Notice of Availability; Alternatives for New Source Review (NSR) Applicability for Major Modifications; Solicitation of Comment

ENVIRONMENTAL PROTECTION AGENCY

[FRL-6128-5]

Notice of Availability; Alternatives for New Source Review (NSR)

Applicability for Major Modifications; Solicitation of Comment

AGENCY: Environmental Protection Agency.

ACTION: Notice of availability.

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SUMMARY: The EPA is soliciting comments on a specific alternative for

determining the applicability of NSR to modifications of major

stationary sources, under the Prevention of Significant Deterioration

(PSD) and the nonattainment provisions of the Clean Air Act (Act). This

alternative would allow any source to legally avoid major NSR review

for a physical or operational change to an existing emissions unit by

taking an enforceable temporary limit on emissions from that unit for a

period of at least 10 years after the change. In addition, the Agency

is seeking comment upon when and under what circumstances permitting

authorities should have to revise the emissions level set under a

plantwide applicability limitation (PAL) for any given source.

DATES: Written comments must be received on or before August 24, 1998.

ADDRESSES: Comments must be identified by the docket number [A-90-37],

and should be submitted (in duplicate, if possible) to: Air and

Radiation Docket and Information Center (6102), Attention Docket Number

A-90-36, Room M-1500, U.S. Environmental Protection Agency, 401 M

Street, S.W., Washington, D.C. 20460. The EPA requests a separate copy

also be sent to the contact person listed below (see FOR FURTHER

INFORMATION CONTACT).

Comments may also be submitted electronically by sending electronic

mail (e-mail) to: [email protected]. Submit comments as an

ASCII file avoiding the use of special characters and any form of

encryption. Comments and data will also be accepted on a diskette in

WordPerfect 5.1 or 6.1 or ASCII file format. Identify all comments and

data in electronic form by docket number A-90-37. No Confidential

Business Information (CBI) should be submitted through e-mail.

Information submitted as a comment concerning this document may be

claimed confidential by marking any part or all of that information as

CBI. Information so marked will not be disclosed except in accordance

with procedures set forth in 40 CFR part 2. A copy of the comment that

does not contain CBI must be submitted for inclusion in the public

record. Information not marked confidential will be included in the

public docket by EPA without prior notice.

FOR FURTHER INFORMATION CONTACT: By mail: David Solomon, Integrated

Implementation Group, Information Transfer and Program Integration

Division, (MD-12), Environmental Protection Agency, Research Triangle

Park, N.C. 27711, telephone 919-541-5375, facsimile 919-541-5509, or e-

mail [email protected]. For information on the section of

this notice addressing PAL's, contact Mike Sewell at the above address,

telephone 919-541-0873, facsimile 919-541-5509, or e-mail

[email protected].

Electronic Availability: Internet

Electronic copies of this document also are available from the EPA

home page at the Federal Register--Environmental Documents entry for

this document under ``Laws and Regulations'' (http://www.epa.gov/

fedrgstr/) or from the Office of Air and Radiation home page at http://

www.epa.gov.ttn/oarpg.

I. Purpose

The first purpose of this notice is to solicit comment from the

interested public on a specific policy option for determining the

applicability of NSR to modifications at existing major stationary

sources. Although this option was one of many proposed in an earlier

Notice of Proposed Rulemaking, EPA now seeks comment on a single

alternative in order to ensure that the public has full opportunity to

evaluate its merit. Second, the Agency is seeking comment on a specific

approach with regard to PAL's. Previously EPA solicited and received

several hundred comments on its NSR reform package proposed in July

1996. The EPA has reviewed and is duly considering these comments. For

purposes of this Notice of Availability, commenters should limit their

remarks to the issues discussed below. Because of the opportunity

provided previously for comment on the NSR Reform items, comments

relating to issues other than those set forth in this Notice will not

be considered.

II. Background

On July 23, 1996, EPA proposed to make significant changes to the

existing major NSR program (``NSR Reform'') [See 61 FR 38249]. In large

part, these proposed changes concern the applicability of the major NSR

requirements to modifications at existing stationary sources. The

Agency solicited comment on a number of methodologies for determining

NSR applicability when a source undergoes a modification [See id. at

38266-70]. As a result of comments received, changed circumstances, and

further review of the issues by the Agency, EPA is seeking further

comment on one particular methodology.

In the same earlier notice, EPA proposed to authorize permitting

authorities to establish facility-specific PAL's based on the source's

historic actual emissions. The Agency solicited public comment on what

circumstances would necessitate revision of PAL limits. Several

commenters suggested that PAL's must be periodically changed to reflect

recent actual emissions. The EPA is also concerned that legal

considerations may require a periodic evaluation of the PAL limit.

III. Applicability Methodology for Modifications to Existing Major

Sources

A. Current NSR Applicability Test for Major Modifications

1. In General

Major NSR--that is, PSD or nonattainment NSR--applies to all

``major modifications.'' A ``major modification'' is ``any physical

change or change in the method of operation of a major stationary

source that would result in a significant net emissions increase of any

pollutant subject to regulation under the Act.'' In other words, major

NSR applies if, as a result of the change, the total emissions from new

and existing emission units at the source, which are otherwise affected

by or part of the change, exceed the current actual emissions of those

units by a significant amount (as defined in the regulations).

1

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\1\ When post-change emissions from a changed unit and all other

affected units are significant, the proposed change at the source

may nevertheless avoid review if, when considering any other

contemporaneous emission increases and decreases at the source, the

net emissions increase is less than significant. The summing of

increases and deceases at a source that are contemporaneous with,

but not resulting from, a proposed change for the purpose of

avoiding NSR is commonly referred to as a ``netting'' analysis. The

alternative discussed in this notice only involves modifications

that do not trigger a netting analysis.

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[[Page 39858]]

Vital, then, to determining NSR applicability is evaluating a

source's ``actual emissions'' both before and after a physical or

operational change to determine whether it constitutes a major

modification. Pre-change actual emissions for the various emissions

units at the source constitute the ``baseline'' for this evaluation.

Under current regulations, the baseline is calculated based on the

average annual emissions during the 2-year period preceding the change

(or, where the permitting authority determines that another period is

more representative of normal source operations, it uses that period).

Eg., 40 CFR 52.21(b)(21)(ii).

Once the baseline is determined it must be compared to emissions

after the change. Since NSR applicability is determined prior to

construction, some projection of post-change emissions must be made for

the comparison. Existing emissions units that are not undergoing, or

otherwise affected by, a physical or operational change are deemed to

have ``begun normal operations,'' and baseline actual emissions are

simply projected forward to the post-change timeframe; thus, these

units fall out of the applicability calculus. Under EPA's current

regulations, post-change actual emissions for units which have ``not

begun normal operations * * * equal the potential to emit (PTE) of the

unit on that date.'' Eg., 40 CFR 52.21(b)(21)(iv). For new units, which

obviously have not begun normal operations, the pre-change baseline is

zero, and the post-change emissions equal the units' PTE. Determining

post-change emissions for existing units that are modified or otherwise

affected by the change can be more complex. The regulatory test for

these situations has come to be known as the ``actual-to-potential''

methodology.

In brief, under the current regulations, changes to a unit at a

major stationary source that are non-routine or not subject to one of

the other major source NSR exemptions are deemed to be of such

significance that pre-change emissions for the affected units should

not be relied on in projecting post-change emissions. For such units,

``normal operations'' are deemed not to have begun following the

change, and are treated like new units. Put another way, the regulatory

provision for units which have ``not begun normal operations'' reflects

an initial presumption that a unit that has undergone a non-routine

physical or operational change will operate at its full capacity year-

round. A source owner or operator may rebut the presumption that the

unit will operate at its full potential by agreeing to limit its PTE

through enforceable restrictions that limit the units' ability to emit

more than their pre-modification actual emissions (plus an amount that

is less than significant''). 2

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\2\ The ``PTE'' is currently defined as the ``maximum capacity

of a stationary source to emit a pollutant under its physical and

operational design.'' Any physical or operational limitation on the

capacity of the source to emit a pollutant, including a permit

limitation, is treated as part of its design provided the limitation

or its effect on emissions is federally enforceable (e.g., see

existing sections 51.165(a)(1)(iii) and 51.166(b)(4)).

In recent decisions, National Mining Ass'n v. EPA, 59 F.3d 1351

(D.C. Cir. 1995) and Chemical Manufacturers Ass'n v. EPA, No. 89-

1514, slip op. (D.C. Cir. Sept. 15, 1995), the District of Columbia

Circuit court addressed challenges related to EPA's requirement that

a source which wishes to limit its PTE must obtain a federally

enforceable limit. The EPA is currently reviewing its Federal

enforceability requirements in light of these court decisions, and

has not yet decided how it will address this issue. Once EPA has

completed its review of the Federal enforceability requirements in

all relevant programs including NSR, the Agency will make available

in a Federal Register notice its response to the court decisions.

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The term ``actual-to-potential'' is somewhat of a misnomer, because

in practice, this methodology involves a determination of future actual

emissions to the atmosphere. That is, source owners and operators

contemplating a modification project assess the likely utilization of

the affected units following the change. If those levels of

utilization, when combined with the hourly emissions rates (and

contemporaneous emissions increases and decreases elsewhere at the

plant), would result in future actual emissions significantly higher

than the pre-change baseline, the owner or operator must obtain a major

NSR permit. If the owner or operator projects that future actual

emissions will not significantly exceed the baseline, the owner or

operator instead obtains a minor NSR permit or other device that

legally limits the affected units' emissions to a level that is not

significantly above baseline. The end result under this second scenario

are individual limits on the emissions of the new, modified, and

affected units which assures that net emissions at the plant will not

significantly increase as a result of the change. Nevertheless, the

owner or operator is always free to change plans in the future. If, for

example, a new assessment indicates that it would be economically

useful to utilize the affected units at levels that would exceed the

established limits, the owner or operator may obtain a major NSR permit

at that future time. See e.g., 40 CFR 52.21(r)(4).

The practical workings of the current regulations, as described

above, have long been controversial. Industry representatives maintain

that the ``actual-to-potential'' methodology results in

``confiscation'' of unused plant capacity following a modification

project. Environmental groups respond that plant capacity unaffected by

the modification project can continue to be used at any desired level

of utilization (subject to any prior limits on that use), and that any

constraints are imposed appropriately, i.e., only where the utilization

of pre-existing plant capacity is likely to be affected by the

modification project in a way that will significantly increase actual

emissions over baseline emissions.

2. Litigation Over the Actual-to-Potential Test

Because the presumption discussed above forces sources whose post-

change potential emissions exceed their pre-change actual emissions to

undergo NSR or take a limit on the affected units' potential emissions,

industry has, as noted, long objected to the Agency's use of the

``actual-to-potential'' methodology for existing units undergoing a

non-routine change. The EPA's interpretation of its regulations

consequently has been at issue in two cases, Puerto Rican Cement Co. v.

EPA, 889 F.2d 292 (1st Cir. 1989), and Wisconsin Electric Power Co. v.

Reilly, 893 F.2d 901 (7th Cir. 1990) (``WEPCO''). Specifically, each of

these cases addressed whether the Agency acted reasonably in treating

units which had undergone a non-routine physical or operational change

as not having ``begun normal operations.''

In Puerto Rican Cement, the court found reasonable EPA's

presumption that a physical or operational change (in this case, the

conversion of a cement plant from a wet process to a more efficient dry

process) could enable a modified unit to be used at a higher capacity

than prior to the change, and endorsed the Agency's use of the actual-

to-potential test in such circumstances. See 889 F.2d at 297. In

particular, the court noted that the company ``operated its old kilns

at low levels in the past; its new, more efficient kiln might give it

the economic ability to increase production; consequently, EPA could

plausibly fear an increase in actual emissions. * * *'' Id. at 298.

By contrast, in WEPCO, the court held that EPA acted unreasonably

in applying the actual-to-potential methodology in the case of WEPCO's

[[Page 39859]]

life-extension project, in which WEPCO sought to replace numerous

components of the steam generating units at the facility. The court

objected to EPA's refusal to consider the past operating conditions of

a source in evaluating the likely post-change emissions. It coined the

term ``like-kind replacement,'' and ruled that the application of the

actual-to-potential test to like-kind replacements of components of an

existing emissions unit was not a reasonable interpretation of the

regulations. Accordingly, upon remand from the court, EPA assessed the

changes at WEPCO based on a comparison of its pre-change actual

emissions and its predicted post-change actual emissions. This approach

has come to be known as the ``actual-to-future-actual'' methodology.

3. Electric Utility Steam Generating Units

In July 1992, the Agency promulgated limited amendments to the

existing major NSR regulations, in part to respond to the WEPCO

decision. The ``WEPCO rule'' extended a different applicability test--

an actual-to-future-actual approach--solely to electric utility steam

generating units.3 Under this new system, a utility unit's

pre-change actual emissions are compared to its post-change

``representative actual emissions,'' defined as ``the average rate, in

tons per year, at which the source is projected to emit a pollutant for

the 2-year period after a physical change or change in the method of

operation of a unit. * * *'' To guard against the possibility that

significant unreviewed increases in actual emissions would occur under

this methodology, the regulations provide that sources with utility

units using the actual-to-future-actual approach must submit to the

permitting authority sufficient records annually for 5 years after the

change which demonstrate that the change has not resulted in an

increase above the baseline levels.

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\3\ For NSR purposes, the definition of ``electric utility steam

generating unit'' means any steam electric generating unit that is

constructed for the purpose of supplying more than one-third of its

potential electric output capacity and more than 25 MW electrical

output to any utility power distribution system for sale. Any steam

supplied to a steam distribution system for the purpose of providing

steam to a steam-electric generator that would produce electrical

energy for sale is also considered in determining the electrical

energy output capacity of the affected facility. See e.g., 40 CFR

52.21(b)(31). References in this notice to utility units is meant to

include all units covered by this definition.

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Under EPA's regulations, unless a change ``results in'' an increase

in actual emissions, it need not undergo major NSR. In the WEPCO rule,

the Agency attempted to define a situation in which EPA would assume

that there was no causal link between a post-change emissions increase

and a particular physical change or change in the method of operation

for electric utility steam generating units. The EPA reasoned that

increased utilization due to demand growth at a utility unit did not

result from particular physical or operational changes, but rather from

market forces unrelated to the change. Consequently, the regulations

now provide that, in projecting future actual emissions, electric

utility steam generating units may exclude from the estimate any

emission increase which results from increased capacity utilization as

a consequence of ``independent factors,'' such as demand growth.

The WEPCO rule applies only to the modification of existing

electric utility steam generating units for several reasons. The Agency

noted that local public utility commissions (PUC) require utility

sources to make reliable estimates of future capacity utilization, and

that utilities' historic experience in doing so would make the

application of an actual-to-future-actual methodology reasonable for

utility units. In addition, EPA concluded that its past regulatory

experience with the electric utility industry, especially the

requirement from title IV of the Act that generators install highly

accurate monitoring, made units in the electric power industry more

amenable to the sophisticated tracking essential to make sure that the

future actual emission predictions of a source are accurate. The Agency

committed to consider in a different rulemaking the propriety of

extending the actual-to-future-actual methodology to other source

categories.

4. Proposal to Change NSR Applicability

In the July 1996 NSR Reform package, EPA proposed, among other

things, to expand the use of the actual-to-future-actual approach. The

Agency noted that, in general, sources potentially subject to major NSR

would be required to install highly accurate monitoring devices under

other provisions of the Act. Consequently, such sources could be

similar to the utility units that currently are permitted to use an

actual-to-future-actual test. Nonetheless, other industries also differ

from the electric power sector insofar as electric utilities are the

only sources whose estimates of demand and capacity utilization are

subjected to independent review and have been historically limited to a

clearly defined local market area. The Agency reasoned that permitting

authorities, thus, could rely upon the predictions of post-change

utilization in the electric power sector more comfortably than in other

industries. To ensure the reliability of future predictions for non-

utility units, EPA solicited comment on the adequacy of the current 5-

year tracking requirement (which requires sources to report annually

their emissions to the permitting authority for 5 years) and sought

suggestions for improving it.4

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\4\ As a result of the NSR Reform proposal, the Agency received

comment from certain non-utility industrial stakeholders who claimed

that the flexibility given to utilities in the WEPCO rule was not

limited to the utility sector. Specifically, these commenters argued

that sources generally were entitled to employ the actual-to-future-

actual methodology for many physical or operational changes, because

the changes were not of such significance (such as ``like-kind''

replacements) that it could reasonably be claimed that the source

had ``not begun normal operations.'' The EPA disagrees with the

commenters.

The NSR regulations contain only two applicability tests for

modified units. One of these, the actual-to-future-actual approach,

is limited to electric utility steam generating units. See, e.g., 40

CFR section 51.165(a)(1)(xii)(E). The other alternative is the

actual-to-potential methodology, applicable when the source has

``not begun normal operations.'' This approach applies to all

changes at major sources that are not otherwise excluded from being

considered a physical or operational change, such as routine

maintenance, repair, and replacement. Under the current rules,

therefore, it is improper for a non-utility source to employ

anything but an actual-to-potential test for examining physical or

operational changes.

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B. Comments Received and Changed Circumstances

In weighing the desirability of expanding the actual-to-future-

actual test to other source categories, EPA has considered a number of

issues. First, are there principled reasons for treating non-electric

utility sources differently? Second, have intervening events or further

reflection called into question any of the bases upon which the Agency

relied in adopting the test, and are changes therefore necessary?

In the prior NPRM, the Agency specifically solicited comment on

whether sufficient safeguards exist such that other industries should

be able to take advantage of the actual-to-future-actual methodology.

The EPA received several public comments (see EPA Air Docket A-90-37)

claiming that non-utility units are situated similarly enough to

utility units that it makes sense to extend the actual-to-future-actual

test beyond the limited scope of electric steam generating units to

other sectors. These commenters observed that the Act's monitoring

requirements, as embodied in the Compliance Assurance Monitoring rule

and its title V reporting and recordkeeping requirements, both would

ensure that sources' future actual emission predictions would be

verifiable. See,

[[Page 39860]]

e.g., comments IV-D-112 and -121. In addition, commenters noted that

other industry sectors routinely project market demand and,

consequently, capacity utilization, and these commenters argued that

such predictions are as reliable as those submitted to PUCs by electric

companies. See, e.g., comment IV-D-146. Taken together, these comments

suggest to EPA that the actual-to-future-actual test should be expanded

beyond utility units. However, the Agency also received a number of

comments that recommended limiting the methodology to utility units,

reasoning that there still exists a disparity between utility and non-

utility units in terms of their ability to predict and track their

future emissions accurately. See, e.g., comments IV-D-109 and -125.

Given these divergent views, EPA again requests comment upon the

adequacy of existing emission projection and tracking capabilities at

non-utility industrial sources for purposes of applying the actual-to-

future-actual test.

Notwithstanding strong support from industry for the expansion of

the actual-to-future-actual test, EPA believes that its experience with

the methodology gives cause for caution in continuing this test in its

present form. The regulations provide that sources with utility units

employing the actual-to-future-actual approach must maintain and submit

to the permitting authority ``information demonstrating that the

physical or operational change did not result in an emissions

increase'' for a 5-year period. However, the rules do not specifically

detail either the means for conducting such verification or the

consequences of a source's failure to meet its projected emissions

level. For example, since the issuance of the WEPCO rule, it appears

that although there are a substantial number of changes to existing

units, as well as an increase in the amount of electricity being

generated for use outside of the local service district, changes to

utility units as well as post-change emissions estimates are not being

reported to permitting agencies.

Moreover, the Agency is concerned that a 5-year overview of

emissions is too short a period to encompass all increases in capacity

utilization that could result from a particular change. As EPA noted in

the NSR Reform proposal's discussion of the baseline for establishing

pre-change actual emissions, see 61 FR at 38258, numerous industry

commenters claim that 10 years is a fair and representative time period

for encompassing a source's normal business cycle, and in the Reform

proposal EPA has proposed to adopt a 10-year lookback period for

establishing pre-change baseline emissions. If EPA ultimately

promulgates a 10-year period for baseline purposes, the rationale for

doing so would suggest that 10 years is likewise appropriate for

tracking future actual emissions after a change. Accordingly, the

Agency requested comment on extending and/or strengthening the existing

5-year tracking requirement for future actual emissions. See id. at

38268.

One particular circumstance where EPA has been dissatisfied with

the WEPCO rule is in the exclusion of demand growth from predictions of

utility units' future actual emissions. The Agency's promulgation of

the WEPCO rule represented a departure from longstanding practice under

which emissions increases that followed non-routine and otherwise

nonexempt changes at a source were presumed to result from the change.

At the time, EPA believed that there was a way to disassociate utility

units' post-change emission increases which would have otherwise

occurred due to demand growth as a purely independent factor from those

that resulted directly from the physical or operational change. The EPA

has reconsidered that departure, and has tentatively concluded that its

1992 departure is not appropriate and should not be continued, both as

a general matter and especially in view of recent developments in the

electric power sector.

The EPA's experience leads to the conclusion that sources generally

make non-routine physical or operational changes which are substantial

enough that they might trigger NSR in order to increase reliability,

lower operating costs, or improve operational characteristics of the

unit and do so in order that they may improve their market position. A

proximate cause for making such changes may be to respond to increased

demand, or to more efficiently compete for share of a market that has

flat, or even decreasing, demand. For these reasons, EPA now seriously

questions whether market demand should ever be viewed as a significant

factor in answering the relevant regulatory question of whether an

emissions increase results from a physical or operational change at an

existing source, since in a market economy, all changes in

utilization--and hence, emissions--might be characterized as a response

to market demand. Accordingly, a conclusion that an emissions increase

at a plant is in response to market demand does little to determine

whether the increase results from a change at the plant; an affirmative

answer to the first question is consistent with an affirmative answer

to the latter.

The generation of electricity is currently being transformed from a

highly regulated monopoly to a competitive market. More than a dozen

states are implementing retail electricity competition where consumers

may choose their electricity supplier, and most remaining states have

such policies under consideration. Moreover, the Administration in

March 1998 proposed a Comprehensive Electricity Competition Plan in

order to facilitate more competitive electricity markets and several

similar proposals have been introduced in Congress.

As the electricity industry is restructured, generation planning

decisions will be made not by state public utility commissions, but by

the forces of a competitive market. State utility regulators are

therefore eliminating requirements for electric companies to report

generation-related information such as projections of future capacity

utilization. Consequently, with respect to the electric power industry

in particular, even accepting the viability of the 1992 decisionmaking

framework, attempting to discern whether increased utilization and

emissions should be attributed to physical or operational changes

versus purely independent demand-satisfying increased capacity

utilization will be much more difficult in the future, as restructuring

in the electric power industry allows electric generating companies to

compete for retail customers. As a result, the marketplace will drive

electric generators to function as any other consumer-driven industry,

that is, to ensure their ability to supply the market and collaterally

to increase their revenues. In addition, as utilities respond to a

competitive market for the generation of electric power they can no

longer be expected to accurately predict their level of operations and

post-change emissions. Each physical or operational change that makes

it possible for a source to efficiently increase its level of

utilization, then, will likely be pursued and turned into electricity

for sale. One can therefore predict that any physical or operational

change will result in an emissions increase to the extent that there is

market demand for additional power.

For the same reason that the demand growth exclusion would ignore

the realities of a deregulated electric power sector, EPA believes that

it should not be extended to non-utility units. For consumer-driven

industries, demand is inextricably intertwined with changes that

improve a source's ability to utilize

[[Page 39861]]

its capacity; thus, it cannot be said that demand growth is an

``independent factor,'' separable from a given physical or operational

change. Modifications which affect operational characteristics of a

unit are not made without reason, and the most likely reason for an

economically competitive source to undertake such changes is to enable

it to create or respond to increased demand.5 In short,

there is a direct causal link between most physical or operational

changes that enable a source to use existing capacity and the use of

such capacity.

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\5\ The EPA believes that the rulemaking record for NSR Reform

supports the conclusion that market demand and source modifications

are highly intertwined. Industrial commenters generally were

strongly supportive, for instance, of the concept of PAL's. Many

industrial interests argued that PAL's, because they allow changes

at existing facilities to occur without NSR so long as an emission

cap is maintained, are needed in order to give companies flexibility

to make physical or operational changes quickly to maintain or

acquire a competitive advantage in an ever changing global

marketplace. The Agency believes that these claims regarding PAL's

do not support the argument that changes at facilities are

independent from market demand. Rather, they illustrate that sources

frequently undertake modifications to enable them better to compete

in an open market.

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In addition, the demand growth exclusion is problematic because it

is self-implementing and self-policing. Because there is no specific

test available for determining whether an emissions increase indeed

results from an independent factor such as demand growth, versus

factors relating to the change at the unit, each company with a utility

unit presently adopts its own interpretation. Interpretations may vary

from source to source, as well as from what a permitting agency would

accept as appropriate. Moreover, such companies are not necessarily

required to provide their interpretation of demand growth-related

emissions to the permitting agency. Thus, with minimal, if any,

explanation, a source may merely deduct the emissions increases it

believes are attributable to demand growth from the total emissions

data its supplies to the permitting agency demonstrating that it is

below its projected future actuals. Vesting such unrestricted

discretion in the regulated entity inevitably leads to enforcement

problems.

Finally, the demand growth exclusion may make less sense in the

near future in view of the fact that, as proposed in the NSR Reform

package, the Agency is considering adopting a regulatory provision that

bases the calculation of pre-change actual emissions upon a source's

highest capacity utilization in the past ten years. If an emission unit

undergoes a physical or operational change, or is affected by such

change, and the source projects utilization in excess of its historical

high in the preceding ten years, such utilization is likely not

attributable to market variability (which is accounted for by a 10-year

baseline), but rather results from the change itself.

C. NSR Applicability Test for All Major Modifications

1. In General

The EPA is presently considering, and by this Notice is seeking

comment upon, amending the current applicability test for modifications

of electric steam generating units and extending it to all source

categories. Specifically, the major modification applicability

methodology would be to retain the actual-to-future-actual component

for utility units and apply it to all source categories, to make

enforceable for a 10-year period emissions levels used by the source in

projecting future actual emissions for all source categories, and

eliminate the demand growth exclusion for all source categories.

The way that the methodology would work in practice is that owners

or operators of units which undergo a non-routine physical or

operational change will determine the applicability of NSR solely by

reference to actual emissions. First, owners or operators must

determine which emissions units are being changed or may be affected by

the change, then calculate each unit's baseline actual emissions (EPA

has proposed at 61 FR 38258-60 to allow sources generally to set their

baseline in reliance on the highest emissions in the past ten years

adjusted to reflect current emission factors). Second, post-change

actual emissions from the affected units must be forecast. The sum of

the pre-change actual emissions is then compared to the sum of the

post-change actual emissions. If the difference between these two

figures exceeds the significance threshold for a pollutant, major NSR

is triggered (unless the source is otherwise able to net the change out

of review).6 If the difference is less than significant, the

source avoids major NSR. In the latter case, for each unit that is

changed or affected by the change, the source must incorporate that

unit's future emissions projection into a temporary, practically and

legally enforceable condition of a preconstruction permit (most likely

a minor NSR permit). The limit must apply for at least 10 years after

the source recommences normal operation of the affected

unit.7 EPA believes that a source would not purposefully

modify a unit and then not use it at its intended capacity for 10 years

merely to avoid major NSR permitting. Therefore, EPA believes 10 years

represents a realistic period for applying an enforceable temporary

emission limit. By adhering to such a limit, the source demonstrates to

the permitting authority that the physical or operational change did

not result in a significant emission increase. Consequently, subsequent

to the expiration of the limit, EPA will presume that any increases in

capacity utilization and emissions are not the result of the physical

or operational change that necessitated the temporary

limit.8 Finally, source owners or operators may not exclude

predicted capacity utilization increases due to demand growth from

their predictions of future emissions.

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\6\ Although the source may still avoid major NSR by netting out

of review, the actual-to-enforceable-future-actual test would not

apply in calculating the increase from the proposed change or any

other emissions level for use in the netting analysis. Post change

emissions for netting purposes would continue to equal potential

emissions.

\7\ Units that have a temporary limit may subsequently undergo

or be affected by a modification. In such cases a new temporary

limit of at least 10 years will need to be established.

\8\ This limit is solely for the purpose of demonstrating that

the physical change or change in the method of operation did not

result in a significant emission increase. The imposition or

expiration of this limit does not relieve the source of its

obligation to comply with all requirements otherwise applicable to

the unit.

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Underlying this new approach is an attempt to mitigate the concerns

raised by industry that the actual-to-potential methodology unfairly

ignores past operation of a unit and assumes that it will operate at

full capacity following a non-routine change. At the same time, the

methodology addresses environmental groups' legitimate claims that

sources who seek to avoid review based on projected actual emissions

must also be prepared to be accountable for adhering to those

projections. Finally, the test recognizes that in a market economy,

sources often make physical or operational changes in order to respond

to market forces and, consequently, there is no plausible distinction

between emissions increases due solely to demand growth as an

independent factor and those changes at a source that respond to, or

create new, demand growth which then result in increased capacity

utilization.

This temporary emissions cap approach also address certain

compliance assurance and enforcement concerns. Specifically, under the

current regulations, a company need not discuss its determination that

projected future emissions from a utility unit will be below a certain

level with a permitting agency prior to undertaking

[[Page 39862]]

the modification. Rather, it merely needs to supply ``information''

demonstrating that the future actual emissions did not exceed the

significance level for the 5-year period following the modification.

Thus, a permitting agency is unable to determine if the change will

result in an emissions increase and require a major NSR permit before

construction at the utility unit; it can only examine data submitted

after-the-fact by the source. The NSR program, however, is a pre-

construction program that requires an applicability determination prior

to commencing construction to avoid equity-in-the-ground issues and

retroactive control technology costs.

2. Limitations on Methodology and Solicitation of Comments

It is important to recognize the limited nature of the proposed

methodology. The actual-to-enforceable-future-actual test would not

apply when determining an emission level (i.e., increase or decrease)

for use in a netting analysis or for the purpose of complying with any

major NSR permitting requirement, such as BACT, LAER, offsets or an

ambient air impact analysis. Specifically, the test would apply only to

modifications to existing units for the sole purpose of determining if

a proposed change to that unit, or a change at the facility which

otherwise would affect the unit, will result in an emissions increase

at the source. New units have no operating history upon which a

reliable prediction of future utilization can be made. Thus, under the

regulations, such units have not ``begun normal operations,'' and

permitting authorities must assess NSR applicability based on the new

unit's potential emissions. In addition, the Agency seeks comment on

the appropriateness of applying an actual-to-enforceable-future-actual

test where a physical or operational change increases the design

capacity or PTE of a given unit. Such changes result in alternative

modes of operation (and emissions levels) which are not currently

achievable in practice for the unit. In such circumstances, the unit's

past utilization arguably is a poor proxy for its future operation and,

therefore, ``normal operations'' are impossible to identify.

Furthermore, emissions levels which can not be achieved in practice but

for a physical or operation change are clearly connected to the change.

Consequently, the Agency is seeking comment on whether any increase in

emissions resulting from a mode of operation which could only have been

achieved through a physical or operational change must be presumed to

have resulted from the change, even if such increase were to occur

later than ten years after the change.

IV. Adjustments of PAL's

A. Background

1. Introduction

In the July 23, 1996 Reform package, EPA proposed a new method for

determining major NSR applicability for existing sources in attainment

or unclassifiable areas and existing and proposed sources in

nonattainment areas. Under this proposal, an existing major source, if

the State's SIP provides, may apply for a permit which bases the

source's major NSR applicability on a pollutant-specific plantwide

emissions cap, termed a PAL. The EPA proposed that a facility's

allowable emissions under a PAL would generally be based on plantwide

``actual emissions'', as that term would be defined under the proposal,

plus an additional amount of emissions less than the applicable

significant emissions rate. The voluntary 9 source-specific

PAL is a straightforward, flexible approach to determining whether

changes at existing major stationary sources result in emissions

increases which trigger major NSR. So long as source activities do not

result in emissions above the cap level, the source will not be subject

to major NSR. It also contains proposed regulatory language for PAL's

for the PSD rules at 40 CFR 51.166 and 52.21, and the nonattainment NSR

rules at 51.165. The July 23, 1996 proposal contains a thorough

discussion of the proposed PAL concept and the background information

used to develop the proposal.

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\9\ This Notice uses the term ``voluntary'' to mean not required

by the regulations or a SIP, rather than not enforceable by a State,

local, or Federal agency or the public.

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B. PAL Advantages

The EPA has determined that the voluntary source-specific PAL is a

practical method to provide both flexibility and regulatory certainty

to many existing sources, as well as benefits to permitting

authorities, while maintaining air quality. For example, PAL's provide

the ability to make timely changes to react to market demand, certainty

regarding the level of emissions at which a stationary source will be

required to undergo major NSR, and a decreased permitting burden for

the source and the permitting authority. In addition, because a source

with a PAL will have more flexibility to make reductions to create room

for growth, PAL's should lead to innovative control technologies,

pollution prevention and emissions reductions concurrent with economic

expansion.

C. PAL Adjustment Issues

The EPA proposed that PAL's, once included in a permit, may be

adjusted for a number of reasons. In particular, the Agency solicited

``comment on why, how, and when a PAL should be lowered or increased

without being subject to major NSR.'' 61 FR at 38266. Moreover, the

rule language permitting PAL's provides for periodic adjustment to

reflect, among other things, ``appropriate considerations.'' See id. at

38327.

The need for adjustments would arise in a number of scenarios: (1)

Where technical errors have been made; (2) when new requirements apply

to the PAL pollutant, such as RACT, NSPS or SIP-required reductions;

10 (3) where emissions reductions below PAL levels are used

for offsets; (4) for permanent shutdowns where the State has the

authority to remove permanent shutdowns from the emissions inventory

after a certain time period; and (5) when any changes (though

consistent with the PAL) might cause or contribute to a violation of

any NAAQS or PSD increment or would have an adverse impact on air

quality related values.

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\10\ In the July 1996 NSR Reform package, EPA proposed that

emissions reductions of HAP to meet MACT at emissions units under a

PAL would generally not necessitate a downward adjustment to the PAL

because the PAL is not designed to limit HAP. However, if MACT

reductions are relied on in the SIP (e.g., VOC reductions in

nonattainment areas used for RFP or attainment demonstrations) then

the PAL rules would require adjustment downward. This position is

consistent with EPA's policy that emissions reductions from meeting

MACT requirements are generally not precluded from being creditable

for NSR netting provided the reductions are otherwise creditable

under major NSR. The EPA is concerned that the benefits of HAP

reductions to meet MACT at units under the PAL may be diminished

since the HAP reduction may be used indefinitely, rather than for a

shorter contemporaneous time period, to add new or modified units

under the PAL. Therefore, EPA is seeking additional comment on the

proposal to not adjust PAL's for MACT purposes.

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The EPA received many comments regarding the appropriate

considerations for PAL adjustment. Based on these comments and further

deliberation, EPA is considering whether it is appropriate to

reevaluate PAL levels and adjust them to reflect actual emissions to

address legal concerns associated with the Court's decision in Alabama

Power Co. v Costle, 636 F.2d 323 (D.C. Cir. 1979) and because of

environmental policy reasons.

1. Legal Concerns

As stated, where a facility with a PAL adds a new emitting unit or

modifies an

[[Page 39863]]

existing unit, the unit would not undergo major NSR (nonattainment or

PSD) if the PAL is not exceeded. That is, if the source generates

sufficient emission reductions, it may add equivalent emission

increases up to the PAL level without triggering NSR.

Under present regulations, a source that adds or modifies a unit

that would result in a significant emissions increase may ``net'' that

particular change out of review if the new emission increase plus the

sum of all other contemporaneous increases and decreases elsewhere at

the source are less than significant. When the netting calculus is

triggered (that is, there is a significant emission increase as a

result of the addition of a new unit or the modification of an existing

unit), the source must also consider those emission increases and

decreases that have occurred at the facility during a

``contemporaneous'' period. In the federal PSD regulations, this period

is 5 years. See 40 CFR section 52.21(b)(3)(ii). States implementing the

PSD program or the nonattainment program under an EPA-approved SIP may

define a different reasonable contemporaneous period.

The current regulations' requirement of contemporaneity derives

from the interpretation of the Act's provisions governing modifications

set forth in Alabama Power Co. v. Costle. In that case, the court held

that EPA's 1978 regulations limiting netting to a less than plantwide

scope conflicted with the language and purpose of the Act and ruled

that EPA must permit sources to net on a plantwide basis. According to

the court, plantwide netting was implicit in the statutory term

``modification'' and the purposes of the Act. At the same time that it

required EPA to expand the scope of the netting concept, the court also

interpreted the statute as imposing a limit on plantwide netting:

contemporaneity. The court stated, ``[t]he Agency retains substantial

discretion in applying the bubble concept. First, any offset changes

claimed by industry must be substantially contemporaneous. The Agency

has discretion, within reason, to define which changes are

substantially contemporaneous.'' Id. at 402; see also id. at 403

(``Where there is no net increase from contemporaneous changes within a

source, we hold that PSD review, whether procedural or substantive,

cannot apply.''). Thereafter, EPA codified contemporaneity as a

regulatory requirement. See 45 FR 52676, 52700-02 (August 7, 1980).

As stated, EPA solicited comment on what ``appropriate

considerations'' might necessitate revisions to the PAL allowable

level. Having again reviewed Alabama Power and the Agency's subsequent

interpretations of the case, the Agency is concerned that, because

PAL's may be characterized as a form of netting and result in the

avoidance of major NSR, the contemporaneity requirement for netting set

forth in Alabama Power may also need to be applied to PAL's. Therefore,

EPA is soliciting comment on whether and when to provide for subsequent

adjustment of PAL's to address contemporaneity issues associated with

Alabama Power.

2. Environmental Concerns

Several commenters encouraged the Agency to provide for periodic

revision to the PAL allowable level to reflect a source's actual

emissions in recent years. In the main, these commenters represented

State pollution control agencies, the entities which will be charged

with implementing individual PAL's. See, e.g., comments IV-D-52 and -

137. Based on these comments and internal deliberations, the Agency is

considering several options that would provide for periodic

reevaluation of PAL levels to ensure that they reflect actual emissions

and maintain or enhance environmental protection.

Under the current major NSR regulations, emissions decreases are

creditable only if they are contemporaneous with a prospective

modification project that would, standing alone, increase emissions at

the source. The EPA is soliciting comment on whether the PAL

alternative to traditional major NSR applicability can achieve

equivalent or better environmental results, while employing a different

approach.

The EPA believes that there are a number of policy reasons why the

final PAL rules might provide for periodic reassessment and adjustment

of PAL levels. First, as a general matter, a PAL operates as a form of

allowable-to-allowable test, insofar as a source may avoid major NSR

review if its emissions after a particular construction activity do not

exceed the pre-change allowables. Of course, under the proposed rules

PAL's would ensure that the allowable emissions are based on historic

actual emissions. Nevertheless, as an allowable-to-allowable scheme,

PAL's raise some of the same concerns as did the CMA Exhibit B test

discussed in the NSR Reform preamble. Specifically, absent a

requirement for periodic adjustment the PAL would allow a source to

indefinitely keep, rather than eventually forfeit to the environment,

emission reductions at the source, such as those achieved by the

replacement of existing, and often higher-polluting, equipment with

more efficient, and thus lower-polluting, equipment.

Second, a rule which provides for the periodic review of PAL's may

ensure that individual sources do not indefinitely retain unused

emissions credits to the detriment of other sources in the area wishing

to use them. For example, where a State treats sources' PAL allowable

levels as ``actual'' emissions, a rule which in some instances requires

a downward adjustment of PAL's will therefore reduce the area's

inventory of actual emissions. Such adjustments would ``free up'' a

portion of the PSD increments in attainment areas for use by other

sources in the area.

Third, an indefinite PAL may hinder a State's ability to plan

effectively for attainment. If a State does its attainment planning

based exclusively on source's actual emissions to the atmosphere, and

does not treat a PAL allowable limit as the PAL source's ``actual''

emissions, then an emission credit created long in the past may

reappear in the future as real emissions to the air, without being part

of the State's attainment planning. For example, if a PAL-covered

source replaces an oil boiler today with a more modern and efficient

gas turbine and the State, in its next inventory, calculates the

source's emissions at the new lower level, then bases its attainment

planning on the assumption that the source will continue to emit at the

lower level, the State may not meet its attainment goals (or, perhaps,

fall out of attainment) if the PAL source decides to utilize its full

PAL allowable at some point in the future.

V. PAL Review and Adjustment Options

The EPA is seeking comment on how the PAL concept can be reconciled

with the legal and environmental policy concerns articulated above.

Specifically, the Agency solicits input on the usefulness of a number

of different options for periodically reviewing PAL allowable levels

and on whether such options adequately address the legal issues

associated with Alabama Power and environmental concerns posed by the

long-term retention of unused allowable emissions.

It should be noted that EPA has not made a final decision on the

frequency of a permitting authority's review of a PAL or the

methodology used to establish a PAL baseline. The Agency is giving

serious thought to 10 years as an approach. Therefore, the options

discussed in this Notice assume a PAL with a term of 10 years with the

PAL baseline established using the highest 1

[[Page 39864]]

year in the last ten years of historical emissions for the source. The

Agency solicits comment on the appropriateness of reviewing PAL levels

every 10 years and whether another period is more reasonable.

The EPA is considering several options to periodically revisit the

appropriate PAL emission level. First, permitting authorities may

adjust the PAL to account for emissions reductions from permitted units

under the PAL that are shutdown or dismantled and the associated

emission reductions remain unused for a period of at least 10 years.

Second, the PAL may be reevaluated to account for emissions reductions

where an emissions unit under the PAL operated for at least 10 years

below the capacity level for that unit which was used to establish the

previous PAL level. Third, the Agency is considering an option that

would require PAL's to expire after 10 years or be renewed to reflect

current actual emissions. Finally, EPA is soliciting comment on whether

it is appropriate to adjust a PAL downward at all where all of the

emission units subject to the PAL have good controls already in place

(i.e., BACT, LAER) or where a source voluntarily implemented pollution

prevention strategies which resulted in emissions reductions. The

following discussion sets forth additional information on each of the

PAL adjustment options.

A. PAL Adjustments for Shutdown or Dismantled Units

The first situation in which a downward PAL adjustment might be

warranted is where emission reductions resulted from emission units

under the PAL that were shutdown or dismantled. A shutdown unit would

be one that the source did not operate at all during the 10-year life

of the existing PAL. A dismantled unit would be one that was removed

prior to the establishment of the current PAL level and the emissions

capacity associated with such unit was not used by the source for ten

years. Thus, the PAL level would be adjusted to remove only those

emissions that could have potentially been emitted from any shutdown or

dismantled units. The PAL would not be adjusted downward if the source

had utilized those emission reductions from the shutdown or dismantled

units elsewhere at the source (e.g., added new units or capacity or

increased capacity utilization at existing units) during the period

since the unit shut down or was removed. Nor would the PAL be adjusted

downward due to underutilization of any units still in operation to any

extent under the PAL.

For example, an initial PAL set in the year 2000 includes 600 tpy

of VOC from unit A; unit A is shutdown in 2005. Periodic review occurs

in 2010. In 2010, because unit A was used during the ten years prior to

readjustment, the adjusted PAL level would assume that unit A was still

operating. If by 2020, the next periodic review, the 600 tpy of

emissions associated with the shutdown was not used by the source to

make changes, the PAL level would be adjusted downward by 600 tpy.

However, if between 2010 and 2020 the source used a portion of the

shutdown emissions to add new units or make modifications under the

PAL, then the PAL would be adjusted downward only for the emissions

that remain unused.

The EPA believes that the periodic downward adjustment of PAL's for

the failure to use emissions associated with shutdown or dismantled

units is appropriate for air quality planning purposes. However, EPA is

concerned that it may be difficult to determine whether an emissions

increase under the PAL relied upon previous decreases at a shutdown or

dismantled unit as opposed to other activities at the source. The

Agency solicits comment on whether limiting the PAL adjustment to the

situation of shutdown or dismantled units addresses the legal and

policy concerns raised above and welcomes comments and suggestions on

how to implement an adjustment option that would adjust downward only

for those emissions from shutdown or dismantled units which the source

failed to utilize for 10 years.

B. PAL Adjustments for Unused Capacity

The EPA is also considering periodic adjustments to a PAL where the

emissions units under the PAL operate for a period of ten years below

the capacity used initially to establish the PAL. The adjustment would

be based on a review of the utilization of all emission units used to

establish the PAL baseline, not just those that were shutdown or

dismantled. Under this option, and in the example below, PAL adjustment

would be based on the highest capacity utilization of each unit during

any 12 month period in the past 10 years. Alternatively, EPA also

solicits comment on whether the PAL adjustment should be based on the

highest capacity utilization at the entire source during a single 12-

month period within the past 10 years.

The following example illustrates how an initial review of the PAL

and subsequent adjustments to the PAL could be handled under this

option. As an example, unit A had operated at 80 percent during a 12-

month period in the ten years prior to initial PAL establishment in

2000. In 2005, the source lowers unit A's utilization from 80 percent

to 5 percent. At PAL review in 2010, because unit A's utilization in

the past ten years (e.g., 2004) had reached 80 percent, the adjusted

PAL level would assume a capacity utilization no lower than 80 percent.

Under the alternative to this option the PAL adjustment would be based

on the highest capacity for all units at the source during a single 12-

month period within the past 10 years. If year 2005 is chosen as the

single 12-month period for capacity review then the adjusted PAL level

for unit A would assume a capacity utilization of 5 percent.

Where PAL's are adjusted because of long-term underutilization of

capacity, EPA is also considering and seeking comments on the following

alternatives and safeguards to ensure that an operating cushion exists:

(1) Including in the adjusted PAL level an operating cushion that

equals a fixed percentage (e.g., 10 percent, 15 percent, or 20 percent)

of the current PAL, provided the adjusted PAL level does not exceed the

current PAL level; (2) requiring no PAL adjustment due to

underutilization of capacity if the emissions under the PAL are within

a fixed percentage (e.g., 10 percent, 15 percent or 20 percent) of the

current PAL baseline; (3) adjusting the PAL downward for unused

capacity, but limit the potential downward PAL adjustment to a fixed

percentage (e.g., 10 percent) of the current PAL level; and (4) re-

setting the PAL as though it were being set initially (e.g., plantwide

actual emissions plus an operating margin lower than the applicable

significance threshold). The Agency seeks comment on whether these

safeguards, if included in the final regulations, would both preserve

sources' operational flexibility and address the specific legal and

policy concerns raised above.

C. Capacity Adjustments for PAL Expiration and Renewal

The EPA is seeking comment on an option where the PAL expires as a

major NSR applicability test for subsequent new units or subsequent

modifications unless the source decides to renew the PAL. Under this

option, a PAL would expire after ten years. When it expires, the PAL

ceases to serve as the emissions baseline against which all source

additions and modifications are measured for purposes of major NSR

applicability. Instead, a source must revert to the traditional netting

analysis to determine major NSR applicability for new or modified

units.

[[Page 39865]]

At the time of PAL expiration, the source would choose either to

re-establish the PAL for the entire facility after the expiration of

the initial 10-year term or to allow it to expire. The source could

also re-establish a PAL at some later date. If the renewal option is

chosen by the source, the PAL baseline would be adjusted to reflect

actual operating conditions and emissions for the 10 years prior to

renewal, consistent with the procedures for setting a PAL. If the

source elects not to renew the PAL, then subsequent new units and

subsequent modifications are subject to the traditional netting

analysis to determine major NSR applicability for those units. In

addition, where the source elects not to renew the PAL for major NSR

applicability purposes, the former PAL allowable limit would still

remain in effect as an enforceable limit on total allowable emissions

for those units previously covered under the PAL, notwithstanding its

expiration as an applicability test.

The units previously subject to the PAL would remain free to

increase emissions up to the former allowable PAL level, provided the

increase is not the result of a physical or operational change at the

source. The source retains the option to: (1) Reestablish an expired

PAL to avoid major NSR for any subsequent physical or operational

change at the source that is consistent with the reestablished PAL

level, or (2) not to reestablish the PAL for the facility and process

any new unit as a modification under the traditional major NSR

applicability criteria to determine if a significant net emissions

increase will result. In the latter case, emissions increases and

decreases which have occurred during the term of the PAL as an

applicability trigger would not count for netting purposes.

As an example, assume that in the year 2000 a source with five

units establishes a PAL of 1000 tpy of pollutant X based on actual

operations and emissions from the prior 10 years. During the period

from 2000-2010 the source modifies three existing units and constructs

two new units (Units 6 and 7), but within those 10 years operates the

facility so as only to emit 700 tons of X per year. In 2010, the PAL

(as an alternative applicability test for major NSR) must expire. If

the source chooses to re-establish the PAL, based on the last 10 years

of actual operating data the PAL baseline would be adjusted downward to

reflect the 700 tpy level. The source could choose to continue the PAL

at the adjusted 700 tpy level, or let the current PAL lapse for

applicability purposes. If the source lets the PAL lapse, the original

1000 tpy cap would still remain for Units 1-7 to ensure that physical

and operational changes which occurred during the life of the PAL do

not result in actual emission increases that exceed the 1000 tpy cap

without being subject to major NSR.

Suppose further that the PAL is not renewed and that in 2014, the

actual plantwide emissions of pollutant X were 800 tpy, the highest

actual emissions level for the previous ten years and that, in 2015,

the source proposes to construct a new Unit 8 that emits 200 tpy of

pollutant X. New Unit 8 would otherwise be subject to the traditional

major NSR applicability test. The previous 1000 tpy PAL lapsed in 2010

and cannot include new units since 2010. As an alternative, the source

may avoid major NSR for the new unit by establishing a new PAL at 800

tpy and include the new unit consistent with the newly established 800

tpy limit. In addition, once the PAL limit expires as a major NSR

applicability limit compliance with the PAL as an allowable limit would

still be required.

The EPA believes that the foregoing option provides sufficient

flexibility to a source because it maintains the ability of the source

to operate the units previously covered under the PAL at their full

rated capacity. Additionally, it allows a source to add new units after

the expiration of the PAL in accordance with the traditional NSR

applicability determination, including the establishment of a new PAL

at such time as it may be advantageous to the source to do so.

Nevertheless, EPA solicits comment on whether this option sufficiently

addresses the legal and policy concerns associated with PAL

adjustments.

D. PAL Adjustments Where Sources Implement Good Controls or Pollution

Prevention Initiatives

The EPA is also seeking comment on whether it is appropriate to

adjust a PAL downward, even where unused capacity exists, if all of the

emissions units subject to the PAL already have good controls in place

(e.g, BACT, LAER), the source has installed innovative controls, or if

the source created the emission reductions using pollution prevention

strategies. The EPA believes that sources which voluntarily achieve

emissions reductions through the installation of good and/or innovative

controls throughout the facility or through pollution prevention

initiatives should be encouraged to do so. By the terms ``good''

controls and ``innovative'' technology the Agency is referring to the

types of controls and technology discussed previously in the July 1996

NSR Reform proposal for the ``clean unit'' and ``clean facility''

exclusion and undemonstrated control technology, respectively. See 61

FR at 38255 and 38281 (July 23, 1996). Additionally, the types of

pollution prevention activities that would qualify are those consistent

with the activities described in the July 1996 proposal and previous

EPA policies. In light of the Agency's prior guidance and discussions

concerning good controls, innovative technology, and pollution

prevention initiatives, EPA seeks comment on whether the terms ``good

controls'', ``innovative controls'', and ``pollution prevention

initiatives'' are appropriately used and clearly defined for purposes

of this option.

To require a PAL adjustment under these circumstances could create

a disincentive to engage in these initiatives. However, this option

raises certain enforcement concerns for the Agency. In particular,

without additional clarification it may be difficult to determine if an

emissions unit has good controls, utilizes innovative technology, or

has reduced emissions because of pollution prevention initiatives, as

opposed to other factors. Furthermore, EPA is concerned that if there

is ambiguity about the meaning of these terms the public, sources, and

permitting agencies may disagree about whether PAL adjustment is

needed. Notwithstanding the Agency's interest in promoting innovative

and voluntary pollution control and prevention initiatives, EPA does

not believe voluntary emissions reductions achieved through the

implementation of good controls, innovative technology and pollution

prevention initiatives should necessarily relieve the source from other

regulatory requirements. Accordingly, EPA seeks comment on these

concerns as well as the types of circumstances that might be

appropriate for a source that engages in innovative and positive

environmental stewardship to avoid any downward adjustment to its PAL.

The EPA also solicits comments on whether and how the policy and legal

concerns set forth in this notice concerning PAL adjustments for

sources which utilize innovative or good technology or engage in

pollution prevention initiatives could otherwise be addressed.

Finally, given the flexibility and significant opportunities to

utilize emissions reductions under the options described in this

Notice, EPA solicits comment on whether additional PAL adjustment

considerations are appropriate.

[[Page 39866]]

Dated: July 16, 1998.

Richard D. Wilson,

Acting Assistant Administrator.

[FR Doc. 98-19832 Filed 7-23-98; 8:45 am]

BILLING CODE 6560-50-P