“New Source Review” Rules Bring Key Changes
by Roy Belden, in New York
After more than 10 years of rulemaking deliberations, litigation, more than 50 stakeholder meetings and public hearings, and consideration of more than 130,000 comments, the US Environmental Protection Agency finally issued important changes to the federal “new source review,” or “NSR,” air permitting program.
The new rules will take effect on March 3.
They were greeted with howls of protest from leading environmental groups and several members of Congress. The press labeled the new rules a “rollback”of more than 30 years of progress on clean air initiatives and nine attorneys general from northeastern and mid-Atlantic states filed a lawsuit challenging the rules on the day they were released. One Democratic candidate for president jumped into the fray with a highly publicized effort to delay implementation. (See Environmental Update in this issue.)
Contrary to the press reports, the new rules do not make sweeping changes to the NSR program, nor do they lead to a rollback of the program’s fundamental tenets.
The new rules make critical improvements in the program that should help make the NSR permitting process a little less painful for companies. They will give companies more flexibility in making equipment changes and plant modifications in a timely fashion without undergoing a cumbersome permitting process.
However, companies must take proactive steps to incorporate the new measures into their existing air permits before they can benefit from the new rules.
The new rules keep the general structure of the NSR program in place, but make key changes to the underlying rules. Under the program, most new major air emission sources and major modifications of existing major sources must undergo a permitting review before construction can begin. A plant modification will trigger NSR review only if there is a physical change or a change in the method of operation that would result in a “significant net emissions increase” in a pollutant regulated by the Clean Air Act.
The change that has generated the most controversy is a new formula to determine when a “significant net emissions increase” occurs.
The new rules adopt for all industrial facilities a rule of calculating significant net emissions increases that previously applied only to utilities — the so-called “WEPCO” rule, named for a 1990 case involving Wisconsin Electric Power Company. Instead of requiring companies to compare past actual emissions to future potential emissions associated with a modification, the rule allows a company to compare past actual emissions to future projected actual emissions. A company may choose to use the old actual-emissions-to-potential-emissions calculation, but many plants should find the new actual-emissions-to-projected-actual-emissions test much more representative of the emissions impact of the equipment modifications. This is because potential emissions are generally calculated based on the theory that the plant will operate every hour of every day and every day of the year. In reality, no plant operates continuously without some outages for periodic maintenance. Thus, calculating a plant’s potential emissions based on the theory that it operates all the time will result in an inflation of a plant’s expected emissions.
The new rules provide that in calculating the “projected actual emissions” increase, plants should exclude the emissions that the plant could already accommodate during a 24-month “baseline” period during the past 10 years and that are unrelated to the particular modification project. Sources using the projected actual emissions calculation must maintain records of the actual pollutant emissions for at least five — and in some instances ten — years following the modification. Sources must report these post-change emissions to the permitting authority within 60 days after the end of each year. If a company chooses to use the old actual-emissions-to-potential-emissions test, then these post-change monitoring and reporting requirements would not apply.
The second key change affects how “baseline actual emissions” are calculated.
Baseline emissions are the starting point for measuring how much a proposed plant’s modification will increase emissions of a particular pollutant. Under the new rules, sources of pollution other than utilities will calculate prechange emissions based on a baseline period of any consecutive 24-month period in the past 10 years, instead of the current practice of generally using the most recent two-year period of emissions. The current policy for electric utility steam generating units — a baseline of a consecutive 24-month period in the past five years — will become law. In general, sources are expected to use the highest two-year period of emissions as the period that is most representative of the plant’s emissions. Emissions increases from equipment modifications will be measured against this baseline. In general, the higher the emissions baseline, the lower the projected emissions increase.
The third key change under the new rules is that sources that keep their emissions below a plantwide cap will be able to make operational changes and equipment modifications without undergoing a major source NSR permitting process.
A plantwide applicability limit, or “PAL,” is a voluntary option that is intended to provide plants with greater flexibility to respond to market demands for increased output. EPA has been testing the PALs concept for several years, and a few major sources have been issued permits with plantwide emissions caps. Plants that take advantage of a PAL must monitor the emissions from all emissions units subject to the cap, maintain records of emissions monitoring, testing, and deviation reports, and report such monitoring results semiannually to the permitting authority. Deviation reports must be submitted to the permitting agency promptly. PALs will be effective for an initial 10-year period and may be renewed.
Also under the new rules, plants that have recently installed state-of-the-art pollution control technology on new or modified emission units as part of an NSR or a federally-approved state permitting process — for example, by installing best available control technology or “BACT”— may make changes to the “clean unit” if two conditions are met. First, the project cannot require any change in the unit’s emissions limits. Second, there cannot be any alteration of the physical or operational characteristics that formed the basis of the NSR control technology determination. Clean unit status will be valid for up to a 10-year period and may be lost if a modification requires changes in the emissions limits or alters the physical or operational properties of the unit that underwent an NSR or similar permitting review. An example is switching to a more polluting fuel.
Finally, EPA formally adopted its longstanding policy of excluding pollution control and prevention projects from NSR permitting review where such projects lead to a net benefit for the environment. The final rule contains a presumptive list of technologies that automatically qualify for the exclusion if there will be no adverse impact on air quality. This change provides some certainty to companies that are required to undertake emissions control projects to satisfy certain Clean Air Act requirements where there may be some collateral increases in other air pollutants. For example, installation of an incineration device to reduce air toxics may result in increased emissions associated with the incineration process. If the pollution control device is a presumptively-excluded pollution control project, then NSR permitting review would not be triggered.
The new rules are under attack by various interested parties. Nevertheless, they will become effective on March 3, 2003, and it seems unlikely that a US appeal court — where complaints about them will be heard — will find grounds to grant an injunction delaying their implementation. A court would require a showing of irreparable harm and a likelihood of success on the merits before it will grant an injunction, and based on the courts’traditional deference to agency rulemakings on complex issues within its areas of expertise, it is doubtful that the EPA rules will be struck down or that there will be any delay in implementation.
Routine Maintenance Proposal
At the same time that it issued the new NSR rule, EPA also proposed controversial changes in how the agency defines “routine maintenance, repair, and replacement.”
Equipment modifications qualifying as “routine maintenance, repair, and replacement” are exempted from NSR permitting. The agency’s interpretation of this key exemption is at the heart of the agency’s on-going, high-profile enforcement initiative against older utility plants. The enforcement actions are based on the premise that these older power plants conducted major equipment modifications and upgrades over the years that did not qualify as exempted “routine maintenance, repair, and replacement” activities.
The new proposed rule sets out a range of options for identifying two types of qualifying categories of “routine maintenance, repair, and replacement.” These categories are annual maintenance, repair and replacement allowances and equipment replacement.
Under the first category, the proposed rule will establish an industry-specific cost allowance, and certain types of activities that fall under the allowance cap will qualify for the exemption. The annual allowance may be based on a calendar- or fiscal-year basis, and it is intended to cover relatively small capital expenditures compared with the replacement cost of the facility. Certain activities would be excluded from the annual allowance, including the construction of a new process unit, the replacement of an entire process unit, and any change that would result in an increase in a source’s maximum achievable hourly emissions rate.
Under the second category, most projects that replace existing equipment with functionally-equivalent new equipment will generally qualify for the exemption as long as a cost threshold was not exceeded. The cost threshold for the second category would generally be pegged to a percentage of the replacement cost of the particular process unit. EPA is seeking comments on whether one category is more appropriate than the other or whether both categories of “routine maintenance, repair, and replacement” should be adopted. Comments on the proposed rule are due by March 3.
Because it is only a proposed rule, the “routine maintenance, repair, and replacement” proposal will be subject to public notice and comment. EPA expects to finalize the rule before the end of the year. However, the proposal is highly controversial, and EPA’s timetable may be pushed back. If the rule is finalized as proposed, it will be challenged by many of the same entities that are challenging the new NSR rule changes discussed earlier.
The proposed changes will only apply prospectively. Meanwhile, the US government is continuing to pursue lawsuits filed in 1999 and 2000 against US utilities alleging that several coal-fired power plants failed to undergo NSR permitting for major modifications that were not covered by the existing “routine maintenance, repair, and replacement” exemption. In addition, many EPA regional offices are continuing to issue notices of violation to certain older power plants for alleged NSR permitting violations. For example, last summer one EPA region issued notices of violation to three coal-fired plants in Colorado and North Dakota.
Several of the lawsuits are scheduled to go to trial later this year. Meanwhile, a US appeals court is expected to issue a decision shortly in Tennessee Valley Authority v. EPA, which is one of the first cases to be tried on the issue. If the government’s interpretation of the “routine maintenance, repair, and replacement” exemption is upheld in the Tennessee Valley Authority decision, then the affected utilities may have little choice other than to settle the cases on as favorable terms as possible.
The decision in the case could also affect the proposed rulemaking on the “routine maintenance, repair, and replacement” exemption. If the government is successful in court, then it may come under pressure from environmental groups to avoid defining more clearly the scope of the “routine maintenance, repair and replacement” exemption.