EPA United States Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Innovative Strategies and Economics Group August, 2003 REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM prepared by Innovative Strategies and Economics Group Air Quality Strategies and Standards Division 1 " We broadly use the term " activities" to mean all maintenance and non maintenance projects conducted at a stationary source, some of which may trigger major NSR. Executive Summary Under the New Source Review regulations at 40 CFR parts 51 and 52, " major modification" is defined as any physical change in or change in the method of operation of a major stationary source that would result in: ( 1) a significant emissions increase of a regulated new source review ( NSR) pollutant; and ( 2) a significant net emissions increase of that pollutant from the major stationary source. Owners or operators of major stationary sources ( sources) are required to obtain a major NSR permit prior to beginning actual construction of a modification that meets this definition. The regulations exclude certain activities from the definition of " major modification." One such exclusion is for routine maintenance, repair and replacement ( RMRR) activities. The regulations do not define this term.

Prior to the final RMRR rule, the RMRR exclusion was applied on a case by case basis using a multi factor test. In interpreting this exclusion, we followed certain criteria. The preamble to the 1992 " WEPCO Rule" ( 57 FR 32314) and applicability determinations made to date described the case by case approach to assessing what activities constitute RMRR. This approach is known as the multi factor test. The EPA is now finalizing a rule that changes the major NSR program by providing a specific category of activities that EPA willcategories of activities 1 that   provided certain conditions in the rule are met   EPA will automatically consider RMRR in the future and reviewing authorities will consider for identifying RMRR activities. When an activity falls within one of the defined categorycategories, then EPA would consider it to be RMRR and a source would know that it was excluded from major NSR without regard to other considerations. When an activity does not fall within the categorycategories, then it still could qualifybecomes subject to consideration as routine maintenance, repair, and replacementRMRR under the multi factor test.

The categorycategories of activities being defined as RMRR isare those activites that involve the replacement of existing equipment with equipment ( 1) that is identical, or ( 2) that serves the same function and that does not alterwithout altering the basic design parameters of a unit, provided the cost of the replacement equipment does not exceed a certain percentage20 percent of the costreplacement value of the process unit to which the equipment belongs and provided the replacement does not alter the basic design parameters of the process unit or cause the process unit to exceed any emission limitation or operational limitation ( that has the effect of constraining emissions) that applies to any part of the process unit and that is legally enforceable. Such a definition would preserve environmental protection while removing disincentives to undertaking RMRR activities and providing more certainty both to the industry, who could better plan activities at their facilities, and to reviewing authorities, who could better focus resources on activities outside the RMRR category..

There are fundamental limitations on the ability to do a full quantitative analysis of the effects of the final rule. The equipment replacement approach is being made available as an option that sources may exercise at their discretion. Because a source's decision whether and when to exercise a voluntary option is a highly case specific decision, dependent on a number of factors including other regulatory programs, EPA is unable to model overall industry behavior in 2 The exception is the fact that SO 2 emissions are covered by a cap and trade program for the utility sector that generally does not cover other sectors. For this reason, we did not generalize SO 2 results for the utility sector to non utilities. responding to the proposed approachesfinal rule.

We have attempted to quantitatively analyze the possible emissions consequences of the equipment replacement approaches to the RMRR exclusion described above. The analysis was conducted using the Integrated Planning Model ( IPM) which is a powerful model that covers the entire power industry. We do not have such a model for other industries but, for reasons discussed below, we believe that the results for the electric utilities accurately reflectare representative of the results we would see in other industries. This is because, despite necessary considerations arising from differences between the utility and non utility sectors, none of these differences invalidate the application of the qualitative utility sector conclusions to other industrial sectors. 2 Furthermore, the quantitative results for the utility sector tend to dominate effects for other sectors, particularly when analyzing the effects on emissions.

The analysis looks at the potential impacts of a " narrow" RMRR exclusion ( e. g., less activities identified as RMRR) and " broader" RMRR exclusions ( e. g, more activities identified as RMRR) several scenarios which represent a range of outcomes in the electric utility industry in response to the final RMRR rule, together with a scenario which represents the outcome if the NSR rules had been left unchanged. The analysis is meant to bound the potential effects of the range of approaches proposedfinal rule. It is difficult to be certain that such an analysis can truly bound the potential improvements in energy efficiency and emissions reductions which may be realized by a " broader" the final rule, but we proceeded, based on our engineering judgment, to develop scenarios that we believe represent the range of possible outcomes in response to changes in the RMRR exclusion.

We also considered similar analyses for the power sector conducted by the Department of Energy ( DOE). The DOE used a complex model called the National Energy Modeling System ( NEMS). Although NEMS and IPM do not employ exactly the same analytical methods, we consider the results from both models to be comparable and useful in examining our proposedfinal rule.

The analyses generally concluded that the breadth of the RMRR exclusion would have little impact on the emissions reductions that will be achieved in the future under the major NSR program. The analyses showed that utility emissions of sulfur dioxide ( SO2) are essentially the same under all scenarios. This stands to reason because nationwide emissions of SO2 from the power sector are capped by the title IV Acid Rain Program. For nitrogen oxide ( NOx), the analyses showed small relative decreases in some cases and small relative increases in other cases. These predicted changes represent only a relatively small fraction of nationwide NOx emissions from the power sector, which hover around 4.3 million tons per year.

Regarding non utilities, the analysis generally concludes that there would likewise be little impact on the emissions reductions that will be achieved in the future under the major NSR program. While we expect that there would be small relative increases and decreases for industrial boilers as was modeled for utilities, we have determined that these changes would be small compared to electric generators, not only because of the fact that the size and emissions of boilers tend to be smaller, but also because, compared to an electric utility, any changes in the operational profile ( i. e., increase in utilization) of a non utility facility's industrial boiler( s) in response to equipment replacement projects would likely be proportionally much smaller. For the same reasons, other units at industrial facilities would have an even smaller effect when compared to the results for electric utilities. Thus, the conclusions of the bounding analysis for utilities ( except capped SO 2) hold for other industrial sectors as well.

The analyses do not consider changes in the actual cost of performing maintenance costs, they only assume changes in fuel and material costs and changes in capital costs associated with new generating units and new emission control equipment. Therefore, the analyses probably understate the cost of the increased maintenance scenarios and understate the cost of the major NSR base case. In addition, there would be reduction inThe model runs also do not include the administrative costssavings to industry and reviewing agencies, due to decreases in making applicability determinations, associated with identifying categories of activities that are RMRR. Although we do not have the ability to model these administrative savings, we are certain that the final rule will lead to significant administrative cost reductions, and will allow industry and reviewing agencies to shift these savings to more economically and environmentally beneficial activities.

Finally, the IPM analysis showed that an improved approach to RMRR can lead to increased availability of units which will decrease the need for new generating units, saving tens of millions of dollars. That, combined with the potential for improved national and international competitiveness due to RMRR flexibility improvements could potentially result in job savings and job creation, avoid reliability problems, and give rise to other macro economic improvements. Unfortunately, there is no way to develop an estimate for these improvements.. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 1 The purpose of this document is to provide information on the potential costs and benefits of the final rule establishing an equipment replacement provision to define a categorycategories of activities that would qualify as routine maintenance, repair and replacement ( RMRR) under the major NSR program. This rule was proposed in December 2002, and a draft of this document was made available for comment at that time. The EPA received several comments on this document, and has revised the document as appropriate to respond to them. A more specific description of the comments received and the EPA responses to them can be found in the technical support document for the final rule.

New Source Review is one of many programs created by the Clean Air Act to control or reducelimit emissions of criteria air pollutants emitted from a wide variety of sources which have an adverse impact on human health and the environment. Other key programs include: the title IV Acid Rain Program, Maximum Achievable Control Technology ( MACT) and other air toxics standards for control of Hazardous Air Pollutants ( HAPs), New Source Performance Standards, the 22 state NOx " SIP call", the Regional Haze program, numerous mobile source programs, and the basic state and local air control programs to attain and maintain the National Ambient Air Quality Standards ( NAAQS). Together, these other ( i. e., non NSR) programs have achieved, and will continue to achieve, tens of millions of tons per year of reductions that are independent of any effects of the major NSR program.

While the non NSR programs discussedmentioned above play the dominant role in reducing emissions of air pollution, the major NSR program assures that when the construction of new major sources of pollution or major modifications at existing sources occur that increase emissions, the emissions that result from that construction or modification are well controlled and are permitted consistent with these programs.

This document supports the Agency's requirements under the various Acts and Executive Orders governing the analysis of regulations, including ( but not limited to) the requirements discussed below in section 2 of this analysis with regards to determining the regulatory burden associated with the change to the major NSR program to provide a clear categorycategories of activities that will be considered routine maintenance, repair, and replacement under the major NSR program.

Currently, the Agency interprets and applies its major New Source Review ( major NSR) exclusion for sources performing routine maintenance, repair and replacement ( RMRR) on a case by case basis. The final rulemaking provides an allowanceexclusion for certain equipment replacement of identical or functionally equivalent equipment. When an activity falls within this categoryeither of these categories, then EPA would automatically consider it to be RMRR provided certain safeguards are met, and a source would know that it was excluded from major NSR without regard to other considerations. When an activity did not fall within this categorythese categories, then it still could qualifywould become subject to consideration as routine maintenance, repair, and replacementRMRR under the multi factor test. 1 Introduction 1.1 Purpose 1.2 Introduction 3 U. S. EPA, 2002, " New Source Review: Report To the President," http:// www. epa. gov/ air/ nsr review/ background. html 4 U. S. EPA, 2001, " NSR 90 Day Review Background Paper," Docket A 2001 19, Document Number II A 01, http:// www. epa. gov/ air/ nsr review/ background. html 5 U. S. EPA, 2001, " Information Collection Request for 40 CFR Part 51 and 52 Prevention of Significant Deterioration and Nonattainment New Source Review," OMB Control Number 2060 0003; EPA Form Number 1230.09.

6 U. S. EPA, 2002, " Information Collection Request for Changes to the 40 CFR Parts 51 and 52 PSD and NSR Applicability Requirements for Modifications to Existing Sources," EPA Form Number 2074.01.

7 U. S. EPA, 2002, " Information Collection Request for the Establishment of a Definition of Routine Maintenance, Repair and Replacement for the New Source Review Program," EPA Form Number 1713.04.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 2 The categories of activities being defined as RMRR are those activites that involve the replacement of existing equipment with equipment ( 1) that is identical, or ( 2) that serves the same function without altering the basic design parameters of a unit, provided the cost of the replacement equipment does not exceed 20 percent of the replacement value of the process unit to which the equipment belongs and provided the replacement does not alter the basic design parameters of the process unit or cause the process unit to exceed any emission limitation or operational limitation ( that has the effect of constraining emissions) that applies to any part of the process unit and that is legally enforceable. Such a definition would preserve environmental protection while removing disincentives to undertaking RMRR activities and providing more certainty both to the industry, who could better plan activities at their facilities, and to reviewing authorities, who could better focus resources on activities outside the RMRR category.

This paper presents an overview of the impacts of the final ( RMRR) rule within the framework of the major NSR preconstruction permit program. To perform this analysis, the Agency relied heavily upon existing reports on file for various aspects of the major NSR program, including the June 2002 Report to the President, 3 the major NSR Review Background Paper, 4 the current major NSR Information Collection Request ( ICR), 5 the ICRs submitted in May and June for revisions to the major NSR applicability requirements and the proposed RMRR program, 6, 7 and their associated Federal Register notices and other public announcements.

The major NSR program is a combination of air quality planning and air pollution control technology program requirements for new and modified major stationary sources of air pollution. Section 109 of the Clean Air Act Amendments of 1990 ( CAAA) requires EPA to promulgate primary National Ambient Air Quality Standards ( NAAQS) to protect public health and secondary NAAQS to protect public welfare. Once EPA has set these standards, states must develop State Implementation Plans ( SIPs) that contain emission limitations and other control measures to attain and maintain the NAAQS and to meet the other requirements of section 110( a) of the Act. The major NSR program is a part of that SIP requirement. 1.3 The Current NSR Program REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 3 The program commonly called " major NSR" derives its authority from parts C and D of Title I of the Act and is a preconstruction review and permitting program applicable to new or modified major stationary sources of air pollutants. In areas not meeting the NAAQS and in the ozone transport regions ( OTR), the program is the " nonattainment" major NSR program, implemented under the requirements of part D of title I of the Act. In attainment areas ( areas meeting NAAQS) or in areas where there is insufficient information to determine whether they meet the NAAQS (" unclassifiable" areas), the Agency implements major NSR as the Prevention of Significant Deterioration ( PSD) program under the requirements of part C of Title I of the Act. Applicability of the major NSR program must be determined in advance of construction and is pollutantspecific When a source triggers major NSR in attainment areas, it must install best available control technology ( BACT) and conduct modeling and monitoring as necessary. If the source is located in a nonattainment area, it must install technology that meets the lowest achievable emission rate ( LAER), secure emission reductions to offset any increases above baseline emission levels, and perform other analysis.

The modification provisions of the major NSR program in parts C and D are based on the definition in section 111( a)( 4) of the Act:

". . . [` modification' means] . . . any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted."

That definition involves a two step test for determining whether source activities constitute a modification subject to major NSR requirements: the source determines whether a physical or operational change will occur and then determines whether the change will result in ( 1) a significant emissions increase of a regulated pollutant from a combination of one or more emissions units following the physical or operational change; and ( 2) a significant net emissions increase of that pollutant from the major stationary source over the contemporaneous period.

Under the NSR rules codified in 40 CFR parts 51 and 52, " major modification" is defined as any physical change in or change in the method of operation of a major stationary source that would result in: ( 1) a significant emissions increase of a regulated new source review ( NSR) pollutant; and ( 2) a significant net emissions increase of that pollutant from the major stationary source. Owners or operators of major stationary sources are required to obtain a major NSR permit prior to beginning actual construction of a modification that meets this definition. The regulations exclude certain activities from the definition of " major modification," including activities that constitute RMRR.

Currently, the RMRR exclusion is interpreted and applied on a case by case basis. The current process still " imposes significant burdens on the utility practices necessary to maintain the safety, availability During 2001 the EPA examined the impact of the NSR rules on utility and refinery industries and concluded, among other things, that " concern about the scope of the routine maintenance exclusion is having an adverse impact on projects that affect availability, reliability, 1.4 RMRR  Background 8 See EPA's June 13, 2002 document, " New Source Review: Report to the President, page 11".

9 The discussion applies equally to industrial sourcesIbid, p. 26 10 Ibid, p. 31 11 Ibid. p 7.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 4 efficiency, and reliability of the electricity supply at existing sources. . .[ and] safety" at electric utilities and refiners. 8 Moreover, the EPA concluded that the problems with the RMRR exclusion are not limited to the utility and refinery sectors, observing that,

" industries other than utilities and refineries also provide additional evidence suggesting that the current NSR program has actively discouraged efficiency improvement projects . . ." 6 7 For example, the 2001 NSR 90 Day Report cites the following anecdotal evidence:

". . . past blade maintenance and replacement of only the deteriorated blades at Detroit Edison has never increased efficiency over the original design. Yet because [ blade upgrade] would result in substantially improved efficiency compared to the original design, EPA considered it a physical change under its NSR regulations, and [ therefore] subject to NSR. . ." 8is having an adverse impact on energy efficiency by discouraging projects that may improve energy efficiency, or may increase capacity and reliability without actually increasing pollutant emissions. In some cases it may even be discouraging projects that decrease emissions..." 9 Following its review, EPA recommended that changes to the NSR program that add to the clarity and certainty of the scope of the routine maintenance exclusion will improve the process by reducing the unintended consequences of discouraging worthwhile projects that are in fact outside the scope of NSR. 10 Such discouragement results in lost capacity, as well as lost opportunities to improve energy efficiency and reduce air pollution.

Another major problem inherent in the current major NSR system is regulatory delay. Since 1997, the average time needed to obtain a major NSR or PSD permit, across all industries, is about seven months. 11 The average time needed to make a maintenance related NSR determination is between thirty and sixty days. The National Petroleum Council ( NPC) reported in June 2000 that the lengthy process for obtaining permits can limit a refinery's ability to respond quickly to changing market conditions. They offered the following list of average regulatory delays, based upon surveys of its members:

° 3 6 months to prepare a permit application ° 1 3 months for the reviewing authority to deem the application complete ° 3 6 months for the development and negotiation of a draft permit ° An unstated period for public notice and the opportunity to receive public comments on the draft permit ° An unstated period of time for the reviewing authority to respond to public comments and 12 Ibid. p 44.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 5 take final action on the permit 12 Note that these examples do not address only routine maintenance. RelyingThese figures do not even include the time needed to seek a determination of routineness, which is the primary focus of this rulemaking. We estimate that the average time needed to make a maintenance related NSR determination is between thirty and sixty days, and it can potentially take longer in complicated cases. Thus, relying on the results of the NPC survey, the entire process of merely getting approval to make a routine modification would require a minimum of a year. Then, if the determination indicated the activity required major NSR permitting, the source would have to wait once more for its permit to be approved before beginning the repair. In other words, a source may have to wait for up to eighteen months to be able to make a repair because it triggers major NSR permitting. For comparison, a refinery typically performs its repairs all at once during a period referred to as " turnaround" so as to minimize the time that the refinery is offline, and most of these turnarounds last 40 days or fewer. Obviously, if such a routine change isequipment replacements are warranted in response to changing market conditions, then suchRMRR related and other NSR delays would threaten a company's ability to operate effectively in the market. One of the goals of the rulemaking on the routine maintenance, repair andequipment replacement exclusionprovision is to allow for the RMRR exclusion to be implemented without such procedural delays to the extent practicable.

The equipment replacement approach would apply to the replacement of existing equipment with either identical new equipment or with functionally equivalent equipment. The final rule defines procedures for determining whether a project is RMRR when the project involves the replacement of existing equipment with equipment that serves the same function. So long as ( 1) the replacement does not alter the basic design parameters of a unit, ( 2) the cost of the replacement equipment does not exceed the cost threshold specified in the rule, and meets other safeguards, it would be considered RMRR. Under this approach, EPA would establish a percentage ( yet to be determined) 20 percent of the replacement value of a process unit as a perproject cost threshold for applying the RMRR exclusion in a fashion similar to that employed for New Source Performance Standards ( NSPS) purposes. the process unit to which the equipment belongs, and ( 3) the replacement does not 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 and that is legally enforceable, it would automatically be considered RMRR. This approach would let sources determine more readilywith greater confidence what large scale replacement activities would or would not trigger major NSR permitting. The equipment replacement approach would apply to the replacement of existing equipment with either identical new equipment or with functionally equivalent equipment.

While the equipment replacement provision will improve implementation of the RMRR exclusion, the allowance applies primarily to lower cost, short turn around activities. For large scale projects that should qualify for an RMRR exclusion, the allowance may not provide sufficient reliefit may not cover all activities that are RMRR. The current approach requires complex analysis to decide REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 6 whether or not proposed projects constitute RMRR. Sources must choose between proceeding without a permit ( with all of the potential liabilities of noncompliance) or seeking an applicability determination, which delays major source NSR project implementation by a minimum of six months. Given such a choice, it is not surprising that the Agency has amassed anecdotal evidence showing that the uncertainty about the exemption for routine activities has resulted in expensive delays or even the cancellation of beneficial projects. Such regulatory discouragement results in lost productive capacity, as well as lost opportunities to improve energy efficiency and reduce air pollution. The final rule seeks to promote the safe, efficient, and reliable operation of affected facilities, without compromising the current level of environmental protection.

Sources are not the only entities that incur costs from such determinations. State and local reviewing authorities must devote scarce resources to make complex determinations, consult with other agencies to ensure their determinations are consistent with decisions made for similar circumstances in other jurisdictions ( and the EPA), and confer with other regulators to ensure consistency among the RA's conclusions. Thus, streamlining procedures for determining whether activities constitute RMRR would free up agency resources to pursue more environmentally beneficial activities and programs.

The results of the EPA's analysis are found in Section 5 below. 1.6 Analytical Considerations REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 7 This part of the qualitative analysis summarizes the statutory requirements affecting the development of a Federal major NSR program and describes the nature of the problem. The need for regulatory action and the consequences of the regulation in terms of improving the functioning of the market are also discussed.

In the absence of government regulation, market oriented economic systems typically fail to prevent elevated levels of pollution in the environment because the environment is a public good. More specifically, individual sources treat the assimilative capacity of the environment as a " free good" resource to dispose of unused byproduct emissions. Under these conditions, emitters of pollutants and pollutant precursors do not internalize the cost of damages created by their own emissions. These damages occur to society as a whole, rather than to specific members of society. This is because pollution emissions are non market goods  goods not bought or sold in the marketplace  and the atmosphere carries with it no property rights. The damages of pollution include increased morbidity and mortality; property damage from soiling, staining, and corrosion; and productive loss due to decreased worker efficiency, crop and livestock damage, and increased wear and tear on capital stocks. All of these damages are measurable. In addition, there are damages caused by pollution that are much harder, if not impossible, to quantify. These damages include habitat loss, diminished biodiversity, reductions in aesthetic quality, option values, and existence values.

The divergence between the private cost of production and the social cost of production occur because the source does not bear the full cost of its activities ( market costs plus damages). The outcome of the cost divergence is market failure, where as described in this case, the level of output is such that marginal social benefits are not equal to marginal social cost. The result is economic inefficiency, or a mis allocation of society's resources; the polluting activity ( e. g., the release of ozone precursors) occurs at too high a level in comparison to the optimally efficient situation, thus reducing the potential total benefits to society. Regulatory strategies attempt to correct for the divergence between social and private costs. Using regulatory strategies to internalize the negative externality may not, however, result in zero air pollution. Economic efficiency calls for abatement up to the point where additional abatement would cost more than the additional benefits would be worth to society.

In addition to government regulation, other potential mechanisms may be used to correct for the negative externality brought about by air pollution. Negotiations or litigation under tort and common law, in theory, could result in compensation to persons for the damages that they incur. However, two major obstacles block the correction by the private market for pollution based inefficiencies and inequities. The first obstacle is high transaction costs when millions of persons are affected by millions of pollution sources. Transaction costs of compensating those adversely affected arise and accumulate because the current and future injury to each individual must be 2 Needs and Consequences 2.1 Nature of the Problem REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 8 appraised, the injury must be apportioned to each precursor source, and damage suits or negotiations must be conducted. In an unregulated market, each source of precursor emissions and each affected person would have to litigate or negotiate. The transaction costs would be so high as to probably exceed the benefits of reduced air emissions. These obstacles strongly suggest that another mechanism is desirable for solving air pollution problems.

The second obstacle discouraging resolution by the private sector is due to the public  good nature of the air resource. That is, after emission reductions have been achieved, the benefits of cleaner air can be enjoyed by additional persons at no additional cost. This results in the classic " free rider" problem. Everyone would have an incentive to be the last to contribute resources for litigation or negotiation, thinking that he or she would freely benefit from the efforts of others.

While regulatory intervention can mitigate the impacts of the types of market failures discussed above, they generally do not occur without imposing their own costs. Typically, these costs include administration, enforcement, and the redistribution of resources at all levels. However, secondary impacts on social and economic sub groups of the economy can also be affected in a disproportionate manner. This is of particular relevance to the RMRR final rule because the EPA has previously determined that costs associated with the RMRR exclusion are impeding projects that would promote the safe, reliable, and efficient operation of industrial facilities. The purpose of this report is to analyze, identify, and mitigate these regulatory costs.

This section describes various legislative and executive requirements that govern the analytical requirements for Federal rulemakings, and describes how each analytical requirement is addressed in this RIA.

Executive Order 12866, " Regulatory Planning and Review" ( FR, 1993), supercedes Executive Order 12291 " Federal Regulation" of 1981. It requires EPA to provide the Office of Information and Regulatory Affairs of the Office of Management and Budget ( OIRA, OMB) with an assessment of the costs and benefits of significant regulatory actions. A " significant regulatory action" is defined as " any regulatory action that is likely to result in a rule that may:

Have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;

Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order" ( FR, 1993).

For any such regulatory action, the Agency must provide a statement of the need for the proposed 2.2 Legislative Requirements 2.2.1 Executive Order 12866 REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 9 action, must examine alternative approaches, and estimate social benefits and costs.

It has been determined that the change to the RMRR exclusion constitutes an economically significant regulatory action. The Agency recognizes the importance of the major NSR program and its effort to streamline and simplify its processes. Consequently, this RIA has been prepared to provide updated economic cost and benefits information required by E. O. 12866 for a significant regulatory action.

Executive Order 12898, " Federal Actions to Address Environmental Justice in Minority Populations and Low Income Populations," requires federal agencies to consider the impact of programs, policies, and activities on minority populations and low income populations. Disproportionate adverse impacts on these populations should be avoided. According to EPA guidance, agencies are to assess whether minority or low income populations face risk or a rate of exposure to hazards that is significant ( as defined by the National Environmental Policy Act) and that " appreciably exceeds or is likely to appreciably exceed the risk or rate to the general population or other appropriate comparison group." ( EPA, 1996b) This guidance outlines EPA's Environmental Justice Strategy and discusses environmental justice issues, concerns, and goals identified by EPA and environmental justice advocates in relation to regulatory actions.

In general, the potential for disproportionate effects on minority and low income populations in the major NSR program come from siting issues. However, by definition, the RMRR component of the major NSR program deals exclusively with existing facilities.

Executive Order 13045, " Protection of Children from Environmental Health Risks and Safety Risks," directs Federal agencies developing health and safety standards to include an evaluation of the health and safety effects of the regulations on children. Regulatory actions covered under the Executive Order include rulemakings that are economically significant under Executive Order 12866, and that concern an environmental health risk or safety risk that the Agency has reason to believe may disproportionately affect children. EPA has developed internal guidelines for implementing the E. O. 13045. ( EPA, 1998b) The Agency does not have reason to believe the environmental health risks or safety risks addressed by this action present a disproportionate risk to children.

Executive Order 13132, entitled Federalism ( 64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. " Policies that have federalism implications" is defined in the Executive Order to include regulations that have " substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government." Under Executive Order 13132, EPA may not issue a regulation that has federalism 2.2.2 Executive Order 12898 2.2.3 Executive Order 13045 2.2.4 Executive Order 13132 REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 10 implications, imposes substantial direct compliance costs, or that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

If EPA complies by consulting States and local governments, Executive Order 13132 requires EPA to provide to OMB, in a separately identified section of the preamble to the rule, a federalism summary impact statement ( FSIS). The FSIS must include a description of the extent of EPA's prior consultation with State and local officials, a summary of the nature of their concerns and the agency's position supporting the need to issue the regulation, and a statement of the extent to which the concerns of State and local officials have been met. Also, when EPA transmits a draft final rule with federalism implications to OMB for review pursuant to Executive Order 12866, EPA must include a certification from the Agency's Federalism Official stating that EPA has met the requirements of Executive Order 13132 in a meaningful and timely manner.

The change to the RMRR exclusion under the major NSR program will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. As discussed above, this rule imposes only minimal compliance burdens beyond those already included in the major NSR program. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

Under Executive Order 13084, " Consultation with Tribal Governments," EPA may not issue a regulation not required by statute that significantly or uniquely affects the communities of Indian tribal governments, or that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies by consulting these governments, Executive Order 13084 requires EPA to provide to OMB in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected and other representatives of Indian tribal governments " to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities."

This change in the major NSR program does not significantly or uniquely affect the communities of Indian tribal governments. As discussed above, this rule imposes only minimal new compliance burdens beyond those already required by the major NSR program. Moreover, the final Section 126 rule will not impose substantial direct compliance costs on such communities. Consequently, the requirements of section 3( b) of Executive Order 13084 do not apply. 2.2.5 Executive Order 13084 13 Where appropriate, agencies can propose and justify alternative definitions of " small entity." This RIA relies on the SBA definitions.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 11 The Regulatory Flexibility Act ( RFA) of 1980 ( PL 96 354) requires agencies to conduct a screening analysis to determine whether a regulation will have a significant impact on a substantial number of small entities, including small businesses, governments and organizations. If a regulation will have such an impact, agencies must prepare a Regulatory Flexibility Analysis, and comply with a number of procedural requirements to solicit and consider flexible regulatory options that minimize adverse economic impacts on small entities. The RFA's analytical and procedural requirements were strengthened by the Small Business Regulatory Enforcement Fairness Act ( SBREFA) of 1996. The RFA and SBREFA require use of definitions of " small entities", including small businesses, governments and non profits, published by the Small Business Administration ( SBA). 13 The final RMRR rule will not have a significant economic impact on a substantial number of small entities because it will decrease the regulatory burden of the existing regulations and have a positive effect on all small entities subject to the rule. This rule improves operational flexibility for owners and operators of major stationary sources and clarifies applicable requirements for determining if a change qualifies as a major modification. We have therefore concluded that today's final rule will relieve regulatory burden for all small entities. We continue to be interested in the potential impacts of the rule on small entities and welcome comments on issues related to such impacts.

The Unfunded Mandates Reform Act ( UMRA) of 1995 ( PL 104 4) was enacted to focus attention on federal mandates that require other governments and private parties to expend resources without federal funding, to ensure that Congress considers those costs before imposing mandates, and to encourage federal financial assistance for intergovernmental mandates. The Act establishes a number of procedural requirements. The Congressional Budget Office is required to inform Congressional committees about the presence of federal mandates in legislation, and must estimate the total direct costs of mandates in a bill in any of the first five years of a mandate, if the total exceeds $ 50 million for intergovernmental mandates and $ 100 million for private sector mandates.

Section 202 of UMRA directs agencies to provide a qualitative and quantitative assessment of the anticipated costs and benefits of a Federal mandate that results in annual expenditures of $ 100 million or more. The assessment should include costs and benefits to State, local, and tribal governments and the private sector, and identify any disproportionate budgetary impacts. Section 205 of the Act requires agencies to identify and consider alternatives, including the least costly, most cost effective, or least burdensome alternative that achieves the objectives of the rule. 2.2.6 Regulatory Flexibility Act and the Small Business Regulatory Fairness Act of 1996 2.2.7 Unfunded Mandates Reform Act REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 12 We believe the RMRR rule changes will actually reduce the regulatory burden associated with the major NSR program by improving the operational flexibility of owners and operators and clarifying the requirements. Because the program changes provided in the final rule are not expected to result in any increases in the expenditure by State, local, and tribal governments, or the private sector, we have not prepared a budgetary impact statement or specifically addressed the selection of the least costly, most cost effective, or least burdensome alternative. Because small governments will not be significantly or uniquely affected by this rule, we are not required to develop a plan with regard to small governments. Therefore, this rule is not subject to the requirements of section 203 of the UMRA.

The Paperwork Reduction Act of 1995 ( PRA) requires Federal agencies to be responsible and publicly accountable for reducing the burden of Federal paperwork on the public. EPA has submitted an Information Collection Request ( ICR) to the Office of Management and Budget ( OMB) for the change to the RMRR exclusion in compliance with the PRA. The ICR explains the need for additional information collection requirements and provides respondent burden estimates for additional paperwork requirements to State and local governments.

For tThe final rulemaking, EPA estimated the burden and cost of all new recordkeeping, monitoring, and reporting activities and reported them in the May 2002 ICRthe final rulemaking. These estimates of administrative burden costs are contained in the docket for this action.

Burden means the total time, effort, and financial resources expended by persons to generate, maintain, retain, and disclose or provide information to or for a federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, processing, maintaining and disclosing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

An agency may not conduct or sponsor, and nor is a person required, to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations are listed in 40 CFR part 9 and 48 CFR Chapter 15. 2.2.8 Paperwork Reduction Act REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 13 Because the final change to the RMRR exclusion under the major NSR program has been subject to an extensive stakeholder outreach program, it has been subjected to discussions of numerous alternative approaches. These discussions included participants from the regulated community, State and local air pollution control agencies, environmental organizations, and other Federal agencies. Consequently, the change to the RMRR exclusion constitutes a well reasoned compromise to the specific interests of each of those groups.

The consideration of alternative approaches must include a determination of the feasibility of the Federal government taking no action. Title I of the Act mandates the NSR process. Consequently, " No Regulation" is not a viable option for this analysis.

The purpose of the rulemaking is to increase the clarity regarding the RMRR exclusion. Consequently, the Agency plans to give this package the earliest possible effective date. Consideration of alternative effective dates would, in effect, result in additional costs and burden to sources.

While economic incentives can be considered a part of the major NSR process, the nature of the activities included within the definition of RMRR does not contain elements that are a part of the economic incentive process. 3 Consideration of Alternative Approaches 3.1 No Regulation 3.2 Alternative Effective Dates 14 Information Collection Request for 40 CFR Part 51 and 52 Prevention of Significant Deterioration and Nonattainment New Source Review, Office of Management and Budget ( OMB) Control Number 2060 0003; EPA REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 14 There are two types of sources potentially affected by the final RMRR rule within the framework of the Agency's major NSR preconstruction permit program: electricity utility steam generating units and non utility sources. The following discussion includes brief descriptions of each type of affected entity. The Agency made this differentiation based upon existing air quality reports and regulatory analyses: the Ozone Transport Assessment Group's ( OTAG's) 1990 data base; the Operating Permits data base of respondents; and the data base developed by the RACT/ BACT/ LAER Clearinghouse ( RBLC).

In 1990, approximately 2.8 trillion kilowatt hours ( kWh) of electricity were generated in the United States. By In 20051, EPA projects this total to increase to about 3.6 trillion kWh. 12 More than 95 percent of the nation's generating capacity is owned by electric utilities and a significant portion of the nation's electricity generating industry is in the region affected by the final Section 126 rule. 13 EPA estimates 842 electrical generating units of less than 25 MW will be operating in this region in the year 2000. In addition to electric utility power units that produce only electricity, this number includes units ownedapproximately 3.7 trillion kWh were generated. About 70% of this power was generated by traditional utilities. The remaining 30% was generated by independent power producers ( IPPs) and units that co generate electricity and steam ( co generators), whether owned by utilities or IPPs. and combined heat and power plants. The IPM runs in this document model the behavior of over 12,000 electrical generating units, but the number of units affected by the final NSR rule would be much smaller than this is because EPA's analysis also considers electricity generated by hydro facilties, wind turbines, and nuclear units that do not emit primary air pollutants and are thus not affected by NSR. In addition, EPA's analysis includes a number of smaller EGUs that may not be affected by NSR due to their size. EPA's analysis looked at slightly over 1300 coal fired units and approximately 2000 more units that were greater than 25 MW in size that produced emissions of primary air pollutants because they combusted a fuel such as natural gas or oil. Many of these units are located at power plants that contain more than one unit, so the number of affected NSR major sources is probably fewer than 1200 different plants. This is in contrast to the overall universe of more than 14,000 affected sources identified in the next section.

There are about 14,500 sources subject to Title I operating permits requirements in the EPA's Operating Permits Database, encompassing all industry classifications in 34 states and the District of Columbia. EPA believes this database represents the majority of the universe of potentially affected sources for the major NSR program. Table 1 below is in the current NSR ICR. Table 1 displays the industry classifications most commonly affected by major NSR permitting requirements. 14 4 Description of Affected Entities 4.1 Electricity Generating Units 4.2 Non Utility Potentially Affected Sources Form Number 1230.09.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 15 Table 1 Most Commonly Affected Entities Industry Group SIC NAICS Pulp and Paper Mills 261 32211, 322121, 322122, 32213 Paper Mills 262 322121, 322122 Chemical Processes 281 325181, 32512, 325131, 325182, 211112, 325998, 331311, 325188 Pharmaceuticals 283 325411, 325412, 325413, 325414 Petroleum Refining 291 32411 Automobile Manufacturing 371 336111, 336112, 336712, 336211, 336992, 336322, 336312, 33633, 33634, 33635, 336399, 336212, 336213 Electric Services 491 221111, 221112, 221113, 221119, 221121, 221122 Natural Gas Transport 492 48621, 22121 15 U. S. EPA 2002, " New Source Review: Report To the President," p 8. oThe exception is the fact that SO 2 emissions are covered by a cap and trade program for the utility sector that generally does not cover other sectors. For this reason, we did not generalize SO 2 results for the utility sector to non utilities.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 16 The Agency believes all sources potentially subject to major NSR permitting will use the RMRR approach promulgated by EPAthat any source facing the need to determine if a planned equipment replacement project qualifies as RMRR would make use of the equipment replacement provisions of the final rule. Although not every source will be faced with such a determination every year, we expect that any such determination would make use of the equipment replacement provision due to its greater certainty administrative simplicity when compared to the multi factor test. To analyze the benefits and costs associated with the rule change, EPA looked at both the beneficial effects on industry maintenance practices by having identified categories of activities as RMRR and on the potential reduction in work for industry and reviewing authorities through having to performfewerperform fewer applicability determinations. As noted above, there is difficulty in developing quantitative estimates of the effect of changes to the RMRR exclusion on emissions and costs. However, EPA has powerful modeling tools, like the Integrated Planning Model ( IPM), that enable us to make educated assessments of the resulting impact of such regulatory revisions.

We have attempted to analyze quantitatively analyze the possible emissions and cost consequences of the equipment replacement approach to the RMRR exclusion described abovein the final rule. The analysis was conducted using the IPM. This analysis was done for electric utilities because we have a powerful model to perform such an analysis that we do not haveIPM. We do not have such a model for other industries. As but, for reasons discussed below, we thinkbelieve that the results for the electric utilities accurately reflectare representative of the results we would see in other industries. This is because, despite necessary considerations arising from differences between the utility and non utility sectors, none of these differences invalidate the application of the qualitative utility sector conclusions to other industrial sectors. 15 Furthermore, the quantitative results for the utility sector tend to dominate effects for other sectors, particularly when analyzing the effects on emissions.

The DOE also attempted to analyze quantitatively, for the electric utility sector, the possible emissions consequences of the RMRR exclusion described above. The NEMS model is similar to the IPM and has been widely used. DOE provided its analysis to EPA and a copy of the analysis is included in Appendix A. Using the NEMS, DOE evaluated a variety of changes in energy efficiency and availability, as well as the effect on emissions resulting from these changes.

We have also attempted to estimatecharacterize the significant reduction in the costs to industry and reviewing agencies, due to decreases in making applicability determinations associated with identifying categories of activities that are RMRR, as well as any other changes in burden that would result from the final rule. 5 Assessing Benefits and Costs 16 This finding is described in detail in EPA's June 13, 2002 New Source Review Report to the President.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 17 In order to evaluate the impact of the routine maintenance provisions, EPA considered a scenario under which major NSR regulations remained in place and a range of scenarios that could occur if existing plants were able to undertake routine maintenance activities without being subject to major NSR. The first scenario is intended to represent the existing program, which the EPA has found impedes or results in cancellation of projects that maintain and improve reliability, availability, and efficiency at existing power plants. 16 The second range of scenarios is based on companies receiving flexibility under the major NSR program that removes many of these impediments . As part of this analysis, EPA reviewed three key variables: change in SO2 emissions, change in NOx emissions and change in cost.

As we issue a final rule to establish a categorycategories of activities that qualify as RMRR under major NSR, we note that final rules governing the use of plantwide applicability limits ( PALs), and Clean Units will already be in place. Some sources within the electric utility generation industry may take advantage of these changes. However, any such decision will be based on case specific information related to their past operating levels, current levels of control and the company's specific strategies for complying with major NSR. Therefore, we can not make estimates on how many sources may take advantage of PALs and Clean Units. To the extent they are used within the industry, they will dampen the effects shown in this analysis ( i. e., estimated decreases and increases will not be as large).

One part of our analysis was performed using IPM. A copy of this analysis is included in Appendix B. IPM is a linear programming model that EPA uses to analyze the effect of various environmental policies on the power sector. It provides forecasts of least cost capacity expansion, electricity dispatch and emission control strategies for meeting energy demand and environmental, transmission, dispatch and reliability constraints. EPA has used it to analyze many environmental policies including the Phase II Acid Rain Nitrogen Oxide regulations and the Nitrogen Oxide SIP Call. Analysis can be performed varying multiple constraints such as availability of various types of power plants ( e. g. coal fired, nuclear, gas fired combined cycle units), heat rates of various types of power plants, environmental constraints ( e. g. caps on emissions, emission rate limitations). More detail regarding IPM can be found in the document titled " Documentation of EPA Modeling Application ( V. 2.1) Using the Integrated Planning Model, which can be found at: http:// www. epa. gov/ airmarkets/ epa ipm/ index. html.

The EPA used the IPM model to develop a bounding analysis of the effects of the final rule. We analyzed several scenarios which represent the rangea set of possible outcomes within the electric utility sector based on our assessment of how companies manage their plants given the regulatory consequences of the NSR program. Our goal was to provide a bounding analysis; it was not possible using IPM to generate a list of specific projects at specific facilities that would result from our final rule, and to then compute the emissions and other consequences of such projects. Rather, we made an overall assessment of the range of effects that such projects could have if carried out across the utility sector according to reasonable expectations ( example projects are 5.1 Analysis REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 18 discussed in Appendix A). We then made estimates of what range of effects could be expected on parameters such as heat rate, availability, and emissions of various pollutants. These effects were estimated using the engineering judgment of EPA experts familiar with the electric utility industry. Because we modeled across a range of different parameters, we expect that the actual effect of the rule on the electric generating sector will be somewhere within the range we analyzed.

To develop the base case against which to compare our final rule ( referred to as the major NSR base case), EPA had to assess what would happen under the current program ( i. e., if the equipment replacement approach were not finalized.) Our experience suggests that under the current NSR program, managers of coal fired electric generating facilities take whatever actions are necessary to avoid triggering NSR, primarily because of its very high retrofit control costs and the substantial opportunity costs associated with regulatory delays. When considering projects to facilitate safe, reliable, and efficient operation of their facilities, managers will typically only undertake those projects where NSR is clearly not triggered. As confirmed by our recent NSR Report to the President, where there is uncertainty, or where NSR would be triggered, the project will generally not go forward. Thus, to analyze the current rule, EPA assumed that facilities undertake only limited maintenance, and, when NSR might be triggered, facilities take enforceable restrictions on fuel use or other actions to stay out of the program. This results in gradual deterioration in performances, resulting in higher heat rates and lower capacities.

We did not assume that reduced maintenance resulted in a change in maximum potential unit availability. This is because over the last 20 years, availability of coal fired plants has increased even as the plants have aged. This is due in large part to improved maintenance practices. For instance, tests to inspect boiler tubes have been continually improving ( see " Preventing Boiler Tube Failures with EMAT's", S. P. Clark et al, " EPRI International Conference on Boiler Tube Failures and HRSG Tube Failures and Inspects", November 6 8, 2001). These improved preventive maintenance practices allow companies to replace components during regularly scheduled outages before they fail rather than causing unscheduled outages after they fail. Althoughhave increased availability by reducing the incidence of forced outages. Based on this observation, we did not assume availability decreases due to reduced maintenance, but we did assume that continued future availability increases would diminish, and any remaining increases would essentially be negated by deterioration caused by limited maintenance.

The second range of scenarios, referred to as increased maintenance cases # 1  # 5 , looks at a range of scenarios for what might happen in the utility sector if companies were provided with increased flexibility under major NSR to perform maintenance. Because of improvements in efficiency that would be enabledallowed to go forward under the final rule, this would result in lower heat rates, but would also result in higher capacities and/ or higher unit availabilities for these units. IPM models the changes in emissions at such units, as well as the corresponding changes in units elsewhere ( e. g., an increase in generation at the more efficient unit will result in decreased utilization at other units). We examined a range of possible effects, as described in Appendix B. Finally, EPA also looked at one case ( standard base case) in which heat rate, capacity and unit availability did not change.

It is important to note that there are several limitations to this analysis. The limitations are REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 19 discussed in detail in Appendix B.

Results:

Changes in SO2 Emissions, NOx emissions and cost are summarized in Tables 2, 3 and 4 of Appendix B. EPA's analysis suggests there is very little change in SO2 emissions over the entire time period studied under the two scenarios. DOE's NEMS analysis ( Appendix A) showed a similar pattern   i. e., very little change in SO2 emissions relative to estimates for the Base Case. This is because SO2 emissions are already capped nationally under the Title IV Acid Rain Provisions.

However, because emissions can also be shifted temporally by banking emission allowances to be used in a future year there can be significant changes in emissions for a specific year. While temporal distribution of emissions did not change much over time in the major NSR cases considered, there was more temporal distribution of emissions in the increased maintenance scenarios considered.

For NOx, which is not capped, there can be changes in emissions. The modeling scenarios evaluated by EPA and DOE suggest a range in the potential effect on NOx emissions. It appears that the assumptions on the effect regarding the effect that increased NSR flexibility to perform replacement projects would have on plant availability of increasing the flexibility under major NSR to perform maintenance and replacement projects is a key factor affecting changes in NOx emissions relative to the base case.

This analysis suggests that the effect of changing the requirements of major NSR with regards to routine maintenance will have on emissionsthe final rule is dependent upon the effect that it will have on maximum unit availabilities, as well as upon the extent to which efficiency improvements offset this effect, and capacity increases add to it. If the routine maintenanceRMRR changes increase efficiency and plant capacity without increasing maximum unit availability, ( as was modeled in cases 2 and 5) this analysis suggests that the changes could decrease emissions. The amount of that emission decrease would depend both on how much heat rate decreased and capacity increased and how quickly these changes occurred. The greater the heat rate decrease and capacity increase and the more quickly the changes occurred, the greater the emission reductions. The DOE analysis suggests similar results. Efficiency improvements resulting from increased maintenanceRMRR decrease NOx emissions, whereas availability improvements increase emissions. In the cases represented in this analysis, the impacts of the assumed reductions in heat rates tend to dominate the corresponding effects of the assumed availability increases. If on the other hand, the new provisions increased maximum unit availabilities, dominate heat rate improvements ( as was modeled in cases 3 and 4) this analysis suggests that the changes could increase NO x emissions, but only slightly. A more complete description of the analysis and its results can be found in EPA Air docket A 2002 04. .

From these results, it is clearwe have determined that, for the electric generating sector, the overall scope of the routine maintenance exclusion has relatively little practical impact on the benefits that would be achieved in the future under the NSR program. Capped SO 2 emissions REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 20 remain unchanged, and NO x emissions change slightly depending upon which modeled scenario is closest to what actually occurs. This change is particularly insignificant when compared to the power sector's national NO x emissions of over 4 million tons per year, or the more than 7 million tons per year of NO x reductions expected from recently promulgated rules. For example, the NO x " SIP call" will reduce NO x emissions by over one million tons per year, most of which comes from the same utility sources covered in this analysis. The title V Acid Rain program alone has reduced SO 2 emissions from the electric utility industry by more than 7 million tons per year, and will ultimately result in reductions of approximately 10 million tons per year. In addition, a handful of recently promulgated mobile source rules will reduce NO x emissions by a combined 7 million tons per year.

As stated above, the EPA believes that the conclusions of this analysis are generally applicable to all industrial sectors. We do not have tools like IPM for modeling the response of non utility sectors, so our ability to present a quantitative bounding analysis specific to any other sector is limited. We also note that there are some important differences between the utility sector and other sectors. Unlike utilities, other sectors: ( 1) are not subject to a nationwide SO 2 cap, ( 2) are not interconnected and thus do not experience such potentially large changes in utilization resulting from changes in dispatch order, ( 3) were, until March 2003, subject to the actual topotential test for NSR applicability, and ( 4) generally have lower emissions, such that emissions are not nearly as sensitive to small changes in utilization.

Despite these differences, the EPA believes that the overall conclusions of the IPM analysis are valid for other sectors. This is because none of the differences identified above invalidate the application of the qualitative utility sector conclusions for NO x to other industrial sectors. Furthermore, the quantitative results for the utility sector tend to dominate effects for other sectors, particularly when analyzing the effects on emissions.

The largest stationary sources of SO2 and NOx emissions other than electric utilities are industrial boilers. These units are very similar to boilers in the electric utility industry. They usually only provide steam or energy for the industrial facility where they are located though in some cases they may serve multiple facilities. We believe the IPM runs showing the impacts on NOx emissions, which were not subjected to a cap in our analysis, resulting from different scenarios whichwith a range of effects on capacity or efficiency are equally valid related to SO2 and NOx emissions from industrial boilers. In some cases there may be small increases and in other cases there would be an overall reduction in emissions.

For all other industrial sources, we believe that, in general, facilities in these sectors have regular maintenance, repair and equipment replacement cycles. Work is performed during these cycles to that ensure that a facility maintains its productive capacity and facilitates its safe and reliable operation. Equipment replacement activities generally just maintain the operational capability of the facility. In some cases, it, rather than increasing demand or availability. Thus we do not expect RMRR to result in increases in hours of operation or emissions at such facilities. To the contrary, in some cases, RMRR may increase the production efficiency of the facility, which will usually reduce the amount of emissions per product. These changes generally do not affect the overall emissions of the facility because the emissions are driven by total production at the facility 17 U. S. EPA, 1994, " Economic Analysis, Regulatory Flexibility Act Screening Analysis, and Paperwork Reduction Act Information Collection Request Analysis for Proposed Revisions to Part 70 Operating Permits Regulations," by Daniel Charles Mussatti, pp 33 48.

18 http:// ildpower. com/ fossil02. html REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 21 which in turn is driven by the demand for the product   not by the fact that there has been an equipment replacement. We do not believe the final rule will lead to any increases in emissions for these sectors nationally. The EPA believes that the modeled effects of utilities dominate the effects for non utilities, and the overall conclusion of the utility analysis   that the structure of the RMRR replacement has no practical impact on emissions reductions under the NSR program   is valid, despite our inability to model these other sectors individually.

Modeled costs are discussed in section 5.3.

" Benefits" refers to any and all outcomes of a regulation that contribute to an enhanced level of social welfare. The two primary types of benefits that can be attributed to the proposed change to the RMRR exclusion are temporal health related benefits and benefits from avoided costs.

The Agency believes most of the benefits from the change to the RMRR exclusion will be derived from cost savings, of which this report identifies four types: 1) increased efficiency for industrial production, 2) improved flexibility and reaction time, 3) reductions in the number of applicability determinations performed by industry and reviewing authorities and their associated delays and 4) reductions in the need for the construction of new sources. The delays associated with applicability determinations can limit industry's ability to react quickly in a changing economic environment For many source categories, this is not a big problem because they undertake major NSR related activities on an infrequent basis. However, for a number of industries, the Agency has identified as many as three or four changes take place each year that could prompt an Operating Permit revision and, potentially, a major NSR permit, as well. 17 When such changes occur, permitting lags can significantly impact the profitability of the source by preventing timely changes in processes that improve competitiveness and protect market share. For EGUs and other boiler applications, the failure to perform timely repairs and maintenance can reduce boiler efficiency and thereby reduce electricity generating capacity. Even a one percent change in the heat rate of a boiler ( ceteris paribus) can impose a half a million dollar change in net revenues for a 500 MWe coal fired boiler. 18 Allowing sources to respond to maintenance related problems in a revenue maximizing fashion will unambiguously increase revenues ( and profits) and reduce operating costs for industry.

The net effect of these cost savings could be substantial. In tangible cost savings, the ability to address larger routine maintenance and repair problems quickly can conceivably result in tens of millions of dollars in savings through more efficient electricity generation alone. The IPM analysis in Appendix B showed that increased levels of maintenanceRMRR can lead to increased availability of units and increased efficiency, which will decrease fuel costs and the need for new 5.2 Benefits REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 22 generating units saving. Just these two avoided costs will save tens of millions of dollars from fuel costs and capital costs associated with new generating units and emissions control equipment. That, combined with the potential for improved national and international competitiveness and market share due to RMRR flexibility improvements, could potentially result in job savings, and job creation, avoid reliability problems, and give rise to other macro economic improvements. Unfortunately, there is no way to develop an estimate for the value of these improvements.

Finally, the analyses also show that there may be reduced NOx emissions under some of the increased maintenance scenarios due to improved efficiency of the units.

Regarding costs, EPA estimates for changes in cost are summarized in Table 4 of Appendix B. TAs discussed above in the benefits section, the IPM analysis showed significant decreasedavoided costs associated with the increased maintenance scenarios. These decreases result from the increased availability of existing units and, therefore, the decrease in construction of new generating units in order to meet electricity demand. Note that this analysis does not consider changes in the actual cost of performing maintenance costs,; it only assumes changes in fuel costs and changes in capital costs associated with new generating units and new emission control equipment. Therefore it probably understates the cost of the increased maintenance scenarios and understates the cost of the Major NSR Basecase

EPA believes costs will be insignificant for most of the sources participating in the RMRR program under the equipment replacement approach.

Table 2 Expected AnnualOne Time Marginal Burden and Cost to Process Units ( Sources) Industry for the Equipment Replacement Approach Entity / Activity Respondents Hours Per Respondent per Year Total Annual Hours ( All Respondents) Annual Cost per Respondent 1 Total Annual Cost ( All Respondent) 1 Sources Rule Assimilation, Development of Strategy2Strategy 14,450500 4 58,800000 $ 300 $ 435$ 4,350,0 00 Assessment of Replacement Value 14,450500 4 58,800000 $ 300 $ 435$ 4,350,0 00 Total Source Burden and Cost 14,450500 8 116,600000 $ 600 $ 870$ 8,700,0 00 1 All costs are in 2002 dollars 2 One time items have been averaged over the three year life of this ICR.

The 14,500 sources of air pollution potentially subject to major NSR permitting under the proposed equipment replacement approach will have to undertake the tasks listed in Table 2, above. The equipment replacement approach does not have an associated annual reporting 5.3 Costs 5.3.1 Source Costs REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 23 requirement.. Each affected source will expend about 8 additional hours in regulatory related activities in the first year that such rules are effective for it, relative to the status quo, for a total additional cost of about $ 870 thousand per year. As with the annual maintenance, repair, and replacement allowance approach, the$ 8.7 million per year. These costs will be spread over the 3 5 years immediately following the effective date of the final rule. The Agency believes that the reduction in uncertainty and improved flexibility associated with the proposed equipment replacement RMRR approachprovision outweighs the small one time increase in burden and costs imposed on the entire universe of potentially affected sources.

Reviewing authorities seeking to implement the new RMRR provisions will also incur costs. Reviewing authorities, however, do not have to adopt any particular provision as long as they can show that their version of the program is at least as stringent as the EPA program. Reviewing authorities who do not want to implement the new provisions will incur costs associated with demonstrating the adequacy of their existing programs. Each participating reviewing authority will have to learn the rule and incorporate it into its SIP. The Agency identified five tasks that each reviewing authority must perform for the incorporation of the RMRR program into its SIP and two annual tasks it will have to perform to maintain the RMRR program. Table 3 displays the expected annualone time burden and cost of this rulemaking to reviewing authorities for the maximum scope of this analysis. EachWe anticipate, however, that many reviewing authority can expect to incur an additional 1,400 hours of activity per yearauthorities will combine work on this rule with similar work on final changes to the NSR program that were published on December 31, 2002. The overall incremental one time cost of incorporating this rule into their SIP estimated below will be greatly reduced if they do. 5.3.2 Reviewing Authority Costs REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 24 Table 3 Expected Marginal One Time Burden and Cost to Reviewing Authorities Entity / Activity Respondents Hours Per Activity Total Annual Hours ( All Respondents) AnnualTotal Cost per Respondent 1 Total Annual Cost ( All Respondent) 1 Rule Familiarization2Familiarization 112 2060 6,720 2$ 2,2420 $ 740$ 82$ 248,88 0640 Applicability Determinations2Determinations 112 1030 3,360 $ 1,110 1,120$ 370$ 41,44 0$ 124,320 SIP Revision2Revision 112 40120 13,440 4$ 4,4840 $ 1$ 497,480280 $ 165,760Public Hearing and SIP Modification2Modification 112 3090 10,080 $ 3,330 3$ 372,360960 $ 1,110$ 124,320Legislative Coordination2Coordination 112 40120 4,480$ 1,480$ 165 ,760Annual Report Review 31128116,480$ 38 ,480$ 4,309,7601 3,440 $ 4,440 Major NSR Determination 3,

4112107$ 497,280 $ 2,405$ 269,360Total One Time RA Burden and Cost1 112 1547,040 $ 15,680540 $ 51,180$ 580740, 160Total Annual Burden and Cost 1112123,760$ 4,5 79,120480 1 All costs are in 2002 dollars 2 One time items have been averaged over the three year life of this ICR. 3 Annual items have been estimated at 130 sources per RA per year. 4 Assumes 1 determination for every 20 sources.

The Federal government incurs a moderate long runone time burden from the promulgation of this rule, but the Agency believes the burden and cost of the RMRR program to be justified. Furthermore, the Agency believes the slight increase in burden will be somewhat offset by the reduction in oversight and enforcement activities that will result from fewer major source modifications occurring each year. For the RMRR program, EPA will be responsible for two one time activities, SIP revision support ( at least 1030 hours of guidance per yearreviewing authority, or 3,360 hours over the three years of expected SIP revision), and SIP review and approval ( about one dayat least 24 hours per SIP, or a total of 299 hours per year). Annually, the EPA will have two tasks to perform: management of the RMRR program to those sources where it has authority ( about 10 hours per year, or 1,450 hours per year per Federally managed source), and oversight of RA report review and major NSR determinations, which will take about half as long for the Federal government to review each form, relative to the RA's burden for each task. The Agency typically provides Reviewing Authority oversight to one source determination in ten2,688 hours). Table 4, below, displays the average annual expected one time burden and cost to the Federal government for the RMRR program.

TAt most, the equipment replacement approach will cost sources $ 870 thousand per year$ 8.7 million, or about $ 600 per source per 5.3.3 Federal Costs 5.3.4 Bottom Line Impacts REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 25 year.

Table 4 Expected Yearly Marginal One Time Burden and Cost to The Federal Government Entity / Activity Number of Respondents Served Hours per Year Per Respondent Total Annual Hours Average Annual Cost per Respondent 1 Total Annual Cost ( All Respondent) 1 Coordination with RAs 2 112 1030 3,360 $ 1,110 1,120$ 41$ 124 ,440$ 41,4403 20 Review of SIPS 2 112 824 2,688 896$ 888 $ 11,063$ 11,0 63Managemen t of Federal Program 3145101,450$ 370$ 53,650An nual Report Review 313,05045,220 $ 4$ 193,140M ajor NSR Determination 3,

413,0501013,0 50$ 6$ 482,850 $ 99,456 TOTAL One Time Federal Burden and Costs 1 1354 16,048 $ 1,456998 $ 52$ 223,503$ 52,503TOTA L Annual Federal Burden and Costs 1$ 502,190776 1 All costs are in 2002 dollars 2 One time items have been averaged over the three year life of this ICR. 3 Annual items have been estimated at 130 sources per RA per year. 4 Assumes 1 determination for every 20 sources.

Under the equipment replacement approach, the Agency has provided opportunities for industry to improve its responsiveness to changing economic conditions while performing critical routine repair, replacement and maintenance activities to improve the safety, reliability and availability of their facilities. These improvements derive from the RMRR program's primary goals  the reduction of uncertainty and regulatory delay related to the performance of such activities. While the Agency believes these benefits may be significant, and the IPM model runs shed light on the overall magnitude of the benefits included in the model, the effect of a decrease in uncertainty and regulatory delay is not quantifiable in the traditional sense. Instead, the Agency's assertion that the approach to RMRR provides regulatory relief depends on a simple concept, the Le Chatelier Principle in its economic application: reducing the restrictions on industry reduces costs. Consequently, while the measurable portion of the proposed approaches indicate increases in burden and cost, the program in toto should be beneficial. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 26 Table 5 Bottom Line One Time and Annual Burden and Costs1 Entity / Activity Number of Respondents Hours per Year per Respondent Total Annual Hours ( All Respondents) Annual Cost per Respondent 1 Total Annual Cost ( All Respondent) 1 Process Units ( Sources) Annual Maintenance, Repair, and Replacement Allowance ApproachSources 14,4501217, 400$ 900$ 1, 305,000Proc ess Units ( Sources) Equipment Replacement Approach1,4 50500 8 116,600000 $ 600 $ 870$ 8,700,0 00 Reviewing Authorities ( Both Approaches) 112 140420 47,040 15$ 15,68054 0 $ 51,180$ 580 740,160480 US Environmental Protection Agency ( Both Approaches) 112 2354 26,906$ 8510 48 $ 107,522998 $ 223,776 Total Expected Cost ( Annual Maintenance, Repair, and Replacement Allowance Approach)$ 1,992,682Total Expected Cost ( Equipment Replacement Approach) $ 1,557$ 10,68 2664,256 1 All costs are in 2002 dollars The analysis is based upon the best data available to the Agency at this time. However, inconsistencies in RAreviewing authority reporting techniques, incomplete data sets, and sampling limitations imposed upon the Agency by the Paperwork Reduction Act necessitated a certain amount of extrapolation and " best guess" estimations by Reviewing Authorities and Agency experts. Consequently, the reader should not consider the conclusions to be an exact representation of the level of burden or cost that will occur. Instead, this report should be considered a directionally correct assessment of the impact from the programmatic changes included in this rulemaking.

For most analyses, the Agency relies upon a Bayesian approach to predicting the future impacts of its regulations: it relies upon past information of a similar nature as the best predictor of the future. However, the determination of the number of potentially affected sources in this analysis involves the assessment of counterfactual data. In other words, the Agency had to predict how many sources would not perform specific actions or, for whatever reason, were not reporting on specific actions undertaken. Clearly, no data source can supply such information. Therefore, the The estimates in this analysis are based to a much greater extent upon the experiences and expertise of the Agency's staff and consultants, as well as industry representatives. 5.3.5 Caveats REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 27 APPENDIX A EMISSIONS IMPACTS OF HIGHER EFFICIENCIES AND AVAILABILITIES FOR COAL FIRED GENERATING UNITS AND EMISSION PROJECTIONS UNDER NSR ALTERNATIVES ( DEPARTMENT OF ENERGY) REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 28 EMISSIONS IMPACTS OF HIGHER EFFICIENCIES AND AVAILABILITIES FOR COAL FIRED GENERATING UNITS Description: Utilizing assumptions provided by the Office of Fossil Energy of the Department of Energy, this analysis considers the effects of potential improvements in coal power plant heat rates and availabilities. The Office of Fossil Energy believes that these improvements might occur if they could be accomplished without triggering the major New Source Review ( major NSR) requirements. Specifically, heat rates for coal fired plants are assumed to decrease by 5, 10, and 15 percent by 2010. Each of these cases are also combined with assumed increases in availability for coal capacity of 2 and 5 percentage points by 2010. The resulting impacts on fuel use and emissions ( sulfur dioxide, nitrogen oxide, mercury, and carbon dioxide) are examined.

Methodology: Using the National Energy Modeling System ( NEMS), the assumed changes in heat rates and availabilities are analyzed by modifying the AEO2002 Reference Case. The improvements are phased in through 2010. Although the potential to improve heat rates and availabilities could vary among coal units, this analysis assumes that the same rate of change occurs to all of this capacity. Although these improvements could require increases in maintenance costs, no change in these costs is incorporated. Potential improvements to oil and gas fired capacity are also not included.

Analysis: Improvements in heat rates ( i. e., increased operating efficiency) result in lower coal consumption and emissions, although sulfur dioxide emissions nationally are unaffected since there is a cap on total emissions. Compared to the AEO2002 Reference Case, a 5 percent decrease in heat rates reduces carbon and nitrogen oxide emissions by about 4 percent each and mercury emissions by 2 percent in 2010 ( Table 1). In 2020, the respective emissions reductions are 3 percent, 4 percent, and 2 percent. Not surprisingly, higher assumed efficiency improvements result in greater emissions reductions. A 10 percent decrease in heat rates reduces carbon and nitrogen oxide emissions by about 8 percent each and mercury emissions by 5 percent in 2010 ( Table 2). In 2020, the respective emissions reductions are 7 percent, 8 percent, and 4 percent. A 15 percent decrease in heat rates reduces carbon, nitrogen oxide, and mercury emissions in 2010 by about 12 percent, 13 percent, and 9 percent, respectively ( Table 3). In 2020, the corresponding reductions are 10 percent, 12 percent, and 8 percent.

Increasing the availability of coal fired capacity leads to increases in coal generation, consumption and emissions. However, these increases in emissions are not enough to offset the reductions that result from the efficiency improvements, except when the lowest assumed efficiency improvement ( 5 percent) is combined with the highest assumed availability increase ( 5 percentage points). Compared to the Reference Case, mercury emissions in this case are about 1 percent higher in 2010 and 2020 ( Table 1). Carbon emissions are 2 percent lower in 2010 and 1 percent lower in 2020. Nitrogen oxide emissions are slightly lower in 2010 but slightly higher in 2020. If a 5 percent decrease in heat rates is combined with the lesser availability increase of 2 percentage points, carbon and nitrogen oxide emissions in 2010 are each 3 percent lower than in the Reference case and mercury emissions are 1 percent lower. In 2020, the reductions are about 2 percent each for carbon and nitrogen oxide and 1 percent for mercury. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 29 Compared to the AEO2002 Reference Case, both the 10 percent and 15 percent efficiency improvement cases are projected to lower emissions when combined with both of the assumed availability increases. Assuming a 10 percent decrease in heat rates and a 2 percentage point increase in availability lowers carbon and nitrogen oxide emissions in 2010 by 7 percent each and mercury emissions by 5 percent ( Table 2). A 5 percentage point increase in availability results in further increases in coal use, so the emissions reductions resulting from the 10 percent heat rate improvements are further offset by the availability increases. In this case, carbon, nitrogen oxide, and mercury emissions in 2010 are 6 percent, 5 percent, and 2 percent lower than in the AEO2002 Reference Case, respectively. A 15 percent decrease in heat rates combined with a 2 percentage point increase in availability lowers carbon and nitrogen oxide emissions in 2010 by 11 percent each and mercury emissions by 8 percent ( Table 3). A 15 percent decrease in heat rates combined with a 5 percentage point increase in availability lowers carbon emissions by 10 percent, nitrogen oxide emissions by 9 percent, and mercury emissions by 6 percent in 2010. In 2020, the emissions reductions in the combined heat rate/ availability improvement cases are typically about 1 to 2 percentage points lower than the corresponding results in 2010.

In conclusion, efficiency improvements resulting from increased maintenance are expected to decrease emissions, whereas availability improvements are expected to increase emissions. In the cases represented in this study, the impacts of the assumed reductions in heat rates tend to dominate the corresponding effects of the assumed availability increases. However, the some of the assumed heat rate improvements could be difficult to achieve. In 2000, the average heat rate for coal capacity was about 10,250 btu per kilowatt hour, so a 10 percent reduction by 2010 would lower the average heat rate to about 9,200 btu per kilowatt hour. This heat rate would be almost as good as the heat rate assumed for new coal units. A 15 percent decrease would reduce the heat rate to a level below the heat rate for new units. Even if the assumed heat rate improvements are feasible, they may not be economic. The required increase in maintenance costs, which is not represented in these cases, may be higher than the resulting savings in fuel costs.

Since the assumed efficiency improvements result in lower fuel consumption, it may also be possible to increase output at coal fired units without resulting in a net increase in coal consumption and triggering major NSR. The assumed increases in availability represent one option for increasing generation. Another way to increase generation would be to increase capacity, but this option is not considered in this analysis.

Emission Projections Under NSR Alternatives General Concepts This paper addresses the emission implications of New Source Review ( NSR) policies. These policies will be discussed in the context of their impacts on fossil fuel fired power plants, although the regulations also apply to other source categories as well. The units of key concern are existing coal fired generators which replace a part or component and which, in doing so, could increase emissions. The issue is how different policies on defining routine maintenance, repair, and REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 30 replacement ( RMR& R) might influence national emission rates. The policies in question could create either incentives or barriers to improved efficiency, reliability or capacity when actions are taken during maintenance, repair, or replacement of parts at a facility subject to air pollution regulation.

Generally speaking, when parts at a power plant are replaced, they are replaced with parts having the equivalent function. In many cases, in the time period between the original operation of the power plant, and the point where a part is replaced, technology has advanced and better performing parts are now available. Indeed, in some cases, exact replacements for the original design are not available. The main mechanism for emissions to be affected is through improvement in unit efficiency, capacity, and reliability, as newer parts tend to be more efficient and less prone to malfunction. On a regional basis, the primary impact of higher efficiency is to lower emissions, because less fuel is needed to create the same amount of electricity. Changes causing an increase in capacity, on the other hand, could lead to greater emissions, because the alternative to increased output from existing coal power plants would probably be increased construction of new units, which would have lower emissions per kilowatt hour generated ( whether coal or gas fired). Improved reliability or availability has an effect similar to increased capacity if existing plant generation displaces new plant generation, as demand for power grows. However, if a change in capacity or availability occurred more often, or to a greater degree, at lower emitting coal units than at higher emitting coal units, then economic dispatching of the inventory of plants could lead to lower emissions overall. Given the complexity of the problem, it is difficult to predict the outcome of changes in efficiency, capacity and reliability without the assistance of complex computer models.

These general trends in emissions are not universal. Pollutants which are " capped", like sulfur dioxide ( SO2) under the acid rain program, are not influenced by these factors. Any reduction or increase in emissions at a particular unit would be adjusted for within the emission cap, and regional emissions would remain constant. Nitrogen oxides ( NOx) present a complex situation, because emissions in most Eastern states are capped under the ozone/ NOx SIP Call, whereas emissions in other states are not capped. Mercury emissions from existing power plants are currently not regulated, but in the future may be subject to a capped limit under a regulatory scheme like the Clear Skies Initiative, or they may be uncapped under a Section 112 regulatory scheme.

Emission Projections The DOE/ EIA NEMS model was used to evaluate the emissions implications of current and alternative NSR approaches. Tables 1 through 3, below, present modeling results for a range of assumptions for efficiency and availability changes which might result for an NSR approach which facilitated improvements, versus one which posed barriers to such improvements. In each table, the current rules are represented by the " Base Case" and possible outcomes for modified NSR rules are included as alternative scenarios. In this analysis, " capacity" changes are defined as changes which increase the amount of fuel which could be utilized above initial design rates for the power plant. No increase in hourly fuel use was assumed, due to expectations that physical changes at a unit which caused increases in such capacity would be precluded by environmental REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 31 regulation. Results are included for carbon dioxide emissions ( expressed as carbon), SO2, NOx, and mercury.

Figures 1 through 3 show NOx emission changes over time for the same hypothetical changes in unit availability and heat rate ( efficiency). These results reflect extreme scenarios, and actual outcomes are likely to fall short of the potential emission reductions and increases presented ( perhaps by about one half). Mitigating factors include the ability of source owner/ operators to avoid new source review by " netting out", the likelihood that modest improvements in these parameters could be made at existing units without triggering NSR, and the possibility that potential improvement rates would not be achieved in practice. Attachments 1 and 2 present greater detail on the technologies assumed and the mechanisms by which changes in efficiency and availability would manifest in annual emissions.

Table 1. Parameter Scenario Base Case 10/ 0 * 10/ 2 ** 10/ 5 *** 2010 Coal Generation ( billion kilowatthours) 2215.2 2231.7 2271.9 2336.6 Coal Consumption ( quadrillion Btu) 22.8 20.7 21.0 21.6 Avg. Efficiency  Coal ( percent) 33.2% 36.9% 36.8% 36.9% Carbon Emissions ( million metric tons) 688.8 634.4 639.5 647.6 Sulfur Dioxide Emissions ( million tons) 9.7 9.7 9.7 9.7 Nitrogen Oxide Emissions ( million tons) 4.0 3.7 3.8 3.8 Mercury Emissions ( tons) 43.7 41.5 41.7 42.8 2020 Coal Generation ( billion kilowatthours) 2423.2 2464.3 2512.1 2600.5 Coal Consumption ( quadrillion Btu) 24.7 22.7 23.2 24.0 Avg. Efficiency  Coal ( percent) 33.5% 37.0% 37.0% 36.9% Carbon Emissions ( million metric tons) 790.2 737.8 745.7 759.4 Sulfur Dioxide Emissions ( million tons) 8.9 8.9 8.9 8.9 Nitrogen Oxide Emissions ( million tons) 4.2 3.9 3.9 4.0 Mercury Emissions ( tons) 44.0 42.2 42.7 43.2 * Scenario 10/ 0 assumes 10% improvement in heat rate and no change in availability. ** Scenario 10/ 2 assumes 10% improvement in heat rate and 2% in availability. *** Scenario 10/ 5 assumes 10% improvement in heat rate and 5% in availability.

Table 2. Parameter Scenario Base Case 15/ 0 * 15/ 2 ** 15/ 5 *** 2010 Coal Generation ( billion kilowatthours) 2215.2 2235.0 2280.3 2343.8 Coal Consumption ( quadrillion Btu) 22.8 19.6 20.0 20.5 Avg. Efficiency  Coal ( percent) 33.2% 39.0% 39.0% 39.0% Carbon Emissions ( million metric tons) 688.8 606.9 612.3 619.6 Sulfur Dioxide Emissions ( million tons) 9.7 9.7 9.7 9.7 Nitrogen Oxide Emissions ( million tons) 4.0 3.5 3.6 3.7 Mercury Emissions ( tons) 43.7 39.8 40.3 41.0 REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 32 2020 Coal Generation ( billion kilowatthours) 2423.2 2489.0 2525.8 2616.1 Coal Consumption ( quadrillion Btu) 24.7 21.8 22.1 22.9 Avg. Efficiency  Coal ( percent) 33.5% 39.0% 38.9% 38.9% Carbon Emissions ( million metric tons) 790.2 712.6 717.7 730.5 Sulfur Dioxide Emissions ( million tons) 8.9 8.9 8.9 8.9 Nitrogen Oxide Emissions ( million tons) 4.2 3.7 3.8 3.9 Mercury Emissions ( tons) 44.0 40.5 41.0 42.2 * Scenario 15/ 0 assumes 15% improvement in heat rate and no change in availability. ** Scenario 15/ 2 assumes 15% improvement in heat rate and 2% in availability. *** Scenario 15/ 5 assumes 15% improvement in heat rate and 5% in availability.

Table 3. Parameter Scenario Base Case 5/ 0 * 5/ 2 ** 5/ 5 *** 2010 Coal Generation ( billion kilowatthours) 2215.2 2222.8 2264.1 2328.8 Coal Consumption ( quadrillion Btu) 22.8 21.7 22.1 22.7 Avg. Efficiency  Coal ( percent) 33.2% 34.9% 35.0% 34.9% Carbon Emissions ( million metric tons) 688.8 660.7 666.5 676.7 Sulfur Dioxide Emissions ( million tons) 9.7 9.7 9.7 9.7 Nitrogen Oxide Emissions ( million tons) 4.0 3.9 3.9 4.0 Mercury Emissions ( tons) 43.7 42.9 43.4 44.0 2020 Coal Generation ( billion kilowatthours) 2423.2 2457.4 2489.2 2570.3 Coal Consumption ( quadrillion Btu) 24.7 23.8 24.1 24.9 Avg. Efficiency  Coal ( percent) 33.5% 35.2% 35.2% 35.2% Carbon Emissions ( million metric tons) 790.2 765.3 771.0 783.9 Sulfur Dioxide Emissions ( million tons) 8.9 9.0 9.0 8.9 Nitrogen Oxide Emissions ( million tons) 4.2 4.0 4.1 4.2 Mercury Emissions ( tons) 44.0 43.3 43.7 44.6 * Scenario 5/ 0 assumes 5% improvement in heat rate and no change in availability. ** Scenario 5/ 2 assumes 5% improvement in heat rate and 2% in availability. *** Scenario 5/ 5 assumes 5% improvement in heat rate and 5% in availability. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 33 Conclusions For capped pollutants, like SO2, NSR policy will have no impact on future emissions. For uncapped, or partially capped pollutants, a policy that facilitates improvements in efficiency and reliability as parts are replaced will tend to reduce national emissions. For the pollutants and scenarios examined in this analysis, emissions declined by a moderate amount ( typically 3 7%) in all scenarios except one, compared to a baseline case in which such improvements in plants were prohibited under NSR policy. The one scenario in which some emissions increased ( by up to 1%) combined a very high increase in availability with a low improvement in efficiency. This scenario is not considered a likely outcome from NSR regulatory changes ( see discussion of likely availability changes in Attachment 1), but is included for completeness. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 34 NOx Emissions with Proposed NSR ( 10% Efficiency Improvement)

3.50 3.60 3.70 3.80 3.90 4.00 4.10 4.20 4.30 4.40 4.50 1995 2000 2005 2010 2015 2020 2025 Emissions, million TPY AEO 02 Baseline NSR: 10% Eff'y & 5% Avail'y NSR: 10% Eff'y & 2% Avail'y NSR: 10% Eff'y & 0% Avail'y Figure 2 NOx Emissions with Proposed NSR ( 15% Efficiency Improvement)

3.50 3.60 3.70 3.80 3.90 4.00 4.10 4.20 4.30 4.40 4.50 1995 2000 2005 2010 2015 2020 2025 Emissions, million TPY AEO 02 Baseline NSR: 15% Eff'y & 5% Avail'y NSR: 15% Eff'y & 2% Avail'y NSR: 15% Eff'y & 0% Avail'y Figure 3 REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 35 NOx Emissions with Proposed NSR ( 5% Efficiency Improvement)

3.50 3.60 3.70 3.80 3.90 4.00 4.10 4.20 4.30 4.40 4.50 1995 2000 2005 2010 2015 2020 2025 Emissions, million TPY AEO 02 Baseline NSR: 5% Eff'y & 0% Avail'y NSR: 5% Eff'y & 2% Avail'y NSR: 5% Eff'y & 5% Avail'y Figure 4 REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 36 Attachment 1 Unit Availability For Coal fired Power Plants Data on the causes of power plant outages is maintained by the North American Electric Reliability Council ( NERC), and much of this data is accessible at their website ( www. nerc. com/~ gads/). The top 25 causes of outages at coal units for the period 1996 2000 are presented in the table below.

NERC GADS Data Principal causes of outages or derating at coal units, 1996 2000.

AVG NO. OCC AVERAGE MWH AVERAGE MWH PER UNIT YR PER UNIT YR PER OUTAGE SYSTEM/ COMPONENT CAUSE     0.43 83,199 193,623 MAJOR BOILER OVERHAUL 0.33 60,765 185,529 SOOT BLOWERS  STEAM 0.21 41,527 196,080 MAJOR TURBINE OVERHAUL 0.57 40,013 70,047 PULVERIZER OVERHAUL 0.32 37,735 116,539 BOILER INSPECTIONS 4.95 35,785 7,223 PULVERIZER MILLS 1.83 30,202 16,499 FURNACE WALL LEAKS 1.16 22,949 19,738 FEEDWATER PUMP 0.92 19,642 21,386 PULVERIZER INSPECTION 1.83 19,509 10,645 ELECTROSTATIC PRECIPITATOR PROBLEMS 2.67 17,237 6,455 OTHER PULVERIZER PROBLEMS 0.7 15,695 22,336 HIGH PRESSURE HEATER TUBE LEAKS 0.96 14,959 15,604 BOILER, MISCELLANEOUS 6.44 13,821 2,146 OPACITY  FOSSIL STEAM UNITS 0.62 13,549 21,969 FIRST REHEATER LEAKS 0.57 13,138 23,097 REDUCED POWER TO AVOID SLAG/ FOULING 0.29 10,475 36,353 ESP FIELD OUT OF SERVICE 0.48 10,337 21,454 SECOND SUPERHEATER LEAKS 3.89 9,689 2,489 PULVERIZER FEEDERS 0.39 9,207 23,397 BURNERS 0.53 8,005 15,126 PULVERIZER MOTORS AND DRIVES 0.55 7,930 14,483 FIRST SUPERHEATER LEAKS 0.51 7,571 14,713 ELECTROSTATIC PRECIPITATOR FOULING 0.02 7,502 324,107 SERVICE WATER PUMPS AND MOTORS 0.32 7,298 22,465 CIRCULATING WATER PUMPS Grouping these problems by power plant section, it can be seen that about 75% are due to failures in the boiler or pulverizers, 17% due to turbine repair, and 7% due to REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 37 Coal Unit Availability ( NERC)

70 75 80 85 90 95 100 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Availability Factor 0.5 %/ year change 0.5 %/ year change 0.3 %/ year change 0.1 %/ year change parasitic power units ( ESP, pumps, motors).

The incidence of such problems has decreased over the past two decades, even though the average age of these power plants has increased, due to improved maintenance practices by plant operators. The figure below shows the average coal power plant availability ( defined as the hours the unit could deliver power in a year, divided by the hours in a year, expressed as a percentage) since 1982.

Note that the rate of improvement in availability has dropped from about 0.5% per year in the early 1980' s to 0.1% per year in the late 1990' s. This is believed attributable to physical limits on average fleet availability. These trends would suggest that even aggressive programs to improve availability cannot improve performance more than 1% ( cumulatively) between 2000 and 2010. Hence, average availability might be expected to rise from 86% to 87% by 2010. In the absence of a rigorous methodology to attribute the portion of this future improvement to actions REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 38 which would be considered " routine maintenance, repair and replacement" versus non routine actions subject to permit restrictions or new source review limitations, one half of the increase could be assumed to be constrained by current NSR policy.

Given the uncertainty in predicting a change in availability, a range of changes was modeled using the NEMS modeling system. Even though less than a 1% increase in availability is expected, a range of 0 to 5% increase was modeled. An overview of the NEMS system is available at http:// tonto. eia. doe. gov/ FTPROOT/ forecasting/ 05812000. pdf . REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 39 Attachment 2 Potential for Efficiency Improvements At Existing Coal Fired Power Plants The average efficiency of the US fleet of coal fired power plants was 33% in 2000, which equates to a heat rate ( fuel energy needed to generate one kilowatt hour of power) of 10,240 Btu/ kwh. Possible measures to improve this efficiency have been investigated in recent years due to interest in fuel savings, as well as in the greenhouse gas emissions reduction ( i. e., CO2) which would accompany such a performance improvement. For example, see Integrating Consultancy  Efficiency Standards for Power Generation, Australian Greenhouse Office, Jan. 2000; Review of Potential Efficiency Improvements at Coal Fired Power Plants, Perrin Quarles Associates, Inc., for Clean Air Markets Division, USEPA, April 2001; Increasing Electricity Availability From Coal Fired Generation in the Near Term, The National Coal Council, May 2001. The Department of Energy is currently studying such measures. Preliminary results from the DOE effort have highlighted several promising options, as indicated in the table below.

Table 2.1 Technology % Efficiency Improvement Concept Turbine reblading 5 10% Replace existing turbine blade sections and seals with more efficient computer based designs.

Energy management 1 5% Replace current power plant control system with real time performance monitoring and adjustment of chemical feed rates, air flow, steam temperatures, outage maintenance against a theoretical model.

Intelligent soot blowing 1 2% Replace current soot blowing system with " smart" systems, which can reduce steam use for soot blowing by 30%.

Distributed Control System controls 0.5 2% Automate manual adjustment of air registers, burner tilt, fan power, etc., using an optimal computer " smart" system.

Generator exciter replacement 1 2% Replace current mechanical exciter with a more efficient solid state system.

Condenser enhancement 1% Replace condenser with a larger unit to reduce back pressure and make steam turbine more efficient.

Overall improvments 8 17% ( Numbers are not additive due to some overlapping improvements, and possible double counting.) REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 40 In general, these improvements all improve the efficiency of steam conversion to electricity, or reduce parasitic power consumption within the power plant. Such improvements in efficiency produce more power for the same amount of energy consumed, and therefore do not increase emissions, in and of themselves. However, two larger scale issues must also be considered.

First, if the increase in efficiency also improves the unit's economics, then the unit might be dispatched ( used) more, while other units are used less. It is likely that voluntary efficiency improvements would improve unit economics. To further evaluate this situation, emission changes at a midwestern power pool for were evaluated for a range of hypothetical efficiency improvements in coal fired units. Four hypothetical NGCC generating units were " added" to the system to reflect a future scenario in which a broader mix of coal and gas fired units would probably exist. The analysis found that only a very large change in efficiency ( 13.5%, or greater) would be likely to change the relative dispatching of coal units with generically different units, such as natural gas fired or nuclear units, and that even at such high levels of efficiency improvement, the net effect was a reduction in emissions of 3 4%. ( 10/ 19/ 2001 email from V. Koritarov, ANL, to D. Carter, USDOE) It would be reasonable to expect some shifting in dispatching between other coal units, if all the units were not comparably improved. Such a change could result in an increase in emissions if higher emitting units were the subject of efficiency improvements. However, given emission caps for sulfur dioxide, caps in certain states for nitrogen oxides, and a tendency by power plant operators to achieve optimal performance ( both efficiency and emissions) at their " flagship" units, it seems much more likely that units receiving the greatest efficiency upgrades would be the cleaner units. Under these circumstances, efficiency improvements of the type cited above would reduce emissions. In other words, if one expects a 10% overall improvement in efficiency at coal units, efficiency improvements of 12% might occur at the lowest emission units, and improvements of 8% at the highest emitting units. This behavior would lead to significant emission reductions in periods of " off peak" generation, which includes the major portion of the year. However, this type of behavior is difficult to model and was not simulated in the model runs by ANL or EIA.

The second larger scale issue is that of demand growth. The growth in electricity demand over the next decade is projected to be greater than expected growth in electricity production due to efficiency improvements at coal fired power plants. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 41 Another way of looking at this is that almost all additional generation which comes from efficiency improvements would be power not needed from new generators. Because the efficiency improvements are at existing coal units, whereas new generation over the next decade will be dominated by much lower emitting natural gas combined cycle units, one might suppose that the efficiency improvement would result in increased emissions overall. However, this is not the case. As long as the increased power production does not require additional coal consumption ( which is the case for these efficiency improvements), then the resulting net emissions will be lower than the total emissions for " unimproved" coal plants and " super clean" natural gas plants.

Most, but not all of the efficiency improving technologies cited in Table 2.1 reflect replacement components. This is important to note because some NSR policies might apply differently to replacement parts versus new components added to a plant for the sole purpose of improving efficiency.

Given the expanding suite of efficiency improving technologies, and growing interest in reducing greenhouse gas emissions through efficiency improvements, it is reasonable to project overall efficiency improvements, in the absence of NSR constraints, as large as10 15%. Such a range is much larger than conventional wisdom, which is perhaps shaped by expectations under the current NSR policy, and the absence of efficiency incentives related to climate change concerns. To cover a broad range of possible improvements, a range of 5% to 15% was examined using the NEMS modeling system. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 42 APPENDIX B EVALUATION OF ROUTINE MAINTENANCE MODEL SCENARIO FOR POWER PLANTS ( ENVIRONMENTAL PROTECTION AGENCY) 19 This finding is described in detail in EPA's June 13, 2002 New Source Review Report to the President.

REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 43 EVALUATION OF ROUTINE MAINTENANCE MODEL SCENARIO FOR POWER PLANTS Purpose: This analysis uses model scenarios to evaluate the impact that the changes to the routine maintenance provisions of NSR are likely have on emissions from the power generation sector.

Methodology: In order to evaluate the impact of the routine maintenance provisions, EPA considered a scenario under which NSR regulations remained in place and a range of scenarios that could occur if NSR did not exist. The first scenario is intended to represent the existing program, which the EPA has found impedes or results in cancellation of projects that maintain and improve reliability, availability, and efficiency at existing power plants. 19 The second range of scenarios represents companies receive flexibility under the NSR program that removes many of these impediments . As part of this analysis, EPA reviewed three key variables: change in SO2 emissions, change in NOx emissions and change in cost.

It is worth noting that EPA recently promulgated final rules governing the use of plantwide applicability limits ( PALs), and Clean Units. Some sources with in the electric utility generation industry may take advantage of these changes. However, any such decision will be based on case specific information related to their past operating levels, current levels of control and company's specific strategies for complying with NSR. Therefore, we can not make estimates on how many sources may take advantage of PALs and Clean Units. To the extent they are used within the industry, they will dampen the effects shown in this analysis ( i. e., estimated decreases and increases will not be as large.

This analysis was performed using the Integrated Planning Model ( IPM). IPM is a linear programming model that EPA uses to analyze the effect of various environmental policies on the power sector. It provides forecasts of least cost capacity expansion, electricity dispatch and emission control strategies for meeting energy demand and environmental, transmission, dispatch and reliability constraints. EPA has used it to analyze many environmental policies including the Phase II Acid Rain Nitrogen Oxide regulations and the Nitrogen Oxide SIP Call. Analysis can be performed varying multiple constraints such as availability of various types of power plants ( e. g. coal fired, nuclear, gas fired combined cycle units), heat rates of various types of power plants, environmental constraints ( e. g. caps on emissions, emission rate limitations). More detail regarding IPM can be found in the document titled " Documentation of EPA Modeling Application ( V. 2.1) Using the Integrated Planning Model, which can be found at: http:// www. epa. gov/ airmarkets/ epa ipm/ index. html.

Assumptions: The first scenario, referred to as the NSR base case, approximates utility behavior under the current program, where the EPA has found that companies perform limited maintenance on coal plants because of concerns about NSR. In this scenario, it was assumed that the performance of coal units would deteriorate, resulting in higher heat rates and lower capacities. EPA did not assume that reduced maintenance resulted in a change in maximum potential unit REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 44 availability. This is because over the last 20 years, availability of coal fired plants has increased even as the plants have aged. This is due in large part to improved maintenance practices. For instance tests to inspect boiler tubes have been continually improving ( see " Preventing Boiler Tube Failures with EMAT's", S. P. Clark et al, " EPRI International Conference on Boiler Tube Failures and HRSG Tube Failures and Inspects", November 6 8, 2001). These improved preventive maintenance practices allow companies to replace components during regularly scheduled outages before they fail rather than causing unscheduled outages after they fail. have improved availability by reducing the incidence of forced outages. Although we did not assume availability decreases, we did assume that continued future availability increases would diminish, and any remaining increases would essentially be negated by deterioration caused by limited maintenance.

The second range of scenarios, referred to as increased maintenance cases # 1  # 5 , looks at a range of scenario for what might happen in the utility sector if companies were provided with increased flexibility under NSR to perform maintenanceRMRR. This would result in lower heat rates, higher capacities and/ or higher unit availabilities for these units. Finally EPA looked at one case ( standard base case) in which heat rate, capacity and unit availability did not change.

Table 1: Key modeling assumptions in routine maintenance analysis Winter Availability Summer Availability Heat Rate Change Capacity Change NSR Base case 81.6% 89.8% + 0.1% per year  0.1% per year Increased Maintenance Case # 1 85.0% 92.0%  0.1% per year + 0.1% per year Increased Maintenance Case # 2 81.6% 89.8%  0.1% per year + 0.1% per year Increased Maintenance Case # 3 85.0% 92.0%  1.6% in year 2005 and beyond + 1.6% in year 2005 and beyond Increased Maintenance Case # 4 85.0% 92.0%  3.2% in year 2005 and beyond + 3.2% in year 2005 and beyond Increased Maintenance # 5 81.6% 89.8%  1.6% in year 2005 and beyond + 1.6% in year 2005 and beyond Standard Base Case 81.6% 89.8% No change No change REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 45 It is important to note several limitations to this analysis. First this analysis only considered emission regulations that are currently in effect ( e. g. the NOx SIP Call and the Title IV Acid Rain Provisions). Future environmental regulations such as emission reduction requirements necessary to meet the fine particulate matter standards or emission reductions under multi pollutant regulations could significantly change this analysis. Second, the analysis assumed the operating and maintenance costs of coal fired units was the same for units performing limited maintenance and for units performing increased maintenance.. Since the most significant cost associated with running an existing power plant is the cost of fuel, this impact is probably fairly small.

Results:

Changes in SO2 Emissions, NOx emissions and cost are summarized in Tables 2, 3 and 4 below.

Table 2: Changes in SO2 emissions in scenarios considered in routine maintenance analysis.

2005 SO2 Emissions ( tons) 2010 SO2 Emissions ( tons) 2015 SO2 Emissions ( tons) 2020 SO2 Emissions ( tons)

NSR Base case 10,168,230 9,713,684 9,101,622 9,103,275 Increased Maintenance Case # 1 10,135,120 9,739,029 9,104,121 9,102,688 Increased Maintenance Case # 2 10,186,660 9,701,112 9,099,363 9,099,271 Increased Maintenance Case # 3 10,075,060 9,773,242 9,104,836 9,103,779 Increased Maintenance Case # 4 10,009,250 9,813,664 9,105,429 9,104,396 Increased Maintenance # 5 10,079,510 9,764,971 9,099,923 9,100,361 Standard Base Case 10,168,520 9,712,499 9,100,264 9,100,680 As shown in Table 2, there is very little change in SO2 emissions over the entire time period studied under the two scenarios. This is because SO2 emissions are already capped nationally under the Title IV Acid Rain Provisions. Therefore if a unit decreases its emissions to make room under its PAL, it could instead sell excess allowances to another unit. However because emissions can also be shifted temporally by banking emission allowances to be used in a future year there can be significant changes in emissions for a specific year. While temporal distribution of emissions did not change much over time in the NSR cases considered, there was more temporal distribution of emissions in the increased maintenance scenarios considered. REGULATORY IMPACT ANALYSIS FOR THE SPECIFICATION OF CATEGORIES OF ACTIVITIES AS ROUTINE MAINTENANCE, REPAIR, AND REPLACEMENT FOR THE NEW SOURCE REVIEW PROGRAM Page 46 Table 3: Changes in NOx emissions in scenarios considered under routine maintenance scenarios.