Air Pollution: EPA Needs Better Information on New Source Review Permits
Published: 2012-06-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Electricity generating units that burn fossil fuels supply most of the nations electricity and are major sources of air pollution. Under the Clean Air Act, such units are subject to NSR, a permitting process that applies to (1) units built after August 7, 1977, and (2) existing units that undertake a major modification. Owners of such units must obtain from the appropriate permitting agency a preconstruction permit that sets emission limits and requires the use of certain pollution control technologies. EPA oversees states implementation of NSR, including reviewing and commenting on draft permits issued by state and local permitting agencies. GAO was asked to examine (1) what information EPA maintains on NSR permits issued to fossil fuel electricity generating units; (2) challenges, if any, that EPA, state, and local agencies face in ensuring compliance with requirements to obtain NSR permits; and (3) what available data show about compliance with requirements to obtain NSR permits. GAO reviewed relevant documentation and interviewed EPA, state, and local officials, as well as representatives from industry, research, and environmental groups.
section_title: What GAO Found
paragraphs: The Environmental Protection Agency (EPA) does not maintain complete information on New Source Review (NSR) permits issued to fossil fuel electricity generating units. State and local permitting agencies track the NSR permits they issue, but EPA does not maintain complete or centralized information on permits, despite a 2006 recommendation by the National Research Council that it do so. EPA maintains several databases that compile data on draft and issued NSR permits, but these sources are incomplete and thus cannot be used to identify all of the NSR permits that have been issued nationwide. In addition, EPA has the opportunity to review and comment on every draft NSR permit issued by state and local permitting agencies, but it does not compile data on whether the permitting agencies address EPAs comments in final permits. The absence of more complete information on NSR permitting makes it difficult to know which units have obtained NSR permits or to assess how state and local permitting agencies vary from EPA in their interpretations of NSR requirements.
Officials from EPA, state, and local agencies face challenges in ensuring that owners of fossil fuel electricity generating units comply with requirements to obtain NSR permits. Many of these challenges stem from two overarching issues. First, in some cases it is difficult to determine whether an NSR permit is required. NSR applicability depends on, among other factors, whether a change to a unit qualifies as routine maintenance, repair, and replacement; and whether the change results in a significant net increase in emissions. The rules governing NSR are complex, however, and applicability is determined on a case-by-case basis. Second, it is often difficult to identify noncomplianceinstances where unit owners made a major modification without first obtaining an NSR permitpartly because owners of generating units determine whether a permit is needed, and in many cases their determinations are not reviewed by permitting agencies or EPA. State permitting agencies generally issue NSR permits, but EPA typically leads enforcement efforts, since identifying instances of noncompliance involves extensive investigations that go beyond the routine inspections conducted by state and local permitting agencies. EPA identifies NSR noncompliance through a lengthy, resource-intensive process that involves reviewing large amounts of information on units past emissions and construction activities.
Available data on compliance, although incomplete, suggest that a substantial number of generating units did not comply with requirements to obtain NSR permits. Complete NSR compliance data do not exist for two main reasons: (1) EPA has not yet investigated all generating units for compliance, and (2) NSR compliance is determined at a point in time, and in some cases federal courts have disagreed with EPA about the need for an NSR permit. Nonetheless, EPA has investigated most coal-fired generating units at least once, and has alleged noncompliance at more than half of the units it investigated. Specifically, of the 831 units EPA investigated, 467 units were ultimately issued notices of violation, had complaints filed in court, or were included in settlement agreements. In total, EPA reached 22 settlements covering 263 units, which will require affected unit owners to, among other things, install around $12.8 billion in emissions controls. These settlements will reduce emissions of sulfur dioxide by an estimated 1.8 million tons annually, and nitrogen oxides by an estimated 596,000 tons annually.
section_title: What GAO Recommends
paragraphs: GAO recommends that EPA, among other actions, consider ways to develop a centralized source of data on NSR permits issued to electricity generating units. EPA expressed its commitment to filling gaps in its data systems, but disagreed with the actions GAO recommended. GAO believes that its recommendations would enhance oversight of NSR permitting and enforcement.

section_title: Letter
paragraphs: The efficient and reliable operation of the electricity industry is critical to  the health of the U.S. economy. Residential consumers rely on electricity  to power their households, and electricity is a key input for businesses  that produce trillions of dollars in products and services. The United  States depends on a variety of fuels to generate electricity, including  fossil fuels (coal, natural gas, and oil), renewable sources (such as wind,  solar, and biomass), and nuclear power. Of these, fossil fuels have  historically been the primary source of U.S. electricity because of their  abundance, reliability, and relatively low cost. Yet in addition to providing  about 70 percent of U.S. electricity, electricity generating units at fossil  fuel power plants produce substantial amounts of harmful air emissions.  In particular, fossil fuel-fired electricity generating units are among the  largest emitters of sulfur dioxide and nitrogen oxides, which have been  linked to respiratory illnesses and acid rain, as well as of carbon dioxide,  the primary greenhouse gas contributing to climate change.
EPA has set national ambient air quality standards for six pollutants, termed “criteria”  pollutants: carbon monoxide, lead, nitrogen oxides, ozone, particulate matter, and sulfur  oxides.
Source Review (NSR), a permitting process established in 1977. Under  NSR, owners of generating units must obtain a preconstruction permit  that establishes emission limits and requires the use of certain emissions  control technologies. NSR applies to (1) generating units built after  August 7, 1977, and (2) existing generating units—regardless of the date  built—that seek to undertake a “major modification,” a physical or  operational change that would result in a significant net increase in  emissions of a regulated pollutant. Units built before August 7, 1977, are  not required to undergo NSR unless they undertake a major modification.  However, EPA’s regulatory definition of major modification excludes  certain activities; generating units can undertake these activities without  obtaining NSR permits or installing any additional controls. For example,  activities that qualify as “routine maintenance, repair, and replacement”  are not considered major modifications and therefore do not trigger NSR.
Congress allowed units that existed as of August 7, 1977 to defer  installation of emissions controls until they made a major modification in  the expectation that, over time, all units would either install such controls  or shut down, thereby lowering overall emissions. As we reported in April  2012, however, many older units—those that began operating in or before  1978—continue to produce electricity. According to our analysis of EPA  data, 1,485 older units (43 percent of fossil fuel units) were still in  operation in 2010. A substantial number of these older units did not have  emissions controls; for example, 1,201 units (74 percent of older units)  did not have controls for sulfur dioxide. In addition, 564 units (38 percent  of older units) did not have any controls for nitrogen oxides, and 1,277  units (86 percent of older units) had not installed selective catalytic  reduction (SCR) equipment, the type of control most effective at reducing  nitrogen oxides. The reduction in emissions from the use of emissions  controls can be substantial: SCR equipment, for example, can reduce  nitrogen oxides emissions by 70 to 95 percent. Emissions controls can  also be expensive; for example, installing SCR equipment in a typical  coal-fired generating unit could cost from $108 million to $129 million.
Throughout its history, NSR has been characterized by complexity and  controversy, involving disputes between EPA and industry about, among  other issues, whether certain changes to generating units qualified for  exclusion as routine maintenance, repair, and replacement. In December  2002, EPA finalized revisions to NSR regulations, including exemptions  for certain pollution control projects from NSR. These revisions were  intended to maximize operating flexibility, improve environmental quality,  and promote administrative efficiency, among other aims. In addition, in  October 2003, EPA finalized a rule that categorically excluded certain  activities from NSR by defining them as “routine maintenance, repair, and  replacement.” This rule was intended to provide more certainty to  generating units and permitting authorities. These NSR reforms, as the  two rulemakings were known, provoked considerable controversy. Some  states and industry groups agreed with EPA’s position, while a number of  public health and environmental groups, as well as a group of states  primarily from the Mid-Atlantic and Northeast, filed lawsuits challenging  the legality of the two rules. Since their issuance, two of the five  provisions in the 2002 rule, as well as the 2003 rule, were struck down in  court.
As with many environmental laws, responsibility for implementing NSR,  including issuing NSR permits, generally rests with state and local  agencies, with oversight by EPA’s 10 regional offices and EPA  headquarters. Owners or operators of generating units wishing to make  major modifications must prepare and submit a permit application to the  appropriate state or local permitting agency before construction. The state  or local permitting agency determines if the application is complete;  develops a draft permit, if one is necessary; notifies EPA and the public of  the application; and solicits comments on the draft permit. The permitting  agency then issues a final permit, if merited, with responses to comments  it received. The permitting agency is to provide EPA with a copy of every  permit application, draft permit, and final permit.
EPA administers its NSR oversight and enforcement responsibilities  through its headquarters Office of Enforcement and Compliance  Assurance, as well as its 10 regional offices. This office monitors  compliance, identifies national enforcement concerns and priorities, and  provides overall direction on enforcement policies; the office also  occasionally takes enforcement action in conjunction with the Department  of Justice (DOJ), the agency responsible for handling enforcement cases  in federal court. In turn, EPA’s regional offices carry out much of EPA’s  NSR enforcement responsibilities, oversee states’ enforcement programs,  and implement NSR in certain areas, such as Indian country.1999, EPA has made enforcing NSR among coal-fired electricity  generating units a national enforcement priority and has reached several  settlements with owners of such units, which have resulted in the  installation of emissions controls, unit retirements, agreements to fund  environmentally beneficial projects, and tens of millions of dollars in civil  penalties.
Since  This report responds in part to your request for information on the  implementation and enforcement of NSR for fossil fuel electricity  generating units. Specifically, our objectives were to examine (1) what  information EPA maintains on NSR permits issued to fossil fuel electricity  generating units; (2) challenges, if any, that EPA, state, and local  agencies face in ensuring compliance with requirements to obtain NSR  permits; and (3) what available data show about compliance with  requirements to obtain NSR permits.
To respond to our objectives, we gathered information from EPA and from  selected state and local officials involved in implementing NSR. We  selected a nonprobability sample of nine states on the basis of (1) the  number of older electricity generating units in the state; (2) the quantity of  electricity generated by such units in those states; (3) the volume of sulfur  dioxide, nitrogen oxides, and carbon dioxide emitted by units in those  states; and (4) the region in which the generating unit was located. The  nine states we selected were: Alabama, Georgia, Indiana, Kentucky,  Missouri, New York, North Carolina, Ohio, and Pennsylvania. We  gathered information from EPA and these selected states on the status of  their NSR permitting programs and efforts to collect and maintain relevant  data. In addition, we spoke with officials from these states, as well as  officials at the four EPA regional offices that oversee these states and  EPA’s Office of Air and Radiation. In three of the states, some localities  are responsible for NSR permitting; we spoke with officials at two of those  localities. To assess compliance with NSR, we reviewed relevant  documents from EPA, other government agencies, academic and  research institutions, environmental organizations, and industry groups.  We also interviewed knowledgeable enforcement and compliance officials  from EPA headquarters and the four regional offices, as well as officials in  selected states and localities, to collect information on EPA’s efforts to  enforce NSR and track compliance among generating units. In addition,  we spoke with stakeholders from academic and research institutions,  environmental organizations, and industry groups on these topics.  Appendix I provides additional information about our scope and  methodology.
We conducted this performance audit from April 2011 to June 2012, in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Subject to EPA’s oversight, state and local permitting agencies generally  administer NSR and operate under one of two arrangements. Under the  first arrangement, state and local agencies receive “delegated authority”  from EPA under which they implement EPA’s NSR regulations. Under the  second arrangement, states and localities are also responsible for  administering NSR, but instead of implementing EPA’s NSR regulations,  state and local agencies develop plans, known as state implementation  plans, that regulate the construction and modification of stationary  sources. These plans provide assurances that the states and localities  will have adequate personnel, funding, and authority under state law to  carry out the plan, among other provisions. State implementation plans  also must include NSR regulations that are at least as stringent as EPA’s  NSR regulations, although states and local agencies are authorized to  include more stringent or additional requirements. States and localities  must submit these plans, as well as any revisions to them, to EPA for  approval. Once EPA approves the plans, they become federally  enforceable requirements.
Although this report focuses on NSR, the Clean Air Act and its  implementing regulations subject electricity generating units to additional  emissions control requirements. For example, the Acid Rain Program,  created by the Clean Air Act Amendments of 1990, established a cap on  the amount of sulfur dioxide that may be emitted by electricity generating  units nationwide and authorizes those generating units to trade emissions  allowances for sulfur dioxide. These facilities must also continuously  monitor their emissions and report them to EPA. Furthermore, EPA has  recently finalized or proposed several other regulations that will affect  many fossil fuel generating units. These regulations include the (1)  Mandatory Reporting of Greenhouse Gas rule finalized in 2009, which  established reporting requirements for greenhouse gas emissions above  certain thresholds; (2) Cross-State Air Pollution Rule, finalized in 2011,  which limits sulfur dioxide and nitrogen oxides emissions from a number  of states that contribute significantly to nonattainment or interference with  maintenance of certain national ambient air quality standards in  downwind states; (3) National Emissions Standards for Hazardous Air  Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating  Units, also known as the Mercury and Air Toxics Standards, which  establish emissions limitations on mercury and other pollutants and was  finalized on February 15, 2012; and (4) Standards of Performance for  Greenhouse Gas Emissions for New Stationary Sources for Electric Utility  Generating Units, proposed in April 2012, which establishes new source  performance standards for emissions of carbon dioxide for certain new  fossil fuel electricity generating units.
section_title: EPA Does Not Maintain Complete Information on Issued NSR Permits or Track the Impact of Its Comments
paragraphs: EPA does not maintain complete information on NSR permits issued to  fossil fuel electricity generating units. State and local permitting agencies  track the NSR permits they issue, but EPA does not maintain data on  these permits in a complete and centralized source of information, which  limits the agency’s ability to assess the impact of NSR. In addition, EPA  has the opportunity to review and comment on every draft NSR permit  issued by state and local permitting agencies, but the agency does not  compile data on which permitting authorities address EPA’s comments.  The absence of this information makes it difficult for EPA to measure the  impact of its comments and may impede its ability to assess how state  and local permitting agencies may differ from EPA in their interpretation of  NSR requirements.
subsections: section_title: EPA Does Not Maintain Complete Data on NSR Permits
paragraphs: EPA does not maintain complete information on NSR permits issued for  construction of new fossil fuel electricity generating units or for major  modifications to existing units. State and local permitting agencies, which  issue NSR permits in most parts of the country, track the NSR permits  they issue. (Figure 1 describes the roles of state and local permitting  agencies and EPA in issuing NSR permits.) State and local agencies vary  widely in the types of data they collect on NSR permits and the systems  they use to compile the data. Some states maintain detailed information  on NSR permits in electronic form available on publicly accessible  websites. For instance, in seven of the nine states where we conducted  interviews, state officials maintain information online that can be used to  identify the electricity generating units that have received NSR permits, as  well as the requirements of the permits.maintained in different formats across these states and cannot be readily  compiled into a complete source of information on NSR permitting for the  electricity generating sector.
section_title: Regulators Face Challenges in Ensuring Compliance with NSR Permitting Requirements
paragraphs: In addition to a lack of comprehensive permitting data, EPA and state and  local agencies face other challenges in ensuring that owners of fossil fuel  electricity generating units comply with requirements to obtain NSR  permits. Many of the challenges stem from two overarching issues:  (1) determining whether an NSR permit is required and (2) identifying  instances where unit owners should have obtained NSR permits but did  not. As a result, EPA’s enforcement efforts involve long, resource- intensive investigations.
subsections: section_title: Determining When NSR Applies Can Be Difficult
paragraphs: A major challenge to EPA, states, and local agencies in ensuring NSR  compliance is that it can be difficult for unit owners and regulators to know  whether an NSR permit is needed, because NSR’s rules governing  applicability are complex and because NSR applicability is determined on  a case-by-case basis. EPA and state officials we spoke with said that  NSR as it applies to new units is fairly straightforward, because newly  constructed units generally must obtain NSR permits before starting  operation. In contrast, determining what constitutes a major modification  of an existing unit, and, thus, what requires an NSR permit, is more  complex. Under NSR regulations, owners are to apply for an NSR permit  before making any physical or operational change that would result in a  significant net increase of emissions. These changes, such as adding  new equipment, must be evaluated in the specific context of the unit and  its intended use. State officials and industry representatives we  interviewed said it can be difficult to determine whether these activities  trigger NSR because the two steps for determining applicability—first,  whether the unit is making a physical or operational change and, second,  whether this change would result in a significant net increase of  emissions—are not categorically defined and have changed over time.
The first step for determining NSR applicability can be complicated  because the definition of “physical or operational change” excludes  activities that are considered routine maintenance, repair, and  replacement. NSR regulations, first finalized in 1978, contained no  description or definition of the “routine maintenance” exclusion, instead  relying on a case-by-case approach that involves weighing several  factors, including the nature, extent, purpose, frequency, and cost of  proposed activities. Federal courts, however, have issued inconsistent  decisions on whether the factors should be analyzed with respect to  industry practice or a particular unit’s history. In 2003, in part because of  concerns about the case-by-case approach, EPA finalized a rule that  categorically excluded certain activities from NSR by defining them as  “routine maintenance, repair, and replacement” to provide more certainty  to generating units and permitting agencies. Specifically, the rule  categorically deemed certain replacement activities to be routine  maintenance, repair, and replacement if certain conditions were met,  such as replacement activities’ costs not exceeding a specified threshold.  In 2006, however, a federal appeals court struck down this rule because it  was contrary to the plain language of the Clean Air Act.
As a result, a case-by-case approach is still used to determine which  activities qualify for the exclusion. Several state officials and industry  representatives we interviewed said that the case-by-case approach  makes it difficult to know when NSR applies. A number of industry  representatives also said that uncertainty around NSR applicability can  deter owners from making improvements to units that would improve  efficiency. One senior EPA enforcement official we interviewed, however,  noted that NSR regulations are written broadly to cover many disparate  industries and said it would not be possible for EPA to develop detailed  regulations tailored to each industry. One state official we spoke with also  said that attempts to more precisely specify what activities are considered  routine maintenance might not be worthwhile, since EPA’s previous  efforts to do so were struck down in court.
The second step in determining NSR applicability—assessing whether a  change results in a significant net increase in emissions—presents  additional complications. Like the routine maintenance exclusion,  regulations governing what constitutes an increase in emissions have  been subject to litigation, leading to changes in the process used to  measure emissions increases over time. For example, in 1992, in  response to a court decision, EPA finalized a regulation changing how  future emissions from generating units are to be calculated. Rather than  calculating future emissions based on a unit’s potential to emit, under the  revised regulation, future emissions are calculated based, in part, on the  maximum emissions that can be generated while operating the unit as it  is intended to be operated and as it is normally operated. Some state  officials and industry representatives we interviewed said that calculating  emissions increases can be challenging because the regulations are  complex, and EPA’s interpretation has changed over time. NSR’s  complexity can be particularly difficult for owners of smaller generating  units who may lack the legal and technical expertise to properly comply  with NSR, according to an EPA official and industry representative we  interviewed. EPA officials acknowledged that the process is not always  simple, but they also noted that it is much easier for companies to make  these calculations than for permitting agencies to verify them, since  permitting agencies are less familiar with—and have less access to— information about a generating unit, its activities, and its data systems,  than the companies.
According to several state officials and industry representatives we  interviewed, assessing whether a change results in a significant net  increase in emissions can also be complicated because EPA regulations  authorize certain emissions increases to be excluded from this  assessment—specifically, those emissions increases that are attributable  to growth in demand. Several state officials we interviewed said that  some owners have had difficulty distinguishing between emissions  increases due to projected growth in demand and emissions increases  resulting from the change to the unit, a process made more difficult  because EPA has not offered clarification or guidance regarding this  exclusion. One senior EPA enforcement official disagreed with this  assessment, noting that utilities commonly employ models that help  project demand as a way to guide their operations and investment  decisions. According to this official, EPA’s approach is based on methods  already widely employed throughout the electricity sector.
EPA and state agency officials, who are responsible for verifying owners’  calculations when they apply for a permit or seek guidance on NSR  applicability, said that verifications are further complicated by other NSR  provisions that exclude certain activities from NSR. For example, a  change that significantly increases a generating unit’s emissions will not  trigger NSR if it does not cause a net increase in emissions. Specifically,  an NSR permit is not required if the increase in emissions resulting from a  change is offset by certain contemporaneous emissions reductions, a  process called “netting.” EPA has defined “contemporaneous” as within 5  years before construction on the change commences, although states  can define the term differently. Thus, an owner could compensate for an  emissions increase in a given year by subtracting emissions decreases  that were made in the previous 5 years, although any other emissions  increases during that 5-year period must also have been included in the  calculation. Several state agency officials we spoke with said that unit  owners often pursue this option so they do not have to obtain an NSR  permit and install costly emissions controls. Several EPA and state  officials we interviewed also said, however, that it can be difficult to verify  that calculations are valid, in part because they must rely on information  provided by the unit owners. Some of these officials said it can be difficult  to determine what types of emissions reductions and increases may be  aggregated together under the netting option. One EPA regional office  official said that, overall, options such as netting complicate and lengthen  the permitting process because they require unit owners to submit  additional documentation that the regulator must in turn review.
To aid owners and regulators in determining when NSR should apply,  EPA and state officials identified several sources of available guidance,  including the following:
Consultations with state and local agencies. Before seeking a permit,  owners of units can request assistance from state and local permitting  agencies in determining whether NSR applies. Some state agency  officials said that unit owners in their state regularly seek guidance,  particularly on how to qualify for one of NSR’s exclusions. However,  other EPA and state officials we spoke with said that such requests  are uncommon; many unit owners may hesitate to contact a  regulatory agency because regulators may have a different  interpretation of NSR that could require them to install costly  emissions controls.
EPA’s 1990 draft NSR workshop manual. Several state agency  officials we spoke with said they rely on a draft EPA manual from  1990 issued as guidance for implementing the federal NSR permitting  process, although the manual was never finalized and has not been  updated.
Regionally maintained databases. Through one of its regional offices,  EPA maintains an online database containing more than 600 EPA- issued policy and guidance documents. Several EPA and state  officials we interviewed said that the database was helpful in providing  current information on how to apply NSR, although one state official  said that these determinations are not always consistent.
Court decisions. Several EPA and state permitting officials we  interviewed said they rely primarily on court rulings for guidance on  interpreting NSR regulations to ensure that their determinations are  up-to-date.
EPA officials said that the agency’s ability to generate comprehensive,  nationwide guidance is limited because of the case-by-case nature of  NSR, ongoing litigation, and the variation in NSR requirements across  states. For example, some states and localities have adopted NSR  requirements that are more stringent than the federal regulations.  Furthermore, some states’ regulations differ because they have not  revised their state implementation plans to incorporate the 2002 NSR  reforms or had those revisions approved by EPA.
section_title: Identifying NSR Noncompliance Requires Long Investigations
paragraphs: The second major challenge EPA and state and local agencies face in  ensuring compliance with NSR is that it is often difficult for regulators to  identify noncompliance—that is, instances where owners did not obtain  NSR permits before making major modifications to their generating units.  According to several EPA officials we interviewed, identifying  noncompliance can be challenging because unit owners—not regulatory  agencies—have responsibility for determining whether they need an NSR  permit. Most owners do not ultimately obtain NSR permits before making  changes to their units, according to EPA officials we interviewed, because  the owners determine that the changes fall under one of NSR’s  exclusions, such as routine maintenance, or because they offset  emissions increases through netting. These unit owners are generally not  required to notify EPA or state or local permitting agencies when they use  these exclusions. Therefore, EPA would not review the owners’  determinations unless (1) the owner proactively sought a permit and the  state or local permitting agency determined that an NSR permit was  required or (2) EPA initiated an investigation. In instances where a unit  did not apply for and receive a permit as required, it can take EPA several  years to identify the noncompliance and take corrective action. Moreover,  under an EPA rule finalized in 2007, known as the “reasonable possibility  recordkeeping” rule, a unit owner who determines that a change will not  trigger NSR is not required to keep records of the change and its resulting  emissions unless the owner believes there is a reasonable possibility that  the change could result in a significant emissions increase, and other  conditions are met. According to one state official we interviewed, this  rule may complicate efforts to identify noncompliance because EPA and  state regulators generally have to retroactively determine whether an  NSR permit should have been obtained for past activities, and without the  benefit of company records, such a determination is difficult.
According to EPA and state officials we interviewed, state and local  permitting agencies are generally not well positioned to identify  noncompliance. State and local permitting agencies routinely inspect  units, but officials told us these inspections focus on compliance with the  terms of existing operating permits, not on whether an owner failed to  obtain a permit. Several EPA and state officials told us that, given the  complexity of most units, routine compliance inspections are not well  suited to detect NSR violations, in part because it is difficult to distinguish  work that might be considered a major modification from other work that  is routine. According to one EPA official, to identify noncompliance with  NSR, agency investigators need to identify what changes have already  occurred; gather information on the nature of these changes; and  determine whether NSR should have applied at the time the changes  occurred, considering all possible exclusions and other factors. EPA  officials we spoke with said that this process requires investigators to  analyze information on historic emissions and a large volume of records  on work conducted over the course of a unit’s life. According to these and  other EPA officials, such extensive review would not be possible during  routine compliance inspections. Several state and EPA officials we spoke  with also said that, given the complexity and case-by-case nature of NSR,  state and local agencies generally do not have the resources—and in  some cases expertise—to detect noncompliance. As result, several state  officials we spoke with said they rely on EPA to identify instances of  noncompliance with NSR.
EPA has therefore taken a lead role in enforcing NSR, beginning in the  mid-1990s and continuing to the present. In 1996, EPA began targeting  older, coal-fired generating units for compliance assessments and, on the  basis of its investigations, alleged that several of the largest coal-fired  electricity generating units in the country had violated NSR provisions by  making major modifications without obtaining an NSR permit. In 1999 and  early 2000, after receiving a number of cases from EPA, DOJ filed seven  enforcement actions in U.S. federal courts in what is known as EPA’s  Coal-Fired Power Plant Enforcement Initiative. For their part, owners of  units targeted by the NSR enforcement initiative contended that, among  other things, their projects should have qualified for the routine  maintenance exclusion. Nonetheless, almost all of these cases ultimately  resulted in settlements mandating the installation of emissions controls  and civil penalties. Since then, EPA and DOJ have continued this  enforcement initiative and secured additional settlements for alleged  noncompliance with NSR. According to EPA, steps to develop an NSR  enforcement case include:  1.  Section 114 requests. Under Section 114 of the Clean Air Act, EPA  may obtain information from owners of generating units to determine  whether violations have occurred. Such information includes detailed  cost information on capital construction projects suspected to be NSR  violations. According to EPA officials, collecting and reviewing such  information can take several months to over a year. 2.  Settlement negotiations. After reviewing generating units’ records,  EPA determines whether NSR violations have occurred. If EPA  determines that the unit is not in compliance, it will notify owners of  generating units and encourage the owner to install emissions  controls. EPA initially tries to resolve noncompliance through a  settlement.  3.  Referral. If settlement negotiations are unsuccessful, EPA will  determine whether enough evidence exists to refer the case to DOJ  for potential litigation. DOJ then reviews the accumulated evidence  and determines whether there is merit to file suit against the company.  Before filing the case in court, DOJ generally discusses the matter  with the owner in a further attempt to settle.
According to EPA and DOJ officials, EPA’s investigations for NSR  compliance, and subsequent enforcement actions, take a long time to  conclude and involve substantial EPA resources. In instances where  EPA’s investigations have uncovered suspected violations, it can take  years to litigate a case or bring it to conclusion through a settlement.  Specifically, the 22 settlements resulting from EPA’s enforcement  initiative took, on average, 7 years to conclude. According to several  industry representatives we interviewed, these efforts have also placed a  large burden on owners and operators of generating units, given the  amount of information required on past activities at the unit.
section_title: Available Data on NSR Compliance Are Not Complete but Suggest Substantial Noncompliance
paragraphs: Available data, while not complete, suggest that a substantial number of  generating units have not complied with requirements to obtain NSR  permits. Complete data on NSR compliance do not exist for two primary  reasons. First, EPA has not yet investigated all electricity generating units  for compliance with requirements to obtain NSR permits. Second, NSR  compliance is determined at a point in time, and EPA’s interpretation of  compliance has, in some cases, differed from that of federal courts.  Nonetheless, EPA has investigated a majority of coal-fired generating  units, and data from these investigations suggest that a substantial  number of generating units have not complied.
subsections: section_title: Complete Data on Unit Compliance with NSR Are Not Available
paragraphs: From our review of relevant documentation and EPA-provided data, we  identified two primary reasons why complete data on NSR compliance  are not available. First, EPA has not yet investigated all generating units  for NSR compliance, and second, available data do not provide a  complete picture of compliance.
EPA has investigated most—but not all—coal-fired generating units for  compliance with NSR at least once. According to our review of EPA- provided documents and data, EPA has investigated 831 generating units  at least once since it began its Coal-Fired Power Plant Enforcement  Initiative. These 831 units represent about 81 percent of all coal-fired  units that generated electricity in 2010 and about 24 percent of all fossil  fuel-fired units (those using coal, natural gas, or oil) that produced  electricity in 2010.coal-fired units—have not been investigated by EPA. According to EPA  officials we interviewed, the agency has focused most of its NSR  compliance efforts on large, coal-fired units because they produce  dramatically higher levels of harmful air emissions.
Most natural gas units—as well as some smaller  Data on units investigated by EPA are not conclusive because  compliance is determined at a point in time; therefore, subsequent  changes to the unit could affect its future compliance with NSR. NSR is  required each time an existing generating unit undertakes a major  modification. Thus, an owner of electricity generating unit that has  obtained an NSR permit in the past—or was subject to an EPA  investigation—is not exempt from the requirement to obtain an NSR   Moreover, allegations of  permit for any future major modifications. noncompliance stemming from EPA’s investigations do not necessarily  mean that a violation has occurred, because in some cases federal courts  have ultimately disagreed with EPA about the need for an NSR permit.  Given these issues, it is difficult to provide a comprehensive assessment  of NSR compliance at any given time.
section_title: EPA Has Found Noncompliance at a Majority of Units It Has Investigated
paragraphs: Although units must undergo NSR review for major modifications, some of the  settlement agreements EPA has reached with electricity generating units include a  provision precluding EPA, in certain circumstances, from suing the owner for making a  major modification and not undergoing NSR. of coal-fired units that produced electricity in 2010, and about 14 percent  of all fossil fuel-fired units that produced electricity in 2010.
According to EPA, the Coal-Fired Power Plant Enforcement Initiative is  perhaps the most comprehensive and coordinated enforcement effort  under the Clean Air Act to date. The initiative has led to 22 settlements  covering a total of 263 units, or approximately 32 percent of the units EPA  has investigated. According to our analysis of EPA data, the settlements  will require affected unit owners to install and operate emissions controls  costing an estimated $12.8 billion in total and levy civil penalties totaling  around $80 million. Some companies are also required to fund  environmentally beneficial projects, such as restoring watersheds and  forests in national parks. These settlements are projected to reduce sulfur  dioxide emissions by more than 1.8 million tons annually and nitrogen  oxides emissions by about 596,000 tons annually. reached companywide settlements in which companies agreed to put  emissions controls on units constituting most of their production capacity.  Two of the largest settlements—with American Electric Power and the  Tennessee Valley Authority—represent 105 units, around 40 percent of  the total, and about $8.6 billion in control costs, or around two-thirds of  the total. A senior Department of Justice official we interviewed said that,  in addition to the 22 concluded settlements, 7 additional NSR cases are in  various stages of litigation. See appendix III for more details on EPA’s  concluded NSR settlements.
section_title: Conclusions
paragraphs: These reductions are to be phased in over an agreed-upon time frame, often 10 years. substantial number of generating units EPA investigations have allegedly  found to be noncompliant suggests that many generating units have not  obtained NSR permits as required. Addressing NSR’s complexity and  improving compliance could reduce the need for long and resource- intensive enforcement actions and more effectively protect air quality by  averting emissions before they occur. Yet EPA’s ability to simplify NSR or  develop comprehensive, nationwide guidance is limited for several  reasons, including the case-by-case nature of NSR applicability, ongoing  litigation, and the variation in NSR requirements across states.
Nonetheless, EPA has an opportunity to improve its efforts by collecting  more comprehensive NSR permitting data. Several EPA regional offices  maintain some information on the NSR permits issued by the state and  local permitting agencies in their regions, but this information is in  different formats and not compiled by EPA into a complete and  centralized source of information on NSR permits issued nationwide, as  recommended by the National Research Council in 2006. More complete  information on NSR permitting would help EPA and external parties  gauge the extent to which fossil fuel generating units have obtained NSR  permits and help inform enforcement efforts that have already found  widespread alleged noncompliance.
In cases where unit owners apply for permits before making physical or  operational changes that would result in a significant net increase of  emissions, EPA plays an important role because it has an opportunity to  comment on every draft NSR permit under consideration by state and  local permitting agencies and to influence decisions about the appropriate  level of pollution control, among others. A key benefit of EPA’s  involvement in the permitting process is that the agency can review and  comment on permits issued in different geographic areas and assess  various aspects of draft permits, including the level of emissions control  required. Because emissions controls can cost owners and operators of  generating units hundreds of millions of dollars, EPA’s review of the  required level of emissions control is critically important. Although EPA  and headquarters staff devote resources to commenting on draft permits,  EPA does not track whether state and local permitting agencies  incorporate the agency’s comments. Without such information, EPA  cannot fully assess the extent to which state and local agencies  incorporate its comments in NSR permits or the extent to which emissions  control requirements imposed by state and local permitting agencies  reflect suggestions made by EPA in its comments.
section_title: Recommendations for Executive Action
paragraphs: To help improve EPA’s implementation of NSR, we recommend that the  EPA Administrator direct the entities responsible for implementing and  enforcing NSR—specifically, the Office of Enforcement and Compliance  Assurance, Office of Air Quality Planning and Standards, and EPA  regions—to take the following two actions:
Working with EPA regions and state and local permitting agencies,  consider ways to develop a centralized source of information on NSR  permits issued to fossil fuel electricity generating units, and
Using appropriate methods, such as sampling or periodic  assessments, develop a process for evaluating the effects of its  comments on draft NSR permits.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Energy, the  Department of Justice, and Environmental Protection Agency (EPA). The  Department of Energy said they had no comments on the report’s findings  and recommendations. The Department of Justice provided technical  comments, which we incorporated as appropriate. EPA provided written  comments, a copy of which can be found in appendix IV. In its written  comments, EPA agreed with the importance of having good systems for  tracking and compiling information to efficiently and effectively administer  its programs, while enhancing accountability and transparency, but  disagreed with the need for the actions called for in our  recommendations.
Regarding our first recommendation that EPA work with state and local  permitting authorities to consider ways to develop a centralized source of  information on permits issued to electric generating units, EPA said that it  believes it has a number of permit tracking mechanisms in place, and  raised four concerns about our recommendation.  First, EPA said that it  has maintained a centralized permit information database for many  years—the RACT/BACT/LAER Clearinghouse, which is capable of  capturing and sharing information on NSR permits that have been issued.   However, EPA acknowledged that this database is incomplete—including  about half of issued NSR permits—primarily because, in some areas,  state and local agencies are not required to enter information about the  permits they issue. Nonetheless, EPA said it is taking steps to improve  participation. We continue to believe that comprehensive permitting data  would enable EPA, Congress, and other interested parties to better  understand the scope and impact of NSR.
Second, EPA said that its regional offices track NSR permitting by the  states in their jurisdiction and that the agency believes it is most  appropriate for the regional offices, rather than headquarters, to be  responsible for this information. However, our work found that the tracking  of NSR permits by EPA’s regional office varied in completeness. For  example, of the four regions we included in our sample, one region had a  robust system for tracking issued NSR permits, and one had no system at  all. EPA also said that its regional offices provide oversight of state and  local agencies and that an EPA-wide compilation of permit data would be  redundant, add costs, and provide little benefit to its oversight function.   We continue to believe that a centralized source of complete information  on NSR permits would enhance EPA’s oversight of state and local  permitting agencies and help ensure consistency across regions. EPA  headquarters could build on the ongoing efforts of some regional offices  and develop more complete data using a simple, low-cost system. For  example, we found that two regional offices use a spreadsheet to compile  and maintain basic data on permits issued by state and local agencies.  Additionally, we believe that any costs incurred in developing more  comprehensive data should be considered relative to the benefits that  could accrue from having better information on the universe of permitted  facilities including, as noted by the National Research Council, the ability  to assess the impact of policy changes.
Third, EPA said that a centralized database of all NSR permits would not  help most members of the public because most members of the public  are interested in permits issued to specific facilities rather than the entire  universe of all permits issued. Our report focused on the importance of  more complete data to enhance programwide oversight of NSR permitting  and targeting of enforcement efforts. More complete data could potentially  assist the public and other interested parties in understanding the extent  of NSR permitting for individual facilities, but this was not the basis of our  findings and recommendations. We continue to believe that a centralized  source of permitting data is important for EPA’s oversight of state and  local permitting agencies and to enhance its enforcement efforts.
Fourth, EPA questioned the value of more comprehensive information in  targeting noncompliance with requirements to obtain permits. Specifically,  EPA said that identifying noncompliance involves targeting facilities that  should have obtained permits but did not and that information on facilities  that have obtained permits would not assist in these efforts. Moreover,  EPA said that getting data on noncompliant sources is time- and  resource-intensive. We continue to believe that compiling complete  information on facilities that have obtained permits could help identify  facilities that have not obtained permits and enhance targeting of these  facilities for potential noncompliance. We also believe that understanding  which facilities have obtained permits as required could decrease these  time and resource demands because the agency would have a better  starting point for identifying noncompliance.
Regarding our second recommendation that EPA develop a process for  evaluating the effect of its comments on issued permits, the agency said  that its regional offices already do so and described the interactions  between these offices and state and local agencies during the permitting  process. EPA also said that its regional offices already conduct oversight  of state and local permitting agencies, including whether these agencies  adequately address EPA’s comments on draft permits. We acknowledge  these efforts in the report and believe that, as part of its overall oversight  of nationwide permitting efforts, EPA headquarters could benefit from a  broader and more comprehensive assessment of the extent to which its  comments on draft permits were adequately considered and incorporated.  Because the terms of issued permits can result in the installation of  pollution controls that cost hundreds of millions of dollars, it is important to  conduct higher level review of issued permits to identify variability in the  terms of issued permits across geographic areas. We therefore continue  to believe that implementing this recommendation would enhance  oversight of NSR permitting nationwide and that EPA has an opportunity  to build on the information already collected through the oversight  activities of its regional offices.
EPA also provided technical comments that we incorporated as  appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Administrator of EPA, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  David Trimble at (202) 512-3841 or trimbled@gao.gov or Frank Rusco at  (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributors to this report are  listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess what information the Environmental Protection Agency (EPA)  maintains on New Source Review (NSR) permits issued for fossil fuel  electricity generating units, we gathered information from EPA and  selected states on the status of their NSR permitting programs and efforts  to collect and maintain permitting data. We selected a nonprobability  sample of nine states on the basis of (1) the number of older electricity  generating units in the state; (2) the quantity of electricity generated by  such units in those states; (3) the volume of sulfur dioxide, nitrogen  oxides, and carbon dioxide emitted by units in those states; and (4) the  region in which the generating unit was located. We obtained these data  from the Ventyx Velocity Suite EV Market-Ops database, a proprietary  database containing consolidated energy and emissions data from EPA,  the Energy Information Administration (EIA), and other sources. To  assess the reliability of the Ventyx data, we reviewed documentation  provided by Ventyx and tested key variables to verify their accuracy and  determined the Ventyx data to be sufficiently reliable for our purposes.  The nine states we selected were Alabama, Georgia, Indiana, Kentucky,  Missouri, New York, North Carolina, Ohio, and Pennsylvania. To assess  how permitting information is collected and used, we reviewed relevant  documentation from these nine states and from EPA. We also interviewed  permitting officials from these nine states, the four EPA regional offices  that oversee these states, EPA’s Office of Air and Radiation, its Office of  Inspector General, and its Office of Enforcement and Compliance  Assurance. In three of the states, some localities are responsible for NSR  permitting; we also spoke with officials at two of those localities, which we  selected on the basis of the number of older units in their jurisdictions.
To examine what challenges, if any, EPA, state, and local agencies face  in ensuring compliance by electricity generating units with requirements to  obtain NSR permits, we reviewed relevant provisions of the Clean Air Act  and NSR regulations; guidance and other information on implementing  NSR maintained by EPA; and literature on NSR from government  agencies, academic and research institutions, environmental  organizations, and industry groups. We also interviewed knowledgeable  officials and stakeholders from these agencies and institutions, as well as  officials from the selected states and localities.
To review what available data show about compliance with requirements  to obtain NSR permits, we reviewed information published by EPA on the  estimated rate of noncompliance by industrial sectors. We also reviewed  information on EPA’s enforcement activities maintained by enforcement  officials in EPA’s Office of Enforcement and Compliance Assurance,  including (1) data on notices of violation sent to owners of generating  units alleging noncompliance with NSR; (2) lawsuits filed in court for  alleged NSR violations; and (3) information on the settlements concluded  by EPA and the Department of Justice with owners of generating units,  which ended or prevented lawsuits alleging noncompliance. To assess  the reliability of the EPA-provided data, we interviewed knowledgeable  agency officials and tested key variables to verify their accuracy. We  determined these data to be sufficiently reliable for the purposes of our  analysis. We also interviewed knowledgeable enforcement and  compliance officials from EPA’s headquarters Office of Enforcement and  Compliance Assurance and four regional offices.
We conducted this performance audit from April 2011 to June 2012, in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comparison of Available Databases of NSR Permits for Electricity Generating Units
section_title: Appendix III: Concluded NSR Settlements
section_title: Appendix IV: Comments from the Environmental Protection Agency
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Michael Hix (Assistant  Director), Ellen W. Chu, Philip Farah, Cindy Gilbert, Jessica Lemke, Jon  Ludwigson, Nancy Meyer, Mick Ray, and Jeanette Soares made key  contributions to this report.