[Federal Register Volume 61, Number 122 (Monday, June 24, 1996)]
[Proposed Rules]
[Pages 32391-32398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15886]



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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 70

[MI001; FRL-5524-6]


Proposed Interim Approval of the Operating Permits Program; 
Michigan

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed interim approval.

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SUMMARY: The EPA proposes interim approval of the Operating Permits 
Program submitted by the State of Michigan for the purpose of complying 
with Federal requirements for an approvable State program to issue 
operating permits to all major stationary sources, and to certain other 
sources, with the exception of sources on Indian lands.

DATES: Comments on this proposed action must be received in writing by 
July 24, 1996.

ADDRESSES: Written comments should be addressed to: Robert Miller, 
Chief, Permits and Grants Section (AR-18J), EPA, 77 West Jackson 
Boulevard, Chicago, Illinois 60604.
    Copies of the State's submittal and other supporting information 
used in developing the proposed interim approval are available for 
inspection during normal business hours at the following location: EPA 
Region 5, Air and Radiation Division (AR-18J), 77 West Jackson 
Boulevard, Chicago, Illinois 60604.

FOR FURTHER INFORMATION CONTACT: Beth Valenziano, Permits and Grants 
Section (AR-18J), EPA, 77 West Jackson Boulevard, Chicago, Illinois 
60604, (312) 886-2703. E-mail address: <a href="/cdn-cgi/l/email-protection#b9cfd8d5dcd7c3d0d8d7d697dbdccdd1f9dcc9d8d4d8d0d597dcc9d897ded6cf"><span class="__cf_email__" data-cfemail="2d5b4c41484357444c4342034f4859456d485d4c404c444103485d4c034a425b">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background and Purpose

A. Introduction

    As required under title V of the Clean Air Act (Act) as amended 
(1990), EPA has promulgated rules which define the minimum elements of 
an approvable State operating permits program and the corresponding 
standards and procedures by which EPA will approve, oversee, and 
withdraw approval of State operating permits programs. See 57 FR 32250 
(July 21, 1992). These rules are codified at 40 Code of Federal 
Regulations (CFR) part 70. Title V requires States to develop, and 
submit to EPA, programs for issuing these operating permits to all 
major stationary sources and to certain other sources.
    The Act requires that States develop and submit these programs to 
EPA by November 15, 1993, and that EPA act to approve or disapprove 
each program within 1 year after receiving the submittal. If the 
State's submission is materially changed during the 1-year review 
period, 40 CFR 70.4(e)(2) allows EPA to extend the review period for no 
more than 1 year following receipt of the additional material. The EPA 
received material changes to Michigan's May 16, 1995 submittal on July 
20, 1995, and therefore considers EPA's review period to begin from the 
latter date.
    The EPA's program review occurs pursuant to section 502 of the Act 
and the part 70 regulations, which together outline criteria for 
approval or disapproval. Where a program substantially, but not fully, 
meets the requirements of part 70, EPA may grant the program interim 
approval for a period of up to 2 years. If EPA has not fully approved a 
program by 2 years after the November 15, 1993 date, or by the end of 
an interim program, it must establish and implement a Federal program.

[[Page 32392]]

II. Proposed Action and Implications

A. Analysis of State Submission

1. Support Materials
    The EPA received Michigan's title V operating permits program from 
the governor's designee, the Director of the Michigan Department of 
Natural Resources (MDNR) on May 16, 1995. The EPA received supplemental 
program submittals from the Acting Chief of the Air Quality Division, 
MDNR, on July 20, 1995, and October 6, 1995. The EPA also received 
supplemental program submittals from the Chief of the Air Quality 
Division of the newly formed Michigan Department of Environmental 
Quality on November 7, 1995 and January 8, 1996. Based on the May 16, 
1995 and the July 20, 1995 submittals, EPA deemed Michigan's program 
complete in a letter to the MDNR Director dated August 16, 1995. 
Together, Michigan's program submittals contain all required elements 
of 40 CFR 70.4, including a description of Michigan's operating permits 
program, permitting program documentation, and the Attorney General's 
legal opinion that the laws of the State of Michigan provide adequate 
authority to carry out all aspects of the program required by the Act.
    Michigan's November 7, 1995 supplement to its title V program 
submittal included Governor John Engler's Executive Order No. 1995-18. 
This executive order, effective October 1, 1995, created the Michigan 
Department of Environmental Quality (MDEQ) and transferred the 
authority for implementation of title V from MDNR to MDEQ. Michigan's 
November 7, 1995 supplemental submittal stated that this administrative 
transfer does not affect Michigan's part 70 implementation program.
    Section 1.1 of Michigan's program description states that MDNR (now 
MDEQ) is responsible for implementing and administering the title V 
program for all geographical areas of the State. The submittal includes 
no further discussion of any basis under which MDEQ might assert 
jurisdiction over sources on tribal lands.
    Because MDEQ has not demonstrated, consistent with applicable 
principles of Indian law and Federal Indian policies, legal authority 
to regulate sources on tribal lands, the proposed interim approval of 
Michigan's operating permits program will not extend to lands within 
the exterior boundaries of any Indian reservation in the State of 
Michigan.<SUP>1 Title V sources located within the exterior boundaries 
of Indian reservations in Michigan will be subject to either the 
Federal operating permits program, to be promulgated at 40 CFR part 71, 
or to a tribal operating permits program approved pursuant to title V 
and the regulations that will be promulgated under section 301(d) of 
the Act. The section 301(d) regulations will authorize EPA to treat 
tribes in the same manner as States for appropriate Act 
provisions.<SUP>2
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    \1\ This is not a determination that MDEQ could not possibly 
demonstrate jurisdiction over sources within the exterior boundaries 
of Indian reservations in Michigan. However, no such showing has 
been made.
    \2\ Tribes may also have inherent sovereign authority to 
regulate air pollutants from sources on tribal lands.
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2. Regulations and Program Implementation
    Michigan's operating permits program, including the operating 
permits program regulations (found in Michigan's administrative rules 
for air pollution control, R 336.1101 et. seq.) substantially meet the 
requirements of 40 CFR part 70, including: sections 70.2 and 70.3 with 
respect to applicability; section 70.5 with respect to application 
forms, completeness requirements, and criteria for defining 
insignificant activities; sections 70.4, 70.5, and 70.6 with respect to 
permit content (including operational flexibility); sections 70.7 and 
70.8 with respect to permit processing requirements (including minor 
permit modifications and public participation); and section 70.11 with 
respect to enforcement authority.
    For a detailed analysis of Michigan's program submittal, please 
refer to the Technical Support Document (TSD) for this proposed action, 
which is available in the informal docket at the address noted above. 
The TSD shows that all operating permits program requirements of title 
V of the Act, 40 CFR part 70, and relevant guidance were met by 
Michigan's submittal, with the exception of those requirements 
described in subpart II.B. below.
    a. Delegation of State Program to Local Governments. Section 
324.5523 of Michigan's Natural Resources and Environmental Protection 
Act (NREPA) provides the authority to delegate the State's title V 
operating permits program to certain county governments. MDEQ 
acknowledges in the State's program submittal that the Wayne County 
Department of Environment, Air Quality Management Division, intends to 
seek delegation of the State's title V program, and that a program 
revision to EPA may be necessary to address any such delegation.
    b. Definition of Potential to Emit. The Michigan definition of 
``potential to emit'' in R 336.1116(m) provides that physical and 
operational limits on a source's capacity can be considered in 
determining ``potential to emit, '' provided that such limits are 
``legally enforceable. '' The 40 CFR 70.2 definition of ``potential to 
emit'' requires such limits to be federally enforceable.
    Although two recent court cases have challenged the ``federally 
enforceable'' requirement in other Act programs, the provision is still 
required by part 70.
    The EPA issued a memorandum on January 22, 1996 entitled ``Release 
of Interim Policy on Federal Enforceability of Limitations on Potential 
to Emit'' that addresses the court cases and their effect on the Act's 
programs. In response to the court cases (and a pending challenge to 
the part 70 ``potential to emit'' requirements), the memorandum also 
states EPA's intention to propose rulemaking actions in the spring of 
1996 that would address the Federal enforceability issue as it relates 
to title V and other Act programs. At this time, however, the title V 
Federal enforceability requirements remain unaffected, and therefore 
EPA is proposing that the State revise its definition to include the 
Federal enforceability requirement in its ``potential to emit'' 
definition as a condition of full approval.
    This interim approval condition does not affect the State's ability 
to utilize the January 25, 1995 EPA memorandum entitled, ``Options for 
Limiting the Potential to Emit (PTE) of a Stationary Source under 
Section 112 and Title V of the Clean Air Act (Act), '' <SUP>3 which 
provides a transition policy through January 25, 1997 for establishing 
federally enforceable mechanisms for limiting PTE. In addition, this 
issue would no longer be a condition for full approval if the final EPA 
rulemaking referred to above were to no longer require Federal 
enforceability in limiting ``potential to emit'' as part of the title V 
program. After EPA finalizes its rulemaking on this issue, it will work 
with Michigan to assure that the State's regulations are consistent 
with national requirements.
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    \3\ As amended by the January 22, 1996 interim policy 
memorandum.
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    c. Use of Old Permits to Limit Potential to Emit. R 336.1209 
provides a mechanism for sources to limit their potential to emit 
through certain existing permits, and therefore avoid being subject to 
the title V operating permit program. The EPA notes that existing State 
permits can establish

[[Page 32393]]

federally enforceable limits on potential to emit to the extent that 
the permits have been issued pursuant to an approved State 
Implementation Plan (SIP), and are also practically enforceable. The 
EPA understands that Michigan will be submitting R 336.1209 as a SIP 
revision to ensure that such permits are federally enforceable. For 
additional information, see the January 25, 1995 and the January 22, 
1996 EPA memoranda referenced in subpart II.A.2.b. above.
    d. Definition of Title I Modification. 40 CFR part 70 uses the term 
``modifications under any provision of title I of the Act'' in 
establishing requirements for operational flexibility, off permit 
provisions, and minor permit modifications. Because this term was not 
specifically defined in Federal regulations, there have been differing 
interpretations regarding whether the term includes or excludes 
modifications under States' minor New Source Review (NSR) Programs. The 
Michigan regulations use this term in addressing the State's 
operational flexibility [R 336.1215(2)], off permit [R 336.1215(3)], 
minor permit modification [R 336.1216(2)], and significant modification 
[R 336.1216(3)] provisions. In addition, the State's minor permit 
modification provisions specifically exclude minor State NSR 
modifications in R 336.1216(2)(a)(v), which is the State's 
interpretation of 40 CFR 70.7(e)(2)(i)(A)(5).
    In an August 29, 1994 rulemaking proposal, EPA explained its view 
that ``modifications under any provision of title I of the Act'' 
include minor NSR. However, EPA solicited public comment on whether the 
phrase should be interpreted to mean literally any change at a source 
that would trigger permitting authority review under regulations 
approved or promulgated under title I of the Act. 59 FR 44572. This 
would include State NSR programs approved by EPA as part of the SIP 
under section 110(a)(2)(C) of the Act.
    The EPA has not yet taken final action on the August 29, 1994 
proposal. However, in response to public comment on that proposal, EPA 
has decided that the definition of ``modifications under any provision 
of title I of the Act'' is best interpreted as not including changes 
reviewed under minor NSR programs. This decision was included in the 
supplemental 40 CFR part 70 rulemaking proposal published on August 31, 
1995. 60 FR 45545. Therefore, Michigan's interpretation of this term in 
its minor permit modification provisions is consistent with the 
requirements of part 70.
    e. Research and Development Activities. R 336.1211(3) provides that 
process and process equipment which is used exclusively for research 
and development (R&D), and that is located on the same contiguous site 
as other process or process equipment used for manufacturing a product 
shall be treated as a separate source for purposes of determining 
operating permit program applicability. The Michigan regulations define 
R&D activities in R 336.1283, and specifically exclude activities that 
include the production of a product for sale, unless such sale is 
incidental to the process.
    The EPA stated in the preamble to the final part 70 rule that ``in 
many cases States will have the flexibility to treat an R&D facility * 
* * as though it were a separate source, and [the R&D facility] would 
then be required to have a title V permit only if the R&D facility 
itself would be a major source.'' 57 FR 32264 and 32269. Read 
consistently with the major source definition in 40 CFR 70.2, this 
statement means that separate source treatment would occur only in 
situations where the co-located R&D portion of a source has its own 
two-digit Standard Industrial Classification code and is not a support 
facility. As explained in the supplemental proposal to revise part 70, 
EPA believes that R&D should be treated as having its own industrial 
grouping for purposes of determining major source status, and has 
proposed to revise 40 CFR part 70 accordingly. 60 FR 45556-45558.
    It is important to note that separate treatment will not exempt R&D 
facilities in all cases. Some R&D activities may still be subject to 
permitting because they are either individually major or are a support 
facility that makes significant contributions to the product of a co-
located major facility. The support facility test dictates that, even 
where there are two or more industrial groupings at a commonly owned 
facility, these groupings should be considered together if the output 
of one is more than 50 percent devoted to support of another. Although 
Michigan's program does not specifically reference the support facility 
test for R&D activities, EPA expects that such a test will be applied 
in making major source applicability determinations as established 
under the NSR program and continued under title V.
    f. Insignificant Activities. Michigan's insignificant activities 
rule, R 336.1212(1), lists various activities that are excluded from 
calculations of potential to emit for purposes of determining whether a 
source is major. The part 70 rule does not provide for such an 
exception to major source determinations. Although the listed 
activities might qualify as ``insignificant'' under 40 CFR 70.5(c) or 
even ``trivial'' (as described in EPA's ``white paper'' on permit 
applications), these concepts relate to the need to describe activities 
in permit applications, and not to whether such activities need to be 
considered in a major source determination. Major source determinations 
are intended to be based on the potential impact of a source, as 
measured by its potential to emit, and not merely on those activities 
at the source which have historically been regulated. In addition, it 
should be noted that any emissions from these units can have the same 
effect on public health and the environment as similar amounts from the 
regulated emissions units at the plant. The EPA is therefore proposing 
to require the State to revise its regulations to delete these 
exemptions from major source determinations as a condition of full 
approval. This interim approval condition does not apply to the State's 
use of R 336.1212(1) as an insignificant activities list pursuant to 40 
CFR 70.5(c).
    The EPA does agree with the concern underlying these provisions, 
that significant resources not be expended on calculation of emissions 
from activities such as these which normally do not implicate clean air 
regulations. The EPA expects that emissions from activities such as 
those exempted by R 336.1212(1) would only be examined where those 
emissions might actually impact whether the source is major. The EPA 
expects that, where EPA has not spoken to this issue precisely, sources 
will exercise their judgment (as guided by the permitting authority) in 
deciding the rigor of analysis appropriate to calculate PTE for 
different insignificant activities at the source. For example, a rough 
estimate based on engineering judgment may be all that is necessary. 
The EPA believes that following such a ``rule of reason'' approach 
should alleviate the concerns underlying the State's exemptions.
    g. Source Category Limited Interim Approval. Michigan's permit fee 
program relies on a 4 year initial permit issuance schedule to 
demonstrate that the fees are sufficient to cover the State's operating 
permit program costs. Because of this, the State has requested that EPA 
approve a 4 year initial permit issuance schedule under source category 
limited interim approval. See the EPA guidance memorandum entitled 
``Interim Title V Program Approvals,'' signed by John S. Seitz, 
Director of EPA's Office of Air Quality

[[Page 32394]]

Planning and Standards, August 2, 1993. In accordance with this 
guidance, Michigan's program submittal demonstrates compelling reasons 
why the State cannot permit initial sources in 3 years, including a 
short term funding deficit that is eliminated under a 4 year permit 
issuance schedule, a large and complex source population, and an 
exceptional ramp up workload caused primarily by the State never having 
implemented an operating permit program similar to the title V program. 
The State also demonstrates that its proposed 4 year issuance schedule 
substantially meets the requirements of 40 CFR part 70 by permitting 60 
percent of the title V sources and 80 percent of the emissions during 
the first 3 years of the program.
    However, EPA cannot grant Michigan source category limited interim 
approval until after Michigan finalizes revisions to its permit 
issuance schedule regulation [R 336.1210(13)]. This regulation 
currently requires a 3 year issuance schedule. In other words, because 
the State's regulations currently meet the 40 CFR 70.4(b)(11)(ii) 
requirement to issue initial permits in 3 years, source category 
limited interim approval is not warranted. However, because EPA 
recognizes MDEQ's proposed 4 year permit issuance schedule for the 
purposes of determining fee schedule sufficiency, EPA may grant source 
category limited interim approval to the State after it revises its 
regulations to incorporate a 4 year permit issuance schedule, provided 
that the State continues to meet the requirements for source category 
limited interim approval. Therefore, EPA is proposing full approval of 
the State's permit issuance schedule. In the alternative, EPA is 
proposing source category limited interim approval, provided: (1) The 
State finalizes regulatory revisions to its permit issuance schedule 
that are consistent with the current draft revisions, and (2) the State 
program continues to meet the requirements for source category limited 
interim approval outlined in the August 2, 1993 guidance.
    h. Startup, Shutdown, and Malfunction Provisions. R 336.1912, R 
336.1913, and R 336.1914 include provisions relating to startups, 
shutdowns, and malfunctions (SSM) of sources. The EPA reviewed these 
regulations as a part of Michigan's title V program to determine 
whether these rules affect the State's ability to meet the requirements 
of 40 CFR 70.4(b)(3)(i). This provision requires that a title V program 
must have the authority to issue permits and assure compliance with all 
applicable requirements, including the requirements of the title V 
program, by all part 70 sources.
    The Michigan SSM regulations provide an affirmative defense from 
violations of permit conditions which occur during SSM, provided that 
sources meet the requirements in these State rules. These requirements 
include the implementation of written preventative maintenance and 
malfunction abatement plans and other operating, recordkeeping, and 
reporting requirements. Michigan's title V Attorney General's opinion 
acknowledges that the rules establish an affirmative defense for 
certain violations. Structured as they are, the SSM provisions cannot 
be characterized as being based on enforcement discretion.
    The only affirmative defense allowed in the title V regulations 
(other than any defense or other enforcement relief provided for in the 
applicable requirements themselves) is the emergency defense provisions 
in 40 CFR 70.6(g). The emergency defense is available only for 
exceedances of technology based emission limitations attributable to an 
emergency, as defined in 40 CFR 70.6(g)(1). The Michigan SSM 
affirmative defense is broader than the emergency defense in these two 
respects. First, the Michigan defense extends to exceedances beyond 
emergency situations, and applies to exceedances caused by startups, 
shutdowns, and malfunctions. Second, the Michigan defense applies to 
exceedances of any emission standard and any violation of a continuous 
emission, parametric monitoring, or automated recordkeeping 
requirement. In contrast, the emergency defense may only apply to 
exceedances of technology based emission limitations. Because 
Michigan's SSM affirmative defense is broader than the defense provided 
by part 70, the State does not have the authority to issue permits and 
assure compliance with all applicable requirements, as required by 40 
CFR 70.4(b)(3)(i). Therefore, EPA is proposing that Michigan revise its 
SSM regulations to be consistent with the affirmative defense in 40 CFR 
70.6(g) as a condition of full approval.
    The EPA notes that Michigan's SSM regulations contain certain 
provisions similar to certain SSM operating requirements found in 40 
CFR part 63 (general provisions for National Emission Standards for 
Hazardous Air Pollutants, section 112), 40 CFR part 60 (general 
provisions for New Source Performance Standards, section 111), and 
EPA's SIP policy regarding treatment of SSM. See EPA's policy 
memorandum dated February 15, 1983 from Kathleen M. Bennett, Assistant 
Administrator for Air, Noise, and Radiation entitled ``Policy on Excess 
Emissions During Startup, Shutdown, Maintenance, and Malfunctions''. 
However, these provisions of the part 60 and 63 regulations do not 
apply uniformly to all Federal standards, and the 1983 policy does not 
establish an affirmative defense from violations caused by SSM 
conditions.
    The EPA may consider alternative approaches for resolving this 
condition for full approval, such as an approach that relies on 
enforcement discretion (see the February 15, 1983 Bennett memorandum), 
and is willing to work with the State as necessary. There may be 
various ways in which to structure such an enforcement discretion 
approach, and EPA will not attempt to provide detailed guidance in this 
document. However, EPA notes that certain issues would have to be 
addressed by the State if it were to craft such an approach using the 
current State rule as a starting point. Among these, the definition of 
``malfunction'' in R 336.1113(d) does not limit malfunctions to 
failures that are ``infrequent'' and ``not reasonably preventable'', 
and is therefore broader than the Federal definition in 40 CFR 60.2 and 
63.2. The State's air pollution control bypass provisions in R 
336.1913(3)(b) and R 336.1914(4)(b) are broader than that provided by 
the Act. See the February 15, 1983 Bennett memorandum. The alternate 
emission limitations for startups and shutdowns in R 336.1914(4)(d) 
would allow relaxations of Act requirements, including NSR limitations, 
New Source Performance Standards, toxics requirements (NESHAP, MACT), 
etc. Finally, the State SSM regulations provide no authority for MDEQ 
to review and require revisions to a source's written emission 
minimization plan for normal or usual startups and shutdowns. Such 
authority is appropriate to ensure that operating practices for 
startups and shutdowns meet good engineering practice for minimizing 
emissions, similar to the authority R 336.1911 currently provides for 
State review and revision of written preventative maintenance and 
malfunction abatement plans.
    i. Environmental Audit Privilege and Immunity Law. Sections 
502(b)(5) (A) and (E) of the Act require that approvable State title V 
programs must have adequate authority to assure that sources comply 
with all applicable Act requirements, as well as the authority to 
enforce permits and recover minimum civil penalties and appropriate 
criminal penalties. In addition, part 70 explicitly

[[Page 32395]]

requires States to have certain enforcement authorities, including the 
authority to seek injunctive relief to enjoin a violation, to bring 
suit to restrain persons where a facility is posing an imminent and 
substantial endangerment to public health or welfare, and to recover 
appropriate criminal and civil penalties. Section 113(e) of the Act 
sets forth penalty factors for EPA or a court to consider in assessing 
penalties for civil or criminal violations of the Act, factors which 
necessarily apply to penalties for violations of title V permits. The 
EPA is concerned about the potential impact of some State audit 
privilege and immunity laws on the ability of the States to enforce 
Federal requirements, including those under title V of the Act. Upon 
review and consideration of the statutory and regulatory provisions 
discussed above, EPA issued guidance on April 5, 1996, entitled 
``Effect of Audit Immunity/Privilege Laws on States' Ability to Enforce 
Title V Requirements''. This guidance outlines certain elements of the 
State audit immunity and privilege laws which, in EPA's view, may so 
hamper the State's ability to enforce as to render the Agency unable to 
approve the title V operating permit program. The guidance is 
consistent with EPA's December 22, 1995 audit policy, ``Incentives for 
Self-Policing: Discovery, Disclosure, Correction and Prevention of 
Violations''. 60 FR 66706.
    On March 18, 1996, Michigan Governor John Engler signed the State's 
Environmental Audit Privilege and Immunity Law, part 148 of Michigan's 
Natural Resources and Environmental Protection Act (NREPA). This law 
provides that sources can hold confidential broad categories of 
information contained in a voluntary environmental audit report. The 
law also provides sources and persons immunity from certain State civil 
and criminal penalties for violations discovered through an 
environmental self audit, provided the violations are promptly reported 
and corrected.
    In the April 5, 1996 memorandum referenced above, EPA set out 
specific authorities, based upon the requirements of 40 CFR 70.11, that 
cannot be affected by State privilege and immunity laws if a State is 
to receive full approval of its title V program. The EPA has identified 
several sections of Michigan's privilege and immunity law, described 
below, which appear to conflict with the requirements of part 70.
    Section 14802 of Michigan's Environmental Audit Privilege and 
Immunity Law provides for the protection of factual data disclosed 
during an environmental audit. In conjunction with the definition of 
``environmental audit'' and ``environmental audit report'' contained in 
section 14801, Michigan's audit privilege is so broad that it may be 
interpreted as restricting access to data and preventing testimony 
which is necessary to determine whether a civil or criminal violation 
has occurred or is imminent. Similarly, the broad language of section 
14809 may be interpreted as prohibiting the State from assessing civil 
penalties for violations of regulations, permits, consent orders or 
agreements; violations which reflect a parent company's pattern of 
violations at various facilities; and violations which result in 
serious harm or imminent and substantial endangerment. In addition, 
section 14809 appears to allow sources to retain economic benefit from 
a violation, even if substantial or deliberately obtained. Although 
section 14802 appears to contain several exemptions from the otherwise 
broad scope of the privilege, EPA is unable to determine the extent to 
which the exemption limits the application of the privilege provisions. 
Furthermore, EPA does not believe that the section 14802 exemption 
applies to any portion of the penalty immunity contained in section 
14809.
    For these reasons, EPA believes that Michigan's privilege and 
immunity law affects the State's authority to assure compliance with 
part 70 permits and the requirements of the operating permit program 
[40 CFR 70.4(b)(3)(i)], as well as the authority to enforce permits and 
the requirement to obtain a permit [40 CFR 70.4(b)(3)(vii)]. In 
addition, EPA believes that the law affects Michigan's authority to 
recover civil penalties in accordance with 40 CFR 70.11(a)(3)(i). 
Therefore, EPA is proposing that Michigan must revise its privilege and 
immunity law, part 148 of NREPA, to ensure that the State meets these 
title V enforcement requirements as a condition of full approval. The 
EPA is also proposing that Michigan must submit a revised title V 
Attorney General's opinion that addresses the concerns listed above, 
and certifies that the State title V program meets the enforcement 
requirements of 40 CFR 70.4(b)(3)(i), 40 CFR 70.4(b)(3)(vii), and 40 
CFR 70.11(a)(3)(i) as a condition of full approval.
    The EPA acknowledges that Michigan may have a different 
interpretation of the provisions in the State's privilege and immunity 
law. If Michigan believes that its current law does not affect the part 
70 enforcement requirements addressed above, Michigan need only submit 
a revised title V Attorney General's opinion certifying that the State 
title V program meets the enforcement requirements of 40 CFR 
70.4(b)(3)(i), 40 CFR 70.4(b)(3)(vii), and 40 CFR 70.11(a)(3)(i) as a 
condition of full approval. The Attorney General's opinion must also 
specifically address why EPA's interim approval provision requiring 
revisions to the currently enacted law is not valid.
    To further ensure that Michigan's privilege and immunity law does 
not affect other requirements of the title V program, EPA believes that 
it is also necessary for the State to submit a supplemental Attorney 
General's opinion as a condition of full approval. This supplemental 
Attorney General's opinion must certify that any other title V 
requirements that may be affected by the privilege and immunity law are 
met, including: Michigan's authority to bring suit to restrain any 
person from engaging in any activity in violation of a permit that is 
presenting an imminent and substantial endangerment [40 CFR 
70.11(a)(1)]; Michigan's authority to seek injunctive relief to enjoin 
any violation of any program requirement, including permit conditions 
[40 CFR 70.11(a)(2)]; Michigan's authority to recover criminal fines 
[40 CFR 70.11(a)(3) (ii) and (iii)]; and the requirement that the 
burden of proof for establishing civil and criminal violations is no 
greater than the burden of proof required under the Act [40 CFR 
70.11(b)]. The EPA intends to work with Michigan to ensure that the 
supplemental Attorney General's opinion specifically addresses all 
potential areas of concern regarding the State's privilege and immunity 
law.
3. Permit Fee Demonstration
    Michigan's operating permits program fee schedule is established in 
section 324.5522, NREPA. The State's program submittal includes a 
detailed demonstration that Michigan's fee schedule is sufficient to 
cover the State's operating permit program costs. Because the 
sufficiency of the fee schedule is based on a 4 year initial permit 
issuance schedule, Michigan has requested that EPA approve a 4 year 
initial permit issuance schedule under source category limited interim 
approval (see the discussion on source category limited interim 
approval in subpart II.A.2.g. above).
    Michigan's fee schedule consists of an annual fee equal to a 
facility charge plus an emissions charge. The facility charge is 
$2,500.00 for major sources of criteria pollutants, and $1,000.00 for 
major sources of hazardous air pollutants. The emissions charge is 
$25.00 per ton of

[[Page 32396]]

actual emissions, with a facility cap of 4,000 tons. Sources with total 
actual emissions less than 4,000 tons have a 1,000 ton per pollutant 
cap.
4. Provisions Implementing the Requirements of Other Titles of the Act
    a. Authority for Section 112 Implementation. Michigan has 
demonstrated in its title V program submittal adequate legal authority 
to implement and enforce all section 112 toxics requirements through 
the title V permit. This legal authority is contained in Michigan's 
enabling legislation and in regulatory provisions that define 
``applicable requirements'' and provide that the permit must 
incorporate all applicable requirements. The EPA has determined that 
this legal authority is sufficient to allow Michigan to issue permits 
to part 70 sources that assure compliance with all section 112 
requirements.
    The EPA is interpreting the above legal authority to mean that 
Michigan is able to carry out all section 112 activities for part 70 
sources. For further rationale on this interpretation, please refer to 
the TSD for this proposed action.
    b. Implementation of Section 112(g). Section 112(g) of the Act 
requires States to issue case-by-case Maximum Achievable Control 
Technology (MACT) determinations to sources that modify, construct, or 
reconstruct, if EPA has not established MACT for that particular source 
category. According to the interpretive notice published in the Federal 
Register on February 14, 1995, the requirements of section 112(g) will 
not become effective until after EPA has promulgated a regulation 
addressing that provision. The notice sets forth in detail the 
rationale for this interpretation. See 60 FR 8333. At the time of 
Michigan's program submittal and EPA's subsequent review period, EPA 
has not promulgated a Federal regulation containing the specific 
requirements of section 112(g).
    The section 112(g) interpretative notice explains that EPA is still 
considering whether the effective date of section 112(g) should be 
delayed beyond the date of promulgation of the Federal rule so as to 
allow States time to adopt rules implementing the Federal rule, and 
that EPA will provide for any such additional delay in the final 
section 112(g) rulemaking. Unless and until EPA provides for such an 
additional postponement of section 112(g), Michigan must be able to 
implement section 112(g) during the transition period between 
promulgation of the Federal section 112(g) rule and adoption of 
implementing State regulations.
    The EPA is aware that Michigan lacks a program designed 
specifically to implement section 112(g). However, Michigan does have a 
preconstruction review program that can serve as an adequate 
implementation vehicle during the transition period. Therefore, EPA is 
proposing approval under title V and part 70, of the use of Michigan's 
preconstruction permit program as the procedural mechanism for 
establishing federally enforceable case-by-case MACT emission limits 
for hazardous air pollutants (HAP) during the transition period. 
However, since the approval is for the single purpose of providing a 
mechanism to implement section 112(g) during the transition period, the 
approval itself will be without effect if EPA decides in the final 
section 112(g) rule that sources are not subject to the requirements of 
the rule until State regulations are adopted. This proposed approval is 
limited solely to the issuance of federally enforceable HAP emission 
limits to comply with the requirements of section 112(g), and is not an 
approval under section 110 of the Act.
    This approval is for an interim period only, until such time as the 
State adopts regulations consistent with any regulations promulgated by 
EPA to implement section 112(g). Accordingly, EPA is proposing to limit 
the duration of this approval to a reasonable time following 
promulgation of section 112(g) regulations so that Michigan, acting 
expeditiously, will be able to adopt regulations consistent with the 
section 112(g) regulations. The EPA is proposing here to limit the 
duration of this approval to 18 months following promulgation by EPA of 
section 112(g) regulations.
    Michigan's construction permit regulations [R 336.1205(2)] assume 
that section 112(g) authority is delegated to the State by EPA. The 
implementation of section 112(g) by the State for sources subject to 
title V is a requirement for approval of the State's title V program, 
and is therefore not a delegated program. To address the requirements 
in R 336.1205(2), the State should refer instead to EPA's forthcoming 
final rulemaking on Michigan's title V program and to the section 
112(g) implementation requirements to be promulgated in the final 
section 112(g) regulations.
    c. Program for Straight Delegation of Section 112 Standards. 
Requirements for operating permits program approval, specified in 40 
CFR 70.4(b), also address section 112(l)(5) requirements for approval 
of a program for delegation of section 112 standards as promulgated by 
EPA as they apply to part 70 sources. Section 112(l)(5) requires that 
the State's program contain adequate authorities, adequate resources 
for implementation, and an expeditious compliance schedule, which are 
also requirements under part 70.
    Therefore, EPA is also proposing to grant approval under section 
112(l)(5) and 40 CFR 63.91 of Michigan's program for receiving 
delegation of section 112 standards that are unchanged from the Federal 
standards as promulgated. Because Michigan has the authority under 
section 324.5506(6), NREPA, to include any conditions in an operating 
permit that are necessary to assure compliance with the Act (including 
section 112 requirements), EPA proposes to approve the delegation of 
section 112 standards through straight delegation. The details of this 
delegation mechanism will be set forth in a Memorandum of Agreement 
between Michigan and EPA. The State of Michigan requested delegation of 
section 112 standards in a letter from Russell J. Harding, Director, 
MDEQ, dated October 12, 1995. This proposed approval of Michigan's 
program for delegations applies to both existing and future standards, 
but is limited to sources covered by the part 70 program.
    d. Implementation of Title IV. Michigan's operating permits program 
contains adequate authority to issue permits that include the 
requirements of the title IV acid rain program. The State has 
incorporated the requirements of 40 CFR part 72 by reference in R 
336.1299(d).

B. Options for Approval/Disapproval and Implications

    The EPA is proposing to grant interim approval to the State of 
Michigan's operating permits program received on May 16, 1995, July 20, 
1995, October 6, 1995, November 7, 1995, and January 8, 1996. This 
interim approval of Michigan's operating permits program applies to all 
title V sources, with the exception of any sources of air pollution 
over which an Indian Tribe has jurisdiction. See, e.g., 59 FR 55813, 
55815-18 (Nov. 9, 1994). The term ``Indian Tribe'' is defined under the 
Act as ``any Indian tribe, band, nation, or other organized group or 
community, including any Alaska Native village, which is Federally 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians.'' 
See section 302(r) of the Act; see also 59 FR 43956, 43962 (Aug. 25, 
1994); 58 FR 54364 (Oct. 21, 1993).

[[Page 32397]]

1. Proposal in the Alternative
    The EPA proposes full approval of the State's 3 year initial permit 
issuance schedule. In the alternative, EPA proposes source category 
limited interim approval of the State's 4 year permit issuance 
schedule, provided: (1) the State finalizes regulatory revisions to its 
permit issuance schedule that are consistent with the State's November 
7, 1995 supplemental title V program submittal, and (2) the State 
program continues to meet the requirements for source category limited 
interim approval.
2. Proposed Interim Approval Issues
    If interim approval of Michigan's operating permits program is 
promulgated as proposed today, the State must make the following 
changes to receive full approval.
    a. Revise the definition of ``potential to emit'' in R 336.1116(m) 
to require that physical and operational limits on a source's capacity 
must be federally enforceable. Federal enforceability is required by 
the definition of ``potential to emit'' in 40 CFR 70.2. However, this 
issue would cease to be a condition of full approval if EPA revises the 
40 CFR 70.2 definition to no longer require Federal enforceability in 
limiting ``potential to emit.''
    b. Revise the definition of ``schedule of compliance'' in R 
336.1119(a) to provide that the schedule of compliance for sources that 
are not in compliance shall resemble and be at least as stringent as 
that contained in any judicial consent decree or administrative order 
to which the source is subject. This provision is required by 40 CFR 
70.5(c)(8)(iii)(C).
    c. Revise the definition of ``stationary source'' in R 336.1119(q) 
to provide that the definition includes all of the process and process 
equipment which are located at one or more contiguous or adjacent 
properties. The emphasized phrase is not currently included in the 
State regulation. This provision is required in the definition of 
``major source'' in 40 CFR 70.2.
    d. Revise R 336.1211(l) to provide that nonmajor solid waste 
incineration units required to obtain a permit pursuant to section 
129(e) of the Act are subject to the title V permits program. The 
permitting deferral for nonmajor section 111 sources in 40 CFR 70.3(b) 
does not apply to solid waste incineration units required to obtain a 
permit pursuant to section 129(e) of the Act.
    e. Revise R 336.1212(l) to delete the exemption of certain 
activities from determining major source status. Part 70 and other 
relevant Act programs do not provide for such exemptions from major 
source determinations. This interim approval issue does not apply to 
the State's use of R 336.1212(l) as an insignificant activities list 
pursuant to 40 CFR 70.5(c).
    f. Revise the State statutes or regulations, as appropriate, to 
require that permit applications include a certification of compliance 
with all applicable requirements and a statement of the methods used 
for determining compliance, as specified in 40 CFR 70.5(c)(9). Although 
Michigan's permit application forms include compliance certification 
requirements, EPA believes that neither the State statutes nor the 
State regulations clearly require applications to include this 
information.
    g. Revise the definition of ``emergency'' in section 324.5527(1), 
NREPA, to ensure that the State's definition is not broader than that 
provided by 40 CFR 70.6(g)(1). The definition of ``emergency'' in 40 
CFR 70.6(g)(1) includes, in part, ``any situation arising from sudden 
and reasonably unforeseeable events beyond the control of the source, 
including acts of God.''
    h. Remove the provisions of section 324.5534, NREPA, which provide 
for exemptions from penalties or fines for violations caused by an act 
of God, war, strike, riot, catastrophe, or other condition as to which 
negligence or willful misconduct was not the proximate cause. Title V 
does not provide for such broad penalty and fine exemptions.
    i. Revise R 336.1913 and R 336.1914 to be consistent with either 
the affirmative defense provisions in 40 CFR 70.6(g), or EPA's 
enforcement discretion policy. These State regulations provide an 
affirmative defense that is broader than that provided by 40 CFR 
70.6(g), and therefore affect State's ability to assure compliance with 
all applicable requirements and the requirements of part 70 [40 CFR 
70.4(b)(3)(i)].
    j. Address all of the following issues relating to the State's 
audit privilege and immunity law, part 148 of NREPA. These conditions 
are proposed interim approval issues to the extent that they affect the 
State's title V operating permits program and the requirements of part 
70.
    i. Narrow the applicability of the privilege provided in section 
14802, part 148 of NREPA, and narrow the applicability of the immunity 
provided by section 14809, part 148 of NREPA, to ensure that the State 
title V program has the authority to: assure compliance with part 70 
permits and the requirements of the operating permits program [40 CFR 
70.4(b)(3)(i)]; enforce permits and the requirement to obtain a permit 
[40 CFR 70.4(b)(3)(vii)]; and recover civil penalties in accordance 
with 40 CFR 70.11(a)(3)(i).
    ii. Submit a revised title V Attorney General's opinion that 
addresses EPA's concerns in subpart II.A.2.i. above, and certifies that 
the revised part 148 does not affect Michigan's ability to meet the 
enforcement requirements of 40 CFR 70.4(b)(3)(i), 40 CFR 
70.4(b)(3)(vii), and 40 CFR 70.11(a)(3)(i).
    iii. In lieu of subparts i. and ii. above, submit a revised title V 
Attorney General's opinion certifying that the current part 148 does 
not affect the enforcement requirements of 40 CFR 70.4(b)(3)(i), 40 CFR 
70.4(b)(3)(vii), and 40 CFR 70.11(a)(3)(i). The Attorney General's 
opinion must also specifically address why EPA's interim approval 
provision requiring revisions to the currently enacted law is not 
valid.
    iv. Submit a supplemental Attorney General's opinion certifying 
that all other title V authorities that may be affected by part 148 are 
met, including: Michigan's authority to bring suit to restrain any 
person from engaging in any activity in violation of a permit that is 
presenting an imminent and substantial endangerment [40 CFR 
70.11(a)(1)]; Michigan's authority to seek injunctive relief to enjoin 
any violation of any program requirement, including permit conditions 
[40 CFR 70.11(a)(2)]; Michigan's authority to recover criminal fines 
[40 CFR 70.11(a)(3) (ii) and (iii)]; and the requirement that the 
burden of proof for establishing civil and criminal violations is no 
greater than the burden of proof required under the Act [40 CFR 
70.11(b)]. The supplemental Attorney General's opinion must 
specifically address these requirements in light of the provisions 
contained in the State's privilege and immunity law.
    This interim approval, which may not be renewed, extends for a 
period of up to 2 years. During the interim approval period, the State 
is protected from sanctions for failure to have a program, and EPA is 
not obligated to promulgate a Federal permits program in the State. 
Permits issued under a program with interim approval have full standing 
with respect to part 70, and the 1-year time period for submittal of 
permit applications by subject sources begins upon interim approval, as 
does the 3-year time period for processing the initial permit 
applications.
3. Other Proposed Actions
    As outlined in subpart II.A.4.c., EPA is proposing to grant 
approval under section 112(1)(5) and 40 CFR 63.91 of

[[Page 32398]]

the State's program for receiving delegation of section 112 standards 
that are unchanged from Federal standards as promulgated. This program 
for delegations only applies to sources covered by the part 70 program.
    As outlined in subpart II.A.4.b., EPA is also proposing to grant 
approval of Michigan's preconstruction permit program, found in R 
336.1201, under the authority of title V and part 70 solely for the 
purpose of implementing section 112(g) to the extent necessary during 
the transition period between promulgation of the Federal section 
112(g) rule and adoption of any necessary State rules to implement 
EPA's section 112(g) regulations. The EPA proposes to limit the 
duration of this approval to 18 months following promulgation by EPA of 
section 112(g) regulations, to provide Michigan adequate time to adopt 
any necessary regulations consistent with the Federal requirements.

C. Federal Oversight and Sanctions

    If EPA were to finalize this proposed interim approval, it would 
extend for 2 years following the effective date of final interim 
approval, and could not be renewed. During the interim approval period, 
Michigan would be protected from sanctions, and EPA would not be 
obligated to promulgate, administer and enforce a Federal permits 
program for the State. Permits issued under a program with interim 
approval have full standing with respect to part 70, and the 1-year 
time period for submittal of permit applications by subject sources 
begins upon the effective date of interim approval, as does the 3-year 
time period for processing the initial permit applications.
    Following final interim approval, if the State failed to submit a 
complete corrective program for full approval by the date 6 months 
before expiration of the interim approval, EPA would start an 18-month 
clock for mandatory sanctions. If the State then failed to submit a 
corrective program that EPA found complete before the expiration of 
that 18-month period, EPA would be required to apply one of the 
sanctions in section 179(b) of the Act, which would remain in effect 
until EPA determined that the State had corrected the deficiency by 
submitting a complete corrective program. Moreover, if the 
Administrator found a lack of good faith on the part of the State, both 
sanctions under section 179(b) would apply after the expiration of the 
18-month period until the Administrator determined that the State had 
come into compliance. In any case, if, 6 months after application of 
the first sanction, the State still had not submitted a corrective 
program that EPA found complete, a second sanction would be required.
    If, following final interim approval, EPA were to disapprove the 
State's complete corrective program, EPA would be required to apply one 
of the section 179(b) sanctions on the date 18 months after the 
effective date of the disapproval, unless prior to that date the State 
had submitted a revised program and EPA had determined that it 
corrected the deficiencies that prompted the disapproval. Moreover, if 
the Administrator found a lack of good faith on the part of the State, 
both sanctions under section 179(b) would apply after the expiration of 
the 18-month period until the Administrator determined that the State 
had come into compliance. In all cases, if, 6 months after EPA applied 
the first sanction, the State had not submitted a revised program that 
EPA had determined corrected the deficiencies that prompted 
disapproval, a second sanction would be required.
    In addition, discretionary sanctions may be applied where warranted 
any time after the end of an interim approval period if a State has not 
timely submitted a complete corrective program or EPA has disapproved a 
submitted corrective program. Moreover, if EPA has not granted full 
approval to a State program by the expiration of an interim approval 
and that expiration occurs after November 15, 1995, EPA must 
promulgate, administer and enforce a Federal permits program for that 
State upon interim approval expiration.

III. Administrative Requirements

A. Request for Public Comments

    The EPA is requesting comments on all aspects of this proposed 
interim approval. Copies of the State's submittal and other information 
relied upon for the proposed interim approval are contained in an 
informal docket maintained at the EPA Regional Office. This docket is 
an organized and complete file of all the information submitted to, or 
otherwise considered by, EPA in the development of this proposed 
interim approval. The principal purposes of this docket are:
    (1) to allow interested parties a means to identify and locate 
documents so that they can effectively participate in the approval 
process, and
    (2) to serve as the record in case of judicial review. The EPA will 
consider any comments received by July 24, 1996.

B. Executive Order 12866

    The Office of Management and Budget has exempted this action from 
Executive Order 12866 review.

C. Regulatory Flexibility Act

    The EPA's actions under section 502 of the Act do not create any 
new requirements, but simply address operating permits programs 
submitted to satisfy the requirements of 40 CFR part 70. Because this 
action does not impose any new requirements, it does not have a 
significant impact on a substantial number of small entities.

D. Unfunded Mandates

    Under section 202 of the Unfunded Mandates Reform Act of 1995 
(Unfunded Mandates Act), signed into law on March 22, 1995, EPA must 
prepare a budgetary impact statement to accompany any proposed or final 
rule that includes a Federal mandate that may result in estimated costs 
to State, local, or tribal governments in the aggregate; or to the 
private sector, of $100 million or more. Under section 205, EPA must 
select the most cost-effective and least burdensome alternative that 
achieves the objectives of the rule and is consistent with statutory 
requirements. Section 203 requires EPA to establish a plan for 
informing and advising any small governments that may be significantly 
or uniquely impacted by the rule.
    The EPA has determined that the proposed action promulgated today 
does not include a Federal mandate that may result in estimated costs 
of $100 million or more to either State, local, or tribal governments 
in the aggregate, or to the private sector. This Federal action 
approves pre-existing requirements under State or local law, and 
imposes no new Federal requirements. Accordingly, no additional costs 
to State, local, or tribal governments, or to the private sector, 
result from this action.

List of Subjects in 40 CFR Part 70

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Intergovernmental relations, Operating permits, 
Reporting and recordkeeping requirements.

    Authority: 42 U.S.C. 7401-7671q.

    Dated: June 13, 1996.
Margaret McCue,
Acting Regional Administrator.
[FR Doc. 96-15886 Filed 6-21-96; 8:45 am]
BILLING CODE 6560-50-P

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