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 exempted. 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 EPA Air Pollution Control Cost Manual ( http:// www. epa. gov/ ttn/ catc/ dir1/ c_ allchs. pdf). While the manual contains basic concepts that could be used to estimate total capital investment at a process unit, it is geared 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 68 toward cost calculations for add on control equipment.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 EPA Manual, 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 associated with the installation and maintenance of pollution control equipment should be excluded from the cost calculation, as 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.

3.10 Stationary Source or Process Unit Basis Comment:

3.10.1 General Support for Stationary Source Basis Several industry commenters ( 951, 1045, 1113, 1126, 1136, 1160, 1212, 1213, 1237, 1292, 1301, 1630) believed the ERP should be applied on a stationary source basis as opposed to a process unit basis.

Two commenters ( 1237, 1292), while supporting a cost threshold for the entire facility, said EPA should provide the option to use a process unit basis instead.

One commenter ( 1113) said replacement cost should be based on the stationary source or facility because the industry already is familiar with the facility approach used in the NSPS, it is consistent with other programs ( no additional examples provided), and it will lead to better acceptability within the regulated community. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 69 One commenter ( 1160) supported a stationary source basis for several reasons. NSR has always focused on entire stationary sources which, for the utility industry, would be the entire power plant. To allocate costs of components that are shared, on the basis of capacity, raises questions about how capacity should be determined, as is discussed in the proposal preamble. Also, a stationary source basis would be easier to implement by both the regulated and regulating communities.

One commenter ( 1213) stated that a source that is a fossil fuel fired power plant should not include other electric generation or industrial processes that may be collocated.

3.10.2 General Support for Process Unit Basis Several industry commenters ( 896, 902, 910, 1077, 1079, 1098, 1100, 1134, 1138, 1143, 1792) supported a process unit basis for administering the ERP.

One industry commenter ( 1792) supported applying the equipment replacement option on a process unit basis because the source is looking at replacing equipment on a specific unit.

One industry commenter ( 1100) said the RMRR rule should be no more stringent than the reconstruction provision contained within the August 7, 1980 NSR rule, which references the NSPS regulations addressing reconstruction and which allows either an entire plant or an individual piece of process equipment to be a " source." One industry commenter ( 1143) thought a process unit basis would be consistent with CAA section 112( g).

Response:

As we discussed in section 3.4 of this document, we raised the issue of what collection of equipment should be considered in applying the cost threshold under the ERP. We proposed the term " process unit" as the appropriate collection. We stated in the proposal that "[ w] e solicit comment on the proposed definition of ' process unit' and whether another approach might be more effective." We did not intend that other " approaches" would include changing the basis of the ERP from a process unit to the stationary source. We solicited comment on a process unit versus stationary source basis only in connection with the annual maintenance allowance.

The types of other " approaches" to the process unit basis that we envisioned were those discussed in section 3.4 ( for example, whether the definition of process unit should include pollution control equipment, whether process unit should be defined for specific industries or only in general terms, and whether the definition should be consistent with 40 CFR 63.41). While we understand the concerns raised by those commenters who supported a stationary source basis for the ERP, we did not consider making such a change for the final rule. We 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 70 believe a process unit basis is necessary for the cost basis used for the final rule as discussed in section 3.8.

3.11 Costs Related to Unanticipated Shutdowns We solicited comment on whether or not repairs and replacements resulting from the unanticipated shutdown of equipment, or of an entire source, should be included in the ERP calculations.

Industry commenters generally supported an ERP that excludes costs relating to unanticipated shutdowns from having to satisfy the cost threshold test. These comments are summarized in section 3.11.1. Some commenters did not believe costs for activities relating to unanticipated shutdowns should be exempt from NSR review, and other commenters expressed support for a separate exclusion ( outside the ERP) for these costs; these comments are summarized in section 3.11.2.

Comment:

3.11.1 Support for Excluding Costs for Unanticipated Shutdowns from Cost Threshold Many industry commenters ( 840, 858, 941, 1001, 1088, 1099, 1110, 1114, 1124, 1131, 1133, 1137, 1138, 1201, 1202, 1212, 1236, 1283, 1301/ 1618, 1441, 1793, 1794, 1866, 1988) said replacement of units that have failed catastrophically should not be subject to the ERP cost threshold.

Several commenters ( 941, 1110, 1114, 1124, 1131, 1133, 1236, 1988) added that it would not be practical to fit every correction of such failures into the cost safeguard. These commenters, as well as two others ( 1138, 1212), also believed that industrial facilities are highly motivated to avoid such catastrophic failures, in part because of the risk of human injury and production interruptions and the expense of correcting them. Therefore, companies would not abuse such an exclusion. One commenter ( 1283) noted that these types of costs cannot be planned for and are thus not included in maintenance or equipment replacement budgets.

An industry commenter ( 1143) stated that emergency shutdowns should always be viewed as routine.

One industry commenter ( 1138) who supported the exclusion of costs for unanticipated shutdowns and failures believed failures do take place occasionally and can result in a sudden, unplanned partial or total loss of equipment for a given natural gas compressor station. When such a failure occurs, the affected turbine or engine must be replaced immediately to avoid a 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 71 disruption in gas supply. Such replacement fits easily within most elements of the equipment replacement test. However, it might violate the ERP cost threshold, because the old turbine may be a total loss with no exchange value. Yet, replacing a catastrophically failed turbine or engine is clearly " routine," because companies will always replace such failures. Requiring such replacements to go through NSR could force the compressor station to go off line pending the permitting process. The commenter believed the RMRR exclusion is designed precisely to prevent the regulatory process from creating such forced downtime.

One industry commenter ( 1137) believed EPA should provide that maintenance and repair costs associated with unanticipated shutdown of equipment and other catastrophic events will automatically be excluded under the RMRR exclusion, and costs of replacement equipment components will be excluded as long as the components are identical or functionally equivalent to the ones that are replaced.

Two industry commenters ( 1212, 1138) provided examples of unanticipated equipment failures and catastrophic events for which replacement should be allowed without regard to the ERP cost threshold: fires and explosions resulting in loss of equipment; mechanical failure of turbine components resulting in unplanned shutdown; and mechanical failure of reciprocating engine components ( e. g., cylinder heads, pistons, piston rods) resulting in unplanned shutdown.

3.11.2 Support Other Approach to Shutdowns Two State/ local commenters ( 1199, 1361) opposed an ERP exclusion for activities resulting from shutdowns. One commenter ( 1361) stated that in light of the extensive exemptions from NSR and the proposed AMA discussed in the RMRR proposal, there is no need for any further allowance for exclusions. The other commenter ( 1199) added that maintenance activities performed during forced outages are simply maintenance and should be considered as such and that the fact that exempting forced outages is even being considered indicates EPA's intent to virtually eliminate NSR for existing sources.

One State/ local commenter ( 1241) suggested that costs associated with RMRR activities resulting from unanticipated shutdown of equipment should be included in any annual RMRR calculation. According to the commenter, an exclusion for such costs would be subject to manipulation by regulated entities. The commenter added that RMRR activities due to an unanticipated shutdown of equipment from catastrophic failure should be subject to NSR because the associated costs are not routine maintenance. Thus, such activities likely constitute a major modification and should not be subject to a blanket exclusion from the NSR program. Rather, the commenter believes, they should continue to be evaluated on a case by case basis using the established review criteria for " routine maintenance" expenditures. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 72 One industry commenter ( 1446) suggested that with a properly designed program based on equipment replacement, even emergency repairs and catastrophic failures should be able to be reasonably accommodated within such a program.

An industry commenter ( 1792) suggested that costs associated with unanticipated shutdown of equipment or catastrophic equipment failure should be allowed to be included in the ERP calculations at the company's discretion. Other industry commenters ( 1050, 1077, 1098, 1213, 1245, 1368) said it should be left to the source owner/ operator's discretion whether to include unanticipated shutdown of equipment or catastrophic equipment failure costs in the allowance calculation under the AMA approach; however; to the extent that such costs were not included, the owner/ operator could evaluate such unplanned activities under either the ERP approach or the case by case approach.

One industry commenter ( 1630) believed that the cost limit contained in the ERP would not address catastrophic or large scale failures at facilities. The commenter suggested that EPA either significantly increase the allowable percentage for replacement costs, subjecting the exemption to potential misuse, or require the facility to undergo a case by case determination for approval. The commenter believes that such failures are within the RMRR category but would likely subject a facility to NSR permitting or an extended outage while seeking approval under the proposed system.

One industry commenter ( 1112) suggested that the replacement of damaged or failed components related to unanticipated shutdowns or catastrophic failures be allowed if replaced by functionally equivalent components. In cases where the replacement does not meet the functionally equivalent description, the commenter believed such replacements be addressed under the AMA approach. In cases where the unplanned event causes the source to exceed the allowance, the commenter suggested using a case by case approach to evaluate whether the replacements were routine. The commenter also believed that because such shutdowns and catastrophic failures are unplanned, EPA should provide the source owner with flexibility to select which demonstration of routine should be used.

Several industry commenters ( 1083, 1113, 1134, 1136, 1160, 1246, 1465) supported a separate exclusion for catastrophic events.

One commenter ( 1113) requested that EPA adopt a presumptive exclusion with a safeguard that no increase in hourly emissions be allowed without permit review. This commenter believed these types of outages are unplanned and are not a base consideration in planning routine maintenance and repair. However, forced outages do occur and the need to make these potential repairs should be taken into consideration. If the EPA were to find repairs or replacement activities that did 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 73 not apply to the forced outage, the costs should then be subject to the facility's equipment replacement evaluation procedures.

One commenter ( 1134) believed that when there is an explosion, fire, or flood, the objective ought to be to rebuild a facility without NSR review.

One commenter ( 1136) did not believe EPA should treat expenses differently based on whether outages are " planned" or " unplanned" with respect to the AMA. However, this commenter stated that there should be a separate NSR exclusion for repair and replacement resulting from catastrophic occurrences. Sources need to repair and replace units, possibly at tremendous cost, and simply cannot go through NSR.

One commenter ( 1160) recommended that the safeguard remain that no increase in hourly emission rates would be allowed without triggering NSPS. The commenter noted that in the utility industry, events of unanticipated shutdown of equipment due to component or catastrophic failures are referred to as forced outages. This commenter stated that treating forced outage projects separately from the AMA and ERP approaches is sensible and works best because by definition forced outage events are unplanned. The commenter believed EPA is assuming that if forced outage costs are excluded from the AMA, they would be subject to caseby case RMRR review and said this is precisely the wrong result, because case bycase RMRR review is too long and no longer workable. The commenter added that companies should be required to report to their pertinent regulatory agency about the repairs or replacements that they undertake to fix forced outage damage, including providing information about the forced outage itself.

Without an exclusion, said one commenter ( 1465), delays of 1 to 2 years could be incurred to undergo NSR prior to initiating construction to re establish manufacturing capacity.

One industry commenter ( 897) suggested that costs from natural disasters, accidents, intentional sabotage and inadequate workmanship be excluded from any NSR review as long as these projects include like kind replacement of equipment, do not increase production, and do not increase emissions. The commenter believed in some situations the environment and safety can be at risk if a facility cannot immediately proceed with these types of projects without risk of noncompliance issues.

Two industry commenters ( 1023, 1130) recommended addressing projects required to respond to unanticipated forced outages or catastrophic events under the capacity and age based options. However, if EPA decided not to adopt a capacity or age based RMRR approach, the 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 74 commenters recommended exempting these types of equipment repair or replacement projects from NSR, provided the new equipment is as clean or cleaner from an air emissions standpoint. Additionally, the commenters believed any permits needed to enforce this requirement should not require emission offsets in nonattainment areas.

Response:

We agree with commenters who oppose a categorical exclusion for unanticipated shutdowns and failures. Whether an activity is planned or unanticipated, major NSR applicability should function the same way. Therefore, replacements resulting from unanticipated outages are not excluded from major NSR unless they qualify as RMRR under the ERP or for another exclusion from major NSR in their applicable rules. To the degree they exceed the ERP cost threshold, replacement activities resulting from unanticipated shutdowns or failures should be evaluated on a case by case basis for RMRR. In the case of a catastrophic loss, unless you increase your plant size considerably, it is likely that you would replace your failed equipment with a more efficient and cleaner part, and such replacement would not trigger major NSR because the actual to projected actual applicability test would not result in an emissions increase.

3.12 How to Treat Non emitting Units Comment:

3.12.1 General Support for Excluding Non emitting Units From ERP Many industry commenters ( 506, 558, 910, 951, 1001, 1050, 1096, 1098, 1099, 1100, 1129, 1138, 1212, 1213, 1367, 1368) and one State/ local commenter ( 1199) supported excluding non emitting equipment from the ERP approach. One commenter ( 506) stated that triggering the NSR review process for maintenance activities is an impediment to continuous improvement projects for certain products and process, 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. Two industry commenters ( 1098, 1099) suggested that EPA develop a list specific to each industry that qualifies as non emitting equipment or processes. One commenter ( 1212) recommended that work at clearly non emitting units, specifically including foundation regrouting and repair and frametop replacement, should be excluded from the ERP. Two commenters ( 1213, 1368) noted that an economizer is an example of a non emitting component that should be excluded from the ERP. Three commenters ( 1050, 1213, 1368) believed that non emitting units cannot result in an increase of emissions and thus do not need to be evaluated under NSR. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 75 One industry commenter ( 1399) agreed with the EPA proposal that the source for an EUSGU would consist of those portions of the plant that contribute directly to the production of electricity and would exclude all non emitting activities.

Several industry commenters ( 1079, 1091, 1110, 1132, 1137, 1292) believed that EPA should authorize sources to determine whether non emitting units/ components should be excluded from the ERP. One commenter ( 1137) believed that a blanket exclusion could create problems of interpretation because the term " non emitting components" is ambiguous when considering certain components. Another industry commenter ( 1110), while conceding that conceptually exclusion of non emitting units seems reasonable, indicated that this could become a very burdensome activity. The commenter 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. The 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). The commenter also suggested that some major investments that are non emitting ( such as office buildings) can be readily identified. For these components or units, a facility may want to remove the maintenance cost and investment from the analysis.

One industry commenter ( 1463) believed that non emitting units should be excluded, but only for purposes of determining whether the reconstruction safeguard has been exceeded. NSR emission impacts are evaluated on an emissions unit basis as opposed to a process unit basis. This commenter stated that for the purpose of determining whether a unit has been reconstructed, EPA should provide an option to perform the calculation on an emissions unit basis. This approach would eliminate reconstruction evaluations of projects that primarily affect non emitting process equipment. For all other purposes, calculations would be performed on a process unit basis.

One industry commenter ( 841) believed that activities that involve non emitting units whose actions would not affect an emitting unit are clearly outside the purpose of the RMRR rule and carry no significance in NSR applicability determinations. The commenter also believed that any activities to a non emitting unit that do affect an emitting unit, either upstream or downstream of the process, are already subject to NSR applicability.

3.12.2 Oppose Excluding Non emitting Units From ERP Two industry commenters ( 902, 1141) did not support requirements to apply the ERP to non emitting components unless these components have the potential to affect capacity or the nature of emissions from upstream or downstream emissions units. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 76 One industry commenter ( 1066) believed it would be simpler to include non emitting equipment when determining the replacement cost of a process unit, due to the difficulty in separating the costs of emitting and non emitting equipment. The commenter also believed it would be difficult to determine allocation of shared equipment in the cost analysis.

Two industry commenters ( 1023, 1130) stated that equipment changes involving RMRR of non emitting units on process lines should not be subject to the ERP. Rather, they should be categorically exempted from NSR permitting requirements, unless the project debottlenecks a process unit and results in an increase in actual emissions. One industry commenter ( 840) similarly suggested that non emitting units should be exempt from NSR.

Response:

An exclusion from counting costs under the ERP for non emitting units could create problems of interpretation because the term " non emitting components" is ambiguous when considering certain components. We are concerned that, if owners or operators were allowed to strip away all of the non emitting parts 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 " non emitting" parts of a process unit from " emitting" parts. 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 nonemitting equipment that is part of a process unit and non emitting 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 non emitting facilities should not be considered part of any process unit under the final rule. Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 1 Chapter 4  Approaches for RMRR Other than the AMA or ERP 4.1 Overview In the RMRR proposal preamble, we discussed and solicited comment on two potential RMRR approaches for which we did not propose regulatory language: ( 1) a capacity based option, and ( 2) an age based option. We received public comments supporting and opposing both these options, which are summarized below in sections 4.2 ( capacity based option) and 4.3 ( agebased option). Comments in favor of and against retaining the case by case approach for RMRR are summarized below in section 4.4. Some commenters suggested other RMRR approaches; these comments are summarized below in section 4.5.

4.2 Capacity based Option 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. The primary 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 cost based approaches.

Comment:

4.2.1 Support Capacity based Option A number of industry commenters ( 840, 865, 900, 920, 921, 951, 1000, 1005, 1013, 1045, 1050, 1052, 1077, 1078, 1090, 1098, 1099, 1112, 1123, 1126, 1129, 1130, 1136, 1145, 1159, 1160, 1213, 1237, 1282, 1356, 1368, 1392, 1399, 1441, 1469, 1620, 1629, 1792) supported a capacity based option. These commenters generally indicated that a capacity based option would be simpler and less burdensome to use than the AMA, and some also stated that it would be simpler than the ERP. Among these supporters, some preferred the capacity based option over the both AMA and ERP, some preferred the capacity based option in combination with the ERP, and some preferred the capacity based option in addition to the AMA and ERP.

Some of these industry commenters ( 1078, 1213, 1469) indicated that it would be no more difficult to implement a capacity based option than the AMA or ERP. Some commenters ( 1213, 1469) stated that the most difficult aspects of a capacity based option are ( 1) determining 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 2 the maximum achievable hourly emissions rate ( which also must be determined for the AMA), and ( 2) determining capacity ( which, in the form of the basic design parameters, must also be determined for the ERP).

Some of the industry commenters ( 1126, 1441) strongly supported a properly designed, simple capacity based approach with enforceable parameters specific to power plants. These commenters proposed detailed modifications to the approach discussed in the preamble, with a focus only on power plants. Their proposed approach had the following structure.

The capacity based option could be used for any project that met all the following conditions.

  The project does not require installation of an entirely new unit or entirely new replacement unit.   The cost of the project does not exceed 50 percent of the capital cost of a comparable entirely new process unit.   The project does not result in an increase in the maximum achievable hourly emissions or maximum unit design capacity.   The plant files a request for a determination of NSR applicability, and receives a notice of non applicability from the air pollution control agency, prior to commencing construction.

The capacity based option should be enforceable based on metrics already required and reported under existing EPA regulations, whenever possible.

The basis for determining such RMRR exclusion always should be emissions; only RMRR activities having an impact on emissions need be subject to NSR.

The capacity based option should not require sources to establish a complex and burdensome accounting system.

Projects that do not qualify for the capacity based option could still qualify under the equipment replacement option or the case by case option.

These commenters ( 1126, 1441) made the following assertions about their proposed capacity based approach.

The capacity based approach, taken together with the proposed ERP and the existing case by case approach, would address the full spectrum of RMRR for the utility industry. 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 3

If adopted, the proposed approach would be simpler than the proposed AMA approach and could serve to replace that approach.

Some industry commenters ( 840, 1356, 1620) explicitly supported the safeguards presented in our RMRR proposal for a capacity based option.

A number of industry commenters presented ideas on the basis on which changes in capacity should be determined.

° Some commenters ( 1356, 1620) suggested the maximum achievable hourly emissions rate. One of the commenters ( 1620) specified that the baseline emissions rate should be determined based on a 5 year look back period.

° One commenter ( 1013) suggested maximum hourly emissions, stating that this is the most 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.

One commenter ( 1392) suggested maximum potential hourly emissions, based on a 5 year look back period.

Some commenters ( 920, 921, 1000, 1123) stated that capacity can be easily determined for boilers as the steam production or heat input; for other types of processes, one can use unit of output per unit of time. In both cases, the commenters suggested using historical operation   based on source tests and operating records   to determine capacity.

One commenter ( 1129) suggested using the maximum steaming capacity of the process unit.

One commenter ( 840) indicated that in their industry, capacity is clearly defined by the ore feed rate and the soda ash production rate, which are already tracked and reported and serve as the basis for determining the maximum achievable hourly emission rate.

One commenter ( 1629) suggested the maximum hourly heat input for utilities, based on a 5 year look back period.

One commenter ( 1078) suggested the recent and expected maximum heat input.

Some industry commenters ( 1050, 1112, 1213, 1282, 1368, 1469) supported a capacitybased option provided that the maximum achievable hourly emissions rate safeguard was 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 4 determined based on a reasonable look back period ( i. e, 5 years for utilities), the source retains the responsibility for determining unit capacity, and the rule uses input capacity ( not output based measures) for determining capacity. Similarly, some other industry commenters ( 1136, 1159) supported a capacity based option as long as capacity is based on input, not output; otherwise, they contended, this option would not be consistent with the goal of enabling efficiency improvements.

One industry commenter ( 1792) supported a capacity based approach only if a stand alone exclusion for activities that promote efficiency was also promulgated. Otherwise, the commenter asserted, a capacity based approach could prevent utilities from performing activities that make the facilities more efficient. Similarly, another industry supporter of a capacity based approach ( 1098) indicated that the RMRR provisions may need to include some form of the other approaches to account for energy efficiency projects at utilities, which could increase capacity.

One industry commenter ( 1099) supported the capacity based option " so long as the owner of the unit can use a sufficient look back period that is representative of unit operation on an hourly basis." This commenter suggested that the 5 year look back test used in the NSPS hourly emissions increase test would be appropriate. However, the commenter did not specify whether this comment is related to determining the baseline for a capacity increase or for the safeguard that would not allow an increase in the maximum achievable hourly emissions rate.

One industry commenter ( 1090) who supports a capacity based option asserted that the option should be implemented at the stationary source or process unit level. The commenter indicated that many sources in the mining industry have permitted capacities at these plant levels.

One industry commenter ( 1237) urged us to continue considering, in addition to the AMA and ERP, the option of defining RMRR as any changes in a process unit that do not increase the unit's maximum capacity. The commenter believed this approach may be more workable for some industries ( e. g., electric utilities) than others but could have benefits in conjunction with the AMA and ERP.

One industry commenter ( 1130) said a combination of capacity and age based options would provide an effective foundation for the RMRR rule. The commenter recommended making the capacity based option available to all facilities on an equipment specific basis until the equipment is completely depreciated based on IRS guidelines. This approach could also be used to address projects required to respond to unanticipated forced outages and catastrophic events. Under this option, any repairs or maintenance designed to recover, but not exceed, the original design capacity of the equipment would be exempt from NSR until the equipment is fully depreciated. After that point in time, annual repair and maintenance projects would be eligible for NSR exemptions if costs incurred did not exceed the facility's AMA.

4.2.2 Oppose Capacity based Option 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 5 A number of industry ( 900, 902, 1001, 1082, 1096, 1110, 1114, 1132, 1137, 1138, 1211, 1238, 1367, 1463, 1798, 1866), State/ local ( 1107, 1268, 1270, 1361, 1443), and environmental ( 1150) commenters opposed a capacity based option. Their reasons for opposing this option included the following.

It is often difficult to define the capacity of a process unit. ( Industry commenters 1110, 1132, 1238, 1463)

It would not exempt efficiency projects. Encouraging efficiency improvements was a primary purpose for NSR reform. ( Industry commenters 1110, 1132, 1463, 1798)

It would not be workable at complex manufacturing sources. ( Industry commenter 1114)

" Capacity" is a useful shorthand term for the processing capability of a petroleum process unit, but it usually correlates exactly only with a historical feed or product slate no longer available or made. Thus it would not serve well as a threshold for determining applicability of the RMRR exclusion. ( Industry commenter 1301)

It would be inconsistent with the statutory definition of modification. ( Environmental commenter 1150)

It would be too complex. ( Industry commenter 902, State/ local commenter 1107)

It appears to be covered by the actual to projected actual test. ( State/ local commenter 1270)

It would be arbitrary. ( State/ local commenter 1443)

An appropriate capacity based approach would have to be tailored to various types of sources, with capacity based on input for some and on output for others. ( Industry commenter 1866)

Projects that do not increase capacity may nonetheless be nonroutine and may result in significant air quality impacts. ( State/ local commenter 1268)

The proposal is too vague for informed comment. To be acceptable, a capacitybased approach would have to be independent of the AMA and/ or ERP and would have to be subject to the safeguards proposed for the AMA. ( State/ local commenter 1361) 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 6 Some industry commenters ( 1124, 1131, 1133) asserted that EPA should not establish a mandatory capacity based approach. However, these commenters did not oppose it as a voluntary approach that sources could choose.

Response:

We agree with commenters that, in principle, a capacity basis for RMRR might be easier to use before beginning actual construction than some of the cost based approaches. We agree that an appropriate capacity based 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.

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.

4.3 Age based Option We also proposed an age based approach to the RMRR exclusion. 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.

Comment:

4.3.1 Support Age based Option 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 7 One environmental commenter ( 540) stated that EPA should establish a normal lifetime, tailored to each industry, beyond which industry would need to install BACT or shut down.

One State/ local commenter ( 1268) indicated that an age based NSR trigger is a potentially useful mechanism to provide certainty that old, high emitting equipment will eventually be shut down or upgraded to BACT. The commenter believed that such certainty can justify substantial flexibility for certain modifications. The commenter suggested that age based NSR could be combined with capacity limitations to allow many modifications to occur in the interim without NSR. As a condition of such flexibility, the commenter stated, the facility would need to be modeled at maximum potential emissions and demonstrate protection of air quality. Furthermore, the commenter indicated, EPA would need to re propose the rule with specific provisions to allow interested parties the opportunity to make meaningful comment before adopting any agebased exemption component to the NSR program.

One industry commenter ( 1130) said a combination of capacity and age based options would provide an effective foundation for the RMRR rule. The commenter recommended making the capacity based option available to all facilities on an equipment specific basis until the equipment is completely depreciated based on IRS guidelines. This approach could also be used to address projects required to respond to unanticipated forced outages and catastrophic events. Under this option, any repairs or maintenance designed to recover, but not exceed, the original design capacity of the equipment would be exempt from NSR until the equipment is fully depreciated. After that point in time, annual repair and maintenance projects would be eligible for NSR exemptions if costs incurred did not exceed the facility's AMA.

4.3.2 Oppose Age based Option A number of industry ( 797, 900, 902, 920, 921, 942, 1000, 1001, 1013, 1050, 1078, 1082, 1083, 1086, 1096, 1098, 1099, 1110, 1112, 1114, 1123, 1124, 1126, 1129, 1131, 1132, 1133, 1134, 1136, 1137, 1138, 1159, 1160, 1211, 1213, 1237, 1238, 1301, 1367, 1368, 1395, 1399, 1441, 1463, 1465, 1629, 1792, 1793, 1798, 1866), State/ local ( 1107, 1270, 1361, 1443), and environmental ( 1150) commenters opposed an age based option. Their reasons for opposing this option included the following.

The age of a source alone is not a legitimate reason to require the addition of pollution control equipment; age has no bearing on a unit's environmental impact; some facilities maintain equipment better than others. ( Industry commenters 900, 920, 921, 1000, 1123, 1159)

There is not a legal basis for specifying levels of controls based on a unit's age. ( Industry commenters 1078, 1099, 1129, 1213; environmental commenter 1150) 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 8

It is not consistent with Congressional intent. ( Industry commenters 1050, 1213, 1629)

Proper maintenance of equipment may extend its life, and should be encouraged. An age based option would discourage this. ( Industry commenters 1114, 1798)

This option would discriminate against industries with equipment that has a long useful life. ( Industry commenter 1238)

The age of a process unit is an ambiguous concept. Questions arise about the procedure for calculating a unit's age. It is not uncommon to transfer usable equipment from a decommissioned process unit to a new one, or to purchase used process equipment from another party. ( Industry commenter 1301)

It would be difficult to implement on a consistent and equitable basis. ( Industry commenters 902, 1110, 1132, 1160, 1463, 1866; State/ local commenter 1107)

The age based option of 25 50 years is very arbitrary and not workable. ( Industry commenters 1110, 1132; State/ local commenter 1443)

It would arbitrarily put an unnecessary burden on older plants and would not improve the reliability, safety, or efficiency of the nation's energy system. ( Industry commenter 1441)

Economics and technological advancement determine the useful life of a process unit. To impose an arbitrarily defined " useful life" at the end of which controls are required imposes unnecessary economic burdens and places U. S. manufacturing capacity at a competitive disadvantage in global markets. ( Industry commenters 1465, 1793)

Many industrial facilities already have equipment that is more than 50 years old. The only way the option could work is to start the clock from the date of rule promulgation. ( Industry commenter 1013)

Due to economic and other constraints, the lifetime of a unit cannot be precisely defined. The lifetime of an electric generating boiler is defined by the care taken to maintain it, consumer demand, the size of the system, the local climate, and economics of replacing the unit, among other factors. If the life of a unit is defined for the purposes of air pollution regulation, it may establish an unwillingness to upgrade and modernize with pollution controls because it may not be possible to recapture the costs of these investments. ( Industry commenter 1136) 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 9

The useful lifetime of a piece of production equipment or of an industrial boiler, water treatment plant, or physical plant is defined by the care taken to maintain it, consumer demand for the product it produces, the nature of the process and product ( i. e., heavy industry versus light industry), the economics of replacing the unit or abandoning a production process, and many other factors. ( Industry commenter 1134)

It could result in non routine activities being undertaken. ( Industry commenter 902)

It would allow companies to piece meal a brand new plant in a relatively short time period. ( State/ local commenter 1270)

Process units can maintain productive capacity, efficiency, and environmental performance well beyond what might be assumed. Sources should not be penalized for their prudent decisions to extend the productive life of their facilities as necessary to remain competitive in the global marketplace. ( Industry commenter 1866)

It would significantly delay promulgation of the RMRR rule. ( Industry commenter 1211)

Environmental impacts, not the age of the unit, must be the basis for any applicability determinations. ( State/ local commenter 1361)

Response:

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 age based approach would discriminate against them.

We are disinclined to establish a normal lifetime, tailored to each industry, beyond which industry would need to install BACT or shut down, as one commenter suggested, because this type of approach would obviously require a substantial amount of time.

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 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 10 maintain equipment better than others. We have several basic concerns with the age based 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 an age based approach.

4.4 Retaining Case by case Approach Since its inception, the RMRR exclusion has been applied on a case by case basis. In interpreting this exclusion, we have followed certain criteria. The preamble to the 1992 " WEPCO Rule" ( 57 FR 32314) and applicability determinations made to date describe our current approach to assessing what activities constitute RMRR. These applicability determinations are available electronically from the Region 7 NSR Policy and Guidance Database ( http:// www. epa. gov/ Region7/ programs/ artd/ air/ nsr/ nsrpg. htm). Other relevant documents include decisions by EPA's Environmental Appeals Board and court briefs filed on behalf of EPA. The EAB decisions can be found on EPA's website ( http:// www. epa. gov/ eab/). To summarize these documents, to determine whether proposed work at a facility is RMRR, the reviewing authority made a case by case determination weighing the nature, extent, purpose, frequency, and the cost of the work as well as other relevant factors to arrive at a common sense finding. See also Wisconsin Electric Power Company ( WEPCO) v. Reilly, 893 F. 2d 901, 910 ( Seventh Cir. 1990). None of these factors, in and of itself, was conclusive. Instead, a reviewing authority would take account of how each of these factors might apply in a particular circumstance to arrive at a conclusion considering the project as a whole. If an owner or operator was uncertain whether he or she is applying the NSR regulations correctly, we encouraged the owner or operator to consult the appropriate reviewing authority for assistance.

Comment:

4.4.1 Support Retaining Case by case Approach A number of industry ( 814, 941, 1001, 1045, 1069, 1077, 1091, 1100, 1112, 1124, 1134, 1136, 1137, 1199. 1201, 1202, 1204, 1236, 1292, 1392, 1399, 1441, 1797, 1866, 1868), State/ local ( 838, 912, 946, 1012, 1033, 1206, 1240, 1268, 1361, 1366, 1464, 1471, 1622, 1643), and university ( 901, 1442, 1477) commenters supported retaining the case by case approach for determining whether an activity is RMRR. These commenters variously referred to the case bycase approach as the four factor approach, the five factor approach, the multi factor approach, the narrative WEPCO test, and Detroit Edison. Some commenters were explicit in their support, while others implicitly supported this approach in assuming that it would apply if an activity did not qualify for an automatic exclusion under the other proposed approaches.

Several of the supportive commenters had suggestions for clarifying the case by case approach. These suggestions included the following. 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 11

Clarify that it is supposed to exclude from NSR any activity intended to maintain, facilitate, restore, improve the efficiency, reliability, availability or safety. Clarify the test to introduce replicability and predictability into the system. ( Industry commenters 1001, 1078, 1201, 1202, 1292, 1399)

Clarify that frequency is not a dispositive factor under the case by case approach. ( Industry commenter 1001)

Create guidelines for how applicability determinations requests should be processed. For example, we should commit to requesting all additional information within 21 days and a final response within 30 days of receipt of all information. ( Industry commenters 1001, 1202)

Affirmatively state that it is to be used specifically for applying a broader definition of RMRR than provided under other approaches. ( Industry commenters 814, 1078, 1204)

Clarify that the consideration of RMRR criteria should be based on routine events for an industry, not for an individual facility. When a repair or replacement is necessary, the commenter considers situation specific factors that include among others cost, reliability, efficiency, and performance. Given the complexity of the commenter's facilities, a specific device or solution may be installed only once in a given facility, even if it is a routine choice across the industry. Without this clarification, projects considered routine based on industry practice and common sense could be disallowed based on frequency at an individual facility. ( Industry commenter 1868)

In considering the " purpose" of an activity, weight should be given to the improvement of efficiency, safety, and reliability. The commenter noted that in the proposal's discussion of the equipment replacement option, we identified many of the reasons why identical replacements are not always possible or desirable. The commenter believed that discussion is accurate, should apply to case by case determinations as well, and provides ample justification that these elements should be given weight during evaluation of a project's purpose. ( Industry commenter 1868)

Evaluate case by case projects under the so called narrative test articulated in the WEPCO determinations issued by EPA in 1988 and 1989. The commenter urged EPA to reinstate these determinations and not the 14 criteria " Detroit Edison" determination as the principle articulation of the " narrative case by case" test. The commenter wanted the case by case determination to be available for projects such 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 12 as turbine rebuilds that are routine but would not satisfy either the AMA or ERP proposed tests. ( Industry commenter 1136)

Codify criteria for characterizing whether a change is routine, based on the criteria relied upon in current case by case determinations and including safeguards against changes likely to increase emissions. ( State/ local commenters 1268, 1471) Commenter 1268 favors this action in conjunction with development of two lists for each major industrial sector to identify activities that would and would not be considered routine; the clarified case by case approach would be used for activities that do not appear on either list.

Improve implementation of case by case determinations by using simple, online forms. ( State/ local commenter 1361)

One association of local agencies ( 1206) that does not support the RMRR proposals stated that we have not presented a convincing argument that there is a problem with the current framework for implementing RMRR ( i. e., the case by case approach). The commenter indicated that an informal poll of its members shows there are very few issues with case by case assessments of RMRR. The commenter suggested that we should consult with the permitting agencies to verify industry provided examples of problems with the current system.

One State/ local commenter ( 1643) recommended that we restrict the case by case approach by limiting the number of activities or their total cost.

4.4.2 Oppose Retaining Case by case Approach An environmental commenter ( 1150) generally did not support an RMRR exclusion.

Response:

The final rule allows the option for an owner or operator to chose to use the ERP for determining whether activities at their facility are RMRR. The rule, however, also retains the case by case approach. Under the final rule, the case by case approach can continued to be used by an owner or operator to determine if activitites at their source are RMRR. It also will continue to be used by an owner or operator to determine whether activities at their source which do not fall within the ERP and, therefore need closer scrutiny, are RMRR. We believe it is essential to retain the case by case approach for these purposes. There may be sources where the ERP is not an effective and less burdensome means for determining whether activities are RMRR. It is important to allow owners or operators of these types of sources the right to use the case by case approach. It is also critical to retain the case by case approach for reviewing activities which do not fall within the ERP. These activities while of greater cost still may 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 13 qualify as RMRR when all of the factors are evalusted and it is important to retain the approach for this purpose.

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 by case approach will remain available to use as an alternative and/ or supplement to the ERP.

The ERP we are finalizing will allow a source to make a simple determination as to whether a replacement piece of equipment is identical or not. This type of determination will be straightforward and easier for most owners or operators to implement than the current case bycase analysis required to determine whether a replacement is routine.

4.5 Comments on Other Options Comment:

4.5.1 Exclude Activities Properly Classified as an " Expense" on the Source's Federal Income Taxes Several industry commenters ( 906, 927, 941, 942, 1000, 1001, 1079, 1083, 1091, 1097, 1109, 1110, 1123, 1124, 1131, 1132, 1133, 1134, 1137, 1138, 1149, 1200, 1211, 1283, 1363, 1395, 1868) suggested allowing automatic RMRR status for any activity properly classified as an expense ( as opposed to a capital expenditure) on a source's Federal income tax return. One of these industry commenters ( 1083) listed several examples of expensed RMRR items.

A State/ local commenter ( 1643) asserted that if we promulgate a cost based allowance, it would be better to allow only those costs submitted to the IRS as maintenance to be exempt from NSR. The commenter preferred this approach so that reviewing authorities could rely on trained IRS personnel to assure that the work performed was indeed RMRR.

The industry proponents of this approach generally indicated that activities that are " expensed" under IRS regulations clearly fall within the intent of the RMRR exclusion. As support, these industry commenters frequently cited IRS regulations.

Under 26 CFR 1.167( a) 11( d)( 2)( i)( a), " repairs" are defined as " expenditures which do not substantially prolong the life of an asset or materially increase its value or adapt it for a substantially different use...."

Under 26 CFR 1.162 4, a taxpayer may deduct as an expense the cost of " incidental repairs which neither materially add to the value of the property nor 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 14 appreciably prolong its life, but keep it in an ordinary efficient operating condition...."

The industry supporters' arguments in support of an exclusion for expensed activities included the following:

It would provide the source with certainty regarding the treatment of an activity under NSR.

It would utilize well understood, existing systems and accounting procedures to determine whether an item can be claimed as an expense.

Company auditors and the IRS would provide a crosscheck on expense determinations, making this approach readily enforceable.

The national emphasis on reasonable accounting at major corporations should give adequate assurance that this approach cannot be abused without fear of significant consequences.

It would greatly simplify recordkeeping, as compared to the AMA.

It would ease the burden on reviewing authorities for making RMRR determinations.

A number of the industry supporters ( 941, 1079, 1083, 1123, 1124, 1131, 1133, 1134, 1137, 1200) recommended that we institute the exclusion for expensed activities in addition to the AMA. Some of these commenters recommended that we promulgate this approach right away ( in combination with the ERP) to provide RMRR certainty immediately, expecting that it will take longer to complete development of the AMA.

A few industry commenters ( 1000, 1132, 1138, 1149) preferred the expense exclusion in place of the AMA. These commenters believed that the expense exclusion would be simpler and more straightforward for sources to implement and would avoid some of the issues related to the AMA. These commenters found the proposed AMA to be administratively burdensome and difficult to develop fully.

Some industry supporters of an expense exclusion ( 1124, 1131, 1133, 1134) suggested that we could promulgate this approach immediately as a logical outgrowth of the AMA proposal. Some of these commenters ( 1124, 1131, 1133) pointed out that the AMA proposal suggests granting RMRR status to any projects that would fall within the " repair guidelines" of IRS publication 534 and therefore could be deducted as expenses from an income tax return ( citing 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 15 67 FR 80298). The commenters suggested that it would be simpler and more defensible simply to grant RMRR status to expensed items directly.

Another industry commenter ( 1079) suggested that the expense exclusion could be promulgated as a logical outgrowth of either the AMA proposal or the ERP proposal. A few industry supporters ( 906, 1110) suggested that the expense exclusion could be implemented within the ERP. These commenters recommended that we provide in the final rules that expensed items qualify for the ERP and that the safeguards within the ERP apply only to capital replacements.

One industry supporter ( 1149) suggested a single safeguard for the expense exclusion, stating that the exclusion should not apply to an activity that would increase the maximum hourly emissions of an NSR pollutant or cause emissions of an NSR pollutant not previously emitted. This commenter also recognized that an IRS audit could result in changing the classification of an activity from an expense deduction to a capital expenditure. In this case, the commenter asserted, the source must have the opportunity to retroactively review the activity to determine whether it qualifies as RMRR under the ERP or case by case approach.

Some industry commenters who generally support the expense exclusion under IRS regulations ( 1138, 1211) requested that we extend this approach for companies that operate interstate natural gas pipelines to allow an automatic RMRR exemption for activities deducted as expenses pursuant to Federal Energy Regulatory Commission ( FERC) guidelines. These commenters indicated that the FERC guidelines are well established and well regulated.

One industry commenter ( 951) acknowledged that some companies arbitrarily expense some costs that could be capitalized and added that this is a standard procedure for regulated utilities optimizing their rate bases.

Response:

We agree that activities for maintenance and repair activities that are expensed should be excluded from NSR applicability. We are putting forth for comment a separate, supplemental proposal that will address how activities can qualify for routine maintenance and repair under the RMRR exclusion. For equipment replacement activities, the ERP includes a percentage cost threshold that does not distinguish between expensed and capitalized costs. Further, we do not have confidence that the guidelines ( such as for IRS and FERC reporting) for expensing versus capitalizing costs of replacement equipment are consistently applied across companies. Therefore, we do not at this time see a benefit to an expensing approach in conjunction with the ERP.

4.5.2 List of Excluded Activities 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 16 Comment:

Several State/ local ( 820, 838, 946, 1012, 1033, 1148, 1138, 1199, 1211, 1268, 1361, 1366, 1464, 1622, 1643) and industry ( 1098, 1100, 1124, 1131, 1133, 1445, 1797) 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. One State/ local commenter ( 1366) provided a list of routine activities. Commenters suggested various ways that such lists could fit into the overall RMRR program. Some specific suggestions follow.

Create lists of what is and what is not routine through a notice an comment rulemaking, in addition to codifying the case by case approach. ( State/ local commenters 838, 946, 1012, 1033, 1366, 1464, 1622)

Develop a list of activities that qualify as RMRR, but not as a substitute for finalizing the two proposed options. The list should not be presumptive; that is, it must not be assumed that activities not on the list are not RMRR. ( Industry commenters 1124, 1131, 1133)

Codify criteria for characterizing whether a change is routine, based on the criteria relied upon in current case by case determinations. Such criteria should provide for detailed safeguards against changes that would be likely to result in emissions increases. In addition, to add certainty and to streamline the process, develop lists of activities that would and would not be considered routine for each major industrial sector. For projects and industry sectors not included in these lists, the case by case determination process would apply, according to the codified criteria. ( State/ local commenters 1624, 1268, 1624)

In place of the AMA, develop a list of activities that are considered to be RMRR. Activities that do not appear on the list would then be evaluated according to the ERP. Any activities that do not qualify under either of these two tests would then be evaluated on a case by case basis. ( Industry commenter 1797)

One environmental commenter ( 1150) did not generally support a routine maintenance exclusion. If we were to adopt one, however, the commenter preferred a list of specific activities that were excluded.

Prepare specific guidelines for different types of sources regarding activities that are and are not considered routine. A list of qualifying activities, analogous to the list of pollution control projects, would provide clarity. This commenter suggested two ways in which we could develop a list of qualifying activities. First, review records for ongoing enforcement activity, to identify activities that we have and have not already alleged to be routine. There is an ample body of knowledge for 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 17 electric power plants. Second, 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 non routine activities. ( State/ local commenter 1148)

Develop lists that include specific process equipment, and the nature, frequency, extent, and purpose of the activities acceptable as RMRR. These lists should also provide a schedule for updating emission standards for future activities, on a periodic basis, to allow facilities to plan future emission control installations and to assist States in attaining air quality improvement goals. ( State/ local commenter 1361)

Industry specific lists of routine and non routine activities would provide the best interim clarification to NSR until legislative reform is in place. For activities on the non routine list, sources would be entitled to a full case by case determination if they so choose. A project that does not result in an emissions increase would not trigger NSR, even if it appeared on the list of non routine projects. Supplementary rulemakings defining activities for each industry sector could follow. This commenter offered their experience that could be helpful in identifying activities in each category for the electric industry sector. ( Industry commenter 1445)

Adopt a list of activities that are considered RMRR. Begin with the existing list of pollution control equipment, and add other activities as sources get RMRR determinations. Pump replacement, as described on 67 FR 80300 of the RMRR proposal, could be on the list of RMRR activities. ( State/ local commenter 1643)

The list approach can be promulgated as a logical outgrowth of the ERP. ( Industry commenter 1211)

Some industry commenters ( 942, 1001, 1091, 1134, 1202, 1292) opposed the development of lists of activities that are considered RMRR. Some of the commenters ( 1001, 1202, 1292) contended that such lists would become quickly outdated. One of the commenters ( 1202) asserted that taking time to develop such lists would only further delay clarifying the RMRR exclusion. Another commenter ( 942) contended that there are simply too many activities to attempt to list them. Because of the potential for such lists to contain gaps and become quickly outdated, one commenter ( 1292) suggested that such lists may actually cause more confusion than they solve and thrust the regulated community back into a case by case review structure.

Response:

We believe there are simply too many activities in too many industries to effectively improve major NSR implementation through creation of lists. Moreover, we agree with 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 18 commenters who said lists of excluded or non excluded activities would provide only a " snapshot in time" that would need to be reviewed and periodically updated for each industry sector. We have consequently decided to not list activities that have a categorical exclusion for routine equipment replacements.

4.5.3 Other Suggested Exclusions Comment:

Some industry commenters ( 942, 1098, 1100, 1629, 1866) recommended that the final rule make clear that the maintenance, repair and replacement of air pollution control devices are not subject to review under major NSR. Some of these commenters ( 942, 1100) suggested that this outcome be accomplished by categorically determining that such activities for control devices and monitoring equipment are RMRR. Another industry commenter ( 897) suggested that the installation of control devices not be subject to NSR. These comments were generally made in the context of whether control device costs should be included in the AMA; the commenters favored excluding these costs from the AMA and favored excluding these activities from NSR generally.

Response:

As we stated in section 3.4.2, in response to comments received on industry categoryspecific definitions of " process unit," ee disagree with the commenters who wish to include pollution control equipment in the definition. We feel that periodic replacement of parts of emissions control equipment should be encouraged and would rarely lead to actual emissions increases. In instances where replacement of pollution control equipment may lead to emissions increases, you will either undergo major NSR for your increases or you may qualify for a Pollution Control Project exclusion. See 67 FR 80186. We do agree, however, that where the control equipment is an integral part 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 a integral part of the operation of a fractionation column. A low NOx burner is another example of a dual purpose part. In both cases, these pieces of control equipment are integral to the process and, thus, should be included as part of the process unit.

Comment:

Some industry commenters ( 577, 797, 906, 1201, 1797) requested that certain activities be specifically classified as RMRR. Activities they requested to be classified as RMRR included the following. 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 19

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 components are upgraded, the heat input remains the same and so does the emissions rate. ( Industry commenters 577, 797, 906, 1082, 1797)

Replacement of the high pressure section of a steam turbine with GE's " dense pack" turbine blade system. ( Industry commenter 1201)

Replacement of a furnace, cupola, or melter liner. The commenter suggested language to be included in the final RMRR as an example of an activity that qualifies as RMRR. ( Industry commenter 1045)

Boiler tuning. ( Industry commenter 1100)

Response:

We believe there are simply too many activities in too many industries to effectively improve major NSR implementation through creation of lists. Moreover, we agree with commenters who said lists of excluded or non excluded activities would provide only a " snapshot in time" that would need to be reviewed and periodically updated for each industry sector. We have consequently decided to not list activities that have a categorical exclusion for routine equipment replacements.

Comment:

[ May choose to " un bulletize" some of the following comments in order to respond to them individually. Preamble language for some of them follows, in italics.]

Some commenters suggested other approaches to the RMRR exclusion and other exclusions from NSR. These suggestions included the following.

One industry commenter ( 914) recommended that 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 be defined as RMRR. This commenter went on to request that we clarify that if there is no increase in potential to emit and no change in a design parameter, a change is not subject to NSR and whether the change qualifies as RMRR is not a consideration. 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 20

One industry commenter ( 1100) did not believe that the proposed approaches negate the need for an improved definition of RMRR. The commenter suggested the following.

  The activity cannot involve the construction of a new " process unit."   The activity cannot involve the replacement of an entire process unit based on a test no more stringent than the NSPS test.   The activity must be identical or functionally equivalent and must not change the basic design parameters of the affected process unit.   The activity cannot increase the source's maximum achievable hourly emissions rate of any NSR pollutant above levels that can be achieved when the source is operated within the basic design parameters of the process unit.   Certain activities, e. g., boiler tuning, and maintenance, repair and replacement of air pollution equipment or CEMS, should be categorically exempted as RMRR.

We agree with commenters that prohibiting changes in basic design parameters and in emission limitations are appropriate safeguards for determining which activities qualify for the ERP. The ERP stipulates that activities that cause the process unit to exceed any emission limitation, operational limitation ( that has the effect of constraining emissions), or work or work practice requirement ( that has the effect of constraining emissions) that applies to any part of the process unit cannot qualify for the ERP.

Accordingly, you may categorize identical replacement activities as routine equipment replacements under the RMRR exclusion if the fixed capital cost of such replacement plus the cost of associated activities 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, operational limitation ( that has the effect of constraining emissions), or work practice requirement ( that has the effect of constraining emissions) that applies to any part of the process unit.

Similar to identical replacements, replacements with functionally equivalent equipment qualify for the ERP, subject to certain safeguards. That is, the fixed capital cost of such replacements plus the cost of associated activities may not exceed 20 percent of the fixed capital cost of constructing a new process unit, and the replacement may not alter a basic design parameter of the process unit nor require a permit revision related to the emissions.

Also, for utilities, we added the basic design parameter of maximum design steam flow rating and clarified from the proposal that the correct parameter is maximum hourly heat input. Sources may request that their reviewing authorities specify fuel type ( such as coal or oil) when setting basic design parameters at a combustion device that can accommodate multiple fuel types, and, for coal fired units, they should consider that the fuel consumption rate will vary 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 21 depending on the quality of the coal for a given heat input. When establishing fuel consumption specifications, the minimum fuel quality based on BTU content should be used for coal fired units.

Comment:

One State/ local commenter ( 1044) recommended that the rest of the nation adopt California's NSR regulations.

Response:

Two local air pollution control agencies noted that they currently already exempt all replacements with identical equipment from NSR.

As observed at the time of our RMRR proposal, we believe that most identical 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 for the ERP, so we are finalizing the provision for identical replacement of equipment essentially as we proposed it.

We support the air pollution agencies that have already exempted this type of change from NSR, although we have concerns about doing so without appropriate backstops, even for identical equipment replacements.

Comment:

Some environmental commenters ( 514, 522) suggested that the best approach to providing regulatory certainty to industry would be to require all facilities to adopt modern emission controls by a specified date or according to a specific timeline. One of these commenters ( 514) endorsed the approach suggested by the National Academy of Public Administration of requiring all large pollution sources to adopt modern pollution controls within 5 years.

Response:

The purpose of the NSR program is to protect public health and welfare, as well as national parks and wilderness areas, as new sources of air pollution are built and when existing sources are modified in a way that significantly increases air pollutant emissions. Specifically, NSR's purpose is to ensure that when new sources are built or existing sources undergo major modifications: ( 1) air quality improves if the change occurs where the air currently does not meet federal air quality standards; and ( 2) air quality is not significantly degraded where the air currently meets federal standards. The fundamental philosophy underlying the NSR program is 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 22 that a source should install modern pollution control equipment when it is built ( for new sources) or when it makes a major modification ( for existing sources). Congress believed that incorporating pollution controls into the design and construction when new units are built, or when major modifications occur, is generally more efficient than adding on controls after construction. The type of program the commenter is describing is more similar to other programs under the Clean Air Act such as the maximum achievable control technology ( MACT) program for hazardous air pollutants, the Acid Rain Program or the Regional Nitrogen Oxides Strategy. These programs were specifically designed to get reductions from existing sources on a set timeframe. EPA is very supportive of these programs and of President Bush's Clear Skies legislation which would get significant reductions of air pollution from electric utilties. However, the NSR program was not designed for that purpose and EPA cannot effect that end through a change in its regulations.

Comment:

One environmental commenter ( 948) believed the EPA should require mandatory advance determinations of NSR applicability for routine maintenance exclusions. This commenter also believed the proposed rule will put utilities that have complied with NSR at a competitive disadvantage.

Response:

Maintenance activities are necessary and helpful in maintaining, facilitating, restoring or improving the safety, reliability, availability, or efficiency of industrial facilities and are performed everyday at the facilities. To require mandatory advance determinatiosn would bring a grinding halt to such activities as sources waited on determinations from reviewing authorities and would place an enormous workload on those revieiwng authorities. EPA does not believe it would serve any benefit to require such advance determination.

Comment:

One industry commenter ( 951) believed that any project that is part of a long term service agreement should be categorically exempted from NSR.

Response:

EPA believes that activities which qualify as RMRR should be exempt from NSR reqgardless of whether they have been covered by such a long term service agreement. We believe offering the ERP as an option for evaluating whether activities are RMRR and the caseby case approach are the ap[ propriate mechanisms for identifying activities that fall within the RMRR exclusion. 4  Approaches for RMRR Other than the AMA or ERP Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 4 23 Comment:

One industry commenter ( 951) believed that any project involving steam turbine overhaul work should be categorically exempted from NSR.

Response:

As noted above, we believe there are simply too many activities in too many industries to effectively improve major NSR implementation through creation of lists. Moreover, we agree with commenters who said lists of excluded or non excluded activities would provide only a " snapshot in time" that would need to be reviewed and periodically updated for each industry sector. We have consequently decided to not list activities that have a categorical exclusion for routine equipment replacements. Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 5 1 Chapter 5  Energy Efficiency Projects 5.1 Overview In the proposal, we acknowledged that certain types of projects 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.

We received public comments supporting and opposing a stand alone exclusion from NSR for energy efficiency projects. These comments are summarized in section 5.2. We also requested and received a few comments on the impacts of the existing NSR program on energy efficiency projects and other activities that produce net benefits to human health and the environment. These comments are summarized in section 5.3.

5.2 Stand Alone Exclusion for Energy Efficiency Projects Comment:

5.2.1 Support for a Stand Alone Exclusion Several industry commenters ( 902, 906, 920, 921, 1000, 1050, 1052, 1078, 1091, 1098, 1099, 1110, 1112, 1123, 1129, 1132, 1136, 1137, 1160, 1213, 1236, 1292, 1368, 1463, 1629, 1792, 1798) supported a stand alone general exclusion from NSR for energy efficiency projects. One State/ local commenter ( 1199) supported NSR exemptions for a specified list ( to be developed by us) of well defined efficiency improvements that do not result in equipment reconstruction or emissions increases. A number of the supportive industry commenters suggested safeguards to be included in a stand alone exclusion, as follows.

Some commenters ( 906, 1110, 1132) favored specifically excluding from the definition of " major modification" activities/ projects that promote energy efficiency and/ or resource conservation by meeting all of the following criteria: ( 1) the project 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) project costs do not exceed 50 percent of the replacement value of the process unit; and ( 4) the project does not result in an increase in allowable emissions. One of the commenters ( 906) gave the example of a cogeneration facility that adds inlet air coolers to its gas turbine generator.

One commenter ( 1129) stated that there should be an NSR exclusion for situations where a company makes operational changes or adds new equipment to improve operational efficiency, provided that there is ( 1) no increase in maximum hourly 5  Energy Efficiency Projects Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 5 2 emission rates and ( 2) no increase in the design capacity. The commenter strongly encouraged EPA to clarify this exclusion in a separate, stand alone, " capacitybased exclusion.

One commenter ( 1160) proposed safeguards that would function similarly to the Clean Unit test contained in the December 2002 NSR final rules. This commenter would apply a new emissions increase test for projects that increase energy efficiency. Under the commenter's proposed test, the EPA would deem the project not to result in an emissions increase if it: ( 1) reduces emissions on a pollutant per product output basis, and ( 2) does not increase maximum hourly emission rates. The commenter contended that these safeguards would protect against the rare efficiency project that might otherwise result in large emissions increases.

Some commenters ( 920, 921, 1000, 1123) supported an exclusion for any project intended solely to improve energy efficiency of a unit, both for utilities and nonutilities These commenters suggested that the exclusion be limited to projects that do not increase raw material or fuel input to achieve the higher production rate. The commenters indicated that facilities would be required to submit annual reports on raw material and fuel usage rates, along with production data, to ensure that the project qualified.

Some commenters ( 1099, 1112, 1213, 1368, 1629) supported addition of an NSR provision that indicates that efficiency improvement projects that do not constitute MRR are not considered physical changes or changes in the method of operation, with the safeguard that the project must not increase the maximum capacity of the unit to emit pollutants, as determined on an hourly basis over the past 5 years.

One commenter ( 1463) supported the stand alone energy efficiency project exclusion for projects that increase production without increasing emissions per unit of production, with the same safeguards as proposed for AMA.

One commenter ( 1798) stated that electric generating units and natural gas pipeline facilities should have the flexibility to conduct RMRR activities to improve efficiency without regard to cost, up to the 50 percent reconstruction cost threshold.

Some of the supportive industry commenters above suggested that the stand alone exclusion for energy efficiency projects be expanded to cover other types of projects, as follows.

Some commenters ( 906, 1110, 1132) favored including projects that promote resource conservation. 5  Energy Efficiency Projects Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 5 3

One commenter ( 902) recommended that sources be allowed to propose any projects that can be demonstrated to produce net benefits to human health and the environment, including ( but not limited to) energy efficiency activities.

Some commenters ( 1098, 1792) supported including projects that increase reliability and safety. One of these commenters ( 1792) stated that along with this expanded stand alone exclusion, the commenter would support a capacity based approach to RMRR.

One supportive industry commenter ( 1136) urged EPA, either separately or in the definition of " functionally equivalent," to clarify that efficiency improvements are desirable and are excluded from NSR. Another supportive industry commenter ( 1078) indicated that the standalone exclusion for energy efficiency projects might not be necessary, given that the AMA provides a safe harbor for all types of activities, not just maintenance, repair, and replacement actions.

One supportive industry commenter ( 1137) indicated that EPA's adoption of the ERP and AMA should be helpful in accommodating energy efficiency projects, and that the actual toprojected actual test contained in the December 2002 NSR final rules also should remove impediments to energy efficiency projects. Nevertheless, the commenter stated that these new provisions would not eliminate hurdles to many efficiency projects, and urged EPA to work with industry to determine whether an appropriately crafted efficiency exclusion could be developed.. Because the commenter believes that clarification of the RMRR requirements is urgently needed, the commenter recommended that EPA move forward to finalize the RMRR proposals without waiting for a stand alone energy efficiency exclusion to be developed.

5.2.2 Opposition to a Stand Alone Exclusion Some State/ local ( 1270, 1361, 1443, 1643), Federal ( 1002), and citizen ( 784) commenters opposed a stand alone exclusion from NSR for energy efficiency projects. The commenters added the following reasons for their opposition.

State/ local commenter 1270 asserted that experience shows that the positive impact of an energy improvement project will not always outweigh the environmental impact; the commenter would like to retain the ability to review energy improvement projects.

State/ local commenter 1443 and citizen commenter 784 pointed out that efficiency upgrades will frequently create incentives to further utilize a source and subsequently increase mass emissions. Citizen commenter 784 stated that if activities that result in small efficiency gains can qualify as RMRR, older, dirtier 5  Energy Efficiency Projects Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 5 4 electric generating units will be better able to out compete newer, much cleaner plants ( that have higher costs due to emission controls).

State/ local commenter 1443 also stated that the exclusion of efficiency increases is not sufficiently related to the concept of " routine" and is thus arbitrary. The commenter expressed the belief that the proposed RMRR rules are not protective of air quality, and that any additional exemptions will only make this problem worse. The commenter stated that if best available controls are not required at the time of equipment installation, the State will be forced to later implement more stringent requirements on existing sources that will be more costly than the same reduction would be if obtained through NSR.

State/ local commenter 1643 indicated that exempting energy efficiency projects would lead to uncontrolled emissions increases.

Federal commenter 1002 suggested that such an exclusion could create uncertainty and an opportunity for interpretation by regulators and industry users fo the NSR program.

State/ local commenter 1361 stated that the elimination of an applicability determination for any industry that " improves energy efficiency," without any further definition of the term, qualifications on appropriate activities, or an appropriate examination of emissions and air quality impacts is not justified. This commenter contended that like other activities, these projects must be subject to appropriate oversight and environmental reviews.

Response:

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 and also reduce greenhouse gas emissions. We believe that the final ERP supports energy efficiency projects and that the actual to 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.

5.3 Effect of NSR on Energy Efficiency and Other Beneficial Projects Some industry commenters ( 533, 1001, 1052, 1095, 1124, 1129, 1131, 1132, 1133, 1138, 1201, 1236, 1237) provided comments on the impact of the NSR program on decisions to proceed with activities that produce net benefits to human health and the environment, including, 5  Energy Efficiency Projects Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 5 5 but not limited to, energy efficiency activities. These commenters generally indicated that in recent years EPA has broadened the applicability of NSR beyond the original, intended scope, which was substantial modifications. The commenters generally contended that the expense and delay associated with NSR scrutiny, whether or not the project is ultimately judged to be subject to NSR, has caused many facilities to forego needed and beneficial maintenance, repair, and replacement projects, even those that would reduce emissions. Some of the commenters provided examples of such projects that have been discouraged or foregone due to such concerns. Some of the commenters indicated that projects that improve efficiency, availability, reliability, and safety are both economically and environmentally beneficial, and properly should be considered RMRR.

One of these industry commenters ( 1201) stated that it is in the unique position of having not only its operating facilities but also its products impacted by the NSR program. This commenter markets several products that are aimed at making industrial and utility power generation more efficient ( examples provided, including DensePack replacement turbine blades), and stated that in the current climate, companies have no idea which projects will be considered RMRR and which must undergo NSR.

Some State/ local commenters ( 1241, 1361) offered a different perspective on the effect of NSR on energy efficiency projects:

One State/ local commenter ( 1241) argued that EPA is incorrect in stating that energy efficiency projects are being discouraged by NSR, particularly under the new actual to projected actual applicability test. This commenter added that any projects that are discouraged by NSR are ones that increase emissions.

One State/ local commenter ( 1361) asserted that the December 2002 final NSR rules provide a broad range of NSR exemptions ( including revised baseline determinations, Clean Unit designations, pollution control projects, PALS, and combinations of these provisions, as well as an RMRR exemption) under which energy efficiency projects will certainly occur. This commenter also stated that the proposed RMRR rules will allow facilities to use accounting principles to undertake activities that are not specifically excluded. The commenter contended that the analyses undertaken by EPA to determine the impacts of each of these rules indicates that little environmental benefit will result from their implementation, and potentially increased emissions, environmental harm, public health impacts, and exacerbated air quality improvement efforts will result. For these reasons, the commenter opposes this combination of regulations.

Response:

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 and also 5  Energy Efficiency Projects Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 5 6 reduce greenhouse gas emissions. We believe that the final ERP supports energy efficiency projects and that the actual to projected actual applicability test contained in the December 2002 NSR final rules also should remove impediments to energy efficiency projects. Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 1 Chapter 6  Analyses of Proposed Regulatory Action Italics represent EPA responses in preamble or from CAMD. Bold italics represent EC/ R's thoughts on remaining gaps and possible approaches to addressing them.

6.1 Overview We requested comments on the IPM analysis of the emission consequences of the proposed RMRR options. Public comments on the IPM analysis are in section 6.2. Other comments addressed the requirements of Executive Order 12866, which are included in section 6.3.

6.2 IPM and Other Analyses 6.2.1 Validity of IPM Assumptions Comment:

Five environmental ( 1127, 1150, 1195, 1472, 1649), five State/ local commenters ( 1241, 1243, 1264, 1361, 1643), and one citizen commenter ( 1823) 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.

One environmental commenter ( 1150) noted that the IPM is a valid tool for the purpose of comparing the outcome of the proposed rule with a base case that reflects the enforcment of the CAA without the rule. However, several environmental commenters ( 1127, 1150, 1195, 1472, 1649) and one State/ local commenter ( 1241) 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 ( 1150, 1195, 1241), EPA also erroneously assumes that this lack of major maintenance and refurbishment will have very little impact on the performance of those power plants, when in reality their emissions would increase significantly. Commenter 1241 added that an assumption that " grandfathered" plants will continue to operate in perpetuity without controls is contrary to Congressional intent. Commenters said the baseline assumption should be that at some future date older plants will either have to be renovated or shutdown.

The commenters ( 1127, 1150, 1472, 1649) cite the Clean Air Task Force analysis for power plants, which estimates that EPA's proposed rule changes will result in at least 7 million more tons of SO 2 and 2.4 million more tons of NOx annually. The commenters said, using EPA's own methods to translate the incremental increases in pollution expected by 2020, the Clean Air Task Force estimates that finalization of the proposed rules will result in the following.

° 20,000 additional premature deaths per year 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 2 ° 400,000 additional asthma attacks per year ° 12,000 additional cases of chronic bronchitis per year ° More than $ 100 billion per year in the economic costs associated with these negative health effects.

Because of these and other impacts, the commenters said EPA should withdraw the proposal.

One environmental commenter ( 1195) said the IPM runs were designed to demonstrate that an expanded set of maintenance and/ or refurbishment activities at coal fired power plants from NSR would not lead to increased emissions. The commenter said EPA misrepresented the base case by assuming that power plant owners would continue to run their plants without initiating any serious maintenance. As a result, the heat rate and capacity of each plant would worsen slightly, but the overall availability of the plants would not be affected. In contrast, under the no NSR cases, the heat rates improve and the capacity increases. The commenter said a realistic base case is one that shows that as plants age they would be either retired and replaced with cleaner plants, or they would be refurbished and would reduce their emissions significantly as BACT is applied. Compared to a realistic base case, all of the EPA's no NSR cases would show significant increases in emissions. The Clean Air Task Force has estimated that a realistic base case reflecting current regulations would show SO 2 dropping by over 75 percent and NOx dropping by 65 percent by 2020.

One State/ local commenter ( 1241) said another erroneous assumption is that if EPA's proposals are not adopted, efficiency improvement projects that reduce emissions will be deterred by a program that regulates only activities that increase emissions. The commenter said this assumption defies common sense and is inconsistent with the historical record. EPA's reference to the Report to the President is insubstantial as that report only refers to unspecified " anecdotal evidence" of foregone efficiency projects. In contrast, in preparing its Report to Congress, the National Academy of Public Administration ( NAPA) found " no data to evaluate the situations in which NSR has obstructed these projects." The commenter added that this assumption is further degraded by EPA's failure to distinguish between power plants and other sources and its failure to consider the impact of the recently finalized rules, which change the method for calculating emissions increases at sources other than power plants. The commenter argued that not all efficiency improvement projects reduce emissions and that any adverse emissions impact is relatively minor compared to the significant emission benefits from installing BACT level controls on currently uncontrolled plants.

One State/ local commenter ( 1643) believed the assumptions in the IPM model were incorrect. The commenter disagreed that increased capacity would be from incrementally better controlled existing units. Instead, the commenter believed the comparison should be between existing units with BACT/ LAER controls and existing units without BACT/ LAER controls. 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 3 One State/ local commenter ( 1361) said that instead of improving the environment, improvements in reliability of a facility would allow it to run at a higher capacity, for more sustained periods of time, leading to increased capacity, and a commensurate increase in emissions.

One citizen commenter ( 1823) stated that the proposed rule is based on unproven computer models using questionable assumptions.

One State/ local commenter ( 1264) said the " use of model data, rather than the use of accurate inventory data, leads to imprecise estimates that minimize the impacts of this rule, especially regarding issues such as transported pollution." This commenter concluded that " EPA owes the public a realistic analysis of the effects of the proposed rules, and a clear demonstration that this proposal will not only benefit, but protect the public as well. EPA must guarantee that this proposal will result in real pollution reductions, using real data."

One State/ local commenter ( 1243) also had extensive comments on the validity of the IPM analyses, especially as they relate to the power sector. See section 6.2.2, below, for more information.

Response:

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 coal fired utilities would either apply BACT or deteriorate so badly that they would have to shut down. We do not believe this assumption is accurate. Because of the high retrofit costs of BACT, many facilities would never install BACT, but would remain operational by conducting maintenance to the extent possible allowed under the current RMRR exclusion, and, where changes were nonroutine, by taking production limits and incremental control measures to escape major NSR, etc. There would be some decline in efficiency, as the EPA's base case modeled, but the units would likely remain viable, generating assets 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 the commenters.

Furthermore, in the future, 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 SO 2. To the degree these modifications come at facilities that are otherwise projected to be controlled because of existing SO 2 and NOx requirements, there would be no difference in effect between the model runs and alternative scenarios. Our analysis confirms that efficiency improvements result in environmental benefits that offset ( or more than offset) emissions increases from improved availability, but that previous major NSR rules discouraged 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 4 these improvements. Therefore, we affirm the overall conclusion of our analysis   that this 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.

Related to the one commenters concern that it is erroneous to assume that if EPA's proposals are not adopted, efficiency improvement projects that reduce emissions will be deterred by a program that regulates only activities that increase emissions, as noted in its Report to the President on new Source Review in 2002 EPA found that NSR discourages some types of energy efficiency improvements when the benefit to the company of peforming such improvements is outweighed by the costs to retrofit pollution controls or to take measures necessary to avoid a significant net increase. EPA also noted that some maintenance activities can have energy efficiency effects and resultant emission increases and that these activities may be discouraged if there is a need to go through NSR review. As to the reference in the NAPA report, the report also stated that " there is no reason to doubt that the industry has accurately reported some maintenance and efficiency projects rendered uneconomic in substantial part due to NSR." The report aslo stated " to the extent that well controlled sources perceive obstacles to improving their efficiency and maintaining their equipment, NSR may indeed be producing illogical outcomes."

Several commenters addressed the capacity based assumptions we used in the IPM. For example, one commenter said that instead of improving the environment, improvements in reliability of a facility would allow it to run at a higher capacity, for more sustained periods of time, leading to increased capacity, and a commensurate increase in emissions. We agree that improvements at a facility would increase its capacity factor and this is what we modeled. We do not agree that this increase in capacity factor would lead to an increase in emissions under most scenarios. In particular, SO 2 emissions for utilities are capped under title IV, so any increase in emissions at one facility would have to be offset by a decrease at another facility. For NOx, which is not capped, the analysis shows that emissions may decrease or increase slightly, depending in large part on how much the capacity factor is assumed to increase. However, the small change in NOx emissions ( up or down) is insignificant when compared to total utility sector NOx emissions of about 4 million tons per year.

We also disagree with commenters who thought our use of the IPM as an analytical tool was invalid. We have used the IPM for many rulemakings dating back to 1996. These include the title IV NOx rulemaking and the NOx SIP call. During these rulemakings, all aspects of the model were subject to public review and, in many cases, we updated the model in response to public comments. Furthermore, during the NOx SIP call litigation, our use of IPM was challenged and subsequently upheld by the D. C. Circuit.

Commenters also challenged our use of a model instead of " real" plant data to evaluate the impacts of the proposed changes to the RMRR program. Because power plants are all connected to a grid selling electricity to consumers, actions at one plant can affect actions at 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 5 another. For instance, an increase of generation at one plant would be offset by a decrease of emissions at another plant. Analysis of individual plants would not capture this complex interaction, but use of the IPM does capture it. Furthermore, IPM models the power sector using a number of model plants. These model plants are based on inventory data collected from real plants and are carefully designed to represent those real plants, with the result that IPM accurately models the effect that this rule will have on emissions from the power sector.

6.2.2 Power Sector Conclusions Comment:

One industry commenter ( 1218) supported the conclusions EPA drew from the IPM and National Energy Modeling System ( NEMS) analyses. In contrast, three State/ local commenters ( 1241, 1243, 946) said the IPM analysis was deficient with respect to estimated impacts of the proposed RMRR changes on the electric utility sector.

One industry commenter ( 1218) 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 on going annual operating and maintenance activities and a major refurbishment when the unit reached 30 years of operating life are exactly the type of activities allowed under EPA's RMRR proposal.

One State/ local commenter ( 1243) listed several reasons why the IPM analysis is deficient with respect to what impact the proposed changes in the RMRR criteria relative to the current criteria would have on air emissions and costs from the electric utility sectors. This is because of the following.

° The study only analyzes the impact of various scenarios on the national emissions of SO 2 and NOx , rather than on emissions emanating from single stationary sources, or individual power plants, as the PSD rules require. The problem created by analyzing the wrong type of air quality impact is compounded in this study, since the computer models include the national cap on SO 2 emissions, which eliminates any possibility of increased SO 2 emissions at the national level. State/ local commenter ( 1241) agreed.

° The base cases that the study creates do not correspond to a reasonable representation of the historical record since the PSD regulations were adopted, nor do they attempt to explicitly represent what impact the current NSR/ PSD regulations are likely to have on air emissions at either a local ( stationary source) 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 6 or national level. Thus, the base cases fail to represent a realistic baseline from which changes in air emissions due to changes in RMRR criteria can be measured.

° The alternative regulatory scenarios do not correspond in any clear and explicit way to any proposed set of alternative RMRR criteria. Thus, it becomes meaningless to compare the computer model results for any of the alternative scenarios to the NSR base cases for the purpose of determining what the impact on air emissions might be of alternative RMRR criteria.

° The analysis does not include any engineering results relating the impact of costeffective repairs and replacements at any given type of coal fired generating unit on that unit's operating parameters, i. e., availability, heat rate, or capacity of such units. Without knowing these impacts on unit performance, one cannot know which types of repairs would or would not likely occur either under the current NSR regulations or under alternative criteria. Only the frequency of occurrence of cost effective repairs and replacements that might increase air emissions from a stationary source might be affected by changing the RMRR criteria. However, the study does not state which proposed changes in RMRR might lead to this situation.

° The complex computer modeling results for the numerous scenarios simply confirm the intuitively obvious theoretical hypotheses that overall increases in coal generating unit capacity and availability on a national average basis tend to increase air emissions from the electric sector, and that decreases in average coal plant heat rates on a national average tend to decrease air emissions from the electric sector. Thus, the complex modeling does not provide any quantitative information that is directly relevant to knowing which types of potential repairs and replacements at which generating units would likely cause a violation of the current NSR regulations and alternative RMRR criteria and which would not.

° The historical data ( last 20 years) indicate that while average coal plant heat rates have remained quite constant ( or slowly decreased) in spite of numerous repairs and replacements, the average plant availabilities have continued to increase fairly steadily at a significantly greater rate. These historical trends under the current NSR rules are completely contrary to the trends EPA included in the NSR base case analyzed by the IPM model.

One State/ local commenter ( 946) said the use of model plants and other generalized assumptions creates imprecision regarding IPM predicted impacts of a given rule change on individual facilities. In fact, it is quite possible that the use of national average characteristics would tend to minimize the projected impacts of the proposed rule. 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 7 Response:

We agree with the commenter that the recent analysis and the estimated impact on emissions is consistent with the previous EPA report in 1989. Our analysis confirms that efficiency improvements result in environmental benefits that offset ( or more than offset) emissions increases from improved availability, but that previous major NSR rules discouraged these improvements.

We used the IPM model to develop a bounding analysis of the effects of the final rule. We analyzed several scenarios which represent the range of possible outcomes within the electric utility sector based on our assessment of how companies manage their plants given the regulatory consequences of the NSR program. Our goal was to provide a bounding analysis; it was not possible using IPM to generate a list of specific projects at specific facilities that would result from our final rule and to then compute the emissions and other consequences of such projects. Rather, we made an overall assessment of the range of effects that such projects could have if carried out across the utility sector according to reasonable expectations ( example projects are discussed in Appendix A of the RIA). We then made estimates of what range of effects could be expected on parameters such as heat rate, availability, and emissions of various pollutants. These effects were estimated using the engineering judgement of EPA experts familiar with the electric utility industry. Because we modeled across a range of different parameters, we expect that the actual effect of the rule on the electric generating sector will be somewhere within the range we analyzed. We continue to believe that this analysis is appropriate for the purposes of the RIA.

6.2.3 Applicability of IPM to Other Industries Comment:

Two State/ local commenters ( 946, 1264) believed that the IPM model " cannot accurately model the impacts of other large sources such as refineries, steel mills, and chemical manufacturers." One State/ local commenter ( 1443) questioned the applicability of an analysis of the utility sector to other industries, particularly relatively small sources that are subject to NSR compliance for sources emitting as little as 10 tons per year of VOCs or NOx. According to the commenter, EPA has no basis to conclude that the proposed revisions would be beneficial or detrimental in the most polluted area of the country ( SCAQMD).

Response:

We believe that the conclusions of this analysis are generally applicable to all industrial sectors. We do not have tools like IPM for modeling the response of non utility sectors, so our ability to present a quantitative bounding analysis specific to any other sector is limited. We also note that there are some important differences between the utility sector and other sectors. 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 8 Unlike utilities, other sectors: ( 1) are not subject to a nationwide SO 2 cap; ( 2) are not interconnected and thus do not experience potentially large changes in utilization resulting from changes in dispatch order; ( 3) were, until March 2003, subject to the actual to potential test for NSR applicability; and ( 4) generally have lower emissions, such that emissions are not nearly as sensitive to small changes in utilization.

Despite these differences, we believe that the overall conclusions of the IPM analysis are valid for other sectors. The largest stationary sources of SO 2 and NOx emissions other than electric utilities are industrial boilers. These units are very similar to boilers in the electric utility industry. They usually only provide steam or energy for the industrial facility where they are located, although in some cases they may serve multiple facilities. We believe the IPM runs showing the impacts on NOx emissions, which were not subjected to a cap in our analysis, resulting from different scenarios with a range of effects on capacity or efficiency are equally valid related to SO 2 and NOx emissions from industrial boilers. In some cases there may be small increases and in other cases there would be an overall reduction in emissions.

For all other industrial sources, we believe that, in general, facilities in these sectors have regular maintenance, repair and equipment replacement cycles. Work is performed during these cycles to ensure that a facility maintains its productive capacity and facilitates its safe and reliable operation. Equipment replacement activities generally just maintain the operational capability of the facility. In some cases, it may increase the production efficiency of the facility which will usually reduce the amount of emissions per product. These changes generally do not affect the overall emissions of the facility, because the emissions are driven by total production at the facility, which in turn is driven by the demand for the product   not by the fact that there has been an equipment replacement. We do not believe the final rule will lead to any increases in emissions for these sectors nationally. We believe that the modeled effects of utilities dominate the effects for non utilities, and the overall conclusion of the utility analysis   that the structure of the ERP has no practical impact on emissions reductions under the NSR program   is valid, despite our inability to model these other sectors individually.

6.2.4 NEMS Comment:

Environmental commenter 1195 said while the NEMS model may have translated the assumed improvements correctly into emissions reductions, there is no basis set forth for the level of improvements that are assumed. For example, heat rate improvements of 5, 10, and 15 percent are suggested, but no basis for this level of improvement is provided. The commenter said cost is always an important factor in projects to improve heat rate, and cited work done for a major Northeastern utility in the early to mid 1990s that found very little additional heat rate improvement was cost effective. 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 9 One State/ local commenter ( 1243) said the use of the NEMS model does not add any significant findings to the impact analysis. The commenter noted that the model scenarios related to the 5, 10, and 15 percent improvements in heat rates are very large relative to what can likely be achieved from strictly an engineering perspective, not to speak of a cost effective basis. The commenter added that no causal linkage was made between specific sets of plant operating parameters and specific proposed changes in the RMRR criteria. Similarly, the NEMS analysis omitted any increased maintenance costs that would be necessary in order to achieve the improvements in plant performance. Finally, the analysis only reports NEMS results for national emissions of air pollutant, not stationary source specific levels of air emissions. The commenter concluded that the analysis is not particularly useful for understanding the likely impact the proposed RMRR criteria will have on air emissions, until the impact of these new criteria on likely coal plant operating parameters is quantified relative to existing criteria.

Response:

The analysis was designed to analyze a range of scenarios related to heat rate improvements. Between the IPM runs and the NEMS runs, efficiency gains of 0, 1.6, 3.2, 5, 10 and 15 percent were examined. We believe that this broad range of estimates represents a number of possible realities. However, we agree that heat rate improvements on the lower end or the range are more likely, which is why we examined a range of heat rate improvements of less than 5 percent.

Also need to address comments regarding overall sufficiency of analysis. Specifically, the lack of a causal linkage between specific sets of plant operating parameters and specific proposed changes in the RMRR criteria, impact of increased maintenance costs that would be necessary in order to achieve the improvements in plant performance, and stationary sourcespecific levels of air emissions. Explain that the DOE analysis was included as a supplement intended to evaluate a variety of changes in energy efficiency and availability, as well as the effect on emissions resulting from the RMRR changes? Explain why no increases in maintenance costs were assumed? More?

6.2.5 June 2002 Report to the President Comment:

One State/ local commenter ( 1243) said the June 2002 Report to the President does not contribute significantly to the RMRR analysis. The commenter said EPA's concern that a possible repair or replacement that would lead to substantial efficiency improvement would not be done because it would trigger a need for expensive pollution controls is overblown. In fact, the commenter said, the current NSR criteria for when pollution controls are needed are simply designed to keep emissions at or below historical levels. Thus a repair or replacement that makes a plant more efficient, absent a commensurate increase in utilization of the source, may reduce 6  Analyses of Proposed Regulatory Action Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 6 10 emissions. Even in the face of an increase of capacity or availability, the plant owner could agree to a permit restriction on the number of hours of operation to avoid an emissions increase. So long as the repair or replacement were cost effective given the agreed upon limit to the capacity factor, then there would be no disincentive caused by the current NSR regulations in making such a repair.

Response:

As noted in its Report to the President on new Source Review in 2002 EPA found that NSR discourages some types of energy efficiency improvements when the benefit to the company of peforming such improvements is outweighed by the costs to retrofit pollution controls or to take measures necessary to avoid a significant net increase. EPA also noted that some maintenance activities can have energy efficiency effects and resultant emission increases and that these activities may be discouraged if there is a need to go through NSR review. While limits on operations may be taken, these limits would have a tendency to accumulate over time as more and more such maintenance projects were undetaken causing over time severe limitations on the operational capability of the source.

6.2.6 Other Analyses Needed Comment:

One Federal ( 1001), two environmental ( 540, 1150), and three State/ local ( 946, 1361, 1443) commenters said additional analyses are needed to support EPA's conclusion that the proposed RMRR criteria are beneficial.