One industry commenter ( 1794) recommended that the final rule clarify that the owner can establish the basic design for maximum heat input of an electric generating unit by referencing available credible information, including results of historic maximum capability tests, operating design information, or engineering calculations which may establish the heat input value the unit has demonstrated it is capable of achieving. Results from tests performed by electric utilities in the context of providing assurances to generation dispatch systems and regional or national power pools may be used to establish the unit's maximum heat input. A review of such data or other available operational data or design information can reveal the heat input which the unit is capable of achieving in its " pre change" configuration and this can be compared to a " post change" heat input value. This should be a case by case analysis and demonstration, not a simplistic formulaic test.

According to one industry commenter ( 797), replacement of power turbines and combustion units is called for every 30,000 to 50,000 hours of operation. Unless components are upgraded during these replacements, the heat input remains the same and so does the emissions rate. The commenter believes that such replacement should be considered routine maintenance.

<IP_ADDRESS> Miscellaneous general comments on basic design parameters Several industry commenters ( 951, 1066, 1096, 1099, 1112) agreed with the EPA's use of maximum heat input and fuel specifications for basic design parameters. One industry commenter ( 1112) recommended that EPA provide sufficient flexibility for plant owners to determine how basic design parameters are determined.

One industry commenter ( 1100) supported the concept of using basic design parameters within the equipment replacement approach, but recommended further clarification be provided for efficiency improvements. The industry commenter recommended that an equipment replacement that improves a process unit's efficiency by enabling the unit to return to its original design 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 56 parameters be considered RMRR even if current actual emissions increase as a result. For example, if boiler tubes or refractory are replaced on a boiler, these activities should be RMRR since they return the unit to its original design parameters and improve the unit's efficiency.

Several industry commenters ( 920, 921, 1000, 1123) supported maximum design heat input as the basic design parameter for boilers. These industry commenters ( 920, 921, 1000, 1123) noted that this parameter could also be expressed in terms of maximum design steam production rate, which is how Florida has permitted their bagasse boilers.

One industry commenter ( 1136) supported EPA's use of the term " process unit" to determine if there is a change in a design parameter.

One industry commenter ( 941) said EPA cannot practicably disallow changes in fuel or raw material input specifications for all complex industrial sources. Even where manufacturer's design specifications exist for a unit, they serve to define the unit's guaranteed maximum capacity rather than its actual maximum capacity. Many units routinely and properly operate above their design specifications.

<IP_ADDRESS> Look back period for determining basic design parameters Several industry commenters ( 941, 1050, 1099, 1112, 1123, 1368, 1629) recommended that a reasonable look back period should be used for establishing the pre change values for basic design parameters, not the condition of the process unit immediately before the change. The industry commenters suggested a 5 year look back period, consistent with that for the NSPS hourly emissions increase test.

<IP_ADDRESS> De minimis changes in emissions or basic design parameters One industry commenter ( 941) stated that because the results of RMRR are not always predictable in advance, the final rule should provide that unanticipated and unintended small increases in hourly emission do not disqualify a project from the equipment replacement exclusion.

Two industry commenter ( 858, 896) and one university commenter ( 901) requested that a de minimis change in design parameters be allowed when making equipment changes because some effects resulting from the change may not be apparent before the change is made. One industry commenter ( 896) added that such a change be allowed as long as emissions do not increase above maximum design levels. The university commenter added that such a change be allowed as long as emissions do increase above the permitted maximum hourly emission rates.

<IP_ADDRESS> Develop basic design parameters for specific industries 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 57 Two industry commenters ( 1138, 1446) supported the basic design parameter approach, but believed that the definition of basic design parameter for non utilities and non fossil fuel burning sources in the proposed rule is too rigid and is inconsistent with the natural gas transport industry conventions. One industry commenter ( 1138) urged EPA to modify the definition to allow for industry specific flexibility or specify additional source category specific parameters. For the natural gas transmission compressor stations, the commenter suggested using brake horsepower ( bhp) as the conventional design capacity parameter. All regulated natural gas transmission compressor stations maintain consistent, accurate, and certified records of process unit bhp capacity.

One State/ local commenter ( 1270) stated that while it would take considerable time and effort to develop basic design parameters, there is no other way to implement the proposed option since no two processes are the same.

3.6.2 Opposition to Basic Design Parameters <IP_ADDRESS> General opposition to basic design approach An industrial commenter ( 636) noted that in many cases, the boiler design fuel specification is fabricated to satisfy certain boiler design criteria with inherent operating latitude, and there is no actual fuel which can meet those specifications. Fuel changes should not be considered replacements.

One industry commenter ( 902) was strongly opposed to fully defining specific design parameters in the regulation because published design standards in the rule would quickly become outdated, thereby requiring frequent revisions in the regulation.

One industry commenter ( 1301) stated that requiring equipment replacements to not alter the basic design parameters of a process unit is a nebulous requirement that EPA should carefully consider before going final. For the petroleum refining industry, the commenter was particularly concerned that the concept of material input specifications is a nominal one that has practical value only in the design phase but not in the operations phase.

One industry commenter ( 909) believed that activities intended to improve an affected unit's performance, beyond what would otherwise be reasonably achieved by the equipment absent a specific activity, clearly qualify as actions that extend beyond the reasonable definition of RMRR and should instead be subject to the full scope of NSR. The commenter further stated that the recent revisions to the NSR regulations ( 67 FR 80186) allow for reasonable actions to improve unit performance. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 58 One industry commenter ( 942) opposed the basic design parameter constraints, stating that they would exclude projects that result in efficiency improvements.

One State/ local commenter ( 1012) said that RMRR should not be allowed for changes in basic design parameters.

An industry commenter ( 1238) urged EPA to eliminate the requirement that the new equipment not alter the basic design parameters of the unit. The commenter expressed concern that regulators may use the provision to bar changes that carry out the same function but do so through an improved design from qualifying for RMRR exclusion.

<IP_ADDRESS> Opposition to input parameters; preference for design specifications or emission rate Several industry commenters ( 814, 941, 1013, 1114, 1133, 1204, 1237, 1463) and two university commenters ( 901, 1477) noted that many pieces of equipment are not rated or specified based on " material input" or " fuel input." Instead, EPA should also define " design specifications" because many pieces of equipment are purchased based on their capacity or output. Therefore, EPA should rely on the manufacturer's documented design information to identifying the basic design parameters for any piece of equipment rather than attempting to specify it in the rule. Several of the industry commenters ( 941, 1013, 1114, 1133, 1237) said that a determination should be based on maximum hourly emissions before and after the change, and one industry commenter ( 1463) recommended using annual emissions. One industry commenter ( 941) added that this design based approach is already a condition of the RMRR allowance approach and has been used in other long established CAA programs like NSPS.

One industry commenter ( 1110) believed that the proposal suggests that basic design parameters are limited to the maximum fuel or material input specifications for non utility process units. Another industry commenter ( 1132) urged EPA to remove the basic design parameter requirements in light of other safeguards in the proposed rule. Both industry commenters recommended that an increase in material input should be allowed as long as there is no increase in emissions above maximum achievable levels. Therefore, the safeguard that reads " does not alter the basic design parameters" should be replaced with " should not increase the maximum design emission rate."

In reference to the cement industry, one industry commenter ( 1283) stated that EPA should clarify the definition of basic design parameters. The current definition is ambiguous because maximum fuel and material input specifications have no relevance in this industry. The industry commenter recommended that maximum clinker generation capacity of the kiln system be used as the basic design parameter for the cement industry. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 59 For surface coating operations, one industry commenter ( 1202) stated that there are problems with use of paint input as a basic design parameter. Any replacement of paint guns could affect paint usage and would be viewed as a basic design parameter change. Because maximum input varies with the paint type and characteristics, material input does not represent a basic design parameter for surface coating operations. The industry commenter recommended using transfer efficiency and quality of paint job, not material input rates, for the basic design parameters for automobile surface coating.

One State/ local commenter ( 1443) believes that defining the term " basic design parameters" solely based upon maximum heat input and fuel consumption specifications, or maximum material/ fuel input specifications, will, under the guise of " replacement," allow a wide range of changes that should be considered NSR modifications. There are many changes at air emission sources that do not alter maximum heat input and fuel consumption specifications, or maximum material/ fuel input specifications, yet involve significant modifications that are unrelated to routine replacement. The commenter suggested that any equipment modification resulting in a change in the equipment description in the permit should be subject to NSR.

An environmental commenter ( 1150) believed the basic design parameters of maximum heat input and fuel consumption are too narrow and will be difficult to administer. The environmental commenter also believed that changes in heat input or fuel consumption due to equipment replacement are difficult to evaluate. For example, some utilities have claimed that nameplate capacity only represented the manufacturer's guarantee and not the maximum capacity of the unit, thereby justifying an increase to a higher heat input rate. The commenter believed that many other basic design parameters should be included, but did not list these specifically. If EPA decides to retain the ERP, the commenter urged EPA to exclude equipment replacement that changes the basic design parameters of the process unit or results in an increase of total annual emissions.

An industrial commenter ( 1134) stated that for many industries, it is difficult to associate basic design parameters with either hourly emissions or input specifications. However, if EPA includes a basic design parameter test in the final rule, the commenter urged EPA to allow flexibility to plant operators to establish what the measure of performance will be for process units, including the use of permit limits on amount of production.

A State/ local commenter ( 1199) recommended that any design parameter that could affect actual emissions should be considered a basic design parameter which may not be changed without agency approval.

<IP_ADDRESS> Oppose basic design parameter approach because functional equivalence is adequate 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 60 Several industry commenters ( 1132, 1134, 1292, 1799, 1866, 1868) indicated that the functionally equivalent safeguard is sufficient to assure that replacement components cannot be designed to materially change the process unit.

Two industry commenters ( 1201, 1202) stated that the basic design parameter test introduces substantial confusion into the rule without adding any additional benefit that is not already inherent in the term " functionally equivalent." One of the commenters ( 1202) added that for the automobile surface finishing industry, the test would exclude the precise projects that the equipment replacement approach is designed to cover.

An industry commenter ( 1079) supported the concept of including in RMRR the replacement of existing equipment that serves the same basic function. However, EPA's proposal that basic design parameters of the affected process units not be changed is vague and subject to the same type of interpretive abuses by regulatory agencies that occur now. The commenter cites as an example of the impracticality of the design parameter limitation a crude oil distillation tower that may have several capacities that are a function of the type of crude that is to be processed. Of particular concern to this commenter was EPA's suggestion that changes in fuel or raw material input specifications be prohibited, and recommended an ERP under which the exclusive design criterion is whether a component is " identical or functionally equivalent" to the replaced component.

One industry commenter ( 1237) generally opposed the use of basic design parameters as the basis for evaluating whether equipment replacements are RMRR because this test could exclude many component replacements that can properly be deemed functionally equivalent. The commenter urged EPA to only use design parameters when they have been used to establish federally enforceable permit limits, similar to existing exclusions for changes in fuels or raw materials that a unit is otherwise capable of accommodating.

<IP_ADDRESS> Oppose including efficiency as a basic design parameter Several industry commenters ( 902, 920, 921, 951, 1000, 1013, 1078, 1112, 1123, 1213, 1368) said efficiency should not be a basic design parameter to avoid penalizing facilities for process efficiency enhancements.

The industry commenter ( 1794) supported EPA's statement that an improvement in efficiency does not change a process units's basic design parameters. The industry commenter ( 1794) recommended that EPA clarify in the final rule that efficiency improvements and the use of new technology are not considered changes in design parameters. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 61 Two commenters ( 1799, 1868) believed that the basic design parameters safeguard has the potential to bar component replacements that achieve significant gains in efficiency, contrary to EPA's stated intent.

One industry commenter ( 1793) supported EPA's exclusion of efficiency as a basic design parameter. The commenter also recommended that this option specifically include work that enhances safety and reliability. The commenter stated that RMRR projects that enhance efficiency, safety, and reliability will invariably improve environmental performance. The commenter asserted that improved safety and reliability will result in more stable process operation and reduce periods of startup, shutdown, and malfunction and the increased emissions usually associated with them.

<IP_ADDRESS> Support including efficiency as a basic design parameter Several industry commenters ( 1132, 1201, 1202, 1866) stated that efficiency changes are likely to always affect basic design parameters because allowing a higher production rate per unit time will require a higher input rate. Two of the industry commenters ( 1201, 1202) suggested that an alternative safeguard would be that no permitted emission limits ( hourly, annual, or per unit of production limits) need to be revised .

One State/ local commenter ( 1268) urged EPA to include efficiency, operating rate, utilizations, fuel adaptability, and useful economic life as basic design parameters, in addition to the input parameters in the proposal.

One industry commenter ( 909) opposed excluding efficiency as a design parameter. The commenter explained that efficiency is a critical and fundamental aspect of a power generating unit's ability to maintain financial viability, particularly for those facilities participating in competitive markets, and should be considered a key design parameter for all power plants.

Response:

In the proposal, equipment replacements were only eligible for the ERP if they did not change the basic design parameters of the process unit. We proposed that maximum heat input and fuel consumption specifications for EUSGUs and maximum material/ fuel input specifications for other types of process units are basic design parameters. We solicited comments on limiting the eligibility of the ERP this way and on the basic design parameters we proposed.

We recognize that the proposed basic design parameters are inconsistent with some industry conventions, and that we should allow for industry specific flexibility or specify additional source category specific parameters. For example, for natural gas transmission compressor stations, commenters explained that brake horsepower is the conventional design capacity parameter. We received similar comments from other industries, including cement and 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 62 surface coaters, who objected to limiting their facilities to the proposed basic design parameters. Accordingly, we have decided to provide flexibility to allow for facilitiesby providing a menu of choices from which the owners or operators may select and also by allowing for owners or operators to propose alternative basic design parameters to their reviewing authority which would then be incorporated in a Federallymade legally enforceable permit such as a title V operating permit.

In addition to this flexibility, there may be a need for additional flexibility in using the basic design parameters that are spelled out in the final rule. For instance with boilers, maximum steam production rate is often used by the industry, and it may make sense in some cases to set the design parameters based on those values rather than on maximum heat input. Likewise, a crude oil distillation tower may have several capacities that are a function of the type of crude that is to be processed, and so a refiner may need to have a set of basic design parameters for theirits crude towers. These situations can be addressed by the source proposing alternative parameters or sets of parameters to their reviewing authority.

Also, there should be flexibility in how the basic design parameters are demonstrated when the owner or operator chooses not to rely on the design information for its process unit. IFor example, in order to establish the heat input value that the process unit has demonstrated it is capable of achieving, an electric generating unit should have the flexibility to reference available credible information, such as results of historic maximum capability tests, operating design information from the manufacturer, or engineering calculations. Results from tests performed by electric utilities in the context of providing assurances to generation dispatch systems and regional or national power pools may be used to establish the process unit's maximum heat input. A review of such data or other available operational data or design information can reveal the heat input that the process unit is capable of achieving in its " preactivity configuration, and this can be compared to a " post activity" heat input value. Plant operators, where the specifiedFor process units having multiple end products and raw materials, the owner or operator should consider the primary product or primary raw material when selecting a basic design parameters are inappropriate for the process, can propose what the measure of performance will be for these process units, including the use of permit limits on amount of production, to their reviewing authorityparameter.

Many pieces of equipment are purchased based on their capacity or output. Consequently, for both utilities and non utilities, we have modified the proposed basic design parameters to include output based specificationsalternatives in the final rule. Also, for utilities, we added theFor utilities, the owner or operator can select maximum hourly electric output rate and maximum steam flow rate as its basic design parameter of maximum design steam flow rating and clarifiedparameters, as an alternative to using input based measures of maximum hourly fuel consumption rate and maximum hourly heat input. ( We are clarifying from the proposal that the correct parameter is maximum hourly heat input. Sources may request that their reviewing 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 63 authorities specify fuel type, not maximum heat input.) Owners or operators may set different design parameters for different fuel types ( such as coal or oil) when setting basic design parameters ator a combustion device that can accommodate multiple fuel types, and,: for coalfired units, theyowners or operators should consider that the fuel consumption rate will vary depending on the quality of the coal for a given heat input. When establishing fuel consumption specifications in terms of weight or volume, the minimum fuel quality based on BTU content should be used for coal fired units.

Regardless of whether the source selects a basic design parameter( s) specified for nonutilities in the final rule or gets approval from their reviewing authority to use an alternative parameter( s) for any type of source, we have not specified a fixed averaging time period for the circumstance because we want the owner or operator to have the flexibility to select an averaging time that best accommodates their operation. In most cases, we believe that long term averaging periods ( e. g., a 12 month fixed period) will not be appropriate.

Thus, an equipment replacement that improves a process unit's efficiency by enablingand thereby enables the unit to return to its original design parameters can qualify as RMRR even if current actual emissions increase as a result. For example, if boiler tubes or refractory are replaced on a boiler process unit, and these activities are beneath the capital cost threshold and returnare within the unit to its originalunit's basic design parameters and improve the unit's efficiency, then they would qualify as RMRR under the ERP.

Several commenters supported maximum design heat input as even if this improves the basicunit's efficiency.

The manufacturer's design parameter for boilers. This parameter could also be expressed in terms of maximum design steam production rate, which is consistent with how the Florida Department of Environmental Quality permits bagasse boilers.

parameters of a process unit are always acceptable if an owner or operator chooses to rely on them. In the rare cases where a facility does not have established design parameters, we believe that a reasonable look back period should be used for establishing the pre activity values for basic design parameters, rather than taking the condition of the process unit immediately before the activity. We have therefore established a 5 year look back period, consistent with that for the NSPS hourly emissions increase test, for these situations.

We were urged by some commenters to incorporate a de minimis increase level in the basic design parameters that would not make it impermissible under the ERPallow activities to qualify for the ERP even though the activities would result in a minor change to the relevant basic design parameters. They argued that this would help when replacing equipment because some effects resulting from the replacement may not be apparent before the equipment has been 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 64 replaced. We do not believe this approach is necessary if accurate design parameters are established. If theThey argued that allowing for small changes in basic design parameters of the process unit are exceeded by even a minimal amount, then the activity cannot qualify as RMRR under the ERPwould add greater certainty to the ERP because unforeseen small changes would not cause an activity to lose the exclusion after the fact. While we sympathize with the commenter's concern, we do not see a ready solution to this problem under the RMRR exclusion. In fact, we are not persuaded that those types of changes can be readily justified under the ERP because it is hard to see how an activity that causes basic design parameters to change is not " a change" under NSR.

In sum, we continue to believe that an identical or functionally equivalent replacement should not qualify for the ERP if the activity causes the process unit to exceed its specified basic design parameters. Without such a requirement, significant alteration of a process unit's fundamental design could be accomplished under the guise of the ERP. Such an outcome obviously does not square with the idea that identical or functionally equivalent replacements are not " changes" under the major NSR program. Our final rule is different from the proposal, however, in that it provides greater flexibility in defining basic design parameters for process units. We were persuaded by commenters who expressed concerns that the proposed approaches did not adequately encompass all affected operations and industry sectors.

3.7 Definition of Functionally Equivalent Comment:

3.7.1 How to Define Functionally Equivalent <IP_ADDRESS> In terms of performance or function ( design parameters)

Industry commenter 1204 said EPA should consider the similarity of the equipment's performance or function such as the equipment's rating in term of the process input, output, or capacity, as documented by the manufacturer in determining functional equivalency. EPA should establish a allowable percentage difference or range that would be acceptable. Similarly, another industry commenter ( 1797) believed that equipment replacements that serve the same function as the original equipment and that do not change the unit's design parameters should be considered routine, regardless of their cost.

One industry commenter ( 1136) supported EPA's proposal to define " equipment replacement." The industry commenter suggested the following definition: " the replacement of a component of a process unit with a component that may be out of better materials or design, so long as the replacement component does not enhance the ability of the process unit to handle greater material inputs." 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 65 One industry commenter ( 1441) asserted that EPA has properly designed the proposal to include " functionally equivalent" component replacements, in addition to identical components. The commenter suggested the following revised definition functionally equivalent component:

Functionally equivalent component means a component that serves the same basic purposes as the replaced component. A functionally equivalent component need not be identical to the replaced component. A new component is functionally equivalent if it serves the same purpose or function but is different in some respect or improved in some way in comparison to the equipment that is removed.

One industry commenter ( 858) requested that the definition of functionally equivalent include a provision for a de minimis change in design parameters that may result when a component is replaced with another that is functionally equivalent.

<IP_ADDRESS> In terms of emissions Several industry commenters ( 636, 1083, 1630) recommended that the equipment replacement option be revised to allow equipment to be replaced with the same, similar, or improved equipment so long as the replacement did not increase the process unit's maximum hourly emission rate. Under this revised option, the replacement could increase efficiency, so long as the maximum hourly emission rate did not increase. Two other industry commenters ( 927, 1204) also supported the functionally equivalent replacement provisions with no increase in emissions, but did not specifically mention hourly emissions.

<IP_ADDRESS> In terms of efficiency One industry commenter ( 1136) urged EPA to clarify that efficiency improvements that result from functionally equivalent replacements are desirable and are excluded from NSR. More specifically, another industry commenter ( 1110) asserted that sometimes functionally equivalent replacements increase efficiency and yield, which then allow for additional material input. The commenter believed that this safeguard is therefore contrary to EPA's stated position that efficiency should not be considered a design parameter and NSR should not impede energy and process efficiency improvements.

One industry commenter ( 577) concurred that an engine that is " uprated" at the time of overhaul should undergo NSR. " Uprates" are product enhancements that allow increased output for the same package.

<IP_ADDRESS> In terms of various factors 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 66 An industry commenter ( 1204) said operators should be allowed to invest in more costly replacement equipment if that equipment is functionally equivalent to its replacement, enhances safety and lowers environmental impacts. The rule should specifically identify environmentally beneficial replacements as RMRR regardless of cost.

One university commenter ( 901) believed operators should be allowed to invest in functionally equivalent equipment replacement, regardless of cost, if it enhances safety.

Another industry commenter ( 1134) supported EPA's use of the phrase " serves the same purpose" to define functionally equivalent. The commenter stated that it is essential that any codification of the term assures that the replacement equipment does not need to be identical, can be made of better materials, and can increase productivity provided that the replaced equipment does not allow the process unit to do something it could not previously do.

A State/ local commenter ( 1361) recommended that the definition of functionally equivalent component be revised. According to the commenter, the proposed definition of " a component that serves the same purpose as the replaced component" would allow replacement of an entire process unit ( such as a boiler). The commenter suggested adding language such as " considering functional equivalence, efficiency, capacity of the component, design specifications, etc."

<IP_ADDRESS> In general Industry commenter ( 1453) argues that definition of " identical and functional" must be flexible; equipment manufacturers often change designs so it is not always possible to buy exact duplicate equipment. Similarly, an industry commenter ( 1238) recommended that EPA define " functionally equivalent" broadly. Tire and engineered rubber products manufacturers often operate machinery for many years before it needs to be replaced. It is often impossible to find identical or nearly identical replacements, and often it would not make sense to do so. New replacement equipment might carry out a very similar function but still be distinct from, and appear fairly different than) the original equipment.

3.7.2 Generally Supportive Comments Several industry commenters ( 636, 927, 941, 1007, 1013, 1069, 1110, 1129, 1130, 1136, 1149, 1159, 1204, 1441, 1453, 1868) supported EPA's inclusion of functionally equivalent equipment replacements. Three State/ local commenters ( 1044, 1240, 1443) supported a narrow provision for replacement of " identical" components. One Federal agency commenter ( 1101) supported the exclusion for replacement of identical equipment and replacement with functionally equivalent equipment. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 67 One industry commenter ( 1136) stated that it is often impossible to find identical replacement parts, and it would be detrimental to their customers not to take advantage of material and engineering improvements of functionally equivalent parts that perform better. Thus, the equipment replacement approach will allow electric utilities to improve the efficiency of their boilers, system reliability, and equipment safety by replacing equipment with functionally equivalent equipment made of better materials.

An industry commenter ( 1110) stated that the key phrase " identical or functionally equivalent" will provide clarity and certainty for this provision because an identical replacement is not always possible.

Another industry commenter ( 1868) noted that in its permitting experience the only safe choice has often been to use only identical replacements, particularly during plant turnarounds when the replacement could not be forecast until the plant was shutdown, and pursuing a permit determination would have taken too long. The proposal would help alleviate this problem.

Response:

We originally proposed to exemptexclude the replacement of existing equipment with identical or " functionally equivalent" parts. An identical replacement is a replacement of a part with another part that is the same model number and size as the original part and may differ from the original part in only insignificant ways. Afunctionally equivalent components. As we observed at the time of our RMRR proposal, we believe that most identical and functionally equivalent replacement, on the other hand, occurs when a partreplacements 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 under the RMRR exclusion. We believe industrial facilities are constructed with the understanding that certain equipment failures are common and ongoing maintenance programs that include replacing components in order to maintain, restore, or enhance the reliability, safety, and efficiency of a plant are routine. Conversely, delaying or foregoing maintenance could lead to failure of the production unit and may create or add to safety concerns.

When such equipment replacement occurs, the replaced component is inherent to both the design and purpose of the process unit, and there is no reason to believe that such activity will cause an emissions increase. Moreover, most of these replacements are conducted at industrial facilities to maintain proper operations and to implement good engineering practices. For example, if a pump associated with a distillation column fails and is replaced with another partan identical new pump, we believe that such a common activity is and should be considered an excluded replacement. It is not a " change" to the plant, since it merely maintains the plant as designed. Instead, it is the type of activity expected to occur to maintain the plant. Therefore, we 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 68 think replacements like this properly fall within the exclusion for " routine maintenance, repair and replacement." We also believe treating them in this fashion is consistent with the basic policies of the CAA: that existing plants are subject to major NSR permitting requirements only when they engage in an activity that constitutes an opportune time to install state of the art pollution control equipment.

We also believe that this principle extends beyond the replacement of equipment with identical equipment. When equipment is wearing out or breaks down, it often is replaced with equipment that serves the same purpose as the replaced part, but differs from the replaced part in a more noticeable way. For aor function but is different in some respects or improved in some ways in comparison with the equipment that is removed. To continue with the example used above, if, instead of replacing the worn out distillation column pump with an identical one, the owner or operator replaced it with a new and improved model, it does not seem to us that this changes the fundamental reasons for treating that replacement as likewise within the scope of " routine maintenance, repair and replacement."

This is particularly true since technology is constantly changing and evolving. When equipment of this sort needs to be replaced, it often is simply not possible to find the old style technology. Owners or operators may have no choice but to purchase and install equipment reflecting current design innovations. Even if it is possible to find old style equipment, it seems unnecessary and undesirable to generally construe NSR permitting requirements in a manner that is bound to deter owners or operators from using the best equipment that suits the given need when replacements must be installed.

The limiting principle here is that the replacement equipment must be identical or functionally equivalent replacement, the replaced part may not only be a different model number or an equivalent model from a competitive manufacturer, but it may also be a part that has been updated or improved since the time of the original part's manufacture. This may include:

° replacingand must not change the basic design parameters of the affected process unit ( e. g., for electric utility steam generating units, this might mean heat input and fuel consumption specifications). We also believe, however, that we need not and should not treat efficiency as a basic design parameter as we do not believe NSR was intended to impede industry in making energy and process efficiency improvements. We believe such improvements, on balance, will be beneficial both economically and environmentally. This treatment of efficiency should address the concern and perception that the NSR program serves as a barrier to activities undertaken to facilitate, restore, or improve efficiency, reliability, availability, or safety of a facility.

The final rule does not distinguish between the replacement of components that are expected to be replaced frequently or periodically and the replacement of components that may 3  Equipment Replacement 11As discussed in more detail below, although such activities would be functionally equivalent, they would still need to meet other criteria to qualify for the ERP. For example, a functionally equivalent replacement does not qualify for the ERP if it results in a change to a basic design parameter of the affected unit. If an activity does not qualify for RMRR under the ERP, the case by case RMRR approach would still be available to the owner or operator under those circumstances. And, of course, the activity will not be a modification and, hence, will not trigger NSR unless it results in a significant emissions increase.

Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 69 occur on a less frequent or one time basis. It likewise does not distinguish between the replacement of larger and smaller components, instead requiring greater scrutiny if the replacement in question is part of an activity that exceeds 20 percent of the replacement value of the process unit.

Our decisions on these points are derived from reflection on the function of the exclusion in the context of the CAA. As explained above, and as described more fully in our legal analysis set forth below, we do not believe that application of the major NSR program to " modified" plants is designed to require existing plants that are continuing to operate in a manner consistent with their original design to curtail their rate of production or hours of operation beyond limitations set forth in their existing permits. We likewise do not believe that the program is designed to discourage plants from replacing parts or components so as to preserve their ability to produce at that rate. Rather, we believe Title I of the Clean Air largely leaves to State and local permitting authorities whether to require adjustments in the operations of those plants in order to reduce emissions to the degree needed to attain or maintain national air quality standards, and how to weigh the trade offs such adjustments may produce in terms of potential economic impacts and loss of productivity. Instead, we believe the central function of the application of major NSR permitting requirements to " modifications" is to assure that plants install state of the art pollution controls.

We recognize that on these points, the approach taken by our final rule thereby differs in some respects from the multi factor, case by case approach we have been using in identifying RMRR, and particularly from some of our applications of that test to certain equipment replacements. We believe, however, that this adjustment in our approach is fully warranted for the reasons outlined above, and described more fully in our legal analysis below.

The following examples of functionally equivalent replacements under the final rule include: 11 ° Replacing worn out pipes in a chemical process plant with pipes that are constructed of different metallurgy. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 70 ° replacing ( e. g., to help reduce corrosion, erosion, or chemical compatibility problems).

° Replacing an analog controllers with a digital controllers, even though thata similar analog controller can still be purchased and even though the new controller would allow for more precise control.

° replacing A good example was presented to us by the forest products industry during our review of the NSR program's impacts on the energy sector. A company in that sector needed to replace outdated analog controllers at a series of six batch digesters. In this case, the original controllers were no longer manufactured. The new digital controllers, costing approximately $ 50,000, are capable of receiving inputs from the digester vessel temperature, pressure, and chemical/ steam flow. The new controllers would have more precisely filled and pressurized digesters with chips, chemicals, and steam, thus bringing a batch digester on line faster.

° Replacing an existing mill or pulverizer ( e. g., grinding clinker in a cement factory or coal for a boiler) with a new one of a different type because both new and old equipment serve the same purpose ( even if the characteristics of the ground material would be different before and after the replacement).

° replacing an old economizer in a boiler with a new one that contained different geometry, internal design and/ or metallurgy, even if the replacement improves fuel efficiency, or reduces erosion or plugging due to fly ash. The economizer's function is to do precisely that   help economize by reliably reducing fuel consumption per unit of output. Both new and old economizers serve that same function. The same logic holds for replacements of, or within, air preheaters and condensers, because these are heat exchangers designed to improve plant efficiency with a given amount of heat input. ° rReplacing existing spray paint nozzles with new ones that might atomize the spray better or have a higher transfer efficiency because the " before" and " after" nozzles serve the same function.

At the same time, there are numerous activities that occur at facilities that may fall within the bounds of the cost threshold percentage, basic design parameters, and other backstop features of the final rule, but nevertheless cannot qualify for the RMRR exclusion on the grounds that the equipment is neither identical nor functionally equivalent. An example of this would include [ OUR EXAMPLE: a plant that changes a boiler from a forced draft to an induced draft fan configuration. Despite the relatively minimal cost of such an activity and the fact that the boiler continues to operate in fundamentally the same way after the change, the induced draft fan plainly represents a change from the forced draft fan system in numerous operational ways   REVIEW TEAM WILL OFFER A REPLACEMENT EXAMPLE??]. be a chemical processing facility where the owner or operator makes a physical change that allows the 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 71 production of a new end product that physically could not have been manufactured with the previous equipment using the same raw materials as used before in the same amounts as before. This would not be a functionally equivalent replacement activity because the facility is able to produce an end product after making the change that the facility was not capable of making before the change. Consequently, this activity would not qualify as RMRR under the final ERP.

As we observed at the time of our RMRR proposal, we believe that most identical and functionally equivalent replacements are necessary for the safe, efficient and reliable operations of virtually all industrial operations; are not of regulatory concern; will improve air quality ( e. g., by decreasing startup, shutdown, and malfunctions); and thus should qualify for the ERP under the RMRR exclusion. We believe industrial facilities are constructed with the understanding that certain equipment failures are common and ongoing maintenance programs are routine. Delaying or foregoing maintenance could lead to failure of the production unit and may create or add to safety concerns. When such equipment replacement occurs, the replaced part is inherent to both the original design and purposes of the sourceprocess unit, and there is no reason to believe that such activity will cause an emissions increase. Moreover, most of these replacements are conducted at industrial facilities to maintain proper operations and to implement good engineering practices.

As we also observed at proposal, when equipment is wearing out or breaking down, it often is replaced with equipment that serves the same purpose but is different in some respects or improved in some ways in comparison to the equipment that is removed. Moreover, the technology employed in certain types of equipment is constantly changing and evolving. When equipment of this sort needs to be replaced, it often is simply not possible to find the old style technology. Owners or operators may have no choice but to purchase and install equipment reflecting current design innovations. Even if it is possible to find old style equipment, owners or operators have obvious incentives for wanting to use the best equipment that suits the given need when replacements are needed.

We agree with the commenters who felt most of these identical and functionally equivalent replacement activities generally should be exemptedexcluded as RMRR. We also agree with the commenters who believe that this provision will streamline the major NSR applicability process and will bring clarity. The provision we are finalizing will allow a source to make a simple determination as to whether a replacement piece of equipment qualifies as identical or functionally equivalent. This type of determination will be straightforward and easier for the source to implement than the current case by case analysis required to determine a replacement falls within the RMRR exclusion. We support the air pollution agencies that have already exempted thisexcluded these types of changes from NSR, although as discussed below, we have concerns about doing so without appropriate backstops, even for identical equipment replacements. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 72 We disagree with those commenters who believe that this provision will create disincentives for sources to accept a PAL or have emission units designated as Clean Units. A PAL offers a source many incentives related to major NSR: ( 1) ability to bring on entirely new emissions units with no Federal preconstruction permit, as long as emissions caps are not exceeded; ( 2) ability. A PAL or a Clean Unit designation allows a source to make modifications to existing sources without performing a major NSR applicability test; and ( 3) reduced need to keep records or otherwise track for major NSR purposes any maintenance, repair and replacement activities or modifications at the facilities. A Clean Unit designation offers the same advantages as a PAL except for the ability to bring on new emissions units. These advantages will still be the driving force for sources to elect ato use the PAL or a Clean Unit provisions, and we do not believe this final rule will significantly detract from their appeal.

We also believe that there is substantial value in providing a clearer distinction between routinefacilitating equipment replacementreplacements to a greater degree than our current approach permits and draws a cleaner and more easily administered line between equipment replacements that categorically do not require a permit and major plant refurbishing which will result in increased emissions. For pieces of equipment used at industrial facilities, most manufacturers have well established procedures for the inspection and replacement of parts of the equipment that are part of the regular maintenance necessary to provide for the equipment's safe, efficient and reliable operation. Some of these replacements are large in terms of cost and infrequent, but all are necessary to maintain the safe, efficient and reliable use of the process unit. We believe it is important to allow for these replacements withinprovided that certain limitssafeguards are in place, as discussed below.

We disagree with suggestions from commenters that the time period between activities, standing alone, provides an appropriate or clear distinction between routine and nonroutine activities. In fact, we think the major NSR applicability provisions impose constraints on capital planning and maintenance processes at industrial facilities. The effect of the existing provisions, such as the emissions baseline, is to force companies to plan maintenance actions on a relatively short horizon ( either 5 or 10 years, depending on the emissions baseline). Failure to address maintenance within this horizon creates potentially significant ramifications such as the need to accept permanent limits on your operations. This can force companies to act sooner than needed or to take steps that have no rational relationship to the circumstances, with the result that maintenance actions are dictated byactivities that should be permissible under the RMRR exclusion and those that should not. In fact, some components wear out every year, while others wear out every 20 years. Nevertheless, both types of changes should fall within the ERP of the RMRR exclusion because both allow the facility to operate as designed. By not imposing a time limitation, the ERP allows replacement activities to be driven by consideration of economic efficiency rather than artificial regulatory constraints rather than by economic efficiency. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 73 We disagree with commenters who expressed particular concerns about functionally equivalent replacements and w. We continue to believe such activities should be encouraged and should qualify as RMRR. Even though a functionally equivalent partcomponent varies in some respects from the replaced partcomponent, we feel the most important factor to consider is whether the replacement will serve the same purpose as the replaced partcomponent. We acknowledge that a functionally equivalent replacement can result in an increase in efficiency and, consequently, productivity. In fact, one of our goals is to promote such outcomes. However, we believe that the basic design parameter safeguard that we proposed is appropriate to assure that the ERP only categorizesautomatically excludes from major NSR functionally equivalent replacements that do not result in a significant change to the fundamental characteristics of the process unit.

Moreover, In that connection, we note that the two local programs in California that exemptexclude the replacement of equipment with identical equipment also allow the replacement of equipment with functionally equivalent equipment without considering such action to be a modification. However, dDue to local air quality considerations, the local programs establish minimum pollution control requirements that are imposed in some circumstances when functionally equivalent equipment replacements occur. Nothing in the final rule would prevent a State or local program from imposing controladditional requirements necessary to meet Federal, State or local air quality goals.

After reviewing the comments on our proposal, we have decided to promulgate what we proposed in December 2002 for the RMRR equipment replacement provision with relatively minor changes. We decided thatto include another safeguard, in addition to thethose we proposed safeguards, is necessaryin order to emphasizeappropriately constrain the meaning of the term " functionally equivalent." The additional safeguard is that an exemptedexcluded replacement cannot cause a revision of the source's emission limitation in its permit. More specifically, the final rule stipulates that activities that cause the process unit to exceed any emission limitation or operational limitation ( that has the effect of constraining emissions) that applies to any part of the process unit cannot qualify as RMRR under the ERP.

Thus, the final rule allow you to categorize identical and functionally equivalent equipment replacements as RMRR if the fixed capital cost of such replacement plus the cost of associatedrepair and maintenance activities that are part of the replacement activity does not exceed 20 percent of the replacement value of the process unit, and if the replacement does not alter a basic design parameter of the process unit or cause the process unit to exceed any emission limitation or operational limitation ( that has the effect of constraining emissions) that applies to any part of the process unit.

3.8 Cost Basis for Equipment Replacement 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 74 In reviewing comments, we recognized that some commenters appeared to direct their comments on the accounting methods at the annual maintenance, repair and replacement allowance, and not necessarily the ERP. Often, we came to this conclusion simply by the way the commenter organized their comments, and not by any specific statements in the comment letter. However, since we asked for comment on the accounting approaches as they would be applied to both the annual maintenance, repair and replacement allowance and the ERP, we believe that comments that appeared to be dedicated to the annual maintenance, repair and replacement allowance should also apply to our evaluation of the accounting for the ERP, except in the case where the commenter specifically walled off their comments on the proposed accounting methods from application to the ERP.

Comment:

3.8.1 General Support for Proposal Several industry commenters ( 1066, 1105, 1110, 1143, 1301, 1346, 1441) supported determining applicability of the ERP on the basis of replacement cost.

One commenter ( 1346) believed data for invested costs become less available over time.

One commenter ( 1066) favored replacement cost over invested cost for several reasons. Replacement cost is more easily obtained than invested cost. Most manufacturers will have information concerning the replacement cost of a process unit, because such costs are commonly used when evaluating various business scenarios relating to manufacturing costs. Also, use of replacement cost is consistent with NSPS.

One commenter ( 1301) supported use of replacement cost for a facility for both the AMA and ERP approaches. The commenter believed that while the invested cost for a facility is typically available, it is obsolete after only a couple of years. The commenter also believed adjusting the invested cost for inflation using typically available inflation factors is inappropriate for use in the context of heavy industrial construction. Furthermore, the commenter believed that while there are specialized industry specific cost adjustment factors for various industries ( such as the Nelson Farr factors for the petroleum process industries), these are by necessity generic and do not take into account crucial factors such as facility location and seasonal cost variance.

While favoring replacement cost, one industry commenter ( 1105) said determining the replacement cost of a plant or component can be a daunting task, so the commenter recommended that EPA allow the use of installed cost as an option, indexed by a standard reference method such as the Handy Whitman index. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 75 One industry commenter ( 1346) supported the use of replacement cost instead of invested cost in calculations for the AMA and the ERP threshold test. The commenter believed data for invested costs become less available over time making it difficult to reach agreement on the costs to be used. However, the commenter suggested that replacement costs are more readily available making it easier for both the regulated community and the agencies to perform the calculations and to reach agreement.

One industry commenter ( 1143) believed that replacement cost must be calculated based on " current" cost to replace a plant. Objective measurements, such as property records and insurance policies, used to establish casualty claims are sound basis for the use of replacement cost, and make more sense than original capital invested. The commenter asked that the final rule clearly define what is covered under replacement cost.

3.8.2 General Support for Other Methods for Cost Basis Three industry commenters ( 1079, 1110, 1132) recommended that EPA allow the use of either a replacement cost estimate ( determined using cost estimation techniques currently employed by the company) or inflation adjusted original investment.

One industry commenter ( 1368) endorsed UARG's method of using a dollar per kilowatt rate for calculating costs. This model is specific to source and fuel type and could be updated periodically. The commenter also believed site specific replacement costs should be allowed, where approved by the reviewing authority.

One industry commenter ( 1797) recommended that EPA identify a dollar per kilowatt value, periodically adjusted for inflation, for the replacement cost of a process unit rather than of the entire plant. The commenter suggested that a dollar per kilowatt value could be established for different size ranges of units, e. g., small, medium and large, for units burning different fuel types, and for different geographic regions.

One industry commenter ( 1469) preferred using the replacement cost method for both the AMA and ERP approaches; however, this commenter stated that invested cost adjusted for inflation may be the only option for traditional gas fired units at a steam electric generating unit or plant. The commenter also stated that an alternative would be to use a cost for a same capacity combined cycle unit( s) and that the rule should allow the owner/ operator and the permitting authority some flexibility to use alternative cost methods.

Four industry commenters ( 1001, 1082, 1201, 1202) suggested EPA affirm that replacement costs can be calculated by several different methods. The commenters suggested that EPA provide a list of acceptable options for calculating replacement value, such as current 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 76 engineering appraisal, basis adjusted for inflation or according to an industry standard, or insurance coverage limits.

Response:

In the proposal, the accounting basis for the ERP discussed was the same as for the NSPS reconstruction provision, which is the fixed capital cost that would be required to construct an entirely new unit. We also discussed for the annual maintenance, repair and replacement allowance using the invested cost of a unit as the accounting basis. We proposed that it would be appropriate to require that costs be calculated using an approach along the lines set out in the EPA Air Pollution Control Cost Manual ( http:// www. epa. gov/ ttn/ catc/ dir1/ c_ allchs. pdf).

We are allowing sources to determine the applicability of the final rule on the basis of replacement value, with an option for sources to notify their reviewing authority in writing if they desire to use another option ( for example, invested cost or insurance value where the insurance value covers only the complete replacement of the process unit). The equipment replacement cost should be based on the current replacement value of the entire process unit at the time of conducting the activity.

Typically, replacement value is more easily obtained than invested cost. Most manufacturers will have information concerning the replacement value of a process unit, because such costs are commonly used when evaluating various business scenarios relating to manufacturing costs. Also, use of replacement value is consistent with the NSPS provisions.

3.9 Calculating Costs Comment:

3.9.1 Cost Estimation Method <IP_ADDRESS> Use of EPA Air Pollution Control Cost Manual Most commenters did not support use of the EPA Air Pollution Control Cost Manual ( APCCM) to standardize calculations for replacement and repair costs for RMRR in general.

Two industry commenters ( 951, 1066) believed use of the APCCM alone is acceptable. One industry commenter ( 1066) supports use of the APCCM because it is based on standard cost estimation methods.

Two industry commenters ( 1301, 1463) and several State/ local commenters ( 519, 946, 1033, 1199, 1264, 1268, 1412) objected to the use of the APCCM. Two industry commenters 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 77 ( 1301, 1463) asserted that EPA should not require the use of any specific document or method to calculate costs. Two State/ local commenters ( 946, 1199) stated that the APCCM should not be used to estimate costs for RMRR because the algorithms contained in EPA's APCCM do not relate to the determination of RMRR costs and it is inappropriate to apply them for this and other purposes unrelated to their intended use. Two State/ local commenters ( 1033, 1268) believed that the control cost manual is not readily applicable to standardize costs for the AMA because the APCCM covers costs for air pollution control devices and not the costs of process operations or maintenance activities. One of the State/ local commenters ( 1033) also stated that the proposed cost analysis is complex, costly, and time consuming. Most sources would have to hire outside consultants to perform the cost analysis which would subject sources to an economic burden just to keep their equipment running safely and properly. Two State/ local commenters ( 519, 1264) suggested EPA develop a costing manual specific to RMRR.

One industry commenter ( 1463) opposed mandatory use of the APCCM or other specific manuals to standardize calculations for the replacement cost basis and repairs.

One industry commenter ( 1124) opposed use of the APCCM based on a detailed analysis of the manual. The commenter concluded that the methodology used in the APCCM would not be practical because: ( 1) The amount of highly specialized information required to develop reasonable cost estimates would make the use of a manual for estimating costs of individual process units plants extremely difficult; ( 2) in almost all cases, site specific information would be required; ( 3) substantial time and expense would be involved; and ( 4) the methodology would require specialized engineering.

<IP_ADDRESS> Choosing among identified cost manuals One industry commenter ( 951) believed that the APCCM is a worthy reference for costing but also that sources should not be limited to only one manual, because a single manual is likely to have shortcomings and not be able to represent every situation.

<IP_ADDRESS> Support other costing sources/ methods One industry commenter ( 858) suggested that the rule accommodate a facility's current accounting practices. One industry commenter ( 1132) recommended that EPA allow sources to determine replacement costs using cost estimation techniques currently employed by companies. One industry commenter ( 1138) recommended a flexible approach to determining " fixed capital cost." Another industry commenter ( 951) believed site specific information should be considered in calculating RMRR costs. One industry commenter ( 1105) suggested, as an alternative, that EPA state a presumptive cost metric, such as $/ kW, to be used as a baseline, with the presumption being rebuttable. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 78 Several industry commenters ( 865, 1077, 1463) tended not to support a single method for determining the typical RMRR costs for particular industries. One commenter ( 1077) agreed that the APCCM could provide a useful methodology but cautioned that a detailed engineering cost estimate is required to calculate the replacement cost for a steam electric plant, and such a sitespecific cost estimate could be prohibitively expensive for the industry. This commenter recommended that EPA consider other methods that do not require site specific cost methods.

Two industry commenters ( 1112, 1212) believed EPA should allow for alternative methods of calculating replacement costs. One commenter ( 1112) suggested such methods could include the APCCM and methods previously accepted by FERC and the State utility commissions.

One industry commenter ( 865) recommended that EPA allow sources to use insurance valuation methods such as the Handy Whitman Index to determine replacement costs for electric utility replacement costs under both the AMA and ERP.

In opposing use of any specific manual for cost calculations, one industry commenter ( 1463) said they use a variety of sources to compute costs, including values from the Nelson Refinery Construction Index Factors, Solomon Refinery Study, and licensors of the respective process unit ( Kellogg, UOP, etc.)

One industry commenter ( 858) said a uniform basis for determining facility replacement cost should be used to account for the variability of land and labor costs across the country. Also, a scheme should be developed to uniformly account for leased vs. owned facilities ( such as by requiring everyone to assume purchase instead of lease in cost development).

3.9.2 Including Costs of Control Equipment in Equipment Cost <IP_ADDRESS> Support including costs of control equipment in equipment cost Two industry commenters ( 1126, 1441) asserted that the costs of required air pollution control equipment should be included in the replacement cost for a stationary source/ process unit ( for both the AMA and ERP). Another industry commenter ( 1136) said pollution control costs should be included in replacement cost calculations ( for the AMA option). This commenter stated that to differentiate between costs of expenditures to maintain pollution controls and other generating equipment would add tremendous additional administrative costs and would call for multiple judgments. Second, the commenter said, pollution controls are inherent in the design and proper maintenance of combustion equipment. The design and maintenance of the firewalls of a boiler, burner nozzles, the even pulverization and distribution of coal into the firebox, and the efficient operation of superheaters and economizers ( bundles of water tubing) are related to complete and effective combustion and have a direct relationship on emissions from facilities, as well as the maintenance of fluidized combustion beds, precipitator and scrubber components. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 79 Moreover, if a facility has to be reconstructed or constructed anew, it must be equipped with pollution controls. Third, the commenter said, their operators do not distinguish between capital used for maintenance and capital for pollution controls.

Three industry commenters ( 896, 1110, 1346) believed pollution control equipment should not be excluded from the definition of " process unit" because such equipment is treated in many regulations and permits as an integral part of the overall process unit. The commenters believed all pollution control equipment should be considered part of the " process unit" in order to fully account for the investment included with a process, as well as to avoid potential confusion and regulatory ambiguity with regard to the scope of " process unit," given the extreme variability in types of process units and the frequent " dual purpose" nature of recovery and control equipment in chemical manufacturing processes. One commenter ( 1110) also suggested that having to split out the pollution control equipment and establish accounting systems that accomplish this would only add additional costs without any demonstrable emission reduction or cost improvement of the NSR program.

One State/ local commenter ( 1270) recommended that pollution control equipment be considered part of the process unit when determining the basis for cost. The commenter believed that control equipment in most cases is required to be in place for the process line to operate and must be maintained in the same manner as process equipment and that there are a number of control devices that emit collateral pollutants when operating as designed.

In support of our proposal, four industry commenters ( 902, 1129, 1138, 1212) believed equipment serving a dual purpose of process equipment and control equipment should be considered process equipment and should be included in the replacement cost calculation basis. Two commenters ( 1138, 1212) stated that this is of particular importance to natural gas transport facility process units because the majority of pollution control has been and continues to be achieved through clean combustion technology. Such technology constitutes inherent pollution control, integral to the process unit combustion system design, without which the unit could not operate.

<IP_ADDRESS> Oppose including costs of control equipment in equipment cost Several industry commenters ( 840, 897, 910, 920, 921, 951, 979, 1000, 1096, 1109, 1123, 1212, 1367) opposed including pollution control equipment in the equipment costs for the ERP. One commenter ( 951) believed that add on or exhaust mounted control devices should not be included in either the AMA or the ERP cost estimate. Rules should be designed to apply uniformly, and excluding pollution control equipment helps achieve that purpose.

One industry commenter ( 1137) believed that EPA should authorize sources to determine whether pollution control equipment should be excluded from the ERP. This commenter believed 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 80 that a blanket exclusion could create problems of interpretation because the term " pollution control equipment" is ambiguous when considering certain components.

One industry commenter ( 1138) supports the proposed approach, where the cost of add on pollution control equipment is not counted against a source's ERP allowance, but expenditures on equipment that serve both a pollution control and a process function are counted.

One industry commenter ( 910) believed RMRR activities performed on pollution control and dual purpose equipment should not be considered for either the ERP or the AMA, because these activities are separately addressed in the pollution control exception.

One industry commenter ( 1100) believed maintenance, repair, and replacement of air pollution control equipment or equipment used to determine compliance with emission limits such as continuous emission monitoring systems should always be considered RMRR. The commenter also believed that even though some air pollution control equipment ( such as a pneumatic transfer system utilizing a bagfilter) has a dual purpose as process equipment, this equipment should be considered as air pollution control equipment if permit conditions require routine inspection and maintenance of the control equipment.

Two industry commenters ( 1050, 1213) believed EPA should expressly state in the rule language that MRR activities for pollution control equipment are not physical changes or changes in the method of operation under the NSR program.

One industry commenter ( 1399) believed the installation of pollution control equipment would be best addressed under the pollution control exclusion; pollution control maintenance and repair activities would not be expected to result in an emissions increase from the source, and thus they would not be modifications even if they were changes.

One industry commenter ( 942) proposed that maintenance and repair of pollution control equipment or monitoring equipment be categorically defined as RMRR. Another industry commenter ( 1159) believed a broad exclusion from NSR applicability should be provided for maintaining and installing pollution control equipment.

Response:

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 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 81 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 exemptedexcluded. 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) APCCM. While the manual contains basic concepts that could be used to estimate total capital investment at a process unit, it is geared toward cost calculations for add on control equipment. On the other hand, the underlying concepts are taken from work done by the American Association of Cost Engineers to define the components of cost calculations for all types of processes, not just emission control equipment. In certain cases, other manuals might make more sense depending on their circumstances.

Under the EPA ManualAPCCM, 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 withthat are part of 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 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 82 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.

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). 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 83 Response:

As we discussed in section 3.4 of this document, in the proposal, 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 to accommodate the intended coverage of activities under the ERP. 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 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. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 84 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 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 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 85 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.

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 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 86 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 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 case by case RMRR review and said this is precisely the wrong result, because case by case 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. 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 87

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 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 withbelieve there may be merit to the commenters who opposewe received advocating 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 of some kind. When such an outage occurs, there may be a real urgency to restore the plant to operation without forcing it to await the results of a permitting action or applicability determination. In the past, we have handled these situations with case by case consent orders; however, even that approach may lead to unnecessary delays. It may specifically be sensible to relaxing the 20 percent cost threshold limitation for such events because it is unlikely that sources would incur an outage to avoid controls. We did not propose such a stand alone exclusion and hence we believe we should not act upon it at this time.

3.12 How to Treat Non emitting Units 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 88 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.

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 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 89 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.

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" parts" is ambiguous when considering certain components. We are concerned that, if owners or operators were allowed to strip away all of the non emitting partscomponents 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" partscomponents of a process unit from " emitting" partscomponents. We believe that integrated manufacturing operations ( that is, process units) typically include both types of equipment. Separating emitting from non emitting 3  Equipment Replacement Internal and Deliberative Draft August 6, 2003 Do not quote, cite, copy, or distribute 3 90 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 ( age based 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 the 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 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. In fact, the NSPS exclusion for increases in production rate at 40 CFR 60.14( e) originally was dependent upon the " operating design capacity" of an affected facility. In proposed revisions to the NSPS program published on October 15, 1974, we state ( 39 FR 36948):

" The exemption of increases in production rate is no longer dependent upon the " operating design capacity." This term is not easily defined, and for certain industries the " design capacity" bears little relationship to the actual operating capacity of the facility."

We also agree that a capacity based approach has its limitations, as described by the commenters. We have concluded that the ERP eliminates the need to implement the capacity based approach. We have decided not to finalize a capacity based approach.

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 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 approach would, in principle, allow for a fairly simple preconstruction determination of applicability.

Comment:

4.3.1 Support Age based Option 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; 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 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)

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 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 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)

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. 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 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 maintain equipment better than others. We have decided not to promulgate an age based approach. We have several basic concerns with the age basedthis 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 basedthis approach.