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[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Notices]
[Pages 39857-39866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19832]

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-6128-5]

Notice of Availability; Alternatives for New Source Review (NSR) 
Applicability for Major Modifications; Solicitation of Comment

AGENCY: Environmental Protection Agency.

ACTION: Notice of availability.

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SUMMARY: The EPA is soliciting comments on a specific alternative for 
determining the applicability of NSR to modifications of major 
stationary sources, under the Prevention of Significant Deterioration 
(PSD) and the nonattainment provisions of the Clean Air Act (Act). This 
alternative would allow any source to legally avoid major NSR review 
for a physical or operational change to an existing emissions unit by 
taking an enforceable temporary limit on emissions from that unit for a 
period of at least 10 years after the change. In addition, the Agency 
is seeking comment upon when and under what circumstances permitting 
authorities should have to revise the emissions level set under a 
plantwide applicability limitation (PAL) for any given source.

DATES: Written comments must be received on or before August 24, 1998.

ADDRESSES: Comments must be identified by the docket number [A-90-37], 
and should be submitted (in duplicate, if possible) to: Air and 
Radiation Docket and Information Center (6102), Attention Docket Number 
A-90-36, Room M-1500, U.S. Environmental Protection Agency, 401 M 
Street, S.W., Washington, D.C. 20460. The EPA requests a separate copy 
also be sent to the contact person listed below (see FOR FURTHER 
INFORMATION CONTACT).
    Comments may also be submitted electronically by sending electronic 
mail (e-mail) to: [email protected]. Submit comments as an 
ASCII file avoiding the use of special characters and any form of 
encryption. Comments and data will also be accepted on a diskette in 
WordPerfect 5.1 or 6.1 or ASCII file format. Identify all comments and 
data in electronic form by docket number A-90-37. No Confidential 
Business Information (CBI) should be submitted through e-mail.
    Information submitted as a comment concerning this document may be 
claimed confidential by marking any part or all of that information as 
CBI. Information so marked will not be disclosed except in accordance 
with procedures set forth in 40 CFR part 2. A copy of the comment that 
does not contain CBI must be submitted for inclusion in the public 
record. Information not marked confidential will be included in the 
public docket by EPA without prior notice.

FOR FURTHER INFORMATION CONTACT: By mail: David Solomon, Integrated 
Implementation Group, Information Transfer and Program Integration 
Division, (MD-12), Environmental Protection Agency, Research Triangle 
Park, N.C. 27711, telephone 919-541-5375, facsimile 919-541-5509, or e-
mail [email protected]. For information on the section of 
this notice addressing PAL's, contact Mike Sewell at the above address, 
telephone 919-541-0873, facsimile 919-541-5509, or e-mail 
[email protected].

Electronic Availability: Internet

    Electronic copies of this document also are available from the EPA 
home page at the Federal Register--Environmental Documents entry for 
this document under ``Laws and Regulations'' (http://www.epa.gov/fedrgstr/) or from the Office of Air and Radiation home page at http://www.epa.gov.ttn/oarpg.

I. Purpose

    The first purpose of this notice is to solicit comment from the 
interested public on a specific policy option for determining the 
applicability of NSR to modifications at existing major stationary 
sources. Although this option was one of many proposed in an earlier 
Notice of Proposed Rulemaking, EPA now seeks comment on a single 
alternative in order to ensure that the public has full opportunity to 
evaluate its merit. Second, the Agency is seeking comment on a specific 
approach with regard to PAL's. Previously EPA solicited and received 
several hundred comments on its NSR reform package proposed in July 
1996. The EPA has reviewed and is duly considering these comments. For 
purposes of this Notice of Availability, commenters should limit their 
remarks to the issues discussed below. Because of the opportunity 
provided previously for comment on the NSR Reform items, comments 
relating to issues other than those set forth in this Notice will not 
be considered.

II. Background

    On July 23, 1996, EPA proposed to make significant changes to the 
existing major NSR program (``NSR Reform'') [See 61 FR 38249]. In large 
part, these proposed changes concern the applicability of the major NSR 
requirements to modifications at existing stationary sources. The 
Agency solicited comment on a number of methodologies for determining 
NSR applicability when a source undergoes a modification [See id. at 
38266-70]. As a result of comments received, changed circumstances, and 
further review of the issues by the Agency, EPA is seeking further 
comment on one particular methodology.
    In the same earlier notice, EPA proposed to authorize permitting 
authorities to establish facility-specific PAL's based on the source's 
historic actual emissions. The Agency solicited public comment on what 
circumstances would necessitate revision of PAL limits. Several 
commenters suggested that PAL's must be periodically changed to reflect 
recent actual emissions. The EPA is also concerned that legal 
considerations may require a periodic evaluation of the PAL limit.

III. Applicability Methodology for Modifications to Existing Major 
Sources

A. Current NSR Applicability Test for Major Modifications

1. In General
    Major NSR--that is, PSD or nonattainment NSR--applies to all 
``major modifications.'' A ``major modification'' is ``any physical 
change or change in the method of operation of a major stationary 
source that would result in a significant net emissions increase of any 
pollutant subject to regulation under the Act.'' In other words, major 
NSR applies if, as a result of the change, the total emissions from new 
and existing emission units at the source, which are otherwise affected 
by or part of the change, exceed the current actual emissions of those 
units by a significant amount (as defined in the regulations). 
1
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    \1\ When post-change emissions from a changed unit and all other 
affected units are significant, the proposed change at the source 
may nevertheless avoid review if, when considering any other 
contemporaneous emission increases and decreases at the source, the 
net emissions increase is less than significant. The summing of 
increases and deceases at a source that are contemporaneous with, 
but not resulting from, a proposed change for the purpose of 
avoiding NSR is commonly referred to as a ``netting'' analysis. The 
alternative discussed in this notice only involves modifications 
that do not trigger a netting analysis.

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[[Page 39858]]

    Vital, then, to determining NSR applicability is evaluating a 
source's ``actual emissions'' both before and after a physical or 
operational change to determine whether it constitutes a major 
modification. Pre-change actual emissions for the various emissions 
units at the source constitute the ``baseline'' for this evaluation. 
Under current regulations, the baseline is calculated based on the 
average annual emissions during the 2-year period preceding the change 
(or, where the permitting authority determines that another period is 
more representative of normal source operations, it uses that period). 
Eg., 40 CFR 52.21(b)(21)(ii).
    Once the baseline is determined it must be compared to emissions 
after the change. Since NSR applicability is determined prior to 
construction, some projection of post-change emissions must be made for 
the comparison. Existing emissions units that are not undergoing, or 
otherwise affected by, a physical or operational change are deemed to 
have ``begun normal operations,'' and baseline actual emissions are 
simply projected forward to the post-change timeframe; thus, these 
units fall out of the applicability calculus. Under EPA's current 
regulations, post-change actual emissions for units which have ``not 
begun normal operations * * * equal the potential to emit (PTE) of the 
unit on that date.'' Eg., 40 CFR 52.21(b)(21)(iv). For new units, which 
obviously have not begun normal operations, the pre-change baseline is 
zero, and the post-change emissions equal the units' PTE. Determining 
post-change emissions for existing units that are modified or otherwise 
affected by the change can be more complex. The regulatory test for 
these situations has come to be known as the ``actual-to-potential'' 
methodology.
    In brief, under the current regulations, changes to a unit at a 
major stationary source that are non-routine or not subject to one of 
the other major source NSR exemptions are deemed to be of such 
significance that pre-change emissions for the affected units should 
not be relied on in projecting post-change emissions. For such units, 
``normal operations'' are deemed not to have begun following the 
change, and are treated like new units. Put another way, the regulatory 
provision for units which have ``not begun normal operations'' reflects 
an initial presumption that a unit that has undergone a non-routine 
physical or operational change will operate at its full capacity year-
round. A source owner or operator may rebut the presumption that the 
unit will operate at its full potential by agreeing to limit its PTE 
through enforceable restrictions that limit the units' ability to emit 
more than their pre-modification actual emissions (plus an amount that 
is less than significant''). 2
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    \2\ The ``PTE'' is currently defined as the ``maximum capacity 
of a stationary source to emit a pollutant under its physical and 
operational design.'' Any physical or operational limitation on the 
capacity of the source to emit a pollutant, including a permit 
limitation, is treated as part of its design provided the limitation 
or its effect on emissions is federally enforceable (e.g., see 
existing sections 51.165(a)(1)(iii) and 51.166(b)(4)).
    In recent decisions, National Mining Ass'n v. EPA, 59 F.3d 1351 
(D.C. Cir. 1995) and Chemical Manufacturers Ass'n v. EPA, No. 89-
1514, slip op. (D.C. Cir. Sept. 15, 1995), the District of Columbia 
Circuit court addressed challenges related to EPA's requirement that 
a source which wishes to limit its PTE must obtain a federally 
enforceable limit. The EPA is currently reviewing its Federal 
enforceability requirements in light of these court decisions, and 
has not yet decided how it will address this issue. Once EPA has 
completed its review of the Federal enforceability requirements in 
all relevant programs including NSR, the Agency will make available 
in a Federal Register notice its response to the court decisions.
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    The term ``actual-to-potential'' is somewhat of a misnomer, because 
in practice, this methodology involves a determination of future actual 
emissions to the atmosphere. That is, source owners and operators 
contemplating a modification project assess the likely utilization of 
the affected units following the change. If those levels of 
utilization, when combined with the hourly emissions rates (and 
contemporaneous emissions increases and decreases elsewhere at the 
plant), would result in future actual emissions significantly higher 
than the pre-change baseline, the owner or operator must obtain a major 
NSR permit. If the owner or operator projects that future actual 
emissions will not significantly exceed the baseline, the owner or 
operator instead obtains a minor NSR permit or other device that 
legally limits the affected units' emissions to a level that is not 
significantly above baseline. The end result under this second scenario 
are individual limits on the emissions of the new, modified, and 
affected units which assures that net emissions at the plant will not 
significantly increase as a result of the change. Nevertheless, the 
owner or operator is always free to change plans in the future. If, for 
example, a new assessment indicates that it would be economically 
useful to utilize the affected units at levels that would exceed the 
established limits, the owner or operator may obtain a major NSR permit 
at that future time. See e.g., 40 CFR 52.21(r)(4).
    The practical workings of the current regulations, as described 
above, have long been controversial. Industry representatives maintain 
that the ``actual-to-potential'' methodology results in 
``confiscation'' of unused plant capacity following a modification 
project. Environmental groups respond that plant capacity unaffected by 
the modification project can continue to be used at any desired level 
of utilization (subject to any prior limits on that use), and that any 
constraints are imposed appropriately, i.e., only where the utilization 
of pre-existing plant capacity is likely to be affected by the 
modification project in a way that will significantly increase actual 
emissions over baseline emissions.
2. Litigation Over the Actual-to-Potential Test
    Because the presumption discussed above forces sources whose post-
change potential emissions exceed their pre-change actual emissions to 
undergo NSR or take a limit on the affected units' potential emissions, 
industry has, as noted, long objected to the Agency's use of the 
``actual-to-potential'' methodology for existing units undergoing a 
non-routine change. The EPA's interpretation of its regulations 
consequently has been at issue in two cases, Puerto Rican Cement Co. v. 
EPA, 889 F.2d 292 (1st Cir. 1989), and Wisconsin Electric Power Co. v. 
Reilly, 893 F.2d 901 (7th Cir. 1990) (``WEPCO''). Specifically, each of 
these cases addressed whether the Agency acted reasonably in treating 
units which had undergone a non-routine physical or operational change 
as not having ``begun normal operations.''
    In Puerto Rican Cement, the court found reasonable EPA's 
presumption that a physical or operational change (in this case, the 
conversion of a cement plant from a wet process to a more efficient dry 
process) could enable a modified unit to be used at a higher capacity 
than prior to the change, and endorsed the Agency's use of the actual-
to-potential test in such circumstances. See 889 F.2d at 297. In 
particular, the court noted that the company ``operated its old kilns 
at low levels in the past; its new, more efficient kiln might give it 
the economic ability to increase production; consequently, EPA could 
plausibly fear an increase in actual emissions. * * *'' Id. at 298.
    By contrast, in WEPCO, the court held that EPA acted unreasonably 
in applying the actual-to-potential methodology in the case of WEPCO's

[[Page 39859]]

life-extension project, in which WEPCO sought to replace numerous 
components of the steam generating units at the facility. The court 
objected to EPA's refusal to consider the past operating conditions of 
a source in evaluating the likely post-change emissions. It coined the 
term ``like-kind replacement,'' and ruled that the application of the 
actual-to-potential test to like-kind replacements of components of an 
existing emissions unit was not a reasonable interpretation of the 
regulations. Accordingly, upon remand from the court, EPA assessed the 
changes at WEPCO based on a comparison of its pre-change actual 
emissions and its predicted post-change actual emissions. This approach 
has come to be known as the ``actual-to-future-actual'' methodology.
3. Electric Utility Steam Generating Units
    In July 1992, the Agency promulgated limited amendments to the 
existing major NSR regulations, in part to respond to the WEPCO 
decision. The ``WEPCO rule'' extended a different applicability test--
an actual-to-future-actual approach--solely to electric utility steam 
generating units.3 Under this new system, a utility unit's 
pre-change actual emissions are compared to its post-change 
``representative actual emissions,'' defined as ``the average rate, in 
tons per year, at which the source is projected to emit a pollutant for 
the 2-year period after a physical change or change in the method of 
operation of a unit. * * *'' To guard against the possibility that 
significant unreviewed increases in actual emissions would occur under 
this methodology, the regulations provide that sources with utility 
units using the actual-to-future-actual approach must submit to the 
permitting authority sufficient records annually for 5 years after the 
change which demonstrate that the change has not resulted in an 
increase above the baseline levels.
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    \3\ For NSR purposes, the definition of ``electric utility steam 
generating unit'' means any steam electric generating unit that is 
constructed for the purpose of supplying more than one-third of its 
potential electric output capacity and more than 25 MW electrical 
output to any utility power distribution system for sale. Any steam 
supplied to a steam distribution system for the purpose of providing 
steam to a steam-electric generator that would produce electrical 
energy for sale is also considered in determining the electrical 
energy output capacity of the affected facility. See e.g., 40 CFR 
52.21(b)(31). References in this notice to utility units is meant to 
include all units covered by this definition.
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    Under EPA's regulations, unless a change ``results in'' an increase 
in actual emissions, it need not undergo major NSR. In the WEPCO rule, 
the Agency attempted to define a situation in which EPA would assume 
that there was no causal link between a post-change emissions increase 
and a particular physical change or change in the method of operation 
for electric utility steam generating units. The EPA reasoned that 
increased utilization due to demand growth at a utility unit did not 
result from particular physical or operational changes, but rather from 
market forces unrelated to the change. Consequently, the regulations 
now provide that, in projecting future actual emissions, electric 
utility steam generating units may exclude from the estimate any 
emission increase which results from increased capacity utilization as 
a consequence of ``independent factors,'' such as demand growth.
    The WEPCO rule applies only to the modification of existing 
electric utility steam generating units for several reasons. The Agency 
noted that local public utility commissions (PUC) require utility 
sources to make reliable estimates of future capacity utilization, and 
that utilities' historic experience in doing so would make the 
application of an actual-to-future-actual methodology reasonable for 
utility units. In addition, EPA concluded that its past regulatory 
experience with the electric utility industry, especially the 
requirement from title IV of the Act that generators install highly 
accurate monitoring, made units in the electric power industry more 
amenable to the sophisticated tracking essential to make sure that the 
future actual emission predictions of a source are accurate. The Agency 
committed to consider in a different rulemaking the propriety of 
extending the actual-to-future-actual methodology to other source 
categories.
4. Proposal to Change NSR Applicability
    In the July 1996 NSR Reform package, EPA proposed, among other 
things, to expand the use of the actual-to-future-actual approach. The 
Agency noted that, in general, sources potentially subject to major NSR 
would be required to install highly accurate monitoring devices under 
other provisions of the Act. Consequently, such sources could be 
similar to the utility units that currently are permitted to use an 
actual-to-future-actual test. Nonetheless, other industries also differ 
from the electric power sector insofar as electric utilities are the 
only sources whose estimates of demand and capacity utilization are 
subjected to independent review and have been historically limited to a 
clearly defined local market area. The Agency reasoned that permitting 
authorities, thus, could rely upon the predictions of post-change 
utilization in the electric power sector more comfortably than in other 
industries. To ensure the reliability of future predictions for non-
utility units, EPA solicited comment on the adequacy of the current 5-
year tracking requirement (which requires sources to report annually 
their emissions to the permitting authority for 5 years) and sought 
suggestions for improving it.4
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    \4\ As a result of the NSR Reform proposal, the Agency received 
comment from certain non-utility industrial stakeholders who claimed 
that the flexibility given to utilities in the WEPCO rule was not 
limited to the utility sector. Specifically, these commenters argued 
that sources generally were entitled to employ the actual-to-future-
actual methodology for many physical or operational changes, because 
the changes were not of such significance (such as ``like-kind'' 
replacements) that it could reasonably be claimed that the source 
had ``not begun normal operations.'' The EPA disagrees with the 
commenters.
    The NSR regulations contain only two applicability tests for 
modified units. One of these, the actual-to-future-actual approach, 
is limited to electric utility steam generating units. See, e.g., 40 
CFR section 51.165(a)(1)(xii)(E). The other alternative is the 
actual-to-potential methodology, applicable when the source has 
``not begun normal operations.'' This approach applies to all 
changes at major sources that are not otherwise excluded from being 
considered a physical or operational change, such as routine 
maintenance, repair, and replacement. Under the current rules, 
therefore, it is improper for a non-utility source to employ 
anything but an actual-to-potential test for examining physical or 
operational changes.
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B. Comments Received and Changed Circumstances

    In weighing the desirability of expanding the actual-to-future-
actual test to other source categories, EPA has considered a number of 
issues. First, are there principled reasons for treating non-electric 
utility sources differently? Second, have intervening events or further 
reflection called into question any of the bases upon which the Agency 
relied in adopting the test, and are changes therefore necessary?
    In the prior NPRM, the Agency specifically solicited comment on 
whether sufficient safeguards exist such that other industries should 
be able to take advantage of the actual-to-future-actual methodology. 
The EPA received several public comments (see EPA Air Docket A-90-37) 
claiming that non-utility units are situated similarly enough to 
utility units that it makes sense to extend the actual-to-future-actual 
test beyond the limited scope of electric steam generating units to 
other sectors. These commenters observed that the Act's monitoring 
requirements, as embodied in the Compliance Assurance Monitoring rule 
and its title V reporting and recordkeeping requirements, both would 
ensure that sources' future actual emission predictions would be 
verifiable. See,

[[Page 39860]]

e.g., comments IV-D-112 and -121. In addition, commenters noted that 
other industry sectors routinely project market demand and, 
consequently, capacity utilization, and these commenters argued that 
such predictions are as reliable as those submitted to PUCs by electric 
companies. See, e.g., comment IV-D-146. Taken together, these comments 
suggest to EPA that the actual-to-future-actual test should be expanded 
beyond utility units. However, the Agency also received a number of 
comments that recommended limiting the methodology to utility units, 
reasoning that there still exists a disparity between utility and non-
utility units in terms of their ability to predict and track their 
future emissions accurately. See, e.g., comments IV-D-109 and -125. 
Given these divergent views, EPA again requests comment upon the 
adequacy of existing emission projection and tracking capabilities at 
non-utility industrial sources for purposes of applying the actual-to-
future-actual test.
    Notwithstanding strong support from industry for the expansion of 
the actual-to-future-actual test, EPA believes that its experience with 
the methodology gives cause for caution in continuing this test in its 
present form. The regulations provide that sources with utility units 
employing the actual-to-future-actual approach must maintain and submit 
to the permitting authority ``information demonstrating that the 
physical or operational change did not result in an emissions 
increase'' for a 5-year period. However, the rules do not specifically 
detail either the means for conducting such verification or the 
consequences of a source's failure to meet its projected emissions 
level. For example, since the issuance of the WEPCO rule, it appears 
that although there are a substantial number of changes to existing 
units, as well as an increase in the amount of electricity being 
generated for use outside of the local service district, changes to 
utility units as well as post-change emissions estimates are not being 
reported to permitting agencies.
    Moreover, the Agency is concerned that a 5-year overview of 
emissions is too short a period to encompass all increases in capacity 
utilization that could result from a particular change. As EPA noted in 
the NSR Reform proposal's discussion of the baseline for establishing 
pre-change actual emissions, see 61 FR at 38258, numerous industry 
commenters claim that 10 years is a fair and representative time period 
for encompassing a source's normal business cycle, and in the Reform 
proposal EPA has proposed to adopt a 10-year lookback period for 
establishing pre-change baseline emissions. If EPA ultimately 
promulgates a 10-year period for baseline purposes, the rationale for 
doing so would suggest that 10 years is likewise appropriate for 
tracking future actual emissions after a change. Accordingly, the 
Agency requested comment on extending and/or strengthening the existing 
5-year tracking requirement for future actual emissions. See id. at 
38268.
    One particular circumstance where EPA has been dissatisfied with 
the WEPCO rule is in the exclusion of demand growth from predictions of 
utility units' future actual emissions. The Agency's promulgation of 
the WEPCO rule represented a departure from longstanding practice under 
which emissions increases that followed non-routine and otherwise 
nonexempt changes at a source were presumed to result from the change. 
At the time, EPA believed that there was a way to disassociate utility 
units' post-change emission increases which would have otherwise 
occurred due to demand growth as a purely independent factor from those 
that resulted directly from the physical or operational change. The EPA 
has reconsidered that departure, and has tentatively concluded that its 
1992 departure is not appropriate and should not be continued, both as 
a general matter and especially in view of recent developments in the 
electric power sector.
    The EPA's experience leads to the conclusion that sources generally 
make non-routine physical or operational changes which are substantial 
enough that they might trigger NSR in order to increase reliability, 
lower operating costs, or improve operational characteristics of the 
unit and do so in order that they may improve their market position. A 
proximate cause for making such changes may be to respond to increased 
demand, or to more efficiently compete for share of a market that has 
flat, or even decreasing, demand. For these reasons, EPA now seriously 
questions whether market demand should ever be viewed as a significant 
factor in answering the relevant regulatory question of whether an 
emissions increase results from a physical or operational change at an 
existing source, since in a market economy, all changes in 
utilization--and hence, emissions--might be characterized as a response 
to market demand. Accordingly, a conclusion that an emissions increase 
at a plant is in response to market demand does little to determine 
whether the increase results from a change at the plant; an affirmative 
answer to the first question is consistent with an affirmative answer 
to the latter.
    The generation of electricity is currently being transformed from a 
highly regulated monopoly to a competitive market. More than a dozen 
states are implementing retail electricity competition where consumers 
may choose their electricity supplier, and most remaining states have 
such policies under consideration. Moreover, the Administration in 
March 1998 proposed a Comprehensive Electricity Competition Plan in 
order to facilitate more competitive electricity markets and several 
similar proposals have been introduced in Congress.
    As the electricity industry is restructured, generation planning 
decisions will be made not by state public utility commissions, but by 
the forces of a competitive market. State utility regulators are 
therefore eliminating requirements for electric companies to report 
generation-related information such as projections of future capacity 
utilization. Consequently, with respect to the electric power industry 
in particular, even accepting the viability of the 1992 decisionmaking 
framework, attempting to discern whether increased utilization and 
emissions should be attributed to physical or operational changes 
versus purely independent demand-satisfying increased capacity 
utilization will be much more difficult in the future, as restructuring 
in the electric power industry allows electric generating companies to 
compete for retail customers. As a result, the marketplace will drive 
electric generators to function as any other consumer-driven industry, 
that is, to ensure their ability to supply the market and collaterally 
to increase their revenues. In addition, as utilities respond to a 
competitive market for the generation of electric power they can no 
longer be expected to accurately predict their level of operations and 
post-change emissions. Each physical or operational change that makes 
it possible for a source to efficiently increase its level of 
utilization, then, will likely be pursued and turned into electricity 
for sale. One can therefore predict that any physical or operational 
change will result in an emissions increase to the extent that there is 
market demand for additional power.
    For the same reason that the demand growth exclusion would ignore 
the realities of a deregulated electric power sector, EPA believes that 
it should not be extended to non-utility units. For consumer-driven 
industries, demand is inextricably intertwined with changes that 
improve a source's ability to utilize

[[Page 39861]]

its capacity; thus, it cannot be said that demand growth is an 
``independent factor,'' separable from a given physical or operational 
change. Modifications which affect operational characteristics of a 
unit are not made without reason, and the most likely reason for an 
economically competitive source to undertake such changes is to enable 
it to create or respond to increased demand.5 In short, 
there is a direct causal link between most physical or operational 
changes that enable a source to use existing capacity and the use of 
such capacity.
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    \5\ The EPA believes that the rulemaking record for NSR Reform 
supports the conclusion that market demand and source modifications 
are highly intertwined. Industrial commenters generally were 
strongly supportive, for instance, of the concept of PAL's. Many 
industrial interests argued that PAL's, because they allow changes 
at existing facilities to occur without NSR so long as an emission 
cap is maintained, are needed in order to give companies flexibility 
to make physical or operational changes quickly to maintain or 
acquire a competitive advantage in an ever changing global 
marketplace. The Agency believes that these claims regarding PAL's 
do not support the argument that changes at facilities are 
independent from market demand. Rather, they illustrate that sources 
frequently undertake modifications to enable them better to compete 
in an open market.
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    In addition, the demand growth exclusion is problematic because it 
is self-implementing and self-policing. Because there is no specific 
test available for determining whether an emissions increase indeed 
results from an independent factor such as demand growth, versus 
factors relating to the change at the unit, each company with a utility 
unit presently adopts its own interpretation. Interpretations may vary 
from source to source, as well as from what a permitting agency would 
accept as appropriate. Moreover, such companies are not necessarily 
required to provide their interpretation of demand growth-related 
emissions to the permitting agency. Thus, with minimal, if any, 
explanation, a source may merely deduct the emissions increases it 
believes are attributable to demand growth from the total emissions 
data its supplies to the permitting agency demonstrating that it is 
below its projected future actuals. Vesting such unrestricted 
discretion in the regulated entity inevitably leads to enforcement 
problems.
    Finally, the demand growth exclusion may make less sense in the 
near future in view of the fact that, as proposed in the NSR Reform 
package, the Agency is considering adopting a regulatory provision that 
bases the calculation of pre-change actual emissions upon a source's 
highest capacity utilization in the past ten years. If an emission unit 
undergoes a physical or operational change, or is affected by such 
change, and the source projects utilization in excess of its historical 
high in the preceding ten years, such utilization is likely not 
attributable to market variability (which is accounted for by a 10-year 
baseline), but rather results from the change itself.

C. NSR Applicability Test for All Major Modifications

1. In General
    The EPA is presently considering, and by this Notice is seeking 
comment upon, amending the current applicability test for modifications 
of electric steam generating units and extending it to all source 
categories. Specifically, the major modification applicability 
methodology would be to retain the actual-to-future-actual component 
for utility units and apply it to all source categories, to make 
enforceable for a 10-year period emissions levels used by the source in 
projecting future actual emissions for all source categories, and 
eliminate the demand growth exclusion for all source categories.
    The way that the methodology would work in practice is that owners 
or operators of units which undergo a non-routine physical or 
operational change will determine the applicability of NSR solely by 
reference to actual emissions. First, owners or operators must 
determine which emissions units are being changed or may be affected by 
the change, then calculate each unit's baseline actual emissions (EPA 
has proposed at 61 FR 38258-60 to allow sources generally to set their 
baseline in reliance on the highest emissions in the past ten years 
adjusted to reflect current emission factors). Second, post-change 
actual emissions from the affected units must be forecast. The sum of 
the pre-change actual emissions is then compared to the sum of the 
post-change actual emissions. If the difference between these two 
figures exceeds the significance threshold for a pollutant, major NSR 
is triggered (unless the source is otherwise able to net the change out 
of review).6 If the difference is less than significant, the 
source avoids major NSR. In the latter case, for each unit that is 
changed or affected by the change, the source must incorporate that 
unit's future emissions projection into a temporary, practically and 
legally enforceable condition of a preconstruction permit (most likely 
a minor NSR permit). The limit must apply for at least 10 years after 
the source recommences normal operation of the affected 
unit.7 EPA believes that a source would not purposefully 
modify a unit and then not use it at its intended capacity for 10 years 
merely to avoid major NSR permitting. Therefore, EPA believes 10 years 
represents a realistic period for applying an enforceable temporary 
emission limit. By adhering to such a limit, the source demonstrates to 
the permitting authority that the physical or operational change did 
not result in a significant emission increase. Consequently, subsequent 
to the expiration of the limit, EPA will presume that any increases in 
capacity utilization and emissions are not the result of the physical 
or operational change that necessitated the temporary 
limit.8 Finally, source owners or operators may not exclude 
predicted capacity utilization increases due to demand growth from 
their predictions of future emissions.
---------------------------------------------------------------------------

    \6\ Although the source may still avoid major NSR by netting out 
of review, the actual-to-enforceable-future-actual test would not 
apply in calculating the increase from the proposed change or any 
other emissions level for use in the netting analysis. Post change 
emissions for netting purposes would continue to equal potential 
emissions.
    \7\ Units that have a temporary limit may subsequently undergo 
or be affected by a modification. In such cases a new temporary 
limit of at least 10 years will need to be established.
    \8\ This limit is solely for the purpose of demonstrating that 
the physical change or change in the method of operation did not 
result in a significant emission increase. The imposition or 
expiration of this limit does not relieve the source of its 
obligation to comply with all requirements otherwise applicable to 
the unit.
---------------------------------------------------------------------------

    Underlying this new approach is an attempt to mitigate the concerns 
raised by industry that the actual-to-potential methodology unfairly 
ignores past operation of a unit and assumes that it will operate at 
full capacity following a non-routine change. At the same time, the 
methodology addresses environmental groups' legitimate claims that 
sources who seek to avoid review based on projected actual emissions 
must also be prepared to be accountable for adhering to those 
projections. Finally, the test recognizes that in a market economy, 
sources often make physical or operational changes in order to respond 
to market forces and, consequently, there is no plausible distinction 
between emissions increases due solely to demand growth as an 
independent factor and those changes at a source that respond to, or 
create new, demand growth which then result in increased capacity 
utilization.
    This temporary emissions cap approach also address certain 
compliance assurance and enforcement concerns. Specifically, under the 
current regulations, a company need not discuss its determination that 
projected future emissions from a utility unit will be below a certain 
level with a permitting agency prior to undertaking

[[Page 39862]]

the modification. Rather, it merely needs to supply ``information'' 
demonstrating that the future actual emissions did not exceed the 
significance level for the 5-year period following the modification. 
Thus, a permitting agency is unable to determine if the change will 
result in an emissions increase and require a major NSR permit before 
construction at the utility unit; it can only examine data submitted 
after-the-fact by the source. The NSR program, however, is a pre-
construction program that requires an applicability determination prior 
to commencing construction to avoid equity-in-the-ground issues and 
retroactive control technology costs.
2. Limitations on Methodology and Solicitation of Comments
    It is important to recognize the limited nature of the proposed 
methodology. The actual-to-enforceable-future-actual test would not 
apply when determining an emission level (i.e., increase or decrease) 
for use in a netting analysis or for the purpose of complying with any 
major NSR permitting requirement, such as BACT, LAER, offsets or an 
ambient air impact analysis. Specifically, the test would apply only to 
modifications to existing units for the sole purpose of determining if 
a proposed change to that unit, or a change at the facility which 
otherwise would affect the unit, will result in an emissions increase 
at the source. New units have no operating history upon which a 
reliable prediction of future utilization can be made. Thus, under the 
regulations, such units have not ``begun normal operations,'' and 
permitting authorities must assess NSR applicability based on the new 
unit's potential emissions. In addition, the Agency seeks comment on 
the appropriateness of applying an actual-to-enforceable-future-actual 
test where a physical or operational change increases the design 
capacity or PTE of a given unit. Such changes result in alternative 
modes of operation (and emissions levels) which are not currently 
achievable in practice for the unit. In such circumstances, the unit's 
past utilization arguably is a poor proxy for its future operation and, 
therefore, ``normal operations'' are impossible to identify. 
Furthermore, emissions levels which can not be achieved in practice but 
for a physical or operation change are clearly connected to the change. 
Consequently, the Agency is seeking comment on whether any increase in 
emissions resulting from a mode of operation which could only have been 
achieved through a physical or operational change must be presumed to 
have resulted from the change, even if such increase were to occur 
later than ten years after the change.

IV. Adjustments of PAL's

A. Background

1. Introduction
    In the July 23, 1996 Reform package, EPA proposed a new method for 
determining major NSR applicability for existing sources in attainment 
or unclassifiable areas and existing and proposed sources in 
nonattainment areas. Under this proposal, an existing major source, if 
the State's SIP provides, may apply for a permit which bases the 
source's major NSR applicability on a pollutant-specific plantwide 
emissions cap, termed a PAL. The EPA proposed that a facility's 
allowable emissions under a PAL would generally be based on plantwide 
``actual emissions'', as that term would be defined under the proposal, 
plus an additional amount of emissions less than the applicable 
significant emissions rate. The voluntary 9 source-specific 
PAL is a straightforward, flexible approach to determining whether 
changes at existing major stationary sources result in emissions 
increases which trigger major NSR. So long as source activities do not 
result in emissions above the cap level, the source will not be subject 
to major NSR. It also contains proposed regulatory language for PAL's 
for the PSD rules at 40 CFR 51.166 and 52.21, and the nonattainment NSR 
rules at 51.165. The July 23, 1996 proposal contains a thorough 
discussion of the proposed PAL concept and the background information 
used to develop the proposal.
---------------------------------------------------------------------------

    \9\ This Notice uses the term ``voluntary'' to mean not required 
by the regulations or a SIP, rather than not enforceable by a State, 
local, or Federal agency or the public.
---------------------------------------------------------------------------

B. PAL Advantages

    The EPA has determined that the voluntary source-specific PAL is a 
practical method to provide both flexibility and regulatory certainty 
to many existing sources, as well as benefits to permitting 
authorities, while maintaining air quality. For example, PAL's provide 
the ability to make timely changes to react to market demand, certainty 
regarding the level of emissions at which a stationary source will be 
required to undergo major NSR, and a decreased permitting burden for 
the source and the permitting authority. In addition, because a source 
with a PAL will have more flexibility to make reductions to create room 
for growth, PAL's should lead to innovative control technologies, 
pollution prevention and emissions reductions concurrent with economic 
expansion.

C. PAL Adjustment Issues

    The EPA proposed that PAL's, once included in a permit, may be 
adjusted for a number of reasons. In particular, the Agency solicited 
``comment on why, how, and when a PAL should be lowered or increased 
without being subject to major NSR.'' 61 FR at 38266. Moreover, the 
rule language permitting PAL's provides for periodic adjustment to 
reflect, among other things, ``appropriate considerations.'' See id. at 
38327.
    The need for adjustments would arise in a number of scenarios: (1) 
Where technical errors have been made; (2) when new requirements apply 
to the PAL pollutant, such as RACT, NSPS or SIP-required reductions; 
10 (3) where emissions reductions below PAL levels are used 
for offsets; (4) for permanent shutdowns where the State has the 
authority to remove permanent shutdowns from the emissions inventory 
after a certain time period; and (5) when any changes (though 
consistent with the PAL) might cause or contribute to a violation of 
any NAAQS or PSD increment or would have an adverse impact on air 
quality related values.
---------------------------------------------------------------------------

    \10\ In the July 1996 NSR Reform package, EPA proposed that 
emissions reductions of HAP to meet MACT at emissions units under a 
PAL would generally not necessitate a downward adjustment to the PAL 
because the PAL is not designed to limit HAP. However, if MACT 
reductions are relied on in the SIP (e.g., VOC reductions in 
nonattainment areas used for RFP or attainment demonstrations) then 
the PAL rules would require adjustment downward. This position is 
consistent with EPA's policy that emissions reductions from meeting 
MACT requirements are generally not precluded from being creditable 
for NSR netting provided the reductions are otherwise creditable 
under major NSR. The EPA is concerned that the benefits of HAP 
reductions to meet MACT at units under the PAL may be diminished 
since the HAP reduction may be used indefinitely, rather than for a 
shorter contemporaneous time period, to add new or modified units 
under the PAL. Therefore, EPA is seeking additional comment on the 
proposal to not adjust PAL's for MACT purposes.
---------------------------------------------------------------------------

    The EPA received many comments regarding the appropriate 
considerations for PAL adjustment. Based on these comments and further 
deliberation, EPA is considering whether it is appropriate to 
reevaluate PAL levels and adjust them to reflect actual emissions to 
address legal concerns associated with the Court's decision in Alabama 
Power Co. v Costle, 636 F.2d 323 (D.C. Cir. 1979) and because of 
environmental policy reasons.
1. Legal Concerns
    As stated, where a facility with a PAL adds a new emitting unit or 
modifies an

[[Page 39863]]

existing unit, the unit would not undergo major NSR (nonattainment or 
PSD) if the PAL is not exceeded. That is, if the source generates 
sufficient emission reductions, it may add equivalent emission 
increases up to the PAL level without triggering NSR.
    Under present regulations, a source that adds or modifies a unit 
that would result in a significant emissions increase may ``net'' that 
particular change out of review if the new emission increase plus the 
sum of all other contemporaneous increases and decreases elsewhere at 
the source are less than significant. When the netting calculus is 
triggered (that is, there is a significant emission increase as a 
result of the addition of a new unit or the modification of an existing 
unit), the source must also consider those emission increases and 
decreases that have occurred at the facility during a 
``contemporaneous'' period. In the federal PSD regulations, this period 
is 5 years. See 40 CFR section 52.21(b)(3)(ii). States implementing the 
PSD program or the nonattainment program under an EPA-approved SIP may 
define a different reasonable contemporaneous period.
    The current regulations' requirement of contemporaneity derives 
from the interpretation of the Act's provisions governing modifications 
set forth in Alabama Power Co. v. Costle. In that case, the court held 
that EPA's 1978 regulations limiting netting to a less than plantwide 
scope conflicted with the language and purpose of the Act and ruled 
that EPA must permit sources to net on a plantwide basis. According to 
the court, plantwide netting was implicit in the statutory term 
``modification'' and the purposes of the Act. At the same time that it 
required EPA to expand the scope of the netting concept, the court also 
interpreted the statute as imposing a limit on plantwide netting: 
contemporaneity. The court stated, ``[t]he Agency retains substantial 
discretion in applying the bubble concept. First, any offset changes 
claimed by industry must be substantially contemporaneous. The Agency 
has discretion, within reason, to define which changes are 
substantially contemporaneous.'' Id. at 402; see also id. at 403 
(``Where there is no net increase from contemporaneous changes within a 
source, we hold that PSD review, whether procedural or substantive, 
cannot apply.''). Thereafter, EPA codified contemporaneity as a 
regulatory requirement. See 45 FR 52676, 52700-02 (August 7, 1980).
    As stated, EPA solicited comment on what ``appropriate 
considerations'' might necessitate revisions to the PAL allowable 
level. Having again reviewed Alabama Power and the Agency's subsequent 
interpretations of the case, the Agency is concerned that, because 
PAL's may be characterized as a form of netting and result in the 
avoidance of major NSR, the contemporaneity requirement for netting set 
forth in Alabama Power may also need to be applied to PAL's. Therefore, 
EPA is soliciting comment on whether and when to provide for subsequent 
adjustment of PAL's to address contemporaneity issues associated with 
Alabama Power.
2. Environmental Concerns
    Several commenters encouraged the Agency to provide for periodic 
revision to the PAL allowable level to reflect a source's actual 
emissions in recent years. In the main, these commenters represented 
State pollution control agencies, the entities which will be charged 
with implementing individual PAL's. See, e.g., comments IV-D-52 and -
137. Based on these comments and internal deliberations, the Agency is 
considering several options that would provide for periodic 
reevaluation of PAL levels to ensure that they reflect actual emissions 
and maintain or enhance environmental protection.
    Under the current major NSR regulations, emissions decreases are 
creditable only if they are contemporaneous with a prospective 
modification project that would, standing alone, increase emissions at 
the source. The EPA is soliciting comment on whether the PAL 
alternative to traditional major NSR applicability can achieve 
equivalent or better environmental results, while employing a different 
approach.
    The EPA believes that there are a number of policy reasons why the 
final PAL rules might provide for periodic reassessment and adjustment 
of PAL levels. First, as a general matter, a PAL operates as a form of 
allowable-to-allowable test, insofar as a source may avoid major NSR 
review if its emissions after a particular construction activity do not 
exceed the pre-change allowables. Of course, under the proposed rules 
PAL's would ensure that the allowable emissions are based on historic 
actual emissions. Nevertheless, as an allowable-to-allowable scheme, 
PAL's raise some of the same concerns as did the CMA Exhibit B test 
discussed in the NSR Reform preamble. Specifically, absent a 
requirement for periodic adjustment the PAL would allow a source to 
indefinitely keep, rather than eventually forfeit to the environment, 
emission reductions at the source, such as those achieved by the 
replacement of existing, and often higher-polluting, equipment with 
more efficient, and thus lower-polluting, equipment.
    Second, a rule which provides for the periodic review of PAL's may 
ensure that individual sources do not indefinitely retain unused 
emissions credits to the detriment of other sources in the area wishing 
to use them. For example, where a State treats sources' PAL allowable 
levels as ``actual'' emissions, a rule which in some instances requires 
a downward adjustment of PAL's will therefore reduce the area's 
inventory of actual emissions. Such adjustments would ``free up'' a 
portion of the PSD increments in attainment areas for use by other 
sources in the area.
    Third, an indefinite PAL may hinder a State's ability to plan 
effectively for attainment. If a State does its attainment planning 
based exclusively on source's actual emissions to the atmosphere, and 
does not treat a PAL allowable limit as the PAL source's ``actual'' 
emissions, then an emission credit created long in the past may 
reappear in the future as real emissions to the air, without being part 
of the State's attainment planning. For example, if a PAL-covered 
source replaces an oil boiler today with a more modern and efficient 
gas turbine and the State, in its next inventory, calculates the 
source's emissions at the new lower level, then bases its attainment 
planning on the assumption that the source will continue to emit at the 
lower level, the State may not meet its attainment goals (or, perhaps, 
fall out of attainment) if the PAL source decides to utilize its full 
PAL allowable at some point in the future.

V. PAL Review and Adjustment Options

    The EPA is seeking comment on how the PAL concept can be reconciled 
with the legal and environmental policy concerns articulated above. 
Specifically, the Agency solicits input on the usefulness of a number 
of different options for periodically reviewing PAL allowable levels 
and on whether such options adequately address the legal issues 
associated with Alabama Power and environmental concerns posed by the 
long-term retention of unused allowable emissions.
    It should be noted that EPA has not made a final decision on the 
frequency of a permitting authority's review of a PAL or the 
methodology used to establish a PAL baseline. The Agency is giving 
serious thought to 10 years as an approach. Therefore, the options 
discussed in this Notice assume a PAL with a term of 10 years with the 
PAL baseline established using the highest 1

[[Page 39864]]

year in the last ten years of historical emissions for the source. The 
Agency solicits comment on the appropriateness of reviewing PAL levels 
every 10 years and whether another period is more reasonable.
    The EPA is considering several options to periodically revisit the 
appropriate PAL emission level. First, permitting authorities may 
adjust the PAL to account for emissions reductions from permitted units 
under the PAL that are shutdown or dismantled and the associated 
emission reductions remain unused for a period of at least 10 years. 
Second, the PAL may be reevaluated to account for emissions reductions 
where an emissions unit under the PAL operated for at least 10 years 
below the capacity level for that unit which was used to establish the 
previous PAL level. Third, the Agency is considering an option that 
would require PAL's to expire after 10 years or be renewed to reflect 
current actual emissions. Finally, EPA is soliciting comment on whether 
it is appropriate to adjust a PAL downward at all where all of the 
emission units subject to the PAL have good controls already in place 
(i.e., BACT, LAER) or where a source voluntarily implemented pollution 
prevention strategies which resulted in emissions reductions. The 
following discussion sets forth additional information on each of the 
PAL adjustment options.

A. PAL Adjustments for Shutdown or Dismantled Units

    The first situation in which a downward PAL adjustment might be 
warranted is where emission reductions resulted from emission units 
under the PAL that were shutdown or dismantled. A shutdown unit would 
be one that the source did not operate at all during the 10-year life 
of the existing PAL. A dismantled unit would be one that was removed 
prior to the establishment of the current PAL level and the emissions 
capacity associated with such unit was not used by the source for ten 
years. Thus, the PAL level would be adjusted to remove only those 
emissions that could have potentially been emitted from any shutdown or 
dismantled units. The PAL would not be adjusted downward if the source 
had utilized those emission reductions from the shutdown or dismantled 
units elsewhere at the source (e.g., added new units or capacity or 
increased capacity utilization at existing units) during the period 
since the unit shut down or was removed. Nor would the PAL be adjusted 
downward due to underutilization of any units still in operation to any 
extent under the PAL.
    For example, an initial PAL set in the year 2000 includes 600 tpy 
of VOC from unit A; unit A is shutdown in 2005. Periodic review occurs 
in 2010. In 2010, because unit A was used during the ten years prior to 
readjustment, the adjusted PAL level would assume that unit A was still 
operating. If by 2020, the next periodic review, the 600 tpy of 
emissions associated with the shutdown was not used by the source to 
make changes, the PAL level would be adjusted downward by 600 tpy. 
However, if between 2010 and 2020 the source used a portion of the 
shutdown emissions to add new units or make modifications under the 
PAL, then the PAL would be adjusted downward only for the emissions 
that remain unused.
    The EPA believes that the periodic downward adjustment of PAL's for 
the failure to use emissions associated with shutdown or dismantled 
units is appropriate for air quality planning purposes. However, EPA is 
concerned that it may be difficult to determine whether an emissions 
increase under the PAL relied upon previous decreases at a shutdown or 
dismantled unit as opposed to other activities at the source. The 
Agency solicits comment on whether limiting the PAL adjustment to the 
situation of shutdown or dismantled units addresses the legal and 
policy concerns raised above and welcomes comments and suggestions on 
how to implement an adjustment option that would adjust downward only 
for those emissions from shutdown or dismantled units which the source 
failed to utilize for 10 years.

B. PAL Adjustments for Unused Capacity

    The EPA is also considering periodic adjustments to a PAL where the 
emissions units under the PAL operate for a period of ten years below 
the capacity used initially to establish the PAL. The adjustment would 
be based on a review of the utilization of all emission units used to 
establish the PAL baseline, not just those that were shutdown or 
dismantled. Under this option, and in the example below, PAL adjustment 
would be based on the highest capacity utilization of each unit during 
any 12 month period in the past 10 years. Alternatively, EPA also 
solicits comment on whether the PAL adjustment should be based on the 
highest capacity utilization at the entire source during a single 12-
month period within the past 10 years.
    The following example illustrates how an initial review of the PAL 
and subsequent adjustments to the PAL could be handled under this 
option. As an example, unit A had operated at 80 percent during a 12-
month period in the ten years prior to initial PAL establishment in 
2000. In 2005, the source lowers unit A's utilization from 80 percent 
to 5 percent. At PAL review in 2010, because unit A's utilization in 
the past ten years (e.g., 2004) had reached 80 percent, the adjusted 
PAL level would assume a capacity utilization no lower than 80 percent. 
Under the alternative to this option the PAL adjustment would be based 
on the highest capacity for all units at the source during a single 12-
month period within the past 10 years. If year 2005 is chosen as the 
single 12-month period for capacity review then the adjusted PAL level 
for unit A would assume a capacity utilization of 5 percent.
    Where PAL's are adjusted because of long-term underutilization of 
capacity, EPA is also considering and seeking comments on the following 
alternatives and safeguards to ensure that an operating cushion exists: 
(1) Including in the adjusted PAL level an operating cushion that 
equals a fixed percentage (e.g., 10 percent, 15 percent, or 20 percent) 
of the current PAL, provided the adjusted PAL level does not exceed the 
current PAL level; (2) requiring no PAL adjustment due to 
underutilization of capacity if the emissions under the PAL are within 
a fixed percentage (e.g., 10 percent, 15 percent or 20 percent) of the 
current PAL baseline; (3) adjusting the PAL downward for unused 
capacity, but limit the potential downward PAL adjustment to a fixed 
percentage (e.g., 10 percent) of the current PAL level; and (4) re-
setting the PAL as though it were being set initially (e.g., plantwide 
actual emissions plus an operating margin lower than the applicable 
significance threshold). The Agency seeks comment on whether these 
safeguards, if included in the final regulations, would both preserve 
sources' operational flexibility and address the specific legal and 
policy concerns raised above.

C. Capacity Adjustments for PAL Expiration and Renewal

    The EPA is seeking comment on an option where the PAL expires as a 
major NSR applicability test for subsequent new units or subsequent 
modifications unless the source decides to renew the PAL. Under this 
option, a PAL would expire after ten years. When it expires, the PAL 
ceases to serve as the emissions baseline against which all source 
additions and modifications are measured for purposes of major NSR 
applicability. Instead, a source must revert to the traditional netting 
analysis to determine major NSR applicability for new or modified 
units.

[[Page 39865]]

    At the time of PAL expiration, the source would choose either to 
re-establish the PAL for the entire facility after the expiration of 
the initial 10-year term or to allow it to expire. The source could 
also re-establish a PAL at some later date. If the renewal option is 
chosen by the source, the PAL baseline would be adjusted to reflect 
actual operating conditions and emissions for the 10 years prior to 
renewal, consistent with the procedures for setting a PAL. If the 
source elects not to renew the PAL, then subsequent new units and 
subsequent modifications are subject to the traditional netting 
analysis to determine major NSR applicability for those units. In 
addition, where the source elects not to renew the PAL for major NSR 
applicability purposes, the former PAL allowable limit would still 
remain in effect as an enforceable limit on total allowable emissions 
for those units previously covered under the PAL, notwithstanding its 
expiration as an applicability test.
    The units previously subject to the PAL would remain free to 
increase emissions up to the former allowable PAL level, provided the 
increase is not the result of a physical or operational change at the 
source. The source retains the option to: (1) Reestablish an expired 
PAL to avoid major NSR for any subsequent physical or operational 
change at the source that is consistent with the reestablished PAL 
level, or (2) not to reestablish the PAL for the facility and process 
any new unit as a modification under the traditional major NSR 
applicability criteria to determine if a significant net emissions 
increase will result. In the latter case, emissions increases and 
decreases which have occurred during the term of the PAL as an 
applicability trigger would not count for netting purposes.
    As an example, assume that in the year 2000 a source with five 
units establishes a PAL of 1000 tpy of pollutant X based on actual 
operations and emissions from the prior 10 years. During the period 
from 2000-2010 the source modifies three existing units and constructs 
two new units (Units 6 and 7), but within those 10 years operates the 
facility so as only to emit 700 tons of X per year. In 2010, the PAL 
(as an alternative applicability test for major NSR) must expire. If 
the source chooses to re-establish the PAL, based on the last 10 years 
of actual operating data the PAL baseline would be adjusted downward to 
reflect the 700 tpy level. The source could choose to continue the PAL 
at the adjusted 700 tpy level, or let the current PAL lapse for 
applicability purposes. If the source lets the PAL lapse, the original 
1000 tpy cap would still remain for Units 1-7 to ensure that physical 
and operational changes which occurred during the life of the PAL do 
not result in actual emission increases that exceed the 1000 tpy cap 
without being subject to major NSR.
    Suppose further that the PAL is not renewed and that in 2014, the 
actual plantwide emissions of pollutant X were 800 tpy, the highest 
actual emissions level for the previous ten years and that, in 2015, 
the source proposes to construct a new Unit 8 that emits 200 tpy of 
pollutant X. New Unit 8 would otherwise be subject to the traditional 
major NSR applicability test. The previous 1000 tpy PAL lapsed in 2010 
and cannot include new units since 2010. As an alternative, the source 
may avoid major NSR for the new unit by establishing a new PAL at 800 
tpy and include the new unit consistent with the newly established 800 
tpy limit. In addition, once the PAL limit expires as a major NSR 
applicability limit compliance with the PAL as an allowable limit would 
still be required.
    The EPA believes that the foregoing option provides sufficient 
flexibility to a source because it maintains the ability of the source 
to operate the units previously covered under the PAL at their full 
rated capacity. Additionally, it allows a source to add new units after 
the expiration of the PAL in accordance with the traditional NSR 
applicability determination, including the establishment of a new PAL 
at such time as it may be advantageous to the source to do so. 
Nevertheless, EPA solicits comment on whether this option sufficiently 
addresses the legal and policy concerns associated with PAL 
adjustments.

D. PAL Adjustments Where Sources Implement Good Controls or Pollution 
Prevention Initiatives

    The EPA is also seeking comment on whether it is appropriate to 
adjust a PAL downward, even where unused capacity exists, if all of the 
emissions units subject to the PAL already have good controls in place 
(e.g, BACT, LAER), the source has installed innovative controls, or if 
the source created the emission reductions using pollution prevention 
strategies. The EPA believes that sources which voluntarily achieve 
emissions reductions through the installation of good and/or innovative 
controls throughout the facility or through pollution prevention 
initiatives should be encouraged to do so. By the terms ``good'' 
controls and ``innovative'' technology the Agency is referring to the 
types of controls and technology discussed previously in the July 1996 
NSR Reform proposal for the ``clean unit'' and ``clean facility'' 
exclusion and undemonstrated control technology, respectively. See 61 
FR at 38255 and 38281 (July 23, 1996). Additionally, the types of 
pollution prevention activities that would qualify are those consistent 
with the activities described in the July 1996 proposal and previous 
EPA policies. In light of the Agency's prior guidance and discussions 
concerning good controls, innovative technology, and pollution 
prevention initiatives, EPA seeks comment on whether the terms ``good 
controls'', ``innovative controls'', and ``pollution prevention 
initiatives'' are appropriately used and clearly defined for purposes 
of this option.
    To require a PAL adjustment under these circumstances could create 
a disincentive to engage in these initiatives. However, this option 
raises certain enforcement concerns for the Agency. In particular, 
without additional clarification it may be difficult to determine if an 
emissions unit has good controls, utilizes innovative technology, or 
has reduced emissions because of pollution prevention initiatives, as 
opposed to other factors. Furthermore, EPA is concerned that if there 
is ambiguity about the meaning of these terms the public, sources, and 
permitting agencies may disagree about whether PAL adjustment is 
needed. Notwithstanding the Agency's interest in promoting innovative 
and voluntary pollution control and prevention initiatives, EPA does 
not believe voluntary emissions reductions achieved through the 
implementation of good controls, innovative technology and pollution 
prevention initiatives should necessarily relieve the source from other 
regulatory requirements. Accordingly, EPA seeks comment on these 
concerns as well as the types of circumstances that might be 
appropriate for a source that engages in innovative and positive 
environmental stewardship to avoid any downward adjustment to its PAL. 
The EPA also solicits comments on whether and how the policy and legal 
concerns set forth in this notice concerning PAL adjustments for 
sources which utilize innovative or good technology or engage in 
pollution prevention initiatives could otherwise be addressed.
    Finally, given the flexibility and significant opportunities to 
utilize emissions reductions under the options described in this 
Notice, EPA solicits comment on whether additional PAL adjustment 
considerations are appropriate.

[[Page 39866]]

    Dated: July 16, 1998.
Richard D. Wilson,
Acting Assistant Administrator.
[FR Doc. 98-19832 Filed 7-23-98; 8:45 am]
BILLING CODE 6560-50-P
```