invested cost or insurance value where the insurance value covers only the complete replacement of the process unit).

The equipment replacement cost should be based on the current replacement value of the entire process unit at the time of conducting the activity.

Typically, replacement value is more easily obtained than invested cost. Most manufacturers will have information concerning the replacement value of a process Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 90 unit, because such costs are commonly used when evaluating various business scenarios relating to manufacturing costs.

Also, use of replacement value is consistent with the NSPS provisions.

In addition to determining the replacement value of a process unit, in our final rule we allow for the use of several other accepted methods in different industries for estimating such values. Replacement values are the estimated value of replacing a unit and can be based on a current appraisal. In lieu of replacement cost, you can also use inflation adjusted original investment, insurance limits if insured for full replacement of the unit, or other cost estimation techniques currently employed by the company, as long as the company follows GAAP and if approved by the reviewing authority.

A dollar per kilowatt rate for calculating costs may be appropriate for utilities. This model is specific to source and fuel type and is updated periodically. We allow sources to use insurance valuation methods such as the Handy Whitman Index to determine replacement costs for electric utilities.

Other sources to compute costs include the Nelson Refinery Construction Index Factors, Solomon Refinery Study, and licensors of the respective process unit ( e. g., Kellogg,

UOP). Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 91 In order for a cost based approach to be equitable, all owners or operators must include the same categories of expenses in both the process unit replacement value and the replacement activities sought to be exemptedexcluded.

Therefore, although the final rule does not mandate any particular approach, we believe it is generally appropriate to calculate costs using an approach similar to the elements of Total Capital Investment as defined in the EPA Air Pollution Control Cost Manual ( http:// www. epa. gov/ ttn/ catc/ dir1/ c_ allchs. pdf) APCCM. While the manual contains basic concepts that could be used to estimate total capital investment at a process unit, it is geared toward cost calculations for add on control equipment. On the other hand, the underlying concepts are taken from work done by the American Association of Cost Engineers to define the components of cost calculations for all types of processes, not just emission control equipment.

In certain cases, other manuals might make more sense depending on their circumstances.

Under the EPA ManualAPCCM, Total Capital Investment includes the costs required to purchase equipment, the costs of labor and materials for installing the equipment ( direct installation costs), costs for site preparation and buildings, and certain other indirect installation costs.

However, any costs associated withthat are part of the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 92 installation and maintenance of pollution control equipment should be excluded from the cost calculation, as per our discussion in the previous section of this preamble. We believe equipment that serves a dual purpose of process equipment and control equipment ( combustion equipment used to produce steam and to control Hazardous Air Pollutant emissions, exhaust conditioning in the semiconductor industry, etc.) should be considered process equipment.

Direct installation costs include costs for foundations and supports, erecting and handling the equipment,

electrical work, piping, insulation, and painting. Indirect installation costs include such costs as: engineering costs;

construction and field expenses ( costs for construction supervisory personnel, office personnel, rental of temporary offices, etc.); contractor fees ( for construction and engineering firms involved in the activity); startup and performance test costs; and contingencies.

We agree withbelieve there may be merit to the commenters who opposewe received advocating a categorical exclusion for unanticipated shutdowns and failures. Whether an activity is planned or unanticipated, major NSR applicability should function the same way. Therefore,

replacements resulting from unanticipated outages are not excluded from major NSR unless they qualify as RMRR or for Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 93 another exclusion from major NSR. To the degree they exceed the ERP cost threshold, replacement activities resulting from unanticipated shutdowns or failures should be evaluated on a case by case basis for RMRR. In the case of a catastrophic loss, unless you increase your plant size considerably, it is likely that you would replace your failed equipment with a more efficient and cleaner part, and such replacement would not trigger major NSR because the actual to projected actual applicability test would not result in an emissions increase of some kind. When such an outage occurs, there may be a real urgency to restore the plant to operation without forcing it to await the results of a permitting action or applicability determination. In the past, we have handled these situations with case by case consent orders; however, even that approach may lead to unnecessary delays. It may specifically be sensible to relaxing the 20 percent cost threshold limitation for such events because it is unlikely that sources would incur an outage to avoid controls. We did not propose such a standalone exclusion and hence we believe we should not act upon it at this time.

I. Enforcement 1. Compliance Assurance We believe that the records developed and maintained in the ordinary course of business will provide the primary Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 94 means of assuring compliance with today's rule. We know that, as a general rule, companies necessarily generate and keep records related to the types of activities covered by today's rule. For example, companies generally have comprehensive procedures by which funds are allocated to both capital and maintenance expense projects. Many of the records generated by these procedures are needed for tax and accounting purposes. By law, tax records must be maintained for several years. Moreover, additional records must be maintained in industries regulated for other purposes, such as the energy sector ( over 90 percent of which, by capacity,

is subject to Federal Energy Regulatory Commission ( FERC)

regulations). Electric utilities and natural gas companies that are subject to FERC jurisdiction must, unless they receive a waiver from the Commission, comply with extensive accounting and record retention requirements. They must keep financial information according to a uniform system of accounts that is set out in 18 CFR Part 101 for electric utilities and Part 225 for natural gas companies. The systems include hundreds of specific accounts, including individual accounts for boiler plant equipment, engines and engine driven generators, turbogenerator units, and hundreds of other asset, liability, cost and property items.

These companies also must retain records according to Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 95 the schedules set forth in 18 CFR 125 ( for electric utilities) and 225 ( for natural gas companies). Just a few of the types of records that companies must keep are generation and output logs ( records must be kept for 3 years), generating load records ( 3 years), gauge reading reports ( 2 years), maintenance work orders and job orders showing entries for labor, materials and other charges in connection with maintenance and other work pertaining to utility operations ( 5 years), work order sheets for construction work in progress ( 5 years), appraisals and valuations made of utility property or investments ( 3 years), engineering records, drawings, and other supporting data for proposed or as constructed utility facilities,

including detail drawings and records of engineering studies ( must be kept until facilities are retired), contracts or other agreements relating to services performed in connection with construction of utility plant ( 6 years after the plant is retired), general and subsidiary accounting ledgers ( 10 years), paid and canceled vouchers, and original bills and invoices for materials, services, etc. ( 5 years).

Altogether, these various sources of information provide more than a reasonable assurance of compliance with today's rule. This is particularly true given EPA's broad authority to inspect affected facilities and require submission of compliance related data. Accordingly, we are Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 96 not imposing any recordkeeping requirements in today's rule.

2. General Issues Today's rule provides revisions to the major NSR program to specify categories of equipment replacement activities that EPAwe will consider RMRR in the future. As recognized by the U. S. Supreme Court, an agency may not promulgate retroactive rules absent express congressional authority. See Bowen v. Georgetown Univ. Hosp., 488 U. S.

204, 208, 102 L. Ed. 2d 493, 109 S. Ct. 468 ( 1988). The Clean Air ActCAA contains no such expressed grant of authority and EPAwe does not intend by itsour actions today to create retroactive applicability for today's rule. 42 U. S. C. § § 7401 et seq.

None of today's rule revisions apply to any changes that are the subject of existing enforcement actions that the Agency has brought and none constitute a defense thereto. Furthermore, prior applicability determinations on major modifications and thethat result in control requirements in an NSR permit that currently applyapplies to a sources remain valid and enforceable as to that source.

As noted above, today we are changing certain exemptions tothe scope of the RMRR exclusion from the major NSR program by taking final action on the ERP. If you are subsequently determinedundertake an activity that does not Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 97 to have metmeet the applicable provisions of these new alternatives and do not obtain a preconstruction permit if you are required to do so, you will be subject to any applicable enforcement provisions ( including the possibility of citizens' suits) under the applicable sections of the ActCAA. Sanctions for violations of these provisions may include monetary penalties of up to $ 27,500 per day of violation, as well as the possibility of injunctive relief,

which may include the requirement to install air pollution controls.

J. Quantitative Analysis At proposal, we presented a quantitative analysis of the possible emissions consequences of the range of different approaches to the RMRR exclusion, to evaluate if our policy conclusions are correct. Our analysis was conducted using the Integrated Planning Model ( IPM). This analysis was done for electric utilities because we have a powerful model to perform such an analysis that we do not have for other industries. We stated that the results for electric utilities accurately reflect the trends we would see in other industries.

The IPM analyses of different scenarios showed that the breadth of the RMRR exclusion would have no practical impact on, let alone be the controlling factor in determining, the emissions reductions that will be achieved in the future Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 98 under the major NSR program. The analyses showed that emissions of SO2 are essentially the same under all scenarios, but that under today's rule these emission levels will be met in a more economically efficient manner than the base case. This stands to reason because nationwide emissions of SO2 from the power sector are capped by the title IV Acid Rain Program. For NOx, these analyses showed modest relative decreases in some cases and modest relative increases in other cases. These predicted changes represent only a modest fraction of nationwide NOx emissions from the power sector, which hover around 4.3 million tons per year ( tpy). At this time, we do not have adequate information to predict with confidence which modeled scenario is most likely to occur. What these analyses indicate, however, is that regardless of which scenario is closest to what comes to pass, today's rule will not have a significant impact, up or down, on emissions from the power sector. However, we expect the rule to result in significant improvements in safety, reliability, and other relevant operational parameters.

The DOE also presented further analysis of the possible emissions consequences of the range of different approaches to the RMRR exclusion. Using the National Energy Modeling System ( NEMS), a variety of changes in energy efficiency and Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 99 availability were evaluated, as well as the effect on emissions resulting from these regulatory revisions. This analysis concluded that efficiency improvements resulting from increased maintenance, repair and replacement are expected to decrease emissions, whereas availability improvements are expected to increase emissions. In the cases represented in this analysis, the emissions reductions from assumed reductions in heat rates tended to dominate the corresponding effects of the assumed availability increases.

A number of commenters said that the underlying assumptions EPA used in the IPM analysis were flawed and resulted in erroneous conclusions regarding the emission reduction potential of the proposed RMRR rules. Several commenters stated that EPA's IPM analysis incorrectly assumes that no major modifications at any older units would ever trigger the requirement to add new pollution controls.

In addition, according to commenters, EPA also erroneously assumesd that this lack of major maintenance, repair and replacement will have very little impact on the performance of those power plants, when in reality their emissions would increase significantly. The commenters cited a Clean Air Task Force analysis for power plants, which estimates that EPA's rule revisions will result in at least 7 million more tons of SO2 and 2.4 million more tons of NOx annually. Some commenters also questioned the appropriateness of using Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 100 EPA's analysis for the electric generating sector to draw conclusions about non utilities.

One commenter said the IPM and DOE NEMS analyses correctly demonstrate that EPA's RMRR proposal will have no appreciable impact on emissions from the power sector.

According to the commenter, this conclusion is consistent with EPA's findings in a 1989 report, " 1989 EPA Base Case Forecasts," which demonstrated that continuing to allow utilities to undertake activities including ongoing annual operating and maintenance activities and a major refurbishment when the unit reached 30 years of operating life would have no appreciable impact on emissions from the power sector, just as EPA's and DOE's recent analysis confirmed.

One commenter said the proposal lacks any reference to the gains accomplished by major NSR, the ongoing enforcement actions, settlements reached as a result of those actions,

or the potential gains from the investigations now pending.

The commenter argued that EPA's reliance on improvements in productive capacity as the measure of success fails to consider that productive capacity must be balanced with the interests of health and welfare. The commenter also noted that critical to EPA's burden to consider all the relevant factors leading to its conclusion that the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 101 exemptionsexclusions are necessary and appropriate is at the very least an assessment of the expected effects on emissions, which in turn will determine the public health benefits and costs of the proposed rule. Although data on emission reductions achieved under the existing program are available, we have stated that we cannot precisely quantify the effects the proposed rule will have on emissions. Some commenters stated that before promulgating a final rule, EPA should provide such a quantitative assessment of the rule.

We disagree with the commenters who believe that emissions would be significantly higher for electric utilities than are estimated under the IPM model runs.

These commenters' arguments rely on the assumption that EPA's base case is invalid because, if major NSR rules were left unchanged, eventually all coal fired utilities would either apply BACT or deteriorate so badly that they would have to shut down. We do not believe this assumption is accurate. OAs we have explained, our experience suggests that under the current NSR program, managers of coal fired electric generating facilities take whateverhave available to them a number of actions are necessarythey can take as to avoid triggering major NSR, primarily becauseand in many instances they will take one of itsthese actions to avoid the high retrofit costs and delays. If some maintenance,

repair and replacement activities could trigger major NSR, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 102 facilities in obtaining a major NSR permit. If necessary,

owners or operators can and will limit their activities to those projects that do not trigger major NSR, and will take enforceable restrictions on fuel use or other actions to avoid major NSR. This results in some decline in efficiency and capacity, as the EPA's base case modeled, but the units would likely remain viable electric generating units for years without triggering BACT requirements. Thus, we believe our base case represents a far more realistic assessment of what would happen under current major NSR rules than the dramatic BACT reductions presented by these commenters.

Furthermore, while some of the facilities may be modified and subjected to control, nationwide emissions as estimated in the model runs would still rise to the level of the Acid Rain cap for SO2. To the degree these modifications come at facilities that are otherwise projected to be controlled because of existing SO2 and NOx requirements, there would be no difference in effect between the model runs and alternative scenarios. We agree with the commenter who noted that the recent analysis and the estimated impact on emissions is consistent with the previous EPA report in 1989. Our recent analysis confirms that efficiency improvements have the potential to result in Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 103 environmental benefits that offset ( or more than offset)

emissions increases from improved availability, but that previous major NSR rules discouraged these improvements.

Regarding the applicability of our analysis to nonutility sectors, we continue to believe that our conclusions are valid for all sectors, and further, that the effects from the electric utility industry dominate those from other sectors. We acknowledge that the results for the SO2 cap for utilities cannot be extended to non utilities that are not similarly capped. However, our model runs for NOx reflected the absence of a cap, and are therefore valid for other uncapped sectors. Thus in the case of industrial boilers, which behave similarly to utilities, we would expect to see similar efficiency improvements and availability improvements occurring in tandem, resulting in either modest increases or decreases. Because the overall emissions from this sector are significantly smaller than for utilities, the modeled effects for utilities are expected to dominate the analysis.

Finally, forFor other industrial sectors, we do not anticipate that emissions increases will result from equipment replacement activities that qualify as RMRR under today's rule. While some efficiency improvements may result, the overall effect of these improvements will not be to induce greater demand and greater emissions, as wasin Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 104 contrast to the effect shown by the modeling for utilities ( i. e., demand for other industrial sectors depends on independent factors). Indeed, without increased demand,

efficiency improvements that lower emissions per unit of output would result in a decrease in emissions.

[ ADD INSERT HERE FROM AL MCGARTLAND: If you consider the long termA number of commenters raised concerns that EPA had not analyzed the impact of the final rule on industries other than for electric utilities. We have further supported efforts to analyze empirically the effects of this rule....]

In addition, we note that data regarding the emissions reductions that are achieved under other CAA programs further illustrate the relative limits of the major NSR program as a tool for achieving significant emissions reductions. For example, the title IV Acid Rain Program has reduced SO2 emissions from This work is included in the Regulatory Impact Analysis ( RIA) for the final rule. Even the experts involved in this analysis emphasize that empirical assessments of the costs, emissions, and other economic and environmental effects of this rule are extremely difficult to perform, particularly when generalizing beyond the sector facility involved. The analysis would have to simulate a great many decisions made Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 105 by each plant involving routine maintenance under a variety of policy scenarios. There is simply no credible way to make these assessments for the entire economy or for an entire sector. Hence, with the exception of the electric utility industry by more than 7 million tpy and will ultimately result in reductions of approximately 10 million tpy. The Tier 2 motor vehicle emissions standards and gasoline sulfur control requirements will ultimately achieve NOx reductions of 2.8 million tpy. Standards for highway heavy duty vehicles and engines will reduce NOx emissions by 2.6 million tpy. Standards for non road diesel engines are anticipated to reduce NOx emissions by about 1.5 million tpy. The NOx " SIP call" will reduce NOx emissions by over 1 million tpy. Altogether, these and other similar programs achieve emissions reductions that far exceed those attributable to the major NSR program and dwarf any possible emissions consequences attributable to future promulgation of a rule based on today's rule.

model, we relied on a case study approach to gain insights as to how this rule affects particular industrial sectors.

A series of case studies were analyzed by an EPA contractor to estimate the overall impact of the final rule on six different industrial sectors ( automobile manufacturing, carbon black manufacturing, natural gas transmission, paper and pulp mills, petroleum refining and Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 106 pharmaceutical manufacturing). The analysis was designed to examine effects of the final rule, but it is important to note that the case studies were performed prior to decisions on the exact form and content of the final rule. For example, the selection of process units for each of the industries may not be an accurate depiction concerning how a particular industry's operations should be separated into process units under the final rule. As such, none of these characterizations should be taken as EPA's position on appropriate process units for a given industry.

( Information on that subject can be found in Section III. F of the preamble and in the final rule for selected industries.) In addition, in costing out replacement activities in the different industries, the contractor made assumptions regarding which costs needed to be included and how multiple replacement activities should be grouped that may not be consistent with the final rule. Again, these assumptions on the part of the contractor should not be interpreted as EPA's conclusions of how their rules should be applied to such replacement activities in these industries.

Even with these caveats, the case studies provide useful insight into the potential effects of the final ERP.

The six industries are significant sources of air pollution Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 107 emissions and are very diverse in terms of their types of operations, their existing maintenance, repair and replacement strategies, and the range of potential replacement costs at some of their process units. This diversity is important because the final rule will impact a great many industrial sectors and individual process units which are extremely varied in terms of their maintenance,

repair and replacement strategies. For example, issues related to safety, reliability and availability will vary greatly across these industries. The need to assure that the electricity and natural gas supply is reliable and available is critical to ensuring the safety of the public in the hottest and coldest times of the year, and it is critical to the operation of the nation's infrastructure, to the degree they do not have backup power generation, devoted to public health ( e. g., drinking water, sewage treatment,

food refrigeration, hospitals). Thus, strategies related to maintenance, repair and replacement at existing facilities are critical to ensure that vital electric utilities and natural gas transmission continue uninterrupted. As we are clarifying what activities fall within the ERP, owners or operators at these facilities will be able to make decisions on when and how to conduct RMRR activities based on engineering judgement.

The case studies conclude that equipment replacement Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 108 activities vary widely within these industries for the process units selected. Across the industries, the studies estimated that equipment replacement activities could range in percentage by over an order of magnitude. By establishing a threshold at 20 percent of the replacement cost of the process unit, we believe we have set a reasonable standard that allows most replacements to proceed unimpeded as long as the other safeguards are met. At the same time, under the 20 percent threshold, the most capitalintensive replacements would be subject to case by case review. The data from these case studies clearly indicate that 20 percent would function well as the dividing line between those replacement activities that automatically qualify under the ERP and those activities which should be subject to case by case review.

The case studies also indicate that replacement activities in these industries should not lead to increased emissions at the sources. Based on the case studies, we believe that replacement with identical or functionally equivalent equipment as the rule requires, will result in equivalent or reduced emissions. The decrease in emissions would result from efficiency improvements that reduce the amount of air pollution emitted per product produced in the process unit. Therefore, if operating levels do not change, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 109 then total emissions will decrease with such identical or functionally equivalent equipment replacements.

The case studies looked at a wide range of projects.

We have concluded based on this analysis that replacement activities do not generally cause changes in operating levels at the process unit. Instead, other factors, like economic downturns or increased demand for the product of the process unit, will cause operating levels to fluctuate.

Efficiency changes, even when they lead to increases in product output from the same raw material input will not lead to increases in emissions unless an independent factor like increased demand for the product also occurs. We strongly support efficiency improvements where they can occur with an appropriate safeguard like the basic design parameters.

Our inability to model economy wide impacts does not mean we cannot characterize the effects of this rule. In qualitative terms, the case studies further support our conclusion that the old case by case approach to RMRR is having perverse effects by discouraging projects that would improve efficiency. As noted elsewhere, efficiency improvements necessarily imply less pollution holding everything else constant. For example, the case study on the pulp and paper industry finds that:

"[ A] s [ safety, reliability and efficiency] activities Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 110 begin to be reviewed, those that raise... questions under the ambiguity of the current rules may be postponed, altered, or simply cancelled. Under the proposed ERP approach, these activities can be tested against a clearer set of criteria, that will allow more activities to be executed.

... The new approach provides the regulatory clarity and certainty in making applicability decisions that is completely absent from the current case by case approach. Thus, the manner in which mills will handle the processing of equipment replacement activities,

with regard to assessing their air permit applicability assessments, will be able to be streamlined. By definition, a ` case by case' approach is simply unworkable for a typical pulp and paper mill, which may have thousands of maintenance and repair related work orders involving equipment replacements executed each year, affecting all areas of mill operations. Clearly,

only a small subset of these equipment replacement activities can be evaluated using the complicated and vaguely interpreted multi factor test inherent with the current case by case approach. ... The proposed ERP approach helps by setting criteria for the routineness Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 111 determinations. Under the proposed approach, a mill could set up more straight forward guidelines to be followed throughout an organization that would allow quick and defensible determinations to be made regarding individual maintenance activities."

Based on the analytical work performed by the contractor for pulp and paper, we expect that, at such facilities, the power boiler would be the most affected by the ERP, as well as an important or even dominant emissions source. We would anticipate that this would be true for many of the inorganic and organic chemical subsectors. In fact, we did not pursue an analysis of the chlor alkali sector, in large part because the power boiler was the most obvious process unit to analyze, and the issues raised overlapped with the pulp and paper analysis. Thus, it is logical that the conclusions from the case studies would generalize to many other sectors.

Beyond the case studies, there is also a great deal of research and experience that allows for some robust findings. Previous research, such as the articles cited below, supports the following findings:

° Enhanced efficiency and less pollution in the short run. Holding everything else constant, when a plant's efficiency increases, pollution must go down. This nation's growing experience with pollution prevention, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 10 By efficiency, we mean unit of input per unit of output, for example, amount of energy needed to produce a specific amount of output. Another example would be the amount of raw material to produce a specific amount of output. 11 A common example illustrates the point well. When one " tunesup a car, the automobile gets more miles per gallon, is cleaner burning, and is cheaper to operate. 12 For example, energy efficiency is not a design parameter to determine functional equivalency for defining routine maintenance. Accordingly, a firm could adopt a more efficient " functionally equivalent" technology without fear of triggering NSR provisions.

112 efficiency enhancements, voluntary environmental programs, and Environmental Management Systems adoption all reinforce the notion that enhanced plant efficiency translates into less environmental pollution. 10 Further, there is an economic incentive to keep plant efficiency high. Proper maintenance and the resulting efficiency enhancements and pollution prevention reduce resource needs and therefore reduce costs. 11 By providing the certainty needed to plan and undertake efficiency investments ( economically efficient maintenance) this rule will achieve lower pollution.

° The rule will allow firms to take advantage of pollution prevention opportunities and new pollutionreducing technologies. As technology advances, plants will be able to adopt innovative solutions that enhance energy efficiency ( and reduce pollution). 12 One example of such an opportunity identified by the EPA Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 113 contractor in one of the case studies is the replacement of spray guns on a topcoat operation in order to improve the quality of the paint job, while also increasing the transfer efficiency, and decreasing coating and associated solvent usage. This project could be deemed a physical change and have major NSR applicability ramifications if not for the ERP of the RMRR exclusion. Under the current case by case approach to RMRR, the facility may forego the change to the newer spray gun design if there is a perceived risk that the determination could be questioned. Under the new ERP approach, the change would proceed more definitively as RMRR, and thus the emission reductions could be realized.

° While firms can operate existing plants efficiently,

the rule preserves powerful incentives within the CAA to adopt " leap frog" technologies and production processes that further reduce costs, increase efficiencies and reduce pollution. Because of the CAA requirements and economic gains associated with improved efficiency, producers still have an incentive to invest in these clean technologies to replace older facilities.

In addition, a substantial body of research has explored the consequences of environmental regulation that Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 114 sets more stringent control requirements for new sources.

This research explores how differentiated regulation can affect firm behavior both on theoretical and empirical grounds. A listing of some of this literature is included in the RIA for the final rule. This literature provides further evidence that the NSR can easily distort investment and production decisions against more efficient maintenance and replacement.

Therefore, based on the information evaluated, we affirm the overall conclusion of our analysis   that today's rule has no practical effect on the environmental benefits of major NSR in the future. We have presented additional,

more detailed supporting information in our final RIA and our response to comments document, both of which can be found in the docket for today's action.

K. Consideration of Other Options In addition to the cost based approaches that we proposed, we also asked for comment on age based and capacity based approaches, and any other viable option for addressing RMRR.

1. Annual Maintenance, Repair and Replacement Allowance We are not taking action on the proposed Annual Maintenance, Repair and Replacement Allowance option for the RMRR exclusion, and therefore public comments on this option Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 115 are not addressed at this time. We will address comments on our proposed Annual Maintenance, Repair and Replacement Allowance if and when we take final action on that proposal.

2. Capacity Based Option As mentioned above, we considered the alternative option of developing an RMRR provision based on the capacity of a process unit. Under such an approach, an owner or operator could undertake any activity that does not increase the capacity of the process unit. Basing RMRR on capacity has appeal for several reasons. For starters, an objective of RMRR is to keep a unit operating at capacity and/ or availability. In addition, the linkage between capacity and environmental impact is more apparent than that between cost and environmental impact. Finally, this type of approach might, in principle, be easier to use before beginning actual construction than some of the cost based approaches.

Several commenters were concerned with defining the capacity of a process unit. Capacity may be defined based on input or output. Nameplate capacity of a process unit may vary greatly from the capacity at which the process unit may be able to operate. It may be more appropriate in some industries to measure capacity based on input while in others on output. Commenters felt that a capacity based approach would not be workable at complex manufacturing sources, because " capacity" as a useful shorthand term for Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 116 the processing capability correlates exactly only with a historical feed or product slate no longer available or made. A number of commenters supported a capacity based option, generally indicating that a capacity based option would be simpler and less burdensome to use than the other proposed approaches.

Another large concern of commenters was that a capacity based approach could prevent facilities from performing activities that make the facilities more efficient. RMRR provisions need to include some form of the other approaches to account for energy efficiency projects at utilities, which could increase output capacity ( i. e.,

production) without necessarily increasing heat input or fuel consumption. Some commenters noted that maximum hourly emissions is a more appropriate surrogate for a change in capacity, because it is consistent with existing NSPS procedures and with averaging periods for ambient air quality monitoring and standards.

We agree that an appropriate capacity based approach would have to be tailored to various types of sources, with capacity based on input for some and on output for others.

As an example, in a review of promulgated and proposed Maximum Achievable Control Technology standards, six of eleven standards measured capacity based on process unit Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 117 output while five standards based capacity on input. In fact, the NSPS exclusion for increases in production rate at 40 CFR 60.14( e) originally was dependent upon the " operating design capacity" of an affected facility. In proposed revisions to the NSPS program published on October 15, 1974,

we state ( 39 FR 36948):

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

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

3. Age Based Option Under our proposed age based approach, any process unit under a specified age could undergo any activity that does not increase the capacity of a process unit on a maximum hourly basis without triggering the requirements of the major NSR program. However, the activities could not constitute reconstruction of the process unit; that is,

their cost could not exceed 50 percent of the cost of a Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 118 replacement process unit. The age of the process unit would likely be in the range of 25 50 years. We also proposed that the owner or operator would have to become a Clean Unit as defined at 40 CFR 51.165( c)( 3), 51.166( t)( 3), and 52.21( x)( 3), once the age of a process unit exceeds the age threshold.

Such an approach would provide an owner or operator a clear understanding of RMRR for an extended period of time.

It also may provide the owner or operator greater flexibility than under the current system for a limited period of time. Like the capacity based approach, this approach would, in principle, allow for a fairly simple preconstruction determination of applicability.

Very few commenters expressed any interest in developing this type of approach. Their concerns centered around defining capacity and establishing the age cut off ( because the useful life of equipment is difficult to establish and may vary greatly). Other concerns raised by commenters were that some of the activities that would be allowed at newer sources do not fit within any ordinary meaning of RMRR and some of the activities that would be forbidden at older facilities would come within that meaning, and also that some sources may consciously, and appropriately, engage in aggressive RMRR as a method of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 119 maximizing the life span of its process units, and an agebased approach would discriminate against them.

One commenter stated that EPA should establish a normal lifetime, tailored to each industry, beyond which industry would need to install BACT or shut down. This type of approach would obviously require a substantial amount of time and analytical effort.

The age of a source alone is not a legitimate reason to require the addition of pollution control equipment. Age has no direct bearing on a unit's environmental impact; some facilities maintain equipment better than others. We have decided not to promulgate an age based approach. We have several basic concerns with this approach that we have not been able to reconcile. We also believe that the equipment replacement approach largely addresses the commenters'

concerns regarding the age based approach.

Thus, we have decided not to finalize a rule using this approach.

L. Specific List of Excluded Activities Several commenters supported the development of lists of activities that are considered RMRR; some of these commenters also supported developing lists of activities that do not qualify as RMRR. Commenters suggested various ways in which such lists could fit into the overall RMRR program. We are concerned, however, that such a list would Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 120 have to be implemented through rulemaking, which would require a considerable amount of time, analytical effort,

and resources.

A commenter suggested two ways by which we could develop a list of qualifying activities. First, we could review records for ongoing enforcement activity, to identify activities that we have and have not already alleged to be RMRR. There is an ample body of knowledge for electric power plants. Second, we could identify where activities would fall with respect to the cost criteria, then adjust the classification of each activity based on the WEPCO criteria to prepare lists of routine and nonroutine activities.

Some commenters felt that industry specific lists of routine and nonroutine activities would provide the best interim clarification to major NSR until legislative reform is in place. Other commenters opposed the development of lists of activities that are considered RMRR, contending that such lists would become quickly outdated.

Some commenters requested that certain activities be specifically classified as RMRR. These suggested activities included the following:

° The common practice of changing out the engine core in a combustion turbine when it is due for overhaul ( to Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 121 reduce downtime). The removed engine core is overhauled offline, and is then available to be switched in for the next like kind engine core that reaches the point of overhaul. Unless the partscomponents are upgraded, the heat input remains the same and so does the emissions rate.

° Any change that does not increase the achievable hourly emissions ( as determined based on the permit and/ or original design parameters) of existing equipment,

processes, and emissions units.

Another commenter suggested the following list:

° Certain activities, for example, boiler tuning and maintenance, repair and replacement of air pollution equipment or CEMS should be categorically exemptedexcluded as RMRR.

° Any projectactivity that is part of a long term service agreement ( primarily gas turbines) should be categorically exemptedexcluded from major NSR.

° Any projectactivity involving steam turbine overhaul work should be categorically exemptedexcluded from major NSR.

WActivities such as the above might be RMRR, but we believe there are simply too many activities in too many industries to effectively improve major NSR implementation through creation of lists. Moreover, lists would be a Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 122 " snapshot in time" that would need to be reviewed and periodically updated for each industry sector. We have consequently decided not to attempt to list equipment replacements activities that are categorically excluded as RMRR.

M. Stand alone Exclusion for Energy Efficiency Projects In the proposal, we acknowledged that certain types of projectsactivities that improve energy efficiency would not qualify as RMRR. We solicited comment on whether there was the need for a " stand alone" exclusion for activities that promote energy efficiency.

Many commenters supported a stand alone exclusion from major NSR for energy efficiency projects. With the following safeguards, they favored specifically excluding from the definition of " major modification"

activities/ projectsactivities that promote energy efficiency and/ or resource conservation when: ( 1) The projectactivity results in lower emissions per unit of production or lower energy utilization per unit of production; ( 2) the percent decrease in emissions or energy utilization per unit of production is greater than the percent increase in maximum hourly emission rates; ( 3) projectactivity costs do not exceed 50 percent of the replacement value of the process unit; and ( 4) the projectactivity does not result in an Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 123 increase in allowable emissions.

Other commenters pointed out that efficiency upgrades will frequently create incentives to further utilize a source and subsequently increase mass emissions. One commenter stated that if activities that result in small efficiency gains can qualify as RMRR, older, dirtier electric generating units will be better able to out compete newer, much cleaner plants ( that have higher costs due to emission controls).

One commenter stated that EPA is incorrect in stating that energy efficiency projects are being discouraged by major NSR, particularly under the new actual to

projectedactual applicability test. This commenter added that the only projects that are discouraged by major NSR are ones that increase emissions. This commenter felt that the December 2002 final major NSR rules provide a broad range of major NSR exemptionsexclusions ( including revised baseline determinations, Clean Unit designations, pollution control projects, PALS, and combinations of these provisions, as well as an RMRR exemptionexclusion) under which energy efficiency projects will certainly occur.

We strongly support efforts to improve energy efficiency at existing power plants. These activities reduce the amount of air pollution emitted per unit of electricity generated and also reduce greenhouse gas Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 124 emissions. We believe that today's ERP supports energy efficiency projects and that the actual to projected actual applicability test contained in the December 2002 NSR final rules also should remove impediments to energy efficiency projects. Together, these rules will obviate the need for a specified RMRR provision for energy efficiency projects.

Thus, at this time we are not finalizing a provision to categorically exclude energy efficiency projects from major NSR.

N. Legal Basis The1. How does the NSR Program address existing sources and why is today's rule consistent with this approach?

The core of the NSR program is to require preconstruction permits for all new major sources. Congress specifically decided that existing sources generally would not be required to obtain permits. These considerations are the starting point for understanding its application to " modifications" and the meaning we should give that term.

The NSR program's scope is closely related to the scope of the NSPS program, created seven years earlier in the CAA Amendments of 1970. In Section 111 of the CAA, which sets forth the NSPS provisions, Congress applied the New Source Performance Standards to " new sources," secs. 111( b)( 1)( B), Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 125 111( b)( 4). Congress determined that as a general matter it would not impose the NSPS standards on existing sources,

instead leaving to the State and local permitting authorities the decision of the extent to which to regulate those sources through " State Implementation Plans" designed to implement National Ambient Air Quality Standards ( NAAQS).

See sec. 110.

Congress followed a similar approach in determining the scope of the major NSR program established by the 1977 Amendments to the CAA. As amended, the CAA specifies that State Implementation Plans must contain provisions that require sources to obtain major NSR permits prior to the point of " construction" of a source. Secs. 172( c)( 5); 165 ( a). By contrast, the CAA generally leaves to State and local permitting authorities in the first instance the question of the extent, means and timetable for obtaining reductions from existing sources needed to comply with National Ambient Air Quality Standards. See secs.

172( c)( 1), 161.

NSR's applicability to existing sources to which a " modification" is made is an exception to this basic concept. This exception likewise finds its roots in the NSPS program's applicability to " modifications" of existing sources. The 1970 CAA made the NSPS program applicable to modifications through its definition of a " new source," Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 126 which it defined as " any stationary source, the construction or modification of which is commenced after the publication of regulations ... prescribing a[ n applicable] standard of performance . . . ." Section 111( a)( 2). Section 111( a)( 4),

in turn, defined a " modification" as " any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted from such source or which results in the emission of any air pollutant not previously emitted."

Congress did not further define the terms " physical change" or " change in the method of operation" in the NSPS program. Therefore we issued regulations to clarify their meaning. As early as our 1971 NSPS regulations, we have made clear that many activities that do not affect the contemplated operation of a unit in a manner consistent with its original design are not physical or operational changes.

Specifically, in our 1971 NSPS regulations, we determined that physical or operational changes do not include:

1) " Routine maintenance, repair and replacement" of equipment;

2) " An increase in the production rate, if such increase does not exceed the operating design capacity of the affected facility";

3) " An increase in the hours of operation"; and Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 127 4) " Use of an alternative fuel or raw material if ...

the affected facility is designed to accommodate such alternative use."

36 Fed. Reg. at 24877 ( Dec. 23, 1971). The premise behind characterizing these activities as not being " changes" is that they all contemplate that the plant will continue to be operated in a manner consistent with its original design.

The 1977 Amendments to the CAA likewise made the NSR program applicable to " modifications." The original 1977 Amendments did so explicitly only in their provisions dealing with the non attainment portion of the NSR program,

see CAA sec. 171( 4). But in " technical and conforming"

amendments to the 1977 Amendments, Congress clarified that it intended the same result with respect to the prevention of significant deterioration provisions, see CAA sec.

169( 2)( C).

Notably, Congress did not enact a new definition of " modification" in either the original 1977 Amendments or the " technical and conforming amendments." Rather, it incorporated the NSPS definition of " modification" by crossreference See CAA sec. 169( 2)( C); CAA sec. 171( 4). The Conference Report to the bill adding the technical and conforming amendments { check if that is what the citation refers to} indicates that this was a deliberate choice. As the conferees explained, Congress " intended to conform the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 128 meaning of the term ` modification' to usage in other parts of the Act." 123 Cong. Rec. H11956 ( daily ed.)( Nov. 1,

1977). We have understood this to be a reference to our preexisting rules interpreting the term " modification" in the NSPS context. 49 Fed. Reg. 43211, 43213 ( 1984) { not sure what the document being cited is}; see also 43 Fed.

Reg. 26388, 26394, 26397 ( June 19, 1978).

The original 1978 NSR rules concerning modifications that we promulgated after enactment of the 1977 Amendments generally tracked the NSPS approach by specifying that " routine maintenance, repair and replacement" was not a change; by specifying that changes in hours of operation and rates of production were not a " change"; and by using the same basic approach NSPS used to the question of what constitutes an " increase" ( increase to a source's potential to emit, except that the NSR rule used annual potential to emit while the NSPS program used short term potential to emit). 43 Fed. Reg. 26388 ( June 19, 1978). Even after the D. C. Circuit struck down other portions of our 1978 NSR rules in its original per curiam decision in Alabama Power Co. v. Costle, 606 F. 2d 1068 ( D. C. Cir. 1979), we continued to propose to retain the RMRR provision and the " potential to emit" approach to emissions increases in our revised rules, although to drop the " hours of operation and rate of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 129 production" provisions because the " potential to emit"

provision made them unnecessary. 44 Fed. Reg. 51924, 51937 ( September 5, 1979). In our final 1980 NSR rules, however,

issued after the D. C. Circuit's final Alabama Power decision, 635 F. 2d 323 ( 1980), we changed our approach to the definition of " increase" in the NSR context to specify that a change would trigger NSR if it would result in an increase over " actual annual emissions." 45 Fed. Reg. 52676 ( August 7, 1980). At the same time, and notably, we restored the provisions stating that increases in hours of operation or production rate were not " changes." Id. at 52704.

It is important to understand what we did   and did not   decide in those final 1980 NSR rules. What we did decide was that as a general proposition, we would better serve the purposes of the NSR program if we used " actual" rather than " potential" emissions as a baseline for determining whether an activity at a new source results in an emissions increase. What we did not decide was that the purposes of the NSR program never allow us to exclude from the definition of " change" any activity at a plant that may increase its actual emissions but does not increase its " potential" emissions. In particular, for example, we decided to retain the " hours of operation" and " rate of production" exclusions even though such changes might result Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 130 in increases in " actual" emissions because not having the provisions " would severely and unduly hamper the ability of any company to take advantage of favorable market conditions." Id. Similarly, we retained the exclusion for " routine maintenance, repair and replacement" even though it too can result in emission increases. Yet there is little doubt that increases in hours of operation and rates of production and RMRR arguably could be understood to fall within the statutory definition of modification, since increases in hours of operation and rates of production certainly may be argued to be changes in the " method of operation" of a plant, and RMRR certainly may be argued to be a " physical change" to a plant. On balance, however, we rejected that interpretation and determined that the definition of modification should not be read so broadly as to encompass hours of operation or production rate increases, at least so long as they are unrelated to a physical change.

In the revisions to the NSR program we announced last December, we reiterated our adherence to the view that as a general matter we should continue to use " actual" rather than " potential" emissions in determining what activities constitute " modifications" under NSR. We continue to believe that is correct, but we also believe we should Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 131 amplify our reasons for holding this view and why that view is entirely consistent with the rule we are promulgating today. In determining the scope to give to " modification,"

we believe it is important to give weight to both aspects of what Congress decided in 1977. Congress decided that generally speaking, existing plants would not be subject to NSR, but that they would be subject to NSR when they made " modifications." It is also important to understand why Congress chose this point at which to impose NSR on existing plants: to avoid the need to impose costly retrofits, but require placement of new control technology at a time when it makes the most sense for it to be installed. See H. R.

Rep. No. 294, 95th Cong., 1st Sess. 185, reprinted in 1977 U. S. Code Cong. & Admin. News at 1254; 116 Cong. Rec. 32,918 ( remarks of Sen. Cooper) { add quotation if useful}. See also WEPCO, 893 F. 2d at 909 910; National Southwire Aluminum Co. v. EPA, 838 F. 2d 835, 843 ( 6th Cir., Boggs, J.,

dissenting), cert. denied, 488 U. S. 955 ( 1988).{ add quotation if useful} A wholesale exclusion of any activity that restores a plant to its potential to emit from the definition of modification is not consistent with this balance, since there are many activities that might have that effect but the conduct of which would be an extremely effective time for the placement for new control technology.

At the same time, we believe it is also important to Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 132 give equal weight to the converse proposition that existing plants should not have to install new control technology in the ordinary course of their operations. To require them to do so would fail to give full effect to Congress's decision that existing sources generally would not be required to obtain permits. It would also subject these plants and the consumers who rely on them to enormous dislocation and expense. That is why we believe we have rightly excluded increases in hours of operation and rates of production from the definition of " change." That is also why we believe we have rightly excluded " routine maintenance, repair and replacement" of existing plants from that definition.

For similar reasons, we believe today's rule draws an appropriate line of demarcation between replacements that should not be treated as changes, and those as to which further consideration of the question is appropriate. Our rule states categorically that the replacement of components with identical or functionally equivalent components or components that does not exceed 20% of the replacement value of the process unit and does not change its basic design parameters is not a change and is within the RMRR exclusion.

On the other hand, the rule contemplates case by case evaluation of identical or functionally equivalent equipment replacements that do not have these characteristics. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 133 We believe this approach is consistent with the intended scope of " modification" under the NSR program. The record of this rulemaking demonstrates that there are substantial categories of replacement activities undertaken in order to assure the safety, reliability and efficiency of existing plants that, if conducted at the same time, cost less than the 20 percent replacement cost threshold. It also demonstrates that there are sound business reasons why an owner or operator may find it makes sense to conduct some of these activities at the same time.

On the other hand, given the costs and technical problems associated with installing state of the art pollution controls at existing facilities, we do not believe it plausible that, if faced with the choice of replacing equipment that has a value less than 20 percent of a process unit and having to install those controls, or coming up with another solution   such as repairing the existing equipment or limiting hours of operation so as to be confident that the activity will not trigger NSR   the owner of a source would elect to replace the equipment if he also has to install the state of the art controls. Rather, we believe he will repair the existing equipment or artificially constrain production. Therefore the replacement of that equipment is not, in fact, an opportune time for the installation of such controls. It follows that treating Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 134 such replacements as an NSR trigger will not lead to the installation of controls. Rather, it will merely create incentives to make a plant less productive than its design capacity would allow it to be.

We do not believe it is the policy of the CAA to seek to promote emissions reductions by forcing new limits on hours of operation or rates of production of existing plants. We made that point clear in 1980 when we determined that we should retain the hours of operation and rate of production exclusions in the NSR context. To the contrary,

as we said in promulgating the 1980 rules, Congress's decision to exclude existing sources because of the dislocation that covering them would cause can reasonably be understood as allowing those sources to increase hours of operation or production up to permitted levels as market conditions dictate. We note that this does not leave such activities outside the scope of the CAA: if a State concludes that resulting air quality considerations warrant revision to its SIP to add further limitations to a permit,

it may exercise its authority to impose them, even in the absence of anything that constitutes a " change" to an existing plant. But we believe that our 1980 conclusion that increases in hours of operation or production at existing plants should not trigger NSR remains the better Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 135 construction of the CAA. That being the case, we now believe that the fact that such increases may occur after replacement of equipment that does not present an opportune time for the installation of controls should change that conclusion.

To summarize: with respect to existing sources, the purpose of the NSR provisions is simply to require the installation of controls at the appropriate and opportune time. The kind of replacements that automatically fall within the equipment replacement provision established today do not represent such an appropriate and opportune time.

Accordingly, and given that it is consistent with the meaning of " change" to treat this kind of replacement as not being a " change," we believe excluding them on that basis from the definition of " modification" as used in the NSR program is well calculated to serve all of the policies of the NSR provisions of the CAA, and is therefore a legitimate exercise of our discretion under Chevron to construe an ambiguous term. Likewise, we believe this approach is consistent with the holding in the WEPCO case, and with some though not all of that case's reasoning.

Today's rule treats the activities excluded from the definition of " change" as a category of " routine maintenance, repair and replacement". We received many comments as to whether we can and should adopt the ERP as an Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 136 expansion of the RMRR exclusion. We believe it is appropriate to expand the former RMRR exception. Before promulgation of today's rule, we interpreted the phrase " routine maintenance, repair and replacement" to be limited to the day to day maintenance and repair of equipment and the replacement of relatively small parts of a plant that frequently require replacement. Today we are expanding the former definition of RMRR through this rulemaking to include other activities covered by the 20 percent cost threshold that are needed to facilitate the efficiency, reliability and safety of affected sources.

We believe it is appropriate to add one final note regarding the fact that this approach represents a change from the approach we have taken in the recent past. As the Supreme Court explained in Chevron, where it upheld a considerably more significant shift in the Agency's understanding of Title I of the CAA, to wit, the scope of the term " stationary source," there is nothing inherently suspect about a change of approach of this type by an expert Agency seeking to interpret a technical statutory term so as best to accommodate competing interests that Congress has charged the Agency with reconciling.

In section 101 of the CAA, Congress stated that Title I of the CAA has a dual purpose: " to protect and enhance the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 137 quality of the Nation's air resources so as to promote the public health and welfare and the productive capacity of its population" ( emphasis added). This duality is reiterated in the statement of purpose of the PSD provisions and in the House Report accompanying the 1977 Amendments in connection with the non attainment provisions. See sec. 160( 1)

( purposes of the PSD program are, inter alia, " to protect public health and welfare from any actual or potential adverse effect" of air pollution and " to insure that economic growth will continue to occur consistent with the preservation of existing clean air resources"); H. R. Rep.

No. 95 294, p. 211 ( The " two main purposes" of the nonattainment permitting program are "( 1) to allow reasonable economic growth to continue in an area while making reasonable further progress to assure attainment of the standards by a fixed date; and ( 2) to allow States greater flexibility for the former purpose than EPA's present interpretative regulations afford").

More specifically, with regard to the question at issue here, Congress directed EPA not to apply NSR preconstruction permitting requirements to existing plants as a general matter, but to apply them to " modifications." Both directives are entitled to receive appropriate weight.

In these circumstances, changes in an Agency's understanding informed by greater experience are not only Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 138 not surprising, they are to be expected. Effectuating these underlying Congressional commands requires a careful weighing and accommodation of the competing considerations underlying them. Sensitivity to unintended consequences,

and a willingness to adjust policies in a manner informed by a better understanding of those consequences, are a central element of the responsibilities of an Agency given such a charge. As the Chevron Court explained:

Our review of the EPA's varying interpretations of the word " source"  both before and after the 1977 Amendments  convinces us that the agency primarily responsible for administering this important legislation has consistently interpreted it flexibly

not in a sterile textual vacuum, but in the context of implementing policy decisions in a technical and complex arena. The fact that the agency has from time to time changed its interpretation of the term " source"

does not, as respondents argue, lead us to conclude that no deference should be accorded the agency's interpretation of the statute. An initial agency interpretation is not instantly carved in stone. On the contrary, the agency, to engage in informed rulemaking,

must consider varying interpretations and the wisdom of its policy on a continuing basis. Moreover, the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 139 fact that the agency has adopted different definitions in different contexts adds force to the argument that the definition itself is flexible, particularly since Congress has never indicated any disapproval of a flexible reading of the statute.

467 U. S. at 863 64.

The Court went on to point out:

In these cases the Administrator's interpretation represents a reasonable accommodation of manifestly competing interests and is entitled to deference: the regulatory scheme is technical and complex, the agency considered the matter in a detailed and reasoned fashion, and the decision involves reconciling conflicting policies. Congress intended to accommodate both interests, but did not do so itself on the level of specificity presented by these cases. . . .

[ A] n agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices  resolving the competing interests which Congress itself either Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 140 inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities. . . .

We hold that the EPA's definition of the term " source" is a permissible construction of the statute which seeks to accommodate progress in reducing air pollution with economic growth. ` The Regulations which the Administrator has adopted provide what the agency could allowably view as . . . [ an] effective reconciliation of these twofold ends. . . .'

Id. at 865 66 ( citations and footnotes omitted). We believe the same reasoning applies here, and makes it entirely appropriate for us to adopt the equipment replacement provision today.

2. Why today's rule appropriately implements the Clean Air Act's definition of modification.

As noted above, the modification provisions of the NSR program in parts C and D of title I of the CAA are based on the definition of modification in section 111( a)( 4) of the CAA. The term " modification" means " any physical change in,

or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source ofr which results in the emission of any air Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 141 pollutant not previously emitted." As we observed in the notice of proposed rulemaking for this rule, that definition contemplates that you will first determine whether a physical or operational change will occur. If so, then you proceed to determine whether the physical or operational change will result in an emissions increase over baseline levels.

Real world, common sense usage of the word " change" in " physical change" and " change in the method of operation"

shows that " change" is susceptible to multiple meanings.

As we have noted previously, " EPA has always recognized that Congress did not intend that every activity at an existing facility be considered a physical or operational change for purposes of NSR." 57 FR 32,314, 32,319 ( July 21, 1992).

Conceivably, " change" could encompass a range of activities from periodically replacing filters in production machinery,

to once in a lifetime anticipated replacement of a component, to complete replacement of a production unit.

For example, all cars must periodically have their oil " changed." When considered from one perspective, this activity does represent a " change" because old oil is removed and new oil is added. From another perspective,

however, this activity would not be considered a change because it does not alter any significant characteristic of the car. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 142 More to the point, chemical and pharmaceutical manufacturing operations often are designed, operated, and permitted as " multi function" facilities. These facilities have numerous pieces of equipment ( such as storage tanks,

reactors, distillation columns, centrifuges, filter dryers,

etc.) that can be reconfigured to accommodate a wide variety of products and operating conditions. When switching from product X to product Y, a plant can make substantial " changes" in the types of equipment used, the processing conditions, and the raw materials, reagents, solvents, and other processing materials. In this case, the same basic equipment is used to make a wide variety of end products.

But, as long as the facility is operated as designed and permitted, we would not consider ( and have not considered over the 20+ year life of the NSR program) such changes to be physical or operational " changes" for purposes of administering the NSR program.

Similarly, manufacturing equipment often is built with expendable partscomponents. For example, industrial gas turbines, such as those used to drive compressors on natural gas pipelines, regularly need to have partscomponents replaced as they wear out due to the high temperature and pressure conditions inside the turbine. In fact, these gas turbines are built with the knowledge and expectation that Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 143 such replacements will be needed. In recognition of this fact, under the New Source Performance Standard for gas turbines, 40 C. F. R. CFR Part 60 Subpart GG, we have concluded that " replacement of stator blades, turbine nozzles, turbine buckets, fuel nozzles, combustion chambers, seals, and shaft packings" are not " changes" for regulatory purposes. Cite toSee EPA 450/ 2 77 017a, background support document for Subpart GG. Such replacements are akin to getting a new set of brakes on a car   not something that happens often, not an activity that is necessarily inexpensive, but plainly an activity that is an expected part of maintaining and operating the facility and one that does not represent an alteration of the affected process unit.

As the preceding examples suggest, identifying activities that are " changes" for NSR purposes   and thus potentially trigger the need for an NSR permit   requires the exercise of Agency expertise. The application of agency expertise to the interpretation of this statutory term is the classic situation in which an agency has beenis accorded deference under Chevron, U. S. A., Inc. v. NRDC, 467 U. S. 837 ( 1984).

Historically, we have asserted the power to interpret the relevant statutory terms. For example, even though both the NSPS and NSR programs incorporate the definition of " modification" from section 111, from the outset EPA has Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 13 As discussed below, our regulations provided a comparable exclusion from NSPS at the time of the 1977 Amendments that established the NSR program.

144 adopted quite disparate readings of the term in our rules.

See 57 Fed. Reg. 32314, 32316 ( July 21, 1992) ( WEPCO rule discussion of how emission increases are calculated differently for the NSPS and NSR programs). The NSPS program requires a change to result in an increase in the hourly potential to emit of the facility. 40 C. F. R. CFR 60.14( a)

( b). In contrast, under NSR, we require an increase in annual emissions. E. g., 40 C. F. R. CFR 51.165( a)( 1)( x).

These disparate tests reflect the Agency's view that the statutory term " modification" must be construed with a view to what makes sense in particular statutory context, and are not obvious on their face.

The exclusions from NSR we adopted in 1980 also reflect the exercise of the Chevron discretion. Not only did we adopt the RMRR exclusion at that time, but we also adopted exclusions for increases in the hours of operation, fuel changes, and raw material changes. Only the RMRR exclusion arguably could be justified as de minimis. For example, by doubling hours of operation, a 500 ton per yeartpy emitting plant could conceivably double its emissions. 13 The extra 500 tpy is far above any level EPA has ever thought justifiable as de minimis. E. g., 40 C. F. R. CFR Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 145 51.166( b)( 23)( i) ( definition of " significant"). Nor is it likely that these other exclusions could be based on some inherent power to adopt categorical exemptionsexclusions from the Act'sCAA's commands. See Alabama Power Company v.

Costle, 636 F. 2d 323, 359 ( D. C. Cir. 1980) (" categorical exemptions . . . are not favored"). Accordingly, these other exclusions must be justified as an exercise of Chevron discretion.

It is important toAs note thatd previously, in 1977 when Congress incorporated by reference into the NSR program the pre existing NSPS statutory definition of modification,

EPA had already adopted and had been administering regulations and policy under the NSPS program related to the meaning of the term " modification." Our rules and policy provided that certain significant activities did not constitute physical or operational changes under the NSPS program prior to 1977 ( or, for that matter, under the NSPS program as administered today). In addition to the gas turbine example provided above, perhaps the best indication that EPA did not consider the terms " modification" or " change" to cover everything other than de minimis activities is the exclusion for production rate increases under the NSPS program. 40 C. F. R. CFR Section 60.14( e)( 2).

Under this provision, projects valued at millions of dollars can be implemented   with no limitations on the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 146 nature of the project   without triggering applicable NSPSs.

For example, up to 10 percent of the asset value of affected operations at a kraft pulp mill can be invested in a project without triggering the applicable NSPS, 40 C. F. R. CFR Part 60 Subpart BB. The affected facilities at a kraft pulp mill typically are valued in excess of $ 100 million. Cite.

Therefore, an owner or operator can implement projects costing millions of dollars without triggering the applicable NSPS. This holds true regardless of the nature of the project   it can be a " like kind" replacement of the kind addressed by today's rule or it can result in a substantial change in the nature of the operation. Thus,

under the NSPS program that existed when Congress enacted NSR and incorporated into NSR the applicable NSPS definitions, projects of substantial cost that result in substantial change in affected facilities were not considered " changes." The same is true under the NSPS program as it stands today.

We recognize that the Agency previously has not specifically asserted that our interpretation of " change"

and the exclusions from NSR are based on an exercise of Chevron discretion. In some instances, such as in a decision of the EAB, In re: Tennessee Valley Authority, 9 E. A. D. 357 ( EAB 2000), and in briefs in various enforcement Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 14 We have taken positions in numerous court filings concerning the proper interpretation and usage of key statutory terms, such as " physical change" and " any physical change." These positions were based on reasonable statutory interpretationspermissible constructions of the statute of which the regulated community had fair notice, and continue to be the law governing prior activities at covered facilities. We now, however, are using our Chevron authority to define key terms for future activities at covered facilities because the terms have multiple meanings and we now believe the new definitions are most appropriate forcorrectly reflect the Agency's reasonable accommodation of the Clean Air Act regulatory regime going forward. Act's compelling policies in light of its experience at the time it adopted the RMRR exclusion in 1980. The Agency has sought, and has obtained, deference for its interpretations, and, notwithstanding today's adoption of a revised interpretation of the statute and an expansion of the RMRR exclusion, the Agency shall continue to seek deference for those prior interpretations in ongoing enforcement litigation.

147 related cases, we have previously interpreted " change" such that virtually all changes, even trivial ones, are encompassed by the ActCAA. Thus, we generally interpreted the exclusion as being limited to de minimis circumstances.

However, EPA does have the authority to interpret these key terms through rulemaking. Upon further consideration of the history of our actions, the statute, and its legislative history, EPA believes that a different view is permissible,

and, for policy reasons discussed above, more appropriate.

Therefore, we adopt this view prospectively in today's action. 14 The argument that our authority to exclude certain activities from being modifications under new source review can only be based on a de minimis rationale sometimes relies on the word " any" used to modify " physical change" and " change in the method of operation," pointing to the word " any" in the definition of " modification" as a signal from Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 15 We note that the word " any" is simply a modifier that does not change the meaning of the word it modifies. For example, using the term " any" to modify the word " car" does not somehow change or expand the meaning of the word " car." " Any" simply means that, once you have decided what a car is, then all objects meeting the definition are encompassed.

148 Congress that the term " change" must be interpreted as encompassing the broadest possible sense of the term. Such an interpretation is not compelled by the language and legislative history of the statute, as demonstrated by the manner in which we have interpreted the word " change" under both the NSPS and the NSR programs. 15 Nothing in the appellate caselawcase law directly disposes of this issue in a manner that prevents a new interpretation today. Two cases, Alabama Power and Wisconsin Electric Power Co. v. Reilly, 893 F. 2d 901 ( 7th Cir. 1990) (" WEPCO") WEPCO, are relied on by some commenters to assert that EPA must interpret " modification" and " change" expansively and base all exclusions on a de minimis rationale. However, in Alabama Power, the issue before the court was the emissions increase portion of the definition of " modification." The court would have allowed de minimis increases in emissions to be exemptexclude from requirements applying to " modifications" under new source review but not emissions increases equal to the thresholds set by statute for new construction. 636 F. 2d at 399  400. The court did not have before it the issue of what is a " change" and did Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 149 not decide this issue.

In WEPCO, both parties advanced the view that the statute was clear on its face. EPA advanced the view that the term " modification" is necessarily broad, and that only de minimis departures are appropriate. WEPCO asserted that the plain meaning of the term " physical change" allowed for the five large scale rehabilitation projects it contemplated at its Port Washington plant. The WEPCO court held that the rehabilitation projects at issue were too large to reasonably conclude that they should not be treated as physical changes. The court's holding that the statute did not require the interpretation advanced by WEPCO does not deny EPA the discretion to decide to adopt a different,

reasonable interpretation of the term " modification."

While the Court in WEPCO decided that the projects in that case were physical changes, the decision in WEPCO does not answer the question of where to draw the line between activities that should and should not be considered " changes." Nevertheless, contrary to the suggestions of several commenters, the projects at issue in WEPCO would have cost more than the 20 percent of replacement cost threshold selected today and, barring other applicable exclusions, would have been subject to case by case review Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 16As pointed out above, wWe note that the U. S. District Court for the Southern District of Ohio recently issued an opinion in the Agency's NSR enforcement case against Ohio Edison. ( cite) The case included a series of projects with absolute and relative costs well below those at issue in WEPCO. The court determined, again at our urging, that these projects did not qualify for the existing RMRR exclusion. The Agency asserted in that case that the then existing RMRR exclusion should be applied in a narrow fashion such that only de minimis projects should be excluded under that rule. The Agency sought and received from the court broad deference with regard to the Agency's interpretation of the CAA and the relevant EPA rules. EPA today is adopting for future purposesprospectively a new interpretation of the CAA and is finalizing a revision to the RMRR regulation. The decision in Ohio Edison does not preclude the interpretation and regulation finalized in today's action.

150 in the PSD program. See section III. D. above. 16 Some commenters argued that, to further the purposes of the statute, any interpretation must result in the eventual elimination of so called " grandfathered" facilities. We recognize the need to reduce emissions from many existing plants   regardless of whether they are " grandfathered"

( because they have never gone through NSR) or whether they have previously gone through NSR but can further reduce their emissions. EPA and States have issued regulations under a variety of statutory provisions to accomplish this goal in the past, and we will continue to do so in the future. We do not believe, however, the modification provisions of the ActCAA should be interpreted to ensure that all major facilities eventually trigger NSR. In fact,

such an interpretation cannot be squared with the plain language of the ActCAA.

An existing source   whether grandfathered or not   triggers NSR only if it makes a physical or operational Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 151 change that results in an emissions increase. Thus, a facility can conceivably continue to operate indefinitely without triggering NSR   making as many physical or operational changes as it desires   as long as the changes do not result in emissions increases. This outcome is an unavoidable consequence of the plain statutory language and is at odds with the notion that Congress intended that every major source would eventually trigger NSR. Moreover, there is nothing in the legislative history of the 1977 Amendments, which created the NSR program, to suggest that Congress intended to force all then existing sources to go through NSR. To the extent that some members of Congress expressed that view during the debate over the 1990 amendments, such statements are not probative of what Congress meant in 1977. Central Bank of Denver, N. A. v.

First Interstate Bank of Denver, N. A., 511 U. S. 164, 185

86 ( 1994), and cases cited.

In deciding to incorporate by reference the statutory definition of " modification" in section 111, Congress's intent cannot have been to preclude us from adopting an interpretation of " modification" or " change" that differs from one that sweeps in all activities at a source. Under the NSPS program, this interpretation did not apply at the time of the 1977 amendments. When the NSPS definition of " modification" was adopted as part of the NSR program in Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 152 1977, the Congressional Record explained that this provision, "[ i] mplements conference agreement to cover " modification" as well as " construction" by defining " construction" in part C to conform to usage in other parts of the Act." 123 Cong. Rec. 36331 ( Nov. 1, 1977)( emphasis added). Although we do not assert that the NSPS interpretation is the only one we could have adopted for NSR purposes ( we followed quite a different interpretation from 1980 2002) 1980 until today, at the very least it delineates a zone of discretion within which EPA may operate.

Our interpretation today of physical or operational change in a flexible way furthers the purposes of the statute. As noted above, Congress made it clear that the CAA in general, and the NSR program in particular, should be administered in a manner that protects the environment and promotes the productive capacity of the nation. CAA Section 101( b)( 1). The Chevron Court recognized Congress' intent and noted, that " Congress sought to accommodate the conflict between the economic interest in permitting capital improvements to continue and the environmental interest in improving air quality" when it established the NSR program.

Chevron, 467 U. S. at 851. Generally, we believe that these goals are best accomplished by providing state and local governments with discretion to make decisions as to what Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 153 emissions reductions are needed in their jurisdictions to attain and maintain good air quality. See CAA Section 101( a)( 3).

It is now clear that many power plants and industrial facilities must substantially reduce their emissions in order to allow States to meet the stringent fFederal air quality standards that the Supreme Court upheld in 2002.

Under the Clean Air ActCAA, Congress designed a number of regulatory programs that will collectively achieve the necessary reductions. Although the NSR program will effectively limit emissions from new and modified sources,

it was not designed to achieve emission reductions from every existing source.

IV. Administrative Requirements for This Rule A. Executive Order 12866  Regulatory Planning and Review Under Executive Order 12866 [ 58 Federal Register 51,735 ( October 4, 1993)], we must determine whether the regulatory action is " significant" and therefore subject to review by the Office of Management and Budget ( OMB) and the requirements of the Executive Order. The Executive Order defines " significant regulatory action" as one that is likely to result in a rule that may:

( 1) Have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 154 jobs, the environment, public health or safety, or State,

local, or tribal governments or communities;

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

( 3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or ( 4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of Executive Order 12866, OMB has notified us that it considers this an " economically significant regulatory action" within the meaning of the Executive Order. We have submitted this action to OMB for review. Changes made in response to OMB suggestions or recommendations will be documented in the public record.

All written comments from OMB to EPA and any written EPA response to any of those comments are included in the docket listed at the beginning of this notice under ADDRESSES. In addition, consistent with Executive Order 12866, we consulted with the State, local and tribal agencies that will be affected by this rule. We have also sought involvement from industry and public interest groups.

B. Executive Order 13132  Federalism Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 155 Executive Order 13132, entitled " Federalism" ( 64 FR 43255, August 10, 1999), requires us to develop an accountable process to ensure " meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications."

" Policies that have federalism implications" are defined in the Executive Order to include regulations that have " substantial direct effects on the States, on the relationship between the national government and the States,

or on the distribution of power and responsibilities among the various levels of government."

This final rule does not have federalism implications.

Nevertheless, as described in section II. C. of this notice,

in developing this rule, we consulted with affected parties and interested stakeholders, including State and local authorities, to enable them to provide timely input in the development of this rule. This rule will not have substantial direct effects on the States, on the relationship between the national government and the State and local programs, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. We expect this rule will result in some expenditures by the States, we expect those expenditures to be limited to $ 580,000 for the estimated 112 affected reviewing authorities. This estimate Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 156 reflects the small increase in burden imposed upon reviewing authorities in order for them to revise their State Implementation Plans ( SIP). However, this revision provides sources permitted by the States greater certainty in application of the program, which should in turn reduce the overall burden of the program on State and local authorities. Thus, the requirements of Executive Order 13132 do not apply to this rule.

C. Executive Order 13175  Consultation and Coordination with Indian Tribal Governments Executive Order 13175, entitled " Consultation and Coordination with Indian Tribal Governments" ( 65 FR 67249,

November 6, 2000), requires EPA to develop an accountable process to ensure " meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications." We believe that this rule does not have tribal implications as specified in Executive Order 13175. Thus, Executive Order 13175 does not apply.

The purpose of today's final rule is to add greater flexibility to the existing major NSR regulations. These changes will benefit reviewing authorities and the regulated community, including any major source owned by a tribal government or located in or near tribal land, by providing increased certainty as to when the requirements of the major Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 157 NSR program apply. Taken as a whole, today's rule should result in no added burden or compliance costs and should not substantially change the level of environmental performance achieved under the previous rules and guidance.

We anticipate that initially these changes will result in a small increase in the burden imposed upon reviewing authorities in order for them to be included in the State's SIP. Nevertheless, these options and revisions will ultimately provide greater operational flexibility to sources permitted by the States, which will in turn reduce the overall burden on the program on State and local authorities by reducing the number of required permit modifications. In comparison, no tribal government currently has an approved Tribal Implementation Plan ( TIP)

under the CAA to implement the NSR program. The Federal government is currently the NSR reviewing authority in Indian country. Thus, tribal governments should not experience added burden, nor should their laws be affected with respect to implementation of this rule. Additionally,

although major stationary sources affected by today's rule could be located in or near Indian country and/ or be owned or operated by tribal governments, such affected sources would not incur additional costs or compliance burdens as a result of this rule. Instead, the only effect on such sources should be the benefit of the added certainty and Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 158 flexibility provided by the rule.

The EPAWe recognizes the importance of including tribal outreach as part of the rulemaking process. In addition to affording tribes an opportunity to comment on this rule through the proposal, on which two tribes did submit comments, we have also alerted tribes of this action through our website and quarterly newsletter. To this point we have not specifically consulted with tribal officials on this rule, but we are committed to work with any tribal government to resolve any issues that we may have overlooked in today's rules and that may have an adverse impact in Indian country.

D. Executive Order 13045  Protection of Children from Environmental Health Risks and Safety Risks Executive Order 13045, " Protection of Children from Environmental Health Risks and Safety Risks" ( 62 FR 19885,

April 23, 1997) applies to any rule that ( 1) is determined to be " economically significant" as defined under Executive Order 12866, and ( 2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, we must evaluate the environmental health or safety effects of the planned rule on children and explain why the planned regulation is Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 159 preferable to other potentially effective and reasonable alternatives that we considered.

This rule is not subject to Executive Order 13045,

because we do not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. We believe that, based on our analysis of electric utilities, this rule as a whole will result in equal or better environmental protection than currently provided by the existing regulations, and do so in a more streamlined and effective manner.

E. Paperwork Reduction Act Since no recordkeeping or reporting is required by the ERP, this action does not impose anThe information collection burden under the provisions of the requirements in this final rule have been submitted for approval to OMB under the requirements of the Paperwork Reduction Act, 44 U. S. C. 3501 et seq seq. An ICR document has been prepared by EPA ( ICR No. 1230.14), and a copy may be obtained from Susan Auby, U. S. Environmental Protection Agency, Office of Environmental Information, Collection Strategies Division ( 2822T), 1200 Pennsylvania Avenue, NW, Washington, DC 20460

0001, by e mail at auby. susan@ epa. gov, or by calling ( 202)

566 1672. A copy may also be downloaded off the internet at http:// www. epa. gov/ icr. The information requirements included in ICR No. 1230.14 are not effective until OMB Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 160 approves them.

The information that ICR No. 1230.14 covers is required for the submittal of a complete permit application for the construction or modification of all major new stationary sources of pollutants in attainment and nonattainment areas,

as well as for applicable minor stationary sources of pollutants. This information collection is necessary for the proper performance of EPA's functions, has practical utility, and is not unnecessarily duplicative of information we otherwise can reasonably access. We have reduced, to the extent practicable and appropriate, the burden on persons providing the information to or for EPA. In fact, we feel that this rule will result in less burden on industry and reviewing authorities since it streamlines the process of determining whether a replacement activity is RMRR.

However, according to ICR No. 1230.14, we do anticipate an initial increase in burden for reviewing authorities as a result of the rule changes, to account for revising state implementation plans to incorporate these rule changes. As discussed above, we expect those one time expenditures to be limited to $ 580,000 for the estimated 112 affected reviewing authorities. For the number of respondent reviewing authorities, the analysis uses the 112 reviewing authorities count used by other permitting ICR's for the one time tasks Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 161 ( for example, SIP revisions).

Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain,

or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting,

validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust thepurpose of responding to the information collection; adjust existing ways to comply with any previously applicable instructions and requirements;

train personnel to be able to respond to a collection of information; search existing data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9 and 48 CFR chapter 15. We will continue to present OMB control numbers in a consolidated table format to be codified in 40 CFR part 9 of the Agency's regulations, and in each CFR volume containing EPA regulations. The table lists the section numbers with Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 162 reporting and recordkeeping requirements, and the current OMB control numbers. This listing of the OMB control numbers and their subsequent codification in the CFR satisfy the requirements of the Paperwork Reduction Act ( 44 U. S. C.

3501 et seq.) and OMB's implementing regulations at 5 CFR part 1320.

F. Regulatory Flexibility Act ( RFA), as Amended by the Small Business Regulatory Enforcement Fairness Act of 1996 ( SBREFA), 5 U. S. C. 601 et seq.

We determined it is not necessary to prepare a regulatory flexibility analysis in connection with this final rule. We have also determined that this rule will not have a significant economic impact on a substantial number of small entities. For purposes of assessing the impacts of today's rule on small entities, small entity is defined as:

( 1) any small business employing fewer than 500 employees;

( 2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and ( 3) a small organization that is any not for profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's rule on small entities, I certify that this action will not have Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 163 a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives " which minimize any significant economic impact of this rule on small entities."

5 U. S. C. Sections 603 and 604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule.

Today's rule will not have a significant economic impact on a substantial number of small entities because it will decrease the regulatory burden of the existing regulations and have a positive effect on all small entities subject to the rule. This rule improves operational flexibility for owners andor operators of major stationary sources and clarifies applicable requirements for determining if a change qualifies as a major modification. We have therefore concluded that today's rule will relieve regulatory burden for all small entities.

G. Unfunded Mandates Reform Act of 1995 Title II of the Unfunded Mandates Reform Act of 1995 Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 164 ( UMRA), Public Law 104 4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of UMRA, we generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with " Federal mandates" that may result in expenditures to State, local,

and tribal governments, in the aggregate, or to the private sector of $ 100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires us to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover,

section 205 allows us to adopt an alternative other than the least costly, most cost effective, or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted.

Before we establish any regulatory requirements that may significantly or uniquely affect small governments,

including tribal governments, we must have developed under section 203 of the UMRA a small government agency plan. The Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 165 plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of our regulatory proposals with significant Federal intergovernmental mandates, and informing,

educating, and advising small governments on compliance with the regulatory requirements.

We believe these rule changes will actually reduce the regulatory burden associated with the major NSR program by improving the operational flexibility of owners andor operators and clarifying the requirements. Because the program changes provided in the rule are not expected to result in a significant increase in the expenditure by State, local, and tribal governments, or the private sector,

we have not prepared a budgetary impact statement or specifically addressed the selection of the least costly,

most cost effective, or least burdensome alternative.

Because small governments will not be significantly or uniquely affected by this rule, we are not required to develop a plan with regard to small governments. Therefore,

this rule is not subject to the requirements of section 203 of the UMRA.

H. National Technology Transfer and Advancement Act of 1995 Section 12( d) of the National Technology Transfer and Advancement Act of 1995 ( NTTAA), Public Law No. 104 113, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 166 section 12( d) ( 15 U. S. C. 272 note) directs us to use voluntary consensus standards ( VCS) in our regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. VCS are technical standards ( for example, materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs us to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable VCS.

Although this rule does involve the use of technical standards, it does not preclude the State, local, and tribal reviewing agencies from using VCS. Today's rule is an improvement of the existing NSR permitting program. As such, it only ensures that promulgated technical standards are considered and appropriate controls are installed, prior to the construction of major sources of air emissions.

Therefore, we are not considering the use of any VCS in today's rule.

I. Executive Order 13211  Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This rule is not a " significant energy action" as defined in Executive Order 13211, " Actions Concerning Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 167 Regulations That Significantly Affect Energy Supply,

Distribution, or Use" ( 66 FR 28355 ( May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution or use of energy.

Today's rule improves the ability of sources to maintain the reliability of production facilities, and effectively utilize and improve existing capacity.

J. Executive Order 12988  Civil Justice Reform This final rule does not have any preemptive or retroactive effect. This action meets applicable standards in sections 3( a) and 3( b)( 2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity,

and reduce burden.

V. Effective Date for Today's Requirements All of these changes will take effect in the Federal PSD program ( codified at § 52.21) on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION OF FINAL RULES IN THE FEDERAL REGISTER]. This means that these rules will apply on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION OF FINAL RULES IN THE FEDERAL REGISTER] in any area without an approved PSD program, for which we are the reviewing authority, or for which we have delegated our authority to issue permits to a State or local reviewing authority.

To be approvable under the SIP, State and local agency programs implementing part C ( PSD permit program in § 51.166) Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 168 or part D ( nonattainment NSR permit program in § 51.165) must include today's changes as minimum program elements. State and local agencies should assure that any program changes under § § 51.165 and 51.166 are consistently accounted for in other SIP planning measures. State and local agencies must adopt and submit revisions to their part 51 permitting programs implementing these minimum program elements no later than [ INSERT DATE 3 YEARS AFTER PUBLICATION OF FINAL REGULATION IN FEDERAL REGISTER]. That is, for both nonattainment and attainment areas, the SIP revisions must be adopted and submitted within 3 years from today. The ActCAA does not specify a date for submission of SIPs when we revise the PSD and NSR rules. We believe it is appropriate to establish a date analogous to the date for submission of new SIPs when a NAAQS is promulgated or revised. Under section 110( a)( 1) of the ActCAA, as amended in 1990, that date is 3 years from promulgation or revision of the NAAQS. Accordingly, we have established 3 years from today's revisions as the required date for submission of conforming SIP revisions. We have made conforming changes to the PSD regulations at § 51.166( a)( 6)( i) to indicate that State and local agencies must adopt and submit plan revisions within 3 years after new amendments are published in the Federal Register. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 169 Today's rule revises the Federal PSD program located at 40 CFR 52.21 to include the new equipment replacement provision of the RMRR exclusion. The part 52 regulations governing Federal permitting programs include the Federal PSD rule at 40 CFR 52.21 as well as the various sections of subparts C through DDD of part 52 that incorporate the Federal permitting program by reference for those jurisdictions where EPA applies part 52.21 as a Federal Implementation Plan because such jurisdictions lack an approved SIP to implement the PSD program. Because today's final rule adds additional paragraphs to the part 52.21 rules, we will be revising the references in subparts C through DDD to appropriately reflect the program that applies. This final action will be taken in a separate Federal Register notice and will not change the effective date of today's final changes.

VI. Statutory Authority The statutory authority for this action is provided by sections 101, 111, 114, 116, and 301 of the CAA as amended ( 42 U. S. C. 7401, 7411, 7414, 7416, and 7601). This rulemaking is also subject to section 307( d) of the CAA ( 42 U. S. C. 7407( d)). Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 27, 2003 170 RMRR   Page ?? of ??(?)

LIST OF SUBJECTS 40 CFR Parts 51 and 52 Environmental protection, Administrative practices and procedures, Air pollution control, Intergovernmental relations.

____________________

Dated:

_____________________

Marianne Lamont Horinko,

Acting Administrator.