Opinion ID: 3180012
Heading Depth: 4
Heading Rank: 2

Heading: EPA’s Cost Analysis

Text: SRP also challenges EPA’s cost analysis, arguing that it “diverged” from the Guidelines and was “inadequate” to support its BART determinations for NOX emissions. Additionally, SRP argues that EPA’s cost assessment was flawed “because [EPA] insisted on rigid adherence to the [Cost Manual] irrespective of site-specific costs.” EPA explains that it used the “air pollution control cost development” component of the Integrated Planning Model (“IPM”) to develop its cost estimates. See 77 Fed. Reg. at 72,530. IPM, a model of the United States electric power sector, “relies upon a very large number of data inputs and provides forecasts” of costs and other variables relevant to decisionmaking in that sector. Id. SRP maintains that by using IPM cost estimates, EPA ignored the Coronado facility’s “site-specific characteristics,” and so understated the actual costs of compliance for installing controls at Coronado. In the Final Rule, however, EPA explained that it did not rely on IPM as a whole, but rather on “one component of IPM, specifically, the component that develops the costs of air pollution control technologies.” Id. As EPA explained, that cost development methodology was not “generic” or “generalized.” Id. Rather, it was grounded in databases of actual SCR projects from 2004, 2006, and 2009. Id. At the same time, EPA recognized that “a costly engineering evaluation that included site visits would potentially produce a more refined cost estimate that could be considered more site-specific than our own.” Id. ARIZONA EX REL. DARWIN V. USEPA 39 In addition, in response to Petitioners’ public comments contending that EPA failed to consider site-specific information, EPA conducted supplemental cost analyses that relied upon “cost estimates provided by SRP.” See id. at 72,558–60. Based on this supplemental cost analysis, EPA concluded that “the cost-effectiveness values of SCR . . . [are] not . . . cost-prohibitive” for Coronado. Id. at 72,560. Not satisfied, SRP contends that in its supplemental analysis, “EPA excluded costs it deemed inconsistent with the [Cost Manual]” such as Allowance for Funds Utilized During Construction (“AFUDC”).16 This argument restates Petitioners’ objections to EPA’s reliance on the overnight costing methodology when it partially disapproved Arizona’s SIP. See supra note 14. EPA’s use of such a methodology in its own FIP’s cost analysis is, without doubt, reasonable. See 77 Fed. Reg. at 72,518. In rejecting Arizona’s SIP, EPA explained that the use of the overnight method was “crucial to [its] ability to assess the reasonableness of the costs of compliance.” Id. The agency went on: A proper evaluation of cost-effectiveness allows for a reasoned comparison not only of different control options for a given facility, but also of the relative costs of controls for similar facilities. If the cost-effectiveness of a control technology for a particular facility is outside the range for other similar facilities, 16 “AFUDC primarily represents a tool for utilities to capture their cost of borrowing and return on equity during construction periods.” 77 Fed. Reg. at 72,531. 40 ARIZONA EX REL. DARWIN V. USEPA the control technology may be rejected as not cost-effective. . . . Without an ‘apples-to-apples’ comparison of costs, it is impossible to draw rational conclusions about the reasonableness of the costs of compliance for particular control options. Use of the [Cost Manual] methodology is intended to allow a fair comparison of pollution control costs between similar applications for regulatory purposes. Id. EPA concluded that “it is reasonable for us to insist that the [Cost Manual] methodology be observed in the cost estimate process.” Id. Accordingly, it rejected comments that items like AFUDC should have been incorporated into its cost analysis, as they were “inconsistent with [the Cost Manual] methodology.” Id. at 72,531. EPA’s analysis is reasonable. The purpose of the cost analysis required as part of a BART determination is to foster comparison of the cost of the visibility improvements enabled by various control technologies. As EPA’s comments indicate, cross-facility comparisons of similar sources with regard to the cost-effectiveness of a given control option aid in determining cost-effectiveness at a specific source. Control options are likely to impact similar sources similarly; comparisons assure that the cost and benefit figures used for a particular site are realistic, rather than inflated in one direction or another. Consideration of AFUDC would not further this inquiry, as AFUDC is ultimately reflective of the implementing entity’s financial and logistical situations, grounded in past decisions and in the company’s financial policies and attitudes, not of the hard costs of the equipment and construction, which should be consistent across sites. ARIZONA EX REL. DARWIN V. USEPA 41 While AFUDC and similar concepts are relevant for sales and ratemaking, including them would undermine the sort of “apples-to-apples” comparison that EPA asserts is necessary as part—but only part—of assessing the control options. This approach is consonant with the Guidelines, which specifically advise that “reasonable range[s]” for cost effectiveness are those that are “consistent with the range of cost effectiveness values used in other similar permit decisions over a period of time.” Guidelines at 39,168; see also Oklahoma, 723 F.3d at 1213 (“The guidelines say that states should follow the manual’s methodology so that projects can be more easily compared.”). Moreover, adopting a costing methodology which focuses on achieving consistency and facilitating comparisons aligns with the CAA itself, which empowers EPA to promulgate national regulations concerning BART determinations. See 42 U.S.C. § 7491(a)(4), (b)(1). Accordingly, we reject SRP’s argument that the FIP’s underlying cost analysis was arbitrary and capricious. c. Achievability of the FIP’s NOX emission limits for Coronado The Haze Regulations provide that the BART determination “must be based on an analysis of the best system of continuous emission control technology available and associated emission reductions achievable for each BART-eligible source that is subject to BART.” 40 C.F.R. § 51.308(e)(1)(ii)(A) (emphasis added). The reviewing authority should “take into account the most stringent emission control level that the technology is capable of achieving,” by considering “recent regulatory decisions and 42 ARIZONA EX REL. DARWIN V. USEPA performance data (e.g., manufacturer’s data, engineering estimates and the experience of other sources).” Guidelines at 39,166. SRP argues that the FIP’s NOX emission limit for Coronado — 0.065 lb/mmBtu averaged across the facility — is not achievable. More specifically, it argues that (1) the emission limits are technically infeasible; and (2) EPA did not take into account the Consent Decree binding Coronado Unit 2 when formulating the emission limits. Both of these arguments will be rendered moot if EPA’s recent action proposing to revise the FIP’s NOX emission limit for Coronado results in a final revised FIP consistent with the proposal. See 80 Fed. Reg. 17,010 (March 31, 2015).17 The proposed revision would replace the facilitywide compliance method with “a unit-specific compliance method for determining compliance with . . . BART [] emission limits for nitrogen oxides,” and would establish “unit-specific limit[s]” of 0.065 lb/mmBtu for Coronado Unit 1 and 0.080 lb/mmBtu for Coronado Unit 2. Id. SRP’s technical feasibility argument was largely based on the assertion that a 0.050 lb/mmBtu emissions limit — which SRP contended Coronado Unit 1 would have to satisfy — was “infeasible” for SCR retrofits to coal-fired electric generating units. Even though EPA based its BART determinations for Coronado on modeling showing that SCR controls could achieve a 0.050 lb/mmBtu NOX emission rate with an 80%–90% control efficiency, see 77 Fed. Reg. at 42,853, and has imposed a NOX emission limit in the 0.050 17 EPA has recently informed us that it expects to issue the final revised FIP by March 2016. ARIZONA EX REL. DARWIN V. USEPA 43 lb/mmBtu range in other, similar rulemakings, see 77 Fed. Reg. at 72,544 tbl.7, the proposed revised FIP’s limits for Coronado Unit 1 are now 0.065 lb/mmBtu.18 Likewise, although SRP initially argued that the FIP’s emission limits were inconsistent with the limits prescribed by a pre-existing Consent Decree as to Coronado Unit 2, EPA’s proposed FIP revision establishes the same emissions limit as that prescribed by the Consent Decree: 0.080 lb/mmBtu. See 80 Fed. Reg. at 17,016–18. Consequently, these arguments, whatever merit they may have had as to the original FIP, will not carry force if the proposed revised FIP is adopted. Additionally, SRP argues that the FIP’s emissions limits are in conflict with EPA’s own “presumptive” limits. The BART Guidelines provide a list of “presumptive NOX limits,” based on boiler and coal type, for certain coal-fired generating units operating without post-combustion controls. Guidelines at 39,171. Under the Guidelines, the reviewing authority “should require such [facilities] to meet the [presumptive] NOX emission limits, unless [it] determine[s] that an alternative control level is justified based on consideration of the statutory factors.” Id. The presumptive NOX limits for Coronado are 0.32 lb/mmBtu for bituminous coal and 0.23 lb/mmBtu for sub-bituminous coal. Id. tbl.1. Arizona’s SIP proposed a NOX emission limit for Coronado within the presumptive limit range, while the FIP imposes a far lower facility-wide limit. SRP argues that EPA, unlike Arizona, did not consider the presumptive limits, and therefore violated the Guidelines. 18 A 0.065 lb/mmBtu emissions limit may also be, in SRP’s view, technically infeasible, and SRP is entitled to petition for review of EPA’s action finalizing the FIP revision when it is issued. See 42 U.S.C. § 7607(b). 44 ARIZONA EX REL. DARWIN V. USEPA As the Final Rule explains, EPA did consider the presumptive limits but found there is “no single presumptive NOX limit that applies to any of these units,” as each of the facilities “historically burned both bituminous and subbituminous coal.” 77 Fed. Reg. at 72,529. Accordingly, EPA instead “considered the technological basis for presumptive NOX BART limits . . . as part of the five-factor analysis [it] performed for each facility.” Id. In any event, SRP’s argument that the “law requires [the presumptive] limits to be taken into account in any BART determination” is belied by the Guidelines. The presumptive emission limits are “rebuttable” and “do[] not preclude states or EPA from setting limits that differ from those presumptions.” 77 Fed. Reg. at 72,529. Instead, the Guidelines expressly allow for an alternative control level to be formulated based on the statutory factors, provided that the alternative limits are based on a reasoned BART analysis. 70 Fed. Reg. at 39,171. Moreover, the presumptive emission limits are presumed to be cost-effective, not presumed to be BART in every case. See 77 Fed. Reg. at 51,620, 51,633 (Aug. 24, 2012); 77 Fed. Reg. 14,604, 14,665 (Mar. 12, 2012). In sum, EPA acted reasonably in departing from Guidelines’ rebuttable presumptive limits. But, because EPA has not yet completed its proposed revised FIP, we decline to rule on the reasonableness of its emissions limits, as they are likely to be altered. This aspect of these proceedings is therefore stayed until EPA concludes the administrative process and issues its final revised FIP. ARIZONA EX REL. DARWIN V. USEPA 45