleged errors and fully rebutt ed them in responses to

comments on the Oklahoma FIP. 33

In the second example, BEPC alleges two errors in t estimony in an unidentified district court trial on the application of SCR to a coal-fired power plant, citing Exhibit 27. However, the cited exhibit is the same as the first example, the OG&E comments based on an S&L report, and the cited pages were no t produced. Further, the cited case has nothing to do with the application of SCR to a coal-fired power plant. Dr. Fox is not aware of her testimony in district court for any party on coal-fired power plants being characterized as erroneous.

9. BEPC claims that “In contrast to an expert with rea l world experience with pollution control systems, Fox’s relevant experience consists almost exclusively of investigation and analysis of secondary information ...” We disagree that such design experience is required to prepare regulatory cost a nalyses as they are based on studylevel costs, accurate to only +/-30%. The costs ar e typically obtained from vendor quotes or calculated using standard guidance docume nts, such as the EPA Control Cost Manual. Further, our experience is that desig n engineers may not always understand the requirements of regulatory cost anal yses and sometimes misapply EPA guidance.

31 BEPC Comments, p. 49, Exhibit 27.

32 Sargent & Lundy, Sooner Units 1 & 2, Muskogee Unit s 4 & 5 Dry FGD BART Analysis Follow-Up Report, December 28, 2009, Report Prepared for Okla homa Gas & Electric, Docket EPA-R06-OAR-2010-

0190-0014.

33 See Response to Technical Comments for Sections E. through H. of the Federal Register Notice for the Oklahoma Regional Haze and Visibility Transport Fed eral Implementation Plan, EPA Region 6, December 13, 2011, Docket No. EPA-R06-OAR-2010-0190.8

Further, as explained below, even though “real worl d experience with pollution control systems” is not a prerequisite for regulato ry cost analysis, Dr. Fox does have real-world design experience. Dr. Fox worked for s ix years as an engineer in

Bechtel’s Power Division at a time when the existin g fleet of coal fired power plants was being built and was frequently a member of desi gn teams. 34 She has also designed SCR and catalytic oxidation systems for st andby generators, gas turbines and server farms, which provide backup power for th e internet. 35 Dr. Fox has been involved in the application of SCR to power generat ion facilities and other sources since the early 1980s, including participation in t he initial introduction of SCR into the United States, based on Japanese experience.

Dr. Fox is a licensed professional engineer in five states. She is also a Board Certified Environmental Engineer, certified in Air Pollution Control, by the American Academy of Environmental Engineers. 36 In contrast, there is no evidence in the record that any of the parties who prepared BEPC’s various cost analyses has a comparable certification or has comparable qualific ations to prepare a regulatory cost effectiveness analysis. In fact, the record contai ns no resumes for any of BEPC’s cost and emission estimating consultants.

It is standard practice to rely on secondary inform ation to prepare cost effectiveness analyses, including cost data and costing algorithm s published in EPA documents, journal articles, reports, and information provided by vendors. 37 The most common sources of cost information used in these analyses are the EPA Control Cost Manual, other published EPA reports, and vendor quotes from firms that design the equipment.

The revised S&L cost analysis in Exhibit 32 to BEPC ’s comments is not based on primary equipment design, but rather also relies on secondary information that S&L obtained from other vendors’ designs for similar fa cilities, adjusted for LOS 2’s

dimensions. 38 Reliance on secondary information is part of the practice of regulatory cost analysis, and S&L used it to prepare its own c ost analyses.

34 BEPC Comments, Exhibit 25, U.S. v. Cinergy Corp., No. 99-1693 (S.D. Ind. Feb. 12, 2009), p. 87, lines 9-12 (Discussing experience at Bechtel: “I worked t here from roughly 1971 to 1976 as an engineer, and there I [had] experience with and responsibility fo r design and analysis of coal-fired and other types of power plants and refineries, as well as cost estima ting.”).

35 BEPC Comments, Exhibit 25, p. 89, Lines 6-10 (Q: H ave you ever designed any air pollution controls yourself? A: Yes, I have. Q: Can you describe tha t? A: I have designed a number of SCRs for server farms.”).

36 Fox Resume, Docket EPA-R08-OAR-2010-0406-0027, p. 1.

37 See Control Cost Manual, Section 1, Chapter 2, Cos t Estimation: Concepts and Methodology and NSR Manual, Chapter B, Sec. IV.D.2.a and Appendix B.

38 BEPC Comments, Exhibit 32, p. 5-3 (“Purchased equi pment costs for the major pieces of equipment (e.g., SC reaction vessel, fans, anhydrous ammonia storage and feed system, GGH, etc) were based on pr ice quotes provided by equipment vendors for recent sim ilarly sized SCR projects.”).9

Conclusion

The primary disagreement in this situation stems f rom our consultant’s use of the EPA Control Cost Manual in contrast to financial pr actices used by the utility industry. As stated in our final rule for this action, the Co ntrol Cost Manual contains two types of information: (1) a generic costing methodology, kn own as the overnight method and (2) study level capital cost estimates for certain gene ral types of pollution control equipment, such as SCR. The overnight method has been used fo r decades for regulatory control technology cost analyses. 39 We maintain that following the overnight method e nsures equitable BART determinations across states and acr oss sources. Our consultant followed the Control Cost Manual and is well-qualif ied with regulatory cost analysis methodology. While BEPC asserts that the methodolo gy used by S&L is the “gold standard” for estimating pollution control costs, S &L’s method is not better than the Control Cost Manual method; it is simply different.

We continue to stand by the analysis used in our p roposal and the credentials of our consultant, Dr. Phyllis Fox. We are troubled b y the nature of many of BEPC’s comments and have provided this memorandum to clari fy the record.

39 See, for example, the NSR Manual, Appendix B, whic h lays out the overnight method currently required

in the Control Cost Manual.