Environmental Protection Agency: Monday, October 27, 2003

Monday,
October 27, 2003

Part II
Environmental
Protection Agency
40 CFR Parts 51 and 52
Prevention of Significant Deterioration
(PSD) and Non-Attainment New Source
Review (NSR): Equipment Replacement
Provision of the Routine Maintenance,
Repair and Replacement Exclusion; Final
Rule
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61248 Federal Register / Vol. 68, No. 207 / Monday, October 27, 2003 / Rules and Regulations
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 51 and 52
[FRL–7575–9; RIN 2060–AK28; Electronic
Docket OAR–2002–0068; Legacy Docket A–
2002–04]
Prevention of Significant Deterioration
(PSD) and Non-Attainment New Source
Review (NSR): Equipment
Replacement Provision of the Routine
Maintenance, Repair and Replacement
Exclusion
AGENCY: Environmental Protection
Agency (EPA).
ACTION: Final rule.
SUMMARY: The EPA is finalizing
revisions to the regulations governing
the NSR programs mandated by parts C
and D of title I of the Clean Air Act
(CAA). Today’s changes reflect EPA’s
incorporation of comments from the
proposed rule for ‘‘Prevention of
Significant Deterioration (PSD) and
Non-attainment New Source Review
(NSR): Routine Maintenance, Repair and
Replacement.’’ These changes provide a
category of equipment replacement
activities that are not subject to Major
NSR requirements under the routine
maintenance, repair and replacement
(RMRR) exclusion. The changes are
intended to provide greater regulatory
certainty without sacrificing the current
level of environmental protection and
benefit derived from the NSR program.
We believe that these changes will
facilitate the safe, efficient, and reliable
operation of affected facilities.
EFFECTIVE DATE: This final rule is
effective on December 26, 2003.
ADDRESSES: Docket. Docket No. A–
2002–04 (Electronic docket OAR–2002–
0068), containing supporting
information used to develop the
proposed rule and today’s final rule, is
available for public inspection and
copying between 8:00 a.m. and 4:30
p.m., Monday through Friday (except
government holidays) at the Air and
Radiation Docket and Information
Center (6102T), Room B–108, EPA West
Building, 1301 Constitution Avenue,
NW, Washington, D.C. 20460; telephone
(202) 566–1742, fax (202) 566–1741. A
reasonable fee may be charged for
copying docket materials.
Worldwide Web (WWW). In addition
to being available in the docket, an
electronic copy of this final rule will
also be available on the WWW through
the Technology Transfer Network
(TTN). Following signature, a copy of
the rule will be posted on the TTN’s
policy and guidance page for newly
proposed or promulgated rules: http://
www.epa.gov/ttn/oarpg.
FOR FURTHER INFORMATION CONTACT: Mr.
Dave Svendsgaard, Information Transfer
and Program Integration Division
(C339–03), U.S. EPA Office of Air
Quality Planning and Standards,
Research Triangle Park, North Carolina
27711, telephone 919–541–2380, or
electronic mail at
[email protected], for
questions on this rule.
SUPPLEMENTARY INFORMATION:
Regulated Entities
Entities potentially affected by this
final action include sources in all
industry groups. The majority of sources
potentially affected are expected to be in
the following groups:
Industry group SIC a NAICSb
Electric Services ......................................................................... 491 221111, 221112, 221113, 221119, 221121, 221122
Petroleum Refining ..................................................................... 291 324110
Industrial Inorganic Chemicals ................................................... 281 325181, 325120, 325131, 325182, 211112, 325998, 331311,
325188
Industrial Organic Chemicals ..................................................... 286 325110, 325132, 325192, 325188, 325193, 325120, 325199
Miscellaneous Chemical Products ............................................. 289 325520, 325920, 325910, 325182, 325510
Natural Gas Liquids .................................................................... 132 211112
Natural Gas Transport ................................................................ 492 486210, 221210
Pulp and Paper Mills .................................................................. 261 322110, 322121, 322122, 322130
Paper Mills .................................................................................. 262 322121, 322122
Automobile Manufacturing .......................................................... 371 336111, 336112, 336211, 336992, 336322, 336312, 336330,
336340, 336350, 336399, 336212, 336213
Pharmaceuticals ......................................................................... 283 325411, 325412, 325413, 325414
a Standard Industrial Classification.
b North American Industry Classification System.
Entities potentially affected by this final

action also include State, local, and
tribal governments that are delegated
authority to implement these
regulations.
Outline
The information presented in this
preamble is organized as follows:
I. General Information
A. How can I get copies of this document
and other related information?
1. Docket
2. Electronic Access
B. Where can I obtain additional
information?
II. Background
A. What is the RMRR exclusion?
B. Issues surrounding the RMRR exclusion
C. Process used to develop this rule
D. What we proposed
III. Equipment Replacement Provision
A. Overview and justification for today’s
final action
B. What is an identical or functionally
equivalent replacement and why should
such an activity be considered RMRR?
C. What cost limit has been placed on the
equipment replacement approach?
D. What will be the basis of applying the
20-percent threshold?
E. What basic design parameters are being
established to qualify for the equipment
replacement provision?
F. What collection of equipment should be
considered in applying the equipment
replacement provision and how should it
be defined?
G. Consideration of non-emitting units as
part of the process unit
H. What is the accounting basis for the
process unit?
I. Enforcement
1. Compliance assurance
2. General issues
J. Quantitative Analysis
K. Consideration of other options
1. Annual Maintenance, repair and
replacement allowance
2. Capacity-based option
3. Age-based option
L. Specific list of excluded activities
M. Stand-alone exclusion for energy
efficiency projects
N. Legal Basis
1. How does the NSR program address
existing sources and why is today’s rule
consistent with this approach?
2. Why today’s rule appropriately
implements the Clean Air Act’s
definition of modification
IV. Administrative Requirements for This
Rule
A. Executive Order 12866—Regulatory
Planning and Review
Federal Register /Vol. 68, No. 207 /Monday, October 27, 2003 /Rules and Regulations 61249
1 We broadly use the term ‘‘New Source Review,’’
or NSR, to encompass both the PSD and the Nonattainment
New Source Review program.
2 Once a modification is determined to be major,
NSR requirements apply only to those specific
pollutants for which there would be a significant
net emissions increase.
B. Executive Order 13132—Federalism
C. Executive Order 13175—Consultation
and Coordination with Indian Tribal
Governments
D. Executive Order 13045—Protection of
Children from Environmental Health
Risks and Safety Risks
E. Paperwork Reduction Act
F. Regulatory Flexibility Analysis
G. Unfunded Mandates Reform Act of 1995
H. National Technology Transfer and
Advancement Act of 1995
I. Executive Order 13211—Actions
Concerning Regulations That
Significantly Affect Energy Supply,
Distribution, or Use
J. Executive Order 12988—Civil Justice
Reform
V. Effective Date for Today’s Requirements
VI. Statutory Authority
I. General Information
A. How Can I Get Copies of This
Document and Other Related
Information?
1. Docket. The EPA has established an
official public docket for this action
under Docket ID No. A–2002–04. The
official public docket consists of the
documents specifically referenced in
this action, any public comments
received, and other information related
to this action. Although a part of the
official docket, the public docket does
not include Confidential Business
Information (CBI) or other information
whose disclosure is restricted by statute.
The official public docket is the
collection of materials that is available
for public viewing at the EPA Docket
Center, (Air Docket), U.S.
Environmental Protection Agency, 1301
Constitution Ave., NW., Room: B108,
Mail Code: 6102T, Washington, DC,
20004. The EPA Docket Center Public
Reading Room is open from 8:30 a.m. to
4:30 p.m., Monday through Friday,
excluding legal holidays. The telephone
number for the Reading Room is (202)
566–1742. A reasonable fee may be
charged for copying.
2. Electronic Access. You may access
this Federal Register document
electronically through the EPA Internet
under the ‘‘Federal Register’’ listings at
http://www.epa.gov/fedrgstr/.
An electronic version of the public
docket is available through EPA’s
electronic public docket and comment
system, EPA Dockets. You may use EPA
Dockets at http://www.epa.gov/edocket/
to submit or view public comments,
access the index listing of the contents
of the official public docket, and to
access those documents in the public
docket that are available electronically.
Once in the system, select ‘‘search,’’
then key in the appropriate docket
identification number.
Certain types of information will not
be placed in the EPA Dockets.
Information claimed as CBI and other
information whose disclosure is
restricted by statute, which is not
included in the official public docket,
will not be available for public viewing
in EPA’s electronic public docket. EPA’s
policy is that copyrighted material will
not be placed in EPA’s electronic public
docket but will be available only in
printed, paper form in the official public
docket. To the extent feasible, publicly
available docket materials will be made
available in EPA’s electronic public
docket. When a document is selected
from the index list in EPA Dockets, the
system will identify whether the
document is available for viewing in
EPA’s electronic public docket.
Although not all docket materials may
be available electronically, you may still
access any of the publicly available
docket materials through the docket
facility identified in section I.A.1. of
this preamble. The EPA intends to work
towards providing electronic access to
all of the publicly available docket
materials through EPA’s electronic
public docket.
For additional information about
EPA’s electronic public docket visit EPA
Dockets online or see 67 FR 38102, May
31, 2002.
B. Where Can I Obtain Additional
Information?
In addition to being available in the
docket, an electronic copy of today’s
final rule is also available on the WWW
through the Technology Transfer
Network (TTN). Following signature by
the EPA Administrator, a copy of this
rule will be posted on the TTN’s policy
and guidance page for newly proposed
or promulgated rules at http://
www.epa.gov/ttn/oarpg. The TTN
provides information and technology
exchange in various areas of air
pollution control. If more information
regarding the TTN is needed, call the
TTN HELP line at (919) 541–5384.
II. Background
A. What Is the RMRR Exclusion?
Title I of the Clean Air Act (CAA)
established the New Source Review
program 1 to help control airborne
emissions from major new stationary
sources of pollution. Under the
program, anyone who seeks to construct
a new stationary source that will be a
major source of regulated pollutants
must obtain a permit from State
authorities (or, where a State has not
established its own program, from EPA
directly) before beginning construction
of the source. In order to obtain the
permit, the owner or operator must,
among other things, demonstrate that
the new source will have state-of-the-art
pollution control devices.
The NSR program does not generally
affect existing sources, but it does apply
if they undergo a ‘‘modification.’’ The
NSR provisions of the CAA do not
create their own definition of
‘‘modification,’’ instead borrowing the
definition of the term established by
section 111 of the CAA, which defined
the term for purposes of the New Source
Performance Standards (NSPS) program.
That definition states that ‘‘[t]he term
‘‘modification’’ means any physical
change in, or change in the method of
operation of, a stationary source which
increases the amount of any air
pollutant emitted by such source or
which results in the emission of any air
pollutant not previously emitted.’’
Under 40 CFR parts 51 and 52, the rules
we have promulgated to carry out the
NSR program, ‘‘major modification’’ is
similarly defined as any physical
change in or change in the method of
operation of a major stationary source
that would result in: (1) A significant
emissions increase of a regulated NSR
pollutant; and (2) a significant net
emissions increase of that pollutant
from the major stationary source.2 The
regulations further provide that certain
activities do not constitute a ‘‘physical
change or change in the method of
operation’’ under the definition of
‘‘major modification.’’ One category of
such activities is routine maintenance,
repair and replacement (RMRR). The
regulatory provisions excluding RMRR
from the definition of change constitute
the RMRR exclusion.
B. Issues Surrounding the RMRR
Exclusion
Until today, the NSR regulations have
not further specified what types of
activities are encompassed by the term
RMRR. Heretofore, we have applied the
RMRR exclusion exclusively on a caseby-
case basis using a multi-factor test for
determining whether a particular
activity falls within or outside the
exclusion. We have made these case-bycase
determinations both in the context
of applicability determinations, where a
source or permitting authority has
requested EPA’s guidance concerning
whether a particular activity falls within
the exclusion or requires a permit, and
in the context of enforcement actions,
where we have challenged an activity
undertaken by a source after the fact and
the source has asserted that the activity
was permissible under the exclusion.
This case-by-case approach has been
praised for its flexibility, but criticized
for hampering activities important to
assuring the safe, reliable and efficient
operation of existing plants.
Specifically, some of the case-by-case
determinations we have made,
particularly over the past decade, and
particularly in a series of enforcement
actions, have been criticized for giving
the exclusion a narrow scope that
disallows replacement of significant
plant components with identical or
functionally equivalent components.
Critics argue that the effect is to
discourage plant owners or operators
from engaging in replacements that are
important to restoring, maintaining and
improving plant safety, reliability, and
efficiency. They further argue that this
effect is exacerbated by what they assert
are the uncertainties inherent in the
case-by-case approach.
To elaborate on the uncertainty
issues: Unless an owner or operator
seeks an applicability determination
from his or her reviewing authority, it
can be difficult for the owner or
operator to know with reasonable
certainty whether a particular activity
constitutes RMRR. This gives the owner
or operator five choices, two of which
the owner or operator is not likely to
select, and the other three of which have
significant drawbacks for the
productivity of the plant.
First, the owner or operator may
simply seek an NSR permit. That
course, however, is likely to be timeconsuming
and expensive, since it will
likely result in a requirement to retrofit
an existing plant with state-of-the-art
pollution controls which often is very
costly and can present significant
technical challenges. Therefore, an
owner or operator is not likely to select
this option if it can be avoided.
Second, the owner or operator may
proceed at risk without a reviewing
authority determination. That option,
however, is also not likely to be
attractive where a significant
replacement activity is involved,
because if the owner or operator
proceeds without a reviewing authority
determination and if we later find that
he or she made an incorrect
determination on its own, the owner or
operator faces potentially serious
enforcement consequences. Those
consequences could well include
substantial fines (along with the further
consequences of having been
determined to be in violation of the
CAA) and penalties and a requirement
to install the state-of-the-art pollution
controls, even though those controls
present technical issues or represent a
significant enough expenditure that they
likely would have deterred the owner or
operator from seeking a permit in the
first place. The owner or operator is not
likely to take this risk if he or she
believes there is a high probability of
these kinds of consequences and if he or
she has other options.
Third, the owner or operator may seek
an applicability determination. That
process, too, is time-consuming and
expensive, albeit typically less so than
seeking a permit. This path presents a
potentially significant barrier to today’s
global, quick-to-market industries, such
as computer chips, pharmaceuticals,
and autos. This approach also is likely
to result in substantial foregone
activities that would enhance the safety,
reliability and efficiency of the plant
while awaiting the applicability
determination.
Fourth, the owner or operator may
forego or curtail replacements that
would enhance the safe, reliable, or
efficient operation of its plant, instead
opting to repair existing components
even though they are inferior to current
day replacements because they likely
have deteriorated with use and probably
are less advanced and less efficient than
current technology. Foregoing the
replacement activities altogether will
reduce plant safety, reliability and
efficiency; curtailing or postponing
them does as well, differing only in the
degree of these effects.
Finally, the owner or operator may
curtail the plant’s productive capacity
by replacing components with less than
the best technology in order to be more
certain that the replacement is within
the RMRR regulatory bounds, or he or
she may agree to limit the source’s
hours of operation or capacity or install
less than state-of-the-art air pollution
controls to ensure no increase in
emissions. Either of those courses,
however, will also result in loss of plant
productivity.
The uncertainties are also problematic
for State and local reviewing authorities.
They require those authorities to devote
scarce resources to make complex
determinations, including applicability
determinations, and consult with other
agencies to ensure that any
determinations are consistent with
determinations made for similar
circumstances in other jurisdictions
and/or that other reviewing authorities
would concur with the conclusion.
Industry commenters strongly echoed
these concerns, asserting that the
expense and delay associated with NSR
scrutiny, whether or not the activity is
ultimately judged to be subject to major
NSR, have caused a number of facilities
to forego needed and beneficial
maintenance, repair, and replacement
activities, including ones that would
likely have reduced emissions. In our
June 2002 report to the President, we
similarly concluded that the NSR
program has impeded or resulted in the
cancellation of projects that would have
maintained and improved the
reliability, efficiency, or safety of
existing energy capacity.
We are persuaded that we should
change the approach to the RMRR
exclusion that we have been following
for equipment replacements. The
approach we have been taking often has
not encompassed the replacement of
existing components with identical or
similar new components that serve the
same function, that represent a small
fraction of the value of the process unit
of which they are a part, that do not
change the process unit’s basic design
parameters, and that do not cause the
process unit to exceed any emission
limitations. For the reasons noted above,
this approach tends to have the effect of
leading sources to refrain from replacing
components, to replace them with
inferior components, or to artificially
constrain production in other ways. We
are persuaded that none of these
outcomes advanced the central policy of
the major NSR program as applied to
existing sources, which is not to cut
back on emissions from existing major
stationary sources through limitations
on their productive capacity, but rather
to ensure that they will install state-ofthe-
art pollution controls at a juncture
where it otherwise makes sense to do so.
We also do not believe the outcomes
produced by the approach we have been
taking have significant environmental
benefits compared with the approach
we are adopting today and, indeed, we
believe our new approach may well
produce environmental improvements
as compared to the old one.
We are also persuaded that
uncertainties surrounding the scope of
the exclusion that are associated with
the case-by-case approach tend to
exacerbate the problem outlined above.
These uncertainties can discourage
replacements that would promote
safety, reliability and efficiency even in
instances where, if the matter were
brought to EPA, we would determine
that the replacement in question was
RMRR. Such discouragement results in
lost capacity and lost opportunities to
improve energy efficiency and reduce
air pollution.
We believe that these problems will
be significantly reduced by the rule we
are adopting today. This rule specifies
that the replacement of components of
a process unit with identical
components or their functional
equivalents will come within the scope
of the exclusion, provided the cost of
replacing the component falls below 20
percent of the replacement value of the
process unit of which the component is
a part, the replacement does not change
the unit’s basic design parameters, and
the unit continues to meet enforceable
emission and operational limitations.
Our new equipment replacement
approach will allow owners or operators
to replace components under a wider
variety of circumstances than they have
been able to do under our prior RMRR
approach. It also provides more
certainty both to source owners or
operators who will be able better to plan
activities at their facilities, and to
reviewing authorities who will be able
better to focus resources on other areas
of their environmental programs rather
than on time-consuming RMRR
determinations. The effect should be to
remove disincentives to undertaking
RMRR activities falling within the rule,
thereby enhancing key operational
elements such as efficiency, safety,
reliability, and environmental
performance. For example, we
anticipate that improved safety and
reliability will result in more stable
process operations and reduce periods
of startup, shutdown, and malfunction
and the increased emissions usually
associated with them. Accordingly, we
believe the rule will promote the central
purpose of Title I of the CAA, ‘‘to
protect and enhance the quality of the
Nation’s air resources so as to promote
the public health and welfare and the
productive capacity of its population.’’
CAA section 101.
We note that we continue to believe
that our prior narrower and entirely
case-by-case approach to the RMRR
exclusion was consistent with the
relevant language of the CAA and a
reasonable effort to effectuate its
policies. At the same time, we also
believe that the final rule’s categorical
exclusion of certain replacement
activities and the broader definition of
RMRR on which that exclusion is
premised are likewise consistent with
the statute’s language and represent a
better accommodation of the statute’s
twofold ends. We therefore have
decided to adopt the final rule.
C. Process Used To Develop This Rule
In the 1992 ‘‘WEPCO Rule’’ preamble,
we declared our intent to issue guidance
on the subject of RMRR. In 1994, as an
outgrowth of meetings with the Clean
Air Act Advisory Committee, we
developed, for discussion purposes
only, a preliminary draft that presented
possible ways of how RMRR could be
defined. We received a substantial
volume of comments on this document.
We subsequently decided not to include
this preliminary draft approach in our
1996 NSR proposed rulemaking.
In 2001, the President’s National
Energy Policy directed EPA in
consultation with the Department of
Energy (DOE) and other Federal
agencies to review the impact of NSR on
investment in new utility and refinery
generation capacity, energy efficiency
and environmental protection. Our
Report to the President illustrated the
problems associated with our prior caseby-
case approach to identifying RMRR
activities and underscored the
advantages of establishing an objective
bright-line approach for administering
the RMRR provision.
We held conference calls with various
stakeholders during October 2001
(including representatives from
industry, State and local governments,
and environmental groups) to discuss
new ideas that were raised as to how the
RMRR provision might be improved.
The proposed RMRR rule reflected
many of the ideas discussed in those
meetings. Today’s final rule on the
equipment replacement provision is
based on careful consideration of
comments received on the proposed
RMRR rule (67 FR 80920, December 31,
2002), where we sought comment on all
aspects of our proposed approaches.
Today’s rule represents final action on
only one part of what we proposed in
December 2002—the equipment
replacement provision. We have
decided, for now, not to take final action
on the proposed annual maintenance,
repair and replacement allowance
approach.
D. What We Proposed
The RMRR proposal offered for
comment two cost-based approaches for
determining what constitutes routine
maintenance, repair, and replacement.
Under the proposal, facilities could
have relied on a facility-wide annual
allowance and/or an equipment
replacement cost threshold to determine
whether major NSR requirements were
triggered by performing plant
activities. The proposal additionally
outlined two options based on the
capacity and age of a facility. We
solicited comment on all aspects of the
proposed approaches as well as any
other viable option for clarifying the
term ‘‘routine maintenance, repair, and
replacement.’’ We took public comment
on the proposed rule until May 2,
2003—120 days following publication
in the Federal Register.
Under the ‘‘annual maintenance,
repair and replacement allowance,’’ an
annual maintenance cost allowance
would be established for each industrial
facility based on an industry-specific
percentage. For the percentage, we
considered using the Internal Revenue
Service ‘‘Annual Asset Guideline Repair
Allowance Percentages’’ (AAGRAP),
which for years has been used as an
integral part of an exclusion under the
New Source Performance Standard
(NSPS) program. A multi-year
allowance approach, in addition to the
annual approach, was also offered for
consideration in the proposal.
Safeguards were proposed to ensure
that the types of activities undertaken
under the annual allowance are not
activities that should be subject to
greater scrutiny. These safeguards
include: (1) No new unit may be
installed; (2) no unit may be replaced in
its entirety; and (3) changes may not
cause an increase in the short-term
emission rate of any regulated NSR
pollutant.
Under the ‘‘equipment replacement
provision,’’ or ERP, we proposed to
streamline the process for determining if
major NSR permitting requirements
apply to replacement of existing
equipment with identical new
equipment or with functionally
equivalent equipment. Per-replacementof-
component(s) thresholds, potentially
up to 50 percent of the cost of replacing
the process unit, were suggested by the
proposal. As long as the threshold was
not exceeded and the basic design
parameters remained unchanged, the
activity would be considered RMRR
under this approach.
Under the proposal, all activities that
fell within the annual maintenance,
repair and replacement allowance or the
equipment replacement threshold and
that met all the other criteria for these
provisions would be considered RMRR
without further review. Activities that
were unable to be accommodated under
the annual maintenance, repair and
replacement allowance or the
equipment replacement threshold could
still qualify for the RMRR exclusion
after a case-by-case review in
accordance with current rules.
We solicited comments on all aspects
of our RMRR proposal.
III. Equipment Replacement Provision
A. Overview and Justification for
Today’s Final Action
Today, we are revising certain
provisions of the major NSR program by
3 For the sake of clarity, we want to be clear that
the term ‘‘component’’ is meant to be applied
broadly and read broadly to include replacements
of both large components, such as economizers,
reheaters, etc. at a boiler, as well as small items,
such as screws, washers, gaskets, etc.
4 We note that certain ancillary costs incurred
during a given replacement activity should not be
part of the replacement activity, such as
replacement power that must be purchased during
the maintenance shutdown of an electric utility.
5 Actually proposed as ‘‘fuel consumption
specifications.’’
6 Replacement cost can be either an estimate of
the fixed capital cost of constructing a new process
unit or the current appraised value of the process
unit.
finalizing the equipment replacement
provision (ERP) to specify activities that
will automatically qualify for the RMRR
exclusion. This rule is effective on
December 26, 2003. At this time, we are
not taking action on our proposed
annual maintenance, repair and
replacement allowance approach.
Although many commenters
requested that we further clarify the
case-by-case approach for determining
whether an activity is RMRR, we are not
taking action on this suggestion at this
time. We are still considering what, if
any, changes should be made to that
policy. In the meantime, the case-bycase
approach will remain available for
the owner or operator of a source to use
as an alternative and/or supplement to
today’s ERP.
Under today’s rule, an activity (or
aggregations of activities) can qualify for
the ERP if: (1) It involves replacement
of any existing component(s) 3 of a
process unit with component(s) that are
identical or that serve the same purpose
as the replaced component(s); (2) the
fixed capital cost of the replaced
component(s), plus costs of any
activities that are part of the
replacement activity (e.g., labor,
contract services, major equipment
rental, and associated repair and
maintenance activities),4 does not
exceed 20 percent of the current
replacement value of the process unit;
and (3) the replacement(s) does not alter
the basic design parameters of the
process unit or cause the process unit to
exceed any emission limitation or
operational limitation (that has the
effect of constraining emissions) that
applies to any component of the process
unit and that is legally enforceable.
Today’s final rule specifies the
procedures by which the owner or
operator of a source selects the basic
design parameters for steam electric
generating facilities and for other types
of process units. Specifically, for steam
electric generating facilities, we have
clarified our proposed approach by
specifying maximum hourly heat input
and fuel consumption rate 5 as basic
design parameters. We are also allowing
owners or operators of steam electric
generating facilities the option to select
a pair of parameters based on the
process unit’s output—more
specifically, maximum hourly electric
output rate or maximum steam flow
rate—as an alternative to the previously
proposed input-based parameters.
Likewise, we are retaining our proposed
approach of specifying maximum rate of
fuel or material input for other types of
process units, but we also allow you to
use maximum rate of heat input, or
maximum rate of product output if you
prefer an output-based basic design
parameter. In addition, we allow you to
propose an alternative basic design
parameter(s), if the above options are
inappropriate for your process unit.
We are not specifically defining the
basis for determining the replacement
value of a new process unit. Instead, the
final rule provides you with the
flexibility of using any of the following:
(1) Replacement cost; 6 (2) invested cost,
adjusted for inflation; (3) the insurance
value, where the insurance value covers
complete replacement of the process
unit (rather than, for example, lost
revenue replacement); or (4) another
accounting procedure to establish a
replacement value of the process unit if
such accounting procedure is based on
Generally Accepted Accounting
Principles (GAAP). The GAAP are the
conventions, rules and procedures that
define accepted accounting practice for
recording and reporting financial
information, including broad guidelines
as well as detailed procedures. The
basic doctrine was set forth by the
Accounting Principles Board of the
American Institute of Certified Public
Accountants, which was superseded in
1973 by the Financial Accounting
Standards Board.
If you choose to use options 3 or 4 to
determine the replacement value for a
particular process unit, you must send
a notice reflecting your decision to your
reviewing authority. The first time that
an owner or operator submits such a
notice for a particular process unit, the
notice may be submitted at any time,
but any subsequent notice for that
process unit may be submitted only at
the beginning of the process unit’s fiscal
year. You must continue to use the same
basis to evaluate any additional
activities that you undertake on that
process unit within that same fiscal
year. If you have provided notice of
using either option 3 or 4, then the
reviewing authority will assume that the
same method will be used for
subsequent fiscal years unless you send
a notice to them declaring your intent to
use another method. In the absence of
providing any notification to your
reviewing authority, you must use
option 1 or 2.
The final rules also set forth a
definition of process unit, specifically
delineate the boundary of the process
unit for certain specified industries, and
define a functionally equivalent
replacement. A more detailed
discussion of these requirements and
our rationale for this action is contained
in other parts of this preamble section.
Today’s final rules are designed to
allow you to engage in activities that
facilitate the safe, reliable and efficient
operation of your source. We believe
that today’s final action broadens the
major NSR program exclusion for
equipment replacements and provides
you with additional certainty as to what
equipment replacement activities
qualify for the RMRR exclusion. By
adding certainty to the process, we are
removing the disincentives to
undertaking routine equipment
replacements and promoting proper
operational planning to facilitate safe,
reliable and efficient operations. When
an activity qualifies for the ERP, it will
be considered RMRR and excluded from
major NSR without regard to other
considerations. In many cases, we
believe that maintaining safe, reliable
and efficient operations will have the
corresponding environmental benefit of
reducing the amount of pollution
generated per product produced. The
final rules also will reduce the resource
burden on reviewing authorities
resulting from implementation of the
existing, case-by-case process for
determining RMRR. In these respects,
the final rules are consistent with the
central purpose of the CAA, ‘‘to protect
and enhance the quality of the Nation’s
air resources so as to promote the public
health and welfare and the productive
capacity of its population.’’ CAA section
101.
B. What Is an Identical or Functionally
Equivalent Replacement and Why
Should Such an Activity Be Considered
RMRR?
We proposed to exclude the
replacement of existing equipment with
identical or functionally equivalent
components. As we observed at the time
of our RMRR proposal, we believe that
most identical and functionally
equivalent replacements are necessary
for the safe, efficient and reliable
operations of virtually all industrial
operations; are not of regulatory
concern; will improve air quality (e.g.,
by decreasing startup, shutdown, and
malfunctions); and thus should qualify
7 As discussed in more detail below, although
such activities would be functionally equivalent,
they would still need to meet other criteria to
qualify for the ERP. For example, a functionally
equivalent replacement does not qualify for the ERP
if it results in a change to a basic design parameter
of the affected unit. If an activity does not qualify
for RMRR under the ERP, the case-by-case RMRR
approach would still be available to the owner or
operator under those circumstances. And, of course,
even if the activity does not qualify for the RMRR
exclusion, the activity will not be a modification
and, hence, will not trigger NSR unless it results in
a significant emissions increase.
for the ERP under the RMRR exclusion.
We believe industrial facilities are
constructed with the understanding that
certain equipment failures are common
and ongoing maintenance programs that
include replacing components in order
to maintain, restore, or enhance the
reliability, safety, and efficiency of a
plant are routine. Conversely, delaying
or foregoing maintenance could lead to
failure of the production unit and may
create or add to safety concerns.
When such equipment replacement
occurs, the replaced component is
inherent to both the design and purpose
of the process unit, and there is no
reason to believe that such activity will
cause the unit to emit above its original
design capacity. Moreover, most of these
replacements are conducted at
industrial facilities to maintain proper
operations and to implement good
engineering practices. For example, if a
pump associated with a distillation
column fails and is replaced with an
identical new pump, we believe that
such a common activity is and should
be considered an excluded replacement.
It is not a ‘‘change’’ to the plant, since
it merely maintains the plant as
designed. Instead, it is the type of
activity expected to occur to maintain
the plant. Therefore, we think
replacements like this properly fall
within the exclusion for ‘‘routine
maintenance, repair and replacement.’’
We also believe treating them in this
fashion is consistent with the basic
policies of the CAA: that existing plants
are subject to major NSR permitting
requirements only when they engage in
an activity that constitutes an opportune
time to install state-of-the-art pollution
control equipment.
We also believe that this principle
extends beyond the replacement of
equipment with identical equipment.
When equipment is wearing out or
breaks down, it often is replaced with
equipment that serves the same purpose
or function but is different in some
respects or improved in some ways in
comparison with the equipment that is
removed. To continue with the example
used above, if, instead of replacing the
worn out distillation column pump with
an identical one, the owner or operator
replaced it with a new and improved
model, it does not seem to us that this
changes the fundamental reasons for
treating that replacement as likewise
within the scope of ‘‘routine
maintenance, repair and replacement.’’
This is particularly true since
technology is constantly changing and
evolving. When equipment of this sort
needs to be replaced, it often is simply
not possible to find the old-style
technology. Owners or operators may
have no choice but to purchase and
install equipment reflecting current
design innovations. Even if it is possible
to find old-style equipment, it seems
unnecessary and undesirable to
generally construe NSR permitting
requirements in a manner that is bound
to deter owners or operators from using
the best equipment that suits the given
need when replacements must be
installed.
The limiting principle here is that the
replacement equipment must be
identical or functionally equivalent and
must not change the basic design
parameters of the affected process unit
(e.g., for electric utility steam generating
units, this might mean heat input and
fuel consumption specifications). We
also believe, however, that we need not
and should not treat efficiency as a basic
design parameter as we do not believe
NSR was intended to impede industry
in making energy and process efficiency
improvements. We believe such
improvements, on balance, will be
beneficial both economically and
environmentally. This treatment of
efficiency should address the concern
and perception that the NSR program
serves as a barrier to activities
undertaken to facilitate, restore, or
improve efficiency, reliability,
availability, or safety of a facility.
Today’s rule does not distinguish
between the replacement of components
that are expected to be replaced
frequently or periodically and the
replacement of components that may
occur on a less frequent or one-time
basis. It likewise does not distinguish
between the replacement of larger and
smaller components, instead requiring
greater scrutiny if the replacement in
question is part of an activity that
exceeds 20 percent of the replacement
value of the process unit.
Our decisions on these points are
derived from reflection on the function
of the exclusion in the context of the
CAA. As explained above, and as
described more fully in our legal
analysis set forth below, we do not
believe that application of the major
NSR program to ‘‘modified’’ plants is
designed to require existing plants that
are continuing to operate in a manner
consistent with their original design to
curtail their rate of production or hours
of operation beyond limitations set forth
in their existing permits. We likewise do
not believe that the program is designed
to discourage plants from replacing
parts or components so as to preserve
their ability to produce at that rate.
Rather, we believe Title I of the Clean
Air largely leaves to State and local
permitting authorities whether to
require adjustments in the operations of
those plants in order to reduce
emissions to the degree needed to attain
or maintain national air quality
standards, and how to weigh the tradeoffs
such adjustments may produce in
terms of potential economic impacts
and loss of productivity. Instead, we
believe the central function of the
application of major NSR permitting
requirements to ‘‘modifications’’ is to
assure that plants install state-of-the-art
pollution controls.
We recognize that on these points, the
approach taken by our final rule thereby
differs in some respects from the multifactor,
case-by-case approach we have
been using in identifying RMRR, and
particularly from some of our
applications of that test to certain
equipment replacements. We believe,
however, that this adjustment in our
approach is fully warranted for the
reasons outlined above, and described
more fully in our legal analysis below.
The following examples of
functionally equivalent replacements
under today’s rule include:7
Replacing worn out pipes in a
chemical process plant with pipes that
are constructed of different metallurgy
(e.g., to help reduce corrosion, erosion,
or chemical compatibility problems).
Replacing an analog controller with
a digital controller, even though a
similar analog controller can still be
purchased and even though the new
controller would allow for more precise
control. A good example was presented
to us by the forest products industry
during our review of the NSR program’s
impacts on the energy sector. A
company in that sector needed to
replace outdated analog controllers at a
series of six batch digesters. In this case,
the original controllers were no longer
manufactured. The new digital
controllers, costing approximately
$50,000, are capable of receiving inputs
from the digester vessel temperature,
pressure, and chemical/steam flow. The
new controllers would have more
precisely filled and pressurized
digesters with chips, chemicals, and
steam, thus bringing a batch digester on
line faster.
Replacing an existing mill or
pulverizer (e.g., grinding clinker in a
cement factory or coal for a boiler) with
a new one of a different type because
both new and old equipment serve the
same purpose (even if the characteristics
of the ground material would be
different before and after the
replacement).
Replacing existing spray paint
nozzles with new ones that might
atomize the spray better or have a higher
transfer efficiency because the ‘‘before’’
and ‘‘after’’ nozzles serve the same
function.
At the same time, there are numerous
activities that occur at facilities that may
fall within the bounds of the cost
threshold percentage, basic design
parameters, and other backstop features
of today’s rule, but nevertheless cannot
qualify for the RMRR exclusion on the
grounds that the equipment is neither
identical nor functionally equivalent.
An example of this would be a chemical
processing facility where the owner or
operator makes a physical change that
allows the production of a new end
product that physically could not have
been manufactured with the previous
equipment using the same raw materials
as used before in the same amounts as
before. This would not be a functionally
equivalent replacement activity because
the facility is able to produce an end
product after making the change that the
facility was not capable of making
before the change. Consequently, this
activity would not qualify as RMRR
under today’s ERP.
Several commenters said the
equipment replacement provision will
streamline the major NSR applicability
analysis. A number of commenters
believed the ERP would be easier to
implement than the proposed annual
allowance approach. One commenter
said that allowing identical
replacements to be excluded from major
NSR will codify existing industrial
practices, where replacement has no
impact on emissions and would clearly
represent RMRR.
Many commenters expressed support
for the ERP, but recommended certain
changes that they felt needed to be made
to improve the proposal. One
commenter supported the ERP in
combination with a capacity-based
option, on the assumption that repair
and maintenance is to be excluded as
well as equipment replacement.
One commenter attempted to collect
data from turbine customers and found
that achieving a level of data collection
necessary for the ERP was far from
simple, because the cost of maintenance
activities is affected by such things as
variability in engine model, package
technology, and type of maintenance
contract. Another commenter gave an
example of the benefit that the ERP may
provide. Without the ERP, the
commenter said the source is limited to
some fraction of boiler tubes allowed to
be replaced at a given time, whereas
with the ERP, replacement of all boiler
tubes would, in the commenter’s
opinion, rightfully be considered
routine. Another commenter said the
ERP will remove regulatory burdens for
types of equipment replacements that
are in their view ‘‘routine,’’ such as
replacement of tubes in industrial
boilers. They added that, without a
clearer understanding of which
activities are RMRR, they may be
inclined to delay conducting such
replacements.
Many other commenters generally
opposed any change to the RMRR
exclusion, including one based on
equipment replacement. Some of these
commenters believed the ERP was
problematic because it would allow a
source to replace an entire process unit
over time. Two of the commenters
opposed the ERP because they felt it
would create disincentives for the
implementation of Plantwide
Applicability Limits (PAL) and Clean
Unit provisions from the recently
finalized rule.
One commenter said that from an
engineering standpoint, for a power
plant, the difference between routine
maintenance and a major plant
refurbishing project is clear. To further
clarify, the commenter made the
following points. According to the
commenter, routine maintenance is
frequent and follows a predictable
pattern. The commenter characterized
routine maintenance at power plants as:
repair of leaking pipes, pumps, valves,
and fans; cleaning and lubrication of
components; and inspections. The
commenter added that permanent staff
do this work either while the plant is
operating or during only brief periods of
downtime. The commenter further
expressed that activities that are not
routine require long plant or process
unit shutdowns, are done infrequently,
and are major capital projects for which
special funding is set aside as a result
of years of planning and design work.
One commenter said the proposal will
allow emissions increases that will be
difficult to offset through other
regulations. One commenter objected to
the ERP for a number of reasons: (1) The
provision does not prevent replacement
with different equipment; (2) it does not
promote efficiency improvements or
application of good air pollution
controls; and (3) it would allow
replacements that would significantly
increase emissions. This commenter
said replacement of air pollution
controls should trigger best available
control technology (BACT) or lowest
achievable emission rate (LAER)
requirements. Two local air pollution
control agencies in California noted that
they currently already exclude all
replacements with identical equipment
from major NSR when certain
conditions are met.
Commenters generally had similar
viewpoints on allowing both identical
and functionally equivalent equipment
replacements to qualify as RMRR.
However, some commenters expressed
greater concern related to excluding the
replacement of equipment with
functionally equivalent equipment.
Primarily their concerns were rooted in
the fact that a functionally equivalent
replacement component could lead to
increases in operational efficiency or
productivity, and these commenters
asserted that these sorts of process
enhancements should not be excluded
as RMRR.
We agree with the commenters who
felt identical and functionally
equivalent replacement activities
generally should be excluded as RMRR.
We also agree with the commenters who
believe that this provision will
streamline the major NSR applicability
process and will bring clarity. The
provision we are finalizing will allow a
source to make a simple determination
as to whether a replacement piece of
equipment qualifies as identical or
functionally equivalent. This type of
determination will be straightforward
and easier for the source to implement
than the current case-by-case analysis
required to determine a replacement
falls within the RMRR exclusion. We
support the air pollution agencies that
have already excluded these types of
changes from NSR.
We disagree with those commenters
who believe that this provision will
create disincentives for sources to
accept a PAL or have emission units
designated as Clean Units. A PAL offers
a source to bring on entirely new
emissions units with no Federal
preconstruction permit, as long as
emissions caps are not exceeded. A PAL
or a Clean Unit designation allows a
source to make modifications without
performing a major NSR applicability
test. These advantages will still be the
driving force for sources to elect to use
the PAL or Clean Unit provisions, and
we do not believe this final rule will
significantly detract from their appeal.
We also believe that there is
substantial value in facilitating
equipment replacements to a greater
degree than our current approach
permits and draws a cleaner and more
easily administered line between
equipment replacements that
categorically do not require a permit
and major plant refurbishing which will
result in increased emissions. For pieces
of equipment used at industrial
facilities, most manufacturers have wellestablished
procedures for the
inspection and replacement that are part
of the regular maintenance necessary to
provide for the equipment’s safe,
efficient and reliable operation. Some of
these replacements are large in terms of
cost and infrequent, but all are
necessary to maintain the safe, efficient
and reliable use of the process unit. We
believe it is important to allow for these
replacements provided that certain
safeguards are in place, as discussed
below.
We disagree with suggestions from
commenters that the time period
between activities, standing alone,
provides an appropriate or clear
distinction between activities that
should be permissible under the RMRR
exclusion and those that should not. In
fact, some components wear out every
year, while others wear out every 20
years. Nevertheless, both types of
changes should fall within the ERP of
the RMRR exclusion because both allow
the facility to operate as designed. By
not imposing a time limitation, the ERP
allows replacement activities to be
driven by consideration of economic
efficiency rather than artificial
regulatory constraints.
We disagree with commenters who
expressed particular concern about
functionally equivalent replacements.
We continue to believe such activities
should be encouraged and should
qualify as RMRR. Even though a
functionally equivalent component
varies in some respects from the
replaced component, we feel the most
important factor to consider is whether
the replacement will serve the same
purpose as the replaced component. We
acknowledge that a functionally
equivalent replacement can result in an
increase in efficiency and,
consequently, productivity. In fact, one
of our goals is to promote such
outcomes. However, we believe that the
basic design parameter safeguard is
appropriate to assure that the ERP only
automatically excludes from major NSR
functionally equivalent replacements
that do not result in a significant change
to the fundamental characteristics of the
process unit.
We note that the two local programs
in California that exclude the
identical equipment also allow the
functionally equivalent equipment
without considering such action to be a
modification. Due to local air quality
considerations, the local programs
establish minimum pollution control
requirements that are imposed in some
circumstances when functionally
equivalent equipment replacements
occur. Nothing in today’s rule would
prevent a State or local program from
imposing additional requirements
necessary to meet Federal, State or local
air quality goals.
After reviewing the comments on our
proposal, we have decided to
promulgate what we proposed in
December 2002 for the RMRR
equipment replacement provision with
relatively minor changes. We decided to
include another safeguard in addition to
those we proposed in order to
appropriately constrain the meaning of
the term ‘‘functionally equivalent.’’ The
additional safeguard is that an excluded
replacement activity cannot cause the
process unit to exceed any emission
limitation or operational limitation (that
has the effect of constraining emissions)
that applies to the process unit and that
is legally enforceable.
Thus, today’s final rule allows you to
categorize identical and functionally
equivalent equipment replacements as
RMRR if the fixed capital cost of such
replacement plus the cost of repair and
maintenance activities that are part of
the replacement activity does not
exceed 20 percent of the replacement
value of the process unit, and if the
replacement does not alter a basic
design parameter of the process unit or
cause the process unit to exceed any
emission limitation or operational
limitation (that has the effect of
constraining emissions) that applies to
the process unit.
C. What Cost Limit Has Been Placed on
the Equipment Replacement Approach?
The next concept presented in the
proposal is the cost-based limitation on
the scope of the ERP. The purpose of
this threshold is to distinguish between
those equipment replacement activities
that should automatically qualify as
RMRR without further consideration
and those activities that should undergo
case-specific consideration. This
concept is akin to the long-established
reconstruction provision under the
NSPS program. For the reasons
explained below, we have decided to
establish a 20-percent cost threshold
under the ERP.
We believe a similar bright-line rule
that would obviate the need for case-bycase
review under our multi-factor test
of appropriate categories of equipment
replacements would be extremely useful
in addressing many of the problems that
we have identified with the current
operation of the NSR program. Such a
rule would be particularly useful in
avoiding the uncertainty and delay, and
consequent postponed or foregone
equipment replacements, that our multifactor
case-by-case review induces. For
example, our RIA indicates that it takes
a year, on average, to obtain a
determination whether a proposed
replacement is routine. That kind of
delay obviously creates perverse
disincentives to refrain from equipment
replacements and instead repair existing
equipment or find some other solution.
This is the kind of problem that
classically leads agencies to fashion
bright-line tests to provide greater
regulatory certainty and efficiency.
Moreover, because the kind of
disincentives that give rise to this
concern operate largely by economic
means, prompting sources to take one
course of action (cut back on productive
equipment replacement) rather than
another (replace the equipment and
incur the costs of delay, as well as
potentially the costs of installing stateof-
the-art controls), we think a costbased
threshold is a reasonable basis on
which to create such a bright-line rule.
In the proposal, we observed that it
may sometimes be difficult to determine
where to draw the line between an
activity that should be treated as an
excluded replacement activity and one
that should be viewed as a physical
change that might constitute a major
modification, when the replacement of
equipment with identical or
involves a large portion of an existing
process unit. We solicited comment on
a range of equipment replacement cost
thresholds such as one based on the
NSPS program. Under the NSPS
program, when the cost of a project at
an existing affected facility exceeds 50
percent of the fixed capital cost that
would be required to construct a
comparable entirely new unit (that is,
the current capital replacement value of
the existing affected source), then the
source must notify and provide
information to the permitting authority.
After considering a range of factors,
including the cost of the activity, the
estimated life of the facility after the
replacements, the extent to which the
replaced equipment causes or
contributes to the emissions from the
source, and any economic or technical
limitations on compliance with the
NSPS, the reviewing authority
8 Inthe proposal, it was incorrectly stated that
applicability of the NSPS was triggered if a project
exceeded 50 percent of the cost of replacing the
affected facility. As stated in this notice, if an
activity exceeds this cost threshold, that only
triggers further evaluation, not the automatic
application of the NSPS to the source.
determines whether the proposed
project is a reconstruction.8
We observed that, in some respects,
an equipment replacement cost
threshold set at the NSPS reconstruction
test could be an appropriate approach
for distinguishing between routine and
nonroutine identical and functionally
equivalent replacements under the
major NSR program. As under the NSPS
program, we do not believe it is
reasonable to exclude from major NSR
those activities that involve the total
replacement of an existing entire
process unit.
We also noted, however, that there are
other considerations pointing in favor of
a threshold lower than the 50-percent
reconstruction threshold that might be
appropriate to bound the ERP. Under
NSPS, when a source undertakes a
replacement activity at an existing
affected facility that constitutes half or
more of the facility’s capital
replacement value, our rules require a
case-by-case determination as to
whether such replacements constitute
construction. We noted that a
percentage threshold lower than 50
percent might be more appropriate for
determining where we would require
case-by-case consideration of the
question whether equipment
replacements constitute a modification
of an existing process unit under major
NSR. We solicited comments on the
appropriate level of any percentage.
Many commenters supported the
threshold of 50 percent of replacement
value as the upper limit on equipment
replacement. They felt this number is
consistent with existing regulatory
requirements and would accord the
flexibility originally intended under the
CAA for RMRR activities, while at the
same time assuring that major,
nonroutine projects remain subject to
major NSR applicability review, and
they felt this number is consistent with
a common-sense interpretation of the
regulations.
They also believed a 50-percent cutoff
to be consistent with reconstruction
definitions used in many NSPS and
National Emission Standards for
Hazardous Air Pollutants regulations.
Some commenters stated that a 50-
percent cutoff for the ERP would be
valid for the same reason as for the
NSPS reconstruction test; significant
changes to a process unit are necessary
before retrofit controls should be
considered, provided there is no
increase in emissions.
Many other commenters opposed the
50-percent replacement value threshold.
They believed the capital replacement
percentage should be much less than 50
percent. One commenter suggested as an
appropriate threshold that the sum of
equipment replacement costs for a
single process unit over any period of 5
consecutive years should not exceed 50
percent of the replacement value of the
process unit. Another commenter said
the replacement percentage should not
be higher than 25 percent. Another
commenter suggested a replacement
percentage of 5 to 10 percent to reduce
the risk of replacement of an entire
process unit over time without
installation of BACT. One commenter
said a more appropriate percentage for
electricity producers is 0.1 to 1.0
percent. Another commenter said the
threshold should be 5 percent, 1
percent, or even less, as shown by an
NSR enforcement case against the
Tennessee Valley Authority (TVA).
Another commenter believed the 50-
percent number has no practical effect
in protecting public health and the
environment, and the commenter was
not aware of any projects that have
exceeded 50 percent in cost.
While opposed to the ERP in general,
one commenter said the cost threshold
should be as high a percentage as
possible, so as not to promote premature
replacement of equipment that is
repairable. Another commenter said the
50-percent number from the NSPS is
archaic and not environmentally
protective. This commenter suggested
that the threshold instead be 24 percent.
The commenter believed this lower
percentage is appropriate because the
lifetime of high-cost materials will
considerably exceed 5 years.
We agree with those commenters who
see a relationship between establishing
a threshold for equipment replacements
that we will treat as RMRR under the
major NSR program and the threshold
the NSPS program established for
reconstruction. However, we disagree
that these two thresholds should be the
same. The NSPS threshold was intended
to identify those activities that, even
though they did not qualify as a
modification under NSPS, nevertheless
are of such magnitude that further
consideration should be given as to
whether they are projects tantamount to
new construction. The 50-percent NSPS
threshold is not a bright line in the
sense that all projects that exceed 50
percent are automatically considered as
reconstruction. Rather, as discussed
above, it is a threshold intended to alert
permitting authorities to significant
projects and allow case-by-case
decisions based on a series of regulatory
factors.
The ERP replicates the NSPS concept
in some ways. It identifies a threshold
below which there is no need for further
inquiry into whether an activity
qualifies for the ERP and above which
there is a need for a case-by-case
determination. The major difference
between the ERP and the NSPS
reconstruction test is that the ERP deals
with modifications, not reconstructions.
This difference weighs in favor of
establishing the equipment replacement
threshold at something less than the
reconstruction threshold. It is logical
and practical to conclude, as some of
the commenters do, that by using the
word ‘‘modification’’ the CAA intended
to capture activities on a smaller scale
than reconstructions. As noted above,
we have set the ERP cost threshold at 20
percent. This value is less than one-half
of the 50-percent reconstruction
threshold and, therefore, fits well within
this conceptual framework.
A 20-percent cost threshold would be
consistent with the decision of the U.S.
Court of Appeals for the Seventh Circuit
in the Wisconsin Electric Power
Company v. Reilly (‘‘WEPCO’’) case, to
the extent that it would not
automatically allow the activities
performed there to constitute RMRR.
See 893 F.2d 901 (7th Cir. 1990). This
court decision directly addressed the
question of what level of ‘‘like kind’’
replacement activities qualify as
changes under the major NSR program.
In the WEPCO case, the Court
considered an activity involving 5 coalfired
units at WEPCO’s Port Washington
plant. Each unit was rated at 80
megawatts of electrical output capacity.
The activity involved the replacement of
numerous major components. The
information submitted by WEPCO
showed that the company intended to
replace several components that are
essential to the operation of the Port
Washington plant. In particular, WEPCO
sought to replace the rear steam drums
on the boilers at units 2, 3, 4, and 5.
According to WEPCO, these steam
drums were a type of ‘‘header’’ for the
collection and distribution of steam
and/or water within the boilers. WEPCO
viewed their replacement as necessary
to continue operation of the units in a
safe condition. In addition, at each of
the emissions units, WEPCO planned to
repair or replace several other integral
components, including replacement of
the air heaters at units 1, 2, 3, and 4.
WEPCO also planned to renovate major
mechanical and electrical auxiliary
systems and common plant support
facilities. WEPCO intended to perform
9 Usingthe Chemical Engineering magazine’s
Annual Plant Cost Index (composite), $87.5 million
in 1988 dollars is equal in real terms to (361.3/
342.5) multiplied by 87.5 million, or $92.3 million
in 1991 dollars.
the work over a 4-year period, utilizing
successive 9-month outages at each unit.
The cost of the activity was estimated in
1988 to be $87.5 million. The Court
noted that EPA concluded at the time
this activity was unprecedented in that
EPA did not find a single instance of
renovation work at any electric utility
generating station that approached this
activity in nature, scope and extent. The
Court determined, at our urging, that the
changes did constitute a ‘‘physical
change’’ under the NSR rules.
In the case of a steam electric
generating facility, the process unit
definition provided in today’s rule is
nearly identical to the make-up of the
‘‘comparable new facility’’ that was
used in the NSPS evaluation of the
WEPCO renovation project. However,
under our rule we would not include
the cost of pollution control equipment
in determining the replacement cost of
the WEPCO process units. WEPCO had
electrostatic precipitators on each of its
5 process units, which our rule would
subtract from the replacement cost. In
addition, the WEPCO evaluation dealt
with 5 boilers, each with its own
turbine-generator set; to be consistent
with today’s definition of steam electric
generating facility, we would likely treat
each boiler unit as belonging to a
different process unit. However, since
all of the boilers underwent similar
renovations, for simplicity we can
assume that all of the process unitspecific
activity costs are equivalent.
Using 1991 dollars, consistent with
the timeframe of the Seventh Circuit
Court’s decision, it appears that the
value of the 5 process units at the 400-
megawatt WEPCO Port Washington
facility would be approximately $321
million based on 1991 model plant
values provided by the International
Energy Agency. The 1988 project cost of
$87.5 million scaled up to 1991 dollars
would have had an adjusted project cost
of $92.3 million.9 Thus, the capital cost
percentage for the replacement activities
at WEPCO, averaged over its 5 process
units, amounted to 29 percent.
Alternatively, using the project cost of
‘‘at least $70.5 million’’ cited in the
1991 decision by the Seventh Circuit,
and using the same value for process
unit cost, we compute at least 22
percent. The 20-percent threshold is,
therefore, beneath the scope of the
activities at issue in the WEPCO case
and hence not inconsistent with that
decision.
The 20-percent threshold also is
supported by available data for the
electric utility sector. We have a robust
and detailed set of information available
on maintenance, repair and replacement
activities for the electric utility sector.
Information about the electric utility
sector persuades us that we have
established the right ERP threshold for
this sector.
Information on other industrial
sectors beyond electric utilities (as well
as general economic theory) further
supports our 20 percent bright line test.
Case studies performed by an EPA
contractor and included in Appendix C
of our final regulatory impacts analysis
(RIA) estimate the overall impact of the
rule on six different industrial sectors
(pulp and paper mills, automobile
manufacturing, natural gas
transmission, carbon black
manufacturing, pharmaceutical
manufacturing, and petroleum refining).
The case studies find that routine
equipment replacement activities
generally do not cause emissions
increases. The case studies also find that
equipment replacement activities vary
widely within these industries.
Likewise, the cost of these activities as
a percent of the process unit
replacement value varies widely. We
recognize that the study addresses
specific case examples from only a part
of regulated industry and that the
project cost information is derived from
a limited inquiry of industry
representatives. We believe, however,
that the study provides a useful scoping
assessment that tends to support the
proposition that the 20 percent
threshold derived for the utility
industry (which is based on robust
industry data) should be applied to
industry as a whole. In short, the study
supports our view that it is reasonable
to assume that equipment replacement
activities in the utility industry are
similar enough to replacement practices
in other industry that the 20 percent
value determined for utilities, is
appropriate for industry as a whole.
This data indicates that most typical
replacement activities will fall within
the 20-percent threshold. At the same
time, the data indicates that some major
replacement activities likely will cross
the 20-percent threshold and will
require a case-by-case evaluation under
the multi-factor RMRR test.
Two comment letters (from the Utility
Air Regulatory Group (UARG) and from
the American Lung Association (ALA),
et al.) were particularly helpful in
understanding the issues associated
with the electric utility sector. The
UARG provided as an attachment to its
comment letter a document describing
major repair and replacement activities
that its members believe must be
undertaken at utility generating stations
in order to keep those facilities
operational. The UARG noted that
capital costs incurred for repair and
replacement activities at an individual
process unit additionally include
activities more minor than those
addressed in the document. The UARG
grouped repair and replacement
activities into project families; within
each project family were per-component
costs ($/kW) for numerous equipment
replacement activities. We have
reviewed the list of projects supplied by
UARG and have concluded that these
types of replacement activities are
important to maintaining, facilitating,
restoring or improving the safety,
reliability, availability, or efficiency of
process units. Therefore, generally
speaking, these types of individual
activities and groups of activities should
qualify for the ERP and be excluded
from major NSR without case-specific
review. We also believe that it is
reasonably expected in the electric
utility industry for groups of these
activities to be implemented at the same
time. Such groupings should also be
excluded without case-specific review.
When we compare the 20-percent ERP
cost percentage to the UARG data, we
find that individual replacement
activities would, in fact, qualify for the
ERP and that limited groupings of these
activities would qualify. However,
larger groupings of these activities—
groupings that are not usually seen in
the industry—would not qualify for the
ERP. This shows that the 20-percent
threshold will be effective in
distinguishing between activities (and
aggregations of activities) that should
not require case-specific review to be
excluded from major NSR and those that
do.
The ALA commenters provided with
their comments the results of their
analysis of projects at issue in an NSR
enforcement case against Tennessee
Valley Authority (TVA). As shown in
the ALA comment letter, the Clean Air
Task Force and the Natural Resources
Defense Council looked at costs for 14
projects on a process unit basis, in year
2001 dollars, from the publicly available
record for the case. For all but one of the
challenged projects, the ALA
commenters calculated a cost of less
than 4 percent of process unit
replacement cost. The ALA commenters
submitted results of this analysis with
their opposition to a source-wide, 5-
percent maintenance allowance. As
noted above, we concluded in our 2002
report to the President that the NSR
program—and the RMRR provision in
particular—has in fact resulted in delay
or cancellation of activities that would
have maintained and improved the
reliability, efficiency, and safety of
existing energy capacity. The primary
purpose of today’s rule is to rectify this
problem. Thus, to the extent the
activities addressed by ALA qualify for
the ERP, we now believe that such
activities, if conducted in the future,
should be excluded from major NSR.
A final factor that we believe supports
our selection of a 20 percent threshold
is the cost of installing state-of-the-art
controls on existing units. There is
obviously no single answer to the
question of at what point that cost
becomes the deciding factor in an
owner’s decision whether to replace a
piece of equipment and incur that cost,
since much will depend on the rate of
return on the investment. Nevertheless,
we think it is reasonable to assume that
if the cost of the controls is greater than
the cost of the replaced equipment, it is
likely to operate as a substantial
deterrent to replacing the equipment at
issue. That is likely to be the case with
respect to electric utilities if we set the
threshold below 20 percent, which
represents the approximate cost of
retrofitting existing plants with state-ofthe-
art controls. The equation is similar
for industrial boilers. Notably, those
sectors represent a substantial fraction
of the emissions potentially subject to
the NSR program. While the relative
costs of air pollution controls in other
industries vary more widely than the
costs for utility and industrial boilers,
we nevertheless believe that the costs
and technical issues associated with
retrofitting air pollution controls factor
significantly into equipment
replacement decisions.
D. What Will Be the Basis of Applying
the 20-Percent Threshold?
In the proposal, we solicited comment
on whether implementing the ERP on a
per-activity basis or on some other
reasoned basis, such as applying the
percentage to components that are
replaced collectively over a fixed period
of time, may be more workable.
Many commenters stated that the ERP
should be implemented on a per-activity
(or aggregation of activities) basis. Two
of the commenters cited longstanding
NSR precedent as the basis of their
comments, while two other commenters
relied on NSPS precedent. Another
commenter thought the per-activity
approach would be less confusing than
summing activities over a fixed period
of time. Other commenters believed the
equipment replacement threshold
should in fact be applied on a 5-year
rolling average.
We have decided to apply the
percentage threshold on a per-activity
(or aggregation of activities) basis. This
is consistent with how major NSR has
been applied in the past and will
continue to apply in the future, with the
exception of those sources which
establish a PAL. The major NSR
program is a preconstruction program
that requires applicability to be
determined for a given activity at a
facility and, as necessary, permitting to
occur prior to the time activities are
commenced. The major NSR program
also requires applicability to be
determined, in the first instance, based
on an assessment only of the parts of a
facility involved in the activity. A peractivity
basis works well with this
approach. We are not going final with a
‘‘component-by-component’’ approach
that we solicited comment on through
our RMRR proposal.
There would be obvious problems if
we chose any of the other approaches
suggested in the proposal or suggested
by commenters (for example, annual
basis or 5-year rolling average). One of
the primary concerns with applying the
percentage to activities performed over
a span of time is that we would be
restructuring the major NSR program to
operate based on after-the-fact
determinations. This raises the difficult
question of what happens under this
type of approach if you learn after
commencement of an activity that it
does not qualify under the ERP. This
situation is largely avoided by the peractivity
approach that we are
establishing in today’s rule.
It should be noted that activities that
are related must be aggregated under the
ERP, in the same way as they would
have to be aggregated for other NSR
applicability purposes. Under our
current policy of aggregation, two or
more replacement activities that occur
at the same time are not automatically
considered a single activity solely
because they happen at the same time.
For example, a steam turbine rotor
replacement project and a boiler tube
replacement project would not be
aggregated simply because they occur
during the same maintenance outage
and on the same process unit. Further
inquiry into the nature of the activities
and their relationship to each other is
needed before deciding whether the
activities must be aggregated under
NSR. Also, non-replacement activities
that are part of a larger replacement
activity should be included when
calculating costs for a replacement
activity against the capital cost
threshold.
E. What Basic Design Parameters Are
Being Established To Qualify for the
Equipment Replacement Provision?
In the proposal, equipment
replacements were only eligible for the
ERP if they did not change the basic
design parameters of the process unit.
We proposed that maximum heat input
and fuel consumption specifications for
EUSGUs and maximum material/fuel
input specifications for other types of
process units are basic design
parameters. We solicited comments on
limiting the eligibility of the ERP this
way and on the basic design parameters
we proposed.
Several commenters expressed
concerns with either the use of these
specific parameters, or the restriction of
the regulated community to only this set
of design parameters. Other comments
centered around an inconsistency in
how EPA has accounted for efficiency in
the basic design parameter safeguard.
The commenters stated that, while EPA
stated in the proposed preamble that
efficiency is not a basic design
parameter, the basic design parameter
safeguard, as proposed, has the potential
to bar equipment replacements that
achieve significant gains in efficiency.
Commenters from all sides supported
EPA’s approach to handling activities
intended to improve an affected process
unit’s performance beyond its basic
design parameters. Commenters asserted
that these actions would not fall within
the RMRR exclusion. Commenters from
the gas transmission industry concurred
and amplified this concept, stating that
an engine that is ‘‘uprated’’ at the time
of overhaul should not be excluded
from major NSR under the RMRR
exclusion.
We recognize that the proposed basic
design parameters are inconsistent with
some industry conventions, and that we
should allow for industry-specific
flexibility or specify additional source
category-specific parameters. For
example, for natural gas transmission
compressor stations, commenters
explained that brake horsepower is the
conventional design capacity parameter.
We received similar comments from
other industries, including cement and
surface coaters, who objected to limiting
their facilities to the proposed basic
design parameters. Accordingly, we
have decided to provide flexibility by
providing a menu of choices from which
the owners or operators may select and
also by allowing for owners or operators
to propose alternative basic design
parameters to their reviewing authority
which would then be made legally
enforceable.
In addition to this flexibility, there
may be a need for additional flexibility
in using the basic design parameters
that are spelled out in today’s rule. For
instance with boilers, maximum steam
production rate is often used by the
industry, and it may make sense in
some cases to set the design parameters
based on those values rather than on
maximum heat input. Likewise, a crude
oil distillation tower may have several
capacities that are a function of the type
of crude that is to be processed, and so
a refiner may need to have a set of basic
design parameters for its crude towers.
These situations can be addressed by
the source proposing alternative
parameters or sets of parameters to their
reviewing authority.
Also, there should be flexibility in
how the basic design parameters are
demonstrated when the owner or
operator chooses not to rely on the
design information for its process unit.
For example, in order to establish the
heat input value that the process unit
has demonstrated it is capable of
achieving, an electric generating unit
should have the flexibility to reference
available credible information, such as
results of historic maximum capability
tests or engineering calculations. Results
from tests performed by electric utilities
in the context of providing assurances to
generation dispatch systems and
regional or national power pools may be
used to establish the process unit’s
maximum heat input. A review of such
data or other available operational data
or design information can reveal the
heat input that the process unit is
capable of achieving in its ‘‘pre-activity’’
configuration, and this can be compared
to a ‘‘post-activity’’ heat input value.
Plant operators, where the specified
basic design parameters are
inappropriate for the process, can
propose what the measure of
performance will be for these process
units, including the use of permit limits
on amount of production, to their
reviewing authority. For process units
having multiple end products and raw
materials, the owner or operator should
consider the primary product or primary
raw material when selecting a basic
design parameter.
Many pieces of equipment are
purchased based on their capacity or
output. Consequently, for both utilities
and non-utilities, we have modified the
proposed basic design parameters to
include output-based alternatives in
today’s final rule. For utilities, the
owner or operator can select maximum
hourly electric output rate and
maximum steam flow rate as its basic
design parameters, as an alternative to
using input-based measures of
maximum hourly fuel consumption rate
and maximum hourly heat input. (We
are clarifying from the proposal that the
correct parameter is maximum hourly
heat input, not maximum heat input.)
Owners or operators may set different
design parameters for different fuel
types (such as coal or oil) or a
combustion device that can
accommodate multiple fuel types: for
coal-fired units, owners or operators
should consider that the fuel
consumption rate will vary depending
on the quality of the coal for a given
heat input. When establishing fuel
consumption specifications in terms of
weight or volume, the minimum fuel
quality based on BTU content should be
used for coal-fired units.
Regardless of whether the source
selects a basic design parameter(s)
specified for non-utilities in today’s rule
or gets approval from their reviewing
authority to use an alternative
parameter(s) for any type of source, we
have not specified a fixed averaging
time period for the circumstance
because we want the owner or operator
to have the flexibility to select an
averaging time that best accommodates
their operation. In most cases, we
believe that long term averaging periods
(e.g., a 12-month fixed period) will not
be appropriate.
Thus, an equipment replacement that
improves a process unit’s efficiency and
thereby enables the unit to return to its
design parameters can qualify as RMRR
even if current actual emissions increase
as a result. For example, if boiler tubes
or refractories are replaced on a boiler
process unit, and these activities are
beneath the capital cost threshold and
are within the unit’s basic design
parameters, then they would qualify as
RMRR under the ERP even if this
improves the unit’s efficiency.
The manufacturer’s design parameters
of a process unit are always acceptable
if an owner or operator chooses to rely
on them. In the rare cases where a
facility does not have established design
parameters, we believe that a reasonable
look back period should be used for
establishing the pre-activity values for
basic design parameters, rather than
taking the condition of the process unit
immediately before the activity. We
have therefore established a 5-year look
back period, consistent with that for the
NSPS hourly emissions increase test, for
these situations.
We were urged by some commenters
to incorporate a de minimis increase
level in the basic design parameters that
would allow activities to qualify for the
ERP even though the activities would
result in a minor change to the relevant
basic design parameters. They argued
that some effects resulting from the
replacement may not be apparent before
the equipment has been replaced. They
argued that allowing for small changes
in basic design parameters would add
greater certainty to the ERP because
unforeseen small changes would not
cause an activity to lose the exclusion
after the fact. While we sympathize with
the commenter’s concern, we do not see
a ready solution to this problem under
the RMRR exclusion. In fact, we are not
persuaded that those types of changes
can be readily justified under the ERP
because it is hard to see how an activity
that causes basic design parameters to
change is not ‘‘a change’’ under NSR.
In sum, we continue to believe that an
replacement should not qualify for the
ERP if the activity causes the process
unit to exceed its specified basic design
parameters. Without such a
requirement, significant alteration of a
process unit’s fundamental design could
be accomplished under the guise of the
ERP. Such an outcome obviously does
not square with the idea that identical
or functionally equivalent replacements
are not ‘‘changes’’ under the major NSR
program. Our final rule is different from
the proposal, however, in that it
provides greater flexibility in defining
basic design parameters for process
units. We were persuaded by
commenters who expressed concerns
that the proposed approaches did not
adequately encompass all affected
operations and industry sectors.
F. What Collection of Equipment Should
Be Considered in Applying the
Equipment Replacement Provision and
How Should It Be Defined?
In the proposal, we raised the issue of
what collection of equipment should be
considered in applying the threshold
under the ERP. We proposed the term
‘‘process unit’’ as the appropriate
collection to accommodate the intended
coverage of activities under the ERP.
The purpose of this term is, to the extent
possible, to align implementation of the
ERP with generally accepted and
practical understandings of what
constitutes a discrete production
process. The general definition that we
proposed was based closely on the
definition of process unit contained in
40 CFR 63.41 and read as follows:
Process unit means any collection of
structures and/or equipment that processes,
assembles, applies, blends, or otherwise uses
material inputs to produce or store a
completed product. A single facility may
contain more than one process unit.
To help illustrate these concepts, we
further proposed five industry-specific
examples of how this definition of
process unit might be applied.
Some commenters compared the
proposal’s definition of ‘‘process unit’’
(‘‘* * * producing or storing a
completed product * * *’’) to the
definition that is used by section 112(g)
and that appears in 40 CFR 63.41 (‘‘
* * * producing or storing an
intermediate or final product * * *’’).
One of the commenters supported the
proposed definition. Two commenters
said the rule’s definition should be
consistent with that used by section
112(g), which they believe is broad
enough to encompass interrelated
operations. While supporting the RMRR
proposal’s definition, two commenters
recommended that EPA provide
regulatory flexibility by allowing a
facility the option to choose which
definition it will use.
One commenter generally supported
the proposed definition of ‘‘process
unit,’’ but this commenter believed that
‘‘the delineation of a process unit
should be made by regulated entity
rather than explicitly defined in a rule.’’
Three commenters asserted that
pollution control equipment should be
included in the process unit definition.
One industry commenter said pollution
control equipment is often integral to
the process and may produce an
intermediate product. One
environmental commenter believed the
proposed rule was unclear as to whether
pollution control equipment is part of
the process unit.
Several commenters said the
proposed definition is too vague or
broad. Another commenter urged EPA
to change the definition of process unit
to limit the scope of what is allowed in
the ERP, so that the source of emissions
(for example, an entire coal boiler)
would not be allowed to be replaced
without major NSR. The commenter
asserted that the replacement unit’s
scope should be limited to an emission
unit.
Most commenters agreed that the
general process unit definition is
sufficient. However, a number of
commenters suggested that we revise or
eliminate some of the process unit
examples (that is, the industry categoryspecific
definitions), and others were
concerned that the proposed definitions
do not support the detailed process unit
definition for a specific industry
because the definitions will never
capture all possible elements and
configurations.
We received comments from several
industry representatives suggesting
changes to our proposed industryspecific
definitions, and also to request
that we delineate other process unit
types explicitly in the rule. Definitions
were submitted for sugar mills,
chemical manufacturing plants, surface
coating operations, flat glass
manufacturing, fiberglass
manufacturing, and gas compressor
stations.
One industry commenter agreed with
our proposed approach to
proportionately allocate, based on
capacity, the cost of those components
shared by two or more process units.
Another commenter suggested that, for
electric utilities, we allocate the cost of
shared equipment based on a pro rata
share of megawatts produced.
We agree with the commenters who
favor using a process unit as the basis
for administering the ERP and including
a definition of process unit in the final
rule. We also agree with the commenters
who suggested that the definition of
process unit should be consistent with
the definition in 40 CFR 63.41, and we
have altered the final rule definition to
include those processes that produce
‘‘intermediates.’’ We acknowledge that,
without further explanation, the term
‘‘intermediates’’ is susceptible to
misinterpretation, which can cause
confusion and lead to less regulatory
certainty. Thus, we provide the
following explanation as to how we
intend to interpret today’s rule.
By ‘‘intermediates,’’ we mean the
intended product of an integrated
facility operation. For example, for an
automotive manufacturing plant, while
the completed product would be the
driveable vehicle ready for shipping to
the showroom, an intermediate product
could be the engine or the painted body
shell. In this case, we would not
consider smaller production operations,
such as the e-coat, primer surface, or top
coat operation, to be intermediates in
the context of our final rule definition
for process unit. Our primary goal in
defining this term ‘‘process unit’’ is to
encompass integrated manufacturing
operations that produce a completed
product, and those operations that
produce an intermediate as the product
of the process unit. In the case of the
automotive paint shop, series of coating
steps together comprise the carefully
designed and interrelated set of
operations, all of which are needed to
provide a coating system that meets
design specifications. The individual
operations almost never are
implemented individually and, as a
practical matter, simply would serve no
meaningful purpose in the absence of
the others.
We disagree with the commenters
who wish to include all pollution
control equipment in the definition of
process unit. We feel that periodic
replacement of components of
emissions control equipment should be
encouraged and would rarely lead to
actual emissions increases. In instances
where identical or functionally
equivalent replacement of pollution
control equipment occurs, it is likely
you will qualify for a Pollution Control
Project exclusion. We do agree,
however, that where the control
equipment is an integral component of
the process it should be included.
Therefore, we are excluding associated
pollution control equipment from the
definition of the ‘‘process unit,’’ except
for control equipment that serves a dual
purpose in the process. We know there
are industries where pollution control
equipment performs a dual purpose; for
example, condensers often serve to
control emissions of organic air
pollutants while serving as an integral
component of the operation of a
fractionation column. A low-NOX
burner is another example of a dualpurpose
component. In such cases, to
provide clarity and simplify
administration of the ERP, our rule
provides that dual purpose equipment
should be considered part of the
process. We are also clarifying in
today’s rule that administrative
buildings (including warehousing) are
not to be included in the process unit,
but other types of non-emitting units
that are integral to the processing
equipment should be included.
We also have included in our final
rule industry-specific examples of how
this definition might be applied. The
examples are drawn from three selected
industrial processing categories—
electric utilities, refineries, and
incinerators. We proposed each of these
detailed definitions and received mostly
support from commenters on their
accuracy. While we also proposed
detailed definitions for two other
industries—pulp and paper and cement
producers—we have decided not to
finalize those definitions after receiving
comments from the relevant industry
trade association asserting that the
definitions did not, and could not,
capture all of their industry’s
configurations and they believed the
generic process unit definition was
sufficient for their industry. Because of
the centrality of the ‘‘process unit’’
concept to the usefulness of the ERP, it
is our desire to include specific
definitions for steam electric generating
facilities, petroleum refineries, and
incinerators in the final rule to provide
as much certainty as possible for
facilities in these industries. As noted
above, these definitions also should be
useful for those in other industries who
will apply our general definition
because the industry specific definitions
provide clear examples of how we
intend the general definition to be
interpreted and applied. During the
public comment period on the proposal,
several commenters submitted
additional industry specific definitions
and asked us to put them in the final
rule. We are not finalizing these
suggested definitions at this time,
because we did not include them in the
proposed rule. However, provided
below are the process unit definitions
that commenters submitted to us and
that we think comport well with the
general definition of process unit
promulgated today.
For a natural gas compressor
station, each compressor system,
together with its proportionate share of
common support equipment is a
separate process unit. This would
generally consist of the air inlet system,
accessory drive system, gas producer,
fuel delivery system, cooling system,
lube system, power turbine, power
shaft, control system, starting system,
exhaust system, and support facilities
(e.g., auxiliary power generating
equipment, heating/cooling equipment,
station and yard pipe, valves, etc.).
For a flat glass manufacturing
plant, each production line within a
facility should be a separate process
unit. Flat glass production is completed
on a continuous line where raw
materials are added at one end, a
continuous ribbon of glass is formed,
and finished glass is packaged at the
other end. The flat glass production line
consists of: the batch house, where raw
materials are stored and weighed; the
furnace and refiner, where the raw
materials are melted; the bath, where
the glass ribbon is formed; the lehr,
where the ribbon is annealed; and the
cutting and packaging equipment,
where the glass is removed from the line
for sale to customers or for additional
processing later.
For a fiberglass production facility,
each production line is a separate
process unit. Fiberglass is manufactured
on a continuous line where raw
materials are melted at one end to form
a continuous strand of fiberglass that is
packaged at the other end. The
fiberglass production line begins with
the batch house, where raw materials
are stored and weighed. In the melter,
forehearth, and refiner, the raw
materials are melted and refined. From
the refiner, glass fibers are formed
through controlled bushings. From the
bushings, the continuous strand fibers
are either directly cut or packaged or
wound onto spools for packaging for
sale to customers or for additional later
processing.
For the production of precipitated
amorphous silica, the process unit
includes, but is not limited to: raw
material storage and handling
equipment used for mixing sand and
other raw materials prior to addition to
the furnace; the furnace itself; the raw
material storage and handling
equipment for the cullet dissolving and
silica precipitation process; all
dissolving, precipitation, and filtration
tanks and equipment; and drying
equipment. Further, the process unit
includes all the product packaging,
storage, handling, and transfer
equipment.
For a chemical manufacturing
plant, the process unit would include
all the equipment assembled and
connected by pipes or ducts to process
raw materials and to manufacture an
intended primary product and
associated byproducts or intermediates.
The process unit can consist of more
than one unit operation. Chemical
manufacturing process units may
include, but are not limited to: raw
material storage, and air oxidation
reactors and their associated product
separators and recovery devices;
reactors and their associated product
separators and recovery devices;
distillation units and their associated
distillate receivers and recovery devices;
associated unit operations; associated
recovery devices; and any feed,
intermediate and product storage
vessels, product transfer racks, and
connected ducts and piping. A chemical
manufacturing process unit includes
pumps, compressors, agitators, pressure
relief devices, sampling connection
systems, open-ended valves or lines,
valves, connectors, instrumentation
systems, and process control or dual
purpose air pollution control devices or
systems. For a chemical manufacturing
facility, there are several types of
process units: those that separate and
distill raw material feedstocks; those
that change molecular structures
through reactions or polymerization;
those that ‘‘finish’’ the reacted or
polymerized product, through
compounding, blending, or similar
operations; auxiliary facilities, such as
boilers and by-product fuel production;
and those that load, unload, blend, or
store products. Process equipment that
acts to control emissions, such as
condensers, recovery devices, and
oxidizers, is considered part of the
process unit.
We note that we were unable to
include some other process unit
definitions submitted by commenters.
While we do not believe that these other
proposed definitions were necessarily
inconsistent with our general definition
of process unit, we had concerns and
questions with some of these proposed
definitions. We believe that now that
this rule is issued, we can more fully
evaluate those other definitions,
including communicating with the
leading industry officials, and
determine whether we would approve
of their use.
Finally, we have made some slight
corrections to the process unit
definitions that we proposed based on
comments we received on the proposed
definitions.
There are numerous industries that
have industrial boilers at their facility to
provide electricity and steam to their
operations. As a general rule, we would
expect these boilers to be treated as a
separate process unit from the other unit
operations occurring at the facility. We
would expect the boundaries of the
process units for such boilers to be
consistent with the boundaries
established under the definition for a
steam electric generating facility in
today’s rule, which encompasses all
equipment from coal handling to the
emission stacks.
We also decided to continue to
require that owners or operators who
have components shared by two or more
process units to proportionately
allocate, based on capacity, the cost of
those components. And we agree with
the commenter that an equitable
approach for electric utilities having
components shared by two or more
process units is to allocate the cost of
shared equipment based on the pro rata
share of megawatts produced by each
process unit.
G. Consideration of Non-Emitting Units
as Part of the Process Unit
Many commenters supported
excluding non-emitting equipment from
the ERP. One commenter stated that
triggering the major NSR review process
for maintenance activities is an
impediment to continuous improvement
projects for certain products and
processes, even if actual emissions
decrease or only non-emitting units on
the process line are affected. Delays or
postponements of project maintenance
work adversely affect the reliability,
safety and productivity of operations
and cost control efforts. Another
commenter recommended that work at
clearly non-emitting units, specifically
including foundation regrouting and
repair and frametop replacement,
should be excluded from this rule.
Three commenters believed that nonemitting
units cannot result in an
increase of emissions and thus do not
need to be evaluated under major NSR.
A blanket exclusion for non-emitting
units could create problems of
interpretation because the term ‘‘nonemitting
components’’ is ambiguous
when considering certain components.
Commenters asserted that identifying
and separating out non-emitting
components can be a complex
undertaking, and may be contrary to the
goal of a clear and straightforward
option. One commenter provided the
following examples: (1) Piping systems
(although pipe connectors are a source
of fugitive emissions, the pipe normally
is not); and (2) structural supports for a
process unit (separating out the cost of
supports from an investment basis
throughout a facility will be difficult).
Another commenter believed it would
be difficult to separate the costs of
emitting and non-emitting equipment
when determining the cost of the
process unit. The commenter also
believed it would be difficult to
determine allocation of shared
equipment in the cost analysis.
We are concerned that, if owners or
operators were allowed to strip away all
of the non-emitting components from a
process unit definition, it would create
significant ambiguity in the rule and
could result in significant variation in
how the rule is applied to similar
sources in different jurisdictions. In
addition, we simply do not think it is
practical or logical to separate ‘‘nonemitting’’
components of a process unit
from ‘‘emitting’’ components. We
believe that integrated manufacturing
operations (that is, process units)
typically include both types of
equipment. Separating emitting from
non-emitting equipment would create
an artificial divide that contrasts sharply
with physical and operational reality.
As noted above, however, we do
believe that a distinction should be
made between non-emitting equipment
that is part of a process unit and nonemitting
equipment that is functionally
distinct from the process unit. For
example, most production facilities
have buildings or space to house
administrative offices, such as offices
for the plant accounting staff. Such nonemitting
facilities should not be
considered part of any process unit
under today’s rule.
H. What Is the Accounting Basis for the
Process Unit?
In the proposal, the accounting basis
for the ERP discussed was the same as
for the NSPS reconstruction provision,
which is the fixed capital cost that
would be required to construct an
entirely new unit. We also discussed for
replacement allowance using the
invested cost of a unit as the accounting
basis. We proposed that it would be
appropriate to require that costs be
calculated using an approach along the
lines set out in the EPA Air Pollution
Control Cost Manual (http://
www.epa.gov/ttn/catc/dir1/
callchs.pdf). Finally, we solicited
comment on whether the costs
associated with the unanticipated
shutdown of equipment, due to
component failure or catastrophic
failures such as explosions or fires,
should be included in evaluating costs
under the ERP.
In reviewing comments, we
recognized that some commenters
appeared to direct their comments on
the accounting methods at the annual
allowance, and not necessarily the ERP.
Often, we came to this conclusion
simply by the way the commenters
organized their comments, and not by
any specific statements in the comment
letter. However, since we asked for
comment on the accounting approaches
as they would be applied to both the
replacement allowance and the ERP, we
believe that comments that appeared to
be dedicated to the annual maintenance,
repair and replacement allowance
should also apply to our evaluation of
the accounting for the ERP, except in
the case where the commenter specified
that their comments on the proposed
accounting methods applied only to the
replacement allowance or the ERP.
Likewise, for considering whether costs
associated with unanticipated shutdown
of equipment, we considered the
comments to apply to both the ERP and
replacement allowance unless the
commenter specifically noted that the
comment should not be applied to both
of the proposed rule provisions.
Most commenters asked for flexibility
on whether a facility should use
replacement value, invested cost or
insurance valuation as the basis for the
calculations. They felt that all were of
equal merit and different ones would be
available at different facilities so EPA
should not prescribe only one type.
Most commenters did not support the
sole use of the EPA Air Pollution
Control Cost Manual (APCCM) to
standardize calculations for replacement
and repair costs for RMRR in general.
Most commenters felt that the APCCM
is a worthy reference for costing but also
that sources should not be limited to
only one manual, because a single
manual is likely to have shortcomings
and not be able to represent every
situation.
Many commenters supported an
exclusion of costs for unanticipated
shutdowns and failures. They noted that
strong incentives exist to avoid fires,
explosions and other unanticipated
equipment failures because of the risk of
human injury and production
interruptions and because of the
expense involved in restoring lost
capacity. As a result, they contend that
a catastrophic event already penalizes
the facility dramatically, but then to
impose the case-by-case analysis would
only exacerbate their troubles. They
explained that failures take place
occasionally and can result in a sudden,
unplanned partial or total loss of
equipment. When such a failure occurs
at a natural gas compressor station, the
turbine or engine concerned must be
replaced immediately to avoid a
disruption in gas supply. Other facilities
may have similar pressures to maintain
their product around the clock. Such
replacement fits easily within most
elements of the equipment replacement
test. Commenters asserted that replacing
a catastrophically failed turbine or
engine is clearly ‘‘routine,’’ since
companies will always replace such
failures.
Other commenters, however, opposed
an exclusion for unanticipated
shutdowns and failures on the grounds
that maintenance activities performed
during forced outages are simply
maintenance and should be considered
as such, particularly given that the
proposed RMRR rule approaches and
the December 2002 final rules already
have given the industry a number of
exclusion options.
We are allowing sources to determine
the applicability of today’s rule on the
basis of replacement value, with an
option for sources to notify their
reviewing authority in writing if they
desire to use another option (for
example, invested cost or insurance
value where the insurance value covers
only the complete replacement of the
process unit). The equipment
replacement cost should be based on the
current replacement value of the entire
process unit at the time of conducting
the activity.
Typically, replacement value is more
easily obtained than invested cost. Most
manufacturers will have information
concerning the replacement value of a
process unit, because such costs are
commonly used when evaluating
various business scenarios relating to
manufacturing costs. Also, use of
replacement value is consistent with the
NSPS provisions.
In addition to determining the
replacement value of a process unit, in
our final rule we allow for the use of
several other accepted methods in
different industries for estimating such
values. Replacement values are the
estimated value of replacing a unit and
can be based on a current appraisal. In
lieu of replacement cost, you can also
use inflation-adjusted original
investment, insurance limits if insured
for full replacement of the unit, or other
cost estimation techniques currently
employed by the company, as long as
the company follows GAAP and if
approved by the reviewing authority.
A dollar-per-kilowatt rate for
calculating costs may be appropriate for
utilities. This model is specific to source
and fuel type and is updated
periodically. We allow sources to use
insurance valuation methods such as
the Handy-Whitman Index to determine
replacement costs for electric utilities.
Other sources to compute costs include
the Nelson Refinery Construction Index
Factors, Solomon Refinery Study, and
licensors of the respective process unit
(e.g., Kellogg, UOP).
In order for a cost-based approach to
be equitable, all owners or operators
must include the same categories of
expenses in both the process unit
replacement value and the replacement
activities sought to be excluded.
Therefore, although the final rule does
not mandate any particular approach,
we believe it is generally appropriate to
calculate costs using an approach
similar to the elements of Total Capital
Investment as defined in the APCCM.
While the manual contains basic
concepts that could be used to estimate
total capital investment at a process
unit, it is geared toward cost
calculations for add-on control
equipment. On the other hand, the
underlying concepts are taken from
work done by the American Association
of Cost Engineers to define the
components of cost calculations for all
types of processes, not just emission
control equipment. In certain cases,
other manuals might make more sense
depending on their circumstances.
Under the APCCM, total capital
investment includes the costs required
to purchase equipment, the costs of
labor and materials for installing the
equipment (direct installation costs),
costs for site preparation and buildings,
and certain other indirect installation
costs. However, any costs that are part
of the installation and maintenance of
pollution control equipment should be
excluded from the cost calculation, per
our discussion in the previous section of
this preamble. We believe equipment
that serves a dual purpose of process
equipment and control equipment
(combustion equipment used to produce
steam and to control hazardous air
pollutant emissions, exhaust
conditioning in the semiconductor
industry, etc. should be considered
process equipment.
Direct installation costs include costs
for foundations and supports, erecting
and handling the equipment, electrical
work, piping, insulation, and painting.
Indirect installation costs include such
costs as: engineering costs; construction
and field expenses (costs for
construction supervisory personnel,
office personnel, rental of temporary
offices, etc.); contractor fees (for
construction and engineering firms
involved in the activity); startup and
performance test costs; and
contingencies.
We believe there may be merit to the
comments we received advocating a
categorical exclusion for unanticipated
shutdowns and failures of some kind.
When such an outage occurs, there may
be a real urgency to restore the plant to
operation without forcing it to await the
results of a permitting action or
applicability determination. In the past,
we have handled these situations with
case-by-case consent orders; however,
even that approach may lead to
unnecessary delays. It may specifically
be sensible to relaxing the 20 percent
cost threshold limitation for such events
because it is unlikely that sources
would incur an outage to avoid controls.
We did not propose such a stand-alone
exclusion and hence we believe we
should not act upon it at this time.
I. Enforcement
1. Compliance Assurance
We believe that the records developed
and maintained in the ordinary course
of business will provide the primary
means of assuring compliance with
today’s rule. We know that, as a general
rule, companies necessarily generate
and keep records related to the types of
projects covered by today’s rule. For
example, companies generally have
comprehensive procedures by which
funds are allocated to both capital and
maintenance expense projects. Many of
the records generated by these
procedures are needed for tax
accounting purposes and, by law, must
be maintained for at least 6 years.
Moreover, additional records must be
maintained in industries regulated for
other purposes, such as the energy
sector (over 90 percent of which, by
capacity, is subject to FERC regulation).
Public utilities, licensees and natural
gas companies that are subject to FERC
jurisdiction must, unless they receive a
waiver from the Commission, comply
with extensive accounting and record
retention requirements. They must keep
financial information according to
uniform systems of accounts that are set
out in 18 CFR part 101 for public
utilities and licensees, and 18 CFR part
201 for natural gas companies. These
uniform systems of accounts include
hundreds of specific accounts,
including individual accounts for boiler
plant equipment, engines and enginedriven
generators, turbogenerator units,
and hundreds of other asset, liability,
cost and property items.
These companies also must retain
records according to the schedules set
forth in 18 CFR part 125 (for public
utilities and licensees) and 18 CFR part
225 (for natural gas companies). The
types of records that companies must
keep include, for public utilities and
licensees, for example, generation and
output logs (records must be kept for 3
years), load records (3 years), gaugereading
reports (2 years), maintenance
work orders and job orders showing
entries for labor, materials and other
charges in connection with maintenance
and other work pertaining to utility
operations (5 years), work order sheets
for construction work in progress (5
years), appraisals and valuations made
of utility property or investments (3
years), engineering records, drawings,
and other supporting data for proposed
or as-constructed utility facilities,
including detail drawings and records of
engineering studies (must be kept until
facilities are retired), contracts or other
agreements relating to services
performed in connection with
construction of utility plant (6 years
after the plant is retired or sold), general
and subsidiary ledgers (10 years), paid
and canceled vouchers, and original
bills and invoices for materials, services,
etc. (5 years).
Altogether, these various sources of
information provide more than
reasonable assurance of compliance
with today’s rule. This is particularly
true given EPA’s broad authority to
inspect affected facilities and require
submission of compliance related data.
Accordingly, we are not imposing any
recordkeeping requirements in today’s
rule.
2. General Issues
Today’s rule provides revisions to the
major NSR program to specify categories
of equipment replacement activities that
we will consider RMRR in the future. As
recognized by the U.S. Supreme Court,
an agency may not promulgate
retroactive rules absent express
congressional authority. See Bowen v.
Georgetown Univ. Hosp., 488 U.S. 204,
208, 102 L. Ed. 2d 493, 109 S. Ct. 468
(1988). The CAA contains no such
expressed grant of authority, and we do
not intend by our actions today to create
retroactive applicability for today’s rule.
42 U.S.C. 7401 et seq. Today’s rule
applies only to conduct that occurs after
the rule’s effective date.
None of today’s rule revisions apply
to any changes that are the subject of
existing enforcement actions that the
Agency has brought and none constitute
a defense thereto. Furthermore, prior
applicability determinations on major
modifications that result in control
requirements in an NSR permit that
currently applies to a source remain
valid and enforceable as to that source.
As noted above, today we are
changing the scope of the RMRR
exclusion from the major NSR program
by taking final action on the ERP. If you
subsequently undertake an activity that
does not meet the applicable provisions
of these new alternatives and do not
obtain a preconstruction permit if you
are required to do so, you will be subject
to any applicable enforcement
provisions (including the possibility of
citizens’ suits) under the applicable
sections of the CAA. Sanctions for
violations of these provisions may
include monetary penalties of up to
$27,500 per day of violation, as well as
the possibility of injunctive relief,
which may include the requirement to
install air pollution controls.
J. Quantitative Analysis
At proposal, we presented a
quantitative analysis of the possible
emissions consequences of the range of
different approaches to the RMRR
exclusion to evaluate if our policy
conclusions are correct. Our analysis
was conducted using the Integrated
Planning Model (IPM). This analysis
was done for electric utilities because
we have a powerful model to perform
such an analysis that we do not have for
other industries. We stated that the
results for electric utilities accurately
reflect the trends we would see in other
industries.
The IPM analyses of different
scenarios showed that the breadth of the
RMRR exclusion would have no
practical impact on, let alone be the
controlling factor in determining, the
emissions reductions that will be
achieved in the future under the major
NSR program. The analyses showed that
emissions of SO2 are essentially the
same under all scenarios, but that under
today’s rule these emission levels will
be met in a more economically efficient
manner than the base case. This stands
to reason because nationwide emissions
of SO2 from the power sector are capped
by the title IV Acid Rain Program. For
NOX, these analyses showed modest
relative decreases in some cases and
modest relative increases in other cases.
These predicted changes represent only
a fraction of nationwide NOX emissions
from the power sector, which hover
around 4.3 million tons per year (tpy).
At this time, we do not have adequate
information to predict with confidence
which modeled scenario is most likely
to occur. What these analyses indicate,
however, is that regardless of which
scenario is closest to what comes to
pass, today’s rule will not have a
significant impact, up or down, on
emissions from the power sector.
However, we expect the rule to result in
significant improvements in safety,
reliability, and other relevant
operational parameters.
The DOE also presented further
analysis of the possible emissions
consequences of the range of different
approaches to the RMRR exclusion.
Using the National Energy Modeling
System (NEMS), a variety of changes in
energy efficiency and availability were
evaluated, as well as the effect on
emissions resulting from these
regulatory revisions. This analysis
concluded that efficiency improvements
resulting from increased maintenance,
repair and replacement are expected to
decrease emissions, whereas availability
improvements are expected to increase
emissions. In the cases represented in
this analysis, the emissions reductions
from assumed reductions in heat rates
tended to dominate the corresponding
effects of the assumed availability
increases.
A number of commenters said that the
underlying assumptions EPA used in
the IPM analysis were flawed and
resulted in erroneous conclusions
regarding the emission reduction
potential of the proposed RMRR rules.
Several commenters stated that EPA’s
IPM analysis incorrectly assumes that
no major modifications at any older
units would ever trigger the requirement
to add new pollution controls. In
addition, according to commenters, EPA
also erroneously assumed that this lack
of major maintenance, repair and
replacement will have very little impact
on the performance of those power
plants, when in reality their emissions
would increase significantly. The
commenters cited a Clean Air Task
Force analysis for power plants, which
estimates that EPA’s rule revisions will
result in at least 7 million more tons of
SO2 and 2.4 million more tons of NOx
annually. Some commenters also
questioned the appropriateness of using
EPA’s analysis for the electric
generating sector to draw conclusions
about non-utilities.
One commenter said the IPM and
DOE NEMS analyses correctly
demonstrate that EPA’s RMRR proposal
will have no appreciable impact on
emissions from the power sector.
According to the commenter, this
conclusion is consistent with EPA’s
findings in a 1989 report, ‘‘1989 EPA
Base Case Forecasts,’’ which
demonstrated that continuing to allow
utilities to undertake activities
including ongoing annual operating and
maintenance activities and a major
refurbishment when the unit reached 30
years of operating life would have no
appreciable impact on emissions from
the power sector, just as EPA’s and
DOE’s recent analysis confirmed.
One commenter said the proposal
lacks any reference to the gains
accomplished by major NSR, the
ongoing enforcement actions,
settlements reached as a result of those
actions, or the potential gains from the
investigations now pending. The
commenter argued that EPA’s reliance
on improvements in productive capacity
as the measure of success fails to
consider that productive capacity must
be balanced with the interests of health
and welfare. The commenter also noted
that a critical part of EPA’s burden is to
consider all the relevant factors leading
to its conclusion that the exclusions are
necessary and appropriate and that at
the very least this includes an
assessment of the expected effects on
emissions, which in turn will determine
the public health benefits and costs of
the proposed rule. Although data on
emission reductions achieved under the
existing program are available, we have
stated that we cannot precisely quantify
the effects the proposed rule will have
on emissions. Some commenters stated
that before promulgating a final rule,
EPA should provide such a quantitative
assessment of the rule.
We disagree with the commenters
who believe that emissions would be
significantly higher for electric utilities
than are estimated under the IPM model
runs. These commenters’ arguments rely
on the assumption that EPA’s base case
is invalid because, if major NSR rules
were left unchanged, eventually all coalfired
utilities would either apply BACT
or deteriorate so badly that they would
have to shut down. We do not believe
this assumption is accurate. As we have
explained, our experience suggests that
under the current NSR program,
managers of coal-fired electric
generating facilities have available to
them a number of actions they can take
to avoid triggering major NSR, and in
many instances they will take one of
these actions to avoid the high retrofit
costs and delays in obtaining a major
NSR permit. If necessary, owners or
operators can and will limit their
activities to those that do not trigger
major NSR, and will take enforceable
restrictions on fuel use or other actions
to avoid major NSR. This results in
some decline in efficiency and capacity,
as the EPA’s base case modeled, but the
units would likely remain viable electric
generating units for years without
triggering BACT requirements. Thus, we
believe our base case represents a far
more realistic assessment of what would
happen under current major NSR rules
than the dramatic BACT reductions
presented by these commenters.
Furthermore, while some of the
facilities may be modified and subjected
to control, nationwide emissions as
estimated in the model runs would still
rise to the level of the Acid Rain cap for
SO2. To the degree these modifications
come at facilities that are otherwise
projected to be controlled because of
existing SO2 and NOX requirements,
there would be no difference in effect
between the model runs and alternative
scenarios. We agree with the commenter
who noted that the recent analysis and
the estimated impact on emissions is
consistent with the previous EPA report
in 1989. Our recent analysis confirms
that efficiency improvements have the
potential to result in environmental
benefits that offset (or more than offset)
emissions increases from improved
availability, but that previous major
NSR rules discouraged these
improvements.
Regarding the applicability of our
analysis to non-utility sectors, we
continue to believe that our conclusions
are valid for all sectors, and further, that
the effects from the electric utility
industry dominate those from other
sectors. We acknowledge that the results
for the SO2 cap for utilities cannot be
extended to non-utilities that are not
similarly capped. However, our model
runs for NOx reflected the absence of a
cap, and are therefore valid for other
uncapped sectors. Thus in the case of
industrial boilers, which behave
similarly to utilities, we would expect to
see similar efficiency improvements and
availability improvements occurring in
tandem, resulting in either modest
increases or decreases. Because the
overall emissions from this sector are
significantly smaller than for utilities,
the modeled effects for utilities are
expected to dominate the analysis.
For other industrial sectors, we do not
anticipate that emissions increases will
result from equipment replacement
activities that qualify as RMRR under
today’s rule. While some efficiency
improvements may result, the overall
effect of these improvements will not be
to induce greater demand and greater
emissions, in contrast to the effect
shown by the modeling for utilities (i.e.,
demand for other industrial sectors
depends on independent factors).
Indeed, without increased demand,
efficiency improvements that lower
emissions per unit of output would
result in a decrease in emissions.
A number of commenters raised
concerns that EPA had not analyzed the
impact of the final rule on industries
other than for electric utilities. We have,
thus, supported further efforts to
analyze empirically the effects of this
rule. This work is included in the
Regulatory Impact Analysis (RIA) for the
final rule. Even the experts involved in
this analysis emphasize that empirical
assessments of the costs, emissions, and
other economic and environmental
effects of this rule are extremely
difficult to perform, particularly when
generalizing beyond the specific
industrial sector and type of facility
involved. The analysis would have to
simulate a great many decisions made
by each plant involving routine
maintenance under a variety of policy
scenarios. There is simply no credible
way to make these assessments for the
entire economy or for an entire sector.
Hence, with the exception of the electric
utility industry model, we relied on a
case study approach to gain insights as
to how this rule affects particular
industrial sectors.
A series of case studies were analyzed
by an EPA contractor to estimate the
overall impact of the final rule on six
different industrial sectors (automobile
manufacturing, carbon black
manufacturing, natural gas
transmission, paper and pulp mills,
petroleum refining and pharmaceutical
manufacturing). The analysis was
designed to examine effects of the final
rule, but it is important to note that the
case studies were performed prior to
decisions on the exact form and content
of the final rule. For example, the
selection of process units for each of the
industries may not be an accurate
depiction concerning how a particular
industry’s operations should be
separated into process units under the
final rule. As such, none of these
characterizations should be taken as
EPA’s position on appropriate process
units for a given industry. (Information
on that subject can be found in Section
III.F of the preamble and in the final
rule for selected industries.) In addition,
in costing out replacement activities in
the different industries, the contractor
made assumptions regarding which
costs needed to be included and how
multiple replacement activities should
be grouped that may not be consistent
with the final rule. Again, these
assumptions on the part of the
contractor should not be interpreted as
EPA’s conclusions of how their rules
should be applied to such replacement
activities in these industries.
Even with these caveats, the case
studies provide useful insight into the
potential effects of the final ERP. The
six industries are significant sources of
air pollution emissions and are very
diverse in terms of their types of
operations, their existing maintenance,
repair and replacement strategies, and
the range of potential replacement costs
at some of their process units. This
diversity is important because the final
rule will impact a great many industrial
sectors and individual process units
which are extremely varied in terms of
their maintenance, repair and
replacement strategies. For example,
issues related to safety, reliability and
availability will vary greatly across
these industries. The need to assure that
the electricity and natural gas supply is
reliable and available is critical to
ensuring the safety of the public in the
hottest and coldest times of the year,
and it is critical to the operation of the
nation’s infrastructure, to the degree
they do not have backup power
generation, devoted to public health
(e.g., drinking water, sewage treatment,
food refrigeration, hospitals). Thus,
strategies related to maintenance, repair
and replacement at existing facilities are
critical to ensure that vital electric
utilities and natural gas transmission
continue uninterrupted. As we are
clarifying what activities fall within the
ERP, owners or operators at these
facilities will be able to make decisions
on when and how to conduct RMRR
activities based on engineering
judgement.
The case studies conclude that
equipment replacement activities vary
widely within these industries for the
process units selected. Across the
industries, the studies estimated that
equipment replacement activities could
range in percentage by over an order of
magnitude. By establishing a threshold
at 20 percent of the replacement cost of
the process unit, we believe we have set
a reasonable standard that allows most
replacements to proceed unimpeded as
long as the other safeguards are met. At
the same time, under the 20 percent
threshold, the most capital-intensive
replacements would be subject to caseby-
case review. The data from these case
studies clearly indicate that 20 percent
would function well as the dividing line
between those replacement activities
that automatically qualify under the
10 By efficiency, we mean unit of input per unit
of output, for example, amount of energy needed to
produce a specific amount of output. Another
example would be the amount of raw material to
produce a specific amount of output.
11 A common example illustrates the point well.
When one ‘‘tunes-up’’ a car, the automobile gets
more miles per gallon, is cleaner burning, and is
cheaper to operate.
12 For example, energy efficiency is not a design
parameter to determine functional equivalency for
defining routine maintenance. Accordingly, a firm
could adopt a more efficient ‘‘functionally
equivalent’’ technology without fear of triggering
NSR provisions.
ERP and those activities which should
be subject to case-by-case review.
The case studies also indicate that
replacement activities in these
industries should not lead to increased
emissions at the sources. Based on the
case studies, we believe that
replacement with identical or
functionally equivalent equipment as
the rule requires, will result in
equivalent or reduced emissions. The
decrease in emissions would result from
efficiency improvements that reduce the
amount of air pollution emitted per
product produced in the process unit.
Therefore, if operating levels do not
change, then total emissions will
decrease with such identical or
replacements.
The case studies looked at a wide
range of projects. We have concluded
based on this analysis that replacement
activities do not generally cause changes
in operating levels at the process unit.
Instead, other factors, like economic
downturns or increased demand for the
product of the process unit, will cause
operating levels to fluctuate. Efficiency
changes, even when they lead to
increases in product output from the
same raw material input will not lead to
increases in emissions unless an
independent factor like increased
demand for the product also occurs. We
strongly support efficiency
improvements where they can occur as
long as the other safeguards in the rule
are met.
Our inability to model economy-wide
impacts does not mean we cannot
characterize the effects of this rule. In
qualitative terms, the case studies
further support our conclusion that the
old case-by-case approach to RMRR is
having perverse effects by discouraging
projects that would improve efficiency.
As noted elsewhere, efficiency
improvements necessarily imply less
pollution holding everything else
constant. For example, the case study on
the pulp and paper industry finds that:
‘‘[A]s [safety, reliability and efficiency]
activities begin to be reviewed, those that
raise * * * questions under the ambiguity of
the current rules may be postponed, altered,
or simply cancelled. Under the proposed ERP
approach, these activities can be tested
against a clearer set of criteria, that will allow
more activities to be executed.
* * * The new approach provides the
regulatory clarity and certainty in making
applicability decisions that is completely
absent from the current case-by-case
approach. Thus, the manner in which mills
will handle the processing of equipment
replacement activities, with regard to
assessing their air permit applicability
assessments, will be able to be streamlined.
By definition, a ‘‘case-by-case’’ approach is
simply unworkable for a typical pulp and
paper mill, which may have thousands of
maintenance and repair related work orders
involving equipment replacements executed
each year, affecting all areas of mill
operations. Clearly, only a small subset of
these equipment replacement activities can
be evaluated using the complicated and
vaguely interpreted multi-factor test inherent
with the current case-by-case approach.
* * * The proposed ERP approach helps by
setting criteria for the routineness
determinations. Under the proposed
approach, a mill could set up more straightforward
guidelines to be followed throughout
an organization that would allow quick and
defensible determinations to be made
regarding individual maintenance activities.’’
Based on the analytical work performed
by the contractor for pulp and paper, we
expect that, at such facilities, the power
boiler would be the most affected by the
ERP, as well as an important or even
dominant emissions source. We would
anticipate that this would be true for
many of the inorganic and organic
chemical subsectors. In fact, we did not
pursue an analysis of the chlor-alkali
sector, in large part because the power
boiler was the most obvious process
unit to analyze, and the issues raised
overlapped with the pulp and paper
analysis. Thus, it is logical that the
conclusions from the case studies would
generalize to many other sectors.
Beyond the case studies, there is also
a great deal of research and experience
that allows for some robust findings.
Previous research, such as the articles
cited below, supports the following
findings:
Enhanced efficiency and less
pollution in the short run. Holding
everything else constant, when a plant’s
efficiency increases, pollution must go
down. This nation’s growing experience
with pollution prevention, efficiency
enhancements, voluntary environmental
programs, and Environmental
Management Systems adoption all
reinforce the notion that enhanced plant
efficiency translates into less
environmental pollution.10 Further,
there is an economic incentive to keep
plant efficiency high. Proper
maintenance and the resulting
efficiency enhancements and pollution
prevention reduce resource needs and
therefore reduce costs.11 By providing
the certainty needed to plan and
undertake efficiency investments
(economically efficient maintenance)
this rule will achieve lower pollution.
The rule will allow firms to take
advantage of pollution prevention
opportunities and new, innovative
pollution-reducing technologies. As
technology advances, plants will be able
to replace existing components with
functionally equivalent components that
enhance energy efficiency (and reduce
pollution).12 One example of such an
opportunity identified by the EPA
contractor in one of the case studies is
the replacement of spray guns on a
topcoat operation in order to improve
the quality of the paint job, while also
increasing the transfer efficiency, and
decreasing coating and associated
solvent usage. This project could be
deemed a physical change and have
major NSR applicability ramifications if
not for the ERP of the RMRR exclusion.
Under the current case-by-case
approach to RMRR, the facility may
forego the change to the newer spray
gun design if there is a perceived risk
that the determination could be
questioned. Under the new ERP
approach, the change would proceed
more definitively as RMRR, and thus the
emission reductions could be realized.
While firms can operate existing
plants efficiently, the rule preserves
powerful incentives within the CAA to
adopt ‘‘leap-frog’’ technologies and
production processes that further
reduce costs, increase efficiencies and
reduce pollution. Because of the CAA
requirements and economic gains
associated with improved efficiency,
producers still have an incentive to
invest in these clean technologies to
replace older facilities.
In addition, a substantial body of
research has explored the consequences
of environmental regulation that sets
more stringent control requirements for
new sources. This research explores
how differentiated regulation can affect
firm behavior both on theoretical and
empirical grounds. A listing of some of
this literature is included in the RIA for
the final rule. This literature provides
further evidence that the NSR can easily
distort investment and production
decisions against more efficient
maintenance and replacement.
Therefore, based on the information
evaluated, we affirm the overall
conclusion of our analysis—that today’s
rule has no practical effect on the
environmental benefits of major NSR in
the future. We have presented
additional, more detailed supporting
information in our final RIA and our
response to comments document, both
of which can be found in the docket for
today’s action.
K. Consideration of Other Options
In addition to the cost-based
approaches that we proposed, we also
asked for comment on age-based and
capacity-based approaches, and any
other viable option for addressing
RMRR.
1. Annual Maintenance, Repair and
Replacement Allowance
We are not taking action on the
proposed Annual Maintenance, Repair
and Replacement Allowance option for
the RMRR exclusion, and therefore
public comments on this option are not
addressed at this time. We will address
comments on our proposed Annual
Maintenance, Repair and Replacement
Allowance if and when we take final
action on that proposal.
2. Capacity-Based Option
As mentioned above, we considered
the alternative option of developing an
RMRR provision based on the capacity
of a process unit. Under such an
approach, an owner or operator could
undertake any activity that does not
increase the capacity of the process unit.
Basing RMRR on capacity has appeal for
several reasons. For starters, an
objective of RMRR is to keep a unit
operating at capacity and/or availability.
In addition, the linkage between
capacity and environmental impact is
more apparent than that between cost
and environmental impact. Finally, this
type of approach might, in principle, be
easier to use before beginning actual
construction than some of the costbased
approaches.
Several commenters were concerned
with defining the capacity of a process
unit. Capacity may be defined based on
input or output. Nameplate capacity of
a process unit may vary greatly from the
capacity at which the process unit may
be able to operate. It may be more
appropriate in some industries to
measure capacity based on input while
in others on output. Commenters felt
that a capacity-based approach would
not be workable at complex
manufacturing sources, because
‘‘capacity’’ as a useful shorthand term
for the processing capability correlates
exactly only with a historical feed or
product slate no longer available or
made. A number of commenters
supported a capacity-based option,
generally indicating that a capacitybased
option would be simpler and less
burdensome to use than the other
proposed approaches.
Another large concern of commenters
was that a capacity-based approach
could prevent facilities from performing
activities that make the facilities more
efficient. RMRR provisions need to
include some form of the other
approaches to account for energy
efficiency projects at utilities, which
could increase output capacity (i.e.,
production) without necessarily
increasing heat input or fuel
consumption. Some commenters noted
that maximum hourly emissions is a
more appropriate surrogate for a change
in capacity, because it is consistent with
existing NSPS procedures and with
averaging periods for ambient air quality
monitoring and standards.
We agree that an appropriate capacitybased
approach would have to be
tailored to various types of sources, with
capacity based on input for some and on
output for others. As an example, in a
review of promulgated and proposed
Maximum Achievable Control
Technology standards, six of eleven
standards measured capacity based on
process unit output while five standards
based capacity on input. In fact, the
NSPS exclusion for increases in
production rate at 40 CFR 60.14(e)
originally was dependent upon the
‘‘operating design capacity’’ of an
affected facility. In proposed revisions
to the NSPS program published on
October 15, 1974, we state (39 FR
36948):
‘‘The exemption of increases in production
rate is no longer dependent upon the
‘‘operating design capacity.’’ This term is not
easily defined, and for certain industries the
‘‘design capacity’’ bears little relationship to
the actual operating capacity of the facility.’’
We also agree that a capacity-based
approach has its limitations, as
described by the commenters. We have
concluded that the ERP eliminates the
need to implement the capacity based
approach. We have decided not to
finalize a capacity-based approach.
3. Age-Based Option
Under our proposed age-based
approach, any process unit under a
specified age could undergo any activity
that does not increase the capacity of a
process unit on a maximum hourly basis
without triggering the requirements of
the major NSR program. However, the
activities could not constitute
reconstruction of the process unit; that
is, their cost could not exceed 50
percent of the cost of a replacement
process unit. The age of the process unit
would likely be in the range of 25–50
years. We also proposed that the owner
or operator would have to become a
Clean Unit as defined at 40 CFR
51.165(c)(3), 51.166(t)(3), and
52.21(x)(3), once the age of a process
unit exceeds the age threshold.
Such an approach would provide an
owner or operator a clear understanding
of RMRR for an extended period of time.
It also may provide the owner or
operator greater flexibility than under
the current system for a limited period
of time. Like the capacity-based
approach, this approach would, in
principle, allow for a fairly simple
preconstruction determination of
applicability.
Very few commenters expressed any
interest in developing this type of
approach. Their concerns centered
around defining capacity and
establishing the age cut-off (because the
useful life of equipment is difficult to
establish and may vary greatly). Other
concerns raised by commenters were
that some of the activities that would be
allowed at newer sources do not fit
within any ordinary meaning of RMRR
and some of the activities that would be
forbidden at older facilities would come
within that meaning, and also that some
sources may consciously, and
appropriately, engage in aggressive
RMRR as a method of maximizing the
life span of its process units, and an agebased
approach would discriminate
against them.
One commenter stated that EPA
should establish a normal lifetime,
tailored to each industry, beyond which
industry would need to install BACT or
shut down. This type of approach
would obviously require a substantial
amount of time and analytical effort.
The age of a source alone is not a
legitimate reason to require the addition
of pollution control equipment. Age has
no direct bearing on a unit’s
environmental impact; some facilities
maintain equipment better than others.
We have decided not to promulgate an
age-based approach. We have several
basic concerns with this approach that
we have not been able to reconcile. We
also believe that the equipment
replacement approach largely addresses
the commenters’ concerns regarding the
age-based approach.
Thus, we have decided not to finalize
a rule using this approach.
L. Specific List of Excluded Activities
Several commenters supported the
development of lists of activities that are
considered RMRR; some of these
commenters also supported developing
lists of activities that do not qualify as
RMRR. Commenters suggested various
ways in which such lists could fit into
the overall RMRR program. We are
concerned, however, that such a list
would have to be implemented through
rulemaking, which would require a
considerable amount of time, analytical
effort, and resources.
A commenter suggested two ways by
which we could develop a list of
qualifying activities. First, we could
review records for ongoing enforcement
activity, to identify activities that we
have and have not already alleged to be
RMRR. There is an ample body of
knowledge for electric power plants.
Second, we could identify where
activities would fall with respect to the
cost criteria, then adjust the
classification of each activity based on
the WEPCO criteria to prepare lists of
routine and nonroutine activities.
Some commenters felt that industryspecific
lists of routine and nonroutine
activities would provide the best
interim clarification to major NSR until
legislative reform is in place. Other
commenters opposed the development
of lists of activities that are considered
RMRR, contending that such lists would
become quickly outdated.
Some commenters requested that
certain activities be specifically
classified as RMRR. These suggested
activities included the following:
The common practice of changing
out the engine core in a combustion
turbine when it is due for overhaul (to
reduce downtime). The removed engine
core is overhauled offline, and is then
available to be switched in for the next
like-kind engine core that reaches the
point of overhaul. Unless the
components are upgraded, the heat
input remains the same and so does the
emissions rate.
Any change that does not increase
the achievable hourly emissions (as
determined based on the permit and/or
original design parameters) of existing
equipment, processes, and emissions
units.
Certain activities, for example,
boiler tuning and maintenance, repair
and replacement of air pollution
equipment or CEMS should be
categorically excluded as RMRR.
Any activity that is part of a longterm
service agreement (primarily gas
turbines) should be categorically
excluded from major NSR.
Any activity involving steam
turbine overhaul work should be
categorically excluded from major NSR.
Activities such as the above might be
RMRR, but we believe there are simply
too many activities in too many
industries to effectively improve major
NSR implementation through creation
of lists. Moreover, lists would be a
‘‘snapshot in time’’ that would need to
be reviewed and periodically updated
for each industry sector. We have
consequently decided not to attempt to
list activities that are categorically
excluded as RMRR.
M. Stand-Alone Exclusion for Energy
Efficiency Projects
In the proposal, we acknowledged
that certain types of activities that
improve energy efficiency would not
qualify as RMRR. We solicited comment
on whether there was the need for a
‘‘stand-alone’’ exclusion for activities
that promote energy efficiency.
Many commenters supported a standalone
exclusion from major NSR for
energy efficiency projects. With the
following safeguards, they favored
specifically excluding from the
definition of ‘‘major modification’’
activities that promote energy efficiency
and/or resource conservation when: (1)
The activity results in lower emissions
per unit of production or lower energy
utilization per unit of production; (2)
the percent decrease in emissions or
energy utilization per unit of production
is greater than the percent increase in
maximum hourly emission rates; (3)
activity costs do not exceed 50 percent
of the replacement value of the process
unit; and (4) the activity does not result
in an increase in allowable emissions.
Other commenters pointed out that
efficiency upgrades will frequently
create incentives to further utilize a
source and subsequently increase mass
emissions. One commenter stated that if
activities that result in small efficiency
gains can qualify as RMRR, older, dirtier
electric generating units will be better
able to out-compete newer, much
cleaner plants (that have higher costs
due to emission controls).
One commenter stated that EPA is
incorrect in stating that energy
efficiency projects are being discouraged
by major NSR, particularly under the
new actual-to-projected-actual
applicability test. This commenter
added that the only projects that are
discouraged by major NSR are ones that
increase emissions. This commenter felt
that the December 2002 final major NSR
rules provide a broad range of major
NSR exclusions (including revised
baseline determinations, Clean Unit
designations, pollution control projects,
PALS, and combinations of these
provisions, as well as an RMRR
exclusion) under which energy
efficiency projects will certainly occur.
We strongly support efforts to
improve energy efficiency at existing
power plants. These activities reduce
the amount of air pollution emitted per
unit of electricity generated. We believe
that today’s ERP supports energy
efficiency projects and that the actualto-
projected-actual applicability test
contained in the December 2002 NSR
final rules also should remove
impediments to energy efficiency
projects. Together, these rules will
obviate the need for a specified RMRR
provision for energy efficiency projects.
Thus, at this time we are not finalizing
a provision to categorically exclude
energy efficiency projects from major
NSR.
N. Legal Basis
1. How Does the NSR Program Address
Existing Sources and Why Is Today’s
Rule Consistent With This Approach?
The core of the NSR program is to
require preconstruction permits for all
new major sources. Congress
specifically decided that existing
sources generally would not be required
to obtain permits. These considerations
are the starting point for understanding
its application to ‘‘modifications’’ and
the meaning we should give that term.
The NSR program’s scope is closely
related to the scope of the NSPS
program, created seven years earlier in
the CAA Amendments of 1970. In
section 111 of the CAA, which sets forth
the NSPS provisions, Congress applied
the New Source Performance Standards
to ‘‘new sources,’’ secs. 111(b)(1)(B),
111(b)(4). Congress determined that as a
general matter it would not impose the
NSPS standards on existing sources,
instead leaving to the State and local
permitting authorities the decision of
the extent to which to regulate those
sources through ‘‘State Implementation
Plans’’ designed to implement National
Ambient Air Quality Standards
(NAAQS). See sec. 110.
Congress followed a similar approach
in determining the scope of the major
NSR program established by the 1977
Amendments to the CAA. As amended,
the CAA specifies that State
Implementation Plans must contain
provisions that require sources to obtain
major NSR permits prior to the point of
‘‘construction’’ of a source. Secs.
172(c)(5); 165 (a). By contrast, the CAA
generally leaves to State and local
permitting authorities in the first
instance the question of the extent,
means and timetable for obtaining
reductions from existing sources needed
to comply with National Ambient Air
Quality Standards. See secs. 172(c)(1),
161.
NSR’s applicability to existing sources
to which a ‘‘modification’’ is made is an
exception to this basic concept. This
exception likewise finds its roots in the
NSPS program’s applicability to
‘‘modifications’’ of existing sources. The
1970 CAA made the NSPS program
applicable to modifications through its
definition of a ‘‘new source,’’ which it
defined as ‘‘any stationary source, the
construction or modification of which is
commenced after the publication of
regulations * * * prescribing a[n
applicable] standard of performance
* * *.’’ Section 111(a)(2). Section
111(a)(4), in turn, defined a
‘‘modification’’ as ‘‘any physical change
in, or change in the method of operation
of, a stationary source which increases
the amount of any air pollutant emitted
from such source or which results in the
emission of any air pollutant not
previously emitted.’’
Congress did not further define the
terms ‘‘physical change’’ or ‘‘change in
the method of operation’’ in the NSPS
program. Therefore we issued
regulations to clarify their meaning. As
early as our 1971 NSPS regulations, we
have made clear that many activities
that do not affect the contemplated
operation of a unit in a manner
consistent with its original design are
not physical or operational changes.
Specifically, in our 1971 NSPS
regulations, we determined that
physical or operational changes do not
include:
(1) ‘‘Routine maintenance, repair and
replacement’’ of equipment;
(2) ‘‘An increase in the production
rate, if such increase does not exceed
the operating design capacity of the
affected facility’’;
(3) ‘‘An increase in the hours of
operation’’; and
(4) ‘‘Use of an alternative fuel or raw
material if * * * the affected facility is
designed to accommodate such
alternative use.’’
36 FR at 24877 (Dec. 23, 1971). The
premise behind characterizing these
activities as not being ‘‘changes’’ is that
they all contemplate that the plant will
continue to be operated in a manner
consistent with its original design.
The 1977 Amendments to the CAA
likewise made the NSR program
applicable to ‘‘modifications.’’ The
original 1977 Amendments did so
explicitly only in their provisions
dealing with the non-attainment portion
of the NSR program, see CAA sec.
171(4). But in ‘‘technical and
conforming’’ amendments to the 1977
Amendments, Congress clarified that it
intended the same result with respect to
the prevention of significant
deterioration provisions, see CAA sec.
169(2)(C).
Notably, Congress did not enact a new
definition of ‘‘modification’’ in either
the original 1977 Amendments or the
‘‘technical and conforming
amendments.’’ Rather, it incorporated
the NSPS definition of ‘‘modification’’
by cross-reference. See CAA sec.
169(2)(C); CAA sec. 171(4). In moving
the adoption of those amendments, the
sponsor (who was also the sponsor of
the original 1977 Clean Air Act
Amendments and who indicated that
the technical amendments had been
approved by all members of the original
1977 Amendments conference
committee) stated in a summary and
statement of intent that he placed in the
Congressional Record that this was a
deliberate choice. As that summary
explained, Congress intended the
amendment ‘‘implement[ed] the [1977
Clean Air Act Amendments] conference
agreement to cover ‘‘modification’’ as
well as ‘‘construction’’ by defining
‘‘construction’’ in part C to conform to
usage in other parts of the Act.’’ 123
Cong. Rec. 36331 (Nov. 1, 1977). We
have understood this to be a reference
to our preexisting rules interpreting the
term ‘‘modification’’ in the NSPS
context. 49 FR 43211, 43213 (1984); see
also 43 FR 26388, 26394, 26397 (June
19, 1978).
The original 1978 NSR rules
concerning modifications that we
promulgated after enactment of the 1977
Amendments generally tracked the
NSPS approach by specifying that
‘‘routine maintenance, repair and
replacement’’ was not a change; by
specifying that changes in hours of
operation and rates of production were
not a ‘‘change’; and by using the same
basic approach NSPS used to the
question of what constitutes an
‘‘increase’’ (increase to a source’s
potential to emit, except that the NSR
rule used annual potential to emit while
the NSPS program used short-term
potential to emit). 43 FR 26388 (June 19,
1978). Even after the D.C. Circuit struck
down other portions of our 1978 NSR
rules in its original per curiam decision
in Alabama Power Co. v. Costle, 606
F.2d 1068 (D.C. Cir. 1979), we
continued to propose to retain the
RMRR provision and the ‘‘potential to
emit’’ approach to emissions increases
in our revised rules, although to drop
the ‘‘hours of operation and rate of
production’’ provisions because the
‘‘potential to emit’’ provision made
them unnecessary. 44 FR 51924, 51937
(September 5, 1979). In our final 1980
NSR rules, however, issued after the
D.C. Circuit’s final Alabama Power
decision, 635 F.2d 323 (1980), we
changed our approach to the definition
of ‘‘increase’’ in the NSR context to
specify that a change would trigger NSR
if it would result in an increase over
‘‘actual annual emissions.’’ 45 FR 52676
(August 7, 1980). At the same time, and
notably, we restored the provisions
stating that increases in hours of
operation or production rate were not
‘‘changes.’’ Id. at 52704.
It is important to understand what we
did—and did not—decide in those final
1980 NSR rules. What we did decide
was that as a general proposition, we
would better serve the purposes of the
NSR program if we used ‘‘actual’’ rather
than ‘‘potential’’ emissions as a baseline
for determining whether an activity at a
new source results in an emissions
increase. What we did not decide was
that the purposes of the NSR program
never allow us to exclude from the
definition of ‘‘change’’ any activity at a
plant that may increase its actual
emissions but does not increase its
‘‘potential’’ emissions. In particular, for
example, we decided to retain the
‘‘hours of operation’’ and ‘‘rate of
production’’ exclusions even though
such changes might result in increases
in ‘‘actual’’ emissions because not
having the provisions ‘‘would severely
and unduly hamper the ability of any
company to take advantage of favorable
market conditions.’’ Id. Similarly, we
retained the exclusion for ‘‘routine
maintenance, repair and replacement’’
even though it too can result in
emission increases. Yet there is little
doubt that increases in hours of
operation and rates of production and
RMRR arguably could be understood to
fall within the statutory definition of
modification, since increases in hours of
operation and rates of production
certainly may be argued to be changes
in the ‘‘method of operation’’ of a plant,
and RMRR certainly may be argued to
be a ‘‘physical change’’ to a plant. On
balance, however, we rejected that
interpretation and determined that the
definition of modification should not be
read so broadly as to encompass hours
of operation or production rate
increases, at least so long as they are
unrelated to a physical change.
In the revisions to the NSR program
we announced last December, we
reiterated our adherence to the view that
as a general matter we should continue
to use ‘‘actual’’ rather than ‘‘potential’’
emissions in determining what activities
constitute ‘‘modifications’’ under NSR.
We continue to believe that is correct,
but we also believe we should amplify
our reasons for holding this view and
why that view is entirely consistent
with the rule we are promulgating
today. In determining the scope to give
to ‘‘modification,’’ we believe it is
important to give weight to both aspects
of what Congress decided in 1977.
Congress decided that generally
speaking, existing plants would not be
subject to NSR, but that they would be
subject to NSR when they made
‘‘modifications.’’ It is also important to
understand why Congress chose this
point at which to impose NSR on
existing plants: to avoid the need to
impose costly retrofits, but require
placement of new control technology at
a time when it makes the most sense for
it to be installed. See H.R. Rep. No. 294,
95th Cong., 1st Sess. 185, reprinted in
1977 U.S. Code Cong. & Admin. News
at 1254; 116 Cong. Rec. 32,918 (Sept. 21,
1970) (remarks of Sen. Cooper). See also
WEPCO, 893 F.2d at 909–910; National-
Southwire Aluminum Co. v. EPA, 838
F.2d 835, 843 (6th Cir., Boggs, J.,
dissenting), cert. denied, 488 U.S. 955
(1988). A wholesale exclusion of any
activity that restores a plant to its
potential to emit from the definition of
modification is not consistent with this
balance, since there are many activities
that might have that effect but the
conduct of which would be an
extremely effective time for the
placement for new control technology.
At the same time, we believe it is also
important to give equal weight to the
converse proposition that existing
plants should not have to install new
control technology in the ordinary
course of their operations. To require
them to do so would fail to give full
effect to Congress’s decision that
existing sources generally would not be
required to obtain permits. It would also
subject these plants and the consumers
who rely on them to enormous
dislocation and expense. That is why
we believe we have rightly excluded
increases in hours of operation and rates
of production from the definition of
‘‘change.’’ That is also why we believe
we have rightly excluded ‘‘routine
of existing plants from that definition.
For similar reasons, we believe
today’s rule draws an appropriate line of
demarcation between replacements that
should not be treated as changes, and
those as to which further consideration
of the question is appropriate. Our rule
states categorically that the replacement
of components with identical or
functionally equivalent components that
do not exceed 20% of the replacement
value of the process unit and does not
change its basic design parameters is not
a change and is within the RMRR
exclusion. On the other hand, the rule
contemplates case-by-case evaluation of
equipment replacements that do not
have these characteristics.
We believe this approach is consistent
with the intended scope of
‘‘modification’’ under the NSR program.
The record of this rulemaking
demonstrates that there are substantial
categories of replacement activities
undertaken in order to assure the safety,
reliability and efficiency of existing
plants that, if conducted at the same
time, cost less than the 20-percent
replacement cost threshold. It also
demonstrates that there are sound
business reasons why an owner or
operator may find it makes sense to
conduct some of these activities at the
same time.
On the other hand, given the costs
and technical problems associated with
installing state-of-the-art pollution
controls at existing facilities, we do not
believe it plausible that, if faced with
the choice of replacing equipment that
has a value less than 20 percent of a
process unit and having to install those
controls, or coming up with another
solution—such as repairing the existing
equipment or limiting hours of
operation so as to be confident that the
activity will not trigger NSR—the owner
of a source would elect to replace the
equipment if he also has to install the
state-of-the-art controls. Rather, we
believe he will repair the existing
equipment or artificially constrain
production. Therefore the replacement
of that equipment is not, in fact, an
opportune time for the installation of
such controls. It follows that treating
such replacements as an NSR trigger
will not lead to the installation of
controls. Rather, it will merely create
incentives to make a plant less
productive than its design capacity
would allow it to be.
We do not believe it is the policy of
the CAA to seek to promote emissions
reductions by forcing new limits on
hours of operation or rates of production
of existing plants. We made that point
clear in 1980 when we determined that
we should retain the hours of operation
and rate of production exclusions in the
NSR context. To the contrary, as we said
in promulgating the 1980 rules,
Congress’s decision to exclude existing
sources because of the dislocation that
covering them would cause can
reasonably be understood as allowing
those sources to increase hours of
operation or production up to permitted
levels as market conditions dictate. We
note that this does not leave such
activities outside the scope of the CAA:
if a State concludes that resulting air
quality considerations warrant revision
to its SIP to add further limitations to a
permit, it may exercise its authority to
impose them, even in the absence of
anything that constitutes a ‘‘change’’ to
an existing plant. But we believe that
our 1980 conclusion that increases in
hours of operation or production at
existing plants should not trigger NSR
remains the better construction of the
CAA. That being the case, we now
believe that the fact that such increases
may occur after replacement of
equipment that does not present an
opportune time for the installation of
controls should change that conclusion.
To summarize: with respect to
existing sources, the purpose of the NSR
provisions is simply to require the
installation of controls at the
appropriate and opportune time. The
kind of replacements that automatically
fall within the equipment replacement
provision established today do not
represent such an appropriate and
opportune time. Accordingly, and given
that it is consistent with the meaning of
‘‘change’’ to treat this kind of
replacement as not being a ‘‘change,’’
we believe excluding them on that basis
from the definition of ‘‘modification’’ as
used in the NSR program is well
calculated to serve all of the policies of
the NSR provisions of the CAA, and is
therefore a legitimate exercise of our
discretion under Chevron, U.S.A. Inc. v.
NRDC, 467 U.S. 837 (1984), to construe
an ambiguous term. Likewise, we
believe this approach is consistent with
the holding in the WEPCO case, and
with some though not all of that case’s
reasoning.
Today’s rule treats the activities
excluded from the definition of
‘‘change’’ as a category of ‘‘routine
maintenance, repair and replacement’’.
We received many comments as to
whether we can and should adopt the
ERP as an expansion of the RMRR
exclusion. We believe it is appropriate
to expand the former RMRR exception.
Before promulgation of today’s rule, we
interpreted the phrase ‘‘routine
to be limited to the day-to-day
maintenance and repair of equipment
and the replacement of relatively small
parts of a plant that frequently require
replacement. Today we are expanding
the former definition of RMRR through
this rulemaking to include other
activities covered by the 20 percent cost
threshold that are needed to facilitate
the efficiency, reliability and safety of
affected sources.
We believe it is appropriate to add
one final note regarding the fact that this
approach represents a change from the
approach we have taken in the recent
past. As the Supreme Court explained in
Chevron, where it upheld a considerably
more significant shift in the Agency’s
understanding of Title I of the CAA, to
wit, the scope of the term ‘‘stationary
source,’’ there is nothing inherently
suspect about a change of approach of
this type by an expert Agency seeking
to interpret a technical statutory term so
as best to accommodate competing
interests that Congress has charged the
Agency with reconciling.
In section 101 of the CAA, Congress
stated that Title I of the CAA has a dual
purpose: ‘‘to protect and enhance the
quality of the Nation’s air resources so
as to promote the public health and
welfare and the productive capacity of
its population’’ (emphasis added). This
duality is reiterated in the statement of
purpose of the PSD provisions and in
the House Report accompanying the
1977 Amendments in connection with
the non-attainment provisions. See sec.
160(1) (purposes of the PSD program
are, inter alia, ‘‘to protect public health
and welfare from any actual or potential
adverse effect’’ of air pollution and ‘‘to
insure that economic growth will
continue to occur consistent with the
preservation of existing clean air
resources’’); H.R. Rep. No. 95–294, p.
211 (The ‘‘two main purposes’’ of the
non-attainment permitting program are
‘‘(1) to allow reasonable economic
growth to continue in an area while
making reasonable further progress to
assure attainment of the standards by a
fixed date; and (2) to allow States
greater flexibility for the former purpose
than EPA’s present interpretative
regulations afford’’).
More specifically, with regard to the
question at issue here, Congress directed
EPA not to apply NSR preconstruction
permitting requirements to existing
plants as a general matter, but to apply
them to ‘‘modifications.’’ Both
directives are entitled to receive
appropriate weight.
In these circumstances, changes in an
Agency’s understanding informed by
greater experience are not only not
surprising, they are to be expected.
Effectuating these underlying
Congressional commands requires a
careful weighing and accommodation of
the competing considerations
underlying them. Sensitivity to
unintended consequences, and a
willingness to adjust policies in a
manner informed by a better
understanding of those consequences,
are a central element of the
responsibilities of an Agency given such
a charge. As the Chevron Court
explained:
Our review of the EPA’s varying
interpretations of the word ‘‘source’’—both
before and after the 1977 Amendments—
convinces us that the agency primarily
responsible for administering this important
legislation has consistently interpreted it
flexibly—not in a sterile textual vacuum, but
in the context of implementing policy
decisions in a technical and complex arena.
The fact that the agency has from time to
time changed its interpretation of the term
‘‘source’’ does not, as respondents argue, lead
us to conclude that no deference should be
accorded the agency’s interpretation of the
statute. An initial agency interpretation is not
instantly carved in stone. On the contrary,
the agency, to engage in informed
rulemaking, must consider varying
interpretations and the wisdom of its policy
on a continuing basis. Moreover, the fact that
the agency has adopted different definitions
in different contexts adds force to the
argument that the definition itself is flexible,
particularly since Congress has never
indicated any disapproval of a flexible
reading of the statute.
467 U.S. at 863–64.
The Court went on to point out:
In these cases the Administrator’s
interpretation represents a reasonable
accommodation of manifestly competing
interests and is entitled to deference: the
regulatory scheme is technical and complex,
the agency considered the matter in a
detailed and reasoned fashion, and the
decision involves reconciling conflicting
policies. Congress intended to accommodate
both interests, but did not do so itself on the
level of specificity presented by these cases.
***
[A]n agency to which Congress has
delegated policymaking responsibilities may,
within the limits of that delegation, properly
rely upon the incumbent administration’s
views of wise policy to inform its judgments.
While agencies are not directly accountable
to the people, the Chief Executive is, and it
is entirely appropriate for this political
branch of the Government to make such
policy choices—resolving the competing
interests which Congress itself either
inadvertently did not resolve, or
intentionally left to be resolved by the agency
charged with the administration of the statute
in light of everyday realities. * * *
We hold that the EPA’s definition of the
term ‘‘source’’ is a permissible construction
of the statute which seeks to accommodate
progress in reducing air pollution with
economic growth. ‘The Regulations which
the Administrator has adopted provide what
the agency could allowably view as * * *
[an] effective reconciliation of these twofold
ends. * * *’
Id. at 865–66 (citations and footnotes
omitted). We believe the same reasoning
applies here, and makes it entirely
appropriate for us to adopt the
equipment replacement provision today.
2. Why Today’s Rule Appropriately
Implements the Clean Air Act’s
Definition of Modification
As noted above, the modification
provisions of the NSR program in parts
C and D of title I of the CAA are based
on the definition of modification in
section 111(a)(4) of the CAA. The term
‘‘modification’’ means ‘‘any physical
change in, or change in the method of
operation of, a stationary source which
increases the amount of any air
pollutant emitted by such source or
which results in the emission of any air
pollutant not previously emitted.’’ As
we observed in the notice of proposed
rulemaking for this rule, that definition
contemplates that you will first
determine whether a physical or
operational change will occur. If so,
then you proceed to determine whether
the physical or operational change will
result in an emissions increase over
baseline levels.
Real-world, common-sense usage of
the word ‘‘change’’ in ‘‘physical
change’’ and ‘‘change in the method of
operation’’ shows that ‘‘change’’ is
susceptible to multiple meanings. As we
have noted previously, ‘‘EPA has always
recognized that Congress did not intend
that every activity at an existing facility
be considered a physical or operational
change for purposes of NSR.’’ 57 FR
32,314, 32,319 (July 21, 1992).
Conceivably, ‘‘change’’ could
encompass a range of activities from
periodically replacing filters in
production machinery, to once in-alifetime
anticipated replacement of a
component, to complete replacement of
a production unit.
For example, all cars must
periodically have their oil ‘‘changed.’’
When considered from one perspective,
this activity does represent a ‘‘change’’
because old oil is removed and new oil
is added. From another perspective,
however, this activity would not be
considered a change because it does not
alter any significant characteristic of the
car.
More to the point, chemical and
pharmaceutical manufacturing
operations often are designed, operated,
and permitted as ‘‘multi-function’’
facilities. These facilities have
numerous pieces of equipment (such as
storage tanks, reactors, distillation
columns, centrifuges, filter dryers, etc.)
that can be reconfigured to
accommodate a wide variety of products
and operating conditions. When
switching from product X to product Y,
a plant can make substantial ‘‘changes’’
in the types of equipment used, the
processing conditions, and the raw
materials, reagents, solvents, and other
processing materials. In this case, the
same basic equipment is used to make
a wide variety of end products. But, as
long as the facility is operated as
designed and permitted, we would not
consider (and have not considered over
the 20+ year life of the NSR program)
such changes to be physical or
operational ‘‘changes’’ for purposes of
administering the NSR program.
Similarly, manufacturing equipment
often is built with expendable
components. For example, industrial gas
turbines, such as those used to drive
compressors on natural gas pipelines,
regularly need to have components
13 As discussed below, our regulations provided
a comparable exclusion from NSPS at the time of
the 1977 Amendments that established the NSR
program.
14 We have taken positions in numerous court
filings concerning the proper interpretation and
usage of key statutory terms, such as ‘‘physical
change’’ and ‘‘any physical change.’’ These
positions were based on permissible constructions
of the statute of which the regulated community
had fair notice, and correctly reflect the Agency’s
reasonable accommodation of the Clean Air Act’s
competing policies in light of its experience at the
time it adopted the RMRR exclusion in 1980. The
Agency has sought, and has obtained, deference for
its interpretations, and, notwithstanding today’s
adoption of a revised interpretation of the statute
and an expansion of the RMRR exclusion, the
Agency shall continue to seek deference for those
prior interpretations in ongoing enforcement
litigation.
15 We note that the word ‘‘any’’ is simply a
modifier that does not change the meaning of the
word it modifies. For example, using the term
‘‘any’’ to modify the word ‘‘car’’ does not somehow
change or expand the meaning of the word ‘‘car.’’
‘‘Any’’ simply means that, once you have decided
what a car is, then all objects meeting the definition
are encompassed.
replaced as they wear out due to the
high temperature and pressure
conditions inside the turbine. In fact,
these gas turbines are built with the
knowledge and expectation that such
replacements will be needed. In
recognition of this fact, under the New
Source Performance Standard for gas
turbines, 40 CFR part 60, subpart GG,
we have concluded that ‘‘replacement of
stator blades, turbine nozzles, turbine
buckets, fuel nozzles, combustion
chambers, seals, and shaft packings’ are
not ‘‘changes’’ for regulatory purposes.
See EPA–450/2–77–017a, background
support document for Subpart GG. Such
replacements are akin to getting a new
set of brakes on a car—not something
that happens often, not an activity that
is necessarily inexpensive, but plainly
an activity that is an expected part of
maintaining and operating the facility
and one that does not represent an
alteration of the affected process unit.
As the preceding examples suggest,
identifying activities that are ‘‘changes’’
for NSR purposes—and thus potentially
trigger the need for an NSR permit—
requires the exercise of Agency
expertise. The application of agency
expertise to the interpretation of this
statutory term is the classic situation in
which an agency is accorded deference
under Chevron, U.S.A., Inc. v. NRDC,
467 U.S. 837 (1984).
Historically, we have asserted the
power to interpret the relevant statutory
terms. For example, even though both
the NSPS and NSR programs
incorporate the definition of
‘‘modification’’ from section 111, from
the outset EPA has adopted quite
disparate readings of the term in our
rules. See 57 FR 32314, 32316 (July 21,
1992) (WEPCO rule discussion of how
emission increases are calculated
differently for the NSPS and NSR
programs). The NSPS program requires
a change to result in an increase in the
hourly potential to emit of the facility.
40 CFR 60.14(a)–(b). In contrast, under
NSR, we require an increase in annual
emissions. E.g., 40 CFR 51.165(a)(1)(x).
These disparate tests reflect the
Agency’s view that the statutory term
‘‘modification’’ must be construed with
a view to what makes sense in particular
statutory context, and are not obvious
on their face.
The exclusions from NSR we adopted
in 1980 also reflect the exercise of the
Chevron discretion. Not only did we
adopt the RMRR exclusion at that time,
but we also adopted exclusions for
increases in the hours of operation, fuel
changes, and raw material changes.
Only the RMRR exclusion arguably
could be justified as de minimis. For
example, by doubling hours of
operation, a 500 tpy emitting plant
could conceivably double its
emissions.13 The extra 500 tpy is far
above any level EPA has ever thought
justifiable as de minimis. E.g., 40 CFR
51.166(b)(23)(i) (definition of
‘‘significant’’). Nor is it likely that these
other exclusions could be based on
some inherent power to adopt
categorical exclusions from the CAA’s
commands. See Alabama Power
Company v. Costle, 636 F.2d 323, 359
(D.C. Cir. 1980) (‘‘categorical
exemptions * * * are not favored’’).
Accordingly, these other exclusions
must be justified as an exercise of
Chevron discretion.
As noted previously, in 1977 when
Congress incorporated by reference into
the NSR program the pre-existing NSPS
statutory definition of modification,
EPA had already adopted and had been
administering regulations and policy
under the NSPS program related to the
meaning of the term ‘‘modification.’’
Our rules and policy provided that
certain significant activities did not
constitute physical or operational
changes under the NSPS program prior
to 1977 (or, for that matter, under the
NSPS program as administered today).
In addition to the gas turbine example
provided above, perhaps the best
indication that EPA did not consider the
terms ‘‘modification’’ or ‘‘change’’ to
cover everything other than de minimis
activities is the exclusion for production
rate increases under the NSPS program.
40 CFR 60.14(e)(2).
Under this provision, projects valued
at millions of dollars can be
implemented—with no limitations on
the nature of the project—without
triggering applicable NSPSs. For
example, up to 10 percent of the asset
value of affected operations at a kraft
pulp mill can be invested in a project
without triggering the applicable NSPS,
40 CFR part 60, subpart BB. The affected
facilities at a kraft pulp mill typically
are valued in excess of $100 million.
Therefore, an owner or operator can
implement projects costing millions of
dollars without triggering the applicable
NSPS. This holds true regardless of the
nature of the project—it can be a ‘‘likekind’’
replacement of the kind
addressed by today’s rule or it can result
in a substantial change in the nature of
the operation. Thus, under the NSPS
program that existed when Congress
enacted NSR and incorporated into NSR
the applicable NSPS definitions,
projects of substantial cost that result in
substantial change in affected facilities
were not considered ‘‘changes.’’ The
same is true under the NSPS program as
it stands today.
We recognize that the Agency
previously has not specifically asserted
that our interpretation of ‘‘change’’ and
the exclusions from NSR are based on
an exercise of Chevron discretion. In
some instances, such as in a decision of
the EAB, In re: Tennessee Valley
Authority, 9 E.A.D. 357 (EAB 2000), and
in briefs in various enforcement-related
cases, we have previously interpreted
‘‘change’’ such that virtually all
changes, even trivial ones, are
encompassed by the CAA. Thus, we
generally interpreted the exclusion as
being limited to de minimis
circumstances. However, EPA does have
the authority to interpret these key
terms through rulemaking. Upon further
consideration of the history of our
actions, the statute, and its legislative
history, EPA believes that a different
view is permissible, and, for policy
reasons discussed above, more
appropriate. Therefore, we adopt this
view prospectively in today’s action.14
The argument that our authority to
exclude certain activities from being
modifications under new source review
can only be based on a de minimis
rationale sometimes relies on the word
‘‘any’’ used to modify ‘‘physical
change’’ and ‘‘change in the method of
operation,’’ pointing to the word ‘‘any’’
in the definition of ‘‘modification’’ as a
signal from Congress that the term
‘‘change’’ must be interpreted as
encompassing the broadest possible
sense of the term. Such an interpretation
is not compelled by the language and
legislative history of the statute, as
demonstrated by the manner in which
we have interpreted the word ‘‘change’’
under both the NSPS and the NSR
programs.15
16 We note that decisions recently were rendered
in two of the Agency’s pending NSR enforcement
cases in the utility sector. In both cases, the Agency
asserted that the then existing RMRR exclusion
should be applied in a narrow fashion such that
only de minimis projects should be excluded under
that rule. In our case against Ohio Edison in the
U.S. District Court for the Southern District of Ohio,
the court determined that the disputed projects did
not qualify for the existing RMRR exclusion. The
Agency sought and received from the court broad
deference with regard to the Agency’s interpretation
of the CAA and the relevant EPA rules. In our case
against Duke Energy in the U.S. District Court for
the Middle District of North Carolina, the court
issued a decision on cross motions for summary
judgment. The decision took exception with several
legal conclusions reached in the Ohio Edison
decision and determined that the then existing
RMRR exclusion must be applied from the
perspective of what projects are routine within the
relevant industrial source category. EPA today is
adopting prospectively a new interpretation of the
CAA and is finalizing a revision to the RMRR
regulation at issue in those cases.
Nothing in the appellate case law
directly disposes of this issue in a
manner that prevents a new
interpretation today. Two cases,
Alabama Power and WEPCO, are relied
on by some commenters to assert that
EPA must interpret ‘‘modification’’ and
‘‘change’’ expansively and base all
exclusions on a de minimis rationale.
However, in Alabama Power, the issue
before the court was the emissions
increase portion of the definition of
‘‘modification.’’ The court would have
allowed de minimis increases in
emissions to be excluded from
requirements applying to
‘‘modifications’’ under new source
review but not emissions increases
equal to the thresholds set by statute for
new construction. 636 F.2d at 399–400.
The court did not have before it the
issue of what is a ‘‘change’’ and did not
decide this issue.
In WEPCO, both parties advanced the
view that the statute was clear on its
face. EPA advanced the view that the
term ‘‘modification’’ is necessarily
broad, and that only de minimis
departures are appropriate. WEPCO
asserted that the plain meaning of the
term ‘‘physical change’’ allowed for the
five large scale rehabilitation projects it
contemplated at its Port Washington
plant. The WEPCO court held that the
rehabilitation projects at issue were too
large to reasonably conclude that they
should not be treated as physical
changes. The court’s holding that the
statute did not require the interpretation
advanced by WEPCO does not deny EPA
the discretion to decide to adopt a
different, reasonable interpretation of
the term ‘‘modification.’’
While the Court in WEPCO decided
that the projects in that case were
physical changes, the decision in
WEPCO does not answer the question of
where to draw the line between
activities that should and should not be
considered ‘‘changes.’’ Nevertheless,
contrary to the suggestions of several
commenters, the projects at issue in
WEPCO would have cost more than the
20 percent of replacement cost
threshold selected today and, barring
other applicable exclusions, would have
been subject to case-by-case review in
the PSD program. See section III.D
above.16
Some commenters argued that, to
further the purposes of the statute, any
interpretation must result in the
eventual elimination of so-called
‘‘grandfathered’’ facilities. We recognize
the need to reduce emissions from many
existing plants—regardless of whether
they are ‘‘grandfathered’’ (because they
have never gone through NSR) or
whether they have previously gone
through NSR but can further reduce
their emissions. EPA and States have
issued regulations under a variety of
statutory provisions to accomplish this
goal in the past, and we will continue
to do so in the future. We do not
believe, however, the modification
provisions of the CAA should be
interpreted to ensure that all major
facilities eventually trigger NSR. In fact,
such an interpretation cannot be
squared with the plain language of the
CAA.
An existing source—whether
grandfathered or not—triggers NSR only
if it makes a physical or operational
change that results in an emissions
increase. Thus, a facility can
conceivably continue to operate
indefinitely without triggering NSR—
making as many physical or operational
changes as it desires—as long as the
changes do not result in emissions
increases. This outcome is an
unavoidable consequence of the plain
statutory language and is at odds with
the notion that Congress intended that
every major source would eventually
trigger NSR. Moreover, there is nothing
in the legislative history of the 1977
Amendments, which created the NSR
program, to suggest that Congress
intended to force all then-existing
sources to go through NSR. To the
extent that some members of Congress
expressed that view during the debate
over the 1990 amendments, such
statements are not probative of what
Congress meant in 1977. Central Bank of
Denver, N.A. v. First Interstate Bank of
Denver, N.A., 511 U.S. 164, 185–86
(1994), and cases cited.
In deciding to incorporate by
reference the statutory definition of
‘‘modification’’ in section 111,
Congress’s intent cannot have been to
preclude us from adopting an
interpretation of ‘‘modification’’ or
‘‘change’’ that differs from one that
sweeps in all activities at a source.
Under the NSPS program, this
interpretation did not apply at the time
of the 1977 amendments. When the
NSPS definition of ‘‘modification’’ was
adopted as part of the NSR program in
1977, the Congressional Record
explained that this provision,
‘‘[i]mplements conference agreement to
cover ‘‘modification’’ as well as
‘‘construction’’ by defining
‘‘construction’’ in part C to conform to
usage in other parts of the Act.’’ 123
Cong. Rec. 36331 (Nov. 1, 1977)
(emphasis added). Although we do not
assert that the NSPS interpretation is the
only one we could have adopted for
NSR purposes (we followed quite a
different interpretation from 1980 until
today) at the very least it delineates a
zone of discretion within which EPA
may operate.
Our interpretation today of physical
or operational change in a flexible way
furthers the purposes of the statute. As
noted above, Congress made it clear that
the CAA in general, and the NSR
program in particular, should be
administered in a manner that protects
the environment and promotes the
productive capacity of the nation. CAA
section 101(b)(1). The Chevron Court
recognized Congress’ intent and noted
that ‘‘Congress sought to accommodate
the conflict between the economic
interest in permitting capital
improvements to continue and the
environmental interest in improving air
quality’’ when it established the NSR
program. Chevron, 467 U.S. at 851.
Generally, we believe that these goals
are best accomplished by providing
state and local governments with
discretion to make decisions as to what
emissions reductions are needed in their
jurisdictions to attain and maintain
good air quality. See CAA section
101(a)(3).
It is now clear that many power plants
and industrial facilities must
substantially reduce their emissions in
order to allow States to meet the
stringent Federal air quality standards
that the Supreme Court upheld in 2002.
Under the CAA, Congress designed a
number of regulatory programs that will
collectively achieve the necessary
reductions. Although the NSR program
will effectively limit emissions from
new and modified sources, it was not
designed to achieve emission reductions
from every existing source.
IV. Administrative Requirements for
This Rule
A. Executive Order 12866—Regulatory
Planning and Review
Under Executive Order 12866 [58 FR
51735 (October 4, 1993)], we must
determine whether the regulatory action
is ‘‘significant’’ and therefore subject to
review by the Office of Management and
Budget (OMB) and the requirements of
the Executive Order. The Executive
Order defines ‘‘significant regulatory
action’’ as one that is likely to result in
a rule that may:
(1) Have an annual effect on the
economy of $100 million or more or
adversely affect in a material way the
economy, a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or
otherwise interfere with an action taken
or planned by another agency;
(3) Materially alter the budgetary
impact of entitlements, grants, user fees,
or loan programs, or the rights and
obligations of recipients thereof; or
(4) Raise novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order.
Pursuant to the terms of Executive
Order 12866, OMB has notified us that
it considers this an ‘‘economically
significant regulatory action’’ within the
meaning of the Executive Order. We
have submitted this action to OMB for
review. Changes made in response to
OMB suggestions or recommendations
will be documented in the public
record. All written comments from OMB
to EPA and any written EPA response to
any of those comments are included in
the docket listed at the beginning of this
notice under ADDRESSES. In addition,
consistent with Executive Order 12866,
we consulted with the State, local and
tribal agencies that will be affected by
this rule. We have also sought
involvement from industry and public
interest groups.
B. Executive Order 13132—Federalism
Executive Order 13132, entitled
‘‘Federalism’’ (64 FR 43255, August 10,
1999), requires us to develop an
accountable process to ensure
‘‘meaningful and timely input by State
and local officials in the development of
regulatory policies that have federalism
implications.’’ ‘‘Policies that have
federalism implications’’ are defined in
the Executive Order to include
regulations that have ‘‘substantial direct
effects on the States, on the relationship
between the national government and
the States, or on the distribution of
power and responsibilities among the
various levels of government.’’
This final rule does not have
federalism implications. Nevertheless,
as described in section II.C of this
notice, in developing this rule, we
consulted with affected parties and
interested stakeholders, including State
and local authorities, to enable them to
provide timely input in the
development of this rule. This rule will
not have substantial direct effects on the
States, on the relationship between the
national government and the State and
local programs, or on the distribution of
power and responsibilities among the
various levels of government, as
specified in Executive Order 13132. We
expect this rule will result in some
expenditures by the States, we expect
those expenditures to be limited to
$580,000 for the estimated 112 affected
reviewing authorities. This estimate
reflects the small increase in burden
imposed upon reviewing authorities in
order for them to revise their State
Implementation Plans (SIP). However,
this revision provides sources permitted
by the States greater certainty in
application of the program, which
should in turn reduce the overall
burden of the program on State and
local authorities. Thus, the requirements
of Executive Order 13132 do not apply
to this rule.
C. Executive Order 13175—Consultation
and Coordination With Indian Tribal
Governments
Executive Order 13175, entitled
‘‘Consultation and Coordination with
Indian Tribal Governments’’ (65 FR
67249, November 6, 2000), requires EPA
to develop an accountable process to
ensure ‘‘meaningful and timely input by
tribal officials in the development of
regulatory policies that have tribal
implications.’’ We believe that this rule
does not have tribal implications as
specified in Executive Order 13175.
Thus, Executive Order 13175 does not
apply.
The purpose of today’s final rule is to
add greater flexibility to the existing
major NSR regulations. These changes
will benefit reviewing authorities and
the regulated community, including any
major source owned by a tribal
government or located in or near tribal
land, by providing increased certainty
as to when the requirements of the
major NSR program apply. Taken as a
whole, today’s rule should result in no
added burden or compliance costs and
should not substantially change the
level of environmental performance
achieved under the previous rules and
guidance.
We anticipate that initially these
changes will result in a small increase
in the burden imposed upon reviewing
authorities in order for them to be
included in the State’s SIP.
Nevertheless, these options and
revisions will ultimately provide greater
operational flexibility to sources
permitted by the States, which will in
turn reduce the overall burden on the
program on State and local authorities
by reducing the number of required
permit modifications. In comparison, no
tribal government currently has an
approved Tribal Implementation Plan
(TIP) under the CAA to implement the
NSR program. The Federal government
is currently the NSR reviewing authority
in Indian country. Thus, tribal
governments should not experience
added burden, nor should their laws be
affected with respect to implementation
of this rule. Additionally, although
major stationary sources affected by
today’s rule could be located in or near
Indian country and/or be owned or
operated by tribal governments, such
affected sources would not incur
additional costs or compliance burdens
as a result of this rule. Instead, the only
effect on such sources should be the
benefit of the added certainty and
flexibility provided by the rule.
We recognize the importance of
including tribal outreach as part of the
rulemaking process. In addition to
affording tribes an opportunity to
comment on this rule through the
proposal, on which two tribes did
submit comments, we have also alerted
tribes of this action through our website
and quarterly newsletter. To this point
we have not specifically consulted with
tribal officials on this rule, but we are
committed to work with any tribal
government to resolve any issues that
we may have overlooked in today’s
rules and that may have an adverse
impact in Indian country.
D. Executive Order 13045—Protection of
Children From Environmental Health
Risks and Safety Risks
Executive Order 13045, ‘‘Protection of
Children from Environmental Health
Risks and Safety Risks’’ (62 FR 19885,
April 23, 1997) applies to any rule that
(1) is determined to be ‘‘economically
significant’’ as defined under Executive
Order 12866, and (2) concerns an
environmental health or safety risk that
EPA has reason to believe may have a
disproportionate effect on children. If
the regulatory action meets both criteria,
we must evaluate the environmental
health or safety effects of the planned
rule on children and explain why the
planned regulation is preferable to other
potentially effective and reasonable
alternatives that we considered.
This rule is not subject to Executive
Order 13045, because we do not have
reason to believe the environmental
health or safety risks addressed by this
action present a disproportionate risk to
children. We believe that, based on our
analysis of electric utilities, this rule as
a whole will result in equal or better
environmental protection than currently
provided by the existing regulations,
and do so in a more streamlined and
effective manner.
E. Paperwork Reduction Act
The information collection
requirements in this final rule have been
submitted for approval to OMB under
the requirements of the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq.
An ICR document has been prepared by
EPA (ICR No. 1230.14), and a copy may
be obtained from Susan Auby, U.S.
Environmental Protection Agency,
Office of Environmental Information,
Collection Strategies Division (2822T),
1200 Pennsylvania Avenue, NW.,
Washington, DC 20460–0001, by e-mail
at [email protected], or by calling
(202) 566–1672. A copy may also be
downloaded off the Internet at http://
www.epa.gov/icr. The information
requirements included in ICR No.
1230.14 are not enforceable until OMB
approves them.
The information that ICR No. 1230.14
covers is required for the submittal of a
complete permit application for the
construction or modification of all major
new stationary sources of pollutants in
attainment and nonattainment areas, as
well as for applicable minor stationary
sources of pollutants. This information
collection is necessary for the proper
performance of EPA’s functions, has
practical utility, and is not
unnecessarily duplicative of
information we otherwise can
reasonably access. We have reduced, to
the extent practicable and appropriate,
the burden on persons providing the
information to or for EPA. In fact, we
feel that this rule will result in less
burden on industry and reviewing
authorities since it streamlines the
process of determining whether a
replacement activity is RMRR.
However, according to ICR No.
1230.14, we do anticipate an initial
increase in burden for reviewing
authorities as a result of the rule
changes, to account for revising state
implementation plans to incorporate
these rule changes. As discussed above,
we expect those one-time expenditures
to be limited to $580,000 for the
estimated 112 affected reviewing
authorities. For the number of
respondent reviewing authorities, the
analysis uses the 112 reviewing
authorities count used by other
permitting ICR’s for the one-time tasks
(for example, SIP revisions).
Burden means the total time, effort, or
financial resources expended by persons
to generate, maintain, retain, or disclose
or provide information to or for a
Federal agency. This includes the time
needed to review instructions; develop,
acquire, install, and utilize technology
and systems for the purpose of
responding to the information
collection; adjust existing ways to
comply with any previously applicable
instructions and requirements; train
personnel to respond to a collection of
information; search existing data
sources; complete and review the
collection of information; and transmit
or otherwise disclose the information.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number. The OMB control
numbers for EPA’s regulations are listed
in 40 CFR part 9 and 48 CFR chapter 15.
We will continue to present OMB
control numbers in a consolidated table
format to be codified in 40 CFR part 9
of the Agency’s regulations, and in each
CFR volume containing EPA
regulations. The table lists the section
numbers with reporting and
recordkeeping requirements, and the
current OMB control numbers. This
listing of the OMB control numbers and
their subsequent codification in the CFR
satisfy the requirements of the
Paperwork Reduction Act (44 U.S.C.
3501 et seq.) and OMB’s implementing
regulations at 5 CFR part 1320.
F. Regulatory Flexibility Analysis
We determined it is not necessary to
prepare a regulatory flexibility analysis
in connection with this final rule. We
have also determined that this rule will
not have a significant economic impact
on a substantial number of small
entities. For purposes of assessing the
impacts of today’s rule on small entities,
small entity is defined as: (1) Any small
business employing fewer than 500
employees; (2) a small governmental
jurisdiction that is a government of a
city, county, town, school district or
special district with a population of less
than 50,000; and (3) a small
organization that is any not-for-profit
enterprise which is independently
owned and operated and is not
dominant in its field.
After considering the economic
impacts of today’s rule on small entities,
EPA has concluded that this action will
not have a significant economic impact
on a substantial number of small
entities. In determining whether a rule
has a significant economic impact on a
substantial number of small entities, the
impact of concern is any significant
adverse economic impact on small
entities, since the primary purpose of
the regulatory flexibility analyses is to
identify and address regulatory
alternatives ‘‘which minimize any
significant economic impact of this rule
on small entities.’’ 5 U.S.C. Sections 603
and 604. Thus, an agency may conclude
that a rule will not have a significant
economic impact on a substantial
number of small entities if the rule
relieves regulatory burden, or otherwise
has a positive economic effect on all of
the small entities subject to the rule.
Today’s rule will not have a significant
economic impact on a substantial
number of small entities because it will
decrease the regulatory burden of the
existing regulations and have a positive
effect on all small entities subject to the
rule. This rule improves operational
flexibility for owners or operators of
major stationary sources and clarifies
applicable requirements for determining
if a change qualifies as a major
modification. We have therefore
concluded that today’s rule will relieve
regulatory burden for all small entities.
G. Unfunded Mandates Reform Act of
1995
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA), Public
Law 104–4, establishes requirements for
Federal agencies to assess the effects of
their regulatory actions on State, local,
and tribal governments and the private
sector. Under section 202 of UMRA, we
generally must prepare a written
statement, including a cost-benefit
analysis, for proposed and final rules
with ‘‘Federal mandates’’ that may
result in expenditures to State, local,
and tribal governments, in the aggregate,
or to the private sector of $100 million
or more in any one year. Before
promulgating an EPA rule for which a
written statement is needed, section 205
of the UMRA generally requires us to
identify and consider a reasonable
number of regulatory alternatives and
adopt the least costly, most costeffective
or least burdensome alternative
that achieves the objectives of the rule.
The provisions of section 205 do not
apply when they are inconsistent with
applicable law. Moreover, section 205
allows us to adopt an alternative other
than the least costly, most cost-effective,
or least burdensome alternative if the
Administrator publishes with the final
rule an explanation why that alternative
was not adopted.
Before we establish any regulatory
requirements that may significantly or
uniquely affect small governments,
including tribal governments, we must
have developed under section 203 of the
UMRA a small government agency plan.
The plan must provide for notifying
potentially affected small governments,
enabling officials of affected small
governments to have meaningful and
timely input in the development of our
regulatory proposals with significant
Federal intergovernmental mandates,
and informing, educating, and advising
small governments on compliance with
the regulatory requirements.
We believe these rule changes will
actually reduce the regulatory burden
associated with the major NSR program
by improving the operational flexibility
of owners or operators and clarifying the
requirements. Because the program
changes provided in the rule are not
expected to result in a significant
increase in the expenditure by State,
local, and tribal governments, or the
private sector, we have not prepared a
budgetary impact statement or
specifically addressed the selection of
the least costly, most cost-effective, or
least burdensome alternative. Because
small governments will not be
significantly or uniquely affected by this
rule, we are not required to develop a
plan with regard to small governments.
Therefore, this rule is not subject to the
requirements of section 203 of the
UMRA.
H. National Technology Transfer and
Advancement Act of 1995
Section 12(d) of the National
Technology Transfer and Advancement
Act of 1995 (NTTAA), Public Law No.
104–113, section 12(d) (15 U.S.C. 272
note) directs us to use voluntary
consensus standards (VCS) in our
regulatory activities unless to do so
would be inconsistent with applicable
law or otherwise impractical. VCS are
technical standards (for example,
materials specifications, test methods,
sampling procedures, and business
practices) that are developed or adopted
by voluntary consensus standards
bodies. The NTTAA directs us to
provide Congress, through OMB,
explanations when the Agency decides
not to use available and applicable VCS.
Although this rule does involve the
use of technical standards, it does not
preclude the State, local, and tribal
reviewing agencies from using VCS.
Today’s rule is an improvement of the
existing NSR permitting program. As
such, it only ensures that promulgated
technical standards are considered and
appropriate controls are installed, prior
to the construction of major sources of
air emissions. Therefore, we are not
considering the use of any VCS in
today’s rule.
I. Executive Order 13211—Actions
Concerning Regulations That
Significantly Affect Energy Supply,
Distribution, or Use
This rule is not a ‘‘significant energy
action’’ as defined in Executive Order
13211, ‘‘Actions Concerning Regulations
That Significantly Affect Energy Supply,
Distribution, or Use’’ (66 FR 28355 (May
22, 2001)) because it is not likely to
have a significant adverse effect on the
supply, distribution or use of energy.
Today’s rule improves the ability of
sources to maintain the reliability of
production facilities, and effectively
utilize and improve existing capacity.
J. Executive Order 12988—Civil Justice
Reform
This final rule does not have any
preemptive or retroactive effect. This
action meets applicable standards in
sections 3(a) and 3(b)(2) of Executive
Order 12988, Civil Justice Reform, to
minimize litigation, eliminate
ambiguity, and reduce burden.
V. Effective Date for Today’s
Requirements
All of these changes will take effect in
the Federal PSD program (codified at
§ 52.21) on December 26, 2003. This
means that these rules will apply on
December 26, 2003, in any area without
an approved PSD program, for which we
are the reviewing authority, or for which
we have delegated our authority to issue
permits to a State or local reviewing
authority.
To be approvable under the SIP, State
and local agency programs
implementing part C (PSD permit
program in § 51.166) or part D
(nonattainment NSR permit program in
§ 51.165) must include today’s changes
as minimum program elements. State
and local agencies should assure that
any program changes under §§ 51.165
and 51.166 are consistently accounted
for in other SIP planning measures.
State and local agencies must adopt and
submit revisions to their part 51
permitting programs implementing
these minimum program elements no
later than October 27, 2006. That is, for
both nonattainment and attainment
areas, the SIP revisions must be adopted
and submitted within 3 years from
today. The CAA does not specify a date
for submission of SIPs when we revise
the PSD and NSR rules. We believe it is
appropriate to establish a date
analogous to the date for submission of
new SIPs when a NAAQS is
promulgated or revised. Under section
110(a)(1) of the CAA, as amended in
1990, that date is 3 years from
promulgation or revision of the NAAQS.
Accordingly, we have established 3
years from today’s revisions as the
required date for submission of
conforming SIP revisions.
Today’s rule revises the Federal PSD
program located at 40 CFR 52.21 to
include the new equipment replacement
provision of the RMRR exclusion. The
part 52 regulations governing Federal
permitting programs include the Federal
PSD rule at 40 CFR 52.21 as well as the
various sections of subparts C through
DDD of part 52 that incorporate the
Federal permitting program by reference
for those jurisdictions where EPA
applies part 52.21 as a Federal
Implementation Plan because such
jurisdictions lack an approved SIP to
implement the PSD program. Because
today’s final rule adds additional
paragraphs to the part 52.21 rules, we
will be revising the references in
subparts C through DDD to
appropriately reflect the program that
applies. This final action will be taken
in a separate Federal Register notice
and will not change the effective date of
today’s final changes.
VI. Statutory Authority
The statutory authority for this action
is provided by sections 101, 111, 114,
116, and 301 of the CAA as amended
(42 U.S.C. 7401, 7411, 7414, 7416, and
7601). This rulemaking is also subject to
section 307(d) of the CAA (42 U.S.C.
7407(d)).
List of Subjects in 40 CFR Parts 51 and
52
Environmental protection,
Administrative practices and
procedures, Air pollution control,
Intergovernmental relations.
Dated: August 27, 2003.
Marianne Lamont Horinko,
Acting Administrator.
_ For the reasons set out in the preamble,
title 40, chapter I of the Code of Federal
Regulations is amended as follows:
PART 51—[AMENDED]
_ 1. The authority citation for part 51
continues to read as follows:
Authority: 23 U.S.C. 101; 42 U.S.C. 7401–
7671q.
Subpart I—[Amended]
_ 2. Section 51.165 is amended:
_ a. By revising paragraph (a)(1)(v)(C)(1).
_ b. By adding paragraphs (a)(1)(xliii)
through (xlvi) and paragraph (h).
The revision and additions read as
follows:
§ 51.165 Permit requirements.
(a) * * *
(1) * * *
(v) * * *
(C) * * *
(1) Routine maintenance, repair and
replacement. Routine maintenance,
repair and replacement shall include,
but not be limited to, any activity(s) that
meets the requirements of the
equipment replacement provisions
contained in paragraph (h) of this
section;
*****
(xliii)(A) In general, process unit
means any collection of structures and/
or equipment that processes, assembles,
applies, blends, or otherwise uses
material inputs to produce or store an
intermediate or a completed product. A
single stationary source may contain
more than one process unit, and a
process unit may contain more than one
emissions unit.
(B) Pollution control equipment is not
part of the process unit, unless it serves
a dual function as both process and
control equipment. Administrative and
warehousing facilities are not part of the
process unit.
(C) For replacement cost purposes,
components shared between two or
more process units are proportionately
allocated based on capacity.
(D) The following list identifies the
process units at specific categories of
stationary sources.
(1) For a steam electric generating
facility, the process unit consists of
those portions of the plant that
contribute directly to the production of
electricity. For example, at a pulverized
coal-fired facility, the process unit
would generally be the combination of
those systems from the coal receiving
equipment through the emission stack
(excluding post-combustion pollution
controls), including the coal handling
equipment, pulverizers or coal crushers,
feedwater heaters, ash handling, boiler,
burners, turbine-generator set,
condenser, cooling tower, water
treatment system, air preheaters, and
operating control systems. Each separate
generating unit is a separate process
unit.
(2) For a petroleum refinery, there are
several categories of process units: those
that separate and/or distill petroleum
feedstocks; those that change molecular
structures; petroleum treating processes;
auxiliary facilities, such as steam
generators and hydrogen production
units; and those that load, unload, blend
or store intermediate or completed
products.
(3) For an incinerator, the process unit
would consist of components from the
feed pit or refuse pit to the stack,
including conveyors, combustion
devices, heat exchangers and steam
generators, quench tanks, and fans.
(xliv) Functionally equivalent
component means a component that
serves the same purpose as the replaced
component.
(xlv) Fixed capital cost means the
capital needed to provide all the
depreciable components. ‘‘Depreciable
components’’ refers to all components of
fixed capital cost and is calculated by
subtracting land and working capital
from the total capital investment, as
defined in paragraph (a)(1)(xlvi) of this
section.
(xlvi) Total capital investment means
the sum of the following: All costs
required to purchase needed process
equipment (purchased equipment
costs); the costs of labor and materials
for installing that equipment (direct
installation costs); the costs of site
preparation and buildings; other costs
such as engineering, construction and
field expenses, fees to contractors,
startup and performance tests, and
contingencies (indirect installation
costs); land for the process equipment;
and working capital for the process
equipment.
*****
(h) Equipment replacement provision.
Without regard to other considerations,
routine maintenance, repair and
replacement includes, but is not limited
to, the replacement of any component of
a process unit with an identical or
functionally equivalent component(s),
and maintenance and repair activities
that are part of the replacement activity,
provided that all of the requirements in
paragraphs (h)(1) through (3) of this
section are met.
(1) Capital Cost threshold for
Equipment Replacement. (i) For an
electric utility steam generating unit, as
defined in § 51.165(a)(1)(xx), the fixed
capital cost of the replacement
component(s) plus the cost of any
associated maintenance and repair
replacement shall not exceed 20 percent
unit, at the time the equipment is
replaced. For a process unit that is not
an electric utility steam generating unit
the fixed capital cost of the replacement
replaced.
(ii) In determining the replacement
value of the process unit; and, except as
otherwise allowed under paragraph
(h)(1)(iii) of this section, the owner or
operator shall determine the
replacement value of the process unit on
an estimate of the fixed capital cost of
constructing a new process unit, or on
the current appraised value of the
process unit.
(iii) As an alternative to paragraph
(h)(1)(ii) of this section for determining
the replacement value of a process unit,
an owner or operator may choose to use
insurance value (where the insurance
value covers only complete
replacement), investment value adjusted
for inflation, or another accounting
procedure if such procedure is based on
Principles, provided that the owner or
operator sends a notice to the reviewing
authority. The first time that an owner
or operator submits such a notice for a
particular process unit, the notice may
be submitted at any time, but any
subsequent notice for that process unit
may be submitted only at the beginning
of the process unit’s fiscal year. Unless
the owner or operator submits a notice
to the reviewing authority, then
paragraph (h)(1)(ii) of this section will
be used to establish the replacement
value of the process unit. Once the
owner or operator submits a notice to
use an alternative accounting procedure,
the owner or operator must continue to
use that procedure for the entire fiscal
year for that process unit. In subsequent
fiscal years, the owner or operator must
continue to use this selected procedure
unless and until the owner or operator
sends another notice to the reviewing
authority selecting another procedure
consistent with this paragraph or
paragraph (h)(1)(ii) of this section at the
beginning of such fiscal year.
(2) Basic design parameters. The
replacement does not change the basic
design parameter(s) of the process unit
to which the activity pertains.
(i) Except as provided in paragraph
(h)(2)(iii) of this section, for a process
unit at a steam electric generating
facility, the owner or operator may
select as its basic design parameters
either maximum hourly heat input and
or maximum hourly electric output rate
and maximum steam flow rate. When
establishing fuel consumption
specifications in terms of weight or
volume, the minimum fuel quality
based on British Thermal Units content
shall be used for determining the basic
design parameter(s) for a coal-fired
electric utility steam generating unit.
(ii) Except as provided in paragraph
(h)(2)(iii) of this section, the basic
design parameter(s) for any process unit
that is not at a steam electric generating
facility are maximum rate of fuel or heat
input, maximum rate of material input,
or maximum rate of product output.
Combustion process units will typically
use maximum rate of fuel input. For
sources having multiple end products
and raw materials, the owner or
operator should consider the primary
product or primary raw material when
selecting a basic design parameter.
(iii) If the owner or operator believes
the basic design parameter(s) in
paragraphs (h)(2)(i) and (ii) of this
section is not appropriate for a specific
industry or type of process unit, the
owner or operator may propose to the
reviewing authority an alternative basic
design parameter(s) for the source’s
process unit(s). If the reviewing
authority approves of the use of an
alternative basic design parameter(s),
the reviewing authority shall issue a
permit that is legally enforceable that
records such basic design parameter(s)
and requires the owner or operator to
comply with such parameter(s).
(iv) The owner or operator shall use
credible information, such as results of
historic maximum capability tests,
design information from the
manufacturer, or engineering
calculations, in establishing the
magnitude of the basic design
parameter(s) specified in paragraphs
(h)(2)(i) and (ii) of this section.
(v) If design information is not
available for a process unit, then the
owner or operator shall determine the
process unit’s basic design parameter(s)
using the maximum value achieved by
the process unit in the five-year period
immediately preceding the planned
activity.
(vi) Efficiency of a process unit is not
a basic design parameter.
(3) The replacement activity shall not
emission limitation, or operational
limitation that has the effect of
constraining emissions, that applies to
the process unit and that is legally
enforceable.
_ a. By revising paragraph (b)(2)(iii)(a).
_ b. By adding paragraphs (b)(53)
through (56) and paragraph (y).
follows:
§ 51.166 Prevention of significant
deterioration of air quality.
(b) * * *
(2) * * *
(iii) * * *
(a) Routine maintenance, repair and
contained in paragraph (y) of this
section;
*****
(53)(i) In general, process unit means
any collection of structures and/or
equipment that processes, assembles,
emissions unit.
(ii) Pollution control equipment is not
process unit.
(iii) For replacement cost purposes,
(iv) The following list identifies the
stationary sources.
(a) For a steam electric generating
unit.
(b) For a petroleum refinery, there are
products.
(c) For an incinerator, the process unit
(54) Functionally equivalent
component.
(55) Fixed capital cost means the
defined in paragraph (b)(56) of this
section.
(56) Total capital investment means
the sum of the following: all costs
equipment.
*****
(y) Equipment replacement provision.
Without regard to other considerations,
routine maintenance, repair and
replacement includes, but is not limited
to, the replacement of any component of
a process unit with an identical or
functionally equivalent component(s),
and maintenance and repair activities
that are part of the replacement activity,
provided that all of the requirements in
paragraphs (y)(1) through (3) of this
section are met.
(1) Capital Cost threshold for
Equipment Replacement. (i) For an
defined in § 51.166(b)(30), the fixed
replaced.
(y)(1)(iii) of this section, the owner or
process unit.
(y)(1)(ii) of this section for determining
paragraph (y)(1)(ii) of this section will
paragraph (y)(1)(ii) of this section at the
(y)(2)(iii) of this section, for a process
(y)(2)(iii) of this section, the basic
paragraphs (y)(2)(i) and (ii) of this
(y)(2)(i) and (ii) of this section.
activity.
enforceable.
PART 52—[AMENDED]
_ 1. The authority citation for part 52
continues to read as follows:
Authority: 42 U.S.C. 7401, et seq.
Subpart A—[Amended]
_ a. By revising paragraph (b)(2)(iii)(a).
_ b. By adding paragraphs (b)(55)
through (58) and paragraph (cc).
follows:
§ 52.21 Prevention of significant
deterioration of air quality.
(b) * * *
(2) * * *
(iii) * * *
(a) Routine maintenance, repair and
contained in paragraph (cc) of this
section;
*****
(55)(i) In general, process unit means
any collection of structures and/or
equipment that processes, assembles,
emissions unit.
(ii) Pollution control equipment is not
process unit.
(iii) For replacement cost purposes,
(iv) The following list identifies the
stationary sources.
(a) For a steam electric generating
unit.
(b) For a petroleum refinery, there are
products.
(c) For an incinerator, the process unit
(56) Functionally equivalent
component.
(57) Fixed capital cost means the
defined in paragraph (b)(58) of this
section.
(58) Total capital investment means
the sum of the following: all costs
equipment.
*****
(cc) Without regard to other
considerations, routine maintenance,
repair and replacement includes, but is
not limited to, the replacement of any
component of a process unit with an
component(s), and maintenance and
repair activities that are part of the
replacement activity, provided that all
of the requirements in paragraphs (cc)(1)
through (3) of this section are met.
(1) Capital cost threshold for
equipment replacement. (i) For an
defined in § 52.21(b)(31), the fixed
replaced.
(cc)(1)(iii) of this section, the owner or
process unit.
(cc)(1)(ii) of this section for determining
paragraph (cc)(1)(ii) of this section will
paragraph (cc)(1)(ii) of this section at the
(cc)(2)(iii) of this section, for a process
(cc)(2)(iii) of this section, the basic
paragraphs (cc)(2)(i) and (ii) of this
(cc)(2)(i) and (ii) of this section.
activity.
enforceable.
[FR Doc. 03–26320 Filed 10–24–03; 8:45 am]
BILLING CODE 6560–50–P

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