# Acid Rain Program: Permits, Allowance System, Sulfur Dioxide Opt- Ins, Continuous Emission Monitoring, Excess Emissions, and Appeal Procedures > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A96-31968 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** December 27, 1996 - **Citation:** 61 FR 68340 ## Text SUMMARY: Title IV of the Clean Air Act (the Act) authorizes the Environmental Protection Agency (EPA or Agency) to establish the Acid Rain Program. The purpose of the Acid Rain Program is to significantly reduce emissions of sulfur dioxide and nitrogen oxides from utility electric generating plants in order to reduce the adverse health and ecological impacts of acidic deposition (or acid rain) resulting from such emissions. On January 11 and March 23, 1993, the Agency promulgated final rules governing permitting, the allowance system, continuous emissions monitoring, excess emissions, and appeal procedures. After considering its experience in applying these rules since 1993, the Agency believes that the permitting, excess emissions, and appeal procedures rules (as well as minor aspects of the monitoring rule) can be streamlined and improved in order to reduce the burden on utilities, State and local permitting authorities, and EPA. The rule revisions in today's proposal streamline the Acid Rain Program while still ensuring achievement of its statutory goals of reducing sulfur dioxide and nitrogen oxides emissions. In addition, EPA is revising allocations of sulfur dixoxide allowances. Each allowance authorizes the emission of one ton of sulfur dioxide. Under the Acid Rain Program, utility units (i.e., fossil fuel- fired boilers or turbines) are allocated allowances and must not emit sulfur dioxide in excess of the amount authorized by the allowances that they hold. EPA proposes to revise certain units' allowances in response to litigation, in light of Agency errors in making the allocations or errors in data relevant to whether facilities are covered by the Acid Rain Program, or because of more recent information concerning the construction or commercial operation of new units. DATES: Comments on the regulations proposed by this action must be received on or before January 27, 1997. ADDRESSES: Comments. All written comments must be identified with the appropriate docket number (Docket No. A-95-56) and must be submitted in duplicate to EPA Air Docket Section (6102), Waterside Mall, Room M1500, 1st Floor, 401 M Street, SW, Washington DC 20460. Docket. Docket No. A-95-56, containing supporting information used to develop the proposal is available for public inspection and copying from 8:30 a.m. to 12 p.m. and 1 p.m. to 3:30 p.m., Monday through Friday, excluding legal holidays, at EPA's Air Docket Section at the above address. Information concerning the original rules and some of the revisions proposed today is found in Docket Nos. A-90-38 (permits), A-91-43 and A-92-06 (allowances), A-90-51 (continuous emissions monitoring), A-91-68 (excess emissions), A-91-69 (general), and A-93-15 (appeals). A reasonable fee may be charged for copying. FOR FURTHER INFORMATION CONTACT: Kathy Barylski, at (202) 233-9074, U.S. Environmental Protection Agency, 401 M St. SW, Acid Rain Division (6204J), Washington, DC 20460 (concerning revisions of parts 73 and 75); Dwight C. Alpern, Attorney-advisor, at (202) 233-9151 (same address) (concerning all other revisions); or the Acid Rain Hotline at (202) 233-9620. SUPPLEMENTARY INFORMATION: Regulated Entities Entities potentially regulated by this action are fossil-fuel fired boilers or turbines that serve generators producing electricity for sale. Regulated categories and entities include: ------------------------------------------------------------------------ Examples of regulated Category entities ------------------------------------------------------------------------ Industry.................................. Electric service providers ------------------------------------------------------------------------ This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this action. This table lists the types of entities that EPA is now aware could potentially be regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether your facility is regulated by this action, you should carefully examine the applicability criteria in Sec. 72.6 and the exemptions in Secs. 72.7 and 72.8 of title 40 of the Code of Federal Regulations and the revised Secs. 72.6, 72.7, 72.8, and 72.14 of the proposed rule. If you have questions regarding the applicability of this action to a particular entity, consult the persons listed in the preceding FOR FURTHER INFORMATION CONTACT Section. Organization The information in this preamble is organized as follows: I. Part 72: Applicability of and Exemptions from Acid Rain Program A. Revisions Concerning Applicability B. Revisions to Exemptions 1. Fuel Use and Fuel Testing Requirements Under New Units Exemption 2. Administration of New Units Exemption 3. Retired Units Exemption 4. Industrial Units Exemption II. Part 72: Interaction of Acid Rain Permitting and Title V A. Relationship Between Acid Rain Rules and Parts 70 and 71 B. State Authority to Administer and Enforce Acid Rain Permits C. Required Elements for State Acid Rain Program III. Part 72: Miscellaneous Permitting Matters A. Definitions B. Designated Representative C. Compliance Plans l. Submission of Substitution and Reduced Utilization Plans 2. Repowering Extension Plans D. Federal Permit Issuance E. Permit Revision F. Reduced Utilization Accounting IV. Part 73: Allowances A. Revision of Table 2 Allowances l. Allocation Determinations Remanded to EPA 2. Correction of Agency Errors B. Deletion of Units from Table 2 C. Additions of Units to and Deletions of Units From Table 3 D. 1998 Revision of Allowance Allocations E. Revisions to Small Diesel Refinery Provisions V. Part 75: Monitoring Requirements for Units Burning Digester or Landfill Gas VI. Part 77: Excess Emissions A. Immediate Deduction of Allowances to Offset Excess Emissions B. Deadline for Payment of Excess Emissions Penalties C. Excess NOx Emissions Under NOX Averaging Plans VII. Part 78: Administrative Appeals VIII. Administrative Requirements A. Executive Order 12866 B. Unfunded Mandates Act C. Paperwork Reduction Act D. Regulatory Flexibility Act E. Miscellaneous I. Part 72: Applicability of and Exemptions From Acid Rain Program A. Revisions Concerning Applicability Section 72.6 explains what types of units are ``affected units'' subject to emissions reduction or limitation [[Page 68341]] requirements and other requirements of the Acid Rain Program and what types of units are not affected units. Under Sec. 72.6(b) (5) and (6), qualifying facilities and independent power production facilities meeting certain requirements are not affected units. One such requirement is that the facility had, as of November 15, 1990, a qualifying power purchase commitment, which may be in the form of a letter of intent that is followed by a power sales agreement. Under section 405(g)(6)(A) of the Act, the power sales agreement must be executed ``within a reasonable time'' following the letter of intent. In July 1992 (57 FR 29940, 29947 (July 7, 1992)), EPA proposed a two- year deadline or no later than November 15, 1992 for execution of the power sales agreement. That deadline was not commented on and was made final in March 1993 (58 FR 15634, 15648 (March 23, 1993)). Subsequently, EPA has received public comment that the two-year deadline created a hardship for independent power producers negotiating with multiple regulated purchasers. To implement the statutory language regarding the time frame for execution of a power sales agreement, EPA could set a fixed deadline (as in the current rule) or could determine a reasonable time frame on a case-by-case basis as part of an applicability determination. Particularly where questions of the applicability of the Acid Rain Program are involved, EPA maintains that it is preferable to establish clear-cut lines. Moreover, EPA is concerned that the two-year period in the current rule for execution of an agreement does not take account of the time necessary to complete agreements where multiple utility purchasers are involved. Therefore, EPA is proposing to revise the deadline to three years from letter of intent to execution of a power sales agreement. Since under section 405(g)(6)(A) of the Act, the letter of intent must be in place by November 15, 1990, this means that the power sales agreement must have been executed by November 15, 1993, rather than by November 15, 1992 as under the current rule. Public comment indicates that the additional year is reasonable for independent power producers negotiating with multiple regulated purchasers. EPA requests comments on this revision. Section 72.6(c) sets out procedures for petitioning for a determination from the Administrator as to whether a unit is an affected unit covered by the Acid Rain Program. The current regulation allows the submission of the petition by a certifying official, rather than requiring that the unit have a designated representative who would make the submission. However, the regulation has a general reference to, and requires compliance with, Sec. 72.21, which requires that submissions be made by a designated representative and include certain certifications. To prevent confusion, EPA proposes revisions that pinpoint the certification and notice requirements in Sec. 72.21 that a certifying official's petition must meet. In addition, language is added to Sec. 72.6(c)(1) to clarify that it is the certifying official of an owner or operator of a unit that may submit a petition, and some superfluous language is removed. Further, this section is revised to allow a petition to be submitted at any time but indicating that, if possible, the petition should be submitted before the issuance of an Acid Rain permit. While EPA wants to facilitate the submission of petitions where owners or operators are uncertain as to the status of their unit under the Acid Rain Program, EPA's determination on the petition may obviate the processing and issuance of a permit for the unit. B. Revisions to Exemptions In the current rule, EPA established two exemptions from Acid Rain Program requirements. First, in Sec. 72.7 EPA provided for an exemption from requirements concerning permitting, allowances, and continuous emissions monitoring for small, new units (i.e., units that commence commercial operation on or after November 15, 1990 and serve generators with a total nameplate capacity of 25 MWe or less) burning clean fuels. The exemption was adopted because emissions from these units were considered to be de minimis. 58 FR 3390, 3594 (January 11, 1993). Second, in Sec. 72.8 EPA provided for an exemption from Phase II permitting requirements for affected units that retire permanently prior to the issuance of a Phase II Acid Rain permit. Units that submitted petitions for such an exemption could also be exempted from monitoring requirements under Sec. 75.67. 1. Fuel Use and Fuel Testing Requirements Under New Units Exemption EPA is proposing to modify the limitation on fuel use and the requirements for fuel testing under the new units exemption. Under the current rule, units must use exclusively fuels with a sulfur content of 0.05 percent or less by weight, and specified tests to measure sulfur content must be performed for each delivery of fuel (other than natural gas, which is presumed to meet the sulfur content requirement). The records of such tests must be retained at the source for 5 years. In contrast, today's proposal requires units to use only gaseous fuel with an annual average sulfur content of 0.05 percent by weight or less and only nongaseous fuel that separately meets this same annual average sulfur content limit. The proposal includes formulas for calculating the annual average percentage sulfur content by weight for gaseous fuels and for nongaseous fuels. Similar to the approach in the current rule requiring sampling and sulfur content testing of fuel deliveries, the formulas require use of the measured sulfur content of periodic samples of fuel deliveries during the year to calculate the annual average sulfur content of fuel burned during the year. The formulas require sampling of fuel at least once for each delivery or, for fuel that is delivered to the unit continuously by pipeline, at least once each quarter that the fuel is delivered. Unlike the current rule, the formulas do not require the use of any specific testing methods to measure sulfur content. Sampling and testing of sulfur content of fuel, which may be performed by the fuel supplier rather than the unit's owners and operators, are necessary in order to demonstrate whether the sulfur content limit is met. As under the current rule, the owners and operators of an exempt unit bear the burden of proving compliance with the requirements of the exemption. However, if the only gaseous fuel burned is natural gas, the proposal provides that the 0.05 percent annual average limit for gaseous fuel is assumed to be met without making any calculations or conducting any sampling or testing. This is consistent with the current Sec. 72.7(d)(2)(ii), which provides that natural gas (which is defined as a ``fluid mixture of hydocarbons containing'', inter alia, 20 grains or less of sulfur (40 CFR 72.2)) is assumed to meet the 0.05 percent limit on each delivery of fuel. Moreover, consistent with the current rule, which excludes (through the 0.05 percent sulfur content limit on each delivery) any use of coal by the units, and because the sulfur content of a coal delivery is not necessarily uniform, the proposal expressly bars the use of coal or coal-derived fuel (except coal- derived gas with a sulfur content no greater than natural gas) by exempt units. EPA believes that the fuel use and testing requirements in the proposal are sufficiently stringent to ensure that minimal emissions from the exempt units and are significantly less [[Page 68342]] burdensome for the owners and operators of the units involved, which in many cases are municipally owned units. Allowing a unit to burn some fuel that exceeds 0.05 percent sulfur by weight so long as the annual average sulfur content of its fuel (weighted by the weight of the fuel) does not exceed that level will have little effect on the total SO2 emissions for the year. Separate sulfur content limits are established by gaseous and nongaseous fuels so that very clean gaseous fuel (e.g., pipeline natural gas) cannot be used to offset nongaseous fuel with a sulfur content significantly higher than 0.05 percent. EPA notes that, under this approach, a unit will be able to use landfill or digester gas, which has a higher sulfur content than natural gas but lower than some nongaseous fuels.1 Using the annual average will give owners and operators more flexibility in that a single delivery of fuel in excess of the limit will not automatically invalidate the exemption, as is the case under the current rule. --------------------------------------------------------------------------- \1\ This is consistent with EPA's efforts to encourage use, rather than flaring, of such gas. See section V of this preamble. --------------------------------------------------------------------------- EPA also believes that prescribing more detailed testing methods is unnecessary because the appropriate testing methods may vary depending on the specific fuel involved and testing data from the fuel supplier may be sufficient to establish the sulfur content of the fuel.2 The proposal requires owners and operators to keep records for 5 years (or longer if required in writing by EPA or the permitting authority) that demonstrate that the sulfur content limit has been met. This approach gives owners and operators more flexibility to determine what type of information will support such a demonstration, but the proposal also emphasizes that the burden of proof is on the owners and operators. --------------------------------------------------------------------------- \2\ With the elimination of the fuel testing requirements in the current rule, the testing methodologies specified in the current Sec. 72.7 and incorporated by reference in the current Sec. 72.13 are unnecessary, and EPA therefore proposes to remove them. The provisions of Sec. 72.13 are renumbered to reflect this change. --------------------------------------------------------------------------- 2. Administration of New Units Exemption The purpose of the exemption, of course, is to relieve owners and operators of the burden of complying with permitting, allowance, and monitoring requirements for clean new units and to reduce the concomitant administrative burden on permitting authorities. In issuing new unit exemptions under the current rule, the Agency has found that the procedures for obtaining and maintaining an exemption are somewhat less burdensome than the procedural requirements for units required to have Acid Rain permits. However, the Agency has concluded that the exemption procedures are still more burdensome than necessary. In particular, the current rule provides that: a potentially exempt unit must have a designated representative and submit a petition for a written exemption; the permitting authority must issue a written exemption after providing public notice (e.g., in a local newspaper) and a comment period; and the exemption must be renewed every five years. The current rule requires a significant amount of processing for each unit that seeks to obtain an exemption. The Agency has already granted about 130 new unit exemptions using current procedures, and, despite extensive public notice, not one comment has been received during the public comment periods. Based on its experience with these exemptions, EPA does not believe that requiring a designated representative to be appointed for each clean unit and submission and processing of forms for a new units exemption every five years provides any significant environmental benefit. The proposal makes the new unit exemptions largely automatic for those units that meet the criteria, discussed above, concerning capacity, annual fuel use, and recordkeeping. In general, no designated representative, petition for exemption, or renewal petition is required.3 --------------------------------------------------------------------------- \3\ Because the proposed new units exemption and, as discussed below, the proposed retired units exemption, are automatic and written exemptions for these units are no longer issued, the references in the current part 72 to written exemptions under Secs. 72.7 and 72.8 are revised. The revisions to these references also reflect, in some cases, the establishment of exemptions for industrial units under proposed Sec. 72.14, which is discussed below. For example, the criteria for State acid rain programs in Sec. 72.72(b) are changed to remove the reference to Secs. 72.7 and 72.8 written exemptions and to refer instead to Sec. 72.14 exemptions. By further example, the reference in Sec. 72.9(c)(6) to Secs. 72.7 and 72.8 written exemptions is changed to refer to exemptions under Secs. 72.7, 72.8, and 72.14. The same change--and the only change proposed to part 74--is proposed in Sec. 74.2. --------------------------------------------------------------------------- The only exception to this approach is for units that are listed and allocated one or more allowances on Table 2 or 3 of Sec. 73.10. Because they are being exempt from the requirement to hold allowances to cover emissions, they should not retain their allowance allocations. The proposal requires the designated representative (who handle the unit's allowance account) to submit to EPA and the State permitting authority a statement that: the unit meets, and will continue to meet, the exemption requirements; he or she is surrendering allowances in the same amount, and of the same or earlier compliance use date as, the unit's allocated allowances; and he or she is returning the proceeds for any allowances withheld from the unit for EPA allowance auctions under subpart E of part 73. However, apparently because the owners and operators of some small units are small entities and not fully aware of their obligations under the Acid Rain Program, some potentially exempt units have still not selected designated representatives even though the units are allocated allowances. In order to facilitate implementation of the exemptions by small entities, the proposal provides that, if there is no designated representative, a certifying official of each owner of the unit may make this submission. This reflects the desirability of ensuring that each owner (or the designated representative representing all owners) is aware of the allowance surrender. The unit will not be exempt until EPA actually deducts the allowances from the unit account in the Allowance Tracking System and receives the allowance auction proceeds. Upon deduction of the allowances, the unit account is closed. Although units that meet the exemption criteria and are not allocated allowances are automatically exempt, the proposal requires the designated representative (or a certifying official of each owner) of such unit to submit to EPA and the State permitting authority a statement that the unit meets and will continue to meet the exemption, which are referenced in the statement. EPA anticipates providing a standard form for designated representatives or certifying officials for exempt units (whether or not they have allocated allowances) to submit the appropriate information. Providing this type of notice to EPA and the State permitting authorities imposes little burden on the exempt units and has important benefits. First, owners of the units are more likely to consider carefully the basis for the exemption and the continuing requirements under the exemption if each owners' representative must sign and submit such a form. Second, submission of the form will ensure that EPA and State permitting authorities can keep track of which units are exempt and will not treat such units as affected units. Under the proposal, a new units exemption is effective on January 1 of the first full calendar year for which the unit meets the criteria for an exemption. [[Page 68343]] This reflects the annual nature of the Acid Rain Program. As provided in the current rule, the exemption terminates automatically when the unit involved no longer satisfies the criteria for an exemption. Consistent with the approach taken with other exclusions of units from the Acid Rain Program, a unit that had an automatic exemption that terminates is an affected unit and cannot requalify for the exemption. See 40 CFR 72.6(a)(3)(ii) through (vii). As in the current rule, exemption termination subjects the unit to the permitting, allowance, and monitoring requirements of the Acid Rain Program. The unit will have to have a designated representative, who must submit a complete permit application before the later of January 1, 1998 or 60 days after the exemption terminates. The unit will have to comply with the monitoring requirements within 90 days after the termination. Under the current rule, exempt units are still included in the definition of ``affected unit.'' As a result, they must generally be included in title V operating permits issued by State permitting authorities under part 70 and are not eligible to become opt-in units under part 74. Part 70 requires sources with affected units to have operating permits reflecting Acid Rain Program requirements and any other Clean Air Act requirements to which the sources are subject. If a unit is subject to other Clean Air Act requirements, the unit must continue to comply with such non-title IV provisions, and this will be reflected in the title V operating permit.4 However, if a unit is not subject to any other Clean Air Act requirements and the unit is exempt from Acid Rain permitting, allowance, and monitoring requirements, question has been raised as to whether the current rule can be read to require the unit to obtain a title V operating permit. In such circumstances, it makes little sense to require a title V operating permit; after all, the only requirements put in the permit will be those for maintaining an exemption and a major purpose of the exemption is to relieve the unit and the permitting authority of permitting burdens. Although the Agency maintains that a title V operating permit is not required for such a unit, the proposal modifies Sec. 72.6(b) to make this explicit by stating that any exempt new unit is an unaffected unit. Further, because the purpose of the exemption is to relieve clean, new units of permitting and other Acid Rain requirements, EPA continues to believe that exempt units should be excluded from applying to re-enter the Acid Rain Program as opt-in sources and the proposal contains such an exclusion. --------------------------------------------------------------------------- \4\ In order to ensure that owners and operators understand this, today's proposal states this expressly. The proposed rule also provides that a permitting authority may use the administrative amendment procedures under Sec. 72.83 to add to the permit an exemption under Sec. 72.7, 72.8, or 72.14. --------------------------------------------------------------------------- Finally, as discussed above, EPA has already approved a number of written exemptions for new units under the current rule. Since the proposal provides more flexible requirements for qualifying for and maintaining the exemption (e.g., more flexible sulfur content requirements and no renewal requirement), the units with written exemptions also qualify for the automatic exemption under today's proposal. The proposal makes this clear by including, as one category of units that qualify for the automatic exemption, those new units that have already been granted written exemptions. EPA sees no reason for denying already exempt units the flexibility and streamlining benefits of the proposal and also sees no purpose to retaining permanently two different types of new units exemptions. Consequently, the proposal provides that already exempt units must meet the requirements for maintaining an automatic exemption, in lieu of the requirements contained in the current rule. However, while the current rule requires exempt units to surrender any allowances allocated to the units under Sec. 73.10 for years for which the units are exempt, the written exemptions already granted did not extend beyond 5 years. The already exempt units have not yet surrendered Phase II allowances and, under the current rule, will have to do so when the exemption is renewed. In extending automatically these exemptions and removing the need for renewal, the proposal requires those exempt units with allocated allowances to surrender such allowances and the proceeds from EPA's auctioning of such allowances. 3. Retired Units Exemption While retaining the basic criteria in the current rule for qualifying for the retired units exemption, EPA proposes to streamline the procedures for obtaining and maintaining the exemption. In addition, EPA proposes to clarify what Acid Rain requirements are covered by the exemption. The current rule requires largely the same procedures for the retired units exemption as for the new units exemption: submission of a petition, issuance of a written exemption subject to public notice and comment, and submission of a renewal petition every 5 years. EPA has approved about 155 retired units exemptions under these procedures without receiving any public comments on them. Since the purpose of the exemption is to reduce the burden on the owners and operators of retired units and the permitting authorities, EPA believes that, as in the case of new units exemptions, the procedures for retired units exemptions can be made less burdensome. The proposal takes essentially the same approach in setting revised procedures for both new units and retired units exemptions. The proposed retired units exemption is automatic so long as the unit meets the criteria for the exemption: i.e., that the unit is permanently retired and does not emit any SO2 or NOX starting on the effective date of the exemption. Units that retire are not, of course, necessarily small and, since they probably have been participating in the Acid Rain Program until retirement, probably have designated representatives. Under the proposal, the designated representative of each exempt unit must submit to EPA and the State permitting authority a statement that the unit meets, and will continue to meet, the exemption requirements. EPA anticipates providing a standard form for the designated representative of an exempt unit to submit the appropriate information. Units already granted retired units exemptions also qualify for the automatic exemption and will make no additional submissions. As under the current rule, exempt retired units retain their allocated allowances since, even without the exemption, they would have no SO2 emissions and would not use any allowances. An exempt unit's Allowance Tracking System account is subject to the requirements for general accounts under part 73. The owners and operators of the unit must retain at the source records demonstrating that the unit qualifies for the exemption. The exemption terminates automatically if the unit resumes operation and emits any SO2 or NOX. EPA is also proposing to modify the current rule to clarify what Acid Rain requirements are covered by the exemption. Currently Sec. 72.8 of the regulations exempts retired units only from the requirements of part 72. Section 75.67(a) currently provides that units that retire before January 1, 1995 and for which a petition for a retired units exemption is submitted prior to monitor certification deadlines may also obtain an exemption from the monitoring requirements of part 75. The Agency maintains that any unit that retires should be automatically exempt, starting in the first full year of [[Page 68344]] retirement, from both the Phase II permitting requirements of part 72 and the monitoring requirements of part 75 so long as the unit remains retired. If the unit has no emissions, there is nothing to monitor. The proposal removes Sec. 75.67(a) and adds the monitoring exemption to Sec. 72.8. However, as noted above, retired units may still receive allowance allocations. Such units must remain subject to subpart B of part 73, which governs allowance allocations. Reflecting these considerations, the proposal exempts retired units from all Acid Rain Program requirements except for the provisions of Secs. 72.2 through 72.6, Sec. 72.8, Secs. 72.10 through 72.13, and subpart B of part 73. Moreover, retired units that, but for the exemption under Sec. 72.7, would be Phase I units, must still comply with the requirements concerning Phase I Acid Rain permits and reduced utilization of such units during Phase I.5 The purpose of the retired units exemption is to exempt the units from Phase II permitting, not to allow them to avoid requirements implementing statutory permitting and reduced utilization provisions. In fact, the retired unit exemptions issued by EPA under the current Sec. 72.8 state expressly that they apply to Phase II (as distinguished from Phase I) permitting requirements. In order to clarify that reduced utilization requirements apply to units with retired unit exemptions, the proposal states that the units must submit annual compliance certification reports that include the accounting for reduced utilization and are subject to end-of-year allowance deduction procedures for Phase I years. --------------------------------------------------------------------------- \5\ The definition of ``Phase I unit'' in Sec. 72.2 is revised to make it clear that units that, but for a retired units exemption, would be subject to an Acid Rain emission reduction requirement or limitation continue to be treated as Phase I units. --------------------------------------------------------------------------- For the same reasons as under the proposed new units exemption, EPA proposes that units under the retired units exemption be unaffected units and that they be excluded from becoming opt-in sources. Similarly, retired units already granted written exemptions will be covered by the automatic exemption and must comply with the requirements for maintaining such an exemption. 4. Industrial Units Exemption The purpose of title IV is to reduce the adverse impacts of acid deposition through reductions of SO2 and NOx emissions. Congress addressed SO2 emissions of both ``utility units'' and ``industrial sources.'' While ``utility units'' are generally required (starting in Phase I, if the unit is listed in Table A of section 404 or is otherwise a Phase I unit, or Phase II) to meet SO2 emissions limitations and to hold allowances to cover their SO2 emissions, ``industrial sources'' are not specifically required to limit emissions or hold allowances. Instead, section 406 of the Clean Air Act Amendments of 1990 required the Administrator to prepare and submit to Congress a report that inventories national annual SO2 emissions from industrial sources. Whenever the inventory indicates that such emissions ``may reasonably be expected to exceed 5.6 million tons per year,'' the Administrator must ``take such actions under the Clean Air Act as may be appropriate to ensure that such emissions do not exceed'' the 5.6 million ton cap. 42 U.S.C. 7656. These actions may include promulgation of standards of performance for new or existing sources. The statutory definitions of ``utility unit'' and ``industrial source'' draw the line between facilities (utility units) that are subject to the requirement to hold allowances by no later than January 1, 2000 and industrial sources that are not, but could be, made subject to unspecified requirements if the industrial source cap is exceeded. However, ``utility unit'' is broadly defined in section 402 of the Act to encompass units owned by companies that are generally not treated as full-fledged public utilities by State and federal utility regulatory authorities. Generally, for purposes of State utility regulation, a public utility is an entity that owns or operates facilities whose product or service is dedicated to public use. Typically, the company must devote its facilities to serve the general public or a portion of the general public, not simply selected contract customers.6 In contrast, under section 201(e) of the Federal Power Act, any persons that sell electricity that is in turn resold are ``public utilities'' and are subject to regulation of their sales rates and other matters by the Federal Energy Regulatory Commission (FERC). While holding that industrial companies that sell utilities incidental amounts of electricity from non-cogeneration units are themselves public utilities, FERC has imposed less burdensome regulatory requirements on such industrial sellers. For example, rate schedules for sales by these industrial sellers must be filed with FERC but the rates are not required to meet traditional cost-of-service standards, under which a rate must be based on the seller's costs (including return on capital) of providing the electricity. See, e.g., Ford Motor Co. and Rouge Steel Co., 50 FERC para. 61,426 (1990), modified on reh'g, 50 FERC para. 61,025; Cliffs Electric Service Co., 32 FERC para. 61,372 at 61,833 (1985); Orange & Rockland Utilities, 42 FERC para. 61,012 (1988); St. Joe Minerals Corp., 21 FERC para. 61,323 (1982), modified on rehg., 22 FERC 61,211 (1983). --------------------------------------------------------------------------- \6\ See, e.g., Arkansas-Louisiana Electric Cooperative v. Arkansas Public Service Comm'n, 194 S.W.2d 673, 678 (S.Ct. Arka. 1946); Richfield Oil v. Public Utilities Comm'n of California, 354 P.2d 4, 10-11 and 16 (S.Ct. Cal. 1960); Colorado Utilities v. Public Service Comm'n, 61 P.2d 849, 854-55 (S.Ct. Colo. 1936); Mississippi River Fuel v. Illinois Commerce Comm'n, 116 N.E.2d 394, 399 (S.Ct. Ill. 1953); City of Saint Louis v. Mississippi River Fuel, 97 F.2d 726, 729-30 (8th Cir. 1938); Llano v. Southern Union Gas, 399 P.2d 646, 653 (S. Ct. N.Mex. 1964); Ambridge v. Public Sevice Comm'n of Pennsylvania, 165 A. 47, 49 (S. Ct. Penn. 1933); Humble Oil and Refining v. Railroad Comm'n of Texas, 128 S.W.2d 9, 13 (S.Ct. Tex. 1939); Valcour v. Morrisville, 184 A. 881, 885 (S. Ct. Ver. 1936); Inland Empire Rural Electrification v. Dept. of Public Service of Washington, 92 P.2d 258, 262-63 (S.Ct. Wash. 1939); Wilhite v. Public Utilities Comm'n of West Virginia, 149 S.E.2d 273, 281 (S.Ct W. Wir. 1966); and Union Falls Power v. Oconto Falls, 265 N.W. 722, 723 (S.Ct. Wisc. 1936) (cases holding that company that serve public, not just selected customers, is public utility). But see Southern Oklahoma Power v. Corporation Comm'n, 220 P. 370, 371 (S.Ct. Okla. 1923) (holding that generating company the only customer of which is a public utility is itself a public utility). --------------------------------------------------------------------------- Under section 402 of the Clean Air Act, a utility unit is ``a unit that serves a generator in any State that produces electricity for sale,'' regardless of the amount of the sale relative to total generation by the unit or generator or whether the sale is to the general public or to a public utility for resale to the public. 42 U.S.C. 7651a(17)(A). Consequently, entities (such as independent power producers, small power producers, and cogenerators) that sell electricity to a public utility are affected units unless they qualify for an exemption under other provisions of title IV. Section 402(17)(C) establishes an exemption for units cogenerating steam and electricity: a cogeneration unit is not a ``utility unit'' unless the unit is constructed for the purpose of supplying, or commences construction after [November 15, 1990] and supplies, more than one-third of its potential electric output capacity and more than 25 megawatts electrical output to any utility power distribution system for sale. 42 U.S.C. 7651a(17)(C). In addition, section 405(g)(6) establishes an exemption for ``qualifing small power production facilities'', ``qualifying cogeneration facilities'', and ``new independent power producers''. 42 U.S.C. 7651d(g)(6). Such entities (which are defined in sections 405(g)(6) and 416(a)(2)) that had a committment--through a power sales agreement, a order of a State regulatory authority, a letter of intent, or selection as a winning bidder in a competitive bid [[Page 68345]] solilcitation--as of November 15, 1990 to sell power are not affected units. There are no such exceptions for industrial units that do not fall within the exempt categories of units under these sections. As a result, the requirements of title IV cover non-cogeneration industrial units serving generators that produce electricity almost exclusively for use by an industrial company and only incidentally for sale to a public utility. In one such case, three units and three generators (with a total nameplate capacity of about 190 MWe) are owned and operated solely by the industrial company. Under the interconnection agreement with a public utility and a related power purchase agreement, the public utility provides additional electricity, through backup and emergency service, for use by the industrial company. The industrial company is in turn obligated to sell some electricity on a backup and emergency basis to the public utility and, starting in 1984, has made such sales, which have been less than 10 percent of total annual generation. The industrial company obtains backup for its capacity, and the public utility avoids constructing some additional capacity. Because these industrial units make limited electricity sales only to the public utility, the company is apparently not regulated by the State utility regulatory authority and is subject to relatively light-handed FERC regulation. EPA has received public comment suggesting that the units be exempt from the Acid Rain Program. In order to determine the scope of the issue, EPA attempted to estimate the number of units that might be covered by such an exemption for industrial units. About 3,400 industrial combustion sources are included in the 1990 Interim Inventory (a database based on the 1985 NAPAP inventory with emissions projections for 1995). EPA removed, from this group of possibly affected industrial units, those industrial units thought to be: self-generators consuming rather than selling their generation; cogenerators exempt under section 402(17)(C); or units exempt under section 402(b) because they were serving only generators with a nameplate capacity of 25 MWe or less. EPA estimated that about 140 remaining industrial units possibly may be affected units under title IV. Based on discussions with industry representatives and on review of the electric rate schedules filed at FERC for electricity sellers that are not traditional utilities, EPA concludes that most of these remaining industrial units are not selling any electricity and that there are about 15 industrial units that sell some electricity and so are affected units under the current Acid Rain rules. See Report to Docket: Industrial Units. Even if electricity sales to a public utility make up a very small portion of the total amount of electricity produced by an industrial unit and associated generator, the Acid Rain Program imposes allowance requirements relating to all SO2 emissions from the unit. In such a case, no distinction is made between emissions associated with the small amount of electricity sales and emissions associated with the vast majority of electricity used by the industrial company itself. An affected industrial unit must hold allowances, as of the allowance transfer deadline, that cover all of the unit's SO2 emissions during the year. 40 CFR 72.9(c)(1)(i). Similarly, any NOx emission limitation applicable to the industrial unit covers all NOx emissions from the unit. See, e.g., 40 CFR 76.5, 76.6, and 76.7. The cost to some industrial companies of holding sufficient allowances may be exacerbated by the fact that, even though certain existing industrial units could have qualified for allowance allocations for Phase II under section 405 of the Act, none were allocated any allowances. See 40 U.S.C. 73.10 (Tables 2 and 3, which do not include any such units). Information on such units was not included in the National Allowance Data Base (NADB), which was used to develop allowance allocations. However, based on information compiled by the Department of Energy on electric generators owned by nonutility electric power producers, EPA developed and published the Adjunct Data File, which listed units owned by ``nontraditional'' utilities. 57 FR 30034, 30040 (July 7, 1992). EPA noted that the listed facilities potentially could be affected units, but that it did not have sufficient information to make an applicabililty determination or to allocate allowances to those that were affected units. Consequently, in publishing the file, EPA requested owners or operators of units that were then or might, in the future, become affected units to provide EPA the data elements necessary for allocating allowances. In addition, EPA gave notice that if the data was not provided by September 8, 1992, the units involved would not be allocated any allowances and, to the extent allowances were needed, would have to obtain them on the open market. Id. A number of industrial companies submitted comments on the Adjunct Data File, each arguing that their units were not affected units. On March 23, 1993, EPA issued a notice stating that (with a few exceptions not relevant here) that it ``believes'' that none of the units in the Adjunct Data File were affected units. 58 FR 15720, 15727 (March 23, 1993). No allowances were allocated to industrial units in the Adjunct Data File (including some units identified in Report to Docket: Industrial Units as potentially covered by the proposed industrial unit exemption) or to any other industrial units. However, EPA stressed that the omission of a unit from the tables indicating allowance allocations does not mean that the unit is an unaffected unit: ``[a]pplicability will be determined under the (Acid Rain) rules in 40 CFR 72.6.'' Id. In addition to being required to hold allowances covering all SO2 emissions and to meet any applicable NOx emission limitation, an affected industrial unit, like all affected units, must install, operate, and maintain continuous emission monitoring systems for all SO2, NOx, and CO2 emissions and for opacity. After EPA approves certification of the systems, they must be tested periodically to ensure that the monitoring data is accurate. Further, monitoring data (including hourly emissions data) must be reported to EPA on a quarterly basis. The average cost per unit of acquisition, installation, operation, and maintenance of a continuous emission monitoring system (including data handling hardware) is estimated to be about $90,600 (in 1993 dollars). Economic Analysis of the Title IV Requirements of the 1990 Clean Air Act Amendments at 34 (ICF Resources Inc. 1995) (estimating total annualized emission monitoring costs under title IV of $200 million for 2,096 units during the period 1997-2010). The costs of the Acid Rain Program are more likely to be a problem for industrial companies than for public utilities, which in general have greater ability to pass through to customers the costs of acquiring allowances. First, public utilities generally are subject to cost of service ratemaking and charge rates covering their costs of service. Second, virtually all fossil fuel-fired utility generation is covered by the Acid Rain Program. In contrast, the prices charged by industrial companies for their industrial products are generally limited by competitive market prices and relatively few industrial units are covered by the program. Particularly if one industrial company, but not its competitors, must meet the costs of the Acid Rain Program as applied to its units, market prices will not necessarily cover all such costs. EPA notes that in [[Page 68346]] section 405(g)(6)(A) cogeneration units that, as of November 15, 1990, had already contracted or otherwise committed to sell electricity to a public utility were exempted from the Acid Rain Program because of their limited ability to pass through allowance costs to customers. 58 FR 15634, 15638 (March 23, 1993); see also Cong. Rec. S3027-28 (March 22, 1990). In short, as a result of a very small portion of its operations (i.e., incidental electricity sales to public utilities under existing interconnection and power purchase agreements), a non-cogeneration industrial unit may be subject to allowance and monitoring requirements affecting all of its electric generation activities and imposing significant costs.7 Further, once the industrial unit has begun making any such incidental electricity sales, the unit becomes an affected utility unit permanently subject to all the requirements of the Acid Rain Program. In the absence of an exemption, such a unit is an affected utility unit if, during 1985, it served a generator that produced electricity sold to a public utility or if, at any time thereafter, the unit serves such a generator. See 42 U.S.C. 7651a(17)(A). The unit remains an affected utility unit even if the industrial company subsequently terminates its interconnection agreement with and stops selling electricity to the public utility. --------------------------------------------------------------------------- \7\ The Acid Rain Program also requires the owners and operators of affected industrial units to select a designated representative and obtain an Acid Rain permit covering the units. While these requirements impose some costs, the costs are relatively small. --------------------------------------------------------------------------- EPA is concerned that, because of an incidental portion of the operations of a non-cogeneration industrial unit, an industrial company will be burdened with significant regulatory requirements and resulting costs that were unanticipated when the incidental electricity sales were made and that are unavoidable in that they remain even if the incidental sales are now terminated. However, this concern applies only where (1) the industrial units are not cogeneration units; (2) these units serve generators that were contractually obligated to make incidental sales under an interconnection agreement (and any related power purchase agreement) and have made only incidential electricity sales; and (3) this contractual obligation was effective on or before March 23, 1993. This new exemption is not necessary for cogeneration units since Congress already provided an exemption for cogeneration units based on the amount of utility sales. Moreover, non-cogeneration industrial units making more than incidental electricity sales should be affected units since, in title IV, Congress generally applied the Acid Rain Program to units serving generators that sell electricity. The basis for limiting the exemption to units under a contractual obligation as of March 23, 1993 is related to the Agency's handling of allowance allocations for industrial units. After November 15, 1990, industrial units' owners were on constructive notice that if they contractually obligated themselves to sell electricity, they would be subject to title IV requirements. However, as noted above, on March 23, 1993 EPA issued a notice stating that it believed that the industrial units listed in the Adjunct Data File (a list of units owned by ``nontraditional utilities'') were unaffected units. 58 FR 15727. The notice did not explain the basis for this ``belief'', which appears to have been erroneous with regard to at least some of the listed noncogeneration industrial units. As a result, EPA did not add the industrial units to the allowance allocation tables and did not allocate any allowances to these units. Id. Also on March 23, 1993, EPA issued a final list of the Phase II allowance allocations under section 403(a) of the Act.8 58 FR 15634 (March 23, 1993). As discussed below, EPA is today correcting certain Agency errors in the March 23, 1993 allocations. However, except for these limited corrections, EPA will not allocate allowances to units that were not listed as receiving allowance allocations in the March 23, 1993 notice and that become affected units after that date. 58 FR 15641. Consequently, if, after March 23, 1993, a non-cogeneration industrial unit becomes contractually obligated to sell electricity to a utility and, by making the sales, becomes an affected unit, the unit will not be allocated allowances. Non-generation industrial units that were contractually obligated on or before March 23, 1993 and were affected units probably should have been, but were not, allocated allowances. Therefore, EPA proposes to apply the new exemption to non-cogeneration industrial units that were contractually obligated as of March 23, 1993. --------------------------------------------------------------------------- \8\ Section 403(a) required the final list of allowance allocations to be published by December 31, 1992, but the final list was issued late. --------------------------------------------------------------------------- Under this approach, the non-cogeneration industrial units that meet the exemption criteria and are issued an exemption may continue to serve generators making incidential, contractually required electricity sales and remain exempt. However, if the units serve generators that make sales after the contractual obligation is no longer in effect or to make sales beyond the contractual obligation, the units will become affected units under the Acid Rain Program. Exempting non-cogeneration industrial units will exempt their SO2 emissions from the requirement to hold allowances and thus from the 8.95 million ton cap in Phase II for utility units. The total estimated annual SO2 emissions from exempt industrial units are relatively small: about 47,000 tons. Report to Docket: Industrial Units. The environmental impact of removing these units from the utility unit cap is mitigated by the fact that emissions from the exempt industrial units are still subject to the 5.6 million ton cap for industrial sources. As discussed above, the Administrator is required to take action under section 406 of the Clean Air Act Amendments of 1990 to ensure that the industrial source cap is not exceeded. The industrial units exemption will also exempt these units from Acid Rain NOX emissions limitations to the extent that the units have coal-fired boilers of the types covered in Phase II. Again, the total estimated annual NOX emissions from exempt units is relatively small: about 19,000 tons. Id. In April 1995 EPA promulgated NOX emission limitations for dry bottom wall-fired or tangentially fired boilers. 60 FR 18751, 18763 (April 13, 1995). In January 1996, EPA proposed to revise these limitations and establish new limitations for most other types of existing coal-fired boilers. 61 FR 1442, 1480 (January 19, 1996). For these reasons, EPA proposes to establish a narrow exemption for non-cogeneration industrial units, i.e., non-cogeneration units that have no owner or operator of which the principal business is electricity sale, transmission, or distribution or that is a public utility subject to State or local utility regulation. In determining whether this requirement is met, any affiliate or subsidiary or parent company of an owner or operator will be considered so that the requirement cannot be circumvented through the position of the owner or operator in a corporate structure. The exemption will apply where there is a showing that, on or before March 23, 1993, the owners or operators of the unit entered into an interconnection agreement (and any related power purchase agreement) with a public utility requiring that generators served by the unit produce electricity for sale only for incidental sales of electricity to a public utility. There also must be a showing that the unit served generators that, in 1985 and any year thereafter, actually produced electricity [[Page 68347]] for sale only for incidental electricity sales to a public utility as required under that interconnection agreement and any related power purchase agreement. If any of the requirements of the exemption are not met, the exemption terminates automatically. Two aspects of the proposed exemption ensure that it is limited to situations involving only incidental electricity sales. First, the sales must be required under an interconnection agreement (and any related power purchase agreement) between the owners or operators of the industrial unit and the public utility to which the electricity sales are made. The fact that the sales are made in connection with the agreement through which the industrial company obtains electricity for its own use from the public utility indicates that the sales are incidental to the industrial company's business. Second, the sales to the public utility must not exceed, in any calendar year, the lesser of 10 percent of the generating output capacity of the generator served by the unit (which is the nameplate capacity of the generator times the number of hours (8,760) in a year) for that year or 10 percent of the actual annual electric output of the generator. EPA believes that these limits on the amount of annual sales are reasonable and will help ensure that the unit's electricity sales are truly incidental. Applying these limits to a hypothetical industrial unit serving a generator with nameplate capacity of 75 MWe, the generator output capacity is 657,000 MWe-hr. Assuming that the generator's actual annual electrical output is 300,000 MWe-hr, this unit can sell up to 30,000 MWe-hr and qualify for an industrial unit exemption under this proposal. Because of EPA's lack of experience with this proposed exemption and because applying the exemption criteria to specific cases may require analysis and exercise of administrative judgment and may benefit from public comment, EPA proposes to require submission of an application for an exemption and provide for public notice and comment before approving or disapproving the exemption for any industrial unit. The designated representative of an industrial unit must submit an application that provides the information necessary to rule on the exemption. Using the procedures applicable to permit issuance, the permitting authority will issue a draft exemption or denial of exemption for public comment and then issue or deny a final exemption (or proposed exemption if a State is the permitting authority). An industrial unit with an approved exemption will become an unaffected unit and will be exempt from the provisions of the Acid Rain Program, except for the provisions of Sec. 72.14 (the new section providing for and setting conditions on the exemption), Secs. 72.2 through 72.6, Secs. 72.10 through 72.13. Like other exempt units, an exempt industrial unit cannot become an opt-in source. The exemption need not be renewed and is effective so long as the unit meets the requirements, discussed above, for maintaining the exemption. EPA requests comment on all aspects of the proposed industrial unit exemption. II. Part 72: Interaction of Acid Rain Permitting and Title V Section 408 of the Act requires that title IV be implemented by ``permits issued to units subject to this title (and enforced) in accordance with the provisions of title V, as modified by (title IV) . . . No permit shall be issued that is inconsistent with the requirements of (title IV), and title V as applicable.'' 42 U.S.C. 7651g(a). Title V, in turn, sets forth requirements for permit programs to be implemented by State and local air pollution control agencies. Under title V, it is unlawful to operate an affected source in the Acid Rain Program or other specified sources ``except in compliance with a permit issued by a permitting authority under (title V).'' 42 U.S.C. 7652b(a). The permit must include enforceable emission limitations and standards and other conditions ``as are necessary to ensure compliance with applicable requirements of (the Act).'' 42 U.S.C. 7652d(a). Title V states that its provisions ``apply to permits implementing the requirements of title IV except as modified by that title.'' 42 U.S.C. 7652f(b). EPA proposes to revise the current regulations governing the interaction of titles IV and V with regard to several matters: the provisions explaining the relationship between the Acid Rain rules and rules implementing title V (i.e., parts 70 and 71); establishment of State authority to administer and enforce Acid Rain permits; and the required elements of a State Acid Rain program. A. Relationship Between Acid Rain Rules and Parts 70 and 71 The current part 72 states that parts 72 and 78 take precedence over part 70 (which governs title V permitting) to the extent that any requirements of parts 72 and 78 are ``inconsistent with'' part 70. 40 CFR 72.70(b). The current rules also state that part 72 governs Acid Rain permitting by the Administrator but do not specifically address the rules (i.e., part 71) for permitting by the Administrator under title V since part 71 had not been issued when the current part 72 was issued. See 40 CFR 72.60(a). As noted above, both titles IV and V establish the precedence of the Acid Rain regulations over title V regulations for purposes of administering Acid Rain permits. Since the issuance of the current part 72 in January 1993, additional Acid Rain regulations relating to permit administration (i.e., part 74 for opt-in sources and part 76 for NOx emissions) have been promulgated. In addition, part 71, setting forth permitting procedures for the Administrator under title V, has been proposed and then issued as a final rule. 61 FR 34202 (July 1, 1996). EPA proposes today to revise the current provisions addressing the relationship between Acid Rain and title V rules to reflect the additional rulemaking activity. The revisions also clarify what constitutes an ``inconsistency'' between the two sets of regulations and the circumstances under which the Acid Rain rules take precedence. With regard to State permitting activities, the proposal states in Sec. 72.70(b) that parts 72, 74, 76, and 78 take precedence to the extent that such parts ``contain provisions not included in, or expressly eliminate or replace provisions of, part 70 concerning the acid rain permit application and the Acid Rain portion of an operating permit.'' 9 --------------------------------------------------------------------------- \9\ Language in the current Sec. 72.70(b) concerning petitions for exemption and draft, proposed, and final written exemptions is removed because it is redundant. The requirements for exemptions are already included in part 72. --------------------------------------------------------------------------- An analogous provision is proposed in Sec. 72.60(a) with regard to permitting by the Administrator. In addition, the proposal explains that the Acid Rain requirements concerning permit applications, compliance plans, permit content and permit shield, permit processing and issuance, permit revision, and administrative appeals replace the provisions in part 71 with regard to Acid Rain permit applications and permits. The provision also states that the part 71 provisions concerning Indian tribes, delegation of a part 71 program, affected State review of draft permits, and public petitions to reopen a permit for cause are not eliminated or replaced by the Acid Rain provisions and so apply to the Acid Rain Program. [[Page 68348]] B. State Authority To Administer and Enforce Acid Rain Permits The current rule provides that if a State or local agency receives full, interim, or partial approval of an operating permits program under title V by July 1, 1996, that agency becomes the permitting authority for the issuance of Phase II Acid Rain permits.See 40 CFR 72.73(a). (Under the Acid Rain Program, the term ``State'' is defined to include the 48 continguous States, the District of Columbia, and local authorities; henceforth in this preamble, ``State'' will be used with that meaning.) 10 The State permitting authority must issue Phase II Acid Rain permits by December 31, 1997. If the State operating permits program is not approved by July 1, 1996, the Administrator is the permitting authority for Phase II Acid Rain permits and must issue them by January 1, 1998. After a State operating permits program is approved, the Administrator will suspend issuance of Acid Rain permits. See 40 CFR 72.74. --------------------------------------------------------------------------- \10\ In the proposal, EPA is expanding the definition of ``State'' to include eligible Indian tribes in order to be consistent with the treatment of Indian tribes that has been proposed for parts 70 and 71. See 59 FR 43956 (August 25, 1994) (proposed regulations implementing section 301(d) of the Act), 60 FR 45530 (August 31, 1995) (proposed revisions to part 70), 60 FR 20804 (April 27, 1995) (proposed part 71), and 61 FR 34213-4 (final part 71). To ensure that the approach taken to Indian tribes under part 72 is consistent with the approach that is ultimately adopted under parts 70 and 71, today's proposal provides that ``eligible Indian tribe'' be defined as in part 71. EPA's proposals concerning the treatment of Indian Tribes were issued subject to public comment and may be modified before they are issued in final form. EPA may need to make conforming changes to today's proposal to reflect any relevant revisions made to those proposals. --------------------------------------------------------------------------- EPA has found that this approach should be modified. Some States have submitted, and EPA has granted interim or full approval of, operating permits programs that do not include all necessary Acid Rain provisions. State permitting authorities that have approval but lack a full Acid Rain program are not in a position to process, issue, and otherwise administer properly Acid Rain permits. Further, some States have indicated that they want to adopt some portions of the Acid Rain Program (e.g., the permitting requirements for sources with Phase I and Phase II units) 11 but not other portions of the program (e.g., permitting requirements for opt-in sources). --------------------------------------------------------------------------- \11\ Phase I units are subject to Acid Rain emissions reduction requirements or emissions limitations starting in Phase I. Phase II units are subject starting in Phase II. While only Phase I units must have Acid Rain permits for Phase I, both Phase I and Phase II units must have permits for Phase II. Section 72.31 is revised to clarify that Phase II permit applications must cover all affected units at the source. --------------------------------------------------------------------------- Consequently, EPA proposes to revise the current rule to reflect the variety of circumstances concerning State adoption of Acid Rain programs. Under the proposal, a State becomes responsible for administering and enforcing Acid Rain permits for affected sources if it has both an operating permits program approved under part 70 and Acid Rain regulations that are accepted by the Administrator through a notice in the Federal Register that cover the sources. (The term ``administer'' includes all aspects of processing a permit, e.g., issuance, renewal, and revision.) Until these requirements are met, the Administrator will be the permitting authority for purposes of issuing Acid Rain permits (or the Acid Rain portion of operating permits) for the sources. Section 408(d) of the Act requires that Phase II Acid Rain permits be issued for sources with Phase I and Phase II units by December 31, 1997 if a State is the permitting authority. In order to allow sufficient time for a State to meet this statutory deadline, the proposal states that a State must have an approved operating permits program (whether full or interim approval) and accepted Acid Rain regulations by January 1, 1997 or such later date as the Administrator may set (rather than a fixed date of July 1, 1996, as in the current rule) if the State is to be the permitting authority for the initial Phase II Acid Rain permits. Otherwise, the Administrator will be responsible for issuing such permits. EPA has already issued notices identifying the status of State permitting authorities' acid rain regulations. See, e.g., 60 FR 16127 (March 29, 1995); 60 FR 52911 (October 11, 1995); and 60 FR 62846 (December 7, 1995). If EPA is issuing permits and, after January 1, 1997, the State meets the requirements to become the permitting authority for Acid Rain permits, the Administrator will cease issuing Phase II Acid Rain permits to sources in that State. However, the Administrator will continue to administer and enforce those Acid Rain permits that he or she has already issued until the permits are replaced by State-issued Acid Rain permits. The State may issue replacement permits on or before the expiration date of the EPA-issued permits. Further, the Administrator may retain jurisdiction over the EPA-issued permits until any administrative or judicial appeals of them are completed. The proposal also provides flexibility where a State has proposed a partial Acid Rain program, e.g., where the proposed program covers permitting of Phase I and Phase II units but not opt-in sources. In that circumstance, the Administrator may accept the State Acid Rain regulations, issue a notice stating that the State is the permitting authority for Phase I and Phase II units, and retain the authority to issue permits for opt-in sources. If a State has become the Acid Rain permitting authority but the Administrator determines that the State is not adequately administering or enforcing the State Acid Rain program, the proposal sets forth a procedure for withdrawal of that program and for administration and enforcement by the Administrator. The procedure is modeled after, but not identical to, the analogous procedures under parts 70 and 71. Because the Acid Rain Program relies on a nationwide, market-based system of allowances to achieve cost-effective SO2 emissions reductions, it is particularly important that Acid Rain requirements be implemented in a uniform manner by permitting authorities throughout the U.S. In order to provide the Administrator the flexibility to respond in a timely fashion where Acid Rain requirements are not being properly implemented, the proposal does not fix the time frames by which a State must address deficiencies in its program or by which EPA becomes the permitting authority. The proposal leaves it to the Administrator to set these time frames based on the specific circumstances. The proposal also includes a provision under which the Administrator may delegate to a State all or part of his or her responsibility to administer and enforce Phase II Acid Rain permits. If a State does not meet the requirements for acting as the Acid Rain permitting authority (e.g., does not yet have Acid Rain regulations accepted by EPA), the Administrator may delegate to the State the administration and enforcement of Phase II Acid Rain permits using regulations established by the Administrator. This approach is analogous to the approach in part 71.12 --------------------------------------------------------------------------- \12\ The definition of ``permitting authority'' in Sec. 72.2 is revised to include a State permitting authority to which authority to administer and enforce Acid Rain permits is delegated. --------------------------------------------------------------------------- Further, the current rule does not expressly address the question of whether the provisions of Phase I or Phase II Acid Rain permits issued by the Administrator constitute ``applicable requirements'' under part 70. It may be argued that under title V the provisions of federally issued Acid Rain permits are ``applicable requirements'' under part 70 and therefore must be included in State-issued operating permits. In [[Page 68349]] that case, a State would have to formally incorporate, in each operating permit for an affected source, any federally issued Acid Rain permit. However, title IV, which supersedes title V in Acid Rain matters, requires all Phase I Acid Rain permits to be issued by the Administrator. There is little purpose in requiring States to duplicate Phase I permits in their operating permits. Moreover, any revisions of federal Phase I permits would have to be repeated for any State operating permits that included Phase I provisions. With regard to federally issued Phase II Acid Rain permits, the proposal explicitly requires that States replace the federal permit with a State-issued Acid Rain permit by the end of the five-year effective period of the federal permit. It is unnecessarily burdensome to require State incorporation of the federal permit in the operating permit prior to the federal permit's expiration. To incorporate the federal permit, the State must essentially repeat the notice and comment process that was used to issue the federal permit in the first place. Consequently, the proposal states that the provisions of federally issued Phase I or Phase II Acid Rain permits shall not be ``applicable requirements'' for purposes of part 70. Finally, the current Sec. 72.73(b)(2) requires State permitting authorities to reopen Phase II Acid Rain permits by January 1, 1999 ``to add'' Acid Rain NOX requirements. It is unclear whether this language requires the reopening process to be completed or simply to begin by that date. Under part 76, Phase II NOX compliance plans must be submitted to permitting authorities by January 1, 1998. It seems desirable to have a deadline (prior to Phase II) by which Acid Rain permits will include Phase II NOX requirements. However, EPA is also concerned that State permitting authorities have sufficient time to process the permits. EPA therefore proposes to clarify in Sec. 72.73(b)(2) that the reopening process and the addition of NOX requirements must be completed by July 1, 1999.13 --------------------------------------------------------------------------- \13\ A similar revision is proposed, in Sec. 72.74(c)(2), where the Administrator is the permitting authority, except that reopening must be completed within 6 months of submission of a complete NOX compliance plan. --------------------------------------------------------------------------- C. Required Elements for State Acid Rain Program The current rule sets forth the criteria for approval of the Acid- Rain-related provisions of State operating permit programs. The basic approach is that the State Acid Rain program is required to comply with part 70 requirements and the additional Acid-Rain-specific requirements listed in Sec. 72.72(b). Where the listed requirements are inconsistent with part 70 requirements, the listed requirements must be met in lieu of such part 70 requirements. EPA has carefully re-examined the listed Acid-Rain-specific requirements with an eye to minimizing the differences between State Acid Rain permit procedures and other State operating permit procedures. EPA recognizes that the Acid Rain permits make up a relatively small portion of a full State operating permit program. Minimizing the number of unique Acid Rain requirements and reducing the number of different procedures that must be followed will reduce the burden on States and affected-source owners and operators. In addition, removal of Acid Rain requirements that duplicate provisions already in part 70 will streamline Sec. 72.72 and reduce the potential for confusion as to whether something other than the part 70 provisions is required. Upon re-examination of the listed requirements in Sec. 72.72(b), EPA believes that the following requirements are unnecessary or redundant and proposes to eliminate or revise them in order to allow States to streamline their Acid Rain programs and permit administration: 1. The requirement that the State permitting authority submit to EPA any written notice of the completeness of a permit application and a copy of each draft permit imposes an unnecessary burden. Therefore, EPA proposes to remove the requirement. The permitting authority already must provide EPA copies of the application and the proposed permit under part 70, and that seems sufficient. 2. The requirement that the permitting authority include a statement of basis in the draft permit is redundant since that is already required under part 70. EPA therefore proposes to remove the provision. 3. The requirement that the permitting authority provide for public notice of the opportunity to comment and request a hearing is proposed to be revised to be less burdensome. First, based on its experience in processing Phase I Acid Rain permits, EPA maintains that, where a unit is required in a draft permit simply to comply with the standard SO2 emissions limitation (i.e., the requirement to hold allowances covering emissions), there is little in the portion of the draft permit on which to comment. EPA believes that this is also the case to the extent a draft permit for a unit subject to Acid Rain NOX requirements imposes only the standard NOX emissions limitations under Secs. 76.5, 76.6, or 76.7, a NOX averaging plan, or a NOX early election plan. There is little to comment on because the requirements for compliance in these circumstances are set forth in detail in the rule and there is little discretion involved in adopting such permit provisions. In contrast, other compliance options, such as Phase II repowering plans or NOX alternative emission limitations, have more general requirements that must be crafted to fit the unique circumstances of the unit involved. Few, if any, comments were received on draft Phase I permits for units that were simply adopting the standard SO2 or NOX emissions limitations or NOX averaging plans. The Agency also found that providing notice in a newspaper local to each source is a time consuming and expensive process. Consequently, if a draft permit or permit revision only requires units to meet the standard SO2 or NOX emissions limitations or a NOX averaging plan, EPA proposes to give permitting authorities the discretion to give notice by serving a notice on the appropriate list of persons and omitting publication in a local newspaper or State publication.14 --------------------------------------------------------------------------- \14\ In addition, the specific references in the current rule to part 70 provisions stating what persons must be served notice are superfluous and so are eliminated. --------------------------------------------------------------------------- Second, the proposal explicitly provides that a State permitting authority may, in its discretion, use the so-called ``direct final'' procedure in order to meet the requirements for issuing draft permits, providing notice and comment, and issuing proposed permits. Under the ``direct final'' procedure (which has been used by EPA in rulemakings and other actions under the Clean Air Act) 15 the State permitting authority may issue, as a single document, a draft Acid Rain permit and a proposed Acid Rain permit and provide notice of the opportunity for public comment on the draft Acid Rain permit. In the notice the State permitting authority states that, if no significant, adverse comment on the draft Acid Rain permit is timely submitted, the proposed Acid Rain permit will be deemed to be issued on a specified date without further notice. The notice also states that, if such significant, adverse comment is timely submitted, a proposed Acid Rain permit or denial of a proposed Acid Rain permit will be issued and the comments addressed. This procedure streamlines the permitting process in cases where no adverse comment is anticipated. While EPA believes that the current rule [[Page 68350]] does not bar using this streamlined procedure, the proposed rule makes explicit the option to use the procedure.16 --------------------------------------------------------------------------- \15\ See, e.g., 60 FR 18462 and 18472 (April 11, 1995). \16\ For the same reasons, the proposed rule includes an analogous provision in subpart F, which sets forth the Acid Rain permit issuance procedures when the Administrator is the permitting authority. --------------------------------------------------------------------------- 4. The requirements that the permitting authority submit a copy of the proposed permit for review by the Administrator and affected States and incorporate changes resolving objections to the proposed permit are redundant since part 70 already imposes these requirements. These provisions in Sec. 72.72(b) are unique only to the extent that they specifically refer to issuance or denial of Acid Rain permits. EPA believes that such reference is unnecessary because the authority to deny a permit where basic requirements (e.g., meeting the applicability criteria for the Acid Rain Program) are not met is obvious. EPA does not see any reason for addressing the possibility of permit denials differently in part 72 than in part 70 and part 71. 5. The requirement that invalidation of the Acid Rain portion of the operating permit not affect the remaining provisions of the permit and vice versa is redundant. Part 70 already requires that invalidation of any operating permit provision not affect any other operating permit provisions. 6. The limitation on the filing of State administrative or judicial appeals of an Acid Rain permit to no more than 90 days from the issuance of the permit to be appealed makes appeals of Acid Rain provisions different from appeals of any other aspect of an operating permit. Under part 70, the availability of and procedures for administrative appeals are left entirely to the States; there are no mandated time limitations on filing such appeals. With regard to judicial appeals, part 70 provides that appeals may be filed after a fixed period (which may not exceed 90 days) if the appeal is based solely on grounds arising after the deadline. EPA has proposed to lengthen the maximum period under part 70 from 90 to 125 days. 59 FR 44460, 44516 (August 29, 1994). EPA sees no reason for treating appeals of Acid Rain provisions differently than appeals of other permit provisions and is concerned that the different appeal periods may engender confusion. Having different appeal periods could result in different parts of the same operating permit having different deadlines for filing appeals. The proposal eliminates the limitation on Acid Rain appeals. 7. The requirement that a permitting authority give the Administrator notice of administrative or judicial orders relating to an Acid Rain permit is retained. The proposal removes language indicating that, after issuance of such an order, the Administrator will review and may veto the Acid Rain permit under the procedures for reviewing proposed permits under Sec. 70.8. The language was intended to provide for EPA review where, for example, an Acid Rain permit that had already undergone EPA review under Sec. 70.8 was then significantly altered on appeal. Upon reconsideration, EPA concludes that this approach in the current Sec. 72.72 is confusing since it may put into question whether an ostensibly final permit becomes a proposed permit when there is a State determination (e.g., a State court order) modifying the permit. This approach is also unnecessary since the Administrator already has the authority to reopen permits for cause, which authority is available in the event of such a State determination or interpretation.17 --------------------------------------------------------------------------- \17\ For the same reasons, an analogous provision in Sec. 72.80(e) is also removed. --------------------------------------------------------------------------- 8. The requirement that State administrative appeals not result in the stay of any provisions that could not be stayed under part 78 is proposed to be removed for several reasons. First, as discussed below (in section VII of this preamble), the provision on stays in part 78 is eliminated because, under current case law, a permit appealed under part 78 is not a final agency action, and cannot be implemented, pending the administrative appeal. Further, in reviewing State operating permit programs, EPA has found that States have a variety of administrative appeals processes. In many States the administrative appeal precedes the issuance of a final permit and so the stay provision in the current part 72 is meaningless. In addition, the provision bars stays of requirements in the permit (i.e., allowance allocations, the standard Acid Rain requirements, monitoring and reporting requirements, and the certificate of representation) that are imposed, under part 72 and other Acid Rain rules, independently from the permit. Even if a source has no permit, the source must meet these requirements. In short, the stay provision has little practical effect. 9. The requirements that State permitting authorities ``coordinate'' with utility regulatory authorities and evaluate the sufficiency of fees supporting the State acid rain program are proposed to be removed as unnecessary. The relationship between State agencies is best left to the States, and part 70 fully addresses issues concerning fees. In reconsidering the requirements for State operating permit programs, EPA has become aware of another issue concerning State programs. The current rule requires that a permitting authority issue, for each affected source, only one Acid Rain permit covering all affected units at that source. EPA received comment that, in a few cases, States have historically issued separate permits to units that are at the same source but that were constructed at different times. The States plan to continue separate permitting of the units under their operating permits programs. Rather than requiring State permitting authorities to restructure their permitting of such sources, EPA proposes to give permitting authorities the discretion to allow separate Acid Rain permit applications for, and thus to issue separate Acid Rain permits to, the units at the source. However, this provision does not change the designated-representative requirements for the units: all units at the source must still have the same designated representative and, if applicable, the same alternate designated representative. A large number of State permitting authorities have already adopted Acid Rain regulations consistent with the current provisions of part 72. The most efficient and most frequently used method of State adoption of Acid Rain regulations has been incorporation of part 72 by reference. The part 72 rule changes proposed today are primarily aimed at streamlining Acid Rain permitting (whether EPA or the State is the permitting authority). EPA therefore anticipates that State permitting authorities will want to adopt the final revisions relatively soon after promulgation. However, EPA recognizes that revising State regulations, even when accomplished through incorporation by reference of the revised part 72, can be a time consuming process. Moreover, State permitting authorities are required to issue initial Phase II Acid Rain permits by December 31, 1997. None of today's proposed revisions are so fundamental that a State permitting authority with Acid Rain regulations consistent with the current part 72 should not start or even complete the process of issuing the Phase II permits before revising its Acid Rain regulations to conform to today's revisions. In order to ensure that States have both sufficient authority to issue Phase II permits and sufficient time to revise their Acid Rain regulations, EPA will continue to accept State Acid Rain [[Page 68351]] rules that conform with the current part 72 until 2 years after the date on which the final revisions are promulgated. Starting on the date 2 years after the promulgation of the final revisions, EPA expects all State Acid Rain regulations to incorporate the revisions. EPA notes that many States have not added to their Acid Rain rules the provisions of part 74 (opt-in program) and part 76 (NOx compliance plans and emissions limitations), which were issued relatively recently in April 1995. Further, EPA has proposed additional part 76 provisions setting Phase II NOx emissions limitations and expects to issue final provisions by January 1, 1997. States may want to consider coordinating adoption of the final revisions based on today's proposal with adoption of the provisions of parts 74 and 76. III. Part 72: Miscellaneous Permitting Matters In addition to the revisions discussed above, EPA proposes a number of revisions of sections of part 72 concerning matters such as designated representatives, compliance plans, federal procedures for permit issuance and revision, and confirmation reports on verified savings from energy conservation and increased unit efficiency measures. The primary purpose of these proposed changes is to streamline the Acid Rain rules and reduce the administrative burden on owners and operators of affected units. A. Definitions In addition to the definition revisions discussed elsewhere in this notice, the Agency proposes the following revisions. The definition of ``Acid Rain emissions limitation,'' for purposes of sulfur dioxide emissions, is revised to make complete the list of statutory provisions under which affected units may be allocated allowances. Section 404(h), which is inadvertantly left out of the current definition, is added. The definition of the term, for purposes of nitrogen oxides emissions, is revised to remove references to regulations implementing section 407 of the Act. The NOx Acid Rain regulations in part 76 became final on May 23, 1995 and so the definition is revised simply to cite part 76. Analogous changes are made elsewhere in part 72 to replace general references to regulations under section 407 by specific references to part 76 or sections of part 76. The definition of ``coal-fired'' is revised to exclude the superfluous reference to part 73 and to correct the reference to the regulations implementing section 407 of the Act (i.e., part 76) to reflect the fact that part 76 includes its own definition of ``coal- fired.'' The definition of ``dispatch system'' is eliminated. In light of the detailed provisions concerning dispatch system in section 72.33, the definition is superfluous and potentially confusing. The definition of ``permitting authority'' is revised to omit some superfluous language and to reference part 70, rather than refering generally to the regulations promulgated under title V. Such general references in other provisions of part 72 are also changed to specific references to parts 70 and 71 as appropriate. The definition of ``submit or serve'' is revised in order to allow documents, information, or correspondence to be provided to the Administrator or any State permitting authority using any service of the U.S. Postal Service or any equivalent means of dispatch and delivery. The requirement in the current rule that such delivery be accomplished using only certified mail or an equivalent service is eliminated. Based on its experience in operating the Acid Rain Program, EPA has found that the certified-mail requirement is not necessary and may be burdensome on private parties. B. Designated Representative The current rule requires the selection of one designated representative for each affected source and allows the selection of one alternate designated representative per source. EPA has received comment requesting that under certain limited circumstances a second alternate designated representative be allowed. According to the commenter, in general, the current rules give operating companies the flexibility of having a designated representative at the upper management level and an alternate who is closer to the plant operations level in the company. Allegedly, this flexibility is in effect denied to operating companies that are part of a holding company if the holding company plans to use a NOx averaging plan under part 76 to comply with the applicable Acid Rain NOx emission limitation. Under Sec. 76.11, units that are subject to the standard NOx emission limitations (in Secs. 76.5, 76.6, or 76.7), are under the control of the same owner or operator, and have the same designated representative may average their NOx emissions through a compliance plan approved by the permitting authority. The detailed requirements for determining whether units are in compliance with the plan are set forth in Sec. 76.11. The commenter states that it is one of several operating companies in a holding company and that all of the operating companies intend to participate in a holding-company-wide NOx averaging plan, which under Sec. 76.11 requires the selection of a single designated representative for the entire holding company. According to the commenter, that designated representative must, as a practical matter, be someone at the holding-company management level. Since each operating company can select only one alternate, each operating company will be unable to have a designated representative or alternate at both the management and the operations levels of the operating company. Allegedly, this is important because each operating company operates relatively independently, reflecting the fact that each is in a different State and is subject to regulation by a different utility regulatory authority. In order to accomodate this limited circumstance where additional flexibility may be needed, EPA proposes to allow the selection of a second alternate designated representative in this circumstance. The Agency requests comment on the need for this flexibility in this case. The current rule also establishes procedures for the selection of a designated representative and an alternate. Using these procedures, all Phase I units and many Phase II units have selected designated representatives. In addition, alternates were originally selected or were added later in some cases, and some units have changed their representatives. Based on this experience with the prescribed procedures, EPA proposes to simplify the procedures and reduce the burden they impose on owners and operators. The Agency maintains that this can be done without negatively impacting the rights of minority or other owners. In particular, Secs. 72.20(c) and 72.24(a)(5) require that whenever a designated representative or alternate is originally selected or changed, notice must be provided daily for one week in a newspaper of general circulation where the source is located or in a State publication. The Agency has learned that this provision of newspaper notice is often expensive and can be particularly cumbersome where a single designated representative or alternate is selected or changed for a group of units spread over a relatively wide geographic area (e.g., a State) or where local newpapers are weekly rather than daily. While some notice of designated-representative selection seems desirable, EPA believes that the current rule is [[Page 68352]] unduly burdensome. EPA proposes to revise the rules to require only one notice in the newspaper (i.e., notice for one day), rather than daily notices for a week. Further, since the designated representative is the primary person representing the owners and operators and is responsible for all actions by any alternate, it seems unnecessary to require notice of selection or change of an alternate. EPA also proposes a minor correction of Sec. 72.25. That section currently provides that the Administrator will rely on a certificate of representation until a superseding one is ``submitted.'' 40 CFR 72.25(a). However, the Administrator will be unaware of any superseding certificate until he or she receives it. Further, Sec. 72.20(b) states that a certificate of representation is binding upon receipt of the complete certificate by the Administrator. Section 72.25 is therefore revised to provide that a certificate is relied on until ``receipt'' of a superseding certificate. C. Compliance Plans l. Submission of Substitution and Reduced Utilization Plans Sections 72.41 and 72.42 currently state that a new substitution plan or reduced utilization plan may be submitted not later than 90 days before the allowance transfer deadline. A submission must be made by both the Phase I unit and its prospective substitution or compensating unit so that the plan will be reflected in their Acid Rain permits. However, there are other provisions of the rules that affect when such plans may be approved and take effect and that must be considered in deciding when to submit a plan. An affected unit must, as of the allowance transfer deadline, hold sufficient allowances to cover its emissions for the prior year. Consequently, the status of a unit as an affected unit for a given year (e.g., in Phase I, its status as a substitution unit or a compensating unit) must be determined as of the allowance transfer deadline. A new compliance plan designating a new substitution or compensating unit for a Phase I unit must be approved and active by the allowance transfer deadline in order to be effective for the year to which the allowance transfer deadline applies. A new plan may include both a Phase I unit and a prospective substitution or compensating unit at a source that has no Phase I units and so lacks a Phase I permit. Since each unit must have a Phase I permit that includes the plan, the plan must be added to the Phase I unit's existing permit and included in a new Phase I permit for the source with the substitution or compensating unit. Because the Agency has up to 6 months to act on a new permit, the Phase I unit's plan and the source's new permit application that includes the plan should be submitted at least 6 months before the allowance transfer deadline. Later submission will not ensure approval of the plan in time for use for the year to which that allowance transfer deadline applies. If all the units in a new plan are at sources that already have Phase I permits, then the plan can be added to both the Phase I unit's permit and the prospective substitution or compensating unit's permit through a permit revision. If the permit modification procedures are used, the Agency still has up to 6 months to act. However, if the fast- track amendment procedures are used, the Agency has 60 days from the start of the public comment period to act. In the latter case, the submission deadline of 90 days prior to the allowance transfer deadline provides sufficient time for approval of the plan.18 --------------------------------------------------------------------------- \18\ Section 72.30(b)(3) references the deadlines in subpart D of part 72 and part 76 for applying for compliance plans. The provision is redundant and is therefore removed. --------------------------------------------------------------------------- In order to ensure that designated representatives consider the procedures and timing that must be followed in submitting new plans, EPA proposes to revise Secs. 72.41(b)(3) and (c)(4). The revisions state that new plans must be submitted no later than 6 months prior to the allowance transfer deadline but that, if the fast-track amendment procedures are available, submission must be no later than 90 days before the allowance transfer deadline. 2. Repowering Extension Plans The current Sec. 72.44 includes provisions concerning failed repowering projects. The regulation requires that, if efforts to complete and test the project are terminated prior to construction or start-up testing, the designated representative must demonstrate to the satisfaction of the Administrator that the efforts were in good faith. Similarly, if the project is properly constructed and tested but is unable to achieve emission reductions specified in the repowering extension plan, a demonstration must be provided. Under the current Sec. 72.81(a), determinations concerning failed projects must be processed as permit modifications. However, the interaction between the demonstration requirements in the current Sec. 72.44(g) and the procedures in Sec. 72.81 is unclear, particularly when the State permitting authority issued the permit containing the repowering extension plan and is therefore handling the permit modifications. EPA proposes to revise Sec. 72.44(g) to clarify the interaction of the substantive and procedural requirements concerning failed projects. Under the revisions, the designated representative submits to the permitting authority a permit modification in which he or she makes the necessary demonstrations. The Administrator determines whether the demonstrations have been made. Where the State is the permitting authority, the State acts on the permit modification consistent with the Administrator's determination. D. Federal Permit Issuance 1. The current Sec. 72.60(b) requires that the Administrator issue or deny an Acid Rain permit within 6 months of receipt of a complete permit application. However, Sec. 72.74(b) provides that initial Phase II permits, for which applications are due by January 1, 1996, must be issued by the statutory deadline of January 1, 1998 if they are issued by the Administrator. EPA proposes to revise Sec. 72.60(b) to provide that deadline in Sec. 72.74(b) applies, rather than the 6-month deadline, to any initial Phase II permits issued by the Administrator. 2. The current Sec. 72.61 provides that a permit application is deemed complete after 30 days in the absence of notification by the Administrator that it is incomplete. When additional information is requested by the Administrator, the designated representative has at least 30 days to respond. EPA proposes to revise this section to make it consistent with the currently different completeness provisions of part 71 (and part 70) in order to avoid having two types of completeness procedures. Under the revisions, automatic completeness occurs after 60 days from receipt and additional information must be submitted within a reasonable period specified by the Administrator. In addition, language in parts 70 and 71 is added to this section requiring designated representatives to provide supplementary information when they become aware that relevant information was not submitted or incorrect information was submitted.19 --------------------------------------------------------------------------- \19\ This language in parts 70 and 71 is also added to Sec. 72.80 with regard to permit revisions. --------------------------------------------------------------------------- 3. As discussed above, EPA is proposing to revise the provisions for Acid Rain permitting by States in order to allow, for certain types of draft permits, service of notice on a list of persons and foregoing of newspaper [[Page 68353]] notice. For the same reasons, EPA proposes a similar type of revision for federal Acid Rain permitting. The Administrator may provide Federal Register notice and notice for a list of persons and omit newspaper notice where the only Acid Rain emissions limitations in the draft permit are the requirements to hold sufficient allowances for SO2 or to comply with NOX emission limitations under Secs. 76.5, 76.6, 76.7, or 76.11. Moreover, the list of persons required to be served notice of draft and final permits under the current rule is different than the list of persons required to be served under parts 70 and 71. This difference complicates the notice process without any significant benefit. EPA proposes to revise the list of persons for required service of federally-processed draft and final permits to be consistent with parts 70 and 71.20 For example, parts 70 and 71 do not require service on the State or local utility regulatory authorities with jurisdiction over the unit involved or the owners of the unit. No utility regulatory authorities commented on any of the Acid Rain permits or permit revisions that have been issued by EPA for Phase I. The proposal therefore eliminates such authorities from automatically-required service.21 Any utility regulatory authorities that want to receive notice of draft and final permits will still have the option of requesting to be treated as an interested person and thereby receiving notice. --------------------------------------------------------------------------- \20\ The same change is proposed for the list of persons on which requested fast-track amendments submitted to the Administrator must be served under Sec. 72.82. Where requested fast-track amendments are submitted to the State as the permitting authority, the proposal provides that the list of persons is the same persons on which the State permitting authority must serve notice of draft permits under the State operating permits program. Further, since parts 70 and 71 require service of notice on ``affected States'' and include a definition of that term, today's proposal includes a new definition that adopts the ``affected State'' definition in part 71. \21\ The proposal therefore also eliminates the requirement to identify such authorities in submissions to EPA (e.g., in a source's certificate of representation). --------------------------------------------------------------------------- E. Permit Revision 1. EPA proposes to make minor revisions to remove specific reference to part 70 procedures from, and to add specific references to Sec. 72.80 in, Sec. 72.81 concerning permit modifications. 2. EPA proposes to lengthen the deadline by which a State permitting authority must act on a fast-track modification. Under the current rule, the Administrator or State permitting authority must act within 30 days of the close of the 30-day comment period. State permitting authorities must handle many more permits covering a broader range of types of sources and emission limitations than EPA's Acid Rain Division, which handles only Acid Rain permits for the Administrator. EPA is concerned that the 30-day deadline for States to act on a fast- track modification may be unrealistic in light of their other, significant responsibilities. To put the 30-day deadline in perspective, States under title V can take up to 18 months to issue permits or make significant permit modifications. Under today's proposal, the 30-day deadline will continue to apply to the Administrator but a 90-day deadline from the end of the comment period will apply to State permitting authorities. 3. EPA proposes to remove and replace certain confusing language at the end of the fast-track modification provisions concerning review by the Administrator and affected States. The current language makes fast- track modifications subject to the same review as significant permit amendments. The proposal states this more directly. Such review is appropriate since fast-track modifications can involve important changes to a permit. 4. The current rule concerning administrative permit amendments relies heavily on, and cites, the part 70 administrative permit amendment procedures. These part 70 procedures are currently the subject of an on-going rulemaking in which extensive revisions have been proposed. See 59 FR 44475-79. EPA proposes to remove the citations to part 70 and to set forth in Sec. 72.83 itself the procedures for administrative amendments to Acid Rain permits. EPA believes that the administrative amendment procedures currently applicable to Acid Rain permits are simple and, except as discussed below, should not be substantively changed. While the proposal continues to require action by the permitting authority within 60 days of receipt, the period for acting on one potentially very complicated administrative amendment, i.e., the addition of an alternative emissions limitation demonstration period for NOX, is lengthened to 90 days. Before implementing the addition of an alternative emissions limitation demonstration period, a permitting authority must determine whether the requirements of Sec. 76.10 have been met. The designated representative must provide extensive information, e.g., showing that the unit has a properly installed and operated NOX emission control system designed to meet the standard NOX emission limitation (under Secs. 76.5, 76.6, or 76.7), describing why the unit cannot meet the standard emission limitation, and outlining the testing and procedures to be undertaken to determine the maximum emission reduction that can be achieved with the installed system. EPA maintains that 60 days will likely be insufficient time, particularly for State permitting authorities, to evaluate this information and, if the requirements of Sec. 76.10 are met, grant a requested alternative emissions limitation demonstration period and that 90 days is a more reasonable deadline. The proposal also adds a provision explicitly allowing the permitting authority to make administrative permit amendments (other than the addition of an alternative emission limitation demonstration period) on its own motion. This procedure may be used to correct minor errors in a permit that come to the attention of the permitting authority. Also added to Sec. 72.83 are provisions in the current part 70 that allow immediate implementation of administrative permit amendments that meet applicable requirements and that eliminate review of such amendments by the Administrator or affected States. This adds directly to part 72 provisions that the current Sec. 72.83 makes applicable by reference to part 70. 5. The current rule concerning permit reopenings relies heavily on, and cites, part 70 reopening procedures. EPA proposes to eliminate the references and set forth in Sec. 72.85 the full procedures. Consistent with the current part 70 provisions, the proposal states that reopening for cause may occur when: Additional Acid Rain requirements become applicable; there is a material mistake in the permit; inaccurate statements were made in establishing a permit term or condition; or a permit revision is necessary to assure compliance with the Acid Rain Program. F. Reduced Utilization Accounting Under the current rule, Phase I units must account for any underutilization. A few revisions are proposed with regard to this accounting. 1. The current rule allows a designated representative to submit an identification of dispatch system in order to change a unit's dispatch system from what is listed in the NADB, which indicates the operator of each unit. A dispatch-system identification must be submitted by January 30 of the first year for which the new dispatch system is to take effect. Traditionally, there have been relatively few changes in the operator and the dispatching of utility [[Page 68354]] units. However, in light of increased competition in the electric industry and the potential of future restructuring of the industry, the Agency is concerned that changes in owners and operators and in dispatching of units may occur more frequently and at times that make it impossible to meet the January 30 deadline. EPA therefore proposes to give the Administrator the discretion to grant exemptions from that deadline in order to allow late submissions. 2. The current rule sets forth procedures for claiming kilowatt hour savings from energy conservation measures or heat rate reductions from improved unit efficiency measures and using the resulting heat input reductions to reduce the surrender of allowances to account for reduced utilization of Phase I units. In the annual compliance certification reports submitted by March 1, a designated representative may include estimated savings from energy conservation or estimated heat rate reductions from improved unit efficiency measures for the prior year. If any such estimates are included in the annual compliance certification report, the designated representative must submit a confirmation report by July 1 that provides and supports the verified amounts. The current language in Sec. 72.91(b)(1)(iii) concerning the methods for supporting the verified amounts of kilowatt hour savings, heat rate improvement, and resulting heat input reductions needs some clarification.22 The purpose of the provision is to provide two alternative approaches to verification: documentation that may follow the EPA Conservation Verification Protocol; or certification by the appropriate State utility regulatory authority. The current provision could be read to require that only one of these approaches be used for all estimated savings and heat input reductions so that, for example, if certification is to be used, it must be used for all the estimates. EPA proposes to revise the provision to make it clear that there is flexibility to use documentation with regard to improved unit efficiency measures or some energy conservation measures and to use certification for other measures. --------------------------------------------------------------------------- \22\ The verification process, found in Sec. 72.91(b), is incorrectly cross-referenced in Sec. 72.43(b)(2)(iii)(B) of the current rule. Today's proposal corrects the reference. In addition, certain typographical errors in Sec. 72.91(b) (e.g., incomplete reference to ``improved unit efficiency measures'') are corrected. --------------------------------------------------------------------------- 3. The current regulatory provisions concerning heat input reductions due to measures that reduce a unit's heat rate need clarification and revision. A measure that reduces a unit's heat rate may be treated as a supply-side energy conservation measure by another unit or as an improved unit efficiency measure by the unit at which the measure is implemented. Over a given period of time, a number of specific measures may be implemented at a unit to reduce its heat rate. However, these measures may be offset by reductions in generation efficiency at the same unit resulting from other factors, e.g., from the aging or changed operations of the unit. In that case, even though each measure may, in itself, reduce the heat rate of the unit below what the heat rate would otherwise have been, the net effect of all the measures on the unit's heat rate will be less than the sum of the reductions attributed to each measure. It is the net effect of these measures on the unit's heat rate that should be treated as accounting for reduced utilization. Consequently, EPA proposes to add a provision that puts a ceiling on the total heat input reductions that may be claimed for all measures that reduce a given unit's heat rate, whether the measures are treated as energy conservation or improved unit efficiency measures. Under the proposal, the total verified heat input reductions attributed to such measures may not exceed the difference between the kilowatt hour generation attributed to the unit for the calendar year times the difference between the unit's heat rate for 1987 and its heat rate for the calendar year. This ensures that heat input reductions cannot exceed the heat input reductions attributable to net heat rate improvement since the end of the base period (i.e., 1985-1987). Heat rate improvements made up through 1987 are already reflected in the baseline utilization and so cannot be used to account for underutilization of a unit since the base period. See 58 FR 60950, 60961 (November 18, 1993). In light of this ceiling on heat input reductions claimed for energy conservation measures improving generation efficiency (as well as for improved unit efficiency measures), EPA sees no need to burden State utility regulatory authorities with the verification of claimed reductions from this limited category of energy conservation measures. EPA will instead review the verification presented by designated representatives and will compare the claimed heat input reductions to the ceiling. Consequently, EPA proposes to remove the option of verification by State utility regulatory authorities of claimed reductions from energy conservation measures improving generation efficiency. 4. The current rule provides that, if the total verified amount of heat input reductions in the confirmation report differs from the total estimated amount in the annual compliance certification report, the confirmation report must calculate the number of allowances, if any, to be surrendered or returned as a result. EPA maintains that the provision concerning calculation of allowances to be returned needs clarification and revision. a. Under the current rule, if the total verified heat input reductions exceed the total estimated heat input reductions, returned allowances are to be calculated using a specified formula in Sec. 72.91(b)(4) based on the difference between the verified and estimated amounts. Section 72.91(a)(7) sets a limit on the total amount of ``plan reductions'' (i.e., offsets to underutilization that are attributed to energy conservation, improved unit efficiency, sulfur- free generation, and compensating units). A Phase I unit's plan reductions minus any compensating generation that it provides as a compensating unit cannot exceed the Phase I unit's baseline minus its actual utilization. The purpose of this limitation is ``to prevent plan reductions from one Phase I unit from being used to offset the underutilization of another Phase I unit that has no reduced utilization plan.'' 58 FR 60962. This purpose applies equally whether the plan reductions involved reflect estimated offsets from conservation and improved unit efficiency or verified offsets. The confirmation process simply replaces estimated with verified offset amounts and corrects for any differences; it is not intended to allow greater offsets than if the verified offset amounts had been available when the annual compliance certification report was submitted. The simplest way to ensure that designated representatives understand that this limitation applies is to limit the number of allowances that are to be returned to the total number of allowances that were deducted from the unit's Allowance Tracking System account for underutilization based on the annual compliance certification report. EPA proposes to add language (in Sec. 72.91(b)(4)(iv)) setting forth this limitation. To the extent allowances were deducted based on the annual certification report, then those allowances represented underutilization of the unit (i.e., a positive difference between the unit's baseline and its actual utilization after accounting for all offsets). If allowances in excess of the amount of that allowance deduction were returned, then verified offsets from [[Page 68355]] conservation or improved unit efficiency would be used, in effect, to offset some other unit's underutilization. b. Under the current rule, if the total verified offsets are less than the total estimated offsets, surrendered allowances are to be calculated using the absolute value of the formula specified for returning allowances in Sec. 72.91(b)(4). EPA has found that this provision concerning the allowances to be surrendered is not correct in all cases and should be revised. Under Secs. 72.91 and 72.92, allowance surrender is determined initially on a dispatch-system-wide basis so that underutilization of one Phase I unit in the dispatch system may be offset by overutilization of another Phase I unit in that dispatch system. Once it is determined that allowances must be surrendered for the dispatch system, each Phase I unit's share of the surrender is calculated. The approach in the current rule is accurate if the Phase I unit had to surrender allowances based on the annual compliance certification report. In that case, the unit's underutilization was not offset completely by other Phase I units and any overstatement of offsets in the estimates used in the annual compliance certification report must result in additional surrender of allowances by the unit. In contrast, if the Phase I unit did not have to surrender allowances based on the annual compliance certification report, the overstatement of offsets in the estimates could be offset by overutilization of other Phase I units. The provisions of the current Sec. 72.91(b)(5) do not take account of that possibility. EPA proposes to revise Sec. 72.91(b)(5) to correct this problem and ensure that the confirmation process does not result in the surrender of more allowances than if the verified amounts for conservation or improved unit efficiency offsets had been available when the annual compliance certification report was submitted. The revision provides that each Phase I unit that used estimated conservation or improved unit efficiency offsets must recalculate its adjusted utilization using the verified amounts and then that the allowance surrender formula in Sec. 72.92(c) must be reapplied using the recalculated adjusted utilizations. To the extent this results in greater allowance surrender than the surrender based on the annual compliance certification report, the difference must be surrendered. c. Under the current rule, the designated representative must include in the confirmation report calculations of any change in the excess emissions that were previously determined based on the annual compliance certification report. EPA has de [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-31968. Public record. Not legal advice.